IRVING HOSPITAL AUTHORITY Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A

SUPPLEMENT DATED NOVEMBER 10, 2017

SUPPLEMENTING THE PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 6, 2017

FOR:

$77,000,000* IRVING HOSPITAL AUTHORITY Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A

This Supplement to the Preliminary Official Statement is being disseminated by the Irving Hospital Authority. The following correction is hereby made to the Preliminary Official Statement:

The information in APPENDIX F Summary of Lease is hereby deleted and replace with the attached.

* Preliminary, subject to change. SUMMARY OF LEASE

The following is a summary of certain provisions of the Lease. This summary should be qualified by reference to other references to the Lease referred to elsewhere in this Official Statement, and all references and summaries pertaining to the Lease in this Official Statement are, separately and in whole, qualified by reference to the exact terms of the Lease, a copy of which may be obtained from the Authority and article or section references contained in the following summary are to sections and articles, as appropriate, contained in the Lease.

Capitalized terms in the summary of the Lease have the following meanings:

"ADA" means the Americans with Disabilities Act of 1990, as amended, and the rules, regulations and pronouncements issued in connection therewith.

"Affiliate" means any Person that, directly or indirectly, controls, is controlled by or under common control with another Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with"), as used with respect to any Person, includes the power to appoint a majority of the governing board of another Person that is an entity, whether through the ownership of voting securities, by contract, by charter or other governing documents or otherwise.

“Authority” means Irving Hospital Authority, a Texas municipal hospital authority organized and existing pursuant to the Hospital Authority Act, Chapter 262, Texas Health and Safety Code, as amended.

“Assumption Agreement” means the Assignment and Assumption Agreement between Landlord and Tenant dated as of July 31, 1995.

"BHCS" means Baylor Health Care System, a Texas nonprofit corporation.

“Commencement Date" means the date on which the Term of the Original Lease Agreement commenced.

“Contingent Rent” has the meaning ascribed in Section 4.1 of the Lease.

"Effective Date" means the first day of the month following the Closing under the Master Agreement.

"Environmental Laws" means any and all laws, statutes, ordinances, rules, regulations, orders or determinations of any Governmental Entity (including common law duties established by courts or other Governmental Entities) pertaining to the protection of human health and the environment in effect on the date of the Lease in any jurisdiction, federal, state or local, in which the Real Property is located, including the Clean Air Act, as amended; the Comprehensive Environmental Response, Compensation and Liability Act, as amended; the Federal Water Pollution Control Act, as amended; the Resource Conservation and Recovery Act, as amended; the Safe Drinking Water Act, as amended; and the Toxic Substances Control Act, as amended.

“Equipment” means collectively all furniture, fixtures and equipment owned or leased by Landlord and previously disclosed in writing to Tenant, all material Equipment owned or leased by Landlord being heretofore described on Exhibit A attached to the Original Lease Agreement; provided, however, the term Equipment shall exclude all furniture, fixtures and equipment formerly owned or leased by Landlord and leased to Tenant under the Original Lease Agreement or Lease, if Tenant shall have disposed of any item thereof after having made a good faith determination that such is surplus to Tenant's requirements in operating the IHA Healthcare Facilities or is economically or functionally obsolete, and shall include replacements therefor acquired pursuant to the provisions of Section 5.8 the Lease.

“Event of Default” has the meaning ascribed thereto in Section 8.1 of the Lease.

HOU:3796803.6 “Excess Operating Cash Flow” means, as pertaining to the IHA Healthcare Facilities, and excluding any and all activity related to the Irving Healthcare Foundation , using GAAP, if positive, Net Increase in Cash and Cash Equivalents as stated on Tenant’s audited Statement of Cash Flows and its supplemental schedules, plus the increase (or minus the decrease) in Short and Long Term Investments (adjusted to exclude the effect of all realized and unrealized gains and losses on investments, net), plus Contingent Rent paid, plus Fixed Rent paid, less philanthropic contributions (for example those similar to the type made by the excluded Irving Healthcare Foundation), less, without duplication, payments received for investment interest income on Tenant’s interest in cash held in BHCS money pool or equivalent, less payments received in the current period to fund Losses From Operations in prior periods from the Rent Set Aside, and less payments made by Landlord in the current period to fund Losses From Operations in prior periods (in addition to those from Rent Set Aside). Excess Operating Cash Flow shall be calculated as set out in Schedule 1 of the Lease attached therein by reference.

"Excluded Assets" means (a) any assets or properties of Landlord not used or held for use in connection with the IHS Facilities and (b) any assets or properties used or held for use in connection with the IHS Facilities to the extent they constitute, on the Effective Date:

(i) Landlord's current assets including cash, bank accounts, negotiable instruments, investments (bonds, stocks, certificates of deposit and other securities), segregated funds established and maintained pursuant to requirements of any bond indentures and other instruments securing payment of any bonds or other cash equivalents;

(ii) Governmental Entity receivables that relate to incidents occurring, or circumstances or facts existing, prior to the Effective Date;

(iii) proceeds of Governmental Entity credits, refunds, claims, actions, causes of action, demands, liabilities, suits or judgments which relate to incidents occurring, or circumstances or facts existing, prior to the Effective Date;

(iv) endowments and assets held in trust by or for Landlord and charitable pledges;

(v) insurance policies, except as otherwise provided in the Master Agreement;

(vi) assets not used for or in connection with providing health care; or

(vii) Effective Date Receivables.

“Execution Date” means April 20, 2010, the meaning ascribed thereto in the preamble of the Lease.

“Fiscal Year” means the fiscal year of Tenant, which is currently July 1 through June 30.

“Fixed Rent” has the meaning ascribed thereto in Section 4.1 of the Lease.

“GAAP” means United States generally accepted accounting principles consistently applied to the accounts to which the principles are then to be applied; subject, however, to changes in the applicable United States accounting standards from time to time that, by the mutual agreement of the parties evidenced by an amendment to the Lease, may or may not be applied to certain of the provisions of the Lease so as to achieve, to the extent practicable, consistency with the economics contemplated and originally provided for in the Lease utilizing the United States generally accepted accounting principles as of the Renewal Date.

“Gains From Operations” means as pertaining to the IHA Healthcare Facilities, and excluding any and all activity relating to the Irving Healthcare Foundation, using GAAP, if positive, the Revenue and Gains in Excess of Expenses and Losses (adjusted to exclude the effect of all realized and unrealized gains and losses on investments, net and without duplication, the effect of all gains related to Tenant’s interest in investment interest income in BHCS money pool or equivalent) as shown on Tenant’s audited Statement of Operations and Changes in Net Assets and its supplemental schedules, and calculated as set out in Schedule 2 attached to the Lease and incorporated therein by reference; provided however, in thereafter considering Gains From Operations with respect to an applicable Fiscal

F-2 HOU:3796803.6 Year, such gains shall be increased by the impact of recording Fixed and Contingent Rent. Also, such gains shall be decreased for philanthropic contributions (for example those similar to the type made by the excluded Irving Healthcare Foundation). Finally, in calculating Gains From Operations, amounts received in the form of cash (including from the Rent Set Aside) or by means of credits against Fixed Rent in any particular Fiscal Year for the purposes of eliminating Losses From Operations in a prior Fiscal year, as permitted by Section 3.2(b) of the Lease, shall be excluded and deducted in the Fiscal Year received and shall be applied to the respective Fiscal Year(s) in which such Losses From Operations were experienced and thereby being eliminated.

"Governmental Entity" means any court or any federal, state or local legislative body or governmental municipality, department, commission, board, bureau, agency or authority, but excluding Landlord and Tenant.

"Hazardous Materials" means any material defined as hazardous or regulated or dangerous under any applicable Environmental Law.

“Hospital” means the hospital facility located on the main campus of the Irving Healthcare System.

“IHA Healthcare Facilities” shall mean collectively the Real Property and the Equipment, but does not include cash, securities, accounts receivable of Landlord or segregated funds held pursuant to bond indentures securing indebtedness of Landlord; by amendment to the Lease, additional facilities may be added to, or existing facilities may be deleted from, the definition of IHA Healthcare Facilities.

"IHS Facilities" means the following, but shall not include the Excluded Assets:

(a) real property owned by or leased to Landlord as tenant or lessee, which are more specifically described in the Lease;

(b) all Landlord's equipment, furniture, machinery and spare parts, wherever situated;

(c) all Landlord's inventories of food, drugs, medicines, janitorial, medical and office supplies, materials, supplies and consumables;

(d) all Landlord's documents, records, operating manuals and files, including patient records, medical records, financial records, equipment records, personnel files, construction plans and specifications, medical and administrative libraries, medical staff bylaws and minutes, and physician files, but not including corporate records and minutes of Landlord;

(e) all Landlord's computers and software;

(f) all Landlord's signs; and

(g) all additions, improvements and changes to the assets described in paragraphs (a) and (b) above during the term of the Master Agreement.

"IHS Primary Service Area" means the area containing the City of Irving, zip code 75019 in Coppell, zip codes 76039 and 76155 in Euless and zip code 75050 in Grand Prairie.

"Interest Rate" in the Lease means an interest rate equal to the lesser of (a) the greater of (i) ten percent or (ii) a rate per annum which is equal to the rate which is the prime rate of interest (expressed as a percentage) of Bank of America, N.A. as announced or published by such bank from time to time, plus two percent per annum (adjusted from time to time to reflect any changes in such prime rate) or (b) the maximum rate permitted by law.

"JCAHO" means the Joint Commission on Accreditation of Healthcare Organizations.

"Landlord" means Irving Hospital Authority, a Texas municipal hospital authority organized and existing pursuant to the Hospital Authority Act, Chapter 262, Texas Health and Safety Code, as amended, as defined in the pre-amble of the Lease.

F-3 HOU:3796803.6 “Lease” means the Amended and Restated Lease Agreement entered on April 20, 2010, and effective as of April 1, 2010, as subsequently amended.

"Legal Requirements" means all orders, injunctions, writs, statutes, rulings, rules, regulations, requirements, permits, certificates and ordinances of any Governmental Entity (including OSHA), including the ADA, applicable building codes, fire safety codes, zoning ordinances, Environmental Laws and any laws and regulations regarding human health or safety.

"Liens" in the Lease means all mortgages, deeds of trust, liens, security interests, pledges, conditional sale contracts, claims, rights of first refusal, options, charges, liabilities, obligations, easements, rights of way, limitations, reservations, restrictions and other encumbrances of any kind.

“Losses From Operations” means as pertaining to the IHA Healthcare Facilities, and excluding any and all activity relating to the Irving Healthcare Foundation, using GAAP, if negative, the Revenue and Gains in Excess of Expenses and Losses (adjusted to exclude the effect of all realized and unrealized gains and losses on investments, net and without duplication, the effect of all gains related to Tenant’s interest in investment interest income in BHCS money pool or equivalent) as shown on Tenant’s audited Statement of Operations and Changes in Net Assets and its supplemental schedules, and calculated as set out in Schedule 2 attached to the Lease and incorporated therein by reference; provided however, in thereafter considering Losses From Operations with respect to an applicable Fiscal Year, such losses shall be reduced by the impact of recording Fixed and Contingent Rent. Also, such losses shall be increased for philanthropic contributions (for example those similar to the type made by the excluded Irving Healthcare Foundation). Finally, in calculating Losses From Operations, amounts received in the form of cash (including from the Rent Set Aside) or by means of credits against Fixed Rent in any particular Fiscal Year for the purposes of eliminating Losses From Operations in a prior Fiscal year, as permitted by Section 3.2(b) of the Lease, shall be excluded and deducted in the Fiscal Year received and shall be applied to the respective Fiscal Year(s) in which such Losses From Operations were experienced and thereby being eliminated.

“Master Agreement” means the Master Agreement dated as of May 31, 1995 between Landlord, BHCS and Tenant, amended and restated as of July 31, 1995.

“Negative Operating Cash Flow” means as pertaining to the IHA Healthcare Facilities, and excluding any and all activity relating to the Irving Healthcare Foundation, using GAAP, if negative, Net Decrease in Cash and Cash Equivalents as stated on the Tenant’s audited Statement of Cash Flows and its supplemental schedules, plus the increase (or minus the decrease) in Short and Long Term Investments (adjusted to exclude the effect of all realized and unrealized gains and losses on investments, net), plus Contingent Rent paid, plus Fixed Rent paid, less philanthropic contributions (for example those similar to the type made by the excluded Irving Healthcare Foundation), less without duplication, payments received from investment interest income on Tenant’s interest in cash held in BHCS money pool or equivalent, less payments received in the current period to fund Losses From Operations in prior periods from the Rent Set Aside, and less payments made by Landlord in the current period to fund Losses From Operations in prior periods (in addition to those from Rent Set Aside). Negative Operating Cash Flow shall be calculated as set out in Schedule 1 of the Lease attached therein by reference.

“Offset Shortfall” has the meaning ascribed thereto in Section 4.1(b) of the Lease.

“Original Lease Agreement” means Lease Agreement between Landlord and Tenant, dated as of July 31, 1995 and defined in the recitals of the Lease.

"Permits" means all permits, licenses, registrations, franchises, concessions, orders, certificates, consents, accreditations, authorizations and approvals of any Governmental Entity.

"Permitted Encumbrances" means (a) Liens for current taxes and assessments not yet due and payable, including without limitation Liens for nondelinquent ad valorem taxes, and nondelinquent statutory Liens arising other than by reason of any default on the part of Landlord or Tenant, as the case may be, (b) utility easements that do not interfere with operation, (c) the Liens set forth on an exhibit to the Master Agreement, the Original Lease Agreement or the Lease and any enacted or proposed zoning ordinances that may affect the IHA Healthcare Facilities and (d) as to portions of the Real Property not described on an exhibit to the Master Agreement, Original

F-4 HOU:3796803.6 Lease Agreement or the Lease, those matters of record affecting a particular portion of the Real Property as of the Execution Date. The Liens described in clause (a) of this definition shall be Permitted Encumbrances during the contest of the validity or amount of any such Lien so long as such contest is diligently prosecuted by Landlord or Tenant, as the case may be, and at its expense; provided, however, that any such Lien shall not remain unpaid for a length of time that permits the IHA Healthcare Facilities or any part thereof to be seized or sold by judicial or other legal process.

"Person" means an individual, partnership, joint venture, corporation, limited liability company, bank, trust, unincorporated organization or a Governmental Entity.

“Real Property” means collectively the Hospital, the real property described on Exhibits C and D attached to the Original Lease Agreement, and the additional real property added thereto subsequent to the date of the Original Lease Agreement (i.e., (a) Lessee's interest in Lease, dated March 1, 1997, between Cedars Heritage Limited Partnership, as lessor, and Landlord, as lessee, (b) Lessor's interest in Lease Agreement, between Tenant, as lessor and Irving-Coppell Surgical Hospital, L.L.P., as lessee, and sublease interest in Leaseback Agreement, dated October 30, 2003, between Irving-Coppell Surgical Hospital, L.L.P., as sublessor, and Tenant, as sublessee, as amended (Irving-Coppell), (c) Ground lessor's interest in Ground Lease, dated December 31, 2003, between Tenant, as landlord, and HRT Properties of Texas, Ltd., as tenant, as amended, and space lease interest created by space lease with HRT Properties of Texas, Ltd., as lessor (IMOB2), (d) Lessee's interest in Lease, dated October 29, 2004, between MC Lakeridge I, LP, as landlord, and Tenant, as tenant, as amended (Medical Center at Lakeridge), (e) Lessee's interest in Lease, dated June, 2009, between Legacy 360 Realty Group, LLC, as landlord, and Tenant, as tenant (Riverside Imaging), (f) 2015 West Park Drive) and (g) by amendment to the Lease, additional real property may be added to, or existing real property may be deleted from, the definition of Real Property. Real Property shall not include the right to any oil, gas or other minerals, the rights to such oil, gas and other minerals being hereby reserved in and to the Landlord; provided, however, neither Landlord nor anyone claiming any right, title or interest in and to said oil, gas or other minerals shall have any right to enter upon, or conduct seismic or drilling activities or other operations of any nature on, the surface of the Real Property, nor within three hundred (300) feet below the surface of the Real Property, nor upon any real property in which Landlord has an interest within one thousand two hundred fifty (1,250) feet of the Real Property. Tenant shall have the right to prepare and record a memorandum of surface waiver as may be reasonably acceptable to Landlord containing details with respect to such restriction as to the exploitation of said oil, gas and other minerals.

"Related Agreements" means the Assumption Agreement and the surviving provisions of the Master Agreement.

“Renewal Date” means April 1, 2010 as defined in the preamble to the Lease.

“Renewal Term” has the meaning ascribed thereto in Section 3.1 of the Lease.

“Rent” has the meaning ascribed thereto in Section 4.1(a) of the Lease.

“Rent Set Aside” has the meaning ascribed thereto in Section 4.1(a) of the Lease.

“Replacement Cost” means the amount required to rebuild or replace (including cost of debris removal) all of the IHA Healthcare Facilities as if all of the IHA Healthcare Facilities had been destroyed as a result of a casualty.

"Tenant" means Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving , a Texas nonprofit corporation and a municipal hospital management contractor under Chapter 261, Texas Health and Safety Code, as amended.

“Tenant’s Termination Option” has the meaning ascribed thereto in Section 3.2(a) of the Lease.

“Term” means Renewal Term, subject to earlier cancellation or termination as provided in the Lease.

F-5 HOU:3796803.6 “Work” has the meaning ascribed thereto in Section 6.1(a) of the Lease.

LEASE

The following is a summary of certain terms of the Lease. This summary does not purport to be complete and is qualified in its entirety by reference to the Lease.

Transaction and Parties

The parties to the Lease are the Authority and Tenant. The Lease provides that the Authority shall exclusively lease to Tenant, and Tenant shall lease from the Authority, the IHA Healthcare Facilities, including the real property currently owned and leased by the Authority and the personal property currently owned and leased by the Authority and used in the operation of the IHA Healthcare Facilities.

Term

The Original Lease Agreement had an initial term of 20 years. Subject to and upon the terms and conditions set forth in the Lease, the term of the Lease shall be considered to be a renewal of the term under the Original Lease Agreement, shall commence on April 1, 2010 (the “Renewal Date”) and shall expire on March 31, 2045 (the “Renewal Term”). At any time after June 30, 2025, the Tenant has the right and option (the “Tenant’s Termination Option”) to terminate the Lease if Tenant gives written notice to Landlord no later than sixty (60) days after the date that the financial results of Tenant are published for a particular Fiscal Year, which termination shall be effective as of the end of the then current Fiscal Year (e.g. if Tenant exercises Tenant’s Termination Option with respect to the financial results for a period ending with the Fiscal Year ending on June 30, 2025, the termination shall be effective on June 30, 2026), that any of the following events have occurred (and such events have so occurred):

(i) Losses From Operations are greater than $15,000,000 in a Fiscal Year that ends on June 30, 2025 through June 30, 2029; Losses From Operations are greater than $15,750,000 in any Fiscal Year that ends on June 30, 2030 through June 30, 2034; Losses From Operations are greater than $16,500,000 in any Fiscal Year that ends on June 30, 2035 through June 30, 2039; or Losses From Operations are greater than $17,250,000 in any Fiscal Year that ends after June 30, 2039;

(ii) total net cumulative Losses From Operations exceed $25,000,000 for any three consecutive Fiscal Years with the third consecutive Fiscal Year ending on June 30, 2025 through June 30, 2029; total net cumulative Losses From Operations exceed $26,250,000 for any three consecutive Fiscal Years with the third consecutive Fiscal Year ending on June 30, 2030 through June 30, 2034; total net cumulative Losses From Operations exceed $27,500,000 for any three consecutive Fiscal Years with the third consecutive Fiscal Year ending on June 30, 2035 through June 30, 2039; or total net cumulative Losses From Operations exceed $28,750,000 for any three consecutive Fiscal Years with the third consecutive Fiscal Year ending later than June 30, 2039; or

(iii) total net cumulative Losses From Operations during the Renewal Term exceed $35,000,000 at any time prior to June 30, 2029; total net cumulative Losses From Operations during the Renewal Term exceed $36,750,000 at any time prior to June 30, 2034; total net cumulative Losses From Operations during the Renewal Term exceed $38,500,000 at any time prior to June 30, 2039 or total net cumulative Losses From Operations during the Renewal Term exceed $40,250,00.

For the purposes of the foregoing subsections (ii) and (iii), “total net cumulative Losses From Operations” means the aggregate Losses From Operations during the applicable Fiscal Years minus the aggregate Gains From Operations during that same period.

F-6 HOU:3796803.6 In the event that there is a change of control of BHCS, either through sale, merger, acquisition or otherwise that has the effect of changing the current mission of BHCS such as BHCS's becoming an investor-owned enterprise, and Landlord has not approved such change of control (such approval not to be unreasonably withheld), Landlord shall have the option to terminate the Lease upon notice to Tenant thereof.

The Landlord's damages that will result from the early termination of this Lease by Tenant or Landlord, including the costs associated with inducing a third party to thereafter operate and manage the IHA Healthcare Facilities that have experienced Losses From Operations, being difficult to ascertain, it is agreed that in the event of a termination of the Lease by Tenant pursuant to Tenant’s Termination Option or Landlord pursuant to Landlord’s right in the immediately preceding paragraph, and as a condition to the effectiveness thereof, Tenant shall pay Landlord, on the date that such termination becomes effective, an early termination fee/liquidated damages according to the schedule attached as Exhibit A to the Lease.

Rent

Under the Lease, rent has a Fixed Rent component and a Contingent Rent component. Upon the Renewal Date, Tenant pays to the Landlord monthly in advance, beginning with the Renewal Date and continuing monthly on the first day of each month during the Term, base rent in the amount of Seven Hundred Thirty-Five Thousand Four Hundred and Forty-Nine and 37/100 dollars ($735,449.37) (collectively, the “Fixed Rent”). In addition, Tenant pays Landlord an annual rental payment (the “Contingent Rent”) equal to twenty percent (20%) of the Excess Operating Cash Flow derived from the prior Fiscal Year’s operations.

Landlord shall be isolated from, and have no interest in, or exposure to (as a factor in computing Losses From Operations, net cumulative Losses From Operations, Gains From Operations, Contingent Rent, or otherwise) gains and losses that are derived from either (i) Tenant's gain/(loss) on trading investments, net or (ii) any activities of Tenant other than those related to the IHA Healthcare Facilities. Fixed Rent and Contingent Rent are collectively referred to on the Lease as “Rent”.

Landlord agrees to annually set aside, in a segregated account, fifty percent (50%) of the Contingent Rent that it receives from Tenant until the amount so set aside equals Eight Million Dollars ($8,000,000) including interest earned on the sums so set aside (the “Rent Set Aside”). Upon the amount of the Rent Set Aside reaching Eight Million Dollars ($8,000,000) Landlord shall have no further obligation to set aside money except as described below. In addition, any earnings on the amounts so set aside that brings the amount of the Rent Set Aside above Eight Million Dollars ($8,000,000) shall belong to Landlord. In the event that in any Fiscal Year there exists Negative Operating Cash Flow, then twenty percent (20%) of such Negative Operating Cash Flow shall be offset, and reduce, the Contingent Rent payable to Landlord for the year immediately following the year to which such Negative Operating Cash Flow relates; provided, however, that to the extent that any offset to which Tenant is entitled in any given immediately following year is greater than the Contingent Rent payable by Tenant in that year (an “Offset Shortfall”), then Landlord shall pay Tenant out of the Rent Set Aside, the amount necessary to reimburse Tenant for the Offset Shortfall, but only up to the amount currently in the Rent Set Aside at that time. In the event monies are paid out of the Rent Set Aside to Tenant, Landlord will again be required to accumulate funds in the Rent Set Aside as provided above until the amount so accumulated again equals Eight Million Dollars ($8,000,000). Other than as expressly provided above, in no event shall Landlord ever be responsible for or have an obligation to pay for any amount of Negative Operating Cash Flow or Losses From Operations.

Covenants of Tenant

Tenant may use the Real Property only for the purposes set forth below and, except as expressly set forth below or as may be agreed upon by Landlord and Tenant from time to time, for no other purpose:

(i) the professional office buildings as office space for physicians, dentists or medical specialists and to provide hospital support, laboratory and x-ray services, and other normal and customary services typically provided in healthcare related professional office buildings;

(ii) the Hospital, and any other acute care facilities, as a hospital operating under a hospital license issued by the Texas Department of Health;

F-7 HOU:3796803.6 (iii) the facilities at I-635 and North MacArthur Boulevard for physicians’ offices, health clinics and surgical centers, acute care hospital facilities, and related medical services;

(iv) the Grand Prairie and Las Colinas facilities for office space for physicians, dentists or medical specialists and to provide hospital support, laboratory and x-ray services, and other normal and customary services typically provided in healthcare related professional office buildings; and

(v) Tenant may sublease space in each building located on the Real Property to tenants who intend to use such space for pharmacies, food service establishments and gift shops or other uses not specified herein that enhance the operational or convenience aspects of another permitted use of the Property. Tenant may, should Tenant so desire, change the particular use of all or any part of the Real Property, so long as such substituted use is primarily for healthcare or healthcare related purposes.

Tenant shall at all times operate the Real Property in compliance with all applicable Legal Requirements. In addition, Tenant may not use or occupy, nor permit the Real Property to be used or occupied, in any manner which would in any way make void or voidable any insurance then in force with respect thereto.

Tenant shall use and operate the IHA Healthcare Facilities in a manner consistent with the standards of operation that an operator of healthcare facilities similar in scope, size and complexity to the IHA Healthcare Facilities would perform seeking in good faith to perform its contractual obligations and, in doing so, and in the general conduct of its undertakings, exercising that degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced operator of healthcare facilities. This covenant shall include the utilization of all BHCS system services and, subject to the “phase in” described in Section 4.1(d), above, payment for such services shall be consistent with the approach utilized by BHCS to assess and apply healthcare system overhead expenses to its wholly controlled community medical centers. The above standard of operation will also include an ongoing commitment to charity care consistent with the standard and in a manner required by applicable Legal Requirements. Further, the standard of operation set out above shall never be less than the standard of operation then applicable at any of BHCS’s wholly controlled community medical centers.

Notwithstanding the foregoing, Tenant may, should Tenant so desire, change the particular use of all or any part of the Real Property, so long as such substituted use is primarily for healthcare or healthcare related purposes; provided, however, Tenant will, and BHCS shall cause Tenant to, always maintain, discontinue, or modify clinical programs and to operate the IHA Healthcare Facilities during the Term in a manner similar to the operation of the wholly controlled community medical centers of BHCS.

Tenant shall obtain and maintain all Permits necessary to continue to operate the IHA Healthcare Facilities in the manner in which it is being operated on the Renewal Date to the extent they remain applicable, subject to changes in use that are Permitted Uses, and Tenant shall maintain accreditations of each hospital constituting a portion of the IHA Healthcare Facilities by the JCAHO unless otherwise determined in good faith by Tenant's Board of Trustees.

Tenant shall pay all charges for gas, electricity, light, heat, air conditioning, power, telephone and other communication services, and all other utilities and similar services rendered or supplied to the IHA Healthcare Facilities, and all water rents, sewer service charges or other similar charges levied or charged against, or in connection with, the IHA Healthcare Facilities during the Term.

Insurance

Tenant will at all times during the Term maintain or cause to be maintained the types and amounts of insurance with respect to Tenant and the IHA Healthcare Facilities covering such risks as are customarily carried by businesses similar to the business conducted in or on the Real Property; provided, however, that (i) the amount of insurance covering the Real Property shall be maintained for the full Replacement Cost of the Real Property and the Equipment, including boilers and machinery and (ii) the amount of general liability insurance shall be the same as BHCS maintains from time to time for its wholly controlled community medical centers but not less than $10,000,000 per claim with an annual aggregate of $10,000,000 and otherwise in type and form as agreed to by Landlord and Tenant.

F-8 HOU:3796803.6 Landlord shall maintain general liability insurance and contractual indemnification insurance in an amount not less than $2,000,000 per claim with an annual aggregate of $5,000,000 and otherwise in type and form agreed to by Landlord and Tenant.

Tenant may self-insure all or any part of its liability insurance coverage (but not property insurance coverage) from time to time as reasonably determined by Tenant.

Indemnity

With respect to claims brought by third parties against either Tenant or the Authority relating to the IHA Healthcare Facilities, Tenant and the Authority agree as follows:

In order to induce Tenant to enter into the Lease, to operate and manage the IHA Healthcare Facilities, and for Tenant and BHCS to provide services under the Lease and the Related Agreements, Landlord has covenanted and agreed with Tenant and BHCS that Landlord has taken, prior to the Execution Date, all actions required to be taken by it under the Texas Health and Safety Code so that Tenant and BHCS each can be considered to be a “municipal hospital management contractor” as defined in Chapter 261.051 of the Texas Health and Safety Code. Landlord also hereby agrees, that upon receiving notice of any additional statutory administrative actions necessary for each of Tenant’s and BHCS’s continuing to be considered a “municipal hospital management contractor” under Chapter 261.051 of the Texas Health and Safety Code, Landlord will promptly undertake those actions so long as such actions are not materially detrimental to Landlord as determined by Landlord in good faith; provided, however, that, Tenant or BHCS, at the option of either, shall have the right to perform such acts so as to make the actions to be taken by Landlord no longer materially detrimental to Landlord, whereupon Landlord shall take such actions.

To the fullest extent permitted by law, Landlord shall indemnify, protect, defend and hold harmless Tenant, BHCS and their respective trustees, directors, officers and members, from and against any and all claims, demands, suits and causes of action and any and all liabilities, costs, damages, expenses (including but not limited to attorneys’ fees and court costs) and judgments, in each case incurred in connection with any Claim (defined below) arising from and after the Execution Date, whether in equity, at common law or by statute, or under the law of contracts, torts (including, without limitation, negligence and strict liability without regard to fault) or property (collectively, “Claims”), and arising in favor of or brought by any of Landlord’s employees, agents, subcontractors or representatives or by any Governmental Entity or any other third party, based upon, in connection with, relating to, arising out of or alleged to arise out of any matter for which either or both of Tenant and BHCS is not immune for any reason (including Landlord’s failure to perform its obligations under Section 5.4(d)(i)) and for which Landlord is finally determined by a court of competent jurisdiction (or by mutual agreement of Tenant and Landlord) to be liable; provided, however, that Landlord’s obligations to indemnify, protect, defend and hold harmless Tenant under this paragraph shall only apply to Tenant if Tenant is determined not to be immune, and that Landlord’s obligations to indemnify, protect, defend and hold harmless BHCS under this paragraph shall only apply to BHCS if BHCS is determined not to be immune.

To the fullest extent permitted by law, Tenant shall indemnify, protect, defend and hold harmless Landlord and its trustees, directors, officers and members, from and against any and all Claims arising from and after the Execution Date, arising in favor of or brought by any of Tenant’s employees, agents, subcontractors or representatives or by any Governmental Entity or any other third party, based upon, in connection with, relating to, arising out of or alleged to arise out of any matter for which the Landlord is not immune for any reason, and for which Tenant is liable, as finally determined by a court of competent jurisdiction (or by mutual agreement of Landlord and Tenant).

To the fullest extent permitted by law, BHCS shall indemnify, protect, defend and hold harmless Landlord and its trustees, directors, officers and members, from and against any and all Claims arising from and after the Execution Date arising in favor of or brought by any of BHCS’s employees, agents, subcontractors or representatives or by any Governmental Entity or any other third party, based upon, in connection with, relating to, arising out of or alleged to arise out of any matter for which the Landlord is not immune for any reason, and for which BHCS is liable, as finally determined by a court of competent jurisdiction (or by mutual agreement of Landlord and BHCS).

F-9 HOU:3796803.6 Landlord, Tenant and BHCS shall each be entitled to assert any available governmental immunity and limitation of liability defenses with respect to claims brought by third parties. However, in order to permit Tenant, BHCS, Landlord and their respective trustees, directors, officers and members to fully enforce their rights against each other under the Lease and to enjoy the full benefit of any public liability and contractual indemnification insurance as may exist from time to time, and for that purpose only, Landlord, Tenant and BHCS each expressly waives as to Claims arising from and after the Execution Date and brought against each other pursuant to the terms of Section 5.4(d) of the Lease, the immunities and limitations of liability afforded by its status as a governmental unit, a “municipal hospital management contractor” or by the Texas Tort Claims Act or the Texas Health and Safety Code, or any successor or similar provisions of the law. It is understood and agreed to that this waiver of immunities and limitations of liability is provided only in order to provide recourse against a policy of public liability, indemnity or contractual indemnification insurance required to be maintained pursuant to the provisions of Section 5.4(a) of the Lease and any recovery as a result of such waiver shall be limited to the amount received under such insurance (or the amount that would have been recovered had such insurance been in place if such insurance was required to have been in place). The provisions of this subsection do not constitute a waiver by either Landlord, Tenant or BHCS of any defense or defenses, including immunity, created by or set forth in the Texas Health and Safety Code or the Texas Tort Claims Act available to such parties as to liability to third parties that Landlord, Tenant or BHCS may make against such third party.

It is a condition precedent to the indemnitor’s contractual obligation of indemnification under the Lease that the party seeking indemnity shall provide written notice of the third party Claim with reasonable promptness after such third party Claim is received by the party seeking indemnity.

Tenant shall timely comply with all Legal Requirements during the Term and Tenant shall take whatever action is necessary or desirable to the IHA Healthcare Facilities to comply with all Legal Requirements during the Term. Immediately upon Landlord’s or Tenant’s receipt of any notice from a Governmental Entity or other Person (which Person has legal standing to enforce compliance) of noncompliance with Legal Requirements, the receiving party shall provide the other party with written notice thereof and the party charged with compliance shall thereafter take all actions necessary to comply with such Legal Requirements and shall provide the other party with evidence of such compliance.

Tenant shall become party to no Contract except upon such terms and with such parties as shall be consented to in writing by Landlord; provided, however, that Landlord’s consent has been given with respect to the Contracts assumed by Tenant under the Assumption Agreement and Landlord’s consent shall not be required for any Contract that expires or may be terminated without penalty or liability prior to the end of the Term of the Lease.

The Authority and Tenant shall keep the IHA Healthcare Facilities free and clear of any and all Liens other than the Liens that constitute Permitted Encumbrances and the Liens provided for in the Lease.

Until such time as the parties mutually determine that replacement facilities are appropriate (and enter into agreements with regard thereto), Tenant will keep the IHA Healthcare Facilities in substantially the same condition it was in on the Execution Date, causing all necessary maintenance, repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the IHA Healthcare Facilities to be misused, abused or wasted or to deteriorate, subject in all events to (i) the provisions of Sections 6.1, 6.2 and 6.3 of the Lease and (ii) reasonable wear and tear. Worn out or obsolete items shall be replaced by Tenant at Tenant’s sole expense, unless otherwise agreed by Landlord. Tenant acknowledges that it received a state of the art facility on the commencement date under the Original Lease Agreement and agrees that it will maintain, keep, repair and improve the IHA Healthcare Facilities in a manner consistent with healthcare facilities that (i) are similar in age, nature and construction type to the IHA Healthcare Facilities, (ii) comparable in size to the IHA Healthcare Facilities, and (iii) are located in the State of Texas. Further, this standard will never be less than the standard of maintenance, repair and improvement that is then applicable to BHCS's wholly controlled community medical centers similar in age, nature and construction type to the IHA Healthcare Facilities. It is anticipated that Tenant will continue to expend capital, on an annual basis, for the maintenance, repair and improvement of the IHA Healthcare Facilities consistent with its previous annual historical capital expenditures and consistent with the methods, logic and priorities pursuant to which BHCS expends capital for the maintenance, repair, and improvement of its wholly controlled community medical centers. Notwithstanding anything contained in the Lease or any Related Agreement to the contrary, Tenant will not, without the prior written consent of the Authority, remove from the IHA Healthcare Facilities any

F-10 HOU:3796803.6 equipment except equipment that has become obsolete. Any construction of improvements or alterations by Tenant shall be prosecuted with diligence and continuity, in a good and workmanlike manner, with materials of equal workmanship and quality as the initial quality of the improvements being replaced or repaired, and in accordance with sound building and engineering practices, all applicable Legal Requirements and the requirements of any lease, if applicable.

Except for asset dispositions to Affiliates for which Tenant receives fair value in exchange, Tenant shall not dispose of (whether in one transaction or a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person. In addition, Tenant shall not allow any Person other than BHCS to acquire the power to control, directly or indirectly, Tenant or its business and activities without the prior written consent of Landlord, such consent may be withheld, delayed or conditioned by Landlord in its sole discretion.

During the Term hereof and thereafter to the extent based upon events, conditions, occurrences, actions or inactions during the Term hereof, Tenant shall promptly pay and discharge when due all debts, claims, liabilities and obligations and perform all duties necessary for Tenant to comply with all Environmental Laws with respect to the IHA Healthcare Facilities. Notwithstanding the foregoing, however, Tenant shall not be liable for any debts, claims, liabilities, obligations or duties attributable to periods or events occurring or existing prior to the commencement date under the Original Lease Agreement or based upon events or conditions occurring after expiration of the Term of the Lease and Landlord agrees to pay and discharge same and to the fullest extent permitted by law, indemnify Tenant from any such liability. Tenant shall not cause or permit any Hazardous Materials to be brought upon, kept or used in or about the IHA Healthcare Facilities in violation of any Environmental Laws without the prior written consent of Landlord.

Tenant shall furnish to the Authority notice in writing of any action, suit, arbitration or proceeding against Tenant or the IHA Healthcare Facilities which could reasonably be expected to have a material adverse effect.

Subject to the terms of the Lease, Landlord designates Tenant's Affiliate, BHCS, as its exclusive provider of health-related services and agrees that neither it nor any of its Affiliates will directly or indirectly compete with BHCS in the provision of health-related services during the Term of the Lease. For the Term of the Lease, Landlord hereby grants BHCS a right of first refusal, through the expansion of the IHA Healthcare Facilities covered by this Lease or otherwise, to provide all additional health-related services and to occupy and operate all healthcare facilities which may in the future be funded by Landlord. In the event BHCS fails to exercise its first refusal right within sixty (60) days of notice thereof by Landlord as to any proposed additional health-related services or facility funded by Landlord, then Landlord may enter into a contract with respect to, and thereafter consummate, the transaction referred to in Landlord’s first refusal notice with the party, and upon the terms and conditions, specified in that notice and such shall not constitute a violation of the provisions of this Section. Neither BHCS nor any of its Affiliates, including Tenant, will, directly or indirectly, through Affiliates or otherwise, develop, purchase, lease or operate any additional health-related facilities or provide healthcare services at any location within the City of Irving or the portion of Grand Prairie adjoining the City of Irving at the south, which lies north of Interstate 30, during the Term of this Lease except (a) in conjunction with Landlord, (b) as may be otherwise agreed upon with Landlord or (c) pursuant to Legal Requirements binding on BHCS or obligations under contracts with third parties existing as of the Execution Date. Notwithstanding the foregoing, healthcare facilities, such as purchases of physicians’ practices, which may not lawfully be accomplished by Landlord or which would receive materially unfavorable regulatory or tax treatment if conducted by Landlord, may be owned and operated solely by Tenant or an Affiliate of Tenant. Further all healthcare facilities located on the main campus of Baylor Medical Center at Irving will be developed, purchased, leased and operated only by and through Tenant, except as may be, or may have been, authorized by Tenant and Landlord. Landlord and Tenant will, additionally, seek to grow and market healthcare services provided by the IHA Healthcare Facilities to the Coppell Market.

F-11 HOU:3796803.6 provision in the Certificate of Formation or the Bylaws of Tenant relating to the appointment of, the powers and duties of, or the indemnification of the Hospital Board (as defined in the Certificate of Formation and Bylaws) or that otherwise requires the consent of Landlord to any action will be amended without the consent of Landlord, (b) Tenant will be governed by substantially the same governance structure that is from time-to-time adopted by BHCS to govern the majority of its wholly controlled community medical centers, and (c) at least one person to be chosen by BHCS in its sole discretion, who otherwise qualifies for membership and is a resident of, or employed by an employer with a presence in, Irving, Texas, will be elected to serve on the Board of Trustees of BHCS. Further, Landlord and Tenant will establish processes by which the Landlord’s Board is and will remain informed of the strategic positioning of Baylor Scott & White Health. These processes will be mutually agreed to from time to time but will include, at a minimum, an annual briefing by senior executives with the Landlord’s Board or Board Committee. Said ‘briefing’ will occur on a mutually agreed to date but will occur at least once a month in advance of the Annual Joint Board Retreat between the Landlord’s Board and the Hospital Board.

If during the Term of the Lease, there is sufficient geographic market extension of the Hospital to warrant consideration of the Hospital for regional designation by BHCS, then such consideration shall be provided by BHCS.

Neither Tenant nor BHCS will base its decisions with regard to the operations, maintenance, repair or improvement of the IHA Healthcare Facilities on, or take into account with regard to such decisions, the fact that Tenant is a tenant at the IHA Healthcare Facilities and not the owner thereof such that its operation, maintenance, repair or improvement of the IHA Healthcare Facilities is to a lesser standard from the operation, maintenance, repair or improvement of BHCS’s wholly controlled community medical centers.

Casualty: Condemnation

Subject to the provisions of the Lease, if, at any time during the Term, the IHA Healthcare Facilities or any part thereof shall be damaged or destroyed by fire or other casualty of any kind or nature, ordinary or extraordinary, foreseen or unforeseen, Tenant shall repair, alter, restore, replace or rebuild (collectively, "Rebuild") the same in substantially the form in which it existed prior to such casually, with at least as good workmanship and quality as the improvements being replaced or repaired, provided that Tenant shall have no obligation to expend funds for such repair or replacement in excess of insurance proceeds plus applicable deductibles and provided further that Tenant's obligation to Rebuild in cases where Tenant is a lessee or sublessee under a lease assumed by Tenant, shall be subject to the terms of such lease or sublease.

If Tenant so elects, Tenant may propose to the Authority that Tenant Rebuild the IHA Healthcare Facilities in a form different than that in which it existed prior to such casually and, if the Authority so agrees, Tenant shall Rebuild the IHA Healthcare Facilities based upon revised plans and specifications approved in writing by the Authority and Tenant (an "Alternate Rebuilding"); provided, however, the Authority shall not unreasonably withhold approval of such Alternate Rebuilding so long as the intended use of such rebuilt facility is a Permitted Use under the Lease and such Alternate Rebuilding will not require funds from the Authority. In the event the Authority and Tenant agree to an Alternate Rebuilding that will require sums in excess of the insurance proceeds received as a result of such damage or destruction, the Authority and Tenant shall agree upon the source or sources of funding of such excess.

In the event that the Authority and Tenant agree to an Alternate Rebuilding that will cost less than the amount of insurance proceeds and the applicable deductibles received as a result of such damage or destruction, the excess proceeds and the applicable deductibles shall be assigned to and retained by Tenant. The Rebuilding or the Alternate Rebuilding, as the case may be, and any temporary repairs necessary for the protection of other property pending the completion thereof are sometimes referred herein and in the Lease as the “Work.” Under no circumstances shall Landlord be obligated to make any payment, disbursement or contribution other than insurance proceeds towards the cost of the Work unless Landlord agrees to do so.

In the event that the Authority and Tenant do not agree on an Alternate Rebuilding, Tenant shall, to the extent of the insurance proceeds and deductibles, Rebuild the IHA Healthcare Facilities in substantially the form in which it existed prior to such casualty on the terms and conditions set forth in the Lease. In the event that Tenant and Landlord agree not to Rebuild, the Lease will terminate and insurance proceeds will be made available to Tenant to

F-12 HOU:3796803.6 the extent reasonably necessary to clean up the site and make necessary repairs and the remainder of the insurance proceeds will be retained by Landlord.

The Authority and Tenant shall cooperate and consult with each other in all matters pertaining to the settlement or adjustment of any and all property insurance claims and no final adjustment shall be made without the written approval of Landlord and Tenant. All insurance proceeds (together with the amount of the applicable deductibles) paid on account of damage or destruction under the policies of insurance provided for in Section 5.4 of the Lease shall be paid (or with respect to deductibles delivered by Tenant) to Landlord to be disbursed and applied in the manner set forth therein. Insurance proceeds (together with the amount of the applicable deductibles) for anyone occurrence of damage or destruction up to $150,000 or such greater sum as may be hereafter agreed shall be disbursed by Landlord to Tenant and Tenant shall use such proceeds for the payment of the cost of the Work as required by Section 6.1 therein. All insurance proceeds (together with the amount of the applicable deductibles) for anyone occurrence of damage or destruction exceeding $150,000 (or such greater sum as agreed) shall be held by Landlord and disbursed to Tenant upon the conditions and in accordance with the procedures listed on the Lease.

In the event of partial or total damage or destruction of the IHA Healthcare Facilities, Fixed Rent shall not be reduced or abated under any circumstances.

If, at any time during the Term, title to all of the IHA Healthcare Facilities or substantially all of the Properly shall be taken in condemnation proceedings, at the option of Tenant, BHCS or the Authority the Lease shall terminate and expire on the date of such taking and the Rent shall be apportioned and paid to the date of such taking. For purposes of the Lease, “substantially all of the IHA Healthcare Facilities” shall be deemed to have been taken if, as reasonably determined by a qualified independent third party Architect acceptable to Landlord, BHCS and Tenant (the “Consulting Architect”), the untaken portion cannot be practically and economically used or converted for use (applying the condemnation award) by Tenant for the purposes (with adequate parking) for which the IHA Healthcare Facilities is being used immediately prior to such taking. Landlord and Tenant shall each pay one-half of the cost of the Consulting Architect. In the event that Landlord, BHCS and Tenant are unable to agree on the Consulting Architect after 30 days of good faith negotiations, then any party may request the United States District Judge for the Northern District of Texas, Dallas Division (in his or her individual, but not judicial, capacity), who is then senior in service, to appoint the Consulting Architect. In the event of any such taking and the termination of the Lease, the Authority shall be entitled to receive all compensation awarded by the condemning Governmental Entity as a result of the taking of the IHA Healthcare Facilities.

If, at any time during the Term, title to a portion of the IHA Healthcare Facilities shall be taken in any condemnation proceedings, the Lease shall continue in effect as to the remainder of the Hospital and the rest of the IHA Healthcare Facilities. For purposes of the Lease, "a portion of the Hospital" shall mean that the remainder of the Hospital, as reasonably determined by the Consulting Architect, may still be used in an economically sound manner (with adequate parking) for the uses and purposes contemplated by the Lease, taking into account use of the condemnation award as provided in the Lease. In the event of such a partial taking, the Authority, BHCS and Tenant shall enter into good faith negotiations in an attempt to agree on the restoration to be made (the "Agreed Restoration'') to the remainder of the Hospital and to the extent and only to the extent of the condemnation proceeds made available to Tenant for restoration, Tenant shall proceed promptly to perform the Agreed Restoration.

Any compensation awarded by the condemning Governmental Entity in connection with a partial condemnation as a result of a taking of the IHA Healthcare Facilities shall be the sole property of the Authority. If a portion of the IHA Healthcare Facilities is subject to condemnation and as a result thereof Tenant performs the Agreed Restoration, then the award paid to the Authority shall be disbursed by the Authority for the payment of the Agreed Restoration and any portion of the compensation awarded by the Condemning Governmental Entity not used for the Agreed Restoration shall belong to and remain the property of the Authority. Tenant shall have no obligation to fund any restoration in excess of funds received and resulting from the condemnation.

In the event of partial condemnation of the IHA Healthcare Facilities and an Agreed Restoration, Rent as defined by the Lease shall not be reduced or abated under any circumstances. In the event of partial condemnation of the IHA Healthcare Facilities and no Agreed Restoration, Fixed Rent as defined by the Lease shall not be reduced or abated under any circumstances.

F-13 HOU:3796803.6 In the event the Lease is terminated pursuant to Section 6.1(a) or Section 6.2 of the Lease, Tenant shall remain liable to Landlord for the payment of the corresponding termination fee set out in Exhibit A of the Lease; provided that Tenant will pay Landlord that termination fee as follows: (a) if the Lease is terminated in years 1 to 10 of the Term, Tenant shall pay twenty percent (20%) of such termination fee on the date of such termination and the remainder of such termination fee in ten (10) equal annual installments thereafter on the anniversary of such termination, (b) if the Lease is terminated in years 11 to 20 of the Term, Tenant shall pay thirty percent (30%) of such termination fee on the date of such termination and the remainder of such termination fee in ten (10) equal annual installments thereafter on the anniversary of such termination, (c) if the Lease is terminated in years 21 to 30 of the Term, Tenant shall pay fifty percent (50%) of such termination fee on the date of such termination and the remainder of such termination fee in five (5) equal annual installments thereafter on the anniversary of such termination and (d) if the Lease is terminated in the last five (5) years of the Term, Tenant shall pay the termination fee on the date of such termination. The terms of Section 6.5 of the Lease shall survive the termination of the Lease.

Assignment and Subletting

Except as described below, Tenant may not assign or sublease, in whole or in part, the Lease or its leasehold estate without Landlord’s prior written approval, which Landlord may give or withhold in Landlord’s sole discretion if the proposed assignee is not BHCS or a wholly-owned Affiliate of BHCS, but which consent will not be unreasonably withheld if the proposed assignee is BHCS or a wholly-owned Affiliate of BHCS. Any such assignment or sublease which is not expressly permitted pursuant to the Lease shall be void and of no force or effect. Landlord may not assign, in whole or in part, the Lease without Tenant’s and BHCS’s consent, which consent may be withheld in each of their sole discretion if the assignee is not a municipal hospital authority, as that term is defined in the Hospital Authority Act, Chapter 262 of the Texas Health and Safety Code and used in Section 261.051 of the Texas Health and Safety Code.

Provided no Default or Event of Default then exists, Tenant may, subject to the foregoing, assign the Lease to an Affiliate of Tenant; provided, however, that such assignment shall not release Tenant from any of its obligations under the Lease and Tenant shall remain fully liable under the Lease. Landlord may assign the Lease to an Affiliate of Landlord that is a municipal hospital authority, as that term is defined in the Hospital Authority Act, Chapter 262 of the Texas Health and Safety Code and used in Section 261.051 of the Texas Health and Safety Code; provided, however, that such assignment shall not release Landlord from any of its obligations hereunder and Landlord shall remain fully liable under the Lease. The assigning party shall provide the other party with forty-five (45) days prior written notice of any such assignment.

During the Term of the Lease, except as may be authorized by Landlord, Tenant will limit the subleasing of office space in the professional office buildings subject to the Lease to members of the medical staff and dental staff of the Hospital and appropriate medical laboratories, pharmacies, restaurants and other healthcare or retail establishments which would enhance operational and convenience aspects of the facilities in the reasonable judgment of the Board of Directors of Tenant. The terms and provisions of the subleases would be determined by Tenant; provided, however, that any such leases extending beyond the expiration of the Term of the Lease will be at a rental and upon terms and provisions acceptable to the Authority. Subject to the provisions of Section 4.1 of the Lease, concerning Contingent Rent, Tenant will be entitled to rents collected under the subleases during the period of the Lease (provided that Tenant shall not accept rental payments under the subleases more than one month in advance or otherwise as may be customary) and other benefits thereof and will assume the obligations thereof during the term of the Lease, indemnifying the Landlord against any liabilities thereunder.

To the extent Landlord held any of the Real Property pursuant to a lease at the commencement date under the Original Lease Agreement, Tenant has assumed Landlord’s obligations thereunder pursuant to the Assumption Agreement, together with the right to sublease (if permitted by any such leases) as set forth above.

Events of Default and Termination

Each of the following shall be deemed an "Event of Default" by Tenant under the Lease and a material breach of the Lease:

F-14 HOU:3796803.6 (i) Tenant shall fail to pay any installment of Rent when due, which failure continues for a period of ten days after written notice of Tenant’s failure to pay such Rent; provided, however, any bank’s failure to comply with Tenant’s instructions to automatically credit Landlord’s bank account for the amount of the Rent or to send or honor, except for insufficient funds, an automatic draft on Tenant’s bank account in favor of Landlord shall not constitute an Event of Default if Rent is paid within ten days after notice of nonpayment from Landlord; or

(ii) Tenant shall fail to perform or observe any material term or covenant contained in the Lease, any Related Agreement or any other agreement between the parties in any material respect, other than the obligation to pay Rent; provided, however, if such failure is capable of being remedied, the Event of Default shall not be deemed to have occurred if Tenant shall have commenced to remedy such failure within 30 days following written notice by Landlord to Tenant and, having so commenced, so long as Tenant shall proceed diligently and with continuity to remedy such failure; or

(iii) Any of the following shall occur: (i) Tenant shall make an assignment for the benefit of creditors or be unable to pay its debts generally as they become due; or (ii) Tenant shall petition or apply to any tribunal for the appointment of a trustee, receiver or liquidator of it, or of any substantial part of its assets, or shall commence any proceedings relating to Tenant under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debts, conservatorship, moratorium, dissolution, liquidation or other debtor relief laws of any jurisdiction, whether now or hereafter in effect; or (ill) any such petition or application shall be filed, or any such proceedings shall be commenced, against Tenant and the same is not contested by Tenant or not dismissed or otherwise discharged within 60 days, or an order, judgment or decree shall be entered appointing any such trustee, receiver or liquidator, or approving the petition in any such proceedings; or (iv) any final order, judgment or decree shall be entered in any proceedings against Tenant decreeing its dissolution; or (v) any final order, judgment or decree shall be entered in any proceeding against Tenant decreeing its split-up which requires the divestiture of a substantial part of its assets.

Notwithstanding anything to the contrary set forth in the Lease, the parties acknowledge and agree that Tenant’s failure to comply with the terms and provisions of the Federal Tax Exemption Agreements or the Agreements Regarding Provision of Financial Information to be executed by and between Landlord and Tenant relating to Landlord’s Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A and Series 2017B shall in no event constitute a default by Tenant under the terms of the Lease.

If an Event of Default occurs under the Lease, Landlord may terminate the Lease. In addition, Landlord shall continue to have all of the rights and remedies provided Landlord at law or in equity.

Upon any termination or expiration of the Lease, whether by lapse of time or otherwise, or upon any termination of Tenant’s right of possession without termination of the Lease, Tenant shall (a) surrender possession and vacate the IHA Healthcare Facilities immediately, and deliver possession thereof to Landlord in commercially reasonable condition consistent with the general operating conditions of similar BHCS wholly controlled community medical centers and the terms of the Lease; (b) if Landlord delivers to Tenant Landlord’s written agreement evidencing receipt of the same and liability for the disposition thereof, deliver to Landlord all security deposits held by Tenant under any leases; (c) provide to Landlord, at Landlord’s expense, reasonable transition services requested by Landlord in connection with the operation of the IHA Healthcare Facilities, subject to Tenant’s continuing to be paid for its full allocation of the BHCS corporate services overhead and a management fee equal to one percent (1%) of the total operating revenue of the IHA Healthcare Facilities during the period such transition services are provided (as shown on the Statement of Income and Changes in Net Assets of Tenant, using GAAP); and (d) give Landlord representations and warranties substantially similar to the representations and warranties heretofore made by Landlord in Article 3 of the Master Agreement. If Tenant fails to surrender possession and vacate the IHA Healthcare Facilities, Landlord, to the extent permitted by law, shall have full and free license to enter into and upon the IHA Healthcare Facilities for the purpose of repossessing the IHA Healthcare Facilities, expelling or removing Tenant and any others who may be occupying the IHA Healthcare Facilities, removing any and all property therefrom, and changing all door locks of the IHA Healthcare Facilities.

F-15 HOU:3796803.6 If Landlord elects to terminate the Lease or Tenant’s rights of possession under the Lease as a result of an Event of Default by Tenant, there shall be recoverable from Tenant:

(i) the reasonable cost of restoring the IHA Healthcare Facilities to the condition required by the terms of the Lease;

(ii) all accrued unpaid sums including Rent, plus interest at the Interest Rate for past due sums, up to the date of termination;

(iii) Landlord’s reasonable cost of recovering possession of the IHA Healthcare Facilities; and

(iv) any other sum of money or damages owed by Tenant to Landlord under the Lease; provided, however, in all events Tenant shall owe to Landlord as damages without abatement or set off of any kind at least the amount of the early termination fee/liquidated damages as if Tenant had terminated the Lease as permitted in Section 3.2(a) thereof.

Landlord shall be deemed to be in default under the Lease if Landlord fails to keep, perform or observe in any material respect any of its covenants, agreements, terms or provisions contained in the Lease, any Related Agreement or any other agreement between the parties that are to be kept or performed by Landlord and Landlord shall fail to commence and take such steps as are necessary to remedy the same within thirty (30) days after Landlord shall have received a written notice from Tenant or BHCS specifying the same, or having so commenced, shall thereafter fail to proceed diligently and with continuity to remedy the same. If such a default by Landlord occurs under the Lease, Tenant or BHCS shall (a) have the right to terminate the Lease, or (b) have the right, but not the obligation, to take whatever action Landlord has failed to take, on behalf of Landlord and for Landlord’s account, and Landlord shall promptly reimburse Tenant for all reasonable costs incurred by Tenant in connection therewith, plus interest from the date such sums are expended until reimbursed at the Interest Rate. If Landlord does not reimburse Tenant for such sums within fifteen (15) days from Tenant’s written request, Tenant may file suit against Landlord in a court of competent jurisdiction to recover such sums or may withhold such amounts from rents payable hereunder.

Neither the acceptance of Rent by Landlord nor the failure by Landlord or Tenant to declare any Event of Default immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall waive such default, but Landlord or Tenant may declare any such Event of Default at any time and take such action as might be lawful or authorized hereunder or at law or in equity. Waiver by Landlord or Tenant of any right for any Event of Default shall not constitute a waiver of any right for either a subsequent Event of Default of the same obligation or any other Event of Default.

Renovation Project, New CUP and New Tower Project

Landlord has previously entered into that certain Construction Manager at Risk Agreement (the “CMAR Agreement”) dated October 4, 2016, with Turner Construction Company (the “Construction Manager”) in connection with the Renovation Project, CUP and New Tower Project (all as described below), and Landlord has engaged CBRE to manage construction of such projects.

F-16 HOU:3796803.6 includes the Renovation Project, including the replacement of certain FF&E as well as FF&E in addition to items being replaced, to the extent such FF&E is identified by Tenant and approved by Landlord, (such approval not to be unreasonably withheld, conditioned or delayed) in accordance with the Project Schedule. The FF&E shall be owned by Tenant and acquired and installed by Landlord as part of the Renovation Project; provided, however, at the expiration or earlier termination of the Lease, all such FF&E and any replacements thereof shall be surrendered to Landlord as required by Section 9.14 of the Lease since such are part of the IHA Healthcare Facilities.

Landlord shall cause the development and construction of a new Central Utility Plant (“CUP”) and utility tunnel from the new CUP to the existing facility (the “New CUP Work Package”) in substantial accordance with the items described in the Lease (the “Submission Items”), subject to the terms of Lease. The New CUP Work Package shall include funding for the purchase and installation of any and all FF&E including the IT Equipment that are to be installed in the CUP, to the extent such FF&E is identified by Tenant and approved by Landlord (such approval not to be unreasonably withheld, conditioned or delayed) in accordance with the Project Schedule. The FF&E shall be owned by Tenant and funding for the acquisition and installation shall be provided by Landlord as part of the New CUP Work Package; provided, however, at the expiration or earlier termination of the Lease, all such FF&E and any replacements thereof shall be surrendered to Landlord as required by Section 9.14 of the Lease since such are part of the IHA Healthcare Facilities. Notwithstanding the foregoing, Landlord shall not be required to install any IT Equipment to be installed by Baylor Information Services. Tenant intends to engage Baylor Information Services to design, acquire and install certain technology information items and equipment (the “IT Equipment”) for the New CUP Work Package. Landlord shall reimburse Tenant for the costs related to the design, acquisition and installation of the IT Infrastructure within thirty (30) days following the receipt by Landlord of written invoices evidencing such costs, provided such costs are included in the Submission Items approved by the parties under the Lease. Other than the reimbursement obligation described in the preceding sentence and any claims resulting from the negligent or willful acts or omissions of Landlord, Landlord shall have no liability or responsibility for the design or installation of the IT Equipment.

Landlord shall cause the development and construction of the New Tower which shall include (i) the demolition of the existing central utility plant, and (ii) the development and construction of the New Tower, including tenant finish out improvements within Floors 1, 4, 5 and 6 and the mechanical penthouse of the New Tower (collectively, the “New Tower Project”) in substantial accordance with the items described in the Lease, subject to the terms of the Lease. The New Tower Project shall include funding for the purchase and installation of any and all FF&E including the IT Equipment to be installed in the New Tower, to the extent such FF&E is identified by Tenant and approved by Landlord (such approval not to be unreasonably withheld, conditioned or delayed) in accordance with the Project Schedule. The FF&E shall be owned by Tenant and funding for the acquisition and installation shall be provided by Landlord as part of the New Tower Project; provided, however, at the expiration or earlier termination of the Lease, all such FF&E and any replacements thereof shall be surrendered to Landlord as required by Section 9.14 of the Lease since such are part of the IHA Healthcare Facilities. Notwithstanding the foregoing, Landlord shall not be required to install any IT Equipment to be installed by Baylor Information Services. Tenant intends to engage Baylor Information Services to design, acquire and install certain “IT Equipment” for the New Tower Project. Landlord shall reimburse Tenant for the costs related to the design, acquisition and installation of the IT Infrastructure within thirty (30) days following the receipt by Landlord of written invoices evidencing such costs, provided such costs are included in the Submission Items approved by the parties under the Lease. Other than the reimbursement obligation described in the preceding sentence and any claims resulting from the negligent or willful acts or omissions of Landlord, Landlord shall have no liability or responsibility for the design or installation of the IT Equipment.

F-17 HOU:3796803.6 changes to accommodate unanticipated exterior doors or windows; structural changes to load bearing walls; and generator upgrades necessary due to Tenant’s unique requirements. In contrast to the definition of Structural Tenant Improvements, the term “Normal Tenant Improvements” shall mean any improvements to the New Tower that are not Structural Tenant Improvements. For example, the following improvements would be Normal Tenant Improvements: non-support bearing interior walls; wall and floor finishes and coverings; signage; HVAC flex duct, diffusers and finishes; minor adjustments or modifications to the HVAC distribution system; light fixtures, wall outlets and other electrical finishes; and wiring from the electrical panel of the New Tower to fixtures within Floors 2 and 3 of the New Tower.

As to the New Tower, the term “Secondary Space” shall mean Floors 2 and 3 within the New Tower that are to be finished by Landlord at Substantial Completion to a level of completion such that only Normal Tenant Improvements would be required to be constructed for Tenant to begin using the space. Upon written request from Tenant and approval from Landlord, Landlord may also agree to construct and install additional leasehold improvements in the Secondary Space after Substantial Completion. Any additional leasehold improvements to be made by Landlord to the Secondary Space after Substantial Completion shall only be completed in accordance with a written leasehold improvements agreement to be entered into by and between, and approved by, Landlord and Tenant prior to the commencement of such improvements.

The cost of designing and constructing the New Tower Project will be borne solely by Landlord and Landlord will pay in full and when due all such costs under the CMAR Agreement. Following Substantial Completion of the New Tower Project, Landlord shall submit an invoice to Tenant for up to the sum of $20,000,000 in partial reimbursement of the verified cost of designing and constructing the Tenant Improvements and procuring the FF&E (with such payment to applied first to the cost of procuring the FF&E and then to the payment of design and construction costs), and Tenant shall pay to Landlord the amount invoiced within thirty (30) days following Tenant’s receipt of such invoice. Tenant shall have the right to verify all costs and expenses incurred by Landlord in connection with the New Tower Project in accordance with the Lease. A failure of Tenant to pay such amount set forth in this Section as and when required shall be deemed an Event of Default under the Lease.

Unless otherwise indicated herein, all capitalized terms used in this Agreement shall have the meanings given such terms in the CMAR Agreement. The term “Substantial Completion” or “Substantially Complete” means that point in which the New Tower Project is sufficiently complete in accordance with the Contract Documents to enable Tenant to use the portion of the IHA Healthcare Facilities affected by the New Tower Project for its intended use, and (i) only minor punchlist items or similar minor corrective work remains to be completed, the completion of which would not materially interfere with or hamper Tenant’s normal occupancy and use (or the normal occupancy and use of those claiming by, through or under Tenant) of the portion of the IHA Healthcare Facilities affected by the New Tower Project, (ii) all designated or required governmental inspections and certifications, including without limitation a temporary (or partial) certificate of use and occupancy (if issued and required by local governmental authorities) and any other permits or approvals necessary to allow use and occupancy of the portion of the IHA Healthcare Facilities affected by the New Tower Project have been completed and issued (other than the approvals which are the responsibility of Tenant under the Lease), (iii) all designated instruction of Tenant’s personnel in the operation of the systems of the portion of the IHA Healthcare Facilities affected by the New Tower Project has been completed, (iv) all final finishes prescribed by the Contract Documents for the portion of the IHA Healthcare Facilities affected by the New Tower Project are in place and (v) Tenant has confirmed that the portion of the IHA Healthcare Facilities affected by the New Tower Project is substantially complete; provided, however, that completion of the installation of the IT Equipment shall not be a condition to Substantial Completion having occurred. This date shall be confirmed by a Certificate of Substantial Completion signed by Landlord, Tenant and Construction Manager.

