OFFICIAL STATEMENT Dated March 9, 2006 Ratings: Moody’s: “Aaa” S&P: “AAA” See “FINANCIAL GUARANTY INSURANCE” And

“RATINGS” herein NEW ISSUE - Book-Entry Only In the opinion of Co-Bond Counsel, interest on the Bonds is excludable from gross income for federal income tax purposes under existing law, subject to the matters described under “TAX MATTERS” herein, and is not included in the alternative minimum taxable income of individuals. See “TAX MATTERS” for a discussion of the opinions of Co-Bond Counsel, including the alternative minimum tax on corporations. $33,600,000 HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION (a non-profit corporation acting on behalf of the Houston Independent School District, a political subdivision located in Harris County, Texas) LEASE REVENUE BONDS (FOOD SERVICE WAREHOUSE PROJECT), SERIES 2006 Dated Date: April 1, 2006 Due: September 15, as shown on inside cover

The Houston Independent School District Public Facility Corporation Lease Revenue Bonds (Food Service Warehouse Project), Series 2006 (the “Bonds”) will be issued by the Houston Independent School District Public Facility Corporation (the “Corporation”) as fully registered bonds in denominations of $5,000 or any integral multiple thereof, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC initially will act as securities depository for the Bonds. Purchases of beneficial ownership interests in the Bonds will be made in book-entry form through DTC participants, and no physical delivery of the Bond certificates will be made to such purchasers. Defined terms used in this cover page are defined in the text of this Official Statement. Interest on the Bonds will be payable semiannually on March 15 and September 15 in each year, commencing September 15, 2006, by JPMorgan Chase Bank, National Association (the “Trustee”) to Cede & Co., as registered owner of the Bonds, as described herein. Principal of, premium, if any, and interest on the Bonds will be payable to Cede & Co., as registered owner of the Bonds, at the designated payment office of the Trustee in Houston, Texas. DTC will be responsible for distributing the payments of principal of, premium, if any, and interest on the Bonds to the participating members of DTC who will in turn be responsible for distributing such payments to the owners of beneficial interests in the Bonds. See “THE BONDS - BOOK-ENTRY ONLY SYSTEM.” The Bonds are being issued pursuant to a resolution adopted by the Board of Directors of the Corporation under the authority of and in full conformity with the laws of the State of Texas, particularly the provisions of the Public Facility Corporation Act, Chapter 303, Texas Local Government Code, as amended, and a certain “Third Supplemental Trust Indenture Relating to the Houston Independent School District Food Service Warehouse Project,” dated as of April 1, 2006 (the “Trust Indenture”), by and between the Corporation and the Trustee, to finance the construction of certain public school facilities for the use and benefit of the Houston Independent School District (the “District”), to-wit: the construction of a new food service warehouse (the “Project”). A portion of the proceeds of the Bonds will also be used to fund a debt service reserve fund for the Bonds and to pay the costs of issuing the Bonds. The principal of, premium, if any, and interest on the Bonds are payable from rental payments to be made by the District (the “Rental Payments”) to the Corporation pursuant to a certain “Lease with an Option to Purchase” dated as of April 1, 2006 (the “Lease”), as authorized by Section 271.004 of the Texas Local Government Code, as amended. The Rental Payments are due at such times and in such amounts as will be required to pay the principal of, premium, if any, and interest on the Bonds, as and when the same become due. As additional security for the Bonds, the Corporation will grant to the Trustee for the benefit of the registered owners of the Bonds (i) a first mortgage lien on the real property relating to the Project and will assign and pledge the Corporation’s interest in the leases, rents, and certain other benefits from the Project, pursuant to a Mortgage and Security Agreement, and (ii) a first priority purchase money security interest in the personal property portion of the Project, pursuant to the Mortgage and Security Agreement. THE OBLIGATION OF THE DISTRICT TO MAKE RENTAL PAYMENTS IS A CURRENT EXPENSE, PAYABLE SOLELY FROM FUNDS TO BE ANNUALLY APPROPRIATED BY THE DISTRICT FOR SUCH USE FROM (I) ANY LAWFULLY AVAILABLE FUNDS APPROPRIATED BY THE TEXAS LEGISLATURE, WHICH UNDER CURRENT LAW IS LIMITED TO GUARANTEED YIELD PROGRAM TIER ONE FUNDS, (II) ANY UNINTENDED SURPLUS MAINTENANCE TAX REVENUES, AND (III) UPON RECEIPT OF AN APPROVING OPINION OF NATIONALLY RECOGNIZED CO-BOND COUNSEL, ANY OTHER FUNDS HEREAFTER DETERMINED TO BE AVAILABLE WITH RESPECT TO ANY PAYMENT OBLIGATED OR PERMITTED UNDER THE LEASE AS A RESULT OF A FINAL, NONAPPEALABLE JUDGMENT OF A COURT OF COMPETENT JURISDICTION, LEGISLATION HEREAFTER ENACTED, OR OTHER CHANGE IN STATE LAW. REMEDIES AVAILABLE UPON A FAILURE OF THE DISTRICT TO APPROPRIATE OR PAY RENTAL PAYMENTS ARE LIMITED TO TERMINATION OF THE DISTRICT’S LEASEHOLD INTEREST, THE RIGHT TO TAKE POSSESSION AND CONTROL OF THE PROJECT, AND THE RIGHT TO SELL OR LEASE THE PROJECT UPON FORECLOSURE UNDER THE MORTGAGE AND SECURITY AGREEMENT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF TEXAS, THE DISTRICT, OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF TEXAS IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS. THE CORPORATION’S OBLIGATION WITH RESPECT TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS IS A SPECIAL, LIMITED, AND NON-RECOURSE OBLIGATION PAYABLE SOLELY FROM THE RENTAL PAYMENTS PAYABLE BY THE DISTRICT PURSUANT TO THE LEASE AND FROM PROCEEDS FROM THE SALE OR OTHER LEASE OF THE PROJECT. THE CORPORATION HAS NO AUTHORITY TO LEVY TAXES. THE BONDS DO NOT CONSTITUTE AN OBLIGATION, EITHER SPECIAL, GENERAL, OR MORAL, OF THE DISTRICT, THE STATE, OR ANY OTHER POLITICAL SUBDIVISION THEREOF.

See Maturity and Pricing Schedule on the inside cover

Payment of the principal of and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation (“Ambac”) simultaneously with the delivery of the Bonds. See “FINANCIAL GUARANTY INSURANCE.” THE PURCHASE OF THE BONDS INVOLVES A DEGREE OF RISK. SEE “RISK FACTORS.” The Bonds are subject to redemption upon the District’s exercise of a purchase option and at the Corporation’s option on the dates, at the prices, and in the amounts described herein. See “THE BONDS - REDEMPTION.” The Bonds are offered for sale by the Initial Purchaser, when, as, and if issued by the Corporation, subject to the approving opinion of the Attorney General of the State of Texas as to validity and the opinion of Andrews Kurth LLP, Houston, Texas and Burney & Foreman, Co-Bond Counsel as to validity and tax exemption. Certain matters will be passed upon for the Corporation by Andrews Kurth LLP, Houston, Texas and Burney & Foreman, Houston, Texas. It is expected that delivery of the Bonds will be made through the facilities of DTC on or about April 6, 2006.

$33,600,000 HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION (a non-profit corporation acting on behalf of the Houston Independent School District, a political subdivision located in Harris County, Texas) LEASE REVENUE BONDS (FOOD SERVICE WAREHOUSE PROJECT), SERIES 2006

MATURITY SCHEDULE

Principal $ 425,000 400,000 405,000 880,000 915,000 955,000 995,000 1,045,000 1,095,000 1,150,000 1,205,000

Maturity (September 15) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Interest Initial (a) Yield Rate 4.250 % 3.370 % 4.250 3.420 4.250 3.480 4.250 3.530 4.250 3.580 4.250 3.690 4.250 3.780 5.500 3.860 5.500 3.920 5.500 3.970 5.500 4.020

CUSIP 442404 BR9 442404 BS7 442404 BT5 442404 BU2 442404 BV0 442404 BW8 442404 BX6 442404 BY4 442404 BZ1 442404 CA5 442404 CB3

(b)

Principal $ 1,260,000 1,325,000 1,385,000 1,450,000 1,515,000 1,585,000 1,660,000 1,735,000 1,815,000 1,900,000 1,985,000

Maturity Interest Initial (a) (b) Yield CUSIP (September 15) Rate (c) 2017 4.250 % 4.110 % 442404 CC1 (c) 2018 4.125 4.200 442404 CD9 (c) 2019 4.125 4.300 442404 CE7 2020 (c) 4.250 4.390 442404 CF4 (c) 2021 4.375 4.460 442404 CG2 (c) 2022 4.500 4.490 442404 CH0 2023 (c) 4.500 4.520 442404 CJ6 (c) 2024 4.500 4.550 442404 CK3 (c) 2025 4.500 4.580 442404 CL1 (c) 2026 4.500 4.590 442404 CM9 (c) 2027 4.500 4.600 442404 CN7

$6,515,000 4.625% TERM BONDS DUE SEPTEMBER 15, 2030(c) PRICED TO YIELD 4.650%(a) CUSIP 442404 CR8(b) (Accrued Interest from April 1, 2006 to be added)

(a) (b)

(c)

The initial yields are established by and are the sole responsibility of the Initial Purchaser, and may subsequently be changed. CUSIP Numbers have been assigned to the Bonds by the CUSIP Service Bureau and are included solely for the convenience of the purchasers of the Bonds. Neither the District, the Corporation nor the Initial Purchaser shall be responsible for the selection or correctness of the CUSIP Numbers set forth herein. The Corporation reserves the right, at its option, to redeem Bonds having stated maturities on and after September 15, 2017, in whole or part in principal amounts of $5,000 of integral multiples thereof, on September 15, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. See “THE BONDS – REDEMPTION”.

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HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION BOARD OF DIRECTORS President............................................................................................................................................................... Lawrence Marshall Director .......................................................................................................................................................................Leonel Castillo Director ..........................................................................................................................................................................Diana Dávila

HOUSTON INDEPENDENT SCHOOL DISTRICT BOARD OF EDUCATION President.........................................................................................................................................................................Diana Dávila First Vice-President......................................................................................................................................... Manuel Rodriguez, Jr. Second Vice-President .............................................................................................................................................Harvin C. Moore Secretary ........................................................................................................................................................... Arthur M. Gaines, Jr. Assistant Secretary ......................................................................................................................................................... Greg Meyers Member ......................................................................................................................................................................Dianne Johnson Member ................................................................................................................................................................. Kevin H. Hoffman Member ................................................................................................................................................................ Lawrence Marshall Member ..............................................................................................................................................................Natasha M. Kamrani

CERTAIN APPOINTED OFFICIALS Superintendent of Schools...............................................................................................................................Dr. Abelardo Saavedra Chief Financial Officer ............................................................................................................................................. Melinda Garrett Controller .................................................................................................................................................................Kenneth Huewitt General Counsel, Office of General Counsel ............................................................................................... Elneita Hutchins-Taylor Finance Attorney.........................................................................................................................................................Donald Boehm

CONSULTANTS AND ADVISORS Co-Bond Counsel ............................................................................................................................................... Andrews Kurth LLP Houston, Texas Burney & Foreman Houston, Texas Co-Financial Advisor .................................................................................................................................First Southwest Company Houston, Texas Apex Securities, Inc. Houston, Texas

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This Official Statement, which includes the cover page and appendices, does not constitute an offer to sell the Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. No dealer, salesman, or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Bonds, and, if given or made, such information or representation must not be relied upon. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts, or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The information set forth herein has been furnished by the District and the Corporation and includes information obtained from other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Initial Purchaser. The information and expressions of opinions contained herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or the Corporation since the date hereof. The Bonds are exempt from registration with the Securities and Exchange Commission and consequently have not been registered therewith. The registration, qualification, or exemption of the Bonds in accordance with applicable securities law provisions of the jurisdictions in which these securities have been registered, qualified, or exempted should not be regarded as a recommendation thereof. In connection with the offering of the Bonds, the Initial Purchaser may overallot or effect transactions that stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. TABLE OF CONTENTS INTRODUCTION.................................................................1 PLAN OF FINANCING.......................................................2 RISK FACTORS...................................................................3 THE BONDS .........................................................................7 USES OF FUNDS................................................................10 DEBT SERVICE REQUIREMENTS OF THE CORPORATION ......................................................10 TRUST ESTATE........................................................................11 RENTAL PAYMENTS ................................................................11 MORTGAGE AND SECURITY AGREEMENT ...............................11 RESERVE ACCOUNT ................................................................11 REMEDIES ...............................................................................11 ADDITIONAL OBLIGATIONS ....................................................12 FINANCIAL GUARANTY INSURANCE ......................12 PAYMENT PURSUANT TO FINANCIAL GUARANTY INSURANCE POLICY .........................................................................12 AMBAC ASSURANCE CORPORATION .......................................13 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ....14 RESERVE ACCOUNT SURETY BOND........................14 THE PROJECT ..................................................................14 THE CORPORATION ......................................................15 THE DISTRICT..................................................................15 FINANCIAL AND OPERATING INFORMATION FOR THE DISTRICT........................................................23 TIER ONE ALLOTMENTS .........................................................23 UNDESIGNATED FUND BALANCES ..........................................24 UNDESIGNATED GENERAL FUND BALANCE HISTORY .............24 AVERAGE DAILY ATTENDANCE..............................................24 AVERAGE DAILY ATTENDANCE HISTORY...............................24 TAXABLE ASSESSED VALUATIONS BY CATEGORY ................. 25 TAX RATE, LEVY AND COLLECTION HISTORY ....................... 25 TEN LARGEST TAXPAYERS .................................................... 26 DEBT INFORMATION............................................................... 26 AUTHORIZED BUT UNISSUED TAX-SUPPORTED BONDS ......... 27 OTHER FINANCIAL MATTERS ................................................. 29 TAX MATTERS................................................................. 30 DISCOUNT BONDS .................................................................. 31 PREMIUM BONDS ................................................................... 31 LITIGATION ..................................................................... 32 LEGAL MATTERS ........................................................... 32 CONTINUING DISCLOSURE OF INFORMATION .. 32 ANNUAL REPORTS ................................................................. 32 MATERIAL EVENT NOTICES ................................................... 33 AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID 33 LIMITATIONS AND AMENDMENTS .......................................... 33 COMPLIANCE WITH PRIOR UNDERTAKINGS ........................... 34 RATINGS............................................................................ 34 INITIAL PURCHASER .................................................... 34 CERTIFICATION ............................................................. 34 REGISTRATION AND QUALIFICATION OF BONDS FOR SALE ................................................................ 34 THE BONDS AS LEGAL INVESTMENTS IN TEXAS34 MISCELLANEOUS........................................................... 35 APPENDICES SELECTED PROVISIONS OF THE FINANCING DOCUMENTS ......A ANNUAL FINANCIAL REPORT ...............................................B FORM OF CO-BOND COUNSEL’S OPINION .............................C SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY ........D

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OFFICIAL STATEMENT RELATING TO $33,600,000 HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION (a non-profit corporation acting on behalf of the Houston Independent School District, a political subdivision located in Harris County, Texas) LEASE REVENUE BONDS (FOOD SERVICE WAREHOUSE PROJECT), SERIES 2006 INTRODUCTION This “Official Statement,” which includes the preceding pages and the Appendices hereto, has been prepared by the Houston Independent School District Public Facility Corporation, a Texas nonprofit corporation (the “Corporation”) to provide certain information regarding the issuance by the Corporation of its Lease Revenue Bonds (Food Service Warehouse Project), Series 2006 (the “Bonds”). Capitalized terms used in this Official Statement and not otherwise defined herein have the meanings assigned to such terms in APPENDIX A - SELECTED PROVISIONS OF THE FINANCING DOCUMENTS - DEFINITIONS. The Bonds are being issued pursuant to a resolution adopted by the governing body of the Corporation under the authority of and in full conformity with the laws of the State of Texas, particularly the provisions of Chapter 303, Texas Local Government Code (the “Public Facility Corporation Act”), a Master Indenture and the Third Supplemental Trust Indenture, to finance the Project for the benefit and use of the District. The Corporation will lease the Project to the District pursuant to the Lease with an Option to Purchase Relating to the Houston Independent School District Food Service Warehouse Project (the “Lease”). Under the Lease, the District is required to make Rental Payments semiannually, commencing September 15, 2006, in consideration of the lease of the Project, which Rental Payments include principal and interest to be distributed semiannually to the Bondholders. The Corporation will assign its interest in the Lease, the Rental Payments, and the Project to the Trustee for the benefit of the Bondholders pursuant to a “Deed of Trust, Assignment of Rents and Leases and a Mortgage and Security Agreement,” dated as of the date of delivery of the Bonds (the “Mortgage and Security Agreement”), by and between the Corporation and the Trustee. The Corporation will also grant a first priority purchase money security interest in the personal property portion of the Project pursuant to the Mortgage and Security Agreement. The Corporation and the Trustee have entered into a Master Trust Indenture as supplemented by a First Supplemental Indenture and a Second Supplemental Indenture, each dated as of May 1, 1998. Pursuant to the First Supplemental Indenture, the Corporation issued its $46,246,107.60 Lease Revenue Bonds (Cesar E. Chavez High School), Series 1998A. Pursuant to the Second Supplemental Indenture, the Corporation issued its $47,999,984.95 Lease Revenue Bonds (West Side High School), Series 1998B. See “DEBT SERVICE REQUIREMENTS OF THE CORPORATION.” The Bonds will be issued pursuant to a Third Supplemental Indenture (the “Trust Indenture). THE PURCHASE OF THE BONDS INVOLVES A DEGREE OF RISK. SEE “RISK FACTORS.” THE CORPORATION’S OBLIGATION WITH RESPECT TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS IS A SPECIAL, LIMITED, AND NON-RECOURSE OBLIGATION PAYABLE SOLELY FROM THE RENTAL PAYMENTS PAYABLE BY THE DISTRICT PURSUANT TO THE LEASE AND FROM PROCEEDS FROM THE SALE OR OTHER LEASE OF THE PROJECT. THE CORPORATION HAS NO AUTHORITY TO LEVY TAXES. THE BONDS DO NOT CONSTITUTE AN OBLIGATION, EITHER SPECIAL, GENERAL, OR MORAL, OF THE DISTRICT, THE STATE, OR ANY OTHER POLITICAL SUBDIVISION THEREOF. THE OBLIGATION OF THE DISTRICT TO MAKE RENTAL PAYMENTS IS A CURRENT EXPENSE, PAYABLE SOLELY FROM FUNDS TO BE ANNUALLY APPROPRIATED BY THE DISTRICT FOR SUCH USE FROM (I) ANY LAWFULLY AVAILABLE FUNDS APPROPRIATED BY THE TEXAS LEGISLATURE, WHICH UNDER CURRENT LAW IS LIMITED TO GUARANTEED YIELD PROGRAM TIER ONE FUNDS, (II) ANY UNINTENDED SURPLUS MAINTENANCE TAX REVENUES, AND (III) UPON RECEIPT OF AN APPROVING OPINION OF NATIONALLY
RECOGNIZED CO-BOND COUNSEL, ANY OTHER FUNDS HEREAFTER DETERMINED TO BE AVAILABLE WITH RESPECT TO ANY PAYMENT OBLIGATED OR PERMITTED UNDER THE LEASE AS A RESULT OF A FINAL, NONAPPEALABLE JUDGMENT OF A COURT OF COMPETENT

REMEDIES AVAILABLE UPON A FAILURE OF THE TO APPROPRIATE OR PAY RENTAL PAYMENTS ARE LIMITED TO TERMINATION OF THE DISTRICT’S LEASEHOLD INTEREST, THE RIGHT TO TAKE POSSESSION AND CONTROL OF THE PROJECT, AND THE RIGHT TO SELL OR LEASE THE PROJECT UPON FORECLOSURE UNDER THE MORTGAGE AND SECURITY AGREEMENT. THE LEASE AND THE OBLIGATIONS OF THE DISTRICT THEREUNDER DO NOT CONSTITUTE A PLEDGE, A LIABILITY, OR A CHARGE UPON THE FUNDS OF THE DISTRICT AND DO NOT CONSTITUTE A DEBT OR GENERAL OBLIGATION OF THE STATE OF TEXAS, THE CORPORATION, THE DISTRICT, OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF TEXAS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF TEXAS, THE DISTRICT, OR ANY OTHER POLITICAL SUBDIVISION OF THE STATE OF TEXAS IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS. THE CORPORATION HAS NO TAXING AUTHORITY.
JURISDICTION, LEGISLATION HEREAFTER ENACTED, OR OTHER CHANGE IN STATE LAW.

DISTRICT

The proceeds from the sale of the Bonds will be deposited into the Project Acquisition Account created by the Trust Indenture and used, together with the interest earnings thereon, to pay, or reimburse the Corporation for, payment of Project Costs, including costs (i) related to issuance of the Bonds, (ii) of construction of the Project, and (iii) to purchase a Reserve Account surety bond for the Bonds. On the Closing Date, there shall be deposited into the Payment Account the amount of accrued interest to pay a portion of the interest due on the Bonds on September 15, 2006. There follows in this Official Statement descriptions of the Plan of Financing and the Bonds and certain information regarding the District and its finances. Such descriptions do not purport to be comprehensive or definitive. All descriptions of documents

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contained herein are only summaries and are qualified in their entirety by reference to each such document, copies of which may be obtained from the District upon payment of reasonable copying and delivery charges. All references to the Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto contained in the Trust Indenture. PLAN OF FINANCING The Project is being financed pursuant to Section 271.001 et. seq., Texas Local Government Code, as amended (the “Public Property Finance Act”), Chapter 303, Texas Local Government Code, as amended (the “Public Facility Corporation Act”) and Section 42.101 et. seq., Texas Education Code, as amended (the “Tier One Act”). Section 271.004 of the Public Property Finance Act authorizes school districts to acquire real property and improvements by entering into lease purchase contracts provided that a notice of intent to enter into such contract is published at least 60 days prior to execution of the contract. A notice of intention to enter into a lease purchase agreement pursuant to the Public Property Finance Act was published on January 16, 2005. The District approved an order authorizing the publication on January 13, 2005. The Act imposes a duty upon the District to obtain the approval of its electorate if a valid petition containing the signatures of at least five percent of the registered voters of the District is filed with the Board of Education of the District within sixty (60) days of the date of publication of the notice of intent. No petition was presented within the required time. The Public Facility Corporation Act authorizes the creation and utilization by school districts (and other governmental entities) of public facility corporations to issue bonds to provide for the acquisition, construction, rehabilitation, renovation, repair, equipping, furnishing, and placing in service of public facilities of its governmental sponsor. The Public Facility Corporation Act further authorizes school districts (and other governmental entities) to incur obligations in favor of public facility corporations to serve as security for the bonds to be issued by such corporations. The Corporation was formed pursuant to the Public Facility Corporation Act to issue bonds, and to enter into leases, as lessor, with the District, as lessee, in order to finance the acquisition and construction of school facilities. One of District’s primary sources of funds for making the Rental Payments under the Lease, which will in turn be used to make payments of principal and interest on the Bonds, is revenues to be received by the District from biennial legislative appropriations pursuant to the Tier One Act. Texas law provides a two-tiered education finance structure known as the Foundation School Program. The Tier One Act provides that the purpose of Tier One is to guarantee sufficient financing for all school districts to provide a basic program of education that meets accreditation and other applicable legal standards. For each student in average daily attendance a district is entitled to a basic allotment of $2,537, which is subject to various adjustments and special allotments to reflect variations and actual costs. To be eligible for the program, a district must provide its local share of funding, defined as the amount produced when an effective tax rate of $0.86 per $100 valuation is applied to the taxable value of property in the district for the prior tax year. To the extent that the $0.86 effective tax rate fails to produce the adjusted allotment from the district’s own tax base, the State of Texas will fund the difference. Another of the District’s sources of funds for making the Rental Payments under the Lease, which will be used to make payments of principal and interest on the Bonds, is unintended surplus maintenance tax funds. Since these funds are “unintended,” these funds cannot be budgeted by the District, and, as such, there can be no assurance that such funds, if any, will be available for making the Rental Payments. For more information on unintended surplus maintenance tax funds, see “FINANCIAL AND OPERATING INFORMATION FOR THE DISTRICT.” To provide funds for the acquisition and construction of the Project, the District and the Corporation will enter into the Lease whereby the Corporation will agree to lease the Project to the District, and the District will agree to pay semiannual Rental Payments sufficient to pay principal, interest, and redemption premium, if any, on the Bonds when due. The District may terminate the Lease by failing to appropriate money in any fiscal year for this purpose (see “RISK FACTORS – Nonappropriation”). For a summary of certain provisions of the Lease, see APPENDIX A – “SELECTED PROVISIONS OF THE FINANCING DOCUMENTS - SUMMARY OF CERTAIN PROVISIONS OF THE LEASE.” The Bonds are being issued pursuant to a resolution adopted by the Board of Directors of the Corporation and the Trust Indenture to finance the acquisition and remodeling of the Project. See “THE PROJECT.” A portion of the proceeds of the Bonds will also be used to pay the costs of issuing the Bonds and to fund the reserve account. For more information on the Trust Indenture, see APPENDIX A – “SELECTED PROVISIONS OF THE FINANCING DOCUMENTS - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”

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To secure its obligations under the Trust Indenture, the Corporation will grant a first mortgage lien on and first deed of trust lien to the real property portion of the Project and will assign and pledge the Corporation’s interest in the leases, rents, issues, profits, revenues, income, receipts, money, rights, and benefits of and from the Project for the use and benefit of the Trustee, on behalf of the registered owners of the Bonds, pursuant to the Mortgage and Security Agreement. The Corporation will also grant to the Trustee a first priority security interest in the machinery, equipment, furnishings, or other personal property acquired by the Corporation with the proceeds of the Bonds, and at any time installed or located at the Project site, and in the accounts, documents, chattel paper, instruments, and general intangibles arising in any manner from the Corporation’s ownership and operation of the Project pursuant to the Mortgage and Security Agreement. The Trust Indenture, the Lease, the Mortgage and Security Agreement, the Assignment of Construction Management Contract (discussed below), and the Assignment of Architect Contract and Plans and Specifications (discussed below), are collectively referred to herein as the “Financing Documents.” See “RISK FACTORS” herein. RISK FACTORS THE PURCHASE OF THE BONDS IS SUBJECT TO CERTAIN RISKS. EACH PROSPECTIVE INVESTOR IN THE BONDS IS URGED TO READ THIS OFFICIAL STATEMENT IN ITS ENTIRETY INCLUDING ITS APPENDICES. PARTICULAR ATTENTION SHOULD BE GIVEN TO THE FACTORS DESCRIBED BELOW WHICH, AMONG OTHERS, COULD AFFECT THE PAYMENT OF DEBT SERVICE ON THE BONDS, AND WHICH COULD ALSO AFFECT THE MARKETABILITY OF THE BONDS TO AN EXTENT THAT CANNOT BE DETERMINED. NONAPPROPRIATION . . . Except to the extent that excess Bond proceeds are legally available, the Bonds and the interest thereon are payable solely from Rental Payments and other payments paid or payable by the District from and after the date of the Lease, and other income, charges, and funds realized from the lease, sale, transfer, or other disposition of the Project, together with all funds and investments in all accounts established under the Trust Indenture, and all funds deposited with the Trustee pursuant to the Financing Documents. The obligation of the District to pay Rental Payments is limited to those funds appropriated by the District from (i) money appropriated biennially by the Legislature of the State that may lawfully be used with respect to any payment obligated or permitted under the Lease, which under current law is limited to the Basic Allotment portion of Tier One Funds, (ii) any unintended surplus maintenance tax funds of the District at the end of each fiscal year after payment of all maintenance and operating expenses of the District for that fiscal year, and (iii) upon receipt of an approving opinion of nationally recognized Co-Bond Counsel, any other funds hereafter determined to be available with respect to any payment obligated or permitted under the Lease as a result of a final, nonappealable judgment of a court of competent jurisdiction, legislation hereafter enacted, or other change in State law. The funds described in (i), (ii), and (iii) together are referred to as “Available Funds.” See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS.” If Available Funds sufficient to pay the Rental Payments during the succeeding fiscal year are not appropriated by the District, the Lease will automatically terminate at the end of the fiscal year for which sufficient funds have been appropriated. In such event, the District must immediately, upon expiration of such fiscal year, surrender possession and control of the Project to the Trustee. No assurances may be given that the Trustee will be able to manage or sell the Project in a manner that will produce sufficient revenues therefrom to pay debt service on the Bonds. There can be no assurance that the District will annually appropriate sufficient funds to pay the Rental Payments due in any given fiscal year. Accordingly, the likelihood that there will be sufficient funds to pay the principal of, premium, if any, and interest on the Bonds is dependent upon certain facts which are beyond the control of the registered owners, including (a) the continuing need of the District for the Project, (b) the ability of the District to obtain funds from the Texas Legislature to pay obligations associated with the Lease, (c) the demographic and economic conditions within the service area of the District, (d) the value, if any, of the Project in a sale instituted by the Trustee pursuant to the Trust Indenture and the Mortgage and Security Agreement, and (e) the rental value, if any, of the Project in the event the Trustee re-leases the Project to a third party or to the District pursuant to an operating lease. THE DISTRICT HAS NO OBLIGATION TO ADOPT OR MAINTAIN A BUDGET TO AVOID A TERMINATION OF THE LEASE OR TO MAKE RENTAL PAYMENTS SUBSEQUENT TO THE TERMINATION OF THE LEASE UPON THE OCCURRENCE OF AN EVENT OF NON-APPROPRIATION. IF THE DISTRICT FAILS TO APPROPRIATE SUFFICIENT FUNDS TO MAKE RENTAL PAYMENTS, IT IS PROBABLE THAT THERE WILL NOT BE SUFFICIENT FUNDS TO PAY THE BONDS, WHEN DUE. CONTINUED STATE APPROPRIATION OF TIER ONE FUNDS . . . Since 1989 State funding of education has been challenged on constitutional grounds requiring the State Legislature to enact several funding programs, each of which differed in the manner in which State and local funds have been allocated to school districts. There is no assurance that the Texas Legislature will not change the current system of funding for school districts in Texas and, thereby, adversely affect the District’s anticipated Tier One Funds. (See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS” and “CURRENT SCHOOL FINANCE SYSTEM.”)

3

DISTRICT’S FUTURE LEVEL OF TIER ONE FUNDS . . . The money which may lawfully be used by the District for the Rental Payments is primarily from the Basic Allotment portion of its Tier One Funds received from the State. Tier One Funds are provided to school districts based on a formula that includes, among other factors, the following primary factors relating to the District: (1) tax rate, (2) average daily attendance, (3) tax collection rate, and (4) assessed valuation of property. A significant decrease in items (1), (2), or (3) or a significant increase in item (4) could have a material adverse affect on the amount of Tier One Funds allocated to the District and, therefore, on its ability to make the Rental Payments. For more information on Tier One Funds, See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS.” The Basic Allotment portion of Tier One Funds is equal to the State-funded portion of Tier One for the District minus amounts attributable to the special allotments received by the District for special education, compensatory education, bilingual education, career and technology, transportation, and the gifted and talented program (the “Basic Allotment”). POSSIBLE FUTURE CHANGES TO THE TEXAS PUBLIC SCHOOL FINANCE SYSTEM . . . On November 22, 2005, the Texas Supreme Court released its opinion in litigation styled Neeley v. West Orange-Cove Consolidated ISD et al. (“West Orange-Cove”), in which the Texas public school finance system (the “Finance System”) was held unconstitutional in certain respects. The Texas Supreme Court’s order in West Orange-Cove affirmed a lower court’s injunction prohibiting the distribution of certain State funds under the Finance System. The effective date of the injunction was postponed by the Texas Supreme Court from October 1, 2005 to June 1, 2006 to allow the State time to consider structural changes to the Finance System, and to allow the Finance System time to adjust to any such changes. The Governor has announced his intention to call a special legislative session during which the State Legislature will consider public school finance legislation, but no date has been set for the start of that special session. The District can make no representation or prediction concerning how or if the Finance System may be changed in a special session of the State Legislature or whether the Finance System would be constitutional if legislative changes are enacted. Changes to the Finance System could substantially adversely affect the financial condition of the District. If the State Legislature fails to enact remedial legislation before June 1, 2006, or the Texas Supreme Court does not stay the injunction, State funding of the District’s operations will be enjoined, and the District’s financial condition and prospects will be materially adversely affected. See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS” and “CURRENT PUBLIC SCHOOL FINANCE SYSTEM” herein. THE EFFECT OF S.B. 4 ON THE DISTRICT . . . During the 1999 Legislative Session, the Texas Legislature enacted Senate Bill 4 (“S.B. 4”) See “FINANCIAL AND OPERATING INFORMATION FOR THE DISTRICT –Ad Valorem Tax Information.” Pursuant to amendments made by S.B. 4 to Section 42.301 of the Texas Education Code, the guaranteed yield component of the Foundation School Program (“Tier Two”) is unavailable for the payment of debt service or capital outlay, including payments on lease-purchase agreements. However, as clarified in an All Bond Counsel letter from the Public Finance Division of the Texas Attorney General dated July 21, 1999, the Basic Allotment portion of Tier One Funds is available to make lease purchase payments. There are still additional questions relating to S.B.4 which remain to be addressed and the full impact of S.B. 4 on the District cannot be fully assessed at this time. For a further discussion of State funding for local school districts, see “CURRENT SCHOOL FINANCE SYSTEM.” The District’s financial condition, results of operations, and tax assessment and collection experience have resulted from school finance systems that existed under predecessor statutes. In light of the recent enactment of S.B. 4, all of the current and historical financial data included herein may not be indicative of the District’s future financial condition. CHANGES IN DEMOGRAPHIC AND ECONOMIC CONDITIONS . . . Changes in student population and economic, social, or other conditions will affect demographics of the District and may reduce the District’s ability, need, or willingness to utilize the Project. In such event, the District may elect to terminate the Lease by failing to appropriate funds to make Rental Payments under the Lease. For a description of the remedies of the Trustee in such case, see APPENDIX A – “SELECTED PROVISIONS OF THE FINANCING DOCUMENTS - SUMMARY OF CERTAIN PROVISIONS OF THE TRUST INDENTURE.” COMPLETION/CONSTRUCTION RISKS . . . The construction of the Project will be subject to risks typically associated with building construction. These risks could have a material adverse effect on the willingness of the District to appropriate money for the Project. The Corporation will enter into a construction management contract (the “Construction Management Contract”) wherein the Construction Administrator has agreed to provide the construction of the Project at a stipulated guaranteed maximum sum. Performance under the Construction Management Contract and payment of obligations thereunder will be supported by payment and performance bonds; however, enforcement of such bonds can take a significant amount of time. See “THE PROJECT – DESIGN AND CONSTRUCTION.”

4

PREPAYMENT RISK . . . On each Bond Payment Date during the Term of the Lease beginning on September 15, 2006, the District has the option to purchase the Corporation’s interest in the Project for an amount equal to the Purchase Option Price on such date as provided in the Lease. In such event, the Bonds may be redeemed prior to their final maturity and Bondholders may not receive the full yield-to-maturity on their Bonds. DAMAGE OR DESTRUCTION RISK . . . If all or a portion of the Project is damaged, destroyed or condemned and the Net Proceeds of any insurance or condemnation award are sufficient, the District’s judgment, to repair or replace the Project, the District is required to use such Net Proceeds for such purposes and the District is obligated to continue to pay the Rental Payments from Available Funds. If the Net Proceeds are insufficient, in the District’s judgment, to pay in full the cost of any repair, restoration or replacement of the Project, the District may apply Available Funds in excess of the Rental Payments to fund the excess costs or, in lieu of making the repairs, restorations, or replacements, the District has the option to terminate the Lease and all of the Corporation’s interest in the Project, by exercising its option to purchase on the next succeeding Bond Payment Date for which it is possible to give notice of intent to exercise its option to purchase in accordance with the Lease. There can be no assurance that the Net Proceeds of an insurance or condemnation award will be sufficient to repair or restore the Project or that, if such Net Proceeds are insufficient for such purpose, the District will appropriate sufficient funds for the repair, replacement, or restoration of the Project, or for the payment of the principal of, premium, if any, and interest on the Bonds necessary in order to exercise its option to purchase under the Lease. POWER OF EMINENT DOMAIN . . . Pursuant to State law, the District has the power to exercise its rights under the doctrine of eminent domain to condemn and take ownership of property for public use. There is no assurance that the District will not exercise its power of eminent domain in order to take possession of the Project and to terminate its obligations under the Lease. Under the eminent domain process, a State judge appoints a three-member panel of commissioners to arrive at a fair price for the District to purchase the property. The District and the Corporation have agreed in the Lease, to the extent permitted by law, that in the event the District determines to exercise its power of eminent domain to take the Corporation’s or the Trustee’s interest in the Project or any part thereof, that the damages payable to the Corporation or the Trustee will be an amount which will be sufficient to pay the principal of, premium, if any, and accrued interest on all outstanding Bonds to the earliest date for which notice of redemption can be given pursuant to the Trust Indenture. Any condemnation proceeds are to be deposited with the Trustee and distributed to the registered owners in accordance with the provisions of the Trust Indenture. There is no precedential law in the State to indicate (i) whether or not the courts would prevent the District’s condemnation of the Project as an equitable abuse of its eminent domain power, or (ii) whether or not the courts would uphold the validity of the agreement of the District and the Corporation under the Lease to establish, in advance, the damages to be paid to the Corporation or the Trustee in the event that the District determines to exercise its power of eminent domain to acquire title to the Project. If the agreement of the District and the Corporation is not upheld, there is no assurance that the “fair price” arrived at by the panel of commissioners will be sufficient to pay the principal of, redemption premium, if any, and interest on the Bonds then outstanding. REMEDIES . . . If an Event of Default occurs under the Financing Documents, the practical realization of any rights upon any default will depend on the exercise of various remedies specified in the Trust Indenture, the Mortgage and Security Agreement, and the Lease. The enforcement of any remedies granted to the Trustee under these agreements may be affected by various matters including: (i) federal bankruptcy laws; (ii) rights of third parties in cash, securities, and instruments not in possession of the Trustee, including accounts and general intangibles converted for cash; (iii) rights arising in favor of the United States of America or any agency thereof; (iv) present or future prohibitions against assignments in any federal statutes or regulations; (v) constructive trusts, equitable liens, or other rights imposed or conferred by any state or federal court in the exercise of its equitable jurisdiction; (vi) the necessity for judicial action with respect to certain remedies, which is often subject to judicial discretion and delay; (viii) claims that might obtain priority if continuation statements are not filed in accordance with applicable laws; (ix) rights to proceeds of any collateral may be impaired if appropriate action is not taken to continue the perfection of a security interest therein as required by the Texas Business and Commerce Code; (x) statutory liens; and (xi) any rights of parties secured by encumbrances permitted by the Lease. The various legal opinions to be delivered concurrently with the issuance of the Bonds will be qualified as to the enforceability of the remedies provided under the Bond documents as a result of limitations imposed by bankruptcy, reorganization, insolvency, fraudulent conveyance, or other similar laws affecting the rights of creditors generally and by general principles of equity and public policy considerations. If any of such limitations are imposed they may adversely affect the ability of the Trustee and the Bondholders to enforce their claims and rights against the Corporation, the District, and the Project. Consequently, in the event of a default, it is uncertain that the Trustee could successfully obtain an adequate remedy at law or in equity on behalf of the owners of the Bonds. INABILITY TO LIQUIDATE OR DELAY IN LIQUIDATING THE PROJECT . . . An Event of Default or an Event of Nonappropriation gives the Trustee the right to sell or lease the Project. The Project is intended to be used as a food service warehouse. There can be no assurance of the value of the Project for any other use. Accordingly, a potential purchaser of the Bonds should not anticipate that the sale or re-lease of the Project could be accomplished rapidly, on favorable terms or at all. Furthermore, any delay in the ability of the Trustee to obtain possession of the Project may result in delays in the payment of debt service on the Bonds after expenditure of the Reserve Account, if any.

5

There is no assurance that the Trustee will be able to sell or lease the Project after a termination of the Lease for an amount equal to the aggregate principal amount of the Bonds then outstanding plus accrued interest thereon. If the Project is sold or leased by the Trustee for an amount less than the aggregate principal amount of and accrued interest on the Bonds, such partial payment would be the only remedy of the registered owners of the Bonds; upon such a partial payment, no registered owner will have any further claim for payment upon the Corporation, the Trustee, or the District. CONSTITUTIONALITY OF THE LEASE OBLIGATION . . . In City-County Solid Waste Control Board v. Capital City Leasing, 813 S.W.2d 705 (Tex. Civ. App. 1991, writ den.), a Texas appellate court ruled that an equipment lease which required a governmental unit to pursue annual appropriations creates an unconstitutional debt, thus rendering the lease void and unenforceable. The Texas Supreme Court declined, without comment, to hear the case on appeal. Although the Lease and the Trust Indenture acknowledge that the Rental Payments and certain other financial obligations of the District and the Corporation are payable from funds that must be appropriated by the Texas Legislature and by the District, there is no explicit covenant in the Lease requiring the District to seek an appropriation. Accordingly, Co-Bond Counsel believes the facts of such case are distinguishable from the language contained in the Lease. However, there can be no guarantee that another court would not apply reasoning similar to that of the appellate court in the Capital City Leasing case to the Lease. OTHER OBLIGATIONS OF THE DISTRICT . . . The obligation of the District to make Rental Payments will be satisfied from the funds of the District which are appropriated for such use. To the extent the Basic Allotment and surplus maintenance tax revenues are used by the District to make the Rental Payments, the District may enter into other obligations which may constitute additional charges against such funds from which the Rental Payments may be appropriated and, therefore, such funds available for appropriation for Rental Payments may be decreased. TRANSFERABILITY OF BONDS UPON A TERMINATION EVENT . . . Co-Bond Counsel has rendered no opinion with respect to the applicability or inapplicability of the registration requirements of the Securities Act of 1933, as amended, to any Bond subsequent to a termination of the Lease by reason of an Event of Default or an Event of Nonappropriation thereunder or due to an Event of Default under the Trust Indenture. If the Lease is terminated by reason of an Event of Default or an Event of Nonappropriation, there is no assurance that the Bonds may be transferred by a holder thereof without compliance with the registration provisions of the Securities Act of 1933, as amended, or the availability of an exemption therefrom. LOSS OF TAX-EXEMPT STATUS UPON A TERMINATION EVENT . . . Co-Bond Counsel has rendered no opinion as to the treatment for federal income tax purposes of any money received by a registered owner of the Bonds subsequent to a termination of the Lease by reason of an Event of Default or an Event of Nonappropriation thereunder or due to an Event of Default under the Trustee Indenture. There is no assurance that any money received by the registered owners of the Bonds subsequent to such event will continue to be excludable from gross income for federal income tax purposes. NONCOMPLIANCE WITH ARBITRAGE PROVISIONS: OCCURRENCE OF TAXABILITY . . . The Lease and the Trust Indenture obligate the District and the Corporation to comply with requirements of federal law regarding rebate of certain investment proceeds to the federal government. If the District or the Corporation fails to comply with those requirements, the Bonds would become “arbitrage bonds,” and the interest portion of the Bond Payments could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. Such a failure by the Corporation or the District to comply with the covenants, conditions, or agreements on their part to be observed or performed by them under the Lease or the Trust Indenture, if not cured within 20 days of written notice thereof, will constitute an Event of Default under the Lease or the Trust Indenture, as applicable. Thereafter, the Trustee will have the right to exercise one or more of the remedies set forth in the Trust Indenture or the Lease, which may or may not include the acceleration of the principal of and accrued but unpaid interest on the Bonds. In no event, however, would the registered owners of the Bonds be entitled to an increase in the interest rate on the Bonds and, accordingly, the after-tax yield to the registered owners would be materially decreased. NON-RECOURSE OBLIGATION . . . The payment of principal, premium, if any, and interest on the Bonds is without recourse to the Corporation and the ability of the Corporation to pay debt service on the Bonds is completely dependent upon the receipt of Rental Payments from the District. The only obligation of the Corporation is to provide the District with continued quiet enjoyment of the Project, provided the District is not in default under the Lease. The District’s ability to perform its obligations under the Lease and its capability to appropriate money for the Lease may be adversely affected by the financial condition of the District. See “FINANCIAL AND OPERATING INFORMATION FOR THE DISTRICT.” RESALE OF BONDS . . . There may not be a secondary market for the Bonds, and the Initial Purchaser has not committed to maintain such a market. In the secondary market for securities similar to the Bonds, the difference between the bid and asked price may be greater than the difference between the bid and asked price for more traditional types of municipal securities.

