Document:

EXHIBIT
10.3

 

PARTICIPATION AGREEMENT

 

dated as of June 30, 2003

 

among

 

MANDALAY RESORT GROUP,

MANDALAY CORP.,

RAMPARTS, INC.,

NEW CASTLE CORP., AND

CIRCUS CIRCUS CASINOS, INC., 

as Lessees,

 

MANDALAY RESORT GROUP AND ITS

SUBSIDIARIES LISTED ON SCHEDULE I,

as Guarantors,

 

WELLS FARGO BANK NORTHWEST,
NATIONAL ASSOCIATION,
 not in its individual capacity,
but solely as  Lessor and Trustee,

 

THE PERSONS LISTED ON
SCHEDULE III,

as Lenders,

 

and

 

WELLS FARGO BANK NEVADA,
NATIONAL ASSOCIATION,

as Collateral Agent

 

 

BANC OF AMERICA LEASING & CAPITAL, LLC,

as Arranger

 

THE CIT GROUP/EQUIPMENT
FINANCING, INC.

as Documentation Agent

 

BANK OF SCOTLAND,

as Syndication Agent

 

 

Table of Contents

 

	
  SECTION

  	
   

  	
  HEADING

  
	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS

  
	
   

  	
   

  
	
  ARTICLE II

  	
  CONDITIONS;
  ACQUISITION AND LEASE; GENERAL PROVISIONS

  
	
   

  	
   

  
	
  Section 2.1.

  	
  Effectiveness
  of Agreement; Closing Conditions

  
	
  Section 2.2.

  	
  Sale and Purchase

  
	
  Section 2.3.

  	
  Participation in
  Purchase Price

  
	
  Section 2.4.

  	
  Advance Date Procedures

  
	
  Section 2.5.

  	
  Instructions
  to Trustee; Satisfaction of Conditions

  
	
  Section 2.6.

  	
  Postponement of Advance
  Date

  
	
  Section 2.7.

  	
  Obligations Several

  
	
  Section 2.8.

  	
  Amortization Schedule

  
	
  Section 2.9.

  	
  No More Than Two Advance
  Dates

  
	
  Section 2A.1.

  	
  Additional Equipment
  Collateral

  
	
  Section 2A.2.

  	
  Tranche B Rent Prepayment

  
	
  Section 2A.3.

  	
  Tranche A
  Refinancing of Tranche B Loans

  
	
   

  	
   

  
	
  ARTICLE III

  	
  INTEREST; FEES;
  TERMINATION AND REDUCTION OF COMMITMENTS

  
	
   

  	
   

  
	
  Section 3.1.

  	
  [Reserved]

  
	
  Section 3.2.

  	
  Interest on Loans

  
	
  Section 3.3.

  	
  Payments
  and Prepayments of Loans and Other Amounts

  
	
  Section 3.4.

  	
  Fees

  
	
  Section 3.5.

  	
  Highest Lawful Rate

  
	
   

  	
   

  
	
  ARTICLE IV

  	
  CERTAIN INTENTIONS OF
  THE PARTIES

  
	
   

  	
   

  
	
  Section 4.1.

  	
  Nature of Transaction

  
	
  Section 4.2.

  	
  Amounts Due Under Lease

  
	
  Section 4.3.

  	
  Distribution

  
	
  Section 4.4.

  	
  Adjustments

  
	
   

  	
   

  
	
  ARTICLE V

  	
  REPRESENTATIONS AND
  WARRANTIES

  
	
   

  	
   

  
	
  Section 5.1.

  	
  Representations
  and Warranties of the Lease Obligors

  
	
  Section 5.2.

  	
  Representations
  and Warranties of Each Lender

  
	
  Section 5.3.

  	
  Representations
  and Warranties of Trustee

  
	
  Section 5.4.

  	
  Representations
  and Warranties of Collateral Agent

  
	
   

  	
   

  
	
  ARTICLE VI

  	
  COVENANTS

  
	
   

  	
   

  
	
  Section 6.1.

  	
  Covenants of Lease Obligors

  

 

 

	
  ARTICLE VII

  	
  COVENANTS OF
  CREDITORS

  
	
   

  	
   

  
	
  Section 7.1.

  	
  Covenants of Trustee

  
	
  Section 7.2.

  	
  Covenants of Lenders

  
	
  Section 7.3.

  	
  Trust Agreement

  
	
  Section 7.4.

  	
  Loan Agreement

  
	
   

  	
   

  
	
  ARTICLE VIII

  	
  ASSIGNMENT BY
  LENDERS; PARTICIPATIONS

  
	
   

  	
   

  
	
  Section 8.1.

  	
  Assignments

  
	
  Section 8.2.

  	
  Participations

  
	
  Section 8.3.

  	
  Miscellaneous
  Provisions Regarding Assignments and Participations

  
	
   

  	
   

  
	
  ARTICLE IX

  	
  INDEMNIFICATION

  
	
   

  	
   

  
	
  Section 9.1.

  	
  General Indemnification

  
	
  Section 9.2.

  	
  General Tax Indemnity

  
	
  Section 9.3.

  	
  [Reserved.]

  
	
  Section 9.4.

  	
  Claims Procedure

  
	
  Section 9.5.

  	
  Gross
  Up

  
	
  Section 9.6.

  	
  Increased Commitment Costs

  
	
  Section 9.7.

  	
  Additional  Costs and Related Matters

  
	
  Section 9.8.

  	
  Trustee Indemnification

  
	
   

  	
   

  
	
  ARTICLE X

  	
  MISCELLANEOUS

  
	
   

  	
   

  
	
  Section 10.1.

  	
  Survival of Agreements

  
	
  Section 10.2.

  	
  No Broker, etc

  
	
  Section 10.3.

  	
  Notices

  
	
  Section 10.4.

  	
  Counterparts

  
	
  Section 10.5.

  	
  Amendments

  
	
  Section 10.6.

  	
  Headings, etc

  
	
  Section 10.7.

  	
  Parties in Interest

  
	
  Section 10.8.

  	
  Governing Law

  
	
  Section 10.9.

  	
  Severability

  
	
  Section 10.10.

  	
  Liability Limited

  
	
  Section 10.11.

  	
  [Reserved]

  
	
  Section 10.12.

  	
  Waiver of Jury Trial

  
	
  Section 10.13.

  	
  Confidentiality

  
	
  Section 10.14.

  	
  Limited Liability of
  Trustee

  
	
  Section 10.15.

  	
  Limited Liability
  of Collateral Agent

  
	
  Section 10.16.

  	
  Payment of
  Transaction Costs and Other Costs

  
	
  Section 10.17.

  	
  Reproduction of Documents

  
	
  Section 10.18.

  	
  Role
  of Banc of America Leasing & Capital, LLC

  
	
  Section 10.19.

  	
  Relationship of Parties

  
	
  Section 10.20.

  	
  Agent Lessee;
  Joint and Several Liability

  
	
  Section 10.21.

  	
  Submission to Jurisdiction

  

 

ii

 

	
  Section 10.22.

  	
  No
  Duty for Syndication Agent or Documentation Agent

  
	
   

  	
   

  
	
  ARTICLE XI

  	
  COLLATERAL AGENT

  
	
   

  	
   

  
	
  Section 11.1.

  	
  Appointment

  
	
  Section 11.2.

  	
  Delegation of Duties

  
	
  Section 11.3.

  	
  Exculpatory Provisions

  
	
  Section 11.4.

  	
  Reliance by Collateral
  Agent

  
	
  Section 11.5.

  	
  Notice of Default

  
	
  Section 11.6.

  	
  Non-Reliance
  on Collateral Agent and Arranger

  
	
  Section 11.7.

  	
  Collateral
  Agent in Its Individual Capacity

  
	
  Section 11.8.

  	
  Successor Collateral Agent

  

 

iii

 

	
  Appendix 1

  	
  —

  	
  Definitions and Interpretation

  
	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  
	
   

  	
   

  
	
  Schedule I

  	
  List of Guarantors

  
	
  Schedule II

  	
  [Intentionally Omitted]

  
	
  Schedule III

  	
  Lenders’ Commitments and Commitment Percentages

  
	
  Schedule IV

  	
  Addresses for Payments and Other Communications

  
	
  Schedule V

  	
  General Description of Categories of Equipment

  
	
  Schedule VI

  	
  Filings and Recordings

  
	
  Schedule VII

  	
  Amortization Schedule

  
	
  Schedule VIII

  	
  Disclosure Schedule

  
	
   

  	
   

  
	
  Exhibits

  	
   

  
	
   

  	
   

  
	
  Exhibit A-1

  	
  Form of Assignment and Acceptance (Tranche A Notes)

  
	
  Exhibit A-2

  	
  Form of Assignment and Acceptance (Tranche B Notes)

  
	
  Exhibit B

  	
  Form of Bill of Sale

  
	
  Exhibit B-2

  	
  Form of Equipment Delivery Date Bill of Sale

  
	
  Exhibit C

  	
  Form of Notice of Delivery

  
	
  Exhibit C-1

  	
  Form of Notice of Equipment Delivery Date

  
	
  Exhibit D-1

  	
  Form of Opinion of Wolf, Block, Schorr and
  Solis-Cohen LLP, special counsel to Lease Obligors

  
	
  Exhibit D-2

  	
  Form of Opinion of Jones Vargas, special Nevada
  counsel to Lease Obligors

  
	
  Exhibit D-3

  	
  Form of Opinion of Ray, Quinney & Nebeker,
  special counsel to Trustee

  
				

 

iv

 

Participation Agreement

 

This Participation Agreement (this “Agreement”),
dated as of June 30, 2003, is entered into by and among 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(each, a “Lessee” and collectively, “Lessees”); Mandalay Resort Group, a Nevada
corporation, and each of its Subsidiaries listed on Schedule I hereto, as
Guarantors; Wells Fargo Bank Northwest,
National Association, a national banking association,  not in its individual capacity, but
solely   as Lessor and Trustee (“Trustee”); the Persons listed on
Schedule III hereto, as Lenders; and Wells
Fargo Bank Nevada, National
Association, a national banking association, not in its individual
capacity, except as expressly stated herein, but solely as Collateral Agent.

 

W i t n e s s e t h:

 

Whereas, concurrently with the
execution and delivery of this Agreement, Banc of America Leasing &
Capital, LLC, as Trust Beneficiary, Trustee and Collateral Agent, have entered
into the Trust Agreement pursuant to which Trustee agrees, among other things,
(a) to hold the Trust Estate for the benefit of the Trust Beneficiary and
the Collateral Agent on the terms specified in the Trust Agreement and
(b) subject to the terms and conditions hereof, to cause the Trust to
purchase the Equipment from each applicable Seller and concurrently lease such
Equipment to the applicable Lessees;

 

Whereas, pursuant to the terms of the
Trust Agreement, Trustee is authorized and directed by the Trust Beneficiary
(a) to accept delivery of each Bill of Sale evidencing the purchase of
each item of Equipment by the Trust and (b) to execute and deliver the
Lease (including the Master Lease and all applicable Lease Supplements)
relating to the Equipment, pursuant to which Trustee agrees to lease to the
applicable Lessees, and the applicable Lessees agree to lease from Trustee, the
applicable Equipment to be delivered on each Advance Date;

 

Whereas, concurrently with the
execution and delivery of this Agreement, Trustee has entered into the Loan
Agreement with the Collateral Agent and the Lenders pursuant to which Trustee
in its capacity as Borrower agrees, among other things, to issue the Notes to
the Lenders as evidence of Trustee’s indebtedness;

 

Whereas, the proceeds of the Loans will
be applied to effect the purchase of the Equipment by the Trust contemplated
hereby; and

 

Whereas, to secure the repayment of the
Lenders’ respective Loans, Collateral Agent, on behalf of the Lenders, will
have the benefit of a Lien on the Equipment, the other Collateral and the Trust
Estate.

 

Whereas, Lessees’ obligations under the
Operative Documents will be guaranteed pursuant to the terms of the Guaranty;

 

 

Now, Therefore, in consideration of the
mutual terms and conditions herein contained, the parties hereto agree as
follows:

 

Article I

 

Definitions

 

Unless the context shall otherwise require, capitalized terms used but
not defined herein (including those used in the foregoing recitals) shall have
the meanings specified in Appendix 1 hereto for all purposes hereof; and
the rules of interpretation set forth in Appendix 1 hereto shall apply to
this Agreement.

 

Article II

 

Conditions; Acquisition and Lease; General
Provisions

 

Section 2.1.                           Effectiveness of Agreement; Closing
Conditions.  This
Agreement shall become effective upon the happening of each of the conditions
set forth in this Section 2.1 (the “Closing Date”) it being agreed upon by
the parties hereto that the obligation of Trustee and each Lender to perform
their respective obligations on the Closing Date shall be subject to the
fulfillment to the satisfaction of, or the waiver in writing by, Trustee,
Collateral Agent and each Lender of the conditions precedent set forth in this
Section 2.1 (except that the obligation of any party hereto shall not be
subject to such party’s own performance or compliance).  The closing of the transactions contemplated
hereby (the “Closing”)
shall take place beginning at 11:00 a.m., Chicago time, on the Closing
Date at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago,
Illinois  60603, or at such other place
or time as the parties hereto shall agree.

 

(a)                                  Authorization,
Execution and Delivery of the Operative Documents; No Default.  Each of the Operative Documents
shall have been duly authorized, executed and delivered by each of the
respective parties thereto, and shall be in full force and effect.  No Default or Event of Default shall exist under
any of the Operative Documents to which any Lease Obligor is a party (either
before or after giving effect to the transactions contemplated by the Operative
Documents).

 

(b)                                 Formation
and Authorization Documents and Certificates of Good Standing.  Collateral Agent shall have received (with a
copy for each Lender) from each Lease Obligor:

 

(i)                                     certificates
of existence and good standing issued by the Secretary of State of the State of
Nevada each dated within thirty (30) Business Days of the Closing Date;

 

(ii)                                  copies
of the respective articles of incorporation and by-laws certified to be true
and correct by a Responsible Official of each Lease Obligor; and

 

2

 

(iii)                               certificates
of a Responsible Official of each Lease Obligor certifying (A) as to the
resolutions of the Board of Directors duly authorizing the execution, delivery
and performance by such Lease Obligor, of each Operative Document to which it
is or will be a party, (B) as to the incumbency and signature of persons
authorized to execute and deliver such documents and agreements on behalf of
such Lease Obligor, (C) as to the accuracy of all representations and
warranties made by such Lease Obligor in all applicable Operative Documents and
the absence of Defaults and Events of Default and (D) that no labor
controversy, litigation, arbitration or governmental investigation or
proceeding shall be pending or, to the knowledge of such Lease Obligor,
threatened against any Lease Obligor which is reasonably likely to have a
Material Adverse Effect.

 

(c)                                  Accuracy of
Lease Obligor Representations and Warranties. 
Each of the representations and warranties of the Lease
Obligors contained herein and in each of the other Operative Documents shall be
true and correct on and as of such date in all material respects.

 

(d)                                 No
Material Adverse Effect.  Since
January 31, 2003, there shall not have occurred any Material Adverse
Effect.

 

(e)                                  Opinions of
Counsel.  Trustee, Collateral
Agent and each Lender shall have received the legal opinions set forth below,
each dated as of the Closing Date and addressed to each of them:

 

(i)                                     from
Wolf, Block, Schorr and Solis-Cohen LLP, special counsel to the Lease Obligors,
as to the matters set forth in the form of Exhibit D-1;

 

(ii)                                  from
Jones Vargas, special Nevada counsel to the Lease Obligors, as to the matters
set forth in the form of Exhibit D-2; and

 

(iii)                               from
Ray, Quinney & Nebeker, special counsel to Trustee, as to the matters set
forth in the form of Exhibit D-3.

 

(f)                                    Financial
Statements.  Collateral Agent
shall have received (with copies for each Lender) copies of the audited
consolidated financial statements of Mandalay and its Subsidiaries for the
Fiscal Year ended January 31, 2003, together with a statement or
certificate from the controller, chief accounting officer, treasurer or chief
financial officer of Mandalay to the effect that (i) such financial
statements are true, complete and correct, (ii) the financial condition of
Mandalay and its Subsidiaries has not materially adversely changed since the
date of such financial statements and (iii) no other event affecting
Mandalay and its Subsidiaries shall have occurred since the date of such
financial statements which could reasonably be expected to have a Material Adverse
Effect.

 

(g)                                 Taxes.  All Taxes due and payable by each Lease
Obligor on or prior to the Closing Date in connection with the execution,
delivery, recording and filing of any 

 

3

 

of the Operative Documents or in connection with the
consummation of any of the transactions contemplated hereby or by any of the
other Operative Documents shall have been paid in full.

 

(h)                                 Appraisal.  Not less than three (3) days prior to the
Closing Date, Trustee, Collateral Agent and each Lender shall have received an
appraisal (the “Appraisal”) prepared by the Appraiser in form and substance
satisfactory to each of the Lenders which shall establish (by the use of
appraisal methods satisfactory to the Lenders) the Fair Market Value of the
Equipment as of the Closing Date and the last day of the Lease Term.

 

(i)                                     Searches.  Collateral Agent and each Lender shall have
received reports (each, a “Search”) as of a date no more than ten
(10) days prior to the Closing Date, in each case prepared by a search company
reasonably satisfactory to the Lenders, of judgment liens, tax liens, UCC
filings and other encumbrances of record with respect to the Lease Obligors and
the Equipment with the applicable filing offices in the State of Nevada, and
such reports shall show no Liens other than Permitted Liens.

 

(j)                                     Governmental Approvals, Permits, Consents, etc.
 Collateral Agent shall have
received copies of all material permits, approvals or consents by all
Governmental Agencies (if any) required for or in connection with the use and
operation of the Equipment and the transactions provided for in this Agreement
as of the Closing Date.

 

(k)                                  Litigation.  No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Agency shall, and no action or
proceeding shall be pending or threatened which in the reasonable judgment of
the Lenders would or might, enjoin, prohibit, limit or restrain the Closing or
the making of any Loan.

 

(l)                                     Satisfactory
Legal Form.  All documents
executed or submitted pursuant hereto by or on behalf of any Lease Obligor
shall be satisfactory in form and substance to each Lender and its counsel; the
Lenders and their counsel shall have received all information, approvals,
opinions, documents or instruments as the Lenders or their respective counsel
may reasonably request.

 

(m)                               Further
Assurances, etc.  Collateral
Agent shall have received such other and further instruments, duly executed,
acknowledged (if appropriate) and delivered, as the Lenders reasonably shall
have requested in connection with the Closing and the Operative Documents.

 

(n)                                 Transaction
Costs.  Lessees shall have
paid all Transaction Costs invoiced three Business Days prior to the Closing
Date to the parties to whom such Transaction Costs are payable.  Such payment shall be made by wire transfer
of immediately available funds.

 

4

 

(o)                                 Payment of
Fees.  Trustee, Collateral
Agent, Arranger and each Lender shall have received payment of all fees that
are due and payable on the Closing Date pursuant to the Operative Documents and
the Fee Letters.

 

(p)                                 Closing
Date.  The Closing Date shall
occur on or prior to June 30, 2003, unless the parties to this Agreement
hereafter agree in writing to a later Closing Date.

 

(q)                                 Initial
Advance Date.  All of the
conditions precedent set forth in Section 2.4(c) for the occurrence of the
Initial Advance Date shall have been satisfied.

 

Section 2.2.                           Sale and Purchase.  Subject to the terms and conditions hereof
and on the basis of the representations and warranties set forth herein,
Trustee agrees to purchase from each applicable Seller on the applicable
Advance Date the items of Equipment of such Seller referred to in the notice
given pursuant to Section 2.4(a), the types of which Equipment are
generally described in Schedule V hereof and, in connection therewith,
Trustee agrees to pay to the applicable Seller the cost for each such item of
Equipment; provided,
however, that Trustee shall not be obligated to purchase on any
Advance Date any item of Equipment that is destroyed, damaged, defective, in
unsuitable condition or otherwise unacceptable to the applicable Lessee for
lease pursuant to the Lease.  Each
Seller shall deliver its respective items of Equipment to Trustee (or its
designee) and Trustee (or its designee) shall accept such delivery of the
applicable Equipment on the applicable Advance Date.

 

Section 2.3.                           Participation in Purchase Price.  (a) (i) The first Advance shall
occur on the Closing Date (the “Initial Advance Date”).  The second Advance Date shall occur on or
prior to December 31, 2003 on the fifteenth (15th) or the last day of any
calendar month (unless, with respect to the second Advance Date, if such day is
not a Business Day, then the second Advance Date shall occur on the next
succeeding Business Day).  On the
Initial Advance Date, subject to the terms and conditions hereof and on the
basis of the representations and warranties set forth herein: (A)  each
Tranche A Lender shall make a Tranche A Loan to Trustee in an amount
equal to its Commitment Percentage of the Initial Tranche A Advance and
(B) each Tranche B Lender shall make a Tranche B Loan to Trustee
in an amount equal to its Tranche B Commitment.

 

(ii)                                  On
the second Advance Date, if any, subject to the terms and conditions hereof and
on the basis of the representations and warranties set forth herein, each
Tranche A Lender shall make a Tranche A Loan to Trustee in an amount equal to
its Commitment Percentage of the principal amount of the Tranche B Loans
to be prepaid on such Advance Date pursuant to Section 2A.2(a), and, to
the extent there remains unfunded Tranche A Commitments, each
Tranche A Lender will fund its Commitment Percentage of the aggregate
amount of the requested Advance, but in no event shall any Tranche A
Lender’s total funding in respect of the Tranche A Loans exceed its
Tranche A Commitment.

 

(iii)                               The
aggregate amount of all Tranche A Commitments and Tranche B
Commitments shall not exceed the Total Commitment.  The applicable Lender shall make its Loan (or Loans, as the case
may be) to Trustee on each Advance Date to be held 

 

5

 

and applied by Trustee toward the payment of the
Purchase Price for the Equipment as provided in Section 2.4.  Notwithstanding any other provision hereof,
no Lender shall be permitted or required to fund any Loan on any Advance Date
to the extent that, after giving effect thereto, the aggregate amount advanced
would exceed such Lender’s Commitment, or the aggregate original principal
amount of all Loans made on such Advance Date would exceed the Total
Commitment.  No amounts paid or prepaid
with respect to the Loans may be readvanced.

 

(b)                                 Each
amount made available by a Lender pursuant to this Section 2.3 shall be
evidenced by one or more Notes issued by Trustee payable to the order of such
Lender in a principal amount equal to (i) in the case of any
Tranche A Lender, such Lender’s Tranche A Commitment and (ii) in
the case of any Tranche B Lender, such Lender’s Tranche B Commitment,
and each such Note shall be repayable in accordance with the terms of the Loan
Agreement.

 

Section 2.4.                           Advance Date Procedures.  (a) Not later than 11:00 a.m., Chicago time, on the
third (3rd) Business Day preceding each Advance Date, the Agent Lessee shall
give Collateral Agent written notice of the proposed Advance Date in the form
of Exhibit C (the “Notice of Delivery”).  Collateral Agent shall promptly forward a
copy of such Notice of Delivery to Lessor and each Lender.  The Notice of Delivery shall specify in
reasonable detail the Equipment to be sold to Trustee, and leased by Lessees,
on such Advance Date, the aggregate Purchase Price of such Equipment, and the
respective amounts of Tranche A Loans and Tranche B Loans required to
be advanced with respect to such Equipment. 
Prior to 12:00 p.m., Chicago time, on each Advance Date, and
immediately prior to the sale of the Equipment to Trustee and the lease and
acceptance of the Equipment by Lessees, the applicable Lenders shall make their
Loan(s) to Trustee, in either case, by transferring or delivering the amount
requested by Lessees in the Notice of Delivery, in funds immediately available
on such Advance Date, to Trustee.

 

(b)                                 Upon
receipt by Trustee on each Advance Date of the full amount of the Purchase
Price for the Equipment delivered on such Advance Date, Trustee shall, subject
to the conditions set forth in Section 2.4(c), pay to the applicable
Sellers from the funds then held by Trustee, in immediately available funds, an
amount equal to the Purchase Price for the items of Equipment delivered by such
Sellers on such Advance Date, and simultaneously therewith:

 

(i)                                     Sellers
shall deliver (in accordance with Bills of Sale evidencing the purchase and the
transfer of) good and marketable legal title in the applicable items of
Equipment to Trustee;

 

(ii)                                  Lessor
shall, pursuant to the Lease, lease the Equipment delivered on each Advance
Date to Lessees, and Lessees, pursuant to the Lease, shall accept delivery of
such items of Equipment under the Lease (such lease, delivery and acceptance of
such items of Equipment under the Lease being conclusively evidenced by the
execution and delivery by Lessees and Lessor of Lease Supplements to the Lease
concerning such Equipment so delivered);

 

6

 

(iii)                               the
applicable Lessees shall confirm acceptance of such items of Equipment from
such Sellers for all purposes as among Trustee and Lessees, such confirmation
to be conclusively evidenced by the execution and delivery by each such Lessee
(or its respective authorized representative) of a Lease Supplement; and

 

(iv)                              with
respect to the Initial Advance Date, Trustee shall execute and deliver the
Notes to the Lenders.  Each of the
Lessees, Lessor, Trustee, Collateral Agent and the Lenders hereby agree to take
all actions required to be taken by it pursuant to this Section 2.4(b).

 

(c)                                  Conditions
to Advance.  The obligation
of Trustee to make an Advance on each Advance Date and the obligations of the
applicable Lenders to make the related fundings of their Loans on such Advance
Date are subject to each of the following conditions precedent in addition to
those elsewhere in this Section 2.4:

 

(i)                                     Closing Date
Conditions.  Each of the
conditions precedent set forth in Section 2.1 shall have been satisfied or
waived as of the Closing Date.

