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Contract - BNY Western Trust - 2004-07-14 CUSTODY AGREEMENT (U.S. Securities) AGREEMENT dated as of 7/14/04 between Costa Mesa Sanitary District ("Customer") and BNY Western Trust Company("Custodian"). ARTICLE I DEFINITIONS Whenever used in this Agreement,the following words shall have the meanings set forth below 1. Authorized Person' shall be any person, whether or not an officer or employee of Customer, duly authorized by Customer to give Oral and/or Written Instructions on behalf of Customer, such persons to be designated in a Certificate of Authorized Persons which contains a specimen signature of such person. 2. 'BNY Affiliate' shall mean any office,branch or subsidiary of The Bank of New York Company Inc. 3. 'Book-Entry System' shall mean the Federal Reserve/Treasury book-entry system for receiving and delivering securities, its successors and nominees. 4. 'Business Day shall mean any day on which Custodian,Book-Entry System and relevant Depositories are open for business. 5. 'Depository shall include the Depository Trust Company and any other securities depository or clearing agency (and their respective successors and nominees)registered with the Securities and Exchange Commission or othenvise authorized to act as a securities depository or clearing agency 6. 'Oral Instructions' shall mean instructions received verbally by Custodian. 7 'U.S. Securities' shall include, without limitation, securities held in the Book-Entry System or at a Depository common stock and other equity securities, bonds, debentures and other debt securities, notes, mortgages or other obligations, and any instruments representing rights to receive, purchase,or subscribe for the same,or representing any other rights or interests therein. S. 'Written Instructions' shall mean written communications actually received by Custodian by S.W.I.F T tested telex, letter, facsimile transmission, or other method or system specified by Custodian as available for use in connection with the services hereunder. ARTICLE II APPOINTMENT OF CUSTODIAN; ACCOUNTS; REPRESENTATIONS AND WARRANTIES Customer hereby appoints Custodian as custodian of all U.S. Securities and cash at any time delivered to Custodian during the term of this Agreement, and authorizes Custodian to hold U.S. Securities in registered form in its name or the name of its nominees. Custodian hereby accepts such appointment and agrees to establish and maintain one or more securities accounts and cash accounts in the name of Customer(collectively the Account") in which it will hold U.S. Securities and cash as provided herein. 2. Customer hereby represents and warrants, which representations and•warranties shall be continuing and shall be deemed to be reaffirmed upon each Oral or Written Instruction given by Customer,that: (a) Customer is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted,to enter into this Agreement and to perform its obligations hereunder (b) This Agreement has been duly authorized, executed and delivered by Customer, constitutes a valid and legally binding obligation of Customer, enforceable in accordance with its terms, and no statute, regulation, rule, order,judgment or contract binding on Customer prohibits Customer's execution or performance of this Agreement;and 2 (c) Either Customer owns the U.S. Securities in the Account free and clear of all liens, claims, security interests and encumbrances (except those granted herein) or, if the U.S. Securities are owned beneficially by others, Customer has the right to pledge such U.S. Securities to the extent necessary to secure Customer's obligations hereunder,free of any right of redemption or prior claim by the beneficial owner. Custodian's security interest pursuant to Article V hereof shall be a first lien and security interest subject to no setoffs, counterclaims or other liens prior to or on a parity with it in favor of any other party (other than specific liens granted preferred status by statute),and Customer shall take any and all additional steps which are required to assure Custodian of such priority and status, including notifying third parties or obtaining their consent to, Custodian's security interest. ARTICLE III CUSTODY AND RELATED SERVICES Subject to the terms hereof, Customer hereby authorizes Custodian to hold any U.S. Securities received by it from time to time for Customer's account. Custodian shall be entitled to utilize the Book-Entry System and Depositories to the extent possible in connection with its performance hereunder. U.S. Securities and cash deposited by Custodian in the Book-Entry System or a Depository will be held subject to the rules, terms and conditions of the Book-Entry System or such Depository Custodian shall identify on its books and records the U.S. Securities and cash belonging to Customer, whether held directly or indirectly through the Book-Entry System or a Depository U S. Securities and cash of Customer deposited in the Book-Entry System or a Depository will be represented in accounts which include only assets held by Custodian for its customers. 