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ESCROW AGREEMENT THIS ESCROW AGREEMENT, dated as of February 8, 1999 (herein, together with any amendments or supplements hereto, called the "Agreement"), entered into by and between the City of San Marcos, Texas (the "Issuer"), and Chase Bank of Texas, National Association, as escrow agent (herein, together with any successor in such capacity, called the "Escrow Agent"). WITNESSETH: WHEREAS, the Issuer has heretofore issued and there presently remain outstanding the obligations of the Issuer listed and described on Exhibit A attached hereto and incorporated herein by reference (the "Refunded Bonds"); WHEREAS, the Refunded Bonds are scheduled to mature or have been called for early redemption in such years, bear interest at such rates, and are payable at such times and in such amounts as are set forth in Exhibit B attached hereto and incorporated herein by reference; WHEREAS, when firm banking arrangements have been made for the payment of principal and interest to the maturity dates or redemption dates of the Refunded Bonds, then the Refunded Bonds shall no longer be regarded as outstanding except for the purpose of receiving payment from the funds provided for such purpose; WHEREAS, TEX. REv. CIV. STAT. ANN. art. 717k, as amended ("Article 717k"), authorizes the Issuer to issue refunding bonds and to deposit the proceeds from the sale thereof, and any other available funds or resources, directly with any place of payment for any of the Refunded Bonds, and such deposit, if made before such payment dates and in sufficient amounts, shall constitute the making affirm banking and financial arrangements for the discharge and final payment of the Refunded Bonds; WHEREAS, Article 717k further authorizes the Issuer to enter into an escrow agreement with any such paying agent for any of the Refunded Bonds with respect to the safekeeping, investment, administration and disposition of any such deposit, upon such terms and conditions as the Issuer and such paying agent may agree, provided that such deposits may be invested only iti direct obligations of the United States of America, including obligations the principal of and interest on which are unconditionally guaranteed by the United States of America, which may be in book-entry form, and which shall mature and/or bear interest payable at such times and in such amounts as will be sufficient to provide for the scheduled payment of principal and interest on the Refunded Bonds when due; WHEREAS, the Escrow Agent is the paying agent for the Refunded Bonds, and this Agreement constitutes an escrow agreement of the kind authorized and required by Article 717k; WHEREAS, Article 717k makes it the duty of the Escrow Agent to comply with the terms ofthis Agreement and timely make available to the other places of payment, if any, for the Refunded Bonds the amounts required to provide for the payment of the principal of and interest on such obligations when due, and in accordance with their terms, but solely from the funds, in the manner, and to the extent provided in this Agreement; R.\SANMARlGORI.99\DOCS\ESCROW.WPD