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

Maturity Interest Initial Maturity Interest Initial

(a) (b) (a) (b)
Principal (September 15) Rate Yield CUSIP Principal (September 15) Rate Yield CUSIP
(c)
$ 425,000 2006 4.250 % 3.370 % 442404 BR9 $ 1,260,000 2017 4.250 % 4.110 % 442404 CC1
(c)
400,000 2007 4.250 3.420 442404 BS7 1,325,000 2018 4.125 4.200 442404 CD9
(c)
405,000 2008 4.250 3.480 442404 BT5 1,385,000 2019 4.125 4.300 442404 CE7
880,000 2009 4.250 3.530 442404 BU2 1,450,000 2020 (c) 4.250 4.390 442404 CF4
(c)
915,000 2010 4.250 3.580 442404 BV0 1,515,000 2021 4.375 4.460 442404 CG2
(c)
955,000 2011 4.250 3.690 442404 BW8 1,585,000 2022 4.500 4.490 442404 CH0
995,000 2012 4.250 3.780 442404 BX6 1,660,000 2023 (c) 4.500 4.520 442404 CJ6
(c)
1,045,000 2013 5.500 3.860 442404 BY4 1,735,000 2024 4.500 4.550 442404 CK3
(c)
1,095,000 2014 5.500 3.920 442404 BZ1 1,815,000 2025 4.500 4.580 442404 CL1
(c)
1,150,000 2015 5.500 3.970 442404 CA5 1,900,000 2026 4.500 4.590 442404 CM9
(c)
1,205,000 2016 5.500 4.020 442404 CB3 1,985,000 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) The initial yields are established by and are the sole responsibility of the Initial Purchaser, and may subsequently be changed.
(b) 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.
(c) 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

TAXABLE ASSESSED VALUATIONS BY CATEGORY ................. 25

INTRODUCTION.................................................................1
PLAN OF FINANCING.......................................................2
RISK FACTORS...................................................................3
THE BONDS .........................................................................7
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

USES OF FUNDS................................................................10 TAX MATTERS................................................................. 30

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
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 DISTRICT..................................................................15 THE BONDS AS LEGAL INVESTMENTS IN TEXAS34

FINANCIAL AND OPERATING INFORMATION FOR MISCELLANEOUS........................................................... 35

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
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

iii
 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
JURISDICTION, LEGISLATION HEREAFTER ENACTED, OR OTHER CHANGE IN STATE LAW.
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. 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.

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

1
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.”

2
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 $ 33,073,143.00

Costs of Issuance(1) 526,857.00
Total Uses of Funds $ 33,600,000.00
_______________
(1) Includes Surety Bond premium.

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 Total
Year Ending Outstanding The Bonds Outstanding
June 30 Debt Service Principal Interest Total Debt Service
2006 $ 8,070,000 $ 8,070,000
2007 8,245,000 $ 425,000 $ 1,456,624 $ 1,881,624 10,126,624
2008 8,690,000 400,000 1,507,263 1,907,263 10,597,263
2009 9,145,000 405,000 1,490,156 1,895,156 11,040,156
2010 9,280,000 880,000 1,462,850 2,342,850 11,622,850
2011 9,415,000 915,000 1,424,706 2,339,706 11,754,706
2012 9,890,000 955,000 1,384,969 2,339,969 12,229,969
2013 10,035,000 995,000 1,343,531 2,338,531 12,373,531
2014 10,515,000 1,045,000 1,293,650 2,338,650 12,853,650
2015 10,675,000 1,095,000 1,234,800 2,329,800 13,004,800
2016 10,840,000 1,150,000 1,173,063 2,323,063 13,163,063
2017 10,840,000 1,205,000 1,108,300 2,313,300 13,153,300
2018 3,885,000 1,260,000 1,048,388 2,308,388 6,193,388
2019 3,885,000 1,325,000 994,284 2,319,284 6,204,284
2020 3,885,000 1,385,000 938,391 2,323,391 6,208,391
2021 3,885,000 1,450,000 879,013 2,329,013 6,214,013
2022 3,885,000 1,515,000 815,059 2,330,059 6,215,059
2023 1,585,000 746,256 2,331,256 2,331,256
2024 1,660,000 673,244 2,333,244 2,333,244
2025 1,735,000 596,856 2,331,856 2,331,856
2026 1,815,000 516,981 2,331,981 2,331,981
2027 1,900,000 433,394 2,333,394 2,333,394
2028 1,985,000 345,981 2,330,981 2,330,981
2029 2,075,000 253,334 2,328,334 2,328,334
2030 2,170,000 155,169 2,325,169 2,325,169
2031 2,270,000 52,494 2,322,494 2,322,494
$135,065,000 $ 33,600,000 $ 23,328,755 $ 56,928,755 $ 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
PROJECT UPON FORECLOSURE UNDER THE MORTGAGE AND SECURITY AGREEMENT. See
THE RIGHT TO SELL OR LEASE THE
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.