Master Agreement

F-18 HOU:3796803.6 Leases; Section 11.11, entitled Medical Education; Section 11.12, entitled Foundation/Community Services; Section 11.13, entitled Networks; Section 11.17, entitled Transactions with Affiliates; Section 11.18, entitled Maintenance of Permits; Section 11.24, entitled First Refusal; and Section 11.25, entitled Medicare Regulations and Compliance. The foregoing provisions of the Master Agreement are hereby modified and restated as follows:

11.1 Existence and Ownership of Tenant. Tenant shall maintain its corporate existence, authority to do business and all Permits necessary to the operation of its business and the operation of the IHS Facilities. BHCS covenants that during the term of this Agreement. BHCS or an Affiliate of BHCS approved by Landlord shall remain the sole member of Tenant, and shall continue to hold such membership and ownership interest free and clear of all liens and encumbrances except as specifically contemplated by this Agreement. Tenant shall not issue or cause or permit to be outstanding any other member interests or other form of equity ownership of Tenant or rights, warrants or options to acquire any member interest or equity of Tenant during the term of the Lease.

11.3 License and Use of Names.

(i) During the Term of the Lease, unless the parties otherwise agree, Tenant shall use the name “Baylor Medical Center at Irving” or “Baylor Scott & White Medical Center-Irving” in connection with its operation of the IHS Facilities and its business conducted therein and therewith. Tenant shall, unless the parties hereto otherwise agree, use the phrase “an Affiliate of Baylor Health Care System” or “an Affiliate of the Baylor Scott & White Health” in conjunction with such name.

(ii) During the Term of the Lease, BHCS or an Affiliate shall have the right to use the name “Baylor Medical Center at Irving” or “Baylor Scott & White Medical Center – Irving” in connection with promotion, marketing and operation of health care providers and health care services of its system md managed care activities.

(iii) Tenant shall have the right, during the Term of the Lease, to use the names now employed by Landlord for its clinics, buildings, wings, etc.

(iv) Within six months following termination of the Lease for any reason, Landlord will remove the names “Baylor,” “Baylor Health Care System,” or “Baylor Scott & White” from any signs, forms, stationery, etc., and cease any and all use of the names “Baylor,” “Baylor Health Care System,” and “Baylor Scott & White.”

11.8(b) IHS Primary Service Area. BHCS shall make a 5.01(a) corporation that is an Affiliate of BHCS available to evaluate and, when appropriate, acquire medical practices in the IHS Primary Service Area. BHCS agrees that the medical staff of Tenant will participate equally with the medical staffs of BHCS’s Affiliated hospitals in current and future physician/hospital organizations of Baylor Scott & White Health.

11.10 Professional Offices and Other Leases. During the term of the Lease, Tenant will limit the subleasing of office space in the professional office buildings subject to the Lease to members of the medical staff and dental staff of the IHS Facilities, and appropriate medical laboratories, pharmacies, restaurants and other health care or retail establishments which would enhance operational and convenience aspects of the facilities to the reasonable judgment of the Board of Trustees of Tenant. The terms and provisions of the subleases would be determined by Tenant; provided, however, that subleases extending beyond the expiration of the then-current term (or any renewal term for which the option to renew has been exercised) of the Lease will be at a rental and upon terms and provisions acceptable to Landlord. Tenant will be entitled to rents collected under the subleases during the period of the Lease and other benefits thereof and will assume the obligations thereof during the term of the Lease, indemnifying Landlord against any liabilities thereunder. To the extent Landlord holds any of the IHS Facilities pursuant to a Lease at the Effective Date, Tenant will assume Landlord’s obligations thereunder pursuant to the Assumption Agreement, together with the right to sublease (if permitted by any such leases) as set forth above. Tenant may, at its discretion, terminate or renew such leases and execute new leases; provided, however, the provisions of any renewal of an existing lease or any new lease which extends beyond the term (including exercised options of renewal) of the Lease shall be acceptable to Landlord and Landlord shall not be required to assume any new or renewal lease at expiration of the Lease unless it has approved or approves such lease.

F-19 HOU:3796803.6 11.11 Medical Education. Tenant will provide not less than $10,000 annually to pay for education courses for medical staff based at the main campus located at 1901 N. MacArthur Boulevard, Irving, Texas. The medical staff and clinical personnel at the IHS Facilities will have access to all education programs delivered at other locations throughout Baylor Scott & White Health’s system upon the same conditions as other participants in such programs. Tenant will be given reasonable opportunity to participate in residency programs of Baylor Scott & White Health.

11.12 Foundation/Community Service. Unless otherwise agreed by the parties hereto in their sole discretion, BHCS agrees that it or an Affiliate will make cash contributions to Tenant, in cooperation with and based upon input provided by the Irving Healthcare Foundation, for community health projects which are mutually agreed upon by BHCS and Tenant. The Baylor Health Care System Foundation will provide professional fund raising and other assistance on a pro bono basis to Irving Healthcare Foundation as requested.

11.13 Networks.

(a) During the term of the Lease, Tenant will participate as a provider in all Baylor Scott & White Health managed care contracts entered into or renewed after the Effective Date, other than contracts limited to specialties not then available at the IHS Facilities. BHCS does not warrant or guarantee that such networks will continue for the term of the Lease or for any other period. Participation in such contracts by Tenant is subject to approval of the particular network or managed care organization.

(b) BHCS will use its best efforts to include Tenant and the IHS Facilities as a provider in all Baylor Scott & White Health managed care contracts in existence on the Effective Date other than contracts limited to specialties not available at the IHS Facilities or contracts in which Tenant chooses as of the Effective Date not to participate. Participation in such contracts by Tenant is subject to approval of the particular network or managed care organization.

11.17 Transactions with Affiliates. Except as expressly permitted herein, Tenant shall not and shall not permit any of its subsidiaries to, enter into or be party to a transaction with BHCS or any Affiliate of BHCS, except transactions that are on terms which, in Tenant’s good faith judgment, could be obtained on an arm’s length basis with a Person that is not an Affiliate; provided, however, Tenant may, in its discretion in order to take advantage of volume purchasing or other opportunities, contract for services and supplies on terms that are comparable to those applied in contracts between BHCS and its other Affiliates.

11.18 Maintenance of Permits. Tenant shall obtain and comply in all material respects with all Permits and all agreements necessary or appropriate for Tenant to lease the IHS Facilities and to maintain and operate the IHS Facilities and its business.

11.24 First Refusal.

(a) If Landlord receives an offer for the IHS Facilities which it desires to accept, it will so notify BHCS, including full details as to such offer. BHCS will have the right to purchase the same on the same terms and provisions as the offer which Landlord desires to accept. Notice of desire to purchase must be given by BHCS to Landlord within 45 days after receipt of notice from Landlord. If the offer from a third party which Landlord desires to accept includes securities or consideration other than cash or a promissory note, BHCS may substitute cash for the fair value, as mutually agreed by Landlord and BHCS of such consideration; provided, however, if Landlord and BHCS are unable to agree on such fair value, it shall be determined by appraisal.

(b) Any purchase pursuant to this Section will be consummated as soon as practicable after acceptance of an offer by BHCS. At the closing of any purchase pursuant to this Section, the IHS Facilities will be conveyed and transferred to BHCS or such entity as BHCS may designate.

F-20 HOU:3796803.6 the extent necessary, notifying the appropriate Medicare: intermediary and preparing and filing any required Medicare cost reports within applicable time periods after the Effective Date of the transaction.”

F-21 HOU:3796803.6 [THIS PAGE INTENTIONALLY LEFT BLANK]

F-22 HOU:3796803.6 SCHEDULE I

EXCESS OPERATING CASH FLOW

Amounts Used are for Illustrative Purposes Only

SAYLCR MEDICA/.. CENTERATCENTERATIRVlN3. IRVlt.O. DQ~O! ID!I\G 0!N3'FMNJ1'EAl1l-CAAE IFMNJI-EAl'TI-CAAE FOI..KlA.T1ON CaIcuIaIkonCaIcuIakwIof e.-se-u ~ CdI Fbw

(lfollrs(11011.. In 1I\Ol&Inct.)~"'I :ty.... ErmdEr4!d ..!!!I!!JUO! :)0:)0, ...... VN.3, ... 3 ,-, V..,,Y..,'1oj101 """. lETtET Ir..cfE.I.Sf ((DECREASE)DECREASE)INCASHN£JIN CASHI>H) CASH EQUVALENTSeauvALENTS ",. (13.861) ".., AuriIiIe

Chana.a..na..tt ... ShoI1/I..s)no.SIroIfII..sHro. Tft!ID.... I"/""_. Ma. its' YN'SV... 3 VHl'2y_2 V_1i'1 SourCf!

RMliHddl/r.l'..a'talililla-tr :: """"loo!e!!redM,q . "".at&; Vu.sy... s YNr2::r:.. ri! nw,'"Xt!! I'" ...... lh"eaizedUn_zed G*

1'1101 If he ~ COII'ITWC. 0tI1fl'f d8'f~ ofIerofIIr 11'*11'*1 JUyJiJy " !he ..-.our1b..-.ouoIs used fgr V_ 1 .. tot lie .... period In I'Ho;h\IIIk;h ..... Ii!IaYIi!IIIY _ In ellect for hi respecl\e f1~yNT.yeIIf. '" ~A& per hleecond ~ to hi ~.nd RaIaIIKI L.eae~ d-.cI Min:h 2. lOll,2011, 111mtt.n 11.. COnln;et'ltRel'llbCOnln;MIRel'llb e8IIt.-.tCIIIt.-.t ~endfA .. tbc:fII~ Y'"Y" fI'Id bolOllllnbov.lllln 1MfMI (5) buill_day . loIoNng"loIoNng fie dIII8 TIIIIlWlI prWdesprgoAdes t..IrlIICnlt..IrdCnl pt.nAnl1Dpt.nAnl to Seelons.:1on 4.84.11 Wfl.v.If1. copy r;IfA Teron'sTec.ts IIIdtedIIIdtIId &aktmenI fAr;I ~ trod CheI'IgeSCheI'Iges !!'I NatNet ~ CI\ft'oCI\ft'Ig ....!he Twm. !

TN! schechAeschedlAe IsIs intended 10 be read and nerpreted in corjln:tioncorjIn:tion with II'e lermslerm, desaibeddescribed in tI'etM lease effectr..: Apr~I, 2010 and anyarrt Stbsequent amendmerts.

THIRD AMENDMENT To AMENDED AND RESTATEDREST A TED LEASE AGREEMENT SCHEDULE I - PAGE I SCHEDULE 2

GAINS FROM OPERATrONS

Amounts Used are for Illustrative Purposes Only

BAYLOR MEDICAl.MEDICAL CENTER AT IRVING. EXCIEXCL\X)jNG L,pING IRVING I£ALTHCARE FOLNlATlON Adjullild $WIements$1IJIements 01 Operacionl and Cllanges in Net Assets For ..Ihe e y_. Ended JJ..." ...... 30

{d~ .. In thou"nds,thou"lIds, Y'.r'Y,.r. EmMel JUIM~UIM 30, 2010 ,."2009 ....200fI OPEAATlNG REVENUE:REVEtfJE: NIIt paientprien!. cereca-e ~I\UO~,..". 230.700 212,100212,100 203203.100,100 OIlIer openIIingopenIIill9 r_1IIAr_nua .....'.2CO ..•."" ...... r.t assets releued 'romfrom resrielOl'lIresrielor" 'orfor operllllon.operlllion. ,., Total oper.tingoper.ting_ r_ 239.200239.""200 220.850220 ...." 212212.950.950 " OPERATINGEXPENSES: $alarie!$aIIIrIu,, wages. and ~ee benefits ..... 80.700 n." Supple. 31.600 31,400 32."32." 0fIef0fMf operdng e.opefIsese.openses'"'lOl ...... "'" 50.700 41.800 Bad ItebI expenseu:pense )7,30031,300 31.400 .."... .o. d\llTlOl'll~1OI •. DeplKifIIIon~itIIIonan end emor1I~1OI 10,50010,500 ...... , ...... InlerJIInlerJ 1 ,..,1,800 Tote!ToUI! oper*'!loper..no e~_.~_ 220,700 203,810 " 195195.820.820" Income from opertlllon. "18,500 "" "l8,1MO "" 1713017,130 NONOPERATINGNONOPERo\l1NG &.INS (lOSSES)(LOSSES):: GIII&.11\$I\$ OI'III'W'IgOt1II"M1O" " I'.. rest)n BHCS w.::w,eyMoNty Pool <... ,... 3.'"3.... GIIIn((Loss) Loss) on InwslmonlS,Inwslmonts, net 18.600'." (1s,300J(ls,300J'." (1.900) C.. ,,,.,,,.,,,, ,, ...2CO .. 0 ... ,.. "" ,.. TOIIIII'IQI'ICIPfIt8lingTOlllil'lQl"lClPfltliling(losses)(Iones) D8ln&1iJ8In& 23,Il00 (12,300)""" <.300

REVENLEREVEM.E AND Go\INS IN excess a(XC EXPENSES ANDMO LOSSES 42.300 .....<."" 21,430

AdjJ_tsAdj... 1IlIIn1s 10 Re... nue ..-.cI GainsGaIns I" Elo;Elo;eneu 01 Elopen_EJpen_ WId Loues:loues: Sourc,I.Source'· c~RJI ,... Baylor Mo!dk:IIl C .... atll\olng GenerlllGenerllll~ L~ Fbad Re"~'" ..... 7." 7."7." Baylor MedIcal CenIDr at INlII\IINII\I Gen«8llq.Gen«8I Lqer (GaInS) QI'IlnoIng"QI'IIl'IIIng'a IrMresiInlerul I" BH::S8H::S Money Pool (4,000)(4,000) (1,000) (3,500) CllI'mIningCOI'I'CIning S~ 01 0penII0nJ Ind CIIangesCIIangH In NetNIIlAsHII Assets (GWI)(GaIn) Lou QI'I1rIQI'I111 ... _, nlll (18,600) 15.300 Corrt.MnlngS\IIIIII

101'" II'IIeII6ed \0 11.1._fiethe but poe.sIbltpossIblt resourtttesourtt 10 obleln .... reapedllI.ped ... dell.dllll. Due 10 the CQI'IsoICtr6ngeQl'lsoldll6ng nlU"en .. e 01ft the financial dlltlldlltll,, II may be l\e(:eI$8fYoeteI$8fY IIIto ,*"U ~ IIna'ltlafIina'lcrar recordsrecords.. ~ The I~~ 01ft Contingent Rentll recordedrecordlld In Other operlllngoperelng e;openH;e;openH; The ~ of FIad Rent.Renl 'l'hk.h hils been t"1INIIIIdu • c.tpIteIc.trpItIII ..... is recorded InIII °-[)tIprDeprecflllonecflllon WId ~zlllon"~zlllan"and "Inlefesl'.° lnlefesl'. 1<1 Payl1*ltSPeymenct reeel\edrecoiled 10 lund LounlromLoutSlrom OperatIons()pertIkIm cean .... be In llefonnlie fonn ft01 CUI.CUI, fundsfund. held In lIIelI'Ie RlInt SetSetAtldo! Alida andIOi FiledFIled RenteroditsRlInt eredits ..as perrrilledpernilled ~by secklnsecklrl 3.3.2{b);2{b); Ca!lh andend fundi from theIhe Renl Set5eI AsIde lOll be recordedrecotdod lISas 0'tIerD'tIer nDI"IOfMII'""nol\OI'IOf*""no(jilin.;gains; !'bedFbed Rent CreditsCred;1S are_ recorded IS l1lien off..,otrMlIO to Of...-0Iher operIII1ngopeI"IIIIng ~~; ;

ThIs schedLE Is Irtended 10 be read and Interpreted In ~lrdlonwith the termstemIs descrDed in Itwa lease effectMteffect/w AprM 1, 2010 aoo any stbseqL.ll!ntSrbseqUllni arrendrrentsarrerdrrents.,

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EARLY TERMINATION FEE I LIQUIDATED DAMAGES SCHEDULE

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AMENDMENT To AMENDED AND RESTATED LEASE AGREEMENT EXHIBIT A - PAGE 8 AMENDMENT To AMENDED AND RESTATED LEASE AGREEMENT ExHla'T A-PAOE9 Januarv.2045 1464 123.04 Feb"",rv, 2045 733188.05 March 2046 0.00

AMENDMENT To AMBNDBD ANO RESTATBD LEASB AOREEMENT EXHIBIT A - PAGE 10 This Preliminary Official Statement and the information contained herein are subject to completion or amendment without notice. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. BY TAXATION. THE HOLDERSOFBONDSSHALLNEVERHAVERIGHTTODEMANDPAYMENTTHEREOFFROMMONEYRAISEDORBE RAISED PAYMENT OFTHEPRINCIPALOF,REDEMPTIONPREMIUM,IFANY,ORINTERESTONBONDS.AUTHORITYHASNOTAXING POWER. OF THESTATETEXAS,CITYIRVING,NORANYOTHERPOLITICALSUBDIVISIONORAGENCYTHEREOF,ISPLEDGED TOTHE IRVING, TEXAS,ISOBLIGATEDTOPAYTHEBONDSORINTERESTTHEREON.NEITHERFAITHANDCREDITNORTAXING POWER Bonds. See“PLANOFFINANCE”herein. 2017B (SIFMAIndex)pursuanttoaseparateofferingdocument(the“SeriesBonds)financepartoftheSeries2017Projectconcurrently withthe facilities (the“Series2017Project”)and(ii)paythecostsofissuanceBonds.TheAuthorityisalsoissuingitsHospitalRevenueBonds, THE BONDS”and“APPENDIXF-SummaryofLease.” System, theTenant’ssolemember,isobligatedtopayBondsorinterestthereon.See“SECURITYANDSOURCEOFPAYMENT FOR obligations oftheTenant(definedherein)underLease,andcertainfundsheldIndenture.NeithernorBaylorHealthCare not limitedtoallrightsreceivepaymentsundertheLease(definedherein),enforce(ifAuthorityisindefaultIndenture) the responsibility ofDTCandtheParticipants,allasmorefullydescribedherein. of theBondsasnomineeDTC,suchpaymentswillbemadetoCede&Co.,anddisbursalbeneficialowners willbethe between the IrvingHospitalAuthority(the “Authority”) and the Trustee (collectively, the “ Indenture”). So long as Cede & Co. is the registeredowner “Trustee”) underaTrustIndenture,datedasofNovember1,2017,supplementedbytheFirstSupplemental commencing Apri115,2018.TheBondswillbesubjecttoredemptionpriormaturityassetforthherein. System.” DTC, referenceshereundertoOwneroftheBondswillmeanCede&Co.andnotBeneficialOwnersBonds.See“Book-Entry-Only not receive certificates representing their beneficial interest in the Bonds. So long asCede & Co. is the registered owner of the Bonds, asnominee of form in denominations of $5,000 or any integralmultipleof$5,000 in excess thereof. Purchasers of such beneficial interests (“Beneficial Owners”) will Depository TrustCompany,NewYork,York(“DTC”),asthesecuritiesdepositoryforBonds.PurchasesofBondswillbemadeinbook-entry as fullyregisteredbondswithoutcouponsand,whenissued,willbeinthenameofCede&Co.,ownerandnomineeforThe Interest AccruefromtheDeliveryDate. Dated: November1,2017 NEW ISSUE-BOOKENTRYONLY (1) * corporations andotherfederaltaxconsequences. See “TAXMATTERS”foradiscussionofBondCounsel’sopinion,includingdescriptionalternativeminimumtaxconsequences from gross income for federal income tax purposes and is not included in the federal alternative minimum taxable income of individuals. regulations, rulingsandjudicialdecisionsassumingcontinuingcompliancewithcertaincovenants,interestontheBondsisexcluded TO THEMAKINGOFANINFORMEDINVESTMENTDECISION. SECURITY ORTERMSOF THE BONDS. INVESTORS SHOULDREADTHEENTIREOFFICIALSTATEMENTTOOBTAIN INFORMATION ESSENTIAL definitive formareexpectedtobe available fordeliverythroughthefacilitiesofDTConoraboutDecember 6,2017(the“DeliveryDate”). PC, Dallas, Texas. Certain legal matters will be passed upon for the Tenant by itscounsel Norton Rose Fulbright US LLP,Dallas,Texas. The Bonds in passed uponfortheAuthoritybyits specialdisclosurecounsel,AndrewsKurthKenyonLLP;Houston,Texas, fortheUnderwriterbyitscounsel,Winstead of Texas, and (iii) to the approval of certain legal matters by Andrews Kurth Kenyon LLP, Houston, Texas Bond Counsel. Certain legal matters will be withdrawal, modificationorcancellation oftheofferwithoutnotice,(ii)todeliveryapproving opinionoftheAttorneyGeneralState RISKS,” herein. that

Preliminary, subject to change. the Authority northeUnderwriter shallberesponsible fortheselection or accuracyoftheCUSIP numberssetforth herein. Poor’s FinancialServices LLConbehalfoftheAmericanBankers Association.CUSIPnumbersareincluded solelyfortheconvenienceofpurchasers oftheBonds.Neither CUSIP isaregistered trademarkoftheAmericanBankersAssociation. CUSIPnumbershavebeenassigned totheBondsbyCUSIPGlobalServices,managed byStandard& NEITHER THESTATEOFTEXASNORANYPOLITICALSUBDIVISIONORAGENCYTEXAS,INCLUDINGCITY OF The proceedsoftheBondswillbeusedto(i)financeaportionacquisition,construction,improvementandequippingcertainhospital The BondsconstitutelimitedobligationsoftheAuthoritypayablesolelyfromPledgedRevenuesasdefinedinIndenture,including but Principal of,andpremium,ifany,interestontheBondswillbepaidbyTheBankofNewYorkMellonTrustCompany,N.A.,Dallas,Texas (the andOctober 15, Interest ontheBondswillaccruefromDeliveryDate(definedbelow)andbepayablesemiannuallyeachApril 15, The IrvingHospitalAuthorityRevenueBonds(BaylorScott&WhiteMedicalCenter-Irving),Series2017A(the“”)willbeissued THIS COVERPAGECONTAINSCERTAININFORMATIONFORQUICK REFERENCEONLY.ITISNOTINTENDEDTOBEASUMMARYOFTHE The deliveryoftheBonds(definedbelow)subjecttoopinionAndrewsKurthKenyonLLP,BondCounsel,thatunderexistinglaws, The Bondswillbeofferedwhen,as,andifissuedacceptedby theinitialpurchaserbelow(the“Underwriter”),subject(i)topriorsale,

are

discussed

(October 15)

throughout PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 6, 2017 Year

(Baylor Scott&WhiteMedicalCenter-Irving),

this IRVING HOSPITAL AUTHORITY $ Principal Amount O fficial Hospital RevenueBonds Maturity Schedule* $77,000,000* CITIGROUP Series 2017A A S purchase tatement Interest Rate %

of , including

the B Price to Yield onds

the %

involves A ppendices CUSIP

certain (1) . October 15, asshownbelow See“BONDHOLDERS’ Standard &Poor’s:“A+”

(See “ investment R Moody’s: “Baa2” atings RATINGS: ” herein.)

risks

For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (the “Rule”), and in effect on the date of this Preliminary Official Statement, this document constitutes an “official statement” of the Authority with respect to the Bonds that has been deemed “final” by the Authority as of its date except for the omission of no more than the information permitted by Rule.

This Official Statement is not to be used in connection with an offer to sell or the solicitation of an offer to buy in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. This Official Statement is delivered in connection with the sale of securities referred to herein and may not be reproduced or used, in whole or in part, for any other purposes.

This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. No dealer, salesperson or other person has been authorized by the Authority or the Underwriter to give any information or to make any representation other than those contained herein, and, if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the Underwriter or any other person. The information and expressions of opinion herein contained are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstance, create any implication that there has been no change in the affairs of the Authority or other matters described herein since the date hereof.

This Official Statement includes descriptions and summaries of certain events, matters and documents. Such descriptions and summaries do not purport to be complete, and all such descriptions, summaries and references thereto are qualified in their entirety by reference to this Official Statement in its entirety and to each such document, copies of which may be obtained from the Authority. Any statements made in this Official Statement or the appendices hereto involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized.

The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES 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.

THE BONDS ARE EXEMPT FROM REGISTRATION WITH THE UNITED STATES 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 JURISDICTION IN WHICH THESE SECURITIES HAVE BEEN REGISTERED, OR EXEMPTED SHOULD NOT BE REGARDED AS A RECOMMENDATION THEREOF.

The agreements of the Authority and others related to the Bonds are contained solely in the contracts described herein. Neither this Official Statement nor any other statement made in connection with the offer or sale of the Bonds is to be construed as constituting an agreement with the purchasers of the Bonds.

INVESTORS SHOULD READ THE ENTIRE OFFICIAL STATEMENT, INCLUDING THE APPENDICES ATTACHED HERETO, TO OBTAIN INFORMATION ESSENTIAL TO MAKING AN INFORMED INVESTMENT DECISION.

Neither the Authority, its Financial Advisor, nor the Underwriter make any representations or warranties with respect to the information contained in this Official Statement regarding DTC or its Book-Entry-Only System.

Neither the Tenant nor any affiliate of the Tenant make any representation or warranty with respect to the information contained in this Official Statement, with the exception of Appendix B attached hereto.

References to web site addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader’s convenience. Unless specified otherwise, such web sites and the information or links contained therein are not incorporated into, and are not part of, this final official statement for purposes of, and as that term is defined in, the Rule.

TABLE OF CONTENTS Page

INTRODUCTION ...... 1 THE AUTHORITY ...... 2 THE TENANT ...... 2 PLAN OF FINANCE ...... 3 ANNUAL DEBT SERVICE REQUIREMENTS* ...... 6 THE BONDS ...... 7 General Description of the Bonds ...... 7 Redemption Provisions ...... 7 Additional Secured Debt ...... 9 Defeasance ...... 10 BOOK ENTRY ONLY SYSTEM ...... 10 Use of Certain Terms in Other Sections of this Official Statement ...... 12 SECURITY AND SOURCE OF PAYMENT FOR THE BONDS ...... 12 Sources of Payment ...... 12 Security for the Bonds ...... 13 Funds Created Under Indenture ...... 13 Rate Covenant ...... 14 Other Covenants ...... 14 Remedies ...... 14 BONDHOLDERS’ RISKS ...... 14 General ...... 14 Tenant Lease Payments ...... 15 Lease Termination ...... 15 Limitation on Authority Tort Liability ...... 15 Construction Risks ...... 16 Health Care Reform ...... 16 Payment for Hospital Services ...... 19 Regulatory Environment ...... 22 The Tenant May Not Be Able to Maintain Contracts with Managed Care Providers for Adequate Payments ...... 27 Competition from Other Service Providers ...... 28 Tax-Exempt Status of the Bonds ...... 28 Proposed Tax Legislation ...... 28 Tax-Exempt Status of the Tenant ...... 29 Risk of Failure to Comply with Certain Covenants ...... 30 State and Local Tax Exemption ...... 30 Unrelated Business Income ...... 30 The Rights of Bondholders May be Limited by Bankruptcy and Other Laws...... 3 0 Other Factors Could Adversely Affect the Tenant or the Authority ...... 31 TAX MATTERS ...... 32 CONTINUING DISCLOSURE OF INFORMATION ...... 34 Annual Reports ...... 34 Material Event Notices ...... 35 Availability of Information ...... 35 Limitations and Amendments ...... 35 Compliance with Prior Undertakings ...... 36 RATINGS ...... 36 FINANCIAL STATEMENTS ...... 36 OTHER INFORMATION ...... 36 Litigation ...... 36 Registration and Qualification of Bonds for Sale ...... 37 Legal Matters ...... 37 Financial Advisor ...... 37

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Authenticity of Financial Data and Other Information ...... 38 Underwriting ...... 38 Forward-Looking Statements Disclaimer ...... 38 Miscellaneous ...... 39

APPENDIX A ─ Irving Hospital Authority ...... A-1

APPENDIX B ─ Baylor Medical Center at Irving (d/b/a) Baylor Scott & White Medical Center-Irving ...... B-1

APPENDIX C ─ Financial Statements of Irving Hospital Authority ...... C-1

APPENDIX D ─ Combined Financial Statements of Baylor Medical Center at Irving ...... D-1

APPENDIX E ─ The Indenture ...... E-1

APPENDIX F ─ Summary of Lease ...... F-1

APPENDIX G ─ Form of Bond Counsel Opinion ...... G-1

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OFFICIAL STATEMENT

related to

$77,000,000* IRVING HOSPITAL AUTHORITY Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A

INTRODUCTION

This Official Statement, including the cover pages and appendices hereto, is furnished in connection with the offering of the Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A (the “Bonds”) in the aggregate principal amount shown above by the Irving Hospital Authority (the “Authority”). The Bonds will be issued pursuant to a resolution of the Board of Directors of the Authority (the “Board”) adopted on July 20, 2017 (the “Resolution”), a Trust Indenture, dated as of November 1, 2017 and as supplemented by the First Supplemental Indenture, dated as of November 1, 2017 (the Trust Indenture and First Supplemental Indenture are together referred to herein as the “Indenture”) between the Authority and The Bank of New York Mellon Trust Company, N.A., Dallas, Texas, as trustee (the “Trustee”).

The Authority currently owns and leases to Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving (the “Tenant”) an acute care hospital licensed to operate 293 beds and certain other properties used, or planned for use, as health care related facilities located in the City of Irving, Texas. Pursuant to an Amended and Restated Lease Agreement, dated as of April 1, 2010 (as subsequently amended and supplemented, the “Lease”), by and between the Authority and the Tenant, the Authority leases substantially all of its properties, including its acute care hospital (the “Medical Center”), to Tenant. See “The AUTHORITY” and “APPENDIX F- Summary of Lease” herein.

The Bonds are being issued for the purpose of (i) financing a portion of the acquisition, construction, improvement and equipping of certain hospital facilities (the “Series 2017 Project”) and (ii) to pay the costs of issuance of the Bonds. See “APPENDIX A ─ Irving Hospital Authority” for a description of the Series 2017 Project.

The Bonds constitute limited obligations of the Authority payable only out of the Pledged Revenues (defined herein) pledged under the Indenture. So long as the Lease is in effect, the Pledged Revenues consist primarily of payments under the Lease. The Bonds do not constitute obligations of the Tenant or any affiliate thereof, nor the State of Texas, or any political subdivision or agency thereof (except the Authority), including the City of Irving, Texas. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.”

The Lease may be terminated by the Tenant upon the occurrence of certain losses from operation of the Medical Center, in which event the Authority will reacquire possession and control of all its properties leased to the Tenant, including the Medical Center. Upon such early termination, the Authority is entitled to receive an early termination fee, however, conditions at such time could be sufficiently adverse such that the Authority could not generate through operations adequate money to pay debt service on the Bonds. See “BONDHOLDERS’ RISKS ─ Lease Termination” herein.

Summaries of certain provisions of the Indenture and the Lease are contained in this Official Statement and in APPENDIX E and APPENDIX F. Capitalized terms not otherwise defined herein have the meanings stated under “Definitions of Certain Terms” in APPENDIX E.

Upon the issuance of the Bonds, the Bonds will be equally and ratably secured under the Indenture with the Authority’s Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017B (SIFMA Index) (the “Series 2017B Bonds”) which are expected to be issued within approximately one week after issuance of the

* Preliminary, subject to change.

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Bonds pursuant to a separate official statement. The Authority also has outstanding its Junior Lien Hospital Revenue Refunding Bonds, the Series 1994 Bonds (the “Series 1994 Bonds”) which are not issued under the Indenture. See “PLAN OF FINANCING” for a description of the Series 2017B Bonds and “THE AUTHORITY” for information regarding the Series 1994 Bonds. The Authority may issue other additional Debt under the Indenture which will be secured on an equal and ratable basis with the Bonds and Series 2017B Bonds. The Bonds, the Series 2017B Bonds, Series 1994 Bonds and any additional debt which is later issued under the Indenture are collectively referred to herein as the “Secured Debt.”

THE AUTHORITY

The Authority is a body politic and corporate and a political subdivision of the State of Texas created by ordinance of the City Council of the City of Irving, Texas (the “City”), in 1959, pursuant to Chapter 262, Texas Health and Safety Code, as amended (the “Act”). The Authority has no taxing power. The Authority is exempt from federal income taxes.

The Authority has the power to construct, enlarge, furnish, operate and equip “hospitals” as defined in the Act and such other hospital projects as permitted or authorized by the Act and other provisions of the Texas Health and Safety Code.

The Authority is governed by a Board of Directors consisting of eleven members, five of whom are appointed by the City Council of the City and six of whom are elected by the Board of Directors of the Authority. The Directors do not receive compensation for their services.

The method of appointing the members of the Board of Directors of the Authority by the City Council and by the Board of Directors is set forth in the resolution authorizing the issuance of the Authority’s Series 1994 Bonds currently outstanding in the aggregate principal amount of $5,000. The Series 1994 Bonds will remain outstanding after the delivery of the Bonds, but may be called for redemption at any time by authorization of the Board of Directors of the Authority. If the Series 1994 Bonds are redeemed, the Board of Directors of the Authority would be appointed solely by the City pursuant to Section 262.012 of the Act.

See “APPENDIX A ─ Irving Hospital Authority” for a more complete description of the Authority and the history of the Medical Center.

THE TENANT

The Tenant is a Texas nonprofit corporation incorporated on February 24, 1995. The Tenant is an organization described under section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) and exempt from taxation under section 501(a) of the Code.

The members of the Hospital Board of the Tenant, which is an advisory board, consist of fifteen individuals, six of whom also serve on the Board of Directors of the Authority. The Board of Trustees of the Tenant consists of ten individuals who also serve as the Board of Trustees of Baylor Health Care System, which is the sole member of the Tenant. See “APPENDIX B ─ Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving” for a more complete description of the Tenant.

The Lease includes substantially all properties of the Authority. The Lease term expires on March 31, 2045. Upon the occurrence of certain losses from operations of the Medical Center, the Tenant has the right to terminate the Lease at any time on and after June 30, 2026, based on notice given with respect to the financial statements for the fiscal year ending June 30, 2025, by providing notice of termination to the Authority within 60 days after the date the Tenant’s financial results are published for such fiscal year. Such termination will be effective at the end of the next succeeding fiscal year (i.e. notice of termination given within 60 days after publication of Tenant’s financial results for the fiscal year ending June 30, 2025 will be effective on June 30, 2026). If the Tenant terminates the Lease, the Tenant is required to pay the Authority an early termination fee based upon the date of termination pursuant to a schedule set forth in the Lease. Upon such early termination by the Tenant, the Authority has the option in lieu of allowing the Tenant to terminate the Lease, to pay the Tenant the full amount of the losses from operations giving rise to the Tenant’s termination right or to require that the Tenant and BHCS provide management

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services with respect to the operation of the Medical Center for a period of not less than one year and not more than 18 months. See BONDHOLDERS’ RISKS ─ Lease Termination.”

The rent to be paid by the Tenant to the Authority during the term of the Lease consists of a fixed rent portion equal to $735,449.33 due monthly, and a contingent rent portion (“Contingent Rent”) due annually that is equal to 20% of the Tenant’s Excess Operating Cash Flow (as defined in the Lease) derived from the prior fiscal year’s operation. The Authority is required to set aside annually fifty percent (50%) of the Contingent Rent that it receives from the Tenant until the amount set aside equals $8 million (the “Rent Set Aside”). In any fiscal year that there exists Negative Operating Cash Flow (as defined in the Lease) then twenty percent (20%) of such Negative Operating Cash Flow shall be offset, and reduce, the Contingent Rent payable to the Authority for the year immediately following the year to which such Negative Operating Cash Flow relates; provided, however, that to the extent that any offset to which the Tenant is entitled in any given year is greater than the Contingent Rent payable by the Tenant in that year (an “Offset Shortfall”), the Authority shall pay Tenant out of the Rent Set Aside, the amount necessary to reimburse Tenant for the Offset Shortfall, but only up to the amount currently in the Rent Set Aside at the time. If funds are paid to the Tenant from the Rent Set Aside, the Authority shall be required to accumulate funds until the amount of the Rent Set Aside again equals $8 million. To date, the Authority has never been required to pay the Tenant from the Rent Set Aside. Currently, the Authority has funded the full $8 million of required Rent Set Aside. The Rent Set Aside is not available to pay the Bonds, the Series 2017B Bonds or the Series 1994 Bonds during the term of the Lease.

Pursuant to a Limited Joinder to the Lease, Baylor Health Care System, a Texas non-profit corporation (“BHCS”) has agreed, as the sole member of the Tenant, that in the event the rent or the early termination payment is not paid when due by the Tenant (after the receipt of written notice by the Tenant of the amounts then due and the Tenant’s failure to pay such payments after the expiration of 10 days), to pay the Authority the amount of rent or early termination payment then due.

See “APPENDIX F ─ Summary of Lease” for a summary of the Lease, including the schedule setting forth the early termination payment amounts.

THE BONDS WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY OUT OF THE TRUST ESTATE ESTABLISHED UNDER THE INDENTURE. THE BONDS ARE NOT A DEBT OR OBLIGATION OF THE TENANT OR ANY AFFILIATE OF THE TENANT.

PLAN OF FINANCE

General

The proceeds of the Bonds will be used to (i) finance a portion of the acquisition, construction, improvement and equipping of certain hospital facilities (the “Series 2017 Project”) and (ii) pay the costs of issuance of the Bonds.

The Series 2017 Project includes the construction and equipping of a 162,000 square foot tower that when completed will increase the total number of patient beds at the Medical Center by 72 and will add two floors of shelled space for future expansion capacity of 44 beds. The Series 2017 Project also includes the construction and replacement of the central utility plant, renovations to cardiac catheter labs, endoscopy and dialysis rooms, hybrid operating rooms, surgical facilities and women’s services, general upgrades to the main lobby and entrance areas, and a complete remodel of the Medical Center’s exterior. The Series 2017 Project is expected to be completed in May of 2020.

The Series 2017B Bonds

The Authority also anticipates issuing its Series 2017B Bonds in the aggregate principal amount of $26,145,000* pursuant to a separate official statement. The Series 2017B Bonds are multi-modal bonds, anticipated to be initially issued in an Index Floating Rate Mode for an Index Floating Rate Period that commences on the date of initial delivery of such Series 2017B Bonds. The term of the initial Index Floating Rate Period and the initial

* Preliminary, subject to change.

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mandatory tender date (the “Initial Mandatory Tender Date”) will be determined upon the pricing of the Series 2017B Bonds. On the Initial Mandatory Tender Date, the Authority expects to either redeem or remarket the Series 2017B Bonds in one or more successive Index Floating Rate Periods of the same or different durations or in one or more of the several interest rate modes. The Series 2017B Bonds are not convertible into any other interest rate mode prior to the Initial Mandatory Tender Date. The expected closing date for the Series 2017B Bonds is December 13, 2017.

In the event that all Series 2017B Bonds then outstanding on the Initial Mandatory Tender Date are not remarketed to new purchasers on the Initial Mandatory Tender Date, the Authority shall have no obligation to purchase any Series 2017B Bond tendered on such date, the failed remarketing shall not constitute an event of default under the Indenture or the Series 2017B Bonds, the mandatory tender will be deemed to have been rescinded for that date and all Series 2017B Bonds (i) will continue to be outstanding, (ii) will be purchased upon the availability of funds obtained from the subsequent remarketing of all Series 2017B Bonds, (iii) will bear interest at the Stepped Rate (to be determined at the pricing of the Series 2017B Bonds) from the Initial Mandatory Tender Date until all outstanding Series 2017B Bonds are purchased upon a subsequent remarketing, (iv) will be subject to optional redemption, in whole or in part, on any date and mandatory tender for purchase on any date during the continuation of the Index Floating Rate Period until all outstanding Series 2017B Bonds are purchased upon a subsequent remarketing (which shall occur at the Authority's discretion upon delivery of at least one day’s notice of such redemption or requirement of mandatory tender to the holders of the Bonds), and (v) will be deemed to continue in the Index Floating Rate Mode for all other purposes of the Indenture, though bearing interest during such time at the Stepped Rate until remarketed or redeemed in accordance with the terms of the Indenture. In the event of a failed remarketing on the Initial Mandatory Tender Date or during a deemed extension of the Initial Index Floating Rate Period, the Authority has covenanted in the Indenture to use its best efforts to cause the Series 2017B Bonds to be converted and remarketed on the earliest reasonably practicable date on which the Series 2017B Bonds can be sold at par (or above par if the Series 2017B Bonds are being remarketed at a fixed rate to maturity), in such interest rate mode or modes as the Authority directs, at a rate not exceeding the Maximum Rate.

Sources and Uses of Funds.

The following table sets forth the sources and uses of funds from the proceeds of the Bonds and the Series 2017B Bonds for the plan of financing described herein:

Sources of Funds:

Series 2017A Series 2017B(2) Total Bonds Bonds Principal Amount $ Net Premium/Discount

Total Sources of Funds

Uses of Funds:

Series 2017A Series 2017B(2) Total Bonds Bonds Construction Fund $ Costs of issuance(1)

Total Uses of Funds

(1) Includes Underwriter’s discount, fees for legal counsel, and other miscellaneous expenses. (2) Subject to change upon pricing of the Series 2017B Bonds.

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Additional Funding for Series 2017 Project

In addition to the proceeds of the Bonds and the Series 2017B Bonds described above, funding for the Series 2017 Project will also include certain contributions from the Authority and the Tenant. The Authority will provide $27,000,000 of funding which will be used for capitalized interest and construction expenditures for the Series 2017 Project. Pursuant to the Lease, the Tenant will reimburse the Authority up to $20,000,000 for Tenant improvements and furniture, fixtures, and equipment related to the new patient tower. Such funding by the Tenant will occur following substantial completion of the new patient tower. See “APPENDIX F ─ Summary of Lease.”

[The remainder of the page left intentionally blank]

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ANNUAL DEBT SERVICE REQUIREMENTS* The following table sets forth, for each fiscal year ending June 30, the amounts of the Authority’s debt service on its outstanding revenue bonds.

The Bonds Series 2017B(1) Fiscal Year Ending Existing Debt Total Debt June 30 Principal Interest Principal Interest Debt Service Service(2) Service 2018 $ $ $ $ $ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 Total $ $ $ $ $ $ $

* Preliminary, subject to change. (1) The Authority’s Series 2017B Bonds are being issued pursuant to a separate official statement and are expected to close approximately a week after the Bonds. (2) Debt service for the Series 1994 Bonds.

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THE BONDS

General Description of the Bonds

The Bonds will be issued pursuant to (i) the Indenture, (ii) Chapter 262, Texas Health and Safety Code and Chapter 1371, Texas Government Code; and (iii) the Resolution adopted on July 20, 2017 in which the Board delegated to certain officers of the Authority, the authority to complete the sale of the Bonds through the execution of a pricing certificate (collectively, the “Bond Resolution”). The Authority has previously issued its Series 1994 Bonds and may issue additional Secured Debt under the Indenture on conditions described therein. The Authority has determined that the issuance of the Bonds for the purpose herein described will be in furtherance of the public purposes of the Act. The proceeds from the sale of the Bonds will be used as described above. See “PLAN OF FINANCE” and “ANNUAL DEBT SERVICE REQUIREMENTS.”

Interest is payable to the registered owners of the Bonds whose names appear on the “Bond Register” maintained by the Trustee at the close of business on the “Regular Record Date,” which is the close of business on the last business day of the month preceding each interest payment date and interest shall be paid by the Trustee by check sent United States Mail, first class postage prepaid, to the address of the registered owner recorded in the Bond Register or by such other method, acceptable to the Trustee, requested by, and at the risk and expense of, the registered owner. All payments of principal of, premium, if any, and interest on the Bonds shall be without exchange or collection charges to the owners thereof and in any coin or currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. Principal of the Bonds is payable at their Stated Maturity or redemption to the registered owners thereof, upon their presentation and surrender, at the Designated Payment/Transfer Office of the Trustee.

The Bonds are being issued in the aggregate principal amount of $77,000,000* and will mature on October 15 in the years and in the principal amounts, and bear interest at the rates per annum, set forth on the cover page of this Official Statement. Interest on the Bonds will accrue from the date of delivery, and will be payable on April 15, 2018, and on each April 15 and October 15, thereafter. Interest on the Bonds will be calculated on the basis of a 360-day year of twelve 30-day months. The Bonds will be issuable in fully registered form only, without coupons, in denominations of $5,000 and any integral multiple thereof.

Redemption Provisions

Mandatory Redemption. The Bonds are subject to mandatory redemption prior to maturity with funds on deposit in the Debt Service Fund established and maintained for their payment in the Indenture, and shall be redeemed in part prior to maturity at the price of par and unpaid accrued interest thereon to the date of redemption, and without premium, in the principal amounts and on October 15 of the years as follows:

Bonds Bonds Bonds due October 15, 20__ due October 15, 20__ due October 15, 20__ Principal Principal Principal Year Amount Year Amount Year Amount $ $ $

(1)

(1) Scheduled maturity.

The particular Bonds to be redeemed on each redemption date shall be chosen at random by the Trustee by such method as the Trustee shall deem first and appropriate.

Optional Redemption. The Bonds may be redeemed prior to their stated maturity at the option of the Authority, in whole or in part in the principal amounts of $5,000 or any integral multiple thereof (and if within a

* Preliminary, subject to change.

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stated maturity by lot by the Trustee) on June 30, 2026 or on any date thereafter, at par with no premium, together with unpaid interest to the redemption date.

Redemption Procedures. Notice of redemption of any Bonds is required to be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of Bonds to be redeemed, to be given in the name of the Authority by first class mail, postage prepaid at the address appearing in the bond register maintained by the Trustee.

After notice of redemption has been given, the Bonds to be redeemed will, on the redemption date, become due and payable at the redemption price specified and from and after such date (unless the Authority has defaulted in the payment of the redemption price) such Bonds will cease to bear interest. Upon surrender of any Bond for redemption in accordance with a notice of redemption, the Bond will be paid by the Authority at the redemption price. Installments of interest with a stated maturity that is on or prior to the redemption date will be paid to the holders of such Bonds registered as such on the relevant record dates according to their terms. If any Bond called for redemption is not paid upon surrender for redemption, then the principal (and premium, if any) will, until paid, bear interest from the redemption date at the rate borne by such Bond.

The Authority reserves the right to give notice of its election or direction to redeem Bonds under the Indenture conditioned upon the occurrence of subsequent events. Such notice may state (i) that the redemption is conditioned upon the deposit of moneys and/or authorized securities, in an amount equal to the amount necessary to effect the redemption, with the Paying Agent/Registrar, or such other entity as may be authorized by law, no later than the redemption date or (ii) that the Authority retains the right to rescind such notice at any time prior to the scheduled redemption date if the Authority delivers a certificate of the Authority to the Trustee instructing the Trustee to rescind the redemption notice, and such notice of redemption shall be of no effect if such moneys and/or authorized securities are not so deposited or if the notice is rescinded. The Trustee shall give prompt notice of any such rescission of a conditional notice of redemption to the affected registered owners of the Bonds. Any Bonds subject to conditional redemption where redemption has been rescinded shall remain Outstanding. Failure to pay the redemption price of the Bonds subject to optional redemption shall not constitute an event of default under the Indenture or under any Bond.

Any Bond to be redeemed in part must be surrendered at the place of payment (accompanied by a satisfactory written instrument of transfer duly executed by the holder or his attorney duly authorized in writing) in exchange for one or more new Bonds of the same series, interest rate and maturity and equal in aggregate principal amount to the unredeemed portion of the principal of the surrendered Bond. In the event of a redemption of less than all of the Bonds, the Authority will select the particular maturities and series to be redeemed. In the event of a redemption of less than all of the Bonds, the Bonds to be redeemed will be selected prior to the redemption date by the Trustee from the outstanding Bonds of the appropriate maturity and series specified by the Authority which have not been previously called for redemption, in such manner as the Trustee deems fair and appropriate, and which may provide for the selection for redemption of portions of the principal of the Bonds that are in denominations larger than the minimum authorized denomination.

In the event that DTC is no longer the securities depository for the Bonds and a successor securities depository is not appointed by the Authority, certificated bonds will be issued as described hereunder under “Book- Entry-Only-System,” and such Bonds may be surrendered for transfer at the corporate trust office of the Trustee located in the place of payment, which will serve as registrar for the Bonds. The Bonds may be surrendered to the Trustee for exchange. Upon surrender of any Bond duly endorsed, or accompanied by a satisfactory written instrument of transfer executed by the holder or his attorney duly authorized in writing, the Authority is required to execute, and the Trustee is required to authenticate and deliver in the name of the designated transferee, one or more new Bonds of the same series and maturity, of the designated authorized denomination, and of like interest rate and aggregate principal amount for the Bonds so surrendered. Neither the Authority nor the Trustee is required to (i) issue, transfer or exchange any Bonds for a period beginning at the opening of business 45 days before the day of mailing of a notice of redemption of such Bonds selected for redemption and ending at the close of business on the day of such mailing or (ii) transfer or exchange any Bonds selected for redemption in whole or in part.

In the event that DTC is no longer the securities depository for the Bonds and a successor securities depository is not appointed by the Authority, the Authority will be required to replace mutilated, destroyed, lost, or stolen Bonds upon surrender to the Trustee of the mutilated Bonds, or in the absence of notice that an allegedly lost,

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stolen, or destroyed Bond has been acquired by a bona fide purchaser, upon receipt by the Authority and the Trustee of satisfactory evidence of such destruction, loss, or theft and of such security or indemnity as may be required by each of them to keep them harmless. The Authority and the Trustee may require payment of a sum sufficient to cover the expense of such replacement and any tax, fee, or other governmental charge payable in connection with any such replacement.

Additional Secured Debt

Additional Secured Debt may be issued under the Indenture at the request of the Authority upon delivery to the Trustee of certain instruments specified in the Indenture. Additional Secured Debt will be equally and ratably secured with the Bonds and the Series 2017B Bonds.

In the Indenture, the Authority reserves the right to issue the following additional indebtedness:

(i) any Debt, if prior to or simultaneously with the incurrence of such Debt there is delivered to the Trustee an Officer’s Certificate demonstrating that the Transaction Test (defined below) will be or has been met for, and giving effect to, the incurrence of such Debt;

(ii) Completion Indebtedness, if prior to the incurrence of such Completion Indebtedness there is delivered to the Trustee an Officer’s Certificate (a) to the effect that the net proceeds of such proposed Completion Indebtedness is needed for the completion of the construction or equipping of the facilities in question; (b) to the effect that the original Debt for the facilities in question when incurred was assumed to be sufficient for the projected costs; (c) describing the reasons why such Completion Indebtedness is necessary; and (d) certifying as to the amount needed for the completion of the facilities in question;

(iii) Long-Term Indebtedness incurred for the purpose of refunding, including advance refunding, any Outstanding Long-Term Debt, if prior to the incurrence of such Long-Term Debt there is delivered to the Trustee an Officer’s Certificate to the effect that either (a) such refunding will not increase Maximum Annual Debt Service in any year (calculated for the period during which the Debt to be refunded would have been Outstanding but for such proposed refunding) by more than twenty percent (20%), or (b) such refunding will result in a present value savings in the debt service requirements as compared to that of the Outstanding Long-Term Indebtedness being refunded; provided, however, refundings in the nature of the rolling-over of Debt in the form of commercial paper or the payment of the purchase price of any Debt which is payable upon demand of the holder or owner thereof or may be tendered by and at the option of the holder or owner thereof for payment prior to the stated maturity date thereof shall be permitted, without limitation and without the need for the delivery of any Officer’s Certificate;

(iv) Subordinated Indebtedness, without limitation;

(v) Debt represented by a letter of credit reimbursement agreement or standby bond purchase agreement or other similar agreement entered into by the Authority and a financial institution providing either a liquidity or credit support with respect to any other Debt incurred in accordance with any other provision of this definition;

(vi) Debt incurred on an interim basis with respect to any construction project for which money is available therefor in the construction fund for such project;

(vii) Debt incurred in the ordinary course of business;

(viii) any Debt (or obligations not for borrowed money), which Debt or obligation is not generally treated as indebtedness, such as obligations to make contributions to employee benefit plans, social security alternative plans, self-insurance programs, captive insurance companies and unemployment insurance liabilities.

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The “Transaction Test” means the Trustee shall have received an Officer’s Certificate of the Authority (i) stating that no Event of Default has occurred under the Indenture and then exists or would result from the proposed transaction, and (ii) demonstrating that the Adjusted Revenues (defined below) of the Authority following the proposed transaction would not be less than 120% of the Maximum Annual Debt Service of the Authority.

“Adjusted Revenues” means “of any specified Person means, for any period of calculation, the total of all operating revenues of such Person, plus investment and other income or loss of such Person for such period; provided, however, there shall not be included in investment and other income or loss for such period any amounts excluded pursuant to the definition of Debt, or any gain or loss arising from the early retirement of indebtedness, or from change in market value of investments, or from market-to-market adjustments on interest rate exchange agreements (swaps).

See “APPENDIX E ─ The Indenture”.

Defeasance

Any Parity Bonds will no longer be deemed to be Outstanding when payment of the principal of (and premium, if any, on) such Parity Bonds, plus interest thereon to the maturity thereof has been provided for by depositing for such payment (1) money sufficient to make such payment, or (2) Defeasance Obligations certified by an independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, together with any money deposited or held by the Trustee at the same time and available for such purpose as provided by this Indenture, be sufficient to make such payment. “Defeasance Obligations” means obligations now or hereafter provided in Section 1207.062(b), Texas Government Code, as amended and any other then authorized securities or obligations under applicable State law in existence on the date the Board adopts or approves any proceedings authorizing the defeasance of the Bonds or the issuance of refunding bonds that may be used to defease the Bonds. The Authority, at its discretion, may limit use of certain Defeasance Obligations for a particular series of Parity Bond in a Supplemental Indenture for such Parity Bonds. See “APPENDIX E ─ The Indenture”.

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 credited by The Depository Trust Company, New York, New York, (“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 Preliminary Official Statement. The Authority and the Financial Advisor believe the source of such information to be reliable, but neither of the Authority or the Financial Advisor takes any responsibility for the accuracy or completeness thereof.

The Authority 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 Preliminary 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) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, 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

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of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds 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 and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, 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 interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds 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., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any 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 Direct and Indirect 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. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Trustee and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. 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. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium, if any, interest payments and redemption proceeds on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority or the

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Trustee, on the payable date in accordance with their respective holdings shown on DTC’s records. 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 Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, interest payments and redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, printed certificates for the Bonds are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

Use of Certain Terms in Other Sections of this Preliminary Official Statement. In reading this Preliminary Official Statement it should be understood that while the Bonds are in the Book-Entry-Only System, references in other sections of this Preliminary 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 Bond Order 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 Authority, the Financial Advisor, or the Underwriters.

Effect of Termination of Book-Entry-Only System. In the event that the Book-Entry-Only System of the Bonds is discontinued, printed Bonds will be issued to the DTC Participants or the holder, as the case may be, and such Bonds will be subject to transfer, exchange and registration provisions as set forth in the Bond Order.

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 whom 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 Indenture will be given only to DTC.

SECURITY AND SOURCE OF PAYMENT FOR THE BONDS

Sources of Payment

The Bonds are limited obligations of the Authority, payable by the Authority solely from the Pledged Revenues and other sources described in the Indenture. During the term of the Lease, the Authority’s only sources of payment for the Bonds will be the payments made by the Tenant under the Lease, investment income from funds of the Authority and revenues, if any, from health care related ventures the Authority may, in its discretion, enter into in the future. The Bonds are payable from payments required to be made pursuant to the Indenture, including all sums deposited in the fund, created pursuant to the Indenture, other than the Rebate Fund and certain other amounts that from time to time may be held under the Indenture for restricted purposes, and in certain events out of amounts secured through the exercise of the remedies provided in the Indenture upon the occurrence of an Event of Default, as defined therein.

Neither the State of Texas nor any political subdivision (other than the Authority) or agency of the State of Texas, including the City of Irving, Texas shall be obligated to pay the Bonds or the interest thereon. Neither the faith and credit nor the taxing power of the State of Texas or any other political subdivision or

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agency thereof, including the City of Irving, Texas is pledged to the payment of the principal of, premium, if any, or interest on the Bonds. The Authority has no taxing power. The holders of the Bonds shall never have the right to demand payment thereof from money raised or to be raised by taxation. Neither the Tenant nor any affiliate thereof is obligated to pay the Bonds or interest thereon.

Security for the Bonds

Revenue Pledge. To secure payment of Secured Debt, including the Bonds, the Authority has pledged and assigned to the Trustee pursuant to the Indenture all right, title, and interest of the Authority in and to (a) all Pledged Revenues, as defined in the Indenture, of the Authority including all payments under the Lease (including but not limited to early termination payments) and all rights to enforce the obligations of the Tenant under the Lease, (b) all rights of the Authority to receive payments from third parties such as Medicare, Medicaid, and Blue Cross, to the extent permitted by law, (c) the funds and accounts created pursuant to the Indenture, except the Rebate Fund, and certain other amounts that from time to time may be held under the Indenture for restricted purposes, and (d) all property pledged as part of the Trust Estate in the future.

The security interest granted in the Pledged Revenues deposited or to be deposited in the Revenue Fund is not perfected within the meaning of the Texas Business and Commerce Code except during the time such revenues are held and administered by the Trustee and, accordingly, there is no assurance that amounts will be available in the Revenue Fund to pay debt service on the Secured Debt should the Authority encounter financial difficulties. See “APPENDIX E ─ The Indenture” hereto.

The Authority has not granted under the Indenture or any other document a security interest in any of its real or tangible personal property, or in any other property other than the Pledged Revenues, its rights under the Lease, and certain funds held under the Indenture.

Neither the Tenant nor any affiliate thereof has pledged its revenues or any other assets to secure its obligations under the Lease. Neither the Tenant nor any affiliate thereof has guaranteed payment of the Bonds. The Lease is subject to termination as described in “APPENDIX F ─ Summary of Lease”, which may result in termination payment being received by the Authority. Under certain circumstances, such termination could result in the Authority’s reacquiring possession and control of the Medical Center under adverse financial and operating conditions.

Funds Created Under Indenture

The Revenue Fund. The Indenture establishes a Revenue Fund as a fund held by the Authority. The Indenture requires the Authority to deposit all Pledged Revenues into the Revenue Fund. The Authority is required to transfer monthly to the Debt Service Account an amount equal to one-sixth of the interest to become due on the Secured Debt on the next biannual interest payment and one-twelfth the principal to become due on the next annual principal payment on the Secured Debt. If an Event of Default occurs under the Indenture, the Trustee will direct the Authority to transfer all Pledged Revenues into an account to be held by the Trustee and maintained first, for the benefit of the Owners, and second, for the benefit of the Authority.

The Debt Service Fund. The Indenture establishes a Debt Service Fund held by the Trustee, into which money transferred from the Revenue Fund are to be deposited. Money in the Debt Service Fund is to be used to pay the principal of (and premium, if any), and interest on the Bonds, and any other Secured Debt, then coming due.

The Construction Fund. The Indenture establishes a Construction Fund with the Trustee into which a portion of the proceeds from the Bonds will be deposited for the purposes of paying the costs of the Series 2017 Project and the costs of issuance related to the Bonds.

The Rebate Fund. The Indenture provides for the establishment with the Trustee of the Rebate Fund for the purposes of collecting amounts which may be required to be rebated to the United States Treasury. The Rebate Fund is not pledged to secure payment of the Secured Debt.

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Rate Covenant

The Indenture includes a Rate Covenant that requires the Authority to calculate Adjusted Revenues for each Fiscal Year as of the end of such Fiscal Year and the Long-Term Debt Service Coverage Ratio of the Authority for such Fiscal Year as of the end of such Fiscal Year. If in any Fiscal Year the Long-Term Debt Service Coverage Ratio of the Authority is less than 1.10 to 1, the Authority must retain a consultant, in a timely manner but in no event later than ninety (90) days after the date on which the Authority determines that such Long-Term Debt Service Coverage Ratio is less than 1.10 to 1. Within 60 days of being retained by the Authority, such consultant is required to prepare a report and make recommendations with respect to the methods of operation of the Authority, and if applicable, rates, fees and charges of the Authority, and other factors affecting their financial condition in order to increase such Long-Term Debt Service Coverage Ratio to at least 1.10 to 1. So long as the Authority has retained a consultant and has followed the report and recommendations of the consultant to the extent permitted by applicable laws, the Authority will not be deemed to be in violation of the 1.10 to 1 Rate Covenant.

Notwithstanding the foregoing paragraph, if in any Fiscal Year the Long-Term Debt Service Coverage Ratio of the Authority is less than 1.10 to 1, the Authority is not be required to retain a Consultant to make such recommendations if: (a) there is filed with the Trustee a written report of a consultant which contains an opinion of such consultant to the effect that applicable laws or regulations have prevented the Authority from generating Adjusted Revenues during such Fiscal Year in an amount sufficient to produce a Long-Term Debt Service Coverage Ratio of the Authority as the case may be, of 1.10 to 1 or higher; (b) the report of such consultant indicates that the methods of operation of the Authority, and if applicable, the fees and rates charged by the Authority are such that, in the opinion of the consultant, the Authority has generated the maximum amount of Adjusted Revenues reasonably practicable given such laws or regulations or other legal obligations; and (c) the Long-Term Debt Service Coverage Ratio of the Authority was at least 1.00 to 1 for such Fiscal Year. The Authority shall not be required to cause the consultant’s report referred to in the preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two Fiscal Years the Authority provides to the Trustee an Officer’s Certificate or an opinion of counsel to the effect that the applicable laws and regulations underlying the consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.

Notwithstanding anything else in the Indenture to the contrary, it is an Event of Default under the Indenture if as of the end of any Fiscal Year the Long-Term Debt Service Coverage Ratio of the Authority is less than 1.00 to 1. “The Indenture ─ Covenants of the Authority” in APPENDIX E hereto.

Other Covenants

In addition to the Rate Covenant described above, the Indenture contains covenants which, among other things, limit the ability of the Authority to incur debt, grant liens on its property, or dispose of its property . See “THE BONDS - Additional Secured Indebtedness” and “The Indenture ─ Covenants of the Authority” in APPENDIX E hereto.

Remedies

The Indenture specifies the remedies available to the Trustee upon the incurrence of an Event of Default, as defined in the Indenture. See “The Indenture ─ Events of Default and Remedies” in APPENDIX E.

BONDHOLDERS’ RISKS

General

A purchase of the Bonds involves certain investment risks that are discussed throughout this Official Statement, including the Appendices. Each prospective purchaser of the Bonds should make an independent evaluation of all the information presented in this Official Statement, including the Appendices, in order to make an informed investment decision.

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Tenant Lease Payments

It is expected that debt service on the Bonds will be paid primarily from primary fixed rent payments received from the Tenant pursuant to the Lease. The Tenant has never defaulted in its payment of rent pursuant to the Lease. There can be no assurances that the Tenant will not default in its payment of rent in the future.

Lease Termination

The Tenant has the right to terminate the Lease on and after June 30, 2026 in the event certain losses from operation of the Medical Center occur during a fiscal year, beginning with the fiscal year ending June 30, 2025, by providing notice of termination to the Authority within 60 days after the date the Tenant’s financial results are published for such fiscal year. Such termination will be effective at the end of the next succeeding fiscal year (i.e. notice of termination given within 60 days after publication of Tenant’s financial results for the fiscal year ending June 30, 2025 will be effective on June 30, 2026). However, if the Tenant exercises its right to terminate the Lease, the Tenant will be required to pay an early termination fee based upon the date of termination. If the Lease is terminated pursuant to the Tenant’s right to terminate, or is otherwise terminated, the Medical Center will be returned to the Authority for operation. Upon any termination of the Lease, the Authority would have to determine whether to lease the Medical Center to a new tenant or to reassume possession of and operate the Medical Center. The Authority may not have the ability to promptly lease the Medical Center to a new tenant or employ an experienced management team to operate the Medical Center. Future revenues of the Authority would be dependent upon its ability to find a tenant to lease the Medical Center, or, the capabilities of the Authority to operate the Medical Center and other conditions that are unpredictable. If the Lease were terminated, there is no assurance that the Authority would have sufficient funds or immediately available management to effectively operate the facilities currently owned by the Authority, with the result that the Authority might not be able to pay debt service on the Bonds. The Indenture restricts the ability of the Authority to sell substantially all of its assets. The Authority has the option in lieu of allowing the Tenant to terminate the Lease, to pay the Tenant the full amount of the losses from operations giving rise to the Tenant’s termination right or to require that the Tenant and BHCS provide management services with respect to the operation of the Medical Center for a transitional period of not less than one year and not more than 18 months. See “The Lease,” “Covenants of the Authority ─ Limitation on Disposition of Assets” in APPENDIX E and “Summary of Lease” in APPENDIX F.”

Pursuant to a Limited Joinder to the Lease, BHCS has agreed, as the sole member of the Tenant, that in the event the rent or the early termination payment is not paid when due by the Tenant (after the receipt of written notice by the Tenant of the amounts then due and the Tenant’s failure to pay such payments after the expiration of 10 days), to pay the Authority the amount of rent or early termination payment then due. There can be no assurance that BHCS will make or have the ability to make such payments when due.

The principal reason that the Authority and the Tenant have undertaken the affiliation represented by the Lease is to strengthen both the Medical Center and the Tenant. Implicit in this analysis is the possibility that over some undefined period the services provided at and through the Medical Center could change. There is no assurance that, at the time of any possible future termination of the Lease, the services provided at, or the market share of, the Medical Center would be such that its operations could generate sufficient Pledged Revenues to pay the debt service on the Bonds.

Limitation on Authority Tort Liability

Under existing law the Authority’s liability for certain acts and omissions is limited. For instance, Texas law limits the recovery of damages against the Authority for certain tort claims, including alleged negligence related to the treatment of patients at medical facilities of the Authority to $100,000 for each person, $300,000 for each single occurrence for bodily injury or death, and $100,000 for each single occurrence for injury or destruction of property. The Tenant’s management intends to mitigate such additional risk by, among other things, establishing appropriate reserves and/or purchasing insurance. See APPENDIX A ─ “Malpractice, Other Liability Insurance Considerations, and Litigation.”

