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P
LEDGE AGREEMENT
Dated as of April 1, 2022
between the
CITY OF SAN JOSE,
for and on behalf of Convention Center Facilities District No. 2008-1, City of San José, County of Santa Clara, State of California
and the
CITY OF SAN JOSE FINANCING AUTHORITY
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TABLE OF CONTENTS
A
RTICLE I
Definitions; Rules of Interpretation
SECTION 1.1. Definitions ...................................................................................................... 6 SECTION 1.2. Interpretation ................................................................................................. 9
ARTICLE II
Pledge of Special Taxes; Special Tax Fund; Payment of
Special Taxes
SECTION 2.1. Pledge of Special Taxes .............................................................................. 10 SECTION 2.2. Special Tax Fund ........................................................................................ 10 SECTION 2.3. Payment of Special Taxes ........................................................................... 10 SECTION 2.4. Revenue Stabilization Reserve ................................................................... 11 SECTION 2.5. Investments ................................................................................................. 12 SECTION 2.6. Issuance of Parity Debt ............................................................................... 12
ARTICLE III
Other Covenants
SECTION 3.1. No Senior Debt; Issuance of Subordinate Debt .......................................... 13 SECTION 3.2. Levy and Collection of the Special Tax ....................................................... 13 SECTION 3.3. Available T.O.T. ........................................................................................... 14 SECTION 3.4. Foreclosure of Special Tax Lien .................................................................. 14 SECTION 3.5. Accounting Records .................................................................................... 14
ARTICLE IV
Miscellaneous
SECTION 4.1. Term ............................................................................................................ 14 SECTION 4.2. Amendments ............................................................................................... 15 SECTION 4.3. Severability .................................................................................................. 15 SECTION 4.4. Further Assurances and Corrective Instruments ......................................... 15 SECTION 4.5. Execution in Counterparts. .......................................................................... 15 SECTION 4.6. Applicable Law ............................................................................................ 15 SECTION 4.7. Captions ...................................................................................................... 15 SECTION 4.8. Waiver of Personal Liability. ........................................................................ 15 DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document. 2 T
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PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this “ Pledge Agreement”), dated for convenience as of April 1, 2022, is between the CITY OF SAN JOSE, a charter city and municipal corporation duly organized and existing under the Constitution and laws of the State of California (the “City”), for and on behalf of “Convention Center Facilities District No. 2008- 1, City of San José, County of Santa Clara, State of California” (the “Convention Center Facilities District ”), and the CITY OF SAN JOSE FINANCING AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California, as lessor (the “Authority”).
B A C K G R O U N D :
1. The Authority is a joint exercise of powers authority duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement, dated December 8, 1992, by and between the City and the Redevelopment Agency of the City of San José (the “ Former Agency”), and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “ Act”), and is authorized pursuant to Article 4 of the Act (the “Bond Law”) to borrow money for the purpose, among other things, of financing and refinancing public capital improvements for the City and the Former Agency and the Authority has heretofore determined to adopt and implement a program under which the Authority will provide financing for certain public capital improvements for the City.
2. The Former Agency, as of February 1, 2012, has been dissolved and the City has become the successor agency of the Former Agency pursuant to Part 1.85 of Division 24 of the California Health and Safety Code and per California Health and Safety Code Section 34178(b)(3), the joint exercise of powers agreement establishing the Authority remains in effect.
3. On August 26, 2008, the City Council of the City (the “ City Council”) adopted Chapter 14.32 of the San José Municipal Code, entitled “Convention Center Facilities District Financing Procedures” (the “Chapter”), which Chapter incorporates by reference the Mello-Roos Community Facilities Act of 1982, as amended, Chapter 2.5 of Part 1 of Division 2 of Title 5 (commencing with Section 53311) of the California Government Code (the “Mello-Roos Act”).
4. Beginning in September 2008, the City Council undertook to form its “Convention Center Facilities District No. 2008-1, City of San José, County of Santa Clara, State of California” (the “Convention Center Facilities District”) pursuant to the Chapter for the purpose of financing the acquisition, reconstruction, rehabilitation, replacement or upgrade of the San José Convention Center (the “Facilities”), which convention center is now known as the San José McEnery Convention Center (the “Convention Center”).
5. On March 10, 2009, the City Council duly adopted Resolution No. 74826 (the “Resolution of Formation ”), establishing the Convention Center Facilities District and authorizing the levy of a special tax by the City Council, as the legislative body of the Convention Center Facilities District, within the Convention Center Facilities District (as more fully defined herein, the “ Special Tax”) in accordance with the rate and method of DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document. 3 T
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apportionment of the Special Tax and providing for the levy of the Special Tax in an amount sufficient to, among other things, finance the Facilities, incidental expenses, the making of lease payments for facilities, and the payment of interest on and principal of Debt (as defined in the Chapter) issued to finance the acquisition and construction of the Facilities.
