EXHIBIT 10.1

 

 

MASTER LEASE

 

Dated as of June 30, 2003

 

 

among

 

 

MANDALAY RESORT GROUP,
MANDALAY CORP.,
RAMPARTS, INC.,
NEW CASTLE CORP., AND
CIRCUS CIRCUS CASINOS, INC.,
as Lessees,

 

 

and

 

 

WELLS FARGO BANK NORTHWEST, NATIONAL ASSOCIATION,
not in its individual capacity, but solely as Trustee under the
Trust Agreement
dated as of June 30, 2003,
as Lessor

 

 

MANDALAY 2003 — A Lease Financing

 

 

This Master Lease has been executed in several counterparts.  To the extent, if
any, that this Master Lease constitutes chattel paper (as such term is defined
in the Uniform Commercial Code as in effect in any applicable jurisdiction), no
lien on this Master Lease (or any Lease Supplement relating hereto) may be
created through the transfer or possession of any counterpart other than the
original counterpart containing the receipt therefor executed by Collateral
Agent on or following the signature page hereof (or thereof).

 

This counterpart is not the original counterpart.

 

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TABLE OF CONTENTS

 

SECTION

 

HEADING

 

 

 

ARTICLE I

 

DEFINITIONS

 

 

 

Section 1.1.

 

Definitions; Interpretation

 

 

 

ARTICLE II

 

LEASE OF EQUIPMENT; LEASE TERM

 

 

 

Section 2.1.

 

Acceptance and Lease of the Equipment

Section 2.2.

 

Acceptance Procedure

Section 2.3.

 

Lease Term

Section 2.4.

 

Title

Section 2.5.

 

Personal Property

 

 

 

ARTICLE III

 

PAYMENT OF RENT

 

 

 

Section 3.1.

 

Rent

Section 3.2.

 

Payment of Basic Rent

Section 3.3.

 

Supplemental Rent

Section 3.4

 

Method of Payment

 

 

 

ARTICLE IV

 

QUIET ENJOYMENT; RIGHT TO INSPECT

 

 

 

Section 4.1.

 

Non-Interference

Section 4.2.

 

Inspection and Reports

 

 

 

ARTICLE V

 

NET LEASE, ETC.

 

 

 

Section 5.1.

 

Net Lease

Section 5.2.

 

No Termination or Abatement

 

 

 

ARTICLE VI

 

SUBLEASES

 

 

 

Section 6.1.

 

Subleases

 

 

 

ARTICLE VII

 

LESSEE ACKNOWLEDGMENTS

 

 

 

Section 7.1.

 

Condition of the Equipment

Section 7.2.

 

Risk of Loss

Section 7.3.

 

Certain Duties and Responsibilities of Lessor

 

 

 

ARTICLE VIII

 

POSSESSION AND USE OF THE EQUIPMENT, ETC.

 

 

 

Section 8.1.

 

Possession and Use of the Equipment

Section 8.2.

 

Compliance with Requirements of Law and Insurance Requirements

 

 

 

ARTICLE IX

 

MAINTENANCE AND REPAIR; REPORTS; PERSONNEL

 

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Section 9.1.

 

Maintenance and Repair

Section 9.2.

 

Maintenance and Repair Reports

 

 

 

ARTICLE X

 

MODIFICATIONS, SUBSTITUTIONS, ETC.

 

 

 

Section 10.1.

 

Alterations and Modifications

Section 10.2.

 

Title to Modifications

Section 10.3.

 

Optional Equipment Substitutions

 

 

 

ARTICLE XI

 

COVENANTS WITH RESPECT TO LIENS

 

 

 

Section 11.1.

 

Covenants with Respect to Liens

 

 

 

ARTICLE XII

 

PERMITTED CONTESTS

 

 

 

Section 12.1.

 

Permitted Contests in Respect of Applicable Laws

 

 

 

ARTICLE XIII

 

INSURANCE

 

 

 

Section 13.1.

 

Required Coverages

Section 13.2.

 

Insurance Coverage

Section 13.3.

 

Delivery of Insurance Certificates

Section 13.4.

 

Insurance by Lessor, Collateral Agent or any Lender

 

 

 

ARTICLE XIV

 

CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS

 

 

 

Section 14.1.

 

Casualty

Section 14.2.

 

Environmental Matters

Section 14.3.

 

Notice of Environmental Matters

 

 

 

ARTICLE XV

 

TERMINATION OF LEASE

 

 

 

Section 15.1.

 

Termination upon Certain Events

Section 15.2.

 

Termination Procedures

 

 

 

ARTICLE XVI

 

EVENTS OF DEFAULT

 

 

 

Section 16.1.

 

Lease Events of Default

Section 16.2.

 

Remedies

Section 16.3.

 

Waiver of Certain Rights

Section 16.4.

 

Power of Attorney

Section 16.5.

 

Grant of Security Interest

 

 

 

ARTICLE XVII

 

RIGHT TO CURE

 

 

 

Section 17.1.

 

Lessor’s Right to Cure Lessee’s Lease Defaults

 

 

 

ARTICLE XVIII

 

PURCHASE PROVISIONS

 

 

 

Section 18.1.

 

Early Termination Option; Prepayment of Rent in Respect of the Tranche B Lease
Balance

 

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Section 18.2.

 

Acceleration of Equipment Purchase

 

 

 

ARTICLE XIX

 

END OF LEASE TERM

 

 

 

Section 19.1.

 

End of Lease Term

 

 

 

ARTICLE XX

 

[RESERVED]

 

 

 

ARTICLE XXI

 

PROCEDURES RELATING TO PURCHASE OF EQUIPMENT

 

 

 

Section 21.1.

 

Provisions Relating to Conveyance of the Equipment Upon Purchase by Lessees or
Certain Other Events

 

 

 

ARTICLE XXII

 

ACCEPTANCE OF SURRENDER

 

 

 

Section 22.1.

 

Acceptance of Surrender

 

 

 

ARTICLE XXIII

 

NO MERGER OF TITLE

 

 

 

Section 23.1.

 

No Merger of Title

 

 

 

ARTICLE XXIV

 

INTENT OF THE PARTIES

 

 

 

Section 24.1.

 

Nature of Transaction

 

 

 

ARTICLE XXV

 

MISCELLANEOUS

 

 

 

Section 25.1.

 

Survival; Severability; Etc

Section 25.2.

 

Amendments and Modifications

Section 25.3.

 

No Waiver

Section 25.4.

 

Notices

Section 25.5.

 

Successors and Assigns

Section 25.6.

 

Headings and Table of Contents

Section 25.7.

 

Counterparts

Section 25.8.

 

Governing Law

Section 25.9.

 

Highest Lawful Rate

Section 25.10.

 

Original Lease

Section 25.11.

 

Limitations on Recourse

 

 

 

EXHIBITS

 

 

 

 

 

EXHIBIT A

—

Description of the Facilities

EXHIBIT B

—

Form of Lease Supplement

 

 

 

SCHEDULE

 

 

 

 

 

SCHEDULE I

—

Amortization Component of Basic Rent

 

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Master Lease

 

This Master Lease (this “Lease”), dated as of June 30, 2003, among Wells Fargo
Bank Northwest, National Association, not in its individual capacity, but solely
as Trustee under the Trust Agreement dated as of June 30, 2003, having its
principal office at 299 South Main Street, Salt Lake City, Utah 84111, as
Lessor, and Mandalay Resort Group, a Nevada corporation, Mandalay Corp., a
Nevada corporation, Ramparts, Inc., a Nevada corporation, New Castle Corp., a
Nevada corporation, and Circus Circus Casinos, Inc., a Nevada corporation, as
Lessees.

 

WITNESSETH:

 

Whereas, on each Advance Date, Lessor, using amounts funded by the Lenders, will
acquire certain Equipment from various Sellers thereof.  The Equipment is more
particularly described on Schedule I to each Lease Supplement.

 

Whereas, upon the purchase of the Equipment by Lessor on each Advance Date,
Lessor will lease such Equipment to Lessee and Lessee will lease such Equipment
from Lessor pursuant to the terms of this Lease and one or more Lease
Supplements, each such Lease Supplement being substantially in the form of
Exhibit B hereto, upon the terms and conditions hereinafter set forth.

 

Now, Therefore, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

Article I

 

Definitions

 

Section 1.1.                           Definitions; Interpretation.  For all
purposes hereof, the capitalized terms used herein and not otherwise defined
shall have the meanings assigned thereto in Appendix 1 to that certain
Participation Agreement dated as of even date herewith, among Lessees; Mandalay
and its Subsidiaries listed on Schedule I thereto, as Guarantors; Lessor, not in
its individual capacity, except as expressly stated therein, but solely as
Trustee; the Persons named on Schedule III thereto, as Lenders; and Wells Fargo
Bank Nevada, National Association, not in its individual capacity, except as
expressly stated therein, but solely as Collateral Agent (the “Participation
Agreement”); and the rules of interpretation set forth in Appendix 1 to the
Participation Agreement shall apply to this Lease.  All obligations imposed on
“Lessee” or “Lessees” in this Lease, and any Lease Supplement to which any
Lessee is party, shall be the full recourse, joint and several liability of all
Lessees in accordance with Section 10.20 of the Participation Agreement.

 

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Article II

 

Lease of Equipment; Lease Term

 

Section 2.1.                           Acceptance and Lease of the Equipment. 
Lessor, subject to the satisfaction or waiver of the conditions set forth in
Article II of the Participation Agreement, hereby agrees to purchase the
Equipment, to accept delivery of the Equipment and to lease all of Lessor’s
interest in the Equipment to Lessees hereunder.  Lessees hereby agree, expressly
for the direct benefit of Lessor, to lease the Equipment from Lessor for the
Lease Term.

 

Section 2.2.                           Acceptance Procedure.  Lessees hereby
agree that acceptance of delivery by Lessees of this Lease and one or more Lease
Supplements (in the form of Exhibit B, appropriately completed) with respect to
the Equipment to be accepted and leased by Lessees hereunder shall, without
further act, constitute the irrevocable acceptance by Lessees of such Equipment
for all purposes of this Lease and the other Operative Documents on and subject
to the terms set forth herein and therein and Lessees’ agreement to lease such
Equipment during the Lease Term subject to the terms of this Lease and the other
Operative Documents.

 

Section 2.3.                           Lease Term.  Unless earlier terminated in
accordance herewith and with the other Operative Documents, the term of this
Lease shall commence on and include the Closing Date and end on but shall not
include the fifth (5th) anniversary of the Closing Date (such term being
referred to as the “Lease Term”).

 

Section 2.4.                           Title.  The Equipment is leased to
Lessees without any representation or warranty, express or implied, by Lessor
and subject to the rights of parties in possession, the existing state of title
with respect thereto (including all Liens other than Lessor Liens) and all
Applicable Laws and Requirements of Law and any violations thereof.  No Lessee
shall have any recourse against Lessor for any defect in or exception to title
to any of the Equipment other than any defect or exception resulting from Lessor
Liens or a breach by Lessor of its obligations under Article XXI.

 

Section 2.5.                           Personal Property.  To the maximum extent
permitted by Applicable Laws, the parties hereto agree that the Equipment and
any Modifications shall constitute personal property and shall not be or become
fixtures or otherwise part of any real property (including any Facility) or, if
any of the Equipment shall be or become fixtures, Lessees shall execute and
deliver such documents and instruments (including the documentation described in
Section 2.4(b)(viii) of the Participation Agreement) and take or authorize the
taking of such action to perfect and/or maintain at all relevant times a
perfected first priority Lien in favor of Lessor in and to any and all such
Equipment and to provide Lessor and Collateral Agent customary access rights
with respect thereto.  No Lessee shall enter into or be a party to any lease or
mortgage of any real property on which any portion of the Equipment is or is to
be located or enter into any other agreement which grants to any Person any
right to any portion of the Equipment by reason of such portion being an
accession to any real property owned by such Person to the extent such lease or
mortgage would constitute a Lien that is not a Permitted Lien.

 

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Article III

 

Payment of Rent

 

Section 3.1.                           Rent.  (a)  During the Lease Term,
Lessees, jointly and severally, shall pay (i) the interest component of Basic
Rent on each Payment Date and on any date on which this Lease shall terminate
with respect to any Equipment and (ii) the principal component of Basic Rent on
each Payment Date set forth on Schedule I hereto.

 

(b)                                 Basic Rent shall be due and payable in
lawful money of the United States of America and shall be paid in accordance
with Section 3.3 of the Participation Agreement on the due date therefor.

 

(c)                                  Any Lessee’s inability or failure to take
possession of all or any portion of the Equipment when accepted or deemed
accepted hereunder, whether or not attributable to any act or omission of any
Lessee or any act or omission of Lessor or any other Person, shall not delay or
otherwise affect Lessees’ obligation to pay Rent in accordance with and subject
to the terms of this Lease, including the provisions for early termination
hereof.

 

Section 3.2.                           Payment of Basic Rent.  Basic Rent shall
be paid absolutely net to Lessor, so that this Lease shall yield to Lessor the
full amount thereof, without setoff, deduction or reduction.

 

Section 3.3.                           Supplemental Rent.  Lessees, jointly and
severally, shall pay to Lessor or the Person entitled thereto any and all
Supplemental Rent promptly as the same shall become due and payable, and if
Lessees fail to pay any Supplemental Rent, Lessor shall have all rights, powers
and remedies provided for herein or by law or equity or otherwise in the case of
nonpayment of Basic Rent.  Lessees, jointly and severally, shall pay to Lessor,
as Supplemental Rent, among other things, on demand, to the extent permitted by
Applicable Laws and all Requirements of Law, interest at the Applicable Default
Rate on any installment of Basic Rent not paid when due for the period for which
the same shall be overdue and on any payment of Supplemental Rent payable to
Lessor or any Indemnitee not paid when due or demanded pursuant to and in
accordance with the terms hereof and the other Operative Documents by Lessor or
any Indemnitee for the period from the due date or the date of any such demand,
as the case may be, until the same shall be paid.  The expiration or other
termination of Lessees’ obligations to pay Basic Rent hereunder shall not limit
or modify the obligations of Lessees with respect to Supplemental Rent.  Unless
expressly provided otherwise in this Lease, in the event of any failure on the
part of Lessees to pay and discharge any Supplemental Rent as and when due,
Lessees shall also promptly pay and discharge any fine, penalty, interest or
cost which may be assessed or added under any agreement with a third party for
nonpayment or late payment of such Supplemental Rent, all of which shall also
constitute Supplemental Rent.