11
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.

12
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. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and filed on March 15, 2005;

2. The Company’s Current Report on Form 8-K dated April 5, 2005 and filed on April 11, 2005;

3. The Company’s Current Report on Form 8-K dated and filed on April 20, 2005;

4. The Company’s Current Report on Form 8-K dated May 3, 2005 and filed on May 5, 2005;

5. The Company’s Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2005 and filed on May 10,
2005;

6. The Company’s Current Report on Form 8-K dated and filed on July 20, 2005;

7. The Company’s Current Report on Form 8-K dated July 28, 2005 and filed on August 2, 2005;

8. The Company’s Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2005 and filed on August 9,
2005;

9. 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;

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.
15
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

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

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) 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;
(ii) 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
21
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 Total Tier I

Ended 6/30 Local Share State Share Allotment
2001 $ 456,542,256 $ 247,476,108 $ 704,018,364
2002 519,334,669 192,796,382 712,131,051
2003 546,548,915 176,667,722 723,216,637
2004 589,898,288 120,200,180 710,098,468
2005 614,890,958 84,109,745 699,000,703

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 General
Ended 6/30 Fund Balance
2001 $ 51,867,185
2002 106,023,736
2003 102,951,792
2004 98,374,084
2005 150,608,286

Source: Houston Independent School District

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 Daily Peak
Ended 6/30 Attendance Enrollment
2001 189,216 208,672
2002 192,948 210,993
2003 194,690 211,518
2004 193,960 206,685
2005 190,902 208,945

Source: Houston Independent School District.

24
TAXABLE ASSESSED VALUATIONS BY CATEGORY

Taxable Assessed Value for Tax Year

2005(1) 2004 2003
% of % of % of
Category Amount Total Amount Total Amount Total
Real, Residential, Single-Family $ 45,318,436,001 45.49% $ 42,344,360,520 49.85% $ 39,496,970,130 48.18%
Real, Residential, Multi-Family 7,087,409,602 7.11% 6,351,762,270 7.48% 6,095,619,950 7.44%
Real, Vacant Lots/Tracts 1,813,017,177 1.82% 1,606,081,810 1.89% 1,509,726,630 1.84%
Real, Acreage (Land Only) 331,997,272 0.33% 329,160,960 0.39% 347,920,940 0.42%
Real, Farm and Ranch Improvements 64,795 0.00% 84,760 0.00% 0 0.00%
Real, Commercial 19,665,897,248 19.74% 18,524,757,290 21.81% 18,727,999,070 22.85%
Real, Industrial 1,619,947,591 1.63% 1,820,235,750 2.14% 1,929,753,190 2.35%
Real, Oil, Gas and Other Mineral Reserves 3,689,820 0.00% 3,341,960 0.00% 3,757,600 0.00%
Real and Tangible Personal, Utilities 1,679,465,094 1.69% 1,689,305,560 1.99% 1,673,365,950 2.04%
Tangible Personal, Commercial 8,458,385,490 8.49% 8,732,272,210 10.28% 8,575,907,400 10.46%
Tangible Personal, Industrial 3,522,778,810 3.54% 3,315,766,410 3.90% 3,438,217,240 4.19%
Tangible Personal, Other 52,559,550 0.05% 54,044,300 0.06% 54,257,560 0.07%
Real Property Inventory 79,402,142 0.08% 72,246,870 0.09% 71,124,300 0.09%
Exempt Property 9,984,884,840 10.02% 106,752,920 0.13% 53,074,330 0.06%
Total Appraised Value Before Exemptions $ 99,617,935,432 100.00% $ 84,950,173,590 100.00% $ 81,977,694,290 100.00%
Less: Total Exemptions/Reductions 22,040,933,315 11,681,949,360 10,952,000,430
Taxable Assessed Value $ 77,577,002,117 $ 73,268,224,230 $ 71,025,693,860