2. Custodian shall furnish Customer with an advice of daily transactions and a monthly summary of all transfers to or from the Accounts. Customer may elect to receive advices,confirmations,reports or statements electronically through the Internet to an email address specified by it for such purpose. By electing to use the Internet for this purpose, Customer acknowledges that such transmissions are not encrypted and therefore are insecure. Customer further acknowledges that there are other risks inherent in communicating through the Internet such as the possibility of virus contamination and disruptions in service,and agrees that Custodian shall not be responsible for any loss, damage or expense suffered or incurred by Customer or any person claiming by or through Customer as a result of the use of such methods. 3. With respect to all U.S. Securities held in the Account,Custodian shall, unless otherwise instructed to the contrary. (a) Receive all income and other payments and advise Customer as promptly as practicable of any such amounts due but not paid; (b) Present for payment and receive the amount paid upon all U.S. Securities which may mature and advise Customer as promptly as practicable of any such amounts due but not paid; (c) Forward to Customer all information or documents that it may receive from an issuer of U.S. Securities which, in the opinion of Custodian, are intended for the beneficial owner of U.S. Securities; (d) Execute, as custodian, any certificates of ownership, affidavits, declarations or other certificates under any tax laws now or hereafter in effect in connection with the collection of bond and note coupons; (e) Hold directly or through the Book-Entry System or a Depository, all rights and similar U.S. Securities issued with respect to any U.S. Securities credited to the Account hereunder and (f) Endorse for collection checks,drafts or other negotiable instruments. 4. (a) Custodian shall notify Customer of such rights or discretionary actions or of the date or dates by when such rights must be exercised or such action must be taken provided that Custodian has received, from the issuer or the relevant Depository timely notice of such rights or discretionary corporate action or of the date or dates such rights must be exercised or such action must be taken. Absent actual receipt of such notice,Custodian shall have no liability for failing to so notify Customer. (b) Whenever U.S. Securities (including, but not limited to, warrants, options, tenders, options to tender or non-mandatory puts or calls) confer optional rights on Customer or provide for discretionary action or alternative courses of action by Customer, Customer shall be responsible for making any decisions relating thereto and for directing Custodian to act. In order for Custodian to act, it must receive Customer's Written Instructions at Custodian's offices, addressed as Custodian may from time to time request, not later than noon (California time) at least two (2)Business Days prior to the last scheduled date to act with respect to such U.S. Securities (or such earlier date or time as Custodian may notify Customer). Absent Custodian's timely receipt of such Written Instructions, Custodian shall not be liable for failure to take any action relating to or to exercise any rights conferred by such U.S. Securities. 3 5 All voting rights with respect to U.S. Securities, however registered, shall be exercised by Customer or its designee. Custodian's only duty shall be to mail to Customer any documents (including proxy statements, annual reports and signed proxies) relating to the exercise of such voting rights. 6. Custodian shall promptly advise Customer upon its notification of the partial redemption, partial payment or other action affecting less than all U.S. Securities of the relevant class. If Custodian or Depository holds any such U.S. Securities in which Customer has an interest as part of a fungible mass, Custodian or Depository may select the U.S. Securities to participate in such partial redemption,partial payment or other action in any non-discriminatory manner that it customarily uses to make such selection. 7 Custodian shall not under any circumstances accept bearer interest coupons which have been stripped from United States federal,state or local government or agency securities unless explicitly agreed to by Custodian in writing. 8. To the extent that Custodian has agreed to provide pricing or other information services in connection with this Agreement, Custodian is authorized to utilize any vendor (including brokers and dealers of Securities) reasonably believed by Custodian to be reliable to provide such information. Customer understands that certain pricing information with respect to complex financial instruments (e.g., derivatives) may be based on calculated amounts rather than actual market transactions and may not reflect actual market values, and that the variance between such calculated amounts and actual market values may or may not be material. Where vendors do not provide information for particular Securities or other property, an Authorized Person may advise Custodian regarding the fair market value of, or provide other information with respect to, such Securities or property as determined by it in good faith. Custodian shall not be liable for any loss, damage or expense incurred as a result of errors or omissions with respect to any pricing or other information utilized by Custodian hereunder 9 As an accommodation to Customer, Custodian may provide consolidated recordkeeping services pursuant to which Custodian reflects on Account statements Securities positions for which Custodian has no safekeeping or other responsibility under this Agreement, including Securities registered by Customer directly on the books of an issuer("Non-Custody Securities"). Non-Custody Securities shall be designated on Custodian's books as 'shares not held' or by other similar characterization. Customer acknowledges and agrees that it shall have no security entitlement against Custodian with respect to Non-Custody Securities, that Custodian shall rely, without independent verification, on information provided by Customer regarding Non-Custody Securities (including but not limited to positions and market valuations) and that Custodian shall have no responsibility whatsoever with respect to Non-Custody Securities or the accuracy of any information maintained on Custodian's books or set forth on account statements concerning Non- Custody Securities. 