6

THE BONDS DESCRIPTION OF THE BONDS . . . The Bonds will be issued in an aggregate principal amount of $33,600,000 as fully registered Bonds in denominations of $5,000 or any integral multiple thereof. The Bonds will be dated as of April 1, 2006 and will bear interest at the rates per annum shown on the inside cover page hereof from the dated date thereof, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on September 15, 2006, and semiannually thereafter on March 15 and September 15 of each year (each, a “Bond Payment Date”), and will mature on September 15 in the years and in the amounts shown on the inside cover page hereof, unless earlier called for redemption. The definitive Bonds will be issued only in fully registered form in any integral multiple of $5,000 for any one maturity and will be initially delivered only to Cede & Co., the nominee of The Depository Trust Company (“DTC”) pursuant to the book-entry system described herein. Beneficial ownership of the Bonds may be acquired in denominations of $5,000 or any integral multiple thereof. No physical delivery of the Bonds will be made to the beneficial owners thereof. Principal of and interest on the Bonds will be payable by the Trustee to Cede & Co., which will make distribution of the amounts so paid to the beneficial owners of the Bonds. See “- BOOK-ENTRY-ONLY SYSTEM” below. BOOK-ENTRY-ONLY SYSTEM . . . This section describes how ownership of the Bonds is to be transferred and how the principal of, premium, if any, and interest on the Bonds are to be paid to and accredited by DTC while the Bonds are registered in its nominee name. The information in this section concerning DTC and the Book-Entry-Only System has been provided by DTC for use in disclosure documents such as this Official Statement. The District believes the source of such information to be reliable, but takes no responsibility for the accuracy or completeness thereof. The District cannot and does not give any assurance that (1) DTC will distribute payments of debt service on the Bonds, or redemption or other notices, to DTC Participants, (2) DTC Participants or others will distribute debt service payments paid to DTC or its nominee (as the registered owner of the Bonds), or redemption or other notices, to the Beneficial Owners, or that they will do so on a timely basis, or (3) DTC will serve and act in the manner described in this Official Statement. The current rules applicable to DTC are on file with the Securities and Exchange Commission, and the current procedures of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee). One fully-registered certificate will be issued for each maturity of the Bonds in the aggregate principal amount or maturity amount, as applicable, of each such maturity and will be deposited with DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants (“Direct Participants”) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Bonds under the DTC system must be made by or through DTC Participants, which will receive a credit for such purchases on DTC's records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interest in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system described herein is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. The deposit of Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

7

Redemption notices shall be sent to Cede & Co. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the Record Date (hereinafter defined). The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the Record Date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on each payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on such payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Corporation, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Corporation. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered. The Corporation may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered. Use of Certain Terms in Other Sections of this Official Statement In reading this Official Statement it should be understood that while the bonds are in the Book-Entry Only System, references in other sections of this Official Statement to registered owners should be read to include the person for which the Participant acquires an interest in the Bonds, but (i) all rights of ownership must be exercised through DTC and the Book-Entry Only System, and (ii) except as described above, notices that are to be given to registered owners under the Trust Indenture will be given only to DTC. Information concerning DTC and the Book-Entry Only System has been obtained from DTC and is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by the Corporation or the Initial Purchaser. Effect of Termination of Book-Entry-Only System In the event that the Book-Entry-Only System is discontinued by DTC or the use of the Book-Entry-Only System is discontinued by the Corporation, the following provisions will be applicable to the Bonds. The Bonds may be exchanged for an equal aggregate principal amount of Bonds in authorized denominations and of the same maturity upon surrender thereof at the principal office for payment of the Trustee. The transfer of any Bond may be registered on the books maintained by the Trustee for such purpose only upon the surrender of such Bond to the Trustee with a duly executed assignment in form satisfactory to the Trustee. For every exchange or transfer of registration of Bonds, the Trustee and the Corporation may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer. The Corporation shall pay the fee, if any, charged by the Trustee for the transfer or exchange. The Trustee will not be required to transfer or exchange any Bond after its selection for redemption. The Corporation and the Trustee may treat the person in whose name a Bond is registered as the absolute owner thereof for all purposes, whether such Bond is overdue or not, including for the purpose of receiving payment of, or on account of, the principal of, premium, if any, and interest on, such Bond. REDEMPTION EXTRAORDINARY OPTIONAL REDEMPTION-CASUALTY LOSS OR CONDEMNATION . . . The Bonds are subject to redemption and prepayment, in whole, but not in part, at a redemption price of 100% of the principal amount of the Bonds being redeemed, plus accrued interest to the date of redemption, in the event of the exercise by the District of its option to purchase upon a casualty loss or condemnation of the Project, and the payment by the District to the Trustee of the Purchase Option Price. EXTRAORDINARY OPTIONAL REDEMPTION-TERMINATION OF LEASE . . . The Bonds shall be subject to redemption on any Bond Payment Date, at the option of the Trustee, in whole but not in part, upon termination of the Lease due to the occurrence of an Event of Default, Event of Non-Appropriation, or the District’s payment of the Purchase Option Price at a redemption price of 100% of the principal amount of the Bonds being redeemed, plus accrued interest to the date of redemption.

8

OPTIONAL REDEMPTION . . . The Corporation reserves the right, at its option, to redeem Bonds having stated maturities on and after September 15, 2017, in whole or in part in principal amounts of $5,000 or any integral multiple thereof, on September 15, 2016, or any date thereafter, at the par value thereof plus accrued interest to the date of redemption. If less than all of the Bonds are to be redeemed, the Corporation may select the maturities of Bonds to be redeemed. If less than all the Bonds of any maturity are to be redeemed, the Trustee (or DTC while the Bonds are in Book-Entry-Only form) shall determine by lot the Bonds, or portions thereof, within such maturity to be redeemed. If a Bond (or any portion of the principal sum thereof) shall have been called for redemption and notice of such redemption shall have been given, such Bond (or the principal amount thereof to be redeemed) shall become due and payable on such redemption date and interest thereon shall cease to accrue from and after the redemption date, provided funds for the payment of the redemption price and accrued interest thereon are held by the Trustee on the redemption date. MANDATORY SINKING FUND REDEMPTION . . . In addition to the foregoing optional redemption provision, the Term Bonds are subject to mandatory redemption prior to maturity in the amounts and on the dates set out below, at a price equal to the principal amount to be redeemed plus accrued interest to the redemption date: $6,515,000 Term Bonds Due September 15, 2030 Due Principal September 15 $ 2,075,000 2028 2,170,000 2029 2,270,000 (maturity) 2030 Term Bonds to be redeemed in any year by mandatory sinking fund redemption shall be redeemed at par and shall be selected by lot from and among the Term Bonds then subject to redemption. The Corporation, at its option, may credit against any mandatory sinking fund redemption requirement Term Bonds of the maturity then subject to redemption which have been purchased and canceled by the Corporation or have been redeemed and not theretofore applied as a credit against any mandatory sinking fund redemption requirement. NOTICE OF REDEMPTION . . . If any of the Bonds are called for redemption, the Trustee will give written notice by first class (postage prepaid) mail not less than 30 days prior to the date fixed for redemption, in the name of the Corporation, of the redemption of such Bonds to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the registration books at the close of business on a day not later than the fifth day preceding the date of mailing. Any notice so mailed will be conclusively presumed to have been duly given, whether or not the owner of such Bonds actually receives the notice. Failure to give such notice by mail to any registered owner, or any defect therein, will not affect the validity of any proceedings for the redemption of other Bonds. PARTIAL REDEMPTION . . . If less than all of the Bonds are called for redemption, the particular Bonds or portions thereof of such series to be redeemed shall be in amounts equal to $5,000 or an integral multiple thereof and shall be selected by the Trustee ratably among each maturity of the Bonds and at random within each maturity. In selecting Bonds for redemption, the Trustee shall select Bonds to be redeemed in such a manner that, after such redemption, all remaining Bondholders own only Bonds in denominations of $5,000 or any integral multiple thereof. Upon surrender of any Bond for redemption in part, the Corporation shall execute and the Trustee shall authenticate and deliver to the owner thereof a new Bond or Bonds of the same interest rate and maturity and of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the Bond so surrendered. EFFECT OF REDEMPTION . . . Notice of redemption having been given as provided above, the Bonds or portions thereof designated for redemption will become and be due and payable on the date fixed for redemption at the redemption price provided for herein, provided funds for their redemption are on deposit at the place of payment at that time, and, unless the Corporation defaults in the payment of the principal thereof, such Bonds or portions thereof will cease to bear interest from and after the date fixed for redemption, whether or not such Bonds are presented and surrendered for payment on such date. Thereafter, the owners of such Bonds will no longer be entitled to any security or benefit under the Trust Indenture except to receive payment of the redemption price. If any Bond or portion thereof called for redemption is not so paid upon presentation and surrender thereof for redemption, such Bond or portion thereof will continue to bear interest at the rate set forth therein until paid or until due provision is made for the payment of the same.

9

USES OF FUNDS The proceeds from the sale of the Bonds, excluding accrued interest which will be deposited to the Payment Account, are expected to be expended as follows:
Deposit to Project Acquisition Fund Costs of Issuance(1) Total Uses of Funds
_______________ (1) Includes Surety Bond premium.

$ $

33,073,143.00 526,857.00 33,600,000.00

DEBT SERVICE REQUIREMENTS OF THE CORPORATION The Corporation previously issued $94,246,093 Lease Revenue Bonds for the construction of the Cesar E. Chavez High School and the West Side High School.

Fiscal Year Ending June 30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

Outstanding Debt Service $ 8,070,000 8,245,000 8,690,000 9,145,000 9,280,000 9,415,000 9,890,000 10,035,000 10,515,000 10,675,000 10,840,000 10,840,000 3,885,000 3,885,000 3,885,000 3,885,000 3,885,000

Principal $ 425,000 400,000 405,000 880,000 915,000 955,000 995,000 1,045,000 1,095,000 1,150,000 1,205,000 1,260,000 1,325,000 1,385,000 1,450,000 1,515,000 1,585,000 1,660,000 1,735,000 1,815,000 1,900,000 1,985,000 2,075,000 2,170,000 2,270,000 33,600,000 $

The Bonds Interest 1,456,624 1,507,263 1,490,156 1,462,850 1,424,706 1,384,969 1,343,531 1,293,650 1,234,800 1,173,063 1,108,300 1,048,388 994,284 938,391 879,013 815,059 746,256 673,244 596,856 516,981 433,394 345,981 253,334 155,169 52,494 23,328,755 $

Total 1,881,624 1,907,263 1,895,156 2,342,850 2,339,706 2,339,969 2,338,531 2,338,650 2,329,800 2,323,063 2,313,300 2,308,388 2,319,284 2,323,391 2,329,013 2,330,059 2,331,256 2,333,244 2,331,856 2,331,981 2,333,394 2,330,981 2,328,334 2,325,169 2,322,494 56,928,755

$135,065,000

$

$

$

Total Outstanding Debt Service $ 8,070,000 10,126,624 10,597,263 11,040,156 11,622,850 11,754,706 12,229,969 12,373,531 12,853,650 13,004,800 13,163,063 13,153,300 6,193,388 6,204,284 6,208,391 6,214,013 6,215,059 2,331,256 2,333,244 2,331,856 2,331,981 2,333,394 2,330,981 2,328,334 2,325,169 2,322,494 $ 191,993,755

10

SECURITY FOR THE BONDS Payments of principal and interest with respect to the Bonds are payable only from the Rental Payments to be paid by the District under the Lease, from certain money held by the Trustee under the Trust Indenture, and from amounts received by the Trustee from the sale or other transfer of the Corporation’s interest in the Project after termination of the Lease following an Event of Default or Event of Nonappropriation by the District. TRUST ESTATE All payments to be made by the Trustee under the Trust Indenture to the registered owners may be made only from the income and proceeds from the Trust Estate and only to the extent that the Trustee has received income or proceeds from the Trust Estate. The “Trust Estate” consists of all right, title, and interest of the Corporation (i) in and to the Project, (ii) in and under the Lease and the other Financing Documents, (iii) in and to all Rental Payments and other payments paid or payable by the District from and after the date of the Trust Indenture, (iv) other income, charges, and funds realized from the lease, sale, transfer, or other disposition of the Project, (v) all funds and investments in all accounts (except the Rebate Fund) established under the Trust Indenture, and (vi) all funds deposited with the Trustee pursuant to the Financing Documents. RENTAL PAYMENTS The District is required to pay to the Trustee, for the account of the Corporation, the Rental Payments from Available Funds on September 15, 2006, and each March 15 and September 15 thereafter for so long as the Lease is in effect. The amount of each Rental Payment required under the lease is equal to an amount of money which, when added to the amount then on deposit in the Payment Account, will equal (i) the amount of interest to become due on the Bonds on the next Bond Payment Date and (ii) the amount of principal to become due on the Bonds, whether by maturity or by mandatory sinking fund redemption, the next Bond Payment Date. THE OBLIGATIONS OF THE DISTRICT UNDER THE LEASE, INCLUDING ITS OBLIGATION TO PAY THE RENTAL PAYMENTS, CONSTITUTE A CURRENT EXPENSE OF THE DISTRICT IN EACH FISCAL YEAR, AND DO NOT CONSTITUTE AN INDEBTEDNESS OF THE DISTRICT WITHIN THE MEANING OF THE LAWS OF THE STATE. NOTHING IN THE LEASE IS TO CONSTITUTE A PLEDGE BY THE DISTRICT OF ANY TAXES OR OTHER MONEY, OTHER THAN AVAILABLE FUNDS FOR THE CURRENT FISCAL YEAR, TO THE PAYMENT OF RENTAL PAYMENTS DUE THEREUNDER. MORTGAGE AND SECURITY AGREEMENT To secure its obligations under the Trust Indenture, the Corporation will grant a first mortgage lien on and first deed of trust title to the real property portion of the Project and will assign and pledge the Corporation’s interest in the leases, rents, issues, profits, revenues, income, receipts, money, rights, and benefits of and from the Project for the use and benefit of the Trustee on behalf of the owners of the Bonds, pursuant to the Mortgage and Security Agreement. Additionally, the Corporation will grant to the Trustee a first priority purchase money security interest in the machinery, equipment, furnishings, or other personal property acquired by the Corporation with the proceeds of the Bonds, and installed or located on the Project site, and substitutions or replacements therefor, in any inventory of the Corporation now or hereafter located at the Project, and in the accounts, documents, chattel paper, instruments, and general intangibles arising in any manner from the Corporation’s ownership and operation of the Project pursuant to the Mortgage and Security Agreement. RESERVE ACCOUNT As additional security, a Reserve Account will be funded upon delivery of the Bonds in an amount equal to the Reserve Requirement to secure payment of the Bonds. Money within the Reserve Account is to be disbursed by the Trustee to pay principal and interest on the Bonds to the extent that the amount on deposit in the Payment Account is insufficient therefore. See “RESERVE ACCOUNT SURETY BOND.” The Reserve Requirement is $2,342,850. See APPENDIX A – “SELECTED PROVISIONS OF THE FINANCING DOCUMENTS.” REMEDIES REMEDIES
AVAILABLE UPON A FAILURE OF THE

DISTRICT

TO

APPROPRIATE

OR PAY

RENTAL PAYMENTS

ARE LIMITED TO

TERMINATION OF THE DISTRICT’S LEASEHOLD INTEREST, THE RIGHT TO TAKE POSSESSION AND CONTROL OF THE PROJECT, AND THE RIGHT TO SELL OR LEASE THE

PROJECT UPON FORECLOSURE UNDER THE MORTGAGE AND SECURITY AGREEMENT. See APPENDIX A – “SELECTED PROVISIONS OF THE FINANCING DOCUMENTS.” The enforcement by the Trustee of the remedies provided in the Financing Documents is subject to the application of principles of equity and state and federal laws relating to bankruptcy, moratorium, reorganization, and creditors’ rights generally, and such remedies may require the expenditure of money and considerable time to enforce.

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ADDITIONAL OBLIGATIONS The Corporation has covenented and agreed that no other obligations will be issued which are secured by a lien on the Trust Estate. The Corporation, however, has reserved the right to issue additional bonds or obligations payable from and secured by rental payments paid from Available Funds received by the Corporation (“Additional Obligations”); provided, however, that no such Additional Obligations may be issued unless and until the following conditions will have all been met: (a) No Event of Default under the Trust Indenture is in existence at the time of issuance of the Additional Obligations; (b) The issuance of the Additional Obligations is permitted by the laws of the State effective at the time of the authorization of such Additional Obligations; and (c) For the three fiscal years of the District prior to the year in which the resolution authorizing the issuance of the Additional Obligations is adopted, money appropriated biennially by the Legislature of the State that may lawfully be used with respect to any payment obligated or permitted under the Lease (which under current law is limited to Guaranteed Yield Program Tier One Funds) is equal to not less than two times the average annual principal and interest requirements of the Bonds and all Additional Obligations at the time outstanding, after giving effect to the issuance of the proposed Additional Obligations, as shown by the District’s audited financial statements. FINANCIAL GUARANTY INSURANCE PAYMENT PURSUANT TO FINANCIAL GUARANTY INSURANCE POLICY Ambac Assurance has made a commitment to issue a financial guaranty insurance policy (the “Financial Guaranty Insurance Policy”) relating to the Bonds effective as of the date of issuance of the Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York or any successor thereto (the “Insurance Trustee”) that portion of the principal of and interest on the Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Bonds, Ambac Assurance will remain obligated to pay principal of and interest on outstanding Bonds on the originally scheduled interest and principal payment dates including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration. In the event the Trustee has notice that any payment of principal of or interest on Bonds which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, as defined in the Policy. Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity. 2. payment of any redemption, prepayment or acceleration premium.

3. nonpayment of principal or interest caused by the insolvency or negligence of any Trustee, Paying Agent, or bond Registrar, if any. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of Holder entitlement to interest payments and an appropriate assignment of the Holder’s right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Bonds, appurtenant coupon, if any, or right to payment of principal or interest on such Bonds and will be fully subrogated to the surrendering Holder’s rights to payment.

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AMBAC ASSURANCE CORPORATION Ambac Assurance Corporation (“Ambac Assurance”) is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $8,994,000,000 (unaudited) and statutory capital of approximately $5,649,000,000 (unaudited) as of December 31, 2005. Statutory capital consists of Ambac Assurance’s policyholders’ surplus and statutory contingency reserve. Standard & Poor’s Credit Markets Services, a Division of The McGraw-Hill Companies, Moody’s Investors Service and Fitch Ratings have each assigned a triple-A financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of Bonds by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such Bonds and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its financial guaranty insurance policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of the Bonds. Ambac Assurance makes no representation regarding the Bonds or the advisability of investing in the Bonds and makes no representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by Ambac Assurance and presented under the heading “FINANCIAL GUARANTY INSURANCE”. Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the “Company”), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). These reports, proxy statements and other information can be read and copied at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company . These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc. (the “NYSE”), 20 Broad Street, New York, New York 10005. Copies of Ambac Assurance’s financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance’s administrative offices and its telephone number are One State Street Plaza, 19th Floor, New York, New York 10004 and (212) 668-0340. Incorporation of Certain Documents by Reference The following documents filed by the Company with the SEC (File No. 1-10777) are incorporated by reference in this Official Statement: 1. 2. 3. 4. 5. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and filed on March 15, 2005; The Company’s Current Report on Form 8-K dated April 5, 2005 and filed on April 11, 2005; The Company’s Current Report on Form 8-K dated and filed on April 20, 2005; The Company’s Current Report on Form 8-K dated May 3, 2005 and filed on May 5, 2005; The Company’s Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2005 and filed on May 10, 2005; The Company’s Current Report on Form 8-K dated and filed on July 20, 2005; The Company’s Current Report on Form 8-K dated July 28, 2005 and filed on August 2, 2005; The Company’s Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2005 and filed on August 9, 2005; The information furnished and deemed to be filed under Item 2.02 contained in the Company’s Current Report on Form 8-K dated and filed on October 19, 2005;

6. 7. 8.

9.

10. The Company’s Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 2005 and filed on November 9, 2005; 11. The Company’s Current Report on Form 8-K dated November 29, 2005 and filed on December 5, 2005; 12. The Company’s Current Report on Form 8-K dated and filed on January 25, 2006; and

13

13. The Company’s Current Report on Form 8-K dated January 23, 2006 and filed on January 27, 2006 All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in “Available Information”. RESERVE ACCOUNT SURETY BOND The Third Supplemental Indenture pursuant to which the Bonds are issued requires the establishment of a Reserve Account in an amount equal to the Reserve Requirement. The Third Supplemental Indenture authorizes the Corporation to obtain a Surety Bond in place of fully funding the Reserve Account. See “SECURITY FOR THE BONDS – RESERVE ACCOUNT.” Accordingly, application has been made to Ambac Assurance for the issuance of a Surety Bond for the purpose of funding the Reserve Account. The Bonds will only be delivered upon the issuance of such Surety Bond. The premium on the Surety Bond is to be fully paid at or prior to the issuance and delivery of the Bonds. The Surety Bond provides that upon the later of (i) one (1) day after receipt by Ambac Assurance of a demand for payment executed by the Trustee certifying that provision for the payment of principal of or interest on the Bonds when due has not been made or (ii) the Bond Payment Date specified in the Demand for Payment submitted to Ambac Assurance, Ambac Assurance will promptly deposit funds with the Trustee sufficient to enable the Trustee to make such payments due on the related Bonds, but in no event exceeding the Surety Bond Coverage, as defined in the Surety Bond. Pursuant to the terms of the Surety Bond, the Surety Bond Coverage is automatically reduced to the extent of each payment made by Ambac Assurance under the terms of that Surety Bond and the District is required to reimburse Ambac Assurance for any draws under the Surety Bond with interest at a market rate. Upon such reimbursement, the Surety Bond is reinstated to the extent of each principal reimbursement up to but not exceeding the Surety Bond Coverage. The reimbursement obligation of the District is subordinate to the District’s obligations with respect to the Bonds. In the event the amount deposit, or credited to the Reserve Account, exceeds the amount of the Surety Bond, any draw on the Surety Bond shall be made only after all the funds in the Reserve Account have been expended. In the event that the amount on deposit in, or credited to, the Reserve Account, in addition to the amount available under the related Surety Bond, includes amounts available under a letter of credit, insurance policy, surety bond or other such funding instrument for the benefit of that series of Bonds (the “Additional Funding Instrument”), draws on the related Surety Bond and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. The Third Supplemental Indenture provides that the Reserve Account shall be replenished in the following priority: (i) principal and interest on the Surety Bond and on the Additional Funding Instrument shall be paid from first available revenues on a pro rata basis; (ii) after all such amounts are paid in full, amounts necessary to fund the Reserve Account to the required level, after taking into account the amounts available under the Surety Bond and the Additional Funding Instrument shall be deposited from next available revenues.

The Surety Bond does not insure against nonpayment caused by the insolvency or negligence of the Trustee. THE PROJECT The Corporation is issuing the Bonds and the District is entering into the Lease with the Corporation in order to finance the Project, consisting of the acquisition and construction of a food service warehouse (the “Project”). The Project is expected to occupy approximately 77,250 square feet and will serve all the schools in the District. The Project include the following components: SITE . . . The site of the Project is a parcel containing approximately 15.7 acres of land presently owned by the District and located at Bennington and Homestead in Northport Industrial Park in Houston, Texas. A Phase I Environmental Site Assessment of the site will be performed by a qualified environmental professional to update the assessment which was performed on May 3, 2002, which concluded that, based upon their investigation, no environmental related actions were recommended for the site at that time. The land will be contributed by the District to the Corporation, for the purpose of facilitating the financing of the Project. PROJECT NECESSITY . . . The Project will be used by the District as a food commissary, food service warehouse, administration offices and ancillary facilities. DESIGN AND CONSTRUCTION . . . The design of the Project has been completed in accordance with the terms of agreements, entitled “Standard Agreement Between Owner and Architect” (the “Architect Contracts”) between the District and Ratnalla & Bahl, Inc. (the “Architect”). The Architect has completed the preliminary plans and specifications for the Project. The Architect will manage the design and construction of the Project to ensure that the Construction Administrator (defined below) builds the Project in accordance with the final plans and specifications for the Project (which together with the preliminary plans and specifications constitute the “Plans and Specifications”). Pursuant to the Architect Contract, the Architect will be required to provide a professional liability or an errors and omissions insurance policy. The District will assign the Architect Contract to the Corporation and the Corporation’s rights under the Architect Contract and in the Plans and Specifications will then be assigned to the Trustee.

14

THE CONSTRUCTION ADMINISTRATOR . . . The work necessary to complete the Project will be performed in accordance with the terms of an agreement titled “Standard Form of Agreement Between Owner and Construction Administrator,” (the “Construction Management Contract”) between the Corporation and Team Advance (the “Construction Administrator”). Pursuant to the Construction Management Contract, the Construction Administrator will agree to construct the Project for a stipulated maximum guaranteed sum. The Construction Management Contract will provide that the Project will be completed within a certain number of days after commencement of the work. The Construction Administrator is required to provide a performance bond covering the faithful performance of the contract in the amount of the guaranteed maximum sum of the Construction Management Contract and a payment bond covering the payment of all obligations arising thereunder, also in the amount of the guaranteed maximum sum of the Construction Management Contract. The Corporation’s rights under the Construction Management Contract will be assigned to the Trustee. The Construction Administrator was selected by the Corporation, with the assistance of the Architect, upon the conclusion of a request for proposals process initiated by the District and the Architect. The Construction Administrator is required by the terms of the Construction Management Contract to purchase and maintain certain liability, workers’ compensation, builder’s risk, and contractual liability insurance with the limits of liability stated in the Construction Management Contract and the Lease. THE CORPORATION The Corporation is a non-profit public corporation and instrumentality of the District, formed on behalf of the District pursuant to the Public Facility Corporation Act and a resolution of the Board of Education of the District. The Corporation was formed for the purpose of acquiring, constructing, and financing school facilities for the District. Other than the Cesar E. Charez High School and the West Side High School financed by two series of the Corporation’s Lease Revenue Bonds in 1998, the Corporation currently has no assets other than its interest in the Project and its rights under the Lease, which will be assigned to the Trustee for the benefit of the registered owners of the Bonds upon the initial delivery of the Bonds. Pursuant to the Bylaws of the Corporation, the Corporation is governed by a three-member Board of Directors. Two of the current Board Members are members of the Board of Education of the District. Each director serves as a member of the Board of Directors of the Corporation for the term to which the director is qualified and/or until his or her successor is qualified as a member of the Board of Directors of the Corporation; provided, however, that any director may be removed from office at any time, for cause or at will, by the Board of Education of the District. The Directors serve without compensation. THE CORPORATION’S OBLIGATION WITH RESPECT TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS IS A SPECIAL, LIMITED, AND NON-RECOURSE OBLIGATION PAYABLE SOLELY FROM THE RENTAL PAYMENTS PAYABLE BY THE DISTRICT PURSUANT TO THE LEASE, AND FROM PROCEEDS FROM THE SALE OR OTHER LEASE OF THE PROJECT. THE CORPORATION HAS NO AUTHORITY TO LEVY TAXES. THE BONDS DO NOT CONSTITUTE AN OBLIGATION, EITHER SPECIAL, GENERAL, OR MORAL, OF THE DISTRICT, THE STATE, OR ANY OTHER POLITICAL SUBDIVISION THEREOF. THE DISTRICT The District, an independent school district and political subdivision of the State of Texas, comprises approximately 312 square miles within Harris County, Texas. The District encompasses approximately 54% of the geographic area of the City of Houston, all or part of four other cities or villages, and certain unincorporated areas which include all or part of five utility districts. The State of Texas, Harris County, certain county-wide political entities, the City of Houston, and the various cities, villages and utility districts within the District each have authority to levy ad valorem taxes. The District is governed by a nine-member Board of Education (the “Board”) who serve staggered three-year terms with elections being held in May of each year. Policy-making and supervisory functions are the responsibility of, and are vested in, the Board. The Board delegates administrative responsibilities to the Superintendent of Schools who is the chief administrative officer of the District. Support services are supplied by consultants and advisors. The District operates under the statutory and administrative requirements of the Texas Education Code and the State of Texas, and is accredited by the Texas Education Agency (“TEA”). The District is the largest in the State of Texas in terms of student enrollment and consists of over 300 individual schools. All schools are fully accredited by the TEA. THE DISTRICT’S ONLY OBLIGATION WITH RESPECT TO THE PAYMENT OF THE BONDS IS TO PAY RENTAL PAYMENTS TO THE TRUSTEE PURSUANT TO THE LEASE FROM MONEY TO BE APPROPRIATED ANNUALLY FOR THE PAYMENT THEREOF. FOR A DESCRIPTION OF THE DISTRICT’S OBLIGATIONS WITH RESPECT TO THE BONDS, SEE “THE PLAN OF FINANCING” AND “SECURITY FOR THE BONDS.” THE SOURCE OF FUNDS TO BE APPROPRIATED BY THE DISTRICT FOR RENTAL PAYMENTS ARE FUNDS APPROPRIATED BY THE TEXAS LEGISLATURE AND ANY UNINTENDED SURPLUS MAINTENANCE TAX REVENUES. THE DISTRICT HAS NO AUTHORITY TO LEVY TAXES SPECIFICALLY FOR THE PAYMENT OF THE RENTAL PAYMENTS.

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THE LEASE IS A SPECIAL, LIMITED, NON-RECOURSE OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM THE FUNDS SPECIFIED ABOVE DURING EACH FISCAL YEAR AND IN NO WAY CONSTITUTES AN OBLIGATION, EITHER SPECIAL, GENERAL, OR MORAL OF THE DISTRICT, THE STATE OF TEXAS, OR ANY OTHER POLITICAL SUBDIVISION THEREOF. SEE “SECURITY FOR THE BONDS.”

STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS RECENT LITIGATION RELATING TO THE TEXAS SCHOOL FINANCE SYSTEM On April 9, 2001, four property wealthy districts filed suit in the 250th District Court of Travis County, Texas (the “District Court”) against the Texas Education Agency, the Texas State Board of Education, the Texas Commissioner of Education (the “Commissioner”) and the Texas Comptroller of Public Accounts in a case styled West Orange-Cove Consolidated Independent School District, et al. v. Neeley, et al. The plaintiffs alleged that the $1.50 maximum maintenance and operations tax rate had become in effect a state property tax, in violation of article VIII, section 1-e of the Texas Constitution, because it precluded them and other school districts from having meaningful discretion to tax at a lower rate. Forty school districts intervened in two groups, six with Edgewood ISD and thirty-four with Alvarado ISD. The intervenors alleged that the public school finance system was inefficient, inadequate, and unsuitable, in violation of article VII, section 1 of the Texas Constitution, because the State did not provide adequate funding. As described below, this case has twice reached the Texas Supreme Court (the “Supreme Court”), which rendered decisions in the case on May 29, 2003 (“West Orange-Cove I”) and November 22, 2005 (“West Orange-Cove II”). After the remand by the Supreme Court back to the trial court in West Orange-Cove I, 285 other school districts were added as plaintiffs or intervenors. The plaintiffs joined the intervenors in their article VII, section 1 claims that the public school finance system is inadequate and unsuitable, but not in their claims that the public school finance system is inefficient. On November 30, 2004, the final judgment of the district court was released in connection with its reconsideration of the issues remanded to it by the Supreme Court in West Orange-Cove I. In that case, the district court rendered judgment for the plaintiffs on all of their claims and for the intervenors on all but one of their claims, finding that (1) the Texas public school finance system (as described below) is unconstitutional and that the public school finance system violates article VIII, section 1-e of the Texas Constitution because the statutory limit of $1.50 per $100.00 of taxable assessed valuation on property taxes levied by school districts for operation and maintenance purposes has become both a floor and a ceiling, denying school districts meaningful discretion in setting their tax rates; (2) the constitutional mandate of adequacy set forth in article VII, section 1, of the Texas Constitution exceeds the maximum amount of funding that is available under the current funding formulas administered by the State of Texas (the “State”); and (3) the Texas public school finance system is financially inefficient, inadequate, and unsuitable in that it fails to provide sufficient access to revenue to provide for a general diffusion of knowledge as required by article VII, section 1, of the Texas Constitution. As further described below, the final judgment of the district court included an injunction (the “Prospective Injunction”) prohibiting the distribution of State money for school district operations under the current Texas public school finance system until the Legislature of the State (the “Legislature”) has conformed the public school finance system to meet Texas constitutional standards. The final judgment of the district court stayed the effect of the Prospective Injunction until October 1, 2005 in order to give the Legislature a reasonable opportunity to cure the constitutional deficiencies in the Texas public school finance system. The Supreme Court granted a direct appeal filed by the State, and oral argument was held in the case on July 6, 2005. In West Orange-Cove II, the Supreme Court modified the Prospective Injunction only insofar as to postpone its effective date to June 1, 2006. As stated above, in West Orange-Cove I the plaintiff school districts asserted that the $1.50 per $100.00 of taxable assessed valuation tax that is generally authorized by State law to be levied for school operation and maintenance purposes (the “O&M Tax”), though imposed locally, has become in effect a State property tax prohibited by article VIII, section 1-e of the Texas Constitution. The intervening school district groups contended that funding for school operations and facilities is inefficient in violation of article VII, section 1 of the Texas Constitution, because children in property-poor districts do not have substantially equal access to education revenue. All three groups of school districts asserted that the public school system cannot achieve “[a] general diffusion of knowledge” as required by article VII, section 1 of the Texas Constitution, because the system is underfunded. The State, represented by the Texas Attorney General, made a number of arguments opposing the positions of the school districts, as well as asserting that school districts did not have standing to challenge the State in these matters. In West Orange-Cove II, the Supreme Court’s holding was twofold: (1) that local ad valorem taxes have become a state property tax in violation of article VIII, section 1-e of the Texas Constitution and (2) the deficiencies in the public school finance system do not amount to a violation of article VII, section 1 of the Texas Constitution. In reaching its first holding, the Court relied on evidence presented in the district court to conclude that school districts do not have meaningful discretion in levying the O&M Tax. In reaching its second holding, the Court, using a test of arbitrariness determined that: the public education system is “adequate”, since it is capable of accomplishing a general diffusion of knowledge; the public school finance system is not “inefficient”, because school districts have substantially equal access to similar revenues per pupil at similar levels of tax effort, and efficiency does not preclude supplementation of revenues with local funds by school districts; and the public school finance system does not violate the constitutional requirement of “suitability”, since the present system is suitable for adequately and efficiently providing a public education. In reversing the district court’s holding that the Texas public school finance system is unconstitutional under article VII, section

16

1 of the Texas Constitution, the Supreme Court stated: Although the districts have offered evidence of deficiencies in the public school finance system, we conclude that those deficiencies do not amount to a violation of article VII, section 1. We remain convinced, however, as we were sixteen years ago, that defects in the structure of the public school finance system expose the system to constitutional challenge. Pouring more money into the system may forestall those challenges, but only for a time. They will repeat until the system is overhauled. In response to the intervenor districts’ contention that the Texas public school finance system is constitutionally inefficient, the West Orange-Cove II decision states that the Texas Constitution does not prevent the public school finance system from being structured in a manner that results in gaps between the amount of funding per student that is available to the richest districts as compared to the poorest district, but reiterated its statements in Edgewood IV (see “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS - Funding Changes in Response to Prior Litigation”) that such funding variances may not be unreasonable. The Supreme Court further stated that “[t]he standards of article VII, section 1 - adequacy, efficiency, and suitability - do not dictate a particular structure that a system of free public schools must have.” As noted above, in West Orange-Cove II the Supreme Court modified the effective date of the Prospective Injunction to June 1, 2006, but no other changes were ordered by the Supreme Court with respect to the Prospective Injunction. The Prospective Injunction, as modified, states (1) that it does not impair any lawful obligation created by the issuance or execution of any lawful agreement or evidence of indebtedness before June 1, 2006, that matures after that date and that is payable from the levy and collection of ad valorem taxes, and that a school district may, before, on, and after June 1, 2006, levy, assess, and collect ad valorem taxes, at the full rate and in the full amount authorized by law necessary to pay such obligations when due and payable; (2) that it does not limit, modify, or eliminate the authority of a school district to issue or execute bonds, notes, public securities, or other evidences of indebtedness under Chapter 45 of the Texas Education Code, or other applicable law, before, on, or after June 1, 2006, or to levy, assess, and collect, before, on, or after June 1, 2006, ad valorem taxes at the full rate and in the full amount authorized by the Texas Education Code necessary to pay such bonds, notes, public securities, or other evidences of indebtedness when due and payable; and (3) that it does not limit, modify, or eliminate the authority of the Commissioner, before, on, or after June 1, 2006, to grant assistance to a school district under Chapter 42 or 46 of the Education Code, in connection with bonds, notes, public securities, lease-purchase agreements, or evidences of indebtedness. FUNDING CHANGES IN RESPONSE TO LITIGATION In 1989, the Supreme Court, in Edgewood Independent School District v. Kirby, 777 S.W.2d 391 (Tex. 1989) (“Edgewood I”), declared the Texas public school finance system then in effect unconstitutional. In Edgewood I, the Supreme Court held that the public school finance system was not “efficient,” as required by article VII, section 1 of the Texas Constitution, because it relied heavily on property taxes levied by school districts with grossly disparate property wealth per student. In response to that decision and other Supreme Court decisions, the Legislature enacted laws that modified the public school finance system, and in 1995, the constitutionality of the public school finance system, as amended in 1993, was upheld in all respects in an opinion of the Supreme Court in the matter of Edgewood Independent School District v. Meno, 893 S.W.2d 450 (Tex. 1995) (“Edgewood IV”). In upholding the constitutionality of the public school finance system as amended in 1993, the Supreme Court noted in its Edgewood IV opinion that the public school finance system could be rendered unconstitutional in its entirety in the future, but stated that any future determination of unconstitutionality would not affect a district’s authority to levy taxes necessary to retire previously issued bonds. The 79th Texas Legislature (the “79th Legislature”) ended its regular session on May 30, 2005 (the “79th Legislature Regular Session”) and two subsequent 30-day special legislative sessions ended on July 20, 2005 and on August 19, 2005, respectively, without enacting legislation addressing the constitutional issues identified in West Orange-Cove I or in the final judgment entered by the District Court upon remand of the case. See “CURRENT PUBLIC SCHOOL FINANCE SYSTEM - Special Legislative Sessions Called to Address Reforms for the Texas Public School Finance System.” The District can make no representation or prediction regarding the effect on the District or the public school finance system of West Orange-Cove II or how the Legislature may respond to such litigation, and can make no representation or prediction how such litigation may affect its financial condition or tax revenues. POSSIBLE EFFECTS OF LITIGATION AND CHANGES IN LAW ON DISTRICT BONDS In response to the decision of the Supreme Court in West Orange-Cove II, the Legislature could enact changes to the public school finance system which could benefit or be a detriment to a school district depending upon a variety of factors, including the financial strategies that the district has implemented in light of past funding structures. Among other possibilities, the District’s boundaries could be redrawn, taxing powers restricted, State funding reallocated, or local ad valorem taxes replaced with State funding subject to biennial appropriation. In Edgewood IV, the Supreme Court stated that any future determination of unconstitutionality “would not, however, affect the district’s authority to levy the taxes necessary to retire previously issued bonds, but would instead require the Legislature to cure the public school finance system’s unconstitutionality in a way that is consistent with the Contract Clauses of the U.S. and Texas Constitutions (collectively, the “Contract Clauses”). Consistent with the Contract Clauses, in the exercise of its police powers, the State may make such modifications in the terms and conditions of contractual covenants related to the payment of the Bonds as are reasonable and necessary for the attainment of important public purposes. While future litigation could substantially adversely affect the financial condition of the District, as noted herein, the

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District does not anticipate that the security for payment of the Bonds, specifically, the District’s obligation to levy an unlimited debt tax would be adversely affected by any such litigation or any legislation that may be enacted in the future to address school funding in Texas. See “CURRENT PUBLIC SCHOOL FINANCE SYSTEM.” Although, as a matter of law, the Bonds, upon issuance and delivery, will be entitled to the protections afforded previously existing contractual obligations under the Contract Clauses, the District can make no representations or predictions concerning the effect of pending or future legislation or litigation, or how such legislation or future court orders may affect the District’s financial condition, revenues or operations. CURRENT SCHOOL FINANCE SYSTEM GENERAL The Texas public school finance system has been declared unconstitutional, and further state funding of the system is enjoined effective June 1, 2006, unless the Legislature enacts remedial legislation. See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS - Recent Litigation Relating to the Texas Public School Finance System” herein. Accordingly, the following description of the current public school finance system is subject to the provisions of possible future remedial legislation. See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS - Possible Effects of Litigation and Changes in Law on District Obligations”. For a more complete description of school finance and fiscal management in the State, reference is made to Vernon’s Texas Codes Annotated, Education Code, Chapter 41 through 46, as amended. To limit disparities in school district funding abilities, the public school finance system (1) compels districts with taxable property wealth per weighted student higher than $305,000 to reduce their wealth to such amount or to divert a portion of their tax revenues to other districts as described below and (2) provides various State funding allotments, including a basic funding allotment and other allotments for “enrichment” of the basic program, for debt service tax assistance and for new facilities construction. STATE FUNDING FOR LOCAL SCHOOL DISTRICTS The current public school finance system provides for (1) State guaranteed basic funding allotments per student (“Tier One”) and (2) State guaranteed revenues per student per penny of local tax effort to provide operational funding for an “enriched” educational program (“Tier Two”). Tier One and Tier Two are generally referred to as the Foundation School Program. In addition, to the extent funded by the Legislature, the public school finance system includes, among other funding allotments, an allotment to subsidize existing debt service up to certain limits (“Tier Three”), the Instructional Facilities Allotment (the “IFA”), and an allotment to pay operational expenses associated with the opening of a new instructional facility. State funding allotments may be altered and adjusted to penalize school districts with high administrative costs and, in certain circumstances, to account for shortages in State appropriations or to allocate available funds in accordance with wealth equalization goals. Tier One allotments are intended to provide a basic program of education rated academically acceptable and meeting other applicable legal standards. If needed, the State will subsidize local tax receipts to produce an amount known as the basic allotment (the “Basic Allotment”) per student in average daily attendance. To receive the State subsidy, a school district must levy an effective property tax of at least $0.86 per $100 of assessed valuation. Tier Two allotments are intended to guarantee each school district an opportunity to provide a basic program and to supplement that program at a level of its own choice, however Tier Two allotments may not be used for the payment of debt service or capital outlay. Each school district is guaranteed an amount (the “Foundation Program Guaranteed Yield”) per weighted student in State and local funds for each cent of tax effort (excluding the district’s bond debt service tax effort) that a school district levies above the effective rate of $0.86 required for its Tier One local share, not to exceed $0.64 per $100 of assessed valuation. The IFA guarantees each school district a specified amount per student (the “IFA Guaranteed Yield”) in State and local funds for each cent of tax effort to pay principal of and interest on eligible bonds issued to construct, acquire, renovate or improve instructional facilities. To receive an IFA, a school district must apply to the Commissioner in accordance with rules adopted by the Commissioner before issuing the bonds to be paid with State assistance. The total amount of debt service assistance over a biennium for which a district may be awarded is limited to the lesser of (1) the actual debt service payments made by the district in the biennium in which the bonds are issued; or (2) the greater of (a) $100,000 or (b) $250 multiplied by the number of students in average daily attendance. The IFA is also available for leasepurchase agreements and refunding bonds meeting certain prescribed conditions. If the total amount appropriated by the State for IFA in a year is less than the amount of money school districts applying for IFA are entitled to for that year, districts applying will be ranked by the Commissioner by wealth per student, and State assistance will be awarded to applying districts in ascending order of adjusted wealth per student beginning with the district with the lowest adjusted wealth per student. In determining wealth per student for purposes of the IFA, adjustments are made to reduce wealth for certain fast growing districts. Once a district receives an IFA award for bonds, it is entitled to continue receiving State assistance without reapplying to the Commissioner and the guaranteed level of State and local funds per student per cent of tax effort applicable to the bonds may not be reduced below the level provided for the year in which the bonds were issued. State financial assistance is provided for certain existing debt issued by school districts (referred to herein as Tier Three) to produce a guaranteed yield (the “Tier Three Yield”), which for the 2006-2007 State Biennium is $35.00 (subject to adjustment as

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described below) in revenue per student per penny of debt service tax levy; however, for bonds that became eligible for Tier Three funding after August 31, 2001, and prior to August 31, 2005, Tier Three assistance for such eligible bonds may be less than $35 in revenue per student per penny of debt service tax, as a result of certain administrative delegations to the Commissioner under State law. For the 2004-2005 State Biennium, the portion of the local debt service rate that qualified for equalization funding by the State may not exceed $0.29 per $100 of valuation (at the date of this document, the Texas Education Agency has not determined the portion of the local debt service rate that may qualify for equalization during the 2006-2007 State Biennium). In general, a district’s bonds are eligible for the allotment if, during the 2004-2005 fiscal year, the district (i) made payments on such bonds or (ii) levied and collected debt taxes for the payment of principal and interest on such bonds. A district may not receive Tier Three funding for the principal and interest on a series of otherwise eligible bonds for which the district receives overlapping IFA funding. A district may also qualify for an allotment for operational expenses associated with opening new instructional facilities. This funding source may not exceed $25,000,000 in one school year on a State-wide basis. For the first school year in which students attend a new instructional facility, a district is entitled to an allotment of $250 for each student in average daily attendance at the facility. For the second school year in which students attend that facility, a district is entitled to an allotment of $250 for each additional student in average daily attendance at the facility. The new facility operational expense allotment will be deducted from wealth per student for purposes of calculating a district’s Tier Two State funding. OTHER STATE FUNDING PROVISIONS The Texas Economic Development Act provides incentives for certain school districts to grant tax abatements to encourage development in their tax base. A school district is permitted to grant an application for a limitation on appraised value if a statutory minimum investment was reached (calculated based on the size of the school district’s tax base). The limitation on appraised value of certain “eligible property” owned by a corporation or limited liability company and used in connection with manufacturing, research and development or renewable energy generation, would last for up to ten years and would only apply to taxes levied for maintenance and operations purposes. The Texas Education Code provides additional State funding for each year of a qualifying tax abatement agreement in the amount of the tax credit provided to the taxpayer by the district. LOCAL REVENUE SOURCES - PROPERTY TAX AUTHORITY The primary source of local funding for school districts is ad valorem taxes levied against the local tax base. School districts are authorized, subject to voter approval, to levy an annual ad valorem tax for maintenance and operations of the district at a rate, subject to limited exceptions, not to exceed $1.50 per $100 assessed valuation and to levy a bond debt service tax that may be unlimited in rate. Many school districts, however, voted their maintenance tax under prior law and may be subject to other limitations on this tax rate. See “TAX RATE LIMITATIONS” herein. The governing body of a school district cannot adopt an annual tax rate which exceeds the district’s “rollback tax rate” without submitting such proposed tax rate to the voters at a referendum election. See “ TAX INFORMATION – Public Hearing and Rollback Tax Rate” herein. WEALTH TRANSFER PROVISIONS Under the public school finance system, districts are required, with certain limited exceptions, to effectively adjust taxable property wealth per weighted student (“wealth per student”) for each school year to no greater than $305,000, (the “equalized wealth level”). A district may effectively reduce its wealth per student either by reducing the amount of taxable property within the district relative to the number of weighted students, by transferring revenue out of the district or by exercising any combination of these remedies. A district has four options to reduce its wealth per student so that it does not exceed the equalized wealth level: (1) A district may consolidate by agreement with one or more districts to form a consolidated district. All property and debt of the consolidating districts vest in the consolidated district. (2) Subject to approval by the voters of all affected districts, a district may consolidate by agreement with one or more districts to form a consolidated taxing district solely to levy and distribute either maintenance and operation taxes or both maintenance and operation taxes and debt service taxes. (3) A district may detach property from its territory for annexation by a property poor district. (4) A district may educate students from other districts who transfer to the district without charging tuition to such students. A district has three options to transfer tax revenues from its excess property wealth. First, a district with excess wealth per student may purchase “attendance credits” by paying the tax revenues to the State for redistribution under the Foundation School Program. Second, it can contract to disburse the tax revenues to educate students in another district, if the payment does not result in effective wealth per student in the other district to be greater than the equalized wealth level. Both options to transfer property wealth are subject to approving elections by the transferring district’s qualified voters. Third, a wealthy district may reduce its wealth by paying tuition to a non-wealthy district for the education of students that reside in the wealthy district. A district may not adopt a tax rate until its effective wealth per student is the equalized wealth level or less. If a final court decision holds any of the preceding permitted remedial options unlawful, districts may exercise any remaining option under a revised schedule approved by the Commissioner. If a district fails to exercise a permitted option, the Commissioner must reduce the district’s property wealth per student to the equalized wealth level by detaching certain types of property from the district and annexing the property to a property-poor district or, if necessary, consolidate the district with a property-poor district. Provisions governing detachment and annexation of

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taxable property by the Commissioner do not provide for assumption of any of the transferring district’s existing debt. POSSIBLE EFFECTS ON THE DISTRICT'S FINANCIAL CONDITION The District’s wealth per student for the 2005-2006 school year is less than the equalized wealth value. Accordingly, the District has not been required to exercise one of the permitted wealth equalization options. As a district with wealth per student less than the equalized wealth value, the District may benefit in the future by agreeing to accept taxable property or funding assistance from or agreeing to consolidate with a property-rich district to enable such district to reduce its wealth per student to the permitted level. A district’s wealth per student must be tested for each future school year and, if it exceeds the maximum permitted level, must be reduced by exercise of one of the permitted wealth equalization options. Accordingly, if the District’s wealth per student should exceed the maximum permitted level in future school years, it will be required each year to exercise one or more of the wealth reduction options. If the District were to consolidate (or consolidate its tax base for all purposes) with a property-poor district, the outstanding debt of each district could become payable from the consolidated district’s combined property tax base, and the District’s ratio of taxable property to debt could become diluted. If the District were to detach property voluntarily, a portion of its outstanding debt (including the Bonds) could be assumed by the district to which the property is annexed, in which case timely payment of the Bonds could become dependent in part on the financial performance of the annexing district. 2005 TEXAS REGULAR LEGISLATIVE SESSION During the 79th Legislature Regular Session S.B. 1863 was enacted, which included a renewal of the IFA and Tier Three allotment programs. S.B. 1863 also extends Tier Three allotment eligibility to school bonds for which a district (i) made payments in the fiscal year ending August 31, 2005 and (ii) levied and collected debt taxes for bonds in the fiscal year ending August 31, 2005. SPECIAL LEGISLATIVE SESSIONS CALLED TO ADDRESS REFORMS FOR THE TEXAS PUBLIC SCHOOL FINANCE SYSTEM In addition to the 79th Legislature Regular Session described above, which produced no reformatory legislation, the Governor has called three special sessions of the Legislature to address a series of subjects pertaining to the Texas public school finance system. Special legislative sessions were convened on April 20, 2004, June 21, 2005 and July 21, 2005 to consider changes to the Texas public school finance system, but each session ended without the enactment of new school finance legislation. The Governor has announced his intention to call another special legislative session in which the Legislature will consider public school finance legislation, but no date has been set for the start of that session. During the special legislative session that convened on June 21, 2005, the Legislature enacted House Bill 1 (“H.B. 1”) which appropriated funds for the Texas Education Agency for the 2006 - 2007 State fiscal biennium. H.B. 1 includes funding for the Texas Education Agency, including the Foundation School Program, the IFA and Tier Three allotments as well as funding of the operation and funding for the administration of the Permanent School Fund Guarantee Program. Under H.B. 1, the Basic Allotment for Tier One remains at $2,537 per student in average daily attendance for each year of the State’s 2006-2007 fiscal biennium (the same as for the 2004-2005 fiscal biennium) and the Foundation Program Guaranteed Yield remains at $27.14 per weighted student in the prior biennium (the same as for the 2004-2005 fiscal biennium). In addition, H.B. 1 includes funding for outstanding school district bonds that qualified in prior budget cycles for IFA and Tier Three allotments, and provides additional IFA and Tier Three funding for the State’s 2006-2007 fiscal biennium. The District can make no representation or prediction concerning how or if the Texas public school finance system may be changed by the Legislature or whether the finance system will be determined to be constitutional if legislative changes are enacted. A change in the public school finance system enacted in a legislative session could substantially adversely affect the financial condition of the District. However, the District does not anticipate that the security for payment of the Bonds would be changed by the action of the Legislature or the courts. See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS - Recent Litigation Relating to the Texas Public School Finance System.” TAX INFORMATION AD VALOREM TAX LAW NEITHER THE
THE FAITH AND CREDIT NOR THE TAXING POWER OF THE

STATE,

THE

DISTRICT,

OR ANY OTHER POLITICAL

SUBDIVISION OF THE STATE IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE BONDS.

