0000950152-01-504611.txt : 20011009 0000950152-01-504611.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950152-01-504611 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20010921 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND ELECTRIC ILLUMINATING CO CENTRAL INDEX KEY: 0000020947 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 340150020 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-64776 FILM NUMBER: 1742477 BUSINESS ADDRESS: STREET 1: 76 SOUTH MAIN STREET STREET 2: C/O FIRSTENERGY CORP CITY: AKRON STATE: OH ZIP: 44308 BUSINESS PHONE: 2166229800 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEVELAND ELECTRIC FINANCING TRUST I CENTRAL INDEX KEY: 0001142248 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-64776-01 FILM NUMBER: 1742478 BUSINESS ADDRESS: STREET 1: C/O FIRSTENERGY CORP STREET 2: 76 SOUTH MAIN STREET CITY: AKRON STATE: OH ZIP: 44308-1890 BUSINESS PHONE: 8007363402 MAIL ADDRESS: STREET 1: C/O FIRSTENERGY CORP STREET 2: 76 SOUTH MAIN STREET CITY: AKRON STATE: OH ZIP: 44308-1890 S-2/A 1 l88526bs-2a.txt CLEVELAND ELECTRIC ILLUMINATING, ET AL., S-2/A 1 As filed with the Securities and Exchange Commission on September 21, 2001 Registration Nos. 333-64776 and 333-64776-01 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 --------------- AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY (Exact name of Registrant as specified in its charter) OHIO 34-0150020 (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.) CLEVELAND ELECTRIC FINANCING TRUST I (Exact name of Registrant as specified in its charter) DELAWARE 34-7140162 (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.) C/O FIRSTENERGY CORP., 76 SOUTH MAIN STREET, AKRON, OHIO 44308 (Address of principal executive offices) Registrant's Telephone Number Including Area Code: (800)736-3402 N.C. ASHCOM, CORPORATE SECRETARY C/O FIRSTENERGY CORP. 76 SOUTH MAIN STREET AKRON, OHIO 44308-1890 (800)736-3402 (Name, address and telephone number of agent for service) The Commission is requested to send copies of all orders, notices and communications to: LUCAS F. TORRES JOHN J. JENKINS PILLSBURY WINTHROP LLP CALFEE, HALTER & GRISWOLD LLP ONE BATTERY PARK PLAZA 800 SUPERIOR AVENUE NEW YORK, NY 10004-1490 1400 MCDONALD INVESTMENT CENTER (212) 858-1000 CLEVELAND, OH 44114 FAX: (212) 858-1500 (216) 622-8200 FAX: (216) 241-0816 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /__/ If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /__/ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /__/ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /__/ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. /__ / THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE 2 WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 3 PROSPECTUS SUBJECT TO COMPLETION, ISSUED SEPTEMBER 21, 2001 [ ] Trust Preferred Securities Cleveland Electric Financing Trust I [ ]% CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED BY The Cleveland Electric Illuminating Company ------------------------ CLEVELAND ELECTRIC FINANCING TRUST I IS OFFERING PREFERRED SECURITIES WHICH WE WILL GUARANTEE TO THE EXTENT DESCRIBED IN THIS PROSPECTUS. FOR A MORE DETAILED DESCRIPTION OF THE PREFERRED SECURITIES, PLEASE REFER TO "DESCRIPTION OF THE PREFERRED SECURITIES" BEGINNING ON PAGE 20. ------------------------ WE HAVE APPLIED TO LIST THE PREFERRED SECURITIES ON THE NEW YORK STOCK EXCHANGE UNDER THE TRADING SYMBOL "CVE PRU." WE EXPECT THAT THE PREFERRED SECURITIES WILL BEGIN TRADING ON THE NEW YORK STOCK EXCHANGE WITHIN 30 DAYS AFTER THEY ARE FIRST ISSUED. ------------------------ INVESTING IN THE PREFERRED SECURITIES INVOLVES RISKS. PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 9. ------------------------ PRICE $25 PER PREFERRED SECURITY ------------------------
Underwriting Price to Discounts and Proceeds to Public Commissions the Trust ----------- ------------- ----------- Per Preferred Security..................... $25.00 See below $25.00 Total...................................... $ [] See below $ []
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The Trust will not pay any underwriting commissions. We will pay underwriting commissions of $[ ] per preferred security ($[ ] for all preferred securities). Accumulated distributions, if any, from [ ], 2001 should be added to the price to public. The underwriters expect to deliver the preferred securities to purchasers on or about [ ], 2001. ------------------------ MORGAN STANLEY [ ], 2001 4 [red herring language appears here to be inserted on left hand side legend on the cover page] THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. ii 5
TABLE OF CONTENTS Page ---- ABOUT THIS PROSPECTUS.............................................................................................1 WHERE YOU CAN FIND MORE INFORMATION...............................................................................1 PROSPECTUS SUMMARY................................................................................................3 SUMMARY CONSOLIDATED FINANCIAL INFORMATION........................................................................8 RISK FACTORS......................................................................................................9 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................................................16 CAPITALIZATION...................................................................................................17 ACCOUNTING TREATMENT.............................................................................................17 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY......................................................................18 CLEVELAND ELECTRIC FINANCING TRUST I.............................................................................19 USE OF PROCEEDS..................................................................................................20 DESCRIPTION OF THE PREFERRED SECURITIES..........................................................................20 DESCRIPTION OF THE GUARANTEE.....................................................................................33 DESCRIPTION OF THE SUBORDINATED DEBENTURES.......................................................................36 RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED DEBENTURES AND THE GUARANTEE.......................45 BOOK-ENTRY SECURITIES............................................................................................47 UNITED STATES TAXATION...........................................................................................48 UNDERWRITERS.....................................................................................................52 LEGAL OPINIONS...................................................................................................54 EXPERTS..........................................................................................................54 Annex A - 2000 Annual Report to Stockholders of The Cleveland Electric Illuminating Company ..............................................................A-1 Annex B - Form 10-Q for the Quarter ended June 30, 2001 of The Cleveland Electric Illuminating Company ..............................................................B-1
iii 6 ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we and the Trust filed with the Securities and Exchange Commission. You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus and the documents we incorporate by reference is accurate as of any date other than the date of this prospectus or those documents, respectively. WHERE YOU CAN FIND MORE INFORMATION We are required by the Securities Exchange Act of 1934 to file annual, quarterly and special reports and other information with the Commission. These reports and other information can be inspected and copied at the Commission's public reference room at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. You may also read and copy these filings by visiting the Commission's Website at http://www.sec.gov. In addition, so long as any preferred securities are outstanding, we will furnish to the holders of the preferred securities the annual and quarterly financial reports that we are required to file with the Commission, or similar reports if we are not at the time required to file these reports with the Commission. We and the Trust have filed with the Commission a registration statement on Form S-2 under the Securities Act of 1933 with respect to the securities offered by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information, you should refer to the registration statement. The Commission allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus. The information included in this prospectus is not complete, and should be read together with the information incorporated by reference. We incorporate by reference in this prospectus our Annual Report on Form 10-K/A for the year ended December 31, 2000 and our Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2001. WE ARE ALSO DELIVERING WITHOUT CHARGE A COPY OF OUR 2000 ANNUAL REPORT TO STOCKHOLDERS AND OUR QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 TOGETHER WITH THIS PROSPECTUS ON OUR ANNEXES A AND B, RESPECTIVELY. You may also request additional copies of that report or copies of our Commission filings at no cost by writing or telephoning us at the following address: 7 The Cleveland Electric Illuminating Company 76 South Main Street Akron, Ohio 44308 Attention: Corporate Secretary Telephone: (330) 384-5504 We will not prepare separate financial statements of the Trust and therefore none will be included in this prospectus. We do not consider that these financial statements will be material to the holders of the preferred securities because the Trust is a special purpose entity owned by us with no operating history or independent operations and has not engaged in and does not propose to engage in any activity other than: - holding as trust assets our subordinated debentures, and - issuing its common and preferred securities. 2 8 PROSPECTUS SUMMARY You should read the following summary together with the other information contained in this prospectus. References in this document to "we," "us," "our," "Cleveland Electric" or the "Company" are references to The Cleveland Electric Illuminating Company. THE CLEVELAND ELECTRIC ILLUMINATING COMPANY We are a wholly owned electric utility operating subsidiary of FirstEnergy Corp. We engage in the generation, distribution and sale of electric energy in northeastern Ohio. We also engage in the sale, purchase and interchange of electric energy with other electric companies. Our service area has a population of 1.9 million. FirstEnergy also owns four other electric utility operating companies, namely, Ohio Edison Company, Pennsylvania Power Company, The Toledo Edison Company and American Transmission Systems, Inc. (ATSI). On September 1, 2000, we sold our transmission assets to ATSI as did each of FirstEnergy's other electric operating subsidiaries. As a result, ATSI owns and operates FirstEnergy's major high-voltage transmission facilities and has interconnections with other regional utilities. Pursuant to FirstEnergy's corporate separation plan implemented under Ohio utility restructuring legislation, FirstEnergy transferred operational control of the non-nuclear generation assets of its electric utility operating subsidiaries to FirstEnergy Generation Corporation as of January 1, 2001. We expect that the transfer of ownership of those assets to FirstEnergy Generation will be completed by December 31, 2005, the end of the legislation's market development period. Our principal office is located at 76 South Main Street, Akron, Ohio 44308-1890. Our telephone number is (330) 384-5100. CLEVELAND ELECTRIC FINANCING TRUST I Cleveland Electric Financing Trust I is a Delaware business trust created for the exclusive purposes of: - issuing the preferred securities and common securities representing undivided beneficial interests in the assets of the Trust, - investing the gross proceeds from the sale of the preferred securities and common securities in our subordinated debentures, and - engaging in only those other activities necessary, convenient or incidental to these purposes. We will own all of the common securities of the Trust having an aggregate liquidation amount equal to at least 3% of the Trust's capital. The Trust has a term of approximately 55 years, but may be dissolved earlier. We will conduct all business and affairs of the Trust. As described above, the Trust will not engage in any business or activities other than as necessary, convenient or incidental to the issuance and sale of the preferred securities and common securities and investment of the proceeds from the sale in the subordinated debentures. In this prospectus, we refer to the preferred securities and common securities collectively as the "trust 3 9 securities." The principal place of business of the Trust is c/o The Cleveland Electric Illuminating Company, 76 South Main Street, Akron, Ohio 44308, telephone number (800) 736-3402.
THE OFFERING The issuer Cleveland Electric Financing Trust I, a Delaware statutory business trust. The securities offered [_________] preferred securities having a liquidation amount of $25 per preferred security. The preferred securities represent preferred undivided beneficial interests in the assets of the Trust, which will consist solely of subordinated debentures. We will guarantee payments on the preferred securities to the extent of funds in the Trust. The offering price $25 per preferred security. The payment of distributions The Trust will pay distributions to you on each preferred security at an annual rate of [___]% or $[____] per quarter ($[___] per year). The distributions will be cumulative, will accumulate from [__________], 2001, and will be payable in arrears on March 31, June 30, September 30 and December 31 of each year, commencing [__________], 2001. Subordinated debentures The Trust will invest the proceeds from the issuance of the preferred securities and the common securities in an equivalent amount of our [___]% subordinated debentures. Maturity The subordinated debentures are scheduled to mature on [__________], 2031 unless we extend the maturity date. Certain conditions must be satisfied before we can extend the maturity date. The Trust must redeem the preferred securities when the subordinated debentures are paid on the maturity date or following any earlier redemption of the subordinated debentures.
4 10 We have the option to extend At any time when we are not in default under the subordinated debentures, we may extend the the interest payment period interest payment period on the subordinated debentures for up to 20 consecutive quarters, but not beyond their stated maturity date. The Trust would defer quarterly distributions on the preferred securities during the extension period on the subordinated debentures. Deferred quarterly distributions will accumulate additional distributions at an annual rate of [___]% compounded quarterly. During any extension period on the subordinated debentures, we may not declare or pay any cash distributions on our capital stock or debt securities that are ranked equal to or lower than the subordinated debentures. Once an extension period has ended and all amounts then due have been paid, we may start a new extension period of up to 20 consecutive quarters. If we extend the interest payment period on the subordinated debentures, you will be required to accrue interest income as original issue discount in respect of deferred distributions on your preferred securities and include that original issue discount in your gross income for United States federal income tax purposes before you receive the deferred distributions. Redemption of the preferred The Trust will redeem the preferred securities in whole or in part if we redeem the securities is possible subordinated debentures. We may redeem the subordinated debentures prior to their scheduled maturity - at any time on or after [__________], 20[__], in whole or in part from time to time, or - at any time, in whole, but not in part, within 90 days after the occurrence of certain adverse tax events or Investment Company Act developments.
5 11 Upon any redemption of the subordinated debentures, the Trust will use the cash proceeds of the redemption to redeem on a proportionate basis preferred securities and common securities having an aggregate liquidation amount equal to the aggregate principal amount of the subordinated debentures redeemed. The redemption price you will receive will be equal to the liquidation amount of $25 per preferred security plus any accumulated and unpaid distributions to the date of redemption. How the preferred securities The preferred securities will rank equally with the common securities. The Trust will pay will rank in right of payment distributions on the preferred securities and the common securities pro rata. However, if we default by failing to pay interest payments on the subordinated debentures, then no distributions on the common securities will be paid until all accumulated and unpaid distributions on the preferred securities have been paid. Our obligations under the subordinated debentures are unsecured and generally will rank junior in priority to our senior and other subordinated indebtedness. If we create any other trusts similar to the Trust, then the subordinated debentures will rank equally with any other subordinated debentures we issue to those trusts. As of June 30, 2001, our total senior debt outstanding was approximately $2.6 billion. We have no subordinated debt outstanding. Our obligations under the guarantee are unsecured and will rank junior to our senior and other subordinated indebtedness. If we issue any other guarantees in the future relating to preferred securities issued by the other trusts, then the guarantee issued in this transaction will rank equally with those other guarantees. The subordinated debentures We may dissolve the Trust at any time. If we dissolve the Trust, after satisfaction of any may be distributed to you liabilities to creditors, the Trust will distribute the subordinated debentures ratably to holders of the preferred securities and common securities. Our guarantee of payments We will fully and unconditionally guarantee the preferred securities based on:
6 12 - our obligations to make payments on the subordinated debentures; - our obligations under a guarantee executed for the benefit of the holders of the preferred securities; and - our obligations under the trust agreement. If we do not make payments on the subordinated debentures, the Trust will not have sufficient funds to make payments on the preferred securities. The guarantee does not cover payments when the Trust does not have sufficient funds. Limited voting rights You will have no voting rights except in limited circumstances. The use of proceeds The Trust will invest all of the proceeds from the sale of the preferred and the common securities in our subordinated debentures. We will use the proceeds from the sale of the subordinated debentures for general corporate purposes. New York Stock Exchange symbol The proposed NYSE symbol is "CVE PrU." Book-entry The preferred securities will be represented by a global security that will be deposited with and registered in the name of The Depository Trust Company, New York, New York, or its nominee. This means that you will not receive a certificate for your preferred securities. Risk Factors Before purchasing the preferred securities offered by this prospectus you should carefully consider the "Risk Factors" beginning on page 9.
7 13 SUMMARY CONSOLIDATED FINANCIAL INFORMATION THE CLEVELAND ELECTRIC ILLUMINATING COMPANY The following consolidated financial information is derived from, and should be read in conjunction with, the consolidated audited financial statements contained in our most recent Annual Report on Form 10-K/A and in our 2000 Annual Report to Stockholders, a copy of which is being delivered with this prospectus. Cleveland Electric is a wholly owned subsidiary of FirstEnergy. Prior to the merger in November 1997, Cleveland Electric and Toledo Edison were the principal operating subsidiaries of Centerior Energy. The merger was accounted for using the purchase method of accounting in accordance with accounting principles generally accepted in the United States, and the applicable effects were reflected on the separate financial statements of Centerior Energy's direct subsidiaries as of the merger date. Accordingly, the post-merger financial statements reflect a new basis of accounting, and pre-merger period and post-merger period financial results (separated by a heavy black line) are presented. Cleveland Electric discontinued the application of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" for its nuclear operations in October 1997. As a result, regulatory assets attributable to nuclear operations of $499.1 million ($324.4 million after taxes) were written off as an extraordinary item. Net Income and Earnings on Common Stock for the period November 8 to December 31, 1997 include net after tax charges of $5.8 million relating to a voluntary retirement program. "Earnings" for purposes of the calculations of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Dividends have been computed by adding to "income before extraordinary item" all taxes based on income or profits, total interest charges and the estimated interest element of rentals charged to income. "Fixed charges" include total interest charges and the estimated interest element of rentals.
