PROSPECTUS
3,500,000
Convertible Preferred Securities
CITIZENS UTILITIES TRUST
5% Citizens Utilities Convertible Preferred Securities
(liquidation preference $50 per security)
Equity Providing Preferred Income
Convertible Securities ("EPPICS") (servicemark)
[COMPANY LOGO HERE]
-----------------------------
The Equity Providing Preferred Income Convertible Securities (servicemark)
("Convertible Preferred Securities") offered hereby represent preferred
undivided beneficial interests in the assets of Citizens Utilities Trust, a
statutory Delaware business trust (the "Trust"). The undivided common
beneficial interests in the Trust owned by Citizens Utilities Company, a
Delaware corporation ("Citizens" or the "Company"), are called the
"Convertible Common Securities" and, together with the Convertible Preferred
Securities, are called the "Trust Securities." The Trust exists for the sole
purpose of issuing the Trust Securities, investing the proceeds as described
below and engaging in those activities necessary thereto.
(continued on next page)
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
Initial Public Underwriting Proceeds to the
Offering Price Commission(1) Trust(2)(3)
-------------- ------------- ---------------
Per Convertible
Preferred Security $50 $1.125 (2) $50
- ----------------------------------------------------------------------------
Total(4) $175,000,000 $3,937,500 (2) $175,000,000
============================================================================
(1) The Trust and Citizens have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Proceeds from the offering will be contributed by the Trust to Citizens
Capital and will be used by Citizens Capital to purchase the Convertible
Debentures of Citizens. Therefore, the Underwriting Agreement provides
that Citizens, as borrower with respect to the Convertible Debentures,
will pay to the Underwriters, as compensation ("Underwriters'
Compensation"), $1.125 per Convertible Preferred Security (or $3,937,500
in the aggregate). See "Underwriting."
(3) Expenses of the offering, which are payable by Citizens, are estimated
to be $492,000.
(4) Does not include the $40,000,000 of shares of Common Stock of
Citizens included in the Registration Statement which may be received
and either sold by Citizens Capital or distributed as quarterly
distributions to holders of Convertible Preferred Securities.
Such shares represent approximately the first three and one half years
of such distributions. The Trust, Citizens Capital and Citizens have
granted the Underwriters an option for 30 days to purchase up to an
additional 525,000 Convertible Preferred Securities at the initial
public offering price per Convertible Preferred Security solely to cover
over-allotments. Citizens will pay to the Underwriters, as Underwriters'
Compensation, $1.125 per Convertible Preferred Security purchased pursuant
to this option. If such option is exercised in full, the total initial
public offering price, underwriting commission and proceeds to the Trust
will be $201,250,000, $4,528,125 and $201,250,000, respectively.
See "Underwriting."
-----------------
The Convertible Preferred Securities offered hereby are offered severally
by the Underwriters, as specified herein, subject to receipt and acceptance
by them and subject to their right to reject any order in whole or in part.
It is expected that delivery of the Convertible Preferred Securities will be
made only in book-entry form through the facilities of The Depository Trust
Company ("DTC") on or about January 22, 1996.
---------------------------------
See "Risk Factors" for a discussion of certain material risks to be
considered in connection with an investment in the Convertible Preferred
Securities, including certain federal income tax consequences. See page 12.
---------------------------------
Merrill Lynch & Co. Lehman Brothers
The date of this Prospectus is January 16, 1996
(service mark)EPPICS and Equity Providing Preferred Income Convertible
Securities are servicemarks which have been applied for by Citizens
Utilities Company.
(continued from previous page)
The proceeds from the offering of the Convertible Preferred Securities and
the sale of the Convertible Common Securities will be contributed by the
Trust to Citizens Utilities Capital L.P., a Delaware limited partnership
("Citizens Capital" or the "Partnership"), which will issue to the Trust
limited partnership interests (the "Partnership Preferred Securities") in
Citizens Capital. The undivided beneficial general partnership interest in
the Partnership will be owned, directly or indirectly, by Citizens, which
general partnership interest, together with the Partnership Preferred
Securities, are called the "Partnership Securities." Such proceeds will be
used by the Partnership to purchase from Citizens its 5% Convertible
Subordinated Debentures due 2036 (the "Convertible Debentures") having the
terms described herein. In the event of default under the Declaration (as
defined herein), the Convertible Preferred Securities will have a preference
with respect to quarterly distributions and amounts payable on liquidation
and redemption over the Convertible Common Securities.
Holders of the Convertible Preferred Securities will be entitled to receive
cumulative distributions from the Trust, at an annual rate of 5% of the
liquidation preference of $50 per Convertible Preferred Security (the
"Rate"), accruing from the date of original issuance and payable quarterly
in arrears on January 31, April 30, July 31, and October 31, (each, a
"Distribution Payment Date"), commencing April 30, 1996.
Distributions are payable in shares of Citizens Common Stock Series A
("Common Stock" or "Common Stock Series A") or, at the option of either
Citizens or the holder, in cash. See "Convertible Preferred Securities -
Distributions." The Distribution Payment Dates correspond to the dates
scheduled for the payment of interest on the Convertible Debentures, so such
dates are also sometimes referred to as "Interest Payment Dates."
Interest payment periods on the Convertible Debentures are quarterly. So
long as no Indenture Event of Default (as defined herein) has occurred and
is continuing, Citizens has the right, at any time and from time
to time, to elect to defer the date on which one or more of the quarterly
interest payments on the Convertible Debentures would otherwise become due and
payable, in which event quarterly distribution payments on the Partnership
Preferred Securities and on the Convertible Preferred Securities would be
deferred (but would be compounded quarterly at the Rate and continue to
accrue and accumulate). No such deferral may exceed 20 consecutive quarters
nor extend the stated maturity date of the Convertible Debentures. It is an
event of default under the Indenture (as defined herein) if, at the end of
such deferral of interest payments, Citizens does not pay all accrued or
deferred and unpaid interest. Upon such payment at the end of a deferral, the
Trust must pay all accrued or deferred and unpaid distributions on the
Convertible Preferred Securities. See "Convertible Preferred Securities -
Distributions" and "Convertible Debentures - Option to Defer Interest Payments."
Each Convertible Preferred Security is convertible in the manner described
herein at the option of the holder, unless previously redeemed, into shares
of Common Stock Series A of Citizens, at a conversion price of $15.375 per
share of Common Stock Series A (equivalent to a conversion rate of 3.252
shares of Common Stock Series A for each $50 of liquidation preference of
Convertible Preferred Securities), subject to adjustment. See "Convertible
Preferred Securities - Conversion Rights." The Common Stock Series A is
listed under the symbol "CZNA" on the New York Stock Exchange ("NYSE"). The
last reported sale price per share of Common Stock Series A on the NYSE on
January 16, 1996 was 12 1/2. See "Common Stock Price Range."
The Convertible Debentures are redeemable by Citizens, at its option, in
whole or in part, from time to time, on or after February 1, 1999, at
100% of the principal amount being redeemed, together with all accrued or
deferred and unpaid interest (including any compound interest resulting from
the deferral of interest payments). For purposes hereof, wherever this
Prospectus speaks to "interest" or "distributions" payable on or with respect
to any security offered hereunder, such terms include compound interest
arising from any deferral of interest or distributions on such securities.
If Citizens' Convertible Debentures are redeemed, the Trust must redeem
Convertible Preferred Securities and Convertible Common Securities, on a pro
rata basis, having an aggregate liquidation amount equal to the aggregate
principal amount of the Convertible Debentures so redeemed at $50 per Trust
Security payable in cash plus accrued or deferred and unpaid distributions
thereon in cash or Common Stock. See "Convertible Preferred Securities -
Optional Redemption" and "Convertible Debentures - Optional Redemption."
See also "Convertible Preferred Securities - Redemption on Maturity or Upon
Acceleration" and "Convertible Debentures - Indenture Events of Default."
Upon the occurrence of certain events (subject to the conditions described
elsewhere herein) the Trust and/or the Partnership may be liquidated and the
holders of the Convertible Preferred Securities could receive either
Partnership Preferred Securities or Convertible Debentures in lieu of any
liquidating cash distribution. See "Convertible Preferred Securities - Special
Events Distribution."
ii
(continued from previous page)
In the event of the liquidation, dissolution or winding up of the Trust,
investors will be entitled to receive for each Convertible Preferred
Security held a liquidation preference of $50 payable in cash, plus accrued
or deferred and unpaid distributions payable in either cash or Common Stock,
to the date of payment. See "Convertible Preferred Securities - Liquidation
Rights."
Under the Convertible Debentures, Citizens' payment obligation is absolute
and unconditional. In addition, Citizens has payment obligations under the
Partnership Guarantee (as hereafter defined) and the Trust Guarantees (as
hereafter defined) (collectively, the "Guarantees"). Citizens will
irrevocably guarantee, on a subordinated basis and to the extent set forth
therein, with respect to each of the Trust Securities and the Partnership
Preferred Securities, the payment of distributions, the redemption price,
including all accrued or deferred and unpaid distributions, and payments on
liquidation, but only to the extent of Common Stock and/or cash on hand.
Each of the Guarantees will be unsecured and each will be subordinate to all
Senior Indebtedness of Citizens (as defined below). The Guarantees, when
taken together with Citizens obligations under the Convertible Debentures,
the Indenture, the Declaration and the Limited Partnership Agreement (as
defined herein), including its obligations to pay costs, expenses and
certain indemnities of the Trust, constitute a full and unconditional
guarantee of amounts due under the Convertible Preferred Securities. See
"Guarantees."
The Convertible Debentures are subordinated in right of payment to all of
Citizens' Senior Indebtedness. See "Convertible Debentures - Subordination".
The Convertible Preferred Securities have been approved for listing on the
NYSE, subject to official notice of issuance, under the symbol "CZNPr".
The Convertible Preferred Securities will be represented by a global
certificate or certificates registered in the name of DTC or its nominee.
Beneficial interests in the Convertible Preferred Securities will be shown
on, and transfers thereof will be effected only through, records maintained
by the participants in DTC. Except as described herein, Convertible
Preferred Securities in certificated form will not be issued in exchange for
the global certificate or certificates. See "Convertible Preferred
Securities - Book-Entry-Only Issuance - The Depository Trust Company."
$40,000,000 of Citizens Utilities Company Common Stock
This Prospectus may be used by the Trust in connection with the elections
by the holders of Convertible Preferred Securities to receive their
distribution in Common Stock Series A. These elections may be made at the time
of this offering and annually during the Election Period. See "Convertible
Preferred Securities - Distributions."This Prospectus may also be used by
Citizens Capital, which may receive the Common Stock Series A covered by
this Prospectus in connection with Citizens' interest payments on the
Convertible Debentures and which may sell such stock in the open market.
See "Convertible Preferred Securities - Distributions." Such sales of Common
Stock Series A may be made from time to time in one or more transactions
(which may involve crosses or block transactions) on the NYSE or otherwise,
pursuant to and in accordance with the rules of the NYSE, in the
over-the-counter market, in negotiated transactions, or a combination
of such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices.
Citizens Capital will effect such transactions by selling shares of Common
Stock Series A to or through broker-dealers. Such broker-dealers may receive
compensation in the form of underwriting discounts, concessions or
commissions from Citizens Capital and/or purchasers of shares of Common
Stock Series A for whom they may act (which compensation may be in excess of
customary commissions). Citizens Capital and broker-dealers that
participate with Citizens Capital in the distributions of shares of Common
Stock Series A may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933 (the "1933 Act"), and any
commissions received by them and any profit on the resale of shares of Common
Stock Series A may be deemed to be underwriting compensation.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE
PREFERRED SECURITIES OFFERED HEREBY AND COMMON STOCK AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
iii
<PAGE>
Table of Contents Page
- ----------------- ----
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE 3
PROPOSED TAX LEGISLATION 3
RATINGS OF COMPANY SECURITIES 3
PROSPECTUS SUMMARY 4
Citizens Utilities Company 4
Citizens Utilities Capital L.P. 4
Citizens Utilities Trust 4
Structural Overview 5
Consolidated Summary Financial
Information 6
The Offering 7
Use Of Proceeds 11
RISK FACTORS 12
Subordinate Obligations Under
Guarantees and Convertible
Debentures 12
Dependence on Convertible
Debenture Payments 12
Enforcement of Certain Rights
by Holders of Convertible
Preferred Securities 13
Option to Defer Payment of
Distributions 13
Certain Tax Consequences of
Deferral of Interest Payments
on Convertible Debentures 14
Tax and Market Consequences of
Redemption or Special Events
Distribution 14
Enactment of December 1995
Tax Proposals 15
Limited Voting Rights 15
Trustee Conflicts of Interest 15
Trading Price and Taxes 16
No Prior Market for the
Convertible Preferred
Securities; Market Risk on
Distributions in Common Stock 16
CITIZENS UTILITIES COMPANY 17
USE OF PROCEEDS 18
CAPITAL REQUIREMENTS AND
FINANCING 18
DESCRIPTION OF COMMON STOCK
SERIES A AND SERIES B 19
DIVIDENDS ON COMMON STOCK
SERIES A AND SERIES B 20
COMMON STOCK PRICE RANGE 20
COMMON STOCK TRANSFER AGENT 21
FINANCIAL INFORMATION 21
COMMON STOCK PRICE RANGE 21
CITIZENS UTILITIES CAPITAL L.P. 28
CITIZENS UTILITIES TRUST 29
DESCRIPTION OF THE SECURITIES 30
CONVERTIBLE PREFERRED SECURITIES 30
General 31
Distributions 31
How Distributions are Computed 31
Holders Can Elect Distributions
in Common Stock or Cash 32
Distributions Flow From Citizens
to Holders 32
How Distributions are Made 33
Record Dates 33
Other 34
Deferrals 34
Additional Interest 35
Conversion Rights 36
General 36
Conversion Price Adjustments
- General 36
Conversion Price Adjustments
- Merger, Consolidation or Sale
of Assets of Citizens 37
Special Events Distribution 38
Ministerial Action 40
Optional Redemption 41
Redemption on Maturity or Upon
Acceleration 41
Redemption Procedures;
Generally 42
Liquidation Rights 43
Amendment to the Declaration 43
Merger, Consolidation or Sale
of Assets of the Trust 44
Declaration Events of Default 44
Voting Rights 45
Book-Entry-Only Issuance
- The Depository Trust Company 46
Information Concerning the
Property Trustee 48
Transfer Agent, Paying Agent,
Registrar and Conversion Agent 49
PARTNERSHIP PREFERRED SECURITIES 49
General 49
Distributions 50
Conversion Rights 50
Special Events Distribution 50
Optional Redemption 50
(iv)
PARTNERSHIP PREFERRED SECURITIES (continued)
Redemption on Maturity or Upon
Acceleration 51
Redemption Procedures;
Generally 51
Liquidation Rights 51
Merger, Consolidation or Sale
of Assets of Citizens Capital 51
Limited Partnership Agreement
Event of Default 52
Voting Rights 52
Amendment to the Limited
Partnership Agreement 54
Transfer Agent, Paying Agent,
Registrar and Conversion
Agent 54
GUARANTEES 54
General 55
Certain Covenants of Citizens 56
Subordination 57
Amendments and Assignment 57
Termination 57
Events of Default 58
CONVERTIBLE DEBENTURES 58
General 59
Optional Redemption 59
Special Events Distribution 59
Interest 60
Option to Defer Interest
Payments 60
Additional Interest 60
Subordination 60
Certain Covenants of Citizens 63
Conversion of the Convertible
Debentures 64
Indenture Events of Default 65
Modification of the Indenture 67
Governing Law 67
Information Concerning the
Debenture Trustee 67
Miscellaneous 68
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS 68
General 68
Proposals Would Not Affect
Tax Treatment 69
Classification of the
Convertible Debentures 69
Classification of Citizens
Capital 69
Classification of the Trust 69
Potential Deferral of Interest
Payments and Original Issue
Discount 69
Holders Making a Stock
Distribution Election 70
Receipt of Partnership
Preferred Securities,
Convertible Debentures or
Cash Upon Liquidation of
Citizens Capital and the
Trust 71
Disposition of Convertible
Preferred Securities 72
Exchange of Convertible
Preferred Securities for
Common Stock 73
Adjustment of Conversion Price 73
United States Alien Holders 74
Information Reporting and
Backup Withholding 74
UNDERWRITING 75
LEGAL OPINIONS 77
EXPERTS 78
INDEX OF DEFINED TERMS 79
(v)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("1934 Act") and in accordance therewith files reports,
proxy statements and other information (collectively, "1934 Act Reports")
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices at Northwestern Atrium
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Suite
1300, 7 World Trade Center, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Certain
securities of the Company are listed on the New York Stock Exchange, 20 Broad
Street, New York, New York 10005, and reports, proxy material and other
information concerning the Company may be inspected at the office of that
Exchange. The Company hereby undertakes to provide, without charge, to (i)
each person to whom a copy of this Prospectus is delivered, and (ii) any
owner of Convertible Preferred Securities, upon written or oral request of
such person, a copy of any of the Company's 1934 Act Reports. Requests for
such copies should be directed to Office of the Secretary, Citizens Utilities
Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905
(telephone 203-329-8800).
Citizens, the Trust and the Partnership have filed with the SEC a
registration statement on Form S-3 (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") under the 1933 Act.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information, reference is
hereby made to the Registration Statement.
No separate financial statements of either the Partnership or the Trust
have been included herein. Citizens, the Trust and the Partnership do not
consider that such financial statements would be material to holders of
Convertible Preferred Securities because the Trust and the Partnership are
newly organized special purpose entities, have no operating history and no
independent operations and are not engaged in, and do not propose to engage
in, any activity other than as described under "Citizens Utilities Trust" and
"Citizens Utilities Capital L.P." Further, Citizens believes that financial
statements of the Trust and the Partnership are not material to the holders
of the Convertible Preferred Securities since Citizens will guarantee the
Convertible Preferred Securities and the Partnership Preferred Securities
such that the holders of the Convertible Preferred Securities, with respect
to the payment of distributions and amounts upon liquidation, dissolution and
winding-up, are at least in the same position vis-a-vis the assets of
Citizens as a preferred stockholder of Citizens. Citizens beneficially owns
directly or indirectly all of Citizens Capital's partnership interests
(other than the Partnership Preferred Securities, which are held by the
Property Trustee (as defined herein) for the benefit of the holders of
Convertible Preferred Securities) and beneficially owns directly or indirectly
all of the undivided beneficial interests in the assets of the Trust (other
than the beneficial interests represented by the Convertible Preferred
Securities). See "Citizens Utilities Trust," "Citizens Utilities Capital
L.P.," "Convertible Preferred Securities," "Guarantees" and "Convertible
Debentures." In future filings under the 1934 Act, an audited footnote to the
Company's annual financial statements will state that the Trust and the
Partnership are wholly-owned by the Company, that the sole assets of the
Trust are the Partnership Preferred Securities having a specified aggregate
liquidation value, that the sole assets of the Partnership are the
Convertible Debentures of the Company having a specified aggregate principal
amount, and, considered together, the back-up undertakings, including the
Guarantees, constitute a full and unconditional guarantee by the Company of
the Trust's obligation under the Convertible Preferred Securities issued by
the Trust.
2
----------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC pursuant to the
1934 Act are incorporated into this Prospectus by reference:
The Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995 and on Forms 10-Q and 10-QA for the quarter ended June 30, 1995, and on
Form 10-Q for the quarter ended September 30, 1995.
The Company's Current Reports on Form 8-K relating to the acquisitions of
certain telecommunications properties filed on July 5, August 9, and December
7, 1994, and June 1, 1995.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act prior to the termination of the offering
of the Convertible Preferred Securities shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of
filing of such documents.
The Company hereby undertakes to provide, without charge, to each person
to whom a copy of this Prospectus is delivered, upon written or oral request
of such person, a copy of any or all of the documents referred to above which
have been or may be incorporated by reference in this Prospectus, other than
exhibits to such documents not specifically incorporated by reference herein.
Requests for such copies should be directed to Office of the Secretary,
Citizens Utilities Company, High Ridge Park, Bldg. No. 3, Stamford,
Connecticut 06905 (telephone 203-329-8800).
PROPOSED TAX LEGISLATION
On December 7, 1995, the Treasury Department announced proposals as part of
President Clinton's Seven-Year Balanced Budget Proposal (the "Proposals")
which, if enacted, would no longer permit issuers issuing certain debt
securities that are not reflected as debt on the issuer's consolidated
balance sheet, such as the Convertible Debentures, to claim an interest
deduction for United States federal income tax purposes for interest payable
on such securities. On December 19, 1995, the Treasury Department announced
proposals regarding transitional relief from the Proposals, stating that
instruments will not be subject to the Proposals if issued pursuant to a
registration statement filed with the SEC on or before December 7, 1995, to
the extent of the aggregate amount of such instruments described in the
registration statement. As the registration statement of which the
Prospectus is a part was filed before December 7, 1995, such transitional
relief would exempt this offering from the Proposals.
RATINGS OF COMPANY SECURITIES
Standard & Poor's Ratings Group, a division of McGraw-Hill ("Standard &
Poor's"), and Fitch Investors Services, Inc. ("Fitch") have rated the
Convertible Preferred Securities "AA" and Moody's Investors Service, Inc.
("Moody's") has rated the Convertible Preferred Securities "Aa3". Each of these
is the next highest rating of such rating agency.
Standard & Poor's has also rated the Company's outstanding publicly held
Debentures and Industrial Development Revenue Bonds "AA+"; its commerical
paper "A-1+"; and has ranked the Company's Common Stock "A+". Fitch has also
rated the Company's outstanding publicly held Debentures and Industrial
Development Revenue Bonds "AA+", its commercial paper "F-1+". Moody's has
assigned ratings of "Aa3" to the Company's outstanding publicly held Debentures
and "P-1" to the Company's commerical paper. Moody's and Fitch do not rank or
rate Common Stock. Each of the commerical paper ratings and the Common Stock
ranking is the highest rating of such rating agency.
An explanation of the significances of ratings may be obtained from the rating
agencies. Generally, rating agencies base their ratings on such material and
information, and such of their own investigations, studies and assumptions, as
they deem appropriate. A credit rating of a security is not a recommendation
to buy, sell or hold securities. There is no assurance that any rating will
apply for any given period of time or that a rating may not be adjusted or
withdrawn.
3<PAGE>
PROSPECTUS SUMMARY
Citizens Utilities Company
("Citizens" or the "Company")
Citizens Utilities Company is a diversified operating public utility which
provides, either directly or through subsidiaries, telecommunications,
natural gas transmission and distribution, electric distribution, water or
wastewater services to customers in areas of nineteen states. Citizens holds
a significant investment interest in Centennial Cellular Corp., a cellular
telephone company, and also owns Electric Lightwave, Inc., an alternative
telecommunications service provider operating in five western states.