DISTRICT IS PROVIDED SOLELY FOR THE DISTRICT’S TAX RATE AND TOTAL TAXES COLLECTED ON THE CALCULATION OF THE DISTRICT’S TIER ONE ALLOTMENTS FUNDS FROM THE STATE.
FOLLOWING INFORMATION CONCERNING THE AD VALOREM TAXES OF THE PURPOSE OF ANALYSIS OF THE EFFECT OF THE

The appraisal of property within the District is the responsibility of the Harris Central Appraisal District (the "Appraisal District"). Excluding agricultural and open-space land, which may be taxed on the basis of productive capacity, the Appraisal District is required under the Property Tax Code to appraise all property within the Appraisal District on the basis of 100% of its market value and is prohibited from applying any assessment ratios. In determining market value of property, different methods of appraisal may be used, including the cost method of appraisal, the income method of appraisal and market data comparison

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method of appraisal, and the method considered most appropriate by the chief appraiser is to be used. State law further limits the appraised value of a residence homestead for a tax year to an amount not to exceed the less of (1) the market value of the property, or (2) the sum of (a) 10% of the appraised value of the property for the last year in which the property was appraised for taxation times the number of years since the property was last appraised, plus (b) the appraised value of the property for the last year in which the property was appraised plus (c) the market value of all new improvements to the property. The value placed upon property within the Appraisal District is subject to review by an Appraisal Review Board, consisting of three members appointed by the Board of Directors of the Appraisal District. The Appraisal District is required to review the value of property within the Appraisal District at least every three years. The District may require annual review at its own expense, and is entitled to challenge the determination of appraised value of property within the District by petition filed with the Appraisal Review Board. Reference is made to the VTCA, Property Tax Code, for identification of property subject to taxation; property exempt or which may be exempted from taxation, if claimed; the appraisal of property for ad valorem taxation purposes; and the procedures and limitations applicable to the levy and collection of ad valorem taxes. Article VIII of the State Constitution ("Article VIII") and State law provide for certain exemptions from property taxes, the valuation of agricultural and open-space lands at productivity value, and the exemption of certain personal property from ad valorem taxation. Certain residence homestead exemptions from ad valorem taxes for public school purposes are mandated by Section 1-b, Article VIII, and State law and apply to the market value of residence homesteads in the following sequence: $15,000; and an additional $10,000 for those 65 years of age or older, or the disabled. A person over 65 and disabled may receive only one $10,000 exemption, and only one such exemption may be received per family, per residence homestead. State law also mandates a freeze on taxes paid on residence homesteads of persons 65 years of age or older which receive the $10,000 exemption. Such residence homesteads shall be appraised and taxes calculated as on any other property, but taxes shall never exceed the amount imposed in the first year in which the property received the $10,000 exemption. The freeze on ad valorem taxes on the homesteads of persons 65 years of age or older for general elementary and secondary public school purposes is also transferable to a different residence homestead. If improvements (other than maintenance or repairs) are made to the property, the value of the improvements is taxed at the then current tax rate, and the total amount of taxes imposed is increased to reflect the new improvements with the new amount of taxes then serving as the ceiling on taxes for the following years. In addition, under Section 1-b, Article VIII, and State law, the governing body of a political subdivision, at its option, may grant: (i) (ii) An exemption of not less than $3,000 of the market value of the residence homestead of persons 65 years of age or older and the disabled from all ad valorem taxes thereafter levied by the political subdivision; An exemption of up to 20% of the market value of residence homesteads; minimum exemption $5,000.

State law and Section 2, Article VIII, mandate an additional property tax exemption for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces; the exemption applies to either real or personal property with the amount of assessed valuation exempted ranging from $5,000 to a maximum of $12,000. Article VIII provides that eligible owners of both agricultural land (Section l-d) and open-space land (Section l-d-l), including open-space land devoted to farm or ranch purposes or open-space land devoted to timber production, may elect to have such property appraised for property taxation on the basis of its productive capacity. The same land may not be qualified under both Section 1-d and 1-d-1. The freeze on ad valorem taxes on the homesteads of persons 65 years of age or older for general elementary and secondary public school purposes is also transferable to a different residence homestead. Nonbusiness personal property, such as automobiles or light trucks, are exempt from ad valorem taxation unless the governing body of a political subdivision elects to tax this property. Boats owned as nonbusiness property are exempt from ad valorem taxation. Article VIII, Section 1-j of the Texas Constitution provides for "freeport property" to be exempted from ad valorem taxation. Freeport property is defined as goods detained in Texas for 175 days or less for the purpose of assembly, storage, manufacturing, processing or fabrication. Notwithstanding such exemption, counties, school districts, junior college districts and cities may tax such tangible personal property provided official action to tax the same was taken before April 1, 1990. Decisions to continue to tax may be reversed in the future; decisions to exempt freeport property are not subject to reversal. The District and the other taxing bodies within the territory may jointly agree to the creation of a tax increment financing zone, under which the tax values on property in the zone are "frozen" at the value of the property at the time of creation of the zone. The District also may enter into tax abatement agreements to encourage economic development. Under an abatement agreement, a property owner agrees to construct certain improvements on its property. The District in turn agrees not to levy a tax on all or part of the increased value attributable to the improvements until

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the expiration of the abatement agreement. In the case of a tax increment financing zone, the property owners pay taxes on all improvements located in the zone, and the District in turn remits payment of taxes levied on "incremental values" to the tax increment financing zone which are then used to finance infrastructure improvements for properties within the zone. The abatement agreement could last for a period of up to 10 years. Under current law, the Comptroller of Public Accounts is to determine taxable value of property within each school district in the State (which taxable value figure is used in calculating a district's wealth per student) and in making such determination the taxable value is to exclude (i) the total dollar amount of any captured appraised value of property located in a reinvestment zone on August 31, 1999, that generates taxes paid into a tax increment fund and is eligible for tax increment financing under a reinvestment zone financing plan approved before September 1, 1999 and (ii) the total dollar value of taxable property covered by a tax abatement agreement entered into. PUBLIC HEARING AND ROLLBACK TAX RATE The Property Tax Code provides that the governing body of a taxing unit is required to adopt a tax rate for the taxing unit before the later of September 30 or the 60th day after the date that the certified appraisal roll is received by the taxing unit, and that the failure to adopt a tax rate by such required date will result in the tax rate for the taxing unit for such tax year to be the lower of the effective tax rate calculated for that tax year or the tax rate adopted by the taxing unit for the preceding tax year. In addition, the District must hold a public hearing to discuss and adopt the District’s budget and proposed tax rate for each fiscal year. A failure by the District to provide the required notice of such hearing may provide grounds for a taxpayer to obtain an injunction to restrain the collection of taxes by the District. In setting its annual tax rate, the governing body of a school district generally cannot adopt a tax rate exceeding the district's "rollback tax rate" without approval by a majority of the voters voting at an election approving the higher rate. The rollback tax rate is the sum of (1) the tax rate that, applied to the current tax values, would provide local maintenance and operating funds, when added to Tier One and Tier Two state funds to be distributed to the district for the school year beginning in the current tax year, in the same amount as would have been available to the district in the preceding year if the funding elements of wealth equalization and state funding for the current year had been in effect for the preceding year, (2) the rate of $0.06; and (3) the district's current debt rate. For tax years 2003 through 2008, the rollback tax rate will also include the tax rate that, applied to current tax values, would impose taxes in an amount sufficient for the district to fund its minimum local effort requirement for employee health care coverage ( See "STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS – Other State Funding Provisions") PROPERTY ASSESSMENT AND TAX PAYMENT Property within the District is generally assessed as of January 1 of each year. Business inventory may, at the option of the taxpayer, be assessed as of September 1. Oil and gas reserves are assessed on the basis of a valuation process which uses an average of the daily price of oil and gas for the prior year. Taxes become due October 1 of the same year, and become delinquent on February 1 of the following year. Taxpayers 65 years old or older are permitted by State law to pay taxes on homesteads in four installments with the first installment due on February 1 of each year and the final installment due on August 1. PENALTIES AND INTEREST Charges for penalty and interest on the unpaid balance of delinquent taxes are made as follows: Cumulative Cumulative Month Penalty Interest Total February 6% 1% 7% March 7 2 9 April 8 3 11 May 9 4 13 June 10 5 15 July 12 6 18 After July, penalty remains at 12%, and interest increases at the rate of 1% each month. In addition, if an account is delinquent in July, a 20% attorney’s collection fee is added to the total tax penalty and interest charge. Taxes levied by the District are a personal obligation of the owner of the property. On January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties and interest ultimately imposed for the year on the property. The lien exists in favor of the State and each taxing unit, including the District, having the power to tax the property. The District's tax lien is on a parity with tax liens of all other such taxing units. A tax lien on real property has priority over the claim of most creditors and other holders of liens on the property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. Personal property under certain circumstances is subject to seizure and sale for the payment of delinquent taxes, penalty and interest. At any time after taxes on property become delinquent, the District may file suit to foreclose the lien securing payment of the tax, to enforce personal liability for the tax, or both. In filing a suit to foreclose a tax lien on real property, the District must join other taxing units that have claims for delinquent taxes against all or part of the same property. The ability of the District to collect delinquent taxes by foreclosure may be adversely affected by the amount of taxes owed to other taxing units, adverse market conditions, taxpayer redemption rights, or bankruptcy proceedings which restrain the collection of a taxpayer's debt. Federal bankruptcy law provides that an automatic stay of actions by creditors and other entities,

22

including governmental units, goes into effect with the filing of any petition in bankruptcy. The automatic stay prevents governmental units from foreclosing on property and prevents liens for post-petition taxes from attaching to property and obtaining secured creditor status unless, in either case, an order lifting the stay is obtained from the bankruptcy court. In many cases post-petition taxes are paid as an administrative expense of the estate in bankruptcy or by order of the bankruptcy court. DISTRICT APPLICATION OF TAX CODE The Harris County Appraisal District (“Appraisal District”) has the responsibility for appraising property in the District as well as other taxing units in Harris County. The Appraisal District is governed by a board of directors appointed by voters of the governing bodies of various Harris County political subdivisions. The District collects its own taxes. The District grants a state mandated $15,000 general homestead exemption. The District grants a state mandated $10,000 residence homestead exemption for persons 65 years of age or older or the disabled. The District grants a state mandated residence homestead exemption for disabled veterans ranging from $5,000 to $12,000. Ad valorem taxes are not levied by the District against the exempt value of residence homesteads for the payment of debt. The District has elected to participate in 17 tax increment reinvestment zones. TAX ABATEMENT POLICY The District has previously granted a number of tax abatements to encourage economic development. Because of changes to State law regarding school funding, the District no longer grants tax abatements. FINANCIAL AND OPERATING INFORMATION FOR THE DISTRICT THE DISTRICT’S ONLY OBLIGATION WITH RESPECT TO THE PAYMENT OF THE BONDS IS ITS INDIRECT OBLIGATION TO PAY THE RENTAL PAYMENTS TO THE TRUSTEE PURSUANT TO THE LEASE FROM MONEY TO BE APPROPRIATED ANNUALLY FOR THE PAYMENT THEREOF. THE SOURCE OF FUNDS TO BE APPROPRIATED BY THE DISTRICT FOR RENTAL PAYMENTS ARE FUNDS APPROPRIATED TO THE DISTRICT BY THE TEXAS LEGISLATURE, WHICH UNDER CURRENT LAW IS LIMITED TO GUARANTEED YIELD PROGRAM TIER ONE FUNDS, AND ANY UNINTENDED SURPLUS MAINTENANCE TAX REVENUES. THE DISTRICT HAS NO AUTHORITY TO LEVY TAXES SPECIFICALLY FOR THE PAYMENT OF THE RENTAL PAYMENTS. THE LEASE IS A SPECIAL, LIMITED, AND NON-RECOURSE OBLIGATION OF THE DISTRICT PAYABLE SOLELY FROM THE FUNDS SPECIFIED ABOVE DURING EACH FISCAL YEAR AND IN NO WAY CONSTITUTES AN OBLIGATION, EITHER SPECIAL, GENERAL, OR MORAL, OF THE STATE OF TEXAS OR ANY OTHER POLITICAL SUBDIVISION THEREOF. TIER ONE ALLOTMENTS GENERAL . . . One of the District’s primary sources of revenue from which the Rental Payments may be paid is its Tier One allotments from the State. The amount of Tier One allotments to the District in each year is based upon average daily attendance, the District’s total tax rate, its assessed valuation, and the collection rate. See “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS - STATE FUNDING.” Tier One Allotment History
Fiscal Year Ended 6/30 2001 2002 2003 2004 2005 Local Share $ 456,542,256 519,334,669 546,548,915 589,898,288 614,890,958 State Share $ 247,476,108 192,796,382 176,667,722 120,200,180 84,109,745 Total Tier I Allotment $ 704,018,364 712,131,051 723,216,637 710,098,468 699,000,703

Source: Texas Education Agency School District State Aid Reports

23

UNDESIGNATED FUND BALANCES The District is permitted under current law to pay the Rental Payments from unintended surplus maintenance tax funds, in addition to Tier One Funds. Below is a history of the undesignated general fund balance at the end of each of the preceding five fiscal years. Because undesignated fund balances result, in part, from surplus maintenance tax money which was “unintended” by the District, there can be no assurance that undesignated fund balances in future years will be consistent with those of the prior years. UNDESIGNATED GENERAL FUND BALANCE HISTORY
Undesignated Fiscal Year Ended 6/30 2001 2002 2003 2004 2005
Source: Houston Independent School District

General Fund Balance $ 51,867,185 106,023,736 102,951,792 98,374,084 150,608,286

AVERAGE DAILY ATTENDANCE The amount of a school district’s Tier One allotment is calculated, in part, based upon the “average daily attendance” of the District which includes the “basic allotment” and a “cost of education adjustment.” The “basic allotment” is that portion of the Tier One allotment to school districts which is based upon the number of students in average daily attendance, not including the time students spend each day in special education programs in an instructional arrangement other than mainstream or career and technology education programs, and is equal to at least $2,537 per student. The “cost of education adjustment” is an adjustment of each school district’s basic allotment, to be determined by the foundation school budget committee, reflecting the geographic variations in known resource costs and costs of education due to factors beyond the control of the school district. A significant decrease in the District’s average daily attendance may result in a decrease of the District’s Tier One allotment in future years, thereby decreasing the amount of money from which the District may appropriate the Lease Payments. The District’s average daily attendance for fiscal year 2005/2006 is 192,412, based on the Texas Education Agency’s Summary of Finances, 2005-06 School Year. The amount of State assistance provided to the District under Tier One is based, in part, on the average daily attendance (“ADA”) of the District. The following table reflects the District’s ADA for the years stated. AVERAGE DAILY ATTENDANCE HISTORY
Average Fiscal Year Ended 6/30 2001 2002 2003 2004 2005 Daily Attendance 189,216 192,948 194,690 193,960 190,902 Peak Enrollment 208,672 210,993 211,518 206,685 208,945

Source: Houston Independent School District.

24

TAXABLE ASSESSED VALUATIONS BY CATEGORY
2005(1) Category Real, Residential, Single-Family Real, Residential, Multi-Family Real, Vacant Lots/Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real, Oil, Gas and Other Mineral Reserves Real and Tangible Personal, Utilities Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Other Real Property Inventory Exempt Property Total Appraised Value Before Exemptions Less: Total Exemptions/Reductions Taxable Assessed Value Amount $ 45,318,436,001 7,087,409,602 1,813,017,177 331,997,272 64,795 19,665,897,248 1,619,947,591 3,689,820 1,679,465,094 8,458,385,490 3,522,778,810 52,559,550 79,402,142 9,984,884,840 $ 99,617,935,432 22,040,933,315 $ 77,577,002,117 Taxable Assessed Value for Tax Year 2004 % of % of Total Amount Total 45.49% $ 42,344,360,520 49.85% $ 7.11% 6,351,762,270 7.48% 1.82% 1,606,081,810 1.89% 0.33% 329,160,960 0.39% 0.00% 84,760 0.00% 19.74% 18,524,757,290 21.81% 1.63% 1,820,235,750 2.14% 0.00% 3,341,960 0.00% 1.69% 1,689,305,560 1.99% 8.49% 8,732,272,210 10.28% 3.54% 3,315,766,410 3.90% 0.05% 54,044,300 0.06% 0.08% 72,246,870 0.09% 10.02% 106,752,920 0.13% 100.00% $ 84,950,173,590 100.00% $ 11,681,949,360 $ 73,268,224,230

2003 Amount 39,496,970,130 6,095,619,950 1,509,726,630 347,920,940 0 18,727,999,070 1,929,753,190 3,757,600 1,673,365,950 8,575,907,400 3,438,217,240 54,257,560 71,124,300 53,074,330 81,977,694,290 10,952,000,430 % of Total 48.18% 7.44% 1.84% 0.42% 0.00% 22.85% 2.35% 0.00% 2.04% 10.46% 4.19% 0.07% 0.09% 0.06% 100.00%

$ 71,025,693,860

Category Real, Residential, Single-Family Real, Residential, Multi-Family Real, Vacant Lots/Tracts Real, Acreage (Land Only) Real, Farm and Ranch Improvements Real, Commercial Real, Industrial Real, Oil, Gas and Other Mineral Reserves Real and Tangible Personal, Utilities Tangible Personal, Commercial Tangible Personal, Industrial Tangible Personal, Other Real Property Inventory Exempt Property Total Appraised Value Before Exemptions Less: Total Exemptions/Reductions Taxable Assessed Value

Taxable Assessed Value for Tax Year 2001 % of Amount Total Amount $ 36,078,731,010 46.00% $ 32,927,672,010 5,566,004,770 7.10% 5,298,925,730 1,468,505,590 1.87% 1,466,350,690 377,164,040 0.48% 427,421,160 37,170 0.00% 37,170 18,589,165,190 23.70% 18,528,618,040 1,960,867,300 2.50% 1,804,329,180 5,148,310 0.01% 6,796,000 1,974,539,970 2.52% 1,883,052,610 8,853,972,100 11.29% 8,911,513,360 3,324,008,300 4.24% 3,138,447,570 53,192,450 0.07% 50,965,300 56,358,670 0.07% 31,620,610 131,455,470 0.17% 58,809,780 $ 78,439,150,340 100.00% $ 74,534,559,210 10,162,994,850 9,363,630,710 2002 $ 68,276,155,490 $ 65,170,928,500

% of Total 44.18% 7.11% 1.97% 0.57% 0.00% 24.86% 2.42% 0.01% 2.53% 11.96% 4.21% 0.07% 0.04% 0.08% 100.00%

______________ (1) Compared to previous years, the exemptions are substantially higher but such increase is attributable to a change in the method of reporting governmental, religious and charitable properties. Because these values are added to the tax rolls and then deducted as exemptions the effect of this change is neutral.

TAX RATE, LEVY AND COLLECTION HISTORY
Maintenance and Operating Fund $ 1.45000 1.45000 1.45000 1.45000 1.45000 Interest and Sinking Fund $ 0.13000 0.13000 0.13000 0.14900 0.17000

Fiscal Year Ended 2002 2003 2004 2005 2006

Tax Rate $ 1.58000 1.58000 1.58000 1.59900 1.62000

Tax Levy $ 999,199,832 1,044,932,755 1,084,552,525 1,178,143,200 1,256,747,434

% Current Collections 95.69% 96.24% 96.38% 96.63%
(1) (2)

% Total Collections 98.47% 100.09% 99.99% 101.34%
(2)

_______________ (1) Estimated levy based on certified taxable assessed value as reported by the Harris County Appraisal District Report, subject to change throughout the year. (2) In process of collection.

25

TEN LARGEST TAXPAYERS
2004 Taxable Assessed Valuation $ 831,722,800 669,363,150 552,080,270 482,159,440 455,238,090 310,039,270 299,279,400 281,158,730 243,634,900 243,350,670 $ 4,368,026,720 % of 2004 Taxable Assessed Valuation 1.14% 0.91% 0.75% 0.66% 0.62% 0.42% 0.41% 0.38% 0.33% 0.33% 5.96%

Principal Taxpayers Centerpoint Energy Inc. Hines Interests Ltd Partnership Southwestern Bell Telephone Co. Anheuser-Busch Inc. Crescent Real Estate Trizechahn Allen Center L. P. Exxon Corp. Continental Airlines Inc. Crescent Real Est Equities HG Shopping Centers LP

Type of Property Electric Utility Buildings and Land Telephone Utility Buildings and Land Buildings and Land Buildings and Land Buildings and Land Buildings and Land Buildings and Land Buildings and Land

Source: District. Information for Tax Year 2005 not available.

DEBT INFORMATION OUTSTANDING DISTRICT DEBT . . . Texas school districts are authorized to issue tax bonds payable from the District’s debt service tax for the construction and equipping of school buildings and the acquisition of sites therefor, and the purchase of school buses, but only if authorized by a majority of the resident, qualified voters of the district voting at an election held for that purpose. Texas school districts are also authorized to issue general obligation bonds for the purpose of refunding other general obligation bonds, without voter authorization, as long as certain conditions are met. The District has not had a default on any of its tax-supported obligations. The District currently has the following outstanding tax-supported debt:

Year End 6/30 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

Total Outstanding I&S Fund Debt(1) $ 93,960,811 115,357,563 121,132,806 126,977,569 128,086,738 131,667,263 131,686,526 131,755,274 131,464,838 131,818,913 131,878,070 131,936,958 131,989,253 132,011,850 130,075,184 132,262,395 132,290,763 130,199,800 130,219,733 132,689,855 132,565,075 97,077,163 97,119,962 97,137,329 97,070,888 86,605,638 49,927,538 27,431,163 $ 3,244,396,912

Outstanding Contractual Obligations(2) $ 35,318,025 36,611,563 29,959,125 20,873,444 12,185,075 11,934,625 11,776,275 11,118,750 10,825,500 7,393,000 7,143,000 6,893,000 6,862,375 11,344,500 10,796,125 10,250,000

Total Requirements $ 129,278,836 151,969,125 151,091,931 147,851,013 140,271,813 143,601,888 143,462,801 142,874,024 142,290,338 139,211,913 139,021,070 138,829,958 138,851,628 143,356,350 140,871,309 142,512,395 132,290,763 130,199,800 130,219,733 132,689,855 132,565,075 97,077,163 97,119,962 97,137,329 97,070,888 86,605,638 49,927,538 27,431,163 $ 3,485,681,294

$ 241,284,381

_______________ (1) Interest rate of variable rate bonds are shown at the set rates through June 2006 and are assumed at 4.50% thereafter. (2) Since the principal and interest payments occur on July 15 of each year, the District accrues the payment in the fiscal year prior to the July 15 payment. The amounts shown above are shown in the fiscal years that the debt is actually paid rather than the fiscal year for which the payments accrue.

26

AUTHORIZED BUT UNISSUED TAX-SUPPORTED BONDS The District has no authorized but uninssued tax-supported bonds outstanding.

OVERLAPPING FUNDED DEBT . . . Expenditures of the various taxing bodies within the territory of the District are paid out of ad valorem taxes levied by these taxing bodies on properties within the District. These political taxing bodies are independent of the District and may incur borrowings to finance their expenditures. The following statement of direct and estimated overlapping ad valorem tax debt was developed from information provided by the District’s Tax Assessor/Collector. Except for the amounts relating to the District, the District has not independently verified the accuracy or completeness of such information, and no person should rely upon such information as being accurate or complete. Furthermore, certain of the entities listed below may have issued additional obligations since the date of the report, and such entities may have programs requiring the issuance of substantial amounts of additional obligations the amount of which cannot be determined. The following table reflects the estimated share of overlapping net funded debt of these various taxing bodies.
Taxable Assessed Value(1) $ 2,041,661,130 1,710,925,305 195,088,268,180 195,088,268,180 195,088,268,180 2,297,490,441 60,878,360 233,865,535 195,088,268,180 49,040,408 93,502,879 80,385,470,703 105,934,758,000 289,014,279 3,316,782,886 195,088,268,180 56,398,622 2,713,319,760 Gross Debt Outstanding(1) $ 49,670,000 30,445,000 1,919,956,590 71,799,985 1,135,000 14,845,000 3,825,000 9,811,000 4,510,000 4,585,000 144,155,000 1,616,973,824 35,615,000 287,900,000 960,000 71,950,000 Estimated % Applicable 100.00% 0.38% 38.76% 38.76% 38.76% 100.00% 100.00% 100.00% 38.76% 100.00% 100.00% 90.32% 68.53% 50.66% 8.33% 38.76% 41.58% 100.00% District's Overlapping Debt(1) $ 49,670,000 115,691 744,175,174 27,829,674 439,926 14,845,000 3,825,000 9,811,000 4,510,000 4,585,000 130,200,796 1,108,112,162 2,966,730 111,590,040 399,168 71,950,000 $ 2,285,025,361 1,820,095,454 $ 4,105,120,815

Bellaire, City of Ft. Bend WCID #2 Harris County Harris County Flood Control Dist Harris County Department of Education Harris County ID #1 Harris County MUD #122 Harris County MUD #355 Harris County Toll Road Harris County WC&ID #89 Harris County WC&ID (Fondren Rd) Houston Community College Houston, City of Jacinto City, City of Missouri City, City of Port of Houston Authority Southwest Harris County MUD #1 West Univeristy Place City of Total Net Overlapping Debt Houston ISD Total Direct & Overlapping Funded Debt
(1) (2)

Tax Rate(1) $ 0.4800 0.1629 0.3999 0.0417 0.0063 0.1444 1.0600 0.4000 1.5000 0.7100 0.0960 0.6500 0.8080 0.5016 0.0167 0.6600 0.4400

(2)

77,577,002,117

1.6200

1,820,095,454

100.00%

Most recent information provided by the respective Texas Municipal Reports. Outstanding debt is self-supporting from toll fees.

27

The District maintains five separate principal funds: a general fund used to finance a majority of its current operations; a special revenue fund for certain state and federal grants made for specific operating purposes; a debt service fund; and a capital projects fund. All ad valorem taxes levied for maintenance are allocated to the general fund. All ad valorem taxes levied for debt service are allocated to the debt service fund. All federal and state funds, except those for designated purposes, are placed in the general fund. Other non-revenue receipts are designated for the capital projects fund. The general and special revenue funds are generally utilized for operating expenditures. The debt service fund and the capital projects fund are restricted for debt service and capital projects purposes, respectively. The following is a summary of the District's revenues by source for the fiscal years 2002 through 2005, and the currently budgeted sources of revenue for fiscal year 2006, and summaries of changes in the balances in such funds for the last five fiscal years. All of the information set forth in the tables below was provided by the District.
Revenues Fiscal Year Ended (000's Omitted) Source Property Taxes Other Local Sources State Sources Federal Sources Subtotal Other Sources Total Revenues
_______________ (1) Budgeted.

2006 (1) $ 1,173,649 47,428 234,115 108,826 $ 1,564,018 428,037 $ 1,992,055

2005 $ 1,145,279 64,767 259,596 177,873 $ 1,647,515 571,873 $ 2,219,388

2004 $ 1,084,429 69,411 268,859 165,637 $ 1,588,336 351,277 $ 1,939,613

2003 $ 1,045,884 75,234 356,836 135,870 $ 1,613,824 340,056 $ 1,953,880

2002 983,862 59,146 308,404 109,331 $ 1,460,743 30,789 $ 1,491,532 $

General Fund Fiscal Year Ended (000's Omitted) Source Beginning of Fiscal Year Revenues Total Funds Available Expenditures Other Sources Other Uses Balance, End of Fiscal Year
_______________ (1) Budgeted.

2006 (1) $ 256,892 1,289,241 $ 1,546,133 $ (1,335,646) 25,270 (22,767) 212,990

2005 207,302 1,288,481 $ 1,495,783 $ $ (1,237,488) 25,100 (26,503) 256,892

2004 215,097 1,277,053 $ 1,492,150 $ $ (1,289,424) 28,320 (23,744) 207,302

2003 215,497 1,300,917 $ 1,516,414 $ $ (1,313,663) 29,493 (17,147) 215,097

2002 172,357 1,220,087 $ 1,392,444 $ $ (1,171,422) 11,652 (17,177) 215,497

$

$

$

$

$

Special Revenue Fund Fiscal Year Ended (000's Omitted) Source Beginning of Fiscal Year Revenues Total Funds Available Expenditures Other Sources Other Uses Balance, End of Fiscal Year
_______________ (1) Budgeted.

2006 (1) $ 227,121 $ 227,121 $ (227,121) $ -

2005 $ $ $ 214,897 214,897 (214,897) $ $ $ $ $

2004 203,445 203,445 (203,445) $ $ $ $

2003 214,356 214,356 (214,356) $ $ $ $

2002 134,544 134,544 (134,544) -

28

Source Beginning of Fiscal Year Revenues Total Funds Available Expenditures Other Sources Other Uses Balance, End of Fiscal Year
_______________ (1) Budgeted.

2006 (1) $ 79,552 122,123 $ 201,675 $ (136,142) 21,867 $ 87,400

$ $ $

Debt Service Fund Fiscal Year Ended (000's Omitted) 2005 2004 2003 70,993 $ 73,225 $ 74,127 108,041 90,447 90,530 179,034 $ 163,672 $ 164,657 (128,660) 335,384 (306,206) $ (115,637) 22,958 $ 70,993 $ $ (110,066) 101,829 (83,195) 73,225

$ $ $

2002 25,819 88,217 114,036 (59,046) 19,137 -

$

79,552

$

74,127

Capital Projects Fund Fiscal Year Ended (000's Omitted) Source Beginning of Fiscal Year Revenues Total Funds Available Expenditures Other Sources Other Uses Balance, End of Fiscal Year
_______________ (1) Budgeted.

2006 (1) $ 519,643 18,222 $ 537,865 $ (250,000) 108,000 (8,220) $ 387,645

$ $ $

2005 533,373 36,097 569,470 (247,195) 211,389 (14,030)

$ $ $

2004 334,096 17,391 351,487 (110,150) 300,000 (7,964)

$ $ $

2003 272,033 14,813 286,846 (149,364) 208,733 (12,119)

$ $ $

2002 515,343 17,895 533,238 (252,405) (8,800)

$

519,634

$

533,373

$

334,096

$

272,033

OTHER FINANCIAL MATTERS FINANCIAL ADMINISTRATION . . . The District is a separate political subdivision governed by applicable laws of the State of Texas. Pursuant to State law, the nine-member Board of Education adopts policies, sets directions for curriculum, employs the Superintendent, and oversees the operations of the District and its schools. The Superintendent and the District’s staff assist the Board in budget preparation, financial record keeping, and auditing. The Board is responsible for setting the tax rate, setting salary schedules, and adopting and amending the annual budget. BUDGET PROCEDURES . . . The District’s policy is to begin preparations on the individual school level in March of each year. The principals work with the teachers to formulate a working budget which then moves to the office of the Superintendent and Business Manager. After refinements at this level, the budget goes to the Board in August where it is further refined and goes through public hearings prior to final adoption in late August. Priorities are based on long-term and annual goals. BASIS OF ACCOUNTING . . . The accounting system for school districts in Texas is codified in the Texas Education Agency Resource Guide, which creates a 22-digit account structure and requires budgetary control through fund-based accounting that conforms to generally accepted accounting principles as applicable to governmental units. For further information regarding the accounting policies of the District see Note 1 to the District’s Annual Financial Report for the year ended June 30, 2005, set forth at Appendix B hereto. CASH MANAGEMENT . . . The District’s deposits and investments are required by law to either be insured by federal depository insurance or collateralized. The District invests school money pursuant to the authority of the Texas Public Funds Investment Act and the Texas School Depository Act. EMPLOYEES’ RETIREMENT PLAN . . . Pension funds for employees of Texas school districts are administered by the Teacher Retirement System of Texas (the “System”). The individual employees contribute a fixed amount of their salaries to the System, currently 6.4%, and the State contributes funds to the System based on the statutorily required minimum salaries for certified personnel, with the exception of any District personnel paid by federally funded programs. The District is responsible for funding contributions for salary amounts in excess of the State foundation level. For more information, see Note L of the District’s audited financial statements attached hereto as Appendix B.

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TAX MATTERS TAX EXEMPTION . . . In the opinion of Andrews Kurth LLP, Houston, Texas, and Burney & Foreman, Houston, Texas, Co-Bond Counsel, interest on the Bonds is (1) excludable under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), from gross income of the owners thereof for federal income tax purposes and (2) is not includable in the alternative minimum taxable income of individuals or corporations, except as described below. The foregoing opinions of Co-Bond Counsel are based on the Code and the regulations, rulings and court decisions thereunder in existence on the date of issue of the Bonds. Such authorities are subject to change and any such change could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof or change the treatment of such interest for purposes of computing alternative minimum taxable income. In rendering its opinions, Co-Bond Counsel has assumed continuing compliance by the District with certain covenants of the order authorizing the issuance of the Bonds (the “Order”) and has relied on representations by the District with respect to matters solely within the knowledge of the District, which Co-Bond Counsel has not independently verified. The covenants and representations relate to, among other things, the use of Bond proceeds and any facilities financed therewith, the source of repayment of the Bonds, the investment of Bond proceeds and certain other amounts prior to expenditure, and requirements that excess arbitrage earned on the investment of Bond proceeds and certain other amounts be paid periodically to the United States and that the District file an information report with the Internal Revenue Service (the “Service”). If the District should fail to comply with the covenants in the Order, or if its representations relating to the Bonds that are contained in the Order should be determined to be inaccurate or incomplete, interest on the Bonds could become taxable from the date of delivery of the Bonds, regardless of the date on which the event causing such taxability occurs. Interest on all tax-exempt obligations, such as the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust (REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation’s adjusted current earnings for purposes of calculating such corporation’s alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Except as stated above, Co-Bond Counsel will express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt or accrual of interest on or acquisition or disposition of the Bonds. Co-Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the District described above. No ruling has been sought from the Service with respect to the matters addressed in the opinion of Co-Bond Counsel, and CoBond Counsel’s opinion is not binding on the Service. The Service has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the District as the “taxpayer,” and the owners of the Bonds may have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the Bonds, the District may have different or conflicting interests from the owners of the Bonds. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Under the Code, taxpayers are required to provide information on their returns regarding the amount of tax-exempt interest, such as interest on the Bonds, received or accrued during the year. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, taxpayers owning an interest in a FASIT that holds tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. Such prospective purchasers should consult their tax advisors as to the consequences of investing in the Bonds. If a tax-exempt obligation, such as the Bonds, was acquired at a “market discount” and if the fixed maturity of such obligation is equal to, or exceeds, one year from the date of issue, the Code provides ordinary income tax treatment of gain recognized upon the disposition of such “market discount bond.” A “market discount bond” is one which is acquired by the holder at a purchase price which is less than the stated redemption price at maturity or, in the case of a bond issued at an original issue discount, the “revised issue price” (i.e., a market discount). Such treatment applies to “market discount bonds” to the extent the gain from the disposition thereof exceeds the accrued market discount of such bonds unless a statutory de minimis rule applies. The “accrued market discount” is the amount which bears the same ratio to the market discount as the number of days during which the holder holds the obligation bears to the number of days between the acquisition date and the final maturity date. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of the Bonds. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Bonds.

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TAX TREATMENT OF ORIGINAL ISSUE DISCOUNT AND PREMIUM BONDS
DISCOUNT BONDS Some of the Bonds may be offered at initial offering prices which are less than the stated redemption prices at maturity of such Bonds. If the initial offering prices of the Bonds are lower than the stated redemption price payable at maturity, the Bonds of that maturity (the “Discount Bonds”) will be considered to have “original issue discount” for federal income tax purposes. An initial owner who purchases a Discount Bond in the initial public offering of the Bonds at such an initial offering price will acquire such Discount Bond with original issue discount equal to the difference between (a) the stated redemption price payable at the maturity of such Discount Bond and (b) the initial offering price to the public of such Discount Bond. Under existing law, such original issue discount will be treated for federal income tax purposes as additional interest on a Bond and such initial owner will be entitled to exclude from gross income for federal income tax purposes that portion of such original issue discount deemed to be earned (as discussed below) during the period while such Discount Bond continues to be owned by such initial owner. Except as otherwise provided herein, the discussion regarding interest on the Bonds under the caption “TAX EXEMPTION” generally applies to original issue discount deemed to be earned on a Discount Bond while held by an owner who has purchased such Bond at the initial offering price in the initial public offering of the Bonds and that discussion should be considered in connection with this portion of the Official Statement. In the event of a redemption, sale, or other taxable disposition of a Discount Bond prior to its stated maturity, however, any amount realized by such initial owner in excess of the basis of such Discount Bond in the hands of such owner (increased to reflect the portion of the original issue discount deemed to have been earned while such Discount Bond continues to be held by such initial owner) will be includable in gross income for federal income tax purposes. Because original issue discount on a Discount Bond will be treated for federal income tax purposes as interest on a Bond, such original issue discount must be taken into account for certain federal income tax purposes as it is deemed to be earned even though there will not be a corresponding cash payment. Corporations that purchase Discount Bonds must take into account original issue discount as it is deemed to be earned for purposes of determining alternative minimum tax. Other owners of a Discount Bond may be required to take into account such original issue discount as it is deemed to be earned for purposes of determining certain collateral federal tax consequences of owning a Bond. See “TAX EXEMPTION” for a discussion regarding the alternative minimum taxable income consequences for corporations and for a reference to collateral federal tax consequences for certain other owners. The characterization of original issue discount as interest is for federal income tax purposes only and does not otherwise affect the rights or obligations of the owner of a Discount Bond or of the District. The portion of the principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption of such Bond to the registered owner of the Discount Bond at that time. Under special tax accounting rules prescribed by existing law, a portion of the original issue discount on each Discount Bond is deemed to be earned each day. The portion of the original issue discount deemed to be earned each day is determined under an actuarial method of accrual, using the yield to maturity as the constant interest rate and semi-annual compounding. The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Discount Bonds by an owner that did not purchase such Bonds in the initial public offering and at the initial offering price may be determined according to rules which differ from those described above. All prospective purchasers of Discount Bonds should consult their tax advisors with respect to the determination for federal, state and local income tax purposes of interest and original issue discount accrued upon redemption, sale or other disposition of such Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of such Discount Bonds. PREMIUM BONDS Some of the Bonds may be offered at initial offering prices which exceed the stated redemption prices payable at the maturity of such Bonds. If any of the Bonds of such maturities are sold to members of the public (which for this purpose excludes bond houses, brokers and similar person or organizations acting in the capacity of wholesalers or underwriters) at such initial offering prices, each of the Bonds of such maturities (“Premium Bonds”) will be considered for federal income tax purposes to have “bond premium” equal to the amount of such excess. The basis for federal income tax purposes of a Premium Bond in the hands of an initial purchaser who purchases such Bond in the initial offering must be reduced each year and upon the sale or other taxable disposition of the Bond by the amount of amortizable bond premium. This reduction in basis will increase the amount of any gain (or decrease the amount of any loss) recognized for federal income tax purposes upon the sale or other taxable disposition of a Premium Bond by the initial purchaser. Generally, no corresponding deduction is allowed for federal income tax purposes, for the reduction in basis resulting from amortizable bond premium. The amount of bond premium on a Premium Bond which is amortizable each year (or shorter period in the event of a sale or disposition of a Premium Bond) is determined under special tax accounting rules which use a constant yield throughout the term of the Premium Bond based on the initial purchaser’s original basis in such Bond .