 

Section 3.4.                           Method of Payment.  Each payment of Rent
and other amounts owing pursuant to the Operative Documents shall be made by
Agent Lessee to Collateral Agent prior to 10:00 a.m., Nevada time, to the
account of Collateral Agent designated on Schedule IV to the Participation
Agreement (or in the case of Excluded Amounts, directly to the Person entitled

 

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thereto) in funds consisting of lawful currency of the United States of America
which shall be immediately available on the scheduled date when such payment
shall be due, unless such scheduled date shall not be a Business Day, in which
case such payment shall be made on the next succeeding Business Day unless the
result of such extension would be to carry the date of such payment into another
calendar month, in which case such payment shall be made on the immediately
preceding Business Day.  Payments received after 10:00 a.m., Nevada time, on the
date due shall for the purpose of Section 16.1 hereof be deemed received on such
day; provided, however, that for the purposes of the second sentence of
Section 3.3 hereof, such payments shall be deemed received on the next
succeeding Business Day and subject to interest at the Applicable Default Rate
as provided in such Section 3.3.

 

Article IV

 

Quiet Enjoyment; Right to Inspect

 

Section 4.1.                           Non-Interference.  Subject to Lessor’s
cure rights, as provided for in Section 17.1, Lessor covenants that it will not
interfere with any Lessee’s use or possession of the Equipment during the Lease
Term, so long as no Event of Default has occurred and is continuing, it being
agreed that Lessee’s remedies for breach of the foregoing covenant shall be
limited to a claim for damages or the commencement of proceedings to enjoin such
breach.  Such right is independent of and shall not affect Lessees’ obligations
hereunder and under the other Operative Documents or Lessor’s rights otherwise
to initiate legal action to enforce the obligations of Lessees under this
Lease.  The foregoing covenant shall not require Lessor to take any action
contrary to, or which would permit any Lessee to use any of the Equipment for a
use not permitted under, the provisions of this Lease.

 

Section 4.2.                           Inspection and Reports.  (a)  Upon two
(2) Business Days’ prior notice (unless an Event of Default has occurred and is
continuing) to Agent Lessee, Lessor, Lenders or their respective authorized
representatives (the “Inspecting Parties”) may inspect (i) any Facility and the
Equipment and (ii) the books and records of Lessees relating to the Equipment
and may make copies and abstracts therefrom and may discuss the affairs, finance
and accounts with respect to the Equipment with any Lessee’s officers.  All such
inspections shall be during the applicable Lessee’s normal business hours
(unless an Event of Default has occurred and is existing), shall be subject to
such Lessee’s customary safety and security provisions, shall be conducted in
compliance with any applicable Gaming Laws and shall be at the expense and risk
(unless an Event of Default has occurred and is continuing) of the Inspecting
Parties, except that if an Event of Default has occurred and is continuing,
Lessees shall reimburse the Inspecting Parties for the reasonable costs of such
inspections and, except for the Inspecting Party’s gross negligence or willful
misconduct, such inspection shall be at Lessees’ risk.  No inspection shall
unreasonably interfere with any applicable Lessee’s operations.  None of the
Inspecting Parties shall have any duty to make any such inspection or inquiry. 
None of the Inspecting Parties shall incur any liability or obligation by reason
of making any such inspection or inquiry unless and to the extent such
Inspecting Party causes damage to the applicable Equipment or any property of
any applicable Lessee or any other Person during the course of such inspection.

 

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(b)                                 To the extent permissible under Applicable
Laws, Lessees shall prepare and file in timely fashion, or, where Lessor shall
be required to file, Lessees shall prepare and make available to Lessor within a
reasonable time prior to the date for filing and Lessor shall file, any reports
with respect to the condition or operation of any Equipment that shall be
required to be filed with any Governmental Agency.

 

Article V

 

Net Lease, Etc.

 

Section 5.1.                           Net Lease.  This Lease shall constitute a
net lease and Lessees’ obligations to pay all Rent shall be absolute and
unconditional under any and all circumstances.  Any present or future law to the
contrary notwithstanding, this Lease shall not terminate, nor shall any Lessee
be entitled to any abatement, suspension, deferment, reduction, setoff,
counterclaim, or defense with respect to any Rent, nor shall the obligations of
any Lessee hereunder be affected (except as expressly herein permitted and by
performance of the obligations in connection therewith), by reason of:  (i) any
defect in the condition, merchantability, design, construction, quality or
fitness for use of the Equipment or any part thereof, or the failure of any of
the Equipment to comply with all Applicable Laws and Requirements of Law,
including any inability to use any of the Equipment by reason of such
non-compliance; (ii) except as provided in Section 14.1 with respect to the
adjustment of Basic Rent upon payment of any Casualty Amount, any damage to,
removal, abandonment, salvage, loss, contamination of, or Release from,
demolition, scrapping or destruction of or any requisition or taking of any
Facility or any of the Equipment or any part thereof; (iii) any restriction,
prevention, interruption or curtailment of or interference with any use,
operation or possession of any Facility or any of the Equipment; (iv) any defect
in title to, interests in or rights to any of the Equipment or any Lien on such
title, interests or rights or on any Facility or any of the Equipment (provided,
that the foregoing shall not relieve any Person from its responsibility to
remove Lessor Liens attributable to it); (v) any change, waiver, extension,
indulgence or other action or omission or breach in respect of any obligation or
liability of or by Lessor, Collateral Agent or any Lender; (vi) to the fullest
extent permitted by Applicable Laws, any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to any Lessee, Guarantor, Lessor, Collateral Agent, any Lender or any
other Person, or any action taken with respect to this Lease by any trustee or
receiver of any Lessee, Lessor, Collateral Agent, any Lender or any other
Person, or by any court, in any such proceeding; (vii) any claim that any Lessee
has or might have against any Person, including any Lender, or any vendor,
designer, manufacturer, or contractor of or for any of the Equipment; (viii) any
failure on the part of Lessor to perform or comply with any of the terms of this
Lease, of any other Operative Document or of any other agreement; (ix) any
invalidity or unenforceability or illegality or disaffirmance of this Lease
against or by any Lessee or any provision hereof or any of the other Operative
Documents or any provision of any thereof; (x) any impossibility or illegality
of performance by any Lessee, Lessor or any one or more of them; (xi) any action
by any court, administrative agency or other Governmental Agency; (xii) any
restriction, prevention or curtailment of or interference with the use of any
Facility or the Equipment or any part thereof; (xiii) any failure of any Lessee
to achieve any accounting or tax benefits or the characterization of the
transaction intended by the parties as set forth at Section 24.1 hereof and
Section 4.1 of the Participation Agreement; or

 

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(xiv) any other cause or circumstances whether similar or dissimilar to the
foregoing and whether or not any Lessee shall have notice or knowledge of any of
the foregoing.  Each Lessee’s agreement in the preceding sentence shall not
affect any claim, action or right such Lessee may have against any Person.  The
parties to the Operative Documents intend that the obligations of Lessees
hereunder shall be covenants and agreements that are separate and independent
from any obligations of Lessor hereunder or under any other Operative Documents
and the obligations of Lessees shall continue unaffected unless such obligations
shall have been modified or terminated in accordance with an express provision
of this Lease.

 

Section 5.2.                           No Termination or Abatement.  Each Lessee
shall remain obligated under this Lease in accordance with its terms and the
terms of the other Operative Documents and shall not take any action to
terminate, rescind or avoid this Lease (except as provided herein) to the
fullest extent permitted by Applicable Laws, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, Collateral Agent or any Lender, or any action with
respect to this Lease which may be taken by any trustee, receiver or liquidator
of Lessor, Collateral Agent or any Lender or by any court with respect to
Lessor, Collateral Agent or any Lender.  Each Lessee hereby waives, to the
extent permitted by Applicable Laws, all right to terminate or surrender this
Lease (except as provided herein) or to avail itself of any abatement,
suspension, deferment, reduction, setoff, counterclaim or defense with respect
to any Rent.  Each Lessee shall remain obligated under this Lease in accordance
with its terms and the terms of the other Operative Documents and each Lessee
hereby waives, to the extent permitted by Applicable Laws, any and all rights
now or hereafter conferred by statute or otherwise to modify or to avoid strict
compliance with its obligations under this Lease.  Notwithstanding any such
statute or otherwise, Lessees, jointly and severally, shall be bound by all of
the terms and conditions contained in this Lease.

 

Article VI

 

Subleases

 

Section 6.1.                           Subleases.  Except for subleases
permitted by this Article VI, no Lessee shall have the right to assign, mortgage
or pledge to any Person, including an Affiliate of any Lessee or Mandalay, at
any time, in whole or in part, any of its right, title or interest in, to or
under this Lease, or any portion of the Equipment, in any case without the prior
written consent of the Required Lenders (which consent may be withheld in the
sole discretion of the Lenders), and any such assignment, mortgage or pledge
shall be void.  Notwithstanding the foregoing, any Lessee may, without the
consent of Lessor or the Required Lenders and so long as no Event of Default
exists and is continuing, enter into a sublease of all of its rights and
obligations under this Lease with a wholly-owned, direct or indirect, 
Subsidiary of Mandalay.

 

With respect to any sublease permitted under this Article VI, no Lessee shall
sublease any interest with respect to this Lease to, or permit any such sublease
by, any Person who shall then be engaged in any proceedings for relief under any
Debtor Relief Law.  The sublease for any Equipment subject to a sublease
permitted under this Article VI must provide (and the relevant Lessee shall
assure) that such Equipment shall be used and operated only at one of the
Facilities or, in the case of Slot Machines, at a casino or other gaming
establishment operated by

 

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Mandalay or any of its Affiliates; provided that with respect to any such
sublease of Slot Machines at a location other than a Facility, Lessees shall
have executed and delivered, or caused to be executed and delivered, to Lessor
and Collateral Agent, any and all such documents as Trustee and/or Collateral
Agent may reasonably require in order to create, perfect, preserve and protect
Lessor’s Lien in such Sublease and Slot Machines and ensure Lessor’s and
Collateral Agent’s access to such Slot Machines.  The Lessees shall not permit
any sublessee to engage in activities in respect of the Equipment which are
substantially different from Lessees’ activities.

 

No sublease permitted hereunder will (a) discharge or diminish any Lessee’s or
any Guarantor’s obligations under any Operative Document, including Lessees’
obligations under this Lease or under any other Operative Document, and Lessees
shall remain directly and primarily liable under this Lease and the other
Operative Documents with respect to all of the Equipment or (b) extend beyond
the last day of the Lease Term.  In addition, each sublease permitted hereby
(x) shall be made and shall expressly provide that it is subject and subordinate
to this Lease and the rights of Lessor hereunder and the rights of the
Collateral Agent as secured party under the Loan Agreement, (y) shall expressly
provide for the surrender of the Equipment subleased by the applicable sublessee
at the election of Lessor after the occurrence and continuance of an Event of
Default, and (z) shall expressly prohibit any further sublease by such sublessee
of the Equipment subject thereto or the granting or existence of any Liens on
the Equipment subject thereto.  The effectiveness of a sublease hereunder shall
be conditioned upon the receipt by Lessor of a writing executed by Lessee, the
applicable sublessee and Guarantors, and acceptable in form and substance to
Lessor (acting at the direction of the Required Lenders) (each, a “Sublease”),
reaffirming that Lessees and Guarantors shall remain primarily liable hereunder
and under the other Operative Documents, notwithstanding such Sublease and
confirming that the applicable Lessee will serve as the representative of any
such sublessee with the authority, on behalf of such sublessee, to bind such
sublessee with respect to the Operative Documents or any amendment, modification
or waiver thereunder and shall have the power and authority to receive and give
all notifications, consents, payments and deliveries under this Lease and the
other Operative Documents.  No Lessee shall assign or pledge any of its rights
under any Sublease to any Person other than Lessor or Collateral Agent for the
benefit of the Lenders.

 

Agent Lessee shall give Lessor prompt written notice of any Sublease permitted
under this Article VI, and Agent Lessee shall, within fifteen (15) days after
execution of any Sublease, deliver to Lessor the fully executed original of such
Sublease and any and all other documents and instruments as Lessor (acting at
the direction of the Required Lenders) may reasonably require.

 

Article VII

 

Lessee Acknowledgments

 

Section 7.1.               Condition of the Equipment.  Each Lessee acknowledges
and agrees that although Lessor will own and hold legal title to the Equipment,
Lessees, jointly and severally, are responsible (a) for the selection of the
Equipment, each part thereof and the manufacturer thereof and the terms and
conditions relating to the manufacture, purchase and shipment thereof, (b) for
the design, size, capacity,

 

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development, budgeting, construction, shipment, installation, testing and
placement in service of the Equipment, and (c) any alterations or modifications
and all activities conducted in connection therewith.  Each Lessee acknowledges
and agrees that Lessor is not the manufacturer of the Equipment or any part
thereof nor is it a dealer in property of such kind.  Each Lessee further
acknowledges and agrees that it is leasing the Equipment “as is” without
representation, warranty or covenant (express or implied) by Lessor, Collateral
Agent or any of the Lenders and in each case subject to (a) the existing state
of title (including the interests of any seller or any other person having an
interest in the Equipment, but excluding lessor liens), (b) the rights of any
parties in possession thereof and any such person’s successors, assigns,
invitees, licensees, lessees, sublessees or any other persons claiming by or
through any such person, (c) any state of facts which an accurate physical
inspection might show, and (d) violations of requirements of law which may exist
on the date hereof or on the delivery date for the Equipment.  None of Lessor,
Collateral Agent or any of the Lenders has made or shall be deemed to have made
any representation, warranty or covenant (express or implied) or shall be deemed
to have any liability whatsoever as to the title (other than for lessor liens),
merchantability, value, habitability, use, condition, design, operation, or
fitness for use for any purpose of any of the Equipment (or any part thereof),
the ability of any of the Equipment to perform any function, or any other
representation, warranty or covenant whatsoever, express or implied, with
respect to any of the Equipment (or any part thereof), and none of Lessor,
Collateral Agent or any of the Lenders shall be liable for any latent, hidden,
or patent defect therein (other than for Lessor liens) or the failure of any of
the Equipment or any part thereof, to comply with any requirement of law.  Each
Lessee has been afforded full opportunity to inspect the Equipment to be leased
by it hereunder, is satisfied with the results of its inspections, is satisfied
that all such Equipment is suitable for its purposes and is entering into this
Lease solely on the basis of the results of its own inspections, and all risks
incident to the matters discussed in the preceding sentence, as between Lessor,
the Collateral Agent and the Lenders, on the one hand, and such Lessee, on the
other, are to be borne by such Lessee unless herein expressly stated otherwise. 
The provisions of this Section 7.1 have been negotiated, and, except to the
extent otherwise expressly stated, the foregoing provisions are intended to be a
complete exclusion and negation of any representations or warranties by any of
Lessor, Collateral Agent or the Lenders, express or implied, with respect to the
Equipment (or any interest therein), that may arise pursuant to any law now or
hereafter in effect or otherwise.