Beginning with 1945, the Company has increased its revenues, net income and
earnings per share (adjusted for subsequent stock dividends and stock splits)
every year without interruption.
As a result of its diversification, the Company is not dependent upon any
single geographic area or any one type of utility service for its revenues.
Because of this diversity, no single regulatory body regulated or will
regulate a utility service of the Company accounting for more than 12% of its
revenues for the twelve months ended September 30, 1995, pro forma for the
acquisitions of certain telecommunications properties described hereafter.
The Company is not aware of any other utility company as fully diversified
in both geographic areas served and variety of services provided. The
Company's operations are conducted principally in small and medium-sized
communities. No material part of the Company's business is dependent upon
a single customer or a small group of customers. The loss of any single
customer or a small group of customers would not have a materially adverse
effect upon the Company. The Company's consumer connections have increased
from 26,150 in 1945, to 225,389 in 1965, to 610,585 in 1985, and to
approximately 1,550,000 as of December 31, 1995.
The Company continually considers and is carrying out expansion through
acquisitions and joint ventures in the rapidly evolving telecommunications
and cable television industries and in traditional public utility and related
businesses.
Citizens Utilities Capital L.P.
("Citizens Capital" or the "Partnership")
Citizens Utilities Capital L.P. is a special purpose limited partnership
formed under the laws of the State of Delaware. All of its partnership
interests (other than the Partnership Preferred Securities and the interests
of any Special Representative, as defined herein) will be beneficially owned
directly or indirectly by Citizens (the "General Partnership Security" and,
together with the Partnership Preferred Securities, the "Partnership
Securities"). Citizens or one of its wholly owned subsidiaries will be the
sole general partner of Citizens Capital and will contribute capital to the
extent required to establish and maintain a General Partnership Security
equal to at least 3% of the total capital of the Partnership. Citizens
Capital exists for the sole purposes of (i) raising capital through the
one-time issuance of its Partnership Securities, (ii) loaning such capital to
Citizens in exchange for Convertible Debentures, (iii) collecting
quarterly interest payments on the Convertible Debentures, placing orders
with brokers to sell shares of Common Stock received as such interest
payments and paying the required quarterly distributions on its
Partnership Securities, (iv) effecting the conversion of the Partnership
Preferred Securities into Common Stock Series A and (v) engaging in only
those other activities necessary or incidental thereto. The Partnership will
hold title to the Convertible Debentures and will have the power to exercise
all rights, powers and privileges under the Indenture (as defined herein) as
the holder of the Convertible Debentures.
Citizens Utilities Trust
(the "Trust")
Citizens Utilities Trust, the issuer of the Convertible Preferred
Securities, is a statutory business trust formed under the Delaware Business
Trust Act (the "Trust Act") pursuant to a declaration of trust, dated as
of October 13, 1995, executed by Citizens, as sponsor, and the trustees
specified therein. The declaration of trust will be qualified as an
indenture under the Trust Indenture Act of 1939 (the "Trust Indenture Act").
4
Citizens owns and will own, directly or indirectly, all of the Convertible
Common Securities of the Trust, which will amount to at least 3% of the
total capital of the Trust. The Trust exists for the sole purposes of
(i) issuing its Trust Securities, (ii) contributing the proceeds thereof to
the Partnership to acquire the Partnership Preferred Securities and
(iii) engaging in only those other activities necessary or incidental
thereto.
Structural Overview
(Diagram)
Diagram represents a structural overview of the component elements of the
transactions which are the subject of this Prospectus.
5
<PAGE>
Consolidated Summary Financial Information
(In millions, except percentages, ratios and per share amounts)
Twelve Months Ended
September 30, 1995 Years Ended December 31,
---------------------- ------------------------
STATEMENT OF INCOME DATA Pro Forma(1) Actual 1994 1993 1992
------------- ------ ---- ---- ----
Revenues $1,152 $1,038 $910 $619 $580
Operating Expenses 859 784 682 458 429
------------- ------ ---- ---- ----
Income from Operations 293 254 228 161 151
Other Income 51 57 53 54 47
Interest Expense 80 89 73 37 39
------------- ------ ---- ---- ----
Income before Income Taxes 264 222 208 178 159
Income Taxes 84 66 64 52 44
Income before Dividends ------------- ------ ---- ---- ----
on Convertible Preferred
Securities 180 156 144 126 115
Dividends on Convertible
Preferred Securities (2) 5 - - - -
------------- ------ ---- ---- ----
Net Income $ 175 $156 $144 $126 $115
============= ====== ==== ==== ====
Earnings Per Share (3) $.80(4) $.74(4) $.73 $.64 $.60
Ratio of Earnings to
Fixed Charges (5) 4.1 3.4 3.7 5.3 4.8
Ratio of Earnings to
Combined Fixed
Charges and Dividends on
Convertible Preferred
Securities (6) 3.8 3.4 3.7 5.3 4.8
At September 30, 1995
------------------------------------------
CAPITALIZATION DATA Pro Forma(7) Actual
---------------------- ---------------
Long-Term Debt $ 1,145 40% $ 1,072 41%
Equity(8) 1,726 60% 1,551 59%
------- ----- ------- -----
Total Capitalization $ 2,871 100% $ 2,623 100%
======= ===== ======= =====
- -----------------------------
(1) The Pro Forma Statement of Income Data reflects the combined results of
operations of Citizens and certain Telecommunications Properties (see "Pro
Forma Financial Statements") acquired subsequent to September 30, 1994 and
properties to be acquired (as of September 30, 1995) as if such properties
had been acquired on October 1, 1994. This information should be read in
conjunction with the Pro Forma Condensed Statements of Income beginning on
page 24 of this Prospectus. The Pro Forma Statement of Income Data is not
necessarily indicative of what the actual financial results would have been
for the period had the transactions occurred on the date indicated and does
not purport to indicate the financial results of future periods.
(2) Presented net of Income Taxes.
(3) Common Stock Series A and Series B per-share amounts have been adjusted
retroactively for subsequent stock dividends and stock splits through
September 30, 1995. No adjustment has been made for the 1.6% 1995 fourth
quarter dividend as this adjustment is immaterial.
(4) Reflects the discontinuance of subsidy contract revenues received through
the end of 1994 from Pacific Bell. For the twelve months ended September 30,
1995 on both an Actual and Pro Forma basis this discontinuance had the effect
of reducing Income before Income Taxes by $28.5 million and Earnings Per
Share by $.09 as compared to prior periods.
(5) "Earnings" consist of income before income taxes plus fixed charges.
"Fixed Charges" consist of interest charges and an amount representing the
interest factor included in rentals.
(6) The Company intends to pay the dividends on the Convertible Preferred
Securities in the form of Common Stock as opposed to cash. Accordingly, the
difference between the Ratio of Earnings to Fixed Charges and the Ratio of
Earnings to Combined Fixed Charges and Dividends on Preferred Securities is
attributable to the non-cash dividend.
(7) The Pro Forma Capitalization Data reflects the permanent financings of
the Telecommunications Properties as if such financings were in place on
September 30, 1995. This information should be read in conjunction with the
Pro Forma Condensed Balance Sheet beginning on page 22 of this Prospectus. The
Pro Forma Capitalization Data is not necessarily indicative of what the
actual capitalization would have been for the period had the transactions
occurred on the date indicated and does not purport to indicate the
capitalization of future periods.
(8) Includes Common Equity and Convertible Preferred Securities.
6<PAGE>
The Offering
Issuer
Citizens Utilities Trust, a statutory Delaware business trust.
Securities Offered
3,500,000 Convertible Preferred Securities representing preferred
undivided beneficial interests in the assets of the Trust, with a liquidation
preference of $50 per security (for a total of $175,000,000). Additionally,
the Trust, the Partnership and Citizens have granted the Underwriters an option
for 30 days to purchase up to an additional 525,000 Convertible Preferred
Securities at the initial public offering price solely to cover over-
allotments, if any.
Distributions
Distributions on the Convertible Preferred Securities will be cumulative from
the date of original issuance of the Convertible Preferred Securities at the
Rate. Distributions will be paid quarterly in arrears on the Distribution
Payment Dates (which are January 31, April 30, July 31 and October 31 of each
year) commencing April 30, 1996. Distributions on the Convertible
Preferred Securities may not be made unless the Trust receives corresponding
distributions on the Partnership Preferred Securities from the Partnership,
which in turn may not make such distributions unless it receives
corresponding interest payments on the Convertible Debentures from Citizens.
Holders of Convertible Preferred Securities may make an annual election to
receive their distributions in either Common Stock Series A or cash (a
"Distribution Election"). While Citizens intends to elect to pay interest
on the Convertible Debentures in Common Stock Series A, Citizens may also
elect to pay interest on the Convertible Debentures in cash. At Citizens'
election, interest payments may be deferred as described below under
"Interest and Distribution Deferral Provisions." The coordination of these
election opportunities require that the elections be made within specific
time periods. The following summary describes this time-table. So that the
summary may be read without frequent cross-referencing of terms defined
elsewhere in this Prospectus, some terms which may be defined elsewhere in
this Prospectus are re-defined herein for convenience.
- - Concurrent with the offering, initial holders of Convertible Preferred
Securities can make a Distribution Election:
* To receive stock (a "Stock Distribution Election"), or
* To receive cash (a "Cash Distribution Election").
* If no Distribution Election is made, the initial holder is deemed to
have made a Cash Distribution Election.
- - Holders other than initial holders are not entitled to make a Distribution
Election until an Election Period (as defined below). Such holders, before
such Election Period, will be deemed to have made a Cash Distribution
Election.
- - The "Distribution Declaration Date" will occur on or before December 9,
March 13, June 13 and September 12 of each year (which date will be at
least ten calendar days prior to the scheduled Record Date). On or prior
to such date, Citizens must declare by written notice (the "Distribution
Declaration Notice") whether it will:
* Make the next interest payment, or
* Defer the next interest payment.
7
* If the scheduled Distribution Declaration Date falls on a day which is
not a Business Day, the Distribution Declaration Date shall be the next
preceding day that is a Business Day.
- - If the Distribution Declaration Notice states that interest will be paid
and not deferred on the next Distribution Payment Date:
* Since Citizens intends to pay interest on the Convertible Debentures
in the form of Common Stock Series A, such notice will ordinarily
state that payment will be made in Common Stock Series A (a
"Stock Payment Election") having an Equivalent Value (as defined
hereafter) to the interest payment which has accrued for the period at
the Rate; however
* Such notice can alternatively state that Citizens will pay interest
in cash (a "Cash Payment Election"). In such case, a holder who
makes a timely Stock Distribution Election will instead receive
cash.
* Such notice will also state the Record Date and the Share Transfer
and Valuation Date (as defined hereafter). Such notice, if it
relates to the January 31 Distribution Payment Date, will
additionally inform holders of the Election Period procedures.
- - The Record Date will occur on or before December 19, March 23, June 23 and
September 22 of each year (which will be at least 10 calendar days after
the Distribution Declaration Date). As of this date, the official list
of holders entitled to payment will be generated from information supplied
by brokerage houses and nominees and others holding accounts for investors
and DTC.
- - During an "Election Period" (which, starting in 1996, will be the ten
Business Days in each year commencing at least two Business Days after the
scheduled Record Date relating to the January 31 Distribution Payment
Date), a holder can change his Distribution Election by submitting an
election form to the broker, nominee or other entity which holds such
holder's account. Elections will continue in effect until another
election is timely made in a subsequent annual Election Period. Late
Distribution Elections will not be effective.
* Election forms will be sent on or about the first day of the Election
Period to beneficial holders of Convertible Preferred Securities by
the brokers, nominees or other entities which hold such holders'
account.
- - If Citizens makes a Stock Payment Election, the Share Transfer and
Valuation Date will occur on or before January 18, April 17, July 18 and
October 18 of each year (which date will be at least 9 Business Days
before the Distribution Payment Date).
* On each Share Transfer and Valuation Date, the Equivalent Value per
share will be determined, and
* Shares of Common Stock Series A with an Equivalent Value will be
delivered by Citizens to the Partnership.
- - In the period from the Share Transfer and Valuation Date to the
Distribution Payment Date:
* The Partnership will sell Common Stock Series A in amounts sufficient
to pay cash to holders who have made a Cash Distribution Election.
* To the extent cash proceeds from the sale of Common Stock Series A are
insufficient to satisfy Cash Distribution Elections, Citizens
will provide the additional cash requirement to the Partnership.
* Citizens may purchase from the Partnership some or all of the Common
Stock Series A transferred to the Partnership as an interest payment.
If all such Common Stock Series A is purchased, holders making timely
Stock Distribution Elections will receive their distributions in cash.
- - The Distribution Payment Dates will be January 31, April 30, July 31 and
October 31 of each year.
8
* If Citizens has made a Stock Payment Election, on the Distribution
Payment Date the Partnership will transfer to the Trust the appropriate
number of shares of Common Stock Series A and appropriate amount of
cash to satisfy the Stock and Cash Distribution Elections of the
holders of the Convertible Preferred Securities.
* If Citizens has made a Cash Payment Election, Citizens will transfer
cash to the Partnership in payment of interest, at the Rate, and the
Partnership will transfer such cash to the Trust, all on the
Distribution Payment Date.
* If the scheduled Distribution Payment Date falls on a day which is not
a Business Day, the Distribution Payment Date shall be the next day that
is a Business Day.
If the Trust should be dissolved or liquidated by reason of the occurrence
of a Trust Event (as hereinafter defined) and the Partnership Preferred
Securities are distributed to the public investors, the time-table described
above will remain applicable with the substitution of Partnership Preferred
Securities for the Convertible Preferred Securities, and such other changes
resulting from the elimination of the Trust. However, in the event that the
Partnership is dissolved or liquidated by reason of the occurrence of a
Partnership Event (as hereinafter defined), the right of (i) a holder to make
Distribution Elections and (ii) Citizens to make Stock Payment Elections will
terminate. In such event, interest payments and distributions will be made
only in cash. See "Convertible Preferred Securities - Special Events
Distribution."
Interest and Distribution Deferral Provisions
Citizens has the right, at any time and from time to time, to elect to defer
the date on which one or more of the quarterly interest payments on the
Convertible Debentures would otherwise become due and payable by the giving of
notice of deferral; provided that no such deferral, including extensions,
if any, may exceed 20 consecutive quarters nor extend beyond the stated
maturity date of the Convertible Debentures. As a consequence, quarterly
distributions on the Partnership Preferred Securities and on the Convertible
Preferred Securities would be deferred during any such deferral of interest
payments. At the end of any such deferrals, Citizens shall make all interest
payments then accrued or deferred and unpaid (including any compounded
interest). Upon the payment of all accrued or deferred and unpaid interest
payments on the Convertible Debentures, the Partnership will pay in full all
accrued or deferred and unpaid distributions to holders of the Partnership
Preferred Securities, i.e., the Trust, and the Trust will pay in full all
accrued or deferred and unpaid distributions to holders of the Convertible
Preferred Securities. Citizens shall give the Regular Trustees (as defined
herein) written notice of its selection of a deferred interest payment on or
before the date the Regular Trustees are required to give notice of the
record or payment date of any distribution payable on the Convertible
Preferred Securities to the NYSE, the National Association of Securities
Dealers Automated Quotation ("NASDAQ") system or other applicable self-
regulatory organization, or to the holders of the Convertible Preferred
Securities. See the discussion of the Distribution Declaration Notice and
Distribution Declaration Date immediately above under "- Distributions."
Citizens shall also give written notice of any deferred interest payment to
the holders of the Convertible Preferred Securities. See "Risk Factors -
Option to Defer Payment of Distributions," "Convertible Preferred Securities
- - Distributions," "Convertible Debentures - Option to Defer Interest
Payments." Should a deferral of interest payments occur, the holders of the
Partnership Preferred Securities and the holders of the Convertible Preferred
Securities would continue to accrue income for United States federal income
tax purposes even though no interest payments or distributions would in fact
be paid. Citizens may not elect to defer interest payments while an
Indenture Event of Default has occurred and is continuing. See "Risk Factors
- Certain Tax Consequences of Deferral of Interest Payments on Convertible
Debentures," "Certain Federal Income Tax Considerations - Potential Deferral
of Interest Payments and Original Issue Discount," and "Convertible Preferred
Securities - Deferrals."
Liquidation Preference
$50 per Convertible Preferred Security in cash, plus an amount equal to any
accrued or deferred and unpaid distributions in cash or Common Stock.
9
Conversion into Citizens Common Stock Series A
Each Convertible Preferred Security is convertible in the manner described
below at the option of the holder (unless previously redeemed) into shares
of Common Stock Series A of Citizens, at a conversion price of $15.375 per
share of Common Stock Series A (equivalent to a conversion rate of 3.252
shares of Common Stock Series A for each $50 of liquidation preference of
Convertible Preferred Securities), subject to adjustment, as specified below.
A holder of Convertible Preferred Securities wishing to exercise its
conversion right as to all or a portion of such Convertible Preferred
Securities shall, in effect, surrender such Convertible Preferred Securities,
or portion thereof, by submitting an irrevocable conversion notice to
Chemical Bank who will, among other things, serve as the conversion agent
(the "Conversion Agent"). See "Convertible Preferred Securities - Conversion
Rights."
Commencing in 1956, and each year without interruption through 1995, Citizens
has followed the policy of paying only stock dividends on Common Stock
Series A. The conversion price of the Convertible Preferred Securities will be
adjusted downward to reflect the declaration of each future quarterly stock
dividend. The conversion price is also subject to adjustment in other
circumstances. See "Convertible Preferred Securities - Conversion Rights."
Optional Redemption
The Convertible Debentures are redeemable by Citizens, in cash, at its
option, in whole or in part, from time to time, on or after February 1, 1999,
at 100% of the principal amount being redeemed, together with accrued or
deferred but unpaid interest, or at any time in certain circumstances, as
specified below. If Citizens redeems Convertible Debentures, the Trust must
redeem Convertible Preferred Securities and Convertible Common Securities
having an aggregate liquidation amount equal to the aggregate principal
amount of the Convertible Debentures so redeemed at $50 per Trust Security
in cash, plus accrued or deferred and unpaid distributions thereon in either
cash or Common Stock. See "Convertible Preferred Securities - Optional
Redemption" and "Convertible Debentures - Optional Redemption."
Special Events Distribution
Upon the occurrence of certain events (and subject to certain conditions),
the Trust will be liquidated and the holders of the Convertible Preferred
Securities will receive Partnership Preferred Securities in lieu of any cash
distribution. Also upon the occurrence of certain events (and subject to
certain conditions), both the Partnership and the Trust may be liquidated and
the holders of the Convertible Preferred Securities may receive Convertible
Debentures in lieu of any cash distribution. See "Convertible Preferred
Securities - Special Events Distribution."
Redemptions Terminate Convertibility
If Convertible Preferred Securities are called for redemption, whether
through the exercise by Citizens of its option after February 1, 1999, or upon
maturity or acceleration upon default, the conversion rights of holders with
regard to the Convertible Preferred Securities will terminate five (5)
Business Days prior to the redemption date.
Redemption on Maturity or Upon Acceleration
In addition, unless previously redeemed, Convertible Preferred Securities
will be redeemed at maturity (on January 15, 2036) or as a result of
acceleration upon default of the Convertible Debentures. See "Convertible
Preferred Securities - Redemption on Maturity or Upon Acceleration" and
"Convertible Debentures - Events of Default."
Guarantees
Under the Convertible Debentures, Citizens' payment obligation is absolute
and unconditional. In addition, Citizens has payment obligations under the
Partnership Guarantees and the Trust Guarantees. Pursuant to the Convertible
Preferred Securities Guarantee Agreement (the "Convertible Preferred
Securities Guarantee") and the Partnership Preferred Securities Guarantee
Agreement (the "Partnership Guarantee"), Citizens will irrevocably agree, on
a subordinated basis, to pay in full (a) the distributions by the Trust on
the Convertible Preferred Securities and by
10
the Partnership on the Partnership Preferred Securities, (b) the redemption
price (including all accrued or deferred and unpaid distributions) of the
Convertible Preferred Securities and the Partnership Preferred Securities
and (c) payments on liquidation with respect to the Convertible Preferred
Securities and the Partnership Preferred Securities, in each case, only to
the extent Common Stock and/or cash are on hand and available (and, in the
case of Partnership Preferred Securities, legally available) therefor. A
holder of Convertible Preferred Securities may enforce Citizens' obligations
under the Guarantees directly against Citizens. See "Guarantees - General."
The Guarantees will be unsecured and each will be subordinated to all Senior
Indebtedness of Citizens. The Guarantees, when taken together with Citizen's
obligations under the Convertible Debentures, the Indenture, the Declaration
and the Limited Partnership Agreement, including its obligation to pay costs,
expenses and certain indemnities of the Trust, constitute a full and
unconditional guarantee of amounts due under the Convertible Preferred
Securities. In the event of the bankruptcy, liquidation or winding-up of
Citizens, its obligations under the Guarantees will rank junior to all
Senior Indebtedness and, therefore, funds may not be available for payment
under the Guarantees. See "Risk Factors - Subordinate Obligations Under
Guarantees and Convertible Debentures," "Risk Factors - Dependence on
Convertible Debenture Payments" and "Guarantees."
Voting Rights
Holders of the Convertible Preferred Securities will have limited voting
rights. See "Convertible Preferred Securities - Voting Rights."
Convertible Debentures
The Convertible Debentures issued to the Partnership will have a maturity of
40 years and will bear interest at the Rate payable quarterly in arrears,
payable in either an Equivalent Value of shares of Common Stock Series A or
cash, at the option of Citizens. Citizens has the right to, and may, defer
the payment of each quarterly interest payment (See "Interest and
Distribution Deferral Provisions" above); Citizens will have the right to
make payment of some, but need not make all, of such deferred quarterly
interest payments during a deferral of interest payments. The absence of
interest payments during a deferral of interest payments would not
constitute a default or an event of default under the Indenture or any other
of Citizens' currently outstanding indebtedness. Unless previously
redeemed, the Convertible Debentures are convertible into shares of Common
Stock Series A at the option of the holders thereof.
The Convertible Debentures are redeemable at the option of Citizens, in whole
or in part, from time to time on or after February 1, 1999. See "Convertible
Debentures - Optional Redemption."
The payment of the principal and interest in cash on the Convertible
Debentures will be subordinated in right of payment to all Senior
Indebtedness of Citizens, which is hereafter defined to generally include all
indebtedness except trade accounts payable and liabilities incurred in the
ordinary course of business. See "Risk Factors - Subordinate Obligations
Under Guarantees and Convertible Debentures," and "Risk Factors - Dependence
on Convertible Debenture Payments."