TWELVE MONTHS YEAR ENDED DECEMBER 31,1 ENDED ---------------------------------------------------------------------------------- JUNE 30, 1996 1997 1998 1999 2000 2001 ----------- -------------------------- ----------- ----------- ----------- ------------- ($ IN THOUSANDS) JAN. 1- NOV. 8- NOV. 7 DEC. 31 (UNAUDITED) ------ ------- INCOME SUMMARY: Operating Revenues $ 1,798,850 $ 1,537,459 $ 254,892 $ 1,795,997 $ 1,864,954 $ 1,887,039 $ 2,007,930 Income Before Extraordinary Item $ 116,553 $ 95,191 $ 19,290 $ 164,891 $ 194,089 $ 202,950 $ 169,125 Net Income (Loss) $ 116,553 $ (229,247) $ 19,290 $ 164,891 $ 194,089 $ 202,950 $ 169,125 Earnings (Loss) on Common Stock $ 77,810 $ (274,276) $ 19,290 $ 140,097 $ 160,565 $ 182,107 $ 149,565 Ratio of Earnings to Fixed Charges 1.57 1.64 1.73 1.92 2.14 2.23 2.08 Ratio of Earnings to Combined Fixed Charges and Preferred Dividends 1.32 1.26 1.73 1.68 1.79 1.98 1.85
(1) The data corresponding to the years 1996 to 2000 were derived from audited financial statements. 8 14 RISK FACTORS An investment in the preferred securities involves a number of risks. You should carefully consider the following information, together with the other information in this prospectus and the documents that are incorporated by reference in this prospectus, about risks concerning the preferred securities, before buying any preferred securities. RISK FACTORS RELATING TO THE SECURITIES OFFERED IF WE DO NOT MAKE PAYMENTS ON THE SUBORDINATED DEBENTURES, THE TRUST WILL NOT BE ABLE TO PAY DISTRIBUTIONS AND OTHER AMOUNTS DUE ON THE PREFERRED SECURITIES AND THE GUARANTEE WILL NOT APPLY. The Trust will depend solely upon our payment of amounts when due on the subordinated debentures to pay amounts due to you on the preferred securities. If we fail to pay principal or interest when due on the subordinated debentures, the Trust will not have funds to pay distributions on, or amounts due on redemption or liquidation of, the preferred securities or amounts due on the liquidation of the Trust. If this happens, holders of preferred securities will not be able to rely upon the guarantee for payment of those amounts because the guarantee only guarantees that we will make distributions and redemption payments on the preferred securities if the Trust has the funds to do so itself but does not. Instead, you or the property trustee may proceed directly against us for payment of any amounts due on the preferred securities. HOLDERS OF OUR SENIOR INDEBTEDNESS WILL GET PAID BEFORE YOU WILL GET PAID UNDER THE SUBORDINATED DEBENTURES OR THE GUARANTEE. Our obligations to you under the subordinated debentures and the guarantee are subordinate and junior in right of payment to all our existing and future senior indebtedness. This means that we cannot make any payments to you on the subordinated debentures or the guarantee if we are in default on any of our senior indebtedness. Therefore, in the event of our bankruptcy, liquidation or dissolution, our assets must be used to pay off our senior indebtedness in full before any payments may be made on the subordinated debentures or the guarantee. As of June 30, 2001, we had approximately $2.6 billion principal amount of indebtedness for borrowed money constituting senior indebtedness on a consolidated basis. None of the preferred securities, the subordinated debentures or the guarantee contains any provision that limits our ability to incur additional indebtedness, including indebtedness that would rank senior to the subordinated debentures and the guarantee. WE MAY EXTEND THE INTEREST PAYMENT PERIOD ON THE SUBORDINATED DEBENTURES. We have the right to extend the interest payment period on the subordinated debentures, from time to time, for up to 20 consecutive quarters. At the end of an extension period, if all amounts due are paid, we may start a new extension period of up to 20 consecutive quarterly periods. No extension period may extend beyond the maturity date of the subordinated debentures. During any extension period on the subordinated debentures, the Trust will defer quarterly distributions on the preferred securities, which will continue to accumulate distributions at an annual rate of [___]%, and unpaid distributions will accumulate additional 9 15 distributions at the annual rate of [___]% compounded quarterly from the relevant distribution payment date. If we exercise this extension right, the preferred securities may trade at a price that does not reflect fully the value of the accumulated but unpaid distributions. If you dispose of the preferred securities during an extension period, you might not recover the same return on your investment as someone who continues to hold the preferred securities. Even if we do not exercise this right, our right to do so could mean the market price for the preferred securities may be more volatile than that for debt instruments or other securities without similar deferral rights. YOU COULD HAVE ADVERSE TAX CONSEQUENCES IF WE EXTEND THE INTEREST PAYMENT PERIOD ON THE SUBORDINATED DEBENTURES. If we extend the interest payment period on the subordinated debentures, you will be required to accrue interest income as original issue discount in respect of the deferred distributions on your preferred securities. As a result, for United States federal income tax purposes, you will be required to include that original issue discount in gross income before you receive the deferred distributions, regardless of your regular method of accounting. See "United States Taxation--Original Issue Discount." If you sell your preferred securities before the record date for the payment of deferred distributions at the end of an extension period, you will not receive those distributions. Instead, the deferred and any accumulated distributions will be paid to the holder of record on the record date, regardless of who the holder of record may have been on any other date during the extension period. Moreover, accrued original issue discount will be added to your adjusted tax basis in the preferred securities but may not be reflected in the amount you realize on the sale. To the extent the amount realized is less than your adjusted tax basis, you will recognize a capital loss for United States federal income tax purposes. The deductibility of capital losses is subject to limitations. Our right to extend the interest payment period on the subordinated debentures could mean the market price of the preferred securities may be more volatile than that for securities that do not give their issuer that right. IN CERTAIN CIRCUMSTANCES, THE TRUST MAY REDEEM THE PREFERRED SECURITIES, WHICH MAY REQUIRE YOU TO REINVEST YOUR PRINCIPAL SOONER THAN EXPECTED. We may redeem the subordinated debentures before their stated maturity: - in whole or in part, at any time on or after [_________], 20[__]. - in whole but not in part, at any time prior to maturity within 90 days after certain tax events occur or become likely to occur or the Trust is or becomes likely to be deemed to be an investment company under the Investment Company Act. Upon any redemption of the subordinated debentures, the Trust will use the cash proceeds of the redemption to redeem on a proportionate basis preferred securities and common securities having an aggregate liquidation amount equal to the aggregate principal amount of the subordinated debentures redeemed. The redemption price you will receive will be equal to the liquidation amount of $25 per preferred security plus any accumulated and unpaid distributions to the date of redemption. In that case, you may not be able to reinvest the money you receive 10 16 for your preferred securities at a rate of return that is as high as the rate of return you were earning on the preferred securities. The redemption of the preferred securities would be a taxable event to you for United States federal income tax purposes. See "United States Taxation - Receipt of Subordinated Debentures or Cash Upon Liquidation of the Trust" and " - Sale of the Preferred Securities." WE CAN DISSOLVE THE TRUST AND DISTRIBUTE THE SUBORDINATED DEBENTURES TO YOU, WHICH MAY HAVE ADVERSE TAX CONSEQUENCES FOR YOU. We may at any time dissolve the Trust. If we dissolve the Trust, after satisfaction of any liabilities to creditors, the Trust will distribute the subordinated debentures ratably to holders of the preferred securities and common securities. Under current United States federal income tax law, a distribution of subordinated debentures to you upon the dissolution of the Trust would not be a taxable event to you. However, if the Trust is classified for United States federal income tax purposes as an association taxable as a corporation at the time it is dissolved or if there is a change in law, the distribution of the subordinated debentures may be a taxable event to you. See "United States Taxation - Receipt of Subordinated Debentures or Cash Upon Liquidation of the Trust" and " - Sale of the Preferred Securities." THERE MAY BE NO TRADING MARKET FOR THE SUBORDINATED DEBENTURES IF THE TRUST DISTRIBUTES THEM TO YOU. If the subordinated debentures are distributed by the Trust, we will use our best efforts to cause the subordinated debentures to be listed on the New York Stock Exchange or on any other exchange on which the preferred securities are then listed. However, we may not be able to achieve that listing and a market for the subordinated debentures may not develop. Moreover, there is no assurance as to the market prices for subordinated debentures that may be distributed in exchange for preferred securities if we dissolve the Trust. Those subordinated debentures may trade at a discount to the price that you paid to purchase the preferred securities in this offer. Because you may receive subordinated debentures upon a dissolution of the Trust, you must also make an investment decision with regard to the subordinated debentures and should carefully review all the information regarding the subordinated debentures contained in this prospectus. YOU WILL HAVE ONLY LIMITED VOTING RIGHTS. You will have limited voting rights as a holder of preferred securities. You will have a right to vote to appoint a special administrative trustee upon the occurrence of certain events as described in this prospectus. You will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, the Cleveland Electric trustees, as these voting rights are vested exclusively in the holder of the common securities, except if an event of default under the trust agreement occurs and continues. THERE IS NO CURRENT ESTABLISHED TRADING MARKET FOR PREFERRED SECURITIES AND NO ASSURANCE THAT AN ACTIVE MARKET WILL DEVELOP. 11 17 The preferred securities are a new issue of securities with no established trading market. Although we have applied to list the preferred securities on the New York Stock Exchange, we cannot assure you that listing of the preferred securities will be approved, or that an active or liquid public trading market will develop or be maintained for the preferred securities. If an active trading market does not develop, the market price and liquidity of the preferred securities will be adversely affected. Even if an active public market does develop, we cannot assure you that the market price for the preferred securities will equal or exceed the price you pay for the preferred securities. Future trading prices of the preferred securities may be subject to significant fluctuations in response to prevailing interest rates, our future operating results and financial condition, the market for similar securities and general economic and market conditions. RISK FACTORS RELATING TO CLEVELAND ELECTRIC THERE IS NO ASSURANCE OF MAINTAINING OUR FINANCIAL CAPABILITY. We have substantial debt and other obligations. At June 30, 2001, we had long-term debt of approximately $2.6 billion (67.5% of total capitalization), preferred stock not subject to mandatory redemption provisions of approximately $238.3 million, preferred stock subject to mandatory redemption provisions of approximately $25.2 million, current maturities of approximately $142.0 million, and short-term borrowings of $157.2 million from associated companies. We also have future minimum operating lease commitments (net of trust cash receipts) of approximately $74 million for the 2001-2005 period. At June 30, 2001, we had approximately $2.5 billion in aggregate principal amount of first mortgage bonds outstanding under our mortgage. This consists of $870 million of first mortgage bonds included in the long term debt total discussed above and other first mortgage bonds pledged to secure certain debt obligations. At June 30, 2001, we were able to issue up to $854 million of additional first mortgage bonds on the basis of property additions and retired bonds, however, there are no restrictions on our ability to issue preferred or preference stock. Based on our present plans, we could provide for our cash requirements to service and, as required, to repay the obligations referred to above during the remainder of 2001 and 2002 from the following sources: - funds from operations; - available cash and temporary cash investments (approximately $0.637 million as of June 30, 2001); - proceeds of the offering of the preferred securities; - the issuance of long-term debt (for refunding purposes); and - funds made available to us by FirstEnergy under its revolving credit facilities. 12 18 If one or more of these sources is limited or unavailable, our ability to service our debt and other obligations could be materially adversely affected. Our current credit ratings are below investment grade. Other than our first mortgage bond rating from Moody's Investor Services, our credit ratings currently remain below investment grade. Our current ratings are summarized in the following table: Standard & Poor's Moody's ----------------- ------- First mortgage bonds BB+ Baa3 Unsecured notes BB- Ba1 Preferred stock B+ ba1 Moody's upgraded our debt ratings during the second half of 2000 citing approval by the Public Utilities Commission of Ohio (PUCO) of our transition plan on July 19, 2000 (see "We face competitive challenges due to regulatory and tax constraints and our high retail cost structure -- Competition in retail electricity." below) as an important factor in their decision. Although Moody's has indicated that our current credit ratings remain under review for further possible upgrades and Standard & Poor's has placed our current credit ratings on "watch positive" pending completion of FirstEnergy's merger with GPU, Inc., we do not know what action, if any, Moody's or Standard & Poor's will take in that regard. Non-investment grade credit ratings generally tend to increase an issuer's borrowing costs and hinder efforts to raise additional funds through borrowings. WE FACE COMPETITIVE CHALLENGES DUE TO REGULATORY CONSTRAINTS AND OUR HIGH RETAIL COST STRUCTURE. Competitive energy suppliers. Since January 1, 2001, when Ohio customers were first allowed to choose their electric generation suppliers, competition has come from the entry of more energy suppliers and existing municipal electric systems in our service area. Changes due to open competition legislation in Ohio have resulted in fundamental alterations in the way traditional integrated utilities and holding company systems like FirstEnergy conduct their business. These changes have and are likely to continue to result in increased costs associated with transitioning to new organizational structures and ways of conducting business. Competition in retail electricity. A number of states have enacted transitional legislation that encourages competition for retail electric businesses and the recovery of stranded investment. Investment is "stranded" when fixed costs approved for recovery under traditional regulatory methods become unrecoverable as a result of legislative changes that allow for widespread competition. Ohio's electric utility 13 19 restructuring legislation, which allowed Ohio electric customers to select their generation suppliers beginning January 1, 2001, was signed into law in July 1999. On July 19, 2000, PUCO approved FirstEnergy's plan for transition to customer choice on our behalf, as well as for its other Ohio electric utility operating companies--Ohio Edison and Toledo Edison. As part of its authorization, the PUCO approved the settlement agreement between FirstEnergy and major groups representing most of the parties in FirstEnergy's transition cost proceeding before the PUCO. Major parties to the approved settlement included the PUCO staff, the Ohio Consumers' Counsel, the Industrial Energy Users-Ohio, certain power marketers and others. Major provisions of the approved transition plan include: - The opportunity for us to recover transition costs as filed through 2008; - A commitment to sell 400 megawatts of our generating capacity to marketers, brokers and aggregators at set prices for sales to retail customers in our Ohio service area; - A 5% reduction in the generation portion of residential customer bills, saving those customers between 2% and 3% on a typical monthly bill; - Additional incentives applied to shopping credits for residential, commercial and industrial customers of 45%, 30% and 15%, respectively, as reductions from their bills, when they select alternative energy providers (the credits exceed the price we will be offering to electricity suppliers relating to the 400 megawatts described above); - Maintaining current rates for our customers for distribution services through December 31, 2007; and - We assume the risk of not recovering up to $170 million of transition revenue if the rate of customers switching their service from us has not reached an average of 20% over any twelve month period ending between January 1, 2001 and December 31, 2005. In addition, under the electric utility restructuring legislation, Ohio utilities that offer both competitive and regulated retail electric services were required to implement a corporate separation plan approved by PUCO - one which provides a clear separation between regulated and competitive operations. In connection with FirstEnergy's transition plan, FirstEnergy separated its business into three distinct units - a competitive services unit, a utility services unit and a corporate support services unit. We are included in the utility services unit, which continues to deliver electricity through our existing distribution system and maintains the provider of last resort obligation under the transition plan. As a result of the transition plan, FirstEnergy's electric utility subsidiaries entered into power supply agreements whereby the competitive services unit purchases the generation from the electric utility subsidiaries' owned and leased generating plants and/or purchases power in wholesale power markets and then sells power to the electric utility subsidiaries who are now "full requirements" customers of the competitive services unit to enable them to meet their "provider of last resort" responsibilities in their respective service areas. CEI continues to provide power directly to wholesale customers under negotiated contracts as well as to alternative energy suppliers as part 14 20 of CEI's market support generation of 400 megawatts (398 megawatts committed as of June 30, 2001). We cannot predict the effect that all of these changes will have on our business, particularly if state and federal regulatory initiatives are implemented that further increase our competition, threaten our cost and investment recovery or adversely impact our rate structures. For example, if tariff rates applicable to electricity we supply as "provider of last resort" under state deregulation legislation are insufficient to cover our costs of generation or purchase of electricity or if costs associated with the implementation of our transition plan are greater than anticipated, our business, results of operations and financial condition may be materially adversely affected. In addition, increased competition in general may cause a reduction in energy prices that may adversely affect our results of operations. OUR THREE NUCLEAR GENERATING UNITS MAY BE IMPACTED BY ACTIVITIES OR EVENTS BEYOND OUR CONTROL. We currently have interests in three nuclear generating units: - Beaver Valley Power Station Unit 2; - Davis-Besse Nuclear Power Station; and - Perry Nuclear Power Plant Unit 1. Another FirstEnergy subsidiary, FirstEnergy Nuclear Operating Company, operates Davis-Besse, Perry Unit 1 and Beaver Valley Station, which was acquired from Duquesne Light Company on December 3, 1999 in connection with an exchange of generating assets between Duquesne and Ohio Edison, Pennsylvania Power and us. These three nuclear units may be impacted by activities or events beyond our control. Operating nuclear units have experienced unplanned outages or extensions of scheduled outages because of equipment problems or new regulatory requirements. A major accident at a nuclear facility anywhere in the world could cause the United States Nuclear Regulatory Commission to limit or prohibit the operation or licensing of any domestic nuclear unit. An action of this kind would require us to purchase replacement power on the open market. Depending on prevailing market prices for replacement power, our financial condition, cash flows and results of operations could be materially adversely affected if this were to occur. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS We caution you that this prospectus and the periodic reports and other documents that are incorporated by reference in this prospectus contain forward-looking statements within the meaning of the Securities Exchange Act. They are statements about future performance or results (such as statements including, but not limited to, the terms "potential," "estimate," "believe," "expect" and "anticipate" and similar words) when we discuss our financial condition, results of operations and business. Forward-looking statements involve certain risks, assumptions and uncertainties. They are not guarantees of future performance. Factors may cause actual results to differ materially from those expressed in these forward-looking statements. These factors include those identified in the section concerning Risk Factors, as well as the following possibilities: - if national and regional economic conditions are less favorable than we had expected; and - if there are disruptions in the wholesale power markets because of supply or delivery constraints that affect the ability of the competitive service unit to provide power to us to meet our provider of last resort responsibilities. We believe that the expectations reflected in our forward-looking statements are reasonable. However, we cannot assure you that these expectations will prove to have been correct. You should consider the factors we have noted above and the "Risk Factors" section as you read the forward-looking statements in this prospectus. 15 21 CAPITALIZATION The following table shows our capitalization on a consolidated basis as of June 30, 2001. The "As Adjusted" column shows our capitalization as of June 30, 2001, after giving effect to the sale of the preferred securities offered in this prospectus.
(DOLLARS IN THOUSANDS) AS OF JUNE 30, 2001 ACTUAL AS ADJUSTED ---------------------------- ---------------------------- (UNAUDITED) ------------------------------------------------------------------------------------------------------------------------ OUTSTANDING RATIO AMOUNT RATIO ----------- ----- --------- ----- CAPITALIZATION SUMMARY: Common Stockholder's Equity $ 993,154 25.7% $ 993,154 [___]% Preferred Stock Not Subject to Mandatory Redemption 238,325 6.2% 238,325 [___]% Preferred Stock Subject to Mandatory Redemption(1) 25,150 0.6% 25,150 [___]% Cleveland Electric obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Cleveland Electric subordinated debentures -- -- -- [___]% Long-Term Debt(2) 2,615,427 67.5% 2,615,427 [___]% ---------- ----- --------- ----- Total Capitalization $3,872,056 100.0% $[______] 100.0% ========== ===== ========= =====
(1) Excludes $69.7 million of preferred stock subject to mandatory redemption within one year. (2) Excludes $72.3 million of long-term debt due to be repaid or subject to put options within one year. ACCOUNTING TREATMENT For financial reporting purposes, the Trust will be treated as our subsidiary. Accordingly, the accounts of the Trust will be included in our consolidated financial statements. The preferred securities will be reported as "CEI obligated mandatorily redeemable preferred securities of subsidiary trust holding solely CEI subordinated debentures" on a separate line item in our consolidated balance sheet. Appropriate disclosures about the preferred securities, the guarantee and the subordinated debentures will be included in the notes to our consolidated financial statements. For financial reporting purposes, we will classify distributions payable on the preferred securities as a deduction from net income in our consolidated statements of income. 16 22 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY Cleveland Electric is a wholly owned electric utility operating subsidiary of FirstEnergy. We engage in the generation, distribution and sale of electric energy in an area of approximately 1,700 square miles in northeastern Ohio. We were incorporated under the laws of the State of Ohio in 1892. We also engage in the sale, purchase and interchange of electric energy at wholesale with other electric companies and to two municipal electric systems (directly and through AMP-Ohio) in our service area. At December 31, 2000, we served approximately 741,400 customers in an area with a population of approximately 1.9 million. Principal industries served by us include: - those producing steel and other primary metals; - automotive and other transportation equipment; - chemicals; - electrical and nonelectrical machinery; - fabricated metal products; and - rubber and plastic products. Nearly all of our operating revenues are derived from the sale of electric energy. We had 1,046 employees at December 31, 2000. In addition to us, the direct or indirect electric utility operating subsidiaries of FirstEnergy are Ohio Edison Company, Pennsylvania Power Company, The Toledo Edison Company and ATSI. Cleveland Electric, Ohio Edison, Pennsylvania Power and Toledo Edison operate as separate companies, each serving the customers in its respective service area. On September 1, 2000, we sold our transmission assets to ATSI as did each of FirstEnergy's other electric operating subsidiaries. As a result, ATSI owns and operates FirstEnergy's major high-voltage transmission facilities and has interconnections with other regional utilities. Pursuant to FirstEnergy's corporate separation plan implemented under Ohio utility restructuring legislation, FirstEnergy transferred operational control of the non-nuclear generation assets of its electric utility operating subsidiaries to FirstEnergy Generation Corp. as of January 1, 2001. We expect that the transfer of ownership of those assets to FirstEnergy Generation will be completed by December 31, 2005, the end of the legislation's market development period. Sources of generation for Cleveland Electric during 2000 were 53.4% coal and 46.6% nuclear. Our principal executive offices are located at 76 South Main Street, Akron, Ohio 44308, telephone number (800) 736-3402. 17 23 CLEVELAND ELECTRIC FINANCING TRUST I Cleveland Electric Financing Trust I is a Delaware business trust and was created pursuant to a trust agreement among us, as depositor, The Bank of New York, as property trustee, The Bank of New York (Delaware), as Delaware trustee and two of our employees, as administrative trustees. The Trust exists for the exclusive purposes of: - issuing the preferred securities and common securities representing undivided beneficial interests in the assets of the Trust, - investing the gross proceeds from the sale of the Trust's securities in our subordinated debentures, and - engaging in only those other activities necessary, convenient or incidental to these purposes. In connection with the issuance by the Trust of its preferred securities, we will amend and restate the trust agreement in substantially the form filed as an exhibit to the registration statement containing this prospectus. References in this prospectus to the "trust agreement" should be read to refer to that agreement as so amended and restated. The trust agreement will be qualified as an indenture under the Trust Indenture Act and the property trustee will act as the indenture trustee for purposes of that Act. We refer to the administrative trustees, the Delaware trustee and the property trustee collectively as the "Cleveland Electric trustees" in this prospectus. The Bank of New York will also act as guarantee trustee and as indenture trustee under the subordinated indenture for our subordinated debentures. We will own all of the common securities of the Trust. The common securities will rank equally, and will be paid pro rata, with the preferred securities, except that if an event of default under the subordinated indenture occurs and continues, the right to payment of the holders of the common securities will be subordinated to the rights to payment of the holders of the preferred securities. We will acquire common securities having an aggregate liquidation amount equal to 3% of the Trust's capital. The Trust has a term of approximately 55 years, but may be dissolved earlier as provided in the trust agreement. Conduct of the trust's affairs. We will conduct all business and affairs of the Trust. As described above, the Trust will not engage in any business or activities other than as necessary, convenient or incidental to issuance and sale of the trust securities and investment of the proceeds from the sale in the subordinated debentures. The Cleveland Electric trustees may be appointed, removed or replaced by: - the holder of the common securities, or - if an event of default under the trust agreement occurs and continues, the holders of a majority in liquidation preference of the preferred securities. We will pay all fees and expenses related to the Trust and the issuance and sale of the trust securities. 