Document:

EXHIBIT 10-16

[Execution Copy]

CEI FOSSIL SECURITY AGREEMENT

SECURITY AGREEMENT, dated October 24, 2005 (the “Agreement”), by and between FIRSTENERGY GENERATION CORP. (“Debtor”), an Ohio corporation and THE CLEVELAND ELECTRIC ILLUMINATING COMPANY (“Secured Party”), an Ohio corporation. 

BACKGROUND

A. Debtor and Secured Party have entered into a certain Purchase and Sale Agreement, dated as of May 18, 2005 (“Purchase Agreement”), pursuant to which Debtor has purchased from Secured Party certain Purchased Assets, as defined in the Purchase Agreement. Capitalized terms used herein shall have the meaning given to them in the Purchase Agreement unless otherwise defined herein.

B. As provided by the Purchase Agreement, Debtor has delivered to Secured Party a Secured Promissory Note, dated October 24, 2005, in payment of the Purchase Price for the Purchased Assets.

C. Debtor wishes to secure its obligations under the Secured Promissory Note by granting to Secured Party a security interest in the Purchased Assets.

1. Grant of Security Interest. Debtor hereby conveys, assigns, transfers and grants to Secured Party a security interest in the Collateral (as defined in section 3) to secure the Debtor’s performance of the obligations set forth in Section 4.

2. Collateral. The collateral covered by this Agreement (“Collateral”) shall consist of the following:

	
                         
 	
                        a.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 5 of the Ashtabula Generating Station, Ashtabula, Ohio;
 

	
                         
 	
                        b.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 1 of the Eastlake Generating Station, Eastlake, Ohio;
 

	
                         
 	
                        c.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 2 of the Eastlake Generating Station, Eastlake, Ohio;
 

	
                         
 	
                        d.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 3 of the Eastlake Generating Station, Eastlake, Ohio;
 

	
                         
 	
                        e.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 4 of the Eastlake Generating Station, Eastlake, Ohio;
 

	
                         
 	
                        f.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 5 of the Eastlake Generating Station, Eastlake, Ohio;
 

	
                         
 	
                        g.
 	
                        Seller’s 100% undivided ownership interest in Unit No. 18 of the Lakeshore Generating Station, Cleveland, Ohio;
 

 

 

	
                         
 	
                        h.
 	
                        Seller’s 1.60% undivided ownership interest in Unit No. 2 of the Mansfield Generating Station, Borough of Shippingport, Pennsylvania;
 

	
                         
 	
                        i.
 	
                        Seller’s 31.2% undivided ownership interest in Unit No. 7 of the W. H. Sammis Generating Station, Village of Stratton, Ohio;
 

	
                         
 	
                        j.
 	
                        Seller’s 100% undivided ownership interest in the Seneca Pumped Storage Hydroelectric Station, Warren, Pennsylvania;
 

	
                         
 	
                        k.
 	
                        Seller’s 100% undivided ownership interests in the 29 MW Eastlake Peaking Facility, Eastlake, Ohio;
 

	
                         
 	
                        l.
 	
                        Seller’s 100% undivided ownership interests in the 4 MW Lakeshore Peaking Facility, Cleveland, Ohio; and
 

	
                         
 	
                        m.
 	
                        All of Seller’s right, title and interest in and to any and all contracts, fuel, spare parts, inventories, equipment, supplies and other assets associated with or necessary for the ownership or operation of the foregoing.
 

3. Debtor’s Obligations Secured Hereby. This Agreement secures the obligations of the Debtor to make payment of principal and interest due on the Secured Promissory Note.

4. Debtor’s Covenants. The Debtor agrees and covenants as follows:

a. Further Encumbrances. Until the obligations secured under this Agreement and the Note shall have been repaid in full, the Debtor shall not grant a security interest in any of the Collateral other than to Secured Party or execute any financing statements covering any of the Collateral in favor of any person other than Secured Party without Secured Party’s prior written consent.

b. Insurance on Collateral. The Collateral will be insured at the Debtor’s expense against all risks and in such amounts as commonly insured by owners of like property and to the extent Debtor can obtain such insurance at commercially reasonable rates and terms. The Debtor agrees to pay or cause to be paid, when due, all premiums for such insurance and all taxes, license fees and other charges in connection with the Collateral.

c. Perfection of Security Interest. The Debtor shall execute and deliver such financing statements and other documents as Secured Party reasonably deems necessary to create, perfect and continue perfection of the security interest in the Collateral contemplated hereby.

d. Fees and Costs. Upon any Event of Default, the Debtor shall pay all expenses, including reasonable attorneys’ fees, incurred by Secured Party in the preservation, realization, enforcement or exercise of any of Secured Party’s rights under this Agreement.

5. Remedies of Default. Upon the occurrence of an Event of Default, Secured Party shall have all rights, privileges, powers and remedies provided by law, including, but not limited to, exercise of any or all of the remedies hereinafter set forth. Such rights, privileges, powers and remedies shall be cumulative, and no single or partial exercise of any of them shall preclude the further or other exercise of the same or any of them.