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Construction Risks

Construction of the Series 2017 Project is subject to the usual risks associated with construction projects, including, but not limited to, delays in issuance of required building permits or other necessary approvals or permits, strikes, labor disputes, shortages of materials and/or labor, transportation delays, restrictions related to endangered species, adverse weather conditions, fire, casualties, acts of God, war, acts of public enemies, terrorism, orders of any kind of federal, state, county, city or local government, insurrections, riots, adverse conditions not reasonably anticipated or other causes beyond the control of the Authority or its contractors. Such events could result in delayed marketing, substantial completion, and/or occupancy of the Series 2017 Project and thus negatively impact the revenue flow therefrom. In addition, the substantial completion, marketing and occupancy of the Series 2017 Project may be delayed by reason of changes authorized by the Authority or by independent contractors employed by the Authority. Cost overruns could also result in the Authority not having sufficient money to complete construction of the Series 2017 Project, thereby materially affecting the receipt of revenues needed to pay the Bonds. The Authority anticipates that the proceeds from the sale of the Bonds and the proceeds of the sale of Series 2017B Bonds, along with funding from both the Authority and the Tenant will be sufficient to complete the construction and equipping of the Series 2017 Project. Cost overruns for projects may occur due to change orders and other factors.

Health Care Reform

The discussion herein describes risks associated with certain existing federal and state laws, regulations, rules, and governmental administrative policies and determinations to which the Medical Center and the healthcare industry are subject. While these are regularly subject to change, many of the existing provisions were enacted by or promulgated pursuant to the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (“ACA”), to which opposition has been expressed by President Trump and the Secretary of the U.S. Department of Health and Human Services (“DHHS”), as well as the majority leaders of each chamber of Congress and members of their caucuses. It is not possible to predict with any certainty whether or when the ACA or any specific provision or implementing measure will be repealed, withdrawn or modified in any significant respect, but a unified administration and majority in both chambers of Congress could enact legislation, withdraw, modify or promulgate rules, regulations and policies, or make determinations affecting the healthcare industry and the Medical Center, any of which individually or collectively could have a material adverse effect on the operations, financial condition and financial performance of the Medical Center.

The operations of the Tenant and the Tenant’s ability to meet its obligations under the Lease, and the ability of the Authority to operate the Medical Center in the event the Lease is terminated, could be adversely affected by health care reform.

The ACA enacted in March 2010 addresses almost all aspects of hospital and provider operations and health care delivery, and has changed and is changing how health care services are covered, delivered, and reimbursed. These changes have resulted and will result in new payment models with the risk of lower health care provider reimbursement from Medicare, utilization changes, increased government enforcement and the necessity for health care providers to assess, and potentially alter, their business strategy and practices, among other consequences. While many providers have received and will receive reduced payments for care, millions of previously uninsured Americans may have coverage. “Health insurance exchanges” have and could continue to fundamentally alter the health insurance market and negatively impact health care providers, enabling insurers to aggressively negotiate rates.

Some of the provisions of the ACA took effect immediately or within a few months of final approval, while others were or will be phased in over time, ranging from one year to ten years. Because of the complexity of the ACA generally, additional legislation may be considered and enacted over time. The ACA has also required, and will continue to require, the promulgation of substantial regulations with significant effects on the health care industry. Thus, the health care industry is the subject of significant new statutory and regulatory requirements and consequently to structural and operational changes and challenges for a substantial period of time. The full ramifications of the ACA may also become apparent only over time and through later regulatory and judicial interpretations. Portions of the ACA have already been limited and nullified as a result of legislative amendments and judicial interpretations and future actions may further change its impact. Results of the 2016 Congressional elections and Presidential election could affect the outcome of those efforts. The uncertainties regarding the

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implementation of the ACA create unpredictability for the strategic and business planning efforts of health care providers, which in itself constitutes a risk.

The changes in the health care industry brought about by the ACA have had and may have both positive and negative effects, directly and indirectly, on the nation’s hospitals and other health care providers. For example, the projected increase in the numbers of individuals with health care insurance occurring as a consequence of Medicaid expansion, creation of health insurance exchanges, subsidies for insurance purchase and the penalty on certain individuals who do not purchase insurance could result in lower levels of bad debt and increased utilization or profitable shifts in utilization patterns for hospitals. However, the extent to which Medicaid expansion, which is optional on a state-by-state basis, is either not pursued or results in a shifting of significant numbers of commercially-insured individuals to Medicaid, or health insurance options on exchanges are limited or unaffordable, as well as the cost containment measures and pilot programs that the ACA requires, may offset these benefits. Texas has chosen not to expand Medicaid. A negative impact to the hospital industry overall will likely result from scheduled cumulative reductions in Medicare payments; such reductions are substantial.

The ACA’s cost-cutting provisions to the Medicare program include reduction in Medicare market basket updates to hospital reimbursement rates under the Inpatient Prospective Payment System, additional reductions to or elimination of Medicare reimbursement for certain patient readmissions and hospital-acquired conditions, as well as anticipated reductions in rates paid to Medicare managed care plans that may ultimately be passed on to providers. Industry experts also expect that government cost reduction actions may be followed by private insurers and payors.

Health care providers could be further subjected to decreased reimbursement as a result of implementation of recommendations of the Independent Payment Advisory Board (“IPAB”) established by the ACA. Beginning January 15, 2019, if the Medicare growth rate exceeds the target, IPAB is directed to make recommendations for cost reduction for implementation by DHHS, and those recommended reductions will be automatically implemented unless Congress adopts alternative legislation that meets equivalent savings targets. While hospitals are largely exempted from recommendations from the IPAB, industry experts also expect that government cost reduction actions may be followed by private insurers and payors.

Beginning in 2014, the ACA authorized the creation of state “health insurance exchanges” in which health insurance can be purchased by certain groups and segments of the population, expanded the availability of subsidies and tax credits for premium payments by some consumers and employers, and required that certain terms and conditions be included by commercial insurers in contracts with providers. In addition, the ACA imposed many new obligations on states related to health insurance. The health insurance exchanges may have positive impact for hospitals by increasing the availability of health insurance to individuals who were previously uninsured. Conversely, employers or individuals may shift their purchase of health insurance to new plans offered through the exchanges, which may or may not reimburse providers at rates equivalent to rates the providers currently receive. The exchanges could alter the health insurance markets in ways that cannot be predicted, and exchanges might, directly or indirectly, take on a rate-setting function that could negatively impact providers. Because the exchanges are still so new, the effects of these changes upon the financial condition of any third party payor that offers health insurance, rates paid by third-party payors to providers and, thus, the operations, results of operations and financial condition of the Tenant cannot be predicted.

The ACA will likely affect some health care organizations differently from others, depending, in part, on how each organization adapts to the legislation’s emphasis on directing more federal health care dollars to integrated provider organizations and providers with demonstrable achievements in quality care. Commencing October 1, 2012, the ACA established a value-based purchasing system for hospitals under the Medicare program, which was designed to provide incentive payments to hospitals contingent on satisfaction of specified performance measures related to common and high-cost medical conditions, such as cardiac, surgical and pneumonia care. The ACA also funds various demonstration programs and pilot projects and other voluntary programs to evaluate and encourage new provider delivery models and payment structures, including “accountable care organizations” (“ACOs”) and bundled provider payments. On January 26, 2015, DHHS announced a timetable for transitioning Medicare payments from the traditional fee-for-service model to a value-based payment system. This schedule calls for tying 30% of traditional Medicare fee-for-service payments to quality or value through alternative payment models, such as ACOs or bundled payment arrangements, by the end of 2016, increasing to 50% by 2018. In addition, DHHS set a goal of tying 85% of all traditional Medicare fee-for-service payments to quality or value by 2016, increasing to 90% by 2018. In March 2016, DHHS announced that it had already achieved its 2016 objectives. The outcomes of these

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projects and programs, including the likelihood of their being made permanent or expanded or their effect on health care organizations’ revenues or financial performance, cannot be predicted.

The ACA contains amendments to existing criminal, civil and administrative anti-fraud statutes and increases in funding for enforcement and efforts to recoup prior federal health care payments to providers. Under the ACA, a broad range of providers, suppliers and physicians are required to adopt a compliance and ethics program. While the government has already increased its enforcement efforts, failure to implement certain core compliance program features provide new opportunities for regulatory and enforcement scrutiny, as well as potential liability if an organization fails to prevent or identify improper federal health care program claims and payments. See also “─ Regulatory Environment” below.

The ACA is projected to expand access to Medicaid and the scope of services covered thereunder. With respect to access, Medicaid is expected to cover all individuals with incomes of less than 133% of the federal poverty level. The new law currently gives states the option to expand Medicaid eligibility to non-elderly, non pregnant individuals who are not otherwise eligible for Medicare, if they have incomes of less than 133% of the federal poverty level. To assist states with the cost of covering such newly eligible individuals, the federal government agreed to pay 100% of the new cost for a limited number of years. Thereafter, the cost share is expected to decrease to 90% by 2020, which decrease will occur in phases. If a state chooses not to participate in the expanded Medicaid program, the net effect of the reforms in the ACA could be significantly reduced. Texas has chosen not to expand Medicaid. Additionally, Medicaid reimbursement rates differ by state and the effect of expanded Medicaid enrollment must be determined on a state-by-state basis.

Certain members of Congress have continued to support full repeal of, or legislative alternatives to, the ACA. If Texas continues to choose not to participate in expansion of the Medicaid program, reductions in bad debt and charity care expenses may not be fully realized by the Medical Center, since it is likely that a significant number of indigents in its service areas would remain uninsured. In addition, healthcare insurance premium assistance will not be available for undocumented patients, so the ACA is not expected to reduce the number of uninsured undocumented Medical Center patients.

In May 2017, the U.S. House of Representatives adopted legislation to replace the ACA. The legislation features provisions that would, in material part (i) eliminate the individual and large employer mandates to obtain or provide health insurance coverage, respectively; (ii) permit insurers to impose a surcharge up to 30 percent on individuals who go uninsured for more than two months and then purchase coverage; (iii) provide tax credits towards the purchase of health insurance, with a phase-out of tax credits according to income level; (iv) expand health savings accounts; (v) impose a per capita cap on federal funding of state Medicaid programs, or, if elected by a state, transition federal funding to a block grant; and (vi) permit states to seek a waiver of certain federal requirements that would allow such states to define essential health benefits differently from federal standards and that would allow certain commercial health plans to take health status, including pre-existing conditions, into account in setting premiums.

A May 2017 Congressional Budget Office (“CBO”) report estimates that repealing certain portions of the ACA (including the individual mandate), while leaving the insurance exchange market in place, would (1) increase the number of uninsured by 14 million in the first year and 51 million by 2026, and (2) increase insurance premiums by 20-25 percent in the first year. To the extent the ACA is not repealed, any increased utilization resulting from the law will also increase the variable and fixed costs of providing health care services, which may or may not be offset by increased revenues.

The legislation proceeded to the U.S. Senate, but the Senate has not passed legislation corresponding to the House of Representatives bill to date. If the provisions of the proposed legislation are ultimately implemented along with other proposed amendments to the ACA, there can be no assurance that any such legislation will not materially adversely affect the Medical Center, which material effects may include a potential decrease in the market for health care services or a decrease in the Medical Center’s ability to receive reimbursement for health care services provided.

In addition to legislative changes, ACA implementation and the ACA insurance exchange markets can be significantly impacted by executive branch actions. On January 20, 2017, President Trump issued an executive order requiring all federal agencies with authorities and responsibilities under the ACA to “exercise all authority and

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discretion available to them to waive, defer, grant exemptions from, or delay” parts of the ACA that place “unwarranted economic and regulatory burdens” on states, individuals or health care providers.

On October 11, 2017 the President signed an executive order directing the Department of Labor to promulgate rulemaking enabling the formation of association health plans that would be exempt from certain ACA requirements such as the essential health benefits mandate. The executive order also: (i) provides for expanded access to short-term health plans that are limited under the ACA; (ii) seeks to expand how workers use employer- funded accounts to purchase their own policies; and (iii) calls for an analysis of ways to limit consolidation within the insurance and health care industries.

Additionally, on October 12, 2017, the President announced in a Department of Justice filing to the ongoing litigation challenging cost-sharing reduction payments that such payments will no longer be made to insurers. Cost sharing reduction payments help offset deductibles and other out-of-pocket expenses for exchange health insurance coverage for approximately seven million individuals earning up to 250 percent of the federal poverty level. The CBO previously reported that if cost sharing reduction payments were to end, premiums for silver-level plans would increase by 20 percent in 2018.

On October 13, 2017, eighteen states and the District of Columbia filed suit in the U.S. District Court for the Northern District of California challenging the Trump Administration’s action and asking the court to issue a preliminary injunction mandating that the Administration continue to make cost sharing reduction payments. That request was rejected by the District Court, which concluded that both sides have reasonable arguments on the issue of whether Congress appropriated money for the cost-sharing reduction payments.

On October 17, 2017 the Senate Committee on Health, Education, Labor, and Pensions announced a bipartisan proposal intended to continue cost sharing reduction payments, but no such legislation has been passed to date. On October 25, the CBO estimated that the legislation, if enacted as proposed, would reduce the federal deficit by $3.8 billion over ten years and would not substantially change the number of people with health insurance coverage

These recent actions have the potential to significantly impact the insurance exchange market by reducing the number of plans available on exchanges and/or increasing insurance premiums. The Medical Center cannot predict the effect of any such executive actions on the Tenant’s business or financial condition, though such effects could be material

Other Regulation of the Health Care Industry. In addition to health care reform, or any licensure requirements on hospital authorities operating in the State, the Series 2017 Project may become subject to regulation and certification by various additional federal, state and local government agencies. No assurance can be given as to the effect on future operations of the Series 2017 Project of existing laws, regulations and standards for certification or accreditation or of any future changes in such laws, regulations or standards. Any such changes could negatively impact occupancy levels and revenues of the Tenant.

Payment for Hospital Services

A substantial portion of the Medicare revenues of the Medical Center is anticipated to be derived from payments made for services rendered to Medicare beneficiaries under the inpatient prospective payment system (“IPPS”). Under the IPPS, for each covered hospitalization Medicare pays a predetermined base operating payment and a separate predetermined base payment for capital-related costs. Each hospitalization of a Medicare beneficiary is classified into one of several hundred DRGs, which determines the IPPS base payment rate for the hospitalization. The IPPS payment rate is not correlated to the hospital’s actual cost of treating a particular patient. It is a fixed sum, generally based on national DRG rates and a Hospital Wage Index intended to reflect geographic differences in the costs of labor. Several hospital characteristics are reflected in payment adjustments, including an indirect medical education adjustment, the disproportionate share adjustment to pay certain hospitals for a portion of the higher costs of treating a large proportion of poor patients and for indirect costs of operating in areas accessible to poor patients and outlier case adjustments (an additional payment for selected cases of unusually long stays or high costs).

In addition, DRG rates are subject to annual adjustment by CMS or Congress and are subject to federal budget considerations. The legislation that created the IPPS requires that payments under the IPPS be adjusted

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annually based on the national average cost of providing inpatient services (the “market basket”). For every year since 1983, Congress has modified the increases and given substantially less than the increase in the “market basket” index. There is no assurance that future updates in the IPPS payments will come any closer to keeping pace with the increases in the cost of providing hospital services. If a hospital incurs operating and capital costs in treating Medicare inpatients which exceed the DRG level of reimbursement, the hospital will experience a loss from providing these services.

In recent years, CMS has implemented a number of initiatives that may adversely affect Medicare payment to the Medical Center, including reduced payment for certain cases in which a beneficiary acquires a complication or condition while in the hospital; an overall reduction in payment to fund bonus payments to some hospital who satisfy CMS’s “value-based purchasing” criteria; and reduced payments to hospitals whose readmission rate for patients with specified diagnoses exceeds the anticipated readmission rate.

There is no assurance that the Medical Center will be paid amounts that will reflect adequately its costs incurred in providing inpatient hospital services to Medicare beneficiaries, as well as any changes in the cost of providing health care or in the cost of health care technology being made available to Medicare beneficiaries. The ultimate effect of the IPPS on the Medical Center will depend on its ability to control costs involved in providing inpatient hospital services.

Payment for Physician Services. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) will substantially alter how physicians and other practitioners are paid by Medicare for services furnished to program beneficiaries. CMS previously relied on a formula known as the Sustainable Growth Rate (“SGR”), which imposed a limit on the growth of Medicare payments for physician services based on changes to the U.S. Gross Domestic Product over a ten-year period. MACRA permanently replaced the SGR formula with statutorily prescribed physician payment updates and incentives based upon performance measures that began in January 2017. This legislation increases Medicare physician reimbursement by 0.5% annually until 2019 and then provides for no additional increases to base physician reimbursement through 2025.

MACRA moved Medicare physician reimbursement from a fee-for-service to a pay-for-performance model that will continue to control the growth of physician payments based on clinical outcomes and quality reporting. In addition to the base payment methodology, physicians can earn merit-based payments based on factors including compliance with meaningful use of certified electronic health records technology (“CEHRT”) and demonstration of quality-based medicine.

Beginning January 1, 2019, and carrying through 2025, physician payment adjustments will occur through the Quality Payment Program’s two reimbursement tracks – the Merit-based Incentive Payment System (“MIPS”) or an Advanced Alternative Payment Model (“APM”). In calculating physician payment adjustments, MIPS streamlines existing quality and value programs, accounting for physician performance under the meaningful use of electronic health records incentive program, the value-based modifier, and physician quality reporting system.

Medicaid. Medicaid is a cooperative medical assistance program funded by the federal government (approximately 60%) and the state (approximately 40%). The primary beneficiaries of the Medicaid program are children, pregnant women, and low income elderly or disabled persons.

Standard Medicaid Program. Under Medicaid, the federal government provides grants to states that have medical assistance programs that are consistent with (or have secured waivers from) federal standards. Absent a waiver of program requirements, Medicaid compensates hospitals on a DRG-based prospective payment system. Hospitals are grouped into one of multiple payment divisions based on their own costs in a base year. A relative weight is calculated for each DRG, and standard dollar amounts are established for each payment division. With certain limited exceptions, the Medicaid payment per patient discharge is determined by multiplying the applicable DRG weight by the standard dollar amount of the hospital’s payment division. Because the State is required to contribute funding prior to federal investment, most states’ Medicaid programs do not reimburse providers anywhere near the amount that would cover costs for treating this population. Fiscal considerations of the state government in establishing its budget will directly affect the funds available to the providers for payment of services rendered to Medicare beneficiaries. Delays in appropriations and state budget deficits which may occur from time to time create a risk that payment for services to Medicaid patients will be withheld or delayed.

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Texas Health Care Transformation and Quality Improvement Program (Medicaid Section 1115 Waiver). In December 2011, the State of Texas received approval from the federal government for and implemented a waiver from certain federal Medicaid requirements for the five-year period ending September 30, 2016, which has been extended through December 31, 2017 as discussed below (the “Waiver Program”). The Waiver Program generally preserves Upper Payment Limit (“UPL”) funding under a new methodology, but allows for managed care expansion to additional areas of the State. Under the Waiver Program, in lieu of making UPL payments to hospitals, the State and federal government share in funding two payment pools – the Uncompensated Care (“UC”) Pool and the Delivery System Reform Incentive Payment (“DSRIP”) Pool – from which payment pools supplemental payments may be made to providers. The UC program is intended to provide funding for hospitals and other providers to help offset the uncompensated care they provide to Medicaid and uninsured patients. Funding for UC depends on a local governmental entity providing intergovernmental transfers as the State share, which is then matched by federal funds. Public entities have sole discretion to make or not make intergovernmental transfers. The DSRIP program is intended to provide funding incentives to hospitals and other providers to enhance access to care for and the health of patients through the implementation of specifically approved projects and demonstrated achievement of defined milestones.. Under the Waiver Program, hospitals make proposals to receive payments to defray costs of innovations in their delivery systems to achieve these goals.

In a letter dated September 30, 2014, CMS announced that it was deferring the federal share of Waiver Program UC payments totaling between $63 million and $75 million for the third quarter of federal fiscal year 2014 to certain hospitals in Dallas, Tarrant, and Nueces Counties. In the deferral letter, CMS explained that it needed to review certain funding arrangements and their compliance with federal provider-related donation prohibitions, including as interpreted by CMS in State Medicaid Director Letter #14-004 (May 9, 2014). In a subsequent letter dated January 7, 2015, CMS described that it would release the deferral but continue to review information provided in support of the funding arrangements and if it would determine that any financing structure within the State Medicaid program violates federal law, CMS would expect the State to make necessary adjustments by December 2015. On March 9, 2016, CMS responded to information provided in support of the funding arrangements, indicating that the indigent care funding arrangements in Dallas and Tarrant Counties appear to violate the provider- based donation prohibition against a private hospital assuming a statutory obligation of a governmental entity, citing Texas Health and Safety Code Section 61.033, payment for services. In a letter dated September 1, 2016, CMS disallowed federal matching funds applicable to certain hospitals in Dallas and Tarrant Counties for the quarter ended December 31, 2015. CMS alleged that the private hospitals participating in these affiliations failed to comply with the federal provider-related donation requirements. The Texas Health and Human Services Commission (“THHSC”) has appealed the disallowance to the DHHS Departmental Appeals Board. BHCS, on behalf of the Medical Center, and along with certain other private hospitals, are participating in this administrative litigation as intervenors. It is too early to predict the outcome of this matter; however, if CMS would prevail and recoup federal financial participation from the state related to a private hospital’s receipt of supplemental Medicaid payments received under the Waiver Program, THHSC may recoup from the Medical Center and private hospitals an amount equal to the amount of supplemental payments recouped by CMS. It is not yet possible to quantify the potential reimbursement effect (Medicaid supplemental payments, received and accrued) on the Medical Center if CMS prevails in the litigation.

In May 2016, CMS issued a temporary extension of current Waiver Program funding levels; the Waiver Program will now expire on December 31, 2017. In granting the extension, CMS stated that no further extension of the state’s UC program should pay for costs that would be paid by an expansion of Medicaid in Texas, so any extension should be limited to low-income individuals who are not eligible for Medicaid or other insurance programs, and that absent agreeable revisions, funding would be reduced by 25% per year beginning in 2018. Given the conditions of the CMS extension and the State’s opposition to expanding Medicaid, there can be no assurance that the Medical Center will continue to receive Medicaid supplemental payments beyond the extension period.

Consequently, the Medical Center’s continued receipt of supplemental payments under the Medicaid program will depend upon adequate State appropriations and federal DSH payments, the hospital’s ability to compete for DSRIP payments and to achieve any patient access or health objectives on which they may be conditioned, CMS not deferring or recouping UC payments and even DSRIP payments, and either extension of the Waiver Program or approval and implementation of a similar supplemental payment program.

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Regulatory Environment

“Fraud” and “False Claims.” Health care “fraud and abuse” laws have been enacted at the federal and state levels to broadly regulate the provision of services to government program beneficiaries and the methods and requirements for submitting claims for services rendered to the beneficiaries. Under these laws, hospitals and others can be penalized for a wide variety of conduct, including submitting claims for services that are not provided, billing in a manner that does not comply with government requirements or submitting inaccurate billing information, billing for services deemed to be medically unnecessary, or billings accompanied by an illegal inducement to use or refrain from using a service or product.

Federal and state governments have a broad range of criminal, civil and administrative sanctions available to penalize and remediate health care fraud, including the exclusion of a hospital from participation in the Medicare/Medicaid programs, civil monetary penalties, executing corrective action plans, and suspension of Medicare/Medicaid payments. Fraud and abuse cases may be prosecuted by one or more government entities and/or private individuals, and more than one of the available sanctions may be, and often are, imposed for each violation.

Laws governing fraud and abuse may apply to a health care organization and to nearly all individuals and entities with which a health care organization does business. Fraud investigations, settlements, prosecutions and related publicity can have a material adverse effect on health care organizations. See “Enforcement Activity” below. Major elements of these often highly technical laws and regulations are generally summarized below.

The ACA authorizes the Secretary of DHHS to suspend payments to a provider pending an investigation or prosecution of a credible allegation of Medicare or Medicaid fraud against the provider. Providers found to have engaged in Medicare or Medicaid fraud may be excluded from participation in the Medicare and Medicaid programs thereafter.

False Claims Act. The federal False Claims Act (“FCA”) makes it illegal to knowingly submit or present a false, fictitious or fraudulent claim for payment or approval for payment for which the federal government provides, or reimburses at least some portion of the requested money or property. Because the term “knowingly” is defined broadly under the law to include not only actual knowledge but also deliberate ignorance or reckless disregard of the facts, the FCA can be used to punish a wide range of conduct. The ACA amends the FCA by expanding the number of activities that are subject to civil monetary penalties to include, among other things, failure to report and return known overpayments within statutory time limits. FCA investigations and cases have become common in the health care field and may cover a range of activity from submission of inflated billings, to highly technical billing infractions, to allegations of inadequate care. Penalties under the FCA are severe and can include damages equal to three times the amount of the alleged false claims, as well as substantial civil monetary penalties.

Violation or alleged violation of the FCA frequently result in settlements that require multi-million dollar payments and costly corporate integrity agreements. The FCA also permits individuals to initiate civil actions on behalf of the government in lawsuits called “qui tam” actions. Qui tam plaintiffs, or “whistleblowers,” can share in the damages recovered by the federal government or recover independently if the federal government does not participate. Because qui tam lawsuits are kept under seal while the federal government evaluates whether the United States will join the lawsuit, it is impossible to determine at this time whether any such actions are pending against the Tenant and no assurances can be made that such actions will not be filed in the future. The FCA has become one of the federal government’s primary tools against health care fraud and suspected fraud. FCA violations or alleged violations could lead to settlements, fines, exclusion or reputation damage that could have a material adverse impact on a hospital and other health care providers.

Under the ACA, the FCA has been expanded to include overpayments that are discovered by a health care provider and are not promptly refunded to the applicable federal health care program, even if the claims relating to the overpayment were initially submitted without any knowledge that they were false. The ACA requires that providers return identified overpayments within 60 days of identification or the overpayment becomes an “obligation” under the FCA. This expansion of the FCA exposes hospitals and other health care providers to liability under the FCA for a considerably broader range of claims than in the past.

On June 30, 2016, the U.S. Department of Justice (“DOJ”) issued an interim final rule that will more than double civil monetary penalties under the FCA. While the DOJ has the authority to enact a smaller increase, it

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indicated that it does not intend to invoke that authority. These increases took effect on August 1, 2016 and apply to FCA violations after November 2, 2015.

Anti-Kickback Law. The federal “Anti-Kickback Law” prohibits anyone from soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for a referral of a patient for, or the ordering or recommending of the purchase (or lease) of any item or service that is paid by a federal or state health care program. The Anti-Kickback Law potentially implicates many common health care transactions between persons and entities with which a hospital does business, including hospital-physician joint ventures, medical director agreements, physician recruitment agreements, physician office leases and other transactions. The ACA amended the Anti-Kickback Law to provide that a claim that includes items or services resulting from a violation of the Anti-Kickback Law now constitutes a false or fraudulent claim for purposes of the FCA. Another amendment provides that an Anti-Kickback Law violation may be established without showing that an individual knew of the statute’s proscriptions or acted with specific intent to violate the Anti-Kickback Law, but only that the conduct was generally unlawful. The new standards could significantly expand criminal and civil fraud exposure for transactions and arrangements where there is no intent to violate the Anti-Kickback Law.

Violations or alleged violations of the Anti-Kickback Law most often results in settlements that require multi-million dollar payments and costly corporate integrity agreements. The Anti-Kickback Law can be prosecuted either criminally or civilly. Violation is a felony, subject to potentially substantial fines, imprisonment and/or exclusion from the Medicare and Medicaid programs, any of which would have a significant detrimental effect on the financial stability of most hospitals. In addition, significant civil monetary penalties may be imposed. Increasingly, the federal government and qui tam relators are prosecuting violations of the Anti-Kickback Law under the FCA, based on the argument that claims resulting from an illegal kickback arrangement are also false claims for FCA purposes. See the discussion under the subheading “False Claims Act” above. The IRS has taken the position that hospitals are found to have violated the Anti-Kickback Law may also be subject to revocation of their tax-exempt status.

Stark Referral Law. The federal “Stark” statute prohibits the referral by a physician of Medicare and Medicaid patients for certain designated health services (including inpatient and outpatient hospital services, clinical laboratory services, and radiation, and other imaging services) to entities with which the referring physician has a financial relationship, unless the relationship fits within a stated exception. It also prohibits a hospital from billing Medicare, or any other payor or individual, for designated health services performed pursuant to a prohibited referral. The government does not need to prove that the entity knew that the referral was prohibited to establish a Stark violation. If certain technical requirements are not satisfied, many ordinary business practices and economically desirable arrangements between hospitals and physicians may constitute improper “financial relationships” within the meaning of the Stark statute, thus triggering the prohibition on referrals and billing. Most providers of designated health services with physician relationships have some exposure to liability under the Stark statute. Changes to the regulations issued under the Stark statute have rendered illegal a number of common arrangements under which physician-owned entities provide services and/or equipment to hospitals and may increase risk of violation due to lack of clarity of the technical requirements.

Medicare may deny payment for all services related to a referral prohibited under the Stark law and regulations and a hospital that has billed for prohibited services may be obligated to refund the amounts collected from the Medicare program. For example, if an office lease between a hospital and a large group of heart surgeons is found to violate Stark, the hospital could be obligated to repay CMS for the payments received from Medicare for all of the designated health services referred to the hospital by all of the physicians in the group for the period of time the lease does not comply with an applicable Stark exception, which could potentially be a significant amount. As a result, even relatively minor, technical violations of the law may trigger substantial refund obligations. In the Physician Fee Schedule final rule for calendar year 2016, CMS eased some of the technical burdens associated with Stark Law compliance (e.g. CMS explains in the final rule that a single contract is not necessary and instead a collection of documents will suffice to demonstrate Stark law compliance), but the practical outcome remains unclear. The government may also seek substantial civil monetary penalties. Hospitals and other entities may also be excluded from the Medicare and Medicaid programs. Potential repayments to CMS, settlements, fines or exclusion for a Stark violation or alleged violation could have a material adverse impact on a hospital and other health care providers. Increasingly, the federal government is prosecuting violations of the Stark statute under the FCA, based on the argument that claims resulting from an illegal referral arrangement are also false claims for FCA

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purposes. See the discussion under the subheading “False Claims Act” above. The Federal government is also increasingly attempting to recover the Federal portion of Medicaid claims referred to hospitals by physicians with whom they have a prohibited financial relationship.

CMS has established a voluntary self-disclosure program under which hospitals and other entities may report Stark violations and seek a reduction in potential refund obligations. The Tenant may make self-disclosures under this program as appropriate from time to time. Any submission pursuant to the self-disclosure program does not waive or limit the ability of the Office of Inspector General (“OIG”) or the DOJ to seek or prosecute violations of the Anti-Kickback Statute or impose civil monetary penalties. The level of repayments, penalties and other actions resulting from such self-disclosures will depend on the particular facts and circumstances, including then current regulatory approach regarding the issues subject to such disclosure.

Review of Outlier Payments. CMS is reviewing health care providers that are receiving large proportions of their Medicare revenues from outlier payments. Health care providers found to have obtained inappropriately high outlier payments will be subject to further investigation by the CMS Program Integrity Unit and potentially the OIG.

RAC Audits. The CMS has contracts with Medicare recovery audit contractors (“RACs”) to search for improper Medicare payments in all 50 states. RAC contractors retrospectively review provider claims for the following types of services: hospital inpatient and outpatient, skilled nursing services, physician, ambulance and laboratory, as well as durable medical equipment. The RAC program was expanded through the ACA to Medicare Part C (Medicare Advantage plans), Medicare Part D (prescription drug coverage) and Medicaid. The Medical Center could be adversely affected if audits of its charges for Medicare or Medicaid patients were to allege overcharges in excess of reserves. If audits discover alleged overpayments, the Medical Center could be required to pay a substantial rebate of payments. The Medical Center will reserve sufficient funds for future audit adjustments, if any, but there can be no assurance that reserves will be adequate.

HIPAA. The Health Insurance Portability and Accountability Act of 1996, and amended (“HIPAA”) focuses on preserving the confidentiality of individuals’ health information. Disclosure of certain broadly defined protected health information is prohibited unless expressly permitted by the HIPAA statute or regulations or authorized by the patient. HIPAA’s confidentiality provisions extend not only to patient medical records, but also to a wide variety of individually identifiable health care clinical and financial information. These patient privacy requirements also impose communication, operational, and accounting obligations that add costs and create potentially unanticipated sources of liability. HIPAA imposes civil monetary penalties for violations and criminal penalties for knowingly obtaining or using individually identifiable health information. HIPAA also provides for criminal sanctions for health care fraud and applies to all health care benefit programs, whether public or private. HIPAA provides for punishment of a health care provider for knowingly and willfully embezzling, stealing, converting or intentionally misapplying any money, funds or other assets of a health care benefit program. A health care provider convicted of health care fraud could be subject to mandatory exclusion from Medicare. See “─ Exclusions from Medicare or Medicaid Participation” below.

The HITECH Act. Provisions in the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”) increased the minimum and maximum civil monetary penalties for violations of HIPAA and granted enforcement authority of HIPAA to state attorneys general. The HITECH Act also (i) extended the reach of HIPAA beyond “covered entities,” (ii) imposed a breach notification requirement on HIPAA covered entities, (iii) limited certain uses and disclosures of individually identifiable health information, and (iv) restricted covered entities’ marketing communications.

The breach notification obligation, in particular, may expose covered entities such as hospitals to heightened liability. Under HITECH, in the event of a data privacy breach, covered entities are required to notify affected individuals and the federal government. If more than 500 individuals in any state are affected by the breach, (1) the covered entity must also notify the media and (2) the federal government posts a description of the breach on its website. Although HIPAA does not provide for a private right of action, these reporting obligations increase the risk of government enforcement as well as class action lawsuits filed under state privacy or consumer protection laws, especially if large numbers of individuals are affected by a breach.

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The HITECH Act also established programs under Medicare and Medicaid to provide incentive payments for the “meaningful use” of certified electronic health record (“EHR”) technology. Beginning in 2011, the Medicare and Medicaid EHR incentive programs began providing incentive payments to eligible professionals and eligible hospitals for demonstrating meaningful use of certified EHR technology. Health care providers demonstrate their meaningful use of EHR technology by meeting objectives specified by CMS for using health information technology and by reporting on specified clinical quality measures. The CMS rule to implement MACRA proposes to replace the meaningful use program with the “advancing care information” portion of the MIPS requirements. While these proposed MACRA requirements apply to physicians and other clinicians, CMS indicated that it intends to replace the meaningful use program for hospitals as well. It is not clear how this proposal will impact hospitals and other health care facilities.

In 2013, DHHS issued comprehensive modifications to the existing HIPAA regulations to implement the requirements of the HITECH Act, commonly known as the “HIPAA Omnibus Rule.” Key aspects of the HIPAA Omnibus Rule include, but are not limited to: (i) a new standard for what constitutes a breach of protected health information, (ii) establishing four levels of culpability with respect to civil monetary penalties assessed for HIPAA violations, (iii) direct liability of business associates for certain violations of HIPAA, (iv) modifications to the rules governing research, (v) stricter requirements regarding non-exempt marketing practices, (vi) modification and re distribution of notices of privacy practices, and (vii) stricter requirements regarding the protection of genetic information. The stricter requirements and penalties provided by the HIPAA Omnibus Rule increase the potential adverse effect on health care providers found to have experienced a HIPAA breach event or to have violated other HIPAA provisions.

The HITECH Act revises the civil monetary penalties associated with violations of HIPAA as well as provides state attorneys general with authority to enforce the HIPAA privacy and security regulations in some cases through a damages assessment of $110 per violation or an injunction against the violator. The revised civil monetary penalty provisions establish a tiered system, ranging from a minimum of $110 per violation for an unknowing violation to $1,100 per violation for a violation due to reasonable cause, but not willful neglect. For a violation due to willful neglect, the penalty is a minimum of $11,002 or $55,010 per violation, depending on whether the violation was corrected within 30 days of the date the violator knew or should have known of the violation. Maximum penalties may reach $1,605,300 for identical violations.

Pursuant to the HITECH Act, criminal penalties will be enforced against persons who obtain or disclose personal health information without authorization. DHHS performs periodic audits of health care providers and group health plans to ensure that required policies under the HITECH Act are in place. Individuals harmed by violations will be able to recover a percentage of monetary penalties or a monetary settlement based upon methods to be established by DHHS for such private recovery. DHHS chose not to address these penalty distribution guidelines in the HIPAA Omnibus Rule, but stated that they will be a subject of future rulemaking.

The Office for Civil Rights (“OCR”) is the administrative office that is tasked with enforcing HIPAA. OCR has stated that it has now moved from education to enforcement in its implementation of the law. Recent settlements of HIPAA violations for breaches involving lost data have reached the millions of dollars and often require comprehensive corrective action plans. Any breach of HIPAA, regardless of intent or scope, may result in penalties or settlement amounts that are material to a covered health care provider or health plan.

Business Associates. Under existing HIPAA regulations, covered entities must include certain required provisions in their contractual relationships with organizations that perform functions on their behalf which involve use or disclosure of protected health information. These organizations are called business associates, and have been indirectly regulated by HIPAA through those contractual obligations. The HITECH Act and the HIPAA Omnibus Rule provide that all of the HIPAA security administrative, physical, and technical safeguards, as well as security policies, procedures, and documentation requirements now apply directly to all business associates. In addition, the HITECH Act makes certain privacy provisions directly applicable to business associates. These changes are significant because business associates will now be directly regulated by DHHS for those requirements, and as a result, will be subject to penalties imposed by DHHS and/or state attorneys general. Likewise, to the extent a business associate is deemed to be an agent of the covered entity under the Federal common law, the covered entity will be liable for the breaches of the business associate. Covered entities have had to review and amend their business associate agreements in recent years in order to comply with these changing rules, which can be costly and administratively burdensome.

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Exclusions from Medicare or Medicaid Participation. The government may exclude a health care provider from Medicare/Medicaid program participation that is convicted of a criminal offense relating to the delivery of any item or service reimbursed under Medicare or a state health care program, any criminal offense relating to patient neglect or abuse in connection with the delivery of health care, fraud against any federal, state or locally financed health care program or an offense relating to the illegal manufacture, distribution, prescription, or dispensing of a controlled substance. The government also may exclude individuals or entities under certain other circumstances, including, but not limited to, an unrelated conviction of fraud, or other financial misconduct relating either to the delivery of health care in general or to participation in a federal, state or local government program. Exclusion from the Medicare/Medicaid program means that a health care provider would be decertified as a participant in such programs and would be ineligible to treat or be reimbursed for services to program beneficiaries. Any health care provider exclusion could be a materially adverse event. In addition, exclusion of health care organization’s employees or independent contractors or their employees under Medicare or Medicaid may be another source of potential liability for hospitals and health systems based on services provided by those excluded individuals or entities.

Administrative Enforcement. Administrative regulations may require less proof of a violation than do criminal laws, and, thus, health care providers may have a higher risk of imposition of monetary penalties as a result of administrative enforcement actions.

Civil Monetary Penalties Law. The federal Civil Monetary Penalties Law (“CMPL”) provides for administrative sanctions against health care providers for a broad range of billing and other abuses. A health care provider is liable under the CMPL if it knowingly presents, or causes to be presented, improper claims for reimbursement under Medicare, Medicaid and other federal health care programs. A hospital that participates in arrangements known as “gainsharing” by paying a physician to limit or reduce services to Medicare fee-for-service beneficiaries also could be subject to CMPL penalties. A health care provider that provides benefits to Medicare or Medicaid beneficiaries that such provider knows or should know are likely to induce the beneficiaries to choose the provider for their care also could be subject to CMPL penalties. The CMPL authorizes imposition of a civil money penalty and treble damages. The ACA also amended the CMPL laws to establish various new grounds for exclusion and civil monetary penalties, as well as increased penalty thresholds for existing civil monetary penalties.

Health care providers may be found liable under the CMPL even when they did not have actual knowledge of the impropriety of their action. Knowingly undertaking the action is sufficient. Ignorance of the Medicare regulations is no defense. The imposition of civil money penalties on a health care provider could have a material adverse impact on the provider’s financial condition.

Compliance with Conditions of Participation. CMS, in its role of monitoring participating providers’ compliance with conditions of participation in the Medicare program, may determine that a provider is not in compliance with its conditions of participation. In that event, a notice of termination of participation may be issued or other sanctions, such as suspension or executing potentially burdensome corrective actions plans, potentially could be imposed.

Enforcement Activity. Enforcement activity against health care providers has increased, and enforcement authorities have adopted aggressive approaches. In the current regulatory climate, it is anticipated that many hospitals and physician groups will be subject to an audit, investigation, or other enforcement action regarding the health care fraud laws mentioned above.

Enforcement actions may pertain to not only deliberate violations, but also frequently relate to violations resulting from actions of which management is unaware, from mistakes or from circumstances where the individual participants do not know that their conduct is in violation of law. Enforcement actions may extend to conduct that occurred in the past. The government may seek a wide array of penalties, including withholding essential payments under the Medicare or Medicaid programs or exclusion from those programs.

Enforcement authorities are often in a position to compel settlements by providers charged with, or being investigated for false claims violations by withholding or threatening to withhold Medicare, Medicaid and/or similar payments or to recover higher damages, assessments or penalties and/or by instituting criminal action. In addition, the cost of defending such an action, the time and management attention consumed, and the facts of a case may dictate settlement. Therefore, regardless of the merits of a particular case, a hospital could experience materially

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adverse settlement costs, as well as materially adverse costs associated with implementation of any settlement agreement. Prolonged and publicized investigations could be damaging to the reputation and business of a health care organization, regardless of outcome.

Certain acts or transactions may result in violation or alleged violation of a number of the federal health care fraud laws described above, and therefore penalties or settlement amounts often are compounded. Generally these risks are not covered by insurance. Enforcement actions may involve multiple facilities in an organization, as the government often extends enforcement actions regarding health care fraud to other hospitals or health care entities in the same organization. Therefore, Medicare fraud related risks identified as being materially adverse as to a health care organization could have materially adverse consequences to a health system taken as a whole.

EMTALA. The Emergency Medical Treatment and Active Labor Act (“EMTALA”) is a federal civil statute that requires hospitals to treat or conduct a medical screening for emergency conditions and to stabilize a patient’s emergency medical condition before releasing, discharging or transferring the patient. A hospital that violates EMTALA is subject to civil penalties of up to $103,139 per offense and exclusion from the Medicare and Medicaid programs. In addition, the hospital may be liable for any claim by an individual who has suffered harm as a result of a violation.

Licensing, Surveys, Investigations and Accreditations. Health facilities are subject to numerous legal, regulatory, professional and private licensing, certification and accreditation requirements. These include, but are not limited to, requirements of state licensing agencies and accreditation organizations. Renewal and continuation of certain of these licenses, certifications and accreditations are based on inspections or other reviews generally conducted in the normal course of business of health facilities. Loss of, or limitations imposed on, hospital licenses or accreditations could reduce hospital utilization or revenues, or a hospital’s ability to operate all or a portion of its facilities or to bill various third party payors.

Environmental Laws and Regulations. Health facilities are subject to a wide variety of federal, state and local environmental and occupational health and safety laws and regulations. These include, but are not limited to: air and water quality control requirements; waste management requirements; specific regulatory requirements applicable to asbestos and radioactive substances; requirements for providing notice to employees and members of the public about hazardous materials handled by or located at the health facilities; and requirements for training employees in the proper handling and management of hazardous materials and wastes.

Health facilities may be subject to requirements related to investigating and remedying hazardous substances located on their property, including such substances that may have migrated off the property. Typical hospital operations include the handling, use, storage, transportation, disposal and/or discharge of hazardous, infectious, toxic, radioactive, flammable and other hazardous materials, wastes, pollutants and contaminants. As such, hospital operations are particularly susceptible to the practical, financial and legal risks associated with the environmental laws and regulations. Such risks may result in damage to individuals, property or the environment; may interrupt operations and/or increase their cost; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, civil litigation, criminal prosecution, penalties or other governmental agency actions; and may not be covered by insurance.

The Tenant May Not Be Able to Maintain Contracts with Managed Care Providers for Adequate Payments

Health care, including hospital services, is provided through “managed care” plans that use contractually agreed upon payment rates, utilization management techniques and other mechanisms to reduce or limit the cost of health care services. Failure to maintain contracts with managed care organizations could reduce the Tenant’s (or the Authority’s in the event the Lease is terminated) market share and gross patient services revenues. If costs increase faster than contractually agreed upon payment rates, reduced profit margins could be received from operating the Medical Center.

With continued implementation of the ACA, substantial numbers of employers may elect to discontinue employer-funded medical care for employees eligible for federal assistance in securing private insurance or, by paying a tax, other employees, and the employees could then choose health insurance under the health insurance exchanges or elect to be uninsured. Individuals choosing their own coverage may become highly price sensitive, which could increase the number of people in HMO plans, thus increasing the use of capitation and making price

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negotiations with HMOs and other insurance plans more difficult. Although the Tenant currently only has a few fully capitated contracts with HMOs, or other insurers in the future, it could come under increased pressure to accept additional capitated or other incentive fee contracts with insurers. Individuals may also choose coverage with significant cost-sharing obligations, which might result in a decrease in patients for elective procedures, or increase the bad debt experienced by the Tenant.

Competition from Other Service Providers

The Tenant faces continued competition from other hospitals and other forms of health care delivery systems that offer health care services to the population served. Construction or renovation of hospitals, HMO or PPO facilities, ambulatory surgical centers and other ambulatory care facilities, free-standing emergency facilities, and private laboratory and radiological services could have an adverse impact on the Tenant’s market share. In Texas, no certificates of need or other state approvals are required to construct or expand health care facilities. Services such as home care, intermediate nursing home care, preventive care, ambulatory care and drug and alcohol treatment programs are increasingly being provided by alternative delivery systems. Alternative delivery systems have been encouraged by the changing policies of third party payers, both governmental and private. Third party payers have limited the payment rates for hospital stays and procedures, creating incentives that reduce hospital inpatient utilization and increase the use of outpatient services and out-of-hospital care.

Technological advances in recent years have forced hospitals to acquire sophisticated and costly equipment to remain competitive. If, due to financial constraints, the Tenant is less able to acquire new equipment required to remain competitive, they could lose market share, and the Tenant’s financial condition could be negatively impacted.

Non-invasive interventions, including pharmacological treatments and gene therapy, are being developed at an increasing pace and could substantially reduce the demand for hospital services before the Bonds are retired. Unless population growth offsets this trend, or the Tenant is able to compensate by developing other services or reducing expenses, the financial condition of the Tenant could be materially adversely affected by such medical advances.

Tax-Exempt Status of the Bonds

The Code imposes a number of requirements that must be satisfied in order for interest on governmental obligations, such as the Bonds to be excludable from gross income for federal income tax purposes. These requirements include limitations on the use of bond proceeds, limitations on the investment earnings of bond proceeds prior to expenditure, a requirement that certain investment earnings on bond proceeds be paid periodically to the United States and a requirement that issuers file an information report with the Internal Revenue Service (the “IRS”). The Authority has agreed that it will comply with all such requirements. Failure to comply with the requirements, stated in the Code and related regulations, rulings, and policies may result in the treatment of the interest on the Bonds as taxable. Such adverse treatment may be retroactive to the date of issuance. See “Tax Exemption of the Bonds.”

The Authority has not sought to obtain a private letter ruling from the IRS with respect to the Bonds, and the opinion of Bond Counsel is not binding on the IRS. There is no assurance that any IRS examination of the Bonds will not adversely affect the market value of the Bonds. See “TAX MATTERS - Tax Exemption of the Bonds.”

Proposed Tax Legislation

Tax legislation, administrative actions taken by tax authorities, and court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or state income taxation, or otherwise prevent the beneficial owners of the Bonds from realizing the full current benefit of the tax status of such interest. For example, future legislation to resolve certain federal budgetary issues may significantly reduce the benefit of, or otherwise affect, the exclusion from gross income for federal income tax purposes of interest on all state and local obligations, including the Bonds. In addition, such legislation or actions (whether currently proposed, proposed in the future or enacted) could affect the market price or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation,

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regulations or litigation, and its impact on their individual situations, as to which Bond Counsel expresses no opinion.

Tax-Exempt Status of the Tenant

The tax-exempt status of the Bonds depends upon maintenance by the Tenant of its status as an organization described in section 50l(c)(3) of the Code. The maintenance of this status depends on compliance with general rules regarding the organization and operation of tax-exempt entities, including operation for charitable and educational purposes and avoidance of transactions that may cause earnings or assets to inure to the benefit of private individuals, such as the private benefit and inurement rules.

Tax-exempt organizations are subject to scrutiny from and face the potential for sanctions and monetary penalties imposed by the IRS. One primary penalty available to the IRS under the Code with respect to a tax- exempt entity engaged in inurement or unlawful private benefit is the revocation of tax-exempt status. Loss of tax- exempt status by the Tenant could result in loss of tax exemption of the Bonds and defaults in covenants regarding the Bonds and other obligations would likely be triggered. Loss of tax-exempt status by the Tenant could also result in substantial tax liabilities on its income. For these reasons, loss of tax-exempt status of the Tenant could have material adverse consequences on the financial condition of the Tenant.

With increasing frequency, the IRS has imposed substantial monetary penalties and future charity or public benefit obligations on tax-exempt entities, as well as requiring that certain transactions be altered, terminated, or avoided in the future and/or requiring governance or management changes. These penalties and obligations typically are imposed on the tax-exempt organization pursuant to a “closing agreement,” a contractual agreement pursuant to which a taxpayer and the IRS agree to settle a disputed matter. Given the exemption risks involved in certain transactions, the Tenant may be at risk for incurring monetary and other liabilities imposed by the IRS. These liabilities could be materially adverse.

Less onerous sanctions, referred to generally as “intermediate sanctions,” have been enacted that focus enforcement on private persons who transact business with an exempt organization rather than the exempt organization itself, but these sanctions do not replace the other remedies available to the IRS, as mentioned above.

The Tenant may enter into joint ventures with for-profit parties for the ownership and operation of certain medical facilities. The rules applicable to such joint ventures are complex, and while the Tenant believes that all of its affiliated joint ventures are in compliance with such rules currently, any change in or violation of the applicable rules could adversely affect the tax-exempt status of the Tenant as an organization or organizations described in Section 501(c)(3) of the Code. Such a change or violation may also require the dissolution of one or more joint ventures, which could have material adverse consequences to the Tenant.

The Tenant may be audited by the IRS. Because of the complexity of the tax laws and the presence of issues about which reasonable persons can differ, an IRS audit could result in additional taxes, interest, and penalties. An IRS audit could adversely affect the tax-exempt status of the Tenant, as well as the exclusion from gross income for federal income tax purposes of the interest on the Bonds and any other tax-exempt debt issued for benefit of the Tenant.

The IRS Form 990 is used by most organizations exempt from federal income taxation under section 501(c)(3) of the Code. The IRS Form 990 requires detailed public disclosure of compensation practices, corporate governance, loans to executive management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The IRS Form 990 has been expanded for tax-exempt hospitals to report on requirements under section 501(r) of the Code, which contains new requirements for tax-exempt hospitals. Under section 501(r) of the Code, each tax-exempt hospital facility is required to (1) conduct a community health needs assessment at least every three years and adopt an implementation strategy to meet the identified community needs; (2) adopt, implement and widely publicize a written financial assistance policy and a policy to provide emergency medical treatment without discrimination; (3) limit charges to individuals who qualify for financial assistance under the hospital’s financial assistance policy to no more than the amounts generally billed to individuals who have insurance covering such care and refrain from using “gross charges” when billing such individuals; and (4) refrain from taking extraordinary collection actions without first making reasonable efforts to determine whether the individual is eligible for assistance under the hospital’s financial

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assistance policy. Failure to comply with the requirements under section 501(r) of the Code and the final Treasury regulations promulgated thereunder could affect the tax-exempt status of the Tenant as well as the exclusion from gross income for federal income tax purposes of the interest on the Bonds.

Schedule H of the IRS Form 990 asks whether a section 501(c)(3) organization has a charity care policy and requests a description of that policy. Schedule H also requires that an organization report the community benefit that it provides, including the cost of providing charity care and other benefits. The reporting of this information to the IRS could lead to additional audit examinations and a more stringent interpretation by the IRS of community benefit. In addition, the Treasury Department is required to review information about a hospital’s community benefit activities at least once every three years. In recent years legislation has been proposed to repeal the exemption of nonprofit hospitals from federal income taxes. The requirements under Section 501(r) of the Code may make it more difficult to comply with community benefit requirements. Any reduction in community benefits provided by nonprofit hospitals generally could increase the risk of passage of such legislation.

Schedule K to the IRS Form 990 is intended to address what the IRS believes is significant noncompliance by tax-exempt organizations with recordkeeping and record retention requirements relating to their outstanding tax- exempt bonds. Schedule K requires substantial additional efforts on the part of many tax-exempt organizations to complete. Schedule K also focuses on the investment of bond proceeds that could violate the arbitrage rebate requirements and on the private use of bond-financed facilities. IRS Form 990 provides additional detailed information to the IRS, as well as to states’ attorneys general, unions, plaintiff class action lawyers and public interest groups, that is likely to result in increased enforcement actions, the effect of which cannot be determined at this time.

Risk of Failure to Comply with Certain Covenants

Failure of the Authority to comply with certain covenants contained in the Indenture or of the Tenant with certain covenants in the Lease and in other agreements relating to the Bonds on a continuing basis prior to the maturity of the Bonds could result in interest on the Bonds becoming taxable retroactive to the date of original issuance. See “TAX MATTERS.”

State and Local Tax Exemption

The State has not been as active as the IRS in scrutinizing the tax-exempt status of non-profit organizations. It is possible that legislation may be proposed to strengthen the role of the Attorney General of the State in supervising non-profit organizations. It is likely that the loss by the Tenant of federal tax exemption also would trigger a challenge to the State or local tax exemption of the Tenant. Depending on the circumstances, such event could be adverse and material.

It is not possible to predict the scope or effect of future legislative or regulatory actions with respect to taxation of non-profit corporations. There can also be no assurance that future change of circumstances or changes in the laws and regulations of federal, State, or local governments will not materially adversely affect the operations and financial conditions of the Tenant by requiring the Tenant to pay income or local property taxes.

Unrelated Business Income

The IRS and State, county, and local tax authorities may undertake audits and reviews of the operations of tax-exempt organizations with respect to the generation of unrelated business taxable income (“UBTI”). The Tenant may participate in activities that generate UBTI. An investigation or audit could lead to a challenge that could result in taxes, interest, and penalties with respect to UBTI and, in some cases, ultimately could affect the tax-exempt status of the Tenant as well as the exclusion from gross income for federal income tax purposes of the interest payable on the Bonds

The Rights of Bondholders May be Limited by Bankruptcy and Other Laws

In the event that the Authority was to seek relief under the United States Bankruptcy Code, the rights and remedies of the Holders of the Bonds would be subject to various provisions of the federal Bankruptcy Code. The Authority could file a plan of reorganization for the adjustment of its debts in any such proceeding, which plan could

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include provisions modifying or altering the rights of creditors generally or any class of them, secured or unsecured. The plan, when confirmed by a court, binds all creditors who had notice or knowledge of the plan and, with certain exceptions, discharges all claims against the debtor to the extent provided for in the plan. No plan may be confirmed unless certain conditions are met, among which are conditions the plan is feasible and that at least one impaired class of appropriately classified creditors has accepted the plan, excluding the votes of insiders, and the plan is “fair and equitable” as to all non-accepting classes. Potential purchasers of the Bonds should review the provisions of Chapter 9 of the Bankruptcy Code for a more complete description of the rights of the Holders in a bankruptcy proceeding under Chapter 9 of the Bankruptcy Code.

The various legal opinions delivered concurrently with the issuance of the Bonds are qualified as to the enforceability of the various legal instruments by limitations imposed by state and federal laws, rulings, policies and decisions affecting remedies and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors’ rights or the enforceability of certain remedies or document provisions.

In the event the Tenant or BHCS was to seek relief under the Bankruptcy Code, the rights and remedies of the Authority would be subject to the provisions of the Federal Bankruptcy Code as described above. The ability of the Authority to collect rent payments or early termination payments under the Lease could be adversely affected, which could result in the Authority being unable to pay debt service when due on the Bonds.

Matters Relating to Enforceability of, or Recovery of Amounts Under, the Bonds and the Indenture

The security interest in Pledged Revenues granted by the Authority to the Trustee pursuant to the Indenture may be affected by various matters, including: (i) federal bankruptcy laws which could, among other things, preclude enforceability of the security interest as to revenues arising subsequent to the commencement of bankruptcy proceedings and limit such enforceability as to revenues arising prior to such commencement, to the extent a security interest therein would constitute a voidable preference; (ii) rights of third parties in cash, securities and instruments not in possession of the Trustee, including accounts and general intangibles converted to cash; (iii) rights arising in favor of the United States of America or any agency thereof; (iv) present or future prohibitions against assignment in any federal statutes or regulations; (v) constructive trusts, equitable liens or other rights impressed or conferred by any state or federal court in the exercise of its equitable jurisdiction and rights of donors of property; (vi) the rights of holders of prior perfected security interests in equipment and other goods owned by the Authority and in the proceeds of sale of such property; (vii) statutory liens; and (viii) the rights of parties secured by Permitted Encumbrances. If an event of default does occur, 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. In addition, additional Secured Debt and subordinate debt from time to time in the future may be issued pursuant to the Indenture, and the holders of other Secured Debt will be on a parity with the holders of the Bonds with respect to the benefits of the security in revenues created by the Indenture. See “SECURITY AND SOURCE OF PAYMENT FOR THE BONDS.”

Other Factors Could Adversely Affect the Tenant or the Authority

Unemployment, decreased insurance coverage provided by employers or other adverse economic conditions could increase the proportion of patients who are uninsured or who are otherwise unable to pay fully for the cost of their care, and increased numbers of patients suffering from uninsured and extended illness could adversely affect the Authority’s results of operation.

Other potential risk factors may also affect the operation, and therefore revenues, of the Tenant and their ability to maintain sufficient operating margins, including, among others: (i) the cost and availability of energy; (ii) the cost and availability of insurance, such as fire and general comprehensive liability and professional liability insurance, that hospitals of similar size and type generally carry; (iii) uninsured acts of God (including floods) or punitive damage judgments as to which insurance is not available; (iv) natural and man-made disasters, including without limitation bioterrorism-induced epidemics and other terrorist activities; (v) imposition of wage and price controls for the health care industry; (vi) a decrease in population or change in demographics in the service areas of the Authority; and (vii) an increase in the rate of inflation and difficulties in increasing service charges and other fees, while at the same time maintaining the amount and quality of health care services; and (viii) market risk adversely affecting investments of the Authority, if any.

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TAX MATTERS

Tax Exemption of the Bonds

Delivery of the Bonds is subject to the opinion of Andrews Kurth Kenyon LLP, Houston, Texas, Bond Counsel, that interest on the Bonds will be (1) excludable from gross income of the owners thereof for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and (2) not includable in the alternative minimum taxable income of individuals or, except as described below, corporations.

Interest on 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.

The foregoing opinions of 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, Bond Counsel has assumed continuing compliance by the Authority with certain covenants contained in the Indenture and the Lease and by the Tenant with certain covenants in the Federal Tax Exemption Agreement and the Lease and has relied on representations by the Authority and the Tenant with respect to matters solely within the knowledge of the Authority and the Tenant, which 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, the maintenance of the Tenant’s status as an organization described in section 501(c)(3) of the Code, 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 Authority file an information report with the Internal Revenue Service (the “IRS”). If the Authority and the Tenant should fail to comply with the covenants in the Indenture and Loan Agreement or if their representations relating to the Bonds that are contained in the Indenture and Loan Agreement 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.

Except as stated above, 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.

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 Authority and the Tenant described above. No ruling has been sought from the IRS with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS. The IRS 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 IRS is likely to treat the Authority 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 Authority and the Tenant 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

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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.

Tax Accounting Treatment of Original Issue Discount on Bonds

Some of the Bonds may be offered at an initial offering price which is less than the stated redemption price payable at maturity of such Bonds. If a substantial amount of any maturity of the Bonds is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Bonds of that maturity (a “Discount Bond”) will be considered to have “original issue discount” for federal income tax purposes 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 Bond under the caption “TAX MATTERS ─ Tax Exemption of the Bonds” generally applies to original issue discount deemed to be earned on a Discount Bond while held by an owner who has purchased such Discount 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 a Discount Bond 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 MATTERS ─ Tax Exemption of the Bonds” 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 Authority or the Tenant. The portion of the principal of a Discount Bond representing original issue discount is payable upon the maturity or earlier redemption of such Discount 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 Discount 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.

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Tax Accounting Treatment of Original Issue Premium on Bonds

Some of the Bonds may be offered at an initial offering price which exceeds the stated redemption price payable at the maturity of such Bonds. If a substantial amount of any maturity of the Bonds is sold to members of the public (which for this purpose excludes bond houses, brokers and similar persons or entities acting in the capacity of wholesalers or underwriters) at such initial offering price, each of the Bonds of such maturity (a “Premium Bond”) will be considered for federal income tax purposes to have “bond premium” equal to such excess. The basis for federal income tax purposes of a Premium Bond in the hands of an initial purchaser who purchases such Premium 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 with respect to a Premium Bond. 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.

The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition by an owner of Premium Bonds that are not purchased in the initial offering or which are purchased at an amount representing a price other than the initial offering price for the Premium 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.

CONTINUING DISCLOSURE OF INFORMATION

In the Indenture, the Authority has made the following agreement for the benefit of the holders and beneficial owners of the Bonds. The Authority is required to observe the agreement for so long as it remains obligated to advance funds to pay the Bonds. Under the agreement, the Authority will be obligated to provide certain updated financial information and operating data about itself and the Tenant annually, and timely notice of specified material events, to certain information vendors. This information is to be available to securities brokers and others who subscribe to receive the information from the vendors.

Annual Reports

The Authority is to provide certain updated financial information and operating data to certain information vendors annually. The information to be updated by the Authority includes all quantitative financial information and operating data with respect to the Authority and the Tenant of the general type included herein in APPENDIX A under the Table titled “Debt Service Coverage Table,” APPENDIX B under the Tables titled “Utilization Data” and “Payor Mix by Gross Revenue,” APPENDIX C and APPENDIX D. The Authority is to update and provide this information within 270 days after the end of each of its fiscal years ending in or after 2018.

The financial information and operating data to be provided may be set forth in full in one or more documents or may be included by specific reference to any document available to the public on the MSRB’s Internet Web site or filed with the United States Securities and Exchange Commission (the “SEC”), as permitted by SEC Rule 15c2-12 (the “Rule”). The updated information will include audited financial statements, if the Authority commissions an audit and it is completed by the required time. If audited financial statements are not available by the required time, the Authority will provide unaudited financial statements by the required time and audited financial statements when and if such audited financial statements become available. Any such financial statements are to be prepared in accordance with the accounting principles described in APPENDIX C, with respect to the Authority, APPENDIX D, with respect to the Tenant, or such other accounting principles as the Authority may be required to employ from time to time pursuant to state law or regulation, or as it may otherwise elect, provided such election does not cause a violation of the Rule.

The Authority and the Tenant’s current fiscal year end is June 30. The Authority must provide updated information within 270 days of its fiscal year.

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The Authority and the Tenant have entered into an agreement which provides that so long as the Tenant remains a party to the Lease, and any of the Bonds remain outstanding, the Tenant shall provide to the Authority with the general type of information included in Appendix B under the Tables titled “Utilization Data” and “Payor Mix by Gross Revenue” and in Appendix D to the Official Statement related to the Bonds (collectively, the “Financial Information”). Pursuant to such agreement, the Financial Information shall be provided by Tenant to the Authority within 245 days following the end of each fiscal year of the Tenant.

Material Event Notices

The Authority will also provide timely notices of certain events to the MSRB. The Authority will provide notice of any of the following events with respect to the Bonds to the MSRB in a timely manner (but not in excess of ten business days after the occurrence of the event): (1) principal and interest payment delinquencies; (2) nonpayment related defaults, if material; (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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material notices or determinations with respect to the tax-exempt status of the Bonds, or other material events affecting the tax status of the Bonds; (7) modifications to rights of holders of the Bonds, if material; (8) Bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership, or similar event of the Authority, which shall occur as described below; (13) the consummation of a merger, consolidation, or acquisition involving the Authority or the sale of all or substantially all of its assets, other than in the ordinary course of business, the entry into of a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. In addition, the Authority will provide timely notice of any failure by the Authority to provide annual financial information in accordance with their agreement described above under “Annual Reports.”

For these purposes, any event described in (12) in the immediately preceding paragraph is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Authority in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Authority, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Authority.

Availability of Information

The Authority has agreed to provide the foregoing information only as described above. Investors will be able to access continuing disclosure files with the MSRB free of charge at www.emma.msrb.org. There can be no assurance that www.emma.msrb.org will continue to be in existence as long as the Bonds are outstanding.

Limitations and Amendments

The Authority has agreed to update information and to provide notices of material events only as described above. The Authority has not 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. The Authority makes no, and expressly disclaims any, representation or warranty concerning such information or concerning its usefulness to a decision to invest in or sell the Bonds at any future date. The Authority disclaims 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 holders of the Bonds may seek a writ of mandamus to compel the Authority to comply with its agreement.