6. Also on March 10, 2009, the City Council duly adopted Resolution No. 74827 (the “Resolution Deeming it Necessary to Incur Indebtedness ”), authorizing the City Council to issue, over the life of the Convention Center Facilities District, bonds in the principal amount of not to exceed $750,000,000, and stating that the authorization to finance the acquisition and construction of the Facilities includes, among other things, the issuance of Debt.
7. Under the Chapter the term “Debt” has the meaning given to such term in the Mello-Roos Act, and Section 53317(d) of the Mello-Roos Act defines such term to include, among other things, any binding obligation to pay or repay a sum of money, including obligations in the form of bonds, certificates of participation and long-term leases.
8. The City is authorized under Section 14.32.300 of the Chapter and Section 53313.5(g) of the Mello-Roos Act to use Special Taxes to make lease payments under leases.
9. Also on March 10, 2009, the City Council adopted Resolution No. 74828 in which it appointed the City Clerk to be the official to conduct the election within the Convention Center Facilities District pursuant to Section 533327(b) of the Mello-Roos Act, prescribed the form of the ballot, set June 9, 2009 as election day, and provided for the election procedures.
10. At the election, the qualified electors of the Convention Center Facilities District duly authorized the Special Tax and the issuance of bonds in accordance with the Resolution of Formation and the Resolution Deeming it Necessary to Incur Indebtedness by a 78% vote.
11. On March 30, 2010, the Santa Clara County Superior Court entered its Validation Default Judgment in case number 1-09-CV-148458 (the “ Validation Default Judgment”) in which it ruled, among other things, that the Convention Center Facilities District was lawfully formed, that the landowner election was properly conducted, the Special Tax and the bonds and other related contracts authorized or contemplated by the City were properly authorized, and all persons are permanently enjoined from bringing any action to challenge any aspect of the Convention Center Facilities District.
12. The Validation Default Judgment was appealed, and on September 23, 2010, Court of Appeal for the Sixth Appellate District dismissed the appeal.
13. As of November 23, 2010, the Validation Default Judgment is final for all purposes.
14. The City previously issued its City of San José Special Hotel Tax Revenue Bonds, Series 2011 (Convention Center Expansion and Renovation Project) in the original aggregate principal amount of $107,425,000 (the “ 2011 CCFD Bonds”) for the purpose of financing a portion of the cost of the first phase of the expansion of and renovations to DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document. 4 T
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the Convention Center (the “Convention Center Expansion and Renovation Project”), which bonds are secured by a pledge of Special Taxes.
15. The Authority previously issued its City of San José Financing Authority Lease Revenue Bonds, Series 2011A (Convention Center Expansion and Renovation Project) in the original aggregate principal amount of $30,985,000 (the “ 2011A Lease Revenue Bonds”), for the purpose of financing a portion of the cost of the Convention Center Expansion and Renovation Project, which bonds are secured by a pledge of Special Taxes on a basis subordinate to the pledge thereof to the 2011 CCFD Bonds.
16. As a result of the issuance of the 2011 CCFD Bonds and the 2011A Lease Revenue Bonds, $611,590,000 principal amount of Debt remains authorized to be issued or incurred by the City under the Resolution Deeming it Necessary to Incur Indebtedness prior to the issuance of the 2022A Bonds (as defined below).
17. In 2013, the Authority issued its Tax-Exempt Lease Revenue Commercial Paper Notes in the aggregate principal amount of $10,000,000, to assist the City with financing a portion of the Convention Center Expansion and Renovation Project, which notes are no longer outstanding.
18. In 2017, the Authority issued its Taxable Lease Revenue Commercial Paper Notes in the aggregate principal amount of $15,000,000 (collectively, together with all Taxable Lease Revenue Commercial Paper Notes subsequently issued by the Authority to refinance such notes, the “ Exhibit Hall Commercial Paper Notes ”) to assist the City with financing, on an interim basis, certain public capital improvements of the City, consisting of lighting and ceiling upgrades to the exhibit hall of the Convention Center and certain related costs (the “Exhibit Hall Project”).
19. The Exhibit Hall Commercial Paper Notes are outstanding in the aggregate principal amount of $8,432,437.
20. In 2018, the Authority issued its Taxable Lease Revenue Commercial Paper Notes in the aggregate principal amount of $42,400,000 (collectively, together with all Taxable Lease Revenue Commercial Paper Notes subsequently issued by the Authority to refinance such notes, the “ South Hall Commercial Paper Notes ”) to assist the City with financing, on an interim basis, the purchase of certain real property in the City commonly known as the San José Convention Center South Hall and payment of certain related costs (the “South Hall Acquisition Project”).
