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EXHIBIT 1(A)
PLACEMENT AGREEMENT
June 11, 1997
Morgan Stanley & Co.
Incorporated
Citicorp Securities, Inc.
Credit Suisse First Boston
McDonald & Company Securities, Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs:
The Cleveland Electric Illuminating Company, an Ohio
corporation ("Cleveland Electric"), and The Toledo Edison Company, an Ohio
corporation ("Toledo Edison," and each of Cleveland Electric and Toledo Edison,
a "Company" and collectively, the "Companies), propose jointly and severally to
issue and sell to the purchasers named in Schedule I hereto (the "Purchasers")
$220,000,000 principal amount of 7.19% Series A Secured Notes Due 2000,
$350,000,000 principal amount of 7.67% Series A Secured Notes Due 2004, and
$150,000,000 principal amount of 7.13% Series A Secured Notes Due 2007 (those
three tranches of Notes collectively, the "Notes"), to be issued pursuant to an
Indenture to be dated as of June 13, 1997 and a First Supplemental Indenture to
be dated June 13, 1997 (that Indenture, as supplemented by that First
Supplemental Indenture, the "Indenture") between the Company and The Chase
Manhattan Bank, a New York banking corporation, as trustee (the "Trustee").
The Notes will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom. You have advised the Companies and agree that you will
make an offering of the Notes purchased by you hereunder in accordance with
Section 6 hereof on the terms set forth in the Preliminary Memorandum and the
Final Memorandum (each as defined below), as soon as practicable after the date
hereof as in your judgment is advisable. The Companies hereby confirm that they
have authorized the use of the Preliminary Memorandum and the Offering
Memorandum in connection with that offering of the Notes by you. Purchasers of
the Notes (including subsequent transferees) will have the registration rights
set forth in the Registration Agreement of even date
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herewith (the "Registration Agreement"), among the Companies and the Purchasers.
Pursuant to the Registration Agreement, the Companies have agreed to file with
the Securities and Exchange Commission (the "Commission") a registration
statement (the "Exchange Offer Registration Statement") under the Securities Act
pursuant to which the Companies will offer to exchange the Notes of each tranche
for an issue under the Indenture of secured notes of the Companies (the
"Exchange Notes") with terms identical to the Notes of that tranche (except that
the Exchange Notes will not contain terms with respect to transfer
restrictions).
In connection with the sale of the Notes, the Companies have
prepared a preliminary offering memorandum (the "Preliminary Memorandum") and
will prepare a final offering memorandum (the "Final Memorandum" and, with the
Preliminary Memorandum, each a "Memorandum") setting forth or including a
description of the terms of the Notes, the terms of the offering, a description
of the Companies and any material developments relating to either Company
occurring after the date of the most recent financial statements included
therein.
1. REPRESENTATIONS AND WARRANTIES. The Companies jointly and
severally represent and warrant to, and agree with, you that as of the date
hereof:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Purchasers to confirm sales and on the
Closing Date, will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section l(a) do not apply to
statements or omissions in either Memorandum based upon information relating to
any Purchaser furnished to the Companies in writing by that Purchaser through
you expressly for use therein.
(b) Each Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of Ohio,
has the corporate power and authority to own its property and to conduct its
business as described in each Memorandum and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on that Company and its
Subsidiaries (as defined below), taken as a whole.
(c) Each Subsidiary of each Company (i) other than those
subsidiaries specified in clause (ii) of this paragraph (1)(c) has been duly
incorporated, is validly existing as a
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corporation in good standing under the laws of the jurisdiction of its
incorporation, and has corporate power and authority to own its property and to
conduct its business as described in the Final Memorandum or (ii) that is not a
corporation is a limited partnership, has been duly formed and is validly
existing as a limited partnership in good standing under the laws of the
jurisdiction of its formation, and has full power and authority to own its
property and to conduct its business as described in the Final Memorandum; and,
in either case, is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property required such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole; and
neither Company is a general partner in any partnership. As used herein, the
term "Subsidiary" has the meaning ascribed to it in the Indenture.
(d) The financial statements included or incorporated by
reference in each Memorandum present fairly the financial position of each
Company and its consolidated Subsidiaries and the results of their operations
for the periods specified; and except as otherwise stated in each Memorandum,
those financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis.
(e) The pro forma adjustments described in each Memorandum
have been properly applied on the bases described therein and each Company
believes that such adjustments with respect to it and the assumptions that
underlie those adjustments are reasonable.
(f) [Intentionally omitted.]
(g) This Agreement has been duly authorized, executed and
delivered by each Company.
(h) The Indenture has been duly authorized, and when executed
and delivered by the Companies (assuming due authorization, execution and
delivery by the Trustee) will constitute a valid and binding agreement of each
Company, enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors, rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(i) The Notes have been duly authorized by each Company and,
when the Notes are executed by the Companies and authenticated by the Trustee in
accordance with the Indenture and delivered to and paid for by the Purchasers in
accordance with this Agreement, the Notes will be entitled to the benefits of
the Indenture, and will be valid and binding joint and several
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obligations of the Companies, enforceable in accordance with their terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors, rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(j) The Registration Agreement has been duly authorized,
executed and delivered by the Companies and (assuming due authorization,
execution and delivery by the Purchasers) constitutes a valid and binding
agreement of each Company, enforceable in accordance with its terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
(k) The execution and delivery by the Companies of, and the
performance by the Companies of their obligations under, this Agreement, the
Indenture, the Notes and the Registration Agreement will not contravene any
provision of applicable law or the articles of incorporation, regulations,
partnership agreement or other organizational documents of either Company or any
Subsidiary of either Company or any agreement or other instrument binding upon
either Company or any Subsidiary of either Company, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over either
Company or any Subsidiary of either Company, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by either Company of its obligations
under this Agreement, the Indenture, the Notes or the Registration Agreement,
except such as may be required (i) by the securities or Blue Sky laws of the
various states in connection with the offer and sale of the Notes and (ii) by
the securities or Blue Sky laws of the various states and the Securities Act in
connection with the offer of the Exchange Notes and (iii) from The Public
Utilities Commission of Ohio (whose approval for the performance by the
Companies of their obligations under the Agreement, the Indenture, the Notes and
the Registration Agreement has been obtained).
(l) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of either
Company and its Subsidiaries, taken as a whole, from that set forth in the Final
Memorandum.
(m) Neither Company nor any Subsidiary of either Company is in
violation of its respective articles of incorporation or regulations,
partnership agreement or other organizational documents and neither Company nor
any Subsidiary of either Company is in default in the performance of any bond,
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debenture, note or any other evidence of indebtedness or any indenture,
mortgage, deed of trust or other contract, lease or other instrument to which it
is a party or by which any of them is bound, or to which any of its property or
assets is subject, except such violations or defaults as have been waived or
which would not have, singly or in the aggregate, a material adverse effect on
either Company and its Subsidiaries, taken as a whole.
(n) Each Company and each of its Subsidiaries has obtained all
necessary consents, authorizations, approvals, orders, licenses, certificates
and permits of and from, and has made all declarations and filings with, all
foreign, federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals, required to
own, lease, license, construct, operate and use its properties and assets and to
conduct its business in the manner described in the Final Memorandum, except to
the extent that the failure to obtain, declare or file would not have a material
adverse effect on that Company, and its Subsidiaries, taken as a whole.
(o) There are no legal or governmental proceedings pending or,
to the knowledge of either Company, threatened to which either Company or any
Subsidiary of either Company is a party or to which any of the properties of
either Company or any Subsidiary of either Company is subject other than
proceedings accurately described in all material respects in the Final
Memorandum and proceedings that would not have a material adverse effect on
either Company and its Subsidiaries, taken as a whole, or on the power or
ability of either Company to perform its obligations under this Agreement, the
Indenture, the Notes or the Registration Agreement or to consummate the
transactions contemplated by the Final Memorandum.
(p) Neither Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "Affiliate") of either
Company has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security (as
defined in the Securities Act) which is or will be integrated with the sale of
the Notes in a manner that would require the registration under the Securities
Act of the Notes or (ii) engaged in any form of general solicitation or general
advertising in connection with the offering of the Notes (as those terms are
used in Regulation D under the Securities Act) or in any manner involving a
public offering within the meaning of section 4(2) of the Securities Act.
(q) Neither Company is an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
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(r) It is not necessary in connection with the offer, sale and
delivery of the Notes to the Purchasers in the manner contemplated by this
Agreement to register the Notes under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.
(s) Each Company and each of its Subsidiaries (i) is in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval, except in cases in which that noncompliance
with Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on that Company and its Subsidiaries, taken as a whole.