18 24 The office of the Delaware trustee in the State of Delaware is White Clay Center, Route 273, Newark, Delaware 19711. The principal place of business of the Trust is c/o The Cleveland Electric Illuminating Company, 76 South Main Street, Akron, Ohio 44308, telephone number (800) 736-3402. USE OF PROCEEDS We will use the proceeds from the sale of the securities for general corporate purposes. Pending application of the proceeds, we may make short-term cash investments. The Trust will use the proceeds from the sale of its trust securities to acquire our subordinated debentures. DESCRIPTION OF THE PREFERRED SECURITIES The Trust will issue preferred securities and common securities under the trust agreement. The preferred securities will represent undivided beneficial interests in the Trust's assets and entitle the holders to a preference over the common securities with respect to distributions and amounts payable on redemption or liquidation, as well as other benefits described in the trust agreement. Selected provisions of the trust agreement are summarized below. This summary is not complete. A form of the trust agreement was filed with the Commission as an exhibit to the registration statement that contains this prospectus. You should read that document for a better understanding of all of the provisions of the trust agreement that may be important to you. Since the trust agreement will be qualified under the Trust Indenture Act, you should also refer to the Trust Indenture Act for more information. Wherever particular sections or defined terms of the trust agreement are referred to in this description, those sections or defined terms are incorporated in this prospectus by reference. General We own all of the Trust's common securities, which rank equally, and are paid pro rata, with the preferred securities except as described under "-- Subordination of Common Securities" below. (Section 4.03). The property trustee will hold our subordinated debentures in trust for the benefit of the Trust and the holders of the trust securities. (Section 2.09). Our guarantee is a full and unconditional guarantee with respect to the preferred securities but does not guarantee payment of distributions or amounts payable on redemption or liquidation of the preferred securities when the Trust does not have sufficient available funds to pay those distributions. In that event, the remedy of a holder of preferred securities is to vote, together with the holders of a majority in liquidation amount of the preferred securities, to appoint a special administrative trustee and to direct the property trustee to enforce the property trustee's rights under the subordinated debentures. Distributions Distributions on the preferred securities will: - be payable in U.S. dollars at [__]% per annum of the stated liquidation amount of $25 per preferred security and distributions that are in arrears for more than one quarter will accrue interest at the rate per annum of [__]% and interest so accrued at the end of each quarter and remaining unpaid will itself bear interest, to the extent permitted by applicable law, until paid on the same basis; 19 25 - begin to accrue from, and include the date of original issuance; and - be cumulative and payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing [__________], 2001. The term "distributions" as we use it in this prospectus includes any interest payable on distributions as described above, unless we state otherwise. We will compute the amount of distributions payable for any period on the basis of a 360-day year of twelve 30-day months. (Sections 4.01(a) and 4.01(b)). If any date on which a distribution is payable for any preferred securities is not a business day, payment will be made on the following business day, without any interest or other payment for the delay, unless that following business day is in the next calendar year. In that case, payment will be made on the immediately preceding business day, in each case with the same force and effect as if made on that date. Each date on which distributions are otherwise payable in accordance with the foregoing is a "distribution date." A "business day" means a day other than: - a Saturday or a Sunday, - a day on which banks in New York, New York are authorized or obligated by law or executive order to remain closed, or - a day on which the principal corporate trust office of the property trustee or the trustee for our subordinated debentures is closed for business. (Section 4.01(a)). We have the right, under the subordinated indenture for our subordinated debentures, to extend the interest payment period from time to time on the subordinated debentures for up to 20 consecutive quarters. If we do, quarterly distributions on the preferred securities would be deferred by the Trust during that period. The preferred securities would continue to accrue interest on the deferred distributions, including interest on unpaid interest, as described above. If we exercise this right, we may not, during this period: - declare or pay any dividends on, or make a distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of our capital stock, other than a dividend in stock of the same class as the stock on which it is paid, or - make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by us that rank equally with or junior to the subordinated debentures, or - make any guarantee payments with respect to any item described in the two preceding bullet points, other than payments under the guarantee. Before an extension period ends, we may further extend the interest payment period so long as the extension period together with all previous and further extensions will not: - exceed 20 consecutive quarters at any one time, or - extend beyond the maturity of the subordinated debentures. 20 26 Once an extension period has ended and all amounts then due have been paid, we may start a new extension period in accordance with the above requirements. See "Description of the Subordinated Debentures -- Interest" and "-- Option to Extend Interest Payment Period." The Trust's income available for distribution to preferred securities holders will be limited to payments we make under the related subordinated debentures. See "Description of the Subordinated Debentures." If we do not make interest payments on the subordinated debentures, the property trustee will not have funds available to pay distributions on the preferred securities. We will guarantee the Trust's payment of distributions on a limited and subordinated basis, but only if and to the extent the Trust has funds legally available for the payment of those distributions and cash sufficient to make those payments. See "Description of the Guarantee." The Trust will pay distributions to the registered holders of the preferred securities as of the relevant record dates. As long as the preferred securities remain in book-entry-only form, the relevant record date will be one business day prior to the distribution payment date and payment will be made as described under "Book Entry Securities" below, subject to any applicable laws and regulations and to the provisions of the trust agreement. If the preferred securities do not remain in book-entry-only form, the relevant record date will be the 15th day prior to the distribution payment date. (Section 4.01(d)). Mandatory Redemption The subordinated debentures will mature on [__________], 2031, unless the maturity is extended at our option under certain circumstances. The property trustee will use the cash proceeds from any repayment of the subordinated debentures at maturity or upon earlier redemption to redeem on a proportionate basis preferred securities and common securities having an aggregate liquidation amount equal to the aggregate principal amount of the subordinated debentures redeemed. The redemption price you will receive will be equal to the liquidation amount of $25 per preferred security plus accumulated and unpaid distributions on the preferred security to the date of redemption. The administrative trustee will provide not less than 30 nor more than 60 days' notice to holders of preferred securities of any mandatory redemption. That payment in redemption shall be due without limitation and in all events. See "Description of the Subordinated Debentures -- Optional Redemption." We have the right to redeem the subordinated debentures on or after [__________], in whole or in part, subject to the conditions described under "Description of the Subordinated Debentures -- Optional Redemption." We may also redeem the subordinated debentures, in whole but not in part, if a Tax Event or an Investment Company Event as described below occurs and continues. See "Description of the Subordinated Debentures -- Optional Redemption." Special Event Redemption. "Tax Event" means the administrative trustees' receipt of an opinion from nationally recognized independent counsel experienced in these matters to the effect that, as a result of: - any amendment to, or change, including any announced prospective change, in, the laws or treaties, or any regulations under the laws and treaties, of the United States or any political subdivision or taxing authority of or in the United States, - any amendment to or change in an interpretation or application of those laws or regulations by any legislative body, court, governmental agency or regulatory 21 27 authority, including the enactment of any legislation or the publication of any judicial decision or regulatory determination on or after the date of the issuance of the preferred securities, - any interpretation or pronouncement of any of those bodies, courts, agencies or authorities that provides for a position with respect to those laws or regulations that differs from the then generally accepted position, or - any action taken by any governmental agency or regulatory authority, in each case occurring on or after the issuance date of the preferred securities, there is more than an insubstantial risk that: - the Trust is, or will be, subject to United States federal income tax with respect to income accrued or received on the subordinated debentures, - interest payable by us on the subordinated debentures is not, or will not be, fully deductible by us for United States federal income tax purposes, or - the Trust is, or will be, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Investment Company Event" means the administrative trustees' receipt of an opinion of counsel experienced in practice under the Investment Company Act of 1940 to the effect that as a result of a change in law or regulation by any legislative body, court, governmental agency or regulatory authority, the Trust is or will be considered an "investment company" which is required to be registered under the Investment Company Act, where the change becomes effective after the issuance of the preferred securities. If a Tax Event or an Investment Company Event occurs we will have the right, upon not less than 30 nor more than 60 days notice, to redeem the subordinated debentures, in whole but not in part, for cash within 90 days following the occurrence of the Tax Event or Investment Company Event. Following that redemption, a like amount of preferred securities will be redeemed by the Trust at the applicable redemption price on a pro rata basis. Distribution of the Subordinated Debentures We will have the right at any time to dissolve the Trust, and after satisfaction of the liabilities of creditors of the Trust as provided by applicable law, cause the subordinated debentures to be distributed to the holders of the preferred securities. If the subordinated debentures are distributed to the holders of the preferred securities, we will use our best efforts to list the subordinated debentures on the New York Stock Exchange or any other exchange on which the preferred securities are then listed. (Section 9.04(e)). After the date for any distribution of subordinated debentures upon dissolution of the Trust: - the preferred securities will no longer be deemed to be outstanding, 22 28 - DTC or its nominee, as the record holder of the preferred securities, will receive a registered global certificate or certificate representing the subordinated debentures to be delivered upon the distribution, and - any certificates representing preferred securities not held by DTC or its nominee will be deemed to represent a like amount of subordinated debentures, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to the accumulated and unpaid distributions on, those preferred securities, until the certificates are presented to us or our agent for transfer or reissuance. If a dissolution and liquidation of the Trust were to occur, we could not assure you as to the market prices for the subordinated debentures that may be distributed in exchange for the preferred securities. Accordingly, the subordinated debentures that you may receive if a dissolution and liquidation of the Trust were to occur, may trade at a discount to the price that you paid to purchase the preferred securities offered by this prospectus. As used in this prospectus, "like amount" means: - with respect to a redemption of preferred securities, preferred securities having a liquidation amount equal to the principal amount of subordinated debentures to be contemporaneously redeemed in accordance with the subordinated indenture and the proceeds of which will be used to pay the applicable redemption price of those preferred securities, and - with respect to a distribution to holders of preferred securities of subordinated debentures in connection with the Trust's liquidation, subordinated debentures having a principal amount equal to the liquidation amount of the preferred securities of the holder to whom those subordinated debentures are distributed. Redemption Procedures Preferred securities redeemed on each redemption date will be redeemed at the applicable redemption price with the proceeds from the contemporaneous redemption of subordinated debentures. Redemptions of preferred securities will be made and the applicable redemption price will be deemed payable on each redemption date, but only to the extent that the Trust has funds legally available for the payment of that redemption price. (Section 4.02(c)). See also "-- Subordination of Common Securities." If the Trust gives a notice of redemption for any preferred securities, then, by 12:00 noon, New York time, on the redemption date, so long as the preferred securities are in book-entry only form, the property trustee will: - irrevocably deposit with DTC funds sufficient to pay the applicable redemption price and - give DTC irrevocable instructions and authority to pay the redemption price to the holders of those preferred securities. See "Book-Entry Securities." If any preferred securities are no longer in book-entry-only form, the Trust will: 23 29 - irrevocably deposit with the paying agent for those preferred securities funds sufficient to pay the applicable redemption price, and - give that paying agent irrevocable instructions and authority to pay the redemption price to holders of the preferred securities upon surrender of their certificates evidencing those securities. Distributions payable on or before the redemption date for any preferred securities called for redemption will be payable to the holders of those preferred securities on the relevant record dates for the related distribution dates. If notice of redemption is given and funds deposited as required, then upon the redemption date: - all rights of holders of those preferred securities called for redemption will cease, except the right of the holders of those preferred securities to receive the redemption price, but without interest on that redemption price, and - those preferred securities will cease to be outstanding. If any date fixed for redemption of preferred securities is not a business day, then payment of the redemption price payable on that date will be made on the next business day, and without any interest or other payment for the delay, except that, if the business day falls in the next calendar year, the payment will be made on the immediately preceding business day. If a redemption price payment for any preferred securities called for redemption is improperly withheld or refused and not paid either by the Trust or by us pursuant to the guarantee, distributions on those preferred securities will continue to accrue at the then applicable rate, from the original redemption date to the date of payment. In that case, the actual payment date will be considered the date fixed for redemption for purposes of calculating the redemption price. (Section 4.02(d)). Subject to applicable law, including United States federal securities law, we or our subsidiaries may from time to time purchase outstanding preferred securities by tender, in the open market or by private agreement. The redemption price on any preferred securities will be paid to the holders of record of those preferred securities as they appear on the register for the preferred securities on the relevant record date. While the preferred securities are in book-entry only-form, the relevant record date will be the business day before the relevant redemption date. If, however, the preferred securities do not remain in book-entry-only form, the relevant record date will be the 15th day before the redemption date. (Section 4.02(e)). If less than all the trust securities of the Trust are to be redeemed on a redemption date, then the aggregate liquidation amount of those securities will be allocated 3% to the common securities and 97% to the preferred securities. The property trustee will select the particular preferred securities to be redeemed not more than 60 days prior to the redemption date by that method which: - the property trustee deems fair and appropriate, and - may provide for the redemption of portions of the preferred securities in denominations of $25 or greater. 24 30 The property trustee will promptly notify the security registrar in writing of the preferred securities selected for redemption and, in the case of a partial redemption, the liquidation preference of preferred securities to be redeemed. For all purposes of the trust agreement, unless the context otherwise requires, all provisions relating to the redemption of preferred securities shall relate, in the case of any preferred securities redeemed or to be redeemed only in part, to the portion of the liquidation amount of preferred securities that has been or is to be redeemed. (Section 4.02(f)). Subordination of Common Securities Payment of distributions on, and the redemption price of, the preferred securities and the related common securities will be made pro rata based on the liquidation amount of those trust securities. No distribution payment or other payment on account of the redemption, liquidation or other acquisition of any common security will be made, however, if an event of default under the subordinated indenture has occurred and is continuing on the distribution, redemption or other payment date unless payment in full in cash of all accumulated and unpaid distributions on all outstanding preferred securities or the full redemption price due on preferred securities, as applicable, is made or provided for. The property trustee must first apply all available funds to payment in full in cash of all preferred securities distributions or redemption price then due and payable. (Section 4.03(a)). In the case of a trust agreement event of default resulting from a subordinated indenture event of default, the holder of common securities will be deemed to have waived the trust agreement event of default until the effect of all trust agreement events of default has been cured, waived or otherwise eliminated. Until those trust agreement events of default have been so cured, waived or otherwise eliminated, the property trustee shall act solely on behalf of the holders of the preferred securities and not the holder of the common securities, and only the holders of the preferred securities will have the right to direct the property trustee to act on their behalf. (Section 4.03(b)). Liquidation Distribution upon Dissolution Pursuant to the trust agreement, the Trust will dissolve and will be liquidated by the Cleveland Electric trustees on the first to occur of: - [__________], 2056, the expiration of the term of the Trust; - our bankruptcy, dissolution or liquidation; - our election to dissolve the Trust and to distribute the subordinated debentures to the holders of the preferred securities and common securities; - the redemption of all of the preferred securities in connection with the redemption of all of the subordinated debentures; and - the entry by a court of an order for judicial dissolution (Sections 9.01 and 9.02). If an early dissolution occurs as described in the second, third and fifth bullet points above, the Cleveland Electric trustees will expeditiously liquidate the Trust by causing the property trustee to distribute to each holder of preferred securities and common securities a like amount of subordinated debentures, unless that distribution is determined by the property trustee 25 31 to be impractical. If that distribution is impractical, the holders will be entitled to receive out of the available assets of the Trust, after satisfaction of creditors' liabilities, an amount equal to the aggregate of the stated liquidation preference per preferred security plus accumulated and unpaid distributions to the date of payment. If this liquidation distribution can be paid only in part because the Trust has insufficient assets to pay in full, then the amounts payable directly by the Trust on the preferred securities will be paid on a pro rata basis. The holders of the common securities will be entitled to receive distributions upon any dissolution pro rata with the holders of the preferred securities, except the preferred securities will have a preference over the common securities if a trust agreement event of default has occurred and is continuing. (Sections 9.04(a) and 9.04(d)). Events of Default; Notice Any one of the following events constitutes a trust agreement event of default: - the occurrence of an event of default under the subordinated indenture (see "Description of the Subordinated Debentures-- Events of Default"); or - default by the Trust in the payment of any distribution for 30 days after it becomes due and payable; or - default by the Trust in the payment of any redemption price of any preferred security or common security when it becomes due and payable; or - default in the performance, or breach, in any material respect, of any covenant or warranty of the Cleveland Electric trustees in the trust agreement, other than a default or breach dealt with in the second and third bullet points above, and continuation of that default or breach for a period of 60 days after the defaulting trustee or trustees have been given written notice of by the holders of at least 10% in liquidation amount of the outstanding preferred securities; or - the occurrence of a bankruptcy event with respect to the Trust. Within five business days after the occurrence of any trust agreement event of default, the property trustee will send notice of any default actually known to it to the holders of preferred securities, the administrative trustees and the depositor, unless the default has been cured or waived. (Section 8.02). The holder of the common securities may remove the property trustee and appoint a successor at any time unless a trust agreement event of default has occurred and is continuing, in which case the holders of a majority in liquidation amount of the preferred securities may remove the property trustee and appoint a successor. No registration or removal of the property trustee and no appointment of a successor trustee will be effective until the successor property trustee accepts the appointment in accordance with the trust agreement. (Section 8.10). Mergers, Consolidations or Amalgamations of the Trust The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety, to any corporation or other body except as described below or under "-- Liquidation Distribution upon Dissolution." 26 32 The Trust may, with the consent of the administrative trustees and without the consent of the holders of the trust securities, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State, if it satisfies the following conditions: - the successor entity either: - expressly assumes all of the obligations of the Trust under the trust securities, or - substitutes for the preferred securities other securities having substantially the same terms as the trust securities, so long as the successor securities rank the same as the trust securities rank with respect to distributions and payments upon liquidation, redemption and otherwise, - we expressly acknowledge a trustee of the successor entity possessing the same powers and duties as the property trustee, in its capacity as the holder of the subordinated debentures, - the preferred securities or any successor securities are listed or quoted, or any successor securities will be listed or quoted upon notification of issuance, on any national securities exchange or with another organization on which the preferred securities are then listed or quoted, - the merger, consolidation, amalgamation or replacement does not cause the preferred securities, including any successor securities, to be downgraded by any nationally recognized statistical rating organization, - the merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the trust securities, including any successor securities, in any material respect, other than for any dilution of the holders' interest in the new entity, - the successor entity has a purpose substantially identical to that of the Trust, - prior to the merger, consolidation, amalgamation or replacement, the Trust has received an opinion of nationally recognized independent counsel to the Trust experienced in such matters to the effect that: - the merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the trust securities, including any successor securities, in any material respect, other than any dilution of the holders' interest in the new entity, - following the merger, consolidation, amalgamation or replacement, neither the Trust nor the successor entity will be required to register as an "investment company" under the Investment Company Act, - following the merger, consolidation, amalgamation or replacement, the Trust, or the successor entity, will not be classified as an association taxable as a corporation for United States federal income tax purposes, and 27 33 - we guarantee the obligations of the successor entity under the successor securities at least to the extent provided by the guarantee. However, the Trust will not, except with the consent of holders of 100% in liquidation amount of the trust securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if in the opinion of nationally recognized independent counsel experienced in such matters, the consolidation, amalgamation, merger or replacement would cause the Trust or the successor entity to be classified as an association taxable as a corporation for United States federal income tax purposes. See "-- Special Event Redemption" and "-- Liquidation Distribution Upon Dissolution." Merger or Consolidation of a Cleveland Electric Trustee So long as it is otherwise qualified and eligible, any of the following may be the successor to a Cleveland Electric trustee: - any corporation into which any trustee that is not a natural person may be merged or converted or with which it may be consolidated, - or any corporation resulting from any merger, conversion or consolidation to which any Cleveland Electric trustee is a party, or - any corporation succeeding to all or substantially all the corporate trust business of any Cleveland Electric trustee. (Section 8.12). Voting Rights Except as provided below and under "Description of the Guarantee -- Amendments and Assignment" and as otherwise required by law and the trust agreement, the holders of the preferred securities will have no voting rights. (Section 6.01(a)). A majority in liquidation amount of the holders of the outstanding preferred securities, acting as a single class, may appoint a special administrative trustee if: - the Trust fails to pay distributions in full on the preferred securities for 6 consecutive quarterly distribution periods, or - a trust agreement event of default occurs and is continuing. For purposes of determining whether the Trust has failed to pay distributions in full for 6 consecutive quarterly distribution periods, distributions are deemed to remain in arrears until full cumulative distributions have been paid for all quarterly distribution periods ending on or before the date of payment of the cumulative distributions. Any holders of preferred securities, other than us or any of our affiliates, will be entitled to nominate any person to be appointed as special administrative trustee. Not later than 30 days