21. The South Hall Commercial Paper Notes are outstanding in the aggregate principal amount of $42,400,000.
22. The Exhibit Hall Project and the South Hall Acquisition Project constitute Facilities.
23. The outstanding 2011 CCFD Bonds are subject to optional redemption in full on any date at a redemption price equal to the principal amount of 2011 CCFD Bonds to be redeemed plus accrued but unpaid interest to the redemption date, without premium, and the City wishes to refund the outstanding 2011 CCFD Bonds.
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24. The outstanding 2011A Lease Revenue Bonds are subject to optional redemption on any date at a redemption price equal to the principal amount of 2011A Lease Revenues Bonds to be redeemed plus accrued but unpaid interest to the redemption date, without premium, and the City and the Authority wish to refund the outstanding 2011A Lease Revenue Bonds.
25. The City and the Authority wish to also refund the outstanding Exhibit Hall Commercial Paper Notes and South Hall Commercial Paper Notes.
26. To refund the outstanding 2011 CCFD Bonds, 2011A Lease Revenue Bonds, Exhibit Hall Commercial Paper Notes and South Hall Commercial Paper Notes, the City has proposed to lease to the Authority certain real property and improvements, initially consisting of the Convention Center (but excluding the South Hall Acquisition Project), as more particularly described in Appendix A attached to the Lease (collectively, the “Leased Property”), under a Site Lease, dated as of the date hereof, by and between the City and the Authority (the “ Site Lease”) in consideration of the payment by the Authority of an upfront rental payment (the “Site Lease Payment”) which is sufficient to provide funds for the refunding of the outstanding 2011 CCFD Bonds, 2011A Lease Revenue Bonds, Exhibit Hall Commercial Paper Notes and South Hall Commercial Paper Notes.
27. The Authority has authorized the issuance of its City of San José Financing Authority Taxable Lease Revenue Bonds, Series 2022A (Convention Center Refunding Project) in the aggregate principal amount of $[PAR].00 (the “ 2022A Bonds”) under an Indenture of Trust dated as of April 1, 2022 (the “ Indenture”), between the Authority and Wilmington Trust, National Association, as trustee (the “ Trustee”), for the purpose of providing the funds to enable the Authority to pay the Site Lease Payment to the City in accordance with the Site Lease.
28. In order to provide revenues that are sufficient to enable the Authority to pay debt service on the 2022A Bonds, the Authority has leased the Leased Property back to the City under a Lease Agreement dated the date hereof (the “ Lease”), under which the City has agreed to pay semiannual Lease Payments as the rental for the Leased Property thereunder.
29. The Lease Payments made by the City under the Lease have been assigned by the Authority to the Trustee for the security of the 2022A Bonds under an Assignment Agreement dated as of the date hereof, between the Authority as assignor and the Trustee as assignee.
30. The City Council is the legislative body of the Convention Center Facilities District.
31. Under Chapter 5.5 (commencing with Section 5450) of Division 6 of Title 1 of the California Government Code, a pledge of collateral by any public body to secure, directly or indirectly, the payment of the principal or redemption price of, or interest on, any bonds shall be valid and binding in accordance with the terms of the pledge document from the time the pledge is made for the benefit of the pledgees and successors thereto.
32. In order to further secure the 2022A Bonds, the City, for and on behalf of the Convention Center Facilities District, and the Authority have entered into this Pledge Agreement, pursuant to which the City, for and on behalf of the Convention Center DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document. 6 T
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Facilities District, agrees to, among other things, levy and collect Special Taxes to make Lease Payments required to be paid by the City to the Authority under the Lease, as permitted under to Section 14.32.300 of the Chapter and Section 53313.5(g) of the Mello- Roos Act, and pledged a lien and security interest in the Special Taxes that are collected by the City to the payment of such Lease Payments under Section 5451 of the California Government Code to the extent provided herein for the purpose of satisfying the City’s obligation to make Lease Payments under the Lease.
33. On the Closing Date of the 2022A Bonds, $_____ principal amount of Debt will remain authorized to be issued or incurred by the City, for and on behalf of the Convention Center Facilities District, under the Resolution Deeming it Necessary to Incur Indebtedness, as a result of the issuance of the 2022A Bonds.
34. The City, for and on behalf of the Convention Center Facilities District, and the Authority have found and determined that all acts and proceedings required by law necessary to make this Pledge Agreement, when executed by the City, for and on behalf of the Convention Center Facilities District, and the Authority the valid, binding and legal obligations of the City, for and on behalf of the Convention Center Facilities District, and the Authority, and to constitute this Pledge Agreement a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Pledge Agreement have been in all respects duly authorized.