(t) In the ordinary course of its business, each Company
conducts a periodic review of the effect of Environmental Laws on the business,
operations and properties of that Company and its Subsidiaries, in the course of
which it identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of that review, each
Company has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, have a material adverse effect on that
Company and its Subsidiaries, taken as a whole.
(u) Neither Company nor any of either Company's Affiliates or
any person acting on its or their behalf (other than the Purchasers) has engaged
in any directed selling efforts (as that term is defined in Regulation S under
the Securities Act ("Regulation S")) with respect to the Notes and each Company
and its Affiliates and any person acting on its or their behalf (other than the
Purchasers) has complied with the offering restrictions requirement of
Regulation S.
(v) Each Company is a "subsidiary" of Centerior Energy
Corporation, which is a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended. Centerior Energy
Corporation is exempt from regulation under such Act pursuant to Section 3(a)(1)
thereof and the rules and regulations thereunder promulgated by the Securities
and Exchange Commission (the "Commission") and, therefore, each Company is also
exempt from such regulation.
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(w) The Companies have obtained a commitment from AMBAC
Indemnity Corporation, a Wisconsin-domiciled stock insurance company ("AMBAC
Indemnity"), to issue a financial guaranty insurance policy (the "Financial
Guaranty Insurance Policy") relating to the Secured Notes Due 2007 effective as
of the date of issuance of the Notes. The Secured Notes due 2007 will be
entitled to the benefit of the Financial Guaranty Insurance Policy as described
in the Final Memorandum.
(x) Cleveland Electric's Mortgage and Deed of Trust dated July
1, 1940, to Guaranty Trust Company of New York as Trustee, under which The Chase
Manhattan Bank (National Association) is successor trustee (the "Cleveland
Mortgage Trustee"), as supplemented and modified in certain respects by
indentures supplemental thereto (the "CEI Mortgage"), including the
Seventy-Fourth Supplemental Indenture dated June 15, 1997 (the "CEI Supplemental
Indenture"), and the First Mortgage Bonds, Series due 2000, the First Mortgage
Bonds, Series due 2004, and the First Mortgage Bonds, Series due 2007, of
Cleveland Electric (collectively, the "CEI First Mortgage Bonds") issued under
the CEI Mortgage and the CEI Supplemental Indenture, on or before the Closing
Date will have been duly authorized, executed and delivered by Cleveland
Electric and, as to the CEI First Mortgage Bonds, assuming that they have been
duly authenticated by the Cleveland Mortgage Trustee, constitute valid and
binding obligations enforceable against each Company in accordance with their
terms, except to the extent that the binding effect and enforceability thereof
are subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other laws in effect from time to time affecting the rights of creditors
generally or the enforcement of the security provided by the Cleveland Mortgage,
and except to the extent that the enforceability thereof may be limited by the
application of general principles of equity and may be subject to limitations
upon the right to obtain judicial orders requiring specific performance;
(y) The execution and delivery of the CEI Supplemental
Indenture and the CEI First Mortgage Bonds and the performance by Cleveland
Electric of its obligations thereunder and under the CEI Mortgage (to the extent
pertinent to the issuance of the CEI First Mortgage Bonds), will not constitute
a default under, or conflict with or violate any of the provisions of, the
Articles of Incorporation, the Regulations, any law, rule, regulation, judgment,
order or decree to which Cleveland Electric is subject or any agreement,
indenture, mortgage, lease, note or other obligation or instrument to which
Cleveland Electric is a party or by which it is bound;
(z) All consents or approvals of the PUCO and of any other
federal or state regulatory agency required in connection with Cleveland
Electric's execution and delivery of, and the performance of its obligations
under the CEI Supplemental Indenture and the CEI First Mortgage Bonds have been
obtained;
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(aa) Except as specifically described in the Offering
Memorandum, there are no actions, suits, proceedings, inquiries or
investigations at law or in equity before or by any judicial or administrative
court or agency, pending or threatened against Cleveland Electric and there is
no basis for any such action, suit, proceeding, inquiry or investigation wherein
the decision, ruling or finding would materially or adversely affect the
validity or enforceability of the CEI Mortgage (to the extent pertinent to the
issuance of the CEI First Mortgage Bonds) or the CEI First Mortgage Bonds;
(ab) Cleveland Electric has good title to substantially all
the properties referred to or described in the granting clauses of the CEI
Mortgage as being subject to the lien thereof and now owned by it, subject only
to the conditions and exceptions set forth in the Offering Memorandum
"Descriptions of Cleveland Electric Bonds and Toledo Edison Bonds--Cleveland
Electric Bonds--Title to Property," none of which materially impairs the use of
the property affected thereby in the operation of the business of Cleveland
Electric;
(ac) Toledo Edison's Indenture of Mortgage and Deed of Trust
dated April 1, 1947 from Toledo Edison to The Chase Manhattan Bank (National
Association), as trustee (the "Toledo Mortgage Trustee"), as supplemented and
modified in certain respects by indentures supplemental thereto (the "Toledo
Mortgage"), including the Forty-sixth Supplemental Indenture dated as of June
15, 1997 (the "Toledo Supplemental Indenture"), and the First Mortgage Bonds,
Series due 2000, the First Mortgage Bonds, Series due 2004, and the First
Mortgage Bonds, Series due 2007, of Toledo Edison (collectively, the "Toledo
Edison First Mortgage Bonds") issued under the Toledo Mortgage and the Toledo
Supplemental Indenture, on or before the Closing Date will have been duly
authorized, executed and delivered by Toledo Edison and, as to the Toledo Edison
First Mortgage Bonds, assuming that they have been duly authenticated by the
Toledo Mortgage Trustee, constitute valid and binding obligations enforceable
against Toledo Edison in accordance with their terms, except to the extent that
the binding effect and enforceability thereof are subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws in effect from
time to time affecting the rights of creditors generally or the enforcement of
the security provided by the Toledo Mortgage, and except to the extent that the
enforceability thereof may be limited by the application of general principles
of equity and may be subject to limitations upon the right to obtain judicial
orders requiring specific performance;
(ad) The execution and delivery of the Toledo Supplemental
Indenture and the Toledo Edison First Mortgage Bonds and the performance by
Toledo Edison of its obligations thereunder and under the Toledo Mortgage (to
the extent pertinent to the issuance of the Toledo Edison First Mortgage Bonds),
will
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not constitute a default under, or conflict with or violate any of the
provisions of, the Articles of Incorporation, the Regulations, the Bylaws, any
law, rule, regulation, judgment, order or decree to which Toledo Edison is
subject or any agreement, indenture, mortgage, lease, note or other obligation
or instrument to which Toledo Edison is a party or by which it is bound;
(ae) All consents or approvals of the PUCO and of any other
federal or state regulatory agency required in connection with Toledo Edison's
execution and delivery of, and the performance of its obligations under the
Toledo Supplemental Indenture and the Toledo Edison First Mortgage Bonds have
been obtained;
(af) Except as specifically described in the Offering
Memorandum, there are no actions, suits, proceedings, inquiries or
investigations at law or in equity before or by any judicial or administrative
court or agency, pending or threatened against Toledo Edison and there is no
basis for any such action, suit, proceeding, inquiry or investigation wherein
the decision, ruling or finding would materially or adversely affect the
validity or enforceability of the Toledo Mortgage (to the extent pertinent to
the issuance of the Toledo Edison First Mortgage Bonds) or the Toledo Edison
First Mortgage Bonds;
(ag) Toledo Edison has good title to substantially all the
properties referred to or described in the granting clauses of the Toledo
Mortgage as being subject to the lien thereof and now owned by it, subject only
to the conditions and exceptions set forth in the Offering Memorandum under
"Descriptions of Cleveland Electric Bonds and Toledo Edison Bonds--Toledo Edison
Bonds--Title Property," none of which materially impairs the use of the property
affected thereby in the operation of the business of Toledo Edison;
2. OFFERING. You have advised the Companies that the
Purchasers will make an offering of the Notes purchased by the Purchasers
hereunder on the terms to be set forth in the Final Memorandum, as soon as
practicable after this Agreement is entered into as in your judgment is
advisable.
3. PURCHASE AND DELIVERY. The Companies hereby agree jointly
and severally to sell to the several Purchasers, and the Purchasers, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agree, severally and not jointly, to purchase
from the Companies the respective principal amounts of Notes set forth in
Schedule I hereto opposite their names at a purchase price equal to the sum of
98.875% of the principal amount of the 7.19% Series A Secured Notes Due 2000,
98.625% of the principal amount of the 7.67% Series A Secured Notes Due 2004,
and 99.35% of the principal amount of the 7.13% Series A Secured Notes Due 2007,
in
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each case plus accrued interest, if any, from June 18, 1997, to the date of
payment and delivery.