The Authority may amend its continuing disclosure agreement 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 Authority, if the agreement, as amended, would have permitted an underwriter to purchase or sell Bonds in

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the offering made hereby in compliance with the Rule and either the holders of a majority in aggregate principal amount of the outstanding Bonds consent or any person unaffiliated with the Authority determines that the amendment will not materially impair the interests of the beneficial owners of the Bonds. The Authority may also amend or repeal its agreement if the applicable provisions of the Rule are repealed or a final court judgment is entered that the provisions are invalid, or in any other circumstance or manner, if the agreement, as supplemented or amended, would permit an underwriter to purchase the Bonds in the offering made hereby in compliance with the Rule.

Failure to comply with its disclosure agreement does not constitute an Event of Default under the Indenture, but could give the Trustee or owners of Bonds the right to obtain a court order requiring such disclosure.

Compliance with Prior Undertakings

The Authority has materially complied with its prior undertakings in accordance with the Rule for the last 5 years.

RATINGS

Moody’s Investors Service Inc. has assigned a rating of “Baa2” and S&P Global Ratings, a division of Standard and Poor’s Financial Services LLC, has assigned a rating of “A+” to the Bonds. Any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the rating agency originally establishing the rating, circumstances so warrant.

Generally, rating agencies base their ratings on the information and materials so furnished and on investigations, studies and assumptions by the rating agencies. There is no assurance that a particular rating will be maintained for any given period of time or that it will not be lowered or withdrawn entirely if, in the judgment of the rating agency originally establishing the rating, circumstances so warrant. The Underwriter has undertaken no responsibility either to bring to the attention of the owners of Bonds or oppose any such proposed revision or withdrawal. Any such change in or withdrawal of such ratings could have an adverse effect on the market price of the Bonds.

A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.

FINANCIAL STATEMENTS

The comparative financial statements of the Authority for the fiscal years ended June 30, 2017 and 2016, included in this Official Statement in APPENDIX C, have been audited by BKD, LLP, independent auditors, as stated in their report appearing herein. The Authority did not request BKD, LLP perform any updating procedures subsequent to the date of its audit report on the June 30, 2017 and 2016, financial statements.

The combined financial statements of Tenant as of June 30, 2017 and 2016, and for the years then ended, included in this Official Statement in APPENDIX D, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing herein.

OTHER INFORMATION

Litigation

To the knowledge of the Authority, there is no litigation or other proceeding now pending or threatened restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds or any proceedings of the Authority taken with respect to the issuance or sale thereof, or the pledge or application of any moneys or security provided for the payment of the Bonds or the existence of the powers of the Authority, or that would have a material adverse effect upon the Authority, its operations or financial condition.

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There is no pending, or to the knowledge of the Tenant, threatened, litigation or other proceeding that would have a material adverse impact upon the Tenant or its respective operations or financial condition.

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; nor have the Bonds been qualified under the securities acts of any jurisdiction. The Authority 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.

Legal Matters

The Authority will furnish a complete transcript of proceedings had incident to the authorization and issuance of the Bonds, including the unqualified approving legal opinion of the Attorney General of Texas approving the Initial Bond and to the effect that the Bonds are valid and legally binding special obligations of the Authority, and based upon examination of such transcript of proceedings, the legal opinion of Bond Counsel, to like effect and to the effect that the interest on the Bonds will be excludable from gross income for federal income tax purposes under existing law, as more particularly described under the caption “TAX MATTERS” herein. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds, or which would affect the provision made for their payment or security, or in any manner questioning the validity of the Bonds will also be furnished. In its capacity as Bond Counsel, Andrews Kurth Kenyon LLP has reviewed the information under captions “INTRODUCTION,” “THE BONDS,” “SECURITY AND SOURCE OF PAYMENT FOR THE BONDS,” “TAX MATTERS” and “CONTINUING DISCLOSURE OF INFORMATION” (exclusive of the subcaption “Compliance with Prior Undertakings”), under the subcaptions “Registration and Qualification of the Bonds for Sale” and “Legal Matters” (first paragraph only) under the caption “OTHER INFORMATION,” and in APPENDICES E, F and G, and such firm is of the opinion that the information relating to the Bonds, the Bond Resolution, the Indenture, the Lease, and the legal issues contained under such captions and subcaptions and in APPENDICES E, F and G is an accurate and fair description of the laws and legal issues addressed therein and, with respect to the Bonds, such information conforms to the Bond Resolution, the Indenture and the Lease. The fee to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds is contingent on the sale and delivery of the Bonds. The legal opinion will accompany the Bonds deposited with DTC or will be printed on the Bonds in the event of the discontinuance of the Book-Entry-Only System.

Certain legal matters will be passed upon for the Underwriter by Winstead PC, Dallas, Texas, Counsel to the Underwriter. The fee of Winstead PC is contingent on the sale and delivery of the Bonds.

Certain legal matters will be passed upon for the Authority by its special disclosure counsel, Andrews Kurth Kenyon LLP, Houston, Texas and for the Tenant by its counsel Norton Rose Fulbright US LLP, Dallas, Texas.

The various legal opinions to be delivered concurrently with the delivery of the Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. In rendering a legal opinion, the attorney does not become an insurer or guarantor of the expression of professional judgment, of the transaction opined upon, or of the future performance of the parties to the transaction, nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.

Financial Advisor

The Authority has retained FirstSouthwest, a Division of Hilltop Securities Inc. (“FirstSouthwest”), as financial advisor in connection with the issuance and sale of the Bonds. Although FirstSouthwest has assisted in the preparation of the Official Statement, FirstSouthwest is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in the Official Statement or any of the other legal documents, and further FirstSouthwest does not assume

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any responsibility for the information, covenants and representations with respect to the federal income tax status of the Bonds, or the possible impact of any present, pending or future actions taken by any legislative or judicial bodies or rating agencies.

Authenticity of Financial Data and Other Information

The financial data and other information contained herein have been obtained from Authority and Tenant records, with respect to the information in Appendix B, 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.

Underwriting

The Bonds are being purchased by Citigroup Global Markets Inc. (the “Underwriter”). The Bonds are being purchased by the Underwriter at a purchase price of equal to $_____ (such amount being the aggregate principal amount of the Bonds, plus/minus a premium/discount of $______, less an Underwriter’s discount of $______). The Bond Purchase Agreement provides that the Underwriter will purchase all of the Bonds if any are purchased.

The Underwriter may offer and sell Bonds to certain dealers (including dealers depositing Bonds into unit investment trusts) and others at prices lower than the public offering prices stated on the cover page hereof. The initial offering prices may be changed from time to time by the Underwriter.

The Underwriter and its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Underwriter and its affiliates have, from time to time, performed, and may in the future perform, various investment banking services for the Authority for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the Underwriter and its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Authority.

Forward-Looking Statements Disclaimer

The statements contained in this Official Statement, and in any other information provided by the Authority and the Tenant, that are not purely historical, are forward-looking statements, including statements regarding their respective expectations, hopes, intentions, or strategies regarding the future. Readers should not place undue reliance on forward-looking statements. All forward-looking statements included in this Official Statement are based on information available to the Authority and the Tenant on the date hereof, and such entities assume no obligation to update any such forward-looking statements. The actual results of the Authority or the Tenant could differ materially from those discussed in such forward-looking statements. The forward-looking statements included herein are necessarily based on various assumptions and estimates and are inherently subject to various risks and uncertainties, including risks and uncertainties relating to the possible invalidity of the underlying assumptions and estimates and possible changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors, and legislative, judicial, and other governmental authorities and officials. Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Authority and the Tenant. Any of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Official Statement will prove to be accurate.

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Miscellaneous

The descriptions of the provisions of the Indenture set forth above and in APPENDIX E, and all references to other materials not purporting to be quoted in full, are only brief summaries of certain provisions thereof and do not constitute complete statements of such documents or provisions. Reference is hereby made to the complete documents for further information, copies of which are available from the offices of FirstSouthwest, a Division of Hilltop Securities Inc., 1201 Elm Street, Suite 3500, Dallas, Texas 75270 prior to delivery of the Bonds and thereafter from the corporate trust office of the Trustee. Any statements made in this Official Statement or the Appendices hereto involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized.

The Resolution of the Authority authorizing the issuance of the Bonds will also approve the form and content of this Official Statement, and any addenda supplement, amendment thereto, and authorize its further use in the reoffering of the Bonds by the Underwriter.

IRVING HOSPITAL AUTHORITY

By:______Chairman, Board of Directors

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APPENDIX A

Irving Hospital Authority

TABLE OF CONTENTS

Page

GENERAL ...... 1 THE AUTHORITY ...... 1 THE SERIES 2017 PROJECT ...... 2 FACILITIES AND SERVICES ...... 2 Facilities ...... 2 LEASE BY TENANT ...... 2 COMPETITIVE MARKET ASSESSMENT ...... 3 Demographics ...... 3 City of Irving Population Trends ...... 3 Top Employers in Irving, Texas ...... 3 Hospital Competitors ...... 4 MALPRACTICE, OTHER LIABILITY INSURANCE CONSIDERATIONS, AND LITIGATION ...... 5 Limited Liability ...... 5 Litigation ...... 5 DEBT SERVICE COVERAGE TABLE ...... 5 Irving Hospital Authority Statements of Activities Years Ended June 30, 2015, 2016 and 2017 ...... 6 Irving Hospital Authority Statements of Net Position Years Ended June 30, 2015, 2016 and 2017 ...... 7

GENERAL

The Irving Hospital Authority (the "Authority") is a body politic and corporate and political subdivision created on February 12, 1959, by ordinance of the City Council of the City of Irving, Texas (the "City") pursuant to the Municipal Hospital Authorities Act, Chapter 262, Texas Health and Safety Code, as amended (the “Act”). The Authority has no taxing power and is exempt from federal income taxes.

The Authority currently leases its general acute care non-profit hospital (the "Medical Center") and other facilities to Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving ("Tenant") in the City, which is located between the cities of Dallas and Fort Worth.

This Appendix A to the Official Statement for the Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A contains certain statistical and financial information of the Authority.

THE AUTHORITY

The Authority has the power under the Act to construct, enlarge, furnish, operate and equip “hospitals” as defined in the Act and such other hospital projects as permitted or authorized by the Act and other provisions of the Texas Health and Safety Code.

The Authority is governed by a Board of Directors consisting of eleven members, five of whom are appointed by the City Council of the City and six of whom are elected by the Board of Directors of the Authority (the “Board”). The Board does not receive compensation for their services.

The method of appointing the members of the Board by the City Council and by the Board of Directors is set forth in the Resolution authorizing the issuance of the Authority’s Junior Lien Hospital Revenue Refunding Bonds Series 1994, currently outstanding in the aggregate principal amount of $5,000, and maturing on January 1, 2034 (the “Series 1994 Bond”). The Series 1994 Bond will remain outstanding after the delivery of the Series 2017A Bonds, but may be called for redemption at any time by authorization of the Board Directors. If the Series 1994 Bond is redeemed, the Board would be appointed by the City pursuant to Section 262.012 of the Act.

The members of the Board, the expiration dates of their terms, and their respective occupations are as follows: Board of Directors Member Term Expires Occupation Steve Katzman* June 2019 Retired/ Real Estate Developer Randy Crim* June 2018 Colorectal Physician Padma Uppalapati* June 2018 Cardiology Physician Paul Steinhoff Jr. * June 2018 Co-Chairman Greystone Communities, Inc. Rudy Sanchez Jr. * June 2018 Human Resources, Mario Sinacola Co. David Mullis June 2019 Owner, Total Coverage Insurance Services Chan Patel June 2018 CEO & President, State Street Bank Jim Gerlach June 2018 Senior Pastor, Oak View Baptist Church Darin Sloan June 2018 Owner and Operator, The Sloan School Reagan Arrington June 2018 Partner MPACT Financial Group Tom Trotter June 2018 Retired IBM Executive * Appointed by City Council

A-1

THE SERIES 2017 PROJECT

The Series 2017 Project includes the construction and equipping of a 162,000 square foot tower that when completed will maintain the total number of licensed beds at 293, increase the number of patient beds in the tower by 72 and add two floors of shelled space for a future expansion capacity of up to 44 beds. The Series 2017 Project also includes the construction and replacement of the central utility plant, renovations to cardiac catheter labs, endoscopy and dialysis rooms, hybrid operating rooms, surgical facilities and women’s services, general upgrades to the main lobby and entrance areas, and a complete remodel of the Medical Center’s exterior. The Series 2017 Project is expected to be completed in May of 2020.

FACILITIES AND SERVICES

Facilities

The Authority opened the 100-bed Irving Community Hospital in November 1964. Since that time, a number of expansion programs have been completed. The current main Medical Center campus is a seven-story brick structure consisting of more than 450,000 square feet with surface parking for approximately 593 vehicles and a parking garage with 1,200 parking spaces. After the Series 2017 Project is constructed, surface parking will be available for approximately 478 vehicles and after the MOB III (defined below) is constructed, surface parking will be available for approximately 599 vehicles. The Medical Center is situated on a 20-acre site located near the geographic center of the City. The main campus includes three medical office buildings. The facilities also include a second campus approximately seven miles north of the main campus at I-635 and MacArthur Blvd. The second campus, which is approximately 200,000 square feet, includes a 20-bed inpatient short stay Hospital that is part of a joint venture (the "Joint Venture") between individual physicians, Texas Health Ventures Group and Tenant, and two medical office buildings that are not included in the joint venture.

The Authority owns the Irving Medical Office Building I ("IMOB I"), adjacent to the Medical Center at 2001 N. MacArthur Boulevard, a seven-story, 100,000 square foot structure with offices for private physicians as well as for hospital departments. A retail pharmacy and medical laboratory also lease space in the building.

The Authority owns Coppertree Medical Center, 1302 Lane Street, a two-story 34,000 square foot private medical office building located one block from the Medical Center.

The two facilities mentioned immediately above are each subject to the Lease with Tenant.

A 3.285 acre tract of land on the west side of the Authority’s campus, which is included in the Lease (hereinafter defined) with the Tenant, was ground leased by the Tenant to Irving MOB III, LP in October 2017 for the development of an approximately 54,687 rentable square foot medical office building and related parking, driveway and other improvements (the “IMOB III”). The initial term of the ground lease is 50 years and there are three 10-year renewal options. Should the Lease (hereinafter defined) be terminated, the aforementioned ground lease between the Tenant and Irving MOB III, LP will transfer from the Tenant to the Authority. The current estimated completion date for the IMOB III is December 1, 2018.

A third party, HRT Properties of Texas, LTD, has constructed a 126,121 square foot medical office building ("IMOB II") on the Authority’s main campus. The grounds of IMOB II, which are included in the Lease with the Tenant, were ground leased by the Tenant to HRT Properties of Texas, LTD in December 2003 for the construction of IMOB II. The term of the ground lease is 51.5 years and there are two 10-year renewal options. Should the Tenant cease to lease such grounds from the Authority, the aforementioned ground lease between the Tenant and HRT Properties of Texas, LTD will transfer from the Tenant to the Authority.

LEASE BY TENANT

The Authority entered into an Amended and Restated Lease Agreement, dated as of April 20, 2010, as subsequently amended and supplemented (the "Lease"), with the Tenant, a Texas nonprofit corporation which was

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incorporated on February 24, 1995. The Tenant is an organization qualified under section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) and exempt from taxation under section 501(a) of the Code. The Lease includes substantially all properties of the Authority. The Lease term expires on March 31, 2045, however, the Tenant has the right to terminate the Lease on and after June 30, 2026 if certain losses from operation of the Medical Center occur. See the section entitled “THE TENANT” in the Official Statement and “APPENDIX F - Summary of Lease” for additional information and a summary of the Lease.

Under the Lease, the Tenant has discretion to modify operations based on information provided by the Tenant. The Authority believes that the information presented in “APPENDIX B - Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving” reflects the Tenant’s operations of the Medical Center. Such operations could change, just as the Authority itself could make significant changes in the operation of the Medical Center if it assumes operational control of the Medical Center. See the section entitled “BONDHOLDERS’ RISKS - Lease Termination” in the Official Statement.

COMPETITIVE MARKET ASSESSMENT

Demographics

Irving is a growing community with a large business and residential base encompassing a land area of approximately 67.9 square miles. The City has increased in population by 12.9% during the past decade. The estimated population for 2017 was 240,204.

City of Irving Population Trends

The City, located between Dallas and Fort Worth, is adjacent to the Dallas/Fort Worth International Airport. Las Colinas, a 12,000 acre multi-use development, is located in the northern portion of the City. Las Colinas is the home to a number of Fortune 500 corporations' branch, regional and home offices. The employer base is largely comprised of businesses from the service sector.

Calendar Year Population Households 1980 109,943 40,451 1990 155,037 63,198 2000 196,196 78,431 2010 216,954 82,538 2017 240,204(1) 91,699(1) 2022 256,954(1) 97,931(1) Sources: 1980, 1990, 2000, and 2010 U.S. Bureau of the Census. (1) Estimation provided by City officials.

Top Employers in Irving, Texas

1000 Employees and Over

Verizon Communications Inc City of Irving Citicorp Credit Services Inc Irving ISD Aegis Communications Group Inc DFW International Airport Administration Building Allstate Insurance Co (D/FW Airport Board) YRC Worldwide Inc. Federal Aviation Administration Neiman Marcus – Mail Order 7-Eleven Neiman Marcus Group Inc Microsoft Corporation – Las Colinas Abbott Laboratories Baylor Medical Center at Irving North Lake College CHRISTUS Health (Corporate Office)

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500 – 999 Employees Aegis Communications Group Inc Archon Group LP (Retail Trade) Computer Science Corporation Archon Group LP (Real Estate) VHA Inc Epsilon Certified Laboratories Inc Liberty Mutual Chemsearch Corp NCH Corp (Parent Co. of Certified Laboratories Inc) Connexions BancTec CVS Caremark Supermedia Four Seasons Hotel AT&T (formerly Southwestern Bell) Gordon's Jewelers University of Dallas Prime Therapeutics Inc AT&T (formerly Southwestern Bell Telephone LP) Aviall Services Inc Boy Scouts of America – International Division Minyard Food Stores Inc Caris Diagnostics Inc Ace Cash Express Inc Commercial Metals Company Nissan Motor Acceptance Corp Mantek Fedex Freight MHA Group Dr Pepper/Seven-Up Bottling Federal Express Frito-Lay Inc FedEx MMC Group U.S. Citizenship & Immigration Serv. Michael’s Stores Cigniti, Inc. Humana Northrop Grumman American Eagle

Source: City of Irving, Texas.

According to the Texas Workforce Commission at the end of April 2017, the Irving civilian labor force was comprised of approximately 131,939 workers. The unemployment rate at the end of April 2017 was 3.7%, compared to the Dallas-Plano-Irving metropolitan area with a civilian labor force of approximately 972,781 and an unemployment rate of 4.0%.

Hospital Competitors

There are a number of other acute care hospitals within the Tenant’s primary market area, which is defined as the City of Irving, Grand Prairie and Coppell. The Tenant, which maintains a 37.2% primary market share based on inpatient admissions, primarily competes with Medical City Las Colinas, William P. Clements Jr. University and Children’s Medical Center Dallas. The Tenant also collaborates with Baylor University Medical Center and Baylor Surgical Hospital at Las Colinas.

The following table provides the primary market share information for the Tenant’s primary competitors, as well as their distance from the Medical Center.

Primary Hospital Location Distance Licensed Beds Market Share Dallas County Hospital District (Parkland Memorial Hospital) Dallas 9 miles 870 14.9% Medical City Las Colinas Irving 6 miles 100 14.9% William P. Clements Jr. University Dallas 9 miles 578 5.6% Children’s Medical Center Dallas Dallas 9 miles 490 3.1% Baylor University Medical Center Dallas 13 miles 914 2.7% Baylor Surgical Hospital at Las Colinas Irving 11 miles 20 1.0% ______Source: Tenant.

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MALPRACTICE, OTHER LIABILITY INSURANCE CONSIDERATIONS, AND LITIGATION

Limited Liability The Authority's liability is limited pursuant to provisions of the Texas Tort Claims Act to $100,000 for each person, $300,000 for each single occurrence for bodily injury or death and $100,000 for each single occurrence for injury or destruction of property. Although Tenant benefits from certain protections under the Texas Tort Claims Act, it is also insured through BSWH’s self-insurance programs.

Litigation There are no actions pending against the Authority that the Authority reasonably believes will materially adversely affect the financial condition of the Authority.

DEBT SERVICE COVERAGE TABLE

2015 2016 2017 Fixed Rent 8,825 8,825 8,825 Contingent Rent 7,062 4,382 1,721 Rental Lease Incentive (272) (272) (272) Other Revenue 1 10 - Total Revenue 15,616 12,945 10,274

Less: Total Expenses (3,568) (3,351) (3,072) Plus: Depreciation 2,797 2,583 2,461 Plus: Realized Investment Income 715 1,387 2,287

Pledged Revenue Available for Debt Service 15,560 13,564 11,950

Estimated Maximum Annual Debt Service(1) 7,322 7,322 7,322

Debt Service Coverage (x) 2.13 1.85 1.63 ______(1) Projected Maximum Annual Debt Service (“MADS”) equal to maximum annual debt service of combined Series 2017A and Series 2017B. Preliminary, subject to change.

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Irving Hospital Authority Statements of Activities Years Ended June 30, 2015, 2016 and 2017 (In Thousands)

2015 2016 2017 Operating Revenue Lease revenue, net of tenant rent incentive amortization; 2017 - $272, 2016- $272, 2015- $272 $ 15,616 $ 12,945 $ 10,274

Total operating revenue 15,616 12,945 10,274

Operating Expenses Professional fees and purchased services 464 619 518 Supplies and other 293 149 93 Depreciation 2,797 2,583 2,461 Loss on disposal 14 - -

Total operating expenses 3,568 3,351 3,072

Income from Operations 12,048 9,594 7,202

Nonoperating Revenue (Expense) Gain on involuntary conversion 32 - - Net increase in fair value of investments 174 1,323 2,508 Charitable contributions - (2,392) (2,030) Interest revenue 715 1,387 2,287 Other income - 196 260

Total nonoperating revenues (expense) 921 514 3,025

Change in Net Position 12,969 10,108 10,227

Net Position, Beginning of Year 104,595 117,564 127,672

Net Position, End of Year $ 117,564 $ 127,672 $ 137,899

See Notes to Financial Statements in Appendix C to the Official Statement

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Irving Hospital Authority Statements of Net Position Years Ended June 30, 2015, 2016 and 2017 (In Thousands)

Assets 2015 2016 2017 Current Assets: Cash and cash equivalents $ 14,151 $ 9,981 $ 12,022 Short-term investments 1,253 68,042 79,057 Accounts receivable 7,079 4,395 1,816 Prepaids and other current assets 450 272 281

Total current assets 22,933 82,690 93,176

Long-Term Investments 53,769 2,211 2,196

Land, Buildings and Equipment: Land 12,365 12,365 12,365 Buildings and improvements 109,357 113,597 113,597 Major moveable equipment and other 12,493 12,501 12,501 Construction-in-progress 3,955 650 5,231

Total land, buildings and equipment 138,170 139,113 143,694

Accumulated depreciation (101,236) (103,819) (106,280)

Land, buildings and equipment, net 36,934 35,294 37,414

Tenant Rent Incentives, net of amortization; 2017- $1,367, 2016- $1,095, 2015- $823 7,817 7,545 7,273

Total assets $ 121,453 $ 127,740 $ 140,059

Liabilities and Net Position

Current Liabilities: Accounts payable and accrued liabilities $ 3,884 $ 63 $ 2,155

Total current liabilities 3,884 63 2,155

Long-Term Debt 5 5 5

Total liabilities 3,889 68 2,160

Net Position: Net investment in capital assets 36,934 35,294 37,275 Temporarily restricted assets Unrestricted 80,630 92,378 100,624

Total net position 117,564 127,672 137,899

Total liabilities and net position $ 121,453 $ 127,740 $ 140,059

* * * See Notes to Financial Statements in Appendix C to the Official Statement

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APPENDIX B

Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving

TABLE OF CONTENTS

Page

GENERAL ...... 1 TENANT ...... 1 Board of Trustees ...... 1 FACILITIES AND SERVICES ...... 2 Services ...... 2 Related Organization ...... 2 Utilization Data ...... 2 Accreditation, Affiliation and Certification ...... 2 Health Education and Community Service ...... 2 Medical Staff ...... 3 Credentialed Members of the Medical Staff: Physicians, Podiatrists, and Dentists (as of September 30, 2017) ...... 3 MANAGEMENT AND OTHER PERSONNEL ...... 3 Key Officers ...... 3 Employees ...... 3 Wages and Benefits ...... 3 Management Discussion of Operational Performance - Tenant ...... 4 Sources of Gross Patient Service Revenue ...... 5 MALPRACTICE, OTHER LIABILITY INSURANCE CONSIDERATIONS, AND LITIGATION ...... 5 BSWH Self-Insurance Program ...... 5 Litigation ...... 5 Annual Reports ...... 5 COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS ...... 6 COMBINED BALANCE SHEETS...... 8

GENERAL

Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center-Irving (the “Tenant”), was incorporated on February 24, 1995, and is an organization qualified under section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) and exempt from federal income taxation under section 501(a) of the Code. The Tenant currently leases the Irving Hospital Authority’s (the “Authority”) general acute care non-profit hospital (the “Medical Center”) and other facilities in Irving, Texas, which is located between the cities of Dallas and Fort Worth, pursuant to an Amended and Restated Lease Agreement, dated as of April 20, 2010, as subsequently amended and supplemented (the “Lease”).

The Lease includes substantially all properties of the Authority. The Lease term expires on March 31, 2045; however, the Tenant has the right to terminate the Lease on and after June 30, 2026, if certain losses from operation of the Medical Center occur. See the section entitled “THE TENANT” in the Official Statement and “APPENDIX F- Summary of Lease” for additional information and a summary of the Lease.

Baylor Health Care System (“BHCS”) is the sole member of the Tenant. Baylor Scott & White Holdings (“BSW Holdings”) is the sole member of the BHCS. BSW Holdings and its controlled affiliates are collectively referred to as “BSWH.” The voting members of the Board of Trustees of the Tenant consist of ten individuals who also serve as the Board of Trustees of BHCS.

This Appendix B to the Official Statement for the Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A contains certain statistical and financial information of Tenant, descriptions of certain key officers and employees of Tenant, as well as certain information regarding the medical staff and facilities of Tenant.

TENANT

The voting members of the Board of Trustees of the Tenant, the lengths of their respective terms, and their respective occupations are as follows: Board of Trustees Member Term Expires Occupation Roy W. Lamkin 6/30/2018 Former Chairman & CEO, The Custom Factory; Former President of Control Systems International, Inc. Paul E. Madeley, M.D. 6/30/2018 Internal Medicine Physician J. Kent Newsom 6/30/2018 Attorney, Newsom, Terry & Newsom, LLP Jeffrey J. Schmeltekopf 6/30/2018 Owner/Partner and Chief Compliance Officer, Dean, Jacobson Financial Services, LLC Walker G. Harman, Sr. 6/30/2019 CEO, Sonny Bryan’s Smokehouse Janie Peña 6/30/2019 Executive Director, Partnership and Volunteer Services – DISD Gwyn Clarkston Shea 6/30/2019 Retired Donald H. Wills 6/30/2019 Attorney; Executor – Ginger Murchison Estate George H. McCleskey 6/30/2020 Senior Exec. VP, Plains Capital Corp. John McWhorter, DSc N/A1 Chief Operating Officer, Baylor Scott & White Health; President & CEO, Baylor Health Care System ______1 Pursuant to BHCS’s bylaws, the CEO serves as an additional voting member of the Board of Trustees.

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FACILITIES AND SERVICES

Services

The Tenant provides inpatient and outpatient care at the Medical Center. The Medical Center is a full service, acute care, healthcare facility licensed for 293 beds and is qualified to provide a broad range of diagnostic and therapeutic services in medicine, surgery, orthopedics, cardiology, oncology, neuroscience, obstetrics and gynecology, emergency, rehabilitation and outpatient services.

The Tenant operates five outpatient programs in the Irving Medical Office Building I: the Irving Cancer Center (radiation therapy), cardiac rehabilitation, a cardiac catheterization lab, a Congestive Heart Failure Clinic, and the Irving Women's Imaging Center (mammography).

The Coppertree Medical Center, located one block from the Medical Center, houses physician offices, outpatient MRI services and certain Tenant administrative services.

Related Organization

The Irving Healthcare Foundation (the "Foundation") was organized in September 1977 primarily to raise funds for the Tenant. The Foundation's certificate of formation provides that the Foundation’s primary purpose is the assistance, development and maintenance of charitable activities related to the Tenant. The Tenant is the sole member of the Foundation. The Foundation’s balances and transactions are included in the accompanying combined financial statements of Tenant.

Utilization Data

The following chart describes the Tenant’s historical utilization for the fiscal years ended June 30, 2015 through 2017. June 30,

2015 2016 2017 Inpatient Admissions(1) 11,494 11,025 11,490 Patient Days 53,954 52,454 53,652 Average Length of Stay (Days) 4.7 4.8 4.7 Emergency Room Visits 62,941 63,644 62,320 Outpatient Registrations 33,894 33,336 31,783 Gross Outpatient Revenue as a Percent of Total Gross Patient 48.9% 47.2% 44.9% Revenues

(1) Admissions include adult, pediatric and special care nursery.

Accreditation, Affiliation and Certification

The Tenant holds a license issued by the Texas Department of State Health Services and has received accreditation for the Medical Center from the Joint Commission. Tenant is a Magnet Hospital and is a member of the American Hospital Association, Texas Hospital Association and Dallas/Fort Worth Hospital Council. It maintains clinical affiliations with several area colleges and universities.

Health Education and Community Service

Tenant is a teaching center for the Dallas Community College District, El Centro College, Texas Woman's University, The University of Texas at Arlington and Tarrant County Junior College. These affiliations permit Tenant to provide learning opportunities in graduate nursing, vocational nursing, radiology, respiratory medicine, physical therapy and occupational therapy degree programs. Work-study and health occupation programs are cooperatively offered with the Irving Independent School District.

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Tenant sponsors education programs for Medical Center inpatients, outpatients and the community at-large. Chronic disease support groups, health promotion programs, health screenings, immunization and health education programs are available for many individuals and groups. An ongoing physician relations program includes directories of the medical staff and placement of expert physicians in a variety of mass media outlets including newspaper, magazine, radio and television.

Medical Staff

Texas law prohibits the corporate practice of medicine and, for this reason, no physician is employed by Tenant. Members of the Medical Staff at Tenant (see chart below) as well as members who have clinical privileges to care for patients at Tenant, are credentialed and privileged according to the Bylaws of the Medical Staff at Tenant. Governance of these Medical Staff members and those with clinical privileges is done according to the Medical Staff Bylaws and Rules and Regulations, Medical Staff policies and procedures, and applicable Tenant and department/division policies and procedures.

Credentialed Members of the Medical Staff: Physicians, Podiatrists, and Dentists (as of September 30, 2017)

Tenant Medical Staff

Primary Care 82 17.8%

Specialist 375 81.5%

Dentistry 3 0.7%

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MANAGEMENT AND OTHER PERSONNEL

Key Officers

Cindy Schamp was named President in July 2008. Ms. Schamp earned her undergraduate degree in gerontology/business administration from the University of Oregon and her master's degree in hospital and health administration from the University of Iowa. She is a Fellow of the American College of Healthcare Executives (FACHE). Ms. Schamp serves on the Board of Directors of the Greater Irving-Las Colinas Chamber of Commerce.

Steve Roussel has served as Vice President of Finance at Tenant since June 2016. Mr. Roussel earned his Bachelor of Business Administration in Finance and Accounting from Abilene Christian University and his master's degree in Finance from the University of Dallas. He serves as treasurer for the Irving Hospital Authority, as a member of the Irving-Coppell Surgical Hospital Board and as a member of the Healthcare Financial Management Association.

Employees

As of September 30, 2017, the Tenant had 994 full-time employee equivalents. None of these employees are represented by unions. Management considers the relationship with its employees to be good.

Wages and Benefits

Tenant continues to revise and implement wage and benefit programs to maintain the existing work force and compete for qualified workers in the area. Tenant provides a competitive compensation and benefits program which includes a 401(k) plan, group life, health, dental and disability insurance plans as well as paid time off (vacation and holidays), extended illness time, and injury on duty benefits.

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Management Discussion of Operational Performance - Tenant

Overview. The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the Tenant’s combined results of operations and financial condition. This discussion should be read in conjunction with the combined financial statements and accompanying notes. (See APPENDIX D).

Income (loss) from operations for fiscal year 2017 was ($18.1) million (-8.8% of total operating revenue), compared to ($5.1) million (-2.4% of total operating revenue) for fiscal year 2016 and $6.3 million (2.8% of total operating revenue) in 2015. The loss from operations in 2017 is mainly attributable to a decrease in net patient care revenue and an increase in other operating expenses as explained below.

The total combined operating revenue for fiscal year 2017 was $205.6 million compared to $215.5 million for fiscal year 2016 and $222.3 million for fiscal year 2015.

Net patient care revenue, net of patient related bad debt expense for fiscal year 2017 was $194.0 million compared to $205.6 million for fiscal year 2016 and $213.1 million for fiscal year 2015. The decrease in net patient care revenue in 2017 compared to 2016 is related to shifts in payor mix.

Combined operating expenses for fiscal year 2017 were $223.7 million compared to $220.6 million for fiscal year 2016 and $216.0 million for fiscal year 2015.

Salaries, wages, and employee benefits for fiscal year 2017 were $93.4 million compared to $92.3 million in fiscal year 2016 and $91.1 million in fiscal year 2015. Salaries, wages, and employee benefits represented approximately 45.4%, 42.8%, and 41.0% of total operating revenue for fiscal years 2017, 2016 and 2015, respectively, and approximately 41.7%, 41.8%, and 42.2% of total operating expenses for fiscal years 2017, 2016 and 2015, respectively.

Supplies and other operating expenses for fiscal year 2017 were $110.3 million compared to $107.7 million for fiscal year 2016 and $104.6 million for fiscal year 2015. Supplies and other operating expenses represented approximately 53.7%, 50.0%, and 47.0% of total operating revenue in fiscal years 2017, 2016 and 2015, respectively, and approximately 49.3%, 48.8%, and 48.4% of total operating expenses for fiscal years 2017, 2016 and 2015, respectively. The increase in other operating expenses in 2017 compared to 2016 is related to corporate services overhead. Discounted corporate services overhead expenses were negotiated in the first seven years of the Amended and Restated Lease Agreement. The discount was completely phased out in April 2016.

Depreciation and amortization expense for fiscal year 2017 was $14.3 million, compared to $14.6 million in fiscal year 2016 and $14.4 million for fiscal year 2015.

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Sources of Gross Patient Service Revenue

The Tenant derives its patient revenue from Medicare, Medicaid, managed care companies, commercial insurers, self-paying patients and other sources. Set forth below is a table showing the source of payment of gross patient revenue from the Tenant for fiscal years ended June 30, 2015 through 2017.

Payor Mix by Gross Revenue

2015 2016 2017

Medicare (including Medicare managed care) 40.3% 40.4% 42.9% Medicaid (including Medicaid managed care) 12.7% 11.5% 11.4% Managed Care/commercial Insurance(1) 30.0% 29.5% 28.4% Self-Pay 15.0% 16.4% 15.8% Health Insurance Exchange 2.0% 2.2% 1.5% Total 100.0% 100.0% 100.0%

(1) Includes managed care, Blue Cross, CHAMPUS, workers compensation, and other governmental contracts.

MALPRACTICE, OTHER LIABILITY INSURANCE CONSIDERATIONS, AND LITIGATION

BSWH Self-Insurance Program

BSWH provides insurance coverage to Tenant for self-insured retention amounts through Baylor Scott & White Assurance SPC (“BSWA”), a wholly owned subsidiary of BSWH domiciled in the Cayman Islands. Excess policies that cover claims for hospital professional liability and general liability are provided by BSWA. The excess liability policies are reinsured by various reinsurers.

Litigation

There are certain actions pending against the Tenant that have arisen in the ordinary course of business. In the opinion of the Tenant’s management, adequate provision has been made in the financial statements to accrue for estimated losses and the ultimate disposition of such actions will not materially adversely affect the financial condition of the Tenant.

Annual Reports

BSWH files annual reports with the Municipal Securities Rulemaking Board (the “MSRB”). BSWH filings are available to the public over the internet through the MRSB’s Electronic Municipal Market Access system (“EMMA”) at https://emma.msrb.org/IssueView/NonCUSIP9IssueDetails.aspx?id=ES359734. Information contained on such MSRB website is not incorporated by reference into this Official Statement. The Authority has not obtained any representations from BSWH concerning their publicly available filings or undertaken any review thereof and assumes no responsibility for the information contained therein.

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BAYLOR MEDICAL CENTER AT IRVING COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (in thousands) June 30, 2015 2016 2017 OPERATING REVENUE: Net patient care revenue $ 252,968 $ 245,825 $ 228,182 Less patient related bad debt expense 39,836 40,206 34,221 Net patient care revenue, net of patient related bad debt expense 213,132 205,619 193,961 Other operating revenue 8,258 9,208 8,936 Net assets released from restrictions for operations 889 704 2,670 Total operating revenue 222,279 215,531 205,567

OPERATING EXPENSES: Salaries, wages and employee benefits 91,085 92,320 93,359 Supplies 28,733 28,376 29,255 Other operating expenses 75,830 79,313 81,092 Losses on fixed asset sales and disposals, net — 166 — Depreciation and amortization 14,445 14,609 14,287 Interest 5,896 5,845 5,669 Total operating expenses 215,989 220,629 223,662

Income (loss) from operations 6,290 (5,098) (18,095)

NONOPERATING GAINS (LOSSES)

Gains (losses) on Irving's interest in BHCS Money Pool, net 6,780 (501) 23,740 Gains on investments, net 2 1 — Contributions 38 — — Equity in earnings of unconsolidated entities 6,030 6,961 7,395 Other 1,324 3 111 Total nonoperating gains 14,174 6,464 31,246

REVENUE AND GAINS IN EXCESS OF EXPENSES AND LOSSES BEFORE TAXES 20,464 1,366 13,151

LESS INCOME TAX EXPENSE — 1 2

REVENUE AND GAINS IN EXCESS OF EXPENSES AND LOSSES 20,464 1,365 13,149

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BAYLOR MEDICAL CENTER AT IRVING

COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - continued (in thousands)

June 30, 2015 2016 2017

OTHER CHANGES IN UNRESTRICTED NET ASSETS: Unrealized gains on investments, net $ — $ 2 $ — Transfers between entities under common control 100 100 100 Net assets released from restrictions for capital expenditures 671 743 3,202 Other 13 275 61 INCREASE IN UNRESTRICTED NET ASSETS 21,248 2,485 16,512

CHANGES IN TEMPORARILY RESTRICTED NET ASSETS: Contributions 1,974 3,503 3,931 Realized gains and investment income, net 537 104 400 Unrealized (losses) gains on investments, net (417) (111) 244 Change in value of split-interest agreements (6) (6) (6) Net assets released from restrictions for operations (889) (704) (2,670) Net assets released from restrictions for capital expenditures (671) (743) (3,202) Transfers between entities under common control (126) (58) (76) Other (28) (441) (110) INCREASE (DECREASE) IN TEMPORARILY RESTRICTED NET ASSETS 374 1,544 (1,489)

CHANGES IN PERMANENTLY RESTRICTED NET ASSETS: Contributions — 1 — Change in value of split-interest agreements 2 (7) 3 Other (29) — — (DECREASE) INCREASE IN PERMANENTLY RESTRICTED NET ASSETS (27) (6) 3

INCREASE IN NET ASSETS 21,595 4,023 15,026

NET ASSETS, beginning of year 358,287 379,882 383,905

NET ASSETS, end of year $ 379,882 $ 383,905 $ 398,931

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BAYLOR MEDICAL CENTER AT IRVING COMBINED BALANCE SHEETS (in thousands)

June 30, 2015 2016 2017 CURRENT ASSETS: Cash and cash equivalents $ 1,775 $ 4,291 $ 1,657 Accounts receivable: Patient, net 19,513 19,915 17,930 Other 12,575 5,470 4,564 Supplies 4,824 4,866 5,212 Total current assets 38,687 34,542 29,363

IRVING’S INTEREST IN BHCS MONEY POOL 316,296 324,248 347,338

LONG-TERM INVESTMENTS 7,050 6,196 7,202

PROPERTY AND EQUIPMENT, net 201,938 193,252 183,845 CONTRIBUTIONS RECEIVABLE, net 920 530 2,355 DUE FROM AFFILIATES, net 1,263 1,025 743 INVESTMENT IN AFFILIATE 1,250 1,250 1,631 OTHER LONG-TERM ASSETS: Equity investment in unconsolidated entities 5,214 5,904 5,514 Other 1,272 815 491 Total other long-term assets 6,486 6,719 6,005 Total assets $573,890 $567,762 $578,482

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BAYLOR MEDICAL CENTER AT IRVING COMBINED BALANCE SHEETS - continued (in thousands) June 30, 2015 2016 2017 LIABILITIES AND NET ASSETS

CURRENT LIABILITIES: Current maturities of capital lease obligations $ 3,025 $ 3,124 $ 3,246 Trade accounts payable 3,969 3,843 5,668 Affiliates payable, net 8,988 6,234 6,004 Accrued liabilities: Payroll related 231 236 12 Third-party programs 1,732 1,865 2,357 Due to Irving Hospital Authority 7,062 4,392 1,804 Other 2,729 1,665 1,520 Total current liabilities 27,736 21,359 20,611

CAPITAL LEASE OBLIGATIONS, less current maturities 156,498 153,373 150,224 OTHER LONG-TERM LIABILITIES 9,774 9,125 8,716 Total liabilities 194,008 183,857 179,551 COMMITMENTS AND CONTINGENCIES NET ASSETS: Unrestricted 372,495 374,980 391,492 Temporarily restricted 4,245 5,789 4,300 Permanently restricted 3,142 3,136 3,139 Total net assets 379,882 383,905 398,931 Total liabilities and net assets $ 573,890 $ 567,762 $ 578,482

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APPENDIX C

Financial Statements of Irving Hospital Authority

[THIS PAGE INTENTIONALLY LEFT BLANK] Irving Hospital Authority Independent Auditor’s Report and Financial Statements

June 30, 2017 and 2016 Irving Hospital Authority June 30, 2017 and 2016

Contents

Independent Auditor’s Report ...... 1

Management’s Discussion and Analysis ...... 3

Financial Statements Statements of Net Position ...... 7 Statements of Activities ...... 8 Statements of Cash Flows ...... 9 Notes to Financial Statements ...... 10 Independent Auditor’s Report

Board of Directors Irving Hospital Authority Irving, Texas

We have audited the accompanying basic financial statements, which are comprised of statements of net position as of June 30, 2017 and 2016, and the related statements of activities and of cash flows for the years then ended and the related notes to the basic financial statements, as listed in the table of contents, of the Irving Hospital Authority (the Authority).

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Board of Directors Irving Hospital Authority Page 2

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Authority as of June 30, 2017 and 2016, and the changes in its financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management's discussion and analysis be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Dallas, Texas October 24, 2017 Introduction

The Irving Hospital Authority (Authority) is a political subdivision of the City of Irving, Texas.

This discussion and analysis provides an overview of the Authority’s financial activities for the fiscal year ended June 30, 2017. This information is designed to focus on current year activities and should be read in conjunction with the financial statements of the Authority.

Operating Highlights

Substantially all properties of Baylor Medical Center at Irving (Irving) are leased from the Authority. Effective April 1, 2010, Irving and the Authority entered into an Amended and Restated Lease Agreement (Amended Lease Agreement) in which Irving continues to lease the properties from the Authority over a lease term of 35 years. The Amended Lease Agreement is being accounted for as an operating lease by the Authority.

On May 25, 2015, the 84th Texas Legislature, Regular Session, passed House Bill 3333, amending Chapter 226 (Hospital Authority Act) of the Health and Safety Code, Title 4, Subtitle C, which became effective September 1, 2015. This bill expanded the Authority’s investment options to include corporate stock or other securities in the name of the nominee.

Financial Highlights

Over the last fiscal year, the Authority had positive results in both the operating and nonoperating categories further strengthening the organization’s overall financial position. For the year ended June 30, 2017, the Authority had the following financial highlights:

• Operating revenues from the Amended Lease Agreement decreased approximately $2,671,000 or 20.6% from the prior year. The decreased revenues are related to the approximate $2,671,000 decrease in contingent rent income from Irving. Consequently, net income from operations decreased approximately $2,392,000 or 24.9% decrease from fiscal year 2016.

• Interest earned on the Authority’s investment portfolio was $2,287,000 in fiscal year 2017 which was up $900,000 over the prior year.

• The net position of the Authority increased $10,227,000 or 8.0% between fiscal years 2016 and 2017. The change in net position was the result of net income from operations of approximately $7,202,000 and nonoperating gains of $3,025,000.

3 Using This Annual Report

The Authority’s financial statements consist of the statements of net position, the statements of activities, and the statements of cash flows. These statements provide information about the activities of the Authority, including resources held by the Authority but restricted for specific purposes by creditors, contributors, grantors or enabling legislation. The Authority is accounted for as a business-type activity and presents its financial statements using the economic resources measurement focus and the accrual basis of accounting.

The Statement of Net Position and Statement of Activities

One of the most important questions asked about any Authority’s finances is “Is the Authority as a whole better or worse off as a result of the year’s activities?” The Statement of Net Position and the Statement of Activities report information about the Authority’s resources and its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting. Using the accrual basis of accounting means that all of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Authority’s net position and changes in it. The Authority’s total net position—the difference between assets and liabilities—is one measure of the Authority’s financial health or financial position. Over time, increases or decreases in the Authority’s net position are an indicator of whether its financial health is improving or deteriorating. Other nonfinancial factors, such as changes in operating factors of the Authority’s leased hospital facility, changes in legislation and regulations, and local economic factors should also be considered to assess the overall financial health of the Authority.

The Statement of Cash Flows

The Statement of Cash Flows reports cash receipts, cash payments and net changes in cash and cash equivalents resulting from four defined types of activities including operating, capital financing, noncapital financing and investing. It provides answers to such questions as where did cash come from, what was cash used for and what was the change in cash and cash equivalents during the reporting period.

4 The Authority’s Net Position

The Authority’s net position is the difference between its assets and liabilities reported in the Statement of Net Position. The Authority’s net position increased by $10,277,000 (8%) in 2017 over 2016, and by $10,108,000 (9.8%) in 2016 over 2015, as shown in Table 1.

Table 1: Assets, Liabilities and Net Position (in thousands)

2017 2016 2015 Assets Other current and noncurrent assets $ 102,645 $ 92,446 $ 84,519 Capital assets, net 37,414 35,294 36,934

Total assets $ 140,059 $ 127,740 $ 121,453

Liabilities Other current and noncurrent liabilities $ 2,155 $ 63 $ 3,884 Long-term debt 5 5 5

Total liabilities 2,160 68 3,889

Net Position Net investment in capital assets 37,275 35,294 36,934 Unrestricted 100,624 92,378 80,630

Total net position 137,899 127,672 117,564

Total liabilities and net position $ 140,059 $ 127,740 $ 121,453

A significant change in the Authority’s assets in 2017 and 2016 is the increase in cash, cash equivalents and investments included in other current and noncurrent assets above. This increase was a result of operations where net income of the Authority was $10,227,000 and $10,108,000 for fiscal years 2017 and 2016, respectively.

5 Table 2: Operating Results and Changes in Net Position (in thousands)

2017 2016 2015

Total operating revenue $ 10,274 $ 12,945 $ 15,616

Total operating expenses 3,072 3,351 3,568

Operating income 7,202 9,594 12,048

Nonoperating revenues (expenses) 3,025 514 921

Change in net position 10,227 10,108 12,969

Net position, beginning of year 127,672 117,564 104,595

Net positon, end of year $ 137,899 $ 127,672 $ 117,564

The operating income for 2017 and 2016 decreased by $2,671,000 or 21% and 17%, respectively, as a result of decreases in contingent rent income from Irving. The operating expense for 2017 and 2016 consisted primarily of depreciation expense of Irving which represented 80% and 77%, respectively.

Capital Assets and Debt Administration

Capital Assets

The Authority had investments in capital assets, net of accumulated depreciation, of approximately $37,414,000 and $35,294,000 at June 30, 2017 and 2016, respectively.

Debt

The Authority’s long-term debt consists of a $5,000 junior lien bond. The Authority cannot issue debt or revenue bonds without approval of the Irving City Council. The amount of debt issued is subject to limitations that apply to the Authority under the Hospital Authority Act. There have been no adverse changes in the Authority’s debt ratings in the past two years.

Contacting the Authority’s Financial Management

This financial report is designed to provide a general overview of the Authority’s finances for all those with an interest in the Authority’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Irving Hospital Authority Assistant Treasurer Office at Baylor Medical Center at Irving, 1901 N. MacArthur Blvd., Irving, Texas 75061. The phone number is 972.579.8104.

6 Irving Hospital Authority Statements of Net Position June 30, 2017 and 2016 (In Thousands)

Assets 2017 2016 Current Assets Cash and cash equivalents $ 12,022 $ 9,981 Short-term investments 79,057 68,042 Accounts receivable 1,816 4,395 Prepaids and other current assets 281 272

Total current assets 93,176 82,690

Long-term Investments 2,196 2,211

Land, Buildings and Equipment Land 12,365 12,365 Buildings and improvements 113,597 113,597 Major moveable equipment and other 12,501 12,501 Construction-in-progress 5,231 650

Total land, buildings and equipment 143,694 139,113

Accumulated depreciation (106,280) (103,819)

Land, buildings and equipment, net 37,414 35,294

Tenant Rent Incentives, Net of Amortization; 2017 – $1,367, 2016 – $1,095 7,273 7,545

Total assets $ 140,059 $ 127,740

Liabilities and Net Position

Current Liabilities Accounts payable and accrued liabilities $ 2,155 $ 63

Total current liabilities 2,155 63

Long-term Debt 5 5

Total liabilities 2,160 68

Net Position Net investment in capital assets 37,275 35,294 Unrestricted 100,624 92,378

Total net position 137,899 127,672

Total liabilities and net position $ 140,059 $ 127,740

See Notes to Financial Statements 7 Irving Hospital Authority Statements of Activities Years Ended June 30, 2017 and 2016 (In Thousands)

2017 2016 Operating Revenue Lease revenue, net of tenant rent incentive amortization; 2017 – $272, 2016 – $272 $ 10,274 $ 12,945

Total operating revenue 10,274 12,945

Operating Expenses Professional fees and purchased services 518 619 Supplies and other 93 149 Depreciation 2,461 2,583

Total operating expenses 3,072 3,351

Income from Operations 7,202 9,594

Nonoperating Revenue (Expense) Net increase in fair value of investments 2,508 1,323 Charitable contributions (2,030) (2,392) Interest revenue 2,287 1,387 Other income 260 196

Total nonoperating revenues (expense) 3,025 514

Change in Net Position 10,227 10,108

Net Position, Beginning of Year 127,672 117,564

Net Position, End of Year $ 137,899 $ 127,672

See Notes to Financial Statements 8 Irving Hospital Authority Statements of Cash Flows Years Ended June 30, 2017 and 2016 (In Thousands)

2017 2016 Cash Flows from Operating Activities Receipts from rent $ 13,137 $ 15,901 Payments to suppliers and contractors (360) (3,363)

Net cash provided by operating activities 12,777 12,538

Cash Flows from Capital and Related Financing Activates Purchase of property and equipment (4,442) (1,947) Charitable contributions (77) (2,392)

Net cash used in financing activities (4,519) (4,339)

Cash Flows from Investing Activities Purchases of investment securities (33,060) (107,433) Proceeds from the sales and maturities of investment securities 24,568 94,912 Interest on investments 2,275 152

Net cash used in investing activities (6,217) (12,369)

Net Increase (Decrease) in Cash and Cash Equivalents 2,041 (4,170)

Cash and Cash Equivalents, Beginning of Year 9,981 14,151

Cash and Cash Equivalents, End of Year $ 12,022 $ 9,981

Reconciliation of Income from Operations to Net Cash Provided by Operating Activities Income from operations $ 7,202 $ 9,594

Adjustments to reconcile Income from Operations to Net Cash Flows Provided by Operating Activities Amortization of tenant rent incentive 272 272 Depreciation expense 2,461 2,583

Changes in Accounts receivable 2,579 2,684 Prepaid and other assets 263 26 Accrued expenses - (2,621)

Net cash provided by operating activities $ 12,777 $ 12,538

Supplemental Cash Flows Information Increase (Decrease) in accounts payable due to property and equipment received but not paid $ 139 $ (786)

See Notes to Financial Statements 9 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

The Irving Hospital Authority (Authority) is a political subdivision created in 1959 by the City of Irving, Texas, under Article 4437e of the Revised Civil Statutes of Texas. The Authority was organized for the purpose of maintaining a hospital in the City of Irving, which operated as Irving Healthcare System. The Authority entered into a Master Agreement (Master Agreement) with Baylor Medical Center at Irving (Irving) and Baylor Health Care System (BHCS) and a Lease Agreement (Lease Agreement) with Irving. Under the terms of the Lease Agreement, Irving agreed to manage and lease substantially all properties of the Authority for twenty years, beginning August 1, 1995. An Amended and Restated Lease Agreement (Amended Lease Agreement) was entered into by the Authority and Irving effective April 1, 2010, to extend the lease 35 years through March 31, 2045, and to supersede nearly all the obligations of the Master Agreement and Lease Agreement. BHCS signed a Limited Joinder (Limited Joinder) to evidence its agreement with the BHCS obligations included in the Amended Lease Agreement and to covenant that BHCS will pay the rent and the early termination/liquidated damages if Irving fails to pay those obligations. The Master Agreement, the Lease Agreement, the Amended lease Agreement and the Limited Joinder are referred to collectively as the “Agreement”. The Authority continues to maintain and improve the facilities in the interest of the community. At the end of the lease term the facilities will be surrendered to the Authority. The Authority is exempt from federal income taxes pursuant to Section 115(a) of the Internal Revenue Code as an instrumentality of a political subdivision. Basis of Accounting

The accompanying financials statements of the Authority have been prepared in conformity with accounting principles generally accepted in the United States. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles for state and local governments. The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.

10 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

The Authority uses the accrual basis of accounting whereby expenses are recognized when the liability is incurred and revenues are recognized when earned. The Authority’s financial statements are reported using the economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operations of the Authority are included on the statement of net position. The operating statement presents increases (revenues) and decreases (expenses) in net position. The Authority distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with the Authority’s ongoing operations. The principal operating revenues of the Authority are lease revenues. The principal operating expenses are depreciation costs. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses and other changes in net position during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents

The Authority considers demand deposits, assets on hand, and investments with original maturities of three months or less and investment pools to be cash equivalents. Investment pools are voluntary investment alternatives offered to public entities for the investment of public funds (see Note 2). Investments and Investment Income

Investments in equity securities, mutual funds and negotiable certificates of deposit are carried at fair value. Fair value is determined using quoted market prices. Investment income consists of interest and dividend income and the net change for the year in the fair value of investments carried at fair value. Land, Buildings and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line method over the estimated useful life of each asset, ranging from three to forty years.

11 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Tenant Rent Incentives

Tenant rent incentives are stated at cost less amortization. Amortization is net against lease revenue over the life of the lease agreement using the straight-line method. Professional Liability Self-Insurance

The Authority purchased tail coverage for all professional and general liability claims incurred prior to August 1, 1995. The Authority maintains insurance coverage for its limited exposure to professional liability. Management believes that contingent losses are adequately covered by insurance.

Note 2: Deposits and Investments

State statutes and the Authority’s Investment Policy govern the investments of the Authority. For the fiscal years ended June 30, 2017 and 2016, deposits and investments may be made with or through federally insured banks domiciled in the state of Texas or primary or regional brokers or security dealers that qualify under Securities and Exchange Commission Rule 15C 3-1. The Authority’s funds may be invested in the following: a. Obligations of the United States or its agencies and instrumentalities; b. Collateralized mortgage obligations directly issued by a federal agency or instrumentality of the United States with a stated, final maturity of ten years of less; c. Money market mutual funds which are registered with and regulated by the Securities Exchange Act of 1934 or the Investment Company Act of 1940; d. Guaranteed investment contracts that have defined termination dates, secured by obligations of the United States or its agencies and instrumentalities, and are pledged by the Authority and deposited with the Authority or with a third party selected and approved by the Authority. In addition to investment in obligations, certificates or agreements described above, the Authority’s bond proceeds may be invested in common trust funds or comparable investment devices owned or administered by banks domiciled in Texas.

e. Exchange traded funds which are registered with and regulated by the Securities Exchange Act of 1934 or the Investment Company Act of 1940

f. Mutual funds which are valued at net asset value of respective share holdings and registered with and regulated by the Securities Exchange Act of 1934 or the Investment Company Act of 1940

12 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Demand Deposits

The carrying amounts of the Authority’s demand deposits at June 30, 2017 and 2016, were approximately $10,633,000 and $8,600,000, respectively. The custodial credit risk for deposits is the risk that, in the event of a bank failure the Authority will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Authority’s cash deposits at June 30, 2017 and 2016, were entirely covered by FDIC insurance or by pledged collateral held by the Federal Reserve and, therefore, were not exposed to custodial credit risk. Participation in TexPool

The Authority has funds invested in the Texas Local Government Pool (TexPool). TexPool is a local government investment pool sponsored by the Texas Comptroller of Public Accounts and managed by Federated Investors. Investments in TexPool are recorded at cost which approximates market value and are included in cash and cash equivalents on the accompanying statements of net position. The carrying amount of investments in TexPool was approximately $1,388,000 and $1,381,000 at June 30, 2017 and 2016, respectively. TexPool is currently rated AAAm by Standard & Poor’s. TexPool is uninsured and is not registered with the Securities and Exchange Commission. Investments in TexPool are not subject to custodial credit risk as they are not evidenced by securities that exist in physical or book entry form. Investments

The Authority records investments at fair value as determined by quoted market prices. Credit Risk – Investments

At June 30, 2017 and 2016, the Authority’s investments were comprised of exchange traded funds, mutual funds and negotiable certificates of deposit. Custodial Credit Risk – Investments

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. The Authority is not exposed to custodial credit risk for its investments as all are insured by the SIPC, FDIC, and/or are governmental securities registered in the government’s name.

13 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Interest Rate Risk – Investments

Interest rate risk occurs when potential purchasers of debt securities do not agree to pay face value for those securities if interest rates rise. The Authority’s Investment Policy limits investment maturities as a mean of managing its exposure to fair value losses arising from increasing interest rates. The Authority uses the segmented time distribution method to disclose interest rate risk. Concentration of Credit Risk – Investments

In general, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of an investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Investments held by the Authority are limited by enacted legislation of the state of Texas under Chapter 226 which for fiscal year 2016 was amended to include investment in corporate stock or funds consisting of such investments. As of June 30, 2017 and 2016, the maturity ranges and credit ratings for the Authority’s investments are presented in the following tables (in thousands):

Maturities in Years Less Greater than 1 1-5 6-10 than 10 Fair Value Ratings June 30, 2017 Equity securities $ 16,040 -$ -$ -$ $ 16,040 Unrated Mutual funds 55,566 - - - 55,566 Unrated Negotiable certificates of deposit 1,749 7,898 - - 9,647 A-1+/P-1

$ 73,355 7,898$ -$ -$ 81,253$

Maturities in Years Less Greater than 1 1-5 6-10 than 10 Fair Value Ratings June 30, 2016 Equity securities $ 11,525 -$ -$ -$ 11,525$ AAA Mutual funds 55,266 - - - 55,266 AAA Negotiable certificates of deposit 1,253 2,211 - - 3,464 A-1+/P-1

$ 68,044 2,211$ -$ -$ 70,255$

14 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Note 3: Capital Assets

Capital asset activity for the years ended June 30, 2017 and 2016, was as follows (in thousands):

July 1, Additions/ Decreases/ June 30, 2016 Transfers In Transfers Out 2017

Capital Assets, Not Being Depreciated Land $ 12,365 $ - $ - $ 12,365 Construction in progress 650 4,581 - 5,231

Total capital assets, not being depreciated 13,015 4,581 - 17,596

Capital Assets, Being Depreciated Buildings 113,597 - - 113,597 Vehicles, machinery and equipment 12,501 - - 12,501

Total capital assets, being depreciated 126,098 - - 126,098

Less Accumulated Depreciation for Buildings 91,452 - - 91,452 Vehicles, machinery and equipment 12,367 2,461 - 14,828

Total accumulated depreciation 103,819 2,461 - 106,280

Total capital assets, being depreciated, net 22,279 (2,461) - 19,818

Total capital assets, net $ 35,294 $ 2,120 $ - $ 37,414

July 1, Additions/ Decreases/ June 30, 2015 Transfers In Transfers Out 2016

Capital Assets, Not Being Depreciated Land $ 12,365 $ - $ - $ 12,365 Construction in progress 3,955 902 (4,207) 650

Total capital assets, not being depreciated 16,320 902 (4,207) 13,015

Capital Assets, Being Depreciated Buildings 109,357 4,240 - 113,597 Vehicles, machinery and equipment 12,493 8 - 12,501

Total capital assets, being depreciated 121,850 4,248 - 126,098

Less Accumulated Depreciation for Buildings 88,893 2,559 - 91,452 Vehicles, machinery and equipment 12,343 24 - 12,367

Total accumulated depreciation 101,236 2,583 - 103,819

Total capital assets, being depreciated, net 20,614 1,665 - 22,279

Total capital assets, net $ 36,934 $ 2,567 $ (4,207) $ 35,294

15 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Note 4: Agreement with Baylor Health Care System

Under the terms of the Agreement, Irving has assumed certain responsibilities of the Authority, including operating the Irving facilities for the benefit of the local community. Irving pays fixed rent of approximately $735,000 per month through March 2045 and contingent rent equal to 20% of its Excess Operating Cash Flow, as defined in the Revised Lease Agreement. The Authority must set aside annually 50% of the contingent rent it receives until the amount set aside totals $8,000,000, including any interest earned on such amounts (the Rent Set Aside). If Irving has Negative Operating Cash Flow, as defined in the Amended Lease Agreement, then 20% of such Negative Operating Cash Flow shall offset any contingent rent payable to the Authority for the following year. If Negative Operating Cash Flow is greater than contingent rent for the following year, the Authority must pay the difference to Irving from the Rent Set Aside, to the extent such funds are available in that account. BHCS has guaranteed the lease payments in the event Irving is unable to meet the obligation. Tenant rent incentive activity for the years ended June 30, 2017 and 2016, was as follows (in thousands):

Balance, June 30, 2015 $ 7,817 Amortization of tenant rent incentives (272) Balance, June 30, 2016 7,545 Amortization of tenant rent incentives (272) Balance, June 30, 2017 $ 7,273

In the event the Agreement terminates, all net assets of Irving, after repayment of working capital advances from BHCS and provision for actual and contingent liabilities, will be transferred to the Authority, unless termination is due to certain specified events. At June 30, 2017 and 2016, no receivable under the terms of the Agreement was recorded as the amount is not realizable.

Note 5: Long-term Debt

Long-term debt as of June 30, 2017 and 2016, consists of a $5,000 Junior Lien Hospital Revenue Refunding Bond due in 2034 that requires interest payments semiannually at 7.5%.

16 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Note 6: Rental Revenue

The following schedule is future minimum rental revenue under the Amended Lease Agreement, for the years ending June 30 (in thousands):

Year Ending June 30,

2018 $ 8,825 2019 8,825 2020 8,825 2021 8,825 2022 8,825 Thereafter 200,780

$ 244,905

Note 7: Transactions with Related Parties

The Irving Healthcare Foundation, (Foundation), was organized in September 1977. The Foundation’s bylaws provide funds raised, except funds required for the operation of the Foundation, be distributed to or held primarily for the benefit of Irving. Currently, the Foundation funds Irving and other organizations that provide not-for-profit health care in the City of Irving. Contributions to Irving are primarily used for the improvement and expansion of the facilities and for equipment purchases.

Note 8: Disclosures About Fair Value of Assets

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

17 Irving Hospital Authority Notes to Financial Statements June 30, 2017 and 2016

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying financial statements measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30 (in thousands):

Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3)

June 30, 2017 Investments by Fair Value Level Equity securities $ 16,040 $ 16,040 $ - $ - Mutual funds 55,566 55,566 - - Negotiable certificates of deposit 9,647 9,647 - - Total investments by fair value level $ 81,253 $ 81,253 $ - $ -

June 30, 2016 Investments by Fair Value Level Equity securities $ 11,525 $ 11,525 $ - $ - Mutual funds 55,266 55,266 - - Negotiable certificates of deposit 3,462 3,462 - - Total investments by fair value level $ 70,253 $ 70,253 $ - $ -

Investments

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. The Authority had no Level 3 investments during the year’s ended June 30, 2017 and 2016.