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The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Bonds that are not purchased in the initial offering or which are purchases at an amount representing a price other than the initial offering prices for the Bonds of the same maturity may be determined according to rules which differ from those described above. Moreover, all prospective purchasers of Bonds should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale or other disposition of Premium Bonds. LITIGATION Neither the Corporation nor the District is a party to any litigation or other proceeding pending or, to the knowledge of such parties, threatened, in any court, agency, or other administrative body (either state or federal) which, if decided adversely to such parties, would have a material adverse effect on the Corporation or the District, and no litigation of any nature has been filed or, to their knowledge, threatened which would affect the provisions made for the payment or security of the Bonds, or in any manner questioning the validity of the Bonds or the Lease. LEGAL MATTERS Legal matters incident to the authorization, issuance, and sale of the Bonds are subject to the unqualified approval of the Attorney General of the State of Texas and the approval of certain legal matters by Andrews Kurth LLP and Burney & Foreman, Co-Bond Counsel, whose opinion will be in substantially the form attached hereto as Appendix C. Andrews Kurth LLP and Burney & Foreman, was not requested to participate, and did not take part, in the preparation of this Official Statement except as hereinafter noted, and such firm has assumed no responsibility with respect thereto or undertaken to verify any of the information contained herein, except that, in its capacity as Co-Bond Counsel, such firm has reviewed the information contained under the captions “INTRODUCTION,” “PLAN OF FINANCING,” “THE BONDS” (except the information therein under the subcaption “BOOK-ENTRY-ONLY-SYSTEM” and “EFFECT OF TERMINATION OF BOOK-ENTRY-ONLY SYSTEM”), “SECURITY FOR THE BONDS,” “STATE AND LOCAL FUNDING OF SCHOOL DISTRICTS IN TEXAS,” “CONTINUING SCHOOL FINANCE CHANGES,” “RISK FACTORS - CONSTITUTIONALITY OF THE LEASE OBLIGATION,” “THE CORPORATION,” “CURRENT SCHOOL FINANCE SYSTEM,” “TAX MATTERS,” and “CONTINUING DISCLOSURE OF INFORMATION” (except “COMPLIANCE WITH PRIOR UNDERTAKINGS”), “REGISTRATION AND QUALIFICATION OF BONDS FOR SALE,” “THE BONDS AS LEGAL INVESTMENTS IN TEXAS,” and in APPENDIX A of this Official Statement, to determine that the information contained under such captions is a fair and accurate summary of the information or the law purported to be described. The payment of legal fees to Co-Bond Counsel in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. Certain legal matters will be passed upon for the Corporation by their legal counsel, Andrews Kurth LLP and Burney & Foreman, Houston, Texas. Certain legal matters will be passed upon for the District by Andrews Kurth LLP and Burney & Foreman, Houston, Texas. CONTINUING DISCLOSURE OF INFORMATION In accordance with the Securities and Exchange Commission Rule 15c2-12 (the “Rule”), the District, as the “obligated person” under the Rule, will agree under the Lease to provide certain information for the benefit of the beneficial owners of the Bonds. The District is required to observe the agreement for so long as the Lease remains in effect. Under such agreement, the District will be obligated to provide certain updated financial information and operating data annually, and to provide timely notice of specified material events to certain information vendors. This information will be available to securities brokers and others who subscribe to receive information from the vendors. ANNUAL REPORTS The District will provide certain updated financial information and operating data to certain information vendors annually. The information to be updated includes all quantitative financial information and operating data with respect to the District of the general type included in this Official Statement and in Appendix B. The District will update and provide this information as of the end of such fiscal year or for the twelve month period then ended within six months after the end of each fiscal year ending in or after 2006. The District will provide the updated information to each nationally recognized municipal securities information repository (“NRMSIR”) and to any state information depository (“SID”) that is designated by the State of Texas and approved by the staff of the United States Securities and Exchange Commission (the “SEC”). The District may provide updated information in full text or may incorporate by reference certain other publicly available documents, as permitted by the Rule. The updated information will include audited financial statements, if the District commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the District will provide unaudited statements by the requested time and provide audited financial statements when and if the audit report becomes available. Any such financial statements will be prepared in accordance with the accounting principles described in Appendix B or such other accounting principles as the District may be required to employ from time to time pursuant to State law or regulation.

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The District’s current fiscal year end is June 30. Accordingly, it must provide updated information by December 31 in each year, unless the District changes its fiscal year. If the District changes its fiscal year, it will notify each NRMSIR and any SID of the change. MATERIAL EVENT NOTICES The District will also provide timely notices of certain events to certain information vendors. The District will provide notice of any of the following events with respect to the Bonds: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of registered owners of the Bonds; (8) Bond calls; (9) defeasance; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes. (Neither the Bonds nor the Lease make any provision for credit enhancement or liquidity enhancement.) In addition, the District will provide timely notice of: (i) any failure by the District to appropriate sufficient funds for the Rental payments in any fiscal year; (ii) any failure by the State Legislature to appropriate funds legally available to make payments under the Lease; (iii) any assignment or substitution of the District under the Lease, and (iv) its failure to provide information, data, or financial statements in accordance with its agreement described above under “Annual Reports.” The District, on behalf of the Corporation, will provide each notice described in this paragraph to any SID and to either each NRMSIR or the Municipal Securities Rulemaking Board (“MSRB”). AVAILABILITY OF INFORMATION FROM NRMSIRS AND SID The District has agreed to provide the foregoing information only to NRMSIRs and any SID. The information will be available to registered owners of Bonds only if such registered owners comply with the procedures and pay the charges established by such information vendors or obtain the information through securities brokers who do so. The Municipal Advisory Council of Texas has been designated by the State of Texas as a SID and the SEC staff has issued a noaction letter recognizing such designation. The address of the Municipal Advisory Council is 600 West 8th Street, P.O. Box 2177, Austin, Texas 78768-2177, and its telephone number is 512/476-6947. The Municipal Advisory Council has also received SEC approval to operate and has begun to operate, a “central post office” for information filings made by municipal issuers, such as the District. A municipal issuer may submit its information filings with the central post office, which then transmits such information to the NRMSIRs and the appropriate SID for filing. This central post office can be accessed and utilized at www.disclosureUSA.org (“DisclosureUSA”). The District may utilize DisclosureUSA for the filing of information relating to the Bonds. LIMITATIONS AND AMENDMENTS The District has agreed to update information and to provide notices of material events only as described above. Neither the District nor the Corporation have agreed to provide other information that may be relevant or material to a complete presentation of its financial results of operations, condition, or prospects or agreed to update any information that is provided, except as described above. Neither the District, the Corporation, nor the Trustee makes any representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell Bonds at any future date. The District, the Corporation, and the Trustee disclaim any contractual or tort liability for damages resulting in whole or in part from any breach of its continuing disclosure agreement or from any statement made pursuant to its agreement, although registered owners of Bonds may seek a writ of mandamus to compel the District to comply with its agreement. The District may amend its continuing disclosure agreement from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, if (i) the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in the offering described herein in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (a) the registered owners of a majority in aggregate principal amount (or any greater amount required by any provision of the Lease that authorizes such an amendment) of the outstanding Bonds consent to the amendment or (b) any person unaffiliated with the District (such as nationally recognized Bond Counsel) determines that the amendment will not materially impair the interests of the registered owners and beneficial owners of the Bonds. The District may also amend or repeal the provisions of this continuing disclosure agreement if the SEC amends or repeals the applicable provision of the Rule or a court of final jurisdiction enters judgment that such provisions of the Rule are invalid, but only if and to the extent that the provisions of this sentence would not have prevented an underwriter from lawfully purchasing or selling Bonds in the primary offering of the Bonds, giving effect to (a) such provisions as so amended and (b) any amendments or interpretations of the Rule. If the District so amends the agreement, it has agreed to include with the next financial information and operating data provided in accordance with its agreement described above under “Annual Reports” an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information and operating data so provided.

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COMPLIANCE WITH PRIOR UNDERTAKINGS The District has filed continuing disclosure for both the District and the Corporation. The District and the Corporation have complied in all material respects with all continuing disclosure agreements made by it in accordance with SEC Rule 15c2-12. RATINGS Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, A Division of the McGraw Hill Companies (“S&P”), have assigned municipal bond ratings of “Aaa” and “AAA” respectively to this issue of Bonds based upon the understanding that at the time of issuance of the Bonds a financial guaranty insurance policy will be issued by Ambac. The underlying ratings of the Bonds are “Aa3” by Moody’s and “AA-” by S&P. The outstanding debt of the Corporation is rated "Aaa" by Moody's and "AAA" by S&P through insurance by Ambac. An explanation of the significance of such rating may be obtained from Moody’s and S&P. The rating reflects only the respective view of such organization and the District makes no representation as to the appropriateness of the ratings. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by Moody’s and S&P, if in the judgment of Moody’s and S&P, circumstances so warrant. Any such downward revision or withdrawal of any rating on the Bonds may have an adverse effect on the market price of the Bonds. INITIAL PURCHASER After requesting competitive bids for the Bonds, the District accepted the bid of Merrill Lynch & Co. (the "Initial Purchaser") to purchase the Bonds at the interest rates shown on the inside cover page of the Official Statement at a price of $33,600,000 (representing the par amount of the Bonds) plus accrued interest of $21,303.13. The Initial Purchaser can give no assurance that any trading market will be developed for the Bonds after their sale by the District to the Initial Purchaser. The District has no control over the price at which the Bonds are subsequently sold and the initial yield at which the Bonds will be priced and reoffered will be established by and will be the responsibility of the Initial Purchaser. CERTIFICATION On the date of delivery of the Bonds, the Corporation will furnish written certifications of the President of the Board of Directors of the Corporation and of the President of the Board of Education of the District to the effect that this Official Statement, to the best of their knowledge and belief as of the date hereof and the date of delivery of the Bonds, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, and, in light of the circumstances under which said statements were made, not misleading. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds has not been registered under the federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a)(2), and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein. The Corporation assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated, or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemption from securities registration provisions. THE BONDS AS LEGAL INVESTMENTS IN TEXAS Chapter 1201, Texas Government Code, as amended, provides that obligations such as the Bonds are legal and authorized investments for insurance companies, fiduciaries, and trustees, and for the sinking funds of cities, municipalities, and other political subdivisions or public agencies of the State. The Bonds are eligible to secure deposits of any public funds of the State, its agencies and political subdivisions, and are legal security for those deposits to the extent of their market value. For political subdivisions in Texas which have adopted investment policies and guidelines in accordance with Chapter 2256 of the Texas Government Code, as amended, the Public Funds Investment Act, the Bonds may have to be assigned a rating of “A” or its equivalent as to investment quality by a national rating agency before such obligations are eligible investments of sinking funds and other public funds. See ‘RATINGS” herein. The Corporation has made no investigation of other laws, rules, regulations, or investment criteria which might apply to such institutions or entities or which might limit the suitability of the Bonds for any of the foregoing purposes or limit the authority of such institutions or entities to purchase or invest in the Bonds for such purposes. The Corporation has made no review of laws in other states to determine whether the Bonds are legal investments for various institutions in those states.

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MISCELLANEOUS The financial data and other information contained herein have been obtained from the District’s records, audited financial statements, and other sources which are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the statutes, documents, and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents, and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. The authorizations, agreements, and covenants of the District and the Corporation are set forth in the Financing Documents and neither this Official Statement nor any advertisement of the Bonds is to be construed as a contract with the Owners of the Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so identified, are intended merely as such and not as representations of fact. The Resolution authorizing the issuance of the Bonds also approved the form and content of this Official Statement and any addenda, supplement, or amendment thereto, and authorized its further use in the reoffering of the Bonds by the Underwriter. This Official Statement has been approved by the Board of Directors of the Corporation for distribution in accordance with the provisions of the Rule.

HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION By: /s/ Lawrence Marshall President of the Board of Directors _

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APPENDIX A SELECTED PROVISIONS OF THE FINANCING DOCUMENTS

I

MASTER TRUST INDENTURE Relating To

HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION LEASE REVENUE BONDS By and Between HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION ( "Corpora on')
And

CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("Trustee" )

Dated May 1, 1998

TABLE OF CONTENTS
ARTICLE I. Section 1 .1 . Section 1 .2 . Section 1 .3 . ARTICLE K Section 2 .1. Section 2 .2 . Section 2 .3. Section 2 .4. Section 2 .5. Section 2.6. Section 2.7. ARTICLE III Section 3 .1 . Section 3 .2. Section 3 .3 . Section 3 .4 . Section 3 .5 . Section 3 .6 . Section 3 .7 . Section 3 .8. Section 3 .9 . Section 3 .10. Section 3 .11 . Section 3 .12. Section 3 .13. Section 3 .14. Se ction 3 .15. Section 3 .16. Section 3 .17. ARTICLE IV. Section 4 .1. Sec tion 42 . Section 4 .3. Se ction 4 .4. Section 4 .5. Section 4.6. Section 4.7. Page DEFINITIONS AND RULES OF CONSTRUCTION. . . . . . .. . . . . . . . . . . . .. . .. .. . . . .. . . . . . . . . . . . . . . . . . . . . . 2 Definitions . .. . .. . .. . .. . . .. ... .. ... ... . .. ... .. . ... .. . .. ... .. .. . .. .. . .. .. . .. ... .. ... .. . .. .. . .. ... .. ... .. . .. . .. . . . . . . .. .. . .. . . . .. . ... .. . .. ...2 Rules of Construction. ... . . . .. . .. . .. .. . ... .. . .. ... .. .. . .. ... .. .. . .. ... .. ... .. . . . .. . .. ... .. ... . . . .. . .. . .. . . . .. . . . . . . .. ... ... .. . .. . .. 6 Preamble . . .. .. . .. ... . .. . ... ... ... ... .. . .. . .. .. . ... ... .. ... .. ... .. ... .. ... .. . .. .. ... ... . . .. . . .. .. . . ... .. . .. . .. . .. . . . ... .. ... .. . .. .. . .. . .. .. . 6 RECITALS AND REPRESENTATIONS . .. . . . .. . .. . .. . .. . . . .. .. . . . . .. . . . . . . .. .. . .. . . . . . . . . . . . . . . . . .. . .. . . . . . . 6 Lease .. ... .. . .. ... ... ... ...... . .. . .. ... ... .. . ... .. ...... ... .. ... .. .. . .. ... .. . .. . . ... .. . ... .. .. . .. .. . .. .. . .. . .. .. . ... .. . .. .. . .. ... .. ... ... . .. . .6 The Projects .. .. . . .. . ..... . .. ... . .. . .. ... ... .. . ... .. ... .. ... .. ... ..... .. . .. . . . .. . .. .. . .. .. . .. . .. .. . . . .. . .. . . . . .. .. . .. ... .. ... ... .. . .. . .. . .6 Payments .. .. ... . .. .... ... ... .. ... . .. ... . .. . .. ... ... .. ... .. ... .. ... ..... . .. .. . .. .. . .. . .. .. ... .. . .. .. . .. ... ... .. . .. ... .. ... ... .. ... .. . .. . .. ..6 Deposit of Funds .... ... ..... . .. . .. . .. . .. ... ... .. ... .. ... .. ... . .. .. . .. .. . .... . .. . .. .. . .. .. . .. . . . .. .. . ... ... .. ... .. ... ... .. ... ... .. . .. . .6 Trustee . .. ... . .. .. . .. . ... ... ... ... ... .. . ... ... .. ... ... . .. .. ... .. . .. .. . .. .. . .. . .. .. .. . .. . .. .. . .. ... ... . . .. . .. ... ... .. ... ... .. . .. . . ... . .. ... .. . .6 Authority to Contract . .. . .. . .. ... ... .. ... . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. ... ... ... .. ... .. ... .. .. . .. . .. ... ..... ... ... .. .. ... . .. . .. .. . .6 Conditions Precedent Satisfied .. . .. . .. . .. .. . .. ... .. ... .. . .. .. . .. .. ... .. . ... .. ... .. ... . . ... .. . .. ... ... .. ... . .. .. . . ... . .. . .. .. . .6

BOND TERMS AND PROVISIONS ............................................................................. 6 Payments from Trust Estate Only .... . .. ............................................. ... .. ..................................6 Method of Payment ............. ... ....................................................... ...........................................7 Preparation of the Bonds ................................................... ......................................................7 Form of the Bonds; Denominations; Medium of Payment....................................................7 Payment Provisions . ....................................... ........................................................... .... ...........7 Authentication ........................................... ........................................... ... .. ............................... 8 Delivery of the Bonds .................... ..........................................................................................8 Bond Register ......................... ................................................. ... ..............................................8 Transfers of Bonds ........................................................ ... ........................................................8 Exchange of Bonds .................................................... ..... ..........................................................9 Initial Bonds .......................................... .. ............................................................... ............ ......9 Bonds Mutilated, Lost, Destroyed or Stolen ....................................... .......... . .. . ..................... 9 Book -Entry Only System.............. ............................................ ...............................................9 Distributions of Certain Other Amounts .......................... .....................................................10 Other Distributions. . . ............................................. ......................................................... ... . ....10 Evidence of Signatu s of Bondholders and Ownership of the Bonds ............ ...................10 Issuance of Bonds or Other Obligations . ......................................... ... .. ................................ I l ESTABLISHMENT AND ADMINISTRATION OF FUNDS AND ACCOUNTS .......11 Trust Fund .............................. ... .......................................... ................................................... I l Establishment and Application of Payment Account .......................................................... I I Establishment and Application of Reserve Account .................................................. .. .......12 Establishment and Application of Redemption Account .......................... ..... ... . ................12 Establishment and Application of Project Acquisition Account ................................ ....... ..13 Establishment and Application of Rebate Account .............................................................13 Deposit and Investment of Funds in Trust Fund ..................................... .. ...........................13 DEFAULT, L&ffATION OF LIABILITY ........... . .. ... ...............................................14 Events of Default................................................................. .. ............................................. 14 Remedies on Default.................................................................................... ........ ... ...............1 5
Remedies on Nonappopriation.. ... ... ..... .. ... . .... . .. .. . .. ... .. .. . .. ... .. ... ... .... ... .. ... ... ... ... .. ... ... .. ... . ... ... 1 6

ARTICLE V. Section 5.1. Se ction 51. Section 53 . Section 5.4. Suction 5 .5. Section 5 .6. Section 5 .7. Sec tion 5 .8. Section 5 .9. Section 5.10. Section 5.11.

Remedy Exclusive............................. . ....................................................................................16 No Additional Waiver Implied By One Waiver..... . ................................................. .... ........ 16 Termination of Leases ...................................................................... ...................................... 16 Notice of Default .................................................................... ............ .................................... 16 Appointment of Liquidating Tmstee ................................................................................... ..17 Initiation of Remedies .................................... . ............................................... .. . .....................17 Rights and Remedies of the Bondholders ..................................... .... ....................................17 Termina tion of Proceedings ............................................................................................. .....17
i

Section 5 .12 . Section 5 .13 . Section 5 .14. Section 5 .15. Section 5 .16. Section 5 .17. Section 5 .18.

Waivers of Events of Default ................................................................................................17 Application of Money . ...........................................................................................................18 No Obligation With Respect to Performance by Trustee ....................................................19 No Liability to the Bondholders for Rental Payments or Covenants . ........................ ..19 No Responsibility for Sufficiency of 1 .eases ........................................................................19 No Liability of Trustee ...........................................................................................................19 Enforcement of Leases ...........................................................................................................1 9 REDEMPTION OF THE BONDS ........... .................................................... .. . ...... . ..... . 20 Terms of Redemption ............. .... . ..... .....................................................................................20 Scheduled Principal Insta ll ments ..........................................................................................20 Par tial Redempti on . . ................................................................................................................20 Notices of Redemption ........................................... ........ . ............................. ......... . .. ......... 20 THE TRUSTEE ...... ... ................................................................................................. 21 Employment of Trustee ................................................................................................... .. .. . . 21 Acceptan ce of Appointment ....................................................................... ................ . .... ...... 21 Rights and Duties of Trust ee........................................................................................... ......21 Removal and Resignati on ................................. . ............ ........ ................................................22 Appointment of Agent ...........................................................................................................23 Merger or Consoli dation of Trustee ............... 23 Trustee Notice ............................................................................................ . ...........................23 Directors, Officers, Employees and Agents Exempt from Personal Liability ...................23
AMENDMENT; DEFEASANCE; ADMINISTRATIVE PROVISIONS . . . . . . . . . .. . . . . . . . . . . . 23 Amendment . . . . . . . . . .. . .. . . . .. . . . . .. . .. . .. .. ... .. . .. .. . .. . . . . . . .. . . . .. . . . .. . .. . . . .. . .. . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. ... . . . .. . .. . . . .23 Defeasance . . . . . . .. . . . .. . . . . . . . . . . .. .. . .. .. . .. ... .. . .. .. . . . . .. .. . . . . . ... . . . .. . . . .. . .. . .. . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. . .. . . . .. . .. . . . . 24 Payments Due on Holidays . . .. .. . .. ... .. . .. .. . . . ... .. ... .. . .. . .. .. . . . .. . .. . .. . .. . .. .. . .. .. . .. .. . .. . .. . . . .. .. . .. ... . .. . . . .. . . . .25 Recording and Filing. . . .. . ... .. . .. .. . .. ... .. . .. . . . . . ... . . ... .. . .. . . . . . . . . .. . .. . .. . . . . .. . . . .. . . . .. .. . .. . .. .. . . . . . . . . . .. . . . . . . . . . . . .25 Notices . ... . . . .. . . . .. . . . . . . .. . . . . . . . .. .. . .. . .. .. . .. .. . .. ... . . . .. . . . .. . . ... . . . .. . . . .. . .. . .. . .. . .. .. . .. ... .. .. . .. . .. . . . .. .. . . . . .. . .. . .. . . . . . .25 Applicable Law . . . .. . . . . . . . . . . . . .. . .. . . . .. . . . .. . .. .. . .. ... . . . .. . . . .. . . . .. . . . . . . .. . . . . .. . .. .. . .. . . . .. . . . .. . .. .. . . . .. . . . . .. . .. . . . . . . .. .26 Severabil ity .. . . . .. . . . .. . .. . . . . .. . .. .. . .. . . . .. . .. .. . .. ... . . ... . . . .. . . . .. . . . .. . . . .. . .. . .. . .. . .. ... .. . .. .. . .. .. . .. . .. . . ... . . . .. . .. . .. . . . .. . 26 Binding on Successors . . . . .. .. . .. . .. .. . .. .. . .. ... . . ... . . . .. . . ... . .. .. . .. .. . .. . .. . ... .. . .. .. . .. .. . .. .. . . . . .. . . . .. . . . . . . .. . .. . .. .. .26 Headings . . . ... . . . .. . . . .. . .. . .. . . . . .. ... .. ... .. . .. .. . .. . .. . . . .. . . . .. . . . .. . . . .. . .. .. . .. . .. . ... .. ... .. . .. .. . . . .. . .. . .. . . . .. . .. . . . . . . ... .. .. .26 Executi on in Counterparts ... .. . . . .. ... .. . .. ... . . . .. . . . .. . . . .. . .. .. . .. . . . .. . ... ... .. . .. .. . .. .. . . . .. . . . . . . . . . . . . .. . .. . . . ... .. .. . 26 Complete Agreement . . . . . . .. .. . .. ... .. ... .. . .. . .. . . ... . . . .. .. . .. . .. . . . .. . . . .. . .. . ... .. ... .. . .. .. . . . ... . . . . . . . . . . . .. . .. . . . . .. .. . .. 26

ARTICLE VI . Section 6 .1. Section 6 .2. Section 6.3. Section 6 .4.
ARTICLE VII . Section 7 .1 . Secti on 7 .2 . Section 7 .3 . Section 7 .4 . Section 7 .5 . Section 7.6 . Section 7 .7 . Section 7 .8 . ARTICLE VIII. Section 8.1 . Section 8.2. Section 8.3 . Section 8.4. Section 8.5. Section 8.6. Section 8.7. Section 8.8. Section 8.9. Section 8.10. Section 8.11 .

EXFIIBIT" A ................ .. . . . ...... ......... ................................ ....... Request for Authentication and Delivery of Lease Revenue Bonds

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MASTER TRUST INDENTURE RELATING TO HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACEUTY CORPORATION LEASE REVENUE BONDS THIS MASTER TRUST INDENTURE RELATING TO HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION LEASE REVENUE BONDS (this "Master Indentu re") is made as of May 1, 1998, by and between CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a na tional banking association duly organized and operating under the laws of the United States of Ame ri ca with an office in Houston, Texas, as trustee (the "Trustee'% and HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACB .ITY CORPORATION, a non -profit corporation organized and existing under the laws of the State of Texas (the "Corporation'). Wl"TNESSETH : WHEREAS, the Board of Education (the "Board of Education") of the Houston Independent School District (the "District") has found that the acquisition, construc tion, rehabilitation, renovation, repair, equipping, furn ishing and placement in service of public educati on facili ties in the District would be beneficial to the inhabitants of the District, and such property and improvements are needed to perform essential governmental functions, and the Board of Education has determined that oontracts should be entered into pursuant to the provisions of the Publi c Property Finance Act, Section 271 .001 et seq ., Texas Local Government Code, as amended (the "Acr), and Section 45, Texas Education Code, for such purposes; WHEREAS, the Corporation has been created and organized pursuant to and in accordance with the provisions of the Public Facility Corporation Act, Article 717s, Vernon's Texas Civil Statutes, as amended ("Article 717s"), for the purpose of acting on behalf of the District for the purpose of financing the acquisition, construction, rehabilitation, renovation, repair, equipping, furnishing and placement in service of public facilities of the District; WHEREAS, Article 717s authorizes the Dist ri ct to issue to or incur in favor of the Corporation, obli gations issued or incurred in accordance with existing law, to provide for the acquisition, construction, rehabilitation, renovation, repair, equipping, furnishing and place ment in service of public facilities of the District; WHEREAS, Article 717s authorizes the Corporation to : (a) acquire title to a publi c facility in order to lease, convey or dispose of the public facility to the Dist rict; (b) sell, convey, mortgage, pledge, lease, exchange, transfer and otherwise dispose of all or any part of the Corpor ation's property and assets ; and (c) make a contract, incur a liabi lity and bor row money at interest; WHEREAS, to secure its obligations under this Mast er bx entu re, the Corporation wi ll grant a first mortgage li en on and first deed of trust title to each Project (defined herein) to the Trus tee on behalf of the owners of the lease revenue bonds issued to finan ce such Project; REAS, the Corporation hereby finds and det ermines that the issuance of lease revenue bonds to finance Projects will further the purposes and policies of Article 717s; and WHEREAS, the execution and delivery of this Master Indenture was authorized by resolution duly adopted and approved by the Board of Directors of the Corporation on April 16, 1998; NOW, THEREFORE„ in the joint and mutual exercise of their powers, and in consideration of the mutual covenants herein contained, the parties hereto agree as follows :

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ARTICLE L DEFINITIONS AND RULES OF CONSTRUCTIO N Section 1.1 . Definpions - Terms defined in this Master Indenture shall have the meanings given them herein unless the context requires otherwise . Terms defined in a Lease and capitalized herein shall, for purposes of this Master Indenture, have the meaning given them m such Lease unless the context requites otherwise . Appropriate, Appropriated or Appropriation - The adoption by the Board of Education of the District of a budget or amendments to a budget for a Fiscal Year which includes the Rental Payments and other payments required, if any, to be made under a Lease during such Fiscal Year . Architect - The architect with whom the District has contracted to prepare the Plans and Specifications for a Project, as specified in the Supplemental Indenture entered i nto in connexion with such Projec t Authorized Officer - When used with respect to the Trustee, any Executive We President, any Senior Vice President, any Vice President, or any other officer, who by virtue of his posi ti on with the Trustee has been authorized by the Board of Directors of the Trustee to execute trust agreements similar to this Master Indenture and related documents . The term "Authorized Officer," when used with respect to the Corporation, means the President, any Vice President, Secretary, Assistant Secretary or Treasurer of the Corpora tion or any other officer of the Corporation who is designated in writing by or by resol ution of the Board of Directors of the Corporation as an Authorized Officer for purposes of this Master Indenture. The term `Authorized Officer, cer, " when used with respect to the Dist rict, means the Superintendent, Deputy Superintendent, Finance and Business Services, Cont roller, or any representative or employee of the District who is designated in writing by or by resolution of the Board of Education of the District as an Authorized Officer for purposes of this Master Indenture . The term "Authorized Officer," when used with respect to the Architect, means appropriately either the Architect, if an individual, or the person designated in writing by the Architect, if a firm, as an Authorized Officer for the purpose of this Master Indenture . Avail able Funds - Funds appropriated by the District firm (i) any money appropriated biennially by the Legislature of the State that may lawfully be used with respect to any payment obligated or permitted under a lease, which under current law is limited to Guaranteed Yield Program Tier Two Funds and, if applied for and received by the District, Instructional Facilities A llotment Tier Three Funds, and (ii) any unintended surplus maintenance tax funds of the District at the end of each Fiscal Year after payment of all maintenance and operating expenses for that year, provided, however, that, upon receipt of an approving opinion of nationally recognized bond counsel, Available Funds shall also include any ot her funds Appropriated by the Distr ict that are hereafter determined to be available for the payment of Rental Payments as a result of a final, nonappealable judgment of a court of competent jurisdiction, legislation hereafter enacted or other change in State law . Board of Directors - The Board of Directors of the Corporation. Board of Education - The Board of Education of the Distric t Bond or Bonds - Any Houston Independent School District Public Facility Corporation Lease Revenue Bond or Bonds authenticated and delivered under and pursuant to this Master Indenture. Bond Payment Date - Each March 15 and September 15 of each year and continuing for so long as any Bonds are Outstanding, unless otherwise provided in a Supplemental Indenture. Bond Register - Books for the registration and transfer of the Bonds, to be kept by the Trustee. Bondholder - The person in whose name any Bond is registe re d, as identified in the Bond Register. As used herein, an "Owner" or a "Holder" of Bonds means a Bondholder. At any time during which a po li cy of municipal bond insurance is in effect for a series of Bonds, the p rovider of such poli cy shall be deemed to be the sole Bondholder of such Bonds for the purpose of providing consents, approvals and waivers hereunder .

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Business Day - Any day other than a Saturday, Sunday or a day on which banking institutions in the city in which the principal corporate trust office of the Trustee is located, or on which banking institutions looted in the City of New York, New York are required or authorized by law to be closed, or a day other than a day on which the New York Stock Exchange is closed . Closing Date or Closing - The date of delivery of a seri es of Bonds to the Purchaser thereof. Code - The Internal Revenue Code of 1986, as now or hereafter amended, and, if the context permits, the regulations from time to time promulgated thereunder and revenue rulings and procedures from time to time issued pursuant thereto. Construction Administrator- A professional architect registered as such under Texas law, or firm of such registered professional architects, a professional engineer rem as such wider Texas law, or firm of such professional engi neers, or such other construction professional or firm of constru c tion professionals, selected by the District for the purpose of inspecting a Project for conformity with its Plans and Sp ecificati ons, to approve periodic draws pursuant to Section 3 .2(b) of the Lease, as specified in the Supplemental Indarture entered into in connection with such Project The Construction Administrator and the Architect may not be the same fum or entity, unless otherwise provided in a Supplemental Indenture. Corporation - Houston Independent School District Public Facility Corporation, a Texas non-profit public corporation created pursuant to Article 717s, Vernon's Texas Civil Statutes, as amended, and its successors and assigns . DTC - The Depository Trust Company, New York, New York, or any successor securities depository . DTC Participant - Brokers and dealers, banks, trust companies, clearing corporations and certain other organizations on whose behalf DTC was created to hold securiti es to facilitate the clearance and settlement of securities transac tions among DTC Participants. Deed of Trust - Each Deed of Trust, Security Agreement, Assignment of Rents and Leases and Financing Statement by the Corporation to the Trustee granting a first lien security interest in a Project. District - The Houston Independent School District, a p olitical subdivision of the State created pursuant to Article VII, Section 3 of the Texas Constituti on, and its successors and assigns . Event or Default - Those events of default provided for in Section 5.1 of this Master Indenture. Event of Nonappropriation - Any of the following events: 1. The failure by the Board of Education to Appropriate from Available Funds sufficient funds to pay the Rental Payments to be made under a Lease during the upcoming Fiscal Year (ad of any funds then on deposit in the suhaccount of the Payment Account established with respect to the related Bonds or amcipatod to be deposited into such subaccount p rior to the Bond Payment Dates during such Fiscal Year) ; or 2. The reduction of any Appropriation to an amount that is insufficient to permit the Distri ct to pay the Rental Payments (net of any funds then on deposit in the subaccount of the Payment Account estab lished with respect to the r elated Bonds or anticipated to be deposited into such subaeoount p rior to the Bond Payment Date) during such Fiscal Year, in which case the Event of Nonappropri ati on shall be ret roactive to the beginning of the Fiscal Year in which the reduction is made. Financing Documents - Collectively, this Master Indenture and awry Supplemental Indenture, the Ground Lease, the Lease, the Deed of Truax and the Bonds with respect to a Project . Fiscal Year - Each 12-month fiscal period of the District commencing on September 1 and eriding on August 31 of the following year, or such other annual accounting period as the District may hereafter adopt

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Guaranteed Yield P rogram Tier Two Funds or Tier Two Funds - Funds which are allotted to the District pursuant to Section 42.301 et seq., Texas Educati on Code, as amended. Imp rovements - All improvements, equipment and furnishings financed with a series of Bonds and acquired, cones and installed at a Project. Initial Bonds - The Bonds prepared in temporary form and submitted to the Attorney General for approval and delivered to the Trustee in exchange for the Bonds in accordance with Section 3 .3 of this Master Indenture. Instructional Facilities Allotment Tier Three Funds or Tian Three Funds - Funds which are applied for and received by the District pursuant to Section 46.001 et seq ., Texas Education Code, as amended. Lsuan ce Costs - The costs of issuance incurred in connection with the sale of a series of Bonds and the execution and delivery of the related Lease . Land - The real property described in a Lease upon which Improvements are to be constructed or installed. Lease - Each Lease With An Option To Purchase relating to a Project by and between the Corporation and the District. Outstanding - As of the date of determinati on, all Bonds theretofore issued and delivered under this Master Indenture, except (1) Bonds theretofore cancelled by the Trustee or delivered to the Trustee for can cellation ;

(2) Bonds for whose payment or redemption money in the necessary amount has been theretofore deposited in an account, other than a Payment Account identified in Article N of this Master Indenture, with the Trustee in trust irrevocably for the holders of such Bonds, (3) Bonds in exchange for or in lieu of which other Bonds have been registered and de livered pursuant to this Master Indentu re ; and (4) Bonds all eged to have been mutilated, destroyed, lost, or stolen which have been paid as provided in this Mast er Indenture . Payment Account - That certain account established in accordance with Section 4 .2 of this Master Indenture. Permitted Investments - The investments designated as "Permitted Investments" in each Supplemental Indenture. Principal Office - With respect to the Trustee aging in its capacity as Trustee, its offices for the purposes and at the addresses set out in Section 8 .5. Project - Any Land, Improvements, or both, comprising education facilities of the District and financed hereunder, as further defined in each Supplemental Indenture . Project Acquisition Account - That certain account established in accordance with Section 4.5 of this Master Indenture . Project Costs - All costs related to a Project or the financing thereof, as authori zed by Article 717s and further defined in each Supplem ental Indenture. Purchase Option Date - Each Bond Payment Date so designated in connection with the issuance of a seri es of Bonds and any date so designated pursuant to a Lease in the event of damage, destruction or condemn ati on of a Project.

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Pumbase Option Price - For each Purchase Option Date prior to the final maturi ty date of a series of Bonds, an amount which will be sufficient, together wi th amounts available for such purpose, if any, on deposit in the related subac count of th e Payment Account, Redem pti on Account and Reserve Account, to pay the principal of all Bonds of such series then Outstanding, the redemption premium, if any, and accrued or accreted interest thereon to the date fixed for redem ption in accordance with Section 6.1 hereof, together with any other amounts then due or past due hereunder on such Bonds, as of the redemption date of the Bonds, plus One Do llar (51 .00) ; and on the final maturity date of such Bonds after all Bonds of such series have been paid in full, One Dollar ($1 .00), provided that all amounts due and payable hereunder have been paid. Purchaser - Each direct purchaser from th e Corporation of a seri es of Bonds issued hereunder. Rating Agencies - Co llectively, Moody's Investors Service , Inc . and Standard & Poor's Ratings Services . Rebate Account - That certain account establi shed in accordance with Section 4 .6 of this Master Indenture . Redemp ti on Account - That certain account estab lished in accordance wi th Section 4 .4 of this Master Indenture . Rental Payments - The rental payments to be paid fro m th e Dist ri ct to the Corporation under each Lease in amounts not less than th e payments on the related Bonds less any funds r e ceived by the Corporati on and deposited into the appropriate subaccount within the Payment Account. Reserve Account - That certain account so designated an d established in accordance with Section 4 .3 of this Master Indenture. Reserve Account Surety Policy - Any reserve fund surety policy or bond, letter of credit or other instrument, however denominated, p rovided by a, qualifying financial ins ti tuti on as described in th e following sentence, pursuant to which the Trustee may draw on such Reserve Account Surety Policy to enable the Corporation to make a required transfer from the Reserve Account to the Payment Account . A Reserve Account Surety Policy may be acquired only from a financial instituti on with a long-term credit rating in one of the two highest generic rating categories from the Rating Agencies and shall be payable upon demand of the Corporation for the benefit of the Bondholders. Rese rv e Requirement - Such amount, if any, required by a Supplemental Indenture to be deposited to the credit of the Reserve Account in connection with the issuance of any series of Bonds, taking into account any Reserve Account Surety Policy provided by the Corporation . Resolution - The resolution of the Board of Directors of the Corporation adopted on April 16, 1998, authorizing and approving this Master Indenture, and other matters incident and related thereto . State -The State of Texas. State Laws - The Constitution and the laws of the State of Texas as in effect from time to time . Supplemental Indenture - Any indenture supplemental hereto or amendato ry hereof approved by the Corporation in connection with the issuance of Bonds hereunder. Trust Estate - The property conveyed to the Trustee pursuant to each Supplemental Indenture. Trust Fund - The "Trust Fund" so designated and established pursuant to Section 4.1 hereof, consisting of the Payment Account, Reserve Account, Rebate Account and Redemption Account . The Trust Fund does not include the Project Acquisition Account unless otherwise provided in a Supplemental Indenture. Trustee - Chase Bank of Texas, National Association, Houston, Texas, and its successors an d assigns.

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Section L L

Riles of Construction.

Words of the masculine and feminine graders shall be doomed and construed to include the other (a) gender and the neuter gender . Unless the context otherwise indicates, the singular number shall include the plural number and vice versa, and words importing persons shall include corpor ations and associations, including pu blic bodies, as well as natrnal persons . (b) Headings preceding the text of the Articles and Sections heroot and the Table of Contents, are solely for convenience of reference and shall not constitute a part of this Master Indenture or effect its meaning, construction or effect. Section 1.3 . Prc= bl The statements and findings in the preamble of this Master Indenture are hereby adopted and made a part of this Master Indenture . ARTICLE IL RECITALS AND REPRESENTATIONS Section 2.1 . .e is e. Prior to the issuance of a se ries of Bonds hereunder, the Corporation and the District will have entered into a Lease whereby the Corporation will have agreed to lease the related Project to the District and the District wi ll have agreed to lease the Project from the Corporation. Section 2.L The Proiecta . Each Project will be accepted by the District in accordance with the provisions of the related Lease, the related Supplemental Indenture and this Master Indenture. Section 2.3 . Payments. Under each Lease, the Distri ct will be obli gated to pay to the Corporation or its assigns Rental Payments for the lease of the related P roject, subject to funds being Appropriated for such purposes . Section 2 .4. Deposit of Funds . Under each Lease, the Corporation and the District will be required to deposit or cause to be deposited with the Trustee ce rtain sums of money to be held, credited and appli ed in accordan ce with the terms hereof. Section 2.5. Trustee . The Corporation, for and on behalf of the Bondholders, hereby appoints the Trustee and the Trustee hereby accepts such appointment to : (a) receive the proceeds from the sale of each series of the Bonds ; (b) receive all payments to be made pursuant to each Lease ; (c) apply and disburse the proceeds from the sale of each series of the Bonds and the payments received hereunder as hereinafter provided ; and (d) perform all the other duties and obligations of the Trustee expressly provided for herein. Section 2 .6. Authority to Contract . Each of the parties has authority to enter into this Master Indenture and has taken all actions necessary to authorize its execution and delive ry by its Authorized Officers signing on the signature page hereof and the performan ce of its respective obligations hereunder. Section 2.7. conditions Precedent Satiafred . All acts, conditi ons and things required by law to exist, happen and be performed precedent to and in connection with the exaction and entering into of this Master Indenture have happened, and have been performed in regular and due time, form and manner required by law, and the parties hereto are now fully empowered to execute and enter into this Master Indenture . ARTICLE III. BOND TERMS AND PROVISION S Section 3.1. Payments from Trust Estate Onlv. All payments to be made by the Trustee under this Master Indenture to the Bondholders sh all be made only from the income and proceeds from the Trust Estate created for the benefit of such Bondholders pursuant to the Supplemental Indentu re entere d into in connection with the issuan ce of such Bonds and only to the extent that the Trustee shall have received income or proceeds from suc h

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Trust Estate. The Bondholders agree that they shall look solely to the income and proceeds from their respective Trust Estate, as set forth in the Supplemental Indenture pursuant to which their Bonds are issued to the extent available for payment of the Bonds . Section 3.2. Method of Payment . The Trustee is hereby appointed Paying AgenMegimar for the Bonds. Payments of interest and principal with respect to the Bonds shall be payable in accordance with Section 3 .5 hereof.
Section 3.3. Prenantion of the Bonds.

(a) The Trustee is hereby authorized, upon receipt of written request executed by an Authorized Officer of the Corporation, to authenticate and deliver, with respect to each aeries of Bonds issued hereunder, one Bond for each maturi ty in the principal amount thereof The Bonds shall mature in the amounts and bear interest as set forth in a Request for Authentication and Delivery in the form of Exhibit A delivered to the Trustee by the Corporation . Such Bonds shall initially be registered and delivered to the Trustee by the Corporation as set forth in Section 3 .3(b) hereof. (b) The Initial Bonds shall be registered in the name set forth in the Request for Authentication and Delivery referred to in Section 3.3(a) above and sha ll be submitted to the Attorney General of Texas for approval, and thereafter registered by the Comptroller of Public Accounts of the State of Texas or his duly authorized agent, by manual signature. At any time thereafter, the Bondholders may deli ver any such Initial Bonds to the Trustee for exchange, accompanied by ins tructions from the Bondholder thereof; or such designee, designating the p ersons in whose names such Initial Bonds are to be registered and the addresses and the social security or tax identification numbers of such persons, and the Trustee shall thereupon, within not more than three (3) business days, authe nticate, register and deliver such Bonds as provided in such instructions. No Bond shall be entitled to any benefit under this Master Indenture or be valid or obligatory for any purpose, unless th ere appears on such Bond a certificate of registration executed by the Comptroll er of Public Accounts of the State of Texas or a ce rtificate of authen ti cation executed by Trustee, and such certificati on upon any Bond sh all be conclusive evidence, and the only evidence, that such Bond has been duly authenticated and delivered hereunder. Section 3 .4. Form of the Bonds, Denominations : Medium of Payment . The Bonds shall be issued only as fully registered bonds, without coupons, as eit her current interest bonds or capital appreciation bonds. The defini tive Bonds shall be in denominations of $5,000 of principal amount or maturity amount, or integral multiples thereof. The Bonds shall be payable solely in lawful currency of the United States of Ame rica. Each se ri es of Bonds shall be numbered consecutively from "R-1, " upward for current interest bonds and "CR-1" upward for capital appreciation bonds . Section 3 .5. Payment Provisions.

(a) Payments of interest made with respect to the current interest Bonds sha ll be made to the persons appearing on the Bond Register of the Trustee as the owners thereof at the close of business on the last day of the month (whether or not a Business Day) preceding the date on which such payment is due . All distributi ons of principal with respect to the current interest Bonds and of maturity amounts with respect to capital appreciation Bonds shall be made only upon surrender thereof to the Trustee at its Principal Offi ce. (b) If any Bond shall not be presented for payment when the principal or maturity amount thereof becomes due, either at maturity or at the date fixed for redemption th=K and funds sufficient to pay such Bond shall have been made available to the Trustee for the benefit of such Bondholder, it sh all duerrafter be the duty of the Trustee to hold such funds, without liability for interest thereon, for the benefi t of such Bondholder. Such Bondholder shall thereafter be restricted exclusively to such funds for any chum of whatever nature he may have under this Master Indenture or with resp e ct to said Bond. The Trustee' s obligation to hold such funds shall continue for a period of three (3) years fo llowing the date on which the principal of the Bond became due (wheth er at maturity or at the date fixed for redemption th ereof; or otherwise, as the case may be), at which time the Trustee shall surrender, pursuant to and in accorda nce with the provisions of any escheat or forfeiture laws including Title 6 of the Texas Property Code, as amended, any remaining funds so held by it . Upon such surrender, any claim of

whatever nature under this Master Indenture by the Bondholders shall be made pursuant to such laws or Title 6 of the Texas Property Code, as amended . Section 3 .6. Authentication. Except for the Initial Bonds, the Bonds shall be authenticated by the manual signature of any employee as may be designated by an Authori ze d Officer of, and in the name cf; the Trustee under this Master Indenture. Section 3.7. Delivery of the Bonds. Upon the Closing of each aeries of Bonds, the Corporation shall execute such Bonds and deliver them to the Trustee . The Trustee then shall register and authen ticate such Bonds and deliver them the Purchaser thereof. Prior to the registration and authentication by the Trustee of a series of Bonds, there shall be filed with the
Truster:

(a) A closing certificate of the Corporation incorporating a copy of the documents evidencing creation of the Corporation, the Corporation's Articles of Incorporation, and any amendments thereto, and Bylaws, and any amendments thereto, a copy of the Resolution and a copy of the resolution of the Corporation andxxizing the issuance of such series of Bonds ; (b) A closing certificate of the District incorporating a copy of the order or resolution of the Board of Education of the District authorizing and approving the exec ution and delivery of the Lease relating to such series of Bonds and all other documents to be delivered by the District in connection with the transac ti ons contemplated by said instrument ; (c) Original executed counterpa rts of the Financing Documents;

(d) A direction and authorization to the Trustee, signed by the President or Vice President of the Corporation, to authenticate and deliver the Bonds to the Purchaser thereof upon payment to the Trustee for the account of the Corporation of the sum therein specified and to deposit the proceeds thereof as p rovided in this Master Indenture ; (e) A certificate by officer or official of the Corporation charged with the responsibility for issuing the Bonds of the reasonable expectations of the Corporation on the date of issuan ce of the Bonds regarding the amount and use of the proceeds of the Bonds evidencing the basis or the tax-exemption of the interest on the Bonds; and Opinions as to the validity of the Bonds and the related Lease of the Attorney General of the State (f) and of Bond Counsel and an opinion of counsel for the District as to the validity of the Lease, in form and substan ce satisfactory to the Purchaser. Section 3 .8. Bond Resister. The Trustee will maintain a register of the names and addresses of the Bondholders . The Trustee shall deem and treat the persons or enti ti es in whose name the Outstanding Bonds shall be registered upon the Bond Register as the absolute owners of such Bonds, whether such Bonds sh all be overdue or not for the purpose of receiving payments oi, or on account of the principal of and interest payments with respect to, such Bonds plus the Purchase Option Pr i ce as determined pursuant to the Lease rel ating to a series of Bonds and for all other purposes, and all such payments so made to such Bondholder, or upon his or her order, shall be valid and effectual to satisfy and discharge the liabi lity upon such Bonds to the extent of the arm or sums so paid,, and neither the Corporation nor the Trust ee shall be affected by any notice to the contrary. Section 3.9. Transfer of Bonds . Any Bond may be transferred upon mire nder thereof by the Bondholder in person or by his attorney-in-fact or legal representative duly authori zed in writing together with a written instrument of transfer and upon payment by such Bondholder of a sun sufficient to cover any governmental tax, foe or charge required to be paid, as provided in this Master Indenture, but otherwise no charge sh all be made for such transfer. Upon any such transfer, the Corporation shall cause to be executed and the Trustee shall authenti cate and deliver in the name of the transferee a new fully registered Bond or Bonds of the same type and series and in authorized denominati ons and of the same maturi ty or maturities and interest rate(s) and in the sam e

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aggregate principal amount(s) or maturity amount(s), and the Trustee shall enter the transfer of ownership in the Bond Register. No transfer of any Bond shall be effective until entered on the Bond Register . Secti on 1 10. Ezchanee of Bonds. The Bond may be exchanged upon surrender thereof for cancellati on at the Principal Office of the Trustee for a Bond or Bonds of Me type and series, maturity and aggregate principal amount or maturi ty amount. The Bond surrendered in an exchange under this Section shall be cancelled Such cutange sh all be without cost to the Bondholder except that the Trustee shall require such Bondholder to pay any tax, fee or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be required to make any exchanges of the Bond during the period between the but day of the month preceding the date on which a payment with respect to the Bond is due and the date on which the such payment is due or during the fifteen (15) calendar days next preceding the giving of any no tice of redemption. Section 3.11. mutual Bonds . Pending preparati on of definitive Bonds, Bonds delivered under this Master Indenture may be initially delivered in temporary form exchangeable for definitive Bonds when ready for delivery in the manner set forth in Section 3 .3 hereof. Such Initial Bonds may be printed, lithographed or typewritten and may contain such reference to any of the provisions of this Master Indenture as may be appropriate . Initial Bonds sha ll be executed and authenticated and delivered upon the same conditions and in substantially the same manner as de finitive Bonds in the manner set forth in Section 3 .3 hereof. If the Trustee delivers Initial Bonds, it shall execute the de finitive Bonds in exchange for, and upon surrender for cance llati on at the Principal Offi ce of the Trustee, Initial Bonds of the same type and series in an equal aggregate principal amount or maturity amount and of the same maturity . Until so exchanged, the Initial Bonds shall be entitled to the same rights, remedies and benefi ts under this Master Indenture as the definitive Bonds delivered pursuant hereto . Section 3.12. Ends Mutilated . Lost. Destroved or Stolen. If any Bond shall become mutilated, the Trustee shall, at the expense of the Holder of said Bond, execute and deliver a new Bond of like type, series, tenor, maturity and number (except that such number may be pre ceded by a distinguishing prefix) in exchange and substitution for the Bond so mutilated The mutilated Bond surrende red to the Trustee shall be cancelled. if the Bond shall be lost, destroyed or stolen, evidence of such loss, des truction or theft may be submitted by the owner or his duly authorized agent to the Trustee and if such evidence is satisfa ctory to the Trustee and if an indemnity bond in an amount and form satisfactory to the Trustee sha ll be given, the Trustee shall execute and deliver a new Bond of like type, series, tenor and maturity and number as the Trustee sha ll determine in lieu of and in substitution for the Bond so lost, dest royed or stolen . If, after the delivery of such new Bond, a bona fi de purchaser of the ori ginal Bond in lieu of which such new Bond was issued presents for payment or registration such original Bond, the Trustee shall be entitl ed to recover such new Bond from the person to whom it was de li vered or any person taking therefrom, except a bona fide purchaser, and shall be e nti tled to recover upon the security or indemn ity provided therefor to the extent of any loss, damage, cost or expense incurred by the Corporation or the Trustee in connection therewit h The Trustee may require the payment of a sum not exceeding the actual cost of preparing the new Bond issued under this Section and of the expenses incurred by the Trustee hereunder. The Bond issued under the provisions of this Section in lieu of the Bond alleged to be lost, destroyed or stolen shall be equa lly and ratably entitled to the be nefi ts of this Master Indenture with any other Bond secured by this Master Indenture . The Trustee shall not treat both the o riginal Bond and any replacement Bond as being Outstanding for the purpose of determining the amount of the Bond which may be issued hereunder . As to any Bond which has been mutilated, lost, destroyed or stolen and which has matured, the Trustee may pay such Bond with funds co hand which have been provided by the Corporation . Section 3 .13. Book-Entry Only System .