Taxable Assessed Value for Tax Year

2002 2001
% of % of
Category Amount Total Amount Total
Real, Residential, Single-Family $ 36,078,731,010 46.00% $ 32,927,672,010 44.18%
Real, Residential, Multi-Family 5,566,004,770 7.10% 5,298,925,730 7.11%
Real, Vacant Lots/Tracts 1,468,505,590 1.87% 1,466,350,690 1.97%
Real, Acreage (Land Only) 377,164,040 0.48% 427,421,160 0.57%
Real, Farm and Ranch Improvements 37,170 0.00% 37,170 0.00%
Real, Commercial 18,589,165,190 23.70% 18,528,618,040 24.86%
Real, Industrial 1,960,867,300 2.50% 1,804,329,180 2.42%
Real, Oil, Gas and Other Mineral Reserves 5,148,310 0.01% 6,796,000 0.01%
Real and Tangible Personal, Utilities 1,974,539,970 2.52% 1,883,052,610 2.53%
Tangible Personal, Commercial 8,853,972,100 11.29% 8,911,513,360 11.96%
Tangible Personal, Industrial 3,324,008,300 4.24% 3,138,447,570 4.21%
Tangible Personal, Other 53,192,450 0.07% 50,965,300 0.07%
Real Property Inventory 56,358,670 0.07% 31,620,610 0.04%
Exempt Property 131,455,470 0.17% 58,809,780 0.08%
Total Appraised Value Before Exemptions $ 78,439,150,340 100.00% $ 74,534,559,210 100.00%
Less: Total Exemptions/Reductions 10,162,994,850 9,363,630,710
Taxable Assessed Value $ 68,276,155,490 $ 65,170,928,500

______________
(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 Interest
Fiscal and and
Year Tax Operating Sinking % Current % Total
Ended Rate Fund Fund Tax Levy Collections Collections
2002 $ 1.58000 $ 1.45000 $ 0.13000 $ 999,199,832 95.69% 98.47%
2003 1.58000 1.45000 0.13000 1,044,932,755 96.24% 100.09%
2004 1.58000 1.45000 0.13000 1,084,552,525 96.38% 99.99%
2005 1.59900 1.45000 0.14900 1,178,143,200 96.63% 101.34%
(1) (2) (2)
2006 1.62000 1.45000 0.17000 1,256,747,434

_______________
(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 % of 2004
Taxable Taxable
Assessed Assessed
Principal Taxpayers Type of Property Valuation Valuation
Centerpoint Energy Inc. Electric Utility $ 831,722,800 1.14%
Hines Interests Ltd Partnership Buildings and Land 669,363,150 0.91%
Southwestern Bell Telephone Co. Telephone Utility 552,080,270 0.75%
Anheuser-Busch Inc. Buildings and Land 482,159,440 0.66%
Crescent Real Estate Buildings and Land 455,238,090 0.62%
Trizechahn Allen Center L. P. Buildings and Land 310,039,270 0.42%
Exxon Corp. Buildings and Land 299,279,400 0.41%
Continental Airlines Inc. Buildings and Land 281,158,730 0.38%
Crescent Real Est Equities Buildings and Land 243,634,900 0.33%
HG Shopping Centers LP Buildings and Land 243,350,670 0.33%
$ 4,368,026,720 5.96%

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 Total Outstanding

End Outstanding Contractual Total
6/30 I&S Fund Debt(1) Obligations(2) Requirements
2006 $ 93,960,811 $ 35,318,025 $ 129,278,836
2007 115,357,563 36,611,563 151,969,125
2008 121,132,806 29,959,125 151,091,931
2009 126,977,569 20,873,444 147,851,013
2010 128,086,738 12,185,075 140,271,813
2011 131,667,263 11,934,625 143,601,888
2012 131,686,526 11,776,275 143,462,801
2013 131,755,274 11,118,750 142,874,024
2014 131,464,838 10,825,500 142,290,338
2015 131,818,913 7,393,000 139,211,913
2016 131,878,070 7,143,000 139,021,070
2017 131,936,958 6,893,000 138,829,958
2018 131,989,253 6,862,375 138,851,628
2019 132,011,850 11,344,500 143,356,350
2020 130,075,184 10,796,125 140,871,309
2021 132,262,395 10,250,000 142,512,395
2022 132,290,763 132,290,763
2023 130,199,800 130,199,800
2024 130,219,733 130,219,733
2025 132,689,855 132,689,855
2026 132,565,075 132,565,075
2027 97,077,163 97,077,163
2028 97,119,962 97,119,962
2029 97,137,329 97,137,329
2030 97,070,888 97,070,888
2031 86,605,638 86,605,638
2032 49,927,538 49,927,538
2033 27,431,163 27,431,163
$ 3,244,396,912 $ 241,284,381 $ 3,485,681,294
_______________
(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.