Use Of Proceeds
The proceeds to be received by the Trust from the sale of the Convertible
Preferred Securities and the Convertible Common Securities will be
contributed by the Trust to the Partnership to be invested thereby in the
Convertible Debentures of Citizens, which, after paying the expenses
associated with this offering, will use such funds to repay outstanding
commercial paper issued to temporarily and partially fund the purchase price
of certain acquired telecommunications properties described herein and to
permanently fund a portion of the to-be-acquired telecommunications properties
described herein. See "Use of Proceeds."
See "Risk Factors" for a discussion of certain material risks to be
considered in connection with an investment in the Convertible Preferred
Securities.
11
RISK FACTORS
Prospective purchasers of Convertible Preferred Securities should carefully
review the information contained elsewhere in this Prospectus and should
particularly consider the following matters:
Subordinate Obligations Under Guarantees and Convertible Debentures
Citizens' obligations under the Convertible Debentures and its obligations
under the Guarantees are subordinate and junior in right of payment to all
Senior Indebtedness of Citizens. As of September 30, 1995, there was
$1,229,596,000 of Senior Indebtedness outstanding (not including certain
other obligations, see "Convertible Debentures-Subordination"). The
Convertible Debentures are also effectively subordinate to all existing and
future liabilities, including trade payables, to Citizens' subsidiaries and
affiliates. There are no terms in the Convertible Preferred Securities, the
Partnership Preferred Securities, the Convertible Debentures or the Guarantees
that limit Citizens' ability to incur additional indebtedness, including
indebtedness that ranks senior to the Convertible Debentures and the
Guarantees, or the ability of its subsidiaries to incur additional
indebtedness. The Convertible Preferred Securities Guarantee guarantees
payment to the holders of the Convertible Preferred Securities of accrued
and unpaid quarterly distributions, amounts payable on redemption, and
amounts payable on liquidation of the Trust. However, such amounts are
guaranteed only to the extent that the Trust has cash and/or Common Stock on
hand available therefor and the payments thereof do not otherwise violate
applicable law. The Guarantees, when taken together with Citizen's obligations
under the Convertible Debentures, the Indenture, the Declaration and the
Limited Partnership Agreement, including its obligation to pay costs, expenses
and certain indemnities of the Trust, constitute a full and unconditional
guarantee of amounts due under the Convertible Preferred Securities. If
Citizens were to default on its obligation to pay interest or amounts
payable on redemption or maturity of the Convertible Debentures, the Trust
would lack available cash and/or Common Stock for the payment of
distributions or amounts payable on redemption of the Convertible Preferred
Securities. In such event, holders of the Convertible Preferred Securities
would not be able to rely upon the Convertible Preferred Securities Guarantee
for payment of such amounts. On the bankruptcy, liquidation or winding-up of
Citizens, its obligations under the Convertible Preferred Securities Guarantee
will rank junior to all Senior Indebtedness and, therefore, funds may not be
available for payment under the Convertible Preferred Securities Guarantee.
See "Guarantees" and "Convertible Debentures - Subordination."
Dependence on Convertible Debenture Payments
The Trust's ability to pay amounts due on the Convertible Preferred
Securities is solely dependent upon Citizens Capital's ability to pay amounts
due on the Partnership Preferred Securities, which is in turn solely
dependent upon Citizens' ability to make payments on the Convertible
Debentures as and when required. Since Citizens is also the guarantor of the
Convertible Preferred Securities, in the event that Citizens is unable to
make payments on the
12
Convertible Debentures, or the Trust is unable to make payments on the
Convertible Preferred Securities as and when required, there is a substantial
likelihood that Citizens will be unable to make payments on the Convertible
Preferred Securities Guarantee as and when required. See "Convertible
Preferred Securities - Distributions" and "Guarantees - General."
Enforcement of Certain Rights by Holders of Convertible Preferred Securities
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Convertible Preferred Securities would rely
on the enforcement by the Property Trustee (as defined herein) of its rights
as a limited partner of Citizens Capital (the holder of the Convertible
Debentures) against Citizens. In addition, the holders of a majority in
aggregate liquidation amount of the Convertible 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
Declaration (as defined herein), including the right to direct the Property
Trustee to exercise the remedies available to it as a limited partner of
Citizens Capital. If the Property Trustee fails to enforce its right, a
holder of Convertible Preferred Securities may institute a legal proceeding
directly against Citizens to enforce the Property Trustee's rights as a
limited partner of Citizens Capital, without first instituting any legal
proceeding against the Property Trustee, Citizens Capital or any other
person or entity. See "Convertible Preferred Securities - Declaration
Events of Default," and "- Voting Rights."
Option to Defer Payment of Distributions
Citizens has the right, at any time and from time to time during the term
of the Convertible Debentures, to elect to defer the date on which one or
more of the quarterly interest payments would otherwise become due and
payable by the giving of notice of deferral; provided that no deferred
quarterly interest payment, including any extension of deferral, shall
remain unpaid for more than 20 consecutive quarters or be deferred beyond
the maturity of the Convertible Debentures. As a consequence, quarterly
distributions on the Partnership Preferred Securities and on the Convertible
Preferred Securities would be deferred during any such deferral of interest
payments. However, unpaid distributions would be compounded quarterly at
the Rate. In the event that Citizens exercises this right, Citizens shall
not (i) declare or pay any dividend or distribution on any of its capital
stock (other than dividends payable in capital stock), (ii) redeem, purchase,
otherwise acquire or make a liquidation payment with respect to, any of its
capital stock or any Other Subordinated Indebtedness (as defined herein),
except in the form of capital stock, (iii) pay interest, principal or any
premium (if any), on Other Subordinated Indebtedness, except in the form of
capital stock, or (iv) make any guarantee payment with respect to the foregoing
(other than payments under the Guarantees), during any such deferral period
and until all distribution arrearages have been paid in full; provided,
however, that during such deferral periods, Citizens may reacquire from the
Partnership any securities the Partnership has received from Citizens and
continues to hold. See "Convertible Debentures - Option to Defer Interest
Payments" and "- Certain Covenants of Citizens."
13
Certain Tax Consequences of Deferral of Interest Payments on Convertible
Debentures
Should a deferral of interest payments occur, the holders of the
Convertible Preferred Securities would continue to accrue income for United
States federal income tax purposes which will be allocated, but not
distributed, to holders of record of Convertible Preferred Securities. As a
result, each such holder will include such interest in gross income for
United States federal income tax purposes in advance of the receipt of cash
or shares of Common Stock Series A and will not receive the cash or shares
of Common Stock Series A related to such income if such holder disposes of
or converts its Convertible Preferred Securities prior to the record date for
payment of distributions. See "Certain Federal Income Tax Considerations -
Potential Deferral of Interest Payments and Original Issue Discount."
Citizens has no current intention of exercising its right to defer payments
of interest on the Convertible Debentures. However, should Citizens
determine to exercise such right in the future, the market price of the
Convertible Preferred Securities is likely to be affected. A holder that
disposes of or converts its Convertible Preferred Securities during such a
deferral of interest payments, therefore, might not receive the same return
on its investment as a holder that continues to hold its Convertible Preferred
Securities. In addition, as a result of the existence of Citizen's right to
defer interest payments, the market price of the Convertible Preferred
Securities (which represent an undivided beneficial interest in the
Convertible Debentures through the Partnership Preferred Securities) may be
more volatile than other securities on which original issue discount accrues
that do not have such rights. See "Certain Federal Income Tax Considerations
- - Potential Deferral of Interest Payments and Original Issue Discount."
Tax and Market Consequences of Redemption or Special Events Distribution
At any time on or after February 1, 1999, the Convertible Debentures are
redeemable, in whole or in part, which would result in the redemption of the
Partnership Securities and the Trust Securities. See "Convertible Debentures
- - Optional Redemption." Once redemption has occurred holders of Convertible
Preferred Securities will lose their conversion rights, which loss of rights
may materially adversely impact the perceived value of such securities. In
addition, upon the occurrence of certain events, the Trust and/or the
Partnership could be liquidated and the holders of the Convertible Preferred
Securities may receive Partnership Preferred Securities or Convertible
Debentures in lieu of any liquidating cash distribution. See "Convertible
Preferred Securities - Special Events Distribution."
Under current United States federal income tax law, a distribution of
Partnership Preferred Securities or Convertible Debentures upon the
liquidation of the Trust or Citizens Capital would not be a taxable event to
holders of the Convertible Preferred Securities. However, upon occurrence of
an event which results in Citizens Capital or the Trust being treated as an
association taxable as a corporation, a liquidation would probably be a taxable
event to such holders. See "Certain Federal Income Tax Considerations -
Receipt of Partnership Preferred Securities, Convertible Debentures or Cash
Upon Liquidation of Citizens Capital and the Trust."
14
There can be no assurance as to the market prices for the Convertible
Preferred Securities, or the Partnership Preferred Securities or the
Convertible Debentures that may be distributed in exchange for the
Convertible Preferred Securities, if a dissolution or liquidation of any kind
were to occur. Accordingly, the Convertible Preferred Securities that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, or the Partnership Preferred Securities or Convertible
Debentures that a holder of Convertible Preferred Securities may receive on
some dissolution and liquidation, may trade at a discount to the price that
the investor paid to purchase the Convertible Preferred Securities offered
hereby. Because holders of Convertible Preferred Securities may receive
Partnership Preferred Securities or Convertible Debentures upon the
occurrence of certain events, prospective purchasers of Convertible Preferred
Securities are also making an investment decision with regard to the
Partnership Preferred Securities and Convertible Debentures and should
carefully review all the information regarding the Partnership Preferred
Securities and Convertible Debentures contained herein. See "Convertible
Preferred Securities - Special Events Distribution," "Partnership Preferred
Securities" and "Convertible Debentures."
Enactment of December 1995 Tax Proposals
On December 7, 1995, the Treasury Department announced Proposals which, if
enacted, would no longer permit issuers issuing certain debt securities that
are not reflected as debt on the issuer's consolidated balance sheet, such as
the Convertible Debentures, to claim an interest deduction for United States
federal income tax purposes for interest payable on such securities. On
December 19, 1995, the Treasury Department announced proposals, stating that
instruments will not be subject to the Proposals if issued pursuant to a
registration statement filed with the SEC on or before December 7, 1995, to the
extent of the aggregate amount of such instruments described in the
registration statement, which would exempt the Convertible Debentures from
the Proposals. The Company believes that, based upon the proposals for
transitional relief, enactment of legislation derived from the Proposals
should not affect the tax consequences to the Company or to the holders of
Convertible Preferred Securities. However, there can be no assurance as to
the final form of the Transitional Rules in this regard until such
legislation is enacted.
Limited Voting Rights
Holders of the Convertible Preferred Securities will have limited voting
rights and, except for the right of holders of Convertible Preferred
Securities to enforce rights of the Property Trustee upon the occurrence of
certain events described herein, will not be entitled to vote to appoint,
remove or replace, or to increase or decrease the number of, Trust Trustees,
which voting rights are vested exclusively in the holder of the Convertible
Common Securities. See "Convertible Preferred Securities - Voting Rights."
Trustee Conflicts of Interest
Chemical Bank is the Property Trustee (as hereafter defined) for the Trust,
and is also the trustee under the Indenture governing the Convertible
Debentures. Chemical Bank will be the only trustee of the Trust which will
act as indenture trustee for purposes of compliance with the Trust
Indenture Act. In addition, Chemical Bank is the trustee under certain of the
15
Company's outstanding debentures which qualify as Senior Indebtedness for
purposes of the Convertible Debentures offered hereby. The bank is also a
participant in the Company's current lines of credit, of which no amount is
outstanding as of the date hereof. In certain circumstances, Chemical Bank
is authorized to act on behalf of the holders of the Convertible Debentures
(and so, consequently, the Partnership Preferred Securities and Convertible
Preferred Securities) in enforcing their rights and entitlements as described
in this Prospectus. See "Convertible Preferred Securities - Declaration
Events of Default." Chemical Bank is also authorized to act on behalf of
certain holders of Citizens' Senior Indebtedness, and may be a creditor in
its own right under the Company's bank lines of credit. In the event of a
future default under the Company's Senior Indebtedness, line of credit or the
securities offered hereby, Chemical Bank might have to resign its role as a
trustee under any such Senior Indebtedness, or as the Trustee under the
Convertible Debentures. In such event, a replacement would have to be
appointed. Any such replacement Trustee would succeed to all of the rights,
powers and duties of Chemical Bank vis-a-vis holders of the Convertible
Preferred Securities, Partnership Preferred Securities and Convertible
Debentures offered hereby. See "Convertible Debentures - Information
Concerning the Debenture Trustee."
[/R]
Trading Price and Taxes
The Convertible Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Debentures. A holder who disposes of his Convertible
Preferred Securities between record dates for payments of distributions
thereon will be required to include accrued but unpaid interest on the
Convertible Debentures as a result of the original issue discount ("OID")
requirements of the Internal Revenue Code of 1986, as amended (the "Code")
through the date of disposition in income as ordinary income. The holder
will also be required to add such amount to his adjusted tax basis on his
pro-rata share of the underlying Convertible Debentures deemed disposed of.
To the extent the selling price is less than the holder's adjusted tax basis
(which will include, in the form of OID, all accrued but unpaid interest),
a holder 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. See "Certain Federal Income Tax
Considerations - Potential Deferral of Interest Payments and Original Issue
Discount" and "- Sales of Convertible Preferred Securities."
No Prior Market for the Convertible Preferred Securities; Market Risk on
Distributions in Common Stock
The Convertible Preferred Securities constitute a new issue of securities
with no established trading market. The Convertible Preferred Securities
have been approved for listing on the NYSE, subject to official notice of
issuance. However, there can be no assurance that an active market for the
Convertible Preferred Securities will develop or be sustained in the future
on the NYSE. Although the Underwriters have indicated to Citizens that they
intend to make a market in the Convertible Preferred Securities, as permitted
by applicable laws and regulations, they are not
16
obligated to do so and may discontinue any such market-making at any time
without notice. Accordingly, no assurance can be given as to the liquidity
of, or trading markets for, the Convertible Preferred Securities.
The shares of Common Stock Series A that a holder of Convertile Preferred
Securities will receive as a result of making a Stock Distribution Election
will have an Equivalent Value (as determined on the Share Transfer and
Valuation Date on which they were deposited with the Partnership) equal to
the cash amount that would be payable to a holder who has made a Cash
Distribution Election. However, the value of such shares will be subject to
market fluctuations and there can be no assurance that the market price of
such shares will not thereafter decline.
CITIZENS UTILITIES COMPANY
Citizens Utilities Company is a diversified operating public utility which
provides, either directly or through subsidiaries, telecommunications,
natural gas transmission and distribution, electric distribution, water or
wastewater services to customers in areas of nineteen states. Operating
divisions of Citizens provide electric distribution and natural gas
transmission and distribution public utility services, purchasing most of
the electric power needed and all gas supplies. Telecommunications,
water and wastewater public utility services are provided either by divisions
of Citizens or by its subsidiaries. Citizens holds a significant investment
interest in Centennial Cellular Corp., a cellular telephone company, and also
owns Electric Lightwave, Inc., an alternative telecommunications service
provider operating in five western states. Beginning with 1945, the Company
has increased its revenues, net income and earnings per share (as adjusted
for subsequent stock dividends and stock splits) every year without
interruption.
The Company, with administrative offices at High Ridge Park, Stamford,
Connecticut 06905 (telephone 203-329-8800), was incorporated in Delaware in
1935 to acquire the assets and business of a predecessor corporation. Since
then, the Company has grown as a result of investment in its own utility
operations and the acquisition of numerous additional utility operations.
As a result of its diversification, the Company is not dependent upon any
single geographic area or any one type of utility service for its revenues.
Because of this diversity, no single regulatory body regulated or will
regulate a utility service of the Company accounting for more than 12% of its
revenues for the twelve months ended September 30, 1995, pro forma for the
acquisition of the telecommunications properties described hereafter. The
Company is not aware of any other utility company as fully diversified in
both geographic areas served and variety of services provided. The Company's
operations are conducted principally in small and medium-sized communities.
No material part of the Company's business is dependent upon a single
customer or a small group of customers. The loss of any single customer or
a small group of customers would not have a materially adverse effect upon
the Company. The Company's consumer connections have increased from 26,150
in 1945, to 225,389 in 1965, to 610,585 in 1985, and to approximately
1,550,000 as of December 31, 1995.
The Company continually considers and is carrying out expansion through
acquisitions and joint ventures in the rapidly evolving telecommunications
and cable television industries and in traditional public utility and related
businesses.
On November 29, 1994, Citizens and ALLTEL Corporation ("ALLTEL") announced
the signing of definitive agreements pursuant to which Citizens agreed
to acquire from ALLTEL,
17
for a total purchase price of $292 million, certain
telephone properties serving approximately 110,000 local telephone access
lines and certain cable television systems serving approximately 7,000
subscribers. The properties are located in eight states: Arizona,
California, Nevada, New Mexico, Oregon, Tennessee, Utah and West Virginia
("ALLTEL Telecommunications Properties"). On June 30, 1995, 35,662 local
telephone access lines in Oregon and West Virginia were transferred to the
Company. On September 30, 1995, approximately 19,000 local telephone access
lines in Tennessee were transferred to the Company. On October 31, 1995,
approximately 18,000 local telephone access lines in Arizona, New Mexico and
Utah and approximately 7,000 cable television lines in Arizona, New Mexico
and California were transferred to the Company. On December 31, 1995,
approximately 20,000 local telephone access lines in California were
transferred to the Company and approximately 3,600 of Citizens' local
telephone access lines in Pennsylvania were transferred to ALLTEL. The
remaining ALLTEL Telecommunications Property is expected to be transferred
to the Company by early 1996.
USE OF PROCEEDS
The proceeds to be received by the Trust from the sale of the Convertible
Preferred Securities and the Convertible Common Securities will be
contributed by the Trust to the Partnership to be invested thereby in the
Convertible Debentures. Citizens, after payment of the Underwriters'
Compensation (as defined under "Underwriting") and other expenses of the
offering, will use the net proceeds from the sale of the Convertible
Preferred Securities of approximately $170,570,500 (approximately
$196,229,875 if the Underwriters' overallotment option is exercised in full) to
repay outstanding commercial paper issued to temporarily and partially fund
the purchase price of certain acquired telecommunications properties described
herein and to permanently fund a portion of the to-be-acquired
telecommunications properties described herein.
CAPITAL REQUIREMENTS AND FINANCING
The purchase price for the ALLTEL Telecommunications Properties, net of
property to be transferred to ALLTEL valued at $10 million, is $282 million.
The Company intends to permanently finance the acquisition of the ALLTEL
Telecommunications Properties approximately one-third ($94 million) from the
issuance of equity securities, one-third ($94 million) from the issuance or
assumption of debt securities, and one-third ($94 million) from Company cash
and investments. As of September 30, 1995, approximately $79 million of the
purchase price of other telecommunications properties acquired by the
Company in 1994 remained temporarily financed with commercial paper
classified as short-term debt pending the issuance of equity securities.
The proceeds from the sale of the Convertible Preferred Securities will be
used to satisfy the foregoing $173 million of permanent equity funding
requirements.
The purchase price for the ALLTEL Telecommunications Properties transferred
as of September 30, 1995 had been partially and temporarily financed with
$17 million of commercial paper which was classified as long-term debt since
the Company intended to refinance such commercial paper with long-term debt
securities. As of September 30, 1995, the Company had an additional $60
million of outstanding commercial paper classified as long-term debt. The
foregoing $77 million of commercial paper classified as long-term debt was
refinanced with part of the proceeds from the $150 million Debenture issuance
on October 20, 1995 (see "Pro Forma Condensed Balance Sheet" on page 22
herein).
18
The Company carries out a continuous construction program to maintain
reliable and safe service and to meet future customer service requirements.
The Company estimates that expenditures for construction, extension and
improvement of service relating to existing properties, including the
acquired Telecommunications Properties, will require approximately $318
million in 1996. The Company's construction program is under continuous
review and may be revised depending on business and economic conditions,
regulatory action, governmental mandates, customer demand and other factors.
Capital requirements are being financed from internally generated funds, the
issuance of taxable and tax-exempt long-term debt, short-term borrowings,
customer advances, and contributions in aid of construction.
The Company maintains $600 million of committed bank lines of credit for
general corporate purposes under which there were no amounts outstanding
as of January 15, 1996.
DESCRIPTION OF COMMON STOCK SERIES A AND SERIES B
Citizens' common stock consists of two series: Common Stock Series A and
Common Stock Series B. The Company has authorized 200,000,000 shares of
Common Stock Series A and 300,000,000 shares of Common Stock Series B. As
of December 1, 1995 the Company had outstanding 154,007,968 shares of
Common Stock Series A and 71,300,452 shares of Common Stock Series B. As of
December 1, 1995 there were 25,710 record holders of Common Stock Series
A and 20,752 record holders of Common Stock Series B. The holders of Common
Stock Series A and Common Stock Series B are entitled to one vote for each
share on all matters voted on by stockholders. Pursuant to Citizens'
Restated Certificate of Incorporation, the holders of Common Stock Series A
and the holders of Common Stock Series B vote together as a single class on
all matters to be voted on by stockholders, unless otherwise expressly
required by applicable law. Common Stock Series A is convertible, on a
share-for-share and tax-free basis, into Common Stock Series B at all times.
Common Stock Series B is not convertible into Common Stock Series A. The
Board of Directors of Citizens may, in its sole discretion and at any time,
require all of the holders of Common Stock Series A to exchange all of their
shares of Common Stock Series A for shares of Common Stock Series B on a
share-for-share basis. The holders of Common Stock Series A and Series B
participate ratably in liquidation. The holders of Common Stock Series A and
B have no preemptive rights.
DIVIDENDS ON COMMON STOCK SERIES A AND SERIES B
The holders of Common Stock Series A and B are entitled to receive
dividends when and as declared by the Board of Directors of Citizens out of
funds legally available therefor. Dividends have been paid to holders of
common stock every year without interruption beginning in 1939 and, although
there can be no assurances as to the amount of any future dividends, the
Company has increased cash dividends and/or cash value equivalents every year
without interruption beginning in 1946. Beginning in 1956, when the two-
series common stock capitalization of Citizens was initiated, through 1989,
only stock dividends were paid on Common Stock Series A and only cash
dividends were paid on Common Stock Series B. Commencing in 1990, Citizens
has declared and paid quarterly stock dividends at the same rate
on shares of both Common Stock Series A and Common Stock Series B. The stock
dividend rate is based on an underlying cash equivalent. The Company
expects that under present federal tax law, stock dividends on Common Stock
Series A and Common Stock Series B, if paid and
19
received pro-rata and otherwise in the same manner as they have been since
1990, will be free of current federal income taxation on receipt. Such stock
dividends are treated as capital transactions when and if sold. Gain or loss
is based on the difference between sales price and adjusted basis per share.