 

(ii)                                  Filings and
Recordings.  All fees and
Taxes with respect to any recordings, filings or registrations made pursuant to
Section 2.4(c)(viii) (including with respect to any and all financing
statements) shall have been paid in full, and satisfactory evidence thereof
shall have been delivered to Trustee and Collateral Agent, or arrangements for
such payment shall have been made to the satisfaction of the Lenders.

 

(iii)                               Insurance.  Collateral Agent (for the benefit of the
Creditors) shall have received (with copies for Trustee and each Lender)
evidence of each of the insurance policies required to be maintained pursuant
to the Lease, setting forth the respective coverages, limits of liability,
carrier, policy number and period of coverage, accompanied by affidavits,
certificates, paid bills or other documents evidencing that all premium
payments are current.

 

(iv)                              Bills of
Sale.  Collateral Agent shall
have received (with a copy for each Lender) a fully executed bill of sale
(each, a “Bill
of Sale”) from each Seller to Trustee substantially in the form of
Exhibit B with respect to the items of Equipment identified in the Notice
of Delivery.

 

(v)                                 Lease
Supplements.  Each Lessee
shall have delivered to Collateral Agent (with a copy for each Lender) a fully
executed Lease Supplement with respect to each item of Equipment to be leased
by it.

 

(vi)                              UCC
Termination Statements. 
Sellers shall have delivered to Collateral Agent (with a copy for each
Lender) fully executed copies of UCC termination statements (Form UCC-3)
sufficient to release all Liens (other than Permitted Liens), if any, on the
items of Equipment identified in the Notice of Delivery and evidence of such release.

 

7

 

(vii)                           Third
Party Approvals.  All third party
approvals necessary for the operation and use of the Equipment and for Lessees
to perform their respective obligations with respect to the Lease and the other
Operative Documents shall have been obtained.

 

(viii)                        Financing
Statements; Supplemental Searches; Consents and Waivers.  Collateral Agent (with a copy for
each Lender) shall have received (A) from each Lessee, duly executed UCC
financing statements covering all Equipment to be sold to Trustee and leased to
such Lessee on the Advance Date, identifying such Lessee as debtor, Trustee as
secured party and Collateral Agent as assignee, for the benefit of the Lenders,
and such financing statements shall have been filed in each applicable
jurisdiction, (B) confirming “on-line” Searches acceptable to the Lenders
as to the Lease Obligors, and (C) such releases of liens and termination
statements (including UCC termination statements as set forth in Section 2.4(c)(vi),
as may be necessary to ensure a first priority perfected security interest in
the Equipment which may be deemed “fixtures”.

 

(ix)                                No
Casualty.  No Casualty shall
have occurred with respect to any item of Equipment being delivered on the
Advance Date.

 

(x)                                   Representations
and Warranties True; Absence of Defaults. 
Each of the representations and warranties made by or on
behalf of Lease Obligors, the Trustee in its individual capacity and the
Collateral Agent in its individual capacity under the Operative Documents shall
be true in all material respects on and as of the Advance Date, except that any
such representation or warranty which is expressly made only as of an earlier
date need be true in all material respects only as of such date, and there
shall exist no Default or Event of Default.

 

(xi)                                No Material
Adverse Effect.  Since the
Closing Date, there shall not have occurred any Material Adverse Effect.

 

(xii)                             Litigation.  No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Agency shall, and no action or
proceeding shall be pending or threatened which in the reasonable judgment of
the Lenders would or could reasonably be expected to, enjoin, prohibit, limit
or restrain the making of any Loan.

 

(xiii)                          Satisfactory
Legal Form.  All documents
executed or submitted as of the Advance Date by or on behalf of any Lease
Obligor shall be satisfactory in form and substance to the Lenders and their
counsel.  The Lenders and their counsel
shall have received all information, approvals, opinions, documents or
instruments as the Lenders or their respective counsel may reasonably request.

 

(xiv)                         Further
Assurances, etc.  Collateral
Agent shall have received such other and further instruments, duly executed,
acknowledged (if appropriate) and delivered, as the Lenders reasonably shall
have requested in connection with the Advance and the Operative Documents.

 

8

 

(xv)                            Transaction
Costs.  Lessees shall have
paid all Transaction Costs invoiced two (2) Business Days prior to the Advance
Date to the parties to whom such Transaction Costs are payable (to the extent
that such Transaction Costs were not previously paid pursuant to
Section 2.1(n)).  Such payment
shall be made by wire transfer of immediately available funds.

 

(xvi)                         Appraisal.  With respect to the second Advance Date, not
less than fifteen (15) days prior to the second Advance Date, Trustee,
Collateral Agent and each Lender shall have received an appraisal prepared by
the Appraiser in form and substance satisfactory to each of the Lenders which
shall establish (by the use of appraisal methods satisfactory to the Lenders)
the Fair Market Value of the Equipment to be subjected to the Lease on the
second Advance Date and the expected Fair Market Value of such Equipment on
last day of the Lease Term.

 

(xvii)                      Equipment
Type.  The type of Equipment
to be subjected to the Lease on such Advance Date shall be of a type acceptable
to each Lender in its sole discretion.

 

(xviii)                   Tranche B
Prepayment.  With respect to
the second Advance Date, the Tranche B Lenders that have elected to be prepaid
pursuant to Section 2A.3 shall have been prepaid by the Lessees.

 

(xix)                           Amendments
or Consents to Mandalay Loan Agreements.  With respect to the second Advance Date, the Mandalay Loan
Agreements shall have been amended, or all required consents thereto shall have
been obtained, as is necessary to permit the second Advance Date.

 

(xx)                              Searches.  Collateral Agent shall have received reports
(each, a “Search”)
as of a date no more than ten (10) days prior to the Advance Date, in each case
prepared by a search company reasonably satisfactory to the Lenders, of
judgment liens, tax liens, UCC filings and other encumbrances of record with
respect to the Lease Obligors and the Equipment to be subjected to the Lease on
the second Advance Date with the applicable filing offices in the State of
Nevada, and such reports shall show no Liens other than Permitted Liens.

 

(xxi)                           Authorization,
Execution and Delivery of Operative Documents.  Each of the Operative Documents to be
entered into on such Advance Date shall have been duly authorized, executed and
delivered by each of the respective parties thereto, and shall be in full force
and effect.

 

Section 2.5.                           Instructions to Trustee;
Satisfaction of Conditions. 
(a)  Each Lender agrees that its authorization to Trustee to
release to the Sellers the proceeds of its Loan(s) shall constitute such
Lender’s agreement, without further act, notice or confirmation, that all conditions
to the Advance set forth in Section 2.4 or 2A.3, as the case may be, were
either met to the satisfaction of such Lender or, if not so met, were waived by
it.

 

9

 

Section 2.6.                           Postponement of Advance Date.  (a) The scheduled Advance Date
specified in any Notice of Delivery (or subsequently specified in a notice of
postponement pursuant to this Section 2.6) may be postponed for any reason
(but to no later than December 31, 2003, unless the parties to this
Agreement hereafter agree in writing to a later Advance Date) if the Agent
Lessee gives Trustee, Collateral Agent and the Lenders facsimile or telephonic
(confirmed in writing) notice of the postponement and notice of the date to
which the Advance Date has been postponed, the notice of postponement to be
received by each party no later than 10:00 a.m., Nevada time, on the
scheduled Advance Date specified in the Notice of Delivery (or subsequently
specified in a notice of postponement pursuant to this Section 2.6), and
the term “Advance Date” as used in this Agreement shall mean the postponed
“Advance Date”.

 

(b)                                 In
the event of any postponement of a scheduled Advance Date pursuant to this
Section 2.6 (any such scheduled Advance Date being referred to as a
“Scheduled Advance Date” for the purposes of this Section 2.6),
(i) Lessees, jointly and severally, will reimburse the Lenders for Break
Costs and for the loss of the use of their funds deposited with Trustee
pursuant to Section 2.4(a) occasioned by such postponement or failure to
accept by paying to the Lenders, on demand, interest at the Base Rate for the
period from and including such Scheduled Advance Date to but excluding the
earlier of the date upon which such funds are returned (unless such funds are
returned after 9:00 a.m., Chicago time, in which case such date of return
shall be included) or the actual date of delivery, and (ii) Trustee will
return not later than 9:00 a.m., Chicago time, on the first Business Day
following such Scheduled Advance Date, any funds which it shall have received
from the Lenders as their respective Commitments, absent instruction from the
Agent Lessee, the Lenders to retain such funds until the specified date of
postponement established under Section 2.6(a).

 

(c)                                  Trustee
agrees that, in the event it has received telephonic notice (to be confirmed
promptly in writing) from the Agent Lessee on a Scheduled Advance Date that
such Scheduled Advance Date is to be postponed, it will if instructed in the
aforementioned notice from the Agent Lessee (which notice shall specify the
securities to be purchased) use reasonable commercial efforts to invest, at the
risk of the Agent Lessee (except as provided below with respect to Trustee’s
gross negligence or willful misconduct or a failure to account for money in its
possession), the funds received by it from the Lenders with respect to their
respective Commitments in Permitted Investments in accordance with the Agent
Lessee’s instructions.  Any such
Permitted Investments purchased by Trustee upon instructions from the Agent
Lessee shall be held in trust by Trustee for the benefit of the Lenders,
respectively, whose funds are invested in Permitted Investments upon
instructions from the Agent Lessee and any net profits on the investment of
such funds (including interest), if any, shall be for the account of and shall
on the Advance Date, or on the date such funds are returned to the Lenders, be
paid over to, the Agent Lessee.  Lessees
shall pay to Trustee on the Advance Date (if such Equipment is delivered and
accepted pursuant hereto) the amount of any net loss on the investment of such
funds invested at the instruction of the Agent Lessee.  If the funds furnished by the Lenders with
respect to such Equipment are required to be returned to the Lenders, Lessees
shall, on the date on which such funds are so required to be returned,
reimburse Trustee, for the benefit of the Lenders, for any net losses incurred
on such investments regardless of the cause of, or responsibility for, such
loss other than a loss resulting from Trustee’s own willful misconduct or gross
negligence.  Trustee 

 

10

 

shall not be liable for failure to invest such funds
or for any losses incurred on such investments except for its own willful
misconduct or gross negligence.  In
order to obtain funds for the payment of the Purchase Price for the Equipment
or to return funds furnished by the Lenders to Trustee for the benefit of the
Lenders with respect to the Equipment, Trustee is authorized to sell any
Permitted Investments purchased as aforesaid with the funds received by it from
the Participants in connection with the Equipment.

 

Section 2.7.                           Obligations Several.  The
obligations of the Lenders hereto or elsewhere in the Operative Documents shall
be several and not joint; and, except with respect to the Lessees and
Guarantors in connection with the Guaranty and the other Operative Documents,
no party shall be liable or responsible for the acts or defaults of any other
party hereunder or under any other Operative Document.

 

Section 2.8.                           Amortization Schedule.  Schedule VII (the “Amortization Schedule”) sets forth the
mandatory principal payments due on the Loans for each scheduled Payment Date.

 

Section 2.9.                           No More Than Two Advance Dates.  Notwithstanding anything contained herein to
the contrary, there shall be no more than two (2) Advance Dates (including the
Initial Advance Date) and such Advance Dates shall occur on or before
December 31, 2003.

 

Section 2A.1.                   Additional Equipment Collateral.  (a) The Lessees may make additional
Equipment subject to the Lease upon satisfaction or waiver of the following
conditions:

 

(i)                                     Notice.  Not later than 11:00 a.m.,
Chicago time, on the tenth (10th) Business Day preceding the date upon which
Lessees propose to subject additional Equipment to the Lease pursuant to this
Section 2A.1 (the “Equipment Delivery Date”), the Agent
Lessee shall give Collateral Agent (with a copy for each Lender) written notice
of the proposed Equipment Delivery Date in the form of Exhibit C-1 (the “Notice of
Equipment Delivery Date”). 
Collateral Agent shall promptly forward a copy of such Notice of
Equipment Delivery Date to Lessor and each Lender.  The Notice of Equipment Delivery Date shall specify in reasonable
detail the Equipment proposed to be subjected to the Lease on such Equipment
Delivery Date.

 

(ii)                                  Appraisal.  Not less than fifteen (15) Business Days
prior to the Equipment Delivery Date, Trustee, Collateral Agent and each Lender
shall have received an appraisal prepared by the Appraiser in form and
substance satisfactory to each of the Lenders which shall establish (by the use
of appraisal methods satisfactory to each Lender) the Fair Market Value of the
Equipment proposed to be subjected to the Lease as of the Equipment Delivery
Date and the expected Fair Market Value of such Equipment on the last day of
the Lease Term.

 

(iii)                               Notice of
Tranche B Lender Consents.  At
least 3 Business Days prior to any Equipment Delivery Date, the Collateral
Agent shall have provided Lessee Agent with notice as to whether all or less
than all of the Tranche B Lenders have approved the 

 

11

 

type of Equipment proposed to be subjected to the
Lease on the Equipment Delivery Date.

 

(iv)                              Filings and
Recordings.  All fees and
Taxes with respect to any recordings, filings or registrations made pursuant to
Section 2A.1(x) (including with respect to any and all financing
statements) shall have been paid in full, and satisfactory evidence thereof
shall have been delivered to Trustee and Collateral Agent, or arrangements for
such payment shall have been made to the satisfaction of the Lenders.

 

(v)                                 Insurance.  Collateral Agent shall have received (with
copies for Trustee and each Lender) evidence of each of the insurance policies
required to be maintained pursuant to the Lease, setting forth the respective
coverages, limits of liability, carrier, policy number and period of coverage,
accompanied by affidavits, certificates, paid bills or other documents
evidencing that all premium payments are current.

 

(vi)                              Bills of
Sale.  Collateral Agent shall
have received (with a copy for each Lender) a fully executed bill of sale
(each, an “Equipment
Delivery Date Bill of Sale”) from each Seller to Trustee
substantially in the form of Exhibit B-2 with respect to the items of
Equipment identified in the Notice of Equipment Delivery Date.

 

(vii)                           Lease
Supplements.  The Lessees
shall have delivered to Collateral Agent (with a copy for each Lender) a fully
executed Lease Supplement with respect to each item of Equipment to be leased
by it.

 

(viii)                        UCC
Termination Statements. 
Sellers shall have delivered to Collateral Agent fully executed copies
of UCC termination statements (Form UCC-3) sufficient to release all Liens
(other than Permitted Liens), if any, on the items of Equipment identified in
the Notice of Equipment Delivery Date and evidence of such release.

 

(ix)                                Third
Party Approvals.  All third party
approvals necessary for the operation and use of the Equipment and for Lessees
to perform their respective obligations with respect to the Lease and the other
Operative Documents shall have been obtained.

 

(x)                                   Financing
Statements; Supplemental Searches; Consents and Waivers.  Collateral Agent (with a copy to
each Lender) shall have received (A) from each Lessee, duly executed UCC
financing statements covering all Equipment to be subjected to the Lease on the
Equipment Delivery Date, identifying each such Lessee as debtor, Trustee as
secured party and Collateral Agent as assignee, for the benefit of the Lenders,
and such financing statements shall have been filed in each applicable
jurisdiction, (B) confirming “on-line” Searches acceptable to the Lenders
as to the Lease Obligors, and (C) such releases of liens and termination
statements (including UCC termination statements as set forth in
Section 2A.1(viii)), as may be necessary to ensure a first priority
perfected security interest in the Equipment which may be deemed “fixtures”.

 

12

 

(xi)                                No Casualty.
 No Casualty shall have
occurred with respect to any item of Equipment being delivered on the Equipment
Delivery Date.

 

(xii)                             Representations
and Warranties True; Absence of Defaults. 
Each of the representations and warranties made by or on
behalf of Lease Obligors, the Trustee in its individual capacity and the
Collateral Agent in its individual capacity under the Operative Documents shall
be true in all material respects on and as of the Equipment Delivery Date,
except that any such representation or warranty which is expressly made only as
of an earlier date need be true in all material respects only as of such date,
and there shall exist no Default or Event of Default.

 

(xiii)                          No Material
Adverse Effect.  Since the
Closing Date, there shall not have occurred any Material Adverse Effect.

 

(xiv)                         Litigation.  No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Agency shall, and no action or
proceeding shall be pending or threatened which in the reasonable judgment of
the Lenders would or could reasonably be expected to, enjoin, prohibit, limit
or restrain the subjecting of the Equipment to the Lease on such Equipment
Delivery Date.

 

(xv)                            Satisfactory
Legal Form.  All documents
executed or submitted as of the Equipment Delivery Date by or on behalf of any
Lease Obligor shall be satisfactory in form and substance to each Lender and
its counsel.  The Lenders and their
counsel shall have received all information, approvals, opinions, documents or
instruments as the Lenders or their respective Counsel may reasonably request.

 

(xvi)                         Further
Assurances, etc.  Collateral
Agent shall have received such other and further instruments, duly executed,
acknowledged (if appropriate) and delivered, as the Lenders reasonably shall
have requested in connection with such Equipment Delivery Date and the
Operative Documents.

 

(xvii)                      Transaction
Costs.  Lessees shall have
paid all Transaction Costs invoiced two (2) Business Days prior to the Equipment
Delivery Date to the parties to whom such Transaction Costs are payable (to the
extent that such Transaction Costs were not previously paid pursuant to
Section 2.1(n) or Section 2.4(c)(xv).  Such payment shall be made by wire transfer of immediately available
funds.

 

(b)                                 Upon
satisfaction of such conditions:

 

(i)                                     Sellers
shall deliver (in accordance with Equipment Delivery Date Bills of Sale
evidencing the transfer of) good and marketable legal title in the applicable
items of Equipment to Trustee.

 

(ii)                                  Lessor
shall, pursuant to the Lease, lease the Equipment delivered on such Equipment
Delivery Date to Lessees, and Lessees, pursuant to the Lease, shall accept 

 

13

 

delivery of such items of Equipment under the Lease
(such lease, delivery and acceptance of such items of Equipment under the Lease
being conclusively evidenced by the execution and delivery by Lessees and
Lessor of Lease Supplements to the Lease concerning such Equipment so
delivered).

 

(iii)                               the
applicable Lessees shall confirm acceptance of such items of Equipment from
such Sellers for all purposes as among Trustee and Lessees, such confirmation
to be conclusively evidenced by the execution and delivery by each such Lessee
(or its respective authorized representative) of a Lease Supplement.

 

(c)                                  In
the event that less than all of the Tranche B Lenders have approved the type of
Equipment pursuant to Section 2A.1(a)(iii), then on such Equipment
Delivery Date, in the event that the Lessee consummates such Equipment Delivery
Date, the Lessee shall pay to each Tranche B Lender such Tranche B Lenders’
Commitment Percentage of the Tranche B Rent Prepayment.

 

Section 2A.2.                   Tranche B Rent Prepayment.  If (a) the Equipment subject to the Lease
after giving effect to a proposed second Advance Date (including the Equipment
delivered on the Initial Advance Date, any Equipment delivered pursuant to
Section 2A.1 and the Equipment to be delivered on the second Advance Date)
would, in the aggregate, have, or (b) all of the Equipment subject to the
Lease on December 31, 2003 (unless the second Advance Date has occurred)
does have, in either such case, an expected Fair Market Value (as shown in the
Appraisal delivered in connection with the Initial Advance Date, the appraisal
delivered in connection with the second Advance Date and any appraisal
delivered pursuant to Section 2A.1) at the end of the Lease Term less than
85% of the principal amount of the outstanding Tranche B Loans at such time,
the Lessee shall pay as prepaid Rent to each Tranche B Lender such
Tranche B Lender’s Commitment Percentage of the Tranche B Rent Prepayment
on the second Advance Date or December 31, 2003, as the case may be.

 

Section 2A.3.                   Tranche A Refinancing of
Tranche B Loans.  (a) In
connection with a Tranche B Rent Prepayment pursuant to Section 2A.1(c) or
Section 2A.2, and subject to Section 2A.3(b), the Tranche A Lenders
shall fund additional Tranche A Loans in a principal amount equal to the
principal amount of the Tranche B Loans that are to be prepaid, if any; provided that
such additional Tranche A Loans (when aggregated with all other Tranche A
Loans) shall in no event exceed the Tranche A Commitments and in no event shall
the outstanding Tranche A Loans and Tranche B Loans, immediately subsequent to
such funding, collectively, exceed the Fair Market Value (as such Fair Market
is shown in the Appraisal, an appraisal delivered in connection with a second
Advance Date and an appraisal delivered pursuant to Section 2A.1) of the Leased
Property.  The Lessee Agent shall
request a funding pursuant to this Section 2A.3 at least five (5) days
prior to such proposed funding.

 

(b)                                 The
obligation of the Tranche A Lenders to make the fundings provided for in this
Section 2A.3 are subject to each of the following conditions precedent:

 

14

 

(i)                                     Third
Party Approvals.  All third party
approvals necessary for the operation and use of the Equipment and for Lessees
to perform their respective obligations with respect to the Lease and the other
Operative Documents shall have been obtained.

 

(ii)                                  Representations
and Warranties True; Absence of Defaults. 
Each of the representations and warranties made by or on
behalf of Lease Obligors, the Trustee in its individual capacity and the
Collateral Agent in its individual capacity under the Operative Documents shall
be true in all material respects on and as of the date of such funding except
that any such representation or warranty which is expressly made only as of an
earlier date need be true in all material respects only as of such date, and
there shall exist no Default or Event of Default.

 

(iii)                               No Material
Adverse Effect.  Since the
Closing Date, there shall not have occurred any Material Adverse Effect.

 

(iv)                              Litigation.  No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Agency shall, and no action or
proceeding shall be pending or threatened which in the reasonable judgment of
Lenders would or could reasonably be expected to, enjoin, prohibit, limit or
restrain the making of any Loan.

 

(v)                                 Satisfactory
Legal Form.  All documents
executed or submitted as of the date of such funding by or on behalf of any
Lease Obligor shall be satisfactory in form and substance to each Lender and
its counsel.

 

(vi)                              Further
Assurances, etc.  Collateral
Agent shall have received such other and further instruments, duly executed,
acknowledged (if appropriate) and delivered, as the Lenders reasonably shall
have requested in connection with such funding and the Operative Documents.

 

(vii)                           Transaction
Costs.  Lessees shall have
paid all Transaction Costs invoiced two (2) Business Days prior to such Funding
to the parties to whom such Transaction Costs are payable (to the extent that
such Transaction Costs were not previously paid pursuant to
Section 2.1(n), Section 2.4(c)(xv) or
Section 2A.1(a)(xvii)).  Such
payment shall be made by wire transfer of immediately available funds.

 

(viii)                        Tranche B
Prepayment.  The
Tranche B Lenders shall have been prepaid pursuant to Section 2A.1(c)
or Section 2A.2.

 

Article III

 

Interest; Fees; Termination and Reduction
of Commitments

 

Section 3.1.                           [Reserved].

 

15

 

Section 3.2.                           Interest on Loans.  Each Loan shall accrue Interest computed and
payable in accordance with the terms of the Loan Agreement.  Lessees hereby consent to the compounding of
Interest to the extent provided in the Operative Documents.

 

Section 3.3.                           Payments and Prepayments of Loans and
Other Amounts. 
(a) Notwithstanding anything to the contrary stated herein or in
the other Operative Documents, Lessor hereby directs Lessees to pay to
Collateral Agent all Rent and any other amount that is due from time to time
under the Operative Documents (other than any Excluded Amount, which Lessor
hereby directs Lessees to make directly to the applicable Person entitled
thereto).

 

(b)                                 In
the event that Lessees pay the Lease Balance to Collateral Agent in connection
with Lessees’ purchase of the Equipment in accordance with Section 15.1,
16.2(e), 18.1, 18.2 or Article XIX of the Lease, Collateral Agent, on
behalf of Lessor, will prepay the entire outstanding principal amount of the
Loans and any other fees and expenses due and payable from the Lease Balance so
received.  Each of the Lenders hereby
acknowledges that its Loans may be so prepaid without any prepayment premium
(other than Break Costs, if any).

 

Section 3.4.                           Fees.  Lessees agree,
jointly and severally, to pay the fees set forth in this Section 3.4
(collectively, the “Fees”), as follows:

 

(a)                                  To
Collateral Agent on the Closing Date, an upfront fee (“Upfront Fee”) for the
benefit of each Lender, if applicable, pursuant to and in an amount set forth
in the applicable Upfront Fee Letter.

 

(b)                                 To
the Collateral Agent for the benefit of each Tranche A Lender, a
commitment fee (“Commitment Fee”) in an amount equal to the product of .25%
per annum multiplied by the unused portion of such Tranche A Lender’s
Commitment during the preceding three-month period; provided that the Commitment
Fee shall be calculated on the basis of the actual number of days that the
unused portion of each Tranche A Lender’s Tranche A Commitment is
available during such preceding three-month period.

 

(c)                                  To
pay (i) to the Bank, for its own account, the fees set forth in the
Trustee Fee Letter, payable in the amounts and on the dates set forth therein,
(ii) to Collateral Agent, for its own account, the fees set forth in the
Collateral Agent Fee Letter, payable in the amounts and on the dates set forth
therein and (iii) to the Arranger, the Arrangement Fee.