Payment for the Notes will be made against delivery of the
Notes at a closing to be held at the office of Winthrop, Stimson, Putnam &
Roberts, One Battery Park Plaza, New York, NY, at 10:00 A.M., local time, on
June 18, 1997, or at such other place or time on the same or such other date,
not later than June 25, 1997, as shall be designated in writing by you. The time
and date of that payment are herein referred to as the Closing Date. Payment for
the Notes will be made by wire transfer to the Companies of immediately
available funds.
The Companies will deliver against payment of the purchase
price the Notes of each tranche to be offered and sold by the Purchasers in
reliance on Regulation S (the "Regulation S Notes") in the form of one permanent
global security in definitive form for that tranche (each, a "Regulation S
Global Note") that will be deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC, for the accounts of Euroclear System ("Euroclear") or Cedel
Societe Anonyme ("Cedel"). The Companies will deliver against payment of the
purchase price the Notes of each tranche to be purchased by each Purchaser
hereunder and to be offered and sold by each Purchaser in reliance on Rule 144A
under the Securities Act (the "144A Notes") in the form of one permanent global
security in definitive form for that tranche (each, a "Restricted Global Note")
deposited with the Trustee as custodian for DTC and registered in the name of
Cede & Co., as nominee for DTC. The Regulation S Global Notes and the Restricted
Global Notes will be assigned separate CUSIP numbers. The Restricted Global
Notes will include the legend regarding restrictions on transfer set forth under
"Transfer Restrictions" in the Final Memorandum. Until the termination of the
restricted period (as defined in Regulation S) with respect to the offering of
the Regulation S Notes, interests in the Regulation S Global Notes may only be
held by the DTC participants for Euroclear & Cedel. Interests in any permanent
global security will be held only in book-entry form through DTC except in the
limited circumstances described in the Final Memorandum. Both the Restricted
Global Notes and the Regulation S Global Notes will be made available for
inspection by the Purchasers and by DTC by 4:00 p.m., New York time, on the
business day prior to the Closing Date at such place in New York City as the
Purchasers and the Companies shall agree.
The certificates evidencing the Notes will be delivered to you
on the Closing Date for the respective accounts of the several Purchasers, with
any transfer taxes payable in connection with the transfer of the Notes to the
Purchasers duly paid, against payment of the purchase price therefor.
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Notwithstanding the foregoing, any Notes sold to Institutional
Accredited Investors (as hereinafter defined) pursuant to Section 6(a) shall be
issued in definitive, fully registered form and shall bear the legend relating
thereto set forth under "Transfer Restrictions" in the Final Memorandum, but
shall be paid for in the same manner as any Notes to be purchased by the
Purchasers hereunder and to be offered and sold by them in reliance on Rule 144A
under the Securities Act.
4. CONDITIONS TO CLOSING. The several obligations of the
Purchasers under this Agreement to purchase the Notes will be subject to the
following conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date,
(i) there shall not have occurred any
downgrading, nor shall any notice have been given of any
intended or potential downgrading or notice of any review for
a possible change that does not indicate the direction of the
possible change, in the rating accorded any of either
Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change,
or any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings,
business or operations, of either Company and its
Subsidiaries, taken as a whole, from that set forth in the
Final Memorandum that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Notes on the terms and in the manner contemplated
in the Final Memorandum.
(b) You shall have received on the Closing Date a certificate
or certificates, dated the Closing Date and signed by an executive officer of
each Company, to the effect set forth in clause (a)(i) above and to the effect
that the representations and warranties of that Company contained in this
Agreement are true and correct as of the Closing Date and that that Company has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied on or before the Closing Date. The officer
signing and delivering such certificate or certificates may rely upon the best
of knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of
Squire, Sanders & Dempsey, L.L.P., counsel for the Companies, dated the Closing
Date, to the effect that:
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(i) the Indenture is a valid and binding
agreement of each Company, enforceable in accordance with its
terms except as (a) the enforceability thereof may be limited
by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability; and the Indenture is in
such form that it may be qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), in
compliance with the terms of the provisions of the
Registration Agreement without material modification;
(ii) when the Notes are executed by the
Companies and authenticated by the Trustee in accordance with
the provisions of the Indenture and delivered to and paid for
by the Purchasers in accordance with this Agreement, the Notes
will be entitled to the benefits of the Indenture and will be
valid and binding joint and several obligations of the
Companies, enforceable in accordance with their terms except
as (a) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (b) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;
(iii) the Registration Agreement (assuming due
authorization, execution and delivery by the Purchasers)
constitutes a valid and binding agreement of each Company,
enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability;
(iv) the execution and delivery by each Company
of, and the performance by that Company of its obligations
under, this Agreement, the Notes, the Indenture and the
Registration Agreement will not, to such counsel's knowledge,
contravene any judgment, order or decree of any governmental
body, agency or court having jurisdiction over that Company or
any Subsidiary of that Company, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the performance by
that Company of its obligations under this Agreement, the
Notes, the Indenture and the Registration Agreement, except
such as may be required (i) by the securities or Blue Sky laws
of the various
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states in connection with the offer and sale of the Notes,
(ii) by the securities or Blue Sky laws of the various states
and the Securities Act in connection with the offer of the
Exchange Notes and (iii) from The Public Utilities Commission
of Ohio;
(v) the statements in the Final Memorandum
under the captions "Description of Secured Notes,"
"Descriptions of Cleveland Electric Bonds and Toledo Edison
Bonds," "Certain Tax Considerations," "Private Placement,"
"Transfer Restrictions," and "Considerations for Employee
Benefit Plans," insofar as those statements constitute
summaries of the legal matters, documents and proceedings
referred to therein, fairly present the information called for
with respect to those legal matters, documents and proceedings
and fairly summarize the matters referred to therein;
(vi) after due inquiry, such counsel does not
know of any legal or governmental proceedings pending or
threatened to which either Company or any of its Subsidiaries
is a party or to which any of the properties of either Company
or any of its Subsidiaries is subject other than proceedings
fairly summarized in all material respects in the Final
Memorandum and proceedings that such counsel believes are not
likely to have a material adverse effect on either Company and
its Subsidiaries taken as a whole, or on the power or ability
of either Company to perform its obligations under this
Agreement, the Indenture, the Notes or the Registration
Agreement or to consummate the transactions contemplated by
the Final Memorandum;
(vii) based upon the representations, war-
ranties and agreements of the Companies in Sections 1(p),
1(v), 5(f), 5(g), 5(h) and 5(k) of this Agreement and of the
Purchasers in section 6 of this Agreement and on the
representations and agreements contained in Exhibit A to this
Agreement, it is not necessary in connection with the offer,
sale and delivery of the Notes to the Purchasers under this
Agreement or in connection with the initial resale of the
Notes by the Purchasers in accordance with Section 6 of this
Agreement to register the Notes under the Securities Act or to
qualify the Indenture under the Trust Indenture Act, it being
understood that no opinion is expressed as to any subsequent
resale of any Secured Note; and
(viii) the Company is not an "investment company"
or an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as
amended.