To the extent that stock dividends are declared on the Common Stock Series
B, the same stock dividend must be declared on the Common Stock Series A. To
the extent that cash dividends are paid out of funds that are legally
available on the Common Stock Series B, stock dividends with an equivalent
fair value must be paid during the same calendar year on the Common Stock
Series A, unless cash dividends are declared on the Common Stock Series A at
the same time and in an equal amount as on the Common Stock Series B.
COMMON STOCK PRICE RANGE
Citizens trades on the New York Stock Exchange under the symbols CZNA and
CZNB for Common Stock Series A and Common Stock Series B, respectively. The
table below indicates the high and low prices per share from January 2, 1992
through January 15, 1996 were taken from the daily quotations published in
The Wall Street Journal during the periods indicated and for January 16,
1996 from the Dow Jones News Retrieval. Prices have been adjusted
retroactively for subsequent stock dividends and the August 31, 1993
2-for-1 stock split, and the July 24, 1992, 3-for-2 stock split, rounded
to the nearest 1/8th.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
1995
- ----
Series A $13.625 $11.750 $12.375 $10.250 $11.500 $10.625 $13.250 $10.625
Series B 13.625 11.750 12.375 10.500 11.500 10.750 13.375 10.625
1994
- ----
Series A 16.125 13.125 14.875 12.500 13.625 12.375 13.000 11.750
Series B 16.250 13.000 14.875 12.500 13.625 12.375 13.000 11.875
1993
- ----
Series A 15.750 12.000 16.500 14.250 16.375 11.875 17.750 14.375
Series B 15.750 12.125 16.500 14.125 16.375 11.875 17.625 14.375
1992
- ----
Series A 11.125 9.375 10.750 9.875 12.125 9.625 13.000 10.750
Series B 10.875 9.375 10.750 9.500 12.250 9.500 13.000 10.750
The reported high and low prices from January 2 through January 16, 1996 were
$12 7/8 and $12 1/4 per share of Common Stock Series A and $12 7/8 and $12 1/4
per share of Common Stock Series B, respectively. The reported last sale prices
on the New York Stock Exchange on January 16, 1996 were $12 1/2 per share of
Common Stock Series A and $12 5/8 per share of Common Stock Series B.
20
COMMON STOCK TRANSFER AGENT
The transfer agent for the Company's Common Stock Series A and B is Illinois
Stock Transfer Company.
FINANCIAL INFORMATION
The following financial information, including pro forma financial
information reflecting the acquisition of certain telecommunications
properties, is qualified in its entirety by, and should be read in conjunction
with, the information appearing elsewhere herein and the documents and
financial statements incorporated by reference herein.
Revenues
Twelve Months Ended September 30, 1995
----------------------------------------------
(In thousands)
Business Sector Pro Forma Actual
- ------------------ ------------------- -------------------
Telecommunications $ 711,256 61.7% $ 597,053 57.5%
Natural Gas 192,992 16.8% 192,992 18.6%
Electric 172,253 14.9% 172,253 16.6%
Water/Wastewater 76,224 6.6% 76,224 7.3%
----------- ------ ----------- ------
Total $ 1,152,725 100.0% $ 1,038,522 100.0%
=========== ====== =========== ======
21
PRO FORMA FINANCIAL STATEMENTS
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Balance Sheet
(In thousands)
The following Pro Forma Condensed Balance Sheet represents the historical
condensed balance sheet of Citizens at September 30, 1995, giving effect to the
acquisitions of the yet to be acquired Telecommunications Properties (as
defined in Note 1 on page 23) following the purchase method of accounting,
as well as the completion of the permanent financings for the acquired
Telecommunications Properties as if such acquisitions and financings were
closed on September 30, 1995. The Pro Forma Condensed Balance Sheet should be
read in conjunction with the historical financial statements and related
notes thereto of Citizens which are incorporated by reference herein. The
Pro Forma Condensed Balance Sheet is not necessarily indicative of what the
actual financial position would have been had the transactions occurred at
the date indicated and does not purport to indicate future financial
position.
As at September 30, 1995
-------------------------------------------
Pro Forma
----------------------------
Citizens Adjustments(1) Adjusted
----------- -------------- ---------
Assets
- ------
Current Assets:
Cash $ 17,873 $309,997 (2) $ 22,145
(305,725)(3)
Accounts Receivable 169,407 169,407
Other 37,467 37,467
----------- ----------
Total Current Assets 224,747 229,019
----------- ----------
Net Property, Plant and
Equipment 2,730,936 152,075 (3) 2,883,011
----------- ----------
Investments 335,525 (66,000)(2) 269,525
Regulatory Assets 179,186 179,186
Deferred Debits and
Other Assets 196,534 196,534
----------- -------------- ----------
$3,666,928 $ 90,347 $3,757,275
=========== ============== ==========
Liabilities and Equity
- ----------------------
Current Liabilities:
Long-Term Debt Due
Within One Year $ 4,003 $ (4,003)(2) $ 0
Short-Term Debt 153,650 (153,650)(3) 0
Other 268,456 268,456
----------- ----------
Total Current Liabilities 426,109 268,456
Regulatory Liabilities 29,294 29,294
Deferred Credits and Other
Liabilities 96,419 96,419
Deferred Income Taxes 273,137 273,137
Customer Advances for
Construction and Contributions
in Aid of Construction 219,200 219,200
Long-Term Debt 1,071,943 150,000 (2)
(77,000)(2) 1,144,943
Company Obligated Mandatorily
Redeemable Convertible
Preferred Securities* 175,000 (2) 175,000
Common Equity 1,550,826 1,550,826
----------- -------------- ----------
$3,666,928 $ 90,347 $3,757,275
=========== ============== ==========
- --------------------
*Represents mandatorily redeemable securities of subsidiaries, the sole
assets of which are convertible debentures of the Company.
See Notes to Pro Forma Condensed Balance Sheet on page 23.
[/R]
22
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Balance Sheet
(1) In May 1993, Citizens and GTE Corp. ("GTE") signed definitive agreements
pursuant to which Citizens agreed to acquire from GTE, for approximately
$1.1 billion in cash, certain GTE telephone properties ("GTE Telephone
Properties") serving approximately 500,000 local telephone access lines
in eight states. On December 31, 1993, 189,123 local telephone access
lines in Idaho, Tennessee, Utah and West Virginia were transferred to
the Company. On June 30, 1994, 270,883 access lines in New York were
transferred to the Company. On November 30, 1994, 37,802 access lines
in Arizona and Montana were transferred to the Company and on
December 30, 1994, 5,440 local telephone access lines in California
were transferred to the Company.
In November 1994, Citizens and ALLTEL signed definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL telecommunications properties ("ALLTEL
Telecommunications Properties") serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers in eight states. The purchase price
of the ALLTEL Telecommunications Properties (net of 3,600 Citizens
telephone access lines which have been valued at $10 million and are
to be transferred to ALLTEL in a tax free exchange) is $282 million.
On June 30, 1995, 35,662 local telephone access lines in West
Virginia and Oregon were transferred to the Company. On September 30,
1995, approximately 19,000 local telephone access lines in Tennessee
were transferred to the Company. On October 31, 1995, approximately
18,000 local telephone access lines in Arizona, New Mexico and Utah
and approximately 7,000 cable television lines in Arizona, New Mexico
and California were transferred to the Company. On December 31, 1995,
approximately 20,000 local telephone access lines in California were
transferred to the Company and approximately 3,600 of Citizens' local
telephone access lines in Pennsylvania were transferred to ALLTEL. The
remaining local telephone access lines are expected to be transferred to
the Company by early 1996. The GTE Telephone Properties and the ALLTEL
Telecommunications Properties are collectively referred to as the
"Telecommunications Properties."
(2) Through September 30, 1995, the purchase price for the Telecommunications
Properties had been permanently financed with approximately $392
million of cash and investments, $281.3 million of equity securities
issued through an underwritten public offering, the Company's Direct
Stock Purchase and Sale Plan and employee benefit plans, and $402
million of debt securities. The remainder of the purchase price of the
Telecommunications Properties transferred as of September 30, 1995 had
been temporarily financed with commercial paper, $153.7 million of which
is classified as Short-Term Debt (to be repaid from cash and investments
and the issuance of equity securities) and $17 million which is
classified as Long-Term Debt (to be refinanced with Long-Term Debt). As
of September 30, 1995, the Company had an additional $60 million in
commercial paper outstanding classified as Long-Term Debt.
When added to the $392 million of cash and investments used, $281.3
million of equity securities issued and the $402 million of debt
securities which have been issued or assumed to permanently finance the
acquisitions of the Telecommunications Properties, these adjustments
reflect the anticipated permanent financing of the $1.381 billion
purchase price (net of the property valued at $10 million to be
transferred to ALLTEL) for the Telecommunications Properties with
approximately equal components of cash and investments ($458 million),
debt securities ($469 million), and equity securities ($454 million).
These adjustments also reflect the use of a portion of the proceeds from
the issuance of $150 million of debentures on October 20, 1995 to repay
the above-described $77 million of commercial paper classified as
Long-Term Debt, refund $4 million of Long-Term Debt Due Within One Year,
permanently fund a portion of the purchase price of the
Telecommunications Properties and for other general corporate purposes.
(3) Reflects the use of permanent financing proceeds to pay the purchase
price of the Telecommunications Properties to be transferred to Citizens
after September 30, 1995 (net of the property valued at $10 million to be
transferred to ALLTEL) and to repay all Short-Term Debt.
23
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Statement of Income
(In thousands, except for per-share amounts)
The following Pro Forma Condensed Statement of Income for the twelve months
ended September 30, 1995 combines the historical statements of income of
Citizens and the Telecommunications Properties as if the acquisitions and the
permanent financings had been closed October 1, 1994. The Pro Forma Condensed
Statement of Income should be read in conjunction with the historical
financial statements and related notes thereto of Citizens and those of the
Telecommunications Properties that have been audited and which are
incorporated by reference herein. The Pro Forma Condensed Statement of Income
is not necessarily indicative of what the actual financial results would have
been for the period had the transactions occurred at the date indicated and
does not purport to indicate the financial results of future periods.
Twelve Months Ended September 30, 1995
--------------------------------------
Pro Forma
----------------------
Citizens Acquisitions*(1) Adjustments Combined
-------- ---------------- ----------- --------
Revenues $1,038,522 $114,203 $1,152,725
Expenses:
Operating Expenses 635,814 48,456 684,270
Depreciation and
Amortization 148,650 24,733 $1,600 (3) 174,983
--------- ---------------- ----------- ---------
Total Operating
Expenses 784,464 73,189 1,600 859,253
Income from Operations 254,058 41,014 (1,600) 293,472
Other Income, net 57,147 1,190 (7,500)(4) 50,837
Interest Expense 88,909 5,451 (14,600)(5) 79,760
--------- ---------------- ----------- ---------
Income Before
Income Taxes 222,296 36,753 5,500 264,549
Income Taxes 65,754 13,765 4,700 (6) 84,219
--------- ---------------- ----------- ---------
Income before Dividends
on Convertible Preferred
Securities 156,542 22,988 800 180,330
Dividends on Company
Obligated Convertible
Preferred Securities -- -- 5,100 (7) 5,100
--------- ---------------- ----------- ---------
Net Income $ 156,542 $22,988 $ (4,300) $175,230
========= ================ =========== =========
Earnings Per Share of
Common Stock Series A
and Series B** $.74(8)(9) $.80(8)(9)
Weighted Average Common
Shares** 212,038 219,347(8)
- ---------------------------------
*Represents the financial results from October 1, 1994 to the dates of
acquisition for all the Telecommunications Properties acquired from October 1,
1994 through September 30, 1995 and the financial results for the entire twelve
month period for the yet to be acquired Telecommunications Properties (as of
September 30, 1995) net of the financial results for the property to be
transferred to ALLTEL. Financial results for the Telecommunications
Properties acquired from their dates of acquisition, or from October 1, 1994
if acquired prior thereto, through September 30, 1995 are included in
Citizens' twelve months ended September 30, 1995 financial results.
**No adjustment has been made for the 1.6% 1995 fourth quarter stock dividend
as this adjustment is immaterial.
See Notes to Pro Forma Condensed Statements of Income on page 26.
24
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Pro Forma Condensed Statement of Income
(In thousands, except for per-share amounts)
The following Pro Forma Condensed Statement of Income for the year ended
December 31, 1994 combines the historical statements of income of Citizens
and the Telecommunications Properties as if the acquisitions and the
permanent financings had been closed January 1, 1994. The Pro Forma
Condensed Statement of Income should be read in conjunction with the
historical financial statements and related notes thereto of Citizens and
those of the Telecommunications Properties that have been audited and which
are incorporated by reference herein. The Pro Forma Condensed Statement of
Income is not necessarily indicative of what the actual financial results
would have been for the period had the transactions occurred at the date
indicated and does not purport to indicate the financial results of future
periods.
Twelve Months Ended December 31, 1994
-------------------------------------
Pro Forma
----------------------
Citizens Acquisitions*(1) Adjustments Combined
-------- ---------------- ----------- --------
Revenues $ 910,369 $254,815 $1,165,184
Expenses:
Operating Expenses 567,070 123,170 $(4,600)(2) 685,640
Depreciation and
Amortization 115,175 49,095 4,700 (3) 168,970
--------- ---------------- ----------- ---------
Total Operating
Expenses 682,245 172,265 100 854,610
Income from Operations 228,124 82,550 (100) 310,574
Other Income, net 52,940 847 (17,300)(4) 36,487
Interest Expense 72,744 13,172 (11,800)(5) 74,116
--------- ---------------- ----------- ---------
Income Before
Income Taxes 208,320 70,225 (5,600) 272,945
Income Taxes 64,323 24,137 5,800 (6) 94,260
--------- ---------------- ----------- ---------
Income before Dividends
on Convertible Preferred
Securities 143,997 46,088 (11,400) 178,685
Dividends on Company
Obligated Convertible
Preferred Securities -- -- 5,100 (7) 5,100
--------- ---------------- ----------- ---------
Net Income $ 143,997 $46,088 $(16,500) $173,585
========= ================ =========== =========
Earnings Per Share of
Common Stock Series A
and Series B** $.73 $.79(8)
Weighted Average Common
Shares** 197,752 218,445(8)
- ----------------------------
*Represents the financial results from January 1, 1994 to the dates of
acquisition for all the Telecommunications Properties acquired from January
1, through December 31, 1994 and the financial results for the entire twelve
month period for the yet to be acquired Telecommunications Properties (as of
December 31, 1994) net of the financial results for the property to be
transferred to ALLTEL. Financial results for the Telecommunications
Properties acquired from their dates of acquisition through December 31,
1994 are included in Citizens' twelve months ended December 31, 1994
financial results.
**Restated through the third quarter 1995 stock dividend. No adjustment has
been made for the 1.6% 1995 fourth quarter stock dividend as this adjustment
is immaterial.
See Notes to Pro Forma Condensed Statements of Income on page 26.
25
<PAGE>
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Statements of Income
(1) In May 1993, Citizens and GTE Corp. ("GTE") signed definitive agreements
pursuant to which Citizens agreed to acquire from GTE, for approximately
$1.1 billion in cash, certain GTE telephone properties ("GTE Telephone
Properties") serving approximately 500,000 local telephone access lines
in eight states. On December 31, 1993, 189,123 local telephone access
lines in Idaho, Tennessee, Utah and West Virginia were transferred to
the Company. On June 30, 1994, 270,883 access lines in New York were
transferred to the Company. On November 30, 1994, 37,802 access lines in
Arizona and Montana were transferred to the Company and on December 30,
1994, 5,440 local telephone access lines in California were transferred to
the Company.
In November 1994, Citizens and ALLTEL signed definitive agreements
pursuant to which Citizens agreed to acquire from ALLTEL, for $292
million, certain ALLTEL telecommunications properties ("ALLTEL
Telecommunications Properties") serving approximately 110,000 local
telephone access lines and certain cable television systems serving
approximately 7,000 subscribers in eight states. The purchase price
of the ALLTEL Telecommunications Properties (net of 3,600 Citizens
telephone access lines which have been valued at $10 million and
are to be transferred to ALLTEL in a tax free exchange) is $282
million. On June 30, 1995, 35,662 local telephone access lines in West
Virginia and Oregon were transferred to the Company. On September 30,
1995, approximately 19,000 local telephone access lines in Tennessee
were transferred to the Company. On October 31, 1995, approximately
18,000 local telephone access lines in Arizona, New Mexico and Utah
and approximately 7,000 cable television lines in Arizona, New Mexico
and California were transferred to the Company. On December 31, 1995,
approximately 20,000 local, telephone access lines in California
were transferred to the Company and approximately 3,600 of Citizens'
local telephone access lines in Pennsylvania were transferred to ALLTEL.
The remaining local telephone access lines are expected to be transferred
to the Company by early 1996. The GTE Telephone Properties and the
ALLTEL Telecommunications Properties are collectively referred to as the
"Telecommunications Properties."
(2) Elimination of certain corporate overhead expenses allocated to
certain of the Telecommunications Properties which will not have a
continuing impact on the combined entity.
(3) Represents amortization of $261 million of excess purchase price over
net book value of assets acquired or to be acquired. Pursuant to
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation," the remaining $138 million of
excess of purchase price over net book value of assets acquired will be
deferred. The Company intends to seek from the public utilities
commissions maximum recovery of the excess of purchase price over net
book value in future rate proceedings.
(4) Represents an adjustment to reflect the elimination from Other Income
of all tax-exempt investment income associated with the $458 million of
Company cash and investments which have been or are expected to be used
to partially finance the acquisition of the Telecommunications
Properties. The Company used $392 million of cash and investments
from December 31, 1993 through September 30, 1995 to permanently
finance the Telecommunications Properties acquisitions.
(5) Represents an adjustment to reflect the inclusion in Interest Expense
of all the interest expense on $469 million of debt securities
which have been or are expected to be issued or assumed to partially
finance the acquisition of the Telecommunications Properties, net of the
elimination of interest expense on the temporary borrowings used to
finance the acquisitions and on the debt securities which are associated
with the Telecommunications Properties and which were not or will not
be assumed by the Company. Through September 30, 1995, the purchase price
for the Telecommunications Properties had been permanently financed with
approximately $402 million of debt securities.
(6) Adjustment to Income Taxes based on Income before Income Taxes
using the applicable incremental income tax rate.
26
PRO FORMA FINANCIAL STATEMENTS (continued)
Citizens Utilities Company and Telecommunications Properties
Notes to Pro Forma Condensed Statements of Income
(7) The Dividend on Company Obligated Convertible Preferred Securities net
of income taxes using the applicable incremental income tax rate.
(8) The Pro Forma Earnings Per Share calculation and Pro Forma Weighted
Average Common Shares are based on the weighted average number of common
shares outstanding for the periods indicated including the number of
additional shares issued or assumed to be issued to permanently finance
the Telecommunications Properties, assuming such additional shares were
outstanding for the entire twelve month periods. Through September 30,
1995, the Company financed $281.3 million of the acquisition of the
Telecommunications Properties from the issuance of equity securities
pursuant to the Company's Direct Stock Purchase and Sale Plan, employee
benefit plans and an underwritten public offering. The shares issuable
upon conversion of the Company Obligated Convertible Preferred Securities
to be issued in this offering are not included in Pro Forma Weighted
Average Common Shares since the Company Obligated Convertible Preferred
Securities are not considered to be Common Stock Equivalents for
purposes of the earnings per share calculation. Fully diluted earnings
per share is not presented because the effect is immaterial.
(9) Reflects the discontinuance of subsidy contract revenues received
through the end of 1994 from Pacific Bell. For the twelve months ended
September 30, 1995 on both an Actual and Pro Forma basis this
discontinuance had the effect of reducing Income before Income Taxes
by $28.5 million and Earnings Per Share by $.09 as compared to prior
periods.
27
<PAGE>
CITIZENS UTILITIES CAPITAL L.P.
Citizens Utilities Capital L.P. is a special purpose limited partnership
formed on October 13, 1995 under the laws of the State of Delaware. All of
its partnership interests (other than the Partnership Preferred Securities
and any interests of any Special Representative) will be beneficially owned
directly or indirectly by Citizens. Citizens or one of its wholly owned
subsidiaries will be the sole general partner in Citizens Capital (in such
capacity, the "General Partner"). CU CapitalCorp., a Delaware corporation
and a wholly-owned subsidiary of Citizens ("CU Capital"), initially will be
sole limited partner in Citizens Capital. Upon issuance of the Partnership
Preferred Securities to the Trust, the Trust will become a limited partner
in Citizens Capital and CU Capital will withdraw as a limited partner. The
General Partner will contribute capital to the extent required to ensure that
its capital contributions are equal to at least 3% of all capital contributed
to Citizens Capital. Citizens Capital exists for the sole purposes of
(i) raising capital through the one-time issuance of its Partnership
Securities, (ii) loaning such capital to Citizens in exchange for Convertible
Debentures, (iii) collecting quarterly interest payments, placing orders with
brokers to sell shares of Common Stock received as such interest payments and
paying the required quarterly distributions on its Partnership Securities
(iv) effecting the conversion of the Partnership Preferred Securities into
Common Stock Series A and (v) engaging in only those other activities
necessary or incidental thereto.
The General Partner will cause Citizens Capital to invest 99% of the total
contributions in Citizens Capital in the Convertible Debentures and the
remaining 1% in Eligible Investments, as defined in and provided for in the
Amended and Restated Agreement of Limited Partnership of Citizens Capital
(the "Limited Partnership Agreement"). To the extent that aggregate interest
payments on the Convertible Debentures to Citizens Capital and on Eligible
Investments exceed aggregate distributions required on the Partnership
Preferred Securities and such distributions have been paid in full, Citizens
Capital may at times have excess funds or securities, which shall be allocated
to and may, in the General Partner's sole discretion, be distributed to the
General Partner.
Citizens Capital will exist for a maximum term of 45 years, unless earlier
dissolved. The Limited Partnership Agreement provides that the General
Partner will have liability for the debts and obligations of the Partnership,
including taxes imposed on the Partnership but excluding taxes imposed on
holders of Partnership Preferred Securities (in their capacities as holders)
and withholding taxes. Certain obligations of the Partnership to the holders
of the Partnership Preferred Securities are being separately guaranteed
pursuant to the Partnership Guarantee. All of Citizens Capital's business
and affairs will be conducted by the General Partner. Citizens Capital will
hold title to the Convertible Debentures and will have the power to exercise
all rights, powers, and privileges under the Indenture as the holder of the
Convertible Debentures.
The location of the principal executive offices of the General Partner is
c/o Office of the Treasurer, Citizens Utilities Company, High Ridge Park,
Bldg. No. 3, Stamford, Connecticut 06905, telephone number (203) 329-8800.