 

The Collateral Agent shall provide to the Lessees from time to time not
less than six (6) Business Days prior to the due date(s) for each Commitment
Fee, a written statement of the amount of the Commitment Fee then due, the due
date therefor and the calculation thereof; provided, however, that Collateral Agent’s
failure to give such notice shall not relieve Lessee of its obligation to
timely pay all Commitment Fees.  The
Commitment Fee shall be payable quarterly in arrears (on a date which is
otherwise a Payment Date) with the first payment due September 30, 2003,
and shall be computed on the basis of the actual number of days occurring
during each calendar quarter, or portion thereof, ending on the last day of the
calendar quarter 

 

16

 

immediately preceding such Payment Date (with the
initial period for the Commitment Fee being the period from and including the
Closing Date to and including the last day of the calendar quarter in which the
Closing Date occurs), and thereafter, during each calendar quarter, or portion
thereof, ending on the last day of the calendar quarter immediately preceding
such Payment Date, for which such Commitment Fee is payable over a year of 365
or if applicable 366 days, and shall be distributed by the Collateral Agent to
the Tranche A Lenders in accordance with their respective interests therein.

 

Section 3.5.                           Highest Lawful Rate.  It is the
intention of the parties hereto to conform strictly to applicable usury laws
and, anything herein to the contrary notwithstanding, the obligations of
(x) Lessees to Trustee, as Lessor, and to the Lenders under this Agreement
and the Lease, (y) Trustee to the Lenders under the Loan Agreement and the
Notes and (z) any Lessee, Lessor or Trustee or any other party under any
other Operative Documents, shall be subject to the limitation that payments of
interest or of other amounts constituting interest under applicable law shall not
be required to the extent that receipt thereof would be in excess of the
Highest Lawful Rate (as defined below), or otherwise contrary to provisions of
law applicable to the recipient limiting rates of interest which may be
contracted for, charged, received, taken or reserved by the recipient.  Accordingly, if the transactions or the
amount contracted for, charged, received, taken or reserved for the use,
forbearance or detention of money under this Participation Agreement, the
Lease, the Trust Agreement, the Loan Agreement, the Notes or any other
Operative Document would exceed the Highest Lawful Rate or otherwise be
usurious under Applicable Law (including the federal and state laws of the
United States of America, or of any other jurisdiction whose laws may be
mandatorily applicable) with respect to the recipient of any such amount,
whether due to acceleration of maturity of the Lease Balance, the optional or
mandatory purchase of the Equipment or otherwise, then, in that event,
notwithstanding anything to the contrary in this Participation Agreement, the
Lease, the Trust Agreement, the Loan Agreement, the Notes or any other
Operative Document, it is agreed as follows as to the recipient of any such
amount:

 

(a)                                  the
provisions of this Section 3.5 shall govern and control over any other
provision in this Participation Agreement, the Lease, the Trust Agreement, the
Loan Agreement, the Notes and any other Operative Document and each provision
set forth therein is hereby so limited;

 

(b)                                 the
aggregate of all consideration which constitutes interest under Applicable Law
that is contracted for, charged, received, taken or reserved under this
Participation Agreement, the Lease, the Trust Agreement, the Loan Agreement,
the Notes or any other Operative Document shall under no circumstances exceed
the maximum amount of interest allowed by Applicable Law (such maximum lawful
interest rate, if any, with respect to such recipient herein called the “Highest
Lawful Rate”), and all amounts owed under this Participation
Agreement, the Lease, the Trust Agreement, the Loan Agreement, the Notes and
any other Operative Document shall be held subject to reduction and
(i) the amount of interest which would otherwise be payable to the
recipient hereunder and under the Lease, the Trust Agreement, the Loan
Agreement, the Notes and any other Operative Documents, shall be automatically
reduced to the amount 

 

17

 

allowed under Applicable Law and (ii) any
interest paid in excess of the Highest Lawful Rate shall be credited on the
Lease Balance (or if the Lease Balance has been, or would thereby be, paid in
full, refunded to Lessees);

 

(c)                                  all
sums paid, or agreed to be paid for the use, forbearance and detention of the
money under this Participation Agreement, the Lease, the Trust Agreement, the
Loan Agreement, the Notes or any other Operative Documents shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of such Indebtedness until payment in full so that the
rate or computation of interest on such Indebtedness does not exceed the
applicable usury ceiling;

 

(d)                                 if
at any time the interest, together with any other fees, late charges and other
sums payable pursuant to or in connection with this Participation Agreement,
the Lease, the Trust Agreement, the Loan Agreement, the Notes and any other
Operative Document, and deemed interest under Applicable Law exceeds that
amount which would have accrued at the Highest Lawful Rate, the amount of
interest and any such fees, charges and sums to accrue to the recipient of such
interest, fees, charges and sums pursuant to the Operative Documents shall be
limited, notwithstanding anything to the contrary in the Operative Documents to
that amount which would have accrued at the Highest Lawful Rate for the
recipient, but any subsequent reductions in the otherwise applicable rate of
interest shall not reduce the interest to accrue pursuant to the Operative
Documents below the recipient’s Highest Lawful Rate until the total amount of
interest payable to the recipient (including all consideration which
constitutes interest) equals the amount of interest which would have been
payable to the recipient (including all consideration which constitutes interest)
but for the effect of this Section 3.5; and

 

(e)                                  the
right to accelerate the maturity of the Lease Balance or to require the
purchase of the Equipment does not include the right to accelerate any interest
(as determined under Applicable Law) which has not otherwise accrued on the
date of such acceleration or mandatory purchase.

 

Section 3.6.                           Termination
of Commitments.  Notwithstanding
anything in this Agreement to the contrary, the Commitments shall terminate and
the Trustee shall not be obligated to make an Advance, and no Lender shall be
obligated to make any fundings in respect of any Advance, and no Advance Date
may thereafter occur, upon the earlier to occur of (a) 10:00 a.m., Nevada time
on the last day of the Commitment Period, (b) a termination of the Lenders’
Commitments pursuant to Section 6.2 of the Loan Agreement or (c) the
occurrence of the second Advance Date, if any.

 

Section 3.7.                           Reduction
of Tranche A Commitment.  At any
time during the Commitment Period and so long as no Default or Event of Default
exists, Lessee may upon not less than thirty (30) days prior written notice to
the Collateral Agent, permanently reduce a portion of the Tranche A Commitment;
provided
that (A) any reduction be in an aggregate amount of $1,000,000 or any greater amount
that is an integral multiple of $100,000 and (B) any reduction 

 

18

 

shall be made pro rata among the Tranche A Lenders based
upon the respective amounts of their Commitments.

 

ARTICLE IV

 

CERTAIN INTENTIONS OF THE PARTIES

 

Section 4.1.                           Nature of Transaction.  It is
the intention of the parties that:

 

(a)                                  the
Overall Transaction constitutes a capital lease from Trustee 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 principal to the Lenders;

 

(iii)                               the
Lease grants a security interest or Lien, as the case may be, in the Equipment
and the other Lessee Collateral in favor of Trustee (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 a security interest or Lien, as the case may be, in the
Equipment and the other Borrower Collateral from Trustee to Collateral Agent
for the benefit of the Collateral Agent and the Lenders to secure Trustee’s
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

 

19

 

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,
without limiting the generality of clause (a) and (b) of this
Section 4.1, the parties hereto intend and agree that in the event of any
insolvency, conservatorship or receivership proceedings or matters or a
petition under any Debtor Relief Law affecting any Lessee, any Guarantor,
Lessor Trust Beneficiary or any Lender or any collection actions, the
transactions evidenced by the Operative Documents (including the Lease)
constitute loans made directly to Lessees by the Lenders, in each case as
unrelated third party lenders, and that Lessor holds title to the Equipment for
the benefit of the Lenders solely as security for the performance of Lessees’
obligations to repay such loans to the Lenders and all other amounts due under
any of the Operative Documents.

 

Section 4.2.                           Amounts Due Under Lease.  Anything else herein or elsewhere in the Operative Documents to
the contrary notwithstanding, it is the intention of the Lease Obligors, Lessor
and the Lenders that: (i) the amount and timing of installments of Basic
Rent due and payable from time to time from Lessees under the Lease shall be
equal to the sum of the aggregate payments due and payable as Interest on the
Loans on each Payment Date plus the principal amortization, if any, due on such
Payment Date; (ii) if Lessees elect the Early Termination Option or
become obligated or otherwise elect to purchase the Equipment pursuant to the
terms of the Lease, then the Loans, all Interest and Fees thereon, all
Transaction Costs and all other obligations of Lessees owing to Lessor and the
Lenders shall be paid in full by Lessees; and (iii) upon an Event of
Default resulting in an acceleration of Lessees’ obligation to purchase the
Equipment under the Lease, the amounts then due and payable by Lessees under the
Lease shall include all amounts necessary to pay in full the Lease Balance, plus,
to the extent not included in the Lease Balance, all other amounts then due
from Lessees to the Lenders under the Operative Documents, subject in any event
to the limitations in Section 3.5.

 

Section 4.3.                           Distribution.  (a) Except as otherwise provided in
Section 4.3(g)(ii), each payment of Basic Rent (and any payment of
interest on overdue installments of Basic Rent) received by Collateral Agent
shall be distributed by Collateral Agent to the Lenders, pro rata in accordance
with, and for application to, the amount of Interest and principal then due on
the Loans, as well as any overdue interest due to each Lender (to the extent
permitted by Applicable Laws) (it being understood that any payments of Basic
Rent received by the Collateral Agent shall be distributed on the date received
in the funds so received if received by the Collateral Agent in immediately
available funds by 11:00 a.m., Nevada time).

 

(b)                                 Except
as otherwise provided in Section 4.3(g)(ii), any payment received by
Collateral Agent as a result of:

 

(i)                                     the
purchase of all of the Equipment in connection with Lessees’ exercise of their
Early Termination Option under Section 18.1 of the Lease,

 

20

 

(ii)                                  Lessees’
compliance with their obligation to purchase (or cause their designees to
purchase) the Equipment in accordance with the Lease, or

 

(iii)                               the
payment of the Lease Balance in accordance with Section 15.1 of the Lease,

 

shall
be distributed by Collateral Agent to the Lenders pro rata in accordance with,
and for application to, the amount of Interest and principal then due on the
Loans, as well as any overdue interest due to each Lender (to the extent
permitted by Applicable Laws) to pay in full the Loan Balance of each Lender.

 

(c)                                  Any
payment received by the Collateral Agent as a result of a Tranche B Rent
Prepayment pursuant to Section 2A.1(c) or Section 2A.2 shall be
distributed by the Collateral Agent to the Tranche B Lenders entitled
thereto.

 

(d)                                 [Reserved].

 

(e)                                  All
payments of Supplemental Rent received by Collateral Agent (excluding any
amounts payable pursuant to the preceding provisions of this Section 4.3)
shall be distributed promptly (it being understood that any payments of
Supplemental Rent received by the Collateral Agent shall be distributed on the
date received in the funds so received 
if received by the Collateral Agent immediately available funds by 11:00
a.m.,  Nevada time) by Collateral Agent
upon receipt thereof to the Persons entitled thereto pursuant to the Operative
Documents.

 

(f)                                    Notwithstanding
any other provision of this Section 4.3, any Excluded Amount received at
any time by Collateral Agent shall be distributed promptly (it being understood
that any payments of Excluded Amounts received by the Collateral Agent shall be
distributed on the date received in the funds so received if received by the
Collateral Agent in immediately available funds by 11:00 a.m., Nevada time) to
the Person entitled to receive such Excluded Amount pursuant to the Operative
Documents.

 

(g)                                 (i) All
amounts received by Collateral Agent in connection with (x) any sale of
all or any part of the Equipment as a result of an Event of Default or
otherwise as a result of an Event of Default or a return of the Equipment
pursuant to Section 16.2 of the Lease or (y) any Casualty or
Condemnation after the occurrence and during the continuance of an Event of
Default shall be distributed by Collateral Agent on  the date received in the funds so received in the following order
of priority:

 

first,
so much of such payments or amounts as shall be required to pay the then
existing or prior Lenders the amounts payable to them pursuant to any expense
reimbursement or indemnification provisions of the Operative Documents shall be
distributed to each such Lender without priority of one over the other in
accordance with the amount of such payment or payments payable to each such
Person;

 

21

 

second,
on a pro rata basis based on their respective shares of the
Total Loan Balance, to the Lenders for application to pay the Total Loan
Balance in full; and

 

third, the
balance, if any, of such payment or amounts remaining thereafter shall be promptly
distributed to, or as directed by, the Agent Lessee, on behalf of all Lessees.

 

(ii)                                  During
the occurrence and continuance of an Event of Default, all amounts (other than
Excluded Amounts) received or realized by Collateral Agent and otherwise distributable
pursuant to Sections 4.3(a) and 4.3(b) shall be distributed as provided
for in clause (g)(i) above.

 

(h)                                 (i) Subject
to Sections 4.3(h)(ii) and 4.3(h)(iii), any payment received by Collateral
Agent for which no provision as to the application thereof is made in the
Operative Documents or elsewhere in this Section 4.3 shall be distributed
pro rata among the Lenders, without priority of one over the other, in the
proportion that the Loan Balance of each bears to the Lease Balance.

 

(ii)                                  All
payments received and amounts realized by Collateral Agent under the Lease or
otherwise with respect to the Equipment, or any proceeds thereof, to the extent
received or realized at any time after an indefeasible payment in full of the
Loan Balances of all of the Lenders and all other amounts due and owing to the
Lenders, shall be distributed forthwith by Collateral Agent to, or as directed
by, the Agent Lessee, on behalf of all Lessees.

 

(iii)                               Any
payment received by Collateral Agent for which provision as to the application
thereof is made in an Operative Document, but not elsewhere in this
Section 4.3, shall be distributed forthwith by Collateral Agent to the
Person and for the purpose for which such payment was made in accordance with
the terms of such Operative Document.

 

(i)                                     Except
as otherwise provided in Section 4.3(g)(i)(y), any amounts payable to
Collateral Agent as a result of a Casualty or Condemnation pursuant to
Section 14.1 of the Lease shall be distributed as follows:  (x) if a Termination Notice shall have
been given, all amounts that are to be applied to the purchase price of the
Equipment in accordance with Section 15.1(b) of the Lease shall be
distributed by Collateral Agent in accordance with Section 4.3(b); and
(y) all amounts payable to the applicable Lessee for the restoration or
repair of damage caused by such Casualty or Condemnation in accordance with
Section 14.1(a) of the Lease shall be distributed to, or as directed by,
such Lessee pursuant to the terms and conditions set forth in the Lease.

 

(j)                                     To
the extent any payment made to any Lender is insufficient to pay in full the
Loan Balance of such Lender, then each such payment shall first be applied to
accrued Interest, and then to principal outstanding in respect of such Loan
Balance.

 

Each Lender hereby acknowledges and agrees that unless
an Insolvency Event then exists, any amounts to be distributed by Collateral
Agent pursuant to this Section 4.3 shall be distributed in 

 

22

 

accordance with this Section 4.3 notwithstanding
anything contained in Section 2.8 or Section 5 of the Loan Agreement
providing that General Electric Capital Corporation shall not be secured by the
Gaming Equipment.  The parties hereto
specifically acknowledge and agree it is the intent of the parties that unless
an Insolvency Event exists, when this Agreement provides for Lenders to receive
distributions on a pro rata basis, it means that all Lenders, including General
Electric Capital Corporation, will share all distributions pro rata, without
priority of one over the other, in the proportion that the Loan Balance of each
Lender bears to the Lease Balance even though General Electric Capital
Corporation does not have a security interest in the Gaming Equipment.  Notwithstanding anything to the
contrary contained in any Operative Document, the parties agree that during the
continuance of an Insolvency Event, General Electric Capital Corporation shall
have no interest in and shall not share in any proceeds from the Gaming Equipment.

 

Section 4.4.                           Adjustments.  If any Lender (a “Benefited Lender”) shall at
any time receive any payment of all or part of its Loan, or Interest thereon,
or receive any of the collateral in respect thereof (whether voluntarily or
involuntarily, by setoff, or otherwise), in an amount greater than the amount
to which such Benefited Lender was entitled pursuant to Section 4.3, such
Benefited Lender shall return such amount or collateral to Collateral Agent for
distribution to the Person(s) entitled thereto in accordance with
Section 4.3; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such Benefited Lender, such
excess payment or benefits, as applicable, shall be returned to the Benefited
Lender, to the extent of such recovery, but without interest.

 

Article V

 

Representations and Warranties

 

Section 5.1.                           Representations and Warranties of
the Lease Obligors.  Each Lease
Obligor jointly and severally represents and warrants to each of the other
parties hereto as follows:

 

(a)                                  Existence
and Qualification; Power; Compliance With Laws.  Each Lease Obligor is a corporation duly
formed, validly existing and in good standing under the Applicable Laws of
Nevada.  Each Lease Obligor is duly
qualified or registered to transact business and is in good standing in each
other jurisdiction in which the conduct of its business or the ownership or
leasing of its properties makes such qualification or registration necessary,
except where the failure so to qualify or register and to be in good standing
would not constitute a Material Adverse Effect.  Each Lease Obligor has all requisite corporate power and
authority to conduct its business, to own and lease its properties and to
execute and deliver each Operative Document to which it is a party and to
perform its Obligations.  Each Lease
Obligor is in compliance with all Applicable Laws and other legal requirements
applicable to its business, has obtained all authorizations, consents,
approvals, orders, licenses and permits from, and has accomplished all filings,
registrations and qualifications with, or obtained exemptions from any of the
foregoing from, any Governmental Agency that are necessary for the transaction
of its business, except where the failure to so comply, file, register, qualify
or obtain exemptions does not constitute a Material Adverse Effect.

 

23

 

(b)                                 Authority;
Compliance With Other Agreements and Instruments and Government Regulations.  The execution, delivery and performance by
each Lease Obligor of the Operative Documents to which it is a party have been
duly authorized by all necessary corporate action, and do not and will not:

 

(i)                                     Require
any consent or approval not heretofore obtained of any partner, director,
stockholder, security holder or creditor of such Lease Obligor;

 

(ii)                                  Violate
or conflict with any provision of such Lease Obligor’s charter, articles of
incorporation or bylaws, as applicable;

 

(iii)                               Other
than as provided in the Operative Documents, result in or require the creation
or imposition of any Lien or Right of Others upon or with respect to any
property now owned or leased or hereafter acquired by such Lease Obligor;

 

(iv)                              Violate
any Requirement of Law applicable to such Lease Obligor, subject to obtaining
the authorizations from, or filings with, the Governmental Agencies described
in Schedule VIII; or

 

(v)                                 Result
in a breach by such Lease Obligor of or constitute a default by such Lease
Obligor under, or cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement or any other Contractual
Obligation to which such Lease Obligor is a party or by which such Lease
Obligor or any of its property is bound or affected where such breach, default
or acceleration would (A) result in a Material Debt Event or (B) otherwise
result in a Material Adverse Effect;

 

and
no Lease Obligor is in violation of, or default under, any Requirement of Law
or Contractual Obligation, or any indenture, loan or credit agreement described
in clause (v), in any respect that constitutes a Material Adverse Effect.

 

(c)                                  No
Governmental Approvals Required.  Except as set forth in Schedule VIII or previously obtained
or made, no authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, any Governmental Agency is or will
be required to authorize or permit under Applicable Laws the execution,
delivery and performance by the Lease Obligors of the Operative Documents to which
they are a party.  All authorizations
from, or filings with, any Governmental Agency described in Schedule VIII
will be accomplished as of the Closing Date or such other date as
is specified in Schedule VIII.

 

(d)                                 Financial
Statements.  Mandalay has furnished
to the Lenders the audited consolidated financial statements of Mandalay and
its Subsidiaries for the Fiscal Year ended January 31, 2003 and the
unaudited consolidated and consolidating financial statements of Mandalay and
its Subsidiaries for the Fiscal Quarter ended April 30, 2003.  

 

24

 

 

The financial statements described above fairly
present in all material respects the financial condition, results of operations
and changes in financial position of Mandalay and its Subsidiaries as of such
dates and for such periods, in conformity with GAAP, consistently applied.

 

(e)                                  No Other
Liabilities; No Material Adverse Effect. 
As of the Closing Date, Mandalay and its Subsidiaries do not
have any material liability or material contingent liability not reflected or
disclosed in the financial statements described in subsection (d) above or
on Schedule VIII, other than liabilities and contingent liabilities
arising in the ordinary course of business since the date of such financial
statements.  As of the Closing Date, no
circumstance or event has occurred that constitutes a Material Adverse Effect
since January 31, 2003.

 

(f)                                    Intangible
Assets.  The Lease Obligors
own, or possess the right to use to the extent necessary in their respective
businesses, all material trademarks, trade names, copyrights, patents, patent
rights, computer software, licenses and other intangible assets that are used
in the conduct of their businesses as now operated, and no such intangible
asset, to the best knowledge of each Lease Obligor, conflicts with the valid
trademark, trade name, copyright, patent, patent right or intangible asset of
any other Person to the extent that such conflict constitutes a Material
Adverse Effect.  To the best knowledge
of each Lease Obligor, there are no patents, patent rights, trademarks, service
marks, trade names, copyrights, licenses or other intellectual property rights
with respect to the Equipment that have not been obtained which are necessary
for the operation of the Equipment.

 

(g)                                 Public
Utility Holding Company Act.  No
Lease Obligor is a “holding company”, or a “subsidiary company” of a “holding
company”, or an “affiliate” of a “holding company” or of a “subsidiary company”
of a “holding company”, within the meaning of the Public Utility Holding
Company Act of 1935, as amended.

 

(h)                                 Litigation.  Except for (a) any matter fully covered
as to subject matter and amount (subject to applicable deductibles and
retentions) by insurance for which the insurance carrier has not asserted lack
of subject matter coverage or reserved its right to do so, (b) any matter,
or series of related matters, involving a claim against any Lease Obligor of
less than $5,000,000, (c) matters of an administrative nature not involving
a claim or charge against any Lease Obligor and (d) matters set forth in
Schedule VIII, there are no actions, suits, proceedings or investigations
pending as to any Lease Obligor, and no Lease Obligor has been served or has
received notice or, to the best knowledge of each Lease Obligor, threatened
against or affecting any Lease Obligor or any property of it before any
Governmental Agency.

 

(i)                                     Binding
Obligations.  Each of the
Operative Documents to which any Lease Obligor is a party will, when executed
and delivered by such Lease Obligor, constitute the legal, valid and binding
obligation of such Lease Obligor, enforceable against such Lease Obligor in
accordance with its terms, except as enforcement may be 

 

25

 

limited by Gaming Laws, Debtor Relief Laws or
equitable principles relating to the granting of specific performance and other
equitable remedies as a matter of judicial discretion.

 

(j)                                     No Default;
Casualty.  After giving
effect to the Closing, no event has occurred and is continuing that is a
Default or Event of Default and no Casualty has occurred with respect to any
item of Equipment to be delivered on the Closing Date.

 

(k)                                  ERISA.  (i) With respect to each Pension Plan:

 

(1)                                  such
Pension Plan complies in all material respects with ERISA and any other
Applicable Laws to the extent that noncompliance could reasonably be expected
to have a Material Adverse Effect;

 

(2)                                  such
Pension Plan has not incurred any “accumulated funding deficiency” (as defined
in Section 302 of ERISA) that could reasonably be expected to have a
Material Adverse Effect;

 

(3)                                  no
“reportable event” (as defined in Section 4043 of ERISA) has occurred that
could reasonably be expected to have a Material Adverse Effect; and

 

(4)                                  No
Lease Obligor has engaged in any non-exempt Prohibited Transaction that could
reasonably be expected to have a Material Adverse Effect.

 

(ii)                                  No
Lease Obligor has incurred nor does any Lease Obligor expect to incur any
withdrawal liability to any Multiemployer Plan that could reasonably be
expected to have a Material Adverse Effect.

 

(l)                                     Regulations T,
U and X; Investment Company Act.  No part of the proceeds of any Loan will be used to purchase or
carry, or to extend credit to others for the purpose of purchasing or carrying,
any margin stock in violation of Regulations T, U or X of the Board of
Governors of the Federal Reserve System. 
No Lease Obligor is required to be registered as an “investment company”
under the Investment Company Act.

 

(m)                               Disclosure.  No written statement made by a Senior
Officer of any Lease Obligor to any Creditor in connection with this Agreement
or any of the other Operative Documents, or in connection with the funding of
the Loans contained any untrue statement of a material fact or omitted a
material fact necessary to make the statement made not misleading in light of
all the circumstances existing at the date the statement was made.  Without in any way limiting the foregoing,
the written information provided by the Lease Obligors to the Appraiser and
forming the basis for the conclusions set forth in the Appraisal, taken as a
whole, was, as of the date furnished, true and correct in all 

 

26

 

material respects and did not omit any material
information known and available to the Lease Obligors necessary to make the
information provided not materially misleading.

 

(n)                                 Tax
Liability.  Each Lease Obligor has
filed all tax returns which are required to be filed, and paid, or made provision
for the payment of, all Taxes with respect to the periods, property or
transactions covered by said returns, or pursuant to any assessment received by
any Lease Obligor, except (a) such Taxes, if any, as are being contested
pursuant to a Permitted Contest and as to which adequate reserves have been
established and maintained and (b) immaterial Taxes and tax returns so
long as no material item or portion of property of any Lease Obligor is in
jeopardy of being seized, levied upon or forfeited.

 

(o)                                 Gaming Laws.
 Each Lease Obligor is in
compliance in all material respects with all Gaming Laws that are applicable to
it and its business.