Estimated District's
Taxable Gross Debt % Overlapping
Assessed Value(1) Tax Rate(1) Outstanding(1) Applicable Debt(1)
Bellaire, City of $ 2,041,661,130 $ 0.4800 $ 49,670,000 100.00% $ 49,670,000
Ft. Bend WCID #2 1,710,925,305 0.1629 30,445,000 0.38% 115,691
Harris County 195,088,268,180 0.3999 1,919,956,590 38.76% 744,175,174
Harris County Flood Control Dist 195,088,268,180 0.0417 71,799,985 38.76% 27,829,674
Harris County Department of Education 195,088,268,180 0.0063 1,135,000 38.76% 439,926
Harris County ID #1 2,297,490,441 0.1444 14,845,000 100.00% 14,845,000
Harris County MUD #122 60,878,360 1.0600 3,825,000 100.00% 3,825,000
Harris County MUD #355 233,865,535 0.4000 9,811,000 100.00% 9,811,000
(2)
Harris County Toll Road 195,088,268,180 - - 38.76% -
Harris County WC&ID #89 49,040,408 1.5000 4,510,000 100.00% 4,510,000
Harris County WC&ID (Fondren Rd) 93,502,879 0.7100 4,585,000 100.00% 4,585,000
Houston Community College 80,385,470,703 0.0960 144,155,000 90.32% 130,200,796
Houston, City of 105,934,758,000 0.6500 1,616,973,824 68.53% 1,108,112,162
Jacinto City, City of 289,014,279 0.8080 - 50.66% -
Missouri City, City of 3,316,782,886 0.5016 35,615,000 8.33% 2,966,730
Port of Houston Authority 195,088,268,180 0.0167 287,900,000 38.76% 111,590,040
Southwest Harris County MUD #1 56,398,622 0.6600 960,000 41.58% 399,168
West Univeristy Place City of 2,713,319,760 0.4400 71,950,000 100.00% 71,950,000
Total Net Overlapping Debt $ 2,285,025,361

Houston ISD 77,577,002,117 1.6200 1,820,095,454 100.00% 1,820,095,454

Total Direct & Overlapping Funded Debt $ 4,105,120,815

(1) Most recent information provided by the respective Texas Municipal Reports.
(2) 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 2006 (1) 2005 2004 2003 2002
Property Taxes $ 1,173,649 $ 1,145,279 $ 1,084,429 $ 1,045,884 $ 983,862
Other Local Sources 47,428 64,767 69,411 75,234 59,146
State Sources 234,115 259,596 268,859 356,836 308,404
Federal Sources 108,826 177,873 165,637 135,870 109,331
Subtotal $ 1,564,018 $ 1,647,515 $ 1,588,336 $ 1,613,824 $ 1,460,743
Other Sources 428,037 571,873 351,277 340,056 30,789
Total Revenues $ 1,992,055 $ 2,219,388 $ 1,939,613 $ 1,953,880 $ 1,491,532

_______________
(1) Budgeted.

General Fund
Fiscal Year Ended (000's Omitted)
Source 2006 (1) 2005 2004 2003 2002
Beginning of Fiscal Year $ 256,892 $ 207,302 $ 215,097 $ 215,497 $ 172,357
Revenues 1,289,241 1,288,481 1,277,053 1,300,917 1,220,087
Total Funds Available $ 1,546,133 $ 1,495,783 $ 1,492,150 $ 1,516,414 $ 1,392,444

Expenditures $ (1,335,646) $ (1,237,488) $ (1,289,424) $ (1,313,663) $ (1,171,422)

Other Sources 25,270 25,100 28,320 29,493 11,652

Other Uses (22,767) (26,503) (23,744) (17,147) (17,177)
Balance, End of Fiscal Year $ 212,990 $ 256,892 $ 207,302 $ 215,097 $ 215,497
_______________
(1) Budgeted.

Special Revenue Fund

Fiscal Year Ended (000's Omitted)
Source 2006 (1) 2005 2004 2003 2002
Beginning of Fiscal Year $ - $ - $ - $ - $ -
Revenues 227,121 214,897 203,445 214,356 134,544
Total Funds Available $ 227,121 $ 214,897 $ 203,445 $ 214,356 $ 134,544

Expenditures $ (227,121) $ (214,897) $ (203,445) $ (214,356) $ (134,544)

Other Sources - - - - -
Other Uses - - - - -
Balance, End of Fiscal Year $ - $ - $ - $ - $ -
_______________
(1) Budgeted.

