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