 

(p)                                 Title; Liens.  Each Lessee, as a Seller, has good and
marketable title to each item of Equipment title to which will be transferred
by such Lessee to Trustee on the Closing Date, free and clear of all Liens
other than Permitted Liens.  No Lessee
has granted, nor will any Lessee grant, any Lien on any item of Equipment, any
other Lessee Collateral or the Lease, to any Person other than Trustee and
Collateral Agent, on behalf of the Lenders; and no Lien, other than the Lien
granted to Trustee and Collateral Agent, on behalf of the Lenders, under the
Operative Documents (and any Lien hereafter granted by Trustee and Collateral
Agent, on behalf of the Lenders), has attached to any item of Equipment, any
other Collateral or the Lease, or in any manner has affected adversely
Trustee’s and the Lenders’ rights and Liens herein except as expressly
permitted by the Operative Documents. 
Without limiting the generality of the foregoing, the retention of
possession by any Lessee of the Equipment to be sold and leased back following
the transfer of title to the same to, and the leaseback of the same from,
Trustee (for the benefit of the Lenders), in each case, pursuant to the Lease,
shall not be deemed fraudulent or void as against any present or future
creditor of such Lessee under the laws of the States where such Equipment will,
at the time of such sale and leaseback, be located, nor would any subsequent
bona fide purchaser from such Lessee of such Equipment, in the event of any
attempted subsequent sale thereof by Lessee, acquire any title to or rights
therein superior to Trustee’s title thereto and rights therein.

 

(q)                                 Perfection
of Security Interest.  Upon
the filing of appropriate UCC financing statements and precautionary fixture
filings with the Governmental Agencies specified on Schedule VI or in any
other written notice provided by any Lessee to Trustee and Collateral Agent and
the payment of any applicable fees and taxes relating to any of the foregoing,
Collateral Agent will have an enforceable, perfected first priority security
interest of record in the Collateral.

 

(r)                                    Equipment.  The Purchase Price for each item of Equipment
does not exceed the Appraised Value of such item of Equipment at the time of
the sale to Trustee, for the benefit of the Lenders, hereunder and the
aggregate Purchase Price for all of the 

 

27

 

Equipment does not exceed the Appraised Value of all
of the Equipment at the time of the sale to Trustee, for the benefit of the
Lenders, hereunder.  Each Lessee has
delivered true, correct and complete copies of invoices evidencing payment in
full by such Lessee to the vendors of the Equipment transferred by such Lessee.

 

(s)                                  No Transfer
Taxes.  No sales, use,
excise, transfer or other tax, fee or imposition shall result from the sale,
transfer or purchase of any item of Equipment or any Note pursuant hereto or pursuant
to any other Operative Document, except such taxes, fees or impositions that
have been paid in full on or prior to the applicable Advance Date.

 

(t)                                    Rights in
Respect of the Equipment.  No
Lessee is a party to any contract or agreement with respect to the sale by any
Lessee of any interest in the Equipment or any part thereof other than as
permitted pursuant to this Agreement and the other Operative Documents.

 

(u)                                 Chief
Executive Office of Lessee. 
The principal place of business and chief executive office of each
Lessee are each located at such Lessee’s address set forth on Schedule IV
to this Agreement.

 

(v)                                 Subjection
to Government Regulation.  No
Creditor will (i) solely by reason of entering into the Operative
Documents or consummating the transactions contemplated thereby (other than
upon exercise of remedies under this Agreement and the other Operative
Documents), (x) become subject to ongoing regulation of its operations by
any Governmental Agency or (y) be required to qualify to do business in
any jurisdiction in which the Equipment is located; or (ii) become subject
to ongoing regulation of its operations by any Governmental Agency upon
exercise of remedies under this Agreement and the other Operative Documents or
upon the expiration hereof due solely to ownership of the Equipment or the
holding of any interest therein (except in the case of the ownership of, or the
holding of an interest in, any Gaming Equipment following the exercise of
remedies under this Agreement or any other Operative Document, and except for
regulation the applicability of which depends on the existence of facts in
addition to the ownership of the Equipment or the holding of any interest
therein).

 

(w)                               Solvency.  The consummation by the Lease Obligors of
the transactions contemplated by the Operative Documents does not render any
Lease Obligor insolvent, nor was it made in contemplation of any Lease
Obligor’s insolvency; the value of the assets and properties of the Lease
Obligors at fair valuation and at their then present fair salable value is and,
after such transactions, will be greater than the Lease Obligors’ total
liabilities, including contingent liabilities, as they become due; and the
property remaining in the hands of the Lease Obligors was not and will not be
an unreasonably small amount of capital.

 

28

 

(x)                                   Private
Offering.  Assuming the truth
and accuracy of the representations and warranties of each Creditor set forth
in the Operative Documents, no Lease Obligor has offered any interest in this
Agreement and the other Operative Documents, the Rent, the Notes or the
Equipment or any similar security for sale to, or solicited offers to buy any
thereof from, or otherwise directly or indirectly approached or negotiated with
respect thereto with, any prospective purchaser other than the Creditors and
not more than thirty-five (35) other institutional investors, each of which was
offered such interest at a private sale for investment and each of which the
Lease Obligors had reasonable grounds to believe, and did believe, as to the
Creditors, after reasonable inquiry do believe, has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of such an investment; and, assuming the truth and
accuracy of the representations set forth in Sections 5.2(d), 5.2(e) and
5.3(g), the issuance, sale and delivery of the Notes and the interests in the
Operative Documents represented thereby under the circumstances contemplated by
the Operative Documents do not require the registration of such Notes or
interests under the Securities Act or the qualification of any of the Operative
Documents under the Trust Indenture Act of 1939, as amended.  No representation or warranty contained in
this Section 5.1(x) shall include or cover any action or inaction of any
Creditor or any Affiliate thereof whether or not purportedly on behalf of any
Creditor or any of any Creditor’s Affiliates.

 

(y)                                 Environmental
Matters.  (i) There are no
conditions existing currently which would be likely to subject Trustee, Trust
Beneficiary, Collateral Agent, the Lenders or the Lease Obligors to damages,
penalties, injunctive relief or cleanup costs under any Environmental Laws or
assertions thereof, or which require or are likely to require cleanup, removal,
remedial action or other response at or with respect to the Facilities pursuant
to Environmental Laws; (ii) No Lease Obligor is a party to any litigation
or administrative proceeding for which it has received service of process or
other similar notification, and to the knowledge of each Lease Obligor, no
Lease Obligor is a party to any litigation or administrative proceeding
threatened against any Lease Obligor, which asserts or alleges that any Lease Obligor
or any Facility has violated or is violating Environmental Laws with respect to
such Facility, or that any Lease Obligor is required to clean up, remove or
take any remedial or other responsive action due to the disposal, depositing,
discharge, leaking or other release of any Hazardous Materials at or from such
Facility; (iii) No Lease Obligor is subject to any judgment, decree or
order or citation arising out of Environmental Laws which relates to any
Facility (or any interest therein); and (iv) No Lease Obligor has been
named or listed as a potentially responsible party by any governmental body in
a manner arising under any Environmental Laws with respect to or which affects
any Facility.

 

(z)                                   Insurance.  Each Lessee has obtained or caused to be
obtained insurance coverage covering the Equipment to be leased by it under the
Lease which meets in all respects the requirements of the Lease, and such
coverage is in full force and effect. 
Each Lessee carries insurance with reputable insurers, or self-insures,
in respect of its material assets, in such manner, in such amounts and against
such risks as is customarily maintained by other Persons of similar size
engaged in similar business.

 

29

 

(aa)                            Project Entities.  As of the date hereof, (i) Detroit is a
Consolidated Project Entity and (ii) each of (A) Galleon, Inc. and (B)
Mandalay’s Subsidiaries which is a pure holding company and owns the legal and
equitable interests of Victoria Partners and Elgin Riverboat Resort, is an
Unconsolidated Project Entity.

 

(bb)                          Ownership of
Real Property Where Equipment Located.  On the date hereof, one or more of the Lessees or a wholly-owned
Subsidiary thereof have good record and marketable title in fee simple to all
real property, free and clear of all Liens and encumbrances other than
Permitted Encumbrances, upon which the Equipment is located (such property
being described on Exhibit A to the Lease).

 

Section 5.2.                           Representations and Warranties of
Each Lender.  Each Lender
represents and warrants, severally and only as to itself, to each of the other
parties hereto as follows:

 

(a)                                  Due
Organization, etc.  It is
duly organized and validly existing under the laws of the jurisdiction of its
organization and has the requisite power and authority to enter into and
perform its obligations as a Lender under each Operative Document to which it
is or will be a party and each other agreement, instrument and document to be
executed and delivered by it in connection therewith.

 

(b)                                 Authorization;
Execution; Enforceability.  The
execution and delivery by it of, the consummation by it of the transactions
provided for in, and the compliance by it with all the provisions of, each
Operative Document to which it is or is to be a party as a Lender have been
duly authorized, executed and delivered by it in accordance with the terms
thereof, and when executed and delivered in accordance with this Agreement by
each other party thereto, will constitute valid and binding obligations of such
Lender, enforceable against such Lender in accordance with its terms, except as
such enforceability may be limited by Gaming Laws, Debtor Relief Laws, similar
laws affecting the enforcement of creditors’ rights generally and by general
equitable principles.

 

(c)                                  ERISA.  Either (i) it is not and will not be
purchasing any of its interest in the Equipment or the Instruments with the
assets of an “employee benefit plan” (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA, or a “plan” (as defined in
Section 4975(e)(1) of the Code) or (ii) the acquisition and holding
of any Note will not result in a Prohibited Transaction, or (iii) it
(A) is an insurance company, (B) is acquiring its Instrument(s) with
funds held in an insurance company general account (as defined in
Section V(e) of the Prohibited Transaction Class Exemption 95-60) and
(C) the acquisition and subsequent ownership of its Instrument(s) will
qualify for the exemption provided by Prohibited Transaction Class Exemption
95-60.

 

(d)                                 Investment
in Equipment and Instruments.  It is acquiring its interest in the Instrument(s) without a view
towards further distribution, and if in the future it disposes of its interest
in the Instrument(s), it understands that it may do so only in compliance with
the Securities Act and the rules and regulations of the SEC thereunder and any 

 

30

 

applicable state securities laws.  Neither it nor anyone authorized to act on
its behalf nor any of its Affiliates has, directly or indirectly, taken or will
take any action which would subject the issuance or sale of any Note or any
interest in the Equipment, the Collateral or the Operative Documents to the
registration requirements of Section 5 of the Securities Act or which has
or would violate Section 5 of the Securities Act or any state securities
laws.  No representation or warranty
contained in this Section 5.2(d) shall include or cover any action or
inaction of any Lease Obligor or any Affiliate thereof whether or not
purportedly on behalf of any Lender or any of their Affiliates.  Subject to the foregoing and to the terms
and conditions of the Operative Documents, and subject to the provisions of
Article VIII hereof, it is understood among the parties that the disposition
of each Lender’s property shall be at all times within its control.

 

(e)                                  Accredited
Investor Status.  It is an
“accredited investor” within the meaning of Rule 501(a) of the Securities Act.

 

(f)                                    Lessor
Liens.  The Equipment is free
and clear of all Lessor Liens attributable to it.

 

Section 5.3.                           Representations and Warranties of
Trustee.  Wells Fargo Bank
Northwest, National Association, in its individual capacity (the “Bank”),
represents and warrants to each of the other parties hereto as follows:

 

(a)                                  Chief
Executive Office.  The Bank’s
chief executive office and principal place of business and the place where the
documents, accounts and records relating to the transactions contemplated by
the Operative Documents are kept is located at 299 South Main Street, Salt Lake
City, Utah 84111.

 

(b)                                 Due
Organization, etc.  The Bank
is a national banking association duly organized, validly existing and in good
standing under the laws of the United States of America; and has full power and
authority to enter into and perform its obligations under the Operative
Documents to which it is or is to be a party and each other agreement,
instrument and document to be executed and delivered by it in its individual
capacity and/or as Trustee, as applicable, on or before the Closing Date in
connection with or as contemplated by each such Operative Document to which it
is or is to be a party; and the Operative Documents to which Trustee is a
party, and to which Trustee is to be a party, have been or will be duly
executed and delivered by Trustee.

 

(c)                                  Authorization;
No Conflict.  The execution,
delivery and performance by the Bank of the Operative Documents to which it is
or is to be a party in its individual capacity and/or as Trustee, as
applicable, have been duly authorized by all necessary action on its part, and
do not and will not: 
(i) contravene any applicable laws, rules, regulations, orders,
injunctions or decrees of any Governmental Agency of the United States of
America governing the banking and trust powers of the Bank or of the State of
Utah where such contravention would be reasonably likely to materially and
adversely affect the ability of Trustee, either in its individual capacity, as
Trustee, or both, to 

 

31

 

perform its obligations under any Operative Documents
to which it is or will be a party; (ii) violate any provision of its
charter or bylaws or of the Trust Agreement; (iii) result in a breach of
or constitute a default under any indenture, loan or credit agreement, or any
other agreement or instrument to which Trustee, either in its individual
capacity, as Trustee, or both, is a party or by which it or its properties may
be bound or affected, which breaches or default would be reasonably likely to
materially and adversely affect the ability of Trustee, either in its
individual capacity, as Trustee, or both, to perform its obligations under any
Operative Documents to which it is or will be a party; or (iv) require any
authorizations, consents, approvals, licenses or formal exemptions from, or any
filings, declarations or registrations with, any Governmental Agency of the
United States of America governing the banking and trust powers of the Bank or
of the State of Utah  or any consent or approval of any
non-governmental Person.

 

(d)                                 Enforceability,
etc.  Each Operative Document
to which the Bank, in its individual capacity, as Trustee, or both, is a party
constitutes the legal, valid and binding obligation of Trustee, either in its
individual capacity, as Trustee, or both, as applicable, enforceable against it
in accordance with the terms thereof, except as such enforceability may be
limited by Gaming Laws, Debtor Relief Laws, similar laws affecting the
enforcement of creditors’ rights generally and by general equitable principles.

 

(e)                                  Litigation.  There is no action, proceeding or
investigation pending or threatened which questions the validity of the
Operative Documents to which Trustee, in its individual capacity, as Trustee,
or both, is a party or any action taken or to be taken pursuant to the
Operative Documents to which the Bank, in its individual capacity, as Trustee,
or both, is a party.

 

(f)                                    Lessor
Liens.  The Equipment and the
other Lessee Collateral are free and clear of all Lessor Liens attributable to the
Bank, in its individual capacity, as Trustee, or both.

 

(g)                                 Securities
Act.  Neither the Bank, in
its individual capacity, as Trustee, or both, nor anyone authorized to act on
behalf of Trustee has, directly or indirectly, in violation of Section 5
of the Securities Act or any state securities laws, offered or sold any
interest in the Notes, any of the Equipment or the Operative Documents, or any
interest therein, or in any security or lease the offering of which, for
purposes of the Securities Act or any state securities laws, would be deemed to
be part of the same offering as the offering of the aforementioned securities
or leases, or solicited any offer to acquire any of the aforementioned
securities or leases.

 

(h)                                 The
Trustee is not required to be registered as an “investment company” under the
Investment Company Act.

 

32

 

Section 5.4.                           Representations and Warranties of
Collateral Agent.  Wells Fargo
Bank Nevada, National Association, Nevada hereby represents and warrants to the
other parties hereto as follows:

 

(a)                                  Due
Organization, etc.  Wells
Fargo Bank Nevada, National Association is duly organized as a national banking
association, is validly existing and in good standing under the laws of the
United States of America, and has full power and authority to enter into and
perform its obligations under the Operative Documents.

 

(b)                                 Authorization;
No Conflict.  The execution,
delivery and performance by Collateral Agent of the Operative Documents to
which it is or is to be a party in its individual capacity and/or as Collateral
Agent, as applicable, have been duly authorized by all necessary action on its
part, and do not and will not: 
(i) contravene any applicable laws, rules, regulations, orders,
injunctions or decrees of any Governmental Agency of the United States of
America or of the State of Nevada governing the banking and trust powers of
Wells Fargo Bank Nevada, National Association where such contravention would be
reasonably likely to materially and adversely affect the ability of Collateral
Agent, either in its individual capacity, as Collateral Agent or both, to
perform its obligations under any Operative Documents to which it is or will be
a party; (ii) violate any provision of its charter or bylaws;
(iii) result in a breach of or constitute a default under any indenture,
loan or credit agreement, or any other agreement or instrument to which
Collateral Agent, either in its individual capacity, as Collateral Agent, or
both, is a party or by which it or its properties may be bound or affected,
which breach or default would be reasonably likely to materially and adversely
affect the ability of Collateral Agent, either in its individual capacity, as
Collateral Agent, or both, to perform its obligations under any Operative
Documents to which it is or will be a party; or (iv) require any
authorizations, consents, approvals, licenses or formal exemptions from, or any
filings, declarations or registrations with, any Governmental Agency of the
United States of America or the State of Nevada governing the banking and trust
powers of Wells Fargo Bank Nevada, National Association or any consent or
approval of any non-governmental Person.

 

(c)                                  Enforceability,
etc.  Each Operative Document
to which Collateral Agent, in its individual capacity, as Collateral Agent, or
both, is a party constitutes the legal, valid and binding obligation of
Collateral Agent, either in its individual capacity, as Collateral Agent, or
both, as applicable, enforceable against it in accordance with the terms
thereof, except as such enforceability may be limited by Gaming Laws, Debtor
Relief Laws, similar laws affecting the enforcement of creditors’ rights
generally and by general equitable principles.

 

(d)                                 Litigation.  There is no action, proceeding or
investigation pending or threatened which questions the validity of the
Operative Documents to which Collateral Agent, in its individual capacity, as
Collateral Agent, or both, is a party or any action taken or to be taken
pursuant to the Operative Documents to which Collateral Agent, in its
individual capacity, as Collateral Agent, or both, is a party.

 

33

 

(e)                                  Lessor
Liens.  The Equipment and the
other Collateral are free and clear of all Lessor Liens attributable to
Collateral Agent.

 

Article VI

 

Covenants

 

Section 6.1.                           Covenants of Lease Obligors.  Each Lease Obligor covenants with each of
the other parties hereto as follows:

 

(a)                                  Further
Assurances.  At its own cost
and expense, such Lease Obligor shall cause to be promptly and duly taken,
executed, acknowledged and delivered all such further acts, documents and
assurances as any Creditor reasonably may request from time to time in order to
carry out more effectively the intent and purposes of this Agreement and the
other Operative Documents to which it is a party and the transactions
contemplated thereby, and cause all financing statements (including
precautionary financing statements), fixture filings and other documents, to be
recorded or filed at such places and times in such manner, and take all such
other actions or cause such actions to be taken, as may be necessary or as may
be reasonably requested by any Creditor in order to establish, preserve,
protect and perfect the title of Trustee, for the benefit of the Lenders, to
the Equipment and Trustee’s and Collateral Agent’s rights under this Agreement
and the other Operative Documents and to perfect, preserve and protect the
perfected and first priority security interest of record in favor of the
Lenders on the Trust Estate.

 

(b)                                 Payment of
Taxes and Other Potential Liens.  Each Lease Obligor shall pay and discharge promptly all Taxes,
assessments and governmental charges or levies imposed upon it or its property
or any part thereof and upon its income or profits or any part thereof, except
that the Lease Obligors shall not be required to pay or cause to be paid
(i) any Tax, assessment, charge or levy that is not yet past due, or is
being contested pursuant to a Permitted Contest so long as the relevant entity
has established and maintains adequate reserves for the payment of the same or
(ii) any immaterial Tax so long as no material property of any of the
Lease Obligors is at impending risk of being seized, levied upon or forfeited.

 

(c)                                  Preservation
of Existence.  Each Lease
Obligor shall preserve and maintain its existence in the jurisdiction of its
formation and all material authorizations, rights, franchises, privileges,
consents, approvals, orders, licenses, permits, or registrations from any
Governmental Agency that are necessary for the transaction of its business
except where the failure to so preserve and maintain any such authorization
would not constitute a Material Adverse Effect and except that a merger
permitted by Section 6.1(r) shall not constitute a violation of this
covenant so long as all financing statements required to be filed to continue
the perfection and priority of the Liens of the Trustee and Collateral Agent
have previously been filed; and qualify and remain qualified to transact
business in each jurisdiction in which such qualification is necessary in view 

 

34

 

of its business or the ownership or leasing of its
properties except where the failure to so qualify or remain qualified would not
constitute a Material Adverse Effect.

 

(d)                                 Maintenance
of Properties.  Each Lease
Obligor shall maintain, preserve and protect all of its properties in good
order and condition, subject to wear and tear in the ordinary course of business,
and not permit any waste of its properties, except that the failure to
maintain, preserve and protect a particular item of depreciable property that
is not part of the Collateral and is not of significant value, either
intrinsically or to the operations of such Lease Obligor, shall not constitute
a violation of this covenant.

 

(e)                                  Compliance
With Laws.  Each Lease
Obligor shall comply, within the time period, if any, given for such compliance
by the relevant Governmental Agency or Agencies with enforcement authority,
with all Requirements of Law noncompliance with which constitutes a Material
Adverse Effect, except that the Lease Obligors need not comply with a
Requirement of Law then being contested pursuant to a Permitted Contest.

 

(f)                                    Inspection Rights.
 Upon reasonable notice, at
any time during regular business hours and as often as reasonably requested
(but not so as to materially interfere with the business of any Lease Obligor),
each Lease Obligor shall permit any Creditor, or any authorized employee, agent
or representative thereof, to examine, audit and make copies and abstracts from
the records and books of account, to visit and inspect the Equipment and
properties upon which the Equipment is at any time located (subject to any
applicable Gaming Laws) and to discuss the affairs, finances and accounts of
such Lease Obligor with any of its officers, managers, key employees or
accountants and, upon request, furnish promptly to any Creditor true copies of
all financial information made available to the Board of Directors or audit
committee of the Board of Directors of such Lease Obligor.

 

(g)                                 Keeping
of Records and Books of Account.  Each Lease Obligor shall keep adequate records and books of
account reflecting all financial transactions in conformity with GAAP,
consistently applied, and in material conformity with all applicable
requirements of any Governmental Agency having regulatory jurisdiction over
such Lease Obligor.

 

(h)                                 Compliance
With Agreements.  Each Lease
Obligor shall promptly and fully comply with all Contractual Obligations under
all material agreements, indentures, leases and/or instruments to which such
Lease Obligor is a party, whether such material agreements, indentures, leases
or instruments are with a Lender or another Person, except for any such
Contractual Obligations (i) the performance of which would cause a
Default, (ii) then being contested by such Lease Obligor in good faith by
appropriate proceedings or (iii) if the failure to comply with such
agreements, indentures, leases or instruments does not constitute a Material
Adverse Effect.

 

(i)                                     ERISA.  No Lease Obligor shall (i) permit any
Pension Plan to (A) engage in any non-exempt Prohibited Transaction,
(B) fail to comply with ERISA or any other 

 

35

 

Applicable Laws, (C) incur any material
“accumulated funding deficiency” (as defined in Section 302 of ERISA), or
(D) terminate in any manner, which, with respect to each event listed
above, could reasonably be expected to result in a Material Adverse Effect, or
(ii) withdraw, completely or partially, from any Multiemployer Plan if to
do so could reasonably be expected to result in a Material Adverse Effect.

 

(j)                                     Sublease.  No Lessee shall amend, modify, supplement or
otherwise change the terms and provisions of any Sublease or terminate any
Sublease as a result of an event of default under any Sublease without the
prior written consent of Trustee and the Required Lenders.

 

(k)                                  Use of Funds.  None of the proceeds of any amounts advanced
by Trustee to or for the benefit of any Lessee in connection with the purchase
(or reimbursement for the purchase) of Equipment will be used in violation of
applicable law or regulation including Regulations T, U and X of the Board of
Governors of the Federal Reserve System.

 

(l)                                     Change of
Name; Jurisdiction of Organization or Location.  No Lease Obligor shall, except as may be
permitted in the Lease or otherwise upon thirty (30) days’ prior written notice
to Trustee and Collateral Agent and delivery to Trustee and Collateral Agent of
(i) all additional documents reasonably requested by Trustee and Collateral
Agent to maintain the validity, perfection and priority of the Liens provided
for under the Operative Documents and (ii) if applicable, a written supplement
to Exhibit A to the Master Lease showing any additional location at which
Equipment shall be kept: 
(A) change its jurisdiction of organization or location of its
chief executive office or sole place of business (if applicable) to a location
other than Clark County, Nevada; or (B) change its name.

 

(m)                               Environmental
Matters.  Each Lessee shall (i) use and operate
the Equipment in compliance in all material respects with all Environmental
Laws, keep all necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and remain in
material compliance therewith, and handle all Hazardous Material in compliance
with all applicable Environmental Laws and (ii) promptly notify Trustee, Collateral
Agent and the Lenders in writing and provide copies upon receipt, of all
material written claims, complaints, notices or inquiries relating to the
condition or compliance of the Equipment in so far as they relate to
Environmental Laws, and promptly cure in all material respects (and have
dismissed with prejudice or otherwise irrevocably terminated) to the
satisfaction of the Required Lenders any actions and proceedings relating to
such compliance with Environmental Laws;  provided, however, that such Lessee may
contest by Permitted Contest any such actions or proceedings.  In addition, if the estimated damages
including costs of remediation are reasonably expected to exceed $500,000, such
Lessee shall, prior to the institution of any such Permitted Contest by such
Lessee, provide such additional security as Trustee or any Lender shall
reasonably request.  Each Lessee shall
provide such information and 

 

36

 

certifications which Trustee or any Lender may reasonably
request from time to time to evidence compliance with this Section 6.1(m).

 

(n)                                 Securities.  No Lease Obligor shall, nor shall any Lease
Obligor permit anyone authorized to act on its behalf to, take any action which
would subject the issuance or sale of the Notes, any of the Equipment or the
Lease, or any security or lease the offering of which, for purposes of the
Securities Act or any state securities laws, would be deemed to be part of the
same offering as the offering of the aforementioned items, to the registration
requirements of Section 5 of the Securities Act or any state securities
laws.