28
 Debt Service Fund
Fiscal Year Ended (000's Omitted)
Source 2006 (1) 2005 2004 2003 2002
Beginning of Fiscal Year $ 79,552 $ 70,993 $ 73,225 $ 74,127 $ 25,819
Revenues 122,123 108,041 90,447 90,530 88,217
Total Funds Available $ 201,675 $ 179,034 $ 163,672 $ 164,657 $ 114,036

Expenditures $ (136,142) $ (128,660) $ (115,637) $ (110,066) $ (59,046)

Other Sources 21,867 335,384 22,958 101,829 19,137

Other Uses - (306,206) - (83,195) -
Balance, End of Fiscal Year $ 87,400 $ 79,552 $ 70,993 $ 73,225 $ 74,127
_______________
(1) Budgeted.

Capital Projects Fund

Fiscal Year Ended (000's Omitted)
Source 2006 (1) 2005 2004 2003 2002
Beginning of Fiscal Year $ 519,643 $ 533,373 $ 334,096 $ 272,033 $ 515,343
Revenues 18,222 36,097 17,391 14,813 17,895
Total Funds Available $ 537,865 $ 569,470 $ 351,487 $ 286,846 $ 533,238

Expenditures $ (250,000) $ (247,195) $ (110,150) $ (149,364) $ (252,405)

Other Sources 108,000 211,389 300,000 208,733 -

Other Uses (8,220) (14,030) (7,964) (12,119) (8,800)
Balance, End of Fiscal Year $ 387,645 $ 519,634 $ 533,373 $ 334,096 $ 272,033
_______________
(1) Budgeted.

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.

29
 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 Co-
Bond 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.

30
 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 .

31
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.

32
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 no-
action 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.

33
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.

34
 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

35
 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
Page
ARTICLE I. DEFINITIONS AND RULES OF CONSTRUCTION. . . . . . .. . . . . . . . . . . . .. . .. .. . . . .. . . . . . . . . . . . . . . . . . . . . . 2
Section 1 .1 . Definitions . .. . .. . .. . .. . . .. ... .. ... ... . .. ... .. . ... .. . .. ... .. .. . .. .. . .. .. . .. ... .. ... .. . .. .. . .. ... .. ... .. . .. . .. . . . . . . .. .. . .. . . . .. . ... .. . .. ...2
Section 1 .2 . Rules of Construction. ... . . . .. . .. . .. .. . ... .. . .. ... .. .. . .. ... .. .. . .. ... .. ... .. . . . .. . .. ... .. ... . . . .. . .. . .. . . . .. . . . . . . .. ... ... .. . .. . .. 6
Section 1 .3 . Preamble . . .. .. . .. ... . .. . ... ... ... ... .. . .. . .. .. . ... ... .. ... .. ... .. ... .. ... .. . .. .. ... ... . . .. . . .. .. . . ... .. . .. . .. . .. . . . ... .. ... .. . .. .. . .. . .. .. . 6

ARTICLE K RECITALS AND REPRESENTATIONS . .. . . . .. . .. . .. . .. . . . .. .. . . . . .. . . . . . . .. .. . .. . . . . . . . . . . . . . . . . .. . .. . . . . . . 6

Section 2 .1. Lease .. ... .. . .. ... ... ... ...... . .. . .. ... ... .. . ... .. ...... ... .. ... .. .. . .. ... .. . .. . . ... .. . ... .. .. . .. .. . .. .. . .. . .. .. . ... .. . .. .. . .. ... .. ... ... . .. . .6
Section 2 .2 . The Projects .. .. . . .. . ..... . .. ... . .. . .. ... ... .. . ... .. ... .. ... .. ... ..... .. . .. . . . .. . .. .. . .. .. . .. . .. .. . . . .. . .. . . . . .. .. . .. ... .. ... ... .. . .. . .. . .6
Section 2 .3. Payments .. .. ... . .. .... ... ... .. ... . .. ... . .. . .. ... ... .. ... .. ... .. ... ..... . .. .. . .. .. . .. . .. .. ... .. . .. .. . .. ... ... .. . .. ... .. ... ... .. ... .. . .. . .. ..6
Section 2 .4. Deposit of Funds .... ... ..... . .. . .. . .. . .. ... ... .. ... .. ... .. ... . .. .. . .. .. . .... . .. . .. .. . .. .. . .. . . . .. .. . ... ... .. ... .. ... ... .. ... ... .. . .. . .6
Section 2 .5. Trustee . .. ... . .. .. . .. . ... ... ... ... ... .. . ... ... .. ... ... . .. .. ... .. . .. .. . .. .. . .. . .. .. .. . .. . .. .. . .. ... ... . . .. . .. ... ... .. ... ... .. . .. . . ... . .. ... .. . .6
Section 2.6. Authority to Contract . .. . .. . .. ... ... .. ... . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. ... ... ... .. ... .. ... .. .. . .. . .. ... ..... ... ... .. .. ... . .. . .. .. . .6
Section 2.7. Conditions Precedent Satisfied .. . .. . .. . .. .. . .. ... .. ... .. . .. .. . .. .. ... .. . ... .. ... .. ... . . ... .. . .. ... ... .. ... . .. .. . . ... . .. . .. .. . .6