after the right to appoint a special administrative trustee arises, the administrative trustees will convene a meeting of the holders of preferred securities for the purpose of appointing a special administrative trustee. If the administrative trustees fail to convene this meeting within the 30-day period, the holders of not less than 10% of the aggregate stated liquidation amount of the outstanding preferred securities may convene that meeting. Any 28 34 special administrative trustee appointment will end when an event described in either of the two immediately preceding bullet points no longer continues. Notwithstanding the appointment of any special administrative trustee, we retain all rights under the subordinated indenture, including the right to defer payments of interest by extending the interest payment period as provided under "Description of the Subordinated Debentures -- Option to Extend Interest Payment Period." If an extension occurs, there will be no subordinated indenture event of default and, consequently, no trust agreement event of default, for failure to make any scheduled interest payment during the extension period on the date originally scheduled. Holders of a majority in liquidation amount of the outstanding preferred securities will have the right, however, in the circumstances described above, to appoint a special administrative trustee. (Section 6.01(d)). If any proposed amendment to the trust agreement provides for, or the Cleveland Electric trustees otherwise propose to effect: - any action that would adversely affect the powers, preferences or special rights of the holders of any preferred securities, whether by way of amendment to the trust agreement or otherwise, or - the dissolution, winding-up or termination of the Trust, other than pursuant to the trust agreement, then the holders of outstanding preferred securities will be entitled to vote as a class on the amendment or proposal which shall not be effective except with the approval of the holders of 66-2/3% in liquidation preference of the outstanding preferred securities. No amendment to the trust agreement may be made if, as a result of such amendment, the Trust would be classified as an association taxable as a corporation for the United States federal income tax purposes. (Section 6.01(c)). The holders of a majority in aggregate liquidation amount of the outstanding preferred securities will have the right to: - direct the time, method and place of conducting any proceeding for any remedy available to the property trustee or to direct the exercise of any trust or power conferred upon the property trustee under the trust agreement, including the right to direct the property trustee to exercise the remedies available to it as a holder of the subordinated debentures under the subordinated indenture; - waive any past subordinated indenture event of default that is waivable under the subordinated indenture; or - exercise any right to rescind or annul a declaration that the principal of all the subordinated debentures shall be due and payable; provided, however, that where a consent under the subordinated indenture requires the consent of all holders of the subordinated debentures affected, the property trustee may only give that consent at the direction of all holders of the preferred securities. If the property trustee fails to enforce its rights under the subordinated debentures, to the fullest extent permitted by law, a holder of preferred securities may, after written request to the property trustee to enforce those rights, institute a legal proceeding directly against us to enforce those rights without first instituting any legal proceeding against the property trustee or any other person or entity. The 29 35 property trustee will notify all holders of the preferred securities of any notice of default received from the subordinated indenture trustee with respect to the subordinated debentures. Except with respect to directing the time, method and place of conducting a proceeding for a remedy, the property trustee will not take any of the actions described in the three bullet points above unless it has received an opinion from nationally recognized independent counsel experienced in these matters to the effect that the Trust will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of that action. (Section 6.01(b)). Holders of preferred securities are not required to vote or consent to the Trust's redemption or cancellation of any preferred securities in accordance with the trust agreement. For the purposes of voting or consenting by holders of preferred securities, any of the preferred securities that are owned by us, the Cleveland Electric trustees or any affiliate of ours or of any Cleveland Electric trustee, generally will be treated as if not outstanding. The procedures by which holders of preferred securities may exercise their voting rights are described below. See "Book Entry Securities" below. Except in connection with the appointment of a special administrative trustee as described above or during a trust agreement event of default, holders of the preferred securities will have no rights to appoint or remove the Cleveland Electric trustees. As the indirect or direct holder of all of the Trust's common securities, only we may appoint, remove or replace a Cleveland Electric trustee. Co-Property Trustees and Separate Property Trustee In general, unless a continuing trust agreement event of default exists, the holder of the common securities and the administrative trustees may appoint, and upon the written request of the administrative trustees, we, as depositor of the Trust, will join with the administrative trustees in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more persons approved by the property trustee either to act as co-property trustee, jointly with the property trustee, of all or any part of the trust property, or to act as separate property trustee of any that property, in either case with the powers as may be provided in the instrument of appointment, and to vest in that person or those persons in that capacity, any property, title, right or power deemed necessary or desirable, subject to the provisions of the trust agreement. If we do not join in the appointment within 15 days after our receipt of a request to do so, or if a continuing subordinated indenture event of default exists, the administrative trustees alone will have power to make that appointment. (Section 8.09). Payment and Paying Agent Payments of preferred securities will be made to DTC, which will credit the relevant accounts at DTC on the applicable distribution dates or, if the preferred securities are not held by DTC, these payments will be made by check mailed to the address of the registered holder. The paying agent will initially be The Bank of New York. The paying agent may resign upon 30 days' written notice to the administrative trustees, the property trustee and us as depositor. In the event that The Bank of New York chooses to no longer be the paying agent, the administrative trustees will appoint a successor to act as paying agent, which will be a bank or trust company acceptable to the property trustee and the depositor. (Sections 4.04 and 5.09). 30 36 Registrar and Transfer Agent The Bank of New York will act as registrar and transfer agent for the preferred securities. Registration of transfers of preferred securities will be effected without charge by or on behalf of the Trust, but upon payment for any tax or other governmental charges which may be imposed in relation to it. The Trust will not be required to register or cause to be registered any transfer of preferred securities after they have been called for redemption or during a period of 15 days immediately preceding the date on which notice identifying the serial numbers for the preferred securities called for redemption is mailed. Concerning the Property Trustee We and certain of our subsidiaries maintain deposit accounts and conduct other banking transactions with the property trustee in the ordinary course of their businesses. The property trustee also acts as trustee under certain indentures relating to borrowings by or for the benefit of the lessors to finance their acquisition of our interest in the Perry Nuclear Power Plant and Beaver Valley Power Station in connection with the sale and leaseback of certain undivided interests in those plants. Under the sale/leaseback documents, we are ultimately responsible for the payment of this indebtedness. Miscellaneous We have applied to list the preferred securities on the New York Stock Exchange, subject to official notice of issuance. The administrative trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the Investment Company Act or taxed as a corporation for United States federal income tax purposes and so that the subordinated debentures will be treated as our indebtedness for United States federal income tax purposes. In this case, we as the depositor and the administrative trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust or the trust agreement, that we and the administrative trustees determine in our discretion to be necessary or desirable for those purposes, as long as that action does not adversely affect the interests of the holders of the preferred securities. Holders of the preferred securities have no preemptive or similar rights. DESCRIPTION OF THE GUARANTEE Selected provisions of the guarantee that we will execute and deliver to the guarantee trustee for the benefit of holders of preferred securities are summarized below. This summary is not complete. A form of the guarantee was filed with the Commission as an exhibit to the registration statement that contains this prospectus. You should read that document for a better understanding of all of the provisions of the guarantee that may be important to you. Since the guarantee will be qualified under the Trust Indenture Act, you should also refer to the Trust Indenture Act of 1939 for more information. Wherever particular sections or defined terms of the guarantee are referred to in this description, those sections or defined terms are incorporated in this prospectus by reference. 31 37 General We will fully and unconditionally agree, to the extent described herein, to pay the guarantee payments described below in full to the holders of preferred securities as and when due. We must make these payments regardless of any defense, right of set-off or counterclaim available to or asserted by the Trust. We will make the following guarantee payments with respect to the preferred securities to the extent not paid by or on behalf of the Trust: - any accumulated and unpaid distributions required to be paid on the preferred securities, to the extent we have made a required payment of interest or principal on the subordinated debentures; - the redemption price on any preferred securities called for redemption by the Trust, including all accumulated and unpaid distributions to the date of redemption, to the extent we have made a required payment of interest or principal on the subordinated debentures; and - upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of the subordinated debentures to the holders of the preferred securities or a redemption of all of the preferred securities upon the maturity or redemption of the subordinated debentures), the lesser of: - the aggregate of the liquidation amount and all accumulated and unpaid distributions on the preferred securities to the date of payment, to the extent the Trust has funds available therefor, and - the amount of assets of the Trust remaining available for distribution to holders of preferred securities in liquidation of the Trust. Our obligation to make a guarantee payment may be satisfied by our direct payment of the required amounts to the holders of preferred securities or by causing the Trust to pay those amounts to those holders. The guarantee will be a full and unconditional guarantee of the preferred securities issued by the Trust from the time of issuance of the preferred securities, but will not apply to any payment of distributions or redemption price due to the extent that the Trust lacks funds legally available therefor as a result of our failure to make required payments of interest, redemption price or principal on the subordinated debentures. If we do not make interest or redemption price payments on the subordinated debentures, the Trust will not have funds legally available for, and will not pay, distributions or redemption price on the preferred securities. The guarantee will rank subordinate and junior in right of payment to all our outstanding liabilities, except those made of equal rank by their terms. See "-- Status of the Guarantee." Amendments and Assignment The terms of the guarantee may be changed only with the prior approval of the holders of not less than 66-2/3% in liquidation amount of the outstanding preferred securities, except that any changes that do not adversely affect in any material respect the rights of holders of preferred securities may be made with no vote required. All of our successors, assigns, receivers, trustees and representatives will be bound by all guarantees and agreements of the guarantee, and those 32 38 guarantees and agreements will inure to the benefit of the holders of the outstanding preferred securities. Events of Default An event of default under the guarantee will occur if we fail to perform any of our payment obligations under the guarantee. The holders of a majority in liquidation amount of the preferred securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to, or the exercise of any trust or power conferred upon, the guarantee trustee under the guarantee. If an event of default under the guarantee has occurred and is continuing, the guarantee trustee will enforce the guarantee for the benefit of the holders of the preferred securities. If the guarantee trustee fails to enforce the guarantee, any holder of preferred securities may institute a legal proceeding directly against us to enforce the guarantee trustee's rights under the guarantee without first instituting a legal proceeding against the Trust, the guarantee trustee or any other person or entity. The guarantee requires us to annually provide the guarantee trustee with: - a report as to our performance of our guarantee obligations and as to any default in that performance and - an officer's certificate as to our compliance with all conditions under the guarantee. Information Concerning the Guarantee Trustee The guarantee trustee will perform only the duties specifically set forth in the guarantee unless we are in default under the guarantee. In case of an uncured event of default under the guarantee, the guarantee trustee must exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to this provision, the guarantee trustee is not obligated to exercise any of its powers under the guarantee at the request of any holder of preferred securities unless it is offered reasonable indemnity against costs, expenses and liabilities that might be incurred by the exercise of those powers. Termination of the Guarantee The guarantee will terminate and be of no further force and effect upon: - full payment of the applicable redemption price of the preferred securities, - the distribution of subordinated debentures to holders of preferred securities in exchange for all of the preferred securities, or - upon full payment of the amounts payable upon liquidation of the Trust. The guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of preferred securities must restore payment of any sums paid under the preferred securities or the guarantee. 33 39 Status of the Guarantee Our guarantee will constitute an unsecured obligation of ours and, except with respect to compensation or reimbursement payments to the guarantee trustee, will rank - subordinate and junior in right of payment to all our liabilities, except liabilities that may be made pari passu by their terms, - pari passu with the most senior preferred or preference stock issued or to be issued by us and with any guarantee now or hereafter entered into by us in respect of any preferred or preference stock of any of our affiliates, and - senior to our common stock. The trust agreement provides that each holder of preferred securities by acceptance of the preferred securities agrees to the subordination provisions and other terms of the guarantee. The guarantee will constitute a guarantee of payment and not of collection. Accordingly, the guaranteed party may institute a legal proceeding directly against us as the guarantor to enforce its rights under the guarantee without first instituting a legal proceeding against any other person or entity. Governing Law. The guarantee will be governed by and construed in accordance with the laws of the State of New York. DESCRIPTION OF THE SUBORDINATED DEBENTURES The Trust will use the proceeds of the issuance and sale of its trust securities to invest in our subordinated debentures. Selected provisions of the subordinated debentures and the subordinated indenture between us and The Bank of New York, as subordinated debenture trustee, are summarized below. This summary is not complete. We filed forms of the subordinated debentures and subordinated indenture with the Commission as exhibits to the registration statement that contains this prospectus. You should read those documents for a better understanding of all of their provisions that may be important to you. Since the subordinated indenture will be qualified under the Trust Indenture Act of 1939, you should also refer to the Trust Indenture Act for more information. Wherever particular sections or defined terms of the subordinated debentures or the subordinated indenture are referred to in this prospectus, those sections or defined terms are incorporated in this prospectus by reference. If the Trust is dissolved, subordinated debentures may be distributed to the holders of the trust securities in liquidation of the Trust. See "Description of the Preferred Securities --Distribution of the Subordinated Debentures." If the subordinated debentures are distributed to the holders of the preferred securities, we will use our best efforts to cause those subordinated debentures to be listed on the New York Stock Exchange or on any other exchange on which the preferred securities are then listed. 34 40 General The subordinated debentures will be limited in aggregate principal amount to $[_________], approximately the sum of the aggregate stated liquidation preference of the preferred securities and the consideration paid by us for the related common securities. The subordinated debentures will be our unsecured, subordinated obligations and will rank junior to all of our senior indebtedness, as described below. The subordinated debentures will not be subject to a sinking fund. The entire outstanding principal amount of the subordinated debentures will become due and payable, together with any accrued and unpaid interest and including any additional interest as described below, on [______] 2031. That date may be extended to a date no later than [__________] if we elect to extend the scheduled maturity date of those subordinated debentures and if we satisfy specified conditions. See "-- Option to Extend Maturity Date." Optional Redemption On or after [__________], 20[__], we will have the right, at any time and from time to time, to redeem the subordinated debentures, in whole or in part, at a redemption price equal to 100% of the principal amount of the subordinated debentures being redeemed, together with any accrued but unpaid interest to the redemption date, including any additional interest described below. In general, we may redeem the subordinated debentures, in whole but not in part, within 90 days after a Tax Event or Investment Company Event occurs at a redemption price of 100% of their principal amount, together with any accrued but unpaid interest, including any additional interest, to the redemption date. See "Description of the Preferred Securities -- Special Event Redemption." As long as the Trust holds all of the outstanding subordinated debentures relating to the trust securities, it must use the proceeds of the redemption of those subordinated debentures to redeem the preferred securities in accordance with their terms. We cannot redeem any subordinated debentures unless all accrued and unpaid interest, including any additional interest, has been paid in full on all outstanding subordinated debentures for all quarterly interest periods ending on or before the redemption date. We must give at least 30 but not more than 60 days' notice of any optional redemption of subordinated debentures to holders of those subordinated debentures. Interest The subordinated debentures will bear interest at the of [___]% per annum. Interest is payable every quarter in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on [________], 2001. Interest will be paid to the person in whose name a subordinated debenture is registered, subject to certain exceptions, at the close of business on the business day next preceding the interest payment date. Interest will accrue quarterly, to the extent permitted by applicable law, at the rate of [___]% per annum on any interest installment in arrears for more than one quarter and on any interest on overdue interest. 35 41 We anticipate that the Trust will be the sole holder of the subordinated debentures unless the Trust is liquidated. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. If any date on which interest is payable on the subordinated debentures is not a business day, then we will pay the interest payable on that date on the next succeeding day which is a business day, without any interest or other payment for any delay. If that business day falls in the next succeeding calendar year, however, the payment will be made on the immediately preceding business day. In each case, the payment will be made with the same force and effect as if made on the date the payment was originally payable. Option to Extend Maturity Date The stated maturity of the subordinated debentures is [__________], 2031. However, before the stated maturity of the subordinated debentures, we may extend that maturity date no more than one time for up to an additional [___] years from the original stated maturity; so long as: - we are not in bankruptcy or otherwise insolvent, - we are not in default on the subordinated debentures, - we have made timely payments on the subordinated debentures for the immediately preceding six quarters without deferrals, - the Trust is not in arrears on payments of distributions on the preferred securities, and - the subordinated debentures are rated [___] or higher by Standard & Poor's Rating Group [___] or higher by Moody's Investors Service, Inc. or the equivalent for any other nationally recognized statistical rating organization. Pursuant to the trust agreement, the administrative trustees are required to give notice of our election to extend the stated maturity to the holders of the preferred securities. Option to Extend Interest Payment Period We will have the right at any time during the term of the subordinated debentures to extend the interest payment period, from time to time, for an extension period of up to 20 consecutive quarters, during which interest will accrue but not be paid. Interest will accrue quarterly on accrued but unpaid interest during any extension period. At the end of the extension period, we must pay all interest then accrued and unpaid--including interest accrued on unpaid interest as described above at the rate specified for the subordinated debentures to the extent permitted by applicable law. During any extension period, we may not: - declare or pay any dividends on, or make a distribution with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of our capital stock, other than a dividend in stock of the same class as the stock on which it is paid, or - make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any of our debt securities issued by us that rank equally with or junior to the subordinated debentures, or 36 42 - make any guarantee payments with respect to any items described in the two preceding bullet points, other than payments under the guarantee. Before an extension period ends, we may further extend the interest payment period, so long as the extension period together with all previous and further extensions will not: - exceed 20 consecutive quarters at any one time, or - extend beyond the maturity date of the subordinated debentures. Once an extension period has ended and all amounts then due have been paid, we may start a new extension period, subject to the above requirements. No interest will be due and payable during an extension period, except at the end of the period. So long as the property trustee is the sole holder of the subordinated debentures, we must give the property trustee, the administrative trustees and the subordinated debenture trustee notice of our selection of the extension period at least one business day prior to the earlier of: - the date the distributions on the preferred securities are payable, or - the date the administrative trustees are required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the preferred securities of the record date for the payment of these distributions or the date the distributions are payable, but in any event not less than one business day prior to that record date. Pursuant to the Trust Agreement, the administrative trustees must notify the holders of the preferred securities of our selection of an extension period. Additional Interest If the Trust is ever required to pay any taxes, duties, assessments or governmental charges of whatever nature -- other than withholding taxes -- imposed by the United States or any other taxing authority, then, in any case, we will also pay as "additional interest" the amount required so that the net amounts received and retained by the Trust after paying those taxes, duties, assessments or governmental charges will be not less than the amounts the Trust would have received had no taxes, duties, assessments or governmental charges been imposed. Set-Off Notwithstanding anything to the contrary in the subordinated debenture indenture, we may set-off any payment we are otherwise required to make on the subordinated debentures to the extent we have already made, or are concurrently on the date of payment making, a payment under the guarantee. Subordination Our subordinated debentures will be subordinate and junior in right of payment to all our senior indebtedness, as defined below. The subordinated debentures rank equally with our obligations to trade creditors. No payment of principal of -- including redemption -- or interest on the subordinated debentures may be made if: 37 43 - we have defaulted on any payment of senior indebtedness when due, any applicable grace period with respect to that default has ended and the default has not been cured or waived, or - if the maturity of any senior indebtedness has been accelerated because of a default. (Section 11.02). If we are voluntarily or involuntarily dissolved, wound-up, liquidated or reorganized and our assets are distributed to creditors, whether in bankruptcy, insolvency, receivership or other proceedings, all principal of and interest due or to become due on, all senior indebtedness must be paid in full before the holders of the subordinated debentures are entitled to receive or retain any payment thereon. (Section 11.03). Subject to the prior payment of all senior indebtedness, the rights of the holders of the subordinated debentures will be subrogated to the rights of the holders of senior indebtedness to receive payments or distributions applicable to senior indebtedness until all amounts owing on the subordinated debentures are paid in full. (Section 11.04). Under the subordinated indenture, "senior indebtedness" means generally the principal of, premium, if any, interest on and any other payment due pursuant to any of the following, whether outstanding at the date of execution of the subordinated indenture or incurred, created or assumed later: - all our indebtedness on a consolidated basis -- other than any obligations to trade creditors -- evidenced by notes, debentures, bonds, other securities or other instruments issued by us for money borrowed and capitalized lease obligations; - all indebtedness of others of the kinds described in the first bullet point above assumed by or guaranteed in any manner by us or in effect guaranteed by us; and - all renewals, extensions or refundings of indebtedness of the kinds described in either of the preceding first or second bullet point above, unless, in the case of any particular indebtedness, renewal, extension or refunding, the instrument creating or evidencing the same or the assumption or guarantee of the same expressly provides that the indebtedness, renewal, extension or refunding is not superior in right of payment to or is pari passu with the subordinated debentures. (Section 1.01). The subordinated indenture does not limit the aggregate amount of senior indebtedness that we may issue. As of June 30, 2001, we had approximately $2.6 billion of principal amount of indebtedness for borrowed money constituting senior indebtedness on a consolidated basis. Certain Covenants of The Cleveland Electric Illuminating Company We will covenant that we will not declare or pay any dividends or distributions -- other than dividends or distributions payable in our common stock -- on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of our capital