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Such counsel shall also include a statement to the effect that
no facts have come to such counsel's attention that would lead such counsel to
believe that (except for financial statements, schedules and other financial and
statistical information as to which such counsel need not express any belief)
the Final Memorandum when issued did not, and as of the date such opinion is
delivered does not, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(d) You shall have received on the Closing Date an opinion of
Terrence G. Linnert or Paul N. Edwards, as counsel of Centerior Energy
Corporation, to the effect that:
(i) each Company has been duly incorporated,
is validly existing as a corporation in good standing under
the laws of the State of Ohio, has the corporate power and
authority to own its property and to conduct its business as
described in the Final Memorandum (references herein to the
Final Memorandum being taken to mean the Final Memorandum, as
amended or supplemented), and is duly qualified to transact
business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
would not have a material adverse effect on that Company and
its Subsidiaries, taken as a whole;
(ii) this Agreement has been duly authorized,
executed and delivered by each Company;
(iii) the Indenture has been duly authorized,
executed and delivered by each Company;
(iv) the Notes have been duly authorized by
each Company;
(v) the Registration Agreement has been duly
authorized, executed and delivered by each Company;
(vi) the execution and delivery by each Company
of, and the performance by that Company of its obligations
under, this Agreement, the Notes, the Indenture and the
Registration Agreement will not contravene any provision of
applicable law or the articles of incorporation, regulations,
partnership agreement or other organizational documents of
that Company or of any Subsidiary of that Company or, to such
counsel's knowledge, any agreement or other
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instrument binding on that Company or on any Subsidiary of
that Company that is material to that Company and its
Subsidiaries taken as a whole, or, to such counsel's
knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over that Company or
any Subsidiary of that Company, and no consent, approval,
authorization or order of or qualification with any
governmental body or agency is required for the performance by
that Company of its obligations under this Agreement, the
Notes, the Indenture and the Registration Agreement, except
such as may be required by (i) the securities or Blue Sky laws
'of the various states in connection with the offer and sale
of the Notes and (ii) the securities or Blue Sky laws of the
various states and the Securities Act in connection with the
offer of the Exchange Notes;
(vii) the statements in the Final Memorandum
under the captions "Description of Secured Notes,"
"Descriptions of Cleveland Electric Bonds and Toledo Edison
Bonds," "Private Placement" and "Transfer Restrictions,"
insofar as those statements constitute summaries of the legal
matters, documents and proceedings referred to therein, fairly
present the information called for with respect to those legal
matters, documents and proceedings and fairly summarize the
matters referred to therein;
(viii) after due inquiry, such counsel does not
know of any legal or governmental proceedings pending or
threatened to which either Company or any of its Subsidiaries
is a party or to which any of the properties of either Company
or any of its Subsidiaries is subject other than proceedings
fairly summarized in all material respects in the Final
Memorandum and proceedings that such counsel believes are not
likely to have a material adverse effect on either Company and
its Subsidiaries taken as a whole, or on the power or ability
of either Company to perform its obligations under this
Agreement, the Indenture, the Notes or the Registration
Agreement or to consummate the transactions contemplated by
the Final Memorandum;
(ix) each Subsidiary of each Company (i) has
been duly incorporated, is validly existing as a corporation
in good standing under the laws of the jurisdiction of its
incorporation, and has corporate power and authority to own
its property and to conduct its business as described in the
Final Memorandum or is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property
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requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not
have a material adverse effect on the Company of which it is a
Subsidiary and its Subsidiaries, taken as a whole; and neither
Company is a general partner in any partnership;
(x) each Company and each of its Subsidiaries
has obtained all necessary consents, authorizations,
approvals, orders, licenses, certificates and permits of and
from, and has made all declarations and filings with, all
foreign, federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts
and other tribunals, required to own, lease, license, operate
and use its properties and assets and to conduct its business
in the manner described in the Final Memorandum, except to the
extent that the failure to obtain, declare or file would not
have a material adverse effect on that Company and its
Subsidiaries, taken as a whole;
(xi) such counsel is of the opinion that each
Company and each Subsidiary of each Company (i) is in
compliance with any and all applicable Environmental Laws,
(ii) has received all permits, licenses or other approvals
required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except in
cases in which that noncompliance with Environmental Laws,
failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on that Company;
(xii) each Company is a "subsidiary" of
Centerior Energy Corporation, which is a "holding company," as
such terms are defined in the Public Utility Holding Company
Act of 1935, as amended. Centerior Energy Corporation is
exempt from regulation under such Act pursuant to Section
3(a)(1) thereof and the rules and regulations thereunder
promulgated by the Commission and, therefore, each Company is
also exempt from such regulation.
(xiii) The CEI Mortgage and the CEI First
Mortgage Bonds have been duly authorized, executed and
delivered by Cleveland Electric and, as to the CEI First
Mortgage Bonds, assuming that they have been duly
authenticated by the Cleveland Mortgage Trustee, constitute
valid and binding obligations enforceable
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against each Company in accordance with their terms, except to
the extent that the binding effect and enforceability thereof
are subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws in effect from time
to time affecting the rights of creditors generally or the
enforcement of the security provided by the Cleveland
Mortgage, and except to the extent that the enforceability
thereof may be limited by the application of general
principles of equity and may be subject to limitations upon
the right to obtain judicial orders requiring specific
performance;
(xiv) The execution and delivery of the CEI
Supplemental Indenture and the CEI First Mortgage Bonds and
the performance by Cleveland Electric of its obligations
thereunder and under the CEI Mortgage (to the extent pertinent
to the issuance of the CEI First Mortgage Bonds), does not
constitute a default under, or conflict with or violate any of
the provisions of, the Articles of Incorporation, the
Regulations, any law, rule, regulation, judgment, order or
decree to which Cleveland Electric is subject or any
agreement, indenture, mortgage, lease, note or other
obligation or instrument to which Cleveland Electric is a
party or by which it is bound;
(xv) All consents or approvals of the PUCO and
of any other federal or state regulatory agency required in
connection with Cleveland Electric's execution and delivery
of, and the performance of its obligations under the CEI
Supplemental Indenture and the CEI First Mortgage Bonds have
been obtained;
(xvi) Except as specifically described in the
Offering Memorandum, there are no actions, suits, proceedings,
inquiries or investigations at law or in equity before or by
any judicial or administrative court or agency, pending or
threatened against Cleveland Electric and there is no basis
for any such action, suit, proceeding, inquiry or
investigation wherein the decision, ruling or finding would
materially or adversely affect the validity or enforceability
of the CEI Mortgage (to the extent pertinent to the issuance
of the CEI First Mortgage Bonds) or the CEI First Mortgage
Bonds;
(xvii) Cleveland Electric has good title to
substantially all the properties referred to or described in
the granting clauses of the CEI Mortgage as being subject to
the lien thereof and now owned by it, subject only to the
conditions and exceptions set forth in the Offering Memorandum
under "Descriptions of
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Cleveland Electric Bonds and Toledo Edison Bonds -- Cleveland
Electric Bonds -- Title to Property," none of which materially
impairs the use of the property affected thereby in the
operation of the business of Cleveland Electric;
(xviii) The CEI Mortgage and all financing
statements have been duly filed and recorded in all places
where such filing or recording is necessary for the perfection
or preservation of the lien of the CEI Mortgage and the CEI
Mortgage constitutes a valid and direct first lien upon all of
the property referred to in subparagraph (xvii) above, subject
only to the conditions and exceptions referred to therein and,
under current law, all property acquired by Cleveland Electric
hereafter, other than property excepted from the lien of the
CEI Mortgage, will become subject to the lien thereof upon
acquisition;
(xix) The CEI First Mortgage Bonds are entitled
to the benefits and security of the CEI Mortgage, equally and
ratably with all other bonds outstanding under the CEI
Mortgage, except as the enforceability thereof may be subject
to the limitations set forth in subparagraph (xiii), above;
(xx) The CEI First Mortgage Bonds are not
required to be registered under the Securities Act of 1933, as
amended, and the CEI Supplemental Indenture is exempt from
qualification under the Trust Indenture Act of 1933, as
amended;
(xxi) Assuming that the Trustee holds the CEI
First Mortgage Bonds as provided in the Indenture, the
Indenture creates a valid and perfected first priority
security interest in the CEI First Mortgage Bonds.
(xxii) The Toledo Mortgage and the Toledo Edison
First Mortgage Bonds have been duly authorized, executed and
delivered by Toledo Edison and, as to the Toledo Edison First
Mortgage Bonds, assuming that they have been duly
authenticated by the Toledo Mortgage Trustee, constitute valid
and binding obligations enforceable against Toledo Edison in
accordance with their terms, except to the extent that the
binding effect and enforceability thereof are subject to
applicable bankruptcy, insolvency, reorganization, moratorium
and other laws in effect from time to time affecting the
rights of creditors generally or the enforcement of the
security provided by the Toledo Mortgage, and except to the
extent that the enforceability thereof may be limited by the
application of general principles of equity and may be
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subject to limitations upon the right to obtain
judicial orders requiring specific performance;
(xxiii) The execution and delivery of the Toledo
Supplemental Indenture and the Toledo Edison First Mortgage
Bonds and the performance by Toledo Edison of its obligations
thereunder and under the Toledo Mortgage (to the extent
pertinent to the issuance of the Toledo Edison First Mortgage
Bonds), does not constitute a default under, or conflict with
or violate any of the provisions of, the Articles of
Incorporation, the Regulations, the Bylaws, any law, rule,
regulation, judgment, order or decree to which Toledo Edison
is subject or any agreement, indenture, mortgage, lease, note
or other obligation or instrument to which Toledo Edison is a
party or by which it is bound;
(xxiv) All consents or approvals of the PUCO and
of any other federal or state regulatory agency required in
connection with Toledo Edison's execution and delivery of, and
the performance of its obligations under the Toledo
Supplemental Indenture and the Toledo Edison First Mortgage
Bonds have been obtained;
(xxv) Except as specifically described in the
Offering Memorandum, there are no actions, suits, proceedings,
inquiries or investigations at law or in equity before or by
any judicial or administrative court or agency, pending or
threatened against Toledo Edison and there is no basis for any
such action, suit, proceeding, inquiry or investigation
wherein the decision, ruling or finding would materially or
adversely affect the validity or enforceability of the Toledo
Mortgage (to the extent pertinent to the issuance of the
Toledo Edison First Mortgage Bonds) or the Toledo Edison First
Mortgage Bonds;
(xxvi) Toledo Edison has good title to
substantially all the properties referred to or described in
the granting clauses of the Toledo Mortgage as being subject
to the lien thereof and now owned by it, subject only to the
conditions and exceptions set forth in the Offering Memorandum
under "Descriptions of Cleveland Electric Bonds and Toledo
Edison Bonds -- Toledo Edison Bonds -- Title to Property,"
none of which materially impairs the use of the property
affected thereby in the operation of the business of Toledo
Edison;
(xxvii) The Toledo Mortgage and all financing
statements have been duly filed and recorded in all places
where such filing or recording is necessary for
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the perfection or preservation of the lien of the Toledo
Mortgage and the Toledo Mortgage constitutes a valid and
direct first lien upon all of the property referred to in
subparagraph (xxvi) above, subject only to the conditions and
exceptions referred to therein and, under current law, all
property acquired by Toledo Edison hereafter, other than
property excepted from the lien of the Toledo Mortgage, will
become subject to the lien thereof upon acquisition;
(xxviii) The Toledo Edison First Mortgage Bonds are
entitled to the benefits and security of the Toledo Mortgage,
equally and ratably with all other bonds outstanding under the
Toledo Mortgage, except as the enforceability thereof may be
subject to the limitations set forth in subparagraph (xxii),
above;
(xxix) The Toledo Edison First Mortgage Bonds are
not required to be registered under the Securities Act of
1933, as amended, and the Toledo Supplemental Indenture is
exempt from qualification under the Trust Indenture Act of
1933, as amended;
(xxx) Assuming that the Trustee holds the Toledo
Edison First Mortgage Bonds as provided in the Indenture, the
Indenture creates a valid and perfected first priority
security interest in the Toledo Edison First Mortgage Bonds.