 

Section 7.2.                           Risk of Loss.  The risk of loss of or
decrease in the enjoyment and beneficial use of the Equipment as a result of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise is assumed by Lessees, and Lessor shall in no event be
answerable or accountable therefor.

 

Section 7.3.                           Certain Duties and Responsibilities of
Lessor.  Lessor undertakes to perform such duties and only such duties as are
specifically set forth herein and in the other Operative Documents, and no
implied covenants or obligations shall be read into this Lease

 

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against Lessor, and Lessor agrees that it shall not, nor shall it have a duty
to, manage, control, use, sell, maintain, insure, register, lease, operate,
modify, dispose of or otherwise deal with the Equipment or any other part of the
Trust Estate in any manner whatsoever, except as required by the terms of the
Operative Documents and as otherwise provided herein.

 

Article VIII

 

Possession and Use of the Equipment, Etc.

 

Section 8.1.                           Possession and Use of the Equipment. 
Lessees may take possession of the Equipment and may use the same beginning on
the Closing Date and continuing thereafter during the Lease Term.  Lessees agree
that, unless otherwise then subject to a Sublease permitted under Section 6.1,
the Equipment will be used solely in the conduct of Lessees’ business at one or
more of the Facilities or, in the case of Slot Machines, at a casino or other
gaming establishment located in Nevada operated by one or more Lessees, provided
that where any Slot Machine is used at a location other than a Facility, the
applicable Lessee(s) shall obtain and provide to the Lessor the documents of the
type described in Section 2.4(b)(viii) of the Participation Agreement, any and
all such documents as Trustee and/or Collateral Agent may reasonably require in
order to create, perfect, preserve and protect Lessor’s and Collateral Agent’s
respective Liens in such Sublease and Slot Machines and ensure Lessor’s and
Collateral Agent’s access to such Slot Machines.  No Lessee shall use the
Equipment or any part thereof for any purpose or in any manner that would
adversely affect the Fair Market Value, utility, remaining useful life or
residual value of the Equipment.  No Lessee shall (a) use, operate, maintain or
store at any time prior to the Expiration Date any item of Equipment or any
portion thereof in violation of this Section 8.1, Section 9.1 or any Insurance
Requirement; (b) abandon any item of Equipment; or (c) except in connection with
the permitted return of the Equipment, permit any item of Equipment to be
located in any jurisdiction other than the State of Nevada.  Lessees warrant
that the Equipment will at all times be used and operated under and in
compliance in all material respects with any contracts or agreements, or
regulations of Governmental Agencies applicable to the use, maintenance or
operation of the Equipment, or any portion thereof, to which such Lessee or
Lessor is a party or by which any Lessee or Lessor or the applicable Facility
(or other casino or gaming establishment, as the case may be) is bound or under
which any of them have rights.  At all times during the Lease Term, the
Equipment shall be in the possession of Lessees, wholly-owned, direct or
indirect, Subsidiaries of Mandalay that are permitted sublessees or another
permitted sublessee, in the ordinary course of its business.  Lessees shall pay,
or cause to be paid, all charges and costs required in connection with the use
of the Equipment as contemplated by this Lease and the other Operative
Documents.  During the Lease Term and thereafter in accordance with Section 18.2
and thereafter in accordance with Section 18.2, Lessees assume and agree to
perform on behalf of Lessor all of Lessor’s obligations as owner of the
Equipment and to pay all fees, charges, costs, expenses, assessments, taxes (if
any), impositions, utilities (if any) and other amounts payable by Lessor as
such owner during the Lease Term and which relate to or arise in connection with
the purchase, disposition, ownership, lease or use of the Equipment,
governmental actions or other rights, privileges or entitlements required to be
paid in connection with the Equipment.  All charges for utilities, (if any)
imposed with respect to the Equipment for a billing period during which this
Lease expires or terminates (except when Lessees purchase the Equipment in
accordance with the terms of this

 

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Lease, in which case Lessees shall be solely responsible for all such charges)
shall be adjusted and prorated on a daily basis between Lessees and any
purchaser or purchasers of the Equipment, and each party shall pay or reimburse
the other for each party’s pro rata share thereof; provided, that in no event
shall Lessor have any liability therefor.

 

Section 8.2.                           Compliance with Requirements of Law and
Insurance Requirements.  Subject to the terms of Article XII relating to
Permitted Contests, Lessees, at their sole cost and expense, shall comply in all
material respects with all Requirements of Law (including all Environmental
Laws) and Insurance Requirements and manufacturer’s operating standards and
guidelines relating to the Facilities or any of the Equipment, including the
use, construction, operation, maintenance, repair and restoration thereof,
whether or not compliance therewith shall require structural or extraordinary
changes in the Equipment or interfere with the use and enjoyment of the
Equipment, and procure, maintain and comply with (or cause to be procured,
maintained and complied with) all licenses, permits, orders, approvals, consents
and other authorizations required for the use, operation, maintenance, repair
and restoration of the Equipment.

 

Article IX

 

Maintenance and Repair; Reports; Personnel

 

Section 9.1.                           Maintenance and Repair.  During the Lease
Term, Lessees, at their own expense, shall at all times (a) maintain the
Equipment in as good an operating and mechanical condition as when delivered,
subject to ordinary wear and tear, and in any event in accordance with standards
no lower than the highest of those applied by the Lease Obligors or any of their
Affiliates to similar equipment owned or leased by them; (b) maintain the
Equipment in accordance with prudent industry practice and all Applicable Laws,
whether or not such maintenance requires structural modifications; (c) comply in
all respects with, and maintain the Equipment in accordance with, all Insurance
Requirements and the terms of all contracts (including service contracts) which
are in effect at any time with respect to the Equipment or any part thereof and
in accordance with standard industry maintenance practices as required to
maintain in full force and effect all warranties applicable to the Equipment;
(d) use the Equipment only in accordance with Article VIII and cause the
Equipment to have at all times the capacity and functional ability to be used,
on a continuing basis and in commercial operation, in accordance with
Article VIII except during any period for which any Casualty or Condemnation
prevents such use; (e) make all necessary or appropriate repairs, replacements
and renewals of the Equipment or any part thereof which may be required to keep
the Equipment in the condition required by the preceding clauses (a) through
(d), whether interior or exterior, structural or nonstructural, ordinary or
extraordinary, foreseen or unforeseen, and including repairs, replacements and
renewals that would constitute capital expenditures under GAAP if incurred by an
owner of property; and (f) procure, maintain and comply in all material respects
with all material licenses, permits, orders, approvals, consents and other
authorizations required for the manufacture, installation, construction, use,
maintenance and operation of the Equipment.  In no event shall any Lessee
discriminate as to the use or maintenance of the Equipment or any Part thereof
(including periodicity of maintenance or record keeping in respect of the
Equipment and including discrimination with respect to the installation of any
Modifications required by

 

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Applicable Laws that may be phased in over a period of time or any
discrimination based on the leased, rather than owned, status of the Equipment)
as compared to properties of a similar nature in which any Lessee has any
ownership or leasehold interest.  Each Lessee waives any right that it may now
have or hereafter acquire to (x) require Lessor to maintain, repair, replace,
alter, remove or rebuild all or any part of the Equipment or (y) make repairs at
the expense of Lessor pursuant to any Applicable Laws or other agreements.

 

Section 9.2.                           Maintenance and Repair Reports.  During
the Lease Term, Lessees shall keep or cause to be kept maintenance and repair
reports, records, logs and other materials required by Applicable Law or by any
Governmental Agency having jurisdiction over all or any part of the Equipment,
in sufficient detail, on the same basis as records are kept for similar
properties owned or leased by any Lease Obligor or any Affiliates thereof.  Such
reports, records, logs and other materials shall be kept on file by Agent Lessee
at its offices during the Lease Term, and shall be made available at Agent
Lessee’s office to Lessor upon reasonable request.  Agent Lessee shall give
written notice to Lessor of any Condemnation or Casualty promptly after any
Lessee has knowledge thereof.  Agent Lessee shall prepare and deliver to Lessor
and the Lenders within a reasonable time prior to the required date of filing
(or, to the extent permissible, file on behalf or Lessor and the Lenders) any
and all reports (other than income tax returns) to be filed by Lessor or any
Lender with any Governmental Agency or other Person by reason of the ownership
by Lessor or any Lender of the Equipment or the leasing thereof to Lessees. 
Lessor agrees to inform Agent Lessee of any request for such reports received by
it.

 

Article X

 

Modifications, Substitutions, Etc.

 

Section 10.1.                    Alterations and Modifications.  (a)  On and
after the Closing Date (i) each Lessee, at its own cost and expense, shall make
or cause to be made alterations, renovations, improvements and additions to the
Equipment leased by it (or any Part thereof and substitutions and replacements
therefor (collectively, “Modifications”)) which are (A) necessary to repair or
maintain such Equipment in the condition required by Section 9.1; (B) necessary
in order for such Equipment to be in compliance in all material respects with
Applicable Laws or Insurance Requirements; or (C) necessary or advisable to
restore such Equipment to its condition existing prior to a Casualty or
Condemnation to the extent required pursuant to Article XIV; and (ii) so long as
no Lease Event of Default or Lease Default has occurred and is continuing, such
Lessee, at its own cost and expense, may undertake, or cause or permit to be
undertaken, Modifications to such Equipment so long as such Modifications comply
with Applicable Laws and with Section 9.1 and subsection (b) of this
Section 10.1.

 

(b)                                 The making of any Modifications must be in
compliance with the following requirements:

 

(i)                                     No such Modifications in respect of any
Equipment with a cost exceeding $250,000 shall be made or undertaken except upon
not less than thirty (30) days’ prior written notice to Lessor (except in the
case of an emergency).

 

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(ii)                                  No Lessee shall make or cause or permit to
be made any Modifications in violation of the terms of any restriction,
condition, covenant or other similar matter affecting title to or interests in,
or binding on, any of the Equipment or that cause any of the Equipment to be
suitable for use only by one or more of the Lessees.

 

(iii)                               No Modifications shall be undertaken until
the applicable Lessee shall have procured and paid for (or shall have caused to
be procured and paid for), so far as the same may be required from time to time,
all required permits and authorizations relating to such Modifications of all
Governmental Agencies having jurisdiction over the applicable Equipment. 
Lessor, at Lessees’ expense, shall join in the application for any such permit
or authorization and execute and deliver any document in connection therewith,
whenever such joinder is necessary or advisable.

 

(iv)                              The Modifications shall be completed in a good
and workmanlike manner and in compliance in all material respects with all
Applicable Laws then in effect and the standards imposed by any insurance
policies required to be maintained hereunder or by the manufacturer in order to
maintain all warranties in full force and effect.

 

(v)                                 All Modifications shall, when completed, be
of such a character as to not adversely affect the Fair Market Value, utility,
remaining economic useful life or residual value of the affected Equipment from
the Fair Market Value, utility, remaining economic useful life or residual value
thereof immediately prior to the making thereof or, in the case of Modifications
being made by virtue of a Casualty or Condemnation, immediately prior to the
occurrence of such Casualty or Condemnation; provided, that with respect to any
Modification made to meet the requirements of any Applicable Law, or any
Governmental Agency having jurisdiction or any insurance policy required
hereunder, the applicable Lessee may make such Modification (a “Nonconforming
Modification”) without regard to any decrease in the Fair Market Value, utility,
remaining economic useful life or residual value of the affected Equipment, but
only to the extent that such Lessee has made commercially reasonable efforts to
minimize such decrease.  If such Modifications in respect of any of the
Equipment have a cost exceeding $5,000,000 and if requested by Collateral Agent
on behalf of the Required Lenders, Lessor may engage the Appraiser at Lessees’
sole cost and expense, to determine (by appraisal or other methods satisfactory
to Collateral Agent on behalf of the Required Lenders) the projected Fair Market
Value of the affected Equipment as of the completion of the Modifications
relating thereto.

 

(vi)                              Each Lessee shall have made or caused to have
been made adequate arrangements for payment of the cost of all Modifications
when due so that the affected Equipment shall at all times be free of Liens for
labor and materials supplied or claimed to have been supplied to such Equipment,
other than Permitted Liens.

 

Section 10.2.                    Title to Modifications.  Ownership in all
Modifications in respect of the Equipment shall, without further act, vest in
Lessor and shall be deemed to constitute a part of the Equipment and be subject
to this Lease.