A G R E E M E N T :
In consideration of the material covenants contained in this Pledge Agreement, the parties hereto hereby formally covenant, agree and bind themselves as follows:
ARTICLE I
DEFINITIONS; RULES OF INTERPRETATION
SECTION 1.1. Definitions. Unless the context clearly otherwise requires or unless otherwise defined herein, the terms defined in this Section 1.1 shall, for purposes of this Pledge Agreement and of any certificate, opinion or other document herein mentioned, the meanings herein specified. Unless the context clearly otherwise requires or unless otherwise defined herein, the capitalized terms in this Pledge Agreement have the respective meanings given them in the Indenture.
“Additional Special Tax” means the 1% Special Tax described in Section D and levied pursuant to Section E of the Rate and Method.
“Available T.O.T.” means the portion of the City's transient occupancy tax special fund (SJMC Section 4.80.1900) available for the purposes described in SJMC Section
4.72.065.B.3 as allocated pursuant to SJMC Section 4.72.065.C. “Base Special Tax” means the 4% Special Tax described in Section C and levied pursuant to Section E of the Rate and Method.
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"Bond Year" means each twelve-month period extending from May 2 in one calendar year to May 1 of the succeeding calendar year, both dates inclusive; except that the first Bond Year commences on the closing date of the 2022A Bonds and extends to and including May 1, 2023.
“Chapter” means the City of San José’s Municipal Code, Chapter 14.32 entitled “Convention Center Facilities District Financing Procedure,” which includes by reference, to the extent they are not amended by the specific terms of Chapter 14.31, the provisions of the Mello-Roos Act as they existed as of August 26, 2008 (the date of adoption of Ordinance No. 28387, which placed Chapter 14.31 into the City of San José’s Municipal Code).
“Code” means the Internal Revenue Code of 1986 as in effect on the closing date of the 2022A Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the closing date of the 2022A Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under said Code.
“Debt” has the meaning given to such term under Section 53317(d) of Mello-Roos Act. This Pledge Agreement and Lease constitute “Debt” under said Section 53317(d). “Expenses” means all expenses paid or incurred by the City, for and on behalf of the Convention Center Facilities District, for the cost of planning and designing the Improvements, including the cost of environmental evaluations of the Improvements and the costs associated with the management of the Convention Center Facilities District, the issuance or incurrence and administration of any Debt payable in whole or in part from proceeds of the Special Tax, the determination of the amount of the Special Tax, the collection of the Special Tax and the payment of the Special Tax, or costs otherwise incurred in order to carry out the authorized purposes of and to administer the Convention Center Facilities District, any amounts required to be rebated to the federal government, and any other expenses incidental to the acquisition and construction of the Improvements; all as determined in accordance with Generally Accepted Accounting Principles.
“Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor.
“Hotel Property” has the meaning given to such term in the Rate and Method. “
Improvements” means the acquisition, expansion, construction, reconstruction, rehabilitation, replacement or upgrade of the San José Convention Center authorized to be financed by the Convention Center Facilities District. “Lease” means the Lease Agreement dated as of April 1, 2022, between the Authority as lessor and the City as lessee of the Leased Property, as originally executed and as it may from time to time be supplemented, modified or amended in accordance with the terms thereof and of the Indenture.
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“Lease Payment Date” means, with respect to any Interest Payment Date, the Business Day immediately preceding such Interest Payment Date. “Lease Payments” means the amounts payable by the City under Section 4.3(a) of the Lease, including any prepayment thereof and including any amounts payable upon a delinquency in the payment thereof.
“Legal Investments” means any securities in which funds of the City may be legally invested in accordance with applicable law in effect at the time of such investment and in accordance with the City Council Investment Policy 1-12, as amended (unless compliance with the Investment Policy is waived in writing by the Director of Finance of the City). “Maximum Annual Debt Service” means, with respect to any series of Bonds or Parity Debt, the maximum sum obtained for any Bond Year prior to the final maturity of such Bonds or Parity Debt by totaling the following for each Bond Year:
(1) The amount of all outstanding Bonds or Parity Debt of that series payable in such Bond Year;
(2) The principal amount of any Bonds or Parity Debt of that series scheduled to be called and redeemed in such Bond Year; and (3) The interest payable on the aggregate principal amount of the outstanding Bonds or Parity Debt of that series in such Bond Year if such Bonds are, or such Parity Debt is, retired as scheduled.