(e) You shall have received on the Closing Date an opinion of
Baker & Hostetler LLP, counsel for the Purchasers, dated the Closing Date,
covering the matters referred to in subparagraphs (i), (ii), (iii), (v) (but
only as to the statements under the captions "Description of the Secured Notes,"
"Private Placement" and "Transfer Restrictions") and (vii), and the final
subparagraph of paragraph (c) above, and the matters referred to in
subparagraphs (ii), (iii), (iv) and (v) of paragraph (d) above.
With respect to the final subparagraph of paragraph (c) above,
Squire, Sanders & Dempsey, L.L.P. and Baker & Hostetler LLP may state that their
belief is based upon their participation in the preparation of each Memorandum
and any amendments or supplements thereto and review and discussion of the
contents thereof, but is without independent check or verification except as
specified. With respect to matters of fact, such counsel may rely on
certificates of officers of the relevant Company and of governmental officials,
in which case their opinion is to state that they are so doing and that the
Purchasers are justified in relying on such opinions or certificates and copies
of said opinions or certificates are to be attached to the opinion.
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The opinion of Squire, Sanders & Dempsey, L.L.P. described in
paragraph (c) above shall be rendered to you at the request of the Companies and
shall so state therein.
(f) You shall have received on the Closing Date (i) a letter,
substantially in the form attached hereto as Exhibit B (with the exhibits to
that letter omitted for purposes of this Agreement only), dated the Closing Date
from Winthrop, Stimson, Putnam & Roberts, and (ii) a letter dated the Closing
Date from Squire, Sanders & Dempsey, L.L.P., as counsel to the Companies,
stating that you are entitled to rely on the opinions rendered by such counsel
on the Closing Date to IBJ Schroder Bank & Trust Company in connection with the
secured lease obligation bond refinancing referred to under the caption "Use of
Proceeds" in the Final Memorandum.
(g) You shall have received on the Closing Date an opinion of
an Assistant General Counsel of AMBAC Indemnity, dated the Closing Date,
substantially in the form attached hereto as Exhibit C.
(h) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Arthur Andersen LLP,
independent public accountants for the Companies, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters (of the type ordinarily applicable for registration statements
filed under the Securities Act) with respect to the financial statements and
certain financial information contained in each Memorandum.
5. COVENANTS OF THE COMPANIES. In further consideration of
the agreements of the Purchasers herein contained, the Companies jointly and
severally covenant as follows:
(a) To furnish to you, without charge, during the period
mentioned in paragraph (c) below, as many copies of the Final Memorandum, any
documents incorporated by reference therein and any supplements and amendments
thereto as you may reasonably request; with respect to the Final Memorandum, to
furnish copies of the Final Memorandum in New York City, prior to 3:00 p.m. on
the business day following the date of this Agreement, in such quantities as you
reasonably request; but the Companies are not responsible for the costs of
distributing either Memorandum other than to the Purchasers.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and not to
use any such proposed amendment or supplement to which you reasonably object.
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(c) If, during such period after the date hereof and prior to
the date on which all of the Notes shall have been sold by the Purchasers, any
event shall occur or condition exist as a result of which it is necessary to
amend or supplement the Final Memorandum in order to make the statements
therein, in the light of the circumstances when such Memorandum is delivered to
a purchaser, not misleading, or if, in the opinion of your counsel, it is
necessary to amend or supplement that Memorandum to comply with applicable law,
forthwith to prepare and furnish, at its own expense, to the Purchasers, either
amendments or supplements to that Memorandum so that the statements in that
Memorandum as so amended or supplemented will not, in the light of the
circumstances when that Memorandum is delivered to a purchaser, be misleading or
so that that Memorandum, as so amended or supplemented, will comply with
applicable law.
(d) To endeavor to qualify the Notes for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) Whether or not any sale of Notes is consummated, to pay
all expenses incident to the performance of their obligations under this
Agreement, including: (i) the preparation of each Memorandum and all amendments
and supplements thereto, (ii) the preparation, issuance and delivery of the
Notes, (iii) the fees and disbursements of the Companies' counsel and
accountants and the Trustee and its counsel, if any, (iv) the qualification of
the Notes under securities or Blue Sky laws in accordance with Section 5(d),
including filing fees and the fees and disbursements of counsel for the
Purchasers in connection therewith and in connection with the preparation of any
Blue Sky or legal investment memoranda, (v) the printing and delivery to the
Purchasers in quantities as hereinabove stated of copies of the Memorandum and
any amendment or supplement thereto, (vi) any fees charged by rating agencies
for the rating of Notes, (vii) all document production charges and expenses of
counsel to the Purchasers (but not including their fees for professional
services) in connection with the preparation of this Agreement and (viii) the
fees and expenses, if any, incurred in connection with the admission of Notes
for trading in any appropriate market system.
(f) Neither Company nor any Affiliate of either Company will
sell, offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in the Securities Act) that could be integrated with
the sale of the Notes in a manner that would require the registration under the
Securities Act of those Notes.
(g) Not to solicit any offer to buy or offer or sell the Notes
by means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the
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Securities Act) or in any manner involving a public offering within the meaning
of section 4(2) of the Securities Act.
(h) While any of the Notes remain outstanding, to make
available, upon request, to any seller of Notes the information specified in
Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to
section 13 or 15(d) of the Exchange Act.
(i) To include information substantially in the form set forth
in Exhibit A in each Memorandum.
(j) If requested by you, to use its best efforts to permit the
Notes to be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the PORTAL Market.
(k) None of either Company, its Affiliates or any person
acting on its or their behalf (other than the Purchasers) will engage in any
directed selling efforts (as that term is defined in Regulation S) with respect
to the Notes, and each Company and its Affiliates and each person acting on its
or their behalf (other than the Purchasers) will comply with the offering
restrictions of Regulation S.
(l) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise dispose of any debt securities of either Company or warrants
to purchase debt securities of either Company substantially similar to the Notes
(other than the Notes), without your prior written consent.
(m) To use the proceeds from the sale of the Notes in the
manner discussed in the Final Memorandum under the caption "Use of Proceeds".
6. OFFERING OF NOTES; RESTRICTIONS ON TRANSFER.
(a) Each Purchaser, severally and not jointly, represents and
warrants that Purchaser is a qualified institutional buyer as defined in Rule
144A under the Securities Act (a "QIB"). Each Purchaser, severally and not
jointly, agrees with the Company that (a) it has not solicited and will not
solicit offers for, and it has not offered and sold and it will not offer or
sell, Notes by any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of section 4(2) of the Securities
Act and (b) it has solicited and will solicit offers for Notes only from, and
has offered and will offer Notes only to, persons that it reasonably believes to
be (A) in the case of offers or sales inside the United States, (i) QIBs or (ii)
other institutional
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accredited investors (as defined in Rule 501 (a) (1), (2), (3) or (7) under the
Securities Act (each, an "Institutional Accredited Investor") that, prior to
their purchase of Notes, deliver to that Purchaser a letter containing the
representations and agreements set forth in Annex A to the Memorandum and (B) in
the case of offers or sales outside the United States, to persons other than
U.S. persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust)) that, in each
case, in purchasing Notes are deemed to have represented and agreed as provided
in Exhibit A hereto.