 

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Section 10.3.                    Optional Equipment Substitutions.  Subject to
the terms and conditions set forth below, any applicable Lessee shall have the
right to substitute items of Equipment or Systems (each, a “Substitution Item”
or “Substitution System,” as applicable) for items of Equipment or Systems which
it then leases (or has theretofore proposed to lease) under this Lease.  For
purposes hereof, “Substitution Items” and “Substitution Systems” are different
from Parts in that Substitution Items and Substitution Systems are intended to
mean items of equipment or systems that are not originally contemplated to be
subject to this Lease. Lessees’ substitution rights pursuant to this
Section 10.3 shall be subject to the following conditions:

 

(a)                                  Equipment Other Than Slot Machines.  With
respect to Equipment other than Slot Machines:

 

(i)                                     Agent Lessee shall have delivered a
written notice to Lessor and Collateral Agent on behalf of the Lenders
specifying:  (i) Lessees’ desire to substitute a Substitution Item for the
substituted item of Equipment or Substitution System for the substituted System,
(ii) a description of the intended Substitution Item or Substitution System, as
applicable, and (iii) a proposed closing date for such substitution (the
“Substitution Date”);

 

(ii)                                  Agent Lessee shall have delivered to
Lessor and Collateral Agent on behalf of the Lenders not less than thirty (30)
days prior to the proposed Substitution Date any and all further information
regarding the intended Substitution Item or Substitution System, as applicable,
as may be reasonably required by Lessor or any Lender for the purpose of
evaluating the intended Substitution Item or Substitution System, as applicable,
and whether it should be deemed acceptable substitution property for the
substituted item of Equipment or System, as the case may be;

 

(iii)                               Any Substitution Item or Substitution
System, as applicable, shall (A) have the same or greater Fair Market Value,
economic useful life and utility as the substituted item of Equipment or System,
as the case may be, and (B) relate to, complement or otherwise be materially
associated with the business of Lessees and their Affiliates;

 

(iv)                              No Default or Event of Default shall have
occurred and be continuing;

 

(v)                                 Lessor, acting at the direction of the
Required Lenders, shall have approved the Substitution Item or Substitution
System, as applicable, as qualifying Equipment (such approval right of the
Lenders to be exercised reasonably from the perspective of secured creditors)
and such Lessee shall have otherwise satisfied such terms and conditions
regarding the inclusion of such Substitution Item or Substitution System, as
applicable, as Equipment as may be reasonably required by Lessor, acting at the
direction of the Required Lenders, on or before the Substitution Date; and

 

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(vi)                              Upon written request, Agent Lessee shall
execute and deliver, or cause to be executed and delivered, all such documents
as Lessor or Collateral Agent may reasonably require to perfect and/or maintain
at all relevant times a perfected first priority Lien in favor of Lessor in and
to any and all such Substitution Items or Substitution System and to provide
Lessor and Collateral Agent customary access rights with respect thereto.

 

(b)                                 Slot Machines.  Lessees shall be permitted
to freely substitute Slot Machines subject to the Lease from time to time
provided that:

 

(i)                                     Agent Lessee shall deliver to Lessor and
Collateral Agent, within 60 days after the end of each Fiscal Quarter or, upon
the occurrence of an Event of Default, within five (5) Business Days of such
occurrence, a written report (a “Slot Machine Report”), certified by a
Responsible Official, specifying in detail satisfactory to Lessor and Collateral
Agent:  (i) the Slot Machines then subject to this Lease; (ii) the Slot
Machines, if any, substituted and replaced since the date of the immediately
preceding delivered Slot Machine Report (other than with respect to the first
Slot Machine Report delivered hereunder); (iii) the Slot Machines constituting
Substitution Items during the quarterly period covered by such Slot Machine
Report; and (iv) in each of the foregoing instances, the type, serial number (or
other similar identification information), invoice cost, age and the applicable
Substitution Date of each such Slot Machine;

 

(ii)                                  Agent Lessee shall deliver to Lessor and
Collateral Agent (on behalf of the Lenders) all further information regarding
the Slot Machines, or any portion thereof, described in any Slot Machine Report
as may be reasonably required by Lessor, Collateral Agent or any Lender, and in
any event shall deliver to Collateral Agent a bill of sale dated as of the date
of the applicable Substitution Date transferring title to the relevant
Substitution Slot Machine(s) to Lessor as of such date;

 

(iii)                               Any Slot Machine or group of Slot Machines
constituting Substitution Items (each, a “Substitution Slot Machine”) shall have
the same or greater Fair Market Value, economic useful life and utility as the
Slot Machine(s) for which it or they are substituted;

 

(iv)                              No Default or Event of Default shall have
occurred and be continuing; and

 

(v)                                 Upon written request, Agent Lessee shall
execute and deliver, or cause to be executed and delivered, all such documents
as Lessor or Collateral Agent may reasonably require to perfect and/or maintain
at all relevant times a perfected first priority Lien in favor of Lessor in and
to any and all such Slot Machines and to provide Lessor and Collateral Agent
customary access rights with respect thereto.

 

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Upon a permitted substitution of Equipment or System, as applicable, pursuant to
this Section 10.3 Lessor shall execute such documents as may be required to
release the substituted item of Equipment or System, as applicable, from the
terms of this Lease, at Lessees’ expense.  Upon such substitution pursuant to
this Section 10.3, the substituted item of Equipment or Substitution System, as
applicable, shall become the property of the applicable Lessee, and title
thereto shall automatically vest in such Lessee upon such permitted
substitution.

 

Article XI

 

Covenants with Respect to Liens

 

Section 11.1.                    Covenants with Respect to Liens.  (a)  No
Lessee shall directly or indirectly create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on or with respect to any portion of the
Equipment, Lessor’s title to the Equipment, or any interest therein, and Lessees
shall protest any such Lien and diligently pursue the defense thereof.  Lessees,
at their own expense, shall promptly pay, satisfy and otherwise take such
actions as may be necessary to keep the Equipment free and clear of, and duly to
discharge, eliminate or bond in a manner reasonably satisfactory to Lessor and
Collateral Agent, any such Lien (other than Permitted Liens) not accepted above
if the same shall arise at any time.

 

(b)                                 Nothing contained in this Lease shall be
construed as constituting the consent or request of Lessor, express or implied,
to or for the performance by any contractor, mechanic, laborer, materialman,
supplier or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition of or
to the Equipment or any part thereof.  Notice is hereby given that none of
Lessor, Collateral Agent or any of the Lenders is or shall be liable for any
labor, services or materials furnished or to be furnished to any Lessee or to
anyone holding the Equipment, or any part thereof or interest therein through or
under any Lessee, and that no mechanic’s or other liens for any such labor,
services or materials shall attach to or affect the interest of Lessor,
Collateral Agent or any Lender in and to the Equipment.

 

Article XII

 

Permitted Contests

 

Section 12.1.                    Permitted Contests in Respect of Applicable
Laws.  If, to the extent and for so long as (a) a test, challenge, appeal or
proceeding for review of any Applicable Laws relating to any of the Equipment or
the obligation to comply therewith shall be prosecuted diligently and in good
faith in appropriate proceedings by any applicable Lessee or (b) compliance with
such Applicable Laws shall have been excused or exempted by a valid
nonconforming use, variance, permit, waiver, extension or forbearance, following
the Closing Date, the applicable Lessee shall not be required to comply with
such Applicable Laws but only if and so long as any such test, challenge,
appeal, proceeding, waiver, extension, forbearance or noncompliance shall not,
in the reasonable opinion of Lessor, acting at the direction of the Required
Lenders, involve (A) any risk of criminal liability being imposed on Lessor,
Collateral Agent, any Lender, any of the

 

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Equipment or (B) any material risk of (1) the foreclosure, forfeiture or loss of
any of the Equipment, or any material part thereof, or (2) the nonpayment of
Rent, Lease Balance or other amount payable under the Operative Documents, 
(3) the interruption or cancellation of any insurance coverage, (4) the
invalidity or lapse of any warranty, (5) any sale of, or the creation of any
Lien (other than a Permitted Lien) on, any part of the Equipment, (6) civil
liability being imposed on Lessor, Collateral Agent, any Lender or any of the
Equipment for which the applicable Lessee is not obligated to indemnify such
parties under the Operative Documents, or (7) enjoinment of, or interference
with, the use, possession or disposition of the Equipment in any material
respect (any of the foregoing being referred to as a “Permitted Contest”) and
provided that in any event adequate reserves in accordance with GAAP are
maintained against any adverse determination of any such test, challenge, appeal
or proceeding.

 

Lessor shall not be required to join in any proceedings pursuant to this
Section 12.1 unless a provision of any Applicable Law requires that such
proceedings be brought by or in the name of Lessor or it is customary in the
applicable jurisdiction for an owner to join in such proceedings; and in that
event Lessor shall join in the proceedings or permit them or any part thereof to
be brought in its name if and so long as Lessees agree in writing to and pay all
related expenses and agrees in writing to indemnify Lessor, Collateral Agent and
the Lenders in form and substance reasonably satisfactory to each of the
respective Indemnitees.

 

Article XIII

 

Insurance

 

Section 13.1.                    Required Coverages.  During the Lease Term,
Lessee shall provide or cause to be provided insurance with respect to the
Equipment and the Facilities of a character usually insured by Persons engaged
in the same or similar business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such Persons, and carry
such other insurance as is usually carried by such Persons; provided, that in
any event Lessees shall maintain or cause to be maintained at all times:

 

(a)                                  Commercial General Liability Insurance. 
Third-party legal liability coverage providing coverage against claims for
third-party bodily injury, including death and third-party property damage
occurring on, in or about the Facilities (including environmental hazard
insurance) in an amount at least equal to $100,000,000 per occurrence.  Subject
to Section 13.2, such coverage may be subject to deductibles or self-insured
retentions up to an amount that is customarily carried by companies of similar
size and engaged in business similar to Lessees and shall be otherwise
acceptable to the Required Lenders.  The coverage required by this paragraph (a)
may be provided in a combination of umbrella and excess liability policies.

 

(b)                                 Property Insurance.  Insurance against loss
or damage covering the Equipment or any Facility or any portion thereof by
reason of any Casualty in an amount as is carried by Persons owning and/or
operating similar properties (subject to such deductibles and/or self-insurance
in such minimum amounts as is carried by Persons

 

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owning and/or operating similar properties); provided, that at no time shall the
amount of such coverage with respect to the Equipment be less than the Lease
Balance.

 

(c)                                  Workers’ Compensation.  Lessees shall, in
the construction of any Modifications and the operation of the Equipment or any
Facility, comply with the applicable workers’ compensation laws and protect
Lessor, Collateral Agent and the Lenders against any liability under such laws.

 

(d)                                 Other Insurance.  Such other insurance, in
each case as is generally carried by Lessees or their Affiliates for similar
properties owned or leased by any of them or by other owners of similar
properties, in such amounts and against such risks as are then customary for
properties similar in use.

 

Section 13.2.                    Insurance Coverage.  The insurance coverage
required in Section 13.1 shall be written by reputable insurance companies that
are financially sound and solvent and otherwise reasonably appropriate
considering the amount and type of insurance being provided by such companies. 
Any insurance company selected by any Lessee shall be rated in A.M. Best’s
Insurance Guide or any successor thereto (or if there be none, an organization
having a similar national reputation) and shall have a general policyholder
rating of “A” (or comparable rating for a rating by an organization other than
A.M. Best) and a financial rating of at least “VII” (or comparable rating for a
rating by ISI or Standard & Poor’s Corporation or another organization other
than A.M. Best) or be otherwise acceptable to the Required Lenders.  In the case
of liability insurance maintained by any Lessee, such insurance shall name
Lessor (both in its individual capacity and as trustee), Trust Beneficiary,
Collateral Agent (both individually and in its capacity as Collateral Agent) and
each of the Lenders, as additional insureds and, in the case of property
insurance, shall name Collateral Agent as sole loss payee.  Each policy referred
to in Section 13.1 shall provide that:  (i) it will not be canceled, materially
modified or its limits reduced, or allowed to lapse without renewal, except
after not less than thirty (30) days’ prior written notice to Lessor and
Collateral Agent; (ii) to the extent available on a commercially reasonable
basis, the interests of Lessor, Collateral Agent and any Lender shall not be
invalidated by any act or negligence of or breach of warranty or representation
by any Lessee or any other Person having an interest in the Equipment;
(iii) such insurance is primary with respect to any other insurance carried by
or available to Lessor, Collateral Agent or any Lender; (iv) the insurer shall
waive any right of subrogation, setoff, counterclaim, or other deduction,
whether by attachment or otherwise, against Lessor, Collateral Agent or any
Lender; (v) such policy shall contain a cross-liability clause providing for
coverage of Lessor, Collateral Agent and each Lender, as if separate policies
had been issued to each of them; and (vi) such policy shall provide that none of
Lessor, Collateral Agent or any Lender shall have any obligation or liability
for payment of any premiums, commissions, claims or assessments.  Agent Lessee
shall notify Lessor and Collateral Agent promptly of any policy cancellation,
reduction in policy limits, or material modification or amendment.

 

Section 13.3.                    Delivery of Insurance Certificates.  At the
time any insurance policy of any Lessee is renewed (but in no event less
frequently than once each year) or upon written request by Lessor following a
Lease Event of Default, Agent Lessee shall deliver or cause to be

 

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delivered to Collateral Agent certificates of insurance evidencing that all
insurance required by Sections 13.1 and 13.2 to be maintained is in effect.

 

Section 13.4.                    Insurance by Lessor, Collateral Agent or Any
Lender.  Each of Lessor, Collateral Agent or any Lender may at its own expense
carry insurance with respect to its interest in the Equipment provided that
(i) Lessee’s insurance is designated as primary and in no event excess or
contributory to any insurance Lessor, Collateral Agent or any Lender may have in
force which would apply to a loss covered under such Lessee’s insurance policy,
(ii) each such insurance policy will not cause such Lessee’s insurance required
under this Article XIII to be subject to a coinsurance exception of any kind,
and (iii) each such insurance policy shall contain a waiver of any right of
subrogation, set-off, counterclaim, or other deduction, whether by attachment or
otherwise, against such Lessee or any other Lease Obligor.  Any insurance
payments received from policies maintained by Lessor, Collateral Agent or any
Lender shall be retained by Lessor, Collateral Agent or such Lender, as the case
may be, without reducing or otherwise affecting any Lessee’s obligations
hereunder.