"Mello-Roos Act” means the Mello-Roos Community Facilities Act of 1982, as amended, Chapter 2.5 of Part 1 of Division 2 of Title 5 (commencing with Section 53311) of the California Government Code.
“Parity Debt” means Debt issued or incurred by the City under Section 2.6 of this Pledge Agreement which is secured by a pledge of and lien on the Special Taxes on a parity with the lien and security interest in the Special Taxes pledged hereunder by the City for the benefit of the Authority as security for the City’s obligations to make Lease Payments under the Lease. For the avoidance of doubt, such Debt includes bonds issued by the City and lease obligations, including without limitation, any obligation to make Lease Payments for the payment of the principal of and interest on Additional Bonds issued by the Authority pursuant to Section 2.08 of the Indenture. “Parity Debt Documents” means, collectively, the indenture of trust, trust agreement, fiscal agent agreement, lease, loan agreement or other document authorizing the issuance or incurrence of any Parity Debt or any securities which evidence Parity Debt. “Parity Debt Trustee” means the trustee or fiscal agent, as applicable, for any Parity Debt.
“Rate and Method” means the “Rate and Method of Apportionment of Special Tax” adopted by the City Council as part of the Resolution of Formation.
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“Revenue Stabilization Reserve” means the fund by that name established in the Rate and Method and held and administered by the City under Section 2.4 hereof. “Revenue Stabilization Reserve Requirement” means, as of any date of determination (A) the lesser of (1) aggregate Maximum Annual Debt Service on the outstanding Bonds and Parity Debt (without duplication), and (2) the maximum permitted by the Code for the preservation of the tax-exempt status of any Bonds and Parity Debt (without duplication) the interest on which is intended to be exempt from federal taxation, less (B) any amounts on deposit in one or more debt service reserve funds or accounts established for any Additional Bonds issued by the Authority under the Indenture, and less (C) any amounts on deposit in one or more debt service reserve funds or accounts established for any Parity Debt issued or incurred by the City under any Parity Debt Documents. As of the Closing Date of the 2022A Bonds, the Revenue Stabilization Reserve Requirement is $______.
“Special Tax Fund” means the special fund designated “Convention Center Facility District Revenue Fund” established and administered under Section 2.1 hereof. “Special Tax” means the special tax as set forth in the “Rate and Method of Apportionment of Special Tax” adopted by the City Council as part of the Resolution of Formation.
“SJMC” means the City of San José Municipal Code.
“
Taxable Property” has the meaning given in the Rate and Method.
SE
CTION 1.2. Interpretation.
(a) Unless the context otherwise indicates, words expressed in the singular includes the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and includes the neuter, masculine or feminine gender, as appropriate.
(b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and do not affect the meaning, construction or effect hereof.
(c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Pledge Agreement; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to this Pledge Agreement as a whole and not to any particular Article, Section or subdivision hereof.
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ARTICLE II
PLEDGE OF SPECIAL TAXES; SPECIAL TAX FUND;
PAYMENT OF SPECIAL TAXES
SECTION 2.1. Pledge of Special Taxes. The City, for and on behalf of the Convention Center Facilities District, hereby pledges a lien and security interest in the Special Taxes for the benefit of the Authority as security for the City’s obligations to make Lease Payments under the Lease. Such pledge shall be a first and exclusive pledge of the Special Taxes subject to other permitted uses set forth in this Pledge Agreement. The pledge of Special Taxes hereunder shall be senior to any other pledge of Special Taxes.
Notwithstanding anything contained in the Lease to the contrary, the City’s obligation to remit Special Taxes to the Trustee pursuant to Section 2.3(a) hereof to the extent such taxes are available is not subject to abatement under Sections 6.2 or 6.3 of the Lease.
The City, for and on behalf of the Convention Center Facilities District, agrees that the Special Taxes paid to the Trustee and any Parity Debt Trustee under this Pledge Agreement shall be used to pay debt service on Bonds and any Parity Debt, replenish any debt service reserve funds therefore and other amounts provided under the Indenture and any Parity Debt Documents.
The City acknowledges that, pursuant to Section 5.01(b) of the Indenture, the Authority has assigned to the Trustee, for the benefit of the Owners of all Bonds which are issued and Outstanding under the Indenture, all Special Tax Revenues.
SECTION 2.2. Special Tax Fund. The City has established a fund to be held by or on behalf of the City as separate special fund known as the “Convention Center Facility District Revenue Fund” (the “Special Tax Fund”). Promptly upon receipt thereof, the City shall deposit all Special Taxes received in any Bond Year in the Special Tax Fund. The City may establish separate accounts within the Special Fund, and separate sub-accounts within such accounts in its discretion.