(b) Each Purchaser, severally and not jointly, represents,
warrants, and agrees with respect to offers and sales outside the United States
that:
(i) it understands that no action has been or
will be taken in any jurisdiction by any Purchaser or either
Company that would permit a public offering of the Notes, or
possession or distribution of either Memorandum or any other
offering or publicity material relating to the Notes, in any
country or jurisdiction where action for that purpose is
required;
(ii) that Purchaser will comply with all
applicable laws and regulations in each jurisdiction in which
it acquires, offers, sells or delivers Notes or has in its
possession or distributes either Memorandum or any such other
material, in all cases at its own expense;
(iii) the Notes have not been and will not be
registered under the Securities Act and may not be offered or
sold within the United States or to, or for the account or
benefit of, U.S. persons except in accordance with Regulation
S under the Securities Act or pursuant to another exemption
from the registration requirements of the Securities Act;
(iv) that Purchaser has offered the Notes and
will offer and sell the Notes (A) as part of their
distribution, at any time and (B) otherwise until 40 days
after the later of the commencement of the Offering and the
closing Date, only in accordance with Rule 903 of Regulation
S. Accordingly, neither that Purchaser, its Affiliates nor any
persons acting on its or their behalf have engaged or will
engage in any directed selling efforts (within the meaning of
Regulation S) with respect to the Notes, and any such
Purchaser, its Affiliates and any such persons have complied
and will comply with the offering restrictions requirement of
Regulation S;
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(v) that Purchaser has (1) not offered or
sold, and prior to the date 180 days after the Closing Date
will not offer or sell any Notes in the United Kingdom except
to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities
Regulations 1995, (2) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Notes in,
from or otherwise involving the United Kingdom, and (3) it has
only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with
the offering of the Notes to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom that document may otherwise lawfully be issued
or passed on;
(vi) that Purchaser understands that the Notes
have not been and will not be registered under the Securities
and Exchange Law of Japan, and represents that it has not
offered or sold, and agrees that it will not offer or sell,
any Notes acquired by it in connection with the distribution
contemplated hereby, directly or indirectly, in Japan or to or
for the account of any resident thereof, except for offers or
sales to Japanese dealers and except pursuant to any exemption
from the registration requirements of the Securities and
Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law, and further agrees that
it will send to any dealer who purchases from it any of the
Notes a notice stating in substance that, by purchasing those
Notes, that dealer represents and agrees that it has not
offered or sold, and will not offer or sell, any Notes,
directly or indirectly, in Japan or to or for the account of
any resident thereof, except for offers or sales to Japanese
dealers and except pursuant to any exemption from the
registration requirements of the Securities and Exchange Law
of Japan and otherwise in compliance with applicable
provisions of Japanese law, and that that dealer will send to
any other dealer to whom it sells any of the Notes a notice
containing substantially the same statement as is contained in
this sentence.
(vii) that Purchaser agrees that, at or prior
to confirmation of sales of the Notes made in reliance
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on Regulation S, it will have sent to each distributor, dealer
or person receiving a selling concession, fee or other
remuneration that purchases Notes from it during the
restricted period a confirmation or notice substantially to
the following effect:
"The Notes covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"Securities Act") and may not be offered and sold within the
United States or to, or for the account or benefit of, U.S.
persons (i) as part of their distribution, at any time or,
(ii) otherwise until 40 days after the later of the
commencement of the offering and the closing date, except in
either case in accordance with Regulation S (or Rule 144A if
available) under the Securities Act. Terms used above have the
meaning given to them by Regulation S."
Terms used in this Section 6 have the meanings given to them by Regulation S.
(c) Each Purchaser understands and agrees that, upon original
issuance of the Notes, and until such time as the applicable provisions of the
Securities Act and the rules promulgated thereunder and under the Indenture no
longer so require, the Notes will bear the legends set forth in "Transfer
Restrictions" in the Final Memorandum.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Companies agree jointly and severally to indemnify and
hold harmless each Purchaser, and each person, if any, who controls that
Purchaser within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, or is under common control with, or is
controlled by, that Purchaser, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Purchaser or any such controlling of
affiliated person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in either Memorandum (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Purchaser
furnished to the Companies in writing by such Purchaser through you expressly
for use therein. The indemnity agreement contained in this Section 7(a) with
respect to any Preliminary Memorandum does not inure to the benefit of
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any Purchaser (or the benefit of any person controlling any Purchaser) if the
person asserting any such losses, liabilities, claims, damages, or expenses
purchased the Notes which are the subject thereof if at or prior to the written
confirmation of the sale of the Notes a copy of the Final Memorandum (or the
Final Memorandum as amended or supplemented) was not sent or delivered to that
person and the Final Memorandum (or the Final Memorandum as amended or
supplemented) would have cured the defect giving rise to those losses, claims,
damages or liabilities so long as the Companies have complied with their
obligations set forth in Sections 5(a) and 5(c) hereof to permit that sending or
delivery.
(b) Each Purchaser agrees, severally and not jointly, to
indemnify and hold harmless each Company, its directors, its officers and each
person, if any, who controls that Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Companies to that Purchaser, but only with
reference to information relating to that Purchaser furnished to the Companies
by that Purchaser in writing through you expressly for use in either Memorandum
or any amendment or supplement thereto.
(c) If any proceeding (including any governmental
investigation) is instituted involving any person in respect of which indemnity
may be sought pursuant to either paragraph (a) or (b) above, that person (the
"indemnified party") shall promptly notify the person against whom that
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in that proceeding and
shall pay the fees and disbursements of that counsel related to that proceeding.
In any such proceeding, any indemnified party has the right to retain its own
counsel, but the fees and expenses of that counsel will be at the expense of
that indemnified party unless (i) the indemnifying party and the indemnified
party have mutually agreed to the retention of that counsel or (ii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate because of actual or
potential differing interests between them. It is understood that the
indemnifying party will not in respect of the legal expenses of any indemnified
party in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. That firm shall
be designated in writing by Morgan Stanley & Co. Incorporated in the case of
parties indemnified pursuant to paragraph (a) above and by the Companies in the
case of parties indemnified pursuant to
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paragraph (b) above. The indemnifying party will not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with that consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of that settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party has requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it will be liable for any settlement of any
proceeding affected without its written consent if (i) that settlement is
entered into more than 60 days after receipt by that indemnifying party of the
aforesaid request and (ii) that indemnifying party has not reimbursed the
indemnified party in accordance with that request prior to the date of that
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by that indemnified party,
unless that settlement includes an unconditional release of that indemnified
party from all liability on claims that are the subject matter of that
proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under that paragraph, in lieu of
indemnifying that indemnified party thereunder, shall contribute to the amount
paid or payable by that indemnified party as a result of those losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Companies on the one hand and the Purchasers
on the other hand from the offering of those Notes or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Purchasers on the other hand in connection with the statements or
omissions that resulted in those losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Purchasers on the other hand in
connection with the offering of Notes will be deemed to be in the same
respective proportions as the aggregate net proceeds from the offering of those
Notes (before deducting expenses) received by the Companies and the total
discounts and commissions received by the Purchasers in respect thereof, in each
case as set forth in the Final Memorandum, bear to the aggregate offering price
of those Notes. The relative fault of the Companies on the one hand and of the
Purchasers on the other hand will be determined by reference to,
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among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Companies or by the Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent that statement or omission. The Purchasers' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective principal amount of Notes they have purchased hereunder, and not
joint.
(e) The Companies and the Purchasers agree that it would not
be just or equitable if contribution pursuant to this Section 7 were determined
by PRO RATA allocation (even if the Purchasers were treated as one entity for
that purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above will be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by that indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Purchaser will be required to contribute any amount in excess of
the amount by which the total price at which the Notes resold by it in the
initial placement of those Notes were offered to investors exceeds the amount of
any damages that that Purchaser has otherwise been required to pay by reason of
that untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) is entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The indemnity and contribution
provisions contained in this Section 7 and the representations and warranties of
the Companies contained in this Agreement will remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of the Purchasers or any person controlling
the Purchasers or by or on behalf of either Company, its officers or directors
or any person controlling either Company and (iii) acceptance of and payment for
any of the Notes. The remedies provided for in this Section 7 are not exclusive
and do not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
8. TERMINATION. This Agreement is subject to termination by
notice given by Morgan Stanley & Co. Incorporated (the "Purchaser
Representative") to the Companies, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of
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Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade,
(ii) trading of any securities of either Company shall have been suspended on
any exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a) (i) through (iv), that
event singly or together with any other such event makes it, in the Purchaser
Representative's judgment, impracticable to market the Notes on the terms and in
the manner contemplated in the Final Memorandum.