(a) The definitive Bonds shall be initially issued in the form of a separate single fully registered Bond for each of the maturities thereof. Upon initial issuance, the ownership of each such Bond shall be registered in the name of Cede & Co ., as nominee of DTC, and except as provided in subsection (c) below, all of the Outstanding Bonds sha ll be registered in the name of Cede & Co., as nominee of DTC. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in plan of Code & Co., the word "Cede & Co ." in this Master Indenture shall refer to such new nominee of DTC .

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With respect to Bonds registered in the name of Cede & Co ., as nominee of DTC, the Corporation, the District and the Trustee shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such a DTC Participant holds an interest is the Bonds . Without limiting the immediately preceding sentence, the Corporation, the District and the Trustee shall have no responsibility or obligation with respect to (a) the accuracy of the records of DTC, Code & Co . or any DTC Participant with respect to any ownership interest in the Bonds, (b) the delivery to any DTC Participant or any other person, other than a Bondholder, as shown on the Bond Register, of any notice with respect to the Bonds, including any notice of redempti on or (c) the payment to any DTC Participant or any other person, other than a Bondholder, as shown in the Bond Register of any amount with respect to principal of the Bonds, premium, if any, or interest on the Bonds. Except as provided in this Section, the Corporation, the District and the Trustee shall be entitled to treat and consider the person in whose name each Bond is registered in the Bond Register as the absolute owner of such Bond for the purpose of payment of principal of; premium, if any, and interest on Bonds, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of regist er ing transfer with respect to such Bond, and for all other purposes whatsoever. The Thistee shall pay all principal of Bonds, premium, if any, and interest on the Bonds only to or upon the order of the respective Owners, as shown in the Bond Register as provided in this Master Indenture, or their respective attorneys duly authorized in writing, and a ll such payments shall be valid and effective to fully satisfy and discharge the Corporation's obligations with respect to payment of principal of, premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. No person other than an owner shall receive a Bond certificate evidencing the obligation of the Corporation to make payments of amounts due pursuant to this Master Indenture . (b) Notwithstanding any other provision of this Master Indenture to the contrary, as long as any Bonds are registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of; premium, if any, and interest on the Bonds, and all notices with respect to such Bonds shall be made and given, respectively, in the manner provided in the representation letter of the Corporation to DTC. (c) In the event that the Corporation determines that DTC is incapable of discharging its responsibilities described herein and in the representation letter of the Corporati on to DTC, and that it is in the best interest of the beneficial owners of the Bonds that they be able to obtain certi ficated Bonds, the Corporation shall (a) appoint a successor securiti es depository , qualified to act as such under Section 17(a) of the Securi ties and Exchange Act of 1934, as amended, notify DTC of the appointment of such s uccessors securi ties depository and transfer one or more separate Bonds to such successor securities depository or (b) notify DTC of the availability through DTC of Bonds and transfer one or more separate Bonds to DTC Participants having Bonds credited to their DTC accounts. In such event, the Bonds shall no longer be restricted to being re gistered in the Bond Register in the name of Cede & Co ., as nominee of DTC, but may be registered in the name of the successor securities depository, or its nominee, or in whatever name or names Bondholders transferring or exchanging Bonds sh all designate, in accordance with the provisions of this Master Indentu re. Section 3.14. Dist ri butions or Ce rtain Other Amounts . All amounts received or realized by the Trustee from or on account of a Trust Estate in connection with the exercise of remedies following a declaration of an Event of Default under a I,ease, and a ll amounts received by the Trustee on account of such Trust Estate in connec ti on with the removal or other disposi tion of Improvements following an Event of Default or Event of Nonappropri ation shall be deposited to the Redem ption Amount and applied toward the redemption of the related Bonds in accordan ce with Article VI hereof; or otherwise as set forth in a su pplemental indenture . Section 3.15. Other Distribution . Any payments of any other amounts re ceived by the Trustee as to which provision for the app li cation thereof is made in a Lease shall be applied to the purpose for which such payments were made in accordance with the terms of such Lease . Section 3.16. Evidence of Simatures of Bondholders and Ownership of the Bonds. Any request, direction, consent, revocation of consent or other instrume nt in writing required or permi tted by this Master Indenture to be signed or executed by the Bondholders may be in any number of counterpart instruments of similar tenor and may be signed or e xecuted by such Bondholders in person or by their attorney s-in-fact or agents duly appointed by an instrument in writing for that purpose. Proof of the execution of any such instrument, or of any

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instrument appointing any such attorney or agent and of the ownership of the Bonds shall be sufficient for any purpose of this Master Indenture if made in a manner satisfactory to the Trustee. The ownership of the Bonds shall be proved by the Bond Register held by the Trustee under the provisions of this Master Indenture . Any request or consent of the Bondholders shall bind every future Holder of the same Bond in respect of anything done or suffered to be done by the Corporation or the Trustee in pursuit of such request or consent . Issuance of Bonds or Other Ob li gations. The Corporation hereby covenants and agrees Section 3 .17. that no Bonds or other obligati ons other than the Corporation's Lease Revenue Bonds (Cesar E . Chavez High School), Series 1998A and Lease Revenue Bonds (West Side High School), Series 1998B, shall be issued or incurred which are payable from and secured by Rental Payments paid by the Dis tr ict from Available Funds, except as p rovided herein. The Corporation reserves the right to issue Bonds or other obligations payable from and secured by Rental Payments ; provided, however, that the Corporation covenants and agrees that no such Bonds or other ob ligations shall be issued or incurred unless and until the following condi tions shall have all been met; and provided, further, that the Corporation may issue additi onal Bonds or other obligati ons relating to a Project in order to complete such Project without regard to the conditions set out in subsection (c) : (a) No Event of Default hereunder is in existence at the time of issuance or incurrence of such Bonds or other obligations ; (b) The laws of the State effective at the time of the authorization of such Bonds or other obligations shall permit their issuance or incurrence ; and (c) For the Fiscal Year prior to the year in which the resolution or order authorizing the issuance of the Bonds or other obligations is adopted, the amount of Tier Two Funds (plus any other funds approved in writing by the Insurer to be used for this purpose) is equal to not less than 2 .00 times the average annual aggregate principal and interest requirements of all Bonds Outstanding hereunder, plus the bonds or other obligations proposed to be issued, as shown by the District's audited financial statements. ARTICLE IV. ESTABLISHMENT AND ADMINISTRATION OF FUNDS AND ACCOUNTS Section 4 .1. Trust Fund . There is hereby established with the Trustee a special trust fund to be designated "The Trust Fund Relating To Houston Independent School District Public Facili ty Corporation Lease Revenue Bonds," referred to herein as the "Trust Fund." The Trustee shall keep the Trust Fund separate and apart from all other funds held by it. Within th e Trust Fund, th ere are hereby establi shed, for the be nefit of the Bondholders, the separate and distinct a ccounts and subaccounts more particularly described in this Article IV. The Trustee agrees to accept and deposit the proceeds from the sale of each series of the Bonds and funds received from the District, which amounts shall thereafter be subject to and be administered pursuant to the terms of this Article IV. Section 4.2. Establishment and Aoylication of Payment Account

(a) Within the Trust Fund, there is hereby established a special account to be designated as the "Payment Account." Within the Payment Account, t here shall be established a separate subaccount with respect to each separate series of Bonds. Each subaccount shall be maintained by the Truste e until either all ammmu payable under the related Lease are paid in full or the Purchase Option Price is paid in full pursuant to the terms of the related Lease or a redempti on in whole occurs pursuant to Sec ti on 6 .1 hereof. Rental Payments, proceeds of insurance or condemnation and all other funds derived from the removal or other dispositi on of the Improvements, payment of the Purchase Option Price and such other amounts as may be paid to the Trustee as assignee of the Corporation pursuant to a Lease to be deposited into the Payment Account shall be immediately deposited by the Trustee in the appropriate subaccount of the Payment Account .

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(b) To the extent of funds contained therein, the Trustee shall withdraw from each subaccount within the Payment Account, on each Bond Payment Date, an amount equal to the amount of interest and principal installment payments due on the related series of Bonds on such Bond Payment Date an d shall cause the same to be applied to such payments. (c) Upon the redemption in whole of a series of Bonds pursuant to Section 6 .1 hereof; all funds in th e Payment Account shall be transferred to the Redemption Account in accordance wi th the terms of Section 4 .4 hereof. (d) No amounts shall be wi th drawn or transferred from or paid out of the Payment Account except as provided in this Article IV and in Section 5 .13 hereof. Section 4 .3. Establishment and Application of Reserve Account.

(a) Within the Trust Fund, there is hereby established an account designated the "Reserve Account." Within the Reserve Account, there shall be established a separate subaccount with respect to each separate series of Bonds . (b) On each Closing Date, an amount equal to the Rese rve Requirement, if any, for the series of Bonds delivered on such date shall be deposited by the Trustee into the related subaccount within the Reserve Account from funds received for such purpose from the Corporation. Funds within each subaccount within the Reserve Account shall be disbursed by the Trustee to pay principal and interest on the related Bonds to the extent the amount on deposit in the related subaccount within the Payment Account is not suffici ent the refor. In the event that a subac count within the Reserve Account contains less than the Reserve Requi re ment therefor, th e Trustee shall give notice to the Corporation of the amount required to replenish such subaccount to an amount equal to the Reserve Requirement, unless the Corporation has provided a Reserve Account Surety Policy, the premium for which has been prepaid in whole, the Corporation shall replenish such subaccount within the Reserve Account from Available Funds to an amount equal to the Reserve Requirement within one year of receipt of such notice from the Trustee . (c) Upon a redemption of a series of Bonds in whole, but not in part, all funds in the related subaccount within the Reserve Account shall be transferred to the appropriate subac count within the Redemption Account to redeem such Bonds. (d) The unexpended balance of a subaccount within the Reserve Account shall be transferred to the appropriate subaccount within the Payment Account to be used to make Bond Payments on the last Business Day prior to the final Bond Payment Date of the related series of Bonds and the subaccount shall thereby be closed. (e) In lieu of cash or investment securities, the Reserv e Requirement with respect to a seri es of Bonds may be satisfied in whole or in part with one or more Reserve Account Surety Policies, the premium(s) for which has been prepaid in whole . Such Reserve Account Surety Policies may be drawn upon only after all other amounts in the subaccount for such series of Bonds has been used or ap plied. In the event that a subaccount contains two or more Reserve Account Su rety Poli cies, in each instance in which a draw upon such subaccount is ne cessary, such Policies shall be drawn upon on a pro rata basis. Subsequent to each draw on any Reserve Account Surety Poli cies, the Corporation shall, in accordance with the applicable financial guaranty agreement, reimburse the providers of such Policies for amounts advanced under the Policies ; and pay to the providers of the Policies interest on amounts so advanced . Upon the expiration or termination of any Reserve Account Surety Policy, the Corporation shall immediately deposit in the subaccount an amount which, together with other amounts on deposit in such suubaccount, shall equal the Reserve Requirement The Trustee sha ll maintain records regarding the amounts available to be drawn under each Rese rve Account Surety Policy and regarding the amounts owed to the provider of each such Policy. Section 4.4. Establishment and App li cation of Redemption Account. Within the Trust Fund, there is hereby established an account designated the "Redemption Account." Within the Redemption Account, there shall be established a separate subaccount with respect to each separate series of Bonds . Funds to be used for redemption of the principal amount of Bonds pursuant to Section 6 .1 of this Master Indenture shall be transferred by the Truste e

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from the appropriate subaccount within the Payment Account and deposited in the related subaccount within the Redemption Account one (1) Business Day prior to the date fixed for redemption. Such funds shall be set aside in the Redemption Account solely for the purpose of redeeming the principal amount of the related series of Bonds and shall be appli ed on or after the date fixed for redemption to the payment of th e principal of and interest on such Bonds to be redeemed upon de livery to the Trustee of the Bonds being redeemed . If there are not sufficient funds available to pay in fu ll the inter est and principal then due on the Bonds to be redeemed, the Trustee shall apply all funds on deposit in the appropriate subacmunt first, to th e payment of all interest due wi th respect to the related se ri es of Bonds, pro rata in proportion to the total amount of interest due if nec essary, and second, to the payment of the principal of such Bonds, pro rata in proportion to the total amount of principal due if necessary . Any funds remaining in a subaccount within the Redem ption Account following redem pti on o& and payment of all principal of and interest due with respect to, the related s eries of Bonds plus the Purchase Option Prix, as determined pursuant to the related Lease, shall be tramerred to the District Section 4.5. Establishment and Application of P ro ject Acquisition Account.

(a) There is hereby established a special account to be designated as the "Project Acquisition Account ." The Project Acquisition Account shall be separate and apart from the Trust Fund . Within the Project Acquisition Account, there shall be established a separate subaccount with respect to each separate series of Bonds . The Trustee shall administer the Project Acquisition Account as provided in this Article IV. All proceeds from the sale of each series of the Bonds plus any amount contributed by the District upon a Closing shall be deposited in the appropriate subaccount of the Project Acquisition Account . (b) Amounts in each subaccount of the Project Acquisition Account shall be disbursed for the Project Costs of the related Project and otherwise as specified in connection with the issuance of the related series of Bonds . No amounts shall be withdrawn or transferred from or paid out of the Project Acquisition Account except as provided in this Article IV and in any Supplemental Indenture . (c) Upon completion of each Project, as certified by the Construction Administrator, all funds remaining in the related subaccount of the Project Acquisition Account shall be distributed in accordance with the Supplemental Indenture entered into in connection with the issuance of the related series of Bonds and the subaccount shall thereby be closed . Sec ti on 4 .6 . Establishment and Application of Rebate Account . In order to facilitate compliance with the Corporation's covenant contained in a r ry Supplemental Indenture, there is hereby established a special account to be designated as the "Rebate Account." The Rebate Account shall be separate and apart from the Trust Fund, shall be for the sole benefit of the United States of America and shall not be subject to the claim of any other person incl uding, without limitation, the Bondholders . The Trustee shall administer the Rebate Account as provided in this Article IV . Section 4.7. Ilepwit and Investment of Funds in Trust Fund .

(a) The Trust Fund sha ll be invested by th e Trustee in Permitted Investments pursuant to w ritten instructions of the Distri ct and approval of the Trustee or, if the District does not provide written instructions for such investment, th e Trustee shall invest the Trust Fund in bonds, bills, interest -bearing notes or other direct obligati ons of the United States, including United States Treasu ry State and Local Government Series, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest, or in money market funds, which are (i) rated in the highest rating category by one or both of the Rating Agencies, or (ii) comp ri sed in their entire ty of U.S. Treasury obli gati ons . No funds in the Trust Fund shall be invested in any Permitted Investment which mum or becomes due and payable after the Business Day preceding the date upon which such funds will be required by the Trustee for uses and purposes specified in this Master Indenture. Proceeds from the sale of the Bonds are not to be directed by th e Distri ct for investment in any Permitted Investments ex cept for a temporary peri od pending use and such pr oceeds are not to be used by the Distri ct directly or indirectly so as to cause any p art of th e Bonds to be or become an "arbitrage bona!" within the meaning of the Code or any published regulations or rulings prescribed or made pursuant thereto. (b) The Project Acquisition Account shall be invested in the same manner as the Trust Fund, unless otherwise provided pursuant to a Supplemental Indenture . All interest or income received by the Trustee on the

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investment of funds held in subac counts within the Project Acquisition Account shall be retained in such subaccounts unt il such subaccounts are closed pursuant to Section 4 .5 hereof; unless otherwise provided in a supplemental indenture. Interest or income rece ived by the Trustee on the investment of funds held in subaccounts within (c) the Payment Account shall be retained in such subac counts for the purpose of making payments from those subaccounts in the manner specified in this Master Indenture . Amounts deposited in each subaccount within the Payment Account including, but not limited to, (d) interest and investment income, shall be appli ed as a credit against the next Rental Payment due fro m the Dist rict under the related Lease . (e) All interest or income received by the Trustee on the investment of funds held in each subacccount within the Reserve Account shall be transferred to the related subaccount within the Payment Account as received and applied as a credit against the next Rental Payment due from the District under the re lated Lease. (f) The Trustee shall act only as an agent of the Corporation in making or disposing of any investment . The Trustee shall not be liable for any loss resulting from the making or disposition of any investment pursuant to the provisions of subsection (a) of this Section 4 .7, and any such losses shall be charged to the account with respect to which such investment was made . The Trustee shall not be responsible for determining whether any Permitted Investments are legal investments under the laws of the State . ARTICLE V. DEFAULT ; LIMITATION OF LIABILITY Section 5.1. Events of Default . The following shall be "Events of Defaulr under this Master Indenture wi th respect to the affected series of Bonds only an d the terms "Events of Defaultand "Default" shall mean, whenever they are used in this Master Indenture, an y one or more of the following events : (a) Failure by the Corporation to make the due and punctual payment of any Bonds when and as the same shall become due and payable. (b) Failure by Corporati on to observe or perform any covenant, condi ti on or agreement on its part to be observed or performed hereunder or under a Supplemental Indenture, other than as referred to in subsection (a) of this Section, and such fail ure is not cured within thirty (30) calendar days after w ritten notice thereof is pro vided to the Corporation by the Trustee, provided that if such failure c annot be cured within such 30-day pe riod, such failure will not be an Event of Default if the Corporation has commenced the cure of such failure within the 30-day period and diligently pursues th e cure . (c) An Event of Default or an Event of Nonappropriation, as defined an d described in a Lease, sha ll have happened and is continuing . (d) Any material statement, representation or covenant made by the Corporati on or in any writing ever delivered by th e Corporation hereunder or pursuant to a Supplemental Indenture or in connection therewith is determined to be false, misleading or erroneous in any material respect. (e) The filing by the Corporation of a voluntary petiti on in bankruptcy, or failure by the Corporation promp tly to lift any execution, gar=nishment or attachment of such consequence as would impair the abili ty of th e Corporation to carry on its operations at a Project, or adjudication of the Corpor ation as a bankrupt or assignment by the Corporation for the benefit of creditors, or the entry by the Corporation into an agre ement of composition with creditors, or the approval by a cou rt of competent jurisdiction of a petition appli cable to the Corporation in any proceedings insti tuted under the provisions of the Federal Bankruptcy Statute, as amended, or under any similar federal or state acts which may hereafter be enacted.

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Section 5 .2.

Remedies on Default.

(a) Upon the occurrence of an Event of Default, and as long as such Event of Default is continuing, th e Trustee may, at its op tion, exercise any one or mo re of the foll owing remedies, to the extent that such remedies are permitted by law : (i) Wi th or without terminating the affected Lease, declare the principal of and accrued interest on, or accreted value of a ll Outstanding Bonds of the related seri es to be immediately due and payable, by a notice in writing to the Corporation and the District; or (ii) Take any other such actions at law or in equi ty which may be available under State Laws to enforce the Lease or this Master Indenture . (b) If an Event of Default sha ll have occurred and be continuing or there shall occur an Event of Nonappropriation, and the Trustee may, and shall upon receipt from the holders of 25% of the principal amount of the affected series of Bonds, as provided herein, foreclose on the related Deed of Trust, or may oth erwise be requested to take possession of the related Project upon an Event of Nonappropriation or otherwise, and notwithstanding any contrary provision contained in the Deed of Trust, the Trustee shall not be required to proceed with the foreclosure or otherwise take possession of the Project if the Trustee determines, in its reasonable discreti on, that it desires a "Phase I Environmental Report." Further, if the Trustee reasonably determines on the basis of the Phase I Environmental Report and any other report recommended therein that it does not desire to become, as Trustee, the owner of the property subject to the Deed of Trust or otherwise take possession of such property because it reasonably beli eves that the indemnifi cation provided herein is not adequate w ith respect to its lender liability exposure with respect to environmental matters, the Trustee shall not be required to proceed wi th the foreclosure or otherwise take possession of the Project and shall give notice of such determinati on to the affected Bondholders, the Corporation and the District If such Bondholders nevertheless desire to proceed with foreclosure or for the Trustee to otherwise take possession of the property and so notify the Trustee in writing, the Trustee may resign, an d such resignation shall become effective upon th e acceptance of an appointment by a suc cessor Trustee under Section 7.4 hereof. If the suc cessor Trustee requests any indemnifica ti on for any loss, cost or expense arising out of foreclosure or otherwise taking possession of the Project, such indemnification shall be the sole responsibility of the affected Bondholders . In addition to the foregoing, the Trustee shall have the power and the right, but not the duty, to (i) settle or compromise at any time any and all claims against the Trust Estate or the Trustee which may be asserted by any governmental body or private party for the alleged violation of any Hazardous Substance Law affecting property held in the Trust Estate ; provided, however, that the Trustee may not settle or compromise any such claim until the expiration of a 60-day cure period beginning wi th the rece ipt of written notice by the Corporation from the Trustee of the claim ; and (ii) disclaim any power (including, wi thout Imitation, the power to sell the Trust Estate) granted by a Supplemental Indenture, a Deed of Trust or any statute or rule of law, the exercise of which power may, in the sole discre ti on of the Trustee, as advised by counsel, cause the Trustee to incur corporate or personal liability under any Hazardous Substance Law . The Trustee shall not be liable or responsible to the Corporation, the District or any other party for any decrease in value of the Trust Estate by reason of availing itself of the rights granted by this Section or by reason of the Trustee's comp liance with any Hazardous Substance Law, specifically including any reporting requirement under any such law. Neither the acceptance by the Trustee of property or a failure by the Trustee to inspect property shall be deemed to create any inference that there is or may be li ability under any Hazardous Substan ce Law with respe ct to such property.

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Section 5.3.

Remedies on an Event of Nonappro priation. Upon an Event of Nonappropriation:

(a) Without further demand or notice, any Lease for which Rental Payments have not been Appropriated shall terminate at the end of the Fiscal Year for which sufficient funds have been Appropriated and the Dis trict shall immediately, upon the expiration of such Fiscal Year, surrender possession and control of the related Project to the Trustee. The District shall provide the Corporation and the Trustee with written notice of such Event of Nonappropriati on within five (5) Business Days fo llowing an action which cons titutes failure by the Board of Education to Appropriate funds sufficient to pay Rental Payments under a Lease due during the succeeding Fiscal Year. (b) Upon terminati on of a Lease pursuant to Section 5 .3(a), if the District has not delivered possession and cont rol of the Project to the Corporation or Trustee and conveyed or released its interest in such Project as therein required, the termination sh all nevertheless be effective, but the Dist ri ct sh all be responsible, from and to the extent of Available Funds as p rovided in the Lease and this Master Indenture, for the payment of damages in an amount equal to the amount of Rental Payments thereafter coming due which are attributable to the number of days (including any grace pe ri od) during which the District fails to take such actions . (c) The Trustee may take the necessary action without further notice or demand to foreclose the Deed of Trust on the Project, provided, however, in the event that all principal of, premium, if any, and interest on the related series of Bonds have been paid under the provisions of Section 5 .13 and whenever all fees, expenses, and charges of the Trustee sha ll have been paid, any portion of the properties compri sing the Trust Estate remaining hereunder shall be paid, transfer red and assigned to the Dist ri ct. Section 5.4 . Remedy Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive, and every such remedy shalt be cumulative and shall be in addition to every other remedy given under a Lease or this Master Indenture or now or hereafter existing at law or in equity . Section S.S. No Additional Waiver Implied By One Waiver. Subject to the requirements of Section 5.12 of this Master Indenture, the Trustee may waive any Event of Default and its consequences and rescind any declaration of maturity of principal upon notice to the Bondholders of such waiver . No waiver of any default or Event of Default hereunder shall extend to or shall affect any subsequent default or Event of Default or shall impair any rights or remedies consequent thereon or create liability on the part of the Trustee for doing so . Section 5.6 . Termination of Leases. (a) Unless a policy of municipal bond insuran ce is then in effect for the related se ries of Bonds, if a Lease is terminated, at the Trustee's op ti on, all amounts in the related subaccount within the Payment Account may be transferred to the related subaccount within the Redempti on Account and th e holders of th e related se ri es of Bonds shall be paid pursuant to the provisions of Section 6.1 of this Master Indenture. (b) If a policy of municipal bond insurance is then in effect for the related series of Bonds, if a Lease is terminated as described above, amounts in the related subaccount within the Payment Account may be transferred to the related subaccount within the Redemption Account only upon the written d irection of the bond insurer to the Trustee and the bond insurer's written agreement that the related policy of municipal bond insurance w i ll cover the redemption price, and the Holders of the re lated series of Bonds shall be paid pursuant to the provisions of Section 6.1 of this Master Indenture . (c) If there are not sufficient funds ava ilable to pay in hill a ll interest and principal then due on the Bonds to be redeemed, the Trustee sh all apply all funds on deposit in the related subaccount within the Redemption Account first to the payment of all interest due wi th respect to the Bonds, pro rata if necessary, according to the total interest payment and second to the payment of principal of such Bonds, p ro rata if necessary. Section 5.7. Notice of Default. The Trustee shall give w ri tten notice by registered or certified mail to the Corporation and the Dist ri ct as soon as practicable, but in no event later than ten (10) business days after the District's failure to make any Rental Payment when due (without regard to any grace p eriod) or any other failure by

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the District to comply with the provisions of a Lease, or the occurrence of any other Event of Default of which the Trustee has actual lmowledge or has re ce ived noti ce; provided, however, that the receipt of such noti c e shall not be a condition to th e occurrence of an Event of Default hereunder. If such noti ce relates to a failure to make an obli gated payment or transfer, it shall specify the amount If such notice relates to a matter other than a failure to make an obligated payment or transfer, it sha ll specify the manner in which the District has failed to comply with the provisions of a Lease and demand such compliance . Section 5.9. Appointment of Liquidating Trustee . The Trustee may appoint a liquidating trustee for the purpose of taking possession of one or more Projects and causing the Projects to be removed and sold at pub lic We . The li quidating trustee so appointed sha ll be a bank or trust company organized under the laws of the United States of Ameri ca or one of the States therieot and the Trustee is authorized in its sole dis cretion to appoint itself or an affiliate as liquidating trustee . All proceeds from the public sale of a Project and a ll other amounts in the related Trust Estate, if any, shall be paid to the Trustee and the Trustee shall deposit such funds to the appropriate subaccount within the Redemption Account, after deduction of the reasonable fees and expenses of the liquidating trustee and any amounts which may be due to the Trustee hereunder. In the event that the Trustee or the liquidating trustee believes that public sale of a Project would not be in the best interests of the Bondholders, it may in its sole discretion (but shall not be obligated to) recommend to the Bondholders that this Master Indenture and/or the Leases be amended by action of the Holders of fifty-one percent (51%) of the principal amount of the series of Bonds affected thereby in order to allow such other disposition as may be appropriate under the circumstances . Section 5.9. Initiation of Remedies . All rights of action hereunder may be enforced by the Trustee without the possession of the Bonds affected thereby or the production thereof in any trial or other proceeding relating thereto and any such suit or proceeding instituted by the Trustee may be brought in its name as Trustee without the necessity of joining the Bondholders as plaintiffs or defendants . Any recovery of judgment shall be for the ratable benefit of the Bondholders affected thereby . Section 5 .10. Rights and Remedies of the Bondholders . The Bondholders shall have the ri ght to institute any action, suit or proceeding for the enforcement of this Master Indenture, the execution of any trus t hereof or any other remedy hereunder if the District has failed to make a Rental Payment from Available Funds when due and such nonpayment constitutes an event of default under a Lease . Nothing in this Master Indenture shall, however, affect or impair the right of the Bondholders to enforce the payment of the principal of and interest on the Bonds at and after the maturity thereof or the obligation of the Trustee to pay the principal of and interest on the Bonds hereunder to the Bondholders thereof at the time and place, from the source and in the manner provided in this Master Indenture. Notwithstanding any provision herein to the contrary, a 'Bondholder may not pursue any remedy with respect to this Indenture or a Supplemental Indenture unless (a) the Bondholder gives the Trustee written notice stating that an Event of Default or an Event of Nonappropriation is continuing, (b) the Holders of at least 25% in principal amount of Bonds then Outstanding make a written request to the Trustee to pursue the remedy; and (c) such Holder or Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expenses ; and (d) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer of indemnity Section 5.11. Termination of Proceedings . In the event the Trustee shall have proceeded to enforce any ri ght under a Lease or this Master Indenture and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to th e Trustee, then the Bondholders, the Corpora ti on and the Trustee shall be restored to their former positions and rights hereunder and under such Lease, and all ri ghts, remedies and powers of the Trustee shall continue as if no such proceedings had been taken . Section 5 .12. Waivers of Events of Default . The Trustee shall waive arty Event of Default and its consequences and rescind any declarati on of maturi ty of principal upon the written request of the Bondholders affected thereby; however, there shall not be waived any Event of Default in the payment of Rental Payments unless, prior to such waiver or rescission or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely to the Trust ee, all arrears of Rental Payments shall have been paid or provided for . In case of any such waiver or rescission or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely to the Trustee, then the Corporation, the Trustee and the Bondholders shall be restored to their forme r

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positi ons and rights hereunder and under the Leases, respe ctively, but no such waiver or rescission shall extend to any subsequent or other default or impair any right consequent thereon . Section 5.13. Application of Money .

(a) Upon an Event of Default or an Event of Nonapp ropriation, if money held by the Trustee for a par ticular series of Bonds is insufficient to pay the principal 4 premium, if any, and interest on such Bonds, all money received and held by the Trustee pursuant to this Master Indenture as a part of the related Twat Estate and all money received by the Trustee purwant to any right given or action taken under the provisions of this Article sha ll , after payment of the casts and expenses of the proceedings resulting in the collection of such money and of the expenses, liabilities and advances incurred or made by the Trustee, be app lied as follows: FIRST - To the payment of the Trustee's unpaid fees and ems and the reimbursement of any advances made by the Trustee, and any receiver and the reasonable attorneys' fees of the Trustee, or any receiver, SECOND - To the payment to the persons entitled thereto of all installments of interes t then due on the Bonds of such series, in the order of the maturity of the installments of such interest and, if the amount available shall not be sufficient to pay in full any particular installment, them to the payment ratably, according to the amounts due on such instalm ents to the persons entitled thereto, without any discrimination or privilege among Bondholders of such series; THIRD - To the payment to the persons entitled thereto of the unpaid principal of and premium, if any, on any of the Bonds of such series which sha ll have become due by matu rity or acceleration (other than Bonds matured or ca lled for redemption for the payment of which money is held pursuant to the provisions of this Master Indenture), in the order of their due dates, and, if the amount available shall not be s uffi cient to pay in fu ll the pri n ci pal of and premium, if any, on the Bonds due on any pa r ticular date, then to the payment ratably, according to the amount of the principal and premium, if any, due on such date, to the persons en ti tled thereto without any discrimination or privilege among Bondholders of such series; FOURTH - To the payment of operating expenses, if any, of the related Project and for reasonable renewals, repairs and repla cements of the Project necessary to prevent impairment of the related Trust Estate; and FIFTH - To be held for the payment of the Bondholders of such se ries entitled thereto as the same shall become due of the principal of~ premium, if any, and interest on such Bonds which may thereafter become due either at maturity or upon call for redemp ti on prior to maturity and, if the amount available shall not be sufficient to pay in fu ll Bonds of such series due on any particular date, together wi th interest and p remium, if any, then of such series due and owing thereon, payment sha ll be made ratably according to the amount of principal, premium, if any, and interest due on such date to the Bondholders entitled thereto without any discriminati on or privilege among Bondholders of such se ries. (b) Whenever money is to be applied pursuant to the provisions of this Section, such mon ey shall be applied at such times and from time to time as the Trustee shall determine, having due regard to the amount of such money available for such appli cation and the lilxelihood of additional money becoming available for such applicati on in the Adm . Whenever the Trust ee shall apply such finds, it shall fix the date (which shall be a Bond Payment Date unless it shall deem another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue to the extent fiords are available on such date to pay the amounts due . The Trustee shall give notice to the Corporation, the Dist rict and the affected Bondholders of the deposit with it of any such money and of the fixing of any such date and sha ll not be required to make payment to the Bondholders until such Bonds shall be presented to the Trustee for app ropriate endorsement or for cancellation if fully paid. (c) Whenever all principal of premium, if any, and intere st on the Bonds of a particular series have been paid under the provisions of this Section 5 .13 and whenever all fees, expenses, and charges of the Trustee sh all

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have been paid, any portion of the properties comprising the Trust Estatc relating to such series remaining hereunder shall be paid, transferred, and assigned to the Dist rict Section 5.14. No Obli estion With Respect to Performance by Trustee . The Corporation shall have no obli gation or liabi lity to any of the other parties or to the Bondholders with respect to the performan ce by the Trustee of any duty imposed upon it under this Master Indenture. Section 5.15. No Liability to the Bondholders for Rental Payments or Covenants .

Except as expressly provided in this Master Indenture, neither the Corporation nor the Trustee shall have any obligation or liability to the Bondholders with respect to the payment of Rental Payments by the District when due or with respect to the performance by the District of any other covenant made by it in the I.cases. Section 5.16. No Responsibility for Sufficiency of Lease' . The Thee shall not be responsible for the su fficiency of the Leases or the assignment made to it of the right to receive Rental Payments pursuant to the I.ease or the value of the Projects, but the foregoing does not reduce or eliminate any of the Trustee's specified responsibili ties or obligations under this blaster Indenture. The. Trustee shall not be responsible or liable for any loss suffered in conne ction with any investment of funds made by it on behalf of the District updet the terms of and in accordance with this Master Indenture . Further, the Trustee shall not be responsible or liable for the loss of investment income resulting from the failure of the Corporati on or the District to provide written instructions to the Trustee directing the investment of the Trust Funds. Section 5.17. No Liability of Trustee . The Trustee shall not be liable to anyone for any delay in the delivery of any proper ty to the District, for any default on the p art of any supplier, manufacturer or builder or for any defect in any of the property or in the ti tle thereto, nor shall anything herein be construed as a warranty on the part of the Trustee in respect thereof or as a representation in respect of the title thereto. In the absence of the Trustee's negligence or willful misconduct, the Trustee sha ll not be liable for actions taken or not taken in good faith, or actions taken at the direction of the Bondholders owning a requisite pe rcentage of the principal amount of the Bonds . Trustee shall not be liable for costs, expenses, suits, judgments, actions, claims, losses, damages and liabiliti es whatsoever, in cluding consequential damages, liti gation and court costs, amounts paid in settlement, amounts paid to discharge judgments and legal fees and expenses, directly or indirectly arising out of (i) the use, maintenance, condition or management of, or from any work or thing done in connection with, the Projects by any third party who is not acting as an attorney, agent or servant of Trustee, (t) any act of negligence of any third party who is not acting as an a ttorney, agent or servant of Trustee or of any of officer, agent, contractor, savant, employee, licensee or i nvitee of such third party m connection with the Projects or the Leases, or (iii) the authorization of payment of costs by any third party who is not acting as an attorney, agent or servant of Trustee . The Trustee may perform its powers and duti es hereunder by or through such attorneys, agents and servants as it sh all appoint with reasonable care, shall be entitled to rely in good faith upon the adv ice of counsel selected by it with reasonable care and shall be answerable for only its own neg ligence or willful misconduct and not for any negligence or willful misconduct of any attorney, agent or servant appointed by it with reasonable care . The Trustee shall not be responsible in any way for the recitals herein contained or for the execu tion (except for its Own execution) or validity of this Master Indenture or of the Bonds or for any mistake of fact or law . IN NO EVZNT SHALL THE TRUSTEE BE LIABLE TO ANY PARTY OR TK RD PARTY FOR SPECIAL, INDIRECT OR CONSEQUEN71AL DAMAGES, LAST PROFITS OR LOSS OF BUSINESS ARISING UNDER OR IN CONNECTION WITH THIS MASTER INDENTURE OR THE OWNERSHIP OF THE PROJECTS, EVEN IF APPRISED OF THE LIICELIHOOD OF SUCH DAMAGES AND REGARDLESS OF THE FORM OF ACTION. T HE TRUSTEE SHALL NOT BE RESPONSIBLE OR LIABLE TO ANY BONDHOLDER TO PAY ANY INTEREST OR PRINCIPAL DUE OR TO BECOME DUE ON ANY BONDS OR THE PURCHASE OPTION PRICE RELATED THERETO AS DETERMINED PURSUANT TO THE RELATED LEASE EXCEPT OUT OF FUNDS AVAILABLE TO THE TRUSTEE IN THE TRUST FUND OR ANY ACCOUNT THEREIN. Section 5 .18. Enforcement of I.eases. The Corporation represents, warrants and covenants that it will take all action and execute all documents necessary or appropriate to enforce the terms and cond itions of the Leases.

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ARTICLE VL REDEMPTION OF THE BOND S Section 6 .1. Terms of Redemption.

(a) If a Lease is terminated, the affe cted series of Bonds shall be subject to redemption as a whole, but not in part, at the Trustee's option, on any Bond Payment Date at a redemption price of par plus accrued interest to the date fixed for redempti on, from any moneys held he reunder relating to such series of Bonds, including funds obtained pursuant to remedies hereunder, under the related Deed of Trust or under the related Lease . The Bonds shall be called for redemption on the next succeeding Bond Payment Date for which notice can be given . If there are not suffi cient funds available to pay in full all interest and principal then due on the Bonds t hen Outstanding, the Trustee shall apply all monies held with respect to a series of Bonds first to the payment of a ll interest due with respect to such Bonds, pro rata within such series if necessa ry, according to the total interest payment due on such series of Bonds, and second to the payment of the principal of such Bonds, pro rata within such series if ne cessary, according to the total prin cipal payment due on such series of Bonds. If a policy of municipal bond insurance is then in effect for the related series of Bonds such redemption sha ll occur only upon the bond insurer's written direction to the Trustee and the bond insurer's written agreement that the related p olicy of muni cipal bond insurance wi ll cover the redemption price of such Bonds. (b) Each series of Bonds shall also be subject to mandatory and optional redemption in accordance with the provisions of the Supplemental Indenture pursuant to which such Bonds are issued.. Section 6.2 . Scheduled Principal and Interest Installments . On each Bond Payment Date for the Bonds, the Trustee shall make the principal and/or interest installment or maturity amount payments from the Payment Account. Section 6.3. Partial Redemption. If less than all of the Bonds are called for redemption, the particular Bonds or portions thereof to be redeemed shall be selected by the Trustee ratably among each maturity selected by the Corporation to be redeemed and by lot within each matuurity . Bonds may be redeemed only in integral multiples of $5,000 of principal amounts or maturi ty amount. V a Bond subject to redemption is in a denomination larger than $5,000, a portion of such Bond may be redeemed, but only in integral multiples of $5,000 . In selecting potions of Bands for redemption, the Trustee shall treat each Bond as representing that mumber of Bonds of $5,000 denomination which is obtained by dividing the principal amount or maturity amount, as appropriate, of such Bond by $5,000 . Upon surrender of any Bond for redemption in part, the Trustee shall aetthenticete and deliver in exchange therefor a Bond or Bonds of like type, maturity and interest rate in an aggregate principal amount or maturity amount, as appropriate, equal to the unredeemed portion of the bond so surttridered. Section 6.4. Notices or Redemp ti on . Not ass than thirty (30) days prior to a redemption date for the Bands, a notice of redemption will be sent by U.S. mail, first class postage prepaid, in the name of the Corporation to each Holder of a Bond to be redeemed in whole or in p art at the address of such Holder appearing on the bond Register at the dose of business on the Business Day next preceding the date of mailing Such notices shall state the redemption date, the redemption price, the place at which Bonds are to be sur rendered for paymen t and, if less thaw all Bonds Ouitsfan&ng are to be redeemed, the numbers of B onds or portions thereof to be redeemed . Any notice of md=Vd on so mailed as provided in this subs e ction will be conclusively presumed to have boon duly given, whether or not the Holder receives such notice. By the date fixed for redemp tion, due provision shall be made with the Trustee for payment of the zedemption price of the b onds or portions thereof to be redeemed. When Bonds have been called for raI i d on in whole or in part and notice of redempti on has been given as he rein provided, the Bonds or portions thereof so redeemed shall no Ionger be regarded to be Outstanding, except for the purpose of receiving payment solely firm the fiords so provided for redem ption, and inte rest which would otherwise adxttue or compound after the redem ption dame on any Bond or portionthereof called for redemp tion shall terminate on the date fixed for re demption.

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ARTICLE VIL THE TRUSTE E Section 7.1 . Imnlovment of Trustee. In consideration of the recitals hereinabove s et forth and for other valuable considerati on, the Corporati on hereby appoints the Trustee to (a) receive the pro ceeds from the sale of Bonds; (b) receive all payments to be made pursuant to the Leases ; (c) apply and disburse the proceeds fitom the sale of Bonds and the payments re ceived pursuant to the Leaves and this Master Indenture as provided for herein; and (d) perform all the other duties and ob ligations of the Trustee expressly provided for herein . The Trustee shall not be required to give any bond or surety in respect of the execution of the trust and powers given to it by this Master Indenture . Section 7.L Acceptance of Appointment . The Trustee hereby accepts the appointment above referred to subject to the terms and condi tions of this Master Indenture. Section 7.3. Ri ¢6ts and Duties of Trustee.