 

Article XIV

 

Casualty and Condemnation; Environmental Matters

 

Section 14.1.                    Casualty.  Upon the occurrence of a Casualty
prior to or during the term of this Lease, Agent Lessee shall give Lessor and
Collateral Agent prompt written notice thereof (a “Casualty Notice”).  The
Casualty Notice shall specify whether Lessees will:

 

(a)                                  pay to Trustee, for the benefit of the
Lenders, the Casualty Amount of the Equipment suffering such Casualty (provided
that if the Equipment suffering such Casualty is part of a System and, as a
result of such Casualty, such System, taken as a whole, shall have suffered a
Casualty, then Lessees shall pay to Trustee, for the benefit of the Lenders, a
Casualty Amount for such System), which payment (together with any Supplemental
Rent (whether arising as a result of Section 9.7(d) of the Participation
Agreement as Break Costs or otherwise) then due) shall be made no later than the
later of (i) sixty (60) days after the occurrence of the Casualty or (ii) the
next Payment Date occurring after such Casualty (the “Casualty Settlement
Date”), provided that in any event the Casualty Settlement Date shall be no
later than the last day of the Lease Term; or

 

(b)                                 replace such Equipment with respect to which
the Casualty has occurred pursuant to the following provisions of this
Section 14.1;

 

provided, that upon the occurrence and during the continuance of a Default or
Event of Default, Lessees shall be obligated, at the option of the Required
Lenders, to make the payments referred to in clause (a) above and shall not be
entitled to exercise any right of replacement pursuant to clause (b).

 

If Lessees have elected, or are required, to pay the Casualty Amount pursuant to
clause (a) above, Lessees shall continue to make all payments of Rent due under
this Lease until

 

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and including the Casualty Settlement Date.  Upon payment of the Casualty Amount
in respect of any item of Equipment suffering a Casualty on such Casualty
Settlement Date, the remaining scheduled payments of the principal portion of
Rent shall be proportionately reduced by an amount equal to the product of the
scheduled amount of such principal portion of Rent payment (determined in each
case prior to the receipt of such Casualty Amount), multiplied by the Affected
Equipment Value Fraction of such item of Equipment suffering such Casualty, and
the Lease Balance shall be appropriately adjusted to reflect such reduction in
the remaining scheduled payments of the principal portion of Rent.

 

If Agent Lessee has given notice that it intends to replace the item of
Equipment suffering such Casualty and such replacement is permitted under this
Section 14.1, or if Lessees are required to replace the item of Equipment
suffering such Casualty pursuant to the terms of this Lease, then Lessees shall
make subject to this Lease, not more than sixty (60) days after the date of such
Casualty Notice, a replacement for such item of Equipment meeting the
suitability standards hereinafter set forth, provided, however, that such 60-day
period shall be extended for a period equivalent to any period of delay caused
by Force Majeure provided, further, that such extension period shall not exceed
thirty (30) days.  To be suitable as replacement Equipment, an item must be of
the same general type, year of construction (or a later year of construction),
function, utility, state of repair and operating condition (immediately
preceding the Casualty assuming that such Equipment had been maintained in
accordance with the terms of Section 9.1) as the Equipment suffering the
Casualty, must have a value of not less than the Appraised Value (as set forth
in the Appraisal of the Equipment suffering the Casualty for the date (the
“Casualty Determination Date”) set forth in the Appraisal closest to the date of
such replacement) of the Equipment suffering the Casualty (except as otherwise
provided in the immediately succeeding paragraph) and, if the Casualty pertained
to a System, taken as a whole, then the value of such System, after giving
effect to such replacement, shall not be less than the Appraised Value of such
System (as set forth in the Appraisal of such System for the Casualty
Determination Date) and be free and clear of any Liens other than Permitted
Liens.  Lessees shall cause a Bill of Sale and new Schedule I to the applicable
Lease Supplement to be executed and delivered to Trustee and Collateral Agent
(on behalf of the Lenders) in order to subject such replacement item to this
Lease, and upon such execution and delivery and the receipt by Trustee and
Collateral Agent (on behalf of the Lenders) of (i) evidence reasonably
satisfactory to them of Lessees’ compliance with the insurance provisions of
Article XIII with respect to such replacement item, and (ii) an opinion of
counsel to Lessees in form and substance reasonably satisfactory to Trustee,
Collateral Agent and the Lenders opining, among other things, to the effect that
all appropriate filings, recordings and other acts have been taken to protect
the right, title and interest of Trustee, on behalf of the Lenders, in such
replacement item and that no other filing, recording, deposit, or giving of
notice with or to any Governmental Agency is necessary to protect such right,
title and interest in such replacement item, such replacement item shall be
deemed “Equipment” for all purposes hereof.

 

Notwithstanding the foregoing requirements for replacement of Equipment, if the
replacement item has a Fair Market Value of less than the Appraised Value of the
Equipment suffering the Casualty or, in the case of a Casualty pertaining to a
System, of the System taken as a whole, but the conditions specified in the
preceding paragraph would otherwise be satisfied, then Lessees may replace the
Equipment or System, as applicable, suffering the Casualty with

 

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such item so long as the following conditions are satisfied:  (i) Trustee,
Collateral Agent and Lessees shall have received an appraisal of the replacement
item (or System, as the case may be) from an Appraiser, which appraisal shall
determine the Fair Market Value of the replacement item (or System, as
applicable) as of the date of replacement and the end of the Lease Term,
(ii) Trustee shall have received, as Supplemental Rent, an amount equal to the
excess of (A) the greater of (x) the Appraised Value of the replaced Equipment
(or System, as applicable) as of the Casualty Determination Date as determined
in the Appraisal delivered in connection with the Closing or (y) the Appraised
Value of the replaced Equipment (or System, as applicable) as of the Casualty
Determination Date (as determined by the appraisal delivered in connection with
such replacement) over (B) the Appraised Value of the replacement item (or
System, as applicable) as of the date of replacement (as determined by the
appraisal delivered in connection with such replacement), (iii) all conditions
set forth in the preceding paragraph shall have been satisfied (except for the
requirement that the replacement item have a value of not less than the
Appraised Value of the Equipment suffering the Casualty), and (iv) Lessees shall
have delivered a new Schedule I to this Lease and a new Schedule I to the Lease
Supplement covering the replaced Equipment (or System, as applicable) and such
new Schedules shall be in form and substance reasonably satisfactory to Required
Lenders, such new Schedule I to the Lease Supplement shall describe the
replacement Equipment (or System, as applicable) and the Fair Market Value
thereof and such new Schedule I to this Lease shall reflect such adjustments to
the installments of the principal portion of Rent and remaining Supplemental
Rent as necessary so that (x) the Equipment (or System, as applicable) suffering
the Casualty shall be treated as if the Casualty Amount with respect thereto had
been paid pursuant to Section 14.1, and all reductions of the principal portion
of Rent and Supplement Balance made pursuant to this Section 14.1, (y) the
replacement item shall be treated as if it was purchased on such replacement
date for a purchase price equal to the value set forth in the appraisal thereof
with an amortization schedule (to be attached to the Lease Supplement) that
reflects the decay curve as set forth in such appraisal, and (z), if the
Casualty pertained to a System, taken as a whole, such System after replacement
of the applicable items of Equipment, shall have the same function and utility,
taken as a whole.  After giving effect to any replacement pursuant to the
preceding sentence, the “Purchase Price” of the replacement Equipment shall be
deemed to be the Fair Market Value thereof, as set forth for the date of such
replacement in the appraisal delivered in connection with such replacement, for
all purposes of this Lease and the other Operative Documents.

 

If Trustee has received the amount payable with respect to the Casualty and all
other amounts due hereunder including amounts payable under Section 14.1(a) and
no Default or Event of Default shall have occurred and be continuing, Lessee
shall be entitled to receive from Trustee the proceeds of any recovery in
respect of the applicable Equipment from insurance or otherwise (“Casualty
Recoveries”), and Trustee, subject to the rights of any insurer insuring the
applicable Equipment as provided herein, shall execute and deliver to Agent
Lessee, or to its assignee or nominee, a quitclaim bill of sale (without
representations or warranties except that the Equipment is free and clear of
Lessor Liens) for such Equipment, and such other documents as may be required to
release such Equipment from the terms of this Lease, in such form as may
reasonably be requested by Agent Lessee.  All fees, costs and expenses relating
to a substitution as described herein shall be borne by Lessees.  Except as
otherwise provided in this Section 14.1, Lessees shall not be released from
their obligations hereunder in the event of, and shall bear the

 

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risk of, any Casualty to any item of Equipment prior to or during the term of
this Lease and thereafter until all of Lessees’ obligations hereunder are fully
performed.

 

Any payments (including insurance proceeds) in an amount less than $500,000
received at any time by Trustee or any Lessee from any Governmental Agency or
other party with respect to any loss or damage to any item of Equipment not
constituting a Casualty will be paid to or retained by Lessees to be applied
directly in payment of repairs or for replacement of property in accordance with
the provisions of Sections 8.1 and 9.1, if not already paid by Lessees, or if
already paid by Lessees and no Default or Event of Default shall have occurred
and be continuing, shall be applied to reimburse Lessees for such payment, and
any balance remaining after compliance with said Sections with respect to such
loss or damage shall be retained by Lessees; provided, that in the event that
any Default or Event of Default so exists, Trustee shall hold such proceeds as
collateral security for the obligations of Lessee under this Lease during the
continuance of such Default or Event of Default.

 

Except for any of the following occurring as a result of the existence or
enforcement of a Lessors Lien, each Lessee hereby assumes all risk of loss,
damage, theft, taking, destruction, confiscation, requisition, commandeering,
taking by eminent domain or condemnation, partial or complete, of or to each
item of equipment, however caused or occasioned, such risk to be borne by
Lessees with respect to each item of equipment from the date of this Lease, and
continuing until such equipment has been returned to Trustee in accordance with
the provisions hereof.  Each Lessee agrees that no occurrence specified in the
preceding sentence shall impair, in whole or in part, any obligation of such
Lessee under this Lease, including the obligation to pay rent.

 

Section 14.2.                    Environmental Matters.  At Lessees’ sole cost
and expense, Lessees shall promptly and diligently commence or caused to be
commenced any response, clean up, remedial or other action necessary to remove,
clean up or remediate any Environmental Violation with respect to the Equipment
or any Facility.

 

Section 14.3.                    Notice of Environmental Matters.  Agent Lessee
shall promptly provide to Lessor written notice of any pending or threatened
claim, action or proceeding involving any Environmental Violation or any Release
on, at, under or from any Facility or the Equipment, which violation or Release
could require in excess of $500,000 in remediation costs, or which could result
in the imposition of criminal penalties upon Lessor, Collateral Agent or any
Lender (any such violation, claim, action, proceeding or Release, a “Material
Environmental Violation”).  All such notices shall describe in reasonable detail
the nature of the Material Environmental Violation, including any claims,
actions or proceedings in respect thereof, and Lessees’ proposed response
thereto.  In addition, Agent Lessee shall provide to Lessor, within ten (10)
Business Days of receipt by any Lessee, copies of all written communications
with any Governmental Agency relating to any such Material Environmental
Violation.  Agent Lessee shall also promptly provide such detailed reports of
any such Material Environmental Violations as may reasonably be requested by
Lessor or Collateral Agent.  Upon completion of remedial action of such Material
Environmental Violation by any Lessee, Agent Lessee shall cause to be prepared
by an environmental consultant reasonably acceptable to Required Lenders and
Collateral Agent a report describing the Material Environmental Violation and
the actions taken by Lessees in response to such Material Environmental
Violation, and a statement by the

 

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consultant that the Material Environmental Violation has been remedied in
compliance in all material respects with applicable Environmental Law.  Each
such Material Environmental Violation shall be remedied prior to the Expiration
Date unless the Equipment has been purchased by Lessees in accordance with
Article XV or Article XVIII.  Nothing in this Article XIV shall reduce or limit
Lessees’ obligations elsewhere in this Lease or under the Participation
Agreement.

 

Article XV

 

Termination of Lease

 

Section 15.1.                    Termination upon Certain Events.  (a)  If any
of the following occurs with respect to the Equipment:

 

(i)                                     a Significant Condemnation;

 

(ii)                                  a Significant Casualty; or

 

(iii)                               an Environmental Violation, or the discovery
of an Environmental Violation, the cost of remediation of which in the
reasonable judgment of Required Lenders would exceed $5,000,000;

 

then, in any such event (but subject to the provisions of the Loan Agreement),
Lessor may elect to terminate the Lease by giving written notice (a “Termination
Notice”) to Agent Lessee that, as a consequence of such event, the Lease is to
be terminated.

 

(b)                                 Following Agent Lessee’s receipt of the
Termination Notice, Lessees shall be obligated to purchase Lessor’s interest in
all, but not less than all, of the Equipment on or prior to the next occurring
Payment Date (but in no event any earlier than sixty (60) Business Days from the
date Agent Lessee receives the applicable Termination Notice) by paying Lessor
an amount equal to the Purchase Amount.

 

Section 15.2.                    Termination Procedures.  On the date of the
payment by Lessees of the Purchase Amount in accordance with Section 15.1(b)
(such date, the “Termination Date”), this Lease shall terminate and, concurrent
with Lessor’s receipt of such payment:

 

(i)                                     Lessor shall execute and deliver to
Lessees (or to Lessees’ designees) at Lessees’ cost and expense one or more
bills of sale of Lessor’s interest in the Equipment and a release of Liens with
respect to this Lease, in each case in recordable form to the extent applicable
and otherwise in conformity with local custom and without representation and
warranty except as to the absence of any Lessor Liens attributable to Lessor;

 

(ii)                                  the Equipment shall be conveyed to Lessees
(or to Lessees’ designees) “As Is”, “Where Is” and in its then present physical
condition; and

 

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(iii)                               in the case of a termination pursuant to
clause (i) or (ii) of Section 15.1(a), Lessor shall convey to Lessees any net
proceeds (i.e., the gross amount received in connection with such Casualty or
Condemnation less reasonable costs and expenses of claiming and collecting such
amount, including all reasonable costs and expenses for which Lessor or any
Lender is entitled to be reimbursed pursuant to the Operative Documents) with
respect to the Casualty or Condemnation giving rise to the termination of this
Lease theretofore received by Lessor or at the request of Lessees, to the extent
actually received, such amounts shall be applied against sums due hereunder.