9. MISCELLANEOUS. If, on the Closing Date, any one or more of
the Purchasers fails or refuses to purchase Notes that it or they have agreed to
purchase hereunder on that date, and the aggregate principal amount of Notes
that that defaulting Purchaser or Purchasers agreed but failed or refused to
purchase is not more than one-tenth of the aggregate principal amount of Notes
to be purchased on that date, the other Purchasers will be obligated severally
in the proportions that the principal amount of Notes set forth opposite their
respective names in Schedule I bear to the aggregate principal amount of Notes
set forth opposite the names of all such non-defaulting Purchasers, or in such
other proportions as you may specify, to purchase the Notes that the defaulting
Purchaser or Purchasers agreed but failed or refused to purchase on that date,
but in no event will the principal amount of Notes that any Purchaser has agreed
to purchase pursuant to Section 3 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of that principal amount of Notes without the
written consent of that Purchaser. If, on the Closing Date any Purchaser or
Purchasers fails or refuses to purchase Notes that it or they have agreed to
purchase hereunder on that date and the aggregate principal amount of Notes with
respect to which that default occurs is more than one-tenth of the aggregate
principal amount of Notes to be purchased on that date, and arrangements
satisfactory to you and the Company for the purchase of those Notes are not made
within 36 hours after that default, this Agreement will terminate without
liability on the part of any non-defaulting Purchaser or of either Company. In
any such case either you or the Companies may postpone the Closing Date, but in
no event for longer than seven days, in order that the required changes, if any,
in the Final Memorandum or in any other document or arrangement may be effected.
Any action taken under this paragraph will not relieve any defaulting Purchaser
from liability in respect of any default of that Purchaser under this Agreement.
This Agreement may be signed in any number of counterparts,
each of which is an original, with the same effect
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as if the signatures thereto and hereto were on the same instrument.
If this Agreement is terminated by the Purchasers, or any of
them, because of any failure or refusal on the part of either Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason either Company is unable to perform its obligations under this
Agreement, the Companies will reimburse the Purchasers or such Purchasers as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by those Purchasers in connection with this Agreement or the
offering contemplated hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
The headings of the sections of this Agreement have been
inserted for convenience of reference only and will not be deemed a part of this
Agreement.
Please confirm your agreement to the foregoing by signing in
the space provided below for that purpose and returning to us a copy hereof,
whereupon this Agreement will constitute a binding agreement between us.
THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
and
THE TOLEDO EDISON COMPANY
By /s/ Terrence G. Linnert
-----------------------------------------
Name: Terrence G. Linnert
Title: Vice President, of each
---------------
Accepted as of the date first written above
MORGAN STANLEY & CO.
INCORPORATED
CITICORP SECURITIES, INC.
CREDIT SUISSE
FIRST BOSTON
McDONALD & COMPANY SECURITIES, INC.
By Morgan Stanley & Co.
Incorporated
By /s/ W.L. Blais
----------------------------------------
Name: W.L. Blais
Title: Principal
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SCHEDULE I
Principal Amount
Purchaser of Notes to be Purchased
- --------- ------------------------
Morgan Stanley & Co. $220,000,000 principal amount of
Incorporated 7.19% Series A Secured Notes
Due 2000;
$350,000,000 principal amount of
7.67% Series A Secured Notes
Due 2004; and
$150,000,000 principal
amount of 7.13% Series A
Secured Notes Due 2007.
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EXHIBIT A
Each Memorandum will contain language to the following effect:
"Each purchaser of the Notes will be deemed to:
(1) represent that it is purchasing the Notes for its own
account with respect to which it exercises sole investment discretion
and that it and any such account is (i) a QIB and is aware that the
sale to it is being made in reliance on Rule 144A, (ii) an
Institutional Accredited Investor or (iii) a foreign purchaser that is
outside the United States (or a foreign purchaser that is a dealer or
other fiduciary as referred to above);
(2) acknowledge that the Notes have not been registered under
the Securities Act and may not be offered or sold in the United States
or to, or for the account or benefit of, U.S. persons except as set
forth below;
(3) if it is a person other than a foreign purchaser outside
of the United States, agree that if it should resell or otherwise
transfer any of the Notes within three years after the later of the
original issuance of those Notes or the last date on which those Notes
were held by an affiliate of either The Cleveland Electric Illuminating
Company or The Toledo Edison Company (each, a "Company," and
collectively, the "Companies"), it will do so only (i) to either
Company or any Subsidiary thereof, (ii) inside the United States to a
QIB in compliance with Rule 144A, (iii) inside the United States to an
Institutional Accredited Investor that, prior to that transfer,
furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer
of the Notes (the form of which letter can be obtained from the
Trustee) and, if that transfer is in respect of an aggregate principal
amount of Notes at the time of transfer of less than $100,000, an
opinion of counsel acceptable to the Companies that that transfer is in
compliance with the Securities Act, (iv) outside the United States in
compliance with Rule 904 under the Securities Act, (v) pursuant to the
exemption from registration provided by Rule 144 under the Securities
Act (if available) or (vi) pursuant to an effective registration
statement under the Securities Act. Each Institutional Accredited
Investor that is not a QIB and that is an original purchaser of the
Notes will be required to sign an agreement to the foregoing effect in
the form attached hereto as Appendix A. Subject to the procedures set
forth under "Description of Secured Notes--Book Entry; Delivery and
Form," prior to any proposed transfer of any of the
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Notes (otherwise than pursuant to an effective registration statement)
within three years after the later of the original issuance of those
Notes or the last date on which those Notes were held by an affiliate
of either Company, the holder thereof must check the appropriate box
set forth on the reverse of its Notes relating to the manner of that
transfer and submit the Notes to the Trustee;
(4) agree that it will deliver to each person to whom it
transfers any of the Notes notice of any restrictions on transfer of
those Notes;
(5) if it is a foreign purchaser outside the United States,
understand that the Notes will initially be represented by a
Regulations S Global Note and that transfers thereof are restricted as
described under "Description of Secured Notes--Book Entry; Delivery and
Form" for a period ending 40 days after the later of the commencement
of the offering and the closing date;
(6) if it is a QIB, understand that the Notes offered in
reliance on Rule 144A will be represented by a Restricted Global Note.
Before any interest in a Restricted Global Note may be offered, sold,
pledged or otherwise transferred to a person who is not a QIB, the
transferee will be required to provide the Trustee with a written
certification (the form of which certification can be obtained from the
Trustee) as to compliance with the transfer restriction referred to
above;
(7) understand that, unless or until registered under the
Securities Act, the Notes (other than those issued to foreign
purchasers) will bear a legend to the following effect unless otherwise
agreed by the Companies and the holder thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3) or (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT
WILL NOT, WITHIN THREE YEARS AFTER THE LATER OF THE ORIGINAL
ISSUANCE OF THIS NOTE OR THE LAST DATE ON WHICH THIS NOTE WAS
HELD
A-2
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BY AN AFFILIATE OF EITHER COMPANY, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO EITHER COMPANY OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT PRIOR TO SUCH TRANSFER,
FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF THAT TRANSFER IS IN RESPECT
OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF
TRANSFER OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANIES THAT THAT TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT,(E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS
AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THIS NOTE OR THE
LAST DATE ON WHICH THIS NOTE WAS HELD BY AN AFFILIATE OF
EITHER COMPANY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF THAT
TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE
PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR,
THE HOLDER MUST, PRIOR TO THAT TRANSFER, FURNISH TO THE
TRUSTEE AND THE COMPANIES SUCH CERTIFICATIONS, LEGAL OPINIONS
OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE
TO CONFIRM THAT THAT TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND
"U.S. PERSONS" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS;
(8) acknowledge that the Companies, the Placement Agents and
others will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements, and agree that if any
of the acknowledgements, representations or warranties deemed to have
been made by it by its purchase of Notes are no longer accurate, it
shall promptly notify the Companies and the Placement Agents. If it is
acquiring Notes as a fiduciary or agent for one or more investor
accounts, it represents that is has sole
A-3
37
investment discretion with respect to each such account and it has full
power to make the foregoing acknowledgements, representations and
agreements, on behalf of each such account; and
(9) represent that (i) it is not purchasing Notes with the
assets of any pension, profit-sharing, retirement, or other employee
benefit plan subject to Title 7 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA Plan"), with respect to which
either Company or any lender to be repaid with proceeds of the offering
is a "party in interest" within the meaning of Section 3(14) of ERISA
or a "Disqualified Person" within the meaning of Section 4975(e)(2) of
the Code or (ii) if it is purchasing the Notes with the assets of any
such ERISA Plan, those assets are (a) assets of a bank collective
investment fund, with respect to which Prohibited Transaction Class
Exemption 91-38 issued by the Department of Labor provides an exemption
for that purchase, (b) assets of a pooled separate account, with
respect to which Prohibited Transaction Class Exemption 90-1 issued by
the Department of Labor provides and exemption for that purchase, (c)
assets of an investment fund managed by a "qualified professional asset
manager," with respect to which Prohibited Transaction Class Exemption
84-14 issued by the Department of Labor provides an exemption for that
purchase or (d) assets of an insurance company general account with
respect to which Prohibited Transaction Class Exemption 95-60 issued by
the Department of Labor provides an exemption for that purchase. Each
subsequent transferee of the Notes is deemed to have made the
representation in this paragraph 9 upon its acquisition of Notes, but
upon that subsequent transfer the representation in clause (i) of this
paragraph 9 may be made without regard to whether any lender to be
repaid with proceeds of the offering is a party in interest or
Disqualified Person with respect to an ERISA Plan whose assets are a
source of funds for the transfer.