10. From time to time Custodian may make available to Customer or its agent(s) certain investment and analytic tools ("Tools") which may be used to evaluate Securities in the Account and compliance with Customer's investment guidelines and investment criteria. Such Tools,whether or not modified to meet specific needs of Customer,are provided AS IS' and CUSTODIAN DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE TOOLS, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY TITLE, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. ANYTHING IN THIS AGREEMENT TO THE CONTRARY NOTWITHSTANDING, CUSTODIAN SHALL NOT BE LIABLE FOR ANY LOSS, EXPENSE, DAMAGE, LIABILITY OR CLAIM SUFFERED OR INCURRED BY CUSTOMER OR ANY OTHER PERSON AS A RESULT OF USE OF OR RELIANCE UPON,ANY TOOLS BY CUSTOMER OR ANY OTHER PERSON. ARTICLE IV PURCHASE AND SALE OF U.S.SECURITIES; CREDITS TO ACCOUNT 1 Promptly after each purchase or sale of U.S. Securities by Customer,an Authorized Person shall deliver to Custodian Written Instructions specifying all information necessary for Custodian to settle such purchase or sale. Custodian shall account for all purchases and sales of U.S. Securities on the actual settlement date unless otherwise agreed by Custodian. 2. Customer understands that when Custodian is instructed to deliver U.S. Securities against payment, delivery of such U.S. Securities and receipt of payment therefor may not be completed simultaneously Customer assumes full responsibility for all credit risks involved in connection with Custodian's delivery of U.S. Securities pursuant to instructions of Customer 3. Custodian may as a matter of bookkeeping convenience or by separate agreement with Customer,credit the Account with the proceeds from the sale, redemption or other disposition of U.S. Securities or interest, dividends or other distributions payable on U.S. Securities prior to its actual receipt of final payment therefor. All such credits shall be conditional until Custodian's actual receipt of final payment and may be reversed by Custodian to the extent that final payment is not received. Payment with respect to a 4 transaction will not be 'final' until Custodian shall have received immediately available funds which under applicable law or rule are irreversible and not subject to any security interest, levy or other encumbrance, and which are specifically applicable to such transaction. ARTICLE V OVERDRAFTS OR INDEBTEDNESS If Custodian in its sole discretion advances funds to Customer or there shall arise for whatever reason an overdraft in the Account (including, without limitation, overdrafts incurred in connection with the settlement of securities transactions or funds transfers or if Customer is for any other reason indebted to Custodian, Customer agrees to repay Custodian on demand the amount of the advance, overdraft or indebtedness plus accrued interest at a rate ordinarily charged by Custodian to its institutional custody customers. In order to secure repayment of Customer's obligations to Custodian hereunder, Customer hereby agrees that Custodian shall have a continuing lien and security interest in, and right of set-off against, all U.S. Securities, money and other property now or hereafter held in the Account(including proceeds thereof), and any other property at any time held by it for the account of Customer. In this regard, Custodian shall be entitled to all the rights and remedies of a pledgee under common law and a secured party under the applicable Uniform Commercial Code and any other applicable laws,rules or regulations as then in effect. ARTICLE VI CONCERNING CUSTODIAN 1. (a) Except as otherwise expressly provided herein, Custodian shall not be liable for any costs, expenses, damages, liabilities or claims including attorneys' and accountants' fees (collectively 'Losses") incurred by or asserted against Customer, except those Losses arising out of the negligence or wilful misconduct of Custodian. Custodian shall have no obligation hereunder for Losses which are sustained or incurred by reason of any action or inaction by the Book-Entry System or any Depository In no event shall Custodian be liable to Customer or any third party for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement. (b) Customer agrees to indemnify Custodian and hold Custodian harmless from and against any and all Losses sustained or incurred by or asserted against Custodian by reason of or as a result of any action or inaction, or arising out of Custodian's performance hereunder, including reasonable fees and expenses of counsel incurred by Custodian in a successful defense of claims by Customer; provided, that Customer shall not indemnify Custodian for those Losses arising out of Custodian's negligence or wilful misconduct. This indemnity shall be a continuing obligation of Customer, its successors and assigns, notwithstanding the termination of this Agreement. 2. Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for, any losses incurred by Customer or any other person as a result of the receipt or acceptance of fraudulent, forged or invalid U.S. Securities,or U.S. Securities which are otherwise not freely transferable or deliverable without encumbrance. 3. Custodian may with respect to questions of law specifically regarding the Account, obtain the advice of counsel and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice. 4. Custodian shall be under no obligation to take action to collect any amount payable on U.S. Securities in default, or if payment is refused after due demand and presentment. 5 Custodian shall have no duty or responsibility to inquire into, make recommendations, supervise, or determine the suitability of any transactions affecting any Account. 6. Customer shall pay to Custodian the fees and charges as may be specifically agreed upon from time to time and such other fees and charges at Custodian's standard rates for such services as may be applicable. Customer shall reimburse Custodian for all costs associated with the conversion of Customer's U.S. Securities hereunder and the transfer of U.S. Securities and records kept in connection with this Agreement. Customer shall also reimburse Custodian for out-of-pocket expenses which are a normal incident of the services provided hereunder Custodian may debit the Account for amounts payable hereunder which remain in arrears for over 60 days. 7 In addition to the rights of Custodian under applicable law and other agreements, at any time when Customer shall not have honored any and all of its obligations to Custodian, Custodian shall have the right without notice to Customer to retain or set- off, against such obligations of Customer,any U.S. Securities or cash Custodian or a BNY Affiliate may directly or indirectly hold for the account of Customer, and any obligations (whether matured or unmatured) that Custodian or a BNY Affiliate may have to 5 Customer. Any such asset of, or obligation to, Customer may be transferred to Custodian and any BNY Affiliate in order to effect the above rights. 8. (a) Subject to the terms below Custodian shall be entitled to rely upon any Written or Oral Instructions actually received by Custodian and reasonably believed by Custodian to be duly authorized and delivered. Customer agrees that an Authorized Person shall forward to Custodian Written Instructions confirming Oral Instructions by the close of business of the same day that such Oral Instructions are given to Custodian. Customer agrees that the fact that such confirming Written Instructions are not received or that contrary Written Instructions are received by Custodian shall in no way affect the validity or enforceability of transactions authorized by such Oral Instructions and effected by Custodian. (b) If Custodian receives Written Instructions which appear on their face to have been transmitted by an Authorized Person via (i) computer facsimile, email, the Internet or other insecure electronic method, or (ii) secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys, Customer understands and agrees that Custodian cannot determine the identity of the actual sender of such Written Instructions and that Custodian shall conclusively presume that such Written Instructions have been sent by an Authorized Person. Customer shall be responsible for ensuring that only Authorized Persons transmit such Written Instructions to Custodian and that all Authorized Persons treat applicable user and authorization codes, passwords and/or authentication keys with extreme care. (c) Customer acknowledges and agrees that it is fully informed of the protections and risks associated with the various methods of transmitting Written Instructions to Custodian and that there may be more secure methods of transmitting Written Instructions than the method(s) selected by Customer Customer agrees that the security procedures (if any) to be followed in connection with its transmission of Written Instructions provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances. (d) If Customer elects to transmit Written Instructions through an on-line communication system offered by Custodian, Customer's use thereof shall be subject to the Terms and Conditions attached hereto as Appendix I. If Customer elects (with Custodian's prior consent) to transmit written instructions through an on-line communications service owned or operated by a third party Customer agrees that Custodian shall not be responsible or liable for the reliability or availability of any such service. 9 Upon reasonable request and provided Custodian shall suffer no significant disruption of its normal activities, Customer shall have access to Custodian's books and records relating to the Account during Custodian's normal business hours. Upon reasonable request,copies of any such books and records shall be provided to Customer at Customer's expense. 10. It is understood that Custodian is authorized to supply any information regarding the Account which is required by any law regulation or rule now or hereafter in effect. 11 Custodian shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused,directly or indirectly by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority or governmental actions; it being understood that Custodian shall use its best efforts to resume performance as soon as practicable under the circumstances. 