(a) By executing and delivering this Master Indenture, the Trustee ac cepts the duti es and ob li gati ons of the Trustee expressly provided in this Master Indenture, but only upon the terms and conditi ons set forth in this Master Indenture. (b) The Trustee may rely and shall be protected in acting or refraining f rom acting upon any resolution, ce rtifi cate, statement, instrument, opinion, repo rt, notice (elec tronic, telephonic, telecopy, written or otherwise), request, directors' action, consent, order, bond, debenture or other paper or document reasonably believed by it to be genuine and to have been signed or presented by t he proper party or parties . (c) Any request or direction of the Corporation or the District mentioned herein shall be sufficiently idenced by a writing ori ginally signed by an Authorized Officer. (d) Whenever in the administration of this Master Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absen ce of had faith on its part, rely upon a certi ficate of an Authorized Office r of the Corporation or the District (e) The Trustee shalt not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, repo rt, notice, request, direction consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such frther inquiry or inves ti gation it shall be entitled to examine the books, records and premises of the District or Corporation personally or by agent or attorney. The Trustee may consult with legal counsel selected with reasonable care and the written advice of (f) such counsel or any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken suffered, or omitted by the Trustee h ereunder in good faith and in reliance thereon; (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Master Indenture at the request or direction of the Bondholders, unless such Bondhold ers, subject to Section 5 . 10, shall have offered to the Trustee security or indemnity satisfactory to it against the Costs, expanses, and liabi lities which might be incurred by it in compliance with such request or direction ; (h) No provision of this Master Indenture shall require the Trustee to expend or risk its funds or otherwise incur any financial liability in the p erformance of any of its duties hereunder; (i) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers unless it is neg ligent in doing so ;

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6) The Trustee is not required to give any bond or su rety with respect to the performan ce of its duties or th e exercise of its powers under this Master Indenture or any supplemental indentu re ; (k) In the event the Trustee receives inconsistent or conflicting requests and indemnity from two or more groups of Holders of Bonds, each representing less than a majority in aggregate principal amount of the Bonds Outstanding, pursuant to the provisions of this Master Indenture, the Trustee, in its sole discretion, may determine what action, if any, shall be taken , (1) The Trustee' s immunities and protections from liability and its right to indemnification in connecti on with the performance of its duties under this Master Indenture, together with the Trustee's right to compensation, shall survive the Trustee' s resignation or removal, the discharge of this Master Indenture and final payment of the Bonds ; (m) The permissive right of the Trustee to take the actions permitted by this Master Indenture shall not be construed as an obligation or duty to do so ; (n) Except for information provided by the Trustee concerning the Trustee, the Trustee shall have no responsibility for any information in any offering memorandum or other disclosure material distributed with respect to the Bonds, and the Tmstee shall have no responsibility for compliance with any state or federal securities laws in connection with the Bonds ; (o) In performing its duties under each Deed of Trust and each Lease, the Trustee shall be entitled to all of the rights, protections and immunities accorded to it as Trustee under this Master Indenture ; (p) Naming of the Trustee as an insured or additional insured under any insurance policy, or the furnishing to the Trustee of any information relating thereto, shall not impose upon the Trustee any responsibility or duty to approve the qualifications of the company issuing same ; and (q) In the event the Trustee incurs expenses or renders services in any proceedings which result from the occurrence or continuance of an Event of Default under Section 5 .1(e) hereof, or from the occurrence of any event which, by virtue of the passage of time, would become such Event of Default, the expenses so incurred and compensation for services so rendered are intended to constitute expenses of administration under the United States Bankruptcy Code or equivalent law . Section 7.4. Removal and Resignation . A bank or trust company authorized to provide corporate trust services may be substituted to act as successor trustee under this Master Indenture, upon written request of the Owners of 51%0 of the Outstanding principal amount of the Bonds . Such substitution shall not be deemed to affect the rights or obligations of the Bondholders . Upon any such substitution, the Trustee agrees to assign to such substituted Trustee its rights under this Master Indenture and deliver all documents and funds held in connection with this Master Indenture to such substituted Trustee . Any such successor shall have capital and surplus exclusive of borrowed capital aggregating at least $100,000,000 and shall be subject to examination or supervision by a federal or state banking authority . If such bank or trust company publishes reports of condition at least annually, pursuant to law or the requirements of any supervising or examining authority above referred to, then for purposes of this Section, the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Trustee or any successor may at any time resign by giving mailed notice to the Bondholders, the District and the Corporation of its intention to resign and of the proposed date of resignation, which shall be a date not less than sixty (60) calendar days after such notice is deposited in the United States mail with postage fully prepaid, unless an earlier resignation date and the appointment of a successor Trustee shall have been or is approved in writing by the Bondholders. In the event that a successor Trustee is not appointed within sixty (60) calendar days after such notice is deposited in the United States mail, the Owners of 51% of the Outstanding principal amount of the Bonds may petition the appropriate court having jurisdiction to appoint a successor Trustee . No resignation or removal of the Trustee and appointment of a successor Trustee shall become effective until acceptance of appointment by the successor Trustee .

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Section T.S . Appointment of Agent . The Trustee may appoint an agent to exercise any of the powers, rights or remedies granted to the Trustee under this Master Indenture and to hold title to prope rty or to take any other action which may be desirable or necessary . Section 7.6. Merger or Consolidati on of Trustee. Any corporation resulting from any merger or consolidation to which the Trustee or any successor to it sha ll be a party or any corporation in any manner succeeding to all or substantially all of the corporate trust business of the Trustee or any successor Trustee, provided that such corporation, if not an affiliate of the Trustee, sha ll have a capital and surplus aggregating at least $100,000,000 .00, shall be the successor Trustee hereunder without the execution or filing of any paper or any fu rther act on the part of any of the parties hereto . Section 7.7. Trustee Notice . The Trustee shall be required to take noti ce of any Event of Default hereunder arising from failure by the Dist rict to pay Rental Payments when due, the District's failure to comply with Sections 7.3, 7 .4, 7 .5 or 7 . 8 of a Lease, or the occurrence of an Event of Nonappropriation of which an Authorized Offi cer of the Trustee has actual knowledge . Unless the Trustee shall be speci fi cally noti fi ed in writing of any other default by the Dist rict, the Corporation or the Bondholders, the Trustee shall not be requi red to take notice or be deemed to have notice of any other Event of Default hereunder. Further, the Trustee shall not be deemed to have notice of any other events or occurrences under the Financing Documents unless an Authorized Officer of the Trustee has received notice thereof from the Dist ri ct, the Corporation or a Bondholder. Section 7.8. Di rectors. Officers . Employees and Agents Exempt f rom Personal Liability. This Master Indenture is solely a corporate obligation of the Trustee and no recourse under or upon any obligation, covenant, or agreement of this Master Indenture, or for any claim based hereon, shall be asserted against any past, present, or future director, officer, employee, representative or agent as such of the Trustee whether by virtue of any law or otherwise . All such liability and claims against such persons are expressly waived as a condition of, and in consideration for, the execution and delivery of this Master Indenture. ARTICLE VUL AME ND ME NT ; DEFEASANCE ; ADMMOSTRATIVE PROVISION S Section 8.1 . Amendment. The Trustee and the Corporation, without the consent of the Bondholders, may amend this Master Indenture, any Supplemental Indenture, the Deeds of Trust, the Leases or other instruments evidencing the existence of a lien as shall not be inconsistent with the terms and provisions hereof for any one of the following purposes : (a) To cure any ambiguity, inconsistency or formal defect or omission;

(b) To grant to or confer upon the Trustee for the benefit of the Bondholders any additional rights, re medies, powers or authority that may lawfully be granted to or conferred upon the Bondholders or the Trustee or either of them; (c) To subject additi onal revenues to the lien and pledge of this Master Indenture ;

(d) To add to the covenants and agreements contained therein other covenants and agreements thereafter to be observed for the protection of the Bondholders or to surrender or limit any right, power or authority herein reserved to or conferred upon the Corporation ; (e) To evidence any succession by the District, the Trustee or the Corporation and the assump ti on by such successor of the requ irements, covenants and agreements of the District, the Trustee or the Corporation in this Master Indenture, the Leases and the Bonds ; or (f) To make any other amendment that, in the reasonable judgment of the Trustee, is not p rejudi ci al to the Bondholders.

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Exclusive of the aforem entioned types of amendment and subject to the terms and pr ovisions contained in this Section 8 . 1, and not otherwise, with the approval of Owners owning not less than 51% in aggregate principal amount of the Bonds then Outstanding shall have the right, from time to time, anything contained in this Master Indenture to the contrary notwithstanding, to amend any of the terms or provisions contained in this Master Indenture or in any amendment thereto, provided, however, that nothing in this Sec ti on 8 .1 shall permit or be construed as permitting : (i) without the consent of each Bondholder so affected, an extension of the maturity of the principal of or the interest on any Bond, a reduction in the principal amount of any Bond or a reduction in the rate of interest thereon ; (H) without the consent of each Bondholder, a privilege or priority of any Bond of a se ri es over any other Bond of such series or a reduction in the aggregate principal amount of the Bonds required for consent to an amendment; or (iii) without the consent of each Bondholder, cre ation of any prior or parity liens on any Trust Estate . Subj ect to the first paragraph of this Section 8 . 1, the Trustee, without the consent of the Owners owning not less than 51 % in aggregate principal amount of the Bonds of a particular series then Outstanding may not consent to any amendment to the related Lease . Unless each Bondholder so affected consents, no amendment to a Lease shall be consented to if the amendment would result in (i) an ext ension of any Rental Payment Date, a reduction in any Scheduled Rental Payment or a redu ct ion in the Purchase Op ti on Price as determined pursuant to the Lease ; or (ii) a reduction in the aggregate principal amount of the Bonds of such series required for consent to such amendment . If at any time an amendment shall be proposed for any of the purposes of this Section requiring the approval of Bondholders, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, notify all Bondholders from whom consent is sought, of the proposed amendm ent in the manner provided by Section 8 .5. Such noti ce shall b riefly set forth the nature of the proposed amendment and shall state that copies thereof are on file at the Principal Office of the Trustee for inspection. If; within 60 calendar days after mailing of the notice or such longer period not to exceed 120 calendar days as the Trustee may p rescribe, the requisite number of Bondholders, at the time no tice of such amendment is given, shall have consented to and approved the execution thereof as he rein pr ovided, no Bondholder shall have any ri ght to object to any of the terms and p rovisions contained therein or the operati on thereof; in any manner to question the propriety of the executi on thereof; or to enjoin or restrain the Trustee or the Corporation from executing the same or from taking any a ction pursuant to the provisions thereof. Upon the execution of any such amendment, this Master Indenture shall be and is deemed to be modified and amended in accordance with such amendment . There shall be f iled with the Trustee with respect to each amendment to this Master Indenture an opinion of counsel acceptable to the Trustee to the effect that such amendment is authorized or permitted by this Master Indenture and that a ll conditi ons precedent with respect to the execu ti on and delivery thereof have been fulfilled. Section 8.2 . Defessanee. In the event a seri es of Bonds delivered pursuant hereto shall become due and payable in accordance with its terms and the whole amount of the principal and interest so due and payable upon such Bonds sha ll be paid or in the event there has been deposited with the Trustee, by way of book-ent ry delivery or actual deposit, cash or none tillable securi ties of the types described in Section 4 .7(a) hereof; in an amount suffi cient without re invest (together with interest earnings thereon) to provide for payment of the whole amount of the principal and interest when due and payable upon such Bonds and the re has been filed with the Trustee a cer tifi cate of an independent certified public accountant to the effect that such deposit will be su fficient to cause the said whole amount to be paid when due until such Bonds have been paid, and an opinion of nationally recogni zed bond counsel to the effect that such deposit will not adversely a ffect the exclusion from g ross income for federal income tax purposes of interest paid with respect to such Bonds and that all conditions precedent herein provided for relating to the sahs&cuon and discharge of this Master Indenture have been complied with, if irrevocable and satisfactory arrangements have been made with the Trustee, and if in eith er such event all administrative expenses and amounts due or to become due howz dea shall have been paid or p rovided for, then, and in either such event, the ri ght, title and interest of the Trustee and the Corporation under this Master bxkmtm with respe ct to such Bonds shall thereupon cease, t erminate and become void, and the Trustee shall assign and transfer to, upon the order of the District, all property (in excess of the amounts required for the foregoing) th en held by the Trustee relating to such Bonds (including the related Lease and all payments thereund er and all balances in any related subaeooumt created under this Master Indenture) and shall execute such documents as may be reasonably required by the Dist rict in this regard.

24

Section 8.3. Payments Due on Holidays . If the date for malting any payment hereunder or the last date for performance of any act or the exercising of any right provided for in this Master Indenture shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day, and such payment or act shall be with the same force and effect as if done on the nominal date provided in this Master Indenture, and if done on such succeeding day, no interest shall accrue for the period after such nominal date. Section 8.4. Recording and )rili ng. The District shall be responsible for the recording and filing of continuation statements or of any supplemental instruments or documents of further assurance as may be required by law in order to maintain perfection of any security interests created by the Leases, at the expense of Distric t Section B.S . Notices . All notices to be given under this Master Indenture shall be made in writing and personally delivered, delivered by overnight mail service, telecopied, mailed by certified or registered mail or mailed by first class mail to the party entitled thereto at its address set forth below, or at such address as the party may provide to the other parties in writing from time to time . Any such notice shall be deemed to have been received when personally delivered or, if mailed, three (3) calendar days after deposit in the United States mail, with postage fully prepaid . The Trustee may rely upon a notice given to it by any party who the Trustee reasonably believes is authorized to give such notice . Notwithstanding the foregoing, notices to the Trustee shall be effective only upon receipt
Addresses for Notices :

TO :

Corporation Houston Independent School District Public Facility Corporation do Houston Independent School District 3830 Richmond
Houston, Texas 7702 7

Attention : Telephone: Telecopy :
TO:

Deputy Superintendent, Finance and Business Services (713) 892-6830 (713) 892-6579

Trustee

For payment, registration, transfer and exchange of Bonds : By Hand Chase Bank of Texas, National Associati on One Main Place 1201 Main Street, 18th Floor Dallas, Texas 75202 By Mai l Chase Bank of Texas, National Association P . O. Box 2320 Dallas, Texas 75221-2320

Telephone: (800) 275-2048 Telecopy: (214) 672-5932

25

For all other communications relating to Bonds :

Chase Bank of Texas, National Association Global Trust Services 600 Travis, Suite 1150 Houston, Texas 77002
Telephone : (713) 216-5447

Telecopy : TO : District

(713) 216-5476

Houston Independent School Dist rict 3830 Richmond Houston, Texas 7702 7 Attention: Deputy Superintendent, Finance and Business Servi ces
Telephone : Telecopy : (713) 892-6830 (713) 892-657 9

Section 8.6 . Applicable Law . This Master Indenture shall be construed and governed in accordance with the laws of the State . Section 8.7. Severabi li ty. Any provision of this Master Indenture found to be p rohibited by law sha ll be ineffective only to the extent of such prohibi tion and such prohibi tion shall not invalidate the remainder of this Master Indenture . Section B .S. Binding on Successors. This Master Indenture shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns . Section 8 .9. Headings . Headings pre ceding the text of the several Articles and Sections hereof, and the table of contents, are solely for convenience of refere n ce and sh all not constitute a part of this Master Indenture or affect its meaning, construction or e ffect . Section 8.10. Execution in Counterparts. This Master Indenture may be executed in several counterparts, each of which shall be deemed an o ri ginal and all of which shall constitute but one and the same instrument. Section 8.11. Complete Agreement. This Master Indenture supersedes and takes the pla ce of any and all previous agreements entered into among the pa rties hereto with respect to the subject ma tter hereof.

26

Unless o therwise specified, all references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Master Indenture . IN WITNESS WHEREOF, the parties have executed and attested this Master Indenture by their offi cers thereunto duly au thorized as of the date and year first written above. HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATIO N

Shadwick etar v

(SEAL) CHASE BANK OF TEXAS, NATIONAL ASSOCIATION as Tnmtee

By: Name : Title:

--- I- 7P~ -_.. 'ZEE A A. NEWMAN VICE PRESIDENT & TRUST OFFICE R

Title :

7 -A H Vice Fj eside, it m id T, ust14 Off ice(,

(SEAL)

27

Unless otherwise specifi ed, all references he rein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Master Indenture . IN WITNESS WHEREOF, the parties have executed and attested this Master Indenture by their officers thereunto duly authorized as of the date and year first written above. HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION

By: Name: Title: ATTEST:

By: Name : Title :

(SEAL)

CHASE BANK OF TEXAS, NATIONAL ASSOCIATION as Trustee

By : Name : Title :

27

EXHIBIT "A" TO MASTER TRUST INDENTUR E REQUEST FOR AUTHENTICATION AND DEL IVERY OF HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION LEASE REVENUE BON D The Houston Independent School Dist rict Public Facili ty Corporati on (the "Corporation") hereby authorizes and requests Chase Bank of Texas, National Association, as Trustee (the "Trustee") under a Master Trust Indenture Relating to the Houston Independent School Distri ct Public Facil ity Corporation Lease Revenue Bonds, dated as of May 1, 1998, by and among the Corporation and the Trustee, to execute and de liver the fo llowing school facili ty revenue bonds, pursuant to said Master Indentu re : $ HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATIO N LEASE REVENUE BONDS, SERIES Name and address of Registered Owne r

{

) Maturity Dates Principal Amounts Interest Rate s
S

Dated :

HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATIO N By: Name : Title : The Bonds shall be prepared, authenticated and delivered as set forth in Article III of said Master Indenture.

A-1

The Trustee hereby acknowledges receipt of this request pursuant to the terms of the above-referenced Master Indenture.

as Tnistee By: Name : Title :

: ODMA\PCDOCS\HOUSTOW4487"
A-2

EXCERPTS FROM THIRD SUPPLEMENTAL TRUST INDENTURE RELATING TO HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION LEASE REVENUE BONDS (FOOD SERVICE WAREHOUSE PROJECT), SERIES 2006 ARTICLE I. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1. Definitions – Terms defined in the Master Indenture and capitalized herein shall, for purposes of this Third Supplemental Indenture, have the meanings given them in the Master Indenture unless otherwise defined herein. Terms defined in the Lease and capitalized herein shall, for purposes of this Third Supplemental Indenture, have the meanings given them in the Lease unless otherwise defined herein. Architect – Ratnalla & Bahl, Inc., and any successor Architect for the Project. Bond or Bonds – $33,600,000 Houston Independent School District Public Facility Corporation Lease Revenue Bonds (Food Service Warehouse Project), Series 2006, substantially in the form set forth in Exhibit B. Bond Payment Date – shall mean each Interest Payment Date and maturity date for the Bonds, as shown on Exhibit C hereto. Bondholder – The person in whose name any Bond is registered, as identified in the Bond Register. As used herein, an “Owner” or a “Holder” of Bonds means a Bondholder. Closing Date or Closing – The date of delivery of the Bonds to the Purchaser. Construction Administrator – Team Advance, and any successor Construction Administrator for the Project. Deed of Trust – The Deed of Trust, Security Agreement, Assignment of Rents and Leases and Financing Statement, dated as of April 1, 2006, by the Corporation to the Trustee granting a first lien security interest in the Project. Financial Guaranty Agreement – That certain agreement between the Corporation and the Insurer, dated as of April 1, 2006, relating to the Reserve Account Surety Policy issued in connection with the Bonds. Improvements – The improvements, which are generally described in Exhibit A to the Lease, hereafter acquired, constructed and installed on the Land in accordance with the Plans and Specifications, specifically a food service warehouse. Insurer – _______________.

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Interest Payment Date – Each March 15 and September 15, commencing September 15, 2006, until maturity or prior redemption of a Bond. Land – The real property in Harris County, Texas described in Exhibit A of the Lease upon which the Improvements are to be constructed or installed. Lease – That certain Lease With An Option To Purchase Relating to the Houston Independent School District Food Service Warehouse Project, dated as of April 1, 2006 by and between the Corporation and the District. Municipal Bond Insurance Policy – The municipal bond insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein. Permitted Investments – Any investment which the Corporation is permitted to make under applicable State Laws, including but not limited to the Public Funds Investment Act, Chapter 2256, Texas Government Code, as amended, and the District’s investment policy, including any funds maintained by, available to or managed by the Trustee or its affiliates (including those for which the Trustee or its affiliates receive compensation). Project – The Land and Improvements comprising the Houston Independent School District’s food service warehouse, food commissary, administrative offices and ancillary facilities and the Project Costs related thereto. Project Costs – All costs of, payment of or reimbursement for design, acquisition, construction, installation and financing of the Project; architectural, engineering, installation and management costs; project coordination and supervisory costs; administrative costs; capital expenditures relating to design, construction and installation; financing costs; sales tax, if any, on the Project; costs of feasibility, environmental, appraisal and other reports; inspection costs; permit fees; filing and recording costs; survey costs; Issuance Costs; and all other costs related to the Project or the financing thereof, as authorized by Chapter 303, Texas Local Government Code, as amended and set forth on Exhibit F hereto. Purchaser – _______________. Regulations – The regulations from time to time promulgated by the Internal Revenue Service pursuant to the Code and revenue rulings and revenue procedures from time to time issued pursuant to the Code. Rental Payments – The rental payments to be paid from the District to the Corporation under the Lease in amounts equal to not less than the payments on the Bonds, as indicated on Exhibit C hereto and due on the Bond Payment Dates. Reserve Account Surety Policy – The surety bond issued by the Insurer guaranteeing certain payments into the Series 2006 Payment Subaccount with respect to the Bonds as provided therein and subject to the limitations set forth therein. Reserve Requirement – $_______________.

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Resolution – The resolution of the Board of Directors of the Corporation adopted on March 9, 2006, authorizing and approving this Third Supplemental Indenture, the Lease, the Deed of Trust and other matters incident and related thereto. Warranty Deed – That certain Warranty Deed, dated as of April 1, 2006, from the District to the Corporation relating to the Land. Section 1.2. Rules of Construction. (a) Words of the masculine and feminine genders shall be deemed and construed to include the other gender and the neuter gender. Unless the context otherwise indicates, the singular number shall include the plural number and vice versa, and words importing persons shall include corporations and associations, including public bodies, as well as natural persons. (b) Headings preceding the text of the Articles and Sections hereof, and the Table of Contents, are solely for convenience of reference and shall not constitute a part of this Third Supplemental Indenture or effect its meaning, construction or effect. Section 1.3. Valuation. For the purpose of determining the amount on deposit to the credit of any fund or account held hereunder, obligations in which money in such fund or account shall have been invested shall be valued at market value. To the extent readily available through the Trustee’s data service, the Trustee shall value Permitted Investments in the funds and accounts established under the Trust Agreement on the last Business Day of each month. Section 1.4. Preamble. The statements and findings in the preamble of this Third Supplemental Indenture are hereby adopted and made a part thereof. ARTICLE II. RECITALS AND REPRESENTATIONS Section 2.1. Warranty Deed and Lease. (a) The District has entered into the Warranty Deed whereby the District has agreed to convey title to the Land to the Corporation. (a) The Corporation and the District have entered into the Lease whereby the Corporation has agreed to lease the Project to the District and the District has agreed to lease the Project from the Corporation. Section 2.2. The Project. Pursuant to the terms of the Lease, the Corporation has agreed to construct the Project in accordance with the Plans and Specifications. The Project will be accepted by the District in accordance with the provisions of the Lease and this Third Supplemental Indenture. Section 2.3. Payments. Under the Lease, the District is obligated to pay to the Corporation or its assigns Rental Payments for the lease of the Project, but solely from Available Funds and subject to such funds being Appropriated for such purposes. Section 2.4. Deposit of Funds. Under the Lease, the Corporation and the District are required to deposit or cause to be deposited with the Trustee for the account of the Corporation

HOU:2553721.1

all Rental Payments and other money received pursuant to the Lease to be held, credited and applied in accordance with the terms hereof. Section 2.5. Authority to Contract. Each of the parties has authority to enter into this Third Supplemental Indenture and has taken all actions necessary to authorize its execution and delivery by its duly authorized officers signing on the signature page hereof and the performance of its respective obligations hereunder. Section 2.6. Conditions Precedent Satisfied. All acts, conditions and things required by law to exist, happen and be performed precedent to and in connection with the execution and entering into of this Third Supplemental Indenture have happened, and have been performed in regular and due time, form and manner required by law, and the parties hereto are now fully empowered to execute and enter into this Third Supplemental Indenture. NOW, THEREFORE, in consideration of the mutual undertakings, provisions and agreements herein contained, in order to secure the payment of the principal of and interest on the Bonds as determined pursuant to the Lease according to their true intent and meaning and to the extent herein provided, to secure the performance and observance of all covenants and conditions herein contained for and in consideration of these premises and of the purchase and acceptance of the Bonds by the Holders thereof from the trust hereby created and of the acceptance by the Trustee of the trust hereby created and for other good and valuable consideration, the receipt of which is hereby acknowledged, this Third Supplemental Indenture has been executed and delivered by the Corporation and the Trustee, and the Trustee has received from the Corporation for the benefit of the Bondholders: (a) all present and future right, title and interest of the Corporation in and under, but none of its responsibilities or obligations with respect to the Lease and any other instrument or document relating to the Project or the financing thereof; (b) all right, title and interest of the Corporation in and to all Rental Payments, and any other payments with respect to the Project under the Lease, made by the District from and after the date of this Third Supplemental Indenture and other income, charges and funds realized from the lease, sale, transfer or other disposition of the Project; (c) a first security lien interest in the Project and (d) all funds and investments in all accounts established under this Third Supplemental Indenture, except the Series 2006 Rebate Subaccount. The Trustee hereby declares that it will hold all Rental Payments or other sums paid under the Lease, as well as all other income, charges and funds realized from the removal or other disposition of the Project or other amounts received pursuant to this Third Supplemental Indenture or the Deed of Trust, except the Series 2006 Rebate Subaccount, in trust for the benefit of the Bondholders in accordance with the terms of this Third Supplemental Indenture together with all funds and investments in the Trust Fund and all funds deposited with the Trustee, all subject to and in accordance with this Third Supplemental Indenture (collectively referred to as the “Trust Estate”). TO HAVE AND TO HOLD all and singular the Trust Estate whether now owned or hereafter acquired unto the Trustee and its successors in trust and to its assigns forever; BUT IN TRUST NEVERTHELESS, for the equal and proportionate benefit, security and protection of all present and future Bondholders whose Bonds are governed by this Third Supplemental Indenture, and to secure the performance of and compliance with the covenants,

HOU:2553721.1

terms and conditions of this Third Supplemental Indenture, without preference, priority or distinction, as to lien or otherwise (except as hereinafter expressly provided) of any Bondholder over any other, so that each and every Bondholder shall have the same right, lien and privilege under this Third Supplemental Indenture and shall be equally and ratably secured on a pro rata basis. ARTICLE III. BOND TERMS AND PROVISIONS Section 3.1. Form of the Bonds. The Bonds shall be substantially in the form set forth in Exhibit B with such variations, insertions or omissions as are appropriate and not inconsistent therewith and shall conform generally to the rules and regulations of any governmental authority or usage or requirement of law with respect thereto. Such form may be appropriately modified to provide for the issuance of the initial Bonds upon the initial delivery of the Bonds to the Purchaser on the Closing Date. Section 3.2. Authorization and Issuance of the Bonds. The Bonds shall be issued as current interest bonds in the aggregate principal amount of $33,600,000, shall be designated “Houston Independent School District Public Facility Corporation Lease Revenue Bonds (Food Service Warehouse Project), Series 2006,” shall be dated April 1, 2006, and shall bear interest as set forth in Exhibit A, commencing as of the Closing Date, computed on the basis of a 360-day year consisting of twelve 30-day months, payable on each Interest Payment Date, all as set forth more fully in Exhibit C, which is attached hereto and made a part hereof for all purposes. Section 3.3. Delivery of the Bonds. Upon the execution and delivery of this Third Supplemental Indenture, the Corporation shall execute and deliver to the Trustee and the Trustee shall register and authenticate the Bonds in the aggregate principal amount of $33,600,000 and deliver the Bonds to the Purchaser on the Closing Date. Prior to the registration and authentication by the Trustee of the Bonds, there shall be filed with the Trustee the certificates and other documents required by Section 3.7 of the Master Indenture along with, if required by the Trustee, a “Phase I” and, if required by the “Phase I,” “Phase II,” environmental report with respect to the Land, in form and substance satisfactory to the Trustee and the Purchaser and evidence satisfactory to the Trustee and the Purchaser of compliance with any action recommended therein. ARTICLE IV. ADMINISTRATION OF FUNDS AND ACCOUNTS Section 4.1. Special Provisions Relating to Project Acquisition Account.

(a) In accordance with Section 4.5 of the Master Indenture, there is hereby established within the Project Acquisition Account a special subaccount with respect to the Bonds to be designated the “Series 2006 Project Acquisition Subaccount.”

HOU:2553721.1

(b) All disbursements for Project Costs from the Series 2006 Project Acquisition Subaccount shall be made by the Trustee only upon, and within five (5) business days following receipt of the following: (i) if for Issuance Costs, a Requisition for Payment of Issuance Costs, in the form set out in Exhibit E hereto, executed by the Corporation and the District; (ii) if for the initial disbursement of Project Costs, an executed copy of the Construction Contract and an assignment to the Trustee of the Construction Contract; (iii) if for any Project Costs (excluding the initial disbursement) other than Issuance Costs, a Requisition for Payment of Projects Costs, executed by the Corporation and the District in the form set out in Exhibit D hereto which shall be accompanied by a certificate of the Construction Administrator (as defined in the Lease) in the form set out in Exhibit D hereto; and (iv) if for the final disbursement on Completion Date of the Project (as defined in the Lease), an executed Acceptance Certificate in the form attached as Exhibit C to the Lease together with a certificate of the Construction Administrator that all labor done and material furnished has been furnished in accordance with the Plans and Specifications and that all necessary certificates, licenses, approvals, releases or waivers of mechanic’s and/or materialman’s liens, and permits (required to be obtained from any governmental board, agency or department so that the Project may be used and occupied for its intended purposes) have been obtained without qualification. Further, the title insurance company that issues the Mortgagee’s Policy of title Insurance must be prepared to issue its down-date endorsement of such policy free and clear of any mechanic’s and materialman’s liens. Upon receipt of the executed Acceptance Certificate, the Trustee shall transfer any amount then on deposit in the Project Acquisition Subaccount that is not required to pay Project Costs to the Series 2006 Payment Subaccount unless the Trustee has received a request from the Corporation specifying an alternate use of such amounts accompanied by an opinion of bond counsel to the effect that complying with such request will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. (c) No amounts shall be withdrawn or transferred from or paid out of the Series 2006 Project Acquisition Subaccount except as provided in Article IV hereof and Article IV and Section 5.13 of the Master Indenture. (d) The total Project Costs shall not exceed $35,000,000 plus investment and interest earnings thereon. ARTICLE IV. ADMINISTRATION OF FUNDS AND ACCOUNTS Section 4.1. Special Provisions Relating to Project Acquisition Account.

(a) In accordance with Section 4.5 of the Master Indenture, there is hereby established within the Project Acquisition Account a special subaccount with respect to the Bonds to be designated the “Series 2006 Project Acquisition Subaccount.”

HOU:2553721.1

(b) All disbursements for Project Costs from the Series 2006 Project Acquisition Subaccount shall be made by the Trustee only upon, and within five (5) business days following receipt of the following: (i) if for Issuance Costs, a Requisition for Payment of Issuance Costs, in the form set out in Exhibit E hereto, executed by the Corporation and the District; (ii) if for the initial disbursement of Project Costs, an executed copy of the Construction Contract and an assignment to the Trustee of the Construction Contract; (iii) if for any Project Costs (excluding the initial disbursement) other than Issuance Costs, a Requisition for Payment of Projects Costs, executed by the Corporation and the District in the form set out in Exhibit D hereto which shall be accompanied by a certificate of the Construction Administrator (as defined in the Lease) in the form set out in Exhibit D hereto; and (iv) if for the final disbursement on Completion Date of the Project (as defined in the Lease), an executed Acceptance Certificate in the form attached as Exhibit C to the Lease together with a certificate of the Construction Administrator that all labor done and material furnished has been furnished in accordance with the Plans and Specifications and that all necessary certificates, licenses, approvals, releases or waivers of mechanic’s and/or materialman’s liens, and permits (required to be obtained from any governmental board, agency or department so that the Project may be used and occupied for its intended purposes) have been obtained without qualification. Further, the title insurance company that issues the Mortgagee’s Policy of title Insurance must be prepared to issue its down-date endorsement of such policy free and clear of any mechanic’s and materialman’s liens. Upon receipt of the executed Acceptance Certificate, the Trustee shall transfer any amount then on deposit in the Project Acquisition Subaccount that is not required to pay Project Costs to the Series 2006 Payment Subaccount unless the Trustee has received a request from the Corporation specifying an alternate use of such amounts accompanied by an opinion of bond counsel to the effect that complying with such request will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. (c) No amounts shall be withdrawn or transferred from or paid out of the Series 2006 Project Acquisition Subaccount except as provided in Article IV hereof and Article IV and Section 5.13 of the Master Indenture. (d) The total Project Costs shall not exceed $35,000,000 plus investment and interest earnings thereon. Section 4.2. Special Provisions Relating to Payment Account.

In accordance with Section 4.2 of the Master Indenture, there is hereby established within the Payment Account a special subaccount with respect to the Bonds to be designated the “Series 2006 Payment Subaccount. No amounts shall be withdrawn or transferred from or paid out of the Series 2006 Payment Subaccount except as provided in this Article IV and Article IV and Section 5.13 of the Master Indenture. Section 4.3. Special Provisions Relating to Reserve Account.

HOU:2553721.1

In accordance with Section 4.3 of the Master Indenture, there is hereby established within the Reserve Account a special subaccount with respect to the Bonds to be designated the “Series 2006 Reserve Subaccount.” On the Closing Date, the Reserve Account Surety Policy shall be deposited by the Trustee into the Series 2006 Reserve Subaccount in full satisfaction of the Reserve Requirement. No amounts on deposit in the Series 2006 Reserve Subaccount shall be withdrawn or transferred from or paid out of the Series 2006 Reserve Subaccount except as provided in this Article IV and Article IV and Section 5.13 of the Master Indenture. Section 4.4. Special Provisions Relating to Redemption Account.

In accordance with Section 4.4 of the Master Indenture, there is hereby established with respect to the Bonds a special subaccount with respect to the Bonds to be designated the “Series 2006 Redemption Subaccount.” No amounts shall be withdrawn or transferred from or paid out of the Series 2006 Redemption Subaccount except as provided in this Article IV and Article IV and Section 5.13 of the Master Indenture. Section 4.5. Tax Covenants.

(a) The Corporation shall at all times do and perform all acts and things permitted by law and necessary or desirable in order to assure that the interest component of all payments with respect to the Bonds shall be excluded from gross income for federal income taxation purposes. (b) The Corporation further covenants to take all actions, within the scope of its authority to act, necessary to maintain, or refrain from any action which would adversely affect, the treatment of the Bonds as obligations described in Section 103 of the Code, the interest on which is not includable in the “gross income” of the holder thereof for purposes of federal income taxation. In furtherance thereof, the Corporation specifically covenants as follows: (i) To refrain from taking any action that would result in the Bonds being “federally guaranteed” within the meaning of Section 149(b) of the Code; (ii) To refrain from taking any action or to avoid failing to take any action which will cause any portion of the proceeds of the Bonds to be used directly or indirectly, to acquire or to replace funds which were used, directly or indirectly, to acquire investment property (as defined in Section 148(b)(2) of the Code) which would produce a materially higher yield over the term of the Bonds, other than investment property acquired with any of the following: (a) proceeds of the Bonds invested for a reasonable temporary period of three (3) years or less until such proceeds are needed for the purpose for which the Bonds are issued. (b) amounts invested in a bona fide debt service fund, within the meaning of Section 1.148-1(b) of the Regulations, and (c) amounts deposited in any reasonably required reserve or replacement fund,

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(iii) Otherwise to direct Trustee to invest in specific Permitted Investments that will restrict the use of the proceeds of the sale of the Bonds or amounts treated as proceeds of the sale of the Bonds, as may be necessary, so that the Bonds do not otherwise contravene the requirements of Section 148 of the Code (relating to arbitrage) and, to the extent applicable, Section 149(d) of the Code (relating to advance refundings), (iv) To pay the United States of America at least once during each five (5) year period (beginning on the date of delivery of the proceeds of the Bonds) an amount that is at least equal to ninety percent (90%) of the amount due, if any, pursuant to Section 148(f)(3) of the Code, and to pay to the United States of America, not later than sixty (60) days after all payments on the Bonds have been made in full, one hundred percent (100%) of the amount then required to be paid, if any, pursuant to Section 148(f)(3) of the Code; (v) To maintain such records as will enable the District to fulfill its responsibilities under this Section 4.5 and Section 148 of the Code and to retain such records for at least six (6) years following the final payment of this Trust Indenture and the Bonds; (vi) The Corporation shall take no action that would cause the Bonds to be private activity bonds or arbitrage bonds and it will not fail to take any action that would prevent the Bonds from being a private activity bond or arbitrage bonds, all within the meaning of Sections 141(a) and 148, respectively, of the Code and the regulations promulgated thereunder; (vii) The Corporation shall assure that proceeds of the Bonds are not so used as to cause the Bonds or the Lease to satisfy the private loan financing test of Section 141(c) of the Code; and (viii) The Corporation represents that not more than fifty percent (50%) of the proceeds of the Bonds will be invested in nonpurpose investments (as defined in Section 148(f)(6)(A) of the Code) having a substantially guaranteed yield for four years or more within the meaning of Section 149(g)(3)(A)(ii) of the Code, and the Corporation reasonably expects that at least eighty-five percent (85%) of the spendable proceeds of the Bonds will be used to carry out the governmental purpose of the Bonds within the three-year period beginning on the date of issue of the Bonds. (ix) The Corporation will timely file or cause to be filed with the Secretary of the Treasury of the United States the information required by Section 149(e) of the Code with respect to the Bonds on such form and in such place as the Secretary may prescribe. (x) Proper officers of the Corporation charged with the responsibility for issuing the Bonds are hereby directed to make, execute and deliver certifications as to facts, estimates or circumstances in existence as of the date of issuance of the Bonds and stating whether there are facts, estimates or circumstances that would materially change the Corporation’s expectations. On or after the date of issuance of the Bonds, the Corporation will take such actions as are necessary and appropriate to assure the continuous accuracy of the representations contained in such certificates.

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(xi) The Corporation shall take all actions necessary to assure the exclusion of interest with respect to the Bonds from the gross income of the owners of the Bonds for federal income tax purposes. The covenants contained herein are intended to assure compliance with the Code and the Regulations. In the event that Regulations are hereafter promulgated which modify or expand provisions of the Code, as applicable to this Third Supplemental Indenture, the Corporation will not be required to comply with any covenant contained herein to the extent that such failure to comply, in the opinion of nationally recognized bond counsel, will not adversely affect the exclusion of any interest paid with respect to the Bonds from gross income for purposes of federal income taxation. In the event that Regulations are hereafter promulgated which impose additional requirements which are applicable to the Bonds, the Corporation agrees to comply with the additional requirements to the extent necessary in the opinion of nationally recognized bond counsel to preserve the exclusion for federal income tax purposes of the interest component of the payments with respect to the Bonds. With the written approval of the Corporation, which approval shall not be unreasonably withheld, Trustee shall engage an independent certified public accountant or other qualified person to calculate the amount, if any, payable to the United States pursuant to Section 148(f) of the Code. In lieu thereof, the Trustee may engage nationally recognized bond counsel to provide an opinion to the effect that no rebate is required. All costs of the engagements shall be borne by the District. Notwithstanding any other provision of this Third Supplemental Indenture, the Corporation’s representations and obligations under the covenants and provisions of this Section 4.5 shall survive the defeasance and discharge of the Bonds for as long as such matters are relevant to the exclusion of interest on the Bonds from the gross income of the owners for federal income tax purposes. ARTICLE V. REDEMPTION OF THE BONDS Section 5.1. Extraordinary Optional Redemption – Casualty Loss or Condemnation. The Bonds shall be subject to redemption on any Bond Payment Date, at the option of the District, in whole but not in part, upon the District’s payment of the full Purchase Option Price pursuant to Section 9.2 of the Lease, at a redemption price equal to the principal amount thereof plus accrued interest to the date set for redemption. Section 5.2. Extraordinary Optional Redemption -- Termination of the Lease. The Bonds shall be subject to redemption on any Bond Payment Date, at the option of the Trustee, in whole, but not in part, in accordance with Section 6.1(a) of the Master Indenture. Section 5.3. Conditional Notice of Redemption. Unless sufficient funds to pay the redemption price of the Bonds to be redeemed pursuant to Section 5.1 or 5.2 shall have been received by the Trustee prior to the giving of notice of redemption, such notice shall state that said redemption is conditional upon the receipt of such funds by the Trustee on or prior to the date fixed for redemption. If such funds are not received by the redemption date, such notice shall be of no force or effect, the Corporation shall not redeem such Bonds, the redemption price

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shall not be due and payable and the Trustee shall give notice, in the same manner in which the notice of redemption was given, that such funds were not so received and that such Bonds will not be redeemed. Section 5.4. Optional and Mandatory Redemption. The Bonds shall be subject to optional and mandatory redemption as provided in the Form of Bond. ARTICLE VII. PROVISIONS RELATING TO BOND INSURANCE AND SURETY BOND Section 7.1. Insurer’s Consent Provisions.

(a) Any provision of the Master Indenture or this Third Supplemental Indenture expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer hereunder without the prior written consent of the Insurer. (b) Unless otherwise provided in this Section, the Insurer’s consent shall be required in addition to Bondholder consent, when required, for the following purposes: (i) execution and delivery of any Supplemental Indenture or any amendment, supplement or change to or modification of the Lease; (ii) removal of the Trustee and selection and appointment of any successor trustee; and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Bondholder consent. (c) Any reorganization or liquidation plan with respect to the Corporation or the District must be acceptable to the Insurer. In the event of any reorganization or liquidation, the Insurer shall have the right to vote on behalf of all Bondholders who hold the Insurer-insured bonds absent a default by the Insurer under the applicable Municipal Bond Insurance Policy insuring such Bonds. (d) Anything in the Master Indenture or this Third Supplemental Indenture to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default as defined herein, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Trustee for the benefit of the Bondholders under the Master Indenture or this Third Supplemental Indenture, including, without limitation the right to annul any declaration of acceleration, and the Insurer shall also be entitled to approve all waivers of Events of Default. (e) Upon the occurrence of an Event of Default, the Trustee may, with the consent of the Insurer, and shall, at the direction of the Insurer or 51% of the Bondholders with the consent of the Insurer, by written notice to the Corporation and the Insurer, declare the principal of the Bonds to be immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in the Master Indenture and the Third Supplemental Indenture or in the Bonds to the contrary notwithstanding.

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Section 7.2.

Information to be Given to the Insurer.

(a) While the Municipal Bond Insurance Policy or the Reserve Account Surety Policy is in effect, the Corporation (or the Trustee, if the Corporation fails to do so) shall furnish to the Insurer (to the attention of the Surveillance Department, unless otherwise indicated): (1) as soon as practicable after the filing thereof, a copy of any financial statement of the District and a copy of any audit and annual report of the District; a copy of any notice to be given to the registered owners of the Bonds, including, without limitation, notice of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to the Master Indenture or this Third Supplemental Indenture relating to the security for the Bonds; and such additional information it may reasonably request.

(2)

(3)

(b) The Trustee or the Corporation shall notify the Insurer of any failure of the Corporation to provide relevant notices, certificates, etc. (c) The Corporation will permit the Insurer to discuss the affairs, finances and accounts of the Corporation or the District or any information the Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the Corporation. The Trustee and the Corporation will permit the Insurer to have access to the Project and have access to and to make copies of all books and records relating to the Bonds at any reasonable time. (d) The Insurer shall have the right to direct an accounting at the Corporation’s expense, and the Corporation’s failure to comply with such direction within thirty (30) days after receipt of written notice of the direction from the Insurer shall be deemed a default hereunder; provided, however, that if compliance cannot occur within such period, then such period will be extended so long as compliance is begun within such period and diligently pursued, but only if such extension would not materially adversely affect the interests of any registered owner of the Bonds. (e) Notwithstanding any other provision of the Master Indenture and the Third Supplemental Indenture, the Trustee or the Corporation shall immediately notify the Insurer if at any time there are insufficient moneys to make any payments of principal and/or interest as required and immediately upon the occurrence of (i) any Event of Default hereunder, or (ii) any payment default under any related security agreement. Section 7.3. Policy. As long as the Municipal Bond Insurance Policy shall be in full force and effect, the Corporation and the Trustee agree to comply with the following provisions: Payment Procedure Pursuant to the Municipal Bond Insurance

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(a) At least one (1) day prior to all Bond Payment Dates the Trustee will determine whether there will be sufficient funds in the funds and accounts to pay the principal of or interest on the Bonds on such Bond Payment Date. If the Trustee determines that there will be insufficient funds in such funds or accounts, the Trustee shall so notify the Insurer. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest, or both. If the Trustee has not so notified the Insurer at least one (1) day prior to a Bond Payment Date, the Insurer will make payments of principal or interest due on the Bonds on or before the first (1st) day next following the date on which the Insurer shall have received notice of nonpayment from the Trustee. (b) the Trustee shall, after giving notice to the Insurer as provided in (a) above, make available to the Insurer and, at the Insurer’s direction, to the United States Trust Company of New York, as insurance trustee for the Insurer or any successor insurance trustee (the “Insurance Trustee”), the registration books of the Corporation maintained by the Trustee and all records relating to the funds and accounts maintained under this Third Supplemental Indenture. (c) the Trustee shall provide the Insurer and the Insurance Trustee with a list of registered owners of Bonds entitled to receive principal or interest payments from the Insurer under the terms of the Municipal Bond Insurance Policy, and shall make arrangements with the Insurance Trustee (i) to mail checks or drafts to the registered owners of Bonds entitled to receive full or partial interest payments from the Insurer and (ii) to pay principal upon Bonds surrendered to the Insurance Trustee by the registered owners of Bonds entitled to receive full or partial principal payments from the Insurer. (d) the Trustee shall, at the time it provides notice to the Insurer pursuant to (a) above, notify registered owners of Bonds entitled to receive the payment of principal or interest thereon from the Insurer (i) as to the fact of such entitlement, (ii) that the Insurer will remit to them all or a part of the interest payments next coming due upon proof of Bondholder entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an appropriate assignment of the registered owner’s right to payment, (iii) that should they be entitled to receive full payment of principal from the Insurer, they must surrender their Bonds (along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee to permit ownership of such Bonds to be registered in the name of the Insurer) for payment to the Insurance Trustee, and not the Trustee and (iv) that should they be entitled to receive partial payment of principal from the Insurer, they must surrender their Bonds for payment thereon first to the Trustee who shall note on such Bonds the portion of the principal paid by the Trustee and then, along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee, which will then pay the unpaid portion of principal. Section 7.4. Payment Procedure Pursuant to the Surety Bond.