 

Article XVI

 

Events of Default

 

Section 16.1.                    Lease Events of Default.  The occurrence of any
one or more of the following events (whether such event shall be voluntary or
involuntary or come about or be effected by operation of law or pursuant to or
in compliance with any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body) shall constitute a
“Lease Event of Default”:

 

(a)                                  (i) any payment of Basic Rent shall not be
paid within two (2) Business Days after the date when due; (ii) any amount due
pursuant to Section 18.2 hereof shall not be paid on the date due; or (iii) any
payment of Supplemental Rent (other than Supplemental Rent described in the
preceding clause (ii)) or any other payment payable by Lessees hereunder or
under any other Operative Document (including any amount payable pursuant to
Article IX to the extent not included in the preceding clause (ii)) shall not be
paid within ten (10) Business Days after the date when due; or

 

(b)                                 any representation or warranty of any Lease
Obligor contained in any Operative Document to which such Person is a party or
in any document furnished to any Creditor in connection therewith shall be
incorrect or incomplete in any material respect when made, deemed made or
reaffirmed, as the case may be; or

 

(c)                                  a default shall occur in the performance or
observance of any term, covenant, condition or agreement to be performed or
observed on the part of any applicable Lease Obligor under Section 6.1, 13.1,
13.2, Article XVIII, XIX or XXI hereof, or Section 6.1(p)(x) of the
Participation Agreement in any respect that is materially adverse to the
interests of the Creditors, or Section 6.1 of the Participation Agreement (other
than Sections 6.1(a) through 6.1(n), 6.1(p), 6.1(w), 6.1(y), or 6.1(bb)); or

 

(d)                                 a default shall occur in the performance or
observance of any term, covenant, condition or agreement to be performed or
observed on the part of any applicable Lease Obligor under Section 8.1,
Section 9.1, Section 10.1 hereof or Section 6.1(q) of the Participation
Agreement and such default shall continue unremedied for a period of ten (10)
Business Days after the earlier of the date on which any Senior Officer of any
Lease Obligor shall have Actual Knowledge of such default and the date

 

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on which Agent Lessee (on behalf of Lessees) and Mandalay (on behalf of
Guarantors) receives written notice thereof from Trustee, Collateral Agent or
any Lender; or

 

(e)                                  any Lease Obligor shall default in the
performance or observance of any other term, covenant, condition or agreement on
its part to be performed or observed hereunder or under any Operative Document
to which such Person is a party (and not constituting an Event of Default under
any other clause of this Section 16.1), and such default shall continue
unremedied for a period of thirty (30) days after the earlier of the date on
which any Senior Officer of any Lease Obligor shall have Actual Knowledge of
such default and the date on which Agent Lessee (on behalf of Lessees) and
Mandalay (on behalf of Guarantors) receives written notice thereof from any
Creditor; or

 

(f)                                    the insurance required by Article XIII of
this Lease is not maintained and in place for any reason; or

 

(g)                                 there shall occur a Change in Control; or

 

(h)                                 Mandalay or any of its Significant
Subsidiaries (i) fails to pay the principal, or any principal installment, of
any present or future Indebtedness of $25,000,000 or more, or any guaranty of
present or future Indebtedness of $25,000,000 or more, on its part to be paid,
when due (or within any stated grace period), whether at the stated maturity,
upon acceleration, by reason of required prepayment or otherwise or (ii) fails
to perform or observe any other term, covenant or agreement on its part to be
performed or observed, or suffers any event to occur, in connection with any
present or future Indebtedness of $25,000,000 or more, or of any guaranty of
present or future Indebtedness of $25,000,000 or more, if as a result of such
failure or sufferance any holder or holders thereof (or an agent or trustee on
its or their behalf) has the right to declare such indebtedness due before the
date on which it otherwise would become due; or

 

(i)                                     Any event occurs which gives the holder
or holders of any Subordinated Debt (or an agent or trustee on its or their
behalf) the right to declare such indebtedness due before the date on which it
otherwise would become due, or the right to require the issuer thereof to redeem
or purchase, or offer to redeem or purchase, all or any portion of any
Subordinated Debt; or

 

(j)                                     Any Operative Document, at any time
after its execution and delivery and for any reason other than the agreement of
the Lenders or satisfaction in full of all the Obligations ceases to be in full
force and effect or is declared by a court of competent jurisdiction to be null
and void, invalid or unenforceable in any respect which, in any such event in
the reasonable opinion of the Requisite Lenders, is materially adverse to the
interests of the Lenders; or any Lease Obligor denies in writing that it has any
or further liability or obligation under any Operative Document, or purports in
writing to revoke, terminate or rescind same; or

 

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(k)                                  A final judgment against any Lease Obligor
or any of Mandalay’s Significant Subsidiaries is entered for the payment of
money in excess of $5,000,000 and, absent procurement of a stay of execution,
such judgment remains unsatisfied for thirty calendar days after the date of
entry of judgment, or in any event later than five days prior to the date of any
proposed sale thereunder; or any writ or warrant of attachment or execution or
similar process is issued or levied against all or any material part of the
property of any such Person and is not released, vacated or fully bonded within
thirty calendar days after its issue or levy; or

 

(l)                                     Any Lease Obligor or any of Mandalay’s
Significant Subsidiaries institutes or consents to the institution of any
proceeding under a Debtor Relief Law relating to it or to all or any part of its
property, or is unable or admits in writing its inability to pay its debts as
they mature, or makes an assignment for the benefit of creditors; or applies for
or consents to the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any part of
its property; or any receiver, trustee, custodian, conservator, liquidator,
rehabilitator or similar officer is appointed without the application or consent
of that Person and the appointment continues undischarged or unstayed for 60
calendar days; or any proceeding under a Debtor Relief Law relating to any such
Person or to all or any part of its property is instituted without the consent
of that Person and continues undismissed or unstayed for 60 calendar days; or

 

(m)                               Any Pension Plan maintained by Mandalay or any
of its Restricted Subsidiaries is determined to have a material “accumulated
funding deficiency” as that term is defined in Section 302 of ERISA and the
result is a Material Adverse Effect; or

 

(n)                                 The occurrence of a License Revocation with
respect to a license issued by any Governmental Agency of the State of Nevada
that continues for five calendar days; or

 

(o)                                 Any Lessee shall have sold substantially all
of its interest in any Facility without also purchasing or causing a third party
to purchase the Equipment for the Purchase Amount; or

 

(p)                                 Any Lessee shall violate its covenant set
forth in Section 11.1(a) and Lessor shall lose title to its interest in the
Equipment if any such Lien is not removed within thirty (30) days after the
attachment thereof or such loss of title is not remedied within thirty (30) days
after such loss occurs; or

 

(q)                                 The occurrence of an Event of Default (as
such term is or may hereafter be specifically defined therein) under any
Mandalay Loan Agreement or Replacement Loan Agreement.

 

Section 16.2.                    Remedies.  Upon the occurrence of any Lease
Event of Default and at any time thereafter, Lessor may, so long as such Lease
Event of Default is continuing, do one or more of the following as Lessor in its
sole discretion shall determine, without limiting any other

 

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right or remedy Lessor may have on account of such Lease Event of Default,
including the obligation of Lessees to purchase the Equipment as set forth in
Section 18.2 and any rights and remedies set forth in any Lease Supplement:

 

(a)                                  Lessor may, by notice to Agent Lessee,
rescind or terminate this Lease as to any or all of the Equipment as of the date
specified in such notice; provided, however, that no reletting or taking of
possession of the Equipment (or any portion thereof) by Lessor shall be
construed as an election on Lessor’s part to terminate this Lease unless a
written notice of such intention is given to Agent Lessee, and notwithstanding
any reletting or taking of possession, Lessor may at any time thereafter elect
to terminate this Lease for a continuing Lease Event of Default and no act or
thing done by Lessor or any of its agents, representatives or employees and no
agreement accepting a surrender or repossession of the Equipment shall be valid
unless the same be made in writing and executed by Lessor;

 

(b)                                 Lessor may demand that Lessees, and Lessees
shall upon any such demand of Lessor, return the Equipment promptly to Lessor in
the manner and condition required by, and otherwise in accordance with all of
the provisions of, Article IX, Section 8.2 and Section 14.2 hereof, and Lessees
shall comply with the requirements of Section 21.1 hereof to the extent required
by Lessor, as if the Equipment were being returned at the end of the Lease Term,
and Lessor shall not be liable for the reimbursement of Lessees for any costs
and expenses incurred by Lessees in connection therewith and without prejudice
to any other remedy which Lessor may have for possession of the Equipment, and
to the extent and in the manner permitted by Applicable Laws, Lessor may enter
upon any of the Facilities (or such other applicable casino or gaming
establishment) and take immediate possession (to the exclusion of Lessees, but
subject to Gaming Laws) of the Equipment or any part thereof, by summary
proceedings or otherwise, all without liability to Lessees for or by reason of
such entry or taking of possession, whether for the restoration of damage to
property caused by such taking or otherwise and, in addition to Lessor’s other
damages, Lessees shall be responsible for all reasonable costs and expenses
incurred by Lessor and the Lenders in connection with any reletting, including,
without limitation, reasonable brokers’ fees and all costs of any necessary
alterations or repairs made by Lessor;

 

(c)                                  Lessor may (i) subject to Applicable Laws,
sell all or any part of the Equipment at public or private sale, as Lessor may
determine, free and clear of any rights of Lessees (except that any Excess Sales
Proceeds shall be payable to Lessees) with respect thereto, in which event
Lessees’ obligation to pay Basic Rent hereunder for periods commencing after the
date of such sale shall be terminated; and (ii) if Lessor shall so elect, demand
that Lessees pay to Lessor, and Lessees shall pay to Lessor, on the date of such
sale, as damages for loss of bargain and not as a penalty (in lieu of Basic Rent
due for periods commencing on or after the Payment Date coinciding with such
date of sale (or, if the sale date is not a Payment Date, the Payment Date next
preceding the date of such sale)), an amount equal to (A) the excess, if any, of
(1) the Lease Balance calculated as of such Payment Date (including all Rent due
and unpaid to and including such Payment Date), over (2) the net proceeds of
such sale (that is, after deducting all

 

26

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reasonable costs and expenses incurred by Lessor or any Lender(s) incident to
such conveyance, including repossession costs, brokerage commissions,
pro-rations, transfer taxes, fees and expenses for counsel, recording fees, if
any, and any repair costs); plus (B) interest at the Applicable Default Rate on
the foregoing amount from such Payment Date until the date of payment;

 

(d)                                 Lessor may, at its option, elect not to
terminate this Lease with respect to the Equipment and may continue to collect
all Basic Rent, Supplemental Rent and all other amounts due Lessor (together
with all costs of collection) and enforce Lessees’ obligations under this Lease
as and when the same become due, or are to be performed, and at the option of
Lessor, upon any abandonment of the Equipment by Lessees or repossession of same
by Lessor, Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease and may make the necessary repairs (and Lessees shall pay
the reasonable costs of such repairs) in order to relet the Equipment, and relet
the Equipment or any part thereof for such term or terms (which may be for a
term extending beyond the term of this Lease) and at such rental or rentals and
upon such other terms and conditions as Lessor in its reasonable discretion may
deem advisable; and upon each such reletting all rentals actually received by
Lessor from such reletting shall be applied to Lessees’ obligations hereunder
and the other Operative Documents in such order, proportion and priority as
Lessor may elect in Lessor’s sole and absolute discretion.  If such rentals
received from such reletting during any period are less than the Rent with
respect to the Equipment to be paid during that period by Lessees hereunder,
Lessees shall pay any deficiency, as calculated by Lessor, to Lessor on the next
Payment Date;

 

(e)                                  Unless the Equipment has been sold in its
entirety, Lessor may, whether or not Lessor shall have exercised or shall
thereafter at any time (subject to Lessee’s prior performance in full under this
clause) exercise any of its rights under clause (b), (c) or (d) with respect to
the Equipment or any portion thereof, demand, by written notice to Agent Lessee
specifying a date (a “Default Purchase Date”) not earlier than ten (10) days
after the date of such notice, that Lessees purchase, on such Default Purchase
Date, the Equipment (or any remaining portions thereof) in the manner provided
in Section 18.2 and in accordance with the provisions of Article XXI;

 

(f)                                    Lessor may exercise any other right or
remedy that may be available to it under Applicable Laws, including all rights,
options and remedies of a secured party under the UCC (regardless of whether the
UCC or a law similar thereto has been enacted in a jurisdiction wherein the
rights or remedies are asserted), or proceed by appropriate court action (legal
or equitable) to enforce the terms hereof or to recover damages for the breach
hereof.  Separate suits may be brought to collect any such damages for any
period(s), and such suits shall not in any manner prejudice Lessor’s right to
collect any such damages for any subsequent period(s), or Lessor may defer any
such suit until after the expiration of the Lease Term, in which event such suit
shall be deemed not to have accrued until the expiration of the Lease Term;

 

27

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(g)                                 Lessor may retain and apply against the
Lease Balance all sums which Lessor would, absent such Lease Event of Default,
be required to pay to, or turn over to, Lessees pursuant to the terms of this
Lease; or

 

(h)                                 If a Lease Event of Default shall have
occurred and be continuing, Lessor, as a matter of right and with notice to
Agent Lessee, shall have the right to apply to any court and any applicable
Gaming Board, in either case, having jurisdiction to appoint a receiver or
receivers of the Equipment, and each Lessee hereby irrevocably consents to any
such appointment.  Any such receiver(s) shall have all of the usual powers and
duties of receivers in like or similar cases and all of the powers and duties of
Lessor in case of entry, and shall continue as such and exercise such powers
until the date of confirmation of the sale of the Equipment unless such
receivership is sooner terminated.

 

To the maximum extent permitted by law, each Lessee hereby waives (x) the
benefit of any appraisement, valuation, stay, extension, reinstatement and
redemption laws now or hereafter in force and all rights of marshaling in the
event of any sale of the Equipment or any interest therein and (y) any rights
now or in the future conferred by statute or otherwise which may require the
Lessor to sell, lease or otherwise use the Equipment in mitigation of the
Lessor’s damages or which may otherwise limit or modify any remedy of damages.