APPENDIX D

Combined Financial Statements of Baylor Medical Center at Irving [THIS PAGE INTENTIONALLY LEFT BLANK]

______

Baylor Medical Center at Irving

Combined Financial Statements and Supplementary Information

For the Years Ended June 30, 2017 and 2016

BAYLOR MEDICAL CENTER AT IRVING Combined Financial Statements and Supplementary Information For the Years Ended June 30, 2017 and 2016 BAYLOR MEDICAL CENTER AT IRVING

Combined Financial Statements and Supplementary Information

For the Years Ended June 30, 2017 and 2016

CONTENTS

Report of Independent Auditors

Audited Combined Financial Statements Combined Balance Sheets...... 2 Combined Statements of Operations and Changes in Net Assets...... 3 Combined Statements of Cash Flows ...... 5 Notes to Combined Financial Statements ...... 7

Supplementary Information Other Community Benefits - Unaudited ...... 41

BAYLOR MEDICAL CENTER AT IRVING

COMBINED BALANCE SHEETS - JUNE 30, 2017 and 2016 (In thousands)

ASSETS 2017 2016 LIABILITIES AND NET ASSETS 2017 2016

CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents $ 1,657 $ 4,291 Current maturities of capital lease obligations $ 3,246 $ 3,124 Accounts receivable: Trade accounts payable 5,668 3,843 Patient, net of allowance for uncollectibles of Affiliates payable, net 6,004 6,234 $19,169 in 2017 and $22,566 in 2016 17,930 19,915 Accrued liabilities: Other 4,564 5,470 Payroll related 12 236 Supplies 5,212 4,866 Third-party programs 2,357 1,865 Due to Irving Hospital Authority 1,804 4,392 Other 1,520 1,665

Total current assets 29,363 34,542 Total current liabilities 20,611 21,359

IRVING’S INTEREST IN BHCS MONEY POOL 347,338 324,248 CAPITAL LEASE OBLIGATIONS, less current maturities 150,224 153,373 LONG-TERM INVESTMENTS 7,202 6,196

PROPERTY AND EQUIPMENT, net 183,845 193,252 OTHER LONG-TERM LIABILITIES 8,716 9,125

CONTRIBUTIONS RECEIVABLE, net 2,355 530 Total liabilities 179,551 183,857

DUE FROM AFFILIATES, net 743 1,025 COMMITMENTS AND CONTINGENCIES INVESTMENT IN AFFILIATE 1,631 1,250 NET ASSETS: OTHER LONG-TERM ASSETS: Unrestricted 391,492 374,980 Equity investment in unconsolidated entities 5,514 5,904 Temporarily restricted 4,300 5,789 Other 491 815 Permanently restricted 3,139 3,136

Total other long-term assets 6,005 6,719 Total net assets 398,931 383,905

Total assets $ 578,482 $ 567,762 Total liabilities and net assets $ 578,482 $ 567,762

The accompanying notes are an integral part of these financial statements. - 2 - BAYLOR MEDICAL CENTER AT IRVING

COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 (In thousands)

2017 2016 OPERATING REVENUE: Net patient care revenue $ 228,182 $ 245,825 Less patient related bad debt expense 34,221 40,206 Net patient care revenue, net of patient related bad debt expense 193,961 205,619 Other operating revenue 8,936 9,208 Net assets released from restrictions for operations 2,670 704 Total operating revenue 205,567 215,531

OPERATING EXPENSES: Salaries, wages, and employee benefits 93,359 92,320 Supplies 29,255 28,376 Other operating expenses 81,092 79,313 Losses on fixed asset sales and disposals, net - 166 Depreciation and amortization 14,287 14,609 Interest 5,669 5,845 Total operating expenses 223,662 220,629 Loss from operations (18,095) (5,098)

NONOPERATING GAINS (LOSSES): Gains (losses) on Irving’s interest in BHCS Money Pool, net 23,740 (501) Gains on investments, net - 1 Equity in earnings of unconsolidated entities 7,395 6,961 Other 111 3 Total nonoperating gains 31,246 6,464

REVENUE AND GAINS IN EXCESS OF EXPENSES AND LOSSES BEFORE TAXES 13,151 1,366

LESS INCOME TAX EXPENSE 2 1

REVENUE AND GAINS IN EXCESS OF EXPENSES AND LOSSES 13,149 1,365

-3- BAYLOR MEDICAL CENTER AT IRVING

COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - continued

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 (In thousands)

2017 2016 OTHER CHANGES IN UNRESTRICTED NET ASSETS: Unrealized gains on investments, net $ - $ 2 Transfers between entities under common control 100 100 Net assets released from restrictions for capital expenditures 3,202 743 Other 61 275

INCREASE IN UNRESTRICTED NET ASSETS 16,512 2,485

CHANGES IN TEMPORARILY RESTRICTED NET ASSETS: Contributions 3,931 3,503 Realized gains and investment income, net 400 104 Unrealized gains (losses) on investments, net 244 (111) Change in value of split-interest agreements (6) (6) Net assets released from restrictions for operations (2,670) (704) Net assets released from restrictions for capital expenditures (3,202) (743) Transfers between entities under common control (76) (58) Other (110) (441)

(DECREASE) INCREASE IN TEMPORARILY RESTRICTED NET ASSETS (1,489) 1,544

CHANGES IN PERMANENTLY RESTRICTED NET ASSETS: Contributions - 1 Change in value of split-interest agreements 3 (7)

INCREASE (DECREASE) IN PERMANENTLY RESTRICTED NET ASSETS 3 (6)

INCREASE IN NET ASSETS 15,026 4,023

NET ASSETS, beginning of year 383,905 379,882

NET ASSETS, end of year $ 398,931 $ 383,905

The accompanying notes are an integral part of these financial statements. - 4 - BAYLOR MEDICAL CENTER AT IRVING

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 (In thousands)

2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Increase in net assets $ 15,026 $ 4,023 Adjustments to reconcile increase in net assets to net cash provided by operating activities: Unrealized (gains) losses on investments, net (244) 109 Unrealized (gains) losses on Irving’s interest in BHCS Money Pool, net (12,055) 6,095 Realized (gains) losses on sales of investments, net (294) 12 Realized gains on Irving’s interest in BHCS Money Pool, net (8,078) (1,718) Change in value of split-interest agreements 3 13 Transfers between entities under common control (24) (42) Patient related bad debt expense 34,221 40,206 Depreciation and amortization 14,287 14,609 Losses on fixed asset sales and disposals, net - 166 Equity in earnings of unconsolidated entities (7,395) (6,961) Distributions received from unconsolidated entities 7,785 6,271 Changes in operating assets and liabilities: Increase in net patient accounts receivable (32,236) (40,608) Decrease in other accounts receivable, supplies, contributions receivable, due from affiliates, net, and other current and long-term assets 2,277 8,138 Increase in trade accounts payable 1,068 257 Decrease in affiliates payable, net (230) (2,744) Decrease in accrued liabilities and other long-term liabilities (2,827) (3,511) Net cash provided by operating activities 11,284 24,315

CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (7,005) (7,213) Investment in affiliate (381) - (Increase) decrease in investments, net (457) 741 Increase in Irving’s interest in BHCS Money Pool, net (2,957) (12,329) Net cash used in investing activities (10,800) (18,801)

CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (3,125) (3,026) Transfers between entities under common control 24 42 Annuity payments to beneficiaries (17) (14) Net cash used in financing activities (3,118) (2,998)

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COMBINED STATEMENTS OF CASH FLOWS - continued

FOR THE YEARS ENDED JUNE 30, 2017 AND 2016 (In thousands)

2017 2016 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (2,634) $ 2,516

CASH AND CASH EQUIVALENTS, beginning of year 4,291 1,775

CASH AND CASH EQUIVALENTS, end of year $ 1,657 $ 4,291

SUPPLEMENTAL CASH FLOW DATA:

Cash paid for interest $ 5,700 $ 5,814

Increase (decrease) in accounts payable and accrued liabilities for property and equipment received but not paid $ 722 $ (1,114)

Decrease in affiliates payable, net for property and equipment received but not paid $ - $ (10)

Decrease in environmental liability for reduced ARO settlement cost $ (9) $ -

Decrease in capital lease asset due to lease modification $ (2,838) $ -

Increase in accounts receivable related to tenant incentive $ 2,936 $ -

The accompanying notes are an integral part of these financial statements. - 6 - BAYLOR MEDICAL CENTER AT IRVING

Notes to Combined Financial Statements

For the Years Ended June 30, 2017 and 2016

1. ORGANIZATION Baylor Medical Center at Irving (Irving) is a Texas nonprofit corporation exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code. Irving is an affiliate of Baylor Health Care System (BHCS), a Texas 501(c)(3) nonprofit corporation. BHCS is an affiliate of Baylor Scott & White Holdings (BSW Holdings). BSW Holdings and its affiliates are collectively referred to as the “System” or “BSWH”. Irving, which is licensed for 293 beds as of June 30, 2017, was organized for the purpose of operating an acute care hospital and related facilities located in Irving, Texas. On August 14, 2014, Irving filed an assumed name certificate to operate under the name Baylor Scott & White Medical Center-Irving.

Substantially all properties of Irving are leased from the Irving Hospital Authority (the “Authority”). Effective April 1, 2010, Irving and the Authority entered into an Amended and Restated Lease Agreement (the “Amended Lease Agreement”) in which Irving continues to lease the properties from the Authority over a lease term of 35 years. The Amended Lease Agreement is being accounted for as a capital lease.

Irving Healthcare Foundation Irving is the sole member of Irving Healthcare Foundation (IHF). IHF’s balances and transactions are included in the accompanying combined financial statements of Irving. IHF was organized in September 1977. IHF’s bylaws provide that funds raised, except for funds required for its operations, be distributed to, or held primarily, for the benefit of Irving.

2. SIGNIFICANT ACCOUNTING POLICIES The accompanying combined financial statements of Irving have been prepared in conformity with accounting principles generally accepted in the United States. The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.

Adoption of New Accounting Pronouncements In August 2014, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This ASU amendment requires management to assess an entity’s ability to continue as a going concern. Management should evaluate whether conditions or events, considered in the aggregate, exist that raise substantial doubt about the entity’s ability to

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Notes to Combined Financial Statements - continued continue as a going concern within one year after the date that the financial statements are issued. Irving applied the provisions of ASU 2014-15 in fiscal year 2017, which did not have a material impact on the combined financial statements.

In January 2015, FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” The amendments in ASU 2015-01 eliminate the concept of extraordinary items in financial statements. Irving applied the provision of ASU 2015-01 in fiscal year 2017, which did not have a material impact on the combined financial statements.

Other Accounting Pronouncements In May 2014, April 2016, May 2016, December 2016, and February 2017, FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”; ASU 2016-10, “Identifying Performance Obligations and Licensing”; ASU 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients”; ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”; and ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, respectively, which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605, “Revenue Recognition.” These ASU’s address when an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These ASU’s are effective for annual reporting periods beginning after December 15, 2017 for public business entities and not-for-profit entities that have issued publicly traded debt, and December 15, 2018 for all other entities as amended by ASU 2015-14. Irving is currently evaluating the impact of the ASU’s and believes they will not have a material impact on total operating revenue.

In February 2015, FASB Issued ASU 2015-02, “Consolidation: Amendments to the Consolidation Analysis.” The amendments in ASU 2015-02 improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The provisions of ASU 2015-02 are effective for fiscal years beginning after December 15, 2015 for public business entities, and December 15, 2016 for all other entities. This ASU is not expected to have a material impact on the combined financial statements.

In May 2015, FASB issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” This ASU removes the

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Notes to Combined Financial Statements - continued requirement to categorize, within the fair value hierarchy, all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The provisions of ASU 2015-07 are effective for fiscal years beginning after December 15, 2015 for public business entities, and December 15, 2016 for all other entities. This ASU is not expected to have a material impact on the combined financial statements.

In July 2015, FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” This ASU requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. The provisions of ASU 2015-11 are effective for fiscal years beginning after December 15, 2016 for public business entities and all other entities. This ASU is not expected to have a material impact on the combined financial statements.

In September 2015, FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” This ASU requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period and any related income effects in the reporting period in which the adjustment amounts are determined. The ASU also requires an entity to present separately on the face of the income statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The provisions of ASU 2015-16 are effective for fiscal years beginning after December 15, 2015 for public business entities, and December 15, 2016 for all other entities. This ASU is not expected to have a material impact on the combined financial statements.

In January 2016, FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income. This ASU also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. A reporting organization must present separately, in other comprehensive income, the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk. The provisions of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017 for public business entities, and December 15, 2018 for all other entities. Irving is currently evaluating the impact of this ASU.

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Notes to Combined Financial Statements - continued

In February 2016, FASB issued ASU 2016-02, “Leases.” This ASU requires lessees to record a lease liability that represents the lessee’s future lease obligation payments and a right-of-use asset that represents the lessee’s right to use or control of a specified asset for the lease term. The main difference with current practice being that lessees will be required to record an asset and liability for what is now considered an operating lease. The provisions of ASU 2016-02 are effective for fiscal years beginning after December 15, 2018 for public business entities and not-for-profit entities that have issued publicly traded debt, and December 15, 2019 for all other entities. Irving is currently evaluating the impact of this ASU and believes it will have a material impact on the combined financial statements.

In August 2016, FASB issued ASU 2016-14, “Presentation of Financial Statements of Not- for-Profit Entities.” This ASU requires not-for-profit entities to report two classes of net assets, as well as enhances disclosures on board designated funds, liquidity, and functional expenses. The provisions of ASU 2016-14 are effective for fiscal years beginning after December 15, 2017. Irving is currently evaluating the impact of this ASU.

In August 2016, FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This ASU provides cash flow statement classification guidance related to debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions made from equity method investees, separately identifiable cash flows, and application of the predominance principle. The provisions of ASU 2016-15 are effective for fiscal years beginning after December 15, 2017 for public business entities, and December 15, 2018 for all other entities. Irving is currently evaluating the impact of this ASU.

In November 2016, FASB issued ASU 2016-18, “Restricted Cash: a Consensus of the FASB Emerging Issues Task Force.” This ASU requires a statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The provisions of ASU 2016-18 are effective for fiscal years beginning after December 15, 2017 for public business entities, and December 15, 2018 for all other entities. Irving is currently evaluating the impact of this ASU.

Cash and Cash Equivalents Cash equivalents are defined as investments which have original maturities of three months or less. Cash equivalents consist primarily of money market accounts.

Investments Irving has designated all of its investments as trading. For these trading investments, the interest and dividends, realized and unrealized gains (losses) are included in gains on

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Notes to Combined Financial Statements - continued investments, net, in the accompanying combined statements of operations and changes in net assets, unless restricted by donor.

Interest and dividends, realized and unrealized gains (losses) for the years ended June 30, 2017 and 2016 consisted of the following (in thousands): 2017 Interest and Realized Unrealized Dividends Gains Gains Total

Changes in temporarily restricted net assets $ 106 $ 294 $ 244 $ 644

2016 Interest and Realized Unrealized Dividends Gains (Losses) Gains (Losses) Total Nonoperating gains $ - $ 1 $ - $ 1 Other changes in unrestricted net assets - - 2 2 Changes in temporarily restricted net assets 117 (13) (111) (7) $ 117 $ (12) $ (109) $ (4)

Irving’s Interest in BHCS Money Pool BHCS has a cash management program whereby it maintains a money pool (the “BHCS Money Pool”) for its subsidiaries and affiliates. Cash and investment funds of Irving are transferred to the BHCS Money Pool for investment management purposes and the funding of accounts payable and payroll-related distributions made by BHCS on behalf of Irving.

Irving’s interest in the BHCS Money Pool is classified as trading. For these investments, the interest, dividends, realized and unrealized gains (losses) allocated to Irving are included in gains (losses) on Irving’s interest in BHCS Money Pool, net in the accompanying combined statements of operations and changes in net assets.

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Notes to Combined Financial Statements - continued

Interest and dividends, realized gains and unrealized gains (losses) on Irving’s interest in BSWH Investment Pool recognized in nonoperating gains (losses) for the years ended June 30, 2017 and 2016 consisted of the following (in thousands):

Interest and Realized Unrealized Dividends Gains Gains (Losses) Total 2017 $ 3,607 $ 8,078 $ 12,055 $ 23,740 2016 $ 3,876 $ 1,718 $ (6,095) $ (501)

Patient Accounts Receivable Patient accounts receivable are stated at net realizable value, and collateral is generally not required. Significant concentrations of patient accounts receivable at June 30 include: 2017 2016 Government-related programs 36% 32% Managed care providers, commercial insurers and other payors 32% 35% Self-pay patients 32% 33% 100% 100%

Receivables from government-related programs (i.e., Medicare and Medicaid) represent the only concentrated group of payors for Irving's receivables, and management does not believe there is any unusual level of collectability risks associated with these government programs. Commercial and managed care receivables consist of receivables from various payors involved in diverse activities and subject to differing economic conditions and do not represent any concentrated collectability risks to Irving.

Irving maintains allowances for uncollectible accounts for estimated losses resulting from a payor’s inability to make payments on accounts. Irving assesses the reasonableness of the allowance account based on historical write-offs, cash collections, the aging of the accounts, and other economic factors. Accounts are written off when collection efforts have been exhausted. Irving continually monitors and adjusts its allowances associated with its receivables.

Supplies Supplies consist primarily of medical supply items and are stated at the lower of cost (first-in, first-out) or market.

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Notes to Combined Financial Statements - continued

Property and Equipment The majority of property and equipment utilized by Irving is leased from the Authority under the Amended Lease Agreement.

Property and equipment are stated at cost on the date of purchase or fair value on the date of contribution. Property and equipment and related accumulated depreciation and amortization are summarized below (in thousands): Useful Life 2017 2016 Buildings and improvements 10-40 Years $ 242,467 $ 249,193 Major movable equipment and other 5-15 Years 73,598 63,670 Construction-in-progress 2,906 1,228 318,971 314,091 Accumulated depreciation and amortization (135,126) (120,839) $ 183,845 $ 193,252

Property and equipment financed under capital leases totaled approximately $175,160,000 at June 30, 2017 and 2016, and accumulated amortization was approximately $37,424,000 and $32,430,000 at June 30, 2017 and 2016, respectively. Amortization expense is included in depreciation and amortization expense in the accompanying combined statements of operations and changes in net assets.

Depreciation and amortization expense is calculated using the straight-line method over the estimated useful lives of the property and equipment or the lease term, whichever is less.

Routine maintenance and repairs are charged to expense as incurred. Expenditures that increase capacities or extend useful lives are capitalized.

Irving has recorded asset retirement obligations for the removal of asbestos. These obligations are conditional, based on a portion of the facility undergoing major renovations. Irving recognizes liabilities for this obligation when the fair value can be reasonably estimated, which typically is when a settlement date of the obligation can be determined. Asset retirement obligations, recorded in other long-term liabilities, totaled approximately $991,000 and $963,000 as of June 30, 2017 and 2016, respectively.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or related groups of assets, may not be recoverable from estimated future undiscounted cash flows. If circumstances suggest that the recorded amounts cannot be recovered based upon estimated future undiscounted cash flows,

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Notes to Combined Financial Statements - continued the carrying values of such assets are reduced to fair value. In the event of impairment, measurement of the amount of impairment may be based on valuation models using Level 3 inputs consisting of appraisals, fair values of similar assets, or estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. No impairment was identified in 2017 or 2016.

Physician Income Guarantees Irving has entered into multiple physician recruiting agreements whereby the hospital provides financial assistance to a physician who is relocating his or her medical practice into the hospital's service area and community. Under the agreements, Irving supplements physician revenue to a minimum amount over a period of time, typically one year, while the physician becomes established in the community. As part of the agreements, the physicians are required to continue to provide medical services in the community for a period of time after the initial start up year, typically three years.

Irving records an asset and liability for the estimated fair value of the minimum revenue guarantees. The asset and liability represent the maximum amount of all unpaid minimum revenue guarantees, net of physician drawdowns, and are reported in other long-term assets and other long-term liabilities in the accompanying combined balance sheets. As of June 30, 2017, and 2016, Irving recorded other long-term assets of approximately $0 and $331,000, respectively, and other long-term liabilities of approximately $0 and $331,000, respectively.

Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are donor restricted as to use or time, and are transferred from temporarily restricted net assets to unrestricted net assets when restrictions are satisfied.

Permanently restricted net assets include donor restrictions that the principal be invested in perpetuity and only the income from the investments be expended for designated purposes. Income on endowment funds restricted for specified purposes is reported in the accompanying combined statements of operations and changes in net assets as temporarily restricted realized gains and investment income, net and unrealized losses on investments, net.

Revenue and Gains in Excess of Expenses and Losses The combined statements of operations and changes in net assets include revenue and gains in excess of expenses and losses. Other changes in unrestricted net assets which are excluded from revenue and gains in excess of expenses and losses, consistent with industry practice, include transfers of assets to and from affiliates for other than goods and services, and net assets released from restrictions for capital expenditures.

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Notes to Combined Financial Statements - continued

Income Taxes Irving follows the provisions of ASC 740, “Income Taxes.” As of June 30, 2017 and 2016, Irving had no material gross unrecognized tax benefits.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS As defined in ASC 820 “Fair Value Measurements”, fair value is based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy for disclosure of fair value measurements.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable by market participants for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 -Inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability are unobservable and developed based on the best information available in the circumstances.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The carrying values of cash and cash equivalents, patient accounts receivable, other receivables, accounts payable, accrued liabilities, and estimated third-party settlements payable are reasonable estimates of their fair value due to the short-term nature of these financial instruments.

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Notes to Combined Financial Statements - continued

Fair values of investments are generally based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Inputs are obtained from various sources including market participants, dealers, and brokers. This applies to investments such as domestic equities, U.S. treasuries, exchange-traded mutual funds, and agency securities.

IHF records charitable remainder trusts where it is not the trustee at the net present value of projected cash flows. When a third party serves as trustee, beneficial interest is required to be measured at fair value on a recurring basis. As beneficial interests utilize multiple unobservable inputs, including no active markets, and are measured using management’s assumption about risks inherent in the valuation technique, beneficial interests in split-interest agreements represent Level 3 assets.

Cash surrender values are provided by insurance carriers on a periodic basis. The values approximate the fair value of these policies. The values assigned to the individual policies, which are not actively traded on any exchange, are not observable, and are considered within Level 3 of the valuation hierarchy. The fair value determined by each insurance carrier is based on the cash surrender values of each policy where IHF is the beneficiary.

Real estate represents donated property that was recorded at fair value based on appraisal at the time of contribution. Management believes there has been no material change in value since time of contribution. The values assigned are not observable and are considered within Level 3 of the valuation hierarchy.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Irving believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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Notes to Combined Financial Statements - continued

The tables below set forth, by level, the financial assets, excluding Irving’s interests in the BHCS Money Pool, that were measured at fair value on a recurring basis as of June 30 (in thousands): June 30, 2017 Total Level 1 Level 2 Level 3 Cash and cash equivalents $ 1,657 $ 1,657 $ - $ - Investments: Mutual funds - - - - Equity securities 4,691 4,691 - - Fixed income securities 1,868 105 1,763 - Hedge fund 406 - - 406 Other 237 - 93 144 Total investments 7,202 4,796 1,856 550 Total beneficial interest in split- interest agreements 55 - - 55 Total assets at fair value $ 8,914 $ 6,453 $ 1,856 $ 605

June 30, 2016 Total Level 1 Level 2 Level 3 Cash and cash equivalents $ 4,291 $ 4,291 $ - $ - Investments: Mutual funds 198 109 89 - Equity securities 4,127 4,127 - - Fixed income securities 1,335 100 1,235 - Hedge fund 392 - - 392 Other 144 - - 144 Total investments 6,196 4,336 1,324 536 Total beneficial interest in split- interest agreements 55 - - 55 Total assets at fair value $ 10,542 $ 8,627 $ 1,324 $ 591

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Notes to Combined Financial Statements - continued

The following tables are a roll forward of the financial instruments classified by Irving within Level 3 of the valuation hierarchy defined above as of June 30 (in thousands): June 30, 2017 Cash Surrender Hedge Split-Interest Real Estate Values Fund Agreements Total Balance at June 30, 2016 $ 63 $ 81 $ 392 $ 55 $ 591 Purchases, issuances, and settlements 38 - 9 - 47 Unrealized (losses) gains (38) - 5 - (33) Balance at June 30, 2017 $ 63 $ 81 $ 406 $ 55 $ 605

June 30, 2016 Cash Surrender Hedge Split-Interest Real Estate Values Fund Agreements Total

Balance at June 30, 2015 $ 70 $ 79 $ - $ 65 $ 214 Purchases, issuances, and settlements (6) - 390 - 384 Unrealized (losses) gains (1) 2 2 (10) (7) Balance at June 30, 2016 $ 63 $ 81 $ 392 $ 55 $ 591

Fair Value of BHCS Money Pool The BHCS Money Pool consists of investments in certificates of deposit, government-backed securities, commercial paper, mortgage-backed securities, equity securities, mutual funds and alternative investments. The BHCS Money Pool totals approximately $3,422,726,000 and $3,134,290,000 as of June 30, 2017 and 2016, respectively. Irving has an interest of approximately $347,338,000 and $324,248,000 as of June 30, 2017 and 2016, respectively.

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Notes to Combined Financial Statements - continued

The following tables set forth by level, within the fair value hierarchy, the BHCS Money Pool’s investments at fair value as of June 30 (in thousands):

June 30, 2017 Total Level 1 Level 2 Level 3 Assets: Cash and cash equivalents: Cash $ 150,162 $ 150,162 $ - $ - Money market funds 7,407 7,407 -- Total cash and cash equivalents 157,569 157,569 -- Short-term investments: Fixed income securities 22,890 2 22,884 4 U.S. government securities 28 - 28 - Mortgage-backed securities 389 - 389 - Other 3 - 3 - Total short-term investments 23,310 2 23,304 4 Unrestricted long-term investments: Cash 7,176 7,176 -- Equity securities 1,205,017 326,171 878,846 - Fixed income securities 371,064 - 371,064 - U.S. government securities 211,733 - 211,733 - Mortgage-backed securities 239,510 12,564 226,946 - Hedge fund/diversifiers alternative investments 551,327 - 406,010 145,317 Private equity alternative investments 180,590 - - 180,590 Real estate alternative investments 122,362 - - 122,362 Total unrestricted long-term investments 2,888,779 345,911 2,094,599 448,269

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Notes to Combined Financial Statements - continued

June 30, 2017 Total Level 1 Level 2 Level 3 Assets (continued): Restricted long-term investments: Cash $ 3,468 $ 3,468 $ - $ - Equity securities 171,939 42,522 129,417 - Fixed income securities 29,219 - 29,219 - U.S. government securities 15,705 - 15,705 - Mortgage-backed securities 17,792 932 16,860 - Hedge fund/diversifiers alternative investments 66,605 - 47,382 19,223 Private equity alternative investments 36,854 - - 36,854 Real estate alternative investments 11,486 - - 11,486

Total restricted long-term investments 353,068 46,922 238,583 67,563 Total assets at fair value $ 3,422,726 $ 550,404 $ 2,356,486 $ 515,836

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Notes to Combined Financial Statements - continued

June 30, 2016 Total Level 1 Level 2 Level 3 Assets: Cash and cash equivalents: Cash $ 187,085 $ 187,085 $ - $ - Money market funds 7,378 7,378 -- Total cash and cash equivalents 194,463 194,463 -- Short-term investments: Equity securities 7 - 7 - Fixed income securities 22,275 - 22,275 - U.S. government securities 4,549 - 4,549 - Total short-term investments 26,831 - 26,831 - Unrestricted long-term investments: Cash 956 956 -- Equity securities 1,018,723 428,101 590,622 - Fixed income securities 418,389 - 417,383 1,006 U.S. government securities 249,517 - 249,517 - Mortgage-backed securities 130,238 24,820 105,418 - Hedge fund/diversifiers alternative investments 493,879 - 345,275 148,604 Private equity alternative investments 160,262 - - 160,262 Real estate alternative investments 106,191 - - 106,191 Total unrestricted long-term investments 2,578,155 453,877 1,708,215 416,063

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Notes to Combined Financial Statements - continued

June 30, 2016 Total Level 1 Level 2 Level 3 Assets (continued): Restricted long-term investments: Cash $ 3,737 $ 3,737 $ - $ - Equity securities 157,560 64,412 93,148 - Fixed income securities 35,933 - 35,882 51 U.S. government securities 21,152 - 21,152 - Mortgage-backed securities 10,926 2,082 8,844 - Hedge fund/diversifiers alternative investments 60,525 - 41,198 19,327 Private equity alternative investments 34,594 - - 34,594 Real estate alternative investments 10,414 - - 10,414

Total restricted long-term investments 334,841 70,231 200,224 64,386 Total assets at fair value $ 3,134,290 $ 718,571 $ 1,935,270 $ 480,449

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Notes to Combined Financial Statements - continued

The following tables are a roll forward for financial instruments classified within Level 3 of the valuation hierarchy in the BHCS Money Pool for the years ended June 30, 2017 and 2016 (in thousands): 2017 Private Real Hedge Funds/ Equity Estate Diversifiers Other Total Balance at June 30, 2016 $ 194,856 $ 116,605 $ 167,931 $ 1,057 $ 480,449 Realized gains, net 13,022 6,658 18,225 - 37,905 Unrealized (losses) gains, net (11,254) 4,248 9,361 4 2,359 Purchases 52,776 28,054 115,285 - 196,115 Settlements (31,956) (21,717) (64,131) (1,057) (118,861) Transfers out of Level 3 - - (82,131) - (82,131) Balance at June 30, 2017 $ 217,444 $ 133,848 $ 164,540 $ 4 $515,836

2016 Private Real Hedge Funds/ Equity Estate Diversifiers Other Total Balance at June 30, 2015 $ 182,479 $ 94,031 $ 144,055 $ - $ 420,565 Realized gains (losses), net 9,532 3,432 (734) - 12,230 Unrealized gains (losses), net 4,706 196 (10,071) 8 (5,161) Purchases 80,461 121,083 27,002 1,049 229,595 Settlements (82,322) (102,137) (21,416) - (205,875) Transfers into Level 3 - - 29,095 - 29,095 Balance at June 30, 2016 $ 194,856 $ 116,605 $ 167,931 $ 1,057 $ 480,449

Any hedge funds valued at net asset value (NAV) which are redeemable by BHCS at NAV per share (or its equivalent) at the measurement date are transferred from Level 3 assets to Level 2 assets. Any hedge funds valued at NAV that were classified in prior year as Level 2 assets that are not redeemable by BHCS at NAV per share (or its equivalent) at the measurement date are transferred from Level 2 assets to Level 3 assets.

THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK

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Notes to Combined Financial Statements - continued

At June 30, 2017 and 2016, alternative investments recorded at net asset value consisted of the following (in thousands): June 30, 2017 Redemption Redemption Unfunded Frequency if Notice Fair Value Commitments Currently Eligible Period

Equity-linked investments a $ 48,721 $ - quarterly, annually 60-90 days Event-driven investments b 55,712 - quarterly, annually 30-90 days Credit-linked investments c 85,557 - Multi-strategy investments d 16,472 - monthly, quarterly 30-90 days Tactical trading investments e 203,032 - daily, monthly 2-90 days Risk parity and global asset allocation funds f 208,438 - monthly 5-30 days Real estate funds - open ended g 73,586 - quarterly 90 days Real estate funds - close ended h 60,262 33,783 Private equity funds i 185,750 142,798 Private debt funds j 31,694 23,869 Non-agency asset backed security k 4 - Total $ 969,228 $ 200,450

June 30, 2016 Redemption Redemption Unfunded Frequency if Notice Fair Value Commitments Currently Eligible Period

Equity-linked investments a $ 54,306 $ - quarterly, annually 60-90 days Event-driven investments b 43,253 - quarterly, annually 30-90 days Credit-linked investments c 72,270 - Multi-strategy investments d 33,585 - monthly, quarterly 30-90 days Tactical trading investments e 156,498 - daily, monthly 2-90 days Risk parity and global asset allocation funds f 194,492 - monthly 5-30 days Real estate funds - open ended g 68,829 - quarterly 90 days Real estate funds - close ended h 47,776 32,637 Private equity funds i 155,790 94,021 Private debt funds j 39,066 37,284 Non-agency asset backed security k 1,057 - Total $ 866,922 $ 163,942

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Notes to Combined Financial Statements - continued a) Equity-linked fund managers buy equities that are expected to increase in value and sell short equities that are expected to decrease in value. Portfolios range from net short to net long, depending on market conditions. Aggressive funds may capture returns by exceeding 100% exposure while conservative funds mitigate market risk by maintaining net exposures of between 0-50%. Typically, equity-linked strategies are based on "bottom up" fundamental analysis of the individual companies, in which investments are made. There may also be "top down" analysis of the risks and opportunities offered by industries, sectors, countries, and the macroeconomic situation. Equity-linked managers may be generalists or focus on certain industries, sectors, regions, or equity category (i.e. small or large cap and value or growth). There are many trading styles, with frequent or dynamic traders and some longer-term investors. Returns are generally more correlated with the direction of the equity markets, although reduction in market risk exposure through shorting is expected to enhance the absolute and risk-adjusted returns relative to the overall performance of the asset class. The fair values of the investments in this class have been estimated using the net asset value per share of the funds. b) Event-driven fund managers seek to exploit pricing inefficiencies that may occur before or after corporate events such as an earnings announcement, bankruptcy, merger, acquisition, or spinoff. Returns are less correlated with the general direction of market movements primarily due to the idiosyncratic nature of individual events. Several investment managers include quarterly percentage redemption limits. The fair values of the investments in this class have been estimated using the net asset value per share of the funds. c) Credit-linked fund managers seek to profit from the mispricing of related securities. These strategies utilize quantitative and qualitative analysis to identify securities or spreads between securities that deviate from their fair value and/or historical norms. Examples include convertible arbitrage, fixed arbitrage, statistical arbitrage, and select global macro strategies. Fund returns are generally not dependent on the direction of market movements. The fair values of the investments in this class have been estimated using the net asset value per share of the funds. d) Multi-strategy fund managers focus on large, long-term mispricing in the global fixed- income, equity and credit markets, capturing relative-value anomalies via multi-product trades. Returns are relatively uncorrelated with the general direction of market movements since they avoid taking a directional bias with regards to the price movement of a specific stock or market. Several investment managers include quarterly percentage redemption limits and/or early redemption penalties. The fair values of the investments in this class have been estimated using the net asset value per share of the funds.

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Notes to Combined Financial Statements - continued e) Tactical trading fund managers generally invest on a large scale around the world using economic theory to justify the decision making process on either a discretionary or systematic basis. Strategies are typically based on forecasts and analysis about interest rate trends, the general flow of funds, political changes, government policies, inter- government relations, and other broad systemic and technical factors. Returns are relatively uncorrelated with the general direction of market movements. Several investment managers include quarterly percentage redemption limits. The fair values of the investments in this class have been estimated using the net asset value per share of the funds. f) Risk parity and global asset allocation fund managers invest across global markets including equities, nominal government bonds, inflation-linked bonds, commodities, and emerging markets on a risk balanced framework. Typically, these strategies incorporate leverage to increase the risk contribution from low volatility asset classes (e.g., inflation- linked bonds and nominal government bonds). The fair values of the investments in this class have been estimated using the net asset value per share of the funds. g) Real estate - open end fund managers invest in U.S. commercial real estate. Redemptions are available on a quarterly basis, subject to the discretion of the General Partners. The General Partners may elect to establish a redemption queue should the level of redemptions for a given quarter be detrimental to the fund’s overall performance. The fair values of the investments in this class have been estimated using the net asset value, which is based on the ownership interest of partners' capital. h) Real estate - closed end fund managers invest primarily in U.S. commercial real estate and industries related to real estate, with some having minimal exposure outside of the U.S. These partnerships are illiquid and therefore do not have a redemption feature. Distributions from each fund will be received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over the next six years with the value of those underlying assets being replaced by investments in new real estate funds. The fair values of the investments in this class have been estimated using the net asset value, which is based on the ownership interest of partners' capital. i) Thirty-seven private equity fund managers invest in a variety of mostly private companies. These investments have a drawdown structure where a portion of commitments (which are made upon entering the partnership) are called gradually over the first 3-6 years of the partnership’s life. It is expected that most of the unfunded commitments should be called within the next 6 years. These partnerships are illiquid and therefore do not have a redemption feature. Instead, the nature of the investments in this class is that distributions are received as the investment in the underlying companies are sold. It is estimated that

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Notes to Combined Financial Statements - continued

the current underlying assets of these partnerships should be liquidated within the next 10 years. The investments are valued based on each partnership’s valuation policy which is then subject to annual third-party financial audits. Financial audits are available approximately 90 days following year end. Therefore, the valuation at year end reflects the latest reported manager valuation with adjustments for new capital calls and distributions. j) Seven private debt fund managers invest in a variety of mostly private companies. These investments have a drawdown structure where a portion of commitments (which are made upon entering the partnership) are called gradually over the first 1-3 years of the partnership’s life. It is expected that most of the unfunded commitments should be called within the next 4 years. These partnerships are illiquid and therefore do not have a redemption feature. Instead, the nature of the investments in this class is that distributions are received as income from the debts received and as the investment in the underlying companies are sold or the debt principal is repaid. It is estimated that the current underlying assets of these partnerships should be liquidated within the next 6 years. The investments are valued based on each partnership’s valuation policy which is then subject to annual third-party financial audits. Financial audits are available approximately 90 days following year end. Therefore, the valuation at year end reflects the latest reported manager valuation with adjustments for new capital calls and distributions. k) The non-agency asset backed security is a term note (the “Note”) issued by Ocwen Loan Servicing LLC. The Note is secured by servicing advance receivables associated with Ocwen’s servicing portfolio. The parent company Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, is engaged in the servicing and origination of mortgage loans. This security is priced using bid evaluation prices from Bloomberg.

4. CAPITAL LEASE OBLIGATIONS Capital lease obligations as of June 30 consist of the following (in thousands): 2017 2016 Irving Hospital Authority, Building Leases – Interest at 3.68%, payable monthly, principal and interest payments through March 2045 $ 153,470 $ 156,497 Current maturities (3,246) (3,124) $ 150,224 $ 153,373

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Notes to Combined Financial Statements - continued

Future maturities of capital lease obligations as of June 30, 2017, are shown below (in thousands): 2018 $ 8,825 2019 8,825 2020 8,825 2021 8,825 2022 8,825 Thereafter 200,780 244,905 Less imputed interest (91,435) $ 153,470

5. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes as of June 30 (in thousands): 2017 2016 Patient care $ 2,149 $ 3,940 Education 568 631 General operations 1,583 1,218 $ 4,300 $ 5,789

6. PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets are invested in perpetuity and the income from these investments is expendable to support the following as of June 30 (in thousands): 2017 2016 Patient care $ 567 $ 564 Education 372 372 General operations 2,200 2,200 $ 3,139 $ 3,136

7. NET PATIENT CARE REVENUE Irving has agreements with third-party payors that provide for payments to Irving at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Net patient care revenue (exclusive of charity care – see Note 8) is recognized at the time service is rendered and is reported at the estimated net realizable amounts from patients, third-party

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Notes to Combined Financial Statements - continued payors, and others for services rendered, including estimated contractual adjustments under reimbursement agreements with third-party payors.

Contractual adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. These contractual adjustments are related to the Medicare and Medicaid programs and managed care contracts. Historically, Irving offered a 35% discount to uninsured patients. Effective August 1, 2015, the discount was increased to 40%.

Net patient care revenue from the Medicare and Medicaid programs accounted for approximately 40% and 39% of total net patient care revenue in 2017 and 2016, respectively. Net patient care revenue from managed care contracts accounted for approximately 51% and 50% of total net patient care revenue in 2017 and 2016, respectively. Net patient care revenue from other payors accounted for approximately 9% and 11% of total net patient care revenue in 2017 and 2016, respectively.

Federal regulations require the submission of annual cost reports covering medical costs and expenses associated with services provided to program beneficiaries. Medicare and Medicaid cost report settlements are estimated in the period services are provided to beneficiaries. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is a reasonable possibility that recorded estimates may change by a material amount as interpretations are clarified and cost reports are settled. These initial estimates are revised as needed until the final cost report is settled. Net patient care revenue from the Medicare and Medicaid programs increased approximately $18,000 and $242,000 in 2017 and 2016, respectively, due to changes in allowances previously estimated for amounts due to Medicare and Medicaid, as a result of changes in regulations and final settlements of cost reports.

Charity Care Access BSWH hospitals in North Texas voluntarily participate in indigent care corporations (established by the BSWH hospitals and other private hospitals) in order to improve access to and the quality of health care for patients in the community. These non-profit, indigent care corporations arrange for the provision of health care services to patients in the hospitals’ respective communities under various services agreements, with the compensation set in advance, consistent with fair market value, and commercially reasonable for the services performed. For the years ended June 30, 2017 and 2016, BSWH hospitals provided approximately $71,729,000 and $64,578,000, respectively, to the Dallas County Indigent Care Corporation and $8,774,000 and $6,626,000, respectively, to the Tarrant County Indigent Care Corporation for professional health care and related services furnished to and for the

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Notes to Combined Financial Statements - continued benefit of patients receiving services under the various services agreements, which amounts are recorded as other operating expenses in the combined statements of operations and changes in net assets.

Section 1115 Waiver Program In December 2011, the Centers for Medicare & Medicaid Services (CMS) approved the Texas Health and Human Services Commission’s (THHSC) request for a Section 1115 waiver (Waiver Program) replacing Upper Payment Limit funding with new supplemental payment methodology, coupled with allowing managed care expansion to additional areas of the State. CMS initially approved the Waiver Program for the time period December 12, 2011, through September 30, 2016. In May 2016, CMS approved an extension of the Waiver Program for an additional fifteen months through December 2017, at the then-current level of funding. THHSC is currently negotiating with CMS for an extension of the Waiver Program through September 30, 2019. The current Waiver Program is entitled the “Texas Healthcare Transformation and Quality Improvement Program.” The Waiver Program provides for two pools of Medicaid supplemental funding – an uncompensated care (UC) pool and a delivery system reform incentive pool (DSRIP). UC pool payments are intended to improve access to and the quality of health care for patients as served under a Regional Healthcare Partnership (RHP). DSRIP pool payments are incentive payments to hospitals and other providers that develop programs or strategies (approved by CMS) to enhance access to health care and to improve the quality of care, the cost-effectiveness of care provided, and the health of the patients and families served. A provider’s eligibility to receive UC pool payments and/or DSRIP pool payments requires participation in a RHP and affiliation with a local governmental entity.

During the years ended June 30, 2017 and 2016, certain BSWH hospitals (legacy Baylor Health Care System (BHCS) hospitals except as otherwise noted herein) participated in the Waiver Program.

During the years ended June 30, 2017 and 2016, BHCS (on behalf of Baylor University Medical Center, Baylor Medical Center at Irving d/b/a Baylor Scott & White Medical Center – Irving, and Baylor Medical Center at Carrollton), Baylor Heart and Vascular Center, LLP d/b/a Baylor Jack and Jane Hamilton Heart and Vascular Hospital, BT Garland JV, LLP d/b/a Baylor Scott & White Medical Center – Garland, BT East Dallas JV, LLP d/b/a Baylor Scott & White Medical Center – White Rock, and Texas Regional Medical Center, LLC d/b/a Baylor Scott & White Medical Center – Sunnyvale were parties to the Amended and Restated Dallas and Neighboring Counties Indigent Care Affiliation Agreement with the Dallas County Hospital District d/b/a Parkland Health & Hospital System (Dallas Affiliation Agreement) and participated in RHP Nine and the Waiver Program.

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Notes to Combined Financial Statements - continued

During the years ended June 30, 2017 and 2016, Baylor All Saints Medical Center d/b/a Baylor Scott & White All Saints Medical Center – Fort Worth and Baylor Regional Medical Center at Grapevine d/b/a Baylor Scott & White Medical Center – Grapevine were parties to the Tarrant County Regional Healthcare Partnership Affiliation Agreement with the Tarrant County Hospital District d/b/a JPS Health Network (Tarrant Affiliation Agreement) and participated in RHP Ten and the Waiver Program.

As recipients of Waiver Program payments, these BSWH hospitals are subject to extensive federal and state laws, regulations, conditions of participation, and certification requirements.

For the years ended June 30, 2017 and 2016, as result of their participation in the Waiver Program, these BSWH hospitals (as parties to the Dallas Affiliation Agreement and Tarrant Affiliation Agreement) expected to achieve required metrics, recorded as other receivables in the accompanying balance sheets, and received Waiver Program payments (DSRIP payments and UC funds) totaling approximately $123,290,000 and $165,385,000, respectively, which amounts are Medicaid supplemental payments and recognized as net patient care revenue in the combined statements of operations and changes in net assets.

BSWH hospitals in North Texas incurred expenditures of $13,514,000 and $11,802,000 for the years ended June 30, 2017 and 2016, respectively, in the operation and maintenance of the hospital’s DSRIP projects approved under the 1115 Waiver Program, which are recorded as other operating expenses in the combined statements of operations and changes in net assets.

For fiscal years 2017 and 2016, Irving, as a result of participating in the aforementioned Waiver Program, recognized net patient care revenue of approximately $15,707,000 and $23,777,000, respectively. Any unpaid amounts are recorded as other receivables in the accompanying combined balance sheets. For fiscal years 2017 and 2016, Irving incurred approximately $12,965,000 and $14,694,000, respectively, for services performed under various services agreements, which are recorded as other operating expenses in the combined statements of operations and changes in net assets.

In a September 30, 2014, letter to THHSC, CMS announced that it was deferring the federal share (Federal Financial Participation (FFP)) of Waiver Program UC payments to hospitals in certain counties, including Dallas County and Tarrant County. The initial total amount of the deferral was $74,891,536 in FFP for Waiver Program UC payments made during the third quarter of federal fiscal year 2014 to private hospitals in Dallas, Tarrant, and Nueces Counties ($47,403,926 of which was attributable to private hospitals in Dallas and Tarrant Counties). Certain BSWH hospitals were subject to the deferral. CMS indicated that it would review various funding arrangements under the Waiver Program to ensure that the arrangements

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Notes to Combined Financial Statements - continued complied with applicable federal requirements. CMS ultimately released this deferral, which allowed the continuation of UC payments, provided CMS during its continuing review of Texas’ funding mechanisms does not find alleged violations of the federal provider donation prohibitions.

In a letter dated September 1, 2016, to THHSC, CMS announced that it is disallowing $20,373,436 in FFP to private hospitals participating in the Dallas Affiliation Agreement and $6,471,115 in FFP to private hospitals participating in the Tarrant Affiliation Agreement, as reported on the CMS-64, for the quarter ending December 31, 2015. CMS alleges that these private hospitals failed to comply with the federal provider-related donation requirements. BSWH hospitals and affiliated hospitals subject to the disallowance are: (i) BHCS (on behalf of Baylor University Medical Center, Baylor Medical Center at Irving, Baylor Medical Center at Carrollton, and Baylor Medical Centers at Garland and McKinney d/b/a Baylor Medical Center at Garland) (now BT Garland JV, LLP d/b/a Baylor Scott & White Medical Center- Garland); (ii) Baylor Heart and Vascular Center, LLP d/b/a Baylor Jack and Jane Hamilton Heart and Vascular Hospital; (iii) Baylor All Saints Medical Center; (iv) Baylor Regional Medical Center at Grapevine; and (v) and Baylor Medical Center at Waxahachie. THHSC requested reconsideration of the disallowance by the Secretary of Health & Human Services, which request was denied. THHSC then appealed the disallowance to the Department of Health and Human Services’ Departmental Appeals Board - Appellate Division (Departmental Appeals Board). Baylor Health Care System (on behalf of the BSWH hospitals participating in the Dallas and Tarrant County Affiliation Agreements) and certain other private hospital systems are participating as intervenors in the Departmental Appeals Board litigation. On October 5, 2017, the Departmental Appeals Board granted a joint stay request from CMS and THHSC to allow the parties to negotiate further. At this time, management cannot reasonably determine the likelihood of success or the outcome of the matter or its potential application to other supplemental payment arrangements such as local health care provider participation programs discussed below.

The Dallas County Indigent Care Corporation did not enter into any new services agreements effective October 1, 2017, for the provision of health care services to patients in Dallas County. Also, the Tarrant County Indigent Care Corporation’s obligations under various services agreements for the provision of health care services to patients in Tarrant County were terminated effective Midnight, September 30, 2017.

The Texas Legislature approved legislation effective in May 2017, amending the Texas Health & Safety Code to enable the Dallas County Hospital District to create and operate a Local Provider Participation Fund program (LPPF) that would require mandatory payments by all hospitals in the county based upon net patient revenue and the option of using the mandatory payment revenue as the non-federal share of supplemental Medicaid payments. The Dallas County Hospital District’s board of managers subsequently authorized creation of

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Notes to Combined Financial Statements - continued a LPPF in Dallas County and chose to utilize mandatory payment revenue as the non-federal share of Medicare payments under the Waiver Program for the current time period. BSWH hospitals that are parties to the Dallas Affiliation Agreement are able to receive supplemental payments funded through the LPPF program. Effective July 20, 2017, BSWH (on behalf of Baylor Medical Center at Waxahachie d/b/a Baylor Scott & White Medical Center - Waxahachie, Baylor Medical Centers at Garland and McKinney d/b/a Baylor Scott & White Medical Center - McKinney, and Baylor Regional Medical Center at Plano d/b/a Baylor Scott & White Medical Center – Plano), BT East Dallas JV, LLP, d/b/a Baylor Scott & White Medical Center – Centennial, and Lake Pointe Operating Company, LLC, d/b/a Baylor Scott & White Medical Center – Lake Pointe) entered into an Indigent Care Affiliation Agreement with the Dallas County Hospital District for purposes of participating in the LPPF program in Dallas County and receiving Medicaid supplemental payments. Also effective July 20, 2017, Texas Heart Hospital of the Southwest, L.L.P., d/b/a The Heart Hospital Baylor Plano and THHBP Management Company, L.L.C., d/b/a The Heart Hospital Baylor Denton entered into an Indigent Care Affiliation Agreement with the Dallas County Hospital District for purposes of participating in the LPPF program in Dallas County and receiving Medicaid supplemental payments.

The Texas Legislature approved legislation effective in June 2017, amending the Texas Health & Safety Code to enable the Tarrant County Hospital District to create and operate a health care provider participation program that would require mandatory payments by all hospitals in the county based upon net patient revenue and the option of using the mandatory payment revenue as the non-federal share of Medicaid payments. The Tarrant County Hospital District’s board of managers subsequently authorized creation of a LPPF in Tarrant County and chose to utilize mandatory payment revenue as the non-federal share of Medicare payments under the Waiver Program for the current time period. BSWH hospitals that are parties to the Tarrant County Affiliation Agreement are able to receive supplemental payments funded through the LPPF program.

8. CHARITY CARE Irving provides care to patients who lack financial resources and are deemed medically or financially indigent. Because Irving does not pursue collection of amounts determined to qualify as charity care, these amounts have been removed from net patient care revenue. The estimated direct and indirect cost of providing these services, calculated using the ratio of patient care cost to charges, was approximately $20,760,000 and $19,303,000 in 2017 and 2016, respectively. The ratio of cost to charges is calculated based on total expenses, less non-patient care activities and other community benefit expenses, divided by gross patient services revenue. In addition, Irving provides services through government-sponsored indigent health care programs to other indigent patients.

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Notes to Combined Financial Statements - continued

Irving also commits time and resources to endeavors and critical services which meet otherwise unfulfilled community needs. Many of these activities are entered into with the understanding that they will not be self-supporting or financially viable.

9. RETIREMENT BENEFITS The System maintains a 401(k) defined contribution plan for eligible employees. Employees are eligible to contribute to the plan immediately, with no minimum service or age requirement. Retirement benefits equal the amounts accumulated to the employee’s individual credit at the date of retirement. Irving’s contributions to the 401(k) plan totaled approximately $2,186,000 and $2,126,000 for 2017 and 2016, respectively, and are included in salaries, wages, and employee benefits expense in the accompanying combined statements of operations and changes in net assets.

10. FUNCTIONAL EXPENSES Irving provides general health care services to residents within its geographic area. Expenses are as follows for the years ended June 30 (in thousands): 2017 2016 Patient care $ 196,200 $ 192,559 Education 138 107 General and administrative 27,324 27,963 $ 223,662 $ 220,629

11. TRANSACTIONS WITH RELATED PARTIES Affiliates Irving is affiliated with entities controlled by the System. Irving enters into various transactions with affiliates of the System, including the payment of purchased services and management fees. Irving paid affiliates of the System approximately $46,441,000 and $43,220,000 in 2017 and 2016, respectively, for purchased services and management fees. All accounts payable and payroll-related distributions are made by BHCS on behalf of Irving. Irving has an investment of approximately $1,631,000 and $1,250,000 in the Baylor Quality Health Care Alliance, LLC d/b/a Baylor Scott & White Quality Alliance (BSWQA) LLC, a wholly owned subsidiary of the System, with a physician-led board of managers as of June 30, 2017 and 2016, respectively. BSWQA is an accountable care organization developing a clinically integrated network of employed physicians, independent physicians, hospitals, and other providers of care whose mission is to improve quality and reduce the overall cost of care for the patients and communities served by the System. The investment in BSWQA is presented as investment in affiliate on the combined balance sheets under the cost method of accounting.

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Notes to Combined Financial Statements - continued

Irving-Coppell Surgical Hospital, LLP Irving has a 33.4% equity ownership interest in Irving-Coppell Surgical Hospital, L.L.P. (“Irving-Coppell”), which is accounted for using the equity method of accounting. The investment is recorded in equity investment in unconsolidated entities in the combined balance sheets and was approximately $5,514,000 and $5,904,000 at June 30, 2017 and 2016, respectively. Irving’s equity in the earnings of Irving-Coppell was approximately $7,395,000 and $6,961,000 for fiscal years 2017 and 2016, respectively. Irving-Coppell has total assets of approximately $23,808,000 and $24,607,000 as of June 30, 2017 and 2016, respectively; total liabilities of approximately $6,299,000 and $6,300,000 as of June 30, 2017 and 2016, respectively; and net income of approximately $22,249,000 and $20,784,000 for fiscal years 2017 and 2016, respectively.

On October 20, 2003, Irving sold equipment and inventory with a book value of approximately $424,000 to Irving-Coppell for proceeds of $5,300,000. As a result of this transaction, Irving recorded a deferred gain totaling approximately $4,876,000, which is included in other long-term liabilities, for the excess of the purchase price over the book value. The deferred gain will be recognized when it is realized from transactions with outside parties or there is a change in ownership of Irving-Coppell.

Irving leases property to Irving-Coppell and subleases a portion of the property back from Irving-Coppell. Both leases contain scheduled rent increases. Accordingly, Irving recorded a deferred rent receivable and payable at June 30, 2017 of $1,816,000 and $839,000 respectively. Irving recorded a deferred rent receivable and payable at June 30, 2016 of $2,173,000 and $1,010,000, respectively.

Insurance For 2017 and 2016, excess policies that covered claims that exceeded $10,000,000 per incident and $50,000,000 in the general aggregate (shared) for hospital professional liability and general liability were provided by Baylor Scott & White Assurance SPC (BSWA), a wholly owned insurance company of the System domiciled in the Cayman Islands. The excess liability policies are reinsured 100% by ACE American Insurance Company (Chubb) and various other reinsurers.

Irving Hospital Authority Pursuant to the Amended Lease Agreement, Irving pays the Authority fixed rent of approximately $8,825,000 per year over the term of the lease (35 years) and contingent rent equal to 20% of its Excess Operating Cash Flow, as defined in the Amended Lease Agreement. Irving accrued approximately $1,804,000 and $4,392,000 at June 30, 2017 and 2016, respectively, for the contingent rent payment due to the Authority within five business

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Notes to Combined Financial Statements - continued days following the issuance of Irving’s audited combined statements of operations and changes in net assets. The Authority must set aside 50% of the contingent rent it receives annually until the amount set aside totals $8,000,000, including any interest earned on such amounts (the “Rent Set Aside.”). If Irving has Negative Operating Cash Flow, as defined in the Amended Lease Agreement, then 20% of such Negative Operating Cash Flow shall offset the contingent rent payable to the Authority the following year. If Negative Operating Cash Flow is greater than contingent rent the following year, the Authority must pay the difference to Irving from the Rent Set Aside, but only to the extent such funds are available in the Rent Set Aside at that time. BHCS has guaranteed the lease payments in the event Irving is unable to meet the obligation.

For the year ended June 30, 2017, Irving received a tenant incentive of approximately $2,936,000 from the Authority and modified the lease accordingly.

Currently, a majority of the Authority’s board is composed of members who also serve on the advisory board of Irving.

12. COMMITMENTS AND CONTINGENCIES BHCS signed a Limited Joinder to evidence its agreement with the BHCS obligations included in the Amended Lease Agreement with the Authority and to covenant that BHCS will pay the rent and the early termination fee/liquidated damages if Irving fails to pay those obligations. During the initial six year term of the Amended Lease Agreement, Irving pays BHCS a management fee, based on a percentage of the Excess Operating Cash Flow, as defined in the Amended Lease Agreement. At the end of the lease term, the leased facilities will be surrendered to the Authority. At June 30, 2017, no liability under the Amended Lease Agreement was recorded as no amount can be reasonably estimated. BHCS continues to be required to contribute $100,000 per year to Irving, to be matched by IHF, for community health projects, which are mutually agreed upon by BHCS and Irving. BHCS contributed $100,000 directly to Irving in both 2017 and 2016.

Irving leases various equipment and property under operating leases. Payments are due monthly through May 2025. Future minimum lease commitments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 2017 are as follows (in thousands): 2018 $ 1,922 2019 1,755 2020 1,799 2021 737 2022 200 Thereafter 582 $ 6,995

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Notes to Combined Financial Statements - continued

Future minimum rental payments to be received on noncancelable related party leases as of June 30, 2017 are as follows (in thousands): 2018 $ 4,754 2019 4,445 2020 4,362 2021 1,762 2022 492 Thereafter 1,885 $ 17,700

Irving has incurred rental expense for both cancelable and noncancelable equipment and space leases totaling approximately $4,129,000 and $6,740,000 in 2017 and 2016, respectively.

The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government activity has continued with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that Irving is in compliance with fraud and abuse as well as other applicable government laws and regulations and is not aware of any significant pending or threatened investigations involving allegations of potential wrongdoing.

13. ENDOWMENTS IHF’s endowments consist of donor restricted and management-designated endowment funds for a variety of purposes. The net assets associated with endowment funds are classified and reported based on the existence or absence of donor imposed restrictions.

IHF has interpreted the State of Texas Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, IHF classifies as permanently restricted net assets, (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in

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Notes to Combined Financial Statements - continued accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by IHF in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, IHF considers the following factors in making a determination to appropriate or accumulate endowment funds: 1) The duration and preservation of the fund 2) The purposes of IHF and the donor restricted endowment fund 3) General economic conditions 4) The possible effect of inflation and deflation 5) The expected total return from income and the appreciation of investments 6) Other resources of IHF and 7) The investment policies of IHF

Endowment net assets composition by type of fund as of June 30, 2017 and 2016 is as follows (in thousands): Temporarily Permanently Total Unrestricted Restricted Restricted 2017 Donor-restricted endowment funds $ - $ 1,367 $ 3,109 $ 4,476 Total endowment funds $ - $ 1,367 $ 3,109 $ 4,476

Temporarily Permanently Total Unrestricted Restricted Restricted 2016 Donor-restricted endowment funds $ - $ 1,165 $ 3,109 $ 4,274 Total endowment funds $ - $ 1,165 $ 3,109 $ 4,274

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Notes to Combined Financial Statements - continued

Changes in endowment net assets for the years ended June 30, 2017 and 2016 are as follows (in thousands): Temporarily Permanently Total Unrestricted Restricted Restricted 2017 Endowment net assets, beginning of year $ - $ 1,165 $ 3,109 $ 4,274 Investment income and realized gains - 258 - 258 Net appreciation and unrealized gains - 146 - 146 Appropriation of endowment assets for expenditures - (202) - (202) Endowment net assets, end of year $ - $ 1,367 $ 3,109 $ 4,476

Temporarily Permanently Total Unrestricted Restricted Restricted 2016 Endowment net assets, beginning of year $ - $ 1,371 $ 3,108 $ 4,479 Investment income and realized gains - 101 - 101 Net appreciation and unrealized losses - (107) - (107) Gifts - - 1 1 Appropriation of endowment assets for expenditures - (200) - (200) Endowment net assets, end of year $ - $ 1,165 $ 3,109 $ 4,274

Permanently Restricted Net Assets The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by UPMIFA is as follows (in thousands): 2017 2016 Patient care $ 537 $ 537 Education 372 372 General operations 2,200 2,200 Total endowment assets classified as permanently restricted net assets $ 3,109 $ 3,109

Endowment Funds with Deficits From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the value of the initial and subsequent donor gift amounts

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Notes to Combined Financial Statements - continued

(deficits). When donor endowment deficits exist, they are classified as a reduction of unrestricted net assets. IHF did not have any deficits of this nature as of June 30, 2017 and 2016.

Return Objectives and Risk Parameters IHF has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets.

Under the investment policy, as approved by the Board, the endowment assets, together with the IHF's other investment assets, are invested in a manner that is intended to produce results that exceed the price and yield results of comparative benchmarks while assuming a moderate level of investment risk. IHF expects its investments, over time, to provide an average rate of return sufficient to satisfy the IHF's endowment spending policy and to realize a total return that will allow the overall portfolio to grow at least as fast as the rate of inflation, after expenses, over a full market cycle, which is considered to be three to five years.

Relationship of Endowment Spending Practices to Investment Objectives IHF determines the appropriation of endowment funds for expenditure reimbursement through the budgeting process. A distribution policy for IHF endowments governs the amount of endowment funds that may be appropriated during this process. In establishing this policy, IHF considered the long-term expected return on its endowments. Accordingly, over the long-term, IHF expects the current distribution policy to allow its endowments to grow at an average of the long-term rate of inflation and maintain its purchasing power. In order to maintain the purchasing power of endowment assets, expenditures are based on investment performance and spending is curbed in response to deficit situations. The corresponding approved allocations are distributed annually in accordance with IHF’s policy. Over the long- term, IHF expects its endowment to grow consistent with its intention to maintain the purchasing power of the endowment assets as well as to provide additional real growth through new gifts.

14. SUBSEQUENT EVENTS In August 2017, Irving executed lease amendments in which the Authority agreed to renovate the properties leased from the Authority, with an estimated completion date of early calendar year 2019. These transactions will be recorded as a temporarily restricted contribution receivable of approximately $71,589,000.

Irving has performed an evaluation of subsequent events through November 3, 2017, which is the date the financials were issued.

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OTHER COMMUNITY BENEFITS - UNAUDITED Irving is required to meet the community benefit requirements of Texas Health and Safety Code Chapter 311. For Texas state law purposes, community benefits include the unreimbursed cost of charity care; the unreimbursed cost of government-sponsored indigent health care (i.e., Medicaid); and the unreimbursed cost of government-sponsored health care (i.e., Medicare), medical education, research, and other community benefits and services. The amount of community benefits reportable for Texas state law purposes by Irving totaled approximately $56,063,000 and $55,601,000 in 2017 and 2016, respectively.

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APPENDIX E

The Indenture [THIS PAGE INTENTIONALLY LEFT BLANK]

The following is a substantially final form of the Trust Indenture relating to the Bonds. All references and summaries pertaining to such document in this Official Statement are, separately and in whole, qualified by reference to the exact terms of such document, a copy of which may be obtained from the Issuer. Provisions included herein are in substantially final form, but may change prior to closing and may thereafter be amended in accordance with the terms of the document.