As long as the Reserve Account Surety Policy shall be in full force and effect, the Corporation and Trustee agree to comply with the following provisions: (a) In the event and to the extent that moneys on deposit in the Series 2006 Payment Subaccount, plus all amounts on deposit in and credited to the Series 2006 Reserve Subaccount

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in excess of the amount of the Reserve Account Surety Policy, are insufficient to pay the amount of principal and interest coming due, then upon the later of: (i) one (1) day after receipt by the General Counsel of the Insurer of a demand for payment in the form attached to the Reserve Account Surety Policy as Attachment 1 (the “Demand for Payment”), duly executed by the Trustee, certifying that payment due hereunder has not been made to the Trustee; or (ii) the payment date of the Bonds as specified in the Demand for Payment presented by the Trustee to the General Counsel of the Insurer, the Insurer will make a deposit of funds in an account with the Trustee or its successor, in New York, New York, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee hereunder (as specified in the Demand for Payment) up to but not in excess of the Surety Bond Coverage, as defined in the Reserve Account Surety Policy; provided, however, that in the event that the amount on deposit in, or credited to, the Series 2006 Reserve Subaccount, in addition to the amount available under the Reserve Account Surety Policy, includes amounts available under a letter of credit, insurance policy, surety bond or other such funding instrument (the “Additional Funding Instrument”), draws on the Reserve Account Surety Policy and the Additional Funding Instrument shall be made on a pro rata basis to fund the insufficiency. (b) the Trustee shall, after submitting to the Insurer the Demand for Payment as provided in (a) above, make available to the Insurer all records relating to the funds and accounts maintained hereunder. (c) the Trustee shall, upon receipt of moneys received from the draw on the Reserve Account Surety Policy, as specified in the Demand for Payment, credit the Series 2006 Reserve Subaccount to the extent of moneys received pursuant to such Demand. (d) the Series 2006 Reserve Subaccount shall be replenished by the Corporation in accordance with Section 6.7 of the Lease. (e) in the event that the Trustee has notice that any payment of principal of or interest on a Bond which has become Due for Payment and which is made to a Bondholder by or on behalf of the Corporation has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee shall, at the time the Insurer is notified pursuant to (a) above, notify all Bondholders that in the event that any Bondholder’s payment is so recovered, such Bondholder will be entitled to payment from the Insurer to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee shall furnish to the Insurer its records evidencing the payments of principal of and interest on the Bonds which have been made by the Trustee and subsequently recovered from Bondholders and the dates on which such payments were made. (f) in addition to those rights granted the Insurer hereunder, the Insurer shall, to the extent it makes payment of principal of or interest on Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Municipal Bond Insurance Policy, and to evidence such subrogation, the Trustee shall note the Insurer’s rights as subrogee on the registration books of the Corporation maintained by the Trustee upon surrender of the Bonds by the Holders thereof together with proof of the payment of principal thereof.

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Section 7.5.

Trustee Related Provisions.

(a) The Trustee may be removed at any time, at the request of the Insurer, for any breach of the trust set forth herein. (b) The Insurer shall receive prior written notice of any Trustee resignation.

(c) Every successor Trustee appointed pursuant to this Section shall be a trust company or bank in good standing located in or incorporated under the laws of the State, duly authorized to exercise trust powers and subject to examination by federal or state authority, having a reported capital and surplus of not less than $100,000,000 and acceptable to the Insurer. (d) Notwithstanding any other provision of the Master Indenture or the Third Supplemental Indenture, in determining whether the rights of the Bondholders will be adversely affected by any action taken pursuant to the terms and provisions thereof, the Trustee shall consider the effect on the Bondholders as if there were no Municipal Bond Insurance Policy. (e) Notwithstanding any other provision of the Master Indenture or the Third Supplemental Indenture, no removal, resignation or termination of the Trustee shall take effect until a successor, acceptable to the Insurer, shall be appointed. Section 7.6. Interested Parties.

(a) To the extent that the Master Indenture and this Third Supplemental Indenture confers upon or gives or grants to the Insurer any right, remedy or claim under or by reason of the Master Indenture and this Third Supplemental Indenture, the Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right remedy or claim conferred, given or granted hereunder. (b) Nothing in the Master Indenture and this Third Supplemental Indenture expressed or implied is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the Corporation, the Trustee, the Insurer and the registered owners of the Bonds, any right, remedy or claim under or by reason of the Master Indenture and this Third Supplemental Indenture or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in the Master Indenture and this Third Supplemental Indenture contained by and on behalf of the Corporation shall be for the sole and exclusive benefit of the Corporation, the Trustee, the Insurer and the registered owners of the Bonds. Section 7.7. Defeasance of Insured Bonds.

Notwithstanding any provision in the Master Indenture or this Third Supplemental Indenture to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by the Insurer pursuant to the Municipal Bond Insurance Policy, the Bonds shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Corporation, and the assignment and pledge of the Trust Estate and all covenants, agreements and other obligations of the Corporation to the Bondholders shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such Bondholders.

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EXCERPTS FROM LEASE WITH OPTION TO PURCHASE RELATING TO HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION LEASE REVENUE BONDS (FOOD SERVICE WAREHOUSE PROJECT), SERIES 2006 ARTICLE I DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1 Definitions. Unless the context otherwise requires, the terms defined in this Lease shall, for all purposes of this Lease, have the meanings herein specified. Capitalized terms used herein without being defined herein shall, for the purposes of this Lease, have the meanings assigned them in the Trust Indenture unless the context requires otherwise. Acceptance Certificate - shall mean the certificate of the District in the form of Exhibit C delivered as described in Section 6.1. Appropriate, Appropriated or Appropriation - shall mean the adoption by the District Board of a budget or amendments to the budget for a Fiscal Year which includes the Rental Payments and other payments required, if any, to be made by the District under this Lease during the respective Fiscal Year. Architect – means the architect licensed under the laws of the State, or a firm of licensed architects, who has prepared the Plans and Specifications. Available Funds - shall mean money Appropriated by the District from (i) money appropriated by the Legislature of the State that may lawfully be used with respect to any payment obligated or permitted under this Lease, which under current law is limited to Tier One Funds, and (ii) any unintended surplus maintenance taxes of the District at the end of each Fiscal Year after payment of all maintenance and operating expenses of the District for that Fiscal Year; provided, however, that upon receipt of an approving opinion of Nationally Recognized Bond Counsel, Available Funds shall also include any other funds Appropriated by the District that are hereafter determined to be available for the payment of Rental Payments as a result of a final, nonappealable judgment of a court of competent jurisdiction, legislation hereafter enacted or other change in State law. Claims - shall mean all claims, lawsuits, causes of action and other legal actions and proceedings of whatever nature brought (whether by way of direct action, counter claim, cross action or impleader) against any Indemnified Party, even if groundless, false, or fraudulent, so long as the claim, lawsuit, cause of action or other legal action or proceeding is alleged or determined, directly or indirectly, to arise out of, to result from, to relate to or to be based upon, in whole or in part: (a) the issuance of the Bonds or (b) the duties, activities, acts or omissions of any person in connection with the issuance of the Bonds, or the obligations of the various parties arising under the Financing Documents, (c) the disposition of the proceeds of the Bonds, or (d) the duties, activities, acts or omissions of any person in connection with the design, construction,

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installation, operation, use, occupancy, maintenance or ownership of the Project or any part thereof. Code - shall mean the United States Internal Revenue Code of 1986, as amended. Complete - shall mean that the Project has been developed, constructed, and designed in accordance with the Plans and Specifications, subject only to minor punch list items that do not prevent the lawful occupancy of the Project for its intended purposes. Completion Date - shall mean the date upon which the Project is Complete, as evidenced by the District’s execution and delivery to the Corporation and the Trustee of an Acceptance Certificate. Construction Administrator – shall mean an architect licensed under the laws of the State, or a firm of licensed architects, a professional engineer registered as such under the laws of the State, or firm of such registered professional engineers, or such other construction professional or a firm of construction professionals employed by the Corporation or the Trustee to inspect the Project for conformity with the Plans and Specifications, to approve periodic draws described in Section 10.2 hereof and to approve any change orders and requests for payment of Project Costs. Contractor - shall mean any person or entity who contracts with the Corporation pursuant to Article V hereof to construct, acquire and install the Project or any part thereof. Corporation - shall mean the Houston Independent School District Public Facility Corporation, a Texas public facility corporation created under the Corporation Act, and its permitted successors and assigns. Corporation Board - shall mean the Board of Directors of the Corporation. Corporation Representative - shall mean the President or any Vice President of the Corporation, the Chairman or Vice Chairman of the Corporation Board, the Chief Financial Officer or Controller of the District or any other officer or employee of the Corporation or the District who is designated in writing by resolution of the Corporation Board as a Corporation Representative for the purposes of this Lease, such designation to remain effective until the Corporation files with the Trustee a resolution designating a different or alternative representative. Deed of Trust - shall mean that certain Deed of Trust, Security Agreement, Assignment of Rents and Leases and Financing Statement, dated as of April 1, 2006, and executed by the Corporation to _________________, as Mortgage Trustee for the benefit of the Trustee under the Third Supplemental Trust Indenture. District - shall mean the Houston Independent School District, and its successors and permitted assigns. District Board - shall mean the Board of Education of the District.

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District Representative - shall mean the President or any Vice President of the District Board, the Superintendent, Chief Financial Officer or Controller of the District or any other officer or employee of the District who is designated in writing by resolution of the District Board as a District Representative for the purposes of this Lease, such designation to remain effective until the District files with the Trustee a resolution designating a different or alternative representative. Event of Default - shall mean the occurrence of any of the following events: (a) thereof; the District’s failure to make a Rental Payment within 10 days after the due date

(b) failure by the Corporation to provide the Project in accordance with the terms and conditions hereof, and such failure is not cured within ninety (90) calendar days after written notice thereof is provided to the Corporation by the District or the Trustee; provided, that if such failure cannot be cured within such ninety (90) day period, such failure shall not be an Event of Default if the Corporation or Trustee has commenced to cure such failure within such ninety (90) day period and diligently prosecutes the cure of such failure; (c) failure by the District to observe and perform any covenant, condition, or agreement, on its part to be observed or performed by it hereunder, other than as referred to in (a) above, and such failure is not cured within thirty (30) calendar days after written notice thereof is provided to the District by the Corporation or the Trustee; provided, that if such failure cannot be cured within such ninety (90) day period, such failure shall not be an Event of Default if the Corporation or Trustee has commenced to cure such failure within such ninety (90) day period and diligently prosecutes the cure of such failure; (d) any material statement, representation, or warranty made by the District in this Lease or in any writing ever delivered by the District, pursuant to or in connection with this Lease or the Bonds, is false or misleading in any material respect; (e) the filing by the District of a voluntary petition in bankruptcy, or failure by the District promptly to lift any execution, garnishment, or attachment of such consequence as would impair the ability of the District to carry on its operations at the Project, or adjudication of the District as bankrupt or assignment or the entry by the District into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the District in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar Federal or State Laws which may hereafter be enacted; or (f) a final, nonappealable judgment against the District for an amount in excess of $20,000,000 shall be outstanding for any period of sixty (60) days or more from the date of its entry and shall not have been discharged in full or stayed pending appeal, and, as a result thereof, a lien shall be placed on the Project or the District’s interest in the Project. Event of Nonappropriation - shall mean any one of the following events: 1. The failure of the Board of Education to Appropriate from Available Funds sufficient funds to pay the Rental Payments to be made hereunder during the upcoming Fiscal

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Year (net of any funds then on deposit in the Series 2006 Payment Subaccount or anticipated to be deposited therein prior to the Rental Payment Dates during such Fiscal Year); or 2. The reduction of any Appropriation to an amount that is insufficient to permit the District to pay the Rental Payments (net of any funds then on deposit in the Series 2006 Payment Subaccount or anticipated to be deposited therein prior to the Rental Payment Date during such Fiscal Year), in which case the Event of Nonappropriation shall be retroactive to the beginning of the Fiscal Year in which the reduction is made. Financing Documents - shall mean collectively, the Trust Indenture, this Lease, the Deed of Trust, and any and all other documents executed in connection with the issuance of the Bonds. Fiscal Year - shall mean a 12-month fiscal period of the District commencing on July 1, and ending on June 30 of the following year, or such other annual accounting period as the District may hereafter adopt. Guaranty Agreement - shall mean that certain Guaranty Agreement, dated as of April 1, 2006, between the Corporation and the Insurer entered into in relation to the Surety Bond. Hazardous Materials - shall mean any substances, including without limitation, asbestos or any substance containing asbestos, deemed hazardous under any Hazardous Materials Laws, including the group of organic compounds known as polychlorinated biphenyls, flammable explosives, radioactive materials, petroleum, petroleum fractions, petroleum distillates, chemicals known to cause cancer or reproductive toxicity, pollutants, effluents, contaminants, emissions or related materials and any items included in the definitions of “hazardous waste,” “hazardous materials,” “hazardous substances,” “toxic waste,” “toxic materials” or “toxic substances” under any Hazardous Materials Law. Hazardous Materials Laws - shall mean any law relating to environmental conditions or industrial hygiene, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9601 et seq.; Resource, Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq. as amended by the Superfund Amendments and Reauthorization Act of 1986 (“SARA”), Pub. L. 99-499, 100 Stat. 1613; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; Emergency Planning and Community Right to Know Act of 1986, 42 U.S.C. § 1101 et seq.; Clean Water Act (“CWA”), 33 U.S.C. § 1251 et seq.; Clean Air Act (“CAA”), 42 U.S.C. § 7401 et seq.; Federal Water Pollution Control Act (“FWPCA”), 33 U.S.C. § 1251 et seq.; and any corresponding state laws or ordinances including but not limited to the Texas Water Code (“TWC”) § 26.001 et seq; Texas Health & Safety Code (“THSC”) § 361.001 et seq.; Texas Solid Waste Disposal Act, Tex. Rev. Civ. Stat. Ann. art. 4477-7; and regulations, rules, guidelines, or standards promulgated pursuant to such laws, statutes and regulations, as such statutes, regulations, rules, guidelines, and standards are amended from time to time. Improvements - shall mean all improvements hereafter constructed and/or installed on the Land, including the buildings and appurtenant facilities comprising the District’s Food Service Warehouse.

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Indemnified Party or Indemnified Parties - shall mean one or more of the Corporation, the Corporation Board, the District Board, the Trustee, and any of their successors, officers, directors, members, employees, agents, servants and any other person acting for or on behalf of any of them, as the case may be. Issuance Costs - means the costs of issuance incurred in connection with the sale of the Bonds, including, but not limited to the Trustee’s fees and expenses, fees and expenses of bond counsel, printing and other costs, underwriter’s fees, financial advisory fees, examination fees of the Attorney General of the State of Texas, rating agency fees, bond insurance and reserve fund surety policy premiums, filing fees and other miscellaneous costs and expenses. Land - shall mean the real property located within the District on which the Improvements are to be developed and constructed, as more particularly described in Exhibit A attached hereto and made a part hereof. Laws - shall mean all federal, state, and local laws, rules, regulations, ordinances, codes, and orders of any entity having jurisdiction over the Project. Lease - shall mean this Lease dated as of April 1, 2006, by and between the District and the Corporation, and any duly authorized and executed amendment thereto. Losses - shall mean losses, costs, damages, expenses, judgments, and liabilities of whatever nature (including, but not limited to, attorney’s, accountant’s and other professional’s fees, litigation and court costs and expenses, amounts paid in settlement and amounts paid to discharge judgments and amounts payable by an Indemnified Party to any other person under any arrangement providing for indemnification of that person) directly or indirectly resulting from, arising out of or relating to one or more Claims. Mortgage Trustee - shall mean the mortgage trustee named in the Deed of Trust. Nationally Recognized Bond Counsel – An attorney or firm of attorneys selected by the Corporation and reasonably acceptable to the Trustee, and listed among the Municipal Bond Attorneys in The Bond Buyer’s Municipal Marketplace, or any successor publication thereto. Net Proceeds - shall mean any insurance proceeds or condemnation awards paid with respect to the Project remaining after payment of all reasonable expenses incurred in the collection thereof. Outstanding - shall mean as of the date of determination, all Bonds theretofore issued and delivered under the Trust Indenture, except: (a) Bonds theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Bonds for whose payment or redemption money in the necessary amount has been theretofore deposited in an account, other than the “Payment Account” identified in Article IV of the Master Trust Indenture, with the Trustee in trust irrevocably for the holders of such Bonds;

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(c) Bonds in exchange for or in lieu of which other Bonds have been registered and delivered pursuant to the Trust Indenture; and (d) Bonds alleged to have been mutilated, destroyed, lost, or stolen which have been paid as provided in the Trust Indenture. Permitted Assignee - shall mean (a) the Trustee, (b) the purchaser at a foreclosure sale held pursuant to the Deed of Trust or in connection with a sale in lieu thereof, or (c) any other person designated by the Trustee to acquire the interest of the District under this Lease, including the successors and assigns of any such persons. Permitted Encumbrances - shall mean the matters described in Exhibit B attached hereto and made a part hereof. Plans and Specifications - shall mean architectural and engineering drawings and specifications prepared by the Architect and approved by the District describing the Improvements and any approved changes thereto, from time to time. Project - shall mean the Land and all Improvements (but no equipment) to be constructed and installed on the Land pursuant to this Lease. Project Contract - shall mean each contract between the Corporation and the Contractor for the construction, acquisition and installation of the Project. Project Costs - shall mean all costs of, payment of, or reimbursement for design, acquisition, construction, installation and financing of the Project; architectural, engineering, installation and management costs; project coordination and supervisory costs; administrative costs; capital expenditures relating to design, construction, and installation; financing payments; sales tax, if any, on the Project; costs of feasibility, environmental, appraisal, and other reports; inspection costs; permit fees; filing and recording costs; title insurance premiums; survey costs; Issuance Costs; and all other costs related to the Project or the financing thereof, authorized by the Corporation Act. Regulations - shall mean any proposed, temporary, or final Income Tax Regulations issued pursuant to sections 103 and 141 through 150 of the Code, which are applicable to the Bonds. Any reference to any specific Regulations shall also mean, as appropriate, any proposed, temporary, or final Income Tax Regulation designed to supplement, amend, or replace the specific Regulation referenced. Rental Payment - shall mean on each Rental Payment Date, while any Bonds are Outstanding under the Third Supplemental Trust Indenture, (i) an amount of money which, when added to the amount then on deposit in the Series 2006 Payment Subaccount, will equal the amount reflected for each such date on Exhibit E hereto, and (ii) the amount, if any, required to replenish the Series 2006 Reserve Subaccount in accordance with Section 10.6(b) of this Lease. The initial schedule of Rental Payments attached as Exhibit E hereto may be amended by agreement of the Corporation and the District from time to time.

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Rental Payment Date - shall mean each March 15 and September 15, commencing September 15, 2006, for so long as this Lease is in effect. State - shall mean the State of Texas. Tier One Funds – Guaranteed basic funding allotments per student which are allotted to the District pursuant to Subchapter B, Chapter 42, Texas Education Code. Term - shall mean the term of this Lease as determined pursuant to Section 3.3 hereof. Section 1.2 General Rules of Construction. When in this Lease the context requires, (i) a reference to the singular number includes the plural and vice versa; and (ii) a word denoting gender includes the masculine, feminine, and neuter. Section 1.3 Preamble. The statements, findings and definitions in the preamble of this Lease are hereby adopted and made a part of this Lease. ARTICLE II REPRESENTATIONS, COVENANTS, AND WARRANTIES Section 2.1 Representations, Covenants and Warranties of District. The District represents, covenants, and warrants as follows: (a) the District is a duly formed and validly existing independent school district and political subdivision of the State operating pursuant to Chapter 45, Texas Education Code, as amended, and Article 2784g, Texas Revised Civil Statutes, as amended, and governed by the laws of the State; (b) the District has full power and authority to execute this Lease and perform its obligations hereunder; (c) the District Board has duly authorized the execution of the Financing Documents to which it is a party and the performance of its obligations thereunder; (d) the execution of this Lease and the performance of its obligations hereunder and compliance with the terms hereof by the District will not conflict with, or constitute a default under, any law (including administrative rule), judgment, decree, order, permit, license, agreement, mortgage, lease, or other instrument to which the District is subject or by which the District or any of its property is bound; (e) the District is not in violation of any Law, which violation could adversely affect the performance of its obligations under this Lease; (f) the District presently expects to have sufficient Available Funds or other lawfully available Appropriated funds, as applicable, hereunder, to satisfy its obligations under this Lease, and the District will use its best efforts to manage its affairs in such a way as to maximize the amount of funds available to the District to pay Rental Payments; provided, however, the District

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has no obligation to Appropriate Available Funds in any Fiscal Year, regardless of the amount of funds eligible to be Available Funds or other lawfully available funds, as applicable, in its possession; (g) this Lease is a legal, valid, and binding obligation of the District, enforceable in accordance with its terms; (h) the District will be the sole user of the Project, and the District will use the Project during the term of this Lease for educational purposes of the District; (i) the District agrees to keep the Project free and clear of all liens, encumbrances, and security interests (other than the Permitted Encumbrances); (j) the District has complied and will continue to comply with all open meeting laws, all public bidding or procurement laws and all other State and federal laws applicable to the execution, delivery, and performance of its obligations under this Lease and to the acquisition of the Project by the District; (k) the District has published notice of intent to enter into this Lease in a form which complies with the PPF Act, not less than sixty (60) days before the date set to approve execution of such Lease, in a newspaper of general circulation within its boundaries, and the District has not received a written petition complying with the provisions of the PPF Act and is fully authorized to execute this Lease; and (l) except for approval of the Attorney General of the State of Texas, no further approval, consent, or withholding of objections is required from any governmental authority with respect to this Lease. Section 2.2 Representations, Covenants and Warranties of the Corporation. The Corporation represents, covenants, and warrants as follows: (a) the Corporation is a validly existing public facility corporation authorized to operate under the Corporation Act; (b) the Corporation has the full power and authority to execute the Financing Documents to which it is a party and perform its obligations thereunder; (c) the Corporation has the full power and authority to issue, sell and deliver the Bonds and to use the proceeds thereof for the Project and the Corporation Board has duly authorized the issuance, sale and delivery of the Bonds; (d) the Corporation Board has duly authorized the execution of the Financing Documents to which it is a party and the performance of the Corporation’s obligations thereunder; (e) the execution of the Financing Documents and the performance of its obligations thereunder and compliance with the terms thereof by the Corporation will not conflict with, or constitute a default under, any law (including administrative rule), judgment, decree, order,

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permit, license, agreement, mortgage, lease, or other instrument to which the Corporation is subject or by which the Corporation or any of its property is bound; (f) the Corporation is not in violation of any law, which violation could adversely affect the performance of its obligations under this Lease; (g) pursuant to Section 3.3(c) hereof, upon termination of this Lease, the Corporation will deliver to the District all documents which are or may be necessary to vest all of the Corporation’s right, title, and interest in and to the Project in the District and will release all liens and encumbrances in favor of the Corporation created under this Lease with respect to the Project as provided in Article XI; (h) the Corporation agrees to keep the Project free and clear of all liens, encumbrances, and security interests (except for Permitted Encumbrances and the encumbrances created by the Deed of Trust and the Security Agreement); (i) on the Closing Date, the Corporation will hold title to the Land upon which the Project will be situated, subject to Permitted Encumbrances and the encumbrance created by this Lease and, for the period of time commencing on the date of the execution of this Lease and expiring on the termination of this Lease, will warrant and forever defend all and singular the District’s leasehold interest in such property unto the District, its successors, and assigns against every person whomsoever lawfully claiming or to claim the same, or any part thereof. Subject to compliance by the District with the provisions of this Lease, the Corporation hereby covenants to provide the District during the term of this Lease with the quiet use and enjoyment of such property, subject to the Permitted Encumbrances and the terms of this Lease, and the District shall peaceably and quietly have and hold and enjoy such property, without suit, trouble, or hindrance from the Corporation; (j) except for the approval of the Attorney General of the State of Texas, no further approval, consent, or withholding of objections is required from any governmental authority with respect to the execution, delivery and performance of this Lease; (k) the Project, when completed, will comply with all State standards and governmental requirements pertaining to the operation of independent school districts and will be suitable for the District’s purposes; (l) the Financing Documents to which the Corporation is a party are legal, valid and binding obligations of the Corporation, enforceable in accordance with their terms; and (m) the Corporation has complied and will comply with all open meetings, all public contract procurement laws and all other state and federal laws applicable to the District and/or the Corporation relating to the approval and construction of the Project, and the payment of Project Costs. Section 2.3 below: Continuing Disclosure Undertaking.(a) Definitions.

As used in this Section, the following terms have the meanings ascribed to such terms

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“MSRB” - means the Municipal Securities Rulemaking Board. “NRMSIR” - means each person whom the SEC or its staff has determined to be a nationally recognized municipal securities information repository within the meaning of the Rule from time to time. “Rule” - means SEC Rule 15c2-12, as amended from time to time. “SEC” - means the United States Securities and Exchange Commission. “SID” - means the Municipal Advisory Council of Texas, which has been designated by the State of Texas as, and determined by the SEC or its staff to be, a state information depository within the meaning of the Rule. (b) Updated Information and Data.

Not later than 180 days after the end of each Fiscal Year while any of the Bonds are Outstanding, the District shall provide to the Trustee, each NRMSIR and the SID, financial information and operating data with respect to the District of the general type included in the Official Statement in Tables [1-13] and the District’s audited financial statements for such Fiscal Year. (c) Material Event Notices.

The District shall notify any SID and either each NRMSIR or the MSRB, in a timely manner, of any of the following events with respect to the Bonds, if such event is material within the meaning of the federal securities laws: 1. 2. 3. difficulties; 4. difficulties; 5. 6. Bonds; 7. 8. 9. Modifications to rights of holders of the Bonds; Bond calls; Defeasances; Principal and interest payment delinquencies; Non-payment related defaults; Unscheduled draws on debt service reserves reflecting financial Unscheduled draws on credit enhancements reflecting financial

Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions or events affecting the tax-exempt status of the

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10. and 11. (d)

Release, substitution, or sale of property securing repayment of the Bonds; Rating changes.

Limitations, Disclaimers and Advertisements.

The District shall be obligated to observe and perform the covenants specified in this Section for so long as, but only for so long as, the District remains an “obligated person” with respect to the Bonds within the meaning of the Rule, except that the District in any event will give the notice required by paragraph (c) of any Bond call or defeasance that causes the District to no longer be such an “obligated person.” The provisions of this Section are for the sole benefit of the Bondholders and the beneficial owners of the Bonds, and nothing in this Section, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The District undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Section and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the financial results, condition, or prospects of the District or hereby undertake to update any information provided in accordance with this Section or otherwise, except as expressly provided herein. The District does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell the Bonds at any future date. UNDER NO CIRCUMSTANCES SHALL THE DISTRICT BE LIABLE TO BONDHOLDERS OR THE BENEFICIAL OWNER OF ANY BOND OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE DISTRICT, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS SECTION 2.3, BUT EVERY RIGHT AND REMEDY OF ANY SUCH PERSON, IN CONTRACT OR TORT, FOR OR ON ACCOUNT OF ANY SUCH BREACH SHALL BE LIMITED TO AN ACTION FOR MANDAMUS OR SPECIFIC PERFORMANCE. No default by the District in observing or performing its obligations under this Section shall constitute a breach of or default under this Lease for purposes of any other provision of this Lease. Nothing in this Section is intended or shall act to disclaim, waive, or otherwise limit the duties of the District under federal and state securities laws. The provisions of this Section may be amended by the District from time to time to adapt to changed circumstances that arise from a change in legal requirements, a change in law, or a change in the identity, nature, status, or type of operations of the District, but only if (i) the provisions of this Section, as so amended, would have permitted an underwriter to purchase or sell Bonds in the primary offering of the Bonds in compliance with the Rule, taking into account any amendments or interpretations of the Rule to the date of such amendment, as well as such changed circumstances, and (ii) either (A) a majority in aggregate principal amount (or any

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greater amount required by any other provision of the Trust Indenture that authorizes such an amendment) of the Bondholders’ consent to such amendment or (B) a Person that is unaffiliated with the District (such as Nationally Recognized Bond Counsel) determines that such amendment will not materially impair the interests of the Bondholders and the beneficial owners of the Bonds. The provisions of this Section may also be amended from time to time or repealed by the District if the SEC amends or repeals the applicable provisions of the Rule or a court of final jurisdiction determines that such provisions are invalid, or at the discretion of the District in any other circumstance, but in either case only if and to the extent that reservation of the District’s right to do so would not prevent underwriters of the initial public offering of the Bonds from lawfully purchasing or selling Bonds in such offering, giving effect to (x) such provisions as so amended and (y) any amendments or interpretations of the Rule. If the District so amends the provisions of this Section, it shall include with any amended financial information or operating data next provided in accordance with paragraph (b) of this Section an explanation, in narrative form, of the reasons for the amendment and of the impact of any change in the type of financial information or operating data so provided. To the extent permitted by law, any information required by this Section to be provided to each NRMSIR and any SID may be provided to the Municipal Advisory Council of Texas, as central post office disclosure facility, in lieu of providing such information to each NRMSIR and any SID. ARTICLE III LEASE OF PROJECT AND TERM Section 3.1 Lease of Project. In consideration of the rents, covenants, agreements and conditions herein set forth, which the District agrees to pay, keep and perform, the Corporation does hereby let, demise and rent unto the District, and the District agrees to rent and lease from the Corporation, the Project. Section 3.2 Title Matters. During the Term of this Lease, legal title to the Project and any and all repairs, replacements, substitutions and modifications to the Project shall be in the Corporation. The District shall not permit any lien or encumbrance of any kind to exist against the title to the Project, other than the Permitted Encumbrances. Upon termination of this Lease under Section 3.3(c), full and unencumbered legal title to the Project, with the exception of the Permitted Encumbrances, shall immediately be conveyed by the Corporation to the District, and the Corporation and the Trustee shall execute and deliver to the District such documents as the District may reasonably request to evidence the conveyance of such title to the District and the termination of the Corporation’s and the Trustee’s interest in the Project. Section 3.3 Term. This Lease shall be and remain in effect with respect to the Project for a lease term (the “Term”) commencing on the Closing Date and continuing until terminated, to the extent required by State law, upon the occurrence of the first of the following events: (a) the last day of the Fiscal Year in which an Event of Nonappropriation occurs;

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(b) the effective date of termination of this Lease by the Corporation or Trustee pursuant to the exercise of the rights of the Corporation to terminate this Lease upon the occurrence of an Event of Default pursuant to Article XIV; (c) the date on which the District pays all Rental Payments and other amounts required to be paid by the District pursuant to the terms of this Lease; or (d) twenty-five years from the Closing Date (as defined in the Third Supplemental Trust Indenture), but in all events upon and subject to the covenants, agreements, terms, provisions and limitations hereinafter set forth. ARTICLE IV USE OF LEASED PREMISES AND COMPLIANCE WITH LAW Section 4.1 Use. The District shall occupy, operate and maintain the Project for District purposes provided in no event may the Project be used for a purpose which may adversely affect the treatment of the Bonds as obligations described in section 103 of the Code, the interest on which is excludable from “gross income” of the holders thereof for purposes of federal income taxation. Section 4.2 Compliance With Laws.

(a) The District shall comply with all Laws now existing or enacted or promulgated in the future, which affect the Project and the use and occupancy thereof. The District shall obtain all permits and licenses necessary for the operation, possession and use of the Project. The District shall make, at the District’s own cost and expense from Available Funds, any and all repairs, additions and alterations (whether the same constitute a capital improvement or expenditure) to the Project, that are required by Law or as may be ordered or required by any governmental authority, whether (i) in order to meet the special needs of the District, or by reason of the occupancy of the District, or otherwise, and (ii) regardless of whether such Laws, and the cost of implementing same, are imposed upon the District or the Corporation. In making any such alterations and improvements, the District shall comply with Sections 5.3 and 5.6 below. (b) The District may, by appropriate proceedings conducted promptly in the District’s name and at the District’s expense, contest the validity or enforcement of any such Laws, and the District may defer compliance with same during such contest, provided the District diligently prosecutes such contest to a final determination by the authority having jurisdiction thereof and the delay in complying therewith does not create a lien or encumbrance on the Project or subject the Corporation or the Project to any liability for damages, fines, or penalties.

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ARTICLE V DEVELOPMENT AND CONSTRUCTION OF THE PROJECT Section 5.1 Local Conditions. The Corporation declares that it is familiar with local conditions with respect to the development of the Project and construction of the Improvements. Section 5.2 Agreement to Design, Develop and Construct the Improvements.

(a) The Corporation agrees to design, develop, and construct the Improvements on the Land in accordance with the terms hereof. In this respect, the Corporation shall furnish all supervision, tools, implements, machinery, labor, materials, and accessories such as are necessary and proper for the construction of the Improvements, shall pay all permit and license fees and shall construct, build, and complete in a good and workmanlike manner, the structures, work and Improvements herein described to be constructed by the Corporation at its expense upon the Land, all in accordance with this Lease, the Plans and Specifications, and all documents executed in connection with this Lease. (b) The Corporation shall obtain the services of the Architect, engineers, and other design professionals who shall have the obligation to develop the plans and specifications for the Project, which, subject to the reasonable review and approval by the Corporation and the District, shall be the Plans and Specifications. The Plans and Specifications must comply in all respects with all applicable Laws. (c) On or prior to the Closing Date, the Corporation shall enter into one or more Project Contracts with the Contractor for the construction, acquisition, or installation of the Project. Each such Project Contract shall be assigned to the Trustee on the Closing Date. (d) The District agrees to cooperate with the Corporation in obtaining all city, state, or federal approvals necessary for the construction and development contemplated herein. (e) The Corporation agrees that it will pay out of lawfully available Appropriated Funds all fees, royalties, or license charges on all patented, registered or copyrighted machines, materials, methods or processes used in the construction of said work and supplied as a part of the Project. Section 5.3 Project Contract Requirements. All Project Contracts must: (i) be awarded in compliance with applicable Laws relating to procurement and competitive bidding of contracts with independent school districts; (ii) require the Contractor to obtain all required approvals from governmental entities for the work to be performed thereunder; (iii) require the Contractor to obtain and file statutory payment bonds and performance bonds, each of which shall name the Trustee as an obligee and each of which shall be in such amounts as to meet statutory requirements to avoid the effective encumbrance of the Project with a statutory or constitutional mechanic’s or materialman’s lien, but in no event less than the amount of the Project Contract, and in all events be in form and issued by surety companies satisfactory to the Corporation, the District and the Architect; (iv) require that all materials furnished be of good and serviceable quality and all labor performed be good and workmanlike and in conformity with the Plans and Specifications; (v) require the Contractor and its subcontractors to obtain the

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insurance set out in Section 5.6 below; (vi) require that all Project Contracts and any warranties contained therein can be assigned to and directly enforced by the District, the Trustee or a Permitted Assignee; (vii) provide for an express subordination of any mechanic’s or materialman’s lien to the Deed of Trust lien securing the Bonds; (viii) require, in the case of all original Contractors, an affidavit of commencement in the form prescribed by the Texas Property Code establishing that no construction has commenced prior to the recordation and filing of the Deed of Trust or, if such work has commenced, proof of compliance with subchapter 1 of Chapter 53 of the Texas Property Code pursuant to which no liens may be filed by an subcontractor; and (ix) contain the limitations on change orders set out in Section 5.4 below. Section 5.4 Change Orders. Change orders with respect to the Project may only be made with the prior approval of the Corporation and the District. No change order shall be approved which would: (i) either separately, or in the aggregate, cause Project Costs to be paid from the Project Acquisition Fund to exceed $___________, unless there shall be on deposit in the Series 2006 Project Acquisition Subaccount sufficient funds to pay the amount of the increase or the District deposits with the Trustee funds sufficient to pay the amount of the increase; (ii) materially reduce the gross square feet to be contained in the Project, materially alter the layout of the Project, or provide for materials to be furnished that are not at least of the same quality and grade as that for which such materials are substituted; or (iii) reduce the fair market value of the Project to less than the fair market value of the Project without the modification. Section 5.5 Ownership of Project. All materials and other property incorporated into the Project shall become a permanent part of the construction of the Project for the purposes of this Lease. Section 5.6 Insurance Required of Contractors. During the construction of the Improvements and during any major renovation or restoration involving an aggregate expenditure of more than $100,000, all Contractors shall be required to obtain the insurance coverage set out in Exhibit D attached hereto and incorporated by reference herein for all purposes. ARTICLE VI ACCEPTANCE AND CONDITION OF PREMISES Section 6.1 District’s Inspection and Acceptance. (a) Once the Project is complete, the District will cause a District Representative to execute and deliver to the Corporation and the Trustee the Acceptance Certificate. Upon receipt of the Acceptance Certificate, the Corporation and the Trustee shall be deemed to have assigned to the District all of their rights and obligations under the Financing Documents, Project Contracts and all other documents relating to the Project. (a) The Corporation will give the District the opportunity to fully inspect the Project during construction. The District’s execution of this Lease and the execution of the Acceptance Certificate by a District Representative shall be conclusive evidence of the District’s acceptance of the Project in its “AS IS” condition, with all faults, latent or patent, and that the Project is

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suitable for its intended purposes. Acceptance by the District shall not be deemed to inure to the benefit of any other party claiming or defending against the District or the Corporation as to the condition or the design and construction of the Project. Section 6.2 No Representations. The District agrees that the Corporation has made no representations or warranties respecting the condition of the Land or the Project, other than those included in the Financing Documents and documents incorporated by reference therein and attached thereto, and no promises to alter or improve the Land have been made by the Corporation or its agents other than those specifically contained herein or incorporated herein by specific reference. ARTICLE VII ALTERATIONS AND IMPROVEMENTS Section 7.1 District’s Right to Alter. (a) Subject to, from, and only to the extent of Available Funds in excess of the Rental Payments, and provided the conditions of this Section are met, the District shall have the right to make alterations, additions and improvements to the Project. All alterations, improvements, and additions shall thereafter comprise part of the Project and shall be owned by the Corporation subject to the terms of this Lease and the Deed of Trust. (a) Following Completion, the District shall have the right to make alterations and improvements conditioned on the following: (i) no alteration, modification or addition shall be made which would reduce the fair market value of the Project to a value below the fair market value of the Project without modification, and in this respect, the District must supply the Corporation and the Trustee with a certificate from an architect acceptable to the Corporation that such alteration, modification or addition will not lessen the value of the Project; (ii) no structural alteration or improvement shall be made which would adversely affect the structural integrity of the Improvements, and in this respect, the District must supply the Corporation and the Trustee with a certification of a licensed engineer that such alteration will leave the Project, as altered, in a structurally sound condition; (iii) no alteration or improvement may be made which might adversely affect the excludability of the interest on the Bonds from “gross income” of the holders thereof for federal income tax purposes, and in this respect, the District must furnish to the Trustee an opinion of Nationally Recognized Bond Counsel to the effect that such proposed alteration or improvement will not so effect the Bonds. (b) All alterations and improvements must: (i) be performed in a good and workmanlike manner; (ii) be performed pursuant to written contracts meeting the requirements of Sections 5.3 and 5.6 above, and (iii) result in no liens being filed against the Project, or if such liens are filed, the District shall promptly, and from Available Funds in excess of Rental Payments, obtain and file a statutory Bond to Indemnify Against Lien (as provided in the Texas Property Code or its then statutory equivalent), naming the Corporation and Trustee as additional obligees.

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ARTICLE VIII OPERATION OF THE PROJECT Section 8.1 Maintenance. (a) During the Term, the District shall, from Available Funds, maintain, preserve and keep the Project in good repair, working order, and condition, and from time to time make or cause to be made all repairs, replacements, and improvements (regardless of whether the same includes capital expenditures) necessary to keep the Project in such condition. The District agrees to pay the expenses of such maintenance from lawfully available Appropriated funds. The Corporation shall have no obligation or responsibility to maintain the Project. (a) The District shall have the right to enter into contracts with respect to the operation and maintenance of the Project as necessary to keep the Project in good repair, working order, and condition; provided, however, that prior to entering into any such contract, other than a contract for services incidental to the use of the Project as a food service warehouse and commissary and administrative offices (such as contracts for janitorial services, repair and maintenance, and similar such contracts), the District must deliver thirty (30) days’ prior written notice to the Trustee, together with an opinion of Nationally Recognized Bond Counsel that the exclusion of interest on the Bonds for federal tax purposes will not be adversely affected by such contract; provided, however, that the District shall not be relieved of its obligation to maintain the Project by entering into a contract with a third party to perform such duties. Section 8.2 Access. The Corporation and the District agree that the District, any District Representative, the Corporation, any Corporation Representative, the Trustee, and any Permitted Assignee shall have the right at all reasonable times to enter and inspect the Project. The District agrees that the Corporation, a Corporation Representative and the Trustee, without incurring any responsibility or obligation, shall have such rights of access to the Project as may be necessary or desirable to: (i) cause the maintenance of the Project in the event of failure by the District to perform its obligations hereunder, (ii) permit the Corporation or Trustee to exercise its rights or to carry out its obligations under this Lease, or (iii) determine whether the District is in compliance with its obligations under this Lease. Section 8.3 Utilities. During the Term of this Lease, the District shall pay from lawfully available Appropriated funds, directly to vendors and suppliers, all deposits, charges, fees, and costs incurred for all utility equipment and services in connection with the use and occupancy of the Project by the District, including, but not limited to, water, sewer, refuse removal, electricity, gas, telephone, and cable television. The District shall pay the costs of any janitorial and related services in connection with the operation of the Project. Section 8.4 Taxes. To the extent applicable, the District shall pay from lawfully available Appropriated funds any sales, property (real or personal), use, license, or other taxes with respect to the Project or any part thereof, or the ownership or use of the Project, that may be imposed, assessed, levied or become due and payable on or after the effective date of this Lease, together with any fines, penalties, or interest thereon. The Corporation shall promptly forward to the District any tax statements received by the Corporation for payment by the District prior to delinquency. The District shall furnish the Corporation with copies of paid receipts reflecting

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the timely payment of such taxes or impositions, and shall furnish the Corporation annually with a certificate that all taxes or impositions have been paid. The District, after notifying the Corporation and at its own expense, may contest, by appropriate administrative and thereafter legal proceedings, the assessed value, entitlement to any claimed exemption from taxation, validity of levy, amount of tax or imposition, or applicability of any such tax or imposition. The District’s right to contest such taxes or impositions shall be conditioned on the District’s compliance with any tender requirements of any laws governing protest of taxes and furnishing to the Corporation an indemnity bond or cash deposit or other security acceptable to the Corporation, with a surety acceptable to Corporation, in the amount of the tax or imposition being contested by the District plus an additional sum sufficient to pay costs, interest, and penalties that may be imposed or incurred in connection with or during the contest. Section 8.5 Liens and Leasehold Mortgages Prohibited. The District shall not, directly or indirectly, mortgage, pledge, or hypothecate the Project or its interest in this Lease. The District shall not, directly or indirectly, create, incur, assume, or suffer to exist any mortgage, lien, charge, encumbrance, or claim on or with respect to the Project other than the rights of the Corporation and the District under this Lease and the Permitted Encumbrances. The District shall promptly take such action as may be necessary to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim arising at any time during the Term of this Lease. The Corporation and Trustee shall have the right, but not the obligation, to discharge any such liens, charges, mortgages or encumbrances if the District does not do so and to be reimbursed by the District from Available Funds for any expense incurred by either of them in order to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim. Section 8.6 Property and Casualty Insurance or Coverage. From the date of substantial completion of the Project until the end of the Term of this Lease the District shall maintain throughout the Term of this Lease all-risk (or its equivalent) property insurance or coverage on the Project in an amount not less than the replacement value of the Project, subject only to such exceptions and exclusions as are customarily contained in such policies. The District shall ensure that at all times the limits of coverage are sufficient to pay for the full replacement cost of the Project at the time of the loss, without deduction for depreciation. All policies shall be issued to the District as the first named insured or term denoting a similar meaning, but shall name the Corporation and Trustee as loss payees as their interests may appear under a standard Mortgagee’s endorsement. If the District shall act as its own contractor for alterations and improvements that cost more than $100,000, it shall obtain Builder’s Risk Insurance for the full completed value of the improvements. The District shall pay the premiums for such insurance from lawfully available Appropriated funds. The Net Proceeds of such insurance shall be applied as set out in Section 9.1 below. The insurance required under this Section may be provided through an “umbrella” or “blanket” policy. Section 8.7 Liability Insurance. During the Term of this Lease, the District shall, from lawfully available Appropriated funds, procure and maintain continuously in effect, or cause to be procured and maintained continuously in effect, with respect to the Project, insurance against liability for injuries to or death of any person or damage to or loss of property arising out of or in any way relating to the maintenance, use or operation of the Project or any part thereof. The insurance or coverage shall include coverage for premises/operations, independent contractors, products/completed operations, personal and advertising inquiry, contractual liability