28
<PAGE>
CITIZENS UTILITIES TRUST
Citizens Utilities Trust is a statutory business trust formed under the
Trust Act pursuant to (i) a declaration of trust, dated as of October 13,
1995, executed by Citizens, as sponsor (the "Sponsor"), and the trustees of
the Trust (the "Trust Trustees") and (ii) the filing of a certificate of
trust with the Secretary of State of the State of Delaware on October 13,
1995. Such declaration will be amended and restated in its entirety (as so
amended and restated, the "Declaration"). Citizens will own, directly or
indirectly, all of the Convertible Common Securities, which will amount to
at least 3% of the total capital of the Trust. The Trust exists for the sole
purposes of (i) issuing its Trust Securities,(ii) contributing the proceeds
thereof to Citizens Capital to acquire the Partnership Preferred Securities
and (iii) engaging in only those other activities necessary or incidental
thereto.
The Trust has a term of approximately 45 years but may terminate earlier,
as provided in the Declaration. The Trust's business and affairs will be
conducted by the Trust Trustees appointed by Citizens as the direct or
indirect holder of all the Convertible Common Securities. The duties and
obligations of the Trust Trustees shall be governed by the Declaration.
Pursuant to the Declaration, the number of Trust Trustees will initially be
four. Two of the Trust Trustees ("Regular Trustees") will be persons who are
employees or officers of or who are affiliated with Citizens. The third
Trust Trustee will be a financial institution that is not affiliated with
Citizens and has a specified minimum amount of aggregate capital and surplus
of at least $50,000,000, which shall act as property trustee under the
Declaration and as indenture trustee for the purposes of the Trust Indenture
Act (the "Property Trustee"). Initially, Chemical Bank, a New York banking
corporation, will be the Property Trustee until removed or replaced by the
holder of the Convertible Common Securities. Chemical Bank will also act as
indenture trustee under each of the Guarantees (the "Guarantee Trustee").
See "Guarantees." In addition, a fourth Trust Trustee will have a principal
place of business or reside in the State of Delaware (the "Delaware
Trustee"). Initially, Chemical Bank Delaware will be the Delaware Trustee.
The Property Trustee will hold title to the Partnership Preferred
Securities for the benefit of the holders of the Trust Securities. The
Property Trustee will have the power to exercise all rights, powers, and
privileges as the holder of the Partnership Preferred Securities. In
addition, the Property Trustee will maintain exclusive control of a
segregated non-interest bearing bank account (the "Property Account") to hold
all payments made in cash or securities in respect of the Partnership
Preferred Securities for the benefit of the holders of the Trust Securities.
The Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Convertible
Preferred Securities out of funds from or securities held in the Property
Account. The Guarantee Trustee will hold the Convertible Preferred
Securities Guarantee for the benefit of the holders of the Convertible
Preferred Securities. Citizens, as the direct or indirect holder of all the
Convertible Common Securities, will have the right to vote to appoint, remove
or replace any Trust Trustees, including the Property Trustee, and to increase
or decrease the number of Trust Trustees; provided, that, (i) if the Property
Trustee does not act as Delaware Trustee, the number of Trust Trustees shall
be at least four and (ii) at least two Trust Trustees shall be Regular
Trustees. Citizens will pay all fees and expenses related to the Trust and
the offering of the Convertible Preferred Securities. Citizens will have
liability for debts and obligations, including taxes imposed on the Trust but
29
excluding taxes imposed on the holders of Convertible Preferred Securities
(in their capacities as holders) and withholding taxes. Certain obligations
of the Trust to the holders of the Trust Securities are being separately
guaranteed under the Trust Guarantees.
The Declaration does not permit the issuance by the Trust of any securities
other than the Trust Securities or the incurrence of any indebtedness by the
Trust. The rights of the holders of the Convertible Preferred Securities,
including economic rights and rights to information, are set forth in the
Declaration, the Trust Act and the Trust Indenture Act. See "Convertible
Preferred Securities."
The office of the Delaware Trustee for the Trust is 1201 Market Street,
Wilmington, Delaware 19801. The location of the principal executive offices
of the Trust is c/o Office of the Treasurer, Citizens Utilities Company, High
Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905, telephone number
(203) 329-8800.
DESCRIPTION OF THE SECURITIES
The securities offered hereby are: (i) 5% Citizens Utilities Convertible
Preferred Securities, with a liquidation preference of $50 per security; (ii)
the Partnership Preferred Securities into which such Convertible Preferred
Securities can be converted; (iii) the Guarantees (and the back-up
undertakings, as defined herein) pursuant to which Citizens will guarantee,
to the extent described therein, certain payments with respect to the
Convertible Preferred Securities and the Partnership Preferred Securities;
(iv) the Convertible Debentures; (v) the Common Stock Series A into which the
Convertible Preferred Securities may be converted; (vi) the Common Stock
Series A which will be issued in payment of interest on the Convertible
Debentures; and (vii) the Common Stock Series B into which the Common Stock
Series A can be converted.
CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities will be issued pursuant to the terms
of the Declaration. The Declaration will be qualified as an indenture under
the Trust Indenture Act. The Property Trustee, Chemical Bank, will act as
the indenture trustee for purposes of compliance with the provisions of the
Trust Indenture Act. The terms of the Convertible Preferred Securities will
include those stated in the Declaration and those made part of the
Declaration by the Trust Indenture Act.
The Convertible Common Securities rank pari passu, and payments will be
made thereon on a pro rata basis, with the Convertible Preferred Securities,
except that upon the occurrence of a Declaration Event of Default, the rights
of the holders of the Convertible Common Securities to receive payment of
periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the
Convertible Preferred Securities. Therefore, the following summary of the
principal terms and provisions of the Convertible Preferred Securities also
relates to the principal terms and provisions of the Convertible Common
Securities in the absence of a Declaration Event of Default.
30
General
The Convertible Preferred Securities and Convertible Common Securities
represent undivided beneficial interests in the assets of the Trust. All of
the Convertible Common Securities will be owned, directly or indirectly, by
Citizens. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Property Trustee
will own the Partnership Preferred Securities purchased by the Trust for the
benefit of the holders of the Trust Securities. The payment of distributions
by the Trust, and payments upon redemption of the Convertible Preferred
Securities or liquidation of the Trust, are guaranteed by Citizens to the
extent described under "Guarantees". The Trust Guarantees do not cover
payment of distributions when the Trust does not have sufficient available
cash and/or Common Stock to pay such distributions. In such event, the
remedy of a holder of Convertible Preferred Securities is to vote to direct
the Property Trustee to enforce the Property Trustee's rights as limited
partner of Citizens Capital or to act on his or her own behalf to enforce the
Trust's rights under the Convertible Preferred Securities. See " - Voting
Rights," "Partnership Preferred Securities - Voting Rights" and Guarantees -
Events of Default."
For United States federal income tax purposes, Convertible Preferred
Security holders will recognize interest income as it accrues. So long as
interest periods are not deferred, the distributions will approximately equal
the accruals of such quarterly interest. Capital, income and distributions
on Convertible Preferred Securities are not eligible for the corporate
dividends-received deduction for United States federal income tax purposes.
Holders of Convertible Preferred Securities will not have the right to
remove or replace the Regular Trustees or the Property Trustee. Holders of
the Convertible Preferred Securities will have no preemptive rights.
Distributions
Recipients of this Prospectus are encouraged to also review carefully the
section entitled "Prospectus Summary - Distributions," which section contains
a brief outline in summary form of the subject discussed below.
How Distributions are Computed. Holders of the Convertible Preferred
Securities will be entitled to receive cumulative distributions from the
Trust in the forms of payment described below, accruing at the Rate from the
date of original issuance and payable quarterly in arrears on the scheduled
Distribution Payment Dates. When, as and if available for payment,
distributions will be made by the Property Trustee. The amount of
distributions payable for any period will be computed on the basis of twelve
30-day months and a 360-day year and, for any period shorter than a full
quarter, will be computed on the basis of the actual number of days elapsed
in such 90-day quarter.
31
Holders Can Elect Distributions in Common Stock Series A or Cash. In
anticipation of the continuing use of Citizens' shares of Common Stock
Series A to satisfy the interest requirements on the Convertible Debentures,
each holder of a Convertible Preferred Security may elect annually during a
designated period of ten Business Days how distributions from the Trust will
be paid to him (a "Distribution Election"). If he makes an election to
receive distributions in Common Stock Series A (a "Stock Distribution
Election"), he will receive his distributions in Common Stock Series A,
unless the Trust only has cash available for making distributions.(1) If he
makes an election to receive distributions in cash (a "Cash Distribution
Election"), he will receive his distribution in cash. If a holder makes no
Distribution Election, he will automatically be deemed by the Trust to have
made a Cash Distribution Election. Once made, Distribution Elections will
stand as long as a holder owns his Convertible Preferred Security unless and
until he makes a new Distribution Election by completing an election form and
delivering the same to the broker, nominee or other entity which holds such
holder's account during the annual Election Period (the procedures for which
will be specified in the Distribution Declaration Notice). If a holder does
not deliver a new election form within this period, then such holder's new
election will not be effective. Any election by a holder of Convertible
Preferred Securities will be canceled by a transfer of the Convertible
Preferred Securities and the new holder will be entitled to make an election
in the next Election Period. Prior to such Election Period, such new holder
will be deemed to have made a Cash Distribution Election. In the event that
the Partnership is dissolved or liquidated by reason of the occurrence of a
Partnership Event, the right of (i) a holder to make a Stock Distribution
Election, and (ii) Citizens to make Stock Payment Elections will terminate.
In such event, interest payments and distributions will be made only in cash.
See "Prospectus Summary - Distributions."
Distributions Flow From Citizens to Holders. Currently, Citizens intends
to make interest payments on the Convertible Debentures in shares of Common
Stock Series A with a fair market value on the Share Transfer and Valuation
Date equivalent to the interest payment due on the next scheduled Interest
Payment Date ("Equivalent Value"). The "Share Transfer and Valuation Date"
will be the date specified by Citizens in a written notice (the
"Distribution Declaration Notice") to the Trust, the Partnership and the
holders of the Convertible Preferred Securities, which Share Transfer and
Valuation Date shall also be the date on which shares of Common Stock Series A
are transferred by Citizens to the Partnership (as the holder of the
Convertible Debentures) to satisfy the interest payment obligation on the
Convertible Debentures. Currently, Citizens contemplates that the Share
Transfer and Valuation Date will be at least nine Business Days before the
Distribution Payment Date, but such time-frame may be subject to change to
reflect evolving market practices and settlement procedures. If Citizens
fails to make a timely declaration, Citizens shall be deemed to have elected
to pay interest in the form of shares of Common Stock Series A.
- ----------------------
(1) As noted above, Citizens may make a Cash Payment Election and pay
interest on the Convertible Debentures in cash to the Partnership and,
as General Partner of the Partnership, would then cause such cash to
be distributed by the Partnership to the Trust. In such event, even
though a holder may have made a Stock Distribution Election, he will
receive cash as the Trust will only have cash with which to pay him.
32
How Distributions are Made. If Citizens pays interest on the Convertible
Debentures in shares of its Common Stock Series A and delivers the same to
the Partnership in payment of its interest obligations on the Convertible
Debentures, holders of Trust Securities who have not made a Stock
Distribution Election or who have revoked their Stock Distribution Election
will receive cash at the Rate because the Partnership will sell sufficient
shares of Common Stock Series A on the open market (or otherwise raise cash)
so that the Partnership can pay the Trust (i) such number of shares and
(ii) such amount of cash as will satisfy the Trust's obligation to make
payments in stock and cash to holders in accordance with their elections.
Pursuant to the Indenture, if shares are sold by the Partnership for less
than the Equivalent Value, Citizens will pay any shortfall to insure that
each holder of the Convertible Preferred Securities who has an effective
made Cash Distribution Election receives cash distributions in an amount
equal to the Rate.
Citizens also has the right on the Distribution Declaration Date to elect
to make interest payments on the Convertible Debentures in whole or in part
by check or bank wire in immediately available funds. Also, after a
Distribution Declaration Date on which it had elected to pay interest to the
Partnership in shares of Common Stock Series A for the next succeeding interest
payment, Citizens may exercise its right to thereafter substitute cash for
such payment. In such case, all holders will receive cash distributions at
the Rate. Further, at any time after the Share Transfer and Valuation Date,
Citizens will also have the right to purchase some or all of the shares of
Common Stock Series A deposited with Citizens Capital for cash at a price
equal to the Equivalent Value. In such case, holders who have made a Stock
Distribution Election may receive their distributions in cash at the Rate.
If a Distribution Declaration Notice has specified that the distribution will
be made in Common Stock Series A, and Citizens thereafter expects either to
pay the distribution entirely in cash or to purchase some or all of the shares
deposited with the Partnership, Citizens shall notify the Partnership, the
Trust and the holders of the Convertible Preferred Securities in writing
(which writing is also referred to herein as a "Cash Payment Election").
Distributions on the Convertible Preferred Securities must be paid to the
extent that the Trust has funds or securities, as the case may be, available
for and on hand to make the payment of such distributions. It is anticipated
that the Trust's funds and securities on hand will be limited to funds and
securities received from distributions on the Partnership Preferred
Securities. If Citizens fails to make interest payments on the Convertible
Debentures, the Partnership would not have funds or securities, as the case
may be, to pay distributions to the Trust on the Partnership Preferred
Securities, and the Trust would not have funds or securities, as the case may
be, to pay distributions on the Convertible Preferred Securities. See "Risk
Factors - Dependance on Convertible Debenture Payments," and "Guarantees."
Record Dates. Distributions declared (as opposed to deferred) on the
Convertible Preferred Securities will be payable to the holders thereof as
they appear on the books and records of the Trust on the relevant Record
Dates. Such distributions will be paid through the Property Trustee who will
hold funds and securities received in respect of the Partnership
33
Preferred Securities in the Property Account for the benefit of the holders
of the Trust Securities. Subject to any applicable laws and regulations and
the Declaration, each such payment will be made as described under
"Convertible Preferred Securities - Book-Entry-Only Issuance - The
Depository Trust Company" below. In the event that any date on which
distributions are payable on the Convertible Preferred Securities is not a
Business Day, then payment of the distributions will be made on the next
succeeding Business Day (and without any additional interest in respect of
such delay). If such Business Day is in the next succeeding calendar year,
however, the payment will be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such date. A
"Business Day" means any day other than a Saturday or a Sunday or a day on
which banking institutions in The City of New York are authorized or
obligated by law or executive order to close.
Other. Initial purchasers in the offering of the Convertible Preferred
Securities may make their Distribution Elections during a period of seven
calendar days after the offering. The Election Period will commence on or
before December 21 of each year (a date which will be at least two Business
Days after the scheduled Record Date relating to the January 31 distribution
payment), beginning in 1996, and will end at the close of business ten
Business Days later. Election forms and prospectuses will be sent to
beneficial holders of Convertible Preferred Securities on the Record Date
relating to the January 31 distribution payment each year on or about the
first day of the Election Period. Timely Distribution Election forms should
be delivered by beneficial holders of the Convertible Preferred Securities to
the broker, nominee or other entity which holds such holder's account so that
they are received by such broker, nominee or other entity on or before the
close of business on the last day of the Election Period. The brokerage
houses holding accounts for holders, nominees and other participants in DTC
will transmit the same to DTC to the extent reasonably required to implement
such elections. The Trust will be relying on information supplied through
these procedures in determining how many shares of Common Stock Series A or
how much cash to distribute on each Distribution Payment Date. While the
Company, the Partnership and the Trust believe that such procedures are not
dissimilar from those used in similar situations, each purchaser and holder of
a Convertible Preferred Security is urged to consult with his broker to insure
that his election is properly recorded. Questions may be addressed to the
Company at the phone number and address appearing elsewhere herein.
Deferrals
Unless deferred, interest and distributions are payable in arrears on the
Interest Payment Date and the Distribution Payment Date, respectively. Under
the Indenture, Citizens has the right, at any time and from time
to time, to elect to defer the date on which one or more of the quarterly
interest payments on the Convertible Debentures would otherwise become due
and payable by the giving of notice of deferral; provided that no such
deferral, including any extension thereof, may exceed 20 consecutive
quarters nor extend beyond the stated maturity date of the Convertible
Debentures; and, provided, further, that in the event of such deferral, any
interest so deferred shall not be deemed to have become due and
payable until after such deferral period has ended. As a consequence,
distributions on the Convertible Preferred
34
Securities would be deferred by the Trust during any such deferral of interest
payments. If Citizens exercises this deferral right, it will be restricted
from making certain distributions and payments (other than in shares of its
capital stock) to holders of its capital stock, or to holders of
indebtedness where such indebtedness ranks junior to the Convertible
Debentures, and from making certain guarantee payments. Upon any such
deferrals, interest will be compounded on each Interest Payment Date and
accrued until paid at the Rate on any interest so deferred until the amount
of such deferred interest (including compounded interest thereon) is paid in
full. Citizens shall give the Regular Trustees written notice of its election
to defer an interest payment on or before the Distribution Declaration Date.
Citizens shall also give written notice of any deferred interest payment (and
the consequential deferral of their distributions) to the holders of the
Convertible Preferred Securities. See "Risk Factors - Option to Defer
Payment of Distributions," and "Convertible Debentures - Option to Defer
Interest Payments." If interest payments are deferred, the resulting
deferred distributions and accrued and accumulated distributions thereon
shall be paid to holders of record of the Convertible Preferred Securities
as they appear on the books and records of the Trust on the record date
established for payment, as opposed to any record date for purposes of any
notice relating to the deferral of interest payments or distributions. As a
result, any holder who sells Convertible Preferred Securities during a
deferral period will transfer to the buyer his entitlement to any payment
made at the end of any such deferral period. Any failure by Citizens to make
interest payments on the Convertible Debentures in the absence of a deferral
would constitute an Indenture Event of Default. Citizens may not elect to
defer interest payments while an Indenture Event of Default has occurred and
is continuing.
Additional Interest
Citizens is required to pay either (i) directly to such taxing authority, or
(ii) to the Trust or Citizens Capital, as the case may be, or (iii) as
additional interest ("Additional Interest") on the Conbertible Debentures,
any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States or any other
domestic taxing authority upon either the Trust or Citizens Capital. To the
extent that such payments give rise to additional taxes of Citizens Capital
or the Trust, the Company shall also make payment for such additional taxes
of Citizens Capital or the Trust. Citizens shall be required to pay
Additional Interest or make such other payments in an amount and at such
time so that the net amounts received as interest or distribution payments
by Citizens Capital and the Trust, and distributable to the Trust and the
holders of the Convertible Preferred Securities, respectively, after all
such taxes, duties, assessments or governmental charges have been paid will
not be less than the amount that would have been received and distributed by
such entities, and the amount the holders of the Convertible Preferred
Securities would have received, had no such taxes, duties, assessments or
governmental charges been imposed. If such taxes or duties are paid to the
Trust or Citizens Capital or as Additional Interest on the Convertible
Debentures, then the Trust or Citizens Capital, as the case may be, is
required to pay such amounts over to such taxing authority in satisfaction
of such charges or assessments.
35
Conversion Rights
General. The Convertible Preferred Securities will be convertible, unless
previously redeemed, at the option of the holder thereof and in the manner
described below, into shares of Common Stock Series A of Citizens at a
conversion price of $15.375 per share of Common Stock Series A (equivalent
to a conversion rate of 3.252 shares of Common Stock Series A for each $50 of
liquidation preference of Convertible Preferred Securities), subject to
adjustment as described under - "Conversion Price Adjustments" below. A
holder of Convertible Preferred Securities wishing to exercise its conversion
right as to all or a portion of such Convertible Preferred Securities shall,
in effect, surrender such Convertible Preferred Securities, or a portion
thereof, by giving an irrevocable written Notice of Conversion, to the
Conversion Agent. The Conversion Agent shall then, on behalf of such holder,
cause the Convertible Preferred Securities to be exchanged for Partnership
Preferred Securities, and in turn cause the Partnership Preferred Securities
to be exchanged for Convertible Debentures, and immediately cause the
Convertible Debentures to be converted into Common Stock Series A. Holders
may obtain copies of the Notice of Conversion from the Conversion Agent.
Convertible Preferred Securities that have been called for redemption will
not be convertible after the close of business five (5) Business Days
preceding the date fixed for redemption and no Convertible Preferred Security
will be convertible after the close of business five (5) Business Days
preceding January 15, 2036.
Holders of Convertible Preferred Securities at the close of business
on a Record Date will be entitled to receive the distribution payable on such
securities on the corresponding Distribution Payment Date notwithstanding the
conversion of such Convertible Preferred Securities following such Record
Date. Except as provided in the immediately preceding sentence, the Trust
will make no payment or allowance for accrued, deferred or otherwise unpaid
distributions on converted Convertible Preferred Securities, or for any
dividends or distributions on the shares of Common Stock Series A. Holders
of shares of Common Stock Series A which are issuable upon conversion
prior to or on a record date for any dividend or distribution on such shares
shall be entitled to receive the same dividend or distribution as other
holders of record of Common Stock Series A. Each conversion will be deemed
to have been effected immediately prior to the close of business on the day
on which the Notice of Conversion was received by the Trust.
No fractional share of Common Stock Series A will be issued as a result of
conversion; in lieu thereof such fractional interest will be settled in cash.
Citizens will, subject to compliance with the requirements of any
regulatory authority claiming jurisdiction over Citizens' business, reserve
for issuance enough shares of Common Stock Series A so as to have sufficient
shares legally available to effect such conversions.
Conversion Price Adjustments - General. Commencing in 1956, and each year
without interruption through 1995. Citizens has followed the policy of paying
only stock dividends on Common Stock Series A. The conversion price of the
Convertible Preferred Securities will be adjusted downward to reflect the
declaration of each such stock dividend. The conversion price is also
subject to adjustment in certain events, including (a) the issuance of
shares of Common
36
Stock Series A as a dividend or a distribution with respect to its Common
Stock Series A, (b) subdivisions, combinations and reclassification of Common
Stock Series A, (c) the issuance to all holders of Common Stock Series A of
rights or warrants entitling them (for a period not exceeding 45 days) to
subscribe for shares of Common Stock Series A at less than the current market
price, (d) the distribution to all holders of Common Stock Series A of
evidences of indebtedness of the Company, securities or capital stock, cash or
assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to above and dividends and distributions paid
exclusively in cash), (e) the payment of dividends (and other distributions)
on Common Stock Series A paid exclusively in cash, excluding cash dividends
if the annualized per share amount thereof does not exceed 15% of the current
market price of Common Stock Series A as of the Trading Day immediately
preceding the date of declaration of such dividend, and (f) payment to holders
of Common Stock Series A in respect of a tender or exchange offer (other than
an odd-lot offer) by Citizens or any subsidiary of Citizens for Common Stock
Series A at a price in excess of 110% of the current market price of Common
Stock Series A as of the Trading Day next succeeding the last date tenders or
exchanges may be made pursuant to such tender or exchange offer. A "Trading
Day" means any day on which the NYSE (or any other market used for the
determination of fair market value) is open for the trading of securities.