ARTICLE III BOND TERMS AND PROVISIONS ............................................................................. 6

Section 3 .1 . Payments from Trust Estate Only .... . .. ............................................. ... .. ..................................6
Section 3 .2. Method of Payment ............. ... ....................................................... ...........................................7
Section 3 .3 . Preparation of the Bonds ................................................... ......................................................7
Section 3 .4 . Form of the Bonds; Denominations; Medium of Payment....................................................7
Section 3 .5 . Payment Provisions . ....................................... ........................................................... .... ...........7
Section 3 .6 . Authentication ........................................... ........................................... ... .. ............................... 8
Section 3 .7 . Delivery of the Bonds .................... ..........................................................................................8
Section 3 .8. Bond Register ......................... ................................................. ... ..............................................8
Section 3 .9 . Transfers of Bonds ........................................................ ... ........................................................8
Section 3 .10. Exchange of Bonds .................................................... ..... ..........................................................9
Section 3 .11 . Initial Bonds .......................................... .. ............................................................... ............ ......9
Section 3 .12. Bonds Mutilated, Lost, Destroyed or Stolen ....................................... .......... . .. . ..................... 9
Section 3 .13. Book -Entry Only System.............. ............................................ ...............................................9
Section 3 .14. Distributions of Certain Other Amounts .......................... .....................................................10
Se ction 3 .15. Other Distributions. . . ............................................. ......................................................... ... . ....10
Section 3 .16. Evidence of Signatu s of Bondholders and Ownership of the Bonds ............ ...................10
Section 3 .17. Issuance of Bonds or Other Obligations . ......................................... ... .. ................................ I l

ARTICLE IV. ESTABLISHMENT AND ADMINISTRATION OF FUNDS AND ACCOUNTS .......11

Section 4 .1. Trust Fund .............................. ... .......................................... ................................................... I l
Sec tion 42 . Establishment and Application of Payment Account .......................................................... I I
Section 4 .3. Establishment and Application of Reserve Account .................................................. .. .......12
Se ction 4 .4. Establishment and Application of Redemption Account .......................... ..... ... . ................12
Section 4 .5. Establishment and Application of Project Acquisition Account ................................ ....... ..13
Section 4.6. Establishment and Application of Rebate Account .............................................................13
Section 4.7. Deposit and Investment of Funds in Trust Fund ..................................... .. ...........................13

ARTICLE V. DEFAULT, L&ffATION OF LIABILITY ........... . .. ... ...............................................14

Section 5.1. Events of Default................................................................. .. ............................................. 14
Se ction 51. Remedies on Default.................................................................................... ........ ... ...............1 5
Section 53 . Remedies on Nonappopriation.. ... ... ..... .. ... . .... . .. .. . .. ... .. .. . .. ... .. ... ... .... ... .. ... ... ... ... .. ... ... .. ... . ... ... 1 6
Section 5.4. Remedy Exclusive............................. . ....................................................................................16
Suction 5 .5. No Additional Waiver Implied By One Waiver..... . ................................................. .... ........ 16
Section 5 .6. Termination of Leases ...................................................................... ...................................... 16
Section 5 .7. Notice of Default .................................................................... ............ .................................... 16
Sec tion 5 .8. Appointment of Liquidating Tmstee ................................................................................... ..17
Section 5 .9. Initiation of Remedies .................................... . ............................................... .. . .....................17
Section 5.10. Rights and Remedies of the Bondholders ..................................... .... ....................................17
Section 5.11. Termina tion of Proceedings ............................................................................................. .....17

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 Section 5 .12 . Waivers of Events of Default ................................................................................................17
Section 5 .13 . Application of Money . ...........................................................................................................18
Section 5 .14. No Obligation With Respect to Performance by Trustee ....................................................19
Section 5 .15. No Liability to the Bondholders for Rental Payments or Covenants . ........................ ..19
Section 5 .16. No Responsibility for Sufficiency of 1 .eases ........................................................................19
Section 5 .17. No Liability of Trustee ...........................................................................................................19
Section 5 .18. Enforcement of Leases ...........................................................................................................1 9

