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.


 

















 


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

  



 


i

















 


	
  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

  



 


ii

















 


	
  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

  
					



 


iii

















 


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.


 

















 


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.


 


2

















 


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 


 


3

















 


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.


 


4

















 


(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 


 


5

















 


(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 


 


6

















 


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, 


 


7

















 


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 


 


8

















 


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 


 


9

















 


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 


 


10

















 


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).


 


11

















 


(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.


 


12

















 


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


 


13

















 


(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.


 


14

















 


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 


 


15

















 


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 


 


16

















 


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 


 


17

















 


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 


 


18

















 


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 


 


19

















 


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 


 


20

















 


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 


 


21

















 


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


 


22

















 


(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 


 


23

















 


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


 


24

















 


(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 


 


25

















 


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

















 


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

















 


(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

















 


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

















 


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

















 


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

















 


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

















 


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

















 


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

















 


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

















 


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