 

(o)                                 No
Disposition of the Equipment.  No
Lease Obligor shall sell, contract to sell, assign, lease, transfer, convey or
otherwise dispose of, or permit to be sold, assigned, leased, transferred,
conveyed or otherwise disposed of, all or any of the Equipment or any part
thereof except as permitted by the Operative Documents including in connection
with substitutions permitted by the terms of the Lease.

 

(p)                                 Financial
and Other Information. 
Mandalay shall deliver to Collateral Agent (and Collateral Agent agrees
to promptly distribute to each of the Lenders) the following financial
information:

 

(i)                                     As
soon as practicable, and in any event within 60 days after the end of each
Fiscal Quarter (other than the fourth Fiscal Quarter in any Fiscal Year),
(i) the consolidated balance sheet of Mandalay and its Subsidiaries as at
the end of such Fiscal Quarter and the consolidated statement of operations for
such Fiscal Quarter, and its statement of cash flows for the portion of the
Fiscal Year ended with such Fiscal Quarter and (ii) the consolidating (in
accordance with past consolidating practices of Mandalay) balance sheets and
statements of operations as at and for the portion of the Fiscal Year ended
with such Fiscal Quarter, all in reasonable detail.  Such financial statements shall be certified by a Senior Officer
of Mandalay as fairly presenting the financial condition, results of operations
and cash flows of Mandalay and its Subsidiaries in accordance with GAAP (other
than footnote disclosures), consistently applied, as at such date and for such
periods, subject only to normal year-end accruals and audit adjustments;

 

(ii)                                  As
soon as practicable, and in any event within 100 days after the end of
each Fiscal Year, (i) the consolidated balance sheet of Mandalay and its
Subsidiaries as at the end of such Fiscal Year and the consolidated statements
of operations, stockholders’ equity and cash flows, in each case of Mandalay
and its Subsidiaries for such Fiscal Year and (ii) consolidating (in
accordance with past consolidating practices of Mandalay) balance sheets and
statements of operations, in each case as at the end of and for the Fiscal
Year, all in reasonable detail.  Such
financial statements shall be prepared in accordance with GAAP, consistently
applied, and such consolidated balance sheet and consolidated statements shall
be accompanied by a report of PricewaterhouseCoopers LLP or other independent 

 

37

 

public accountants of recognized standing selected by
Mandalay and reasonably satisfactory to the Required Lenders, which report
shall be prepared in accordance with generally accepted auditing standards as
at such date, and shall not be subject to any qualifications or exceptions as
to the scope of the audit nor to any other qualification or exception
determined by the Required Lenders in their good faith business judgment to be
adverse to the interests of the Required Lenders.  Such accountants’ report and opinion shall be accompanied by a
certificate stating that, in making the examination pursuant to generally
accepted auditing standards necessary for the certification of such financial
statements and such report, such accountants have obtained no knowledge of any
Default or, if, in the opinion of such accountants, any such Default shall
exist, stating the nature and status of such Default, and stating that such
accountants have reviewed Mandalay’s financial calculations as at the end of
such Fiscal Year (which shall accompany such certificate) under
Sections 6.1(z) and 6.1(aa), have read such Sections (including the
definitions of all defined terms used therein) and that nothing has come to the
attention of such accountants in the course of such examination that would
cause them to believe that the same were not calculated by Mandalay in the
manner prescribed by this Agreement;

 

(iii)                               As
soon as practicable, and in any event within 100 days after the
commencement of each Fiscal Year, a budget and projection by Fiscal Quarter for
that Fiscal Year and by Fiscal Year for the next four succeeding Fiscal Years,
including for the first such Fiscal Year, projected quarterly consolidated
balance sheets, statements of operations and statements of cash flow and, for
the remaining four Fiscal Years, projected annual consolidated condensed
balance sheets and statements of operations and cash flow, of Mandalay and its
Subsidiaries, all in reasonable detail;

 

(iv)                              Promptly
after request by any Creditor, copies of any detailed audit reports, management
letters or recommendations submitted to the Board of Directors (or the audit
committee of the Board of Directors) of Mandalay by independent accountants in
connection with the accounts or books of Mandalay or any of its Subsidiaries,
or any audit of any of them;

 

(v)                                 As
soon as practicable, and in any event (A) within 30 days after the
end of the first three Fiscal Quarters in each Fiscal Year, and (B) 60
days after the end of the fourth Fiscal Quarter in each Fiscal Year, a written
report, in form and detail mutually acceptable to Mandalay and Collateral
Agent, with a narrative report describing the results of operations of Mandalay
and its Subsidiaries during such Fiscal Quarter and detailing the status of
development of each New Venture Entity, including the amounts of Capital
Expenditures and Investments made, and reasonably anticipated to be made, with
respect thereto;

 

(vi)                              Promptly
after the same are available, copies of each annual report, proxy or financial
statement or other report or communication sent to the 

 

38

 

stockholders of Mandalay, and copies of all annual,
regular, periodic and special reports and registration statements which
Mandalay may file or be required to file with the SEC under Section 13
or 15(d) of the Exchange Act, and not otherwise required to be delivered
to the Lenders pursuant to other provisions of this Section;

 

(vii)                           Promptly
after the same are available, copies of the Nevada “Regulation 6.090
Report” and “6-A Report”, and copies of any written communication to
Mandalay or any of its Restricted Subsidiaries from any Gaming Board advising
it of a violation of or non-compliance with any Gaming Law by Mandalay or any
of its Restricted Subsidiaries;

 

(viii)                        Promptly
after request by any Creditor, copies of any other report or other document
that was filed by Mandalay or any of its Restricted Subsidiaries with any
Governmental Agency;

 

(ix)                                Promptly
upon a Senior Officer becoming aware, and in any event within five (5)
Business Days after becoming aware, of the occurrence of any
(i) ”reportable event” (as such term is defined in Section 4043 of
ERISA) or (ii) Prohibited Transaction in connection with any Pension Plan
or any trust created thereunder, telephonic notice specifying the nature
thereof, and, no more than five (5) Business Days after such telephonic
notice, written notice again specifying the nature thereof and specifying what
action Mandalay or any of its Restricted Subsidiaries is taking or proposes to
take with respect thereto, and, when known, any action taken by the Internal
Revenue Service with respect thereto;

 

(x)                                   As
soon as practicable, and in any event within two (2) Business Days
after a Senior Officer becomes aware of the existence of any condition or event
which constitutes a Default, telephonic notice specifying the nature and period
of existence thereof, and, no more than two (2) Business Days after
such telephonic notice, written notice again specifying the nature and period
of existence thereof and specifying what action the applicable Lessee is taking
or proposes to take with respect thereto;

 

(xi)                                Promptly
upon a Senior Officer becoming aware, and in any event within five (5) Business
Days after becoming aware, that (A) any Person has commenced a legal
proceeding with respect to a claim against Mandalay or any of its Restricted
Subsidiaries that is $10,000,000 or more in excess of the amount thereof that
is fully covered by insurance, (B) any creditor or certificate purchaser
under a credit agreement or material lease has asserted a default thereunder on
the part of Mandalay or any of its Restricted Subsidiaries, (C) any Person
has commenced a legal proceeding with respect to a claim against Mandalay or
any of its Restricted Subsidiaries under a contract that is not a credit
agreement or material lease, which claim is in excess of $10,000,000 or
which otherwise may 

 

39

 

reasonably be expected to result in a Material Adverse
Effect, (D) any labor union has notified Mandalay of its intent to strike
Mandalay or any of its Restricted Subsidiaries on a date certain and such
strike would involve more than 100 employees of Mandalay or any of its
Restricted Subsidiaries, or (E) any Gaming Board has indicated its intent
to consider or act upon a License Revocation or a fine or penalty of $1,000,000
or more with respect to Mandalay or any of its Restricted Subsidiaries, a
written notice describing the pertinent facts relating thereto and what action
Mandalay or any of its Restricted Subsidiaries are taking or propose to take
with respect thereto;

 

(xii)                             Promptly,
and in any event within five (5) Business Days of the effective date thereof,
copies of (A) any and all amendments, modifications and waivers pertaining
in any manner to any of the Mandalay Loan Agreements (or if applicable, any
Replacement Loan Agreement) and (B) any and all Replacement Loan
Agreements and the material agreements, documents and instruments relating
thereto;

 

(xiii)                          Such
other data and information as from time to time may be reasonably requested by
any Creditor through Trustee or Collateral Agent, as the case may be; and

 

(xiv)                         A
certificate addressed to the Creditors in a form acceptable to the Creditors
with respect to its compliance with the Operative Documents to which it is a
party concurrently with the financial statements described in
clauses (p)(i) and (p)(ii) above.

 

(q)                                 Conduct of
Business, Maintenance of Existence and Compliance with Laws.  (i) Mandalay will preserve, renew and
keep in full force and effect, and will cause each Lessee and each Restricted
Subsidiary to preserve, renew and keep in full force and effect, their
respective corporate existence and respective material authorizations, rights,
franchises, privileges, consents, approvals, orders, licenses, permits, or
registrations from any Governmental Agency that are necessary for the
transaction of their respective business, except where the failure to so preserve
and maintain the existence of any Restricted Subsidiary and such authorizations
would not constitute a Material Adverse Effect and except that a merger
permitted by Section 6.1(r) below shall not constitute a violation of this
covenant.

 

(ii)                                  Mandalay
will comply, and will cause each Lessee and each Restricted Subsidiary to
comply, within the time period, if any, given for such compliance by the
relevant Governmental Agency or Agencies with enforcement authority, with all
Requirements of Law noncompliance with which constitutes (or would reasonably
be likely to constitute) a Material Adverse Effect, except that Mandalay and
its Restricted Subsidiaries need not comply with a Requirement of Law then
being contested by any of them in good faith pursuant to a Permitted Contest.

 

40

 

(r)                                    Consolidation,
Mergers and Sales of Assets. 
(i) Mandalay shall not merge or consolidate with or into any
Person, or permit any Lessee or any Restricted Subsidiary to merge or consolidate
with or into any Person, except:

 

(A)                              Mergers
and consolidations of a Subsidiary of Mandalay into Mandalay or a Restricted
Subsidiary (with Mandalay or the Restricted Subsidiary as the surviving entity)
or of Restricted Subsidiaries of Mandalay with each other, provided that Mandalay and
each of its Subsidiaries has executed such amendments to the Operative
Documents as Trustee, acting at the direction of the Required Lenders may
reasonably determine are appropriate as a result of such merger or consolidation;
and

 

(B)                                A
merger or consolidation of Mandalay or any Restricted Subsidiary with any other
Person, provided
that (1) either (x) Mandalay or the Restricted Subsidiary is the
surviving entity, or (y) the surviving entity is a corporation organized
under the laws of a State of the United States of America and, as of the date
of such merger or consolidation, expressly assumes, by an instrument
satisfactory in form and substance to the Required Lenders, the Obligations of
Mandalay or the Restricted Subsidiary (if any), as the case may be,
(2) giving effect thereto on a pro-forma basis, no Default or Event of
Default exists or would result therefrom and (3) as a result thereof, no
Change in Control has occurred.

 

(ii)                                  Mandalay
shall not make any Disposition of its property, and shall not permit any Lessee
or any Restricted Subsidiary to make any Disposition of its property, whether
now owned or hereafter acquired, except:

 

(A)                              Dispositions
of the real property and improvements described on Schedule VIII (or of
any other real property and related improvements acquired after the Closing
Date and which is not Developed Property) to New Venture Entities; and

 

(B)                                Other
Dispositions made during the term of this Agreement in aggregate amount not in
excess of $150,000,000,

 

in each case made when no Event of Default then exists
or would result therefrom; provided, however, that this
Section shall not apply to prohibit a Disposition to the extent necessary
to prevent a License Revocation if (i) no Default or Event of Default then
exists which is not curable by such Disposition, and (ii) Mandalay has notified
Trustee and Collateral Agent in writing of the necessity to invoke this proviso
at least ten (10) Business Days (or such shorter period as may be necessary in
order to comply with a regulation or order of the relevant Gaming Board) in
advance, and provided further that nothing in this Section shall
apply to restrict the Disposition of any of the equity securities of any Person
that holds, directly or indirectly through a holding company or 

 

41

 

otherwise, a license under any Gaming Law to the
extent such restriction is unlawful under that Gaming Law.

 

(s)                                  Payment of
Subordinated Debt.  Mandalay
shall not, and shall not permit any of its Restricted Subsidiaries to, pay any
(a) principal (including sinking fund payments) or any other amount (other
than scheduled interest payments) with respect to any Subordinated Debt, or
purchase or redeem any Subordinated Debt, if an Event of Default then exists or
would result therefrom, or (b) scheduled interest on any Subordinated
Debt, if a Lease Event of Default described in Section 16.1(a) of the
Lease then exists or would result therefrom; provided, however, that this
Section shall not apply to prohibit any payment to the extent necessary to
prevent a License Revocation if (i) no Default or Event of Default then
exists which is not curable by such payment and (ii) Mandalay has notified
Collateral Agent in writing of the necessity to invoke this proviso at least
ten Business Days (or such shorter period as may be necessary in order to
comply with a regulation or order of the relevant Gaming Board) in
advance.  Mandalay shall not amend or
modify the subordination provisions of any Subordinated Debt in any manner
which is materially adverse to the interests of the Creditors.

 

(t)                                    Hostile
Tender Offers.  Mandalay
shall not, and shall not permit any of its Restricted Subsidiaries to, make any
offer to purchase or acquire, or consummate a purchase or acquisition of, 5% or
more of the capital stock of any corporation or other business entity if the
Board of Directors or management of such corporation or business entity has
notified Mandalay that it opposes such offer or purchase and such notice has
not been withdrawn or superseded.

 

(u)                                 Distributions.  Mandalay shall not, and shall not permit any
of its Restricted Subsidiaries to, make any Distribution, whether from capital,
income or otherwise, and whether in cash or other property, if an Event of
Default then exists or would result therefrom, except (a) Distributions by
any Restricted Subsidiary to Mandalay or to another Restricted Subsidiary, and
(b) dividends payable solely in Common Stock; provided, however, that this
Section shall not apply to prohibit a Distribution to the extent necessary
to prevent a License Revocation if (i) no Default or Event of Default then
exists which is not curable by such Distribution and (ii) Mandalay has
notified Trustee and Collateral Agent in writing of the necessity to invoke
this proviso at least ten Business Days (or such shorter period as may be
necessary in order to comply with a regulation or order of the relevant Gaming
Board) in advance.

 

(v)                                 Change in
Nature of Business.  Mandalay
shall not, and shall not permit any of its Restricted Subsidiaries to, make any
material change in the nature of the business of Mandalay and its Restricted
Subsidiaries, taken as a whole; provided that the acquisition of an
ownership interest in one or more New Ventures shall not be construed to
violate this covenant.

 

(w)                               Liens,
Negative Pledges, Sale Leasebacks and Rights of Others.  Mandalay shall not, and shall not
permit any of its Restricted Subsidiaries to, create, 

 

42

 

incur, assume or suffer to exist any Lien, Negative
Pledge or Right of Others of any nature upon or with respect to any of their
respective properties, whether now owned or hereafter acquired, or enter into
any Sale and Leaseback with respect to any such properties except:

 

(i)                                     Permitted
Liens and Permitted Rights of Others;

 

(ii)                                  Liens
on property (other than the Lessee Collateral) which secure one or more
obligations under the Mandalay Loan Documents and Negative Pledges benefiting
the Mandalay Loan Documents or any part thereof;

 

(iii)                               the
Negative Pledges set forth in the Existing Senior Notes and the Existing
Subordinated Notes (as in effect on the Closing Date);

 

(iv)                              Negative
Pledges benefiting any refinancings of the Existing Senior Notes, any
refinancings of the Existing Subordinated Notes, or any other Indebtedness
hereafter incurred by Mandalay or its Restricted Subsidiaries in accordance
with the terms of this Agreement which do not prohibit the granting of Liens in
favor of Trustee, Collateral Agent and the Lenders or any creditors refinancing
the Obligations;

 

(v)                                 other
existing Liens, Negative Pledges and Rights of Others disclosed in
Schedule VIII (or not required to be disclosed therein) and any renewals
or extensions thereof; provided that the obligations secured or
benefited thereby are not increased;

 

(vi)                              Rights
of Others consisting of holdings in joint tenancy or other forms of ownership
interests (and rights associated therewith) in a New Venture Entity or
consisting of obligations of Mandalay or its Restricted Subsidiaries to sell,
or rights of other Persons to purchase, the ownership interests of Mandalay and
its Restricted Subsidiaries in a New Venture Entity, which obligations or
rights were created substantially concurrently with the acquisition of such
ownership interest in the New Venture Entity or which are subsequently required
by any Gaming Board;

 

(vii)                           any
Lien, Negative Pledge or Right of Others on shares of any equity security or
any warrant or option to purchase an equity security or any security which is
convertible into an equity security issued by any Subsidiary of Mandalay that
holds, directly or indirectly through a holding company or otherwise, a license
or registration under any Gaming Law, and in the proceeds thereof; provided
that this clause (vii) shall apply only so long as the Gaming Laws of the
relevant jurisdiction provide that the creation of any restriction on the
disposition of any of such securities shall not be effective and, if such
Gaming Laws at any time cease to so provide, then this clause (vii) shall
be of no further effect; and provided further that if at any time
Mandalay creates or suffers to exist 

 

43

 

a Lien or Negative Pledge covering such securities in
favor of the holder of any other Indebtedness, it will (subject to any approval
required under such Gaming Laws) concurrently grant a pari-passu Lien or
Negative Pledge likewise covering such securities in favor of Trustee and/or
Collateral Agent for the benefit of the Lenders;

 

(viii)                        Liens and
related Negative Pledges on property (other than the Lessee Collateral)
acquired or constructed (whether before or after the Closing Date) by Mandalay
or any of its Restricted Subsidiaries, and in the proceeds thereof, that
(i) were in existence at the time of the acquisition or construction of
such property or were created at or within 180 days after such acquisition
or construction, (ii) secure (in the case of Liens not in existence at the
time of acquisition of the property) only the unpaid portion of the acquisition
or construction price for such property, or monies borrowed that were used to
pay such acquisition or construction price and (iii) when aggregated with
Liens of the types described in clauses (viii), (ix) and (x) of this
Section, do not secure Indebtedness (including Capital Lease Obligations) and
Sale and Leaseback Obligations which are in an aggregate principal amount which
is in excess of $37,500,000 outstanding at any time;

 

(ix)                                Sales
and Leasebacks of property (other than the Lessee Collateral) having an
aggregate value, and with Sale and Leaseback Obligations which are in an
amount, which would be permitted under clause (viii) above if the same
were to be construed as financing transactions and which, when aggregated with
Liens of the types described in clauses (viii), (ix) and (x) of this
Section, do not secure Indebtedness (including Capital Lease Obligations) and
Sale and Leaseback Obligations which are in an aggregate principal amount which
is in excess of $37,500,000 outstanding at any time;

 

(x)                                   Other
Liens on property (other than the Lessee Collateral) having an aggregate value
not in excess of $185,000,000 securing Indebtedness (including Capital Lease
Obligations) in an aggregate principal amount which is not in excess of
$37,500,000 at any time, and Negative Pledges relating to such property for the
benefit of the holders of such Indebtedness provided that (i) no real property
shall be subject to any such Lien or Negative Pledge, and (ii) and which,
when aggregated with Liens of the types described in clauses (viii), (ix)
and (x) of this Section, do not secure Indebtedness (including Capital Lease
Obligations) and Sale and Leaseback Obligations which are in an aggregate
principal amount which is in excess of $37,500,000 outstanding at any time;

 

(xi)                                Liens,
Negative Pledges and Rights of Others held by joint venture partners and any
assignees thereof (including by way of example co-owners of any partnership,
limited liability company or other Person), and lenders thereto and any
assignees thereof, with respect to the interests of Mandalay and its Restricted
Subsidiaries in that joint venture and the proceeds thereof, provided

 

44

 

that such Liens, Negative Pledges and Rights of Others
shall secure and relate only to the obligations of such joint venture; and

 

(xii)                             Liens,
Negative Pledges and Rights of Others in favor of counterparties to agreements,
and assignees thereof, entered into by Mandalay and its Restricted Subsidiaries
in the ordinary course of business on the interests of Mandalay and its
Restricted Subsidiaries under such agreements and the proceeds thereof, provided
that such Liens, Negative Pledges and Rights of Others shall secure and relate
only to restrictions on transfer of the rights of Mandalay and its Restricted
Subsidiaries to the holders thereof under the relevant agreement;

 

provided,
that this Section shall not apply to prohibit the creation of a Lien,
Negative Pledge or Right of Others to the extent necessary to prevent a License
Revocation if (i) no Default or Event of Default then exists which is not
curable by creation of the Lien, Negative Pledge or Right of Others and
(ii) Mandalay has notified Trustee and Collateral Agent in writing of the
necessity to invoke this proviso at least ten Business Days (or such shorter
period as may be necessary in order to comply with a regulation or order of the
relevant Gaming Board) in advance.

 

(x)                                   Indebtedness
and Contingent Obligations.  Mandalay shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness or
Contingent Obligation (other than Indebtedness of Restricted Subsidiaries to
Mandalay or another Restricted Subsidiary) if a Default or Event of Default
then exists or would result therefrom.

 

(y)                                 Transactions
with Affiliates.  Mandalay
shall not, and shall not permit any of its Restricted Subsidiaries to, enter
into any material transaction of any kind with any Affiliate of Mandalay other
than (a) salary, bonus, employee stock option and other compensation
arrangements with directors or officers in the ordinary course of business,
(b) transactions that are fully disclosed to the Board of Directors of
Mandalay and expressly authorized by a resolution of the Board of Directors of
Mandalay which is approved by a majority of the directors not having an
interest in the transaction, (c) transactions between or among Mandalay
and its Restricted Subsidiaries and (d) transactions on overall terms,
giving effect to all other business arrangements of Mandalay and its Restricted
Subsidiaries with that Affiliate, at least as favorable to Mandalay or its
Restricted Subsidiaries as would be the case in an arm’s-length transaction
between unrelated parties of equal bargaining power.

 

45

 

(z)                                   Total Debt
Ratio.  Mandalay shall not
permit the Total Debt Ratio as of the last day of any Fiscal Quarter described
in the matrix below to exceed the ratio set forth opposite that Fiscal Quarter:

 

	
  Fiscal Quarters Ending

  	
   

  	
  Maximum Ratio

  
	
   

  	
   

  	
   

  
	
  July 31, 2003 through and including

  January 31, 2004

  	
   

  	
  5.25:1.00

  
	
   

  	
   

  	
   

  
	
  April 30, 2004 through and including

  July 31, 2004

  	
   

  	
  4.50:1.00

  
	
   

  	
   

  	
   

  
	
  October 31, 2004 and thereafter

  	
   

  	
  4.25:1.00.

  

 

(aa)                            Interest
Coverage Ratio.  Mandalay shall not
permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter
described in the matrix below to be less than the ratio set forth opposite that
Fiscal Quarter:

 

	
  Fiscal Quarters Ending

  	
   

  	
  Minimum Ratio

  
	
   

  	
   

  	
   

  
	
  July 31, 2003 through and including 

  January 31, 2004

  	
   

  	
  2.50:1.00

  
	
   

  	
   

  	
   

  
	
  April 30, 2004 through and including 

  January 31, 2005

  	
   

  	
  2.75:1.00

  
	
   

  	
   

  	
   

  
	
  April 30, 2005 and thereafter

  	
   

  	
  3.00:1.00

  

 

(bb)                          Significant
Subsidiaries.  Mandalay shall
not permit any Restricted Subsidiary that is, as of the Closing Date, a
Significant Subsidiary to cease being a Restricted Subsidiary, except pursuant
to a Disposition permitted by Section 6.1(r) or a merger or consolidation
permitted by Section 6.1(r).

 

(cc)                            Financial
Covenants under Mandalay Loan Documents. 
In the event that any of the financial covenants contained in the
Mandalay Revolving Loan Agreement (the parties hereto acknowledge and agree
that for purposes of this clause (cc) the term ‘financial covenants’ shall
be deemed to refer to the total debt ratio covenant and interest coverage ratio
covenant set forth in Sections 6.11 and 6.12 of the Mandalay Revolving Loan
Agreement as of the date hereof) is amended, modified or waived by the parties
to said Mandalay Revolving Loan Agreement, or any additional financial covenant
not set forth herein is incorporated into the Mandalay Revolving Loan
Agreement, then and in such event Mandalay shall concurrently therewith provide
notice to such effect to the Trustee, the Collateral Agent and each Lender, and
the financial covenants set forth 

 

46

 

herein shall automatically be deemed amended, modified
or waived to the same effect as in the Mandalay Revolving Loan Agreement, or
such additional financial covenant shall automatically be deemed to be
incorporated into this Agreement by reference. 
In connection with any amendment, modification or waiver of the Mandalay
Revolving Loan Agreement as described in the preceding sentence, the Lease
Obligors shall pay to each Lender any amendment fee, modification fee, waiver
fee or similar fee to be paid to the banks party to said Mandalay Revolving
Loan Agreement; provided, however that no amendment fee, modification fee,
waiver fee or similar fee shall be payable to any Lender by any Lease Obligor
pursuant this clause (cc) in connection with an amendment, modification or
waiver of the Mandalay Revolving Loan Agreement consummated prior to December 31,
2003 pursuant to which the lien covenant contained in Section 6.8(i)
thereof is amended, modified or waived to permit Mandalay to consummate the
second Advance Date (such amendment, modification or waiver may also amend,
modify or waive other provisions, including, but not limited to, the financial
covenants contained therein).  In the
event that Mandalay and/or any of its Subsidiaries enters into any Replacement
Loan Agreement, which agreement contains financial covenants which are less
restrictive (in the reasonable opinion of the Required Lenders) than those then
in effect under the Operative Documents, then and in such event, upon the
written consent of each Lender (not including each Lender that has elected to
be prepaid pursuant to the immediately succeeding sentence) such financial
covenants shall automatically be deemed to be incorporated into the Operative
Documents by reference and the financial covenants then in effect under the
Operative Documents shall be deemed replaced by such new financial covenants.  The Lease Obligors hereby agree to pay to
each Lender that does not consent to the incorporation of the financial
covenants described in the immediately preceding sentence its pro rata portion
of the Lease Balance, along with all other amounts then due and owing to such
Lender under the Operative Documents, including, without limitation, Break
Costs, if any, on the next Payment Date succeeding such Lender’s notice of its
non-consent to the incorporation of such financial covenants.  In the event that Mandalay and/or any of its
Subsidiaries enters into any Replacement Loan Agreement, which agreement
contains financial covenants which are more restrictive (in the reasonable
opinion of the Required Lenders) than those then in effect under the Operative
Documents, then and in such event, such financial covenants shall automatically
be deemed to be incorporated into the Operative Documents by reference and the
financial covenants then in effect under the Operative Documents shall be
deemed replaced by such new financial covenants.