Amounts deposited to and held by the City in the Special Fund and the accounts therein shall be at all times separately accounted for by the City from all other funds or accounts, and the Special Taxes shall be used and applied solely as set forth in this Pledge Agreement.
On each May 1, Special Taxes in excess of the amounts required for the City to meet its obligations, for and on behalf of the Convention Center Facilities District, under paragraphs (a) through (c) of Section 2.3 hereof in such Bond Year shall be released from the pledge and lien created by this Pledge Agreement pursuant to Section 2.1 to secure the City’s obligations to make Lease Payments under the Lease, subject to the obligation of the City, for and on behalf of the Convention Center Facilities District, to make the deposit required by Section 2.3(d).
SECTION 2.3. Payment of Special Taxes. The City, for and on behalf of the Convention Center Facilities District, shall withdraw Special Taxes from the Special Tax Fund and apply such amounts to the extent available for the purposes, and in the following order of priority, each item to be fully satisfied (by payment of such item or reservation of Special Taxes for such item) before the item next in priority:
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(a) First: Debt Service. Transfer to the Trustee and each Parity Debt Trustee, the following, respectively: (i) on each Lease Payment Date, the Lease Payments required to be paid by the City under Section 4.3(a) of the Lease less any amounts on deposit in the Bond Fund established and held under the Indenture; and (ii) on each Interest Payment Date, any amounts coming due and payable with respect to any Parity Debt under the Parity Debt Documents, including without limitation, any mandatory sinking fund payments required thereunder, less amounts on deposit in any funds and accounts established and held by the Parity Debt Trustee under any Parity Debt Documents that are available for the payment of such amounts.
(b) Second: Reserve Funds. Transfer to the Trustee, with respect to any debt service reserve funds or accounts established for any Additional Bonds under the Indenture or any Parity Debt under any Parity Debt Documents, the following, respectively:
(i) an amount equal to that required to (A) maintain the balance in each such fund or account equal to the applicable reserve requirement as provided in a Supplemental Indenture, or (B) reimburse the provider of a debt service reserve policy or surety bond delivered for the purpose of satisfying such requirement in accordance with the terms of such Supplement Indenture; and (ii) an amount equal to that required to (A) maintain the balance in each such fund or account equal to the applicable reserve requirement as provided in such Parity Debt Documents or reimburse the provider of a debt service reserve policy or surety bond delivered for the purpose of satisfying such requirement, or (B) reimburse the provider of a debt service reserve policy or surety bond delivered for the purpose of satisfying such requirement in accordance with the terms of such Parity Debt Documents.
(c) Third: Expenses. Pay Expenses when due and, prior to transferring Special Taxes pursuant to Fourth below, shall set aside any Special Taxes required to pay Expenses from such Special Taxes.
(d) Fourth: Revenue Stabilization Reserve. Transfer to the Revenue Stabilization Reserve, an amount equal to that required to restore the Revenue Stabilization Reserve to the Revenue Stabilization Reserve Requirement; provided, that no deposit need be made into the Revenue Stabilization Reserve if the amount on deposit therein is at least equal to the Reserve Stabilization Reserve Requirement.
On each May 1, Special Taxes in excess of the amounts required to be deposited in the Revenue Stabilization Reserve pursuant to paragraph (d) of Section 2.3 hereof, if any, shall be used by the City, for and on behalf of the Convention Center Facilities District, for any lawful purpose within the authority conferred to the Convention Center Facilities District.
SECTION 2.4. Revenue Stabilization Reserve. The City has heretofore established a fund known as the “City of San José Convention Center Facilities District Revenue Stabilization Reserve” (herein referred to as the “Revenue Stabilization Reserve”). On the Closing Date of the 2022A Bonds, the City shall transfer, or caused to be transferred, Special Taxes in the amount of $________ into the Revenue Stabilization Fund, representing the Revenue Stabilization Reserve Requirement on such date.
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All money in the Revenue Stabilization Reserve may only be used and withdrawn by the City, for and on behalf of the Convention Center Facilities District, for the following purposes and in the following order of priority:
First, for the purpose of making the payments required to be made under Section 2.3(a) hereof to the extent Special Taxes available therefor are insufficient.
Second, if at any time, as a result of any of the valuations performed pursuant to Section 2.5 hereof, it is determined that the amount of money in the Revenue Stabilization Reserve exceeds the Revenue Stabilization Reserve Requirement, the City shall withdraw the amount of money representing such excess from the Revenue Stabilization Reserve to be used for any lawful purpose within the authority conferred by the Convention Center Facilities District and such Special Taxes shall be released from the lien under Section 2.1 hereof.
Amounts held in the Revenue Stabilization Reserve are not pledged as security for the City’s obligations hereunder or any other obligations, including without limitation, the Bonds.