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and explosion, collapse and underground property damage and be in the amount of at least $5,000,000 combined single limit. The insurance required under this Section may be provided through an “umbrella” or “blanket” policy which provides coverage as to the Project in the minimum coverage amount previously set forth in this Section. The Trustee and the Corporation shall be named as additional insureds in all policies of liability insurance relating to the Project. Section 8.8 Workers Compensation Insurance. Throughout the Term of this Lease, the District shall, from lawfully available Appropriated funds, maintain Worker’s Compensation Insurance in statutorily required limits covering all of its employees in, on, or about the Project. During the construction of the Project and during any modification, restoration or renovation of the Project, the District shall require any Contractor or subcontractor to obtain and maintain such coverage on its employees and to furnish certificates evidencing such coverage to Trustee. Section 8.9 Insurance Policy Requirements. All policies of insurance to be obtained in connection with this Lease shall be written by companies qualified and licensed to write insurance in the State of Texas and have A.M. Best ratings of at least A.-VIII. A program or plan qualifying under the Interlocal Cooperation Act, Chapter 791, Texas Government Code, as amended, shall be deemed to meet these requirements. All policies shall provide by endorsement that the Corporation and Trustee be given at least sixty (60) days advance written notice of a proposed cancellation or material change in coverage. The District shall furnish the Corporation with certificates of insurance evidencing the above required insurance on or prior to the Closing Date, which certificates must be in a form on which the parties can rely as evidence of binding insurance and shall furnish certificates evidencing renewals or replacements of said policies of insurance at least thirty (30) days prior to the expiration or cancellation of any such policies. Annually, the District shall furnish the Trustee with a statement signed by a District Representative that the District is in compliance with the insurance policy requirements of this Lease. Section 8.10 Indemnification. (a) Agreements to Indemnify. TO THE EXTENT PERMITTED BY THE LAWS OF THE STATE OF TEXAS, AND TO THE EXTENT OF LAWFULLY AVAILABLE APPROPRIATED FUNDS, THE DISTRICT AGREES THAT IT WILL AT ALL TIMES INDEMNIFY AND HOLD HARMLESS EACH OF THE INDEMNIFIED PARTIES AGAINST ANY AND ALL LOSSES; PROVIDED, HOWEVER, THE DISTRICT SHALL NOT BE OBLIGATED TO INDEMNIFY AN INDEMNIFIED PARTY AGAINST LOSSES RESULTING FROM NEGLIGENCE, FRAUD, WILLFUL MISCONDUCT, OR THEFT ON THE PART OF ANY INDEMNIFIED PARTY CLAIMING INDEMNIFICATION. TO THE EXTENT PERMITTED BY THE LAWS OF THE STATE OF TEXAS, AND TO THE EXTENT OF LAWFULLY AVAILABLE APPROPRIATED FUNDS, THE DISTRICT ALSO AGREES TO INDEMNIFY THE TRUSTEE FOR, AND TO HOLD IT HARMLESS AGAINST, ANY LOSS, LIABILITY, CLAIM OR EXPENSE INCURRED WITHOUT NEGLIGENCE OR BAD FAITH ON ITS PART, ARISING OUT OF OR IN CONNECTION WITH THE ACCEPTANCE OR ADMINISTRATION OF THE TRUST CREATED UNDER THE THIRD SUPPLEMENTAL TRUST INDENTURE OR THE PERFORMANCE OF ITS DUTIES UNDER THE FINANCING DOCUMENTS, INCLUDING THE COSTS AND EXPENSES OF DEFENDING ITSELF AGAINST ANY CLAIM OR LIABILITY IN

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CONNECTION WITH THE EXERCISE OR PERFORMANCE OF ANY OF ITS POWERS OR DUTIES UNDER THE THIRD SUPPLEMENTAL TRUST INDENTURE. THE TRUSTEE MAY ENFORCE SUCH RIGHT AS A THIRD PARTY BENEFICIARY HERETO. NOTHING CONTAINED IN THIS SECTION 8.10 IS INTENDED NOR SHALL IT BE CONSTRUED TO WAIVE ANY IMMUNITY TO WHICH THE DISTRICT IS ENTITLED UNDER LAW. (b) Release. TO THE EXTENT PERMITTED BY THE LAWS OF THE STATE OF TEXAS, AND TO THE EXTENT OF LAWFULLY AVAILABLE APPROPRIATED FUNDS, NONE OF THE INDEMNIFIED PARTIES SHALL BE LIABLE TO THE DISTRICT FOR, AND THE DISTRICT HEREBY RELEASES EACH OF THEM FROM ALL LIABILITY TO THE DISTRICT FOR (I) ALL LOSSES, CLAIMS OR DAMAGES THE DISTRICT MAY HAVE AGAINST ANY INDEMNIFIED PARTY RELATED TO THE ISSUANCE OF THE BONDS OR THE ADMINISTRATION OF THE FINANCING DOCUMENTS, OR (II) ALL INJURIES, DAMAGES OR DESTRUCTION TO ALL OR ANY PART OR PARTS OF ANY PROPERTY OWNED OR CLAIMED BY THE DISTRICT THAT DIRECTLY OR INDIRECTLY RESULT FROM, ARISE OUT OF OR RELATE TO THE DESIGN, CONSTRUCTION, OPERATION, USE, OCCUPANCY, MAINTENANCE OR OWNERSHIP OF THE PROJECT OR ANY PART THEREOF, EVEN IF SUCH INJURIES, DAMAGES OR DESTRUCTION DIRECTLY OR INDIRECTLY RESULT FROM, ARISE OUT OF OR RELATE TO, IN WHOLE OR IN PART, ONE OR MORE ACTS OR OMISSIONS OF THE INDEMNIFIED PARTIES (OTHER THAN NEGLIGENCE, FRAUD, WILLFUL MISCONDUCT OR THEFT ON THE PART OF THE INDEMNIFIED PARTY CLAIMING INDEMNIFICATION) IN CONNECTION WITH THE ISSUANCE OF THE BONDS OR IN CONNECTION WITH THE PROJECT. ARTICLE IX CASUALTY AND CONDEMNATION Section 9.1 Casualty or Condemnation. If (i) the Project or any part thereof is damaged by fire or other casualty, or (ii) if title to or temporary use of all or any portion of the Project or the interest therein of the Corporation, the District or the Trustee is threatened or taken pursuant to the exercise of the power of eminent domain (whether by governmental body or by any company authorized by law to exercise powers of eminent domain): (a) the District shall give the Corporation and the Trustee prompt written notice of any notices received by the District relating to the condemnation or casualty of which it has notice; (b) the District shall cooperate with the Corporation in filing any proof of loss on any insurance policy required hereunder and in any condemnation or negotiation for a conveyance in lieu thereof and, to the extent it may lawfully do so, permit the Corporation to prosecute any administrative proceeding or litigation in connection therewith in the name of the District; (c) all Net Proceeds shall be deposited by the Trustee into the Project Acquisition Subaccount, and used as provided herein;

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(d) all Net Proceeds shall be used in the repair, restoration, rebuilding, modification or improvement of the Project by the District and shall be drawn by the District by means of a requisition in the form set out in Exhibit D to the Third Supplemental Trust Indenture and incorporated and made a part hereof; (e) the District shall be obligated to meet the requirements set out in Article VII above with respect to alterations and improvements; (f) the Trustee shall have the right, but not the obligation, to participate in: (i) any condemnation or negotiations for any sale, conveyance or lease in lieu of condemnation and (ii) the adjustment of any casualty loss; and (g) the District shall not have the right to compromise, settle, adjust, or consent to the settlement of any private adjustment or administrative or legal proceeding related to the adjustment of an insurance claim or possible condemnation without the prior written consent of the Corporation and Trustee. Section 9.2 District’s Options if Net Proceeds are Insufficient. If the Net Proceeds are insufficient, in the judgment of the District, to defray the anticipated cost of restoration, repair, modification or improvement following a condemnation or casualty, the District may (but shall not be obligated to), by written notice to the Corporation given within ninety (90) days following the date of such condemnation or casualty, apply Available Funds in excess of the Rental Payments to such excess costs or terminate this Lease (and all the District’s interest in the Project) on the next succeeding Rental Payment Date by depositing with Trustee from lawfully available Appropriated funds on such Rental Payment Date an amount equal to the Purchase Option Price (as defined in Section 11.1 hereof) applicable for that Rental Payment Date together with all Rental Payments and other amounts then due or past due less the Net Proceeds and the funds held by Trustee on such date pursuant to the Trust Indenture; provided, however, that if the District shall not Appropriate funds to pay such Purchase Option Price, then this Lease shall terminate and the District shall have no further obligations hereunder. After application of the Net Proceeds pursuant to the foregoing provisions of this Section 9.2, any remaining Net Proceeds shall be paid to the District. ARTICLE X USE OF BOND PROCEEDS; DISBURSEMENTS; RENTAL PAYMENTS Section 10.1 Project and Issuance Costs. On the Closing Date, the Trustee shall deposit from Bond proceeds $__________ into the Series 2006 Project Acquisition Subaccount (of which $__________ may be used to pay Issuance Costs), and $__________ into the Series 2006 Payment Subaccount (constituting accrued interest on the Bonds). Section 10.2 Disbursement Procedures and Requirements. The Corporation and the District agree that the Corporation shall submit the following to the Trustee in order to obtain disbursements from the Project Acquisition Account:

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(a) if for Issuance Costs, a Requisition for Payment of Issuance Costs, in the form set out in Exhibit E to the Third Supplemental Trust Indenture, incorporated by reference herein as if fully set out, executed by the Corporation and the District; (b) if for the initial disbursement of Project Costs, an executed copy of the Project Contract and an assignment to the Trustee of the Project Contract; (c) if for any Project Costs (including the initial disbursement) other than Issuance Costs, a Requisition for Payment of Project Costs, executed by the Corporation and the District in the form set out in Exhibit D to the Third Supplemental Trust Indenture, incorporated by reference herein as if fully set out, which shall be accompanied by a certificate of the Construction Administrator in the form set out in Rider 1 to Exhibit D to the Third Supplemental Trust Indenture, incorporated by reference herein as if fully set out; and (d) if for a final disbursement at the time of Completion of the Project, an executed Acceptance Certificate in the form attached as Exhibit C to this Lease together with a certificate of the Construction Administrator that all labor done and material furnished has been furnished in accordance with the Plans and Specifications and that all necessary certificates, licenses, approvals, releases or waivers of mechanic’s and/or materialman’s liens, and permits (required to be obtained from any governmental board, agency or department so that the Project may be used and occupied for its intended purposes) have been obtained without qualification. Further, the title insurance company that issues the Mortgagee’s Policy of Title Insurance must be prepared to issue its down-date endorsement of such policy free and clear of any mechanic’s and materialman’s liens. Section 10.3 Rental Payments. (a) The District shall pay to the Trustee on each Rental Payment Date the Rental Payments out of Available Funds. All Rental Payments shall be applied by Trustee in accordance with the Trust Indenture. The District shall be entitled to a credit against the Rental Payments at the times and in the amounts set forth and determined in accordance with the Trust Indenture; provided, however, that no credit shall be taken by the District other than as specifically set forth in a written notice thereof to the District from the Trustee. All Rental Payments shall be payable to the Trustee at its address specified in the Third Supplemental Trust Indenture, or to such other person or entity and at such other address as the Trustee may designate by written notice to the District, in lawful money of the United States of America. If any Bonds are to be redeemed prior to maturity on a Rental Payment Date, the District’s Rental Payment shall include an amount sufficient to pay the redemption price of Bonds to be redeemed on such date. (b) In accordance with the Trust Indenture, in the event that the Series 2006 Reserve Subaccount contains less than the Reserve Requirement for the Bonds, the District, upon receipt of notice from the Corporation, shall replenish such account from Available Funds prior to the end of the then current Fiscal Year to an amount equal to the Reserve Requirement. Subsequent to each draw on any Reserve Account Surety Bond, the Corporation shall, in accordance with the financial guaranty agreements, reimburse the provider of such policy for amounts advanced under such policy and pay to the providers of the policy interest on amounts so advanced, and the

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District shall pay to the Corporation from Available Funds amounts sufficient to make such reimbursements and payments when due. (c) The District also agrees to pay from lawfully available Appropriated Funds on such dates as they shall become due and owing all other amounts related to the operation and maintenance of the Project including, without limitation, the ordinary fees and expenses of Trustee, the reasonable extraordinary fees and expenses of Trustee, utility charges, to the extent applicable, ad valorem taxes and impositions (prior to their delinquency) imposed on the Project, the premiums of insurance policies relating to the Project, and other amounts incurred by the Corporation with respect to the Project. In the event the Trustee incurs expenses or renders services in any proceedings which result from an Event of Default under Section 5.1(e) of the Master Trust Indenture, or from any default which, with the passage of time, would become an Event of Default, the expenses so incurred and compensation for services so rendered are intended to constitute expenses of administration under the United States Bankruptcy Code or equivalent law. Section 10.4 Current Expenses. The District’s obligations under this Lease, including its obligations to pay the Rental Payments, shall constitute a current expense of the District in the Fiscal Year during which such payments are due, and shall not constitute an indebtedness of the District within the meaning of the laws of the State of Texas. Nothing in this Lease shall constitute a pledge by the District to the Rental Payments due hereunder of any taxes or other money, other than Available Funds for the then current Fiscal Year. Section 10.5 District’s Obligation. (a) Subject to the terms of subsection (b) of this Section, (i) the obligation of the District shall be absolute and unconditional, (ii) the covenant to pay Rental Payments shall be an independent covenant, (iii) the District shall have no right to withhold, set-off or reduce the amount of Rental Payments or the obligation to make such Rental Payments or other payments when due hereunder regardless of any claim or dispute it may have regarding this Lease. Further, the District expressly waives any counterclaim that it may have now or in the future regarding this Lease or its occupancy thereunder. The District expressly waives and releases any claim that it may have either now or in the future to constructive eviction or breach of the covenant of quiet enjoyment. There shall be no abatement of Rental Payments for any reason whatsoever. (b) The District’s obligation to make Rental Payments is subject to the sufficiency of Available Funds and, in the District’s sole discretion, the appropriation thereof for the payment of Rental Payments. The District presently intends to continue this Lease for the entire Term and to pay all Rental Payments and other payments required hereunder subject to the proviso of Section 2.1(f) hereof. The District reasonably anticipates that Available Funds in amounts sufficient to make all such Rental Payments or other payments required hereunder will be available for such purposes.

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Section 10.6 Reserve Account. (a) The Trustee will disburse funds from the Series 2006 Reserve Subaccount in accordance with the Trust Indenture. (b) If by reason of disbursements from the Series 2006 Reserve Subaccount, the amount in the Series 2006 Reserve Subaccount falls below the Reserve Requirement, the District shall replenish the Series 2006 Reserve Subaccount to an amount equal to the Reserve Requirement, to the extent of the existence of Available Funds (after the payment of Rental Payments), over the ensuing twelve-month period or reimburse the issuer of any Reserve Account Surety Bond as provided in the Trust Indenture and the Guaranty Agreement. ARTICLE XI OPTION TO PURCHASE PROJECT Section 11.1 Purchase Rights. The District shall be entitled to full title and all ownership interests in the Project, the Trustee’s liens and security interests therein shall be terminated and the District shall be deemed to have exercised its option to purchase: (a) Upon payment in full of all Rental Payments as the same become due in accordance with Exhibit E hereto, plus One Dollar ($1.00) and the payment in full of all other amounts due under this Agreement; or (b) Upon written notice by the District delivered at least sixty (60) days in advance of any date on which a Rental Payment is due, and upon payment on such date of an amount sufficient to pay the redemption price of all Bonds then Outstanding on the next Rental Payment Date upon which Bonds may be redeemed (due credit being given for all sums held by Trustee pursuant to the Third Supplemental Trust Indenture) plus redemption premiums, if any on such Bonds, plus One Dollar ($1.00) (the “Purchase Option Price”). Section 11.2 Optional Prepayment. The District shall have the right to prepay Rental Payments due hereunder in full or in part, and to cause the Corporation to redeem the corresponding Bonds, on such dates and in such amounts as are permitted by the Third Supplemental Indenture. Section 11.3 Conveyance of Corporation’s Interest in the Project. Upon the District’s payment in full of all amounts due and owing hereunder, the District shall have no other obligations hereunder and (i) this Lease shall terminate, (ii) the Trustee shall release the Deed of Trust, and (iii) the Corporation and its assigns shall take any and all actions necessary to authorize, execute and deliver to the District any and all documents necessary to vest in the District all of the Corporation’s right, title and interest in and to the Project, free and clear of all liens, leasehold interests and encumbrances, including, if necessary, a release of any and all liens or interests created under or pursuant to the provisions of this Lease, the Trust Indenture and the Deed of Trust. Section 11.4 Survival. The terms of this Article shall survive the termination of this Lease.

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ARTICLE XII ASSIGNMENT, SUBORDINATION, SUBLEASING, MORTGAGING AND SELLING Section 12.1 Assignment by Corporation. The Corporation may assign its right, title and interest in this Lease to the Trustee for the benefit of the Bondholders. The District acknowledges and consents that the Corporation will assign its right, title and interest in (but not its obligations, responsibilities, or liabilities under) this Lease to the Trustee for the benefit of the Bondholders. The District shall pay all Rental Payments and all other amounts required to be paid to the Corporation pursuant to this Lease to or at the direction of Trustee. The Corporation and the District covenant and agree to execute, acknowledge and deliver each and every further act, deed, conveyance, transfer and assurance necessary or proper for the perfection of any and all of the security interests in the Project provided for in the Trust Indenture, the Deed of Trust or the Security Agreement whether now owned or hereafter acquired, including, but not limited to, execution and delivery of such financing statements and continuation statement as shall be necessary under applicable Law to perfect and maintain such security interests. The District and the Corporation shall notify the Trustee and any investment rating service that has issued a rating or an “if rated letter” of any proposed assignment other than the initial assignment to the Trustee. The rights of the Trustee under this Lease arise solely from the assignment of the Lease to the Trustee Section 12.2 Assignment by District. During the Term of this Lease, the District shall not assign or sublease its interest in the Project or in this Lease without the prior written consent of the Corporation and the Trustee, and in consenting to any such assignment or sublease, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an opinion of Nationally Recognized Bond Counsel stating that such assignment or sublease is authorized or permitted by the Financing Documents. Section 12.3 District’s Right to Mortgage or Sell the Project Restricted. During the Term of this Lease, the District shall not sell, assign, transfer, convey, mortgage, or otherwise encumber its interest in the Project or any portion thereof or in this Lease without the prior written consent of the Corporation and the Trustee, and in consenting to any such sale, assignment, transfer, conveyance, mortgage or other encumbrance, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an opinion of Nationally Recognized Bond Counsel stating that such sale, assignment, transfer, conveyance, mortgage or other encumbrance is authorized or permitted by the Financing Documents. Section 12.4 Trustee’s Right to Cure Defaults. The Trustee shall have the right, but not the obligation, to cure any claimed Event of Default under this Lease by the Corporation or the District.

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ARTICLE XIII THE BONDS Section 13.1 Issuance and Sale of the Bonds. Subject to applicable terms, limitations, and procedures, the Corporation will issue and sell the Bonds to finance the Project, at such interest rates and upon the terms as approved by the Corporation Board and in accordance with applicable Law and pursuant to the terms and conditions set forth in the Trust Indenture. Section 13.2 Cooperation by District. The District shall take the actions, enter into the agreements, provide the certifications contemplated by this Lease and otherwise cooperate with the Corporation and its agents to effect the lawful issuance and sale of the Bonds. Section 13.3 Tax-Exempt Status of the Bonds. (a) General. The District intends that the interest on the Bonds shall be excludable from gross income for federal income tax purposes pursuant to sections 103 and 141 through 150 of the Internal Revenue Code of 1986, as amended (the “Code”), and the applicable Income Tax Regulations (the “Regulations”). The District covenants and agrees not to take any action, or knowingly omit to take any action within its control, that if taken or omitted, respectively, would cause the interest on the Bonds to be includable in gross income, as defined in Section 61 of the Code, for federal income tax purposes. In particular, the District covenants and agrees to comply with each requirement of this Section 13.3; provided, however, that the District shall not be required to comply with any particular requirement of this Section 13.3 if the District has received an opinion of Nationally Recognized Bond Counsel (“Counsel’s Opinion”) that such noncompliance will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds or if the District has received a Counsel’s Opinion to the effect that compliance with some other requirement set forth in this Section 13.3 will satisfy the applicable requirements of the Code and the Regulations, in which case compliance with such other requirement specified in such Counsel’s Opinion shall constitute compliance with the corresponding requirement specified in this Section 13.3. (b) No Private Use or Payment and No Private Loan Financing. The District covenants and agrees that it will make such use of the proceeds of the Bonds including interest or other investment income derived from bond proceeds, regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the Bonds will not be “private activity bonds” within the meaning of section 141 of the Code and the Regulations promulgated thereunder. Moreover, the District shall certify, through an authorized officer, employee or agent that based upon all facts and estimates known or reasonably expected to be in existence on the date the Bonds are delivered, that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be “private activity bonds” within the meaning of section 141 of the Code and the Regulations promulgated thereunder. (c) Continuing Obligation. Notwithstanding any other provision of this Trust Indenture, the District’s obligations under the covenants and provisions of this Section 13.3 shall survive the defeasance and discharge of the Bonds.

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ARTICLE XIV REMEDIES FOR DEFAULT AND NONAPPROPRIATION Section 14.1 Remedies on Default. Whenever an Event of Default shall have happened and be continuing, the Corporation and the Trustee each shall have the right, but not the obligation, to the extent permitted by law, to take any or all of the following actions: (a) with or without terminating this Lease, declare all Rental Payments due or to become due during the then current Fiscal Year to be immediately due and payable by the District to the extent of Available Funds, in which event such Rental Payments, to the extent permitted by Law, shall be immediately due and payable; (b) with or without terminating this Lease, re-enter and take possession of the Project and employ legal process to remove the District; provided that the District shall maintain its right of possession until conclusion of such legal process; (c) terminate this Lease upon giving thirty (30) days’ prior written notice to the District and the Trustee at the expiration of which the District shall immediately surrender possession and control of the Project to the Trustee. (d) enter upon the Project with or without terminating the Lease and without being deemed liable for trespass and complete the construction of the Project, applying the amounts in the Series 2006 Project Acquisition Subaccount to the payment of Project Costs; and (e) exercise any remedies, rights or powers it may have under this Lease, the Deed of Trust, or the Trust Indenture, or under any Law, including any suit, action, mandamus, or special proceeding at law or in equity or in bankruptcy or otherwise for the collection of all amounts due and unpaid under the Financing Documents, for specific performance of any covenant or agreement contained in the Financing Documents or for the enforcement of any applicable legal or equitable remedy deemed most effective to protect the rights aforesaid to the extent permitted by applicable Law. Section 14.2 No Holdover After Termination. The District shall immediately surrender possession of the Project to the Corporation or a Permitted Assignee upon termination of this Lease or the District’s right to possession of the Project under this Article. No holdover tenancy shall be permitted and the District will, upon the termination of this Lease or the District’s right to possession of the Project, become a tenant at sufferance and during such tenancy the District shall be required to make rental payments equal to the Rental Payments. Section 14.3 Termination Upon Event of Nonappropriation. The District shall provide the Corporation with written notice within three (3) calendar days of the occurrence of action by the District Board which constitutes an Event of Nonappropriation. If funds sufficient to pay the Rental Payments due during the next succeeding Fiscal Year are not Appropriated (net of funds on deposit in the Series 2006 Payment Subaccount), then this Lease shall terminate effective at the end of the Fiscal Year for which sufficient funds have been Appropriated (and, in the case of a reduction of an Appropriation to an amount insufficient to pay Rental Payments (net of funds on deposit in the Series 2006 Payment Subaccount), this Lease shall terminate

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immediately upon the approval of such reduction), which termination shall be self-operative without notice or demand. Upon the effective date of termination under this Article, the District shall peaceably surrender possession and control of the Project to the Corporation. Section 14.4 Additional Remedies if Event of Nonappropriation Occurs. If this Lease is terminated pursuant to Section 14.3 and the District fails timely to surrender possession or control of the Project to the Corporation, the District, as a tenant at sufferance, shall pay, from and to the extent of Available Funds, damages in an amount equal to the Rental Payments that accrue on a daily basis for the period from the effective date of termination to the date of delivery of possession and control of the Project. Section 14.5 No Waiver; Notice. (a) No delay or failure by either party to insist upon or take action to enforce the strict performance of any covenant, agreement, term or condition of this Lease or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial Rental Payments during the continuance of any such breach, shall constitute a waiver of any such breach or of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Lease to be performed or complied with, and no breach thereof, shall be waived, altered or modified except by a written instrument. No waiver of any breach shall affect or alter this Lease, but each and every covenant, agreement, term and condition of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. (a) In order to entitle any party to exercise any remedy reserved to it in this Lease it shall not be necessary to give any notice, other than such notice as may be required in this Lease. (b) The District shall provide written notification to the Corporation upon the occurrence of any Event of Default identified in subsection (d), (e), or (f) of the definition of “Event of Default.” Section 14.6 Corporation’s Remedies are Cumulative. The Corporation’s remedies are cumulative and not exclusive and shall be in addition to every other remedy afforded by this Lease either now or hereafter existing at law or in equity, and the Corporation may pursue one or more of such remedies without being deemed to have elected its remedies. ARTICLE XV HAZARDOUS MATERIALS Section 15.1 District’s Limited Right to Maintain Hazardous Materials. Except for the reasonable use and storage of Hazardous Materials incident to the normal operation of Project as a food service warehouse and commissary and administrative offices, prior to generation, manufacture, storage, use or disposal of or transport of Hazardous Materials at, to or from the Project, the District shall provide the Corporation with thirty (30) days’ advance written notice of that fact and obtain its consent. The Corporation shall have the right, in its sole and absolute discretion, to withhold its consent to such activity by notice in writing delivered to the District given within ten (10) days after receipt of the District’s notice regarding activities related to Hazardous Materials. The District agrees to furnish, upon reasonable request of the

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Corporation, any and all information regarding Hazardous Materials existing or to be in existence at the Project including, without limitation, inventory records, manifests and material safety limitations, and material safety data sheets. Section 15.2 District’s Obligations Regarding Hazardous Materials. Except as provided in Section 15.1 above, the District covenants that (a) Hazardous Materials shall not hereafter be installed, used, generated, manufactured, treated, handled, refined, produced, processed, stored or disposed of, released or otherwise placed in, on or under all or any part of the Project; (b) no activity shall hereafter be undertaken on all or any part of the Project which would cause (i) all or any part of the Project to become a treatment, storage or disposal facility for Hazardous Materials within the meaning of, or otherwise bring all or any part of or any interest in the Project within the ambit of any Hazardous Materials Law, (ii) a release or threatened release of any Hazardous Materials from the Project within the meaning of, or otherwise bring all or any part of the Project within the ambit of any Hazardous Materials Law, or (iii) the discharge of Hazardous Materials into any watercourse, body of surface or subsurface water or wetland, or the discharge into the atmosphere of any Hazardous Materials which would require a permit under any Hazardous Materials Law; and (c) no activity shall be undertaken on or with respect to all or any part of the Project which would cause a violation or support a claim under any Hazardous Materials Law[, and no underground storage tanks or underground deposits shall be located on all or any part of the Project]. Section 15.3 Notice of Hazardous Materials Claims. The District shall immediately advise the Corporation in writing of (a) any governmental or regulatory actions instituted or threatened under any Hazardous Materials Law affecting all or any part of or any interest in the Project, (b) all claims made or threatened by any third party against the District, the Corporation or the Project relating to damage, contribution, cost recovery, compensation, or loss or injury resulting from any Hazardous Materials, (c) the discovery of or reasonable cause to believe that any occurrence or condition on any real property adjoining or in the vicinity of the Project that could cause the Project to be classified in a manner which may support a claim under any Hazardous Materials Law, and (d) the discovery of any occurrence or condition on any part of the Project or any real property adjoining or in the vicinity of the Project which could subject the District or the Corporation or any part of the Project to any limitations or restrictions on the ownership, occupancy, transferability or use thereof. The Corporation may elect (but shall not be obligated) to join and participate in any settlements, remedial actions, legal proceedings or other actions initiated in connection with any claims or responses under any Hazardous Materials Law and to have their reasonable attorneys’ fees relating to such participation paid by the District. At its sole cost and expense from lawfully available Appropriated funds, the District agrees to promptly and completely cure and remedy every existing and future violation of a Hazardous Materials Law occurring on or with respect to any part of the Project and to promptly remove all Hazardous Materials now or hereafter in, on or under all or any part of the Project and to dispose of the same as required by any Hazardous Materials Law(s). Section 15.4 Right to Retain Site Reviewers. The Corporation (by its officers, employees and agents), at the expense of the District, at any time and from time to time may contract for the services of persons or entities (the “Site Reviewers”) to perform environmental site assessments (“Site Assessments”) on all or any part of the Project to determine the existence of any environmental condition which under any Hazardous Materials Law might result in any

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liability, cost or expense to the owner, occupier or operator of the Project. The Site Reviewers are authorized to enter upon all or any part of the Project to conduct Site Assessments. The Site Reviewers are further authorized to perform both above and below the ground testing for environmental damage or the presence of Hazardous Materials on the Project and such other tests on the Project as the Site Reviewers or the Corporation may deem necessary. The District agrees to supply to the Site Reviewers and the Corporation such historical and operational information regarding the Project as may be reasonably requested to facilitate the Site Assessments and will make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The results of Site Assessments shall be furnished to the District upon request. The cost of performing Site Assessments shall be paid by the District from lawfully available Appropriated funds. Section 15.5 District’s Indemnity. TO THE EXTENT PERMITTED BY LAW, THE DISTRICT SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS THE CORPORATION AND THE TRUSTEE, THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS, ATTORNEYS AND ASSIGNS FROM AND AGAINST (A) ANY LOSS, LIABILITY, DAMAGE, COST, EXPENSE OR CLAIM ARISING FROM THE IMPOSITION OR RECORDING OF A LIEN, THE INCURRING OF COSTS OF REQUIRED REPAIRS, REMEDIATION, CLEAN UP OR DETOXIFICATION AND REMOVAL UNDER ANY HAZARDOUS MATERIALS LAW WITH RESPECT TO ALL OR ANY PART OF THE PROJECT OR LIABILITY TO ANY THIRD PARTY IN CONNECTION WITH ANY VIOLATION OF A HAZARDOUS MATERIALS LAW; (B) ANY OTHER LOSS, LIABILITY, DAMAGE, EXPENSE OR CLAIM WHICH MAY BE INCURRED BY OR ASSERTED AGAINST THE CORPORATION OR TRUSTEE, THEIR DIRECTORS, OFFICERS, EMPLOYEES, SUCCESSORS OR ASSIGNS, DIRECTLY OR INDIRECTLY, ARISING FROM THE PRESENCE ON OR UNDER, OR THE DISCHARGE, EMISSION OR RELEASE FROM THE PROJECT INTO OR UPON THE LAND, ATMOSPHERE, OR ANY WATERCOURSE, BODY OF SURFACE OR SUBSURFACE WATER OR WETLAND, ARISING FROM THE INSTALLATION, USE, GENERATION, MANUFACTURE, TREATMENT, HANDLING, REFINING, PRODUCTION, PROCESSING, STORAGE, REMOVAL, REMEDIATION CLEAN UP OR DISPOSAL OF ANY HAZARDOUS MATERIAL WHETHER OR NOT CAUSED BY THE DISTRICT; AND (C) LOSS OF VALUE OF ANY OF THE PROJECT AS A RESULT OF ANY SUCH LIEN, REMEDIATION CLEAN UP, DETOXIFICATION, LOSS, LIABILITY, DAMAGE, EXPENSE OR CLAIM OR A FAILURE OR DEFECT IN TITLE OCCASIONED BY ANY HAZARDOUS MATERIAL OR HAZARDOUS MATERIALS LAW. SUCH INDEMNITY SHALL APPLY REGARDLESS OF ANY CLAIM THAT THE CORPORATION OR TRUSTEE WERE NEGLIGENT IN GRANTING THEIR CONSENT TO THE EXISTENCE OF HAZARDOUS MATERIALS IN, ON, OR ABOUT THE PROJECT. THE INDEMNITY SHALL INCLUDE THE COSTS OF INVESTIGATION, SETTLEMENT AND DEFENSE OF SUCH CLAIMS AND THE ATTORNEYS’ FEES OF COUNSEL OF THE INDEMNIFIED PARTY’S CHOOSING. THIS INDEMNITY SHALL SURVIVE THE EXPIRATION OR EARLY TERMINATION OF THIS LEASE AND SHALL NOT MERGE INTO THE FEE TITLE TO THE PROJECT IN THE EVENT THAT THE DISTRICT PURCHASES THE PROJECT PURSUANT TO ARTICLE XI HEREOF; PROVIDED, HOWEVER, THAT THIS INDEMNIFICATION SHALL NOT APPLY TO ANY LIABILITY, DAMAGES, OR EXPENSES ARISING FROM THE NEGLIGENT OR WILLFUL CONDUCT OF THE

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PARTY BEING INDEMNIFIED. NOTHING CONTAINED IN THIS SECTION 15.5 IS INTENDED NOR SHALL IT BE CONSTRUED TO WAIVE ANY IMMUNITY TO WHICH THE DISTRICT IS ENTITLED UNDER LAW. Section 15.6 Corporation’s and Trustee’s Right to Take Remedial Action. The Corporation, the Trustee or a Permitted Assignee shall have the right, but not the obligation, upon thirty (30) days’ advance written notice to take any remedial action to remove any Hazardous Substance from the Project or clean up any contamination resulting from the District’s violation of any of the requirements of this Article. The District shall reimburse the Corporation, the Trustee or a Permitted Assignee for the costs of such remedial action from lawfully available Appropriated funds to the extent permitted by applicable law.

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APPENDIX B EXCERPTS FROM THE HOUSTON INDEPENDENT SCHOOL DISTRICT ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2005

The information contained in this Appendix consists of excerpts from the Houston Independent School District Annual Financial Report for the Year Ended June 30, 2005, and is not intended to be a complete statement of the District's financial condition. Reference is made to the complete Report for further information.

APPENDIX C FORM OF CO-BOND COUNSEL'S OPINION

ANDREWS & KURTH L.L.P. 600 Travis, Suite 4200 Houston, Texas 77002

BURNEY & FOREMAN 5445 Almeda, Suite 400 Houston, Texas 77004

April 6, 2006

WE HAVE SERVED AS CO-BOND COUNSEL in connection with the issuance by the Houston Independent School District Public Facility Corporation (the “Issuer”) of its bonds designated as “HOUSTON INDEPENDENT SCHOOL DISTRICT PUBLIC FACILITY CORPORATION LEASE REVENUE BONDS (FOOD SERVICE WAREHOUSE PROJECT), SERIES 2006,” dated April 1, 2006, in the principal amount of $_______________ (the “Bonds”). We have examined into the legality and validity of the Bonds for the sole purpose of rendering an opinion with respect to the legality and validity of the Lease (hereinafter defined), the Deed of Trust (hereinafter defined), the Bond Resolution (hereinafter defined), the Trust Indenture (hereinafter defined) and the Bonds under the laws of the State of Texas, and with respect to the excludability of the interest on the Bonds from gross income for federal income tax purposes, and for no other reason or purpose. We have not been requested to investigate or verify, and have not investigated or verified, any records, data or other material relating to the financial condition or capabilities of the Lessee (hereinafter defined) or the feasibility of the project financed with the proceeds of the Bonds, and we have not assumed any responsibility, and we express no opinion, with respect thereto. Our participation in the Official Statement has been limited as described therein. We express no opinion and make no comment with respect to the sufficiency of the security for, or the marketability of, the Bonds. We express no opinion concerning any effect on the following opinions which may result from changes in law effected after the date hereof. WE HAVE EXAMINED the applicable and pertinent provisions of the laws of the State of Texas, a transcript of certified proceedings of the Issuer and other pertinent instruments authorizing and relating to the issuance of the Bonds, including registered initial bond numbered R-1 and various certificates and documents included in the aforementioned transcript of certified proceedings executed by authorized representatives of the Board of Education of the Houston Independent School District (the “Lessee”), upon certain matters stated below. In such examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original copies of all documents submitted to us as certified copies and the accuracy of the statements contained in such certificates. BASED ON THIS EXAMINATION, IT IS OUR OPINION THAT the Issuer is a public, nonprofit corporation organized and existing under the laws of the State of Texas, including

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particularly the Texas Public Facility Corporation Act, as amended, Chapter 303, Texas Government Code (the “Act”); the resolution authorizing the issuance of the Bonds (the “Bond Resolution”) has been duly and lawfully adopted by the Issuer; the Bonds have been authorized, issued and delivered in accordance with the law and constitute legal, valid and binding special, limited revenue obligations of the Issuer, enforceable in accordance with their terms, with the principal of, premium, if any, and interest on the Bonds, and other payments with respect to the Bonds, being payable solely from, and secured solely by, the revenues and receipts provided therefor to be made or paid or caused to be made or paid to the Trustee (hereinafter defined) pursuant to the Lease with an Option to Purchase, dated as of April 1, 2006 (the “Lease”), between the Issuer and the Lessee, and the Third Supplemental Trust Indenture, dated as of April 1, 2006 (the “Trust Indenture”), between the Issuer and JPMorgan Chase Bank, National Association, Houston, Texas (the “Trustee”). THE BONDS are being issued pursuant to the provisions of the Act for the purpose of providing funds (i) to finance the Lessee’s acquisition and construction of a new food service warehouse, (ii) to purchase a reserve account surety bond, and (iii) to pay costs of issuing the Bonds. The Bonds are subject to redemption as provided in the Trust Indenture. The rights of the Issuer under the Lease have been duly and legally assigned to the Trustee to provide for the payment of the principal of, premium, if any, and interest on the Bonds. The Issuer has reserved the right to issue additional parity bonds under and to amend the Trust Indenture for the purposes, and subject to the restrictions, described therein. IT IS OUR OPINION that the Lease has been duly and lawfully authorized, executed and delivered by the Issuer and the Lessee pursuant to the laws of the State of Texas, and is a legal, valid and binding agreement of the Issuer and the Lessee enforceable against them, in accordance with its terms and conditions; and the amendment of the Lease is permitted under the law governing the Issuer and the Lessee. PURSUANT TO THE TRUST INDENTURE, the Trustee is custodian of the various funds and accounts created in the Trust Indenture, and is obligated to enforce the rights of the Issuer and the owners of the Bonds, and to perform other duties, in the manner and under the conditions stated in the Trust Indenture; and it is our opinion that the Trust Indenture has been duly and lawfully authorized, executed and delivered by the Issuer, and that it is a legal, valid and binding agreement of the Issuer enforceable against it in accordance with its terms and conditions. THE OBLIGATION OF THE LESSEE to make periodic payments is a current expense, payable solely from funds annually appropriated for such use. The Lease may be terminated annually by the Lessee without penalty, except as provided in the Lease, and there can be no assurance that the Lessee will annually appropriate payments under the Lease. If the Lease is terminated, the Lessee will have no further obligation to make periodic payments regardless of whether any Bonds remain outstanding. The Lease and the obligations of the Lessee thereunder do not constitute a pledge, a liability or a charge upon the funds of the Lessee and do not

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constitute a debt or general obligation of the State of Texas, the Lessee, the Issuer or any other political subdivision of the State of Texas. NEITHER THE FAITH AND CREDIT nor the taxing power of the State of Texas, the Lessee, the Issuer or any other political subdivision of the State of Texas has been pledged to the payment of the principal of or interest on the Bonds. The Issuer has no taxing power. The Bonds do not constitute an indebtedness or obligation of the Lessee or any city, county or other municipal or political corporation or subdivision of the State of Texas, or of the State of Texas, or a loan of the credit of any of them within the meaning of any constitutional or statutory provisions. THE OPINIONS HEREINBEFORE EXPRESSED are qualified to the extent that the obligations of the Lessee, the Trustee and the Issuer, and the enforceability thereof, with respect to the Bonds, the Lease, the Trust Indenture and the Deed of Trust, Security Agreement, Assignment of Rents and Leases and Financing Statement, dated as of April 1, 2006, delivered by the Issuer to _______________, as mortgage trustee, for the benefit of the Trustee (the “Deed of Trust”), are subject to principles of equity and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally. IT IS FURTHER OUR OPINION that the Deed of Trust and the Financial Guaranty Agreement, dated as of April 1, 2006, between the Issuer and Ambac Assurance Corporation (the “Financial Guaranty Agreement”) have been duly and lawfully authorized, executed and delivered by the Issuer and, assuming the due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding agreements of the Issuer enforceable against it in accordance with the terms and conditions thereof. THE OPINIONS expressed in the immediately preceding paragraph are subject to the qualifications that the enforceability of the Deed of Trust or the Financial Guaranty Agreement may be limited or affected by (1) bankruptcy, insolvency, reorganization, moratorium, liquidation, rearrangement, probate, conservatorship, fraudulent transfer, fraudulent conveyance or other similar laws (including court decisions), from time to time in effect and affecting creditors’ rights generally or providing for the relief of debtors, (2) the refusal of a particular court to grant (a) equitable remedies, including, without limitation, specific performance and injunctive relief or (b) a particular remedy sought by or on behalf of the Trustee under the Deed of Trust or the Financial Guaranty Agreement, as opposed to another remedy provided for therein or another remedy available at law, (3) general principles of equity (regardless of whether such remedies are sought in a proceeding in equity or law) and (4) judicial discretion. Additionally, we express no opinion as to whether a court would grant specific performance or any other equitable remedy with respect to enforcement of the Deed of Trust , or whether a court would grant a particular remedy sought under such instrument as opposed to another remedy provided therein or at law or in equity. We furthermore express no opinion as to the (1) enforceability of provisions which purport to restrict access to legal (procedural and/or substantive) or equitable remedies or waive any rights to notices or which purport to establish

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evidentiary standards, (2) enforceability of provisions relating to subrogation rights, suretyship, delay or omission of enforcement of rights or remedies, waivers or ratifications of future acts, rights of third parties, prohibitions against the transfer, alienation or hypothecation of property without the obligation to pay or be liable for a fee, expense or penalty, power of attorney, release, negligence, indemnity, severance, consent judgments, marshalling of assets, transferability of assets which by their nature are not transferable or sales in inverse order of alienation, (3) enforceability of the waiver of any rights that may accrue to the Issuer in the future, (4) the enforceability of (a) any agreement by any party that its appointment of an agent is irrevocable or (b) any agreement by any party with respect to the sufficiency or validity of any service of process or (5) enforceability of any waiver of any claims or defenses that arise due to actions or omissions of the Trustee, which waiver cannot be waived as a matter of public policy or law. IN RENDERING the opinions expressed herein, we note that the enforceability of specific provisions of the Deed of Trust (such as, among others, right to accelerate the maturity of indebtedness represented by the Bonds) may be subject to standards of good faith, diligence, reasonableness and care such as those provided in Section 1.102, 1.203 and 1.208 of the Uniform Commercial Code, as adopted in the State of Texas, and other such limitations provided by applicable principles of common law and judicial decisions. WE EXPRESS NO OPINION AS TO THE TITLE TO ANY OF THE PROPERTY, REAL, PERSONAL OR MIXED, THAT IS INTENDED TO SERVE AS COLLATERAL. WE FURTHER EXPRESS NO OPINION REGARDING THE PRIORITY OF ANY LIENS OR SECURITY INTERESTS GRANTED. WE EXPRESS NO OPINION REGARDING THE PERFECTION OF SUCH LIENS AND SECURITY INTERESTS. ALSO BASED ON OUR EXAMINATION AS DESCRIBED ABOVE, it is our further opinion that, subject to the restrictions hereinafter described, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under existing law and is not subject to the alternative minimum tax on individuals or, except as hereinafter described, corporations. The opinion set forth in the first sentence of this paragraph is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The Issuer has covenanted in the Trust Indenture to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. The Code and the existing regulations, rulings and court decisions thereunder, upon which the foregoing opinions of Co-Bond Counsel are based, are subject to change, which could prospectively or retroactively result in the inclusion of the interest on the Bonds in gross income of the owners thereof for federal income tax purposes. INTEREST ON all tax-exempt obligations, including the Bonds, owned by a corporation (other than an S corporation, a regulated investment company, a real estate investment trust

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(REIT), a real estate mortgage investment conduit (REMIC) or a financial asset securitization investment trust (FASIT)) will be included in such corporation’s adjusted current earnings for purposes of calculating such corporation’s alternative minimum taxable income. A corporation’s alternative minimum taxable income is the basis on which the alternative minimum tax imposed by the Code is computed. Purchasers of Bonds are directed to the discussion entitled “TAX MATTERS” set forth in the Official Statement. WE EXPRESS NO OPINION with respect to (1) any other federal, state or local consequences under present law or future legislation resulting from the ownership of, receipt or accrual of interest on, or the acquisition or disposition of, the Bonds and (2) the treatment for federal income tax purposes of any money received by a registered owner of the Bonds subsequent to the termination of the Lease by reason of an Event of Default or an Event of Nonappropriation thereunder or under the Trust Indenture. Prospective purchasers of the Bonds should be aware that the ownership of tax-exempt obligations, such as the Bonds, may result in collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who are deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and individuals otherwise qualified for the earned income credit. Such prospective purchasers should consult their own tax advisors as to the consequences of investing in the Bonds.

APPENDIX D SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

Financial Guaranty Insurance Policy
Obligor:

Ambac Assurance Corporation One State Street Plaza, 15th Floor New York, New York 10004 Telephone: (212) 668-0340
Policy Number:

Obligations:

Premium:

Ambac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees to pay to The Bank of New York, as trustee, or its successor (the “Insurance Trustee”), for the benefit of the Holders, that portion of the principal of and interest on the above-described obligations (the “Obligations”) which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor. Ambac will make such payments to the Insurance Trustee within one (1) business day following written notification to Ambac of Nonpayment. Upon a Holder’s presentation and surrender to the Insurance Trustee of such unpaid Obligations or related coupons, uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Holder the amount of principal and interest which is then Due for Payment but is unpaid. Upon such disbursement, Ambac shall become the owner of the surrendered Obligations and/or coupons and shall be fully subrogated to all of the Holder’s rights to payment thereon.

In cases where the Obligations are issued in registered form, the Insurance Trustee shall disburse principal to a Holder only upon presentation and surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free of any adverse claim, together with an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee duly executed by the Holder or such Holder’s duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or its nominee. The Insurance Trustee shall disburse interest to a Holder of a registered Obligation only upon presentation to the Insurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to the Insurance Trustee of an instrument of assignment, in form satisfactory to Ambac and the Insurance Trustee, duly executed by the Holder or such Holder’s duly authorized representative, transferring to Ambac all rights under such Obligation to receive the interest in respect of which the insurance disbursement was made. Ambac shall be subrogated to all of the Holders’ rights to payment on registered Obligations to the extent of any insurance disbursements so made.

In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on an Obligation which has become Due for Payment and which is made to a Holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from the Holder pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such Holder will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. As used herein, the term “Holder” means any person other than (i) the Obligor or (ii) any person whose obligations constitute the underlying security or source of payment for the Obligations who, at the time of Nonpayment, is the owner of an Obligation or of a coupon relating to an Obligation. As used herein, “Due for Payment”, when referring to the principal of Obligations, is when the scheduled maturity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity; and, when referring to interest on the Obligations, is when the scheduled date for payment of interest has been reached. As used herein, “Nonpayment” means the failure of the Obligor to have provided sufficient funds to the trustee or paying agent for payment in full of all principal of and interest on the Obligations which are Due for Payment. This Policy is noncancelable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative.

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C E
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M I
Secretary

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President

Effective Date: THE BANK OF NEW YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy.

Authorized Representative

Form No.: 2B-0012 (1/01)

Authorized Officer of Insurance Trustee