TRUST INDENTURE

between

IRVING HOSPITAL AUTHORITY,

and

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. as Trustee

______

Dated as of

November 1, 2017

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TABLE OF CONTENTS

Page

Parties ...... 1 Recitals ...... 1 Granting Clauses ...... 1

ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 101. Definitions ...... 4 Section 102. Compliance Certificates and Reports ...... 18 Section 103. Form of Documents Delivered to Trustee ...... 19 Section 104. Acts of Holders ...... 20 Section 105. Notices, etc., to Trustee and Authority ...... 20 Section 106. Notices to Holders; Waiver ...... 20 Section 107. Successors and Assigns ...... 21 Section 108. Separability Clause ...... 21 Section 109. Benefits of Indenture ...... 21 Section 110. Governing Law ...... 21 Section 111. Effect of Headings and Table of Contents ...... 21 Section 112. Limitations on Liability of Authority ...... 21

ARTICLE II

ISSUANCE AND FORM OF PARITY BONDS

Section 201. Series and Amount of Parity Bonds ...... 22 Section 202. Authorization of Series 2017 Bonds ...... 22 Section 203. Terms of Particular Series ...... 22 Section 204. Execution, Authentication and Delivery ...... 22 Section 205. Form of Parity Bonds ...... 23 Section 206. Registration, Transfer and Exchange ...... 24 Section 207. Mutilated, Destroyed, Lost and Stolen Parity Bonds ...... 25 Section 208. Payment of Interest on Parity Bonds; Interest Rights Preserved ...... 26 Section 209. Persons Deemed Owners ...... 26 Section 210. Cancellation ...... 26 Section 211. Temporary Initial Parity Bonds ...... 27 Section 212. Book-Entry Only System ...... 27 Section 213. Successor Securities Depository; Transfers Outside Book-Entry Only System; Additional Parity Bonds ...... 28 Section 214. Payments and Notices to Cede & Co ...... 28 Section 215. Priority of Payment ...... 28 Section 216. Additional Parity Bonds...... 28

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ARTICLE III

REDEMPTION OF PARITY BONDS

Section 301. Redemption ...... 30 Section 302. Election to Redeem; Notice to Trustee ...... 30 Section 303. Selection by Trustee of Parity Bonds to be Redeemed ...... 30 Section 304. Notice of Redemption ...... 30 Section 305. Deposit of Redemption Price ...... 31 Section 306. Parity Bonds Payable on Redemption Date ...... 31 Section 307. Parity Bonds Redeemed in Part ...... 31

ARTICLE IV

FUNDS AND INVESTMENTS

Section 401. Establishment of Funds ...... 32 Section 402. Revenue Fund ...... 32 Section 403. Debt Service Fund ...... 33 Section 404. Construction Fund ...... 33 Section 405. Rebate Fund ...... 34 Section 406. Investment of Funds ...... 35 Section 407. Trustee Relieved From Responsibility ...... 35

ARTICLE V

COVENANTS OF THE AUTHORITY

Section 501. Payment of Debt Service ...... 36 Section 502. Maintenance of Office or Agency ...... 36 Section 503. Money for Parity Bonds Payments to be Held in Trust Appointment of Paying Agents ...... 36 Section 504. Payment of Taxes and Other Claims ...... 37 Section 505. Maintenance of Properties ...... 37 Section 506. Statement as to Compliance ...... 38 Section 507. Corporate Existence ...... 38 Section 508. To Keep Books; Financial Reports and Inspection by Trustee ...... 38 Section 509. Insurance ...... 39 Section 510. Application of Insurance Proceeds and Condemnation Awards ...... 39 Section 511. Limitation on Liens ...... 39 Section 512. Limitations on Debt...... 40 Section 513. Limitation on Disposition of Assets ...... 40 Section 514. Consolidation, Merger, Conveyance, or Transfer Only on Certain Terms ...... 41 Section 515. Successor Corporation Substituted ...... 42 Section 516. Instruments of Further Assurance ...... 42 Section 517. Tax Covenants ...... 42 Section 518. Notice of Lease Termination and Strategic Plan ...... 47 Section 519. Rate Covenant ...... 47

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Page

ARTICLE VI

[RESERVED]

ARTICLE VII

REMEDIES OF THE TRUSTEE AND HOLDERS OF PARITY BONDS IN EVENT OF DEFAULT

Section 701. Events of Default ...... 50 Section 702. Acceleration of Maturity In Certain Cases; Rescission and Annulment ...... 50 Section 703. Collection of Indebtedness and Suits for Enforcement by Trustee ...... 51 Section 704. Trustee May File Proofs of Claim ...... 52 Section 705. Trustee May Enforce Claims Without Possession of Parity Bonds ...... 52 Section 706. Application of Money Collected ...... 52 Section 707. Limitation on Suits ...... 53 Section 708. Unconditional Right of Holders to Receive Principal, Premium and Interest ...... 53 Section 709. Restoration of Rights and Remedies ...... 53 Section 710. Rights and Remedies Cumulative ...... 54 Section 711. Delay or Omission Not Waiver ...... 54 Section 712. Control by Holders ...... 54 Section 713. Waiver of Past Defaults ...... 54 Section 714. Undertaking for Costs ...... 54 Section 715. Waiver of Stay or Extension Laws ...... 54 Section 716. No Recourse Against Others ...... 55 Section 717. Limitation on Remedies For Failure to Provide Information ...... 55 Section 718. Remedies Subject to Applicable Law ...... 55

ARTICLE VIII

CONCERNING THE TRUSTEE

Section 801. Certain Duties and Responsibilities...... 56 Section 802. Notice to Holders of Event of Defaults; Other Notice Requirements ...... 57 Section 803. Certain Rights of Trustee ...... 57 Section 804. Not Responsible for Recitals or Issuance of Parity Bonds or Application of Proceeds ...... 59 Section 805. May Own Obligations ...... 59 Section 806. Money Held in Trust ...... 59 Section 807. Compensation and Reimbursement ...... 59 Section 808. Corporate Trustee Required; Eligibility ...... 60 Section 809. Resignation and Removal: Appointment of Successor ...... 60 Section 810. Acceptance of Appointment by Successor ...... 61 Section 811. Merger, Conversion, Consolidation, or Succession to Business ...... 61 Section 812. Directors, Trustees, Officers, Employees, and Agents Exempt from Personal Liability ...... 61

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ARTICLE IX

SUPPLEMENTAL INDENTURES

Section 901. Supplemental Indentures Without Consent of Holders ...... 62 Section 902. Supplemental Indentures With Consent of Holders ...... 62 Section 903. Execution of Supplemental Indentures ...... 63 Section 904. Effect of Supplemental Indentures ...... 63 Section 905. Parity Bonds May Bear Notation of Changes ...... 64

ARTICLE X

DEFEASANCE

Section 1001. Payment of Indebtedness; Satisfaction and Discharge of Indenture ...... 65 Section 1002. Defeasance ...... 66 Section 1003. Application of Deposited Money ...... 67

Testimonium ...... 68 Signature ...... 68

Exhibit A Form of Requisition Certificate ...... 56

(iv) HOU:3842535.1

TRUST INDENTURE

THIS TRUST INDENTURE, dated as of November 1, 2017, between IRVING HOSPITAL AUTHORITY (the “Authority”) a political subdivision and body politic and corporate, created by ordinance of the Board of the City of Irving, Texas, duly organized and existing under the laws of the State of Texas, and in particular under the provisions of the Hospital Authority Act, Chapter 262, Texas Health and Safety Code, as amended (the “Act”), as Authority, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association with a corporate trust office in Dallas, Texas;

RECITALS WITNESSETH:

WHEREAS, the Authority owns a hospital and other facilities to serve the public health needs of the City of Irving, Texas; and

WHEREAS, the Authority has determined to issue its Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A and Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017B (SIFMA Index) (collectively, the “Series 2017 Bonds”); and

WHEREAS, the Authority desires to provide for the issuance from time to time in the future of additional Parity Bonds (hereinafter defined) for the purpose of financing or refinancing the costs of completing, enlarging, improving or expanding healthcare facilities, or refunding any outstanding obligations, mortgages or advances issued, made or given in connection therewith; and

WHEREAS, the Authority has found that financing the improvements and equipment described above is required, necessary, and convenient for health care, research, and education within the State of Texas and that such financing by means of the issuance of the Series 2017 Bonds will improve the adequacy, cost, and accessibility of health care, research, and education in the State of Texas, and assist in the maintenance of the public health in furtherance of the public purposes of the Authority; and

WHEREAS, the Board of Directors of the Authority has duly authorized the execution and delivery of this Indenture, the Series 2017 Bonds, and the performance of this Indenture; and

WHEREAS, all things have been done necessary to make the Series 2017 Bonds, when executed by the Authority and authenticated and delivered by the Trustee hereunder, the valid obligations of the Authority, and to constitute this Indenture a security agreement and contract for the security of the Series 2017 Bonds and additional Parity Bonds in accordance with the terms thereof and this Indenture.

GRANTING CLAUSES

NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, to secure the payment of the principal of (and premium, if any) and interest on the Outstanding Parity Bonds (hereinafter defined) and the performance of the covenants therein and herein contained and to declare the terms and conditions on which the Outstanding Parity Bonds are secured, and in consideration of the premises, of the purchase of the Parity Bonds by the Holders thereof, and of the sum of One Dollar ($1.00) to the Authority in hand paid by the Trustee at or before the execution and delivery hereof, the receipt and sufficiency of which are hereby acknowledged, the Authority by these presents does grant, bargain, sell, alien, remise, release, convey, assign, transfer, mortgage, hypothecate, pledge, set over and confirm to the Trustee, forever, all

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and singular the following described properties, and grant a security interest therein for the purposes herein expressed, to-wit:

GRANTING CLAUSE FIRST

All Pledged Revenues (as defined herein), including without limitation all payments of rent, early termination fees or liquidated damages under the Lease (as defined herein), and all rights to enforce the obligations of the Tenant (as defined herein) under the Lease, all rights to receive payments from third party payors such as Medicare, Medicaid, and Blue Cross, but except and excluding all such items, whether now owned or hereafter acquired by the grantor, which by their terms or by reason of applicable law would become void or voidable if granted, assigned or pledged hereunder by the grantor, or which cannot be granted, pledged or assigned hereunder without the consent of other parties whose consent is not secured, or without subjecting the Trustee to a liability not otherwise contemplated by the provisions hereof, or which otherwise may not be, or are not, hereby lawfully and effectively granted, pledged and assigned by the grantor, provided that the Authority or may subject to the lien hereof any such excepted property, whereupon the same shall cease to be excepted property;

GRANTING CLAUSE SECOND

All right, title and interest of the Authority in and to all money and investments held for the credit of or deposited to the funds and accounts established by or under this Indenture as hereinafter described, other than money and investments held in the Rebate Fund and any debt service reserve fund (to the extent a series of Parity Bonds is not entitled to a parity interest in such fund); and

GRANTING CLAUSE THIRD

Any and all property that may, from time to time hereinafter, by delivery or by writing of any kind, be subjected to the lien and security interest hereof by the Authority or by anyone on its behalf (and the Trustee is hereby authorized to receive the same at any time as additional security hereunder), which subjection to the lien and security interest hereof of any such property as additional security may be made subject to any reservations, limitations or conditions which shall be set forth in a written instrument executed by the grantor or the Person so acting in its behalf or by the Trustee respecting the use and disposition of such property or the proceeds thereof;

TO HAVE AND TO HOLD all said property, rights, privileges and franchises of every kind and description, real, personal or mixed, hereby and hereafter (by supplemental instrument or otherwise) granted, bargained, sold, alienated, remised, released, conveyed, assigned, transferred, mortgaged, hypothecated, pledged, set over or confirmed as aforesaid, or intended, agreed or covenanted so to be, together with all the appurtenances thereto appertaining (said properties, rights, privileges and franchises including any cash and securities hereafter deposited or required to be deposited with the Trustee (other than any such cash which is specifically stated herein not to be deemed part of the Trust Estate) being herein collectively referred to as the “Trust Estate”) unto the Trustee and its successors and assigns forever;

SUBJECT AND SUBORDINATE, HOWEVER, in the case of Granting Clause First, to any and all mortgages, liens, charges, encumbrances, pledges and security interests granted, created, assumed,

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incurred or existing in accordance with the provisions of Section 511 as to the property covered thereby and all revenue, accounts receivable and receipts derived from such property;

BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Holders from time to time of the Series 1994 Bonds and all the Outstanding Parity Bonds, without any priority of any such Outstanding Parity Bonds over any other such Outstanding Parity Bonds, except as herein otherwise expressly provided;

UPON CONDITION that, if the Authority, or its successors or assigns shall well and truly pay, or cause to be paid, the principal of (and premium, if any) and interest on the Outstanding Parity Bonds according to the true intent and meaning thereof, or there shall be deposited with the Trustee such amounts in such form in order that none of the Parity Bonds shall remain Outstanding as herein defined and provided, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon the full and final payment of all such sums and amounts secured hereby or upon such deposit, the rights, titles, liens, security interests and assignments herein granted shall tease, determine and be void and this grant shall be released by the Trustee in due form at the expense of the Authority, except only as herein provided; otherwise this grant to be and shall remain in full force and effect;

AND IT IS HEREBY COVENANTED AND DECLARED that the Trust Estate is to be held and applied by the Trustee, subject to the further covenants, conditions and trusts hereinafter set forth, and the Authority does hereby covenants and agrees to and with the Trustee, for the equal and proportionate benefit of all Holders of the Parity Bonds except as herein otherwise expressly provided, as follows:

[Remainder of Page Intentionally Left Blank]

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ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 101. Definitions.

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(i) “This Indenture” mean this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.

(ii) All references in this instrument to designated “Articles”, “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

(iii) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular.

(iv) All accounting terms used with respect to any specified Person not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles applicable to such Person as they exist on the date of applicability thereof.

The following terms have the meanings assigned to them below whenever they are used in this Indenture:

“Accountant” means a Person engaged in the practice of accounting who is a certified public accountant and who (except as otherwise expressly provided herein) may be employed by or affiliated with the Authority.

“Adjusted Revenues” of any specified Person means, for any period of calculation, the total of all operating revenues of such Person, plus investment and other income or loss of such Person for such period; provided, however, there shall not be included in investment and other income or loss for such period any amounts excluded pursuant to the definition of Debt, or any gain or loss arising from the early retirement of indebtedness, or from change in market value of investments, or from market-to-market adjustments on interest rate exchange agreements (swaps).

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” when used with respect to any Person means the power to direct the policies of such Person, directly or indirectly, whether through the power to appoint and remove its directors, the ownership of voting Parity Bonds, by contract, or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Annual Debt Service Requirements” of any specified Person means, for any Fiscal Year, the principal of (and premium, if any) and interest and other debt service

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charges (which include for purposes hereof, any fees or premiums for any letter of credit, surety bond, policy of insurance, bond purchase agreement or any similar credit or liquidity support secured in connection therewith) on all Long-Term Debt of such Person coming due at Maturity or Stated Maturity (or that could come due, or be payable in respect of any required purchase of such Debt by such Person, on demand of the holder thereof other than demand conditioned upon default by the obligor on such Debt) in such Fiscal Year, and, for such purposes, any one or more of the following rules shall apply at the election of the Authority:

(i) Committed Take Out - if such Person has received a binding commitment, within normal commercial practice, from any bank, savings and loan association, insurance company or similar institution to refund or purchase any of its Long-Term Debt at its Stated Maturity (or, if due on demand, or payable in respect of any required purchase of such Debt by such Person, at any date on which demand may be made), then the portion of the Long-Term Debt committed to be refunded or purchased shall be excluded from such calculation and the principal of (and premium, if any) and interest on the Long-Term Debt incurred for such refunding or purchase that would be due in the Fiscal Year for which the calculation is being made, if incurred at the Maturity or purchase date of the Long-Term Debt to be refunded or purchased, shall be added;

(ii) Pro Forma Refunding - in the case of Balloon Debt, if the Person obligated thereon shall deliver to the Trustee a certificate of a licensed and regulated municipal advisor dated within 90 days prior to the date of delivery of such certificate to the Trustee stating that financing at a stated interest rate with a Stated Maturity not greater than 30 years is reasonably attainable on the date of such certificate to refund any of such Balloon Debt, then any installment of principal of (and premium, if any) and interest and other debt service charges on such Balloon Debt that could so be refunded shall be excluded from such calculation and the principal of (and premium, if any) and interest and other debt service charges on the Long-Term Debt which would result from the financing so certified due in such Fiscal Year shall be added;

(iii) Consensual Sinking Fund - in the case of Balloon Debt, if the Person obligated thereon shall deliver to the Trustee a Board Resolution of such Person providing for the retirement of (and the instrument creating such Balloon Debt shall permit the retirement of), or for the establishment of a sinking fund for, such Balloon Debt according to a fixed schedule not in excess of 30 years stated in such resolution ending on or before the Fiscal Year in which such principal (and premium, if any) is due, then for so long as all installments previously scheduled have been paid or deposited to the sinking fund established with respect to such Debt on or before the times required by such schedule, the principal of (and, in the case of retirement, or to the extent provided for by the sinking fund, the premium, if any, and interest and other debt service charges on) such Balloon Debt shall be computed as if the same were due in accordance with such schedule;

(iv) Prefunded Payments - principal of (and premium, if any) and interest and other debt service charges on Debt, or portions thereof, shall not be included in the computation of the Annual Debt Service Requirements for any Fiscal Year for which such principal, premium, interest or other debt service charges are payable from funds irrevocably deposited or set aside in trust for the payment thereof at the time of such calculations (including without limitation capitalized interest and accrued interest so

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deposited or set aside in trust or escrowed with the Trustee or another Independent Person approved by the Trustee);

(v) Variable Rate Debt - as to any Debt that bears interest at a variable interest rate shall calculate interest payable at an interest rate equal to (i) the most recent interest rate born by such Debt, (ii) the average rate of interest born by such Debt during the 12 consecutive month period ending within 30 days prior to the date of calculation of such interest rate (or such lessor time as such variable rate indebtedness has been outstanding) or (iii) the rate of interest which is equal to the average rate of the Bond Index during any 12 consecutive month period ending within 30 days prior to the date of calculation, as determined by a certificate of an Authorized officer delivered to the Trustee;

(vi) Balloon Indebtedness - for purposes of the calculation of the Annual Debt Service Requirements, whether historic or projected, Balloon Debt shall, at the election of the Authority, be deemed to be Debt which is payable over (a) thirty (30) years from the date of such calculation at a rate of interest equal to (i) the actual rate of interest on such Debt, or (ii) that derived from the Bond Index (defined below), as determined by an Officer’s Certificate, and in each case with level annual debt service on such Debt, or (b) the remaining term to maturity of such Debt, at a rate of interest equal to (i) the actual rate of interest on such Debt, or (ii) that derived from the Bond Index, as determined by an Officer’s Certificate, and in each case with level annual debt service on such Debt. In addition, upon delivery to the Trustee of (a) an Officer’s Certificate, dated within 90 days of the date of calculation of the Annual Debt Service Requirements, stating that financing of a stated term (which shall not extend beyond 30 years after such date of calculation), amortization, and interest rate is reasonably attainable to refund or otherwise directly or indirectly to refinance any amount of such Balloon Debt, then the principal of and premium, if any, and interest and other debt service charges on the amount of such Balloon Debt so certified to be refundable or refinanceable shall be excluded from the calculation of the Annual Debt Service Requirements and the principal of and premium, if any, and interest and other debt service charges on the refunding Debt as so certified which would result from such refunding or refinancing if incurred on the first day of the Fiscal Year for which the Annual Debt Service Requirements are being calculated, shall be added to the calculation of such Annual Debt Service Requirements; or (b) a written consent of the obligor of such Balloon Debt agreeing to retire (and such Balloon Debt shall permit the retirement of), or to fund a sinking fund for, the principal of such Balloon Debt according to a fixed schedule stated in such consent ending on or before the Fiscal Year in which such amount is due or could become due or payable in respect of any required purchase of such Balloon Debt, then the principal of (and, in the case of retirement, the premium, if any, and interest and other debt service charges on) such Balloon Debt shall be computed as if the same were due in accordance with such schedule; provided that this clause (b) shall only be applicable to Balloon Indebtedness for which the installments of principal previously scheduled have been paid or funded on or before the times required by such previous schedule;

(vii) Contingent Obligations - in the case of any guarantees or other Debt described in clause (iii) of the definition of Debt, the principal of (and premium, if any) and interest and other debt service charges on such Debt for any Fiscal Year shall be deemed to be 20% of the principal of (and premium, if any) and interest and other debt service charges on the indebtedness guaranteed due in such Fiscal Year; provided, however, that if a Person which guarantees or is otherwise obligated in respect of such

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Debt is actually required to make any payment in respect of such Debt, the total amount payable by such Person in respect of such guarantee or other obligation in such Fiscal Year shall be included in any computation of the Annual Debt Service Requirements of such Person for such year and the amount payable by such Person in respect of such guarantee or other obligation in any future Fiscal Year shall be included in any computation of the estimated Annual Debt Service Requirements for such Fiscal Year until such time as the Available Revenues of the Person primarily liable on such Debt for its most recently concluded Fiscal Year exceed 120% of its Annual Debt Service Requirements for such Fiscal Year; and

(viii) Hedge Agreements - if there exists a Hedge Agreement in respect of any Debt and the counterparty to such Hedge Agreement is rated in one of the two highest generic rating categories by a Rating Agency then any amounts to be paid or received pursuant to such Hedge Agreement by the Person for which Annual Debt Service Requirements are to be calculated during the term of such Hedge Agreement shall be treated as additional debt service charges or as a reduction in additional debt service charges, as appropriate, for purposes of this definition.

For purposes of (v) and (vi) above, “Bond Index” means, at the option of the Authority as set forth in a certificate of an Authorized Officer, either (i) the 30-year Revenue Bond Index published most recently by The Bond Buyer, or a comparable index if such Revenue Bond Index is not so published, (ii) the SIFMA Index, or (iii) such other interest rate or interest index as may be certified in writing to the Trustee as appropriate to the situation by the Authority.

“Appraiser” means an Independent Person engaged in the business of appraising property who is a member of the Appraisal Institute (or similar organization if the Appraisal Institute is no longer in existence), if the property to be appraised is real property, or is acceptable to the Trustee, if the property to be appraised is personal property.

“Authenticating Agent” means the Trustee.

“Authority” means the Irving Hospital Authority, a political subdivision and a body politic and corporate, created by ordinance of the City Council of the City of Irving, Texas, duly organized and existing under the laws of the State and in particular under the provisions of the Hospital Authority Act, Chapter 262, Texas Health and Safety Code.

“Authority Consent,” “Authority Order” and “Authority Request” mean, respectively, a written consent, order, or request signed in the name of the Authority by an Authorized Officer and delivered to the Trustee.

“Authorized Denominations” means the amount set forth in the Supplemental Indenture authorizing the issuance of Parity Bonds.

“Authorized Newspaper” means a newspaper of general circulation in the relevant area, printed in the English language and customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays. Whenever successive weekly publications in an Authorized Newspaper are required hereunder, they may be made (unless otherwise expressly provided herein) on the same or different days of the week and in the same or in different Authorized Newspapers.

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“Authorized Officer” means the President, Secretary, Chairman of the Board, or Assistant Treasurer of the Authority, Chairman of the Finance Committee or any other person duly appointed by the Board to act on behalf of the Authority, each as evidenced by a written certificate furnished to the Trustee containing the specimen signature of such person or persons and signed on behalf of the Authority by an Authorized Officer. The Trustee may rely on such written certificate until it is given written notice to the contrary.

“Available Revenues” of any specified Person means, for any period, the amount of excess (deficit) of revenue over expense of such Person for such period, plus income, if any, for such period from the investment of unrestricted or restricted funds not otherwise included in such revenue (but only to the extent that such income may be applied to the payment of the Annual Debt Service Requirements of such Person for such period, assuming any necessary action by the Board of such Person), plus amounts which have been deducted for such period for or to make provision for:

(i) interest and other debt service charges on Long-Term Debt,

(ii) amortization of Debt discount, and

(iii) property retirement, depreciation, depletion, obsolescence and other items not requiring an outlay of cash,

but less: (1) any income from any amounts deposited for payment of principal (and premium, if any) and interest and other debt service charges (x) as provided in the definition of Debt or (y) to the extent such income was used in any adjustment of Annual Debt Service Requirements pursuant to clause (iv) of the definition of Annual Debt Service Requirements, (2) any interest or other debt services charges on Long-Term Debt thereby excluded from the definition of Annual Debt Service Requirements, (3) pledges for such period to make a donation, gift or other charitable contribution to the extent encumbered as permitted herein to secure the payment of Debt that is not Long-Term Debt, and (4) in the case of the Authority, any payments received by it pursuant to the Guaranty.

“Balloon Indebtedness” means (1) Long-Term Debt, fifteen percent (15%) or more of the initial principal amount of which Long-Term Debt matures (or is payable at the option of the holder) in any twelve-month period, if such fifteen percent (15%) or more is not to be amortized to below fifteen percent (15%) by mandatory redemption prior to such twelve-month period, or (2) any portion of an issue of Indebtedness which, if treated as a separate issue of Long-Term Debt, would meet the test set forth in clause (1) of this definition and which Indebtedness is designated as Balloon Indebtedness in an Officer’s Certificate stating that such portion shall be deemed to constitute a separate issue of Balloon Indebtedness

“Board” means the Board of Directors of the Authority, including any successor Board of the Authority, or any duly authorized committee of such board.

“Board Resolution” means a copy of a resolution certified by a duly Authorized Officer to have been duly adopted by the Board and to be in full force and effect on the date of such certification and delivered to the Trustee.

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“Bond Counsel” means an attorney or firm of attorneys nationally recognized as experienced in the field of bonds of governmental issuers appointed by the Authority and acceptable to the Trustee.

“Business Day” means a day other than Saturday or Sunday or a day on which the Trustee or the Paying Agent is required or authorized by law or executive order to be closed or on which the New York Stock Exchange is closed.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the corresponding provisions, if any, of any successor internal revenue laws of the United States.

“Completion Indebtedness” means any Debt incurred for the purpose of financing the completion of constructing or equipping facilities for the construction or equipping of which some Debt has theretofore been incurred in accordance with the provisions of this Indenture, to the extent necessary to provide a completed and equipped facility of the type and scope contemplated at the time, and in accordance with the general plans and specifications for such facility as originally prepared with only such changes as have been made in conformity with the documents pursuant to which such Debt was originally incurred, including funding debt service reserve funds related thereto.

“Construction Fund” means the fund of that name established pursuant to Section 401.

“Consultant” means an Independent professional consulting, financial advisory, accounting, investment banking or commercial banking firm selected by the Authority having the skill and experience necessary to render the particular report required and having a favorable and nationally recognized reputation for skill and experience.

“Debt” of any specified Person means all:

(i) indebtedness incurred or assumed by such Person for borrowed money or for the acquisition, construction or improvement of property other than goods or services that are acquired in the ordinary course of business of such Person;

(ii) lease obligations of such Person that, in accordance with generally accepted accounting principles, are shown on the liability side of a balance sheet;

(iii) all indebtedness (other than indebtedness otherwise treated as Debt hereunder) for borrowed money or the acquisition, construction or improvement of property or capitalized lease obligations guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed, directly or indirectly, by such Person through an agreement, contingent or otherwise, to purchase any such indebtedness or to advance or supply funds for the payment or purchase of any such indebtedness or to purchase property or services primarily for the purpose of enabling the debtor or seller to make payment of such indebtedness, or to assure the owner of the indebtedness against loss, or to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether or not such property is delivered or such services are rendered), or otherwise; and

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(iv) all indebtedness secured by any mortgage, lien, charge, encumbrance, pledge or other security interest upon property owned by such Person whether or not such Person has assumed or become liable for the payment thereof;

provided, to the extent that the Person has obtained credit or liquidity enhancement or support for Debt, whether by means of a standby bond purchase agreement, letter of credit, revolving credit agreement, surety bond, or otherwise, and the terms and conditions under which such credit or liquidity enhancement or support was obtained require the Authority to reimburse the provider of such enhancement or support, such obligation of such Person to reimburse such provider for such amounts shall constitute Debt only when and to the extent such advances are actually made and such obligation to reimburse actually arises.

For the purpose of computing the “Debt” of any Person, there shall be excluded any particular Debt if, upon or prior to the Maturity thereof, there shall have been deposited with the proper depository in trust the necessary funds (or evidences of such Debt or investments that will provide sufficient funds, if permitted by the instrument creating such Debt) for the payment, redemption or satisfaction of such Debt; and thereafter such funds, evidences of Debt and investments so deposited shall not be included in any computation of the assets of such Person, and the income from any such deposits shall not be included in the calculation of Adjusted Revenues or Available Revenues of such Person.

“Debt Service Fund” means the fund of that name established pursuant to Section 401.

“Defeasance Obligations” means obligations now or hereafter provided in Section 1207.062(b), Texas Government Code, as amended and any other then authorized securities or obligations under applicable State law in existence on the date the Board adopts or approves any proceedings authorizing the defeasance of the Bonds or the issuance of refunding bonds that may be used to defease the Bonds. The Authority, at its discretion, may limit use of certain Defeasance Obligations for a particular series of Parity Bond in a Supplemental Indenture for such Parity Bonds.

“Eligible Securities” means:

(i) Defeasance Obligations;

(ii) any securities authorized for investments of funds of the Authority by the “Texas Public Funds Investment Act,” Chapter 2256, Texas Government Code, as the same may be amended from time to time; and

(iii) pursuant to Texas Health & Safety Code Section 262.039, as long as the Authority meets the requirements of such section, any investment a trustee is authorized to make under Subtitle B, Title 9, Texas Property Code.

The Trustee shall be entitled to assume that any investment which at the time of purchase is an Eligible Security remains an Eligible Security thereafter, absent receipt of written notice from the Authority, or information to the contrary.

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For purposes of this definition, obligations issued or held in the name of the Trustee in book-entry form on the books of the Department of Treasury of the United States shall be deemed to be deposited with the Trustee.

“Event of Default” has the meaning assigned such term in Article 7 of this Indenture.

“Facilities” means:

(i) the Hospital;

(ii) all other real and personal property hereafter acquired as improvements, enlargements, betterments, additions, restorations or replacements to the Hospital at or adjacent to its existing locations, including the Series 2017 Project.

“First Supplemental Indenture” means the First Supplemental Trust Indenture, dated as of November 1, 2017 pursuant to which the Series 2017A Bonds were issued.

“Fiscal Year” means the twelve-month period ending on June 30, or such other twelve-month period selected by the Authority from time to time.

“Government Obligations” has the meaning assigned such term in Section 1002 hereof.

“Hedge Agreement” means an interest rate swap, collar, floor, forward or other hedging agreement, arrangement or security, however denominated, with respect to a series of Parity Bonds designated as such by Order of the Authority.

“Holder” or “Owner” means a Person in whose name an instrument evidencing Parity Bonds is registered in the Parity Bonds Register.

“Hospital” has the meaning assigned to such term in the first Recital to this Indenture.

“Independent” when used with respect to any specified Person means such a Person who (1) is in fact independent, (2) does not have any direct financial interest or any material indirect financial interest the Authority, and (3) is not connected the Authority as an officer, employee, promoter, trustee, partner, director or person performing similar functions. Whenever it is herein provided that any Independent Person’s opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by Order of the Person making such appointment and such opinion or certificate shall state that the signer has read this definition and that the signer is Independent within the meaning hereof.

“Interest Payment Date” means the Stated Maturity of an installment of interest on any Parity Bonds.

“Lease” means the Amended and Restated Lease Agreement, dated as of April 1, 2010, between the Authority and the Tenant, as further amended from time to time.

“Long-Term Debt” means all Debt created, assumed or guaranteed that matures by its terms (in the absence of the exercise of any earlier right of demand), or is

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optionally renewable to a date, more than one year after the original creation, assumption or guarantee of such.

“Long-Term Debt Coverage Ratio” means Adjusted Revenues divided by Maximum Annual Debt Service.

“Maturity” means the date on which the principal of Parity Bonds becomes due and payable by means of Stated Maturity, redemption, acceleration of maturity, or otherwise.

“Maximum Annual Debt Service” means, at the time of computation, the greatest Annual Debt Service Requirements on Long-Term Debt for the then current or any future Fiscal Year.

“MSRB” means the Municipal Securities Rulemaking Board.

“Officer’s Certificate” means a certificate signed by an Authorized Officer of the Authority and delivered to the Trustee.

“Opinion of Counsel” means a written opinion of counsel, who may (except as otherwise expressly provided) be counsel to the Authority, and who shall be acceptable to the Trustee and, when given with respect to the status of interest on any Parity Bonds under federal income tax law, means counsel of nationally recognized standing in the field of municipal bond law.

“Organizational Documents” means the Ordinance of the City of Irving creating the Authority and the Authority’s Bylaws.

“Outstanding” when used with respect to the Parity Bonds means, as of the date of determination, all Parity Bonds theretofore authenticated and delivered under this Indenture, except:

(i) Parity Bonds theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(ii) Parity Bonds for which payment or redemption money (or Government Obligations to the extent permitted by Section 1002 of this Indenture) in the necessary amount has been theretofore deposited with the Trustee or any paying agent for such Parity Bonds in trust for the Holders of such Parity Bonds pursuant to this Indenture; provided, that, if such Parity Bonds is to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or irrevocable provision therefor satisfactory to the Trustee has been made; and

(iii) Parity Bonds upon transfer of or in exchange for or in lieu of which other Parity Bonds has been authenticated and delivered pursuant to this Indenture;

provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Parity Bonds have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Parity Bonds owned by the Authority or any other obligor upon the Parity Bonds shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only

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Parity Bonds of which the Trustee has actual knowledge that such Parity Bonds is so owned shall be so disregarded. Parity Bonds so owned which has been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Parity Bonds and that the pledgee is the Authority or any other obligor upon the Parity Bonds.

“Parity Bonds” means any obligation of the Authority authenticated and delivered pursuant to Section 204.

“Parity Bonds Register” and “Parity Bonds Registrar” have the respective meanings specified in Section 206.

“Paying Agent” means initially the Trustee, and any other Person authorized by the Authority to pay the principal of (and premium, if any) or interest on any Parity Bonds on behalf of the Authority.

“Permitted Encumbrances” means:

(i) liens arising by reason of good faith deposits by or with the Authority in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any such Person to secure public or statutory obligations or to secure, or in lieu of, surety, or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges;

(ii) any lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license in the ordinary course of business, or to enable the Authority to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with worker’s compensation, unemployment insurance, old age pensions or other social security, or to share in the privileges or benefits required for institutions participating in such arrangements;

(iii) any judgment lien against any Person so long as the finality of such judgment is being contested in good faith and execution thereon is stayed;

(iv) rights reserved to or vested in any municipality or public authority by the terms of any right, power, franchise, grant, license, permit or provision of law affecting any property (A) to terminate such right, power, franchise, grant, license or permit; provided that the exercise of such right would not materially impair the use of such property for its intended purpose or materially and adversely affect the value thereof, or (B) to purchase, condemn, appropriate, recapture or designate a purchaser of such property, or (C) to control, regulate or zone such property or to use such property in any manner, which rights do not materially impair the use of such property for its intended purposes or materially and adversely affect the value thereof;

(v) liens for taxes or assessments or other governmental charges or levies not delinquent;

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(vi) pledges or deposits to secure obligations under worker’s compensation laws or similar legislation, including liens of judgments thereunder which are not currently dischargeable;

(vii) materialmen’s, mechanics’, carriers’, workmen’s, repairmen’s or other like liens arising in the ordinary course of business, or deposits to obtain the release of such liens;

(viii) the Lease, and leases made, or existing on property acquired, in the ordinary course of business;

(ix) statutory landlords’ liens under leases;

(x) claims of creditors entitled to priority under the so-called “6 months rule” as applied by courts of equity in proceedings for the administration of insolvent corporations;

(xi) liens on money deposited by patients of any Person as security for or as prepayment for the cost of patient care;

(xii) liens or encumbrances on property (or on the income therefrom) received by the Authority as a gift, grant or bequest, if such lien or encumbrance constitutes or results from restrictions (other than the requirement that the grantee thereof make payment in respect of Long-Term Debt incurred by the grantor with respect to such property) placed on such gift, grant, or bequest (or on the income therefrom) by the grantor thereof;

(xiii) liens on money and receivables securing rights of third party payors to recoupment of amounts paid to the Authority;

(xiv) any other lien or encumbrance created or incurred in the ordinary course of business which does not secure, directly or indirectly, the repayment of borrowed money or the payment of installment sales contracts or capital leases and which, individually or in the aggregate, does not materially impair the value or the utility of the property subject to such lien or encumbrance;

(xv) liens on proceeds of Debt (or on income from the investment of such proceeds) which secure payment of such Debt;

(xvi) liens on money or obligations deposited with a trustee or escrow agent to cause Debt to be no longer Outstanding;

(xvii) liens on money or obligations deposited with a trustee to fund a depreciation reserve fund or other reserve fund with respect to Debt in accordance with the instrument under which such Debt may be secured;

(xviii) liens existing with respect to property at the time of its acquisition through purchase, merger, consolidation or otherwise; provided that the aggregate principal amounts secured by such liens shall not exceed at the time of acquisition of such property the lesser of the cost or fair market value of such property as determined in good faith by the Person acquiring the property;

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(xix) any mortgage, lien or other encumbrance securing an existing Debt of less than $50,000;

(xx) easements, zoning and land use restrictions, restrictive covenants and other similar restrictions on the use of property that do not in the aggregate materially impair the value thereof; and

(xxi) the outstanding Series 1994 Bonds.

“Permitted Indebtedness” means:

(i) any Debt, if prior to or simultaneously with the incurrence of such Debt there is delivered to the Trustee an Officer’s Certificate demonstrating that the Transaction Test will be or has been met for, and giving effect to, the incurrence of such Debt;

(iii) Long-Term Indebtedness incurred for the purpose of refunding, including advance refunding, any Outstanding Long-Term Debt, if prior to the incurrence of such Long- Term Debt there is delivered to the Trustee an Officer’s Certificate to the effect that either (a) such refunding will not increase Maximum Annual Debt Service in any year (calculated for the period during which the Debt to be refunded would have been Outstanding but for such proposed refunding) by more than twenty percent (20%), or (b) such refunding will result in a present value savings in the debt service requirements as compared to that of the Outstanding Long-Term Indebtedness being refunded; provided, however, refundings in the nature of the rolling-over of Debt in the form of commercial paper or the payment of the purchase price of any Debt which is payable upon demand of the holder or owner thereof or may be tendered by and at the option of the holder or owner thereof for payment prior to the stated maturity date thereof shall be permitted, without limitation and without the need for the delivery of any Officer’s Certificate;

(iv) Subordinated Indebtedness, without limitation;

(vi) Debt incurred on an interim basis with respect to any construction project for which money is available therefor in the construction fund for such project;

(vii) Debt incurred in the ordinary course of business;

(viii) any Debt (or obligations not for borrowed money), which Debt or obligation is not generally treated as indebtedness, such as obligations to make contributions to employee

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benefit plans, social security alternative plans, self-insurance programs, captive insurance companies and unemployment insurance liabilities.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Place of Payment” for any series of Parity Bonds means a city or any political subdivision thereof designated as such in the Parity Bonds of such series.

“Pledged Revenues” means all accounts receivable, cash, coin, currency, money or checks or drafts payable on demand and claims received or receivable from goods or services provided by or property of the Authority (including, but not limited to, the Facilities) by or on behalf of or for the account of such Person from any source and for any purpose, including, without limitation, any such items received or receivable from or consisting of:

(1) payments for services rendered and goods sold,

(2) payments and adjustments under policies of insurance,

(3) awards for or compensation for damages,

(4) payments for the sale, lease or disposition of assets,

(5) income from investments or the payment of indebtedness,

(6) reimbursement or payments from third party payors, including, but not limited to, Medicare, Medicaid and Blue Cross,

(7) early termination fees or liquidated damages, pursuant to the Lease, and

(8) rent from the Lease or any property, including, but not limited to, the Facilities,

but excluding any such items derived from or consisting of:

gifts, grants, bequests, donations and contributions specifically restricted by the donor in writing to a purpose other than the payment of principal of (and premium, if any) and interest on Parity Bonds,

the proceeds of any Debt permitted under Section 511 hereof and the interest or income earned thereon to the extent such interest or income is otherwise required to be applied by the terms of such Debt, and

amounts received by the Authority as agent for or on behalf of any other Person.

“Project” means the Series 2017 Project and any other property financed or refinanced from the proceeds of Parity Bonds.

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“Project Costs” means costs permitted to be paid out of proceeds of Parity Bonds by the Code, including costs of issuance of such Parity Bonds and the costs related to any Project.

“Rating Agency” means each nationally recognized securities statistical rating organization within the meaning of the rules of the Securities and Exchange Commission which at the time has a credit rating assigned to any series of Parity Bonds (or any other indebtedness secured by Parity Bonds) at the request of the Authority.

“Rebate Fund” means the fund of that name established pursuant to Section 401.

“Regular Record Date” means with respect to any series of Parity Bonds, the dates designated as such in the related Supplemental Indenture.

“Regulations” means the applicable proposed, temporary or final Income Tax Regulations promulgated under the Code or, to the extent applicable to the Code, under the Internal Revenue Code of 1954, as such regulations may be amended or supplemented from time to time.

“Responsible Officer” when used with respect to the Trustee means any vice president, senior associate, associate or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with a particular subject.

“Revenue Fund” means the fund of that name established pursuant to Section 401.

“Rule” means SEC Rule 15c2-12, as amended from time to time.

“SEC” means the United States Securities and Exchange Commission.

“Second Supplemental Indenture” means the Second Supplemental Trust Indenture dated as of November 1, 2017, pursuant to which the Series 2017B Bonds were issued.

“Securities Depository” means The Depository Trust Company, or such other securities depository as the Authority may designate in a certificate of the Authority delivered to the Trustee.

“Series 1994 Bonds” means the Authority’s Junior Lien Hospital Revenue Refunding Bonds, Series 1994.

“Series 2017 Bonds” means, collectively, the Series 2017A Bonds and Series 2017B Bonds.

“Series 2017A Bonds” means the Authority’s Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A created pursuant to the First Supplemental Indenture.

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“Series 2017B Bonds” means the Authority’s Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017B (SIFMA Index) created pursuant to the Second Supplemental Indenture.

“Series 2017 Project” means the property financed with the proceeds of the Series 2017 Bonds and described in Exhibit B of the First Supplemental Indenture and the Second Supplemental Indenture.

“State” means the State of Texas.

“Stated Maturity” when used with respect to any Parity Bonds or any installment of interest thereon means the date specified in such Parity Bonds as the fixed date on which the principal of such Parity Bonds or such installment of interest is due and payable.

“Subordinated Indebtedness” means all obligations incurred or assumed, the payment of which is by its terms specifically subordinated to payment on all Parity Bonds, or the principal of and interest on which cannot be accelerated and would not be paid (whether by the terms of such obligation or by agreement of the oblige) while an Event of Default exists hereunder or while bankruptcy, insolvency, receivership or other similar proceedings are instituted and implemented.

“Supplemental Indenture” means an indenture supplemental to this Indenture that is authorized pursuant to Section 901 or 902.

“Tax-Exempt Parity Bonds” means any Parity Bonds the interest on which is excludable from gross income of the owners thereof for federal income tax purposes.

“Taxable Parity Bonds” means any Parity Bonds the interest on which is included in gross income of owners there of for federal income tax purposes.

“Tenant” means Baylor Medical Center at Irving, d/b/a Baylor Scott & White Medical Center-Irving, a Texas nonprofit corporation, and its successors and assigns.

“Transaction Test” means the Trustee shall have received an Officer’s Certificate of the Authority (i) stating that no Event of Default has occurred under this Indenture and then exists or would result from the proposed transaction, and (ii) demonstrating that the Adjusted Revenues of the Authority following the proposed transaction would not be less than 120% of the Maximum Annual Debt Service of the Authority.

“Trust Estate” means the property described as the Trust Estate in the Granting Clauses of this Indenture or any Supplemental Indenture that is subject to the lien and security interest of this Indenture.

“Trustee” means The Bank of New York Mellon Trust Company, National Association, a national banking association having a corporate trust office in Dallas, Texas, serving as trustee pursuant to this Indenture, and its successors and assigns permitted hereby.

Section 102. Compliance Certificates and Reports. Whenever the amount or date of any of the following is a condition to the taking of any action permitted hereby,

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any of:

(i) Available Revenues of the Authority for any prior Fiscal Year or period,

(ii) Adjusted Revenues of the Authority for any prior Fiscal Year or period,

(iii) Maximum Annual Debt Service Requirements of the Authority,

(iv) principal of and premium, if any, and interest and other debt service charges on any Debt, and

(v) book value of any assets, shall be established by an Officer’s Certificate of the Authority stating the amount of such item and either: (i) that such amounts have been derived from the most recent financial statements of the Authority delivered to the Trustee pursuant to Section 508 hereof or (ii) if financial statements for the most recently ended Fiscal Year are not yet required to be filed with the Trustee pursuant to Section 508 or the period to which such Officer’s Certificate relates does not comprise a Fiscal Year, that such amounts have been derived from unaudited financial statements of the Authority for such Fiscal Year or period and that such unaudited financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with those applied to the financial statements of the Authority most recently filed pursuant to Section 508; and

the current value of the properties of the Authority shall be established by an Officer’s Certificate which states: (i) the appraised value of the properties of the Authority for which an appraisal is attached to such Officer’s Certificate, (ii) the aggregate book value of all other properties of the Authority, and (iii) that such aggregate book value does not exceed by more than 5% the aggregate current value of all such other properties and which is accompanied by one or more written appraisals made by Independent Persons experienced in appraising the value of similar properties stating the Authority’s opinion of the value of such property as of a date not more than two years preceding the date such Officer’s Certificate is delivered to the Trustee; and

the anticipated date of completion of any construction project of the Authority shall be established by an Officer’s Certificate of the Authority.

Section 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of any officer of the Authority may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, in so far as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers the Authority stating that the information with respect to such factual matters is in the possession of such Person, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

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Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Section 104. Acts of Holders.

Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Authority. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent, shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Authority, if made in the manner provided in this Section.

The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

The ownership of Parity Bonds shall be proved by the Parity Bonds Register.

Any request, demand, authorization, direction, notice, consent, waiver or other action by any Holder of Parity Bonds shall bind every Holder of Parity Bonds issued upon the transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Authority in reliance thereon, whether or not notation of such action is made upon such Parity Bonds.

Section 105. Notices, etc., to Trustee and Authority. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

the Trustee shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with and actually received by the Trustee at its designated corporate trust office; or

the Authority shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Authority addressed to it at 1901 N. MacArthur Boulevard, Irving, Texas 75061, Attention: Chairman of the Board, or at any other address previously furnished in writing to the Trustee by the Authority.

Section 106. Notices to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears on the Parity Bonds Register, not later than the latest date, and not earlier than the earliest date, prescribed for the first giving of such notice.

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In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any default in any notice so mailed to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case, by reason of the suspension of publication of any Authorized Newspaper, or by reason of any other cause, it shall be impossible to make publication of any notice in an Authorized Newspaper or Authorized Newspapers as required by this Indenture, then such method of publication or notification as shall be made with the approval of the Trustee shall constitute a sufficient publication of such notice.

Section 107. Successors and Assigns. All covenants and agreements in this Indenture by the Authority and the Trustee shall bind their respective successors and assigns, whether so expressed or not.

Section 108. Separability Clause. In case any provision in this Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 109. Benefits of Indenture. Nothing in this Indenture or in the Parity Bonds, express or implied, shall give to any Person, other than the parties hereto, and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 110. Governing Law. This Indenture shall be construed in accordance with and governed by the laws of the State of Texas.

Section 111. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 112. Limitations on Liability of Authority. All obligations of the Authority hereunder are obligations of the Authority payable solely from and to the extent of the Trust Estate, and it is a condition of each undertaking of the Authority contained herein that, all such undertakings shall be performed solely from and to the extent of money, in or derived from, the Trust Estate and, in the Authority’s discretion, any other funds lawfully appropriated for such purposes.

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ARTICLE II

ISSUANCE AND FORM OF PARITY BONDS

Section 201. Series and Amount of Parity Bonds. Parity Bonds other than the Series 2017 Bonds shall be issued under this Indenture in series created by Board Resolution. Each series shall be designated to differentiate the Parity Bonds of such series from the Parity Bonds of any other series. The number of series of Parity Bonds that may be created under this Indenture is not limited. The aggregate principal amount of Parity Bonds of each series that may be created under this Indenture is not limited except as restricted by Board Resolution. The instruments evidencing Parity Bonds of each series shall be numbered R-1 and upward, with such other designations as may be appropriate to permit identification of individual series.

Section 202. Authorization of Series 2017 Bonds. The Series 2017A Bonds and Series 2017B Bonds are hereby approved and authorized, in the respective principal amounts and having the terms and provisions set forth in the First Supplemental Indenture and the Second Supplemental Indenture, respectively. The Trustee is hereby directed to authenticate and deliver the definitive Series 2017A Bonds and Series 2017B Bonds upon the written direction of the Authority and the delivery to the Trustee of the initial Bonds of such Series that have been approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas.

Section 203. Terms of Particular Series. Each series of Parity Bonds shall be created by a Supplemental Indenture authorized by the Board of Directors of the Authority and establishing the terms and provisions of such series of Parity Bonds and the form of the Parity Bonds of such series. The several series of Parity Bonds may differ as between series in any respect not in conflict with the provisions of this Indenture and as may be prescribed in the Supplemental Indenture creating such series.

The Authority may, at the time of the creation of any series of Parity Bonds or at any time thereafter, make, and the Parity Bonds of such series may contain, without limitation, provision for:

the priority of payment of the Parity Bonds;

the exchange or conversion of the Parity Bonds of such series, at the option of the Holders thereof, for or into new Parity Bonds of a different series;

a sinking, amortization, improvement, or other analogous fund;

limiting the aggregate principal amount of the Parity Bonds of such series;

exchanging Parity Bonds of such series, at the option of the Holders thereof, for other Parity Bonds of the same series of the same aggregate principal amount of a different authorized denomination or denominations; and

the authentication of Parity Bonds of such series by the Trustee, the Parity Bonds Registrar, or the Authenticating Agent;

all upon such terms as the Board of the Authority may determine.

Section 204. Execution, Authentication and Delivery. The Parity Bonds shall be executed on behalf of the Authority by the President or Chairman of the Board or one of its Vice Presidents and

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attested to by the Secretary of the Board. The signature of any of these officers on the Parity Bonds may be manual or facsimile.

Parity Bonds bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Authority shall bind the Authority, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Parity Bonds or did not hold such offices at the date of such Parity Bonds.

At any time and from time to time after the execution and delivery of this Indenture, the Authority may deliver Parity Bonds executed by the Authority to the Trustee; and the Trustee shall authenticate and deliver such Parity Bonds as in this Indenture provided and not otherwise.

Section 205. Form of Parity Bonds. The Parity Bonds shall be in substantially the form set forth in the Supplemental Indenture creating such series, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and with such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any regulatory body, or as may, consistently herewith, be determined to be appropriate by the officers executing such Parity Bonds, as evidenced by their signing of the Parity Bonds. Any portion of the text of any Parity Bonds may be set forth on the reverse thereof, with an appropriate reference thereto on the face of such Parity Bonds.

The initially issued Parity Bonds shall be registered by the Comptroller of Public Accounts of the State of Texas (the “Comptroller”), which registration shall be evidenced by the manual signature of the Comptroller or his deputy and the official seal of the Comptroller shall be impressed or placed in facsimile on the initially issued Parity Bonds. The form of Certificate of Registration of the Comptroller shall be as follows:

“REGISTRATION CERTIFICATE OF COMPTROLLER OF PUBLIC ACCOUNTS

I hereby certify that this Bond has been examined, certified as to validity, and approved by the Attorney General of the State of Texas, and that this Bond has been registered by the Comptroller of Public Accounts of the State of Texas.

Witness my signature and seal this ______.

______Comptroller of Public Accounts of the State of Texas”

(COMPTROLLER’S SEAL)

Except for initially issued Parity Bonds registered by the Comptroller, no Parity Bonds shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on or attached to such Parity Bonds a certificate of authentication substantially in the form set forth below executed by the Trustee by manual signature, and such certificate upon any Parity Bonds shall be conclusive evidence, and the only evidence, that such Parity Bonds has been duly authenticated and delivered hereunder. The form of certificate of authentication shall be as follows:

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“CERTIFICATE OF AUTHENTICATION

This is a Parity Bond referred to in the within-mentioned Indenture, the Series [__] Bonds originally delivered having been approved by the Attorney General of the State of Texas and registered by the Comptroller of Public Accounts of the State of Texas.

Date of Authentication:

______

[Name of Bond Authenticating Agent, if any], [TRUSTEE], as Trustee as Bond Authenticating Agent

By: By: Authorized Signature”

The following form shall appear on all Parity Bonds:

“ASSIGNMENT

FOR VALUE RECEIVED the undersigned hereby sells, assigns, and transfers unto (Print or typewrite name, address, and zip code of transferee):______(Social Security or other identifying number: )the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints : attorney to transfer the within Bond on the books kept for registration thereof, with full power of substitution in the premises.

DATED: ______Signature Guaranteed By: NOTICE: The signature on this assignment must correspond with the name of the registered owner as it appears on the fact of the within Bond in every particular

NOTICE: Signature(s) must be guaranteed by an eligible guarantor institution participating in a securities transfer association recognized signature guarantee program.”

Section 206. Registration, Transfer and Exchange. The Authority shall cause to be kept at the designated corporate trust office of the Trustee a register (sometimes herein referred to as the “Parity Bonds Register”) in which, subject to such reasonable regulations as it may prescribe, the Authority shall provide for the registration of Parity Bonds and of transfers of Parity Bonds. The Trustee is hereby appointed registrar (the “Parity Bonds Registrar”) for the purpose of registering Parity Bonds and transfers of Parity Bonds as herein provided.

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Upon surrender for transfer of any Parity Bonds at the office or agency of the Authority in a Place of Payment, the Authority shall execute and the Trustee shall authenticate and deliver, in the name of the designated transferee, one or more new instruments evidencing Parity Bonds of any Authorized Denominations, of a like aggregate principal amount, series, maturity and interest rate.

If and to the extent so provided with respect to the Parity Bonds of such series, at the option of the Holder, Parity Bonds of such series may be exchanged for Parity Bonds of any Authorized Denominations, of a like aggregate principal amount, series, maturity and interest rate, upon the surrender of the Parity Bonds to be exchanged at such office or agency. Whenever any Parity Bonds is so surrendered for exchange, the Authority shall execute, and the Trustee shall authenticate and deliver, the Parity Bonds which the Holder making the exchange is entitled to receive.

All Parity Bonds issued upon any transfer or exchange of Parity Bonds shall be the valid obligations of the Authority, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Parity Bonds surrendered upon such transfer or exchange.

Every Parity Bonds presented or surrendered for transfer or exchange shall (if so required by the Authority or the Parity Bonds Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Authority and the Parity Bonds Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any transfer or exchange of Parity Bonds, but the Authority and the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer or exchange of Parity Bonds, other than exchanges expressly provided in this Indenture to be made without expense or without charge to Holders.

The Authority shall not be required to issue, transfer or exchange any Parity Bonds during a period beginning at the opening of business 45 days before the day of redemption of Parity Bonds under Section 303 and ending at the close of business on such day, provided that the Parity Bonds Registrar may make such arrangements as it deems appropriate for notation on each new Parity Bonds issued in exchange for or upon the transfer of the Parity Bonds so selected for redemption of an appropriate legend to the effect that such new Parity Bonds has been so selected for redemption.

So long as the Securities Depository acts as securities depository for the Parity Bonds, as described in Section 212 herein, all references herein to “Holder” or “holder” of any Parity Bonds are deemed to refer to Cede & Co., as nominee for the Securities Depository, and not to Participants, Indirect Participants or Beneficial Owners.

Section 207. Mutilated, Destroyed, Lost and Stolen Parity Bonds. If (i) any mutilated instrument evidencing Parity Bonds is surrendered to the Trustee, or the Authority and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Parity Bonds, and (ii) there is delivered to the Authority and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Authority or the Trustee that such Parity Bonds has been acquired by a bona fide purchaser, the Authority shall execute and upon its request the Trustee shall authenticate and deliver in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Parity Bonds, a new instrument evidencing Parity Bonds of like tenor, series, interest rate and principal amount, bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen Parity Bonds has become or is about to become due and payable, the Authority in its discretion may, instead of issuing a new certificate, pay such Parity Bonds.

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Upon the issuance of any new Parity Bonds under this Section, the Authority and the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Parity Bond issued pursuant to this Section in lieu of any destroyed, lost or stolen Parity Bonds shall constitute an original additional contractual obligation of the Authority, whether or not the destroyed, lost or stolen Parity Bonds shall be at any time enforceable by anyone, and shall be entitled to all the benefits and security of this Indenture equally and proportionately with any and all other Parity Bonds duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Parity Bonds.

Section 208. Payment of Interest on Parity Bonds; Interest Rights Preserved. Subject to Section 112, interest on any Parity Bonds of any series which is payable, and which is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Bond is registered at the close of business on the Regular Record Date for such interest specified in the provisions of the Supplemental Indenture creating such series and may be paid (1) by check mailed to the Holder at the address specified in the Parity Bonds Register, (2) upon written request received by the Trustee not less than five Business Days prior to the Regular Record Date for payment, to any Holder of not less than $1,000,000 in aggregate principal amount of Parity Bonds, by federal funds wire transfer to an account of a bank located within the United States of America at the risk and expense of such Holder, or (3) by such other customary banking arrangement as to which the Holder prior to the applicable Regular Record Date and any Paying Agent may agree at the risk and expense of such Owner.

Interest which is due and payable on any Interest Payment Date, but cannot be paid on such date and for 30 days thereafter due to an insufficiency of funds available under this Indenture, shall thereupon cease to be payable to the Holders otherwise entitled thereto as of such date. At such time as sufficient funds are available for the payment of such overdue interest, the Trustee shall establish a special payment date and a special record date (which shall be a Business Day) in respect thereof. The Trustee shall mail a notice specifying each date so established to each then current Holder of Parity Bonds, such notice to be mailed at least 15 days prior to the special record date.

Each Parity Bond delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Parity Bonds shall carry all the rights to interest accrued and unpaid, and to accrue, which were carried by such other Parity Bonds, and each such Parity Bonds shall bear interest from such date so that neither gain nor loss in interest shall result from such transfer, exchange, or substitution.

Section 209. Persons Deemed Owners. The Authority, the Trustee, the Paying Agent, and any agent of the Trustee or the Paying Agent may treat the Person in whose name any Parity Bonds is registered as the owner of such Parity Bonds for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 206) interest on, such Parity Bonds and for all other purposes whatsoever whether or not such Parity Bonds be overdue, and none of the Authority, the Trustee, the Paying Agent or any such agent shall be affected by notice to the contrary.

Section 210. Cancellation. All Parity Bonds surrendered for payment, redemption, transfer or exchange shall, if delivered to any Person other than the Trustee, be delivered to the Trustee and, if not already canceled or required to be otherwise delivered by the terms of the Board Resolution authorizing the series of Parity Bonds of which such Parity Bonds is a part, shall be promptly canceled by it. The

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Authority may at any time deliver to the Trustee for cancellation any Parity Bonds previously authenticated and delivered hereunder, which the Authority may have acquired in any manner whatsoever, and all Parity Bonds so delivered shall be promptly canceled by the Trustee. No Parity Bonds shall be authenticated in lieu of or in exchange for any Parity Bonds canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Parity Bonds held by the Trustee shall be disposed of as directed by the Authority.

Section 211. Temporary Initial Parity Bonds. Pending the preparation of definitive Parity Bonds, the Authority may execute, and upon the Authority’s request, the Trustee shall authenticate and deliver, temporary Parity Bonds which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any denomination, substantially of the tenor of the definitive Parity Bonds in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Parity Bonds may determine, as evidenced by their execution of such Parity Bonds.

If temporary instruments evidencing Parity Bonds are issued, the Authority will cause definitive instruments evidencing Parity Bonds to be prepared without unreasonable delay. After the preparation of definitive instruments evidencing Parity Bonds, the temporary instruments evidencing Parity Bonds shall be exchangeable for definitive instruments evidencing Parity Bonds upon surrender of the temporary instruments evidencing Parity Bonds at the office or agency of the Authority in a Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary instruments evidencing Parity Bonds, the Authority shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive instruments evidencing Parity Bonds of authorized denominations. Until so exchanged, temporary instruments evidencing Parity Bonds that have attached to them an executed authentication certificate of the Trustee in the form set forth in Section 205 hereto shall in all respects be entitled to the same benefits under this Indenture as definitive instruments evidencing Parity Bonds.

Section 212. Book-Entry Only System. Unless otherwise provided in a Supplemental Indenture related to a series of Parity Bonds, it is intended that Parity Bonds be registered so as to participate in a securities depository system (the “DTC System”) with The Depository Trust Company, New York, New York (“DTC”), as set forth herein. Each Stated Maturity of each series of Parity Bonds shall be issued (following cancellation of the initial Bonds described in Section 205) in the form of a separate single fully registered Parity Bonds. Upon issuance, the ownership of each such Parity Bonds shall be registered in the name of Cede & Co., as the nominee of DTC, and except as provided in Section 205 hereof or in a Supplemental Indenture, all of the outstanding Parity Bonds shall be registered in the name of Cede & Co., as the nominee of DTC. The Authority and the Trustee are authorized and directed to execute, deliver and take the actions set forth in such letters to or agreements with DTC as shall be necessary to effectuate the DTC System, including the Representation Letter or Letters delivered by the Authority to DTC on the Issue Date (the “Representation Letter”).

With respect to Parity Bonds registered in the name of Cede & Co., as nominee of DTC, the Authority, and the Trustee shall have no responsibility or obligation to any broker-dealer, bank or other financial institution for which DTC or another Securities Depository holds Parity Bonds from time to time as securities depository (a “Depository Participant”) or to any person on behalf of whom such a Depository Participant holds an interest in the Parity Bonds (an “Indirect Participant”). Without limiting the immediately preceding sentence, the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co., any other Securities Depository, or any Depository Participant with respect to any ownership interest in the Parity Bonds, (ii) the delivery to any Depository Participant or any Indirect Participant or any other Person, other than a Holder of a Parity Bond, of any notice with respect to the Parity Bonds, including any notice of

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redemption, or (iii) the payment to any Depository Participant or any Indirect Participant or any other person, other than an Holder of a Parity Bond, of any amount with respect to principal of, premium, if any, or interest on, the Parity Bonds. While in the DTC System, no person other than Cede & Co., or any successor thereto, as nominee for DTC, shall receive a Parity Bond certificate evidencing the obligation of the Authority to make payments of principal, premium, if any, and interest pursuant to this Indenture. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in this Indenture with respect to interest checks being mailed to the Owner, the word “Cede & Co.” in this Indenture shall refer to such new nominees of DTC; and upon receipt of such a notice of the Trustee shall promptly deliver a copy of the same to each paying agent, if any.

Section 213. Successor Securities Depository; Transfers Outside Book-Entry Only System; Additional Parity Bonds. In the event that (a) the Authority or the Trustee (with the consent of the Authority) determines that (i) DTC is incapable of discharging its responsibilities described herein and in the Representation Letter or (ii) it is in the best interest of the owners of beneficial interests in the Parity Bonds that they be able to obtain certificated Parity Bonds, or (b) DTC discontinues discharging its services for any reason, the Authority shall notify DTC and the Trustee. At that time, the Authority may determine that the Parity Bonds shall be registered in the name of and deposited with a successor depository operating a securities depository system, as may be acceptable to the Authority, and if the Authority does not select such an alternate securities depository system then the Parity Bonds may be registered in whatever name or names the Holders of such Parity Bonds transferring or exchanging such Parity Bonds shall designate, in accordance with the provisions hereof. Notwithstanding any other provision herein to the contrary, the Authority may issue additional Parity Bonds outside of the DTC System, in which case the Authority shall specify the same in the Supplemental Indenture pursuant to which such Parity Bonds were issued and the procedures to be followed with respect to such Parity Bonds.

Section 214. Payments and Notices to Cede & Co. Notwithstanding any other provision of this Indenture to the contrary, so long as any Parity Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Parity Bonds and all notices with respect to such Parity Bonds shall be made and given, respectively, in the manner provided in the Representation Letter.

Section 215. Priority of Payment. Parity Bonds may be issued on an equal and ratable basis to the Series 2017 Bonds, or subordinate in one or more respects to the Series 2017 Bonds. No additional Parity Bonds may be issued on a basis senior to any Outstanding Series 2017 Bonds.

Section 216. Additional Parity Bonds.

In addition to the principal amount of Series 2017 Bonds, the authentication and delivery of which is provided for in Section 202, the Authority may execute and deliver to the Trustee or the Authenticating Agent for authentication from time to time additional Parity Bonds (“Additional Parity Bonds”) of one or more series and thereupon the same shall be authenticated and delivered by the Trustee or the Authenticating Agent upon Application by the Authority and upon receipt in every case by the Trustee of the following:

(i) A Board Resolution of the Authority authorizing the issuance, execution and delivery of that series of Parity Bonds and the execution and delivery of the Supplemental Indenture relating thereto;

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(ii) an Officer’s Certificate of the Authority stating the Transaction Test has been met; and the opinions and certifications, if any, required by this Indenture in connection with the issuance of such Parity Bonds are being delivered, and that the requirements and limitations of this Indenture will be met in connection with the issuance of such Parity Bonds;

(iii) an original executed counterpart of the Supplemental Indenture providing for the issuance of that series of Parity Bonds;

(iv) an original executed counterpart of any other agreement, document or instrument containing all provisions that the Trustee or the Authority may require in connection with the issuance of that series of Parity Bonds, the payment therefor and the disposition of the proceeds thereof;

(v) an Authority Request to register that series of Parity Bonds, and to authenticate and deliver the Parity Bonds of that series to the original purchasers upon payment to the Trustee for deposit or payment in accordance with the provisions of this Indenture of the sum specified in such request;

(vi) an Opinion of Counsel to the effect that (i) the conditions set forth in this Indenture to issuance of such Parity Bonds have been satisfied, and (ii) upon the execution of such Parity Bonds by the Authority and the authentication by the Trustee, such Parity Bonds will be the valid and binding obligations of the Authority enforceable in accordance with their terms and will be entitled to the benefit and security of this Indenture;

(vii) in the case of Tax-Exempt Parity Bonds, an opinion of Bond Counsel to the effect that interest on such Parity Bonds is excludable from gross income of the owners thereof for federal income tax purposes under existing law;

(viii) the approving opinion of the Attorney General of the State of Texas; and

(ix) a certificate of registration of the Parity Bonds of such series by the Comptroller of Public Accounts of the State of Texas.

The Authority may include in such Additional Parity Bonds and the related Supplemental Indenture such terms and provisions as it deems appropriate so long as they are not prohibited by this Indenture and are permitted by applicable law. It is the intention of this Indenture to reserve to the Authority the maximum lawful flexibility to incur additional obligations secured under this Indenture without regard to the form and terms of such obligations. Without limiting the generality of the foregoing, the rights of Holders of Additional Parity Bonds, even though they may be issued on an equal and ratable basis with the Series 2017 Bonds, may be limited, such as, by way of illustration and not limitation, to provide that a bond insurer or the issuer of a letter of credit or standby bond purchase agreement, may direct the Trustee with respect to waivers of defaults, the exercise of remedies, or consent to amendments to this Indenture.

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ARTICLE III

REDEMPTION OF PARITY BONDS

Section 301. Redemption. Parity Bonds of each series may be subject to optional and mandatory redemption in whole or in part and may be redeemed prior to maturity, as provided in the Supplemental Indenture creating such series, but not otherwise. Unless otherwise provided by the Supplemental Indenture creating a Parity Bond, the provisions of Sections 302 through 307 of this Indenture shall also apply to the redemption of Parity Bonds.

Section 302. Election to Redeem; Notice to Trustee. The election to redeem any Parity Bonds shall be evidenced by an Authority direction. In case of any redemption of less than all of the Parity Bonds, the Authority shall, at least 45 days prior to the redemption (unless a shorter notice period shall be acceptable to the Trustee), notify the Trustee of such redemption date and of the principal amount of Parity Bonds of each maturity and series to be redeemed.