SECTION 2.5. Investments. All moneys in any of the funds or accounts established or held by the City, for and on behalf of the Convention Center Facilities District, under this Pledge Agreement shall be invested by the City solely in Legal Investments. All interest or gain derived from the investment of amounts in any of the funds or accounts established or held by the City hereunder shall be deposited in such fund or account. All investments in the Revenue Stabilization Reserve shall be valued on or before each November 2 and May 2 of each year at the face value thereof.
SECTION 2.6. Issuance of Parity Debt. Parity Debt may be incurred by the City, for and on behalf of the Convention Center Facilities District, in such principal amount as the City determines, subject to the following conditions precedent:
(a) Such Parity Debt shall have been authorized to finance Facilities authorized pursuant to and in accordance with the terms of the Chapter, or to refund bonds or other Debt previously issued to finance or refinance such capital improvements. (b) The City shall be in compliance with all agreements, conditions, covenants and terms contained herein, in the Indenture and all Parity Debt Documents required to be observed or performed by it (including without limitation any conditions precedent set forth in any Parity Debt Documents relating to the issuance or incurrence by the City of Parity Debt), and no default hereunder or thereunder shall have occurred and shall be then continuing.
(c) The proposed Parity Debt shall not cause the debt authorization of the Convention Center Facilities District to be exceeded as shown by a certificate of the City, or an independent, nationally recognized municipal finance consultant on file with the Trustee and Parity Debt Trustee for any Parity Debt then outstanding. As of the Closing Date of the 2022A Bonds, such amount is $_________.
(d) The Parity Debt Document for such Parity Debt shall provide that:
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(i) with respect to Parity Debt constituting lease obligations of the City, interest on such Parity Debt shall be payable on a Lease Payment Date, and principal shall be payable on September 1 (provided that there shall be no requirement that any such Parity Debt pay interest on a current basis); and
(ii) with respect to all Parity Debt other than lease obligations of the City, interest on such Parity Debt shall be payable on an Interest Payment Date, and principal shall be payable on May 1 (provided that there shall be no requirement that any such Parity Debt pay interest on a current basis).
Any Parity Debt may, but is not required to, be secured by a separate reserve fund or account established therefore in the Parity Debt Document authorizing the issuance or incurrence of such Parity Debt in an amount specified in secured by a separate reserve fund or account established therefore in the Parity Debt Document.
(e) The balance in the Revenue Stabilization Reserve shall be no less than the Revenue Stabilization Reserve Requirement on the date the proposed Parity Debt is issued or incurred by the City, calculated as if the proposed Parity Debt were outstanding, as evidenced by a certificate of the City or an independent, nationally recognized municipal finance consultant on file with the Trustee and Parity Debt Trustee for any Parity Debt then outstanding.
ARTICLE III
OTHER COVENANTS
SECTION 3.1. No Senior Debt; Issuance of Subordinate Debt. The City, for and on behalf of the Convention Center Facilities District, hereby covenants that, so long as the Bonds or any Parity Debt are outstanding, the City, for and on behalf of the Convention Center Facilities District, shall not issue or incur, any Debt which is in any case payable from all or any part of the Special Taxes, except (i) the Lease Payments (including any Lease Payments for the payment of the principal of and interest on Additional Bonds issued by the Authority pursuant to Section 2.08 of the Indenture, which said Section 2.08 requires compliance with Section 2.6 hereof), (ii) Parity Debt issued or incurred pursuant to Section 2.6 hereof, (iii) Debt payable from, but not secured by a pledge of or lien upon Special Taxes, and (iv) Debt secured by a pledge of or lien on any Special Taxes which is subordinate to the pledge and lien which secures the Lease Payments and any Parity Debt.
SECTION 3.2. Levy and Collection of the Special Tax. The City, for and on behalf of the Convention Center Facilities District, will continually levy the Base Special Tax against all Hotel Property in the Convention Center Facilities District and make provision for the collection of the Base Special Tax so long as any Bonds or Parity Debt are outstanding.
(a) If, on any May 2 in a Fiscal Year in which the Additional Special Tax is not being levied, the amount in the Revenue Stabilization Reserve is less than the Revenue DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document. 14 T-42229-21\1905509_2
Stabilization Reserve Requirement, the City Manager shall formally request the City Council to consider levying the Additional Special Tax for the following Fiscal Year. (b) If, on any May 2 in a Fiscal Year in which the Additional Special Tax is being currently levied, the amount in the Revenue Stabilization Reserve is less than the Revenue Stabilization Reserve Requirement, the City Council shall levy the Additional Special Tax for the following Fiscal Year.