stock, or make any guarantee payments with respect to the foregoing, other than payments under the guarantee, if at the time: - any event of which we have actual knowledge has occurred that with the giving of notice or the lapse of time, or both, would constitute an event of default under the subordinated indenture, and that we have not taken reasonable steps to cure, 38 44 - we will be in default in our payment of any obligations under the guarantee, or - we will have given notice of our selection of an extension period as provided in the subordinated indenture and that extension period, or any extension of that extension period, will be continuing. (Section 10.05). We will also covenant: - to maintain 100% ownership of the common securities of the Trust, provided, however, that any permitted successor of us under the subordinated indenture may succeed to our ownership of those common securities, and - to use our reasonable efforts, consistent with the terms and provisions of the trust agreement, to cause the Trust to remain a business trust and otherwise not to be classified as a corporation for United States federal income tax purposes. (Section 10.05). Events of Default Each of the following events constitutes an event of default with respect to the subordinated debentures: - failure for 30 days to pay interest on the subordinated debentures when due, including any additional interest, subject to the deferral of any due date in the case of an extension period; or - failure to pay principal on the subordinated debentures when due whether at maturity, upon redemption by declaration or otherwise; provided, however, that an extension of the maturity of the subordinated debentures in accordance with the terms of the subordinated indenture and the subordinated debentures shall not constitute an event of default; or - failure to observe or perform in any material respect any other covenant contained in the subordinated indenture for 90 days after written notice to us from the subordinated debenture trustee or to us and the subordinated debenture trustee from the holders of at least 25% in principal amount of the outstanding subordinated debentures; or - certain events in bankruptcy, insolvency or reorganization. (Section 5.01). The holders of a majority in outstanding principal amount of the subordinated debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the subordinated debenture trustee. (Section 5.12). The subordinated debenture trustee or the holders of not less than 25% in aggregate outstanding principal amount of the subordinated debentures may declare the principal of and interest on the subordinated debentures due and payable immediately upon a subordinated indenture event of default, and should the subordinated debenture trustee or those holders of subordinated debentures fail to make that declaration the holders of at least 25% in aggregate liquidation preference of preferred securities then outstanding will have that right. The holders of a majority in aggregate outstanding principal amount of the subordinated debentures may annul the declaration if all defaults have been cured or waived and a sum sufficient to pay all matured installments of interest and 39 45 principal due otherwise than by acceleration, as well as all sums paid or advanced by the subordinated debenture trustee and its compensation, expenses and advances, have been deposited with the subordinated debenture trustee. (Section 5.02). The holders of a majority in outstanding principal amount of the subordinated debentures affected may, on behalf of the holders of all the subordinated debentures, waive any past default, except a default in the payment of principal or interest (unless the default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the subordinated debenture trustee) or a default in respect of a covenant or provision which under the subordinated indenture cannot be modified or amended without the consent of the holder of each outstanding subordinated debenture. (Section 5.13). We must file annually with the subordinated debenture trustee a certificate as to our compliance with all the material terms, provisions and conditions applicable to us under the subordinated indenture. (Section 10.04). In case any subordinated indenture event of default occurs and is continuing, the property trustee will have the right to declare the principal of and the interest, including any additional interest, on the subordinated debentures and any other amounts payable under the subordinated indenture to be due and payable and to enforce its other rights as a creditor with respect to the subordinated debentures. A voluntary or involuntary dissolution of the Trust prior to redemption or maturity of the subordinated debentures would not constitute a subordinated indenture event of default. If the Trust is dissolved, an event both we and the Trust consider remote, any of the following, among other things, could occur: - a distribution of the subordinated debentures to the holders of the preferred securities, - a cash distribution to the holders of the preferred securities out of the sale of the Trust's assets, after satisfaction of liabilities to creditors, - a permitted redemption at par of the subordinated debentures, and a consequent redemption of a like amount of the preferred securities, at our option of under the circumstances described in "-- Optional Redemption," or - the rollover of the Trust's property into another entity with similar characteristics. Form, Exchange and Transfer The subordinated debentures will be issuable only in registered form, without coupons and only in denominations of $25 and multiples of $25. (Section 3.02). Subject to the terms of the subordinated indenture, subordinated debentures may be presented for registration of transfer or exchange -- duly endorsed or accompanied by satisfactory instruments of transfer or exchange -- at the office of the registrar for the subordinated debentures or at the office of any transfer agent designated by us for that purpose. No service charge will be made for any registration of transfer or exchange of subordinated debentures, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith except with respect to certain exchanges not involving any transfer. The transfer or exchange will be effected upon the registrar or the transfer agent, as the case may be, being satisfied with the documents of transfer, title and 40 46 identity of the person making the request. We have appointed the subordinated debenture trustee as the registrar for the subordinated debentures. (Section 3.05). We may at any time designate additional transfer agents or rescind the designation of any transfer agent or approve a change in the office through which any transfer agent acts. (Section 10.02). We will not be required to: - issue, register the transfer of or exchange of any subordinated debentures during the 15 days before the day notice of redemption identifying those subordinated debentures being called for redemption is mailed or - issue, register the transfer or exchange any subordinated debentures selected for redemption in whole or in part, except the unredeemed portion of any subordinated debentures being redeemed in part. (Section 3.05). Payment and Paying Agents We will pay interest on a subordinated debenture on any interest payment date to the person in whose name the subordinated debenture, or one or more predecessor securities, is registered at the close of business on the regular record date for that interest payment date. (Section 3.07). Principal of and any interest on the subordinated debentures will be payable at the office of the paying agent or agents designated by us for this purpose from time to time. We may at our option, however, pay interest by check mailed to the address of the person entitled to that interest as that address appears in the security register or by wire transfer. The subordinated debenture trustee is The Bank of New York and we have designated The Bank of New York as our initial paying agent and The Bank of New York's corporate trust office in The City of New York as our sole paying agency for payments on the subordinated debentures. We may at any time designate additional paying agents or rescind the designation of any paying agent or approve a change in the office through which any paying agent acts. (Section 10.02). Modification of the Subordinated Indenture The subordinated indenture contains provisions permitting us and the subordinated debenture trustee, with the consent of the holders of not less than 66-2/3% of the principal amount of the outstanding subordinated debentures, to modify the subordinated indenture in a manner affecting the rights of the holders of the subordinated debentures. However, no modification may, without the consent of the holder of each outstanding subordinated debenture: - change the fixed maturity of the subordinated debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or change the place of payment where or the currency in which the subordinated debentures or their interest are payable, or impair the right to institute a suit for enforcement on or after maturity or redemption, or modify the subordination provisions in the subordinated indenture in a manner adverse to the holders of the subordinated debentures, or 41 47 - reduce the percentage of principal amount of subordinated debentures, the holders of which are required to consent to any modification of the subordinated indenture, or - modify certain provisions of the subordinated indenture relating to the waiver of our past defaults or our compliance with our covenants in the subordinated indenture. Under the subordinated indenture, the consent of the holders of the preferred securities is also required for some amendments to or the termination of the subordinated indenture and in respect of our compliance with certain covenants in the subordinated indenture. (Section 9.02). Consolidation, Merger and Sale We may not consolidate with or merge into, or convey, transfer or lease our properties and assets substantially as an entirety to, any person, and may not permit any person to merge into, or convey, transfer or lease its properties and assets substantially as an entirety to, us unless: - the successor person, if any: - is a corporation, partnership or trust organized and validly existing under the laws of any domestic jurisdiction, and - assumes our obligations on the subordinated debentures and under the subordinated indenture, - immediately after giving effect to the transaction, and treating any indebtedness which as a result of the transaction becomes our obligation or the obligation of any of our subsidiaries as having been incurred at the time of the transaction, no subordinated indenture event of default, and no event which, after notice or lapse of time or both, would become a subordinated indenture event of default, will have occurred and be continuing, - the consolidation or merger or conveyance, transfer or lease of our properties or our assets is permitted under, and does not give rise to any breach or violation of, the trust agreement or the guarantee, and - other conditions are met. (Section 8.01). Satisfaction and Discharge Under the terms of the subordinated indenture, we will be discharged from our obligations under the subordinated debentures if we deposit with the subordinated debenture trustee, in trust, moneys in an amount sufficient to pay all the principal of, and interest on, the subordinated debentures on the dates those payments are due in accordance with the terms of those subordinated debentures, provided that those subordinated debentures have become due and payable, or will become due and payable within one year whether at maturity or through redemption. Even if we make the deposit as described in the preceding sentence, however, our obligations to register the transfer or exchange of subordinated debentures, replace stolen, lost or mutilated subordinated debentures and hold moneys for payment in trust will not be discharged. (Section 4.01). 42 48 Governing Law The subordinated indenture and the subordinated debentures will be governed by, and construed in accordance with, the laws of the State of New York. (Section 1.12). RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED DEBENTURES AND THE GUARANTEE As long as payments of interest and other payments are made when due on the subordinated debentures, those payments will be sufficient to cover distributions and other payments due on the preferred securities, primarily because: - the aggregate principal amount of subordinated debentures will be equal to the sum of the aggregate stated liquidation preference of the preferred securities and the common securities; - the interest rate and interest and other payment dates on the subordinated debentures will match the distribution rate and distribution and other payment dates for the preferred securities; - the trust agreement obligates us, and not the Trust, to pay for any, costs, expenses and liabilities of the Trust, including any income taxes, duties and other governmental charges, and related costs and expenses, to which the Trust may become subject, except for United States withholding taxes and the Trust's obligations to holders of preferred securities under the preferred securities; and - the trust agreement further provides that the Cleveland Electric trustees will not cause or permit the Trust to, among other things, engage in any activity that is not consistent with the limited purposes of the Trust. We are guaranteeing the payment of distributions and other amounts due on the preferred securities to the extent the Trust has funds available for the payment of those distributions as and to the extent set forth under "Description of the Guarantee." If and to the extent that we do not make payments on the subordinated debentures, the Trust will not pay distributions or other amounts due on the preferred securities. If the guarantee trustee fails to enforce the guarantee, a holder of a preferred security may institute a legal proceeding directly against us to enforce its rights under the guarantee without first instituting a legal proceeding against the Trust or any other person or entity. The preferred securities evidence the rights of the holders of the preferred securities to the benefits of the Trust, which exists for the sole purpose of issuing its trust securities and investing the proceeds in our debt securities, while the subordinated debentures represent our indebtedness. A principal difference between the rights of a holder of a preferred security and a holder of a subordinated debenture is that a holder of a subordinated debenture will accrue, and is entitled to receive, subject to permissible extensions interest periods, interest on the principal amount of subordinated debentures held, while a holder of preferred securities is only entitled to receive distributions if and to the extent the Trust has funds legally available for the payment of those distributions. 43 49 Upon any voluntary or involuntary dissolution, winding-up or termination of the Trust, the holders of preferred securities will be entitled to receive in cash, out of assets legally available for distribution to holders, the liquidation distribution described under "Description of the Preferred Securities -- Liquidation Distribution Upon Dissolution." Upon our voluntary or involuntary liquidation or bankruptcy, the Trust, as holder of the subordinated debentures, would be a subordinated creditor of ours, subordinated in right of payment to all senior indebtedness, but entitled to receive payment in full of principal and interest, before any of our stockholders receive payments or distributions. Since we are the guarantor under the guarantee and have agreed to pay for all costs, expenses and liabilities of the Trust (other than United States withholding taxes and other than the Trust's obligations to holders of preferred securities under the preferred securities), the positions of a holder of preferred securities and a holder of subordinated debentures relative to other creditors and to our stockholders in the event of our liquidation or bankruptcy would be substantially the same. A default or event of default under any senior indebtedness would not constitute a default or subordinated indenture event of default. In the event of payment defaults under, or acceleration of, senior indebtedness, the subordination provisions of the subordinated debentures provide that no payments may be made on the subordinated debentures until that senior indebtedness has been paid in full or any payment default has been cured or waived. Failure to make required payments on the subordinated debentures would constitute a subordinated indenture event of default. BOOK-ENTRY SECURITIES The preferred securities will trade through DTC. The preferred securities will be represented by a global certificate and registered in the name of Cede & Co., DTC's nominee. DTC is a New York clearing corporation and a clearing agency registered under Section 17A of the Securities Exchange Act of 1934. DTC holds securities for its participants. DTC facilitates settlement of securities transactions among its participants, through electronic computerized book-entry changes in the participants' accounts. This eliminates the need for physical movement of securities certificates. The participants include securities brokers and dealers, banks, trust companies and clearing corporations. DTC is owned by a number of its participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Others who maintain a custodial relationship with a participant can use the DTC system. The rules that apply to DTC and those using its systems are on file with the Commission. Purchases of preferred securities within the DTC system must be made through participants, which will receive a credit for the preferred securities on DTC's records. The beneficial ownership interest of each purchaser will be recorded on the participants' records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners should receive written confirmations of the transactions, as well as periodic statements of their holdings, from the participants through which they purchased preferred securities. Beneficial owners will not receive certificates for their preferred securities, unless use of the book-entry system for the preferred securities is discontinued. To facilitate subsequent transfers, all the preferred securities deposited by direct participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of preferred securities with DTC and their registration in the name of Cede & Co. effect no change 44 50 in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the preferred securities. DTC's records reflect only the identity of the participants to whose accounts those preferred securities are credited. These participants may or may not be the beneficial owners. Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to participants, and by participants to indirect participants and beneficial owners, will be governed by arrangements among them. Redemption notices will be sent to Cede & Co. If less than all of the preferred securities are being redeemed, DTC's practice is to determine by lot the liquidation amount of each participant to be redeemed. Although voting with respect to the preferred securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to preferred securities. Under its usual procedures, DTC would mail an omnibus proxy to the Trust as soon as possible after the record date. The omnibus proxy assigns the consenting or voting rights of Cede & Co. to those participants to whose accounts the preferred securities are credited on the record date. We and the Trust believe that these arrangements will enable the beneficial owners to exercise rights equivalent in substance to the rights that can be directly exercised by a holder of a beneficial interest in the Trust. Distribution payments on the preferred securities will be made to DTC. DTC's practice is to credit participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on that payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices. Payments will be the responsibility of participants and not DTC, the Trust or us. Payment of distributions to DTC is the responsibility of the Trust. Disbursement of those payments to participants is the responsibility of DTC, and disbursement of those payments to the beneficial owners is the responsibility of participants. Except as provided in this prospectus, a beneficial owner will not be entitled to receive physical delivery of preferred securities. Accordingly, each beneficial owner must rely on the procedures of DTC to exercise any rights under the preferred securities. DTC may discontinue providing its services as securities depositary with respect to the preferred securities at any time by giving reasonable notice to the Trust. In the event no successor securities depositary is obtained, preferred securities certificates will be printed and delivered. If the administrative trustees and we decide to discontinue use of the DTC system of book-entry transfers, certificates for the preferred securities will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that we believe to be accurate, but we assume no responsibility for its accuracy. Neither we nor the Trust has any responsibility for the performance by DTC or its participants of their respective obligations as described above or under the rules and procedures governing their respective operations. 45 51 UNITED STATES TAXATION The following summary describes certain United States federal income tax consequences of the purchase, ownership and disposition of preferred securities as of the date of this prospectus, and represents the opinion of Pillsbury Winthrop LLP, our special tax counsel, insofar as it relates to matters of law or legal conclusions. Except where noted, it deals only with preferred securities held as capital assets within the meaning of ss. 1221 of the Internal Revenue Code of 1986, as amended, and does not deal with special situations, like those of tax-exempt organizations, dealers in securities or currencies, banks, financial institutions, life insurance companies, real estate investment trusts, regulated investment companies, persons holding preferred securities as a part of a hedging or conversion transaction or a straddle, persons who mark to market securities, United States holders (as defined below) whose "functional currency" is not the United States dollar, or persons who are not United States holders. In addition, this discussion does not address any tax consequences to persons who purchase preferred securities other than pursuant to their initial issuance and distribution. It also does not include any description of any alternative minimum tax consequences or of the tax laws of any state, local or foreign jurisdiction. Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code and income tax regulations, administrative rulings and judicial decisions under the Internal Revenue Code as of the date of this prospectus, and those authorities may be repealed, revoked or modified, possibly with retroactive effect, so as to result in United States federal income tax consequences different from those discussed below. PROSPECTIVE PURCHASERS OF PREFERRED SECURITIES, INCLUDING PERSONS WHO ARE NOT UNITED STATES HOLDERS AND PERSONS WHO PURCHASE PREFERRED SECURITIES IN THE SECONDARY MARKET, ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECTS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS. United States Holders As used in this prospectus, a "United States holder" means a beneficial owner of a preferred security that is, for United States federal income tax purposes: - a citizen or resident of the United States, - a corporation, or other entity treated as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or any political subdivision thereof, - an estate the income of which is subject to United States federal income taxation regardless of its source, or - a trust the administration of which is subject to the primary supervision of a court within the United States and for which one or more United States persons have the authority to control all substantial decisions. If a partnership holds preferred securities, the United States federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Partners of partnerships holding preferred securities should consult their tax advisors. 46 52 Classification of the Trust Pillsbury Winthrop LLP, our special tax counsel, is of the opinion that, under current law and assuming full compliance with the terms of the subordinated indenture, the instruments establishing the Trust, and certain other documents, the Trust will be classified as a "grantor trust" for United States federal income tax purposes and will not be classified as an association taxable as a corporation. Accordingly, each United States holder will be treated as owning an undivided beneficial interest in the subordinated debentures. Investors should be aware that the opinion of Pillsbury Winthrop LLP is not binding on the Internal Revenue Service or the courts. Classification of the Subordinated Debentures Based on the advice of Pillsbury Winthrop LLP, we believe and intend to take the position that the subordinated debentures will constitute indebtedness for United States federal income tax purposes. No assurance can be given that this position will not be challenged by the Internal Revenue Service or, if challenged, that the challenge will not be successful. If the Internal Revenue Service successfully challenged the treatment of the subordinated debentures as indebtedness, the preferred securities would be subject to redemption at our option as described under the caption "Description of the Preferred Securities -- Special Event Redemption." By purchasing and accepting preferred securities, each United States holder covenants to treat the subordinated debentures as indebtedness and the preferred securities as evidence of an indirect beneficial ownership in the subordinated debentures. The remainder of this discussion assumes that the subordinated debentures will be classified as indebtedness for United States federal income tax purposes. Payments of Interest Except as set forth below, stated interest on the subordinated debentures will generally be taxable to a United States holder as ordinary income at the time it is paid or accrued in accordance with the United States holder's method of accounting for tax purposes. No portion of that income will be eligible for the dividends-received deduction. Original Issue Discount Under the subordinated indenture, we have the right to extend the interest payment period on the subordinated debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each extension period, provided, however, that no extension period may extend beyond the stated maturity (as defined in the subordinated indenture) of the subordinated debentures. We believe that the likelihood of our extending the interest payment period on the subordinated debentures is "remote" within the meaning of applicable income tax regulations, in part because doing so would prevent us from making certain payments with respect to our capital stock and certain of our debt securities. See "Description of the Subordinated Debentures--Option to Extend Interest Payment Period." Consequently, we believe that the subordinated debentures will not be treated as having been issued with original issue discount for United States federal income tax purposes. It should be noted that the regulations have not yet been addressed in any rulings or other interpretations by the Internal Revenue Service. Accordingly, it is possible that the Internal Revenue Service could take a different position. 47 53 If we exercised our right to extend an interest payment period, the subordinated debentures would at that time be treated as having been retired and reissued with original issue discount. As a result, United States holders would be required, for the remaining term of the subordinated debentures, to accrue interest income even if they used the cash method of accounting. Consequently, in the event that the payment of interest was deferred, a United States holder would be required to include original issue discount in income on an economic accrual basis, notwithstanding that we would not make any interest payments on the subordinated debentures during the extension period. Receipt of Subordinated Debentures or Cash Upon Liquidation of the Trust As described under the caption "Description of the Preferred Securities -- Distribution of Subordinated Debentures," the subordinated debentures may be distributed to holders in exchange for the preferred securities in liquidation of the Trust. Under current law, for United States federal income tax purposes, that distribution would be treated as a non-taxable event to each United States holder, and each United States holder would receive an aggregate tax basis in the subordinated debentures equal to the holder's aggregate tax basis in its preferred securities. A United States holder's holding period for the subordinated debentures received in liquidation of the Trust would include the period during which the holder held the preferred securities. However, if the Trust is classified for United States federal income tax purposes as an association taxable as a corporation at the time it is dissolved or if there is a change in law, the distribution of the subordinated debentures may be a taxable event to United States Holders. See "-- Sale of the Preferred Securities" below. Under certain circumstances, as described under the caption "Description of the Preferred Securities -- Special Event Redemption," the subordinated debentures may be redeemed for cash and the proceeds of the redemption distributed to holders of preferred securities in redemption of the preferred securities. Under current law, that redemption would, for United States federal income tax purposes, constitute a taxable disposition of the preferred securities, and a holder would recognize gain or loss as if the holder had sold the redeemed preferred securities. See "--Sale of the Preferred Securities" below. Sale of the Preferred Securities Upon a sale, exchange, redemption or other taxable disposition of preferred securities, a United States holder will recognize gain or loss equal to the difference between the amount realized upon the disposition, excluding amounts attributable to accrued and unpaid interest, and the holder's adjusted tax basis in the preferred securities. A United States holder's adjusted tax basis in a preferred security generally will equal the issue price of the preferred security, increased by the amount of any original issue discount previously includible in the gross income of the holder and decreased by the amount of any subsequent payments received on the preferred security. The gain or loss will be capital gain or loss and will be long-term capital gain or loss, if at the time of the disposition, the preferred securities have been held for more than one year. Generally, for non-corporate United States holders, net long-term capital gains are subject to United States federal income tax at a maximum rate of 20%. The preferred securities may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the underlying subordinated debentures. If you sell your preferred securities between record dates for payments of distributions, you will not receive subsequent distributions but will nevertheless be required to include in gross income for United States federal income tax purposes your ratable share of accrued and unpaid interest on the 48 54 subordinated debentures through the date of the sale. To the extent the selling price is less than your adjusted tax basis in the preferred securities sold, you will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. Information Reporting and Backup Withholding In general, information reporting will apply to distributions paid and original issue discount accrued on the preferred securities, and to the proceeds of a sale of preferred securities, except in the case of an exempt holder, such as a corporation. A 30.5% backup withholding tax (subject to phased-in rate reductions until the rate equals 28% for payments after 2005) will apply to such payments if a holder fails to provide a taxpayer identification number and to satisfy other requirements, unless the holder has provided a certificate of exempt status. UNDERWRITERS Under the terms and conditions of an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated and [________], [_________] and [_______] are acting as representatives, have severally agreed to purchase, and the Trust has agreed to sell to them, the respective number of preferred securities indicated below:
NUMBER OF PREFERRED NAME SECURITIES Morgan Stanley & Co. Incorporated........................................ [______] [______________________]................................................. [______] [______________________]................................................. [______] [______________________]................................................. [______] Total............................................................... ______
The underwriters are offering the preferred securities subject to their acceptance of the preferred securities from the Trust and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the preferred securities are conditioned on the delivery of legal opinions by their counsel. The underwriters are obligated to purchase all the preferred securities if any are purchased. The underwriters initially propose to offer part of the preferred securities directly to the public at the public offering price set forth on the cover page of this prospectus. The underwriters may also offer the preferred securities to securities dealers at a price that represents a concession not in excess of $[___] per preferred security. Any underwriter may allow, and dealers may reallow, a concession not in excess of $[___] per preferred security to other underwriters or to securities dealers. After the initial offering of the preferred securities, the offering price and other selling terms may from time to time be changed by the representatives. Because the National Association of Securities Dealers, Inc. is expected to view the preferred securities 49 55 as interests in a direct participation program, the offering of the preferred securities is being made in compliance with Rule 2810 of the National Association of Securities Dealers' Rules of Conduct. Because the proceeds of the sale of the preferred securities will be invested in the subordinated debentures, the underwriting agreement provides that the Company will pay as Underwriter's compensation to underwriters for their arranging the investment of the proceeds, $[___] per preferred security (or $[___] in the aggregate) for the accounts of the several underwriters, provided that the compensation for sales of [_____] or more preferred securities to a single purchaser will be $[____] per preferred security. Therefore, to the extent of those sales the actual amount of compensation will be less than the aggregate amount specified in the preceding sentence. We and the Trust have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated, on behalf of the underwriters, we will not, during the period beginning on the date of the underwriting agreement and continuing to and including the closing under the underwriting agreement: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any securities that are substantially similar to the preferred securities or securities convertible into or exercisable or exchangeable for such securities; or - enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any transaction described above is to be settled by securities, in cash or otherwise, except in this offering. Prior to this offering, there has been no public market for the preferred securities. The preferred securities will be listed on the New York Stock Exchange under the trading symbol "CVE PrU." In order to meet one of the requirements for listing the preferred securities on the New York Stock Exchange, the underwriters intend to sell preferred securities to a minimum of 400 beneficial holders in lots of 100 or more. Trading of the preferred securities on the New York Stock Exchange is expected to begin within a 30-day period after the date of this prospectus. The representatives have advised the Trust that they presently intend to make a market in the preferred securities prior to the commencement of trading on the New York Stock Exchange. The representatives are not obligated to make a market in the preferred securities, however, and may cease market-making activities at any time. We cannot give any assurance as to the liquidity of any trading market for the preferred securities. 50 56 We, the Trust and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. In order to facilitate the offering of the preferred securities, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the preferred securities. Specifically, the underwriters may over allot in connection with the offering, creating a short position in the preferred securities for their own account. In addition, to cover over allotments or to stabilize the price of the preferred securities, the underwriters may bid for, and purchase, preferred securities in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the preferred securities in the offering, if the syndicate repurchases previously distributed preferred securities in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the preferred securities above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. From time to time, some of the underwriters and their affiliates have engaged in, and may in the future engage in commercial banking and investment banking transactions with us and our affiliates. LEGAL OPINIONS Richards, Layton & Finger, P.A., special Delaware counsel to the Trust and us, will pass upon certain matters of Delaware law relating to the validity of the preferred securities, the validity of the trust agreement and the formation of the Trust. David L. Feltner, Esq., Akron, Ohio, who is our Counsel, Pillsbury Winthrop LLP, One Battery Park Plaza, New York, N.Y. 10004-1490, our outside counsel, will render opinions to any underwriters or agents as to the legality of the guarantee and the subordinated debentures, and Calfee, Halter & Griswold LLP, 800 Superior Avenue, 1400 McDonald Investment Center, Cleveland, Ohio 44114, counsel for the underwriters, will pass upon certain other legal matters for the underwriters. Calfee, Halter & Griswold LLP provides legal services to FirstEnergy Corp., our parent company, on a regular basis. EXPERTS The audited consolidated financial statements and related schedule incorporated by reference or included in our Annual Report on Form 10-K/A for the year ended December 31, 2000, incorporated by reference in this prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports dated February 16, 2001 with respect thereto, and are incorporated by reference in this prospectus in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. With respect to the unaudited interim consolidated financial information for the quarters ended March 31 and June 30, 2001 and March 31 and June 30, 2000, incorporated by reference in this prospectus, Arthur Andersen LLP has applied limited procedures in accordance with professional standards for reviews of that information. However, their separate reports thereon state that they did not audit and they do not express opinions on that interim consolidated financial information. Accordingly, the degree of reliance on their reports on that information should be restricted in light of the limited nature of the review procedures applied. In addition, the accountants are not subject to the liability provisions of 51 57 Section 11 of the Securities Act of 1933 for their reports on the unaudited interim consolidated financial information because these reports are not "reports" or "parts" of the registration statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of such Act. The statements as to matters of law and legal conclusions included in our Annual Report on Form 10-K/A and Forms 10-Q for the quarters ended March 31 and June 30, 2001 incorporated by reference in this prospectus, and those statements included in this prospectus, have been prepared under the supervision of, and reviewed by, David L. Feltner, Esq., Akron, Ohio, who is our Counsel, and those statements have been incorporated by reference or included in this prospectus upon his authority as an expert. 52 58 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS Item 16. Exhibits. Exhibit Number 1.1 - Form of Underwriting Agreement. 4.1* - Form of Subordinated Indenture between The Cleveland Electric Illuminating Company and The Bank of New York, as trustee, to be used in connection with issuance of Subordinated Debentures. 4.2* - Certificate of Trust of Cleveland Electric Financing Trust I. 4.3* - Declaration of Trust for Cleveland Electric Financing Trust I. 4.4* - Form of Amended and Restated Declaration of Trust of Cleveland Electric Financing Trust I to be used in connection with issuance of Preferred Securities. 4.5* - Form of Preferred Security Certificate for Cleveland Electric Financing Trust I (included in Exhibit 4.4). 4.6* - Form of Guarantee Agreement between The Cleveland Electric Illuminating Company and The Bank of New York to be used in connection with issuance of Preferred Securities. 4.7* - Form of Subordinated Debenture (included in Exhibit 4.1). 5.1* - Opinion of Richards, Layton & Finger, P.A. 5.2* - Opinion of David L. Feltner, Esq. 5.3* - Opinion of Pillsbury Winthrop LLP 8.1* - Opinion of Pillsbury Winthrop LLP as to certain United States federal income tax matters II-1 59 10.1** - Amendment No. 6A dated as of December 1, 1991, to the Bond Guaranty dated as of October 1, 1973, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33.) 10.2** - Amendment No. 6B dated as of December 30, 1991, to the Bond Guaranty dated as of October 1, 1973 by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34.) 10.3** - Bond Guaranty dated as of December 1, 1991, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35.) 10.4** - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-9.) 10.5** - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-20.) 10.6** - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-11.) 10.7** - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-22.) 10.8** - Form of First Supplemental Note Indenture between Cleveland Electric, Toledo Edison and The Chase Manhattan Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(d), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison.) 10.9** - CAPCO Administration Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the organization and procedures for implementing the objectives of the CAPCO Group (Exhibit 5(p), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10.10** - CAPCO Transmission Facilities Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the installation, operation and maintenance of II-2 60 transmission facilities to carry out the objectives of the CAPCO Group (Exhibit 5(q), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10.11** - Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(g), File No. 2-52996, filed by Cleveland Electric). 10.12** - Form of Collateral Trust Indenture among CTC Beaver Valley Funding Corporation, Cleveland Electric, Toledo Edison and Irving Trust Company, as Trustee (Exhibit 4(a), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.13* - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10-14 above, including form of Secured Lease Obligation bond (Exhibit 4(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.14** - Form of Collateral Trust Indenture among Beaver Valley II Funding Corporation, The Cleveland Electric Illuminating Company and The Toledo Edison Company and The Bank of New York, as Trustee (Exhibit (4)(a), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10.15** - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10-16 above, including form of Secured Lease Obligation Bond (Exhibit (4)(b), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10.16** - Form of Collateral Trust Indenture among CTC Mansfield Funding Corporation, Cleveland Electric, Toledo Edison and IBJ Schroder Bank & Trust Company, as Trustee (Exhibit 4(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.17** - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10-18 above, including forms of Secured Lease Obligation bonds (Exhibit 4(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.18** - Form of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessee (Exhibit 4(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.19** - Form of Amendment No. 1 to Facility Lease constituting Exhibit 10-20 above (Exhibit 4(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.20** - Form of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the corporate Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.21** - Form of Amendment No. 1 to Facility Lease constituting Exhibit 10-22 above (Exhibit 4(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.22** - Form of Facility Lease dated as of September 30, 1987 between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). II-3 61 10.23** - Form of Amendment No. 1 to the Facility Lease constituting Exhibit 10-24 above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.24** - Form of Participation Agreement dated as of September 15, 1987 among the limited partnership Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, CTC Beaver Valley Fund Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-18755, filed by Cleveland Electric And Toledo Edison). 10.25** - Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10-26 above (Exhibit 28(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.26** - Form of Participation Agreement dated as of September 15, 1987 among the corporate Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Owner Loan Participants, CTC Beaver Valley Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.27** - Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10-28 above (Exhibit 28(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.28** - Form of Participation Agreement dated as of September 30, 1987 among the Owner Participant named therein, the Original Loan Participants listed in Schedule II thereto, as Owner Loan Participants, CTC Mansfield Funding Corporation, Meridian Trust Company, as Owner Trustee, IBJ Schroder Bank & Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-0128, filed by Cleveland Electric and Toledo Edison). 10.29** - Form of Amendment No. 1 to the Participation Agreement constituting Exhibit 10-28 above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.30** - Form of Ground Lease dated as of September 15, 1987 between Toledo Edison, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.31** - Form of Site Lease dated as of September 30, 1987 between Toledo Edison, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.32** - Form of Site Lease dated as of September 30, 1987 between Cleveland Electric, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(d), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.33** - Form of Amendment No. 1 to the Site Leases constituting Exhibits 10-31 and 10-32 above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). II-4 62 10.34** - Form of Assignment, Assumption and Further Agreement dated as of September 15, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Cleveland Electric, Duquesne, Ohio Edison, Pennsylvania Power and Toledo Edison (Exhibit 28(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.35** - Form of Additional Support Agreement dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, and Toledo Edison (Exhibit 28(g), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.36** - Form of Support Agreement dated as of September 30, 1987 between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Toledo Edison, Cleveland Electric, Duquesne, Ohio Edison and Pennsylvania Power (Exhibit 28(e), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.37** - Form of Indenture, Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(h), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.38** - Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.39** - Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Cleveland Electric, Seller, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(g), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.40** - Forms of Refinancing Agreement, including exhibits thereto, among the Owner Participant named therein, as Owner Participant, CTC Beaver Valley Funding Corporation, as Funding Corporation, Beaver Valley II Funding Corporation, as New Funding Corporation, The Bank of New York, as Indenture Trustee, The Bank of New York, as New Collateral Trust Trustee, and The Cleveland Electric Illuminating Company and The Toledo Edison Company, as Lessees (Exhibit (28)(e)(i), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10.41** - Form of Amendment No. 2 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.42** - Form of Amendment No. 3 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(b), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.43** - Form of Amendment No. 2 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(c), Form S-4 File No. 333-47651, filed by Cleveland Electric). II-5 63 10.44** - Form of Amendment No. 3 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(d), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.45** - Form of Amendment No. 2 to Facility Lease among Midwest Power Company, Cleveland Electric and Toledo Edison (Exhibit 10(e), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.46** - Centerior Energy Corporation Equity Compensation Plan (Exhibit 99, Form S-8, File No. 33-59635). 10.47** - Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(2).) 10.48** - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).) 10.50** - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3).) 10.51** - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10-K, Exhibit 10-4.) 10.52** - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980, October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). 12.1 - Computation of consolidated ratios of earnings to fixed charges. 12.2 - Computation of consolidated ratios of earnings to fixed charges plus preferred stock dividend requirements (pre-income tax basis). 15.1 - Letter of Arthur Andersen LLP regarding unaudited interim financial information. 23.1 - Consent of Arthur Andersen LLP. 23.2* - Consent of Richards, Layton & Finger, P.A. (contained in Exhibit 5.1 hereto). 23.3* - Consent of David L. Feltner, Esq. (contained in Exhibit 5.2 hereto). 23.4* - Consent of Pillsbury Winthrop LLP. (contained in Exhibit 8.1 hereto). 24.1* - Power of Attorney (set forth on the signature pages of the Registration Statement). 25.1* - Statement of Eligibility of The Bank of New York, as trustee under the Subordinated Indenture. 25.2* - Statement of Eligibility of The Bank of New York, as trustee under the Amended and Restated Declaration of Trust of Cleveland Electric Financing Trust I. 25.3* - Statement of Eligibility of The Bank of New York, as trustee under the Guarantee of the Preferred Securities of Cleveland Electric Financing Trust I. II-6 64 --------------------------- * Previously filed. ** Incorporated by reference to indicated filing. II-7 65 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, ONE OF THE REGISTRANTS, CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT II-8 66 NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF AKRON AND STATE OF OHIO ON THE 21ST DAY OF SEPTEMBER, 2001. THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By: /s/ R. H. Marsh ------------- R. H. Marsh Vice President and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Name Title Date ---- ----- ---- /s/ H. P. Burg* President and Director September 21, 2001 -------------------------------------------- (Principal Executive Officer) (H. P. Burg) /s/ R. H. Marsh* Vice President and Chief Financial September 21, 2001 -------------------------------------------- Officer and Director (R. H. Marsh) (Principal Financial Officer) /s/ Harvey L. Wagner* Controller September 21, 2001 -------------------------------------------- (Harvey L. Wagner) (Principal Accounting Officer) /s/ A. J. Alexander* Director September 21, 2001 -------------------------------------------- (A. J. Alexander) *By: /s/ L.F. Torres September 21, 2001 --------------------------- Attorney-in-fact
II-9 67 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CLEVELAND ELECTRIC FINANCING TRUST I CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF AKRON AND STATE OF OHIO ON THE 21ST DAY OF SEPTEMBER, 2001. CLEVELAND ELECTRIC FINANCING TRUST I (Registrant) By: The Cleveland Electric Illuminating Company, as Sponsor By: /s/ Thomas C. Navin -------------------- Thomas C. Navin Treasurer II-10 68 EXHIBIT INDEX Exhibit Number Document ------ -------- 1.1 - Form of Underwriting Agreement. 4.1* - Form of Subordinated Indenture between The Cleveland Electric Illuminating Company and The Bank of New York, as trustee, to be used in connection with issuance of Subordinated Debentures. 4.2* - Certificate of Trust of Cleveland Electric Financing Trust I. 4.3* - Declaration of Trust for Cleveland Electric Financing Trust I. 4.4* - Form of Amended and Restated Declaration of Trust of Cleveland Electric Financing Trust I to be used in connection with issuance of Preferred Securities. 4.5* - Form of Preferred Security Certificate for Cleveland Electric Financing Trust I (included in Exhibit 4.4). 4.6* - Form of Guarantee Agreement between The Cleveland Electric Illuminating Company and The Bank of New York to be used in connection with issuance of Preferred Securities. 4.7* - Form of Subordinated Debenture (included in Exhibit 4.1). 5.1* - Opinion of Richards, Layton & Finger, P.A. 5.2* - Opinion of David L. Feltner, Esq. 5.3* - Opinion of Pillsbury Winthrop LLP 8.1* - Opinion of Pillsbury Winthrop LLP as to certain United States federal income tax matters. 10.1** - Amendment No. 6A dated as of December 1, 1991, to the Bond Guaranty dated as of October 1, 1973, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-33.) 10.2** - Amendment No. 6B dated as of December 30, 1991, to the Bond Guaranty dated as of October 1, 1973 by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-34.) 10.3** - Bond Guaranty dated as of December 1, 1991, by The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, the Toledo Edison Company to National City Bank, as Bond Trustee. (1991 Form 10-K, Exhibit 10-35.) 10.4** - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Perry One Alpha Limited Partnership, The Cleveland Electric Illuminating Company, E-1 69 Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-9.) 10.5** - Assignment, Assumption and Further Agreement dated as of March 16, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of March 16, 1987, with Security Pacific Capital Leasing Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1986 Form 10-K, Exhibit 28-20.) 10.6** - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Beaver Valley Two Pi Limited Partnership, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-11.) 10.7** - Assignment, Assumption and Further Agreement dated as of September 15, 1987, among The First National Bank of Boston, as Owner Trustee under a Trust Agreement, dated as of September 15, 1987, with Chrysler Consortium Corporation, The Cleveland Electric Illuminating Company, Duquesne Light Company, Ohio Edison Company, Pennsylvania Power Company, and Toledo Edison Company. (1987 Form 10-K, Exhibit 28-22.) 10.8** - Form of First Supplemental Note Indenture between Cleveland Electric, Toledo Edison and The Chase Manhattan Bank, as Trustee dated as of June 13, 1997 (Exhibit 4(d), Form S-4 File No. 333-35931, filed by Cleveland Electric and Toledo Edison.) 10.9** - CAPCO Administration Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the organization and procedures for implementing the objectives of the CAPCO Group (Exhibit 5(p), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10.10** - CAPCO Transmission Facilities Agreement dated November 1, 1971, as of September 14, 1967, among the CAPCO Group members regarding the installation, operation and maintenance of transmission facilities to carry out the objectives of the CAPCO Group (Exhibit 5(q), Amendment No. 1, File No. 2-42230, filed by Cleveland Electric). 10.11** - Contract, dated as of December 5, 1975, among the CAPCO Group members for the construction of Beaver Valley Unit No. 2 (Exhibit 5(g), File No. 2-52996, filed by Cleveland Electric). 10.12** - Form of Collateral Trust Indenture among CTC Beaver Valley Funding Corporation, Cleveland Electric, Toledo Edison and Irving Trust Company, as Trustee (Exhibit 4(a), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.13** - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10-14 above, including form of Secured Lease Obligation bond (Exhibit 4(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.14** - Form of Collateral Trust Indenture among Beaver Valley II Funding Corporation, The Cleveland Electric Illuminating Company and The Toledo Edison Company and The Bank of New York, as Trustee (Exhibit (4)(a), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). E-2 70 10.15** - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10-16 above, including form of Secured Lease Obligation Bond (Exhibit (4)(b), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10.16** - Form of Collateral Trust Indenture among CTC Mansfield Funding Corporation, Cleveland Electric, Toledo Edison and IBJ Schroder Bank & Trust Company, as Trustee (Exhibit 4(a), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.17** - Form of Supplemental Indenture to Collateral Trust Indenture constituting Exhibit 10-18 above, including forms of Secured Lease Obligation bonds (Exhibit 4(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.18** - Form of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the limited partnership Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessee (Exhibit 4(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.19** - Form of Amendment No. 1 to Facility Lease constituting Exhibit 10-20 above (Exhibit 4(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.20** - Form of Facility Lease dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the corporate Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.21** - Form of Amendment No. 1 to Facility Lease constituting Exhibit 10-22 above (Exhibit 4(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.22** - Form of Facility Lease dated as of September 30, 1987 between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Lessor, and Cleveland Electric and Toledo Edison, Lessees (Exhibit 4(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.23** - Form of Amendment No. 1 to the Facility Lease constituting Exhibit 10-24 above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.24** - Form of Participation Agreement dated as of September 15, 1987 among the limited partnership Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Original Loan Participants, CTC Beaver Valley Fund Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-18755, filed by Cleveland Electric And Toledo Edison). 