 

47

 

Article VII

 

Covenants
of Creditors

 

Section 7.1.                           Covenants of Trustee.  Trustee,
in its individual capacity, covenants with each of the other parties hereto as
follows, it being understood that the sole remedies for the breach of these
covenants shall be to sue for damages or for specific performance and that any
such breach shall not modify or terminate any Lease Obligor’s obligations under
this Agreement or any other Operative Document:

 

(a)                                  So
long as this Agreement remains in effect or so long as the obligations of any
Lessee arising hereunder have not been fully and finally discharged, Trustee,
whether in its individual capacity or as Trustee, will not create, incur, assume
or suffer to exist any Liens on the Trust Estate attributed to Trustee, in its
individual capacity and/or as Trustee, and shall indemnify, reimburse and hold
each Lender and each Lessee harmless from any and all claims, losses, damages,
obligations, penalties, liabilities, demands, suits, or causes of action and
all legal proceedings, and any costs or expenses in connection therewith,
including reasonable legal fees and expenses, of whatever kind and nature,
imposed on, incurred by or asserted against any Lender or any Lessee in any way
relating to, or arising in any manner out of, failure by Trustee in its
individual capacity or as Trustee to comply with this Section 7.1(a);

 

(b)                                 The
Trustee shall apply funds held by it in its capacity as Trustee hereunder as
required by this Agreement and the other Operative Documents;

 

(c)                                  The
Trustee may resign or be removed by the Lenders as Trustee, a successor Trustee
may be appointed, and a corporation may become Trustee under the Trust
Agreement, only in accordance with the provisions of Section 6.10 of the
Trust Agreement.  Notwithstanding
anything to the contrary contained in this Agreement or the Trust Agreement, so
long as no Event of Default shall be continuing, the appointment of a successor
Trustee shall be subject to the consent of Lessees (such consent not to be
unreasonably withheld); and

 

(d)                                 The
Trustee on behalf of the Trust shall not contract for, create, incur or assume
any indebtedness, or enter into any business or other activity, other than
pursuant to or under the Operative Documents and, for the benefit of Lessees
and the Lenders, agrees to be bound by Section 2.2 of the Trust Agreement.

 

48

 

Section 7.2.                           Covenants of Lenders.  Each
Lender, severally and not jointly, covenants with each of the other parties
hereto as follows, it being understood that the sole remedies for the breach of
these covenants shall be to sue for damages or for specific performance and
that any such breach shall not modify or terminate any Lessee’s obligations
under Section 5.1 of the Lease:

 

(a)                                  provided
that no Event of Default shall have occurred and be continuing, it will not,
through its own actions, interfere with any Lessee’s (or any permitted
sublessee’s or assignee’s) rights hereunder with respect to any Equipment
during the term of the Lease; and

 

(b)                                 it
will keep the Equipment, the Lease and all other Collateral free and clear from
all Lessor Liens attributable to it, provided that it may contest any such
Lessor Lien pursuant to a Permitted Contest.

 

Section 7.3.                           Trust Agreement.  Without prejudice to any right under the
Trust Agreement of Trustee to resign, the Trustee hereby agrees with Lessees
(so long as no Event of Default shall have occurred and be continuing), the
Lenders and Collateral Agent, (a) not to terminate or revoke the trust
created by the Trust Agreement except as permitted by the terms of the Trust
Agreement prior to the later of the Expiration Date or the payment in full of
the obligations under the Operative Documents, (b) not to amend,
supplement, terminate or revoke or otherwise modify any provision of the Trust
Agreement prior to the Expiration Date in such a manner as to materially and
adversely affect the rights of any such party, (c) except as otherwise
expressly authorized under the Operative Documents not to withdraw from the
Trust Estate any funds other than amounts payable to it by Lessor as
distributions of Basic Rent and Supplemental Rent without the prior written
consent of each such party, and (d) to comply with all of the terms of the
Trust Agreement applicable to it the nonperformance of which would adversely
affect Lessees.

 

Section 7.4.                           Loan Agreement.  Trustee, Collateral Agent, Lessees, and each
Lender hereby agree that, so long as the Lease is in effect, Trustee shall not
consent to or permit any amendment of the terms and provisions of the Loan
Agreement or any Note, whether or not any Lease Event of Default shall have
occurred and be continuing, if any such amendment or action would have the
effect of increasing the obligations of Lessees or decreasing the rights of
Lessees, in each case without the prior written consent of the Lessees, except
that without such consent, Trustee may waive performance by Collateral Agent of
obligations to Trustee the non-performance of which does not adversely affect
Lessees.

 

Article VIII

 

Assignment by Lenders; Participations

 

Section 8.1.                           Assignments.  (a) All or any of the right, title or
interest and obligations of any Lender in and to any Note or other Operative
Document and the rights, benefits, advantages and obligations of any Lender
hereunder, including the rights to receive payment of rental or any 

 

49

 

other payment hereunder, and the rights, titles and
interests in and to the Equipment may be assigned or transferred by such Lender
to an Eligible Assignee at any time by transfer of the Note representing such
interest in accordance with the provisions of this Article VIII; provided,
however, that (i) such assignment shall be evidenced by an
Assignment and Acceptance in substantially the form attached hereto as Exhibit
A-1 or A-2, as applicable (each, an “Assignment and Acceptance”),
(ii) except in the case of an assignment to an Affiliate or a Related Fund
of the assigning Lender, to another Lender or of the entire remaining interest
of the assigning Lender, the assignment shall not assign a portion of the
applicable Commitment which is less than $1,000,000, (iii) the effective
date of any such assignment shall be as specified in the Assignment and
Acceptance, but not earlier than the date which is five (5) Business Days after
the date Trustee and Collateral Agent have received the Assignment and
Acceptance, and (iv) such assignment shall comply with all applicable
securities laws.  Upon the effective
date of such Assignment and Acceptance, the Eligible Assignee named therein
shall be a Lender for all purposes of this Agreement and the other Operative
Documents, with the interest (in the amount) therein set forth and, to the
extent of such interest, the assigning Lender shall be released from its
further obligations under this Agreement and the other Operative Documents.
Trustee agrees that it shall execute and deliver (against delivery by the assigning
Lender to Trustee of its Note) to such assignee Lender, a Note evidencing that
assignee Lender’s interest, and to the assigning Lender, a Note evidencing the
remaining interest retained by the assigning Lender.

 

(b)                                 By
executing and delivering an Assignment and Acceptance, the Eligible Assignee
thereunder acknowledges and agrees that: 
(i) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim and the representations and warranties made pursuant to
clause (vii) below, the assigning Lender has made no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness or sufficiency of this
Agreement or any other Operative Document; (ii) the assigning Lender has
made no representation or warranty and assumes no responsibility with respect
to the financial condition of any Lease Obligor for the performance by any
Lease Obligor of the Obligations; (iii) it has received a copy of this
Agreement and the other Operative Documents, together with copies of the most
recent financial statements pursuant to Sections 6.1(p) and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(iv) it will, independently and without reliance upon any other Creditor and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Operative Documents; (v) it appoints
and authorizes Trustee and Collateral Agent, on behalf of the Lenders, to take
such action and exercise such powers under this Agreement and the other
Operative Documents as are delegated to Trustee and Collateral Agent,
respectively, by this Agreement and the other Operative Documents; (vi) it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Operative Documents are required to be
performed by it as a Lender; (vii) it represents to the other Creditors (A) as
set forth in Section 5.2 with respect to such Lender and (B) that,
and also covenants to such Persons that, it will not transfer its applicable
Instrument(s) unless the proposed transferee makes the foregoing
representations and covenants.

 

50

 

(c)                                  The
Trustee shall maintain a copy of each Assignment and Acceptance delivered to
it.  After receipt of a completed
Assignment and Acceptance executed by any Lender and Eligible Assignee, and
receipt of an assignment fee of $1,000 from such Eligible Assignee (provided
that such fee shall be waived if such Eligible Assignee is an Affiliate or a
Related Fund of the assigning Lender or an existing Lender), Trustee shall,
promptly following the effective date thereof, provide to Lessees and the
Lenders a revised Schedule III giving effect thereto.

 

(d)                                 If
any Eligible Assignee is not incorporated under the laws of the United States
or any state thereof, such assignee shall deliver to Agent Lessee, Collateral
Agent and Trustee within twenty (20) days after the Closing Date (or after
accepting an Assignment and Acceptance) a properly completed and executed
Internal Revenue Service Form W-8 or other applicable form, certificate or
document prescribed by the Internal Revenue Service of the United States, in
any such case, reasonably satisfactory to Agent Lessee and Trustee, certifying
that no withholding under the federal income tax laws is required with respect
to such Eligible Assignee.  Thereafter
and from time to time, each such Eligible Assignee shall (a) promptly
submit to Agent Lessee (with a copy to Trustee), such additional duly completed
and signed copies of one of such forms (or such successor forms as shall be
adopted from time to time by the relevant United States taxing authorities) as
may then be available under then current United States laws and regulations to
avoid, or such evidence as is reasonably satisfactory to Agent Lessee and
Trustee of any available exemption from, United States withholding taxes in
respect of all payments to be made to such Eligible Assignee by Lessees
pursuant to this Agreement and the other Operative Documents and (b) take
such steps as shall not be materially disadvantageous to it, in the reasonable
judgment of such Eligible Assignee, and as may be reasonably necessary
(including the re-designation of its Eurodollar Lending Office, if any) to
avoid any requirement of applicable laws that Lessees make any deduction or
withholding for taxes from amounts payable to such Eligible Assignee.

 

(e)                                  Notwithstanding
anything in this Section 8.1 to the contrary, any Lender may at any time
pledge its Instrument(s) or any other instrument evidencing its rights as a
Lender under this Agreement and the other Operative Documents to a Federal
Reserve Bank, but no such pledge shall release that Lender from its obligations
hereunder or grant to such Federal Reserve Bank the rights of a Lender
hereunder absent foreclosure of such pledge.

 

Section 8.2.                           Participations.  Any Lender may at any time sell to one or
more commercial banks or other financial institutions (each of such commercial
banks and other financial institutions being herein called a “Sub-Participant”)
participating interests in all or a portion of its rights and obligations under
this Agreement, the other Operative Documents, the Equipment or its
Instrument(s) (including all or any portion of the Rent owing to it); provided,
however, that:

 

(a)                                  no
participation contemplated in this Section 8.2 shall relieve such Lender
from its obligations hereunder or under any other Operative Document;

 

51

 

(b)                                 such
Lender shall remain solely responsible for the performance of its Commitment
and other obligations;

 

(c)                                  Lessees
shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement and the other
Operative Documents and such Lender shall have the sole right to enforce its
rights under the Operative Documents;

 

(d)                                 no
Sub-Participant, unless such Sub-Participant is an Affiliate of such Lender,
shall be entitled to require such Lender to take or refrain from taking any
action hereunder or under any other Operative Document or have any direct or
indirect voting or approval rights on any matter other than voting or approval
rights relating to (A) an extension of the Expiration Date, (B) a
decrease in the Interest Rate or change to the definition thereof, (C) a
release of all or any substantial portion of the Collateral from the Liens
created under the Operative Documents in favor of Trustee and the Lenders
(except in accordance with the Operative Documents), or (D) a reduction of
the Lease Balance or any amount of Rent due hereunder except pursuant to
Section 14.1 of the Lease;

 

(e)                                  the
participation interest shall not restrict an increase in aggregate Commitments
or in the granting Lender’s Commitment so long as the amount of the
participation interest is not affected thereby; and

 

(f)                                    no
Sub-Participant shall be entitled to any reimbursement for any Taxes, funding
losses, additional costs, capital costs or reserve requirements pursuant to any
of Sections 9.5, 9.6 and 9.7 in excess of a proportionate amount which
would have been payable to the initial Lender from whom such Person directly or
indirectly acquired its participation.

 

Section 8.3.                                Miscellaneous Provisions Regarding
Assignments and Participations. 
Notwithstanding anything contained in this Article VIII to the
contrary, the rights of the Lenders to make assignments of, and grant
participations in, their respective Commitments shall be subject to the
approval of any Gaming Board, to the extent required by applicable Gaming Laws.

 

Article IX

 

Indemnification

 

Section 9.1.                           General Indemnification.  Whether or not the transactions contemplated
hereby are consummated, to the fullest extent permitted by Applicable Laws,
each Lessee hereby (x) waives and releases any Claims now or hereafter
existing against any Indemnitee on account of, and (y) agrees to
indemnify, protect, defend, save and keep harmless each Indemnitee on an
after-tax basis (in accordance with Section 9.5) from and against, any and
all Claims of every kind and nature whatsoever that may be imposed on, incurred
by, or asserted against any Indemnitee, which are not directly and primarily
caused by the gross negligence or willful 

 

52

 

misconduct of the Indemnitee (provided that the
indemnification provided under this Section 9.1 shall specifically include
matters based on or arising from the negligence of any Indemnitee), whether or
not such Indemnitee shall also be indemnified as to any such Claim by any other
Person and whether or not such Claim arises or accrues prior to the Closing
Date or after the Expiration Date, and which relates in any way to or arises in
any way out of:

 

(a)                                  any
of the Operative Documents or any of the transactions contemplated thereby, or
any investigation, litigation or proceeding in connection therewith, and any
amendment, modification or waiver in respect thereof;

 

(b)                                 any
Facility at which any portion of the Equipment is at any time located, the
Equipment or any part thereof, or any interest in any of the foregoing;

 

(c)                                  the
acquisition, mortgaging, design, manufacture, re-manufacture, construction,
preparation, installation, inspection, delivery, non-delivery, acceptance,
rejection, purchase, ownership, possession, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition or
substitution, storage, titling or retitling, transfer of title, registration or
re-registration, redelivery, use, operation, condition, financing, refinancing,
return or other application of all or any part of any interest in the Equipment
or the imposition of any Lien (or incurring of any liability to refund or pay
over any amount as a result of any Lien) on any of the Equipment, including
(i) Claims or penalties arising from any violation of Applicable Laws
(other than any such violation primarily caused by the Indemnitee) or in tort
(strict liability or otherwise), (ii) loss of or damage to the environment
(including investigation costs, cleanup costs, response costs, remediation and
removal costs, costs of corrective action, costs of financial assurance, and
all other damages, costs, fees and expenses, fines and penalties, including
natural resource damages), or death or injury to any Person, and any mitigative
action required by or under Environmental Laws, (iii) latent or other
defects, whether or not discoverable, and (iv) any Claim for patent, trademark
or copyright infringement;

 

(d)                                 the
sale or other disposition of any of the Equipment, including any disposition as
a result of the exercise of remedies;

 

(e)                                  the
offer, issuance, sale, execution or delivery of the Notes;

 

(f)                                    the
breach by any Lessee of any representation or warranty made by it or deemed
made by it in any Operative Document;

 

(g)                                 the
transactions contemplated hereby or by any other Operative Document in respect
of the application of Parts 4 and 5 of Subtitle B of Title I of
ERISA and any Prohibited Transaction described in Section 4975(c) of the
Code;

 

(h)                                 any
Claims related to the Release from any applicable Facility upon or at which any
of the Equipment is located or any of the Equipment of any substance into the 

 

53

 

environment, including Claims arising out of the use
of any Equipment for the transportation or storage of any Hazardous Material;

 

(i)                                     any
failure on the part of any Lessee to perform or comply with any of the terms of
any Operative Document; or

 

(j)                                     any
other agreement entered into or assumed by any Lessee in connection with any
item of Equipment.

 

It is expressly understood and agreed that this Section 9.1 shall
not apply to Claims to the extent resulting from:

 

(i)                                     Taxes
(such Claims being subject to Section 9.2), except with respect to
(1) taxes or penalties included in Claims described in clause (g)
above, and (2) any payment necessary to make payments under this
Section 9.1 in accordance with Section 9.5;

 

(ii)                                  as
to an Indemnitee, Lessor Liens which such Indemnitee is responsible for
discharging under the Operative Documents;

 

(iii)                               as
to an Indemnitee, the gross negligence or willful misconduct of such Indemnitee
or any Affiliate thereof or any of their respective agents, officers,
directors, servants or employees thereof;

 

(iv)                              as
to an Indemnitee, the incorrectness of any representation or warranty by such
Indemnitee in any Operative Document;

 

(v)                                 as
to an Indemnitee, the failure by any such Indemnitee to perform or observe any
term, agreement, or covenant on its part required to be performed or observed
in any Operative Document, except to the extent such failure results from a
Default or Event of Default;

 

(vi)                              as
to an Indemnitee, the offer or sale by or on behalf or for the account of such
Indemnitee of any Note or any interest in any of the Collateral (other than
arising in connection with the exercise of rights or remedies following an
Event of Default); and

 

(vii)                           any
expense to any Indemnitee solely attributable to the appointment of a successor
Trustee, other than any appointment of a successor Trustee, that is either
(x) with the prior written consent of Lessees or (y) in connection
with any Event of Default.

 

Section 9.2.                           General Tax Indemnity. 
(a) Each Lessee shall pay, defend, indemnify and hold each
Indemnitee harmless on an after-tax basis (in accordance with Section 9.5)
from any and all United States federal, state and local Taxes and foreign Taxes
imposed on or with respect to or in connection with any Indemnitee, the
Equipment or any portion thereof, any Operative 

 

54

 

Document, any Lessee or any sublessee or user of any
Equipment, howsoever imposed, whether levied or imposed upon or asserted against
any Indemnitee, any Equipment, or any part thereof, by any Governmental Agency
(including for this purpose any federal, state or local Governmental Agency in
the United States and any Governmental Agency of a foreign country), upon or
with respect to:

 

(i)                                     the
acquisition, mortgaging, design, manufacture, re-manufacture, construction,
preparation, installation, inspection, delivery, non-delivery, acceptance,
rejection, purchase, ownership, possession, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition or
substitution, storage, titling or retitling, transfer of title, registration or
re-registration, redelivery, use, operation, condition, financing, refinancing,
sale, return or other application or disposition of all or any part of any
interest in the Equipment or the imposition of any Lien (or incurrence of any
liability to refund or pay over any amount as a result of any Lien) thereon,

 

(ii)                                  Basic
Rent or Supplemental Rent or the receipts or earnings arising from or received
with respect to the Equipment or any part thereof, or any interest therein or
any applications or dispositions thereof,

 

(iii)                               any
other amount paid or payable pursuant to this Agreement, the Notes or any other
Operative Documents,

 

(iv)                              the Equipment
or any part thereof or any interest therein,

 

(v)                                 all
or any of the Operative Documents, any other documents contemplated thereby and
any amendments and supplements thereto, and

 

(vi)                              otherwise
with respect to or in connection with the transactions contemplated by the
Operative Documents;

 

provided,
however, that the indemnification obligation of this
Section 9.2(a) shall not apply to (1) Taxes which are based upon or
measured by the Indemnitee’s gross receipts (other than sales, use, transfer,
excise, rental, license, ad valorem, value added or property Taxes) and gross
or net income (other than sales, use, transfer, excise, rental, license, ad
valorem, value added or property Taxes) or which are expressly in substitution
for, or relieve Indemnitee from, any actual Tax based upon or measured by
Indemnitee’s gross receipts and gross or net income; (2) Taxes
characterized under local law as franchise, capital stock, net worth, or
shareholder’s capital or substantially similar Taxes however denominated
(excluding, however, any value-added, license, property or similar
Equipment-related Taxes); and (3) if no Event of Default shall have
occurred and be continuing, Taxes based upon the voluntary transfer, assignment
or disposition by Trustee or any Lender of any interest in any of the Equipment
(other than transfers to any Lessee pursuant to this Agreement).  Notwithstanding the proviso of the preceding
sentence of this Section 9.2(a), Lessees shall pay or reimburse, and
indemnify and hold harmless, any Indemnitee which is not incorporated under the
laws of the United States or a state thereof and which has 

 

55

 

timely
and correctly complied with Section 9.2(c), from any deduction or
withholding of any United States Federal income tax.

 

All of the indemnities contained in this Section 9.2 shall
continue in full force and effect notwithstanding the expiration or earlier
termination of the Lease in whole or in part, including the termination of the
Lease with respect to any item of Equipment or all of the Equipment, and are
expressly made for the benefit of, and shall be enforceable by, each
Indemnitee.

 

(b)                                 Any
Lessee at such time as it identifies such reports and returns, will promptly
notify Trustee and Collateral Agent (on behalf of the Lenders) of all reports
or returns required to be made with respect to any Tax with respect to which
Lessees are required to indemnify hereunder, and will, if permitted by
Applicable Laws, file the same.  If
Lessees are not permitted to so file, but are permitted to prepare such reports
or returns, Lessees shall prepare such reports or returns for signature by
Trustee or the applicable Lender and shall forward the same, together with
immediately available funds for payment of any Tax due, to Trustee or such
Lender, at least ten (10) days in advance of the date such payment is to
be made.  Upon written request, Agent
Lessee shall furnish Trustee, Collateral Agent or any Lender with copies of all
paid receipts or other appropriate evidence of payment for all Taxes paid by
Lessees pursuant to this Section 9.2.

 

(c)                                  Before
it signs and delivers this Agreement or before it becomes a Lender, each Lender
not incorporated under the laws of the United States or a state thereof, agrees
that it will have delivered to each of Agent Lessee, Trustee and Collateral
Agent two duly completed copies of United States Internal Revenue Service
Form W-8, which form as completed by such Lender has the effect of
establishing that in either case that such Lender is entitled to receive
payments under the Operative Documents without deduction or withholding of any
United States Federal income taxes. 
Each Lender which so delivers a Form W-8 further undertakes to deliver
to each of Agent Lessee, Trustee and Collateral Agent two additional copies of
such form (or a successor form) or a new form as may be required by applicable
Tax regulations on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by Agent Lessee or Trustee, in
each case certifying that such Lender is entitled to receive payments under the
Operative Documents without deduction or withholding of any United States
Federal income taxes, unless an event (including any change in treaty, law or
regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises Agent Lessee and Trustee that it is not
capable of receiving payments without any withholding of United States Federal
income tax.

 

(d)                                 If
a Lender or Trustee or Collateral Agent shall become aware that it is entitled
to receive a refund in respect of any Taxes paid or indemnified by Lessees
under this Section 9.2 it shall notify Agent Lessee and shall, promptly
after receipt of a request by Agent Lessee, apply for and pursue such a
refund.  If any Lender or Trustee or
Collateral Agent receives a refund in respect of Taxes for which such Lender,
Trustee or Collateral Agent has received payment or 

 

56

 

indemnification from Lessees hereunder it shall
promptly upon receipt pay such refund to Lessees together with any interest
that it received with payment of such refund.

 

(e)                                  A
Lender or Trustee or Collateral Agent claiming any amounts payable pursuant to
this Section 9.2 shall use reasonable efforts to file any certificate or
document requested by Agent Lessee (to the extent that such party is legally
permitted to do so) and to change the jurisdiction of its office applicable to
the Operative Documents if the making of such filing or change would avoid the
need for or reduce the amount of any amounts that may thereafter accrue provided
that such efforts would not result in the incurrence by such Lender, Trustee or
Collateral Agent of any material cost for which Lessees have not provided such
security or indemnity as may be reasonably required by such Lender, Trustee or
Collateral Agent to indemnify it in full for such cost.

 

Section 9.3.                           [Reserved.]

 

Section 9.4.                           Claims Procedure.  An Indemnitee shall, after obtaining
knowledge thereof, promptly notify Agent Lessee of any Claim as to which
indemnification is sought; provided, however, that the failure to
give such notice shall not release any Lessee from any of its obligations under
this Article IX, except to the extent that failure to give notice of any
action, suit or proceeding against Indemnitee shall have a material adverse
effect on Lessees’ ability to defend such Claim or recover proceeds under any
insurance policies maintained by Lessees hereunder.  Lessees shall, after obtaining knowledge thereof, promptly notify
each Indemnitee of any indemnified Claim affecting such Person.  Subject to the provisions of the following
paragraph and provided that no Default or Event of Default shall have
occurred and be continuing, Lessees shall at their sole cost and expense be
entitled to control the defense of each such Claim; provided further, that
Lessees shall keep the Indemnitee which is the subject of such proceeding fully
apprised of the status of such proceeding and shall provide such Indemnitee
with all information with respect to such proceeding as such Indemnitee shall
reasonably request.