 

 

a. Payment Under Note. Secured Party may declare the aggregate unpaid principal balance of the Secured Promissory Note together with all unpaid accrued interest thereon, to be immediately due and payable, and thereupon all such amounts shall be and become immediately due and payable to Secured Party.

b. Possession of Collateral. Secured Party may take possession of any or all of the Collateral covered hereby.

6. Power of Attorney. The Debtor hereby appoints Secured Party the attorney-in-fact of the Debtor to prepare, sign and file or record, for the Debtor in the Debtor’s name, any financing statements, applications for registration and other similar instruments and documents and to take any other action deemed by Secured Party necessary or desirable in order to perfect or continue perfection of the security interest of Secured Party hereunder, and to perform any obligations of the Debtor hereunder, at the Debtor’s expense, but without obligation to do so.

7. Successors and Assigns. This Agreement shall inure to the benefit of Secured Party and its successors and assigns, and shall be biding upon the Debtor and its successor and assigns.

8. Presentment, etc. The Debtor hereby waives presentment, protest,, notice of protest, notice of dishonor and notice of nonpayment with respect to any proceeds to which Secured Party is entitled hereunder and any rights to direct the application of payments for security for indebtedness of the Debtor hereunder, or indebtedness of customers of the Debtor, and hereby waives any right to require proceedings against others or to require exhaustion of security.

9. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt if: (a) mailed by certified or registered mail, return receipt requested; (b) sent for overnight delivery by Federal Express or other express carrier, (c) sent via facsimile; or (d) delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other.

If to Secured Party:

The Cleveland Electric Illuminating Company

c/o FirstEnergy Corp.

76 South Main Street

Akron, Ohio 44308

Attn: President

Facsimile: (330) 384-3875

If to Debtor:

FirstEnergy Generation Corp.

c/o FirstEnergy Corp.

76 South Main Street

Akron, Ohio 44308

Attn: President

Facsimile: (330) 384-3875

 

 

10. Reliance on Statement of a Secured Party. In performing any obligations hereunder or in responding to any notice provided hereunder, the Debtor shall be entitled to rely on any statement made by Secured Party or its agent unless the Debtor has actual knowledge that the party making such statement is exceeding his or its authority to act as the agent of Secured Party.

11. Governing Law. This Agreement shall be governed by the substantive laws of the State of Ohio, without giving effect to any conflict of laws principles.

12. Enforcement. If any portion of this Agreement be determined to be invalid or unenforceable, the remainder shall be valid and enforceable to the maximum extent possible with the same effect as if the invalid or unenforceable portion were omitted from this Agreement.

13. Headings. The headings set forth in this Agreement are for the convenience of the parties and shall not by themselves determine the interpretation or construction of this Agreement.

(signature page follows)

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement on the date set forth above.

 

	
                         
 	
                         
 	
                        DEBTOR:
 
 FIRSTENERGY GENERATION CORP.
 
	
                          
 	
                         
 	
                        By: 
 	
                        
 /s/ Charles D. Lasky
 
	
                         
 	
                         
 	
                         
 	
                         
 

 

	
                         
 	
                         
 	
                        SECURED PARTY:
 
 THE CLEVELAND ELECTRIC ILLUMINATING COMPANY
 
	
                          
 	
                         
 	
                        By: 
 	
                        
 /s/ David W. WhiteheadEXHIBIT 10-17
	 

	 
		[Execution Copy]
	 

	 
		OE FOSSIL NOTE
	 

	 
		 
	 

	 
			
				
				  $1,021,521,824.61
				

			 	
				
				  October 24, 2005
				

			 

 

	 
		FIRSTENERGY GENERATION CORP., an Ohio
		corporation (the “Corporation”), for value received, hereby promises
		to pay to the order of OHIO EDISON COMPANY, an Ohio corporation, its successors
		and assigns (“Payee”), the principal amount of One Billion Twenty-One
		Million Five Hundred Twenty-One Thousand Eight Hundred Twenty-Four Dollars and
		Sixty-One Cents, ($1,021,521,824.61)
		and to pay interest (calculated on the
		basis of a 365-day year and charged on the basis of the actual number of days
		elapsed) on the unpaid balance of such principal amount at a rate per annum of
		3.98% from the due date thereof until the obligation of the Corporation with
		respect to the payment thereof shall be discharged.
	 

	 
		Interest on the outstanding principal amount
		of this Note shall be payable semi-annually in arrears, commencing on May 1,
		2006, and on the 1st day of each May and November thereafter (the
		“Interest Payment Dates”). The principal balance of this Note,
		together with all accrued and unpaid interest thereon, on shall be due and
		payable on November 1, 2025.
	 