10.25** - Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10-26 above (Exhibit 28(c), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.26** - Form of Participation Agreement dated as of September 15, 1987 among the corporate Owner Participant named therein, the Original Loan Participants listed in Schedule 1 thereto, as Owner Loan Participants, CTC Beaver Valley Funding Corporation, as Funding Corporation, The First National Bank of Boston, as Owner Trustee, Irving Trust Company, as Indenture Trustee, and E-3 71 Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(b), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.27** - Form of Amendment No. 1 to Participation Agreement constituting Exhibit 10-28 above (Exhibit 28(d), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.28** - Form of Participation Agreement dated as of September 30, 1987 among the Owner Participant named therein, the Original Loan Participants listed in Schedule II thereto, as Owner Loan Participants, CTC Mansfield Funding Corporation, Meridian Trust Company, as Owner Trustee, IBJ Schroder Bank & Trust Company, as Indenture Trustee, and Cleveland Electric and Toledo Edison, as Lessees (Exhibit 28(a), File No. 33-0128, filed by Cleveland Electric and Toledo Edison). 10.29** - Form of Amendment No. 1 to the Participation Agreement constituting Exhibit 10-28 above (Exhibit 28(b), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.30** - Form of Ground Lease dated as of September 15, 1987 between Toledo Edison, Ground Lessor, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(e), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.31** - Form of Site Lease dated as of September 30, 1987 between Toledo Edison, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(c), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.32** - Form of Site Lease dated as of September 30, 1987 between Cleveland Electric, Lessor, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Tenant (Exhibit 28(d), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.33** - Form of Amendment No. 1 to the Site Leases constituting Exhibits 10-31 and 10-32 above (Exhibit 4(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.34** - Form of Assignment, Assumption and Further Agreement dated as of September 15, 1987 among The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Cleveland Electric, Duquesne, Ohio Edison, Pennsylvania Power and Toledo Edison (Exhibit 28(f), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.35** - Form of Additional Support Agreement dated as of September 15, 1987 between The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, and Toledo Edison (Exhibit 28(g), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.36** - Form of Support Agreement dated as of September 30, 1987 between Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Toledo Edison, Cleveland Electric, Duquesne, Ohio Edison and Pennsylvania Power (Exhibit 28(e), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). E-4 72 10.37** - Form of Indenture, Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and The First National Bank of Boston, as Owner Trustee under a Trust Agreement dated as of September 15, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(h), File No. 33-18755, filed by Cleveland Electric and Toledo Edison). 10.38** - Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Toledo Edison, Seller, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(f), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.39** - Form of Bill of Sale, Instrument of Transfer and Severance Agreement dated as of September 30, 1987 between Cleveland Electric, Seller, and Meridian Trust Company, as Owner Trustee under a Trust Agreement dated as of September 30, 1987 with the Owner Participant named therein, Buyer (Exhibit 28(g), File No. 33-20128, filed by Cleveland Electric and Toledo Edison). 10.40** - Forms of Refinancing Agreement, including exhibits thereto, among the Owner Participant named therein, as Owner Participant, CTC Beaver Valley Funding Corporation, as Funding Corporation, Beaver Valley II Funding Corporation, as New Funding Corporation, The Bank of New York, as Indenture Trustee, The Bank of New York, as New Collateral Trust Trustee, and The Cleveland Electric Illuminating Company and The Toledo Edison Company, as Lessees (Exhibit (28)(e)(i), File No. 33-46665, filed by Cleveland Electric and Toledo Edison). 10.41** - Form of Amendment No. 2 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.42** - Form of Amendment No. 3 to Facility Lease among Citicorp Lescaman, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(b), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.43** - Form of Amendment No. 2 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(c), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.44** - Form of Amendment No. 3 to Facility Lease among US West Financial Services, Inc., Cleveland Electric and Toledo Edison (Exhibit 10(d), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.45** - Form of Amendment No. 2 to Facility Lease among Midwest Power Company, Cleveland Electric and Toledo Edison (Exhibit 10(e), Form S-4 File No. 333-47651, filed by Cleveland Electric). 10.46** - Centerior Energy Corporation Equity Compensation Plan (Exhibit 99, Form S-8, File No. 33-59635). 10.47** - Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(2).) 10.48** - Amendment No. 1 dated January 4, 1974 to Administration Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-68906, Exhibit 5(c)(3).) E-5 73 10.50** - Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (Registration No. 2-43102, Exhibit 5(c)(3).) 10.51** - Amendment No. 1 dated as of January 1, 1993 to Transmission Facilities Agreement between the CAPCO Group dated as of September 14, 1967. (1993 Form 10-K, Exhibit 10-4.) 10.52** - Agreement for the Termination or Construction of Certain Agreements effective September 1, 1980, October 15, 1997 (Exhibit 4(a), Form S-4 File No. 333-47651, filed by Cleveland Electric). 12.1 - Computation of consolidated ratios of earnings to fixed charges. 12.2 - Computation of consolidated ratios of earnings to fixed charges plus preferred stock dividend requirements (pre-income tax basis). 15.1 - Letter of Arthur Andersen LLP regarding unaudited interim financial information. 23.1 - Consent of Arthur Andersen LLP. 23.2* - Consent of Richards, Layton & Finger, P.A. (contained in Exhibit 5.1 hereto). 23.3* - Consent of David L. Feltner, Esq. (contained in Exhibit 5.2 hereto). 23.4* Consent of Pillsbury Winthrop LLP. (contained in Exhibit 8.1 hereto). 24.1* - Power of Attorney (set forth on the signature pages of the Registration Statement). 25.1* - Statement of Eligibility of The Bank of New York, as trustee under the Subordinated Indenture. 25.2* - Statement of Eligibility of The Bank of New York, as trustee under the Amended and Restated Declaration of Trust of Cleveland Electric Financing Trust I. 25.3* - Statement of Eligibility of The Bank of New York, as trustee under the Guarantee of the Preferred Securities of Cleveland Electric Financing Trust I E-6 74 -------------------- * Previously filed. ** Incorporated by reference to indicated filing. E-7 EX-1.1 3 l88526bex1-1.txt EXHIBIT 1.1 1 Exhibit 1.1 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY --------- ___% TRUST PREFERRED SECURITIES OF CLEVELAND ELECTRIC FINANCING TRUST I UNDERWRITING AGREEMENT __________ ___, 2001 2 ________ ___, 2001 MORGAN STANLEY & CO. INCORPORATED and the other Underwriters listed on Annex A hereto C/O MORGAN STANLEY & CO. INCORPORATED 1585 BROADWAY New York, NY 10036 Dear Sirs: Cleveland Electric Financing Trust I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), and The Cleveland Electric Illuminating Company, an Ohio corporation, (hereinafter called the "Company"), as owner of the trust interests represented by common securities (the "Common Securities") issued by the Trust and as guarantor (the "Guarantor"), propose that the Trust issue an aggregate number of __________ of its preferred securities (the "Preferred Securities") designated as ___% Trust Preferred Securities representing undivided beneficial interests in the assets of the Trust, guaranteed by the Guarantor as to the payment of distributions, and as to payments on liquidation or redemption, to the extent set forth in the Guarantee Agreement to be dated as of ________ ___, 2001 (the "Guarantee") between the Guarantor and The Bank of New York, as trustee (the "Guarantee Trustee"). The proceeds of the sale of the Preferred Securities by the Trust are to be invested in ___% Subordinated Debentures, Due 2031 (the "Subordinated Debentures") of the Company, to be issued pursuant to an Indenture to be dated as of ________ ___, 2001 (the "Indenture") between the Company and The Bank of New York, as trustee (the "Debenture Trustee"). The Preferred Securities shall have the designation, preferences, rights, powers and restrictions set forth in the Trust's Amended and Restated Trust Agreement to be dated as of ________ ___, 2001 (the "Trust Agreement"). The Preferred Securities and the Subordinated Debentures are more fully described in the Prospectus hereinafter referred to. The Company and the Trust have filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-2 (Nos. 333-64776 and 333-64776-01), including a preliminary prospectus relating to the Preferred Securities, the Guarantee and the Subordinated Debentures, and will file with or electronically transmit for filing to the Commission a final form of a prospectus specifically relating to the terms of the Preferred Securities, the Guarantee and the Subordinated Debentures pursuant to Rule 424 under the Securities Act of 1933 (the "Act"). Such registration statement has become effective. The term "Registration Statement" means such registration statement as amended at the time it became effective, including any information deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Act. The term "Prospectus" means the final prospectus specifically relating to the Preferred Securities, as filed with or electronically transmitted for filing to the Commission pursuant to Rule 424. The term "preliminary prospectus" means the preliminary prospectus specifically relating to the Preferred Securities contained in the Registration Statement at the time it became effective. As used herein, the terms "Registration Statement," "Prospectus" and "preliminary prospectus" shall include in each case the documents, if any, incorporated by reference therein. I. The Company and the Trust hereby agree that the Trust sell to the several Underwriters named on Annex A hereto, and the Underwriters, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agree to purchase from the Trust, severally and not jointly, the number of Preferred Securities set forth on Annex A hereto opposite their names at a purchase price of $25.00 per Preferred Security. The Company agrees to issue the Subordinated Debentures to the Trust concurrently with the issue and sale of the Preferred Securities as contemplated herein. The Company hereby guarantees the timely performance by the Trust of its obligations under Articles I and III herein. The Trust agrees to purchase the Subordinated Debentures with the proceeds of, and concurrently with, the issue and sale of the Preferred Securities. 3 As compensation to the Underwriters for their commitments hereunder, and because the proceeds of the sale of the Preferred Securities will be loaned by the Trust to purchase the Subordinated Debentures from the Company, the Company hereby agrees to pay on the Closing Date to the Underwriters an amount equal to (i) in the case of such number of Preferred Securities as are reserved by the Underwriters for sale to institutional investors, $___ per Preferred Security and (ii) in the case of such number of Preferred Securities as are not so reserved, $____ per Preferred Security. The Underwriters shall inform the Company in writing, not later than 12:00 noon New York time on the business day prior to the Closing Date, of the number of Preferred Securities reserved for sale to such institutional investors. II. The Company and the Trust are advised by you that the Underwriters propose to make a public offering of their respective Preferred Securities as soon after this underwriting agreement (the "Agreement") is entered into as in your judgment is advisable. The Company and the Trust are further advised by you that the Preferred Securities are to be offered to the public at a public offering price of $25 per Preferred Security and to certain dealers selected by you at a price which represents a concession not in excess of $___ per Preferred Security under the public offering price of the Preferred Securities, and that any Underwriter may allow, and such dealers may reallow, a concession not in excess of $___ per Preferred Security to certain other dealers. III. Payment for the Preferred Securities shall be made to the Trust or its order by wire transfer or by certified or official bank check or checks in immediately available funds at the office of Pillsbury Winthrop LLP, One Battery Park Plaza, New York, N.Y., at 10:00 o'clock A.M., New York City time, on __________ ___, 2001, or at such other time on the same or such other date, not later than __________ ___, 2001, as we shall mutually agree, upon delivery of the certificate(s) representing the Preferred Securities. Certificates for the Preferred Securities shall be in definitive form and registered in such names and in such denominations as you shall request in writing not less than two full business days prior to the date of delivery. The time and date of such payment and delivery are herein referred to as the Closing Date. IV. The Company represents and warrants to you that as of the date hereof: (a) (i) Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto or filed pursuant to Rule 424 under the Act complied when so filed in all material respects with the Act and the applicable rules and regulations of the Commission thereunder, and each document incorporated by reference therein complied when originally filed in all material respects with the requirements of the Act or the Exchange Act pursuant to which it was filed and the applicable rules and regulations of the Commission thereunder, (ii) the Registration Statement and the Prospectus, as amended or supplemented or modified by the filing of a document incorporated by reference therein, will comply (at a time of such amendment, supplement or modification and, if amended, supplemented or modified prior to the Closing Date, on the Closing Date) in all material respects with the Act and the applicable rules and regulations thereunder, (iii) the preliminary prospectus does not contain and the Prospectus, in the form used by the Underwriters 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 light of the circumstances under which they were made, not misleading, and (iv) the Registration Statement, as amended or supplemented or modified by the filing of a document incorporated by reference therein, will not contain (at the time of such amendment, supplement or modification and, if amended, supplemented or modified prior to the Closing Date, on the Closing Date) any untrue statement of a material fact or omit to state a material fact required to be stated or necessary in order to make the statements therein not misleading; except that these representations and warranties do not apply to statements or omissions in the Registration Statement or the Prospectus, in each case as amended, supplemented or modified, or any preliminary prospectus, based upon information furnished to the Company and the Trust in writing by you or by any Underwriter expressly for use therein. 2 4 (b) The Company has been duly incorporated and 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 preliminary prospectus and the Prospectus 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 the Company and its subsidiaries taken as a whole. (c) Each Significant Subsidiary (as defined below) of the Company (i) other than those subsidiaries specified in clause (ii) of this Section IV(c) 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 presently being conducted 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 presently being conducted; 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 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 and its subsidiaries, taken as a whole. "Significant Subsidiary" shall have the meaning as set forth in Rule 1-02 of Regulation S-X under the Act. (d) The Trust was duly created and is validly existing in good standing as a business trust under the Business Trust Act (the "Delaware Act") of the State of Delaware, and, under the Delaware Act and the Trust Agreement, has the power and authority to own property and conduct its business as described in the Prospectus. (e) The financial statements included or incorporated by reference in the preliminary prospectus and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries and the results of their operations for the periods specified; and except as otherwise stated in the preliminary prospectus and the Prospectus, those financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. (f) This Agreement has been duly authorized, executed and delivered by the Company. (g) The Guarantee has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement enforceable against the Company in accordance with its terms except as the same may be limited in bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, by general equitable principles (regardless of whether enforceability is considered in a proceeding in equity or in law) and by an implied covenant of good faith and fair dealing. (h) The Preferred Securities have been duly authorized by the Trust Agreement, and, when issued and delivered against payment therefor as provided herein by the Company, will be validly issued, fully paid and nonassessable undivided beneficial interests in the assets of the Trust, not subject to any preemptive or similar rights; the certificates for the Preferred Securities are in due and proper form; neither the Company as holder of the Common Securities nor any holder of outstanding shares of capital stock of the Company is entitled to preemptive or other rights to subscribe for the Preferred Securities. (i) The Subordinated Debentures have been duly authorized, executed, authenticated and delivered and constitute binding and valid obligations of the Company in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and by an implied covenant of good faith and fair dealing. 3 5 (j) The execution, delivery and performance by the Company of the Trust Agreement has been duly authorized by all the necessary corporate action on the part of the Company; the Trust Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and by an implied covenant of good faith and fair dealing. (k) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Trust Agreement, the Indenture, the Guarantee, the Preferred Securities and the Subordinated Debentures will not contravene any provision of applicable law or the articles of incorporation or code of regulations of the Company or any agreement or other instrument binding upon the Company, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Trust Agreement, the Indenture, the Guarantee, the Preferred Securities or the Subordinated Debentures, except such as may be required by the securities or Blue Sky laws of the various states and the Act in connection with the offer of the Preferred Securities and from the Public Utilities Commission of Ohio (whose approval for the performance by the Company of its obligations under the Agreement, the Trust Agreement, the Indenture, the Guarantee, the Preferred Securities and the Subordinated Debentures has been obtained). (l) Since the respective dates as of which information is given in the Prospectus, there has not occurred any material adverse change, or any development involving a prospective material adverse change, in the business, properties, condition (financial or otherwise) or in the operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). (m) Neither the Company nor any subsidiary of the Company is in violation of its respective articles of incorporation or regulations, partnership agreement or other organizational documents and neither the Company nor any subsidiary of the Company is in default in the performance of any bond, 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 the Company and its subsidiaries, taken as a whole. (n) Other than as disclosed in the Prospectus, there are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any subsidiary of the Company is a party or to which any of the properties of the Company or any subsidiary of the Company is subject wherein an unfavorable decision, ruling or finding would have a material adverse effect on the business, properties, condition (financial or otherwise) or operations of the Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to, perform its obligations under this Agreement, or to consummate the transactions contemplated by the Prospectus. (o) 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. (p) The 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 4 6 conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (q) The Company is a "subsidiary" of FirstEnergy Corp., which is a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. FirstEnergy Corp. is exempt from regulation under the Public Utility Holding Company 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, the Company is also exempt from such regulation. V. The joint and several obligations of the Company and the Trust and the several obligations of the Underwriters hereunder are subject to the condition that an appropriate order or orders of the Public Utilities Commission of Ohio permitting the issuance and sale of the Preferred Securities as contemplated hereby and containing no provision unacceptable to the Underwriters (it being understood that no order known to the Underwriters and in effect on the date hereof contains any such unacceptable provision) shall have been entered not later than the close of business on the day when the public offering price shall be determined and shall be in full force and effect as of the Closing Date. The several obligations of the Underwriters hereunder are subject to the following further conditions: (a) (i) No stop order suspending the effectiveness of the Registration Statement shall be in effect, no order of the Commission directed to the adequacy or accuracy of any document incorporated by reference therein shall be in effect, and no proceedings for either purpose shall be pending before or threatened by the Commission; (ii) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any downgrading in the rating accorded any of the Company's securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436 (g) (2) under the Act (a "Rating"); (iii) (x) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, no notice shall have been given of an intended or potential downgrading of the Rating of any of the Company's securities and (y) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or other, or in the earnings, business or operations, of the Company and its subsidiaries taken as a whole, from that set forth in the Registration Statement, that in your judgment is material and adverse and which, in either case, makes it, in your judgment, impracticable to market the Preferred Securities; and (iv) you shall have received on the Closing Date certificates, dated the Closing Date and signed by an executive officer of the Company and an Administrative Trustee (as defined in the Trust Agreement) of the Trust, in each case to the effect set forth in clause (i) above, and in the case of the Company's certificate but not the Trust's certificate, to the effect set forth in clause (ii) above and in each case to the effect that the representations and warranties of the Company or the Trust, as the case may be, contained herein are true and correct as of the Closing Date and in the case of the Company's certificate but not the Trust's certificate, to the effect that there shall not have occurred any material adverse changes, in the condition, financial or other, or in the earnings, business or operations, of the Company and its subsidiaries taken as a whole, from that set forth in the Registration Statement (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). In each case, the officer or trustee signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (b) You shall have received, on and as of the Closing Date, the favorable opinion of David L. Feltner, Esq., Associate General Counsel for the Company, or of such other member or members of the bar of the State of Ohio who may be designated for that purpose by the Company and who shall not be unsatisfactory to your counsel, to the effect that: (i) the Company was duly organized and is validly existing under the laws of the State of Ohio, and has due corporate authority to carry on the public utility business in which it is engaged and to own and operate the properties owned and used by it in such business; 5 7 (ii) the Trust was duly created and is validly existing in good standing as a business trust under the Delaware Act, and, under the Delaware Act and the Trust Agreement, has the power and authority to own property and conduct its business as described in the Prospectus; (iii) the statements made in the Prospectus under the captions "Description of the Preferred Securities," "Description of the Guarantee," and "Description of the Subordinated Debentures" insofar as such statements constitute summaries of the legal matters or documents referred to therein, are accurate in all material respects; (iv) the Preferred Securities have been duly authorized by the Trust Agreement, and, when issued and delivered against payment therefor as provided herein, will be validly issued, and subject to the qualifications set forth in such opinion, fully paid and nonassessable undivided beneficial interests in the assets of the Trust, not subject to any preemptive or similar rights; the certificates for the Preferred Securities are in due and proper form; neither the Company as holder of the Common Securities nor any holder of outstanding shares of capital stock of the Company is entitled to preemptive or other rights to subscribe for the Preferred Securities; (v) the Subordinated Debentures have been duly authorized, executed, authenticated and delivered and constitute binding and valid obligations of the Company in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and by an implied covenant of good faith and fair dealing; (vi) all legally required proceedings in connection with the authorization, issue and validity of the Preferred Securities and the Subordinated Debentures and the sale of the Preferred Securities by the Trust and the sale of the Subordinated Debentures by the Company to the Trust in accordance with this Agreement have been taken and all legally required orders, consents or other authorizations or approvals of the Commission, of PUCO and of any other public boards or bodies (other than in connection with or in compliance with the provisions of the securities or Blue Sky laws of any jurisdiction, as to which such counsel need not express an opinion) have been obtained; (vii) the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"); the Registration Statement has become effective under the Act, and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act; (viii) this Agreement has been duly authorized, executed and delivered by the Company and the Trust and constitutes a valid and legally binding agreement of each of the Company and the Trust, in accordance with its terms, subject to any principles of public policy limiting the right to enforce the indemnification provisions contained herein and subject to general principles of equity which may limit the availability of equitable remedies; (ix) the Guarantee has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company, in accordance with its terms, subject to general principles of equity which may limit the availability of equitable remedies; (x) the execution, delivery and performance by the Company of the Trust Agreement has been duly authorized by all necessary corporate action on the part of the Company; the Trust Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company, enforceable against the Company in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of 6 8 creditors' rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and by an implied covenant of good faith and fair dealing; (xi) the Registration Statement, the Prospectus and any supplements or amendments thereto (except for the financial statements and other financial and statistical data therein, as to which such counsel need not express an opinion), as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the applicable rules and regulations of the Commission thereunder; (xii) each document incorporated by reference in the Prospectus, as such document was originally filed pursuant to the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act") (except for the financial statements and other financial and statistical data therein, as to which such counsel need not express an