 

Lessor shall be entitled to enforce payment of the indebtedness and performance
of the obligations secured hereby and to exercise all rights and powers under
this instrument or under any of the other Operative Documents or other agreement
or any laws now or hereafter in force, notwithstanding some or all of the
obligations secured hereby may now or hereafter be otherwise secured, whether by
security agreement, pledge, lien, assignment or otherwise.  Neither the
acceptance of this Agreement nor its enforcement, shall prejudice or in any
manner affect Lessor’s right to realize upon or enforce any other security now
or hereafter held by Lessor, it being agreed that Lessor shall be entitled to
enforce this Agreement and any other security now or hereafter held by Lessor in
such order and manner as Lessor may determine in its absolute discretion.  No
remedy herein conferred upon or reserved to Lessor is intended to be exclusive
of any other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute.  Every power or remedy
given by any of the Operative Documents to Lessor or to which it may otherwise
be entitled, may be exercised, concurrently or independently, from time to time
and as often as may be deemed expedient by Lessor.

 

Section 16.3.                    Waiver of Certain Rights.  If this Lease shall
be terminated pursuant to Section 16.2, each Lessee waives, to the fullest
extent permitted by law, (a) any notice of the institution of legal proceedings
to obtain possession; (b) any right of redemption or repossession; (c) the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt or limiting Lessor with respect to the election of
remedies; and (d) any other rights which might otherwise limit or modify any of
Lessor’s rights or remedies under this Article XVI.

 

Section 16.4.                    Power of Attorney.  Each Lessee unconditionally
and irrevocably appoints Lessor as its true and lawful attorney-in-fact, with
full power of substitution, to the extent permitted by Applicable Laws, in its
name and stead and on its behalf, for the purpose of

 

28

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effectuating any sale, assignment, transfer or delivery hereunder, if an Event
of Default exists and is continuing, whether pursuant to foreclosure or power of
sale or otherwise, and in connection therewith to execute and deliver all such
bills of sale, assignments, releases (including releases of this Lease on the
records of any Governmental Agency) and other proper instruments as Lessor may
reasonably consider necessary or appropriate.  Each Lessee ratifies and confirms
all that such attorney or any substitute shall lawfully do by virtue hereof.  If
requested by Lessor or any purchaser, Lessees shall ratify and confirm any such
lawful sale, assignment, transfer or delivery by executing and delivering to
Lessor or such purchaser, all bills of sale, assignments, releases and other
proper instruments to effect such ratification and confirmation as may be
designated in any such request.

 

Section 16.5.                    Grant of Security Interest.  Each Lessee hereby
grants a security interest to Lessor in all of the Equipment and the other
Lessee Collateral and any proceeds thereof.  This Lease shall constitute a
security agreement within the meaning of the Uniform Commercial Code as enacted
in the State of Nevada, and if a Lease Event of Default has occurred and is
continuing, Lessor shall, in addition to all other rights available at law or
equity, have all of the rights provided to a secured party under Article 9 of
such Uniform Commercial Code.

 

Article XVII

 

Right to Cure

 

Section 17.1.                    Lessor’s Right to Cure Lessee’s Lease
Defaults.  Lessor, without waiving or releasing any obligation or Lease Event of
Default, may (but shall be under no obligation to), upon two (2) Business Days’
prior notice to Agent Lessee, remedy any Lease Event of Default for the account
and at the sole cost and expense of Lessees, including the failure by Lessee to
maintain the insurance required by Article XIII, and may, to the fullest extent
permitted by law, and notwithstanding any right of quiet enjoyment in favor of
Lessees, enter upon any Facility and the Equipment for such purpose and take all
such action thereon as may be necessary or appropriate therefor.  No such entry
shall be deemed to constitute a repossession of the Equipment.  All reasonable
out-of-pocket costs and expenses so incurred (including reasonable fees and
expenses of counsel), together with interest thereon at the Applicable Default
Rate from the date on which such sums or expenses are paid by Lessor, shall be
paid by Lessees to Lessor on demand as Supplemental Rent.

 

Article XVIII

 

Purchase Provisions

 

Section 18.1.                    Early Termination Option; Prepayment of Rent in
Respect of the Tranche B Lease Balance.  (a) Subject to the conditions contained
herein and without limitation of Lessees’ purchase obligation pursuant to
Section 18.2, on (i) any Payment Date occurring after, but not including, the
one year anniversary of the Closing Date or (ii) any Business Day after the
occurrence and during the continuance of a Lease Event of Default other than a
Lease Event of Default arising as a result of an Insolvency Event, Lessees may,
at their option, purchase all, but

 

29

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not less than all, of the Equipment (the “Early Termination Option”) for a price
equal to the Purchase Amount.  Lessees’ right to purchase the Equipment pursuant
to this Section 18.1 shall terminate automatically and without notice upon the
occurrence of a Lease Event of Default arising as a result of an Insolvency
Event.  In order to exercise its option to purchase the Equipment pursuant to
this Section 18.1, Agent Lessee shall give to Lessor not less than fifteen (15)
days’ prior written notice of such election to exercise, which election shall be
irrevocable when made.  If Lessees exercises their option pursuant to this
Section 18.1 then, upon Lessor’s receipt of all amounts due in connection
therewith, Lessor shall transfer to Lessees all of Lessor’s right, title and
interest in and to the Equipment in accordance with the procedures set forth in
Section 21.1, such transfer to be effective as of the date specified in the
notice described above.  Lessor agrees that it shall cooperate with Lessees in
effecting any transfer to a designee of Lessees pursuant to this Section 18.1.

 

(b)                                 Rent in respect of the Tranche B Lease
Balance shall be subject to prepayment as set forth in Section 2A.1(c) and
Section 2A.2 of the Participation Agreement.

 

Section 18.2.                    Acceleration of Equipment Purchase.  (a) 
Lessees shall be obligated to purchase for an amount equal to the Purchase
Amount Lessor’s interest in the Equipment (notwithstanding any prior election to
exercise its Early Termination Option pursuant to Section 18.1)
(i) automatically and without notice upon the occurrence of a Lease Event of
Default resulting from an Insolvency Event and (ii) as provided for in
Section 16.2(e), upon written demand of Lessor upon the occurrence of any other
Lease Event of Default.  In addition, if Lessor has terminated this Lease
pursuant to Section 16.2, Lessees shall, at the request of Lessor, for 180 days
after delivery of the Equipment, maintain (or cause to be maintained) the
Equipment in the condition required by Article 9.1, store the Equipment onsite
without cost to any Creditor and keep all of the Equipment insured in accordance
with Article XIII.  This Section 18.2(a) shall survive termination of this
Lease.

 

(b)                                 Any purchase under this Section 18.2 shall
be in accordance with the procedures for transfer set forth in Section 21.1.

 

Article XIX

 

End of Lease Term

 

Section 19.1.                    End of Lease Term.   At the scheduled
expiration date of the Lease Term, Lessees shall purchase (or designate another
to purchase) for cash for the Purchase Amount all, but not less than all, of the
Equipment on the last day of the Lease Term, and Lessor shall, upon the payment
to Lessor of the Purchase Amount then due and payable by Lessees under the
Operative Documents, transfer all of Lessor’s right, title and interest in and
to the Equipment pursuant to Section 21.1.

 

30

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Article XX

 

[Reserved]

 

Article XXI

 

 

Procedures Relating to Purchase of Equipment

 

Section 21.1.                    Provisions Relating to Conveyance of the
Equipment upon Purchase by Lessees or Certain Other Events.  In connection with
any termination of this Lease pursuant to the terms of Article XV, any purchase
of the Equipment in accordance with Article XVIII or Article XIX or in
connection with Lessees’ obligations under Section 16.2(e), then, upon the date
on which this Lease is to terminate with respect to the Equipment and upon
tender by Lessees or the third party purchaser of the Equipment of the amounts
set forth in Article XV, Sections 16.2(e), Article XVIII, or Article XIX, as
applicable:

 

(a)                                  Lessor shall execute and deliver to Lessees
(or to Lessees’ designee or applicable third party purchaser) at Lessees’ cost
and expense bills of sale in respect of Lessor’s interest in the Equipment
without representation and warranty except as to the absence of any Lessor Liens
attributable to Lessor.

 

(b)                                 the Equipment shall be conveyed to Lessees
“As Is” and in its then present physical condition.

 

(c)                                  Lessor shall execute and deliver to Lessees
a statement of termination of this Lease to the extent such Operative Documents
relate to the Equipment and shall use its best efforts to cause Collateral Agent
to execute and deliver a release of any Liens in favor of Collateral Agent
relating to the Equipment, releases of any Liens created by the Operative
Documents attributable to Collateral Agent, and termination statements for any
financing statements which are then of record naming Collateral Agent as the
secured party.

 

Article XXII

 

Acceptance of Surrender

 

Section 22.1.                    Acceptance of Surrender.  Except as otherwise
specifically provided herein, no surrender to Lessor of this Lease or of the
Equipment or of any part of any thereof or of any interest therein shall be
valid or effective unless agreed to and accepted in writing by Lessor and, prior
to the payment or performance of all obligations under the Loan Agreement and
termination of the Commitments, the Lenders, and no act by Lessor or the Lenders
or any representative or agent of Lessor or the Lenders, other than a written
acceptance, shall constitute an acceptance of any such surrender.

 

31

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Article XXIII

 

No Merger of Title

 

Section 23.1.                    No Merger of Title.  There shall be no merger
of this Lease or of the leasehold estate created hereby solely by reason of the
fact that the same Person may acquire, own or hold, directly or indirectly, in
whole or in part, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate, (b) title to the Equipment,
except as may expressly be stated in a written instrument duly executed and
delivered by the appropriate Person or (c) a beneficial interest in Lessor.

 

Article XXIV

 

Intent of the Parties

 

Section 24.1.                    Nature of Transaction.  It is the intention of
the parties that:

 

(a)                             the Overall Transaction constitutes a capital
lease from Lessor to Lessees for purposes of Lessees’ financial reporting,
treatment under GAAP;

 

(b)                            for purposes of federal and all state and local
income, transfer, franchise and other taxes, and for purposes of bankruptcy,
insolvency, conservatorship and receivership law (including the substantive law
upon which bankruptcy, conservatorship and insolvency and receivership
proceedings are based), and UCC and state commercial law purposes:

 

(i)                                     the Overall Transaction constitutes a
financing by the Lenders to Lessees and preserves ownership in the Equipment in
Lessees;

 

(ii)                                  the obligations of Lessees to pay the
interest component of Basic Rent shall be treated as payments of interest to the
Lenders, the interest component of Basic Rent due and payable to Lessor shall
equal all Interest due and payable to the Lenders, the obligations of Lessees to
pay the principal component of Basic Rent shall be treated as payments of
principal to the Lenders, and the payment by Lessees of any other amounts in
respect of the Lease Balance shall be treated as payments of interest to the
Lenders;

 

(iii)                               this Lease grants a security interest or
Lien, as the case may be, in the Equipment and the other Lessee Collateral in
favor of Lessor (which holds title to the Equipment solely as security for the
performance of Lessees’ payment and performance of the Obligations); and

 

(iv)                              the Loan Agreement grants Liens and security
interests in the Equipment and the other Borrower Collateral from Lessor to
Collateral Agent for the benefit of the Collateral Agent and the Lenders to
secure Lessor’s

 

32

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performance of all of its obligations under the Operative Documents and Lessees’
payment and performance of the Obligations.

 

Nevertheless, each Lessee acknowledges and agrees that none of Trustee, Trust
Beneficiary, Collateral Agent, Arranger or any Lender has made any
representations or warranties concerning the tax, accounting or legal
characteristics of the Operative Documents or any aspect of the Overall
Transaction and that each such Lessee has obtained and relied upon such tax,
accounting and legal advice concerning the Operative Documents and the Overall
Transaction as it deems appropriate.  None of Lessor, Trustee, Trust Beneficiary
or any of the Lenders will claim any tax benefits of ownership of the Equipment.

 

(c)                             Specifically, but without limiting the
generality of subsections (a) and (b) of this Section 24.1, Lessor and Lessees
further intend and agree that, for the purpose of securing Lessees’ obligations
under the Operative Documents, (i) this Lease shall also be deemed to be a
security agreement and financing statement within the meaning of Article 9 of
the UCC; (ii) the conveyance provided for hereby shall be deemed to be a grant
by Lessees to Lessor, for the benefit of the Collateral Agent and the Lenders,
of a lien and security interest in all of Lessees’ present and future right,
title and interest in and to the Equipment, including but not limited to
Lessees’ leasehold estate therein and all proceeds of the conversion, voluntary
or involuntary, of the foregoing into cash, investments, securities or other
property, whether in the form of cash, investments, securities or other property
to secure such obligations under the Operative Documents, effective on the date
hereof, to have and to hold such interests in the Equipment unto Lessor, for the
benefit of the Collateral Agent and the Lenders; (iii) the possession by Lessor
or the Collateral Agent of notes and such other items of property as constitute
instruments, money, negotiable documents or chattel paper shall be deemed to be
“possession by the secured party” for purposes of perfecting the security
interest pursuant to the UCC; and (iv) notifications to Persons holding such
property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of Lessees shall be deemed to
have been given for the purpose of perfecting such security interest under
Applicable Laws.  Lessor and Lessees shall, to the extent consistent with this
Lease, take such actions and execute, deliver, file and record such other
documents, financing statements and other security agreements as may be
necessary to ensure that, if this Lease were deemed to create a security
interest in the Equipment in accordance with this Section, such security
interest would be deemed to be a perfected security interest with priority over
all Liens other than Permitted Liens, under Applicable Laws and will be
maintained as such throughout the Lease Term.