Each Memorandum must also contain language to the following
effect:
"Each person receiving this Memorandum acknowledges that (i)
that person has been afforded an opportunity to request from the
Company, and to review, all additional information considered by it to
be necessary to verify the accuracy of, or to supplement, the
information contained herein; (ii) that person has not relied on the
Placement Agents or any person affiliated with the Placement Agents in
connection with its investigation of the accuracy of that information
or its investment decision; and (iii) no person has been authorized to
give any information or to make any representation concerning either
Company or the Notes (other than as contained herein and information
given by duly
A-4
38
authorized officers and employees of either Company in connection with
the investor's examination of the Companies and the terms of the sale
of the Notes), and, if given or made, any such other information or
representation should not be relied upon as having been authorized by
either Company or the Placement Agents.
A-5
39
EXHIBIT B
June ____, 1997
Morgan Stanley & Co. Incorporated
Citicorp Securities, Inc.
Credit Suisse First Boston
McDonald & Company Securities, Inc.
c/o Morgan Stanley Dean Witter
1585 Broadway
New York, New York 10036
Dear Sirs:
Listed on Schedule I hereto are certain opinions dated the
same date as this letter rendered by us concurrently with this letter (the
"WINTHROP STIMSON OPINIONS"). Copies of the Winthrop Stimson Opinions are
attached as Exhibits A through Y hereto. You are entitled to rely on each
Winthrop Stimson Opinion to the same extent as if it had been specifically
addressed to you, in each case with respect to your purchase of an aggregate of
$720,000,000 of 7.19 Series A Secured Notes due 2000, 7.67% Series A Senior
Secured Notes due 2004 and 7.13% Series A Secured Notes due 2007 of The
Cleveland Electric Illuminating Company and The Toledo Edison Company.
Very truly yours,
B-1
40
Schedule I to
Reliance Letter
---------------
Exhibit
-------
1. Opinion addressed to Mansfield Capital Trust A
("MANSFIELD") and others with respect to
Sections 1.2(m) of the Tax Indemnity
Agreement.
2. Opinion addressed to IBJ Schroder Bank & B
Trust Company ("IBJ"), as trustee, with
respect to the registration of transfer of
all Secured Notes, Bruce Mansfield 1987 Trust A.
3. Opinion addressed to IBJ, as trustee, with C
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust B.
4. Opinion addressed to IBJ, as trustee, with D
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust C.
5. Opinion addressed to IBJ, as trustee, with E
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust D.
6. Opinion addressed to IBJ, as trustee, with F
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust E.
7. Opinion addressed to IBJ, as trustee, with G
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust F.
8. Opinion addressed to IBJ, as trustee, with H
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust G.
9. Opinion addressed to IBJ, as trustee, with I
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust J.
10. Opinion addressed to IBJ, as trustee, with J
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust K.
11. Opinion addressed to IBJ, as trustee, with K
respect to the registration of transfer of all
Secured Notes, Bruce Mansfield 1987 Trust L.
B-2
41
12. Opinion addressed to IBJ, as trustee, with L
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust A.
13. Opinion addressed to IBJ, as trustee, with M
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust B.
14. Opinion addressed to IBJ, as trustee, with N
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust C.
15. Opinion addressed to IBJ, as trustee, with O
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust D.
16. Opinion addressed to IBJ, as trustee, with P
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust E.
17. Opinion addressed to IBJ, as trustee, with Q
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust F.
18. Opinion addressed to IBJ, as trustee, with R
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust G.
19. Opinion addressed to IBJ, as trustee, with S
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust J.
20. Opinion addressed to IBJ, as trustee, with T
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust K.
21. Opinion addressed to IBJ, as trustee, with U
respect to Irrevocable Payment Instruction,
General Power of Attorney and Compliance with
Operative Documents, Bruce Mansfield Trust L.
22. Opinion addressed to IBJ, as trustee, with V
respect to the defeasance and redemption of
all outstanding Secured Lease Obligation
B-3
42
Bonds.
23. Opinion addressed to The Cleveland Electric W
Illuminating Company, The Toledo Edison
Company and The Toledo Edison Capital
Corporation (collectively, the "CENTERIOR
COMPANIES") [, among other addressees,] with
respect to certain matters of New York law
concerning the Group 1 Lessor Notes.
24. Opinion addressed to IBJ with respect to the X
issuance of Refunding Notes by Bruce
Mansfield 1987 Trusts H and I.
25. Opinion addressed to the Centerior Companies, Y
among others, with respect to certain New
York law matters relating to Mansfield.
B-4
43
EXHIBIT C
FORM OF AMBAC LEGAL OPINION
Morgan Stanley & Co.
Incorporated
Citicorp Securities, Inc.
Credit Suisse First Boston
McDonald & Company Securities, Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
This opinion has been requested of the undersigned, a Vice
President and an Assistant General Counsel of AMBAC Indemnity Corporation, a
Wisconsin stock insurance company ("AMBAC Indemnity"), in connection with the
issuance by AMBAC Indemnity of a certain Financial Guaranty Insurance Policy and
endorsement thereto, effective as of the date hereof (the "Policy"), insuring >
in aggregate principal amount of the > (the "Issuer"), > (the "Obligations").
In connection with my opinion herein, I have examined the
Policy, such statutes, documents and proceedings as I have considered necessary
or appropriate under the circumstances to render the following opinion,
including, without limiting the generality of the foregoing, certain statements
contained in the Offering Memorandum of the Issuer dated >, relating to the
Obligations (the "Offering Memorandum") under the heading "Credit Enhancement".
Based upon the foregoing and having regard to legal
considerations I deem relevant, I am of the opinion that:
1. AMBAC Indemnity is a stock insurance company duly
organized and validly existing under the laws of the
State of Wisconsin and duly qualified to conduct an
insurance business in the State of Ohio.
2. AMBAC Indemnity has full corporate power and
authority to execute and deliver the Policy and the
Policy has been duly authorized, executed and
delivered by AMBAC Indemnity and constitutes a legal,
valid and binding obligation of AMBAC Indemnity
enforceable in accordance with its terms except to
the extent that the enforceability (but
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not the validity) of such obligation may be limited
by any applicable bankruptcy, insolvency,
liquidation, rehabilitation or other similar law or
enactment now or hereafter enacted affecting the
enforcement of creditors' rights.
3. The execution and delivery by AMBAC Indemnity of
the Policy will not, and the consummation of the
transactions contemplated thereby and the
satisfaction of the terms thereof will not,
conflict with or result in a breach of any of the
terms, conditions or provisions of the Certificate
of Incorporation of By-Laws of AMBAC Indemnity, or
any restriction contained in any contract,
agreement or instrument to which AMBAC Indemnity
is a party or by which it is bound or constitute a
default under any of the foregoing.
4. Proceedings legally required for the issuance of
the Policy have been taken by AMBAC Indemnity and
licenses, orders, consents or other authorizations
or approvals of any governmental boards or bodies
legal required for the enforceability of the
Policy have been obtained; any proceedings not
taken and any licenses, authorizations or
approvals not obtained are not material to the
enforceability of the Policy.
5. The statements contained in the Official Statement
under the heading "Credit Enhancement," insofar as
such statements constitute summaries of the
matters referred to therein, accurately reflect
and fairly present the information purported to be
shown and, insofar as such statements describe
AMBAC Indemnity, fairly and accurately describe
AMBAC Indemnity.
6. The form of Policy attached hereto as Appendix I
is a true and complete copy of the form of Policy.
Very truly yours,
>
Vice President
Assistant General Counsel
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