 

Notwithstanding any of the foregoing to the contrary, Lessees shall not
be entitled to control and assume responsibility for the defense of such claim
or liability if in the good faith opinion of such Indemnitee, there exists a
conflict of interest such that it is advisable for such Indemnitee to retain
control of such proceeding or such claim or liability involves the possibility
of criminal sanctions or criminal liability to such Indemnitee.  In such circumstances, the Indemnitee shall
be entitled to control and assume responsibility for the defense of such claim
or liability, provided that the Indemnitee shall use reasonable commercial
efforts to keep Lessees apprised of the status of such proceeding and shall
provide Agent Lessee with all non-confidential and non-privileged information
with respect to such proceeding as Agent Lessee shall reasonably request in
writing.  In any event, Lessees shall
pay the reasonable costs and expenses of such defense.  In addition, any Indemnitee may participate in
any proceeding controlled by any Lessee pursuant to this Section 9.4 at
its own expense.  Any Lessee may in any
event participate in all such proceedings at its own costs.  Nothing contained in this Section 9.4
shall be deemed to require an Indemnitee to contest any Claim or assume
responsibility for or control of any judicial proceeding with respect thereto
nor shall any failure of an Indemnitee to keep Lessees apprised of any Claim or
to provide Lessees requested information in connection 

 

57

 

with any Claim affect in any manner Lessees’,
Guarantors’ or any Sublessee’s obligations under any of the Operative
Documents.

 

The Indemnitee shall supply Agent Lessee with such information as is
available to the Indemnitee and is requested by Agent Lessee as in the
reasonable opinion of counsel to Agent Lessee is necessary or advisable for the
applicable Lessee to control or participate in any proceeding to the extent
permitted by this Section 9.4. 
Unless such Indemnitee waives its right to be indemnified with respect
to a Claim under this Article IX or, in the reasonable opinion of the
Indemnitee, such Claim exposes such Indemnitee to any risk of criminal
liability, no Indemnitee shall enter into a settlement or other compromise with
respect to such Claim without the prior written consent of Lessees, which
consent shall not be unreasonably withheld or delayed, provided that no such
consent shall be required if a Default or Event of Default shall have occurred
and be continuing.  Each Indemnitee
further agrees, in the case of any Claim covered by any policy of insurance
maintained pursuant to Section 13.1 of the Lease, to cooperate with the
insurers in the exercise of their rights to investigate, defend or compromise
such Claim as may be reasonably required by such policy to maintain the insurance
coverage provided.  In the event any
Lessee proposes to settle the defense of any Claim and such Indemnitee
determines in its good faith reasonable judgment that such proposed settlement
would have a material adverse effect on such Indemnitee unrelated to the
transactions contemplated by the Operative Documents, then such Indemnitee
shall have the right to not enter into such proposed settlement and to assume
the contest of such Claim.  In such
event, Lessees shall be relieved of any further obligation to defend such Claim
and shall be released of any obligation to indemnify in respect of such Claim
in excess of the liability Lessees would have accepted if such proposed
settlement had been consummated.  To the
extent that any Indemnitee in fact receives complete and full indemnification
payments from or on behalf of Lessees under the indemnification provisions of
this Article IX (or its insurers), Lessees shall, without any further
action, be subrogated to the extent of such payment to such Indemnitee’s rights
(other than rights in respect of insurance policies maintained by such
Indemnitee at its own expense), with respect to the transaction or event
requiring or giving rise to such Claim.

 

Section 9.5.                           Gross Up.  If an Indemnitee shall not be entitled at
any time to a substantially corresponding and equal deduction, credit, offset,
refund or other tax benefit with respect to any payment or Tax which Lessees
are required to pay or reimburse under any other provision of this
Article IX (each such payment or reimbursement under this Article IX,
an “original
payment”) and which original payment constitutes income to such
Indemnitee, then Lessees shall pay to such Indemnitee on demand the amount of
such original payment on a gross-up basis such that, after subtracting all
Taxes imposed on such Indemnitee with respect to such original payment by
Lessee (including any Taxes otherwise excluded from the indemnification
provided under Section 9.2 and assuming for this purpose that such
Indemnitee was subject to taxation at the highest federal marginal rates
applicable to widely held corporations and the actual state or local rate then
applicable to such Indemnitee for the year in which such income is taxable),
such payments shall be equal to the original payment to be received (net of any
credits, deductions, offsets, refunds or other tax benefits that arise from the
payment by such Indemnitee of any amount, including Taxes, for which the
payment to be received is made).

 

58

 

Section 9.6.                           Increased Commitment Costs.  If any Lender shall determine that the
introduction after the Closing Date of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change therein or any change in
the interpretation or administration thereof by any central bank or other
Governmental Agency charged with the interpretation or administration thereof,
or compliance by such Lender (or its Eurodollar Office) or any corporation
controlling the Lender, with any request, guidelines or directive regarding
capital adequacy (whether or not having the force of law) of any such central
bank or other authority, affects or would affect the amount of capital required
or expected to be maintained by such Lender or any corporation controlling such
Lender and (taking into consideration such Lender’s or such corporation’s
policies with respect to capital adequacy and such Lender’s desired return on
capital) determines that the amount of such capital is increased, or the rate
of return on capital is reduced, as a consequence of its obligations under the
Operative Documents, then, within five (5) Business Days after demand of
such Lender, Lessees shall pay to such Lender, from time to time as specified
by such Lender additional amounts sufficient to compensate such Lender in light
of such circumstances, to the extent reasonably allocable to such obligations
under the Operative Documents.  Each
Lender shall endeavor to assure that each demand made of Lessees under this
Section affords treatment to Lessees which is substantially similar to
that which such Lender affords to its other similarly situated customers.

 

Section 9.7.                           Additional Costs and Related Matters.  (a) If, after the date hereof, the
existence or occurrence of any Special LIBO Circumstance shall:

 

(i)                                     subject
any Lender to any tax, duty or other charge or cost with respect to any Loan on
a LIBO Rate basis (in each case, a “LIBO Rate Investment”), its Note
evidencing such LIBO Rate Investments or its obligation to make or maintain
LIBO Rate Investments, or shall change the basis of taxation of payments to any
Lender of the principal of or interest on any LIBO Rate Investment or any other
amounts due under the Operative Documents or in respect of any LIBO Rate
Investment, its Note evidencing LIBO Rate Investments or its obligation to make
or maintain LIBO Rate Investments, excluding, with respect to each Lender, and
any Affiliate thereof, (A) Taxes imposed on or measured in whole or in
part by its net income, gross income or gross receipts or capital and franchise
taxes imposed on it, (B) any withholding Taxes or other Taxes based on
gross income (other than withholding Taxes and Taxes based on gross income
resulting from or attributable to any change in any law, rule or regulation or
any change in the interpretation or administration of any law, rule or
regulation by any Governmental Agency) or (C) any withholding Taxes or
other Taxes based on gross income for any period with respect to which it has
failed to provide Agent Lessee and Trustee with the appropriate form or forms
required by Section 9.2(c), to the extent such forms are then required by
Applicable Laws;

 

(ii)                                  impose,
modify or deem applicable any reserve not applicable or deemed applicable on
the date hereof (including any reserve imposed by the Board of Governors of the
Federal Reserve System) special deposit, capital or similar requirements
against assets of, deposits with or for the account of, or credit extended by,
any Lender; or

 

59

 

(iii)                               impose
on any Lender or the London interbank market any other condition materially
affecting any LIBO Rate Investment, its Note evidencing LIBO Rate Investments,
its obligation to make or maintain LIBO Rate Investments or any of the Operative
Documents, or shall otherwise materially affect any of the same;

 

and
the result of any of the foregoing, as determined by such Lender, increases the
cost to such Lender of making or maintaining any LIBO Rate Investment or in
respect of its Note evidencing LIBO Rate Investments or its obligation to make
or maintain LIBO Rate Investments or reduces the amount of any sum received or
receivable by such Lender with respect to any LIBO Rate Investment, its Note
evidencing LIBO Rate Investments or its obligation to make or maintain LIBO
Rate Investments, then, provided that such Lender makes demand
upon Agent Lessee (with a copy to Trustee) within ninety (90) days
following the date upon which it becomes aware of any such event or
circumstance, Lessees shall within five (5) Business Days pay to such
Lender such additional amount or amounts as will compensate such Lender for
such increased cost or reduction.  Each
Lessee hereby indemnifies each Lender against, and agrees to hold each Lender
harmless from and reimburse such Lender within five (5) Business Days
after demand for (without duplication) all costs, expenses, claims, penalties,
liabilities, losses, legal fees and damages incurred or sustained by each
Lender in connection with the Operative Documents, or any of the rights,
obligations or transactions provided for or contemplated herein, as a result of
the existence or occurrence of any Special LIBO Circumstance.  A statement of any Lender claiming
compensation under this subsection and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error.  Each Lender agrees to
endeavor promptly to notify Agent Lessee of any event of which it has Actual Knowledge,
occurring after the Closing Date, which will entitle such Lender to
compensation pursuant to this Section and agrees to use reasonable
commercial efforts to reduce the amount of such compensation if such efforts
will not, in the judgment of such Lender, otherwise be materially disadvantageous
to such Lender.  If any Lender claims
compensation under this Section, Lessees may at any time, upon at least
four (4) Business Days’ prior notice to Trustee and such Lender and upon
payment in full of the amounts provided for in this Section through the
date of such payment plus any prepayment fee required by Section 9.7(d),
pay in full the affected LIBO Rate Investments of such Lender or request that
such LIBO Rate Investments be converted to investments based on the Base Rate
(each, a
“Base Rate Investment”).  To
the extent that any Lender which receives any payment from Lessees under this
Section later receives any funds which are identifiable as a reimbursement
or rebate of such amount from any other Person, such Lender shall promptly
refund such amount to Lessees.

 

(b)                                 If
the existence or occurrence of any Special LIBO Circumstance shall, in the
opinion of any Lender, make it unlawful, impossible or impracticable for such
Lender to make, maintain or fund any LIBO Rate Investment, or materially restrict
the authority of such Lender to purchase or sell, or to take deposits of,
Dollars in the London interbank market, or to determine or charge interest
rates based upon the LIBO Rate, and such Lender shall so notify Trustee, then
such Lender’s obligation to make LIBO Rate Investments shall be suspended for
the duration of such illegality, impossibility or impracticability and Trustee
forthwith shall give notice thereof to the Lenders, Collateral Agent and Agent
Lessee.  Upon receipt of such notice,
the outstanding principal amount of such Lender’s LIBO Rate Investments,
together with accrued interest 

 

60

 

thereon, automatically shall be converted to Base Rate
Investments on either (i) the last day of the Rent Period applicable to
such LIBO Rate Investments if such Lender may lawfully continue to maintain and
fund such LIBO Rate Investments to such day(s) or (ii) immediately if such
Lender may not lawfully continue to fund and maintain such LIBO Rate Investments
to such day(s), provided that in such event the conversion shall not be
subject to payment of a prepayment fee under Section 9.7(d).  Each Lender agrees to endeavor promptly to
notify Agent Lessee of any event of which it has Actual Knowledge, occurring
after the Closing Date, which will cause that Lender to notify Trustee under
this Section 9.7(b), and agrees to use reasonable  commercial efforts to avoid the need for
such notice if such efforts will not, in the judgment of such Lender, otherwise
be disadvantageous to such Lender.  In
the event that any Lender is unable, for the reasons set forth above, to
maintain or convert its portion of Lease Balance as a LIBO Rate Investment,
such Lender shall convert such amount to a Base Rate Investment for the same
period of time, and such amount shall be treated in all respects as a Base Rate
Investment.  Any Lender whose obligation
to make LIBO Rate Investments has been suspended under this Section 9.7(b)
shall promptly notify Collateral Agent and Agent Lessee of the cessation of the
Special LIBO Circumstance which gave rise to such suspension.

 

(c)                                  If,
with respect to any proposed advance of a Loan:

 

(1)                                  the
Required Lenders reasonably determine that, by reason of circumstances
affecting the London interbank market generally that are beyond the reasonable
control of the Lenders, deposits in Dollars (in the applicable amounts) are not
being offered to any Lender that is a commercial bank in the London interbank
market for the applicable Rent Period; or

 

(2)                                  the
Required Lenders advise Trustee that the LIBO Rate as determined by Collateral
Agent (i) does not represent the effective pricing to such Lenders for
deposits in Dollars in the London interbank market in the relevant amount for
the applicable Rent Period, or (ii) will not adequately and fairly reflect
the cost to such Lenders of making the applicable LIBO Rate Investments;

 

then
Trustee forthwith shall give notice thereof to Agent Lessee, Collateral Agent,
Trustee and the Lenders, whereupon until Collateral Agent notifies Agent Lessee
that the circumstances giving rise to such suspension no longer exist, the
obligation of the Lenders to make any future LIBO Rate Investments shall be
suspended.

 

(d)                                 Upon
payment or prepayment of any LIBO Rate Investment, (other than as the result of
a conversion required under Section 9.7(b)), on a day other than the last
day in the applicable Rent Period (whether voluntarily, involuntarily, by
reason of acceleration, or otherwise) or if delivery of Equipment is not made
on the Advance Date, Lessees shall pay to the appropriate Lender that has made
a funding with respect thereto within five (5) Business Days after demand
a prepayment fee or a failure to fund fee, as the case may be (determined as
though 100% of the Funding had been made in the London interbank market) equal
to the sum of:

 

61

 

(i)                                     principal
amount of the LIBO Rate Investment prepaid (or not funded, as the case may be)
times the quotient of (A) the number of days between the date of prepayment (or
failure to fund, as applicable) and the last day in the applicable Rent Period,
divided by (B) 360, times the applicable Interest Differential (provided
that the product of the foregoing formula must be a positive number); plus

 

(ii)                                  all
out-of-pocket expenses incurred by the Lender reasonably attributable to such
payment or prepayment.

 

Each
Lender’s determination of the amount of any prepayment fee payable under this
Section 9.7(d) shall be conclusive in the absence of manifest error.

 

Section 9.8.                           Trustee Indemnification.  Lenders shall reimburse and indemnify and
protect and save harmless Trustee from and against any and all losses, damages,
liabilities, claims, actions, suits, obligations, penalties, demands,
disbursements and expenses, including taxes and counsel fees, and including
tort claims for which Trustee is strictly liable, which may be asserted against
or incurred by reason of the Bank being or having been Trustee under the Trust
Agreement and the other Operative Documents or acting hereunder or under the
Operative Documents or the performance or enforcement of any of the terms
hereof, or arising out of or relating to this Agreement or the Operative
Documents or the Equipment or the Rent and other sums payable therefor, or the
manufacture, purchase, installation, acceptance, rejection, ownership,
delivery, lease, possession, use, operation, condition, sale, return or other
disposition of the Equipment or in any way relating to or arising out of the
Trust Estate or the action or the inaction of the Bank or Trustee hereunder or
by reason of any occurrence while so acting; provided, that the Lenders
shall not be so obligated in respect of any such losses, damages, liabilities,
claims, actions, suits, obligations, penalties, demands, disbursements and
expenses, including taxes and counsel fees pursuant to this Section 9.8,
arising from or as a result of (a) the willful misconduct or gross
negligence of the Bank or Trustee, or the negligence of the Bank or Trustee in
the handling of funds, (b) any taxes on, with respect to or measured by
any amounts paid to the Bank as compensation for services or otherwise under
the Operative Documents, or (c) the inaccuracy of representations and
warranties made by the Bank in the Operative Documents or in any certificate or
document delivered pursuant thereto; and, provided, further, that neither the Bank
nor Trustee shall make any claim under this Section 9.8 for any claim or
expense indemnified against by Lessees under Section 9.1 without first
making demand on Lessees for payment of such claim or expense.  The provisions of this Section 9.8
shall continue in force and effect notwithstanding the termination of the
Trust, the resignation or removal of Trustee or the obligation of any other
party to any Operative Document to make any payment to Trustee which a Lender
is required to make pursuant to this Section 9.8; provided that such
provisions shall apply to such Lenders only for claims arising during the
period in which such Lender’s Note remains outstanding.  The obligations of the Lenders under this
Section 9.8 shall be several and not joint and pro rata in accordance with
their respective Loan Balances (and if a determination is to be made after all
Loan Balances are paid, such determination shall be made based upon the Loan
Balances immediately prior to final payment thereof).

 

62

 

Article X

 

Miscellaneous

 

Section 10.1.                    Survival of Agreements.  The representations, warranties, covenants, indemnities and
agreements of the parties provided for in the Operative Documents, and the
parties’ obligations under any and all thereof, shall survive the execution and
delivery and the termination or expiration of this Agreement and any of the other
Operative Documents, the transfer of the interest in the Equipment as provided
herein or in any other Operative Documents (and shall not be merged into any
other conveyance or transfer document), any disposition of any interest of
Trustee in the Equipment, the purchase and sale of the Notes, payment therefor
and any disposition thereof, and shall be and continue in effect
notwithstanding any investigation made by any party hereto or to any of the
other Operative Documents and the fact that any such party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents.

 

Section 10.2.                    No Broker, etc.  Except for Lessees’ dealing with Banc of
America Leasing & Capital, LLC, as Arranger, each of the parties
hereto represents to the others that it has not retained or employed any
arranger, broker, finder or financial advisor to act on its behalf in
connection with this Agreement, nor has it authorized any arranger, broker,
finder or financial adviser retained or employed by any other Person so to act,
nor has it incurred any fees or commissions to which Trustee, Collateral Agent
or any Lender might be subjected by virtue of their entering into the Overall
Transaction.  Any party who is in breach
of this representation shall indemnify and hold the other parties harmless from
and against any liability arising out of such breach of this representation.

 

Section 10.3.                    Notices.  Unless otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto shall be deemed to have been duly given and shall be
effective:  (i) in the case of
notice by letter, the earlier of when delivered to the addressee by hand or
courier if delivered on a Business Day and, if not delivered on a Business Day,
the first Business Day thereafter or on the third Business Day after depositing
the same in the mails, registered or certified mail, postage prepaid, return
receipt requested, (ii) in the case of a prepaid delivery to a reputable national
overnight air courier service, on the Business Day following such date of
delivery, and (iii) in the case of notice by facsimile or bank wire, when
receipt is confirmed if delivered on a Business Day and, if not delivered on a
Business Day, the first Business Day thereafter, addressed as provided on
Schedule IV hereto, or to such other address as any of the parties hereto
may designate by written notice.

 

Section 10.4.                    Counterparts.  This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.

 

Section 10.5.                    Amendments.  No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified without
the written agreement or consent of Trustee, Collateral Agent, the Lease
Obligors and the Required Lenders; provided,

 

63

 

 however, that
Section 10.18 hereof may not be terminated, amended, supplemented, waived
or modified without the written agreement or consent of the Arranger; and provided,
further, that such termination, amendment, supplement, waiver or
modification shall require the written agreement or consent of each Lender if
such termination, amendment, supplement, waiver or modification would:

 

(a)                                  modify
any of the provisions of this Section 10.5, change the definition of
“Required Lenders” or modify or waive any provision of an Operative Document requiring
action by each Lender;

 

(b)                                 amend,
modify, waive or supplement any of the provisions of Sections 3.2, 3.3(b),
3.4 or 4.3 hereof or Section 2.5, 2.6, 2.7 or 2.8 of the Loan Agreement;

 

(c)                                  reduce,
modify, amend or waive any fees or indemnities in favor of any Lender,
including without limitation amounts payable pursuant to Article IX
(except that any Person may consent to any reduction, modification, amendment
or waiver of any indemnity payable to it);

 

(d)                                 modify,
postpone, reduce or forgive, in whole or in part, any payment of Rent (other
than pursuant to the terms of the Operative Documents), any Loan, the Lease
Balance, any Loan Balance, Fees, Interest or, subject to clause (b) above,
any other amount payable under the Lease or this Agreement, or modify the
definition or method of calculation of Rent (other than pursuant to the terms
of the Operative Documents), Loans, Lease Balance, Total Loan Balance, Fees,
Interest or any other definition which would affect the amounts to be advanced
or which are payable under the Operative Documents;

 

(e)                                  consent
to any assignment of the Lease by Lessees, releasing Lessees from their
obligations in respect of the payments of Rent, Total Loan Balance or Lease
Balance or changing the absolute and unconditional character of such
obligations; or

 

(f)                                    release
any Lien granted by any Lessee or Lessor under the Operative Documents or
release any Guarantor from the Guaranty, except as provided in the Operative
Documents.

 

Section 10.6.                    Headings, etc.  The Table of Contents and headings of the
various Articles and Sections of this Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms
or provisions hereof.

 

Section 10.7.                    Parties in Interest.  Except as
expressly provided in Section 10.2 or elsewhere herein, none of the
provisions of this Agreement is intended for the benefit of any Person except
the parties hereto. No Lessee shall assign or transfer any of its rights or
obligations under the Operative Documents without the prior written consent of
the Required Lenders.

 

64

 

Section 10.8.                    Governing Law.  This
Agreement shall in all respects be governed by the internal law of the State of
New York as to all matters of construction, validity and performance (including
Sections 5-1401 and  5-1402 of the New
York General Obligations Law but excluding, to the maximum extent permitted by
law, all other conflicts of law principles).

 

Section 10.9.                    Severability.  Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.

 

Section 10.10.             Liability Limited.  No Lender
shall have any obligation to any other Lender or to any Lease Obligor, Lessor
or Collateral Agent with respect to the Overall Transaction, except those
obligations of such Lender expressly set forth in the Operative Documents
(including liability any such Lender may have with respect to any inaccuracy or
breach of the representations and warranties of such Lender expressly set forth
herein), or except as set forth in the instruments delivered in connection
therewith, and no Lender shall be liable for performance by any other party
hereto of such other party’s obligations under the Operative Documents, except
as otherwise so set forth.

 

Section 10.11.             [Reserved].

 

Section 10.12.             Waiver of Jury Trial.  The parties hereto voluntarily and
intentionally waive any rights they may have to a trial by jury in respect of
any litigation based hereon, or arising out of, under, or in connection with,
this Agreement or any other Operative Document, or any course of conduct,
course of dealing, statements (whether verbal or written) or actions of any of
the parties hereto and thereto.  The
parties hereto hereby agree that they will not seek to consolidate any such
litigation with any other litigation in which a jury trial has not or cannot be
waived. The provisions of this Section 10.12 have been fully negotiated by
the parties hereto and shall be subject to no exceptions. Each Lessee and each
Guarantor acknowledges and agrees that it has received full and sufficient
consideration for this provision (and each other provision of each other
Operative Document to which it is a party) and that this provision is a material
inducement for the Lenders entering into this Participation Agreement and each
other Operative Document.

 

Section 10.13.             Confidentiality.  Each Creditor agrees to hold any
confidential information that it may receive from Mandalay pursuant to this Agreement
in confidence, except for disclosure: 
(a) To Affiliates of that Creditor and to other Creditors;
(b) To legal counsel and accountants for Mandalay or any Creditor;
(c) To other professional advisors to Mandalay or any Creditor, provided
that the recipient has accepted such information subject to a confidentiality
agreement substantially similar to this Section 10.13 or has notified such
professional advisors of the confidentiality of such information; (d) To
regulatory officials and self regulatory 

 

65

 

organizations having jurisdiction over that Creditor;
(e) To any Governmental Agency or Gaming Board having regulatory jurisdiction
over Mandalay or its Subsidiaries, provided that each Creditor agrees to use
its best efforts to notify Mandalay of any such disclosure unless prohibited by
Applicable Laws; (f) As required by Applicable Law or legal process (provided
that the relevant Creditor shall endeavor, to the extent it may do so under
Applicable Law, to give Mandalay reasonable prior notice thereof to allow
Mandalay to seek a protective order) or in connection with any legal proceeding
to which that Creditor and any Lease Obligor are adverse parties; and
(g) To another financial institution in connection with a disposition or
proposed disposition to that financial institution of all or part of that
Creditor’s interests hereunder or a participation interest in its Instrument, provided
that the recipient has accepted such information subject to a confidentiality
agreement substantially similar to this Section.  For purposes of the foregoing, “confidential information” shall
mean any information respecting Mandalay or its Subsidiaries reasonably
considered by Mandalay to be confidential, other than (i) information
previously filed with any Governmental Agency and available to the public,
(ii) information previously published in any public medium from a source
other than, directly or indirectly, that Creditor, and (iii) information
previously disclosed by Mandalay to any Person not associated with Mandalay
without a confidentiality agreement substantially similar to this Section.  Nothing in this Section shall be
construed to create or give rise to any fiduciary or other special duty on the
part of any Creditor or any other Lease Obligor.  Notwithstanding anything to the contrary contained herein, there
is no restriction (either express or implied) against any disclosure or
dissemination by a Creditor to the IRS of the United States federal income tax
structure or aspects of the transactions contemplated by this Agreement or any
documents executed in connection therewith. 
Further, each party hereto acknowledges that it has no proprietary
rights to any United States federal income tax elements of this Agreement or
the structure contemplated hereby.

 

Section 10.14.             Limited Liability of Trustee.  The parties hereto agree that the Bank shall
have no personal liability whatsoever to any Lessee, the Lenders, Collateral
Agent or any of their respective successors and assigns for any Claim based on
or in respect of this Agreement or any of the other Operative Documents or
arising in any way from the Overall Transaction; provided, however, that the
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 liabilities that may result
from the inaccuracy or incorrectness of any representation or warranty made by
it in its individual capacity or as Trustee in this Agreement or in any
certificate or document delivered pursuant hereto, or from the failure of the
Bank to perform the covenants and agreements set forth in Section 7.1
hereof, whether as to itself or as Trustee, or any other breach by the Bank of
any of its other covenants or obligations under any of the Operative Documents,
(regardless whether such covenants and agreements concern the Bank, as such, or
the Bank acting as Trustee) or (c) for any Tax based on or measured by any
fees, commission or compensation received by it for actions contemplated by the
Operative Documents.