	 
		Payments of principal and interest hereunder
		may be made either (a) in such coin or currency of the United States of America
		as at the time of payment shall be legal tender therein for the payment of
		public and private debts or (b) by way of the Corporation’s assumption of
		Payee’s liabilities and obligations under certain Pollution Control
		Revenue Bonds of the Payee as set forth and described in the Purchase Agreement
		referred to in Section 1 below.
	 

	 
		SECTION 1. The Note; Definitions. As used herein, the term “Note” refers to
		this Secured Promissory Note of the Corporation, dated the date hereof, and
		originally issued, executed and delivered by the Corporation in the principal
		amount of One Billion Twenty-One Million Five Hundred Twenty-One Thousand Eight
		Hundred Twenty-Four Dollars and Sixty-One Cents,
		($1,021,521,824.61) pursuant to and subject to the terms of the Purchase and
		Sale Agreement dated as of May 18, 2005 (the “Purchase Agreement”),
		between the Corporation and Payee. Unless the context otherwise requires, the
		term “holder” is used herein to mean the person named as Payee
		herein. Capitalized terms used in this Note and not otherwise defined herein
		shall have the meanings set forth in the Purchase Agreement.
	 

	 
		SECTION 2. Security. This
		Note is secured pursuant to the terms and provisions of a Security Agreement of
		even date herewith.
	 

	 
		SECTION 3. Prepayments. The
		Corporation may, at its option and subject to the giving of notice as provided
		herein, at any time prepay this Note, without penalty, in whole or in part upon
		payment of the principal amount thereof, together with interest on the
		principal amount so prepaid accrued to the prepayment date.
	 

	 
		SECTION 4. Amendments and Waivers. This Note may not be modified or amended, except upon
		the written consent of the holder of this Note, and no covenant, agreement or
		condition contained in this Note may be waived (either generally or in a
		particular instance and either retroactively or prospectively) without the
		written consent of the holder of this Note.
	 

	 
		 
	 

	 
		 
	 

	 
		 
	 

	 
	 

	 

	 
		SECTION 5. Events of Default.
	 

	 
		(a) Each of the following shall constitute
		an “Event of Default” hereunder:
	 

	 
		(i) Failure by Corporation to pay the
		interest on, or principal of, this Note within thirty (30) days of the date
		due; or
	 

	 
		(ii) Filing by Corporation of a voluntary
		petition in bankruptcy or a voluntary petition or any answer seeking
		arrangement or readjustment of its debts or for any other relief under the
		Bankruptcy Reform Act of 1994, as amended (“Bankruptcy Code”), or
		under any other existing or future federal or state insolvency act or law, or
		any formal written consent to, approval of, or acquiescence in, any such
		petition or proceeding by Corporation, the application by Corporation for, or
		the appointment by consent or acquiescence of, a receiver or trustee of
		Corporation or for all or a substantial part of its property; the making by
		Corporation of an assignment for the benefit of creditors; or
	 

	 
		(iii) Filing of any involuntary petition
		against Corporation in bankruptcy or seeking arrangement or readjustment of its
		debts or for any other relief under the Bankruptcy Code, or under any other
		existing or future federal or state insolvency act or law; or the involuntary
		appointment of a receiver or trustee of Corporation, or for all or a
		substantial part of the property of Corporation; and the continuance of any of
		such events for a period of ninety (90) days undismissed or undischarged;
		or
	 

	 
		(iv) In the event that Debtor shall fail to
		perform any term, covenant or agreement, in any material respect, under the
		Purchase Agreement or the Security Agreement, each of even date herewith,
		between Corporation and Payee or under this Note.
	 

	 
		(b) Upon the occurrence of an Event of
		Default, then, and in such event, Payee may declare this Note to be due and
		payable, whereupon the entire unpaid balance of principal, together with all
		accrued interest thereon, shall become immediately due and payable without
		presentment, demand, protest or other notice of any kind, all of which are
		hereby expressly waived, anything herein to the contrary
		notwithstanding.
	 

	 
		SECTION 6. Extension of Maturity. Should the principal of, or interest on, this Note
		become due and payable on other than a business day, the maturity thereof shall
		be extended to the next succeeding business day, and, in the case of principal,
		or an installment of principal, interest shall be payable thereon at the rate
		per annum herein specified during such extension. The term “business
		day” shall mean any day that is not a Saturday, Sunday or legal holiday in
		the State of Ohio.
	 

	 
		SECTION 7. Governing Law.
		This Note shall be governed by, and construed in accordance with, the laws of
		the State of Ohio without regard to its rules or principles relating to
		conflicts of laws.
	 

	 
		IN WITNESS WHEREOF, the Corporation
		has caused this Note to be executed on the date first set forth above.
	 

	 
		 
	 

	 
		 
	 

	 
		 
	 

	 
			
				
				   
				

			 	
				
				   
				

			 	
				
				  FIRSTENERGY GENERATION
				  CORP.
				

			 
	
				
				

			 	
				
				   
				

			 	
				
				  
 By: 
				

			 	
				
				  
 /s/ Charles D. Lasky

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