12. Custodian is hereby authorized to assign its rights and delegate its duties hereunder to any BNY Affiliate,whenever and on such terms and conditions as it deems necessary or appropriate to perform its services hereunder, without any further notice to Customer. Customer agrees to be bound by all actions taken by a BNY Affiliate pursuant to the preceding sentence to the same extent as if they were taken by Custodian, it being understood and agreed that no such assignment or delegation shall discharge Custodian from its obligations hereunder Customer each further agrees that any BNY Affiliate providing services pursuant to the foregoing authorization shall be entitled to all of the protections afforded to Custodian under this Agreement (including, without limitation, pursuant to Articles V and VI). If so advised by Custodian, Customer shall provide Oral or Written Instructions or other information to a BNY Affiliate rather than to Custodian. 13. Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against Custodian in connection with this Agreement. 6 ARTICLE VII TERMINATION Either party may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety(90)days after the date of such notice. Upon termination hereof, Customer shall pay to Custodian such compensation as may be due to Custodian, and shall likewise reimburse Custodian for other amounts payable or reimbursable to Custodian hereunder. Custodian shall follow such reasonable Oral or Written Instructions concerning the transfer of custody of records, U.S. Securities and other items as Customer shall give; provided, that (a) Custodian shall have no liability for shipping and insurance costs associated therewith, and (b) full payment shall have been made to Custodian of its compensation, costs, expenses and other amounts to which it is entitled hereunder If any U.S. Securities or cash remain in the Account, Custodian may deliver to Customer such U.S. Securities and cash. Upon termination of this Agreement, except as otherwise provided herein, all obligations of the parties to each other hereunder shall cease. ARTICLE VIII MISCELLANEOUS Customer agrees to furnish to Custodian a new Certificate of Authorized Persons in the event of any change in the then present Authorized Persons. Until such new Certificate is received, Custodian shall be fully protected in acting upon Oral Instructions and Written Instructions of such present Authorized Persons. 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Custodian, shall be sufficiently given if addressed to Custodian and received by it at its offices at: Los Angeles Office: 700 South Flower Street, Suite 200, Los Angeles, California 90017-4104 San Francisco Office: 550 Kearny St. Suite 600, San Francisco, California 94108, Seattle Office: Two Union Square, 601 Union Street, Suite 520, Seattle, Washington 98101 2321 or at such other place as Custodian may from time to time designate in writing. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Customer shall be sufficiently given if addressed to Customer and received by it at its offices at 628 W. 19th St. Costa Mesa CA 92627 or at such other place as Customer may from time to time designate in writing. 4. Each and every right granted to either party hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity shall be cumulative and may be exercised from time to time. No failure on the part of either party to exercise, and no delay in exercising, any right will operate as a waiver thereof; nor will any single or partial exercise by either party of any right preclude any other or future exercise thereof or the exercise of any other right. 5 In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,the validity legality and enforceability of the remaining provisions or obligations shall not in any way be affected thereby This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns;provided however, that this Agreement shall not be assignable by either party without the written consent of the other 6. (a) This Agreement shall be construed in accordance with the substantive laws of the State of California, without regard to conflicts of laws principles thereof. Customer and Custodian hereby consent to the jurisdiction of a state or federal court situated in California in connection with any dispute arising hereunder Customer hereby irrevocably waives, to the fullest extent permitted by applicable law any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Customer and Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. (b) The parties hereto agree that the establishment and maintenance of the Account, and all interests, duties and obligations with respect thereto,shall be governed by the laws of the State of New York. (c) For Governmental Entities: To the extent that in any jurisdiction Customer may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, Customer irrevocably agrees not to claim,and it hereby waives,such immunity 7 The parties hereto agree that in performing hereunder, Custodian is acting solely on behalf of Customer and no contractual or service relationship shall be deemed to be established hereby between Custodian and any other person. 7 8. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall,together,constitute only one instrument. IN WITNESS WHEREOF Customer and Custodian have caused this Agreement to be executed by their respective officers, thereunto duly authorized,as of the day and year first above written. ,/D By. Wendy H. Davis Title: Treasurer Tax Identification No: BNY WESTERN TRUST COMPANY By Title: Maria E. Allison Vice President bnywus.doc (2/04)