No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock Series A pursuant to any present or future plan
providing for the reinvestment of dividends or interest payable on
securities of Citizens and the investment of additional optional amounts in
shares of Common Stock Series A under any such plan. No adjustment in the
conversion price will be required unless such adjustment would require a
change of at least one percent (1%) in the price then in effect; provided,
however, that any adjustment that would not be required to be made shall be
carried forward and taken into account in any subsequent adjustment. If any
action would require adjustment of the conversion price pursuant to more than
one of the provisions described above, only one adjustment shall be made and
such adjustment shall be the amount of adjustment that has the highest
absolute value to the holder of the Convertible Preferred Securities.
Citizens from time to time may also reduce the conversion price of the
Convertible Debentures (and thus the conversion price of the Convertible
Preferred Securities) by any amount selected by Citizens for any period
of at least 20 days, in which case Citizens shall give at least 15 days'
notice of such reduction. Citizens may also, at its option, make such
reductions in the conversion price, in addition to those set forth above,
as the Citizens Board of Directors deems advisable to avoid or diminish
any income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event
treated as such for inome tax purposes. See "Certain Federal Income Tax
Considerations - Adjustment of Conversion Price".
Conversion Price Adjustments - Merger, Consolidation or Sale of Assets of
Citizens. In the event that Citizens shall be a party to any transaction
(including, without limitation, and with certain exceptions, (a)
recapitalization or reclassification of the Common Stock Series A, (b)
37
consolidation of Citizens with, or merger of Citizens into, any other Person,
or any merger of another Person into Citizens, (c) any sale or transfer of
all or substantially all of the assets of Citizens or (d) any compulsory
share exchange pursuant to which the Common Stock Series A is converted into
the right to receive other securities, cash or other property, (each of the
foregoing being referred to as a "Transaction"), then the holders of
Convertible Preferred Securities then outstanding shall have the right to
convert the Convertible Preferred Securities into the kind and amount of
securities, cash and other property receivable upon the consummation of such
Transaction by a holder of the number of shares of Common Stock Series A
issuable upon conversion of such Convertible Preferred Securities
immediately prior to such Transaction.
In the case of a Transaction, each Convertible Preferred Security would
become convertible into the securities, cash or property receivable by a
holder of the number of shares of Common Stock Series A into which such
Convertible Preferred Security was convertible immediately prior to such
Transaction. This change could substantially lessen or eliminate the value
of the conversion privilege associated with the Convertible Preferred
Securities in the future. For example, if Citizens were acquired in a cash
merger, each Convertible Preferred Security would become convertible solely
into cash and would no longer be convertible into securities whose value
would vary depending on the future prospects of Citizens and other factors.
Special Events Distribution
"Trust Investment Company Act Event" means that Citizens shall have (i)
requested and received and (ii) delivered to the Regular Trustees, an opinion
of a nationally recognized independent counsel experienced in practice under
the Investment Company Act of 1940, as amended (the "1940 Act") (an
"Investment Company Act Opinion") that, as a result of the occurrence of a
change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), there is a more
than an insubstantial risk that the Trust is or will be considered an
investment company which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the first date of
issuance of the Convertible Preferred Securities.
"Trust Tax Event" means that Citizens shall have (i) requested and received
and (ii) delivered to the Regular Trustees, an opinion of a nationally
recognized independent tax counsel experienced in such matters (a "Tax Event
Opinion") to the effect that, as a result of (a) any change or prospective
change which is announced or publicly stated in the laws (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein, (b) any change or prospective change in an
interpretation or application of any such laws or regulations by any
legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any
judicial decision or regulatory determination), (c) any interpretation or
pronouncement that provides for a position with respect to such laws or
regulations that differs from the generally accepted position or (d)
38
any action by any governmental agency or body or regulatory authority,
assuming such change is enacted, promulgated, issued or effective or such
interpretation or pronouncement is issued or announced or becomes effective
or such action is taken, in each case on or after the date of this Prospectus,
there would be more than an insubstantial risk that (i) the Trust may be
subject to United States federal income tax with respect to distributions
accrued or received on the Partnership Preferred Securities or (ii) the Trust
is subject to more than a de minimis amount of taxes, duties or other
governmental charges. (For purposes hereof, the circumstances described in
subsections (a) through (d) above are sometimes hereafter referred to as a
"Change in Tax Law".)
A Trust Tax Event and a Trust Investment Company Act Event are sometimes
herein collectively or individually referred to as "Trust Events".
"Partnership Tax Event" means that the General Partner shall have received
a Tax Event Opinion to the effect that, as a result of a Change in Tax Law,
there is more than an insubstantial risk that (i) Citizens Capital may be
subject to United States federal income tax with respect to interest accrued
or received on the Convertible Debentures or (ii) Citizens Capital is
subject to more than a de minimis amount of taxes, duties or other
governmental charges.
"Partnership Investment Company Act Event" means that the General Partner
shall have received an Investment Company Act Opinion that as a result of the
occurrence of a Change in 1940 Act Law, there is more than an insubstantial
risk that the Partnership is or will be considered an investment company
which is required to be registered under the 1940 Act, which Change in 1940
Act Law becomes effective on or after the first date of issuance of the
Partnership Preferred Securities.
A Partnership Tax Event and a Partnership Investment Company Act Event are
sometimes herein collectively or individually referred to as "Partnership
Events".
"Company Tax Event" means that Citizens shall have obtained a Tax Event
Opinion to the effect that, as a result of a Change in Tax Law, there is more
than an insubstantial risk that interest payable to the holders of the
Convertible Debentures would not be deductible by Citizens for United States
federal income tax purposes.
A Trust Event, Partnership Event, and Company Tax Event are sometimes herein
collectively or individually referred to as "Special Events".
"Rating Agency Event" shall occur when, and if, (i) any nationally recognized
securities rating agency lowers its rating of the Company's senior, unsecured
long-term debt to a rating less than the rating in effect on the date of the
issuance of the Convertible Preferred Securities and (ii) Citizens has
elected to transmit notice thereof to the Trust.
If at any time a Trust Event shall occur and be continuing, the Regular
Trustees will (except as set forth under Ministerial Action below) cause the
Trust to be liquidated with the
39
result that Partnership Preferred Securities will be distributed to holders
of the Trust Securities in liquidation of such holders' interests in the
Trust, on a pro rata basis. If a Partnership Event has also occurred and is
continuing, then the General Partner may also cause the Partnership to be
liquidated as well with the result that Convertible Debentures (and not
Partnership Preferred Securities) will ultimately be received by the holders
of the Trust Securities in liquidation of such holders' interests in the
Trust, on a pro rata basis.
If at any time only a Partnership Event shall occur and be continuing, the
General Partner may (except as set forth under Ministerial Action below) cause
the Partnership to be liquidated with the result that Convertible Debentures
will be distributed to the Trust in liquidation of its interests in the
Partnership. Following a Partnership liquidation, holders of Convertible
Preferred Securities would lose their right to make Distribution Elections,
Citizens will lose its right to make Stock Payment Elections, and
distributions to holders of Convertible Preferred Securities will be made
only in cash.
Upon the occurrence of a Company Tax Event, Citizens will (except as set
forth under Ministerial Action below) have the right to cause the Trust
and the Partnership to be liquidated with the result that Convertible
Debentures will ultimately be received by the holders of the Trust
Securities in liquidation of such holders' interest in the Trust, on a pro
rata basis.
Ministerial Action. If at the time of any such Special Event, Citizens,
the Partnership or the Trust are actually aware of an opportunity to
eliminate the adverse effect of the Special Event on the Trust, Citizens or
the Partnership by taking some ministerial action (such as filing a form or
making an election or pursuing some other similar reasonable measure) where
the taking of such action does not involve a material cost, then neither
Citizens, the Partnership nor the Trust shall liquidate the Partnership
or the Trust by reason of such Special Event without first having pursued
such ministerial action.
If, at any time, a Rating Agency Event shall occur and be continuing, the
Trust will be liquidated with the result that Partnership Preferred
Securities will be distributed to the holders of the Trust Securities in
liquidation of such holders' interests in the Trust, on a pro rata basis.
In addition, Citizens may notify the Trustees that it will liquidate the
Partnership with the result that Convertible Debentures (and not Partnership
Preferred Securities) will be ultimately distributed to holders of Trust
Securities, on a pro rata basis.
[/R]
After the date for any distribution of Partnership Preferred Securities or
Convertible Debentures, as the case may be, upon dissolution and liquidation
of the Trust (i) the Convertible Preferred Securities will be deemed to be
no longer outstanding, (ii) the Depositary or its nominee, as the record
holder of the Convertible Preferred Securities, will receive a registered
global certificate or certificates representing the Partnership Preferred
Securities or Convertible Debentures, as the case may be, and (iii) any
certificates representing Convertible Preferred Securities not held by the
Depositary or its nominee will be deemed to represent (a) Partnership
Preferred Securities having an aggregate liquidation amount equal to the
aggregate stated liquidation amount of, with a distribution rate identical
to the distribution rate of, and accrued
40
or deferred and unpaid distributions equal to accrued or deferred and unpaid
distributions on such Convertible Preferred Securities, or (b) Convertible
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution
rate of, and accrued or deferred and unpaid interest equal to accrued or
deferred and unpaid distributions on such Convertible Preferred Securities,
as the case may be, until such certificates are presented to Citizens or its
agent for transfer or reissuance.
There can be no assurance as to the market prices for the Convertible
Preferred Securities, or the Partnership Preferred Securities or Convertible
Debentures that may be distributed in exchange for the Convertible Preferred
Securities, if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Convertible Preferred Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary
market, or the Partnership Preferred Securities or Convertible Debentures,
as the case may be, that an investor may receive if a dissolution and
liquidation of the Trust were to occur, may trade at a discount or a premium
to the price that the investor paid to purchase the Convertible Preferred
Securities offered hereby. Upon the distribution of the Convertible
Debentures or the Partnership Preferred Securities, the Company will use its
best efforts to list such securities on the exchange that the Convertible
Preferred Securities are then listed.
Optional Redemption
The Convertible Debentures are also subject to redemption by Citizens, at
its option, in whole or in part, from time to time, on or after February 1,
1999 at 100% of the principal amount being redeemed, together with accrued
or deferred and unpaid interest to the redemption date. If Citizens redeems
Convertible Debentures, the Trust must redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Convertible Debentures so redeemed, at $50 per Trust Security in cash, plus
accrued or deferred and unpaid distributions in either cash or Common Stock
(such amount and form of payment being the "Redemption Price").
Redemption on Maturity or Upon Acceleration
Additionally, Convertible Preferred Securities are also subject to
redemption in whole, but not in part, upon any redemption of the Partnership
Preferred Securities occurring upon the repayment at maturity (on
January 15, 2036) or as a result of acceleration of the Convertible
Debentures upon the occurrence of an Indenture Event of Default described
under "Convertible Debentures - Events of Default." Upon the repayment of
the Convertible Debentures, the proceeds from such repayment shall
simultaneously be applied to redeem Convertible Preferred Securities having
an aggregate liquidation amount equal to the aggregate principal amount of
the Convertible Debentures so repaid at the Redemption Price. In the case
of such acceleration, the Convertible Preferred Securities will only be
redeemed when repayment of the Convertible Debentures has actually been
received by the Trust.
41
Redemption Procedures; Generally
If Convertible Preferred Securities are called for redemption, conversion
rights with regard thereto will terminate five (5) Business Days prior to the
redemption date. If the Convertible Preferred Securities are called for
redemption, optionally or at maturity or acceleration, Citizens may not redeem
the Convertible Debentures called for redemption, unless on or before the
redemption date all accrued or deferred and unpaid distributions have been
paid in full on all Convertible Preferred Securities for all quarterly
distribution periods terminating on or prior to the date of redemption.
Notice of any redemption of Convertible Preferred Securities
(which notice will be irrevocable) will be given to each record holder of
Convertible Preferred Securities that are being redeemed or exchanged not
fewer than thirty (30) nor more than sixty (60) days prior to the date fixed
for redemption thereof. If a notice of redemption has been given, then on
the redemption date, if the Partnership or Citizens, as the case may be, has
paid to the Property Trustee a sufficient amount of cash and Common Stock in
connection with the related redemption or maturity of Partnership Preferred
Securities and/or the Convertible Debentures, the Property Trustee will
irrevocably deposit such cash and Common Stock with the Paying Agent with
irrevocable instructions to pay the applicable Redemption Price (i) to the
holders of the Convertible Preferred Securities to be redeemed (in the event
that such Convertible Preferred Securities are in definitive form) or
(ii) to DTC (in the event that Convertible Preferred Securities are in
book-entry form) with irrevocable instructions to pay the Redemption Price
to the holders of the Convertible Preferred Securities to be redeemed. See
"Book-Entry-Only Issuance - The Depository Trust Company." Upon
satisfaction of the foregoing conditions, then immediately prior to the
close of business on the date of such deposit or payment all rights of
holders of such Convertible Preferred Securities so called for redemption
will cease, except the right of the holders to receive the Redemption Price,
and from and after the date fixed for redemption, such Convertible Preferred
Securities will not accrue distributions or bear interest. In the event that
any date fixed for redemption of Convertible Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding Business Day (and without any interest in
respect of any such delay), except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the Redemption Price is improperly
withheld or refused and not paid by either the Property Trustee or Citizens,
distributions on the Convertible Preferred Securities called for redemption
will continue to accrue at the Rate, compounded quarterly, to the extent
that payment of such interest is legally available, until the Redemption
Price is actually paid.
In the event that fewer than all of the outstanding Convertible Preferred
Securities are to be redeemed, the Convertible Preferred Securities to be
redeemed will be selected as described under " - Book-Entry-Only Issuance -
The Depositary Trust Company" below.
[/R]
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), Citizens or its subsidiaries may at
any time, and from time to time,
42
purchase outstanding Convertible Preferred Securities by tender, in the open
market or by private agreement.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution, or
winding-up or termination of the Trust, the holders of Convertible Preferred
Securities at the time outstanding will be entitled to receive, out of the
assets of the Trust, after satisfaction of liabilities to creditors, a
liquidation preference of $50 per Convertible Preferred Security payable in
cash, plus all accrued or deferred and unpaid distributions, payable in
either cash or Common Stock, to the date of payment (the "Liquidation
Distribution"), unless, in connection with such liquidation, at the election
of the Regular Trustees, either Partnership Preferred Securities or
Convertible Debentures shall be distributed on a pro rata basis to the holders
of the Convertible Preferred Securities.
If, upon any such liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Convertible Preferred Securities shall be paid
on a pro rata basis. The holders of the Convertible Common Securities will
be entitled to receive distributions upon any such dissolution pro rata with
the holders of the Convertible Preferred Securities, except that if a
Declaration Event of Default has occurred and is continuing, the Convertible
Preferred Securities shall have a preference over the Convertible Common
Securities with regard to such distributions.
If, upon any liquidation of the Trust, the holders of Convertible Preferred
Securities are paid in full the aggregate Liquidation Distribution to which
they are entitled, then such holders will not be entitled to receive or share
in any other assets of the Trust thereafter available for distribution to any
other holders of beneficial interests in the Trust.
As set forth in greater detail in the Declaration, the Trust shall be
dissolved and its affairs shall be wound up upon the occurrence of certain
events, including the earliest to occur of: (i) January 22, 2041, the
expiration of the term of the Trust; (ii) the bankruptcy of Citizens, (iii)
upon the filing of a certificate of dissolution or its equivalent with
respect to Citizens or the revocation of the charter of Citizens or of the
Trust's certificate of trust in accordance with the terms of the Declaration,
(iv) upon the distribution of Partnership Preferred Securities or Convertible
Debentures upon the occurrence of any Rating Agency Event or Special Event
and the dissolution and liquidation of the Trust, (v) upon the entry of a
decree of a judicial dissolution of Citizens or the Trust, or (vi) upon the
redemption of all the Trust Securities.
Amendment to the Declaration
The Declaration may be modified and amended if approved by the Regular
Trustees (or, if there are more than two Regular Trustees, a majority of the
Regular Trustees) (and in certain circumstances, by the Property Trustee or
the Delaware Trustee); provided that, if any proposed
43
amendment provides for, or the Regular Trustees otherwise propose to effect, (i)
any action that would adversely affect the powers, preferences or special rights
of the Trust Securities, whether by way of amendment to the Declaration or
otherwise, or (ii) the dissolution, winding-up, or termination of the Trust
other than pursuant to the terms of the Declaration, then such amendment or
proposal shall not be effective except with the approval of at least 66 2/3%
in liquidation amount of the Trust Securities affected thereby.
Notwithstanding the foregoing, no amendment may be made to the Declaration
if such amendment would (i) cause the Trust to be classified for purposes of
United States federal income taxation as other than a grantor trust, (ii)
reduce or otherwise adversely affect the powers of the Property Trustee, or
(iii) cause the Trust to be deemed an investment company which is
required to be registered under the 1940 Act.
Merger, Consolidation or Sale of Assets 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 entity, except as described below. The
Trust may, with the consent of a majority of the Regular Trustees and
without the consent of the holders of the Trust Securities, the Delaware
Trustee or Property Trustee, consolidate, amalgamate, merge with or into, or
be replaced by a trust organized as such under the laws of any state of the
United States of America, subject to certain conditions set forth in the
Declaration. The Trust shall not, except with the consent of the 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 such
consolidation, amalgamate, merger or replacement would cause the Trust or
the successor entity to be classified as other than a grantor trust for
United States federal income tax purposes.
Declaration Events of Default
An event of default under the Limited Partnership Agreement (a "Partnership
Event of Default") constitutes an event of default under the Declaration with
respect to the Trust Securities (a "Declaration Event of Default"), provided
that, pursuant to the Declaration, the holder of the Convertible Common
Securities will be deemed to have waived any Declaration Event of Default
with respect to the Convertible Common Securities until all Declaration
Events of Default with respect to the Convertible Preferred Securities have
been cured, waived or otherwise eliminated. Until such Declaration Events
of Default with respect to the Convertible Preferred Securities have been so
cured, waived, or otherwise eliminated, the Property Trustee will be deemed
to be acting solely on behalf of the holders of the Convertible Preferred
Securities and only the holders of the Convertible Preferred Securities will
have the right to direct the Property Trustee with respect to certain matters
under the Declaration, and therefore the Indenture. The holders of a
majority in aggregate liquidation amount of Convertible Preferred Securities
may vote to waive any Declaration Event of Default, provided that if the
underlying Partnership Event of Default requires the consent of a Super
Majority (as defined
44
below), a corresponding Super Majority of Convertible Preferred Securities
will be required. A Partnership Event of Default may be waived as described
in "Partnership Preferred Securities - Limited Partnership Agreement Events
of Default" and " - Voting Rights." A waiver of a Partnership Event of
Default by the Property Trustee constitutes a waiver of the corresponding
Declaration Event of Default.
Upon the occurrence of a Declaration Event of Default, the Property Trustee
as the sole holder of the Partnership Preferred Securities of Citizens
Capital, which is the sole holder of the Convertible Debentures, will have
the right under the Declaration to enforce its rights as holder of the
Partnership Preferred Securities. Citizens and the Trust are each required
to file annually with the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
Voting Rights
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Guarantees," and as otherwise required by law and the Declaration,
the holders of the Convertible Preferred Securities will have no voting
rights.
Subject to the requirement that the Property Trustee obtain a tax opinion
in certain circumstances as set forth in the last sentence of this paragraph,
the Holders of a majority in aggregate liquidation amount of the Convertible
Preferred Securities voting separately as a class may direct the time,
method, and place of conducting any proceeding for any remedy available to
the Property Trustee or exercising any trust or power conferred upon the
Property Trustee under the Declaration, including, for so long as the
Property Trustee shall hold the Partnership Preferred Securities,
causing the Special Representative (as hereafter defined) to, or, if the
Property Trustee shall hold the Convertible Debentures directly, to (i)
prosecute any proceeding for any remedy available to the Indenture Trustee or
exercise any power conferred on the Indenture Trustee with respect to the
Convertible Debentures, (ii) waive any waivable past default and its
consequences that are waivable under the Indenture, or (iii) exercise any
right to rescind or annul a declaration that the principal amount of all the
Convertible Debentures shall be due and payable, provided, however, that when
the Limited Partnership Agreement or the Indenture, as the case may be,
requires the consent of the holders of greater than a majority in aggregate
liquidation amount of Partnership Preferred Securities or greater than a
majority in aggregate principal amount of Convertible Debentures, as the
case may be, affected thereby (a "Super Majority"), a corresponding Super
Majority of Convertible Preferred Securities will be required. If the
Property Trustee fails to enforce its rights under the Declaration, any
holder of Convertible Preferred Securities may institute a legal proceeding
directly against any person to enforce the Property Trustee's rights under
the Declaration, without first instituting a legal proceeding against the
Property Trustee or any other person. Other than with respect to directing
the time, method and place of conducting any proceeding for a remedy as set
forth above, the Property Trustee shall not take any of the above actions in
accordance with the directions of the holders of the Convertible Preferred
Securities unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, for the purposes of United States federal
45
income tax, the Trust will continue to be classified as a grantor trust after
consummation of such action.
Any approval or direction of holders of Convertible Preferred Securities
may be given at a separate meeting of holders of Convertible Preferred
Securities convened for such purpose, at a meeting of all of the holders of
Trust Securities or pursuant to written consent.
No vote or consent of the holders of the Convertible Preferred Securities
will be required for the Trust to redeem and cancel Convertible Preferred
Securities or to distribute Partnership Preferred Securities or Convertible
Debentures in accordance with the Declaration and the terms of the Trust
Securities.
Any Convertible Preferred Securities that are owned by Citizens, or by any
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with Citizens shall not be entitled to vote or
consent and shall, for such purposes, be treated as if they were not
outstanding; provided, however, that holders of Convertible Preferred
Securities that have been validly pledged by Citizens or any such entity to a
party otherwise eligible to vote may vote or consent under any of the
circumstances described above.
Book-Entry-Only Issuance - The Depository Trust Company
DTC will act as securities depository for the Convertible Preferred
Securities and, to the extent distributed to the holders of the Convertible
Preferred Securities, the Partnership Preferred Securities and the Convertible
Debentures. The information in this section concerning DTC and DTC's book-
entry system is based upon information obtained from DTC. The Convertible
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (as nominee for DTC). One or more
fully-registered global Convertible Preferred Security certificates will be
issued, representing in the aggregate the total number of Convertible
Preferred Securities, and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in the global
Convertible Preferred Securities as represented by a global certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants ("Participants") deposit with DTC.
DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates.
Direct Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations ("Direct
Participants"). DTC is owned by
46
a number of its Direct Participants and by the NYSE, the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants").
Purchases of Convertible Preferred Securities within the DTC system must
be made by or through Direct Participants, which will receive a credit for
the Convertible Preferred Securities on DTC's records. The ownership
interest of each actual purchaser of a Convertible Preferred Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected
to receive written confirmations providing details of the transactions, as
well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Convertible
Preferred Securities. Transfers of ownership interests in Convertible
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in
Convertible Preferred Securities, except upon a resignation of DTC, upon the
occurrence of an Indenture Event of Default or upon a decision by the Trust
to discontinue the book-entry system for the Convertible Preferred
Securities.
To facilitate subsequent transfers, all the Convertible Preferred
Securities deposited by Participants with DTC are registered in the name of
DTC's nominee, Cede & Co. The deposit of Convertible Preferred Securities
with DTC and their registration in the name of Cede & Co. effect no change
in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Convertible Preferred Securities; DTC's records reflect only
the identity of the Direct Participants to whose accounts such Convertible
Preferred Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices with respect to the Convertible Preferred Securities
shall be sent to Cede & Co. If less than all of the Convertible Preferred
Securities are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such securities to be
redeemed.
Although voting with respect to the Convertible 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 Convertible Preferred Securities.
Under its usual procedures, DTC would mail an "Omnibus Proxy" (i.e., a proxy
conferring on Direct Participants the right to vote as their
47
interests appear) to the Trust as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Convertible Preferred Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy). Citizens and the Trust believe that the arrangements among DTC,
Direct and Indirect Participants, and Beneficial Owners 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.
Cash distribution payments and distribution payments in shares of Common
Stock Series A on the Convertible Preferred Securities will be made to DTC.
DTC's practice is to credit Direct 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 such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name," and will be the responsibility of such Participant and not of
DTC, the Trust, Citizens Capital or Citizens, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Trust, disbursement of such
payments to Direct Participants is the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners is the responsibility
of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Convertible
Preferred Security will not be entitled to receive physical delivery of
Convertible Preferred Securities. Accordingly, each Beneficial Owner must
rely on the procedures of DTC to exercise any rights under the Convertible
Preferred Securities, including elections as to form of payment.
DTC may discontinue providing its services as securities depositary with
respect to the Convertible Preferred Securities at any time by giving
reasonable notice to the Trust. Under such circumstances, in the event that
a successor securities depositary is not obtained, certificates representing
the Convertible Preferred Securities will be printed and delivered. If an
Indenture Event of Default occurs or if the Regular Trustees decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary), certificates representing the Convertible 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 Citizens and the Trust believe to be
reliable, but neither Citizens nor the Trust takes responsibility for the
accuracy thereof.
Information Concerning the Property Trustee
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after default, shall exercise
the same degree of care as a prudent individual would exercise in the conduct
of his or her own affairs. Subject to such provisions, the Property Trustee
is
48
under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Convertible Preferred Securities,
unless offered reasonable indemnity by such holder against the costs,
expenses and liabilities which might be incurred thereby. The holders of
Convertible Preferred Securities will not be required to offer such indemnity
in the event such holders direct the Property Trustee to take any action
following a Declaration Event of Default.
Transfer Agent, Paying Agent, Registrar and Conversion Agent
Chemical Bank will act as Paying Agent and Conversion Agent for the
Convertible Preferred Securities. The Trust will act as Transfer Agent and
Registrar for the Convertible Preferred Securities.
Registration of transfers of Convertible Preferred Securities will be
effected without charge by or on behalf of the Trust, but upon payment (with
the giving of such indemnity as the Trust may require) in respect of any tax
or other government charges which may be imposed in relation to it.
PARTNERSHIP PREFERRED SECURITIES
The following summary of the principal terms and provisions of the
Partnership Preferred Securities does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Limited
Partnership Agreement, a copy of the form of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Under certain circumstances involving the dissolution and liquidation of
the Trust following the occurrence of a Trust Event, Partnership Preferred
Securities may be distributed to the holders of the Convertible Preferred
Securities. See discussion below and in "Convertible Preferred Securities -
Special Events Distribution."
General
The General Partnership Security, which constitutes all of the partnership
interests in Citizens Capital other than the Partnership Preferred Securities
owned by the Trust (and any interests of any Special Representative), will
be owned directly or indirectly by Citizens at all times while the
Convertible Preferred Securities are outstanding. The Limited Partnership
Agreement authorizes and creates the Partnership Preferred Securities in
Citizens Capital. The Partnership Preferred Securities will have a
preference with respect to quarterly distributions and amounts payable on
liquidation and redemption over the General Partnership Security. The
Partnership Preferred Securities do not have a par value. The Limited
Partnership Agreement does not permit the issuance of other partnership
interests without the prior approval of the holders of not less than 66 2/3%
of the aggregate liquidation preference of the Partnership Preferred
Securities then outstanding.
For United States federal income tax purposes, Partnership Preferred
Securities holders will recognize interest income as it accrues. So long as
interest payments are not deferred, the
49
distributions will approximately equal the accruals of such quarterly interest.
Income received by Citizens Capital and distributions by the Partnership are not
eligible for the corporate dividends-received deduction for United States
federal income tax purposes.
Holders of Partnership Preferred Securities will not have the right to
remove or replace the General Partner. Holders of Partnership Preferred
Securities will have no preemptive rights.
Distributions
The rights of holders of the Partnership Preferred Securities to receive
cumulative distributions from Citizens Capital are essentially similar to
those of the holders of the Convertible Preferred Securities. See
"Convertible Preferred Securities - Distributions." However, the Partnership
may only make distributions to the extent that there is (i) Common Stock
Series A and/or cash on hand, and (ii) such funds are "legally available"
(as defined under applicable Delaware law) therefor.
Conversion Rights
The Partnership Preferred Securities will be convertible at the option of
the holders thereof and in a manner essentially similar to that of the
Convertible Preferred Securities. See "Convertible Preferred Securities -
Conversion Rights."
Special Events Distribution
The Partnership Securities are subject to distribution upon the occurrence
of certain Special Events and the Rating Agency Event. See "Convertible
Preferred Securities - Special Events Distribution" and "Convertible
Debentures - Special Events Distribution."
After the date for any distribution of Convertible Debentures upon
dissolution and liquidation of Citizens Capital, (i) the Partnership
Preferred Securities will no longer be deemed to be outstanding, (ii) the
record holder of the Partnership Preferred Securities will receive a
certificate or certificates representing the Convertible Debentures to be
delivered upon such distribution, and (iii) any certificates representing
Partnership Preferred Securities will be deemed to represent Convertible
Debentures having an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution
rate of, and accrued or deferred and unpaid interest equal to accrued or
deferred and unpaid distributions on such Partnership Preferred Securities
until such certificates are presented to Citizens Capital or its agent for
transfer or reissuance.
Optional Redemption
Partnership Preferred Securities are subject to optional redemption in
essentially the same manner as the Convertible Preferred Securities. See
"Convertible Preferred Securities - Optional Redemption."
50
Redemption on Maturity or Upon Acceleration
Partnership Preferred Securities shall be subject to redemption upon the
repayment at maturity or upon acceleration upon default of the Convertible
Debentures in essentially the same manner as the Convertible Preferred
Securities. See "Convertible Preferred Securities - Redemption on Maturity
or Upon Acceleration."
Redemption Procedures; Generally
If Partnership Preferred Securities are called for redemption, the
conversion right will terminate five (5) Business Days prior to the
redemption date. The redemption procedures for Partnership Preferred
Securities are similar to those of the Convertible Preferred Securities. See
"Convertible Preferred Securities - Redemption Procedures; Generally." Upon
the completion of such procedures, all rights of holders of such Partnership
Preferred Securities so called for redemption will cease, except the right
of the holders to receive the Redemption Price, but without interest on such
Redemption Price.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), Citizens or its subsidiaries may at
any time, and from time to time, purchase outstanding Partnership Preferred
Securities by tender, in the open market or by private agreement.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up or termination of Citizens Capital, the holders of Partnership
Preferred Securities at the time outstanding will have liquidation rights
essentially similar to those of the holders of the Convertible Preferred
Securities. See "Convertible Preferred Securities - Liquidation Rights."
Pursuant to the Limited Partnership Agreement, Citizens Capital shall be
dissolved and its affairs shall be wound up upon the earliest to occur of (i)
the expiration of the term of Citizens Capital, (ii) any bankruptcy,
insolvency, expulsion or dissolution of the General Partner, (iii) upon the
entry of a decree of a judicial dissolution or (iv) upon the written consent
of all partners of Citizens Capital.
Merger, Consolidation or Sale of Assets of Citizens Capital
Citizens Capital may not consolidate, merge with or into, or be replaced
by, or convey, transfer or lease its properties and assets substantially as
an entirety to any entity, except as described below. Citizens Capital may,
in order to avoid 1940 Act consequences adverse to Citizens or Citizens
Capital or to the holders of the Partnership Preferred Securities, and in
other limited situations, without the consent of the holders of the
Partnership Preferred Securities, consolidate, merge with or into, or be
replaced by a limited partnership or trust organized as
51
such under the laws of any state of the United States of America, subject to
conditions set forth in the Limited Partnership Agreement.
Limited Partnership Agreement Event of Default
An Indenture Event of Default constitutes an event of default under the
Limited Partnership Agreement with respect to the Partnership Preferred
Securities (a "Partnership Event of Default"). The holders of a majority
in aggregate liquidation amount of Partnership Preferred Securities may
vote to waive any Partnership Event of Default, provided that if the
underlying Indenture Event of Default requires the consent of a Super
Majority, a corresponding Super Majority of Partnership Preferred
Securities will be required. An Indenture Event of Default may be waived
as described below in "Convertible Debentures - Indenture Event of Default"
and "- Modification of the Indenture." A waiver of an Indenture Event of
Default constitutes a waiver of the corresponding Partnership Event of Default.
Upon the occurrence of a Partnership Event of Default, the Special
Representative of Citizens Capital, as the sole holder of the Convertible
Debentures, will have the right under the Indenture to declare the principal
of and interest on the Convertible Debentures to be immediately due and
payable.
Voting Rights
Except as provided below and under "Guarantees - Amendments and
Assignment," "Convertible Debentures - Modification of the Indenture" and as
otherwise required by law and provided by the Limited Partnership Agreement,
the holders of the Partnership Preferred Securities will have no voting
rights.
If (i) an Indenture Event of Default occurs and is continuing with respect
to the Convertible Debentures; or (ii) Citizens is in default under any of
its payment obligations under the Partnership Guarantee, then the holders of
a majority in aggregate liquidation preference of the Partnership Preferred
Securities will be entitled to appoint and direct the actions of a special
representative (a "Special Representative") to enforce Citizens Capital's
rights under the Convertible Debentures, enforce the rights of the holders of
Partnership Preferred Securities under the Partnership Guarantee and enforce
the payments of distributions on the Partnership Preferred Securities. In
such event, the General Partner or (after the passing of a specified period
of time) the holders of 10% of the aggregate liquidation preference of the
Partnership Preferred Securities will be entitled to convene a meeting. Any
Special Representative so appointed shall vacate office immediately if Citizens
Capital (or Citizens pursuant to the Partnership Guarantee) shall have paid
in full all accrued or deferred and unpaid distributions on the Partnership
Preferred Securities or such Indenture Event of Default or default, as the
case may be, shall have been cured. Notwithstanding the appointment of any
such Special Representative, Citizens will retain all rights as obligor under
the Convertible Debentures, including the right to defer interest payments
as provided under "Convertible Debentures - Option to Defer Interest
Payments," and any such deferral will not constitute a default under the
52
Indenture or enable a holder of Partnership Preferred Securities to require
the payment of a distribution.
In the event that any quarterly distribution payment is deferred for
6 consecutive quarters, holders of a majority in aggregate liquidation
preference of the Partnership Preferred Securities will have the right to
appoint and direct the actions of a Special Representative, who will have
limited rights to act on behalf of the holders of the Partnership Preferred
Securities and, in effect, the Convertible Preferred Securities. Any Special
Representative so appointed shall have the authority to enforce the rights of
holders of Partnership Preferred Securities under the Convertible Debentures
and the Partnership Guarantee and declare and pay distributions on the
Partnership Preferred Securities.
If any proposed amendment to the Limited Partnership Agreement provides
for, or the General Partner otherwise proposes to effect, (x) any action that
would materially adversely affect the powers, preferences or rights of the
Partnership Preferred Securities, or (y) the liquidation, dissolution,
winding-up or termination of Citizens Capital (other than as described under
"- Merger, Consolidation or Sale of Assets of Citizens Capital"), then such
amendment or action shall require the approval of the holders of at least
66 2/3% or more of the aggregate liquidation preference of the Partnership
Preferred Securities; provided, however, that no such approval shall be
required if (i) the liquidation, dissolution, winding-up or termination of
Citizens Capital is proposed or initiated pursuant to the terms of the
Limited Partnership Agreement relating to dissolution (see "- Liquidation
Rights") or (ii) if Partnership Preferred Securities are distributed to the
holders of Convertible Preferred Securities in exchange for such Convertible
Preferred Securities in liquidation of the Trust.
So long as the Convertible Debentures are held by Citizens Capital, the
General Partner shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Special Representative, or
exercising any trust or power conferred on the Special Representative with
respect to the Convertible Debentures, (ii) waive any past default under the
Indenture, (iii) exercise any right to rescind a declaration that the
principal of all the Convertible Debentures shall be due and payable,
(iv) consent to any amendment, modification or termination of
the Convertible Debentures or of the Indenture without, in each case,
obtaining the prior approval of the holders of at least 66 2/3% or more of
the aggregate liquidation preference (or a majority of the aggregate
liquidation preference in the case of waiver of certain past defaults) of
the Partnership Preferred Securities; provided, however, that where a
consent under the Convertible Debentures would require the consent of each
holder affected thereby, no such consent shall be given by the General
Partner without the prior consent of each holder of the Partnership
Preferred Securities. The General Partner shall notify all holders of
Partnership Preferred Securities of any notice of default received from the
Debenture Trustee with respect to the Convertible Debentures.
Any required approval of holders of Partnership Preferred Securities may
be given at a meeting of such holders or pursuant to written consent.
53
Amendment to the Limited Partnership Agreement
Except as stated in "-Voting Rights" above, the Limited Partnership
Agreement may be amended by a written instrument executed by the General
Partner without the consent of any limited partner; provided, however, that
no amendment shall be made, and any such purported amendment shall be void
and ineffective, to the extent the result thereof would be to cause
Citizens Capital to be treated as anything other than a partnership for
purposes of United States income taxation or require Citizens Capital to
register under the 1940 Act. In the event of (i) a liquidation of the Trust
for any reason or (ii) any other distribution which effectively causes
Partnership Preferred Securities to be distributed to holders of Trust
Securities, the General Partner may, without the consent of the Limited
Partners, amend the Limited Partnership Agreement to provide for (i) orderly
dissemination, purchase, sale, exchange and replacement of such Partnership
Preferred Securities, (ii) all other matters to the extent required by or
desirable under then applicable law, and (iii) such other matters reasonably
incidental or related thereto; provided, however, that no such amendment may
materially adversely effect the rights, preferences and value of any class of
such Partnership Preferred Securities without the consent of a majority in
liquidation preference of the holders of the Partnership Preferred Securities so
effected.
Transfer Agent, Paying Agent, Registrar and Conversion Agent
While all of the Partnership Preferred Securities are held by the Trust, the
General Partner will act as Paying Agent, Registrar, Transfer Agent and
Conversion Agent for the Partnership Preferred Securities.
Registration of transfers of Partnership Preferred Securities will be
effected without charge by or on behalf of Citizens Capital, but upon payment
(with the giving of such indemnity as Citizens Capital may require) in
respect of any tax or other government charges which may be imposed in
relation to it.
GUARANTEES
The following is a description of the principal terms and provisions of the
Convertible Preferred Securities Guarantee and the Convertible Common
Securities Guarantee (collectively the "Trust Guarantees"), which will be
executed and delivered by Citizens for the benefit of the holders from time
to time of the Trust Securities, and the Partnership Guarantee (together
with the Trust Guarantees, the "Guarantees"), which will be executed and
delivered by Citizens for the benefit of the holders from time to time of
the Partnership Preferred Securities. The following description is qualified
in its entirety by reference to such agreements, copies of the forms of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part.
54
General
Each of the Partnership Guarantee and the Convertible Preferred Securities
Guarantee will be qualified as an indenture under the Trust Indenture Act.
Chemical Bank will act as indenture trustee under each such Guarantee (the
"Guarantee Trustee"). The terms of each such Guarantee will be those set
forth in such Guarantee and those made part of such Guarantee by the Trust
Indenture Act.
Pursuant to the Convertible Preferred Securities Guarantee, Citizens will
irrevocably agree, on a subordinated basis and to the extent set forth
therein, to pay in full to the holders of the Convertible Preferred
Securities, the Guarantee Payments (as defined below) as and when due.
The following payments, to the extent not paid by the Trust, are the
"Guarantee Payments": (a) any accrued or deferred and unpaid distributions
that are required to be paid on the Convertible Preferred Securities from
cash and/or Common Stock available therefor; (b) the Redemption Price payable
with respect to Convertible Preferred Securities called for redemption by the
Trust out of cash and/or Common Stock available therefor; and (c) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Partnership Preferred
Securities or Convertible Debentures to the holders of Convertible Preferred
Securities or the redemption of all of the Convertible Preferred Securities) the
lesser of (i) the Liquidation Distribution, to the extent that the Trust has
cash and/or Common Stock available therefor and (ii) the amount of assets
of the Trust available for distribution to holders of Convertible Preferred
Securities in liquidation of the Trust.
Pursuant to the Partnership Guarantee, Citizens will irrevocably agree,
on a subordinated basis and to the extent set forth therein, to pay in full
to the holders of the Partnership Preferred Securities, the Partnership
Guarantee Payments (as defined below) as and when due. The following
payments, to the extent not paid by Citizens Capital, are the "Partnership
Guarantee Payments": (a) any accrued or deferred and unpaid distributions
that are required to be paid on the Partnership Preferred Securities from
cash and/or Common Stock legally available therefor; (b) the Redemption
Price payable with respect to Partnership Preferred Securities called for
redemption by Citizens Capital out of cash and/or Common Stock legally
available therefor; and (c), upon a voluntary or involuntary dissolution,
winding-up or termination of Citizens Capital (other than in connection
with the distribution of Convertible Debentures to the holders of
Partnership Preferred Securities or the redemption of all of the Partnership
Preferred Securities), the lesser of (i) the Partnership Liquidation
Distribution, to the extent that Citizens Capital has cash and/or Common
Stock legally available therefor and (ii) the amount of assets of Citizens
Capital available for distribution to holders of Partnership Preferred
Securities in liquidation of Citizens Capital.
Citizens has also agreed in the Convertible Common Securities Guarantee to
irrevocably guarantee the obligations of the Trust with respect to the
Convertible Common Securities to the same extent as the Convertible
Preferred Securities Guarantee, except that, upon an Indenture Event of
Default, holders of Convertible Preferred Securities shall have priority
over holders of
55
Convertible Common Securities under the Convertible Common Securities
Guarantee with respect to distributions and payments on liquidation,
redemption or otherwise.
Citizens asserts that the Guarantees, when taken together with Citizen's
obligations under the Convertible Debentures, the Indenture, the Declaration
and the Limited Partnership Agreement, including its obligation to pay costs,
expenses and certain indemnities of the Trust ("back-up undertakings"),
constitute a full and unconditional guarantee of amounts due under the
Convertible Preferred Securities, the Partnership Preferred Securities and the
Convertible Common Securities.
Each Trust Guarantee, togther with the back-up undertakings, will be a full
and unconditional guarantee with respect to the Trust Securities issued by
the Trust but will not apply to any payment of distributions except to the
extent the Trust shall have cash and/or Common Stock available therefor.
The Partnership Guarantee, together with the back-up undertakings,
will be a full and unconditional guarantee with respect to the Partnership
Preferred Securities issued by Citizens Capital from the time of issuance of
such Partnership Preferred Securities but will not apply to any payment of
distributions except to the extent Citizens Capital shall have cash and/or
Common Stock legally available therefor. If Citizens fails to make interest
payments on the Convertible Debentures purchased by Citizens Capital,
Citizens Capital will have insufficient funds to pay distributions on the
Partnership Preferred Securities and the Trust will have insufficient funds
to pay distributions on the Convertible Preferred Securities. The
Guarantees do not cover payments of distributions when the Trust or Citizens
Capital do not have sufficient cash and/or Common Stock to pay such
distributions.
Holders of the Trust Securities and Partnership Preferred Securities may
proceed to enforce such obligations directly against Citizens as guarantor,
rather than having to proceed first against the Trust or Citizens Capital.
Such obligations will not be discharged except by payment of the Guarantee
Payments or Partnership Guarantee Payments, as the case may be, in full.
Certain Covenants of Citizens
In the Partnership Guarantee Citizens will covenant and agree that, so long
as any Partnership Preferred Securities are outstanding, and in the
Convertible Preferred Securities Guarantee Citizens will covenant and agree
that, so long as any Convertible Preferred Securities are outstanding, if
Citizens exercises its right to defer interest payments on the Convertible
Debentures or there shall have occurred any event that would constitute an
event of default under either such Guarantee, the Limited Partnership
Agreement or the Declaration, then (a) Citizens will not declare or pay any
dividend or distribution (other than in shares of its capital stock) on any
of Citizens' capital stock, (b) neither Citizens nor any of its subsidiaries
will redeem, purchase, acquire for value or make a liquidation payment to any
holder of, or with respect to, any of its capital stock or Other Subordinated
Indebtedness (with certain exceptions, see "Convertible Debentures - Certain
Covenants of Citizens"), (c) Citizens will not make any payment of principal,
premium or interest (unless payable in shares of capital stock) on Other
Subordinated Indebtedness, and (d) neither Citizens nor any of its
subsidiaries will make any
56
guarantee of payments which would be prohibited or limited by the foregoing
(other than payments under the Guarantees, payments of dividends by a
subsidiary, or guarantees of dividends or payments payable to Citizens).
As a part of the Guarantees, Citizens will agree that it will honor all
obligations described therein relating to the conversion of the Convertible
Preferred Securities and Partnership Preferred Securities into or for Common
Stock Series A, as described in "Convertible Preferred Securities -
Conversion Rights."