ARTICLE VI . REDEMPTION OF THE BONDS ........... .................................................... .. . ...... . ..... . 20

Section 6 .1. Terms of Redemption ............. .... . ..... .....................................................................................20
Section 6 .2. Scheduled Principal Insta ll ments ..........................................................................................20
Section 6.3. Par tial Redempti on . . ................................................................................................................20
Section 6 .4. Notices of Redemption ........................................... ........ . ............................. ......... . .. ......... 20

ARTICLE VII . THE TRUSTEE ...... ... ................................................................................................. 21

Section 7 .1 . Employment of Trustee ................................................................................................... .. .. . . 21
Secti on 7 .2 . Acceptan ce of Appointment ....................................................................... ................ . .... ...... 21
Section 7 .3 . Rights and Duties of Trust ee........................................................................................... ......21
Section 7 .4 . Removal and Resignati on ................................. . ............ ........ ................................................22
Section 7 .5 . Appointment of Agent ...........................................................................................................23
Section 7.6 . Merger or Consoli dation of Trustee ............... 23
Section 7 .7 . Trustee Notice ............................................................................................ . ...........................23
Section 7 .8 . Directors, Officers, Employees and Agents Exempt from Personal Liability ...................23

ARTICLE VIII. AMENDMENT; DEFEASANCE; ADMINISTRATIVE PROVISIONS . . . . . . . . . .. . . . . . . . . . . . 23

Section 8.1 . Amendment . . . . . . . . . .. . .. . . . .. . . . . .. . .. . .. .. ... .. . .. .. . .. . . . . . . .. . . . .. . . . .. . .. . . . .. . .. . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. ... . . . .. . .. . . . .23
Section 8.2. Defeasance . . . . . . .. . . . .. . . . . . . . . . . .. .. . .. .. . .. ... .. . .. .. . . . . .. .. . . . . . ... . . . .. . . . .. . .. . .. . .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. . .. . . . .. . .. . . . . 24
Section 8.3 . Payments Due on Holidays . . .. .. . .. ... .. . .. .. . . . ... .. ... .. . .. . .. .. . . . .. . .. . .. . .. . .. .. . .. .. . .. .. . .. . .. . . . .. .. . .. ... . .. . . . .. . . . .25
Section 8.4. Recording and Filing. . . .. . ... .. . .. .. . .. ... .. . .. . . . . . ... . . ... .. . .. . . . . . . . . .. . .. . .. . . . . .. . . . .. . . . .. .. . .. . .. .. . . . . . . . . . .. . . . . . . . . . . . .25
Section 8.5. Notices . ... . . . .. . . . .. . . . . . . .. . . . . . . . .. .. . .. . .. .. . .. .. . .. ... . . . .. . . . .. . . ... . . . .. . . . .. . .. . .. . .. . .. .. . .. ... .. .. . .. . .. . . . .. .. . . . . .. . .. . .. . . . . . .25
Section 8.6. Applicable Law . . . .. . . . . . . . . . . . . .. . .. . . . .. . . . .. . .. .. . .. ... . . . .. . . . .. . . . .. . . . . . . .. . . . . .. . .. .. . .. . . . .. . . . .. . .. .. . . . .. . . . . .. . .. . . . . . . .. .26
Section 8.7. Severabil ity .. . . . .. . . . .. . .. . . . . .. . .. .. . .. . . . .. . .. .. . .. ... . . ... . . . .. . . . .. . . . .. . . . .. . .. . .. . .. . .. ... .. . .. .. . .. .. . .. . .. . . ... . . . .. . .. . .. . . . .. . 26
Section 8.8. Binding on Successors . . . . .. .. . .. . .. .. . .. .. . .. ... . . ... . . . .. . . ... . .. .. . .. .. . .. . .. . ... .. . .. .. . .. .. . .. .. . . . . .. . . . .. . . . . . . .. . .. . .. .. .26
Section 8.9. Headings . . . ... . . . .. . . . .. . .. . .. . . . . .. ... .. ... .. . .. .. . .. . .. . . . .. . . . .. . . . .. . . . .. . .. .. . .. . .. . ... .. ... .. . .. .. . . . .. . .. . .. . . . .. . .. . . . . . . ... .. .. .26
Section 8.10. Executi on in Counterparts ... .. . . . .. ... .. . .. ... . . . .. . . . .. . . . .. . .. .. . .. . . . .. . ... ... .. . .. .. . .. .. . . . .. . . . . . . . . . . . . .. . .. . . . ... .. .. . 26
Section 8.11 . Complete Agreement . . . . . . .. .. . .. ... .. ... .. . .. . .. . . ... . . . .. .. . .. . .. . . . .. . . . .. . .. . ... .. ... .. . .. .. . . . ... . . . . . . . . . . . .. . .. . . . . .. .. . .. 26

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

ii
 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 :

0
 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 .