opinion), complied as to form when so filed in all material respects with the requirements of the Act or the Exchange Act pursuant to which it was filed and the applicable rules and regulations of the Commission thereunder; (xiii) to the best knowledge of such counsel, no order directed to the adequacy of any document incorporated by reference in the Prospectus has been issued by the Commission, and no challenge by the Commission has been made to the adequacy of any such document; (xiv) the descriptions in the Registration Statement and Prospectus of franchises, regulations, statutes, legal and governmental proceedings and contracts and other documents are accurate as to legal matters, and such counsel does not know of any legal or governmental proceedings required to be described in the Registration Statement or the Prospectus which are not so described (or the descriptions of which are not incorporated by reference therein) as required, nor of any contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement which are not so described (or the descriptions of which are not incorporated by reference therein) or filed as required, other than proceedings that such counsel believes are not likely to have a material adverse effect on the Company and its subsidiaries taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by the Prospectus; (xv) 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; [(xvi) the Company is a "subsidiary" of FirstEnergy Corp., which is a "holding company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. FirstEnergy Corp. is exempt from regulation under the Public Utility Holding Company Act pursuant to Section 3(a)(1) thereof and the rules and regulations thereunder promulgated by the Commission and, therefore, the Company is also exempt from such regulation;] and (xvii) the 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 and operate and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain, declare or file would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. In rendering such opinion, such counsel may rely as to all matters of New York law upon the opinion referred to in (c) below and as to all matters of Delaware law upon the opinion referred to in (d) below. In addition, such counsel shall state that nothing has come to the attention of such counsel which would lead such counsel to believe that the Registration Statement or any post-effective amendment thereto 7 9 (except for the financial and statements and other financial and statistical data included therein, as to which such counsel need express no opinion), at the time such Registration Statement or any amendment became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as amended or supplemented or modified by the filing of a document incorporated by reference therein (except for the financial statements and other financial and statistical data therein, as to which such counsel need express no opinion), contains any untrue statement of a material fact or omits 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. (c) You shall have received, on and as of the Closing Date, the favorable opinion of Pillsbury Winthrop LLP, also counsel for the Company and the Trust, covering the matters in (b) above, except subdivisions (xiv), (xv), (xvi) and (xvii) thereof and stating that the Trust will not be classified as an association taxable as a corporation for federal income tax purposes. In rendering such opinion, such counsel may rely as to all matters of Ohio law upon the opinion referred to in (b) above and as to all matters of Delaware law upon the opinion referred to in (d) below. In addition, such counsel shall state that nothing has come to the attention of such counsel which would lead such counsel to believe that the Registration Statement or any post-effective amendment thereto (except for the financial statements and other financial and statistical data therein, as to which such counsel need express no opinion), at the time such Registration Statement or any amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as amended or supplemented or modified by the filing of a document incorporated by reference therein (except for the financial statements and other financial and statistical data therein, as to which such counsel need express no opinion), contains any untrue statement of a material fact of omits 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 and as of the Closing Date, the favorable opinion of Richards, Layton & Finger, Delaware counsel to the Company and the Trust, to the effect that (i) the Trust was duly created and is validly existing in good standing as a business trust under the Delaware Act and under the Trust Agreement, has the business trust power and authority to own property and conduct its business as described in the Prospectus; (ii) the Trust Agreement is a legal, valid and binding agreement of the Company and the Trustees (as defined in the Trust Agreement) and is enforceable against the Company and such Trustees in accordance with its terms; (iii) the Preferred Securities have been duly authorized by the Trust Agreement and, when issued and delivered against payment therefor as provided herein, will be validly issued, and subject to the qualifications set forth in such opinion and described below, fully paid and nonassessable undivided beneficial interests in the assets of the Trust, not subject to any preemptive rights; certificates for the Preferred Securities are in due and proper form; (iv) this Agreement has been duly authorized by the Trust; (v) no authorization, approval, consent or order of any Delaware court or governmental authority or agency is required to be obtained by the Trust solely in connection with the issuance and sale of the Preferred Securities; (vi) the issuance and sale by the Trust of the Preferred Securities and Common Securities, the execution, delivery and performance by the Trust of this Agreement, the consummation by the Trust of the transactions contemplated hereby and the compliance by the Trust with its obligations hereunder do not violate any of the provisions of the Certificate of Trust or the Trust Agreement or any applicable Delaware law or Delaware administrative regulation; and (vii) the holders of the Preferred Securities (other than those holders who reside or are domiciled in the State of Delaware) will have no liability for income taxes imposed by the State of Delaware solely as a result of their participation in the Trust, and the Trust will not be liable for any income tax imposed by the State of Delaware. Such counsel may note that the holders of the Preferred Securities, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. Such counsel may also note that the holders of the Preferred Securities may be obligated, pursuant to the Trust Agreement, to (i) provide indemnity and/or security in connection with and pay taxes or governmental charges arising from transfers or exchanges of Preferred Security certificates and the issuance of replacement Preferred Security certificates, and (ii) provide security and indemnity in connection with 8 10 requests of or directions to the Property Trustee to exercise its rights and remedies under the Trust Agreement. (e) You shall have received, on and as of the Closing Date, the favorable opinion of Calfee, Halter & Griswold LLP, counsel for the Underwriters, with respect to the issue and sale of the Preferred Securities. In rendering such opinion, such counsel shall state that nothing has come to the attention of such counsel which would lead such counsel to believe that the Registration Statement or any post-effective amendment thereto (except for the financial statements or other financial data therein, as to which such counsel need express no opinion), at the time such Registration Statement or any amendment becomes effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as amended or supplemented or modified by the filing of a document incorporated by reference therein (except for the financial statements and other financial data therein, as to which such counsel need express no opinion), contains any untrue statement of a material fact or omits 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. (f) You shall have received on the Closing Date a letter, dated the Closing Date, in form and substance satisfactory to you, from Arthur Andersen LLP, independent public accountants for the Company, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference in the Registration Statement or the Prospectus. VI. In further consideration of the agreements of the Underwriters herein contained, the Company and the Trust covenant as follows: (a) To furnish without charge to you a signed copy of the Registration Statement, including all exhibits filed with the Registration Statement and with the documents incorporated by reference therein (other than exhibits which are incorporated by reference therein) and to each other Underwriter a copy of the Registration Statement without exhibits and, during the period mentioned in paragraph (c) below, as many copies of the Prospectus and any documents incorporated by reference therein at or after the date thereof and any amendments and supplements thereto as you may reasonably request. The terms "supplement" and "amendments" or "amend" as used in this Agreement shall include all documents filed by the Company and the Trust with the Commission subsequent to the date of the Prospectus, pursuant to the Exchange Act which are deemed to be incorporated by reference in the Prospectus. (b) Before amending or supplementing the Registration Statement or the Prospectus or filing with the Commission any document pursuant to Section 13, 14 or 15(d) of the Exchange Act, during the period referred to in paragraph (c) below, to furnish to you a copy of each such proposed amendment, supplement or document. (c) If, during such period (not in excess of nine months) after the first date of the public offering of the Preferred Securities as in the opinion of your counsel a prospectus covering the Preferred Securities is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus or modify the information incorporated by reference therein in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus or modify such information to comply with law, forthwith to prepare and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will furnish to the Company) to which Preferred Securities may have been sold by you on behalf of the Underwriters, and to any other dealers upon request, either amendments or supplements to the Prospectus or modifications to the documents incorporated by reference therein, so that the statements in the Prospectus as so amended, supplemented or modified will not, in the light of the circumstances when such Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law. 9 11 (d) To endeavor to qualify the Preferred Securities for offer and sale under the securities or Blue Sky laws of such jurisdiction as you shall reasonably request and to pay all filings fees, expenses and legal fees (including fees and disbursements of counsel) in connection with such qualification and in connection with the determination of the eligibility of the Preferred Securities as legal investments under the laws of such jurisdictions as you may designate as well as any filing fees payable in connection with a review of the offering of the Preferred Securities by the National Association of Securities Dealers, Inc. (e) The Preferred Securities have been approved for listing on the New York Stock Exchange ("NYSE"), subject only to official notice of issuance. (f) To make available generally to the Company's security holders as soon as practicable an earning statement covering a twelve month period beginning after the date of this Agreement which earning statement shall satisfy the provisions of Section 11(a) of the Act. (g) During the period beginning on the date of this Agreement and continuing to and including the Closing Date, not to offer, sell, contract to sell or otherwise dispose of any (A) securities of the Company or the Trust substantially similar to the Subordinated Debentures or the Preferred Securities or (B) other beneficial interests of the Trust, in each case without your prior consent. (h) In the case of the Guarantor, to issue the Guarantee concurrently with the issue and sale of the Preferred Securities as contemplated herein. (i) Whether or not any sale of the Preferred Securities is consummated, to pay all expenses incident to the performance of their obligations under this Agreement, including: (1) the preparation of the Prospectus and all amendments and supplements thereto, (2) the preparation, issuance and delivery of the Preferred Securities, (3) the fees and disbursements of the Company's counsel and accountants and the Trustee and its counsel, if any (but not the fees and disbursements of counsel to the Underwriters), (4) the printing and delivery to the Underwriters in quantities as hereinabove stated of copies of the Prospectus and any amendment or supplement thereto, (5) any fees charged by rating agencies and (6) the fees and expenses, if any, incurred in connection with the admission of the Preferred Securities for trading in any appropriate market system. (j) To use the net proceeds received by it from the sale of the Preferred Securities, in the case of the Trust, and the Subordinated Debentures, in the case of the Company, pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds." VII. The Company and the Trust agree to jointly and severally indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (if used within the period set forth in paragraph (c) of Article VI hereof and as amended, supplemented or modified if the Company or the Trust shall have furnished any amendments, supplements or modifications thereto) or any preliminary prospectus (including documents incorporated by inference therein), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein 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 furnished in writing to the Company or the Trust by you or by any Underwriter expressly for use therein; provided, however, that the foregoing indemnification with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter (or any person controlling such Underwriter) from whom the person asserting any such losses, claims, damages or liabilities purchased any of the Preferred Securities, if a copy of the Prospectus (other than documents incorporated by reference therein) as then amended or supplemented or modified (if the Company shall have furnished any amendments, supplements or modifications thereto) had not been sent or given by or on behalf of such Underwriter to such person at or prior to the written confirmation of the sale of such Preferred Securities to such person. 10 12 The Company agrees jointly and severally to indemnify and hold harmless the Trust from and against any and all losses, claims, damages and liabilities whatsoever, as due from the Trust under the above paragraph of this Article VII hereof. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company and the Trust, its directors, its officers who sign the Registration Statement and any person controlling the Company and the Trust to the same extent as the foregoing indemnity from the Company and the Trust to each Underwriter, but only with reference to information relating to such Underwriter furnished in writing by you or by such Underwriter expressly for use in the Registration Statement or the Prospectus or any preliminary prospectus. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "indemnified party") shall promptly notify the person against whom such 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 such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such action (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 due to a conflict of interest between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate counsel for all such indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. Such counsel shall be designated in writing by you in the case of parties indemnified pursuant to the second preceding paragraph, and by the Company and the Trust in the case of parties indemnified pursuant to the first preceding paragraph. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such 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 such settlement or judgment. If the indemnification provided for in this Article VII is unavailable to an indemnified party under the second or third paragraphs hereof in respect to any losses, claims, damages or liabilities referred to therein, then each indemnifying party in lieu of indemnifying such indemnified party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Company and the Trust on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations, including relative benefit. The relative fault of the Company and the Trust on the one hand and of the Underwriters on the other shall be determined by reference to, 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 Company and the Trust or by the Underwriters and the parties' relevant intent, knowledge, access to information and opportunity to correct or prevent such statement of omission. The Company and the Trust and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Article VII were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Article VII, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Preferred Securities underwritten by it and distributed to the public were offered to the public exceeds the amounts of any damages which such Underwriter has otherwise been required to pay by reason of such 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 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' 11 13 obligations to contribute pursuant to this Article VII are several in the proportions which the number of Preferred Securities set forth opposite their names in Annex A bear to the total number of Preferred Securities so set forth in Annex A, or in such other proportions as may be determined pursuant to Article IX, and not joint. The indemnity and contribution agreements contained in this Article VII and the representations and warranties of the Company and the Trust in this Agreement shall 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 any Underwriter to any person controlling any Underwriter or by or on behalf of the Company and the Trust, any of its directors, officers or any person controlling the Company and the Trust and (iii) acceptance of and payment for the Preferred Securities. VIII. This Agreement shall be subject to termination in your absolute discretion, by notice given to the Company, 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 Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the 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), such event singly or together with any other such event makes it, in your reasonable judgment, impracticable to market the Preferred Securities. IX. This Agreement shall become effective when it has been executed by the Company, the Trust and you. If any one or more of the Underwriters shall fail or refuse to purchase the Preferred Securities which it or they have agreed to purchase hereunder, and the total number of Preferred Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the total number of Preferred Securities, the other Underwriters shall be obligated severally in the proportions which the number of Preferred Securities set forth opposite their names in Article I bear to the total number of Preferred Securities so set forth opposite the names of all such nondefaulting Underwriters, or in such other proportions as you may specify, to purchase the Preferred Securities which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase; provided that in no event shall the number of Preferred Securities which any Underwriter has agreed to purchase pursuant to Article I hereof be increased pursuant to this Article IX by an amount in excess of one-ninth of such number of Preferred Securities without the consent of such Underwriter. If any Underwriter or Underwriters shall fail or refuse to purchase Preferred Securities and the total number of Preferred Securities with respect to which such default occurs is more than one tenth of the total number of the Preferred Securities and arrangements satisfactory to you and the Company and the Trust for the purchase of such Preferred Securities are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or of the Company and the Trust except as provided in Article VII. In any such case which does not result in such termination, either you or the Company and the Trust shall have the right to postpone the Closing Date, but in no event for longer than seven days in each case, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company and the Trust to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company and the Trust shall be unable to perform their obligations under this Agreement, the Company and the Trust will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and 12 14 disbursements of their counsel) reasonably incurred by them in connection with this Agreement or the offering contemplated hereunder. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement may be executed in counterparts each of which shall be deemed to constitute an original and all of which shall be deemed to be one and the same instrument binding on all of the parties hereto. Very truly yours, THE CLEVELAND ELECTRIC ILLUMINATING COMPANY By: ------------------------------------------ Name and Title: ------------------------------ CLEVELAND ELECTRIC FINANCING TRUST I By: THE CLEVELAND ELECTRIC ILLUMINATING COMPANY, as Depositor By: ------------------------------------------ Name and Title: ------------------------------ Accepted ________ ___, 2001 MORGAN STANLEY & CO. INCORPORATED and the other Underwriters listed on Annex A hereto BY: MORGAN STANLEY & CO. INCORPORATED By: ------------------------------------------------------------- Name and Title: Acting severally on behalf of themselves and on behalf of the several Underwriters named herein and on Annex A hereto. 13 15 Annex A to Underwriting Agreement LIST OF UNDERWRITERS Number of Name Preferred Securities ---- -------------------- Morgan Stanley & Co. Incorporated........................................... ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ ............................................................................ Total....................................................................... 14 EX-12.1 4 l88526bex12-1.txt EXHIBIT 12.1 1 Exhibit 12.1 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES
Year Ended December 31, (Dollars in Thousands) ---------------------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- --------------------- -------- -------- -------- Jan. 1-Nov.7 Nov.8-Dec.31 ------------ ------------ EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items............ $116,553 $ 95,191 $ 19,290 $164,891 $194,089 $202,950 Interest and other charges, before reduction for amounts capitalized...................... 244,789 212,957 35,472 232,727 211,960 202,752 Provision for income taxes................... 69,120 78,940 14,029 110,611 123,869 126,701 Interest element of rentals charged to income (a)................................... 79,503 59,078 10,008 68,314 66,680 65,616 -------- -------- -------- -------- -------- -------- Earnings as defined............... $509,965 $446,166 $ 78,799 $576,543 $596,598 $598,019 ======== ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest expense............................. $244,789 $212,957 $ 35,472 $232,727 $211,960 $202,752 Interest element of rentals charged to income (a)................................... 79,503 59,078 10,008 68,314 66,680 65,616 -------- -------- -------- -------- -------- -------- Fixed charges as defined.......... $324,292 $272,035 $ 45,480 $301,041 $278,640 $268,368 ======== ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES 1.57 1.64 1.73 1.92 2.14 2.23 ==== ==== ==== ==== ==== ==== Twelve Months Ended (Dollars in Thousands) June 30, 2001 -------- EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items............ $169,125 Interest and other charges, before reduction for amounts capitalized...................... 194,230 Provision for income taxes................... 111,217 Interest element of rentals charged to income (a)................................... 64,719 -------- Earnings as defined............... $539,291 ======== FIXED CHARGES AS DEFINED IN REGULATION S-K: Interest expense............................. $194,230 ------- Interest element of rentals charged to income (a)................................... 64,719 -------- Fixed charges as defined.......... $258,949 ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES(b) 2.08 ====
--------------------------- (a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no readily defined interest element can be determined. (b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier for the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999. E-8 EX-12.2 5 l88526bex12-2.txt EXHIBIT 12.2 1 Exhibit 12.2 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS)
Year Ended December 31, (Dollars in Thousands) ---------------------------------------------------------------------------- 1996 1997 1998 1999 2000 -------- --------------------- -------- -------- -------- Jan. 1-Nov.7 Nov. 8-Dec.31 ------------ ------------- EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items............ $116,553 $ 95,191 $ 19,290 $164,891 $194,089 $202,950 Interest and other charges, before reduction for amounts capitalized...................... 244,789 212,957 35,472 232,727 211,960 202,752 Provision for income taxes................... 69,120 78,940 14,029 110,611 123,869 126,701 Interest element of rentals charged to income (a)................................... 79,503 59,078 10,008 68,314 66,680 65,616 -------- -------- -------- -------- -------- -------- Earnings as defined............... $509,965 $446,166 $ 78,799 $576,543 $596,598 $598,019 ======== ======== ======== ======== ======== ======== FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): Interest expense............................. $244,789 $212,957 $ 35,472 $232,727 $211,960 $202,752 Preferred stock dividend requirements........ 38,743 45,029 0 24,794 33,524 20,843 Adjustments to preferred stock dividends to state on pre-income tax basis................ 22,976 36,568 0 16,632 21,395 13,012 Interest element of rentals charged to income (a)................................... 79,503 59,078 10,008 68,314 66,680 65,616 -------- -------- -------- -------- -------- -------- Fixed charges as defined plus preferred stock dividend requirements (pre-income tax basis)........................ $386,011 $353,632 $ 45,480 $342,467 $333,559 $302,223 ======== ======== ======== ======== ======== ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): 1.32 1.26 1.73 1.68 1.79 1.98 ==== ==== ==== ==== ==== ==== Twelve Months Ended (Dollars in Thousands) June 30, 2001 -------- EARNINGS AS DEFINED IN REGULATION S-K: Income before extraordinary items............ $169,125 Interest and other charges, before reduction for amounts capitalized...................... 194,230 Provision for income taxes................... 111,217 Interest element of rentals charged to income (a)................................... 64,719 -------- Earnings as defined............... $539,291 ======== FIXED CHARGES AS DEFINED IN REGULATION S-K PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS): Interest expense............................. $194,230 Preferred stock dividend requirements........ 19,560 Adjustments to preferred stock dividends to state on pre-income tax basis................ 12,863 Interest element of rentals charged to income (a)................................... 64,719 -------- Fixed charges as defined plus preferred stock dividend requirements (pre-income tax basis)........................ $291,372 ======== CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS (PRE-INCOME TAX BASIS) (b): 1.85 ====
--------------------------- (a) Includes the interest element of rentals where determinable plus 1/3 of rental expense where no readily defined interest element can be determined. (b) These ratios exclude fixed charges applicable to the guarantee of the debt of a coal supplier for the three years ended December 31, 1998, respectively. The guarantee and related coal supply contract debt expired December 31, 1999. EX-15.1 6 l88526bex15-1.txt EXHIBIT 15.1 1 Exhibit 15.1 September 20, 2001 The Cleveland Electric Illuminating Company 76 South Main Street Akron, Ohio 44308 Gentlemen: We are aware that The Cleveland Electric Illuminating Company has incorporated by reference in this Registration Statement on Form S-2 its Form 10-Qs for the quarters ended March 31, 2001 and June 30, 2001, which include our reports dated May 14, 2001 and August 8, 2001, respectively, covering the unaudited interim consolidated financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, those reports are not considered a part of the registration statement prepared or certified by our Firm or reports prepared or certified by our Firm within the meaning of Sections 7 and 11 of that Act. Very truly yours, ARTHUR ANDERSEN LLP EX-23.1 7 l88526bex23-1.txt EXHIBIT 23.1 1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our reports dated February 16, 2001, included or incorporated by reference in The Cleveland Electric Illuminating Company's Form 10-K/A for the year ended December 31, 2000 and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP Cleveland, Ohio, September 20, 2001.