Section 303. Selection by Trustee of Parity Bonds to be Redeemed. If less than all the Parity Bonds is to be redeemed, the particular Parity Bonds to be redeemed shall be selected prior to the redemption date by the Trustee, from the Outstanding Parity Bonds of the series and maturity specified by the Authority not previously called for redemption, in each case by lot or by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to an Authorized Denomination) of the principal of Parity Bonds of a denomination larger than the minimum Authorized Denomination.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Parity Bonds shall relate, in the case of any Parity Bonds redeemed or to be redeemed only in part, to the portion of the principal of such Parity Bonds which has been or is to be redeemed.

Section 304. Notice of Redemption. Not less than thirty (30) days prior to any redemption date, but not more than sixty (60) days prior to any redemption date, the Trustee shall cause notice of the call for any redemption identifying the Parity Bonds or portions thereof to be redeemed to be given in the name of the Authority by first class mail, postage prepaid, to the Holders of each Parity Bond to be redeemed at the address shown on the Parity Bond Register on the date such notices are mailed. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, irrespective of whether received.

Each notice of redemption shall state at a minimum, the complete official name of the issue, including series designation, CUSIP number, amounts called of each Stated Maturity (for partial calls), date of the notice, the date of issue, interest rate, maturity date of the Parity Bonds called for redemption, the redemption date, the redemption price, the place or places of redemption, and appropriate address or addresses with name of contact person and telephone number. Unless moneys sufficient to pay the principal of and premium, if any, and interest on the Bonds to be redeemed shall have been received by the Trustee prior to the giving of such notice of redemption, such notice shall state that said redemption shall be conditional upon the receipt of such moneys by the Trustee on or prior to the date fixed for such redemption. The Authority is permitted to provide a conditional notice of redemption, and shall state any conditions upon which such notice may be revoked. If sufficient moneys are not received, such notice shall be of no force and effect, the Authority shall not redeem such Bonds and the Trustee shall give notice, in the manner in which the notice of redemption was given, to the effect that the Parity Bonds have not been redeemed.

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If any of the Parity Bonds are redeemed pursuant to an advance refunding, notice of such advance refunding and redemption shall be given in the same manner as above provided, and within the same time period with respect to the actual redemption date.

Section 305. Deposit of Redemption Price. Subject to any condition to such redemption, on or prior to any redemption date, the Authority shall deposit with the Trustee or with a Paying Agent an amount of money sufficient to pay the redemption price, premium, if any, and interest accrued thereon to the date fixed for redemption, of all the Parity Bonds which are to be redeemed on such date.

Section 306. Parity Bonds Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Parity Bonds so to be redeemed shall, on the redemption date, become due and payable at the redemption price therein specified and from and after such date (unless the Authority shall default in the payment of the redemption price) such Parity Bonds shall cease to bear interest. If, however, funds available to pay the redemption price have not been so deposited on the redemption date, the redemption will be cancelled. Upon surrender of any such Parity Bonds for redemption in accordance with said notice, such Parity Bonds shall be paid by the Authority at the redemption price. Installments of interest whose Stated Maturity is on or prior to the redemption date shall be payable to the Holders of such Parity Bonds registered as such on the relevant Record Dates according to their terms.

If any Parity Bonds called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the redemption date at the rate borne by the Parity Bonds.

Section 307. Parity Bonds Redeemed in Part. Any Parity Bond which is to be redeemed only in part shall be surrendered at a Place of Payment (with, if the Authority or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Authority and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Authority shall execute and the Trustee shall authenticate and deliver to the Holder of such Parity Bonds without service charge, a new instrument or instruments evidencing Parity Bonds of the same series, interest rate and maturity and of any Authorized Denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Parity Bonds so surrendered.

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ARTICLE IV

FUNDS AND INVESTMENTS

Section 401. Establishment of Funds. The Authority hereby establishes with the Trustee the Debt Service Fund, the Construction Fund, the Revenue Fund, and the Rebate Fund. The Authority reserves the right to establish additional funds or accounts and subaccounts within funds from time to time, and in connection with the issuance of Additional Parity Bonds, including debt service funds of a customary size for tax-exempt bonds issued in the same aggregate principal amounts to facilitate the collection and disbursements of amounts to be paid in respect of such other Parity Bonds, liquidity reserves, and limited purpose reserve funds for the exclusive benefit of secured parties under such Parity Bonds.

Section 402. Revenue Fund.

The Authority shall establish, and so long as any Parity Bond is Outstanding, shall maintain on its records a special fund of the Authority designated the “Parity Bonds Revenue Fund” (herein referred to as the “Revenue Fund”). The money deposited to the Revenue Fund, together with all investments thereof and investment income therefrom, shall be held in trust and applied solely as provided in this Section 402 and Section 706.

The Authority shall deposit into the Revenue Fund, as received and collected, all Pledged Revenues. Prior to the occurrence of an Event of Default of which the Trustee has received notice pursuant to Section 801(d), the Authority shall maintain the Pledged Revenues credited to the Revenue Fund on deposit in its own account. The Authority is not required to deposit Pledged Revenues to an account controlled by the Trustee except as provided for in Section 402(c). All Pledged Revenues shall be pledged and appropriated to the extent required for the uses specified below. On any day that the Authority desires to disburse or transfer funds from the Revenue Fund, it shall apply such funds in the following order:

(i) First, to the payment of any amounts owing to the Trustee or the Paying Agent.

(ii) Second, to make any required deposit to the Rebate Fund or to make any payment required to be made to the United States of America in respect of Rebate Amounts or similar payments.

(iii) Third, to deposit to the Debt Service Fund all amounts required to be deposited thereto with respect to payments required on Parity Bonds (other than as a result of optional redemption) or to make any required deposit or payments required on the Series 1994 Bonds. With respect to the Series 2017 Bonds, the deposits required pursuant to this clause (iii) shall be those specified in Section 403(b). Amounts deposited pursuant to this clause (iii) shall be deposited, and paid, so that Parity Bonds are paid in order of seniority (the most senior Parity Bonds being paid first), and so that all Parity Bonds having the same level of seniority are paid on an equal and ratable basis.

(iv) Fourth, for any other lawful purpose, which may include optional redemption of Parity Bonds.

Upon the occurrence of an Event of Default of which the Trustee has received notice pursuant to Section 801(d), the Trustee shall direct the Authority to deposit all Pledged Revenues into a revenue fund established by the Trustee, and the Trustee shall establish and maintain such fund for the

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benefit of, first, the Holders of Parity Bonds and, second, the Authority. The Authority shall direct the Trustee in writing with respect to transfers and disbursements to be made from the Revenue Fund, in accordance with the priorities provided in Section 402(b) above. The Trustee shall comply with such directions, but in any event shall make transfers and disbursements as required pursuant to Section 402(b)(i) through (iv), inclusive.

Section 403. Debt Service Fund.

There is hereby created by the Authority and established with the Trustee the special fund of the Authority designated its “Parity Bonds Debt Service Fund” (the “Debt Service Fund”). The money deposited to the Debt Service Fund, together with all investments thereof and investment income therefrom, shall be held in trust for the benefit of the Holders of the Parity Bonds and applied solely as provided in this Section 403 and in Section 706.

The Authority hereby covenants with the Trustee and the Holders of the Parity Bonds to deposit Pledged Revenues to the Debt Service Fund on the first Business Day of each month (i) an amount equal to one-twelfth of the principal sum to become due on the Parity Bonds the next succeeding April 15, and (ii) an amount equal to one-sixth of the interest to come due on the Parity Bonds on the next succeeding October 15, or April 15, as the case may be.

The Trustee shall deposit to the credit of the Debt Service Fund immediately upon receipt (1) accrued interest, if any, from the sale of any series of Parity Bonds and (2) any other amounts delivered to the Trustee specifically for deposit thereto.

The Trustee shall apply the money in the Debt Service Fund to set aside or deposit in trust with the Paying Agent (if any) money to pay the principal of (and premium, if any) and interest on the Parity Bonds then coming due, whether by reason of the Stated Maturity of such principal or interest, declaration of acceleration, or call for redemption, on the date for such payment.

Any investment earnings or other surplus funds in the Debt Service Fund remaining after such application, shall be held in the Debt Service Fund and applied to pay interest on the Parity Bonds on the next Interest Payment Date, until no Parity Bonds are Outstanding, at which time such money shall be transferred to the Revenue Fund.

The Trustee may establish such other accounts or subaccounts within the Debt Service Fund as it desires for administrative ease, and, in any event, shall establish such accounts and subaccounts within the Debt Service Fund as may be directed in writing by the Authority.

Section 404. Construction Fund.

There is hereby created and established with the Trustee the special fund of the Authority designated its “Parity Bonds Construction Fund” (the “Construction Fund”). The Construction Fund, including all money therein and all investments thereof and investment income therefrom, shall be held in trust and applied solely as provided in this Section 404 and Section 706.

The Authority may direct the Trustee to establish accounts and subaccounts within the Construction Fund. Initially, the Trustee shall establish a Project Account for proceeds of the Series 2017 Bonds designated the Series 2017 Project Account.

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The Trustee shall deposit to the credit of the Construction Fund:

(i) immediately upon receipt, the proceeds from the sale of Parity Bonds authorized to be deposited in such fund, all of which deposits shall equal the total of such proceeds, less accrued interest, if any, and any amounts specifically required to be deposited to another account; and

(ii) all other amounts paid to the Trustee specifically for deposit to the credit of the Construction Fund or transferred thereto in accordance with provisions of this Indenture.

The Trustee shall disburse from the Construction Fund and disburse to or for the account of the Authority such other amounts as the Authority may be entitled to withdraw. The Authority may withdraw proceeds of the Series 2017A Bonds and the Series 2017B Bonds that are deposited to the applicable account of the Construction Fund to pay costs of the Series 2017 Project and costs of issuance of the Series 2017A Bonds and Series 2017B Bonds. Each such withdrawal shall be made by submitting to the Trustee a requisition certificate in the form of Exhibit A hereto. The Trustee shall have no duty to verify the accuracy of the requisition certificate and shall make payment of the amounts requested therein to the payees identified therein.

Section 405. Rebate Fund.

There is hereby created by the Authority and established with the Trustee the special fund of the Authority designated as the Authority’s “Parity Bonds Rebate Fund” (herein referred to as the “Rebate Fund”). The money deposited to the Rebate Fund, together with all investments thereof and investment income therefrom, shall be held in trust and applied solely as provided in this Section.

The Trustee shall deposit or transfer to the credit of the Rebate Fund each amount delivered to the Trustee by the Authority for deposit thereto and each amount directed by the Authority to be transferred thereto.

(i) Within five days after each receipt or transfer of funds to the Rebate Fund in accordance with Section 517 hereof, (and in any event within 60 days after each Computation Date (defined herein)), the Trustee shall withdraw from the Rebate Fund and pay to the United States of America the balance of the Rebate Fund.

(ii) Within five days after receipt from the Authority of any amount pursuant to Section 517 hereof, the Trustee shall withdraw such amount from the Rebate Fund and pay such amount to the United States of America.

(iii) All payments to the United States of America pursuant to this Section shall be made by the Trustee for the account and in the name of the Authority and shall be paid by draft posted by registered United States Mail (return receipt requested), addressed to the appropriate Internal Revenue Service address (accompanied by the Internal Revenue Service Form 8038-T (or to such other applicable successor information return specified by the Internal Revenue Service).

The Trustee shall preserve all statements, forms and explanations received from the Authority and all records of transactions in the Rebate Fund until eight years after the retirement of all of the Parity Bonds.

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The Trustee may conclusively rely on the instructions of the Authority with regard to any actions to be taken by it pursuant to this Section and shall have no liability for any consequences of any failure of the Authority to supply accurate or sufficient instructions.

If at any time during the term of this Indenture the Authority or the Trustee desires to take any action which would otherwise be prohibited by the terms of this Section, such Person shall be permitted to take such action if it shall first obtain and provide to the other Persons named herein an opinion of Bond Counsel to the effect that such action shall not adversely affect the exclusion of interest on the Tax-Exempt Parity Bonds from gross income of the owners thereof for federal income tax purposes and shall be in compliance with the laws of the State and the terms of this Indenture.

Section 406. Investment of Funds. (a) Pending disbursement of the amounts on deposit in any fund, the Trustee shall promptly invest and reinvest such amounts in the Eligible Securities specified in any Authority Order subject to the limitations set forth in this Indenture.

Unless otherwise provided by Supplemental Indenture or in this Article, income and profits on investments in any fund or any account within a fund shall be credited to the fund and account from which the money used to acquire such investments shall have come. All losses on investments shall be charged against the fund and account to which such investments are credited. The Trustee may make any investment through its own trust department. As amounts invested are needed for disbursement from any fund or account, the Trustee shall cause a sufficient amount of the investments credited to that fund to be redeemed or sold and converted into cash to the credit of that fund.

The Authority covenants to restrict the investment of money in the funds created under this Indenture in such manner and to such extent, if any, as may be necessary so that the Tax-Exempt Parity Bonds will not constitute “arbitrage bonds” under Section 148 of the Code and the Regulations.

The Trustee may conclusively rely upon the Authority’s written instructions as to both the suitability and legality of the Eligible Securities. In the absence of investment instructions from the Authority, the Trustee shall hold the moneys held by it hereunder uninvested. Although the Authority recognizes that it may obtain a broker confirmation or written statement containing comparable information at no additional cost, the Authority agrees that confirmations of Eligible Securities are not required to be issued by the Trustee for each month in which a monthly statement is rendered and that no statement need be rendered for any fund or account if no activity occurred in such fund or account during such month.

Section 407. Trustee Relieved From Responsibility. The Trustee shall be fully protected in relying upon any Authority Order relating to investments and disbursements from the funds, and shall not be liable for any losses or for interest on the Tax-Exempt Parity Bonds becoming includable in gross income for federal income tax purposes as a result of complying with any such Authority Order, and shall not be required to ascertain any facts with respect to any such order.

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ARTICLE V

COVENANTS OF THE AUTHORITY

Section 501. Payment of Debt Service. The Authority will duly and punctually pay the principal of (and premium, if any) and interest on the Parity Bonds in accordance with the terms of the Parity Bonds and this Indenture.

If the specified date for any such payment shall be other than a Business Day, then such payment may be made on the next succeeding Business Day without additional interest and with the same force and effect as if made on the specified date for such payment.

Section 502. Maintenance of Office or Agency. The Authority will maintain an office or agency in each Place of Payment where Parity Bonds may be presented or surrendered for payment, where Parity Bonds entitled to be transferred, exchanged or contracted may be presented or surrendered for transfer, exchange or conversion, and where notices and demands to or upon the Authority in respect of the Parity Bonds and this Indenture may be served. The Authority will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency. In addition, such presentations, surrenders, notices and demands may be made or served at the designated corporate trust office of the Trustee, and the Authority hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands.

Section 503. Money for Parity Bonds Payments to be Held in Trust Appointment of Paying Agents. The Authority shall appoint a Paying Agent in each Place of Payment for each series of Parity Bonds. Each such Paying Agent appointed by the Authority shall be a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or state authority. The Authority will, on or before each Maturity of the principal of (and premium, if any) or interest on any Parity Bonds, deposit (but only from the sources provided herein) with a Paying Agent a sum sufficient to pay the principal of (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Holders of such Parity Bonds. Each Paying Agent for the Parity Bonds shall provide the CUSIP number, if any, for the Parity Bonds with each payment of interest or the redemption price of any Parity Bonds. The Paying Agents shall make payment of interest or the redemption price of any Parity Bonds, upon written request of any owner of $1,000,000 or more in principal amount of Parity Bonds by wire transfer (at the risk and expense of such owner) in immediately available funds designated by such owner upon written notice to the Trustee prior to the Record Date.

The Authority hereby appoints the Trustee as its Paying Agent for the Series 2017 Bonds. The Trustee shall accept such appointment by executing this Indenture in such capacity on the signature page hereto.

The Authority will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee and the Authority an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

hold all sums held by it for the payment of principal of (and premium, if any) or interest on Parity Bonds in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

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give the Trustee notice of any default by the Authority in the making of any such payment of principal (and premium, if any) or interest; and

at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

The Authority may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, by Authority Order direct any Paying Agent to pay to the Trustee all sums held in trust by such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Subject to any applicable laws of the State, any money deposited with the Trustee or any Paying Agent in trust for the payment of the principal of (and premium, if any) or interest on any Parity Bonds and remaining unclaimed on the later of (i) the first anniversary of the Stated Maturity of the Parity Bonds or the installment of interest for the payment of which such money is held or (ii) two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Authority on request of the Authority and the Holder of such Parity Bonds shall thereafter, to the extent of any legal right or claim, be deemed to be an unsecured general creditor, and shall look only to the Authority for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Authority, shall thereupon tease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Authority cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Authority; and provided further, notwithstanding the foregoing, the Trustee shall be entitled to deliver any such funds to any escheatment authority in accordance with the Trustee’s customary procedures. The Trustee shall hold any such funds in trust uninvested (without liability for interest accrued from the date deposited) for the benefit of Holders entitled thereto.

Section 504. Payment of Taxes and Other Claims. The Authority will pay or discharge or cause to be paid or discharged before the same shall become delinquent, (1) all taxes, assessments and other governmental charges lawfully levied or assessed or imposed upon it or upon its income, profits or property, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon its property; provided, however, that the Authority shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, governmental charge or claim to the extent that the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and the Authority shall have established and shall maintain adequate reserves on its books for the payment of the same.

Section 505. Maintenance of Properties. The Authority will cause all its properties used or useful in the conduct of their respective businesses to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Authority may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times. Nothing in this Section, however, shall prevent the Authority from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the judgment of the Board, desirable in the conduct of its respective business and not disadvantageous in any material respect to the Holders of the Outstanding Parity Bonds.

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The Authority acknowledges that pursuant to the terms of the Lease, the Tenant is required to cause the leased facilities to be maintained and kept in good condition, repair, and working order.

Section 506. Statement as to Compliance.

The Authority will deliver to the Trustee, within 270 days after the end of each Fiscal Year beginning in Fiscal Year 2018, a written statement signed by an Authorized Officer stating that:

(i) a review of the activities of the Authority during such year and of performance hereunder has been made, and

(ii) to the best of the signer’s knowledge, based on such review, the Authority has fulfilled all its obligations hereunder throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to the signer and the nature and status thereof.

Section 507. Corporate Existence. Subject to the provisions of Sections 514 and 515, the Authority will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, the Authority shall not be required to preserve any right or franchise if the Board shall determine that the preservation thereof is no longer desirable in the conduct of their respective businesses and that the loss thereof is not disadvantageous in any material respect to the Holders of the Outstanding Parity Bonds.

Section 508. To Keep Books; Financial Reports and Inspection by Trustee. The Authority at all times shall cause to be kept books of record and account, in accordance with generally accepted accounting principles (except that any such Person may provide for depreciation on the basis of historical cost adjusted for the effect of changes in the purchasing power of the dollar).

All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistently applied, except as otherwise stated herein. For the avoidance of doubt, subsidiaries that are consolidated with the financial results of the Authority shall be included for all purposes with respect to financial covenants and financial reporting herein. If any change in accounting principles from those used in the preparation of the financial statements of the Authority results from the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board, American Institute of Certified Public Accountants or other authoritative bodies that determine GAAP (or successors thereto or agencies with similar functions) and such change results in a change in the accounting terms used in this Indenture, at the option of the Authority, the accounting terms used herein shall be modified to reflect such change in accounting principles so that the criteria for evaluating the compliance of Authority with all financial covenants and tests contained in this Indenture shall be the same after such change as if no such change in the accounting principles from those used in the preparation of the financial statements of the Authority as of June 30, 2017, had been made. If any such modification of the accounting terms used in this Indenture shall occur and the Authority elects to have the accounting terms used in this Indenture modified as provided in the preceding sentence, the Authority shall file an Officer’s Certificate with the Trustee, which shall contain a certification to the effect that (i) such modifications are occasioned by such a change in accounting principles, and (ii) such modifications will not have a materially adverse effect on the Holders or result in materially different criteria for evaluating the compliance of the Authority with all financial covenants and tests contained in this Indenture.

At any and all times, upon the written request of the Trustee (who shall be under no duty to make such request unless directed to do so by the Holders of at least a majority in principal amount of all Parity

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Bonds then Outstanding), the Authority will permit the Trustee, by its agents and attorneys, to inspect the properties of such Person and to examine all the books of account, records, reports and other financial papers of such Person and to take copies and extracts therefrom, and will afford and procure a reasonable opportunity to make any such inspection and examination, and will furnish the Trustee any and all such other information as the Trustee may reasonably request with respect to the performance or observance by such Person of its covenants herein.

Section 509. Insurance. At all times the Authority shall keep, or cause to be kept, all its property and operations of an insurable nature and of the character usually insured by companies operating similar properties and engaged in similar operations insured under policies issued by financially responsible insurers of recognized standing, except to the extent a program of self-insurance determined by the Board to be sufficient is in effect.

The Authority acknowledges that pursuant to the terms of the Lease, the Tenant is required to maintain insurance with respect to the Facilities during the term of the Lease. The Authority shall require the Tenant to maintain such insurance as is provided by the Lease.

Section 510. Application of Insurance Proceeds and Condemnation Awards. The Authority shall use proceeds of insurance received on account of any of its properties and compensation for any of its properties taken by eminent domain in accordance with the requirements of the Lease; provided, that in the event the such proceeds of insurance or compensation for condemnation are not subject to provisions of the Lease, the Authority shall use such proceeds of insurance and compensation for condemnation as it deems appropriate in light of its governmental purposes, as the same may be amended from time to time.

Section 511. Limitation on Liens. Except as otherwise hereinafter permitted, the Authority shall not:

create, assume or incur or suffer to be created, assumed, or incurred or to exist any mortgage, lien, charge or encumbrance of any kind upon, or pledge of, any of its properties of any character, including real, personal, tangible and intangible properties and revenues, whether owned at the date hereof or hereafter acquired; or

acquire or agree to acquire any property of any character under any conditional sale agreement or other title retention agreement (including any lease in the nature of a title retention agreement); or

sign or file a financing statement under the Uniform Commercial Code which names the Authority as debtor or sign any security agreement authorizing any secured party thereunder to file such financing statement; or

suffer to exist any Debt of the Authority or any claims or demands against the Authority, which, if unpaid, would (in the hands of the holder or any Person who shall have guaranteed the same or who has any right or obligation to purchase the same), by law or upon bankruptcy or insolvency or otherwise, be given any priority whatsoever over its general creditors.

Notwithstanding the foregoing, the following mortgages, liens and encumbrances shall be permitted:

(1) Permitted Encumbrances;

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(2) purchase money liens, pledges or security interests (which term for purposes of this clause shall include conditional sale agreements or other title retention agreements and leases in the nature of title retention agreements) upon or in personal property or mortgages, liens, pledges or security interests existing in real or personal property at the time of acquisition thereof, or replacements, extensions or renewals of any such mortgages, liens, pledges or security interests in connection with the replacement, extension or renewal (without increase in principal amount) of the Debt secured thereby, provided that no such mortgage, lien, pledge or security interest extends or shall extend to or cover any property of such Person other than the property then being acquired and fixed improvements then or thereafter erected thereon;

(3) purchase or construction money mortgages, liens, pledges or security interests (which term for purposes of this clause shall include conditional sales agreements or other title retention agreements and leases in the nature of title retention agreements) upon or in real property, or replacements, extensions or renewals of any such mortgages, liens, pledges or security interests in connection with the replacement, extension or renewal (without increase in principal amount) of the Debt secured thereby, provided that no such mortgage, lien, pledge or security interest extends or shall extend to or cover any property of such Person other than the property being acquired or constructed and fixed improvements then or thereafter erected thereon or the property on which the fixed improvement is being constructed;

(4) the lien of any instrument given as additional security for the obligation of any Person to make payments in respect of any Outstanding Parity Bonds; and

(5) any mortgage, lien, charge, pledge or other encumbrance of any kind upon any property of any character of such Person, or any conditional sale agreement or other similar title retention agreement with respect to any such property, if such Person shall make effective provision, and such Person covenants that in any such case it will make or cause to be made effective provision, whereby the obligation of such Person to make payments in respect of Outstanding Parity Bonds shall be directly secured by such mortgage, lien, charge, pledge, encumbrance or agreement equally and ratably upon the same property or assets, or upon other property or assets with a fair market value at least equal to the book value of property or assets to be mortgaged, with any and all other obligations and indebtedness thereby secured for so long as such other Debt is outstanding and so secured.

The Authority may sign such security agreements and sign and file such financing statements and take all other actions necessary to evidence and perfect any lien permitted by this Indenture.

Section 512. Limitations on Debt. After the issuance of the Series 2017 Bonds, the Authority shall not incur, assume, guarantee, or otherwise become liable in respect of any Debt, directly, indirectly, or contingently, except for Permitted Indebtedness.

Section 513. Limitation on Disposition of Assets. The Authority shall not sell, transfer or otherwise convey any of its assets (except as otherwise permitted in Sections 514 and 515), unless:

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(1) such property is (or within the immediately succeeding 24 months is expected to become) obsolete, inadequate, worn out, unsuitable, unprofitable, undesirable or unnecessary in the conduct of the business of the Authority and the conveyance or transfer thereof would not violate the terms of the Lease or materially adversely affect the Holders of the Outstanding Parity Bonds; or

(2) the Board of the Authority shall have determined by Board Resolution that such sale, transfer or other conveyance is permitted by the Lease and shall be for fair consideration which was determined in an arms- length transaction or which is not less than the consideration that would be paid in an arms-length transaction and, considered together with all prior sales, transfers and other conveyances of assets of the Authority, will not materially and adversely affect the interests of the Holders of Outstanding Parity Bonds or the ability of the Authority to meet its obligations as they become due; or

(3) the conveyance or transfer is made pursuant to the Lease.

Section 514. Consolidation, Merger, Conveyance, or Transfer Only on Certain Terms. The Authority shall not consolidate with or merge into any other Person or convey or transfer its properties substantially as an entirety to any Person, unless:

all of the following conditions exist:

(1) the Person formed by such consolidation or into which the Authority merges or the Person which acquires by conveyance or transfer the Authority’s assets substantially as an entirety shall be a Person organized and existing under the laws of the United States of America or any state or the District of Columbia and shall expressly assume by instrument supplemental hereto executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on the Parity Bonds and the performance and observance of every covenant and condition hereof on the part of the Authority to be performed or observed;

(2) the Authority would be permitted to incur at least $1.00 of additional Long-Term Debt after giving effect to such consolidation, merger, or transfer;

(3) immediately after giving effect to such transaction, no default hereunder shall have occurred and be continuing; and

(4) the Authority shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each of which shall state that such consolidation, merger, conveyance or transfer and such supplemental instrument comply with this Article, that such consolidation, merger, conveyance or transfer will not affect the status of interest on any Tax- Exempt Parity Bonds under the Code, and that all conditions precedent herein provided for relating to such transaction have been complied with.

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Section 515. Successor Corporation Substituted. Upon any consolidation or merger, or any conveyance or transfer of assets of the Authority substantially as an entirety in accordance with Section 514, the successor Person formed by such consolidation or into which the Authority is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Authority hereunder with the same effect as if such successor Person had been named as the Authority, herein.

Section 516. Instruments of Further Assurance. The Authority covenants that to the extent of its power to do so, it will do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, such Supplemental Indentures and such further acts, instruments and transfers as the Trustee may reasonably require for the better assigning, pledging and confirming unto the Trustee of the Trust Estate assigned and the revenues pledged hereunder, all at the expense of the Authority.

Section 517. Tax Covenants.

The Authority will not, through any act or omission, adversely affect the exclusion from gross income of interest paid or payable on the Series 1994 Bonds, the Series 2017 Bonds and all Tax-Exempt Parity Bonds (collectively, the “Bonds”) for federal income tax purposes, and, in the event of such action or omission, it will use all reasonable efforts to cure the effect of such action or omission. Certain terms used in this Section are defined in Section 517(p). With the intent not to limit the generality of the foregoing, the Authority covenants and agrees that prior to the final maturity of the Bonds, unless it has received and filed with the Trustee a Favorable Opinion of Bond Counsel:

Diversion of Funds for Unrelated Purposes. The Authority will not divert any substantial part of its corpus or income for a purpose or purposes that are not a governmental purpose or for a use by an Exempt Person in any trade or business the conduct of which is not substantially related to the exercise or performance by that Exempt Person of its charitable function constituting the basis of its exemption under Section 501(c)(3) of the Code.

Ownership of Project. All of the property financed or refinanced with the Net Proceeds of the Bonds will, at all times prior to final Maturity of the Bonds or prior to the expiration of the useful life of such property, be owned for federal income tax purposes by the Authority or by another Exempt Person.

Use of Net Proceeds. The Authority will not use or permit to be used, directly or indirectly, in any trade or business carried on by any Person who is not an Exempt Person, more than the lesser of (i) 5 percent of the Net Proceeds of the Bonds or (ii) $15,000,000. For purposes of the preceding sentence, (w) use of Net Proceeds by an organization described in Section 501(c)(3) of the Code with respect to an unrelated trade or business, determined according to Section 513(a) of the Code, does not constitute a use by an Exempt Person; (x) use of any property financed with the Net Proceeds of the Bonds constitutes use of such proceeds to the extent of the cost of such property financed with such Net Proceeds; (y) any use of the Net Proceeds of the Bonds in any manner contrary to the guidelines set forth in Revenue Procedure 2017-13, shall constitute the use of such proceeds in the trade or business of a Person who is not an Exempt Person; and (z) any use of the Net Proceeds to pay Costs of Issuance shall constitute the use of such proceeds in the trade or business of a Person who is not an Exempt Person.

Loans of Proceeds. The Authority will not use or permit the use of any portion of the Sale Proceeds of the Bonds, directly or indirectly, to make or finance loans to persons who are not Exempt Persons. For purposes of the preceding sentence, (i) a loan to an organization described in Section 501(c)(3) of the Code for use with respect to an unrelated trade or business, determined according to

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Section 513(a) of the Code, does not constitute a loan to an Exempt Person and (ii) any transaction which constructively transfers ownership of property financed with Sale Proceeds of the Bonds for federal income tax purposes constitutes a loan of such Sale Proceeds.

Limit on Nonhospital Bonds. The Authority will expend at least 95 percent of the Net Proceeds of the Bonds for Capital Expenditures incurred after August 5, 1997. Accordingly, the Bonds are not subject to the $150,000,000 limit on nonhospital bonds imposed by Section 145(b) of the Code.

Project Useful Life. Taking into account the Issue Price (as defined in Section 517(p) of this Indenture) of the stated maturity of the Bonds, the average term of the Bonds will not exceed 120 percent of the average reasonably expected economic life of the Project to be financed or refinanced by the Bonds, weighted in proportion to the respective cost of each item comprising the property the cost of which has been or will be financed, directly or indirectly, with the Net Proceeds (as defined in Section 517(p) of this Indenture) of the Bonds. For purposes of the preceding sentence, the reasonably expected economic life of property shall be determined as of the later of (A) the Closing Date for the Bonds or (B) the date on which such property is placed in service (or expected to be placed in service). In addition, land shall not be taken into account in determining the reasonably expected economic life of property, except that, in the event 25 percent or more of the collective Net Proceeds of the Bonds, directly or indirectly, have been expended for land, such land shall be treated as having an economic life of 30 years and shall be taken into account for purposes of determining the reasonably expected economic life of such property.

Prohibited Facilities. None of the Proceeds of the Bonds will be used to provide any airplane, sky-box or other private luxury box, facility primarily used for gambling or store the principal business of which is the sale of alcoholic beverages for consumption off premises.

Public Approval. The Authority covenants and agrees that the Proceeds of the Series 2017 Bonds will not be used in a manner that deviates other than in an insubstantial degree from the Project described in the written notice of public hearing regarding the Series 2017 Bonds published by the Authority in the The Dallas Morning News on July 1, 2017, and approved by the City Council of the City of Irving, Texas, on July 20, 2017.

Limit on Costs of Issuance. The Sale Proceeds of the Bonds will be expended for the purposes set forth in this Agreement and in the Indenture and no portion thereof in excess of 2 percent of the Sale Proceeds of the Bonds, within the meaning of Section 147(g) of the Code, will be expended to pay Costs of Issuance with respect to the Bonds.

No Arbitrage. The Authority will not use or invest the Proceeds of the Bonds such that the Bonds become “arbitrage bonds” within the meaning of Section 148 of the Code, and as evidence of this intent, a representative of the Authority has reviewed the Authority’s Federal Tax Certificate prepared in connection with the Bonds and the Authority understands, and will take (or request the Trustee or the Authority to take), the actions described therein.

Yield on Investment of Gross Proceeds. The Authority will restrict the cumulative, blended Yield on the investment of the Gross Proceeds of the Bonds, to the Yield of such issue, other than amounts (i) not subject to yield restriction due to any applicable temporary period under Section 148(c) of the Code, or as a result of being on deposit in a Reasonably Required Reserve or Replacement Fund, the Rebate Fund, a bona fide debt service fund (including the Debt Service Fund), or as a minor portion, or (ii) invested at a restricted yield by virtue of being invested in obligations described in Section 103(a) of the Code that are not “specified private activity bonds” within the meaning of Section 57(a)(5) of the Code to the extent required by the Code or the Regulations.

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Rebate. The Authority agrees to take all steps necessary to compute and pay any Rebate Amount in accordance with Section 148(f) of the Code, including:

(i) Delivery of Documents and Money on Computation Dates. The Authority shall deliver to the Trustee, within 45 days after each Computation Date,

(1) a statement, signed by an officer of the Authority, stating the Rebate Amount as of such Computation Date; and

(2) (1) if such Computation Date is an Installment Computation Date, an amount which, together with any amount then held for the credit of the Rebate Fund, is equal to at least 90 percent of the Rebate Amount in respect of the Bonds as of such Installment Computation Date, less any prior payments of Rebate Amount made to the United States in respect of the Bonds, or (2) if such Computation Date is the Final Computation Date, an amount which, together with any amount then held for the credit of the Rebate Fund in respect of the Bonds, is equal to the Rebate Amount as of such Final Computation Date, less any prior payments of Rebate Amount made to the United States in respect of the Bonds; and

(3) an IRS Form 8038-T completed as of such Computation Date.

(ii) Correction of Underpayment. If the Authority shall discover or be notified as of any date that any payment paid to the United States Treasury pursuant to the Indenture of an amount described in this Section 517(l) shall have failed to satisfy any requirement of Section 1.148-3 of the Regulations (whether or not such failure shall be due to any default by the Authority or the Trustee), the Authority shall (1) pay to the Trustee (for deposit to the Rebate Fund) and cause the Trustee to pay to the United States Treasury from the Rebate Fund the Rebate Amount, together with any penalty and/or interest due, as specified in Section 1.148-3(h) of the Regulations, within 175 days after any discovery or notice and (2) deliver to the Trustee an IRS Form 8038-T completed as of such date. If such Rebate Amount, together with any penalty and/or interest due, is not paid to the United States Treasury in the amount and manner and by the time specified in the Regulations, the Authority shall take such steps as are necessary to prevent the Bonds from becoming arbitrage bonds, within the meaning of Section 148 of the Code. Additionally, the Authority agrees that if at any point the Rebate Fund incurs losses from investment, the Authority will repay amounts equaling such losses into the Rebate Fund.

(iii) Records. The Authority shall retain all of its accounting records relating to the Debt Service Fund, the Construction Fund and the Rebate Fund and the investment and expenditure of the Proceeds of the Bonds and all calculations made in preparing the statements described in this Section 517(l) for at least six years after the later of the final Maturity of the Bonds or the first date on which no Bonds are Outstanding.

(iv) Fees and Expenses, Rebate Analyst. The Authority agrees to pay all of the fees and expenses of a nationally-recognized bond counsel, a certified public accountant and any other necessary consultant employed by the Authority or the Trustee in connection with computing the Rebate Amount. The Authority will hire a Rebate Analyst to perform the calculations required in this Section 517(l); provided, however, this shall not absolve the Authority of any of the covenants of this Section 517(l).

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(v) No Diversion of Rebate Amount. The Authority will not indirectly pay any amount otherwise payable to the United States Treasury pursuant to the foregoing requirements to any Person other than the United States Treasury by entering into any investment arrangement with respect to the Gross Proceeds of the Bonds that is not purchased at fair market value or includes terms that the Authority would not have included if the Bonds were not subject to Section 148(f) of the Code.

(vi) Modification of Requirements. If at any time during the term of this Agreement the Trustee or the Authority desires to take any action that would otherwise be prohibited by the terms of this Section, such Person shall be permitted to take such action if it shall first obtain and provide to the other Person named herein a Favorable Opinion of Bond Counsel.

“Federally Guaranteed” Obligations. The Authority will not cause or permit the Bonds to be treated as “federally guaranteed” obligations for purposes of Section 149(b) of the Code.

Information Reporting Requirements. The Authority will comply with the information reporting requirements of Section 149(e)(2) of the Code requiring certain information regarding the Bonds to be filed with the IRS within prescribed time limits.

Bonds are Not Hedge Bonds. The Authority covenants and agrees that not more than 50 percent of the Proceeds of the Bonds will be invested in Nonpurpose Investments 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 Authority reasonably expects that at least 85 percent of the spendable proceeds of the Bonds will be used to carry out the governmental purposes of the Bonds within the three-year period beginning on the Closing Date.

Definitions. The following terms have the meanings assigned to them below whenever they are used in this Agreement:

“Bond Year” means, with respect to the Bonds, each one-year period (or shorter period from the Closing Date) that ends at the close of business on the day selected by the Authority. The first and last Bond Years may be short periods. If no day is selected by the Authority before the earlier of the final maturity of such issue of Bonds or the date that is five years after the Closing Date, Bond Years end on each anniversary of the Closing Date and on the date of final Maturity. Unless notified in writing to the contrary, the Trustee may conclusively presume that Bond Years end on each anniversary of the Closing Date and the date of final maturity.

“Closing Date” means the date on which the Bonds are first authenticated and delivered to the initial purchasers thereof against payment therefor.

“Computation Date” means each Installment Computation Date and the Final Computation Date.

“Costs of Issuance” means issuance costs with respect to the Bonds within the meaning of Section 147(g) of the Code.

“Exempt Person” means a state or local governmental unit or an organization exempt from federal income taxation under Section 501(a) of the Code by reason of being described in Section 501(c)(3) of the Code.

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“Favorable Opinion of Bond Counsel” means, with respect to any action the taking of which requires such an opinion, an unqualified opinion of counsel, which shall be from Bond Counsel, to the effect that such action is permitted under the laws of the State (including the Act), the Code and the Indenture and will not adversely affect the exclusion of interest on the Bonds from gross income for purposes of federal income taxation.

“Final Computation Date” means the final Maturity of the Bonds.

“Gross Proceeds” means any Proceeds and Replacement Proceeds of the Bonds.

“Installment Computation Date” means the last day of the fifth and each succeeding fifth Bond Year.

“Investment Proceeds” means any amounts actually or constructively received from investing Proceeds.

“Investment Property” means (i) any security (within the meaning of Section 165(g)(2)(A) or (B) of the Code), (ii) any obligation, (iii) any annuity contract, (iv) any investment-type property, or (v) in the case of a bond other than a private activity bond, any residential rental property for family units which is not located within the jurisdiction of the issuer and which is not acquired to implement a court ordered or approved housing desegregation plan.

“Issue Price” means, with respect to the Bonds, “issue price” as defined in Sections 1273 and 1274 of the Code, unless otherwise provided in Sections 1.148-0 through 1.148-11 of the Regulations and, generally, is the aggregate initial offering price to the public (excluding bond houses, brokers and other intermediaries acting in the capacity of wholesalers or underwriters) at which a substantial number of each Maturity of the Bonds is sold.

“Net Proceeds” means, any Net Sale Proceeds, Investment Proceeds and Transferred Proceeds of the Bonds.

“Net Sale Proceeds” means the Sale Proceeds less any Sale Proceeds deposited into a Reasonably Required Reserve or Replacement Fund.

“Nonpurpose Investments” means Investment Property acquired with the Gross Proceeds of the Bonds.

“Proceeds” means, any Sale Proceeds, Investment Proceeds and Transferred Proceeds of the Bonds.

“Reasonably Required Reserve or Replacement Fund” means any fund described in Section 148(d) of the Code provided that the amount thereof allocable to the Bonds invested at a Yield materially higher than the Yield on the Bonds does not exceed the least of (i) 10 percent of the stated principal amount of the Bonds; (ii) the maximum annual debt service on the Bonds; or (iii) 125 percent of the average annual debt service on the Bonds, within the meaning of Section 1.148-2(f)(2)(ii) of the Regulations; provided that, if the Bonds are sold with more than a de minimus amount of original issue discount or premium, the issue price will be used to measure the 10 percent limit.

“Rebate Amount” has the meaning ascribed in Section 1.148-3 of the Regulations and generally means the excess as of any date of the future value of all receipts on Nonpurpose Investments

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over the future value of all payments on Nonpurpose Investments, all as determined in accordance with Section 1.148-3 of the Regulations.

“Rebate Analyst” means an independent certified public accountant, financial analyst or bond counsel, or any firm of the foregoing, or financial institution, experienced in making the arbitrage and rebate calculations required pursuant to Section 148(f) of the Code, selected, retained and compensated by the Authority pursuant to this Section 517 to make the computations and give the instructions required under Section 405 of the Indenture.

“Replacement Proceeds” has the meaning set forth in Section 1.148-1(c) of the Regulations.

“Sale Proceeds” means, any amounts actually or constructively received from the sale (or other disposition) of any Bond, including amounts used to pay underwriters’ discount or compensation and accrued interest other than pre-issuance accrued interest. Sale Proceeds also include, but are not limited to, certain amounts derived from the sale of a right that is associated with any Bond, as described in Section 1.148-4(b)(4) of the Regulations, and certain amounts received upon termination of certain hedges, as described in Section 1.148-4(h)(5) of the Regulations.

“Transferred Proceeds” means, with respect to the portion of the Bonds that is a refunding issue, proceeds that have ceased to be proceeds of a refunded issue and are transferred proceeds of the refunding issue by reason of section 1.148-9 of the Regulations.

“Yield” means yield as determined in accordance with Section 148(h) of the Code and the Regulations, and generally, is the yield which when used in computing the present worth of all payments of principal and interest to be paid on an obligation produces an amount equal to the Issue Price of such obligation.

To the extent that published rulings of the IRS, or amendments to the Code or the Regulations modify the covenants of the Authority which are set forth in this Section 517 or which are necessary to preserve the excludability from gross income of interest on the Bonds for federal income tax purposes, the Authority will comply with such modifications.

Section 518. Notice of Lease Termination and Strategic Plan. The Authority shall promptly provide notice to the Trustee of any notice of termination of the Lease received from the Tenant, and the Authority shall provide the Trustee within 90 days a strategic plan of the Authority describing the Authority’s intended course of action with respect to its Outstanding Parity Bonds and operation of its facilities.

Section 519. Rate Covenant. The Authority shall calculate the Adjusted Revenues for each Fiscal Year as of the end of such Fiscal Year and the Long-Term Debt Service Coverage Ratio of the Authority for such Fiscal Year as of the end of such Fiscal Year.

If in any Fiscal Year the Long-Term Debt Service Coverage Ratio of the Authority is less than 1.10 to 1, the Authority shall retain a Consultant, in a timely manner but in no event later than ninety (90) days after the date on which the Authority determines that such Long-Term Debt Service Coverage Ratio is less than 1.10 to 1, to prepare a report and make recommendations with respect to the methods of operation of the Authority, and if applicable, rates, fees and charges of the Authority, and other factors affecting their financial condition in order to increase such Long-Term Debt Service Coverage Ratio to at

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least 1.10 to 1. Any Consultant so retained shall be required to submit such report and recommendations within sixty (60) days after being retained. So long as the Authority has retained a Consultant and has followed the report and recommendations of the Consultant to the extent permitted by applicable laws, the Authority shall not be deemed to have violated this covenant.

A copy of the Consultant’s report and recommendations, if any, shall be filed with the Authority and the Trustee. The Authority shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Authority) and permitted by law, applicable regulations and the legal obligations binding upon the Authority.

The foregoing provisions notwithstanding, if in any Fiscal Year the Long-Term Debt Service Coverage Ratio of the Authority is less than 1.10 to 1, the Authority shall not be required to retain a Consultant to make such recommendations if: (a) there is filed with the Trustee a written report of a Consultant which contains an opinion of such Consultant to the effect that applicable laws or regulations have prevented the Authority from generating Adjusted Revenues during such Fiscal Year in an amount sufficient to produce a Long-Term Debt Service Coverage Ratio of the Authority as the case may be, of 1.10 to 1 or higher; (b) the report of such Consultant indicates that the methods of operation of the Authority, and if applicable, the fees and rates charged by the Authority are such that, in the opinion of the Consultant, the Authority has generated the maximum amount of Adjusted Revenues reasonably practicable given such laws or regulations or other legal obligations; and (c) the Long-Term Debt Service Coverage Ratio of the Authority was at least 1.00 to 1 for such Fiscal Year. The Authority shall not be required to cause the Consultant’s report referred to in the preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two Fiscal Years the Authority provides to the Trustee an Officer’s Certificate or an Opinion of Counsel to the effect that the applicable laws and regulations underlying the Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.

Notwithstanding anything else in this Indenture to the contrary, it shall be an Event of Default hereunder if as of the end of any Fiscal Year the Long-Term Debt Service Coverage Ratio of the Authority is less than 1.00 to 1.

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ARTICLE VI

[RESERVED]

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ARTICLE VII

REMEDIES OF THE TRUSTEE AND HOLDERS OF PARITY BONDS IN EVENT OF DEFAULT

Section 701. Events of Default. “Event of Default,” whenever used herein means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

default in the payment of any interest upon Parity Bonds when such interest becomes due or in the payment of any principal of (or premium, if any), on any Parity Bonds at its Maturity; or

default in the performance or breach of any covenant or agreement on the part of the Authority contained in this Indenture (other than a covenant or agreement whose performance or observance is elsewhere in this Section specifically dealt with) and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Authority by the Trustee, or by the Holders of at least 25% in aggregate principal amount of Parity Bonds then Outstanding a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; provided that if such default can be reasonably expected to be cured with due diligence by the Authority but cannot be cured within the 30-day curative period described above, it shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30-day period and diligently pursued until the default is corrected; or

the entry of a decree or order by a court having jurisdiction in the premises for relief in respect of the Authority under the Federal Bankruptcy Code, as now or hereafter constituted, or any other applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official of or for the Authority, the Trust Estate, or any substantial part of the properties of the Authority, or ordering the winding up or liquidation of the affairs of the Authority, and the continuance of any such decree or order unstayed and in effect for a period of 30 consecutive days, unless, in the case of any such decree or order in respect of the Authority, such decree or order has been limited so as to remove the Trust Estate from the control, supervision, and jurisdiction of the court entering such decree or order and of such custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official by the end of such period; or

the commencement by the Authority, of a voluntary case under the Federal Bankruptcy Code, as now or hereafter constituted, or any other applicable federal or state law of similar import, or the consent or acquiescence by the Authority to the commencement of a case under such Code or law or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official of the Authority, the Trust Estate, or any substantial part of the properties of the Authority or the making by the Authority of an assignment for the benefit of creditors, or the admission by the Authority in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by either such Person in furtherance of any such action and, in the case of any such event with respect to the Authority, a court shall not have limited such case, petition, or possession so as to remove the Trust Estate from the control, supervision, and jurisdiction of such court or custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official within 60 days after such commencement, consent, or acquiescence.

Section 702. Acceleration of Maturity In Certain Cases; Rescission and Annulment. If an Event of Default occurs and is continuing, then and in every such case the Trustee may, or upon written request of the Holders of not less than 25% in principal amount of the Parity Bonds Outstanding, shall,

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declare the principal of all of the Parity Bonds to be due and payable immediately, by a notice in writing to the Authority, and upon any such declaration such principal shall become immediately due and payable, together with all interest accrued thereon and not get paid.

At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Parity Bonds Outstanding, by written notice to the Authority and the Trustee, may rescind and annul such declaration and its consequences if

the Authority has caused to be paid or deposited with the Trustee a sum sufficient to pay:

(1) all overdue installments of interest on all Parity Bonds,

(2) the principal of (and premium, if any, on) any Parity Bonds which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Parity Bonds; and

(3) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;

all Events of Default, other than the non-payment of the principal of Parity Bonds which have become due solely by such acceleration, have been cured or waived as provided in Section 713.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 703. Collection of Indebtedness and Suits for Enforcement by Trustee.

The Authority covenants that if

(1) default is made in the payment of any installment of interest on any Parity Bonds when such interest becomes due and payable, or

(2) default is made in the payment of the principal of (or premium, if any, on) any Parity Bonds when such principal becomes due and payable, the Authority will (but solely from and to the extent of the sources from which the Parity Bonds is payable), upon demand of the Trustee, pay to it, for the benefit of the Holders of such Parity Bonds, the whole amount then due and payable on such Parity Bonds for principal (and premium, if any) and interest, with interest upon the overdue principal (and premium, if any); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

If the Authority fails to pay any of the foregoing amounts forthwith upon demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Authority (but solely from and to the extent of the sources from which the Parity Bonds is payable) or any other obligor upon the Parity Bonds for the whole amount so due and unpaid.

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If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 704. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Authority or any other obligor upon the Parity Bonds or their creditors, the Trustee (irrespective of whether the principal of the Parity Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Authority for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,

to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Parity Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and

to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under this Indenture.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Parity Bonds or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 705. Trustee May Enforce Claims Without Possession of Parity Bonds. All rights of action and claims under this Indenture or the Parity Bonds may be prosecuted and enforced by the Trustee without the possession of any of the Parity Bonds or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders in respect of which such judgment has been recovered.

Section 706. Application of Money Collected. Any money collected by the Trustee pursuant to this Article during the continuance of any Event of Default described in Section 701(a) shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Parity Bonds and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

First: To the payment of all amounts due the Trustee under this Indenture;

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Second: To the payment of the amounts then due and unpaid upon the Parity Bonds for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Parity Bonds for principal (and premium, if any) and interest, respectively; and

Third: To the Authority, any remaining amounts of money so collected.

Section 707. Limitation on Suits. No Holder of any Parity Bonds shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

such Holder has previously given written notice to the Trustee of a continuing Event of Default;

the Holders of not less than 25% in principal amount of the Outstanding Parity Bonds shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Parity Bonds; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing itself of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders, or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders.

Section 708. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Parity Bonds shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and interest on such Parity Bonds, but solely from the sources provided in this Indenture, on the respective Stated Maturities expressed in such Parity Bonds (or, in the case of redemption, on the redemption date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

Section 709. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Authority, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

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Section 710. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 711. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

Section 712. Control by Holders. The Holders of a majority in principal amount of the Outstanding Parity Bonds shall have the right, during the continuance of an Event of Default, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that:

such direction shall not be in conflict with any rule of law or with this Indenture, and

the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

Section 713. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Parity Bonds may on behalf of the Holders of all the Parity Bonds waive any past default hereunder and its consequences, except a default:

in the payment of the principal of (or premium, if any) or interest on any Parity Bonds, or

in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Parity Bonds affected.

Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Section 714. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Parity Bonds by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard for the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Parity Bonds, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Parity Bonds on or after the respective Stated Maturities expressed in such Parity Bonds (or, in the case of redemption, on or after the redemption date).

Section 715. Waiver of Stay or Extension Laws. The Authority covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim

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or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Authority (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

Section 716. No Recourse Against Others. No recourse under or upon any obligation, covenant or agreement contained in this Indenture or any Supplemental Indenture, or in any Parity Bonds, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, or against any past, present or future director, officer or employee, as such, of the Authority or of any successor thereto, either directly or through the Authority, whether by virtue of any constitution or statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the Parity Bonds are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, directors, officers or employees, as such, of the Authority or any successor thereto, or any of them, because of the creation of indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Parity Bonds or implied therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, director, officer or employee, as such, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Parity Bonds.

Section 717. Limitation on Remedies For Failure to Provide Information. If a default occurs under Section 506 or under a Supplemental Indenture as a result of the failure to provide any information required by Rule 15c2-12 of the Securities and Exchange Commission, the sole remedy for such default shall be an action for specific performance or mandamus, and no damages, fees, expenses or costs shall be awarded to any Person as a result of any action to enforce the performance by the Authority of those covenants.

Section 718. Remedies Subject to Applicable Law. All rights, remedies, and powers provided by this Article may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law in the premises, and all the provisions of this Article are intended to be subject to all applicable mandatory provisions of law which may be controlling in the premises and to be limited to the extent necessary so that they will not render this Indenture invalid, unenforceable, or not entitled to be recorded, registered, or filed under the provisions of any applicable law.

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ARTICLE VIII

CONCERNING THE TRUSTEE

Section 801. Certain Duties and Responsibilities.

Except during the continuance of an Event of Default, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee.

In case an Event of Default known to the Trustee (as provided in Subsection (d) below) has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;

(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts;

(3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction, to the extent permitted hereby, of the Holders of a majority in principal amount of the Outstanding Parity Bonds relating to the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and

(4) no provision of this Indenture shall require the Trustee to take any action or to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not assured to it.

The Trustee shall not be required to take notice or be deemed to have notice or knowledge of any default or Event of Default (other than pursuant to Section 701(a) and, only with respect to a Parity Bond for which the Trustee serves in a capacity equivalent to a paying agent, in which it has actual knowledge of payments by the Authority thereunder) unless a Responsible Officer of the Trustee has actual knowledge thereof, or unless the Trustee shall be specifically notified in writing of such default or Event of Default by the Authority or the Holders of at least 25% in aggregate principal amount of the Outstanding Parity Bonds.

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Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

The Trustee may maintain on its books such accounts and subaccounts within the funds established hereunder that it may deem convenient for accounting purposes.

Section 802. Notice to Holders of Event of Defaults; Other Notice Requirements. Within five Business Days after learning of the occurrence of any Event of Default in the payment of principal of (or premium, if any) or interest on any Parity Bonds and within 30 Business Days after learning of the occurrence of any other Event of Default hereunder (as provided in Section 801(d)), the Trustee shall transmit by mail to all Holders, notice of such Event of Default hereunder known (within the meaning of Section 801(d)) to the Trustee, unless such default shall have been cured or waived. Notwithstanding the foregoing, except in the case of an Event of Default in the payment of principal of (or premium, if any) or interest on any Parity Bonds or in the payment of any sinking fund installment, the Trustee shall be protected in withholding such notice if and so long as the Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Parity Bonds. Furthermore, in the case of any Event of Default of the character specified in Section 701(b) no such notice to the Holders of the Parity Bonds shall be given until at least 30 days after the occurrence thereof. The Trustee shall furnish copies to the Authority of all notices furnished to Holders pursuant to this Section 802.

Section 803. Certain Rights of Trustee.

The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties;

Any request or direction of the Authority mentioned herein shall be sufficiently evidenced by an Authority Request or Authority Order, respectively, and any action by the Board may be sufficiently evidenced by a Board Resolution of such Board;

Whenever in the administration of this 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 absence of bad faith on its part, require and rely upon an Officer’s Certificate and an Opinion of Counsel;

The Trustee may consult with legal counsel and the written advice of such counsel (or oral advice, subsequently confirmed in writing) or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered, or omitted by the Trustee hereunder in good faith and in reliance thereon;

The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any Holder pursuant to this Indenture, unless such Person shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses, and liabilities which might be incurred by it in compliance with such request or direction;

The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, or other paper or document, but the Trustee, in its discretion, may make such further inquiry

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or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records, and premises of the Authority, personally or by agent or attorney; and

The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, attorney, custodian or nominee (unless an employee) appointed with due care by it hereunder.

In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether they conform to the requirements of this Indenture.

The Trustee shall have no responsibility with respect to any information, statement or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds, except for any information provided by the Trustee, and shall have no responsibility for compliance with any state or federal securities laws in connection with the Parity Bonds. The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty.

The Trustee shall have the right to accept and act upon instructions, including funds transfer instructions (“Instructions”) given pursuant to this Indenture or a Supplemental Indenture and delivered using Electronic Means; provided, however, that the Authority shall provide to the Trustee an incumbency certificate listing officers with the Authority to provide such Instructions (“Authorized Officers”) and containing specimen signatures of such Authorized Officers, which incumbency certificate shall be amended by the Authority whenever a person is to be added or deleted from the listing. If the Authority elects to give the Trustee Instructions using Electronic Means and the Trustee in its discretion elects to act upon such Instructions, the Trustee’s understanding of such Instructions shall be deemed controlling. The Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Instructions and that the Trustee shall conclusively presume that directions that purport to have been sent by an Authorized Officer listed on the incumbency certificate provided to the Trustee have been sent by such Authorized Officer. The Authority shall be responsible for ensuring that only Authorized Officers transmit such Instructions to the Trustee and that the Authority and all Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt by the Authority. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Instructions notwithstanding such directions conflict or are inconsistent with a subsequent written instruction. The Authority agrees: (i) to assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to the Trustee and that there may be more secure methods of transmitting Instructions than the method(s) selected by the Authority; (iii) that the security procedures (if any) to be followed in connection with its transmission of Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. “Electronic Means” for purposes of this section shall mean the following communications methods: e- mail, facsimile transmission, secure electronic transmission containing applicable authorization codes,

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passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder.

Section 804. Not Responsible for Recitals or Issuance of Parity Bonds or Application of Proceeds. The recitals contained herein and in the Parity Bonds, except the certificate of authentication on the Parity Bonds, shall be taken as the statements of the Authority, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the value or condition of the Trust Estate or any part thereof, or as to the title of the Authority thereto or as to the security afforded thereby or hereby, or as to the validity or genuineness of any securities at any time pledged and deposited with the Trustee hereunder, or as to the validity or sufficiency of this Indenture or of the Parity Bonds. The Trustee shall not be accountable for the use or application by the Authority of the Parity Bonds or the proceeds thereof or of any money paid to the Authority under any provision hereof.

Section 805. May Own Obligations. The Trustee, any Paying Agent, the Parity Bonds Registrar, and any Authenticating Agent, in its individual or any other capacity, may become the owner or pledgee of Parity Bonds and may otherwise deal with the Authority or any other obligor on the Parity Bonds with the same rights it would have if it were not the Trustee, the Paying Agent, the Parity Bonds Registrar, the Authenticating Agent, or such other agent.

Section 806. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Authority.

Section 807. Compensation and Reimbursement. The Authority agrees:

to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder including extraordinary services such as default administration (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust and when the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in Section 701(c) or (d) the expenses and the compensation for services are intended to constitute expenses of administration in the Federal Bankruptcy Code);

except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements, and advances incurred or made by the Trustee in accordance with any provisions of this Indenture (including the reasonable compensation, expenses, and disbursements of its agents and counsel), except any such expense, disbursement, or advance as may be attributable to the Trustee’s negligence or willful misconduct; and

to the extent permitted by law, to indemnify the Trustee and its officers, directors, employees, and agents for, and to hold them harmless against, any loss, claim, obligation, damage, liability, or expense (including fees and expenses of counsel) incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust or the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder;

provided, however, that the obligations of the Authority under this Section shall be solely payable from and to the extent of the sources herein described for the payment of the Parity Bonds.

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As security for the performance of the obligations of the Authority under this Section the Trustee shall be secured under this Indenture by a lien prior to the Parity Bonds, and for the payment of such compensation, expenses, reimbursements, and indemnity the Trustee shall have the right to use and apply any trust funds held by it hereunder.

The provisions of this Section 807 shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee.

Section 808. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws to exercise corporate trust powers, having (except as provided below) a combined capital, surplus, and undivided profits of at least $50,000,000 subject to supervision or examination by federal or state authority, and having its designated office in the State of Texas or the City of New York, New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, then for the purposes of this Section, the combined capital, surplus and undivided profits of such corporation shall be deemed to be its combined capital, surplus and undivided profits as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

Section 809. Resignation and Removal: Appointment of Successor.

No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 8.10.

The Trustee may resign at any time by giving written notice thereof to the Authority. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.

The Trustee may be removed with thirty (30) days’ prior notice by (1) so long as no default or Event of Default exists and is continuing, the Authority, with the consent of the Owners of a majority in aggregate principal amount of the Outstanding Parity Bonds, for any reason or no reason and (2) by Act of the Owners of a majority in aggregate principal amount of the Outstanding Bonds for any breach of the trust herein set forth determined by such Owners. Any such removal shall be pursuant to an instrument, in writing, delivered to the Trustee and the Authority.

If at any time:

(1) the Trustee shall cease to be eligible under Section 808 and shall fail to resign after written request therefor by the Authority, or

(2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation, or liquidation,

then, in either such case, the Authority may remove the Trustee.

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If the Trustee shall resign, be removed, or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Authority shall promptly appoint a successor Trustee. If, within 30 days’ after such resignation, removal, or incapability, or the occurrence of such vacancy or such event of bankruptcy, insolvency, or receivership, a successor Trustee has not been appointed by the Authority, a successor shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Parity Bonds and delivered to the Authority and the retiring Trustee, then the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Authority or by such receiver or trustee. At any time after 30 days after the Trustee shall resign the office of Trustee or be removed and no successor Trustee shall have been appointed by the Authority or the Holders of the Parity Bonds and accepted appointment in the manner hereinabove provided, the Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.

Section 810. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge, and deliver to the Authority, and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed, or conveyance, shall become vested with all the estates, properties, rights, powers, trusts, and duties of the retiring Trustee; but, on request of the Authority, or the successor Trustee, such retiring Trustee shall, upon payment of its fees and expenses, execute and deliver an instrument conveying and transferring to such successor Trustee upon the trusts herein expressed all the estates, properties, rights, powers, and trusts of the retiring Trustee, and shall duly assign, transfer, and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 807. Upon request of any such successor Trustee, the Authority shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such estates, properties, rights, powers, and trusts.

No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article, to the extent operative.

Section 811. Merger, Conversion, Consolidation, or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion, or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or a portion of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, to the extent operative, without the execution or filing of any paper or any further act on the part of either of the parties hereto. In case any Parity Bonds shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion, or consolidation to such authenticating Trustee may adopt such authentication and deliver the Parity Bonds so authenticated with the same effect as if such successor Trustee had itself authenticated such Parity Bonds.

Section 812. Directors, Trustees, Officers, Employees, and Agents Exempt from Personal Liability. This Indenture is solely a corporate obligation of the Authority and the Trustee, respectively, and no recourse under or upon any obligation, covenant, or agreement of this Indenture or arising out of the issue and sale or performance of any undertaking related to the Parity Bonds, or for any claim based hereon or otherwise in respect hereof, shall be had against any past, present, or future director, trustee, officer, commissioner, member, judge, manager, employee, or agent, as such, of the Authority or the Trustee or any successor, either directly or through the Authority or the Trustee, whether by virtue of any constitution, statute, or rule of law, by the enforcement of any assignment or penalty, or otherwise.

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ARTICLE IX

SUPPLEMENTAL INDENTURES

Section 901. Supplemental Indentures Without Consent of Holders. Without the consent of the Holders of any Parity Bonds or the 1994 Bonds, the Authority, when authorized by a Board Resolution, and the Trustee at any time may enter into or consent to one or more Supplemental Indentures, subject to Section 903 hereof, for any of the following purposes:

to correct or amplify the description of any property at any time subject to the lien of this Indenture, or better to assure, convey, and confirm unto the Trustee any property subject or required to be subjected to the lien of this Indenture, or to subject to the lien of this Indenture additional property; or

to add to the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Parity Bonds or of any series of Parity Bonds, as herein set forth, additional conditions, limitations, and restrictions thereafter to be observed; or

to authorize, create, issue hereunder and provide the terms of any Additional Parity Bonds; or

to modify or eliminate any of the terms of this Indenture; provided, however, that

(1) such supplemental indenture shall expressly provide that any such modifications or eliminations shall become effective only after there is no Parity Bonds Outstanding of any series created prior to the execution of such supplemental indenture which would be affected by such Supplemental Indenture; and

(2) the Trustee may decline to enter into any such Supplemental Indenture, which, in its reasonable opinion, may not afford adequate protection to the Trustee when the same becomes operative; or

to evidence the succession of another Person to the Authority and the assumption by any such successor of the covenants of the Authority herein and in the Parity Bonds Outstanding, or

to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions, with respect to matters or questions arising under this Indenture, which shall not be inconsistent with the provisions of this Indenture, provided such action shall not materially adversely affect the interests of the Holders; or

to modify or supplement this Indenture in such manner as may be necessary or appropriate to cause the rating assigned to any Parity Bonds by each Rating Service to maintain an investment grade rating on the Bonds from each Rating Service.

Section 902. Supplemental Indentures With Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Parity Bonds of all series then Outstanding affected by such Supplemental Indenture voting as a single class, by act of said Holders delivered to the Authority and the Trustee, the Authority, when authorized by a Board Resolution, and the Trustee may enter into or consent to a Supplemental Indenture (subject to Section 903 hereof) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Parity Bonds under this

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Indenture; provided, however, that no such Supplemental Indenture shall, without the consent of the Holder of each Outstanding Parity Bonds affected thereby,

change the Stated Maturity of the principal of, or any installment of interest on, any Parity Bonds or any date for mandatory redemption thereof, or reduce the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof, or change the coin or currency in which, any Parity Bonds or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the redemption date), or

reduce the percentage in principal amount of the Outstanding Parity Bonds, the consent of whose Holders is required for any such Supplemental Indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or

modify any of the provisions of this Section or Section 713, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Parity Bond affected thereby.

It shall not be necessary for any act of Holders under this Section to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such act of Holders shall approve the substance thereof.