 

Section 10.15.             Limited Liability of Collateral Agent.  The parties hereto agree that Collateral
Agent, in its individual capacity, shall have no personal liability whatsoever
to any Lessee, the Lenders, Trustee or any of their respective successors and
assigns for any Claim based on or in respect of this Agreement or any of the
other Operative Documents or arising in 

 

66

 

any way from the Overall Transaction; provided,
however, Collateral Agent shall be liable in its individual
capacity:  (a) for its own willful
misconduct or gross negligence (or negligence in the handling of funds) and, to
each Lender for the breach of its obligations to such Lender in respect of the
Operative Documents and the Equipment, (b) for liabilities that may result
from the incorrectness of any representation or warranty expressly made by it
in this Agreement, whether in its individual capacity, or as Collateral Agent,
or from its failure to perform the covenants and agreements set forth in this
Agreement or any other Operative Document, or (c) for any Tax based on or
measured by any fees, commission or compensation received by it for actions
contemplated by the Operative Documents. 
It is understood and agreed that, except as provided in the preceding
proviso, Collateral Agent shall have no personal liability under any of the
Operative Documents as a result of acting pursuant to and consistent with any
of the Operative Documents.

 

Section 10.16.             Payment of Transaction Costs and
Other Costs.

 

(a)          Transaction Costs and Continuing
Expenses.  As and when any
portion of Transaction Costs becomes due and payable, including the continuing
fees, expenses and disbursements (including reasonable counsel fees) of
Trustee, as Lessor under the Lease and as trustee under the Trust Agreement,
with respect to the administration of the Trust Estate and Collateral Agent
under the Operative Documents, such Transaction Costs shall be paid by Lessees
as Supplemental Rent.

 

(b)         Amendments, Supplements and Appraisal.  Without limitation of the foregoing, from
and after the Closing Date, Lessees agree to pay to the Lenders, Trustee and
Collateral Agent all reasonable costs and expenses (including reasonable legal
fees and expenses of special counsel to Collateral Agent and Trustee and a
single document counsel for the Lenders) incurred by any of them in connection
with:  (i) the considering,
evaluating, investigating, negotiating and entering into or giving or
withholding of any amendments or supplements or waivers or consents with
respect to any Operative Document; (ii) any Casualty, Condemnation or
termination of the Lease or any other Operative Document; (iii) the
negotiation and documentation of any restructuring or “workout”, whether or not
consummated, of any Operative Document; (iv) the enforcement of the rights
or remedies against Lessees or Guarantors under the Operative Documents; or
(v) any transfer by Trustee or a Lender of any interest in the Operative
Documents during the continuance of an Event of Default.

 

Section 10.17.             Reproduction of Documents.  This Agreement, all documents constituting
an Appendix, Schedule or Exhibit hereto, and all documents relating hereto
received by a party hereto, including, without limitation:  (a) consents, waivers and modifications
that may hereafter be executed; (b) documents received by the Lenders or
Trustee in connection with the receipt and/or acquisition of the Equipment; and
(c) financial statements, certificates, and other information previously
or hereafter furnished to Trustee, Collateral Agent or any Lender may be
reproduced by the party receiving the same by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar process.  Each of the parties hereto agrees and
stipulates that, to the extent permitted by law, any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the 

 

67

 

original is in existence and whether or not such
reproduction was made by such party in the regular course of business) and
that, to the extent permitted by law, any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.

 

Section 10.18.             Role of Banc of America Leasing &
Capital, LLC.  Each party hereto
acknowledges hereby that it is aware of the fact that Banc of America
Leasing & Capital, LLC or certain Affiliates thereof designated by it
has acted as an “arranger” with respect to the Overall Transaction and that it
or one of its Affiliates is also a Lender. 
The parties hereto acknowledge and agree that Arranger and its Affiliates,
including Bank of America, National Association and Banc of America Securities
LLC, have not made any representations or warranties concerning, and that they
have not relied upon Arranger as to, the tax, accounting or legal
characterization or validity of (i) the Operative Documents or (ii) any
aspect of the Overall Transaction.  The
parties hereto acknowledge and agree that Arranger has no duties, express or
implied, under the Operative Documents in its capacity as Arranger.  The parties hereto further agree that
Section 4.1, Section 10.2, the first proviso in the first sentence of
Section 10.5, this Section 10.18 and Section 11.6, are for the
express benefit of Arranger, and Arranger shall be entitled to rely thereon as
if it were a party hereto.

 

Section 10.19.             Relationship of Parties.  Each Creditor and its Affiliates may make loans to, issue letters
of credit for the account of, accept deposits from, acquire equity interests in
and generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with the Bank, Collateral Agent, Lessees,
Guarantors and their respective Affiliates as though such Creditor was not a
Creditor hereunder and under the other Operative Documents and without notice
to or consent of any Creditor or any other party hereto or to the other
Operative Documents.  Each party hereto
acknowledges that, pursuant to such activities, any Creditor and its Affiliates
may receive information regarding Lessees, Guarantors, the Bank, Collateral
Agent or their respective Affiliates (including information that may be subject
to confidentiality obligations in favor of one or more of Lessees, Guarantors,
the Bank, Collateral Agent or their respective Affiliates) and acknowledges
that such Persons shall be under no obligation to provide such information to
them.

 

Section 10.20.             Agent Lessee; Joint and Several
Liability.  For purposes of
implementing the joint lessee provisions of this Agreement and the other
Operative Documents and to facilitate administration of the Overall
Transaction, each Lessee hereby irrevocably appoints Mandalay as its agent and
attorney-in-fact for all purposes of the Operative Documents, including the
giving and receiving of notices and communications.  Each Lessee shall be obligated for all of the Obligations on a
joint and several basis.  Each Lessee
acknowledges and agrees that, for purposes of the Operative Documents, Lessees
constitute an integrated financial enterprise and that each receives a benefit
from the availability of credit under the Operative Documents to all Lessees.  Each Lessee waives all defenses arising
under the laws of suretyship, to the extent such laws are applicable, in
connection with its joint and several obligations under the Operative
Documents.

 

68

 

Section 10.21.             Submission to Jurisdiction.  Each Lease Obligor hereby irrevocably and
unconditionally:

 

(a)          submits for itself and
its property in any legal action or proceeding relating to this Agreement or
any other Operative Document, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
United States District Court for the Southern District of New York and of any
New York state court sitting in the borough of Manhattan, and appellate courts
from any thereof;

 

(b)         consents that any such
action or proceedings may be brought to such courts, and waives any objection
that it may now or hereafter have to the venue of any such action or proceeding
in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;

 

(c)          agrees that service of
process in any such action or proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to such party at its address set forth on
Schedule IV or at such other address of which the other parties hereto
shall have been notified pursuant to Section 10.3; and

 

(d)         agrees that nothing
herein shall affect the right to effect service of process in any other manner
permitted by law or shall limit the right to sue in any other jurisdiction.

 

Section 10.22.             No Duty for Syndication Agent or
Documentation Agent.  None of
the Lenders or any other Person identified on the face page or signature pages
of this Participation Agreement or in any other Operative Document as a
“Syndication Agent” or a “Documentation Agent” shall have any right, power,
obligation, liability, responsibility, duty hereunder or thereunder other than,
in the case of such Lenders, those applicable to all Lenders as such.  Without limiting the foregoing, none of the
Lenders or any other Person so identified shall have or be deemed to have any
fiduciary relationship with any Lender. 
Each Lender acknowledges that it has not relied, and will not rely, on
any of the Lenders or other Persons so identified in deciding to enter into any
Operative Document or in taking or not taking action hereunder.

 

Article XI

 

Collateral Agent

 

Section 11.1.                    Appointment.  Each
Lender hereby irrevocably designates and appoints Collateral Agent as the agent
of such Lender under this Agreement and the other Operative Documents, and each
such Lender irrevocably authorizes Collateral Agent, in such capacity, to take
such action on its behalf under the provisions of this Agreement and the other
Operative Documents and to exercise such powers and perform such duties, in all
cases, as are expressly delegated to Collateral Agent by the terms of this
Agreement and the other Operative Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, Collateral Agent shall not have any
duties or responsibilities, except those expressly set forth herein and in the 

 

69

 

other Operative Documents, or any fiduciary
relationship with any Lender or any other party to the Operative Documents, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Operative Document
or otherwise exist against Collateral Agent.

 

Section 11.2.                    Delegation of Duties. 
Collateral Agent may execute any of its duties under this Agreement and
the other Operative Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to
such duties. Collateral Agent shall not be responsible for the negligence or
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.

 

Section 11.3.                    Exculpatory Provisions.  Neither Collateral Agent (in its capacity as such) nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall
be (a) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other
Operative Document, except for its or such Person’s own willful misconduct or
gross negligence (or negligence in the handling of funds) or (b) responsible
in any manner to any of the Lenders or any other party to the Operative
Documents for any recitals, statements, representations or warranties made by
Trustee or any Lessee or any officer thereof contained in this Agreement or any
other Operative Document or in any certificate, report, statement or other
document referred to or provided for in, or received by Collateral Agent under
or in connection with, this Agreement or any other Operative Document, or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or any other Operative Document or for any failure of Lessor
or any Lessee to perform its obligations hereunder or thereunder. Collateral
Agent shall not be under any obligation to any Lender or any other party to the
Operative Documents to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Operative Document, or to inspect the properties, books
or records of Lessor or any Lessee.

 

Section 11.4.                    Reliance by Collateral Agent.  Collateral Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, facsimile message, statement,
order or other document or other written communication believed by it in good
faith to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including counsel to Lessor or Lessee), independent accountants and other
experts selected by Collateral Agent. 
Collateral Agent may deem and treat the registered holder of any Note as
the owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with Collateral
Agent.  Collateral Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Operative Document unless it shall first receive the advice or
concurrence of the Required Lenders, or it shall first be indemnified to its
satisfaction by the applicable Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action.  Collateral Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Operative Documents in accordance with a request
of the Required Lenders, and such request and any action taken or failure to
act pursuant thereto shall be binding 

 

70

 

upon all the Lenders and all future holders of the
Notes.  Wherever in the Operative
Documents the consent or approval of Collateral Agent is required, such consent
or approval may be given by Collateral Agent only upon its receipt of such
consent or approval from the Required Lenders or as otherwise provided in
Section 10.5.

 

Section 11.5.                    Notice of Default.  Except as otherwise provided in
Section 6.3 of the Trust Agreement relating to the a failure to make any
scheduled payment under the Lease when due, Collateral Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default unless Collateral Agent has received notice from a Lender, a Lessee, a
Guarantor or Lessor referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a “notice of default”.  In the event that Collateral Agent receives
any notice related to the Operative Documents, Collateral Agent shall promptly
give notice thereof to the Lenders, Lessor and Agent Lessee. Collateral Agent
shall take such action with respect to such Default or Event of Default as
shall be directed by the Required Lenders or as otherwise provided in Section 10.5;
provided,
however, that unless and until Collateral Agent shall have received
such directions, Collateral Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.

 

Section 11.6.                    Non-Reliance on Collateral Agent and
Arranger.  Each Lender expressly
acknowledges that, other than as expressly set forth herein, neither Collateral
Agent nor the Arranger, nor any of their respective officers, directors,
employees, agents, attorneys-in-fact or Affiliates, has made any
representations or warranties to it and that no act by Collateral Agent or the
Arranger hereinafter taken, including any review of the affairs of Lessor or
any Lessee, shall be deemed to constitute any representation or warranty by
Collateral Agent or the Arranger to any Lender.  Each Lender represents to Collateral Agent and the Arranger that
it has, independently and without reliance upon Collateral Agent, the Arranger
or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of Lessor and Lessees and made its own decision to enter into
this Agreement.  Each Lender also
represents that it will, independently and without reliance upon Collateral
Agent, the Arranger or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Operative Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of
Lessor and Lessees.  Except for notices,
reports and other documents expressly required to be furnished to the Lenders
by Collateral Agent hereunder, neither Collateral Agent nor the Arranger shall
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of Lessor or Lessees which may
come into the possession of Collateral Agent, the Arranger or any of their
respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates.

 

71

 

Section 11.7.                    Collateral Agent in Its Individual
Capacity.  Each Lender
acknowledges that Wells Fargo Bank Nevada, National Association is acting as
Collateral Agent hereunder.  Wells Fargo
Bank Nevada, National Association and its Affiliates may make loans to, issue
letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial
advisory, underwriting or other business with Lessor, Lessees, Guarantors and
their respective Affiliates as though it was not Collateral Agent hereunder and
under the other Operative Documents and without notice to or consent of the
Lenders.  Each Lender acknowledges that,
pursuant to such activities, the Bank or its Affiliates may receive information
regarding Lessees, Guarantors, Lessor or their respective Affiliates (including
information that may be subject to confidentiality obligations in favor of
Lessees, Guarantors, Lessor or their respective Affiliates) and acknowledges
that such Persons shall be under no obligation to provide such information to
them.

 

Section 11.8.                    Successor Collateral Agent.  Subject to the appointment and acceptance of
a successor Collateral Agent as provided below, Collateral Agent may resign at
any time by giving notice thereof to each Lender and Agent Lessee or may be
removed at any time by written notice from the Required Lenders, such
resignation or removal to be effective only upon appointment of a successor as
herein provided and such successor’s acceptance of such appointment.  Upon any such resignation or removal, the
Required Lenders at the time of the resignation or removal shall have the right
to appoint (with the prior written consent of Lessees so long as no Event of
Default has occurred and is continuing) a successor Collateral Agent which
shall be a commercial bank organized under the laws of the United States of
America or any State thereof or under the laws of another country which is
doing business in the United States of America and having a combined capital
and surplus of at least $250,000,000. 
If, within 30 calendar days after the retiring Collateral Agent’s giving
of notice of resignation or receipt of a written notice of removal, a successor
Collateral Agent is not so appointed and does not accept such appointment, then
the retiring or removed Collateral Agent may appoint a successor Collateral
Agent (with the prior written consent of Lessees so long as no Event of Default
has occurred and is continuing) and transfer to such successor Collateral Agent
all rights and obligations of the retiring Collateral Agent.  Such successor Collateral Agent shall be a
commercial bank organized under the laws of the United States of America or any
State thereof or under the laws of another country which is doing business in
the United States of America and having a combined capital and surplus of at
least $250,000,000.  Upon the acceptance
of any appointment as Collateral Agent hereunder by a successor Collateral
Agent, such successor Collateral Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring or
removed Collateral Agent, and the term “Collateral Agent” shall mean such
successor agent effective upon such appointment and approval, and the retiring
or removed Collateral Agent shall be discharged from duties and obligations as
Collateral Agent thereafter arising hereunder and under any related document
without any other or further act or deed on the part of such former Collateral
Agent or any of the parties to this Agreement or any holders of the Notes.  If the retiring Collateral Agent does not
appoint a successor, Lessees (so long as no Event of Default has occurred and
is continuing) may do so, or any Lender shall be entitled to apply to a court
of competent jurisdiction for such appointment, and in any such case the
successor so appointed shall act until such time, if any, as a successor shall
have been appointed as above provided. 
After any retiring Collateral Agent’s resignation as Collateral Agent,
all of the provisions of this 

 

72

 

Article XI shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Collateral Agent under
this Agreement and the other Operative Documents.

 

[Signature Pages Follow]

 

73

 

In Witness Whereof, the parties hereto
have caused this Agreement to be executed and delivered by their respective
officers thereunto duly authorized 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

  

 

74

 

	
  Guarantors:

  	
  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

  

 

75

 

	
  Lessor and Trustee:

  	
  Wells Fargo Bank Northwest,
  National

  Association, not in its individual capacity 

  except as expressly stated herein, but solely 

  as Lessor and Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Nancy M. Dahl

  	
   

  
	
   

  	
   

  	
  Name:  Nancy
  M. Dahl

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

76

 

	
  Collateral Agent:

  	
  Wells Fargo Bank Nevada,
  National

  Association, not in its individual capacity, 

  except as expressly stated herein, but solely 

  as collateral agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Nancy M. Dahl

  	
   

  
	
   

  	
   

  	
  Name:  Nancy
  M. Dahl

  
	
   

  	
   

  	
  Title:  Trust
  Officer

  

 

77

 

	
  Lenders:

  	
  Bank of America, National
  Association, as

  a Tranche B Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Sonia T.
  Delen

  	
   

  
	
   

  	
   

  	
  Name:  Sonia
  T. Delen

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

78

 

	
  Lenders:

  	
  Bank of America Leasing
  & Capital, LLC,

  as a Tranche A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Sonia T.
  Delen

  	
   

  
	
   

  	
   

  	
  Name:  Sonia
  T. Delen

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

79

 

	
   

  	
  PNC Leasing,
  LLC, as a Tranche A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Michael H. Ollio

  	
   

  
	
   

  	
   

  	
  Name:  Michael
  H. Ollio

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

80

 

	
   

  	
  The CIT Group/Equipment
  Financing, Inc.,

  as a Tranche A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Dana G. Hammond

  	
   

  
	
   

  	
   

  	
  Name:  Dana
  G. Hammond

  
	
   

  	
   

  	
  Title: 
  Executive Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The CIT Group/Equipment
  Financing, Inc.,

  as a Tranche B Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Dana G. Hammond

  	
   

  
	
   

  	
   

  	
  Name:  Dana
  G. Hammond

  
	
   

  	
   

  	
  Title: 
  Executive Vice President

  

 

81

 

	
   

  	
  Comerica west incorporated,
  as a Tranche 

  A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Eoin Collins

  	
   

  
	
   

  	
   

  	
  Name:  Eoin
  Collins

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

82

 

	
   

  	
  The Bank of Nova Scotia,
  as a Tranche A

  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Jed Richardson

  	
   

  
	
   

  	
   

  	
  Name:  Jed
  Richardson

  
	
   

  	
   

  	
  Title: 
  Director

  

 

83

 

	
   

  	
  Wells Fargo Equipment
  Finance, as a 

  Tranche ALender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Lisa K. Lenton

  	
   

  
	
   

  	
   

  	
  Name:  Lisa
  K. Lenton

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

84

 

	
   

  	
  Société Générale Financial
  Corporation,

  as a Tranche A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Sean Rheuben

  	
   

  
	
   

  	
   

  	
  Name:  Sean
  Rheuben

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

85

 

	
   

  	
  Morgan Stanley Prime Income
  Trust, as a 

  Tranche B Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Peter Gewirtz

  	
   

  
	
   

  	
   

  	
  Name:  Peter
  Gewirtz

  
	
   

  	
   

  	
  Title:  Vice
  President

  

 

86

 

	
   

  	
  General Electric Capital
  Corporation, as 

  a Tranche A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Mark A. Roland

  	
   

  
	
   

  	
   

  	
  Name:  Mark
  A. Roland

  
	
   

  	
   

  	
  Title:

  	
  Vice President Risk, 

  Capital Funding, Inc.

  
					

 

87

 

	
   

  	
  Bank of Scotland, as
  a Tranche A Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Susan E. Hay

  	
   

  
	
   

  	
   

  	
  Name:  Susan
  E. Hay

  
	
   

  	
   

  	
  Title: 
  Director, Business Services

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank of Scotland, as
  a Tranche B Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Susan E. Hay

  	
   

  
	
   

  	
   

  	
  Name:  Susan
  E. Hay

  
	
   

  	
   

  	
  Title: 
  Director, Business Services

  

 

88

 

	
   

  	
  Van Kampan Senior Loan Fund,
  as a

  Tranche B Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Van Kampen Investment Advisory Corp.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Christina Jamieson

  	
   

  
	
   

  	
  Name: 
  Christina Jamieson

  
	
   

  	
  Title:  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Van Kampan Senior Income
  Trust, as a

  Tranche B Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Van Kampen Investment Advisory Corp.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Christina Jamieson

  	
   

  
	
   

  	
  Name: 
  Christina Jamieson

  
	
   

  	
  Title:  Vice
  President

  
						

 

89Exhibit 10.4

 

233 South Wacker Drivc, Suitc 2800

Chicago, Illinois 60606

Tel 312-234-2732

Fax 312-234-3603

 

Bank of America N. A.

 

	
  TO:

  	
  Mandalay
  Resort Group

  
	
   

  	
  2330
  Las Vegas Blvd-South

  
	
   

  	
  Las
  Vegas, NV 89109

  
	
   

  	
   

  
	
  ATTN:

  	
  Amy
  Preiss

  
	
  TEL:

  	
  702
  632 6820

  
	
  FAX:

  	
  702
  632 6822

  
	
   

  	
   

  
	
  FROM:

  	
  Bank
  of America, N.A.

  233 South Wacker Drive - Suite 2800

  Chicago, Illinois 60606

  Robert OHara / Mike Allison

  
	
   

  	
   

  
	
  Date:

  	
  24JUL03

  

 

Our
Reference No. 3106389

 

Internal
Tracking Nos. 13030303

 

The
purpose of this letter agreement is to confirm the terms and conditions of the
Transaction entered into between Mandalay Resort Group and Bank of America,
N.A. (each a “party” and together “the parties”) on the Trade Dale specified
below (the “Transaction”).  This letter
agreement constitutes a “Confirmation” as referred to in the Rate Swap Master
Agreement specified in paragraph 1 below (the “Agreement”).

 

The
definitions and provisions contained in the 2000 ISDA Definitions, as;
published by the International Swaps and Derivatives Association, Inc., (the
“Definitions”) are incorporated into this Confirmation.  In the event of any inconsistency between
the Definitions and this Confirmation, this Confirmation will govern.

 

1.
This Confirmation supplements, forms part of, and is subject to, the Rate Swap
Master Agreement dated as of 240CT86, as amended and supplemented from time to
time (the “Agreement”), between the parties. Al provisions contained in the
Agreement govern this Confirmation except as expressly modified below.

 

In this Confirmation “Party A” means Bank of
America, N.A. and “Party B” means Mandalay Resort Group.

 

2. The terms of the particular Transaction to
which this Confirmation relates are as follows:

 

Notional Amount:                                                             USD 200,000,000.00

 

Trade Date:                                                                                               22JUL03

 

Effective Date:                                                                               31JUL03

 

Termination Dale:                                                               31JUL09, subject to
adjustment in accordance with the Modified Following Business Day Convention

 

Fixed Amounts:

 

Fixed Rate Payer:                                                                  Party A

 

Fixed Rate Payer Payment

Dates:                                                                                                                           The 31st
of each January and July, commencing 31JAN04 and ending 31JUL09, subject
to adjustment in accordance with the Modified Following Business Day
Convention.  No Adjustment Of Period End
Dates.

 

Fixed Rate:                                                                                                   6.50000%

 

Fixed Rate Day Count

Fraction:                                                                                                              30/360

 

Floating Amounts:

 

Floating Rate Payer:                                                  Party B

 

Floating Rate Payer

Payment Dates:                                                                          The 31st
of each January and July, commencing 31JAN04 and ending 31JUL09, subject
to adjustment in accordance with the Modified Following Business Day
Convention.

 

Floating Rate for initial

Calculation Period:                                                         TO BE SET

 

Floating Rate Option:                                           USD-LIBOR-BBA

 

Averaging:                                                                                                 Inapplicable

 

Designated Maturity:                                           6 Month

 

Spread:                                                                                                                     Plus 2.390000%

 

Floating Rate Day Count

Fraction:                                                                                                              Actual/360

 

 

Reset Dates:                                                                                          Fixed/Floating Rate
Payer Reset Dates: The Reset Dale for a Calculation Period will be the first
day of the next following Calculation Period provided that for the final
Calculation Period the Reset Dale will be the Termination Date.

 

Compounding:                                                                              Inapplicable

 

Business Days:                                                                          New York, London

 

Calculation Agent:                                                         Party A

 

3. Recording
of Conversations:

 

Each party to this Transaction acknowledges
and agrees to the tape recording of conversations between the parties to this
Transaction whether by one or other or both of the parties or their agents, and
that any such tape recordings may be submitted in evidence in any Proceedings
relating to the Agreement and/or this Transaction.

 

4. Account Details:

 

Account for payments to Party A:

 

USD

We will debit your account.

NAME:                                                                                            Bank of America

ABA
#:                                                                                            CA

ACCT:                                                                                                1257501024

Mandalay Resort Group

 

Account for payments to Party B:

 

USD

NAME:                                                                                            Bank of America

ABA
#:                                                                                            CA

NAME:                                                                                            Mandalay Resort
Group

ACCT:                                                                                                1257501024

 

5.Off Ices:

 

The Office of Party A for this

Transaction
is:                                                      Charlotte, NC

 

Please send reset notices to fax no.
(312-234-3603)

 

The Office of Party B for this

Transaction
is:                                                      Nevada, USA

 

Credit Support Document: As per Agreement
(and Credit Support Annex if applicable).

 

Please confirm that the foregoing correctly
sets forth the terms and conditions of our agreement by returning via
telecopier an executed copy of this Confirmation to the attention of Global
Derivative Operations at (fax no.(312) 234-3603).

 

Yours Sincerely,

 

Bank of America, N.A.

 

Dave Walker

Senior Vice President

 

Authorized Signatory Accepted and confirmed
as of the dale first written:

 

Mandalay Resort Group

 

	
  By:

  	
   /s/ LES MARTIN

  	
   

  
	
   

  
	
  Name:

  	
    Les Martin

  	
   

  
	
   

  	
  Vice
  President, Chief Accounting

  
	
  Title: 

  	
  Officer and Treasurer

  	
   

  
							

 

Our Reference # 311 06389

 

2

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