(c) The City will give all required notices of the commencement, continuance and cessation of the Additional Tax on a timely basis.
The failure by the City Council to levy the Additional Special Tax shall not be a violation of this Section 3.2 or default hereunder. For purposes of the Rate and Method, this Pledge Agreement is a “Bond Document”, and the Lease is a “Bond” as such terms are defined in the Rate and Method.
SECTION 3.3. Available T.O.T. If, on any May 2 in a Fiscal Year in which the Additional Special Tax is being levied, the amount in the Revenue Stabilization Reserve is less than the Revenue Stabilization Reserve Requirement, then the City Manager may formally request the City Council to appropriate, in its annual budget for the following Fiscal Year, the Available T.O.T. for transfer to and deposit in the Revenue Fund, provided that a failure of the City Council to appropriate such funds shall not be a violation of this covenant or a default hereunder.
SECTION 3.4. Foreclosure of Special Tax Liens. The City shall periodically monitor the collections of the Special Tax and, on the basis of such monitoring the City shall require the Director of Finance of the City to implement the procedures of Section H of the Rate and Method to seek payment of the Special Tax as to the delinquent parcel. If the procedures of Section H prove unsuccessful, the City shall institute foreclosure proceedings as authorized by the Chapter against the parcel that is delinquent in the payment of the Special Tax in order to enforce the lien of all delinquent installments of the Special Tax as to that parcel, and will diligently prosecute and pursue the foreclosure proceedings to judgment and sale; provided that any actions taken to enforce delinquent Special Tax liens shall be taken only consistent with Sections 53356.1 through 53356.7, both inclusive, of the Mello-Roos Act. The proceeds of all foreclosure actions, after payment from those proceeds of all foreclosure expenses, are Special Tax revenues and shall be deposited in the Special Tax Fund under Section 2.1 hereof.
SECTION 3.5. Accounting Records. The City will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the receipt, investment, disbursement, allocation and application of the proceeds of the Special Tax.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Term. The term of this Pledge Agreement shall commence on the date of issuance of the 2022A Bonds and shall end on the date no Bonds or Parity Debt are outstanding.
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SECTION 4.2. Amendments. This Agreement may be modified or amended from time to time and at any time in a manner not inconsistent with the purposes of amendment in the Indenture, the Lease and any Parity Debt Documents and, in particular, for any purpose that does not materially and adversely affect the interests of the owners of the Bonds and any Parity Debt upon delivery of an opinion of Bond Counsel to such effect.
SECTION 4.3. Severability. If any provision of this Pledge Agreement is held invalid or unenforceable by any court of competent jurisdiction, such holding will not invalidate or render unenforceable any other provision hereof.
SECTION 4.4. Further Assurances and Corrective Instruments. The City, for and on behalf of the Convention Center Facilities District, and the City shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements hereto and such further instruments for carrying out the expressed intention of this Pledge Agreement.
SECTION 4.5. Execution in Counterparts. This Pledge Agreement may be executed in several counterparts, each of which is an original and all of which constitute but one and the same instrument.
SECTION 4.6. Applicable Law. This Pledge Agreement is governed by and construed in accordance with the laws of the State of California.
SECTION 4.7. Captions. The captions or headings in this Pledge Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or section of this Pledge Agreement.
SECTION 4.8. Waiver of Personal Liability. All liabilities under this Pledge Agreement on the part of the City, for and on behalf of the Convention Center Facilities District, and on the part of the Authority are solely their respective corporate liabilities as public entities, and the City, for and on behalf of the Convention Center Facilities District, and the City hereby release each and every member and officer of the other party of and from any personal or individual liability under this Pledge Agreement. No member or officer of the City and the Authority or their respective governing boards shall at any time or under any circumstances be individually or personally liable under this Pledge Agreement for anything done or omitted to be done by the City, for and on behalf of the Convention Center Facilities District, or the Authority hereunder. [Signature Page Follows on Next Page]
DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document. [
Signature Page to Pledge Agreement]
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IN WITNESS WHEREOF, the City, for and on behalf of the Convention Center Facilities District, and the Authority have caused this Pledge Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written.
CITY OF SAN JOSE,
for and on behalf of Convention Center
Facilities District No. 2008-1, City of San
José, County of Santa Clara, State of
California
By
Julia H. Cooper
Director of Finance
Attest:
City Clerk
Approved as to form:
Nora Frimann, City Attorney
By:
Rosa Tsongtaatarii
Senior Deputy City Attorney
CITY OF SAN JOSE FINANCING
AUTHORITY
By
Julia H. Cooper
Treasurer
Attest:
Secretary
DRAFT--Contact the Office of the City Clerk at (408) 535-1260 or [email protected] for final document.