Without limiting other types of amendments which may affect only specific series of Parity Bonds and not all Parity Bonds, the following types of amendments may be adopted with the consent of the Holders of not less than a majority in principal amount of Outstanding Parity Bonds of only the series affected:

changes in authorized denominations, interest payment dates, record dates, interest periods, formulae for determining interest rates;

requirements for mandatory tenders, provisions for optional tenders, timing of any notice requirements for mandatory or optional tenders, requirements for sources of funds to pay the purchase price of bonds subject to mandatory or optional tenders; and

changes in eligibility criteria and provisions for appointment and removal of trustees, remarketing agents, tender agents and other Persons.

Section 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any Supplemental Indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 801) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such Supplemental Indenture or consent is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such Supplemental Indenture or consent which materially adversely affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Section 904. Effect of Supplemental Indentures. Upon the execution of any Supplemental Indenture under this Article, this Indenture shall, with respect to each series of Parity Bonds to which such Supplemental Indenture applies, be modified in accordance therewith, and such Supplemental Indenture shall form a part of this Indenture for all purposes, and every Holder of Parity Bonds thereafter or theretofore authenticated and delivered hereunder shall be bound thereby.

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Section 905. Parity Bonds May Bear Notation of Changes. Parity Bonds authenticated and delivered after the execution of any Supplemental Indenture pursuant to this Article may bear a notation in form approved by the Trustee as to any matter provided for in such Supplemental Indenture. If the Authority or the Trustee shall so determine, new Parity Bonds so modified as to conform, in the opinion of the Trustee and the Authority, to any such Supplemental Indenture may be prepared and executed by the Authority and authenticated and delivered by the Trustee in exchange for Parity Bonds then Outstanding.

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ARTICLE X

DEFEASANCE

Section 1001. Payment of Indebtedness; Satisfaction and Discharge of Indenture. Whenever the following conditions shall exist, namely:

all Parity Bonds theretofore authenticated and delivered have been canceled by the Trustee or delivered to the Trustee for cancellation, excluding, however:

(1) Parity Bonds for the payment of which money has theretofore been deposited in trust with the Trustee or a Paying Agent and thereafter paid to the Authority as provided in Section 503,

(2) Parity Bonds alleged to have been destroyed, lost, or stolen which have been replaced or paid as provided in Section 207, except for any such Parity Bond which, prior to the satisfaction and discharge of this Indenture, has been presented to the Trustee with a claim of ownership and enforceability by the Holder thereof and where enforceability has not been determined adversely against such Holder by a court of competent jurisdiction,

(3) Parity Bonds, other than those referred to in the foregoing clauses, for the payment or redemption (under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name of the Authority and at the expense of the Authority) of which the Authority has deposited or caused to be deposited with the Trustee in trust for such purpose an amount (to be immediately available for payment, except in the case of Parity Bonds excepted from the foregoing clause (2) prior to the time the ownership and enforceability of such Parity Bonds has been established) sufficient to pay and discharge the entire indebtedness on such Parity Bonds for principal (and premium, if any) and interest to the Maturity thereof in the case of Parity Bonds which have become due and payable or to the stated maturity or redemption date, as the case may be, and

(4) Parity Bonds deemed no longer Outstanding as a result of the deposit or escrow of money or Defeasance Obligations or both as described in Section 1002;

All Obligations other than Parity Bonds have been paid or their payment provided for such that they are no longer Outstanding; and

there have been paid all other sums payable hereunder by the Authority;

the Authority shall have delivered to the Trustee an Officer’s Certificate of the Authority and an Opinion of Counsel, all of which shall state that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with;

then, upon Authority Request, this Indenture and the lien, rights, and interests created hereby shall cease, terminate, and become null and void (except as to any surviving rights of conversion, transfer, or exchange of Parity Bonds herein or therein provided for) and the Trustee then acting as such hereunder

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shall, at the expense of the Authority, execute and deliver a termination statement and such instruments of satisfaction and discharge as may be necessary (in form and substance satisfactory to the Authority) and pay, assign, transfer, and deliver to the Authority upon Authority Order all cash, securities, and other personal property then held by it hereunder as a part of the Trust Estate.

In the absence of an Authority Request as aforesaid, the payment of all Outstanding Parity Bonds shall not render this Indenture inoperative or prevent the Authority from issuing Parity Bonds from time to time thereafter as herein provided.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Authority to the Trustee under Sections 803 and 807 shall survive.

Section 1002. Defeasance. Any Parity Bonds shall be deemed to be no longer Outstanding when payment of the principal of (and premium, if any, on) such Parity Bonds, plus interest thereon to the Maturity thereof (whether such Maturity be by reason of the Stated Maturity thereof or call for redemption, if notice of such call has been given or such notice has been waived or irrevocable arrangements therefor satisfactory to the Trustee have been made) shall have been provided for by depositing for such payment under the terms provided in this Section (1) money sufficient to make such payment, or (2) Defeasance Obligations certified by an Independent public accounting firm of national reputation to mature as to principal and interest in such amounts and at such times as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, together with any money deposited or held by the Trustee at the same time and available for such purpose as provided by this Indenture, be sufficient to make such payment, provided that all necessary and proper fees, compensation, and expenses of the Trustee and Paying Agents pertaining to the Parity Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. Any such deposit shall be made either with the Trustee for deposit to the credit of a special subaccount of the Debt Service Fund or, if notice of such deposit is given to the Trustee, with a state or nationally chartered bank with a minimum combined capital, surplus, and undivided profits of $50,000,000, as escrow agent, with irrevocable instructions to transfer the amounts so deposited and investment income therefrom to the Paying Agents in the amounts and at the times required to pay principal of (and premium, if any) and interest on the Parity Bonds with respect to which such deposit is made at the Maturity thereof and of such interest. In the event such deposit is made with respect to some but not all of the Parity Bonds then Outstanding, the Authority shall designate in writing the maturities and Series of Parity Bonds with respect to which such deposit is made; provided that, if such deposit shall be sufficient so to provide for the payment of the principal of (and premium, if any) and interest on some but not all Outstanding Parity Bonds of a particular maturity within a particular Series of Parity Bonds so designated, the Trustee or such other bank shall select the Outstanding Parity Bonds within such maturity and Series with respect to which such deposit is made in the same manner as provided in Section 303 for the selection of Parity Bonds to be redeemed. Notwithstanding anything herein to the contrary, however, (1) no such deposit shall have the effect specified in this Section if made during the existence of an Event of Default, unless made with respect to all of the Parity Bonds then Outstanding, and (2) no such deposit shall be made unless there shall be delivered to the Trustee or such other bank an Opinion of Counsel to the effect that such deposit will not adversely affect the excludability of interest on any Parity Bond from the gross incomes of the owners thereof for federal income tax purposes. Any money and Defeasance Obligations deposited with the Trustee or such other bank for such purpose shall be held by the Trustee or such other bank in a segregated account in trust for the Owners of the Parity Bonds with respect to which such deposit is made and, together with any investment income therefrom, shall be disbursed solely to pay the principal of (and premium, if any) and interest on such Parity Bonds when due. No money or Defeasance Obligations so deposited pursuant to this Section shall be invested or reinvested unless in Defeasance Obligations and unless such money not invested, such Defeasance Obligations not reinvested, and such new investments are together certified by an

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Independent public accounting firm of national reputation to be of such amounts, maturities, and interest payment dates and to bear such interest as will, without further investment or reinvestment of either the principal amount thereof or the interest earnings therefrom, be sufficient to make such payment. At such times as a Parity Bond shall be deemed to be paid hereunder, as aforesaid, it shall no longer be secured by or entitled to the benefits of this Indenture, except for the purposes of any such payment from such money or Defeasance Obligations and except for the provisions of this Section, and provisions of this Indenture pertaining to transfers, exchanges and replacements of Parity Bonds, procedure for redemption; and payment of interest on such Parity Bonds.

No Parity Bonds defeased pursuant to this Section shall be subject to optional redemption other than optional redemption under the circumstances described in the Supplemental Indenture establishing such Parity Bonds. Any such Parity Bonds shall continue to be subject to mandatory sinking fund redemption (if any).

Within 10 Business Days of its receipt of a deposit having the effect described in the first sentence of this Section, the Trustee shall, unless the Parity Bonds so defeased are to be redeemed or paid within 90 days from the date of such deposit, mail to the Owners of such defeased Parity Bonds written notice of such deposit, its effect and the date, if any, upon which the Parity Bonds so defeased are to be redeemed prior to Stated Maturity.

Section 1003. Application of Deposited Money. Money deposited with the Trustee (or another escrow agent) pursuant to Section 1001 or 1002 shall not be a part of the Trust Estate but shall constitute a separate trust fund for the benefit of the Persons entitled thereto. Subject to the provisions of Section 503, such money shall be applied by the Trustee (or such other escrow agent) to the payment, either directly or through any Paying Agent as the Trustee (or such other escrow agent) may determine, to the Persons entitled thereto of the principal (and premium, if any) and interest for the payment of which such money has been deposited with the Trustee.

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IN WITNESS WHEREOF, the Authority and the Trustee have caused this Indenture to be signed on their behalf by their duly authorized representatives as of the date first written above.

IRVING HOSPITAL AUTHORITY

By: Chairman

(SEAL)

Attest:

By: Secretary

THE BANK OF NEW YORK TRUST COMPANY, N.A.,as Trustee

By: Title:

(SEAL)

Attest:

By: Title:

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EXHIBIT A

FORM OF REQUISITION CERTIFICATE

Authority Request No.: ____

______, 20__

The Bank of New York Mellon Trust Company, N.A. ______Attention: ______

Ladies and Gentlemen:

This Request is provided to you pursuant to Section 404 of the Trust Indenture, dated as of November 1, 2017 (the “Indenture”), between Irving Hospital Authority and you, as Trustee. The capitalized terms used in this Requisition have the same meanings given such terms in the Indenture.

On behalf of the Authority, the undersigned hereby certifies as follows:

(i) There has been expended, or is being expended concurrently with the delivery of this certificate, on account of Project Costs an amount at least equal to the amount requisitioned below for disbursement;

(ii) No Event of Default under the Indenture has occurred and is continuing;

(iii) No other Requisition in respect of the expenditures set forth in clause (i) above is being or has previously been delivered to the Trustee;

(iv) The portion of the amount requested that will be used to pay Costs of Issuance plus all previous amounts requested for Costs of Issuance does not exceed 2% of the proceeds of the Parity Bonds of the issue with respect to which the Project Account referenced below was established;

(v) The portion of the amount requested to pay Project Costs which are Qualifying Costs plus all previous amounts requested for Project Costs which are Qualifying Costs is not less than 95 percent of the Net Proceeds of the Parity Bonds requested to date; and

(vi) The portion of the amount requested which will be used to pay Costs of Issuance or will be used in the trade or business of a person other than an Exempt Person plus all previous amounts requested for use to pay Costs of Issuance or for use in the trade or business of a person other than an Exempt Person does not exceed 5% of the Net Proceeds of the Parity Bonds of the issue with respect to which the Project Account referenced below was established.

You are hereby directed to pay the amount of $______from the [ ] Project Account of the Construction Fund to ______by ______. (payee) (method of payment)

IRVING HOSPITAL AUTHORITY

By Authorized Officer

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The following is a substantially final form of the First Supplemental Indenture relating to the Bonds. All references and summaries pertaining to such document in this Official Statement are, separately and in whole, qualified by reference to the exact terms of such document, a copy of which may be obtained from the Issuer. Provisions included herein are in substantially final form, but may change prior to closing and may thereafter be amended in accordance with the terms of the document.

FIRST SUPPLEMENTAL INDENTURE

between

IRVING HOSPITAL AUTHORITY, As Issuer

and

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., As Trustee

relating to

Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A

Dated as of

November 1, 2017

HOU:3842537.1

TABLE OF CONTENTS

Page

ARTICLE I

DEFINITIONS AND INTERPRETATIONS Section 101. Definitions ...... 2 Section 102. Effect of Headings and Table of Contents ...... 3 Section 103. Indenture to Remain in Force ...... 3 Section 104. Authority ...... 3 Section 105. Notices, etc., to Parties ...... 3 Section 106. Successors and Assigns ...... 4 Section 107. Separability Clause ...... 4 Section 108. Benefits of Supplemental Indenture ...... 4 Section 109. Governing Law ...... 4

ARTICLE II

AUTHORIZATION AND TERMS OF SERIES 2017A BONDS Section 201. Authorization of Series 2017A Bonds ...... 4 Section 202. Terms of Series 2017A Bonds ...... 4 Section 203. Place of Payment ...... 5 Section 204. Redemption Prices and Terms ...... 5 Section 205. Application of Proceeds ...... 5 Section 206. Book-Entry Only System ...... 5 Section 207. Successor Securities Depository: Transfer Outside Book-Entry Only System ...... 6 Section 208. Payments to Cede & Co...... 6

ARTICLE III

CONTINUING DISCLOSURE UNDERTAKING Section 301. Annual Reports...... 7 Section 302. Material Event Notices...... 7 Section 303. Limitations, Disclaimers, and Amendments...... 8

ARTICLE IV

MISCELLANEOUS PROVISIONS Section 401. Execution in Several Counterparts ...... 9

Exhibit A - Form of Series 2017A Bonds ...... A-1 Exhibit B - Projects to be Funded with the 2017A Bond Proceeds ...... B-1

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FIRST SUPPLEMENTAL INDENTURE

THIS FIRST SUPPLEMENTAL INDENTURE, dated as of November 1, 2017, is between the IRVING HOSPITAL AUTHORITY (the “Authority”), a municipal corporation and body politic, created by ordinance of the governing body of the City of Irving, Texas, duly organized and existing under the laws of the State of Texas, and in particular under the provisions of the Hospital Authority Act, Chapter 262, Health and Safety Code, as amended (the “Act”) and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association with a designated corporate trust office in Dallas, Texas;

WITNESSETH:

WHEREAS, the Authority owns and operates a hospital and other Facilities, collectively known as “Irving Healthcare System” to serve the public health needs of the City of Irving, Texas; and

WHEREAS, the Authority has determined to (i) finance a portion of the Series 2017 Project (described in Exhibit B hereto), and (ii) pay a portion of the costs of issuance of the Series 2017A Bonds (defined below); and

WHEREAS, in order to finance a portion of the cost of the Series 2017 Project, the Authority shall issue its Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center- Irving) Series 2017A (the “Series 2017A Bonds”) pursuant to and secured by the Indenture and this Supplemental Indenture (each defined below); and

WHEREAS, the Indenture provides, among other things, that, the Indenture may be amended or supplemented with certain modifications deemed necessary by the Trustee and the Authority to provide for the issuance of a series of additional Parity Bonds, and to provide for the disposition of the proceeds of the sale of such additional series of Parity Bonds and the payment by the Authority of amounts sufficient to pay the debt service on such additional series of Parity Bonds; and

WHEREAS, the Indenture authorizes the Authority, when authorized by a resolution of the Board, and the Trustee, to enter into supplemental indentures without the consent of the Holders of Parity Bonds outstanding under the Indenture in order, among other things, to create any series of additional Parity Bonds and to make provisions therefor as provided in Section 203 of the Indenture. The Authority and the Trustee each desire to supplement the Indenture to authorize the issuance of an additional series of Parity Bonds and to make provision for the administration of the proceeds thereof; and

WHEREAS, pursuant to a resolution of the Authority approved on July 20, 2017 (the “Resolution”), the Authority has authorized an Authorized Officer to make such findings and determinations as may be required in connection with the issuance of the Series 2017A Bonds and to set forth such findings and determinations in the Pricing Certificate (defined herein); and

HOU:3842537.1

WHEREAS, the Authority has determined, that the Series 2017 Project constitutes a “hospital” within the meaning of the Act and that the issuance of the Series 2017A Bonds to finance a portion of the costs of the Series 2017 Project will be in furtherance of the public purposes of the Act; and

WHEREAS, all things necessary to make the Series 2017A Bonds, when issued, executed and delivered by the Authority and authenticated by the Trustee pursuant to the Indenture and this Supplemental Indenture, the valid, legal and binding limited obligations of the Authority and to constitute the Indenture, as supplemented hereby, a security agreement and contract for the security of the Series 2017A Bonds for the payment of bond obligations have been performed and the execution and delivery of this Supplemental Indenture, and the execution and issuance of the Series 2017A Bonds, subject to the terms hereof, have in all respects been duly authorized;

NOW, THEREFORE, the Authority, in consideration of the premises and mutual covenants contained herein, and the acceptance by the Trustee of the trusts created in the Indenture, as supplemented hereby, of the purchase and acceptance of the Series 2017A Bonds by the purchasers thereof, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, does hereby confirm and agree that the grant in the Indenture to the Trustee for the benefit of the Holders of the Parity Bonds of the “Trust Estate” (as defined in the Indenture) shall constitute a lien on and security interest in such “Trust Estate” for the benefit of the Holders of the Series 2017A Bonds on an equal and ratable basis with the Holders of any Parity Bonds, and in addition to the foregoing, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATIONS

Section 101. Definitions. (a) For all purposes of this Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(1) “This Supplemental Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions of the Indenture.

(2) All references in this instrument to designated “Articles”, “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words “herein”, “hereof’ and “hereunder” and other words of similar import refer to this Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision.

(3) All terms used in this Supplemental Indenture which are defined in the Indenture have the same meanings in this Supplemental Indenture (except in Exhibit A hereto) which are assigned to such terms in the Indenture. Except where the context otherwise requires, words imparting the singular number shall include the plural number and vice versa. Reference to any document means that document as amended or supplemented from time to time. Reference to any party to a document means that party and its successors and assigns.

(b) The following terms have the meanings assigned to them below whenever they are used in this Supplemental Indenture (except in Exhibit A hereto):

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“Authorized Denominations” means, with respect to the Series 2017A Bonds, $5,000 and any integral multiple thereof except as otherwise provided in the Pricing Certificate.

“Indenture” means the Trust Indenture, dated as of November 1, 2017, between the Authority and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented from time to time in accordance with its terms.

“MSRB” means Municipal Securities Rulemaking Board.

“Paying Agent” means, with respect to the Series 2017A Bonds, the Trustee.

“Pricing Certificate” means the Pricing Certificate executed and delivered by an Authorized Officer pursuant to the Resolution in connection with initial issuance and delivery of the Series 2017A Bonds authorized to be issued hereunder.

“Regular Record Date” means, with respect to the Series 2017A Bonds, the close of business on the last business day of the month preceding an Interest Payment Date for the Series 2017A Bonds.

“Rule” means SEC Rule 15c2-12, as amended from time to time.

“Series 2017A Bonds” means the Authority’s Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A, authorized pursuant to Section 201 of this Supplemental Indenture and any Series 2017A Bonds thereafter authenticated and delivered in exchange for or replacement of any Series 2017A Bonds previously issued.

“Series 2017 Project” means the project described in Exhibit B hereto.

“Supplemental Indenture” means this First Supplemental Indenture relating to the Series 2017A Bonds, dated as of November 1, 2017, and any amendments or supplements hereto.

Section 102. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 103. Indenture to Remain in Force. Except as explicitly provided herein, the Indenture shall remain in full force and effect. The Authority hereby agrees that the Series 2017A Bonds are to be secured by the Trust Estate created under the Indenture and the Holders of the Series 2017A Bonds shall have all rights and privileges granted to Holders of Parity Bonds generally in the Indenture, except as otherwise provided herein.

Section 104. Authority. This Supplemental Indenture is executed and delivered pursuant to the Act and the Indenture.

Section 105. Notices, etc., to Parties. Any request, demand, authorization, direction, notice, consent, waiver or act of Holders of Series 2017A Bonds or other document provided or permitted by the Indenture to be made upon, given or furnished to, or filed with,

(1) the Trustee by any Holder of Series 2017A Bonds or by any specified Person shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its designated corporate trust office; and

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(2) the Authority by any Holder of Series 2017A Bonds or by any specified Person shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Authority addressed to it at the office of the Authority at 1901 North MacArthur, Irving, Texas 75061, or at any other address previously furnished in writing to the Trustee by the Authority.

Section 106. Successors and Assigns. All covenants and agreements in this Supplemental Indenture by the Authority and the Trustee shall bind their respective successors and assigns, whether so expressed or not.

Section 107. Separability Clause. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 108. Benefits of Supplemental Indenture. Nothing in this Supplemental Indenture or in the Series 2017A Bonds, express or implied, shall give to any Person, other than the parties hereto, and their successors hereunder and the Holders of the Series 2017A Bonds, any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture.

Section 109. Governing Law. This Supplemental Indenture shall be construed in accordance with and governed by the laws of the State of Texas.

ARTICLE II

AUTHORIZATION AND TERMS OF SERIES 2017A BONDS

Section 201. Authorization of Series 2017A Bonds. (a) Pursuant to the provisions of Section 203 of the Indenture, a series of Parity Bonds entitled to the benefit, protection and security of the Indenture is hereby authorized in the aggregate principal amount as provided in the Pricing Certificate. The Series 2017A Bonds shall be designated “Irving Hospital Authority Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A.” The Series 2017A Bonds shall be issued in the form attached hereto as Exhibit A except as otherwise provided in the Pricing Certificate and shall be numbered separately from R-1 upward, except that temporary bonds issued pursuant to Section 211 of the Indenture shall be numbered separately from T-1 upward. The Series 2017A Bonds shall be issued only in fully registered form in Authorized Denominations.

(b) The Comptroller of Public Accounts of the State of Texas, or a deputy designated in writing to act for the Comptroller (the “Comptroller”), shall manually sign the Certificate of Registration of the Comptroller prescribed in Exhibit A and attached to the initial Series 2017A Bonds. The initial Series 2017A Bonds shall not be valid or obligatory for any purpose, unless there is attached to such initial Series 2017A Bonds the executed Certificate of Registration of the Comptroller. Series 2017A Bonds issued in exchange for the initial Series 2017A Bonds and all Series 2017A Bonds thereafter shall be registered and authenticated by the Trustee, the Parity Bonds Registrar, as set forth in Section 206 of the Indenture and shall be valid and obligatory for all purposes.

Section 202. Terms of Series 2017A Bonds. The Series 2017A Bonds shall be dated November 1, 2017 unless otherwise set forth in the Pricing Certificate. The Series 2017A Bonds shall, from the date of delivery, bear interest and have the Interest Payment Dates and mature as set forth in the Pricing Certificate. Interest on the Series 2017A Bonds shall be calculated on the basis of a 360-day year or twelve 30 day months unless otherwise set forth in the Pricing Certificate.

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Section 203. Place of Payment. The Trustee is hereby appointed as Paying Agent for the Series 2017A Bonds. The Place of Payment for principal or redemption price of the Series 2017A Bonds shall be the designated corporate trust office of the Paying Agent, which shall be a place of payment for the Series 2017A Bonds. Payment of interest on Series 2017A Bonds shall be made by check or draft mailed on each Interest Payment Date to the Holder of each Series 2017A Bond as of the Regular Record Date at its address appearing on the Parity Bonds Register maintained by the Trustee, or by wire transfer (at the Holder’s expense) on the Interest Payment Date of same day funds upon receipt by the Trustee prior to the Regular Record Date of a written request by a Holder of $1,000,000 or more in aggregate principal amount of Series 2017A Bonds. The Trustee shall accompany each payment of interest or the redemption price of any Series 2017A Bond with the CUSIP number for such Series 2017A Bond.

Section 204. Redemption Prices and Terms. (a) Optional Redemption. The Series 2017A Bonds shall be subject to optional redemption by the Authority as set forth in the Pricing Certificate.

(b) Mandatory Redemption. The Series 2017A Bonds shall be subject to mandatory sinking fund redemption as set forth in the Pricing Certificate.

Unless otherwise set forth in the Pricing Certificate, the particular Series 2017A Bonds to be redeemed on each redemption date shall be selected by the Trustee by lot or other customary random selection method, on or before September 1 of each year in which Series 2017A Bonds are to be mandatorily redeemed. The principal amount of Series 2017A Bonds to be mandatorily redeemed in each year shall be reduced by the principal amount of such Series 2017A Bonds that have been acquired by the Authority and delivered to the Parity Bonds Registrar for cancellation or have been optionally redeemed and which have not been made the basis for a previous reduction.

Notice of any redemption shall be given in accordance with Section 304 of the Indenture. When Series 2017A Bonds or portions thereof have been called for redemption, and due provision has been made to redeem the same, the amounts so redeemed shall be payable solely from the funds provided for redemption, and interest which would otherwise accrue on the amounts called for redemption shall terminate on the date fixed for redemption.

Section 205. Application of Proceeds. Simultaneously with the delivery of the Series 2017A Bonds, the Trustee shall apply the proceeds derived from the sale thereof in the manner set forth in the Authority’s Order presented to the Trustee at the time of issuance of the Series 2017A Bonds. Moneys deposited in the Construction Fund for the purpose of funding the Series 2017 Project shall be used for the purposes set forth on Exhibit B hereto, such representation regarding use to be certified in the Authority Request provided to the Trustee pursuant to Section 404 of the Indenture. In the event the Authority determines to use the proceeds of the Series 2017A Bonds deposited to the Construction Fund (other than amounts so deposited to pay costs of issuance of the Series 2017A Bonds) for a purpose other than to finance the Series 2017 Project, the Authority shall provide to the Trustee a Favorable Opinion of Bond Counsel that such change in use of the proceeds of the Series 2017A Bonds will not adversely affect the exclusion of interest on the Series 2017A Bonds from gross income of the holders thereof for federal income tax purposes.

Section 206. Book-Entry Only System. Except as provided in Section 207 hereof, and unless the Authority shall otherwise direct, all Series 2017A Bonds issued hereunder shall be registered in the name of Cede & Co., as nominee of DTC, as the registered Owner of the Series 2017A Bonds, and held in the custody of DTC. With respect to Series 2017A Bonds registered in the name of Cede & Co., as nominee of DTC, the Authority and the Trustee shall have no responsibility or obligation to any DTC Participant or to any person on behalf of whom such DTC Participant holds an interest in the Series 2017A Bonds, except as provided in this Supplemental Indenture. Without limiting the

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immediately preceding sentence, the Authority and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any DTC Participant with respect to any ownership interest in the Series 2017A Bonds, (ii) the delivery to any DTC Participant or any other person, other than an Holder, as shown on the Parity Bonds Register, of any notice with respect to the Series 2017A Bonds, including any notice of redemption, or (iii) the payment to any DTC Participant or any other person, other than a Holder, as shown on the Parity Bonds Register, of any amount with respect to principal of, premium, if any, or interest on the Series 2017A Bonds. Notwithstanding any other provision of this Supplemental Indenture to the contrary, the Authority and the Trustee shall be entitled to treat and consider the person in whose name each Series 2017A Bond is registered in the Parity Bonds Register as the absolute Holder of such Series 2017A Bond for the purpose of payment of principal of and interest on the Series 2017A Bonds, for the purpose of giving notices of redemption and other matters with respect to such Series 2017A Bond, for the purpose of registering transfer with respect to such Series 2017A Bond, and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the Series 2017A Bonds only to or upon the order of the respective Holder, as shown in the Parity Bonds Register as provided in this Supplemental Indenture and the Indenture, or their respective attorneys duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Authority’s obligations with respect to payments of principal, premium, if any, and interest on the Series 2017A Bonds to the extent of the sum or sums so paid. No person other than a Holder, as shown in the Parity Bonds Register, shall receive a Series 2017A Bond certificate evidencing the obligation of the Authority to make payments of amounts due pursuant to this Supplemental Indenture. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions of this Supplemental Indenture with respect to interest checks being mailed to the Holder of record as of the Record Date, the phrase “Cede & Co.” in this Supplemental Indenture shall refer to such new nominee of DTC.

Section 207. Successor Securities Depository: Transfer Outside Book-Entry Only System. In the event that DTC discontinues the services described hereinabove, the Authority shall (i) appoint a successor securities depository, qualified to act as such under Section 17(a) of the Securities and Exchange Act of 1934, as amended, notify DTC and DTC Participants, as identified by DTC, of the appointment of such successor securities depository and transfer one or more separate Series 2017A Bonds to such successor securities depository or (ii) notify DTC and DTC Participants, as identified by DTC, of the availability through DTC of Series 2017A Bonds and transfer one or more separate Series 2017A Bonds to DTC Participants having Series 2017A Bonds credited to their DTC accounts, as identified by DTC. In such event, the Series 2017A Bonds shall no longer be restricted to being registered in the Parity Bonds 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 Holders transferring or exchanging Series 2017A Bonds shall designate, in accordance with the provisions of this Supplemental Indenture.

Section 208. Payments to Cede & Co. Notwithstanding any other provision of this Supplemental Indenture to the contrary, so long as any Series 2017A 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 such Series 2017A Bonds, and all notices with respect to such Series 2017A Bonds, shall be made and given, respectively, in the manner provided in the Blanket Letter of Representations.

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ARTICLE III

CONTINUING DISCLOSURE UNDERTAKING

Section 301. Annual Reports.

Unless otherwise set forth in the Pricing Certificate, the Authority shall provide or cause to be provided annually to the MSRB, within 270 days after the end of each Fiscal Year, financial information and operating data with respect to the Authority and the Tenant as follows: (i) the annual financial statements of the Authority included as Appendix C to the final official statement, (ii) the annual financial statements of the Tenant included as Appendix D to the final official statement, (iii) all quantitative financial information and operating data of the general type included in Appendix A in the table titled “Debt Service Coverage” to the final official statement, and (iv) all quantitative financial information and operating data of the general type included in Appendix B to the final official statement in the tables titled “Utilization Data” and “Payor Mix by Gross Revenue” . The respective financial statements of the Authority and the Tenant so to be provided shall be prepared by the Authority and the Tenant in accordance with the accounting principles described in the respective notes to the financial statements referred to in (i) and (ii) above, or such other accounting principles as the Authority may be required to employ from time to time pursuant to State law or regulation and (2) audited, if the audit is completed within the period during which they must be provided. If the audit of such financial statements is not complete within such period, then the Authority shall provide unaudited financial statements within such 270 day period to the MSRB, and audited financial statements if and when the audit report on such statements becomes available.

If the Authority changes its Fiscal Year, it will notify the MSRB of the change (and of the date of the new fiscal year end) prior to the next date by which the Authority otherwise would be required to provide financial information and operating data pursuant to this Section.

The financial information and operating data to be provided pursuant to this Section may be set forth in full in one or more documents or may be included by reference to other publicly available documents, as permitted by the Rule.

Section 302. Material Event Notices.

The Authority shall notify the MSRB, in a timely manner not in excess of ten business days after the occurrence of the event, of any of the following events with respect to the Series 2017A Bonds:

(i) Principal and interest payment delinquencies;

(ii) Non-payment related defaults, if material;

(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;

(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;

(v) Substitution of credit or liquidity providers, or their failure to perform;

(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the

B-7 HOU:3842537.1

Series 2017A Bonds, or other material events affecting the tax status of the Series 2017A Bonds;

(vii) Modifications to rights of Holders, if material;

(viii) Bond calls, if material, and tender offers;

(ix) Defeasances;

(x) Release, substitution, or sale of property securing repayment of the Series 2017A Bonds, if material;

(xi) Rating changes;

(xii) Bankruptcy, insolvency, receivership, or similar event of the Authority;

(xiii) The consummation of a merger, consolidation, or acquisition involving the Authority or the sale of all or substantially all of the assets of the Authority, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(xiv) The appointment of a successor or additional trustee or the change of name of a trustee, if material.

For the purposes of event (xii), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Authority in a proceeding under the U.S. Bankruptcy code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Authority, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Authority.

The Authority shall notify the MSRB, in a timely manner, of any failure by the Authority to provide financial information or operating data by the time so required.

Section 303. Limitations, Disclaimers, and Amendments.

The Authority shall be obligated to observe and perform the covenants specified in this Article III for so long as, but only for so long as, the Authority remains an “obligated person” with respect to the Series 2017A Bonds within the meaning of the Rule, except that the Authority in any event will give notice of any deposit made in accordance with Texas law that causes the Series 2017A Bonds no longer to be outstanding.

The provisions of this Article III are for the sole benefit of the holders and beneficial owners of the Series 2017A Bonds, and nothing in this Article III, express or implied, shall give any benefit or any legal or equitable right, remedy, or claim hereunder to any other person. The Authority undertakes to provide only the financial information, operating data, financial statements, and notices which it has expressly agreed to provide pursuant to this Article III and does not hereby undertake to provide any other information that may be relevant or material to a complete presentation of the Authority’s financial results, condition, or prospects or hereby undertake to update any information provided in accordance

B-8 HOU:3842537.1

with this Section or otherwise, except as expressly provided herein. The Authority does not make any representation or warranty concerning such information or its usefulness to a decision to invest in or sell Series 2017A Bonds at any future date.

UNDER NO CIRCUMSTANCES SHALL THE AUTHORITY BE LIABLE TO THE HOLDER OR BENEFICIAL OWNER OF ANY SERIES 2017A BONDS OR ANY OTHER PERSON, IN CONTRACT OR TORT, FOR DAMAGES RESULTING IN WHOLE OR IN PART FROM ANY BREACH BY THE AUTHORITY, WHETHER NEGLIGENT OR WITHOUT FAULT ON ITS PART, OF ANY COVENANT SPECIFIED IN THIS ARTICLE III, 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 Authority in observing or performing its obligations under this Article III shall comprise a breach of or default under the Indenture for purposes of any other provision of the Indenture.

Nothing in this Section 303 is intended or shall act to disclaim, waive, or otherwise limit the duties of the Authority under federal and state securities laws.

The provisions of this Article III may be amended by the Authority from time to time to adopt to changed circumstances that arise from a change in legal requirements, change in law, or change in the identity, nature, status or type of operations of the Authority, but only if (i) this Supplemental Indenture, as amended, would have permitted an underwriter to purchase or sell Series 2017A Bonds in the primary offering of the Series 2017A 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) the Holders of a majority in aggregate principal amount of the Outstanding Series 2017A Bonds consent to such amendment, or (b) a person unaffiliated with the Authority (such as nationally recognized bond counsel), determines that the amendment will not materially impair the interests of the holders and beneficial owners of the Series 2017A Bonds. If any such amendment is made, the Authority will include in its next annual update an explanation in narrative form of the reasons for the change and its impact on the type of operating data or financial information being provided.

ARTICLE IV

MISCELLANEOUS PROVISIONS

Section 401. Execution in Several Counterparts. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

This written Supplemental Indenture represents the final Agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.

There are no unwritten or oral agreements between the parties.

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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed on their behalf by their duly authorized officers all as of the day and year first above written.

IRVING HOSPITAL AUTHORITY

By: Chairman

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

By: Title:

B-10 HOU:3842537.1

APPENDIX F

Summary of Lease [THIS PAGE INTENTIONALLY LEFT BLANK] SUMMARY OF LEASE

Capitalized terms in the summary of the Lease have the following meanings:

"ADA" means the Americans with Disabilities Act of 1990, as amended, and the rules, regulations and pronouncements issued in connection therewith.

“Assumption Agreement” means the Assignment and Assumption Agreement between Landlord and Tenant dated as of July 31, 1995.

"BHCS" means Baylor Health Care System, a Texas nonprofit corporation.

“Commencement Date" means the date on which the Term of the Original Lease Agreement commenced.

“Contingent Rent” has the meaning ascribed in Section 4.1 of the Lease.

"Effective Date" means the first day of the month following the Closing under the Master Agreement.

“Event of Default” has the meaning ascribed thereto in Section 8.1 of the Lease.

HOU:3796803.5 “Excess Operating Cash Flow” means, as pertaining to the IHA Healthcare Facilities, and excluding any and all activity related to the Irving Healthcare Foundation , using GAAP, if positive, Net Increase in Cash and Cash Equivalents as stated on Tenant’s audited Statement of Cash Flows and its supplemental schedules, plus the increase (or minus the decrease) in Short and Long Term Investments (adjusted to exclude the effect of all realized and unrealized gains and losses on investments, net), plus Contingent Rent paid, plus Fixed Rent paid, less philanthropic contributions (for example those similar to the type made by the excluded Irving Healthcare Foundation), less, without duplication, payments received for investment interest income on Tenant’s interest in cash held in BHCS money pool or equivalent, less payments received in the current period to fund Losses From Operations in prior periods from the Rent Set Aside, and less payments made by Landlord in the current period to fund Losses From Operations in prior periods (in addition to those from Rent Set Aside). Excess Operating Cash Flow shall be calculated as set out in Schedule 1 of the Lease attached therein by reference.

(ii) Governmental Entity receivables that relate to incidents occurring, or circumstances or facts existing, prior to the Effective Date;

(iv) endowments and assets held in trust by or for Landlord and charitable pledges;

(v) insurance policies, except as otherwise provided in the Master Agreement;

(vi) assets not used for or in connection with providing health care; or

(vii) Effective Date Receivables.

“Execution Date” means April 20, 2010, the meaning ascribed thereto in the preamble of the Lease.

“Fiscal Year” means the fiscal year of Tenant, which is currently July 1 through June 30.

“Fixed Rent” has the meaning ascribed thereto in Section 4.1 of the Lease.

F-2 Year, such gains shall be increased by the impact of recording Fixed and Contingent Rent. Also, such gains shall be decreased for philanthropic contributions (for example those similar to the type made by the excluded Irving Healthcare Foundation). Finally, in calculating Gains From Operations, amounts received in the form of cash (including from the Rent Set Aside) or by means of credits against Fixed Rent in any particular Fiscal Year for the purposes of eliminating Losses From Operations in a prior Fiscal year, as permitted by Section 3.2(b) of the Lease, shall be excluded and deducted in the Fiscal Year received and shall be applied to the respective Fiscal Year(s) in which such Losses From Operations were experienced and thereby being eliminated.

"Hazardous Materials" means any material defined as hazardous or regulated or dangerous under any applicable Environmental Law.

“Hospital” means the hospital facility located on the main campus of the Irving Healthcare System.

"IHS Facilities" means the following, but shall not include the Excluded Assets:

(a) real property owned by or leased to Landlord as tenant or lessee, which are more specifically described in the Lease;

(b) all Landlord's equipment, furniture, machinery and spare parts, wherever situated;

(c) all Landlord's inventories of food, drugs, medicines, janitorial, medical and office supplies, materials, supplies and consumables;

(e) all Landlord's computers and software;

(f) all Landlord's signs; and

(g) all additions, improvements and changes to the assets described in paragraphs (a) and (b) above during the term of the Master Agreement.

"IHS Primary Service Area" means the area containing the City of Irving, zip code 75019 in Coppell, zip codes 76039 and 76155 in Euless and zip code 75050 in Grand Prairie.

"JCAHO" means the Joint Commission on Accreditation of Healthcare Organizations.

F-3 “Lease” means the Amended and Restated Lease Agreement entered on April 20, 2010, and effective as of April 1, 2010, as subsequently amended.

“Master Agreement” means the Master Agreement dated as of May 31, 1995 between Landlord, BHCS and Tenant, amended and restated as of July 31, 1995.

“Offset Shortfall” has the meaning ascribed thereto in Section 4.1(b) of the Lease.

“Original Lease Agreement” means Lease Agreement between Landlord and Tenant, dated as of July 31, 1995 and defined in the recitals of the Lease.

"Permits" means all permits, licenses, registrations, franchises, concessions, orders, certificates, consents, accreditations, authorizations and approvals of any Governmental Entity.

F-4 Lease Agreement or the Lease, those matters of record affecting a particular portion of the Real Property as of the Execution Date. The Liens described in clause (a) of this definition shall be Permitted Encumbrances during the contest of the validity or amount of any such Lien so long as such contest is diligently prosecuted by Landlord or Tenant, as the case may be, and at its expense; provided, however, that any such Lien shall not remain unpaid for a length of time that permits the IHA Healthcare Facilities or any part thereof to be seized or sold by judicial or other legal process.

"Person" means an individual, partnership, joint venture, corporation, limited liability company, bank, trust, unincorporated organization or a Governmental Entity.

"Related Agreements" means the Assumption Agreement and the surviving provisions of the Master Agreement.

“Renewal Date” means April 1, 2010 as defined in the preamble to the Lease.

“Renewal Term” has the meaning ascribed thereto in Section 3.1 of the Lease.

“Rent” has the meaning ascribed thereto in Section 4.1(a) of the Lease.

“Rent Set Aside” has the meaning ascribed thereto in Section 4.1(a) of the Lease.

“Tenant’s Termination Option” has the meaning ascribed thereto in Section 3.2(a) of the Lease.

“Term” means Renewal Term, subject to earlier cancellation or termination as provided in the Lease.

F-5 “Work” has the meaning ascribed thereto in Section 6.1(a) of the Lease.

LEASE

The following is a summary of certain terms of the Lease. This summary does not purport to be complete and is qualified in its entirety by reference to the Lease.

Transaction and Parties

Term

The Original Lease Agreement had an initial term of 20 years. Subject to and upon the terms and conditions set forth in the Lease, the term of the Lease shall be considered to be a renewal of the term under the Original Lease Agreement, shall commence on April 1, 2010 (the “Renewal Date”) and shall expire on March 31, 2045 (the “Renewal Term”). At any time after June 30, 2025, the Tenant has the right and option (the “Tenant’s Termination Option”) to terminate the Lease if Tenant gives written notice to Landlord no later than sixty (60) days after the date that the financial results of Tenant are published for a particular Fiscal Year, which termination shall be effective as of the end of the then current Fiscal Year (e.g. if Tenant exercises Tenant’s Termination Option with respect to the financial results for a period ending with the Fiscal Year ending on June 30, 2025, the termination shall be effective on June 30, 2026), that any events from an enumerated list have occurred (and such events have so occurred). Tenant’s Termination Option is subject to Landlord’s Options Upon Tenant’s Termination Option Election under 3.02(b) of the Lease. These options are tailored to respond to specific events encountered by Tenant, which then are used to call on termination options under the Lease.

In the event that there is a change of control of BHCS, either through sale, merger, acquisition or otherwise that has the effect of changing the current mission of BHCS such as BHCS's becoming an investor-owned enterprise, and Landlord has not approved such change of control (such approval not to be unreasonably withheld), Landlord shall have the option to terminate the Lease upon notice to Tenant thereof.

Rent

F-6 of Tenant other than those related to the IHA Healthcare Facilities. Fixed Rent and Contingent Rent are collectively referred to on the Lease as “Rent”.

Covenants of Tenant

Tenant may use the Real Property only for the purposes set forth below and, except as expressly set forth below or as may be agreed upon by Landlord and Tenant from time to time, for no other purpose:

(ii) the Hospital, and any other acute care facilities, as a hospital operating under a hospital license issued by the Texas Department of Health;

(iii) the facilities at I-635 and North MacArthur Boulevard for physicians’ offices, health clinics and surgical centers, acute care hospital facilities, and related medical services;

F-7 healthcare system overhead expenses to its wholly controlled community medical centers. The above standard of operation will also include an ongoing commitment to charity care consistent with the standard and in a manner required by applicable Legal Requirements. Further, the standard of operation set out above shall never be less than the standard of operation then applicable at any of BHCS’s wholly controlled community medical centers.

Insurance

Landlord shall maintain general liability insurance and contractual indemnification insurance in an amount not less than $2,000,000 per claim with an annual aggregate of $5,000,000 and otherwise in type and form agreed to by Landlord and Tenant.

Tenant may self-insure all or any part of its liability insurance coverage (but not property insurance coverage) from time to time as reasonably determined by Tenant.

Indemnity

With respect to claims brought by third parties against either Tenant or the Authority relating to the IHA Healthcare Facilities, Tenant and the Authority agree as follows:

F-8 To the fullest extent permitted by law, Landlord shall indemnify, protect, defend and hold harmless Tenant, BHCS and their respective trustees, directors, officers and members, from and against any and all claims, demands, suits and causes of action and any and all liabilities, costs, damages, expenses (including but not limited to attorneys’ fees and court costs) and judgments, in each case incurred in connection with any Claim (defined below) arising from and after the Execution Date, whether in equity, at common law or by statute, or under the law of contracts, torts (including, without limitation, negligence and strict liability without regard to fault) or property (collectively, “Claims”), and arising in favor of or brought by any of Landlord’s employees, agents, subcontractors or representatives or by any Governmental Entity or any other third party, based upon, in connection with, relating to, arising out of or alleged to arise out of any matter for which either or both of Tenant and BHCS is not immune for any reason (including Landlord’s failure to perform its obligations under Section 5.4(d)(i)) and for which Landlord is finally determined by a court of competent jurisdiction (or by mutual agreement of Tenant and Landlord) to be liable; provided, however, that Landlord’s obligations to indemnify, protect, defend and hold harmless Tenant under this paragraph shall only apply to Tenant if Tenant is determined not to be immune, and that Landlord’s obligations to indemnify, protect, defend and hold harmless BHCS under this paragraph shall only apply to BHCS if BHCS is determined not to be immune.

Landlord, Tenant and BHCS shall each be entitled to assert any available governmental immunity and limitation of liability defenses with respect to claims brought by third parties. However, in order to permit Tenant, BHCS, Landlord and their respective trustees, directors, officers and members to fully enforce their rights against each other under the Lease and to enjoy the full benefit of any public liability and contractual indemnification insurance as may exist from time to time, and for that purpose only, Landlord, Tenant and BHCS each expressly waives as to Claims arising from and after the Execution Date and brought against each other pursuant to the terms of Section 5.4(d) of the Lease, the immunities and limitations of liability afforded by its status as a governmental unit, a “municipal hospital management contractor” or by the Texas Tort Claims Act or the Texas Health and Safety Code, or any successor or similar provisions of the law. It is understood and agreed to that this waiver of immunities and limitations of liability is provided only in order to provide recourse against a policy of public liability, indemnity or contractual indemnification insurance required to be maintained pursuant to the provisions of Section 5.4(a) of the Lease and any recovery as a result of such waiver shall be limited to the amount received under such insurance (or the amount that would have been recovered had such insurance been in place if such insurance was required to have been in place). The provisions of this subsection do not constitute a waiver by either Landlord, Tenant or BHCS of any defense or defenses, including immunity, created by or set forth in the Texas Health and Safety Code or the Texas Tort Claims Act available to such parties as to liability to third parties that Landlord, Tenant or BHCS may make against such third party.

F-9 Term. Immediately upon Landlord’s or Tenant’s receipt of any notice from a Governmental Entity or other Person (which Person has legal standing to enforce compliance) of noncompliance with Legal Requirements, the receiving party shall provide the other party with written notice thereof and the party charged with compliance shall thereafter take all actions necessary to comply with such Legal Requirements and shall provide the other party with evidence of such compliance.

F-10 Tenant shall furnish to the Authority notice in writing of any action, suit, arbitration or proceeding against Tenant or the IHA Healthcare Facilities which could reasonably be expected to have a material adverse effect.

The Certificate of Formation and Bylaws of Tenant will be amended contemporaneous with the execution and delivery of the Lease as provided in Exhibit B attached thereto, together with such other ancillary documentation, if any, necessary to effect the intentions of the parties provided for therein. During the Term of the Lease, Tenant will have a President; (i) the appointment of that President of Tenant by the board of trustees of Tenant will be subject to veto by Landlord, which veto will not be unreasonably exercised, and (ii) the President of Tenant may be removed at any time by the board of trustees of Tenant provided that the replacement President is approved by Landlord, which approval will not be unreasonably withheld. During the Term of the Lease, (a) no provision in the Certificate of Formation or the Bylaws of Tenant relating to the appointment of, the powers and duties of, or the indemnification of the Hospital Board (as defined in the Certificate of Formation and Bylaws) or that otherwise requires the consent of Landlord to any action will be amended without the consent of Landlord, (b) Tenant will be governed by substantially the same governance structure that is from time-to-time adopted by BHCS to govern the majority of its wholly controlled community medical centers, and (c) at least one person to be chosen by BHCS in its sole discretion, who otherwise qualifies for membership and is a resident of, or employed by an employer with a presence in, Irving, Texas, will be elected to serve on the Board of Trustees of BHCS. Further, Landlord and Tenant will establish processes by which the Landlord’s Board is and will remain informed of the strategic positioning of Baylor Scott & White Health. These processes will be mutually agreed to from time to time but will include, at a minimum, an annual briefing by senior executives with the Landlord’s Board or Board Committee. Said ‘briefing’ will occur on a mutually agreed to date but will occur at least once a month in advance of the Annual Joint Board Retreat between the Landlord’s Board and the Hospital Board.

F-11 Casualty: Condemnation

In the event of partial or total damage or destruction of the IHA Healthcare Facilities, Fixed Rent shall not be reduced or abated under any circumstances.

F-12 and Tenant (the “Consulting Architect”), the untaken portion cannot be practically and economically used or converted for use (applying the condemnation award) by Tenant for the purposes (with adequate parking) for which the IHA Healthcare Facilities is being used immediately prior to such taking. Landlord and Tenant shall each pay one-half of the cost of the Consulting Architect. In the event that Landlord, BHCS and Tenant are unable to agree on the Consulting Architect after 30 days of good faith negotiations, then any party may request the United States District Judge for the Northern District of Texas, Dallas Division (in his or her individual, but not judicial, capacity), who is then senior in service, to appoint the Consulting Architect. In the event of any such taking and the termination of the Lease, the Authority shall be entitled to receive all compensation awarded by the condemning Governmental Entity as a result of the taking of the IHA Healthcare Facilities.

In the event the Lease is terminated pursuant to Section 6.1(a) or Section 6.2 of the Lease, Tenant shall remain liable to Landlord for the payment of the corresponding termination fee set out in Exhibit A of the Lease; provided that Tenant will pay Landlord that termination fee as follows: (a) if the Lease is terminated in years 1 to 10 of the Term, Tenant shall pay twenty percent (20%) of such termination fee on the date of such termination and the remainder of such termination fee in ten (10) equal annual installments thereafter on the anniversary of such termination, (b) if the Lease is terminated in years 11 to 20 of the Term, Tenant shall pay thirty percent (30%) of such termination fee on the date of such termination and the remainder of such termination fee in ten (10) equal annual installments thereafter on the anniversary of such termination, (c) if the Lease is terminated in years 21 to 30 of the Term, Tenant shall pay fifty percent (50%) of such termination fee on the date of such termination and the remainder of such termination fee in five (5) equal annual installments thereafter on the anniversary of such termination and (d) if the Lease is terminated in the last five (5) years of the Term, Tenant shall pay the termination fee on the date of such termination. The terms of Section 6.5 of the Lease shall survive the termination of the Lease.

Assignment and Subletting

F-13 defined in the Hospital Authority Act, Chapter 262 of the Texas Health and Safety Code and used in Section 261.051 of the Texas Health and Safety Code.

Events of Default and Termination

Each of the following shall be deemed an "Event of Default" by Tenant under the Lease and a material breach of the Lease:

(i) Tenant shall fail to pay any installment of Rent when due, which failure continues for a period of ten days after written notice of Tenant’s failure to pay such Rent; provided, however, any bank’s failure to comply with Tenant’s instructions to automatically credit Landlord’s bank account for the amount of the Rent or to send or honor, except for insufficient funds, an automatic draft on Tenant’s bank account in favor of Landlord shall not constitute an Event of Default if Rent is paid within ten days after notice of nonpayment from Landlord; or

F-14 petition in any such proceedings; or (iv) any final order, judgment or decree shall be entered in any proceedings against Tenant decreeing its dissolution; or (v) any final order, judgment or decree shall be entered in any proceeding against Tenant decreeing its split-up which requires the divestiture of a substantial part of its assets.

If an Event of Default occurs under the Lease, Landlord may terminate the Lease. In addition, Landlord shall continue to have all of the rights and remedies provided Landlord at law or in equity.

If Landlord elects to terminate the Lease or Tenant’s rights of possession under the Lease as a result of an Event of Default by Tenant, there shall be recoverable from Tenant:

(i) the reasonable cost of restoring the IHA Healthcare Facilities to the condition required by the terms of the Lease;

(ii) all accrued unpaid sums including Rent, plus interest at the Interest Rate for past due sums, up to the date of termination;

(iii) Landlord’s reasonable cost of recovering possession of the IHA Healthcare Facilities; and

F-15 the obligation, to take whatever action Landlord has failed to take, on behalf of Landlord and for Landlord’s account, and Landlord shall promptly reimburse Tenant for all reasonable costs incurred by Tenant in connection therewith, plus interest from the date such sums are expended until reimbursed at the Interest Rate. If Landlord does not reimburse Tenant for such sums within fifteen (15) days from Tenant’s written request, Tenant may file suit against Landlord in a court of competent jurisdiction to recover such sums or may withhold such amounts from rents payable hereunder.

Renovation Project, New CUP and New Tower Project

Landlord shall cause the renovation of the existing hospital building (the “Building”) and the Medical Office Building I (“MOB I”) on the Baylor Scott & White Medical Center at Irving South Campus (the “Campus”) in substantial accordance with the items described in the Lease and approved by Tenant, subject to the terms of the Lease. The scope of the project shall include (i) the renovation and/or build out of Day Surgery, Cath Lab, Endoscopy, a new Hybrid OR, Dialysis, Women’s Main Lobby and existing North Lobby, and (ii) the construction of a new two (2) story lobby and main entry on the north side of the Building, the recladding of the west and north facades and portions of the east facade of the Building, the painting of a portion of the lower area of the north tower facade of the Building, and the recladding and replacement of windows for the north and west facades of MOB I and certain site improvements relating thereto, all in accordance with the Submission Items (collectively, the “Renovation Project”). The Renovation Project, shall include the purchase and installation of any and all furniture, fixtures and equipment (the “FF&E”) that are to be installed in the portion of the IHA Healthcare Facilities which includes the Renovation Project, including the replacement of certain FF&E as well as FF&E in addition to items being replaced, to the extent such FF&E is identified by Tenant and approved by Landlord, (such approval not to be unreasonably withheld, conditioned or delayed) in accordance with the Project Schedule. The FF&E shall be owned by Tenant and acquired and installed by Landlord as part of the Renovation Project; provided, however, at the expiration or earlier termination of the Lease, all such FF&E and any replacements thereof shall be surrendered to Landlord as required by Section 9.14 of the Lease since such are part of the IHA Healthcare Facilities.

F-16 willful acts or omissions of Landlord, Landlord shall have no liability or responsibility for the design or installation of the IT Equipment.

As to the New Tower, the term “Tenant Improvements” shall mean all leasehold improvements within Floors 1, 4, 5 and 6 and the mechanical penthouse of the New Tower other than the IT Equipment. Landlord shall cause the construction and installation of the Tenant Improvements in accordance with the terms of the Lease. As used in the Lease, the Tenant Improvements are comprised of two types of improvements: (a) Structural Tenant Improvements and (b) Normal Tenant Improvements. The term “Structural Tenant Improvements” shall have the same meaning herein as ascribed to such term in Accounting Standards Council 840-40-55 (EITF 97-10 codified), which is all “structural elements of the [improvements to the leased premises], even though unique to [Tenant’s] purpose, and equipment that would be a necessary improvement to any lessee.” Under this definition, Structural Tenant Improvements would include improvements such as: structural changes required for the installation of additional bathrooms; structural floor upgrades needed to support the weight of unanticipated equipment; structural changes to accommodate unanticipated exterior doors or windows; structural changes to load bearing walls; and generator upgrades necessary due to Tenant’s unique requirements. In contrast to the definition of Structural Tenant Improvements, the term “Normal Tenant Improvements” shall mean any improvements to the New Tower that are not Structural Tenant Improvements. For example, the following improvements would be Normal Tenant Improvements: non-support bearing interior walls; wall and floor finishes and coverings; signage; HVAC flex duct, diffusers and finishes; minor adjustments or modifications to the HVAC distribution system; light fixtures, wall outlets and other electrical finishes; and wiring from the electrical panel of the New Tower to fixtures within Floors 2 and 3 of the New Tower.

F-17 and construction costs), and Tenant shall pay to Landlord the amount invoiced within thirty (30) days following Tenant’s receipt of such invoice. Tenant shall have the right to verify all costs and expenses incurred by Landlord in connection with the New Tower Project in accordance with the Lease. A failure of Tenant to pay such amount set forth in this Section as and when required shall be deemed an Event of Default under the Lease.

Master Agreement

The parties acknowledge and agree that the terms and provisions of the Master Agreement either have been fully performed, or are superseded by the provisions of this Lease, except for certain provisions of Article 11 thereof, entitled Covenants of the Parties after Closing, which shall continue to remain in full force and effect and apply during the Term of this Lease, as such provisions are modified and restated below, namely Section 11.1, entitled Existence and Ownership of Tenant; Section 11.3, entitled License and Use of Names; Section 11.8(b), dealing with BHCS’s 5.01(a) corporation and other matters; Section 11.10, entitled Professional Offices and Other Leases; Section 11.11, entitled Medical Education; Section 11.12, entitled Foundation/Community Services; Section 11.13, entitled Networks; Section 11.17, entitled Transactions with Affiliates; Section 11.18, entitled Maintenance of Permits; Section 11.24, entitled First Refusal; and Section 11.25, entitled Medicare Regulations and Compliance. The foregoing provisions of the Master Agreement are hereby modified and restated as follows:

11.3 License and Use of Names.

F-18 (ii) During the Term of the Lease, BHCS or an Affiliate shall have the right to use the name “Baylor Medical Center at Irving” or “Baylor Scott & White Medical Center – Irving” in connection with promotion, marketing and operation of health care providers and health care services of its system md managed care activities.

(iii) Tenant shall have the right, during the Term of the Lease, to use the names now employed by Landlord for its clinics, buildings, wings, etc.

11.11 Medical Education. Tenant will provide not less than $10,000 annually to pay for education courses for medical staff based at the main campus located at 1901 N. MacArthur Boulevard, Irving, Texas. The medical staff and clinical personnel at the IHS Facilities will have access to all education programs delivered at other locations throughout Baylor Scott & White Health’s system upon the same conditions as other participants in such programs. Tenant will be given reasonable opportunity to participate in residency programs of Baylor Scott & White Health.

11.13 Networks.

F-19 not available at the IHS Facilities or contracts in which Tenant chooses as of the Effective Date not to participate. Participation in such contracts by Tenant is subject to approval of the particular network or managed care organization.

11.24 First Refusal.

11.25 Medicare Regulations and Compliance. Landlord and Tenant hereby acknowledge that this transaction does not constitute a “change of ownership or control” for purposes of the Medicare program. Landlord and Tenant agree to comply with the Medicare statutes, rules, regulations and manual provisions governing providers, including, to the extent necessary, notifying the appropriate Medicare: intermediary and preparing and filing any required Medicare cost reports within applicable time periods after the Effective Date of the transaction.”

F-20

APPENDIX G

Form of Bond Counsel Opinion

[THIS PAGE INTENTIONALLY LEFT BLANK] 600 Travis, Suite 4200 Houston, Texas 77002 +1.713.220.4200 Phone +1.713.220.4285 Fax andrewskurth.com DRAFT

December ___, 2017

IRVING HOSPITAL AUTHORITY 1901 N. McArthur Blvd Irving, Texas 75061

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. 2001 Bryan Street, 10th Floor Dallas, TX 75201

We have represented Irving Hospital Authority (the “Issuer”) as its bond counsel in connection with the issuance of its Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving) Series 2017A (the “Bonds”). The Bonds are issued pursuant to a Trust Indenture dated as of November 1, 2017 (the “ Indenture”), as supplemented by a First Supplemental Indenture dated as of November 1, 2017 (the “First Supplement”, together with the Indenture, the “Indenture”), between the Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). Capitalized terms not otherwise defined herein have the meanings assigned to such terms in the Indenture.

We have acted as Bond Counsel for the sole purpose of rendering an opinion with respect to (i) the legality and validity of the Bonds under the Constitution and laws of the State of Texas and (ii) the exclusion of interest on the Bonds from gross income for federal income tax purposes. We have not investigated or verified original proceedings, records, data or other material, but have relied solely upon the transcript of certified proceedings described in the following paragraph. We have not assumed any responsibility with respect to the financial condition or capabilities of the Issuer or the disclosure thereof in connection with the offer and sale of the Bonds.

In our capacity as Bond Counsel, we have participated in the preparation of and have examined a transcript of certified proceedings pertaining to the authorization and issuance of the Bonds on which we have relied in giving our opinion. The transcript contains certified copies of certain proceedings of the Board of Directors of the Issuer, and certain certificates and other documents of representatives of the Issue and the Trustee and of others.

We have also examined such portions of the Constitution and statutes of the State of Texas, and such applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), court decisions, regulations and published rulings of the Internal Revenue Service (the “Service”), as we have deemed necessary for the purposes of this opinion.

As to questions of fact material to our opinion, we have relied, with your permission, upon representations of the Issuer contained in the Indenture, the certified proceedings and other certifications of public officials furnished to us, and certifications, documents, and other information furnished to us by or on behalf of the Issuer, Baylor Medical Center at Irving, d/b/a Baylor Scott & White Medical Center- Irving, a Texas nonprofit corporation (the “Tenant”), Citigroup Global Markets Inc. (the “Underwriter”), and others, without undertaking to verify the same by independent investigation.

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We have assumed, with your permission, and without independent verification (i) the genuineness of certificates, records and other documents and the accuracy and completeness of the statements contained therein; (ii) the due authorization, execution and delivery of the Indenture by the Trustee, and the validity and binding effect of the Indenture on the Trustee; (iii) that all documents and certificates submitted to us as originals are accurate and complete; (iv) that all documents and certificates submitted to us as copies are true and correct copies of the originals thereof; and (vi) that all information submitted to us was accurate and complete. No information has come to our attention that is inconsistent with the material facts that have been certified by the Issuer, the Tenant and others, and upon which we have relied in our opinions.

Based on the foregoing, and subject to the matters set forth herein, we are of the opinion that under existing law:

1. The Issuer is duly created and validly existing as a body politic and corporate of the State, duly created by the City Council of the City of Irving, Texas in accordance with Chapter 262, Texas Health and Safety Code, as amended, with the right, power and authority to enter into and perform the Indenture and issue the Bonds.

2. The Indenture has been duly authorized, executed and delivered by the Issuer and is a valid and binding obligation of the Issuer enforceable upon the Issuer in accordance with its terms.

3. The Bonds have been duly authorized, executed and delivered by the Issuer and are valid and binding limited obligations of the Issuer payable solely from the revenues and funds pledged under the Indenture, constitute Secured Debt under the Indenture and are secured by a lien on and pledge of the Trust Estate created by the Indenture on a parity with any additional Parity Bond hereafter issued to the extent provided in the Indenture. The holders of the Bonds shall never have the right to demand payment thereof out of any funds raised by taxation or out of any funds or resources of the Issuer other than the funds pledged under the Indenture

4. Interest on the Bonds is excludable from gross income of the holders of the Bonds for federal income tax purposes under existing law and is not included in computing the alternative minimum taxable income of individuals or, except as described below, corporations.

Except as stated above, we express no opinion as to any federal, state or local tax consequences resulting from the ownership of, receipt of interest on or disposition of the Bonds.

The opinions expressed herein are limited to the extent that (i) the performance and enforceability of the Indenture and the Bonds may be subject to applicable bankruptcy, reorganization, moratorium or other similar laws affecting generally the enforcement of creditors’ rights; (ii) general equitable principles may limit the availability of equitable remedies, including, but not limited to, the remedy of specific performance; and (iii) the enforceability of provisions relating to indemnification may be limited by public policy or applicable securities law.

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In rendering these opinions, we have relied, with your permission, on, among other things, certificates and agreements signed by officers of the Issuer, the Tenant, and the Underwriter with respect to certain material facts, estimates and expectations which are solely within the knowledge of the Issuer, the Tenant and the Underwriter, respectively, and that we have not independently verified. We have also relied on the opinion of Norton Rose Fulbright US LLP, counsel to the Tenant, of even date herewith, to the effect that the Tenant in an organization described in Section 501(c )(3) of the Code. In addition, in rendering the opinions set forth in paragraph 4, we have assumed continuing compliance with the covenants in the Indenture, the Trust Indenture and the Federal Tax Exemption Agreement between the Tenant and the Issuer (the “Tax Agreement”) pertaining to the use of the financed facilities and to those sections of the Code that affect the status of the Tenant as an organization described in Section 501(c)(3) of the Code and the exclusion from gross income of interest on Bonds for federal income tax purposes. If the documents upon which we have relied are determined to be inaccurate or incomplete, or the Issuer or the Tenant fails to comply with such covenants, interest on the Bonds could become includable in gross income from the date of their original delivery, regardless of the date on which the event causing such inclusion occurs.

Owners of the Bonds should be aware that the ownership of tax-exempt obligations may result in collateral federal income tax consequences to financial institutions, life insurance and property and casualty insurance companies, certain foreign corporations doing business in the United States of America, certain S corporations with Subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations and individuals otherwise qualifying for the earned income tax credit.

The opinions expressed herein are not a guarantee of result and are not binding on the Service; rather, such opinions represent our legal judgment based upon our review of existing law and in reliance upon the representations and covenants referenced above that we deem relevant to such opinions. The Service has an ongoing audit program to determine compliance with rules that relate to whether interest on state or local obligations is includable in gross income for federal income tax purposes. No assurance can be given as to whether or not the Service will commence an audit of the Bonds. If an audit is commenced, in accordance with its current published procedures, the Service is likely to treat the Issuer as the taxpayer. We observe that the Tenant has covenanted in the Tax Agreement not to take any action, or omit to take any action within its control, that if taken or omitted, respectively, would adversely affect the excludability of interest on the Bonds from gross income for federal income tax purposes.

The foregoing opinions speak only as of the date hereof and only in connection with the Bonds and may not be applied to any other transaction. We do not undertake to advise you of matters which may come to our attention subsequent to the date hereof that may affect our legal opinion and conclusions expressed herein. Further, the foregoing opinions are specifically limited to the laws of the State of Texas and, to the extent applicable, the federal laws of the United States of America.

Very truly yours,

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IRVING HOSPITAL AUTHORITY • Hospital Revenue Bonds (Baylor Scott & White Medical Center-Irving), Series 2017A