Subordination
Each Guarantee will constitute an unsecured obligation of Citizens and will
rank subordinate and subject in right of payment to the prior payment in full
in cash of all Senior Indebtedness of Citizens and will be subject to other
subordination provisions substantially identical to those relating to the
Convertible Debentures. See "Convertible Debentures - Subordination." The
terms of the Convertible Preferred Securities and the Partnership Preferred
Securities provide that each holder of Convertible Preferred Securities and
Partnership Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the applicable Guarantee. On the
bankruptcy, liquidation or winding-up of Citizens, its obligations under the
Guarantees will rank junior to all Senior Indebtedness and, therefore, funds
may not be available for payment under the Guarantees. As of September 30,
1995, Senior Indebtedness included (i) obligations in the amount of
$1,229,596,000 of the nature described in clauses (a) and (b) of the definition
of Senior Indebtedness, plus (ii) other obligations of Citizens of the nature
described in clauses (c) through (h) of the definition of Senior Indebtedness.
See "Convertible Debentures - Subordination."
Amendments and Assignment
Except with respect to any changes that do not adversely affect the rights
of holders of the securities guaranteed therein, the terms of each Guarantee
may be amended only with the prior approval of the holders of not less than
66 2/3% of the aggregate liquidation preference of the Convertible Preferred
Securities or Partnership Preferred Securities, as the case may be, then
outstanding. The manner of obtaining any such approval of holders of the
Convertible Preferred Securities and the Partnership Preferred Securities
will be as set forth in "Convertible Preferred Securities - Voting Rights"
and "Partnership Preferred Securities - Voting Rights." All provisions
contained in the Guarantees will bind the successors, assigns, receivers,
trustees and representatives of Citizens and will inure to the benefit of the
holders of the Convertible Preferred Securities or Partnership Preferred
Securities, as the case may be.
Termination
Citizens' obligation to make Guarantee Payments under the Convertible
Preferred Securities Guarantee will terminate as to each holder of
Convertible Preferred Securities and be of no further force and effect upon
(a) full payment of the Redemption Price of such holder's
57
Convertible Preferred Securities, (b) full payment of the amounts payable to
such holder upon liquidation of the Trust, (c) the distribution of Common
Stock Series A to such holder in respect of the conversion of all of such
holder's Convertible Preferred Securities into Common Stock Series A or (d)
distribution of the Partnership Preferred Securities or Convertible
Debentures to such holder in respect of the exchange for all of such holder's
Convertible Preferred Securities.
Citizens' obligation to make Partnership Guarantee Payments under the
Partnership Guarantee will terminate as to each holder of Partnership
Preferred Securities and be of no further force and effect upon (a) full
payment of the Partnership Redemption Price of such holder's Partnership
Preferred Securities, (b) full payment of the amounts payable to such holder
upon liquidation of Citizens Capital, (c) the distribution of Common Stock
Series A to such holder in respect of the conversion of all of such holder's
Partnership Preferred Securities into Common Stock Series A or (d)
distribution of the Convertible Debentures to such holder in respect of the
exchange for all of such holder's Partnership Preferred Securities.
Events of Default
An Event of Default under the Guarantees will occur upon the failure of
Citizens to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Convertible
Preferred Securities and the holders of a majority in aggregate liquidation
amount of the Partnership Preferred Securities to which a Guarantee relates
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
respective Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce such Guarantee, any holder of
Convertible Preferred Securities or Partnership Preferred Securities relating
to such Guarantee may institute a legal proceeding directly against Citizens
to enforce the Guarantees Trustee's rights under such Guarantee, without
first instituting a legal proceeding against the Trust, Citizens Capital,
the Guarantee Trustee or any other person.
Citizens will be required to provide annually to the Guarantee Trustee an
officer's certificate as to the full compliance by Citizens with its
obligations under each of the Guarantees and as to any default in such
obligation.
CONVERTIBLE DEBENTURES
The following summary of principal terms and provisions of the Convertible
Debentures in which Citizens Capital will invest the proceeds of the issuance
and sale of the Trust Securities does not purport to be complete and is
qualified in its entirety by reference to the Indenture (the "Base
Indenture") between Citizens and Chemical Bank, as trustee (the "Debenture
Trustee"), supplemented by a First Supplemental Indenture (the Base
Indenture, as so supplemented, is
58
hereinafter referred to as the "Indenture") forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Under certain circumstances involving the liquidation of the Trust
following the occurrence of a Trust Event and a Partnership Event,
Convertible Debentures may be distributed to the holders of the Trust
Securities. See discussion below and in "Convertible Preferred Securities -
Special Events Distribution."
General
The Convertible Debentures will be limited in aggregate principal amount
to approximately $184,000,000, such amount being the sum of (i) the
aggregate amount of the proceeds from the offering of the Convertible
Preferred Securities and the issuance and sale of the Convertible Common
Securities and (ii) the capital contributed to Citizens Capital by the
General Partner (the "General Partner Payment"), less 1% of such sum, which
amount may be increased to up to approximately $212,000,000 upon the exercise
of the Underwriters' over-allotment option.
The entire principal amount of the Convertible Debentures will become due
and payable, together with any accrued or deferred and unpaid interest
thereon on January 15, 2036. The Convertible Debentures are not entitled
to the benefit of any sinking fund.
The Convertible Debentures will be issued only in fully registered form,
without coupons, in denominations of $50 and any integral multiple thereof.
No service charge will be made for any registration of transfer or exchange
of Convertible Debentures, but Citizens may require payment of a sum
sufficient from the holders to cover any tax or other governmental charge
payable in connection therewith.
Optional Redemption
Citizens will have the right to redeem the Convertible Debentures, at its
option, in whole or in part, at any time on or after February 1, 1999, at 100%
of the principal amount being redeemed, together with all accrued or deferred
and unpaid interest to the redemption date, plus Additional Interest, if any.
Citizens may also redeem the Convertible Debentures as described in the
following paragraph.
Special Events Distribution
As described elsewhere herein, the Convertible Debentures may be
distributed to holders upon the occurrence of certain Special Events or
a Rating Agency Event. For a fuller discussion of this feature, see
"Convertible Preferred Securities - Special Events Distribution." However,
if at the time there is available to Citizens, the Partnership or the Trust
the opportunity to eliminate the adverse effect of the Special Event on the
Trust, Citizens or the Partnership by taking some ministerial action, such as
filing a form or making an election or pursuing some other similar reasonable
measure, where the taking of such action does not involve a material
59
cost, Citizens may not liquidate the Partnership or the Trust without first
having pursued such ministerial action.
Interest
The Convertible Debentures will bear interest at the Rate. As described
elsewhere herein, interest may be payable in cash or securities. For a
fuller discussion of interest, see the descriptions under "Prospectus
Summary" and "Convertible Preferred Securities."
Option to Defer Interest Payments
As described in greater detail elsewhere herein, so long as no Indenture
Event of Default has occurred or is continuing, Citizens has the right to
elect to defer the date on which one or more of the quarterly interest
payments would otherwise become due and payable. Upon any such deferrals,
interest will compound on each scheduled Interest Payment Date and accrued
until paid at the Rate on any unpaid interest so deferred until the amount
of such deferred interest (including compounded interest thereon) is paid in
full. See "Convertible Preferred Securities - Distributions" for a complete
discussion of the terms and conditions governing such deferrals.
Additional Interest
Citizens is required to pay either (i) directly to such taxing authority,
(ii) to the Trust or Citizens Capital, as the case may be, or (iii) as
Additional Interest on the Convertible Debentures, any taxes, duties,
assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any other domestic taxing
authority upon either the Trust or Citizens Capital. To the extent that such
payments give rise to additional taxes of Citizens Capital or the Trust, the
Company shall also make payment for such additional taxes of Citizens Capital
or the Trust. Citizens shall be required to pay Additional Interest or make
such other payments in an amount and at such time so that the net amounts
received as interest or distribution payments by the Trust or Citizens
Capital, and distributable to the Trust and the holders of the Convertible
Preferred Securities, respectively, after all such taxes, duties, assessments
or governmental charges have been paid will not be less than the amount that
would have been received and distributed by such entities, and the amount the
holders of the Convertible Preferred Securities would have received, had no
such taxes, duties, assessments or governmental charges been imposed. If
such taxes or duties are paid to the Trust or Citizens Capital or as
Additional Interest on the Convertible Debentures, then the Trust or Citizens
Capital, as the case may be, is required to pay such amounts over to such
taxing authority in satisfaction of such charges or assessments.
Subordination
The Indenture provides that the Convertible Debentures are subordinate and
subject in right of payment to the prior payment in full in cash of all
Senior Indebtedness (as defined below) of Citizens.
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Upon any payment or distribution of assets of the Company to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets or liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash of all
amounts due on or to become due on or in respect of all Senior Indebtedness,
before the holders of the Convertible Debentures are entitled to receive any
payment (including any payment to holders of the Convertible Debentures made
in respect of any other debt subordinated to the Convertible Debentures) on
account of the principal of or interest on the Convertible Debentures or on
account of any purchase, redemption or other acquisition of the Convertible
Debentures by the Company.
The Company may not make any payments on the account of the Convertible
Debentures or on account of the purchase or redemption or other acquisition
of the Convertible Debentures (except, so long as the Partnership exists, in
shares of capital stock), if there has occurred and is continuing a default
in the payment of the principal of (or premium, if any) or interest on any
Senior Indebtedness (a "Senior Payment Default"). In addition, if any
default (other than a Senior Payment Default), or any event which after
notice or lapse of time (or both) would become a default, with respect to
certain Senior Indebtedness, permitting (after notice or lapse of time or
both) the holders thereof to accelerate the maturity thereof, has occurred
and is continuing (a "Senior Nonmonetary Default"), and the Company and the
Debenture Trustee have received written notice thereof from the holder of
such certain Senior Indebtedness, then the Company may not make any payments
with respect to the Convertible Debentures (except, so long as the
Partnership exists, payments in shares of capital stock), for a period (a
"blockage period") commencing on the date the Company and the Debenture
Trustee receive such written notice and ending on the earlier of
(i) 179 days after such date or (ii) the date, if any, on which the related
Senior Indebtedness is discharged or such default is waived in writing
or otherwise ceases to exist and any acceleration of Senior Indebtedness to
which such Senior Nonmonetary Default relates is rescinded.
In any event, not more than one blockage period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360 consecutive days when no blockage
period is in effect.
By reason of such subordination, in the event of any proceeding of the type
described above involving Citizens, creditors of Citizens who are holders of
Senior Indebtedness and general unsecured creditors of Citizens may recover
more, ratably, than the holder or holders of the Convertible Debentures.
The term "Senior Indebtedness" is defined to mean the principal of,
premium, if any, interest on, and any other payment due pursuant to any of
the following, whether incurred (as defined in the Indenture) on or prior to
the date of execution of the Indenture or thereafter incurred:
(a) all obligations of Citizens for money borrowed;
61
(b) all obligations of Citizens evidenced by notes, debentures,
bonds or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
(c) all capitalized lease obligations of Citizens;
(d) all reimbursement obligations of Citizens with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of Citizens;
(e) all obligations of Citizens issued or assumed as the
deferred purchase price of property or services, (but excluding trade
accounts payable and accrued liabilities arising in the ordinary course of
business);
(f) all payment obligations of Citizens under interest rate swap
or similar agreements or foreign currency hedge, exchange or similar agreements
at the time of determination, including any such obligations incurred by
Citizens solely to act as a hedge against increases in interest rates that
may occur under the terms of other outstanding variable or floating rate
indebtedness of Citizens;
(g) all obligations under lease transactions pursuant to which
Citizens or any of its subsidiaries are treated as the owner of the subject
property for United States federal income tax purposes;
(h) all obligations of the type referred to in clauses (a)
through (g) above of another person and all dividends of another person, the
payment of which, in either case, Citizens has assumed or guaranteed, or for
which Citizens is responsible or liable, directly or indirectly, jointly or
severally, as obligor, guarantor or otherwise; and
(i) all amendments, modifications, renewals, extensions,
refinancings, replacements and refundings by Citizens of any such
indebtedness referred to in clauses (a) through (h) above (and of any such
amended, modified, renewed, extended, refinanced, refunded or replaced
indebtedness);
provided, however, that the following shall not constitute Senior
Indebtedness; (a) any trade accounts payable or accrued liabilities arising
in the ordinary course of business, (b) any indebtedness owed to a person
when such person is a subsidiary of Citizens, or (c) any indebtedness which
by the terms of the instrument creating or evidencing the same expressly
provides that it is not superior in right of payment to the Convertible
Debentures.
As of September 30, 1995, Senior Indebtedness included (i) obligations in
the amount of $1,229,596,000 of the nature described in clauses (a) and (b) of
the above definition of Senior Indebtedness, plus (ii) other obligations
of Citizens of the nautre described in clauses (c) through (h) of the above
definition of Senior Indebtedness. See "Convertible Debentures -
Subordination." The Indenture does not limit Citizens' ability to incur
Senior Indebtedness.
62
Certain Covenants of Citizens
Citizens will also covenant in the Indenture that (i) it will not declare
or pay any dividend or distribution (other than in shares of capital stock)
on any of the Company's capital stock, (ii) that neither it nor any of its
subsidiaries will redeem, purchase, acquire for value or make a liquidation
payment to any holder of, or with respect to, any of Citizens' capital stock
or any of Citizens' indebtedness for borrowed money which by its terms ranks
junior in subordination to the Convertible Debentures ("Other Subordinated
Indebtedness") (other than (x) as an issuance of capital stock upon
conversion of a convertible security or in payment of interest, premium or
principal or in payment in redemption, purchase or other acquisition or
liquidation of capital stock or Other Subordinated Indebtedness, (y) as a
result of reclassification of such capital stock or the exchange or
conversion of one class or series of capital stock for another class or
series of capital stock, or (z) in connection with the right of the Company
to purchase or reacquire shares of Common Stock under the First Supplemental
Indenture, the Declaration or the Limited Partnership Agreement), (iii) that
Citizens will not pay principal, interest or premium on Other Subordinated
Indebtedness (unless payable in shares of capital stock) and (iv) that
neither Citizens nor any of its subsidiaries will or make any guarantee of
payments which would be prohibited or limited by the foregoing (other than
payments under the Guarantees, payments of dividends by a subsidiary, or
guarantees of dividends or payments payable to Citizens), if at
such time (a) there shall have occurred any event that, with the giving of
notice or the lapse of time or both would constitute an Indenture Event of
Default, (b) Citizens shall be in default with respect to its payment or
other obligations under the Guarantees or (c) Citizens shall have deferred
the payment of interest and such deferral of interest payments or any
extension thereof shall be continuing. The term "Other Subordinated
Indebtedness" shall not include any indebtedness which is outstanding under
an instrument dated prior to the date of the Indenture which does not
expressly permit the deferral of payment or extension of the time for payment
of interest, premium or principal, or any installment thereof.
The Company also will covenant (i) to remain the General Partner of the
Partnership; provided that any permitted successor of the Company under the
Limited Partnership Agreement may succeed to the Company's duties as General
Partner, (ii) to cause at least 3% of the total value of the Partnership and
at least 3% of all interests in the capital, income, gain, loss, deduction
and credit of the Partnership to be held by the Company, as a General Partner
of the Partnership, (iii) not to voluntarily dissolve, wind-up or liquidate
the Partnership, (iv) to perform timely all of its duties as General Partner
(including the duty to declare and pay distributions on the Partnership
Preferred Securities), (v) to maintain direct ownership of all partnership
interests of the Partnership other than the Partnership Preferred Securities,
except as may be permitted by the Limited Partnership Agreement, (vi) to use
its reasonable efforts to cause the Partnership to remain a limited
partnership and otherwise to continue to be treated as a partnership for
United States federal income tax purposes; (vii) to issue Common Stock Series
A upon an election by holders to convert the Convertible Debentures; and
(viii) to own Convertible Common Securities equal to at least 3% of the total
undivided beneficial interests in the assets of the Trust.
63
The Company will also covenant that, so long as any Convertible Debentures
are held by the Partnership, the General Partner shall not (i) exercise its
option to select the form of payment of interest in violation of instructions
of the Special Representative, (ii) direct the time, method and place of
conducting any proceeding for any remedy available to the Special
Representative, or exercising any trust or power conferred on the Special
Representative with respect to the Convertible Debentures, (iii) waive any
past default which is waivable under the Indenture, (iv) exercise any right
to rescind or annul a declaration that the principal of all the Convertible
Debentures shall be due and payable or (v) consent to any amendment,
modification or termination of the Convertible Debentures or of the Indenture
without, in each case, obtaining the prior approval of the Property Trustee
after having received the prior consent of the holders of at least 66 2/3% or
more of the aggregate liquidation preference (or a majortiy of the aggregate
liquidation preference in the case of waiver of certain past defaults) of the
Convertible Preferred Securities then outstanding, provided, however, that
where a consent under the Convertible Debentures would require the consent
of each holder affected thereby, no such consent shall be given by the
General Partner without the prior consent of such Property Trustee, who has
received prior consent from each holder of the Convertible Preferred
Securities. The General Partner shall not revoke any action previously
authorized or approved by a vote of the Property Trustee after having
received the prior consent of the holders of the Convertible Preferred
Securities, without the approval of the holders of Convertible Preferred
Securities representing 66 2/3% or more (or 100% where the consent of each
holder affected thereby is required) of the aggregate liquidation preference
of the Convertible Preferred Securities.
The Company will further covenant that in the event of a merger,
consolidation or transfer of assets of the Company with or to another
corporation or entity, in which the Company is not the surviving corporation,
the surviving entity shall assume the obligations of the Company for the
Debentures under the Indenture by execution of a supplemental indenture.
Conversion of the Convertible Debentures
The Convertible Debentures will be convertible into Common Stock Series A
at the option of the holders of the Convertible Debentures, in whole or in
part, until and including five (5) Business Days prior to January 15, 2036,
at a conversion price of $15.375 per share of Common Stock Series A for
each Convertible Debenture, subject to the conversion price adjustments
described under "Convertible Preferred Securities - Conversion Rights." If
Convertible Debentures are called for redemption, the conversion right will
terminate five (5) Business Days prior to the redemption date.
In order to exercise the conversion privilege, the holder of any
Convertible Debenture to be converted shall surrender such Debenture to the
Conversion Agent with a written Notice of Conversion. Upon a delivery of the
Convertible Preferred Securities and Notice of Conversion to the Conversion
Agent, the Conversion Agent will convert such Convertible Debentures to
Common Stock Series A on behalf of such holder.
Citizens' delivery to the holders of the Convertible Debentures (through
the Conversion
64
Agent) of the fixed number of shares of Common Stock Series A into which the
Convertible Debentures are convertible (together with the cash payment, if
any, in lieu of fractional shares) will be deemed to satisfy Citizens'
obligation to pay the principal amount of the Convertible Debentures and any
accrued and unpaid interest attributable to the period from the last date to
which interest has been paid or duly provided for. See "Convertible
Preferred Securities - Conversion Rights."
Indenture Events of Default
If one or more of the following events (each an "Indenture Event of
Default") shall occur and be continuing:
(a) failure to pay any principal of the Convertible Debentures when due,
and such failure continues for a period of 15 days;
(b) failure to pay any interest, other than Additional Interest (if any),
on the Convertible Debentures when due and such failure continues for a
period of 60 days; provided that a valid deferral of an interest payment by
Citizens shall not constitute a default;
(c) failure by Citizens to deliver shares of Common Stock Series A upon an
election to convert Convertible Debentures for Common Stock Series A, and
such failure continues for a period of five days;
(d) failure by Citizens to perform in any material respect any other
covenant in the Indenture for the benefit of the holders of Convertible
Debentures continued for a period of 90 days after written notice to Citizens
from the Debenture Trustee or the holders of a majority in principal or
liquidation amount of Convertible Debentures, Partnership Preferred
Securities or Convertible Preferred Securities;
(e) the dissolution, winding-up, liquidation or termination of Citizens
Capital (except as a result of a Special Event or Rating Agency Event, as
permitted in the Limited Partnership Agreement);
(f) the dissolution, winding-up, liquidation or termination of the Trust
(except as a result of a Special Event or Rating Agency Event, as permitted
in the Declaration); or
(g) certain events of bankruptcy, insolvency or liquidation of Citizens,
Citizens Capital or the Trust;
then either the Debenture Trustee or the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding will have the
right to declare the principal of and the interest on the Convertible
Debentures and any other amount payable under the Convertible Debentures to
be forthwith due and payable and to enforce the holders' other rights as
creditors
65
with respect to the Convertible Debentures; provided, however,
that if upon an Indenture Event of Default, the Debenture Trustee or the
holders of a majority in aggregate principal amount of the Convertible
Debentures then outstanding fail to declare the payment of all amounts on
the Convertible Debentures to be immediately due and payable, the trustee
for the holders of a majority in aggregate liquidation preference of
Convertible Preferred Securities then outstanding shall have such right;
provided further, however, that after such acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of outstanding Convertible Debentures, or the
holders of the Convertible Preferred Securities if they accelerated such
payment, may, under certain circumstances, rescind and annul such
acceleration if all Indenture Events of Default, other than the non-payment
of accelerated principal, have been cured or waived as provided in the
Indenture. For information as to waiver of defaults, see "- Modification of
the Indenture." Citizens Capital is the initial holder of the Convertible
Debentures. However, while the Convertible Preferred Securities are
outstanding, the General Partner of Citizens Capital has agreed not to waive
an Indenture Event of Default without the consent of holders of 66 2/3% in
aggregate liquidation preference of the Convertible Preferred Securities
then outstanding. Additionally, under the terms of the Partnership
Preferred Securities, the holders of outstanding Partnership Preferred
Securities will have the rights described above under "Partnership Preferred
Securities - Voting Rights," including the right to appoint a Special
Representative, which shall be authorized to exercise the right of Citizens
Capital, as the holder of Convertible Debentures, to accelerate the principal
amount of the Convertible Debentures and accrued interest thereon and to
enforce the other rights of holders of the Convertible Debentures as
creditors under the Convertible Debentures. A default under any other
indebtedness of Citizens would not constitute an Indenture Event of Default
under the Convertible Debentures.
Subject to the provision of the Indenture relating to the duties of the
Debenture Trustee in case an Indenture Event of Default shall occur and be
continuing, the Debenture Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request or direction of
any holders of Convertible Debentures, unless such holders shall have offered
to the Debenture Trustee reasonable indemnity. Subject to such provisions
for the indemnification of the Debenture Trustee, the holders of a majority
in aggregate principal amount of the Convertible Debentures then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee or exercising
any trust or power conferred on the Debenture Trustee.
No holder of any Convertible Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such holder shall have previously given to the Debenture Trustee written
notice of a continuing Indenture Event of Default and, unless the holders of
a majority in aggregate principal amount of the Convertible Debentures then
outstanding also shall have made written