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4 <br /> a <br /> issue the Bonds and to adopt the Resolution and to pledge the <br /> Pledged Funds in the manner and to the extent provided in the <br /> Resolution . Except to the extent otherwise provided in the <br /> Resolution , the Pledged Funds are and will be free and clear of any <br /> pledge , lien , charge or encumbrance thereon or with respect thereto <br /> prior to , or of equal rank with , the security interest , pledge and <br /> assignment created by the Resolution , and all corporate or other <br /> action on the part of the District to that end has been and will be <br /> duly and validly taken . The Bonds and - the provisions of the <br /> Resolution are and will be valid and legally enforceable <br /> obligations of the District in accordance with their terms and the <br /> terms of the Resolution . - _ The District shall at all times , to the <br /> extent permitted by law , defend , preserve and protect the pledge of <br /> the Pledged Funds and all the rights of the Registered Owners under <br /> the Resolution . . against . , all - : claims and - demands of all %• persons <br /> whomsoever . <br /> X . BONDS - SECURED BY PLEDGE OF : : PLEDGED FUNDS . The Bonds <br /> issued hereunder shall be direct and special obligations of the <br /> District payable in accordance with their terms and the provisions <br /> of the Resolution from the Pledged - Funds hereby pledged for the <br /> benefit of the Registered Owners , subject to the provisions of the <br /> Resolution permitting the application thereof for the purposes and <br /> on the terms and conditions set forth in the Resolution . <br /> The Pledged Funds shall immediately be subject to the <br /> lien and charge of the Resolution without any physical delivery <br /> thereof or further act , and the lien and charge of the Resolution <br /> shall be valid and binding as against all parties having claims of <br /> any kind in tort , contract or otherwise , against the District , <br /> irrespective of whether such parties have notice thereof . <br /> Y . TAX COVENANTS . The District covenants that it will <br /> not take any action or fail to take any action with respect to the <br /> proceeds of the Bonds that would result in loss of the exclusion <br /> from gross income for federal income tax purposes pursuant to <br /> section 103 ( a ) of the Code of interest paid on Outstanding Bonds <br /> which , when initially issued and sold , were the subject of an <br /> opinion of counsel to the effect that interest thereon was so <br /> excludable . <br /> With respect to any series of Bonds , the District <br /> covenants that any use of the System in the trade or business of <br /> any person or entity other than the District , including use under a <br /> take - or - pay contract or certain management contracts ( the " private <br /> business use " ) , if such use is related to the District ' s use of the <br /> System , will not exceed more than ten percent ( 10 % ) of the use of <br /> the System , or if such private business use in unrelated or <br /> disproportionate to the District ' s use of the System , will not <br /> exceed more than five percent ( 5 % ) of the use of the System . <br /> The District covenants that no more than ten percent <br /> 24 <br />