2
 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

3
 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.

4
 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.

5
 Section L L Riles of Construction.

(a) Words of the masculine and feminine graders shall be doomed 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 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

6
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

(f) Opinions as to the validity of the Bonds and the related Lease of the Attorney General of the State
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

9
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 .

9
 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

10
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 .

Section 3 .17. Issuance of Bonds or Other Ob li gations. The Corporation hereby covenants and agrees
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

12
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

13
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.

(c) Interest or income rece ived by the Trustee on the investment of funds held in subaccounts within
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 .

(d) Amounts deposited in each subaccount within the Payment Account including, but not limited to,
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.

14
 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.

15
 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

16
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

17
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

18
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.

19
 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.

20
 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.

(f) The Trustee may consult with legal counsel selected with reasonable care and the written advice of
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 ;

21
 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 .

22
 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.

23
 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 : Deputy Superintendent, Finance and
Business Services
Telephone: (713) 892-6830
Telecopy : (713) 892-6579

TO: Trustee

For payment, registration, transfer and exchange of Bonds :

By Hand By Mai l

Chase Bank of Texas, National Associati on Chase Bank of Texas, National Association
One Main Place P . O. Box 2320
1201 Main Street, 18th Floor Dallas, Texas 75221-2320
Dallas, Texas 75202

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 : (713) 216-5476

TO : District

Houston Independent School Dist rict

3830 Richmond
Houston, Texas 7702 7
Attention: Deputy Superintendent, Finance and
Business Servi ces
Telephone : (713) 892-6830
Telecopy : (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: --- I- 7P~ -_..

Name : 'ZEE A A. NEWMAN
Title: VICE PRESIDENT & TRUST OFFICE R

7 -A H
Title :
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

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 – _______________.

HOU:2553721.1
 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 – $_______________.

HOU:2553721.1
 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,

HOU:2553721.1
 (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.

HOU:2553721.1
 (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

HOU:2553721.1
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.

HOU:2553721.1
 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;

(2) 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

(3) such additional information it may reasonably request.

(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. Payment Procedure Pursuant to the Municipal Bond Insurance

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:

HOU:2553721.1
 (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

HOU:2553721.1
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.

HOU:2553721.1
 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.

HOU:2553721.1
 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,

HOU:2553722.1
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.

HOU:2553722.1
 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) the District’s failure to make a Rental Payment within 10 days after the due date
thereof;

(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

HOU:2553722.1
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.

HOU:2553722.1
 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;

HOU:2553722.1
 (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.

HOU:2553722.1
 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

HOU:2553722.1
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,

HOU:2553722.1
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 Continuing Disclosure Undertaking.(a) Definitions.

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

HOU:2553722.1
 “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. 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 holders of the Bonds;

8. Bond calls;

9. Defeasances;

HOU:2553722.1
 10. Release, substitution, or sale of property securing repayment of the Bonds;
and

11. Rating changes.

(d) 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

HOU:2553722.1
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;

HOU:2553722.1
 (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.

HOU:2553722.1
 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

HOU:2553722.1
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

HOU:2553722.1
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

HOU:2553722.1
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

HOU:2553722.1
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

HOU:2553722.1
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;

HOU:2553722.1
 (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:

HOU:2553722.1
 (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

HOU:2553722.1
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.

HOU:2553722.1
 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.

HOU:2553722.1
 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.

HOU:2553722.1
 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

HOU:2553722.1
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

HOU:2553722.1
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

HOU:2553722.1
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

HOU:2553722.1
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.

HOU:2553722.1
 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. BURNEY & FOREMAN
600 Travis, Suite 4200 5445 Almeda, Suite 400
Houston, Texas 77002 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
April 6, 2006
Page 2

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
April 6, 2006
Page 3

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
April 6, 2006
Page 4

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
April 6, 2006
Page 5

(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

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

Obligor: 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.

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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

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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

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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

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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

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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

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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

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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

S
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.

President Secretary

Effective Date: Authorized Representative

THE BANK OF NEW YORK acknowledges that it has agreed

to perform the duties of Insurance Trustee under this Policy.
Form No.: 2B-0012 (1/01) Authorized Officer of Insurance Trustee
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