 

Article XXV

 

Miscellaneous

 

Section 25.1.                    Survival; Severability; Etc.  Anything
contained in this Lease to the contrary notwithstanding, all claims against and
liabilities of Lessees or Lessor arising from events commencing prior to the
expiration or earlier termination of this Lease shall survive such

 

33

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expiration or earlier termination.  If any term or provision of this Lease or
any application thereof shall be declared invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.  If any right or option of Lessees provided in
this Lease, including any right or option described in Articles XIV, XV, XVIII
or XIX, would, in the absence of the limitation imposed by this sentence, be
invalid or unenforceable as being in violation of the rule against perpetuities
or any other rule of law relating to the vesting of an interest in or the
suspension of the power of alienation of property, then such right or option
shall be exercisable only during the period which shall end twenty-one (21)
years after the date of death of the last survivor of the descendants of
Franklin D. Roosevelt, the former President of the United States, Henry Ford,
the deceased automobile manufacturer, and John D. Rockefeller, the founder of
the Standard Oil Company, known to be alive on the date of the execution,
acknowledgment and delivery of this Lease.

 

Section 25.2.                    Amendments and Modifications.  Subject to the
requirements, restrictions and conditions set forth in the Participation
Agreement, neither this Lease nor any provision hereof may be amended, waived,
discharged or terminated except by an instrument in writing in recordable form
signed by Lessor and Agent Lessee.

 

Section 25.3.                    No Waiver.  No failure by Lessor or any Lessee
to insist upon the strict performance of any term hereof or to exercise any
right, power or remedy upon a default hereunder, and no acceptance of full or
partial payment of Rent during the continuance of any such default, shall
constitute a waiver of any such default or of any such term.  To the fullest
extent permitted by law, no waiver of any default shall affect or alter this
Lease, and this Lease shall continue in full force and effect with respect to
any other then existing or subsequent default.

 

Section 25.4.                    Notices.  All notices, demands, requests,
consents, approvals and other communications hereunder shall be in writing and
directed to the address described in, and deemed received in accordance with the
provisions of, Section 10.3 of the Participation Agreement.

 

Section 25.5.                    Successors and Assigns.  All the terms and
provisions of this Lease shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.

 

Section 25.6.                    Headings and Table of Contents.  The headings
and table of contents in this Lease are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.

 

Section 25.7.                    Counterparts.  This Lease may be executed in
any number of counterparts, each of which shall be an original, but all of which
shall together constitute one and the same instrument.

 

Section 25.8.        Governing Law.  This Lease shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York,
without regard to conflicts of law principles, except as to matters relating to
the creation of the leasehold estates hereunder and the exercise of rights and
remedies with

 

34

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respect thereto, which shall be governed by and construed in accordance with the
law of the State of Nevada.  Without limiting the foregoing, in the event that
this Lease is deemed to constitute a financing, which is the intention of the
parties, the laws of the State of New York, without regard to conflicts of laws
principles, shall govern the creation, terms and provisions of the indebtedness
evidenced hereby, but any lien created hereby and the creation, perfection and
the enforcement of said lien shall be governed by and construed in accordance
with the law of the State of Nevada.

 

Section 25.9.                    Highest Lawful Rate.  All obligations of
Lessees to make payments hereunder or in connection with any transaction
contemplated hereby shall be subject to the provisions of Section 3.5 of the
Participation Agreement.

 

Section 25.10.             Original Lease.  The single executed original of this
Lease marked “This Counterpart Is the Original Executed Counterpart” on the
signature page thereof and containing the receipt thereof of Collateral Agent,
on or following the signature page thereof shall be the Original Executed
Counterpart of this Lease (the “Original Executed Counterpart”).  To the extent
that this Lease constitutes chattel paper, as such term is defined in the UCC,
no security interest in this Lease may be created through the transfer or
possession of any counterpart other than the Original Executed Counterpart.

 

Section 25.11.             Limitations on Recourse.  The parties hereto agree
that, except as specifically set forth in this Lease or in any other Operative
Document, Bank shall have no personal liability whatsoever to any Lessee or any
Lessee’s respective successors and assigns for any claim based on or in respect
of this Lease or any of the other Operative Documents or arising in any way from
the Overall Transaction; provided, however, that Bank shall be liable in its
individual capacity (a) for its own willful misconduct or gross negligence (or
negligence in the handling of funds), (b) for any Tax based on, with respect to
or measured by any income, fees, commission, compensation or other amounts
received by it as compensation for services (including for acting as Lessor) or
otherwise under, or as contemplated by, the Operative Documents, (c) Lessor
Liens on the Equipment which are attributable to it, (d) for its representations
and warranties made in its individual capacity in the Participation Agreement or
in any certificate or documents delivered pursuant thereto, (e) for its failure
to perform any of its covenants and agreements set forth in the Participation
Agreement or any other Operative Document, and (f) as otherwise expressly
provided in the Operative Documents.

 

[Signature Pages Follow]

 

35

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In Witness Whereof, the parties have caused this Lease be duly executed and
delivered as of the date first above written.

 

 

Lessees:

Mandalay Resort Group, a Nevada
corporation

 

 

 

 

 

By

/s/ Glenn W. Schaeffer

 

 

 

Name: Glenn W. Schaeffer

 

 

Title: President

 

 

 

 

 

Mandalay Corp., a Nevada corporation

 

 

 

 

 

Ramparts, Inc., a Nevada corporation

 

 

 

 

 

New Castle Corp., a Nevada corporation

 

 

 

 

 

Circus Circus Casinos, Inc., a Nevada
corporation

 

 

 

 

 

By

/s/ Glenn W. Schaeffer

 

 

 

Name: Glenn W. Schaeffer

 

 

Title: President

 

S-1

--------------------------------------------------------------------------------

 

Lessor:

Wells Fargo Bank Northwest, National
Association, not in its individual capacity,
but solely as Trustee under the Trust
Agreement dated as of June 30, 2003, as
Lessor

 

 

 

 

 

By

/s/ Nancy M. Dahl

 

 

 

Name: Nancy M. Dahl

 

 

Title: Vice President

 

S-2

--------------------------------------------------------------------------------

 

THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART.

 

Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of the date hereof.

 

 

 

Wells Fargo Bank Nevada, National
Association, not in its individual capacity,
but solely as Collateral Agent

 

 

 

 

 

By

/s/ Nancy M. Dahl

 

 

 

Name: Nancy M. Dahl

 

 

Title: Trust Officer

 

S-3

--------------------------------------------------------------------------------

 

Description of the Facilities

[To Be Updated]

 

[Note:  The following description is compiled from Mandalay’s public
disclosures]

 

Mandalay Bay.  This property, which opened March 2, 1999, is the first major
resort on the Las Vegas Strip to greet visitors arriving in Las Vegas on I-15,
the primary thoroughfare between Las Vegas and southern California.  The
43-story South Seas themed hotel-casino resort has approximately 3,700 guest
rooms (including the 424-room Four Seasons at Mandalay Bay) and a
135,000-square-foot casino which, as of October 31, 2001, featured 2,126 slot
machines and 128 table games.  Mandalay Bay’s attractions include an 11-acre
tropical lagoon featuring a sand-and-surf beach and a three-quarter-mile lazy
river ride.  The property features 13 restaurants, such as Charlie Palmer’s
Aureole, Wolfgang Puck’s Trattoria Del Lupo, China Grill, rumjungle, Red Square
and Border Grill, as well as a House of Blues nightclub and restaurant,
including its signature Foundation Room (situated on Mandalay Bay’s top floor). 
Additional features include a 125,000-square-foot convention facility and a
30,000-square-foot spa.  Mandalay Bay offers multiple entertainment venues that
include the Shark Reef at Mandalay Bay featuring sharks and rare sea predators,
a 1,700-seat showroom, the rumjungle nightclub and a 12,000-seat special events
arena that features additional entertainment and sporting events.  Mandalay Bay
was designed to attract a higher income customer than historically targeted.  We
have commenced construction of a three-level convention and meeting complex. 
The facility will be located on approximately 16.5 acres adjacent to the
existing Mandalay Bay Conference Center and will include more than one million
square feet of exhibit space.  Upon completion of the project, Mandalay Bay will
offer a total of almost two million gross square feet of conference and exhibit
space.  Following the events of September 11, construction on the facility was
temporarily suspended.  Mandalay intends to resume construction in the first
quarter of its next fiscal year, with the facility currently expected to open in
January 2003.  The cost of the convention center, excluding land, preopening
expenses and capitalized interest, is estimated to be $235 million.  As of
October 31, 2001, Mandalay and/or its Subsidiaries had incurred costs of $46.5
million related to this project.

 

Luxor.  This property is an Egyptian-themed hotel and casino complex situated on
64 acres of our Mandalay mile, between Mandalay Bay and Excalibur.  The resort
features a 30-story pyramid and two 22-story hotel towers.  In total, the
property has 4,404 guest rooms.  The resort has a 120,000-square-foot casino
which as of October 31, 2001, featured 2,019 slot machines and 103 table games. 
Luxor offers 20,000 square feet of convention space, a 20,000-square-foot spa, a
1,200-seat showroom that features the off-Broadway show “Blue Man Group,” a
nightclub, and food and entertainment venues on three different levels beneath a
soaring hotel atrium.  The pyramid’s 2,454 guest rooms can be reached from the
four corners of the building by state-of-the-art “inclinators” which travel at a
39-degree angle.  Above the pyramid’s casino, the property offers a special
format motion base ride and an IMAX 2D/3D theater.  Luxor’s other public areas
include a buffet with a seating capacity of approximately 800, seven restaurants
including three gourmet restaurants, as well as a snack bar, a food court
featuring national fast food franchises, several cocktail lounges and a variety
of specialty shops.

 

EXHIBIT A

(to Master Lease)

 

--------------------------------------------------------------------------------

 

Excalibur.  This property is a castle-themed hotel and casino complex situated
on a 53-acre site immediately to the north of Luxor.  Excalibur has 4,008 hotel
rooms and a 110,000-square-foot casino which, as of October 31, 2001, featured
2,209 slot machines and 72 table games.  Excalibur’s other public areas include
a Renaissance fair, a medieval village, an amphitheater with a seating capacity
of nearly 1,000 where nightly mock jousting tournaments and costume drama are
presented, two dynamic motion theaters, various artisans’ booths and medieval
games of skill.  In addition, Excalibur has a buffet restaurant with a seating
capacity of approximately 1,300, seven themed restaurants, as well as several
snack bars, cocktail lounges and a variety of specialty shops.

 

Circus Circus-Las Vegas.  This property, which is our original resort, is a
circus-themed hotel and casino complex situated on approximately 69 acres on the
north end of the Las Vegas Strip. The property features 3,744 guest rooms and a
109,000-square-foot casino which, as of October 31, 2001, featured 2,229 slot
machines and 78 table games.  From a “Big Top” above the casino, Circus
Circus-Las Vegas offers its guests a variety of circus acts performed daily,
free of charge.  A mezzanine area overlooking the casino has a circus midway
with carnival-style games and an arcade that offers a variety of amusements and
electronic games.  Three specialty restaurants, a buffet with a seating capacity
of approximately 1,200, two coffee shops, three fast food snack bars, several
cocktail bars and a variety of gift shops and specialty shops are also available
to the guests at Circus Circus-Las Vegas.  The Adventuredome, covering
approximately five acres, offers theme park entertainment that includes a
high-speed, double-loop, double-corkscrew roller coaster, a coursing river flume
ride on white-water rapids, an IMAX motion base ride, several rides and
attractions designed for preschool age children, themed carnival-style midway
games, a state-of-the-art arcade, a 65-foot waterfall, animated life-size
dinosaurs, food kiosks and souvenir shops, all in a climate-controlled setting
under a giant space-frame dome.  Circus Circus-Las Vegas also offers
accommodations for approximately 384 recreational vehicles at the property’s
Circusland Recreational Vehicle Park.

 

A-2

--------------------------------------------------------------------------------

 

Lease Supplement No. 1

 

 

EXHIBIT B

(to Master Lease)

 

--------------------------------------------------------------------------------

 

Amortization Schedule

 

Tranche A

 

Pmt. #

 

Payment Date

 

Percent Amortization

 

% Unpaid
Balance

 

1

 

 

Dec-03

 

 

 

 

 

2

 

 

Mar-04

 

7.14

%

92.86

%

3

 

 

Jun-04

 

7.14

%

85.71

%

4

 

 

Sep-04

 

7.14

%

78.57

%

5

 

 

Dec-04

 

7.14

%

71.43

%

6

 

 

Mar-05

 

7.14

%

64.29

%

7

 

 

Jun-05

 

7.14

%

57.14

%

8

 

 

Sep-05

 

7.14

%

50.00

%

9

 

 

Dec-05

 

7.14

%

42.86

%

10

 

 

Mar-06

 

7.14

%

35.71

%

11

 

 

Jun-06

 

7.14

%

28.57

%

12

 

 

Sep-06

 

7.14

%

21.43

%

13

 

 

Dec-06

 

7.14

%

14.29

%

14

 

 

Mar-07

 

7.14

%

7.14

%

15

 

 

Jun-07

 

7.14

%

0.00

%

 

--------------------------------------------------------------------------------

 

Tranche B

 

Pmt. #

 

Payment Date

 

Percent Amortization

 

% Unpaid
Balance

 

1

 

 

Dec-03

 

 

 

 

 

2

 

 

Mar-04

 

0.8824

%

99.12

%

3

 

 

Jun-04

 

0.8824

%

98.24

%

4

 

 

Sep-04

 

0.8824

%

97.35

%

5

 

 

Dec-04

 

0.8824

%

96.47

%

6

 

 

Mar-05

 

0.8824

%

95.59

%

7

 

 

Jun-05

 

0.8824

%

94.71

%

8

 

 

Sep-05

 

0.8824

%

93.82

%

9

 

 

Dec-05

 

0.8824

%

92.94

%

10

 

 

Mar-06

 

0.8824

%

92.06

%

11

 

 

Jun-06

 

0.8824

%

91.18

%

12

 

 

Sep-06

 

0.8824

%

90.29

%

13

 

 

Dec-06

 

0.8824

%

89.41

%

14

 

 

Mar-07

 

0.8824

%

88.53

%

15

 

 

Jun-07

 

0.8824

%

87.65

%

16

 

 

Sep-07

 

0.8824

%

86.76

%

17

 

 

Dec-07

 

0.8824

%

85.88

%

18

 

 

Mar-08

 

0.8824

%

85.00

%

19

 

 

Jun-08

 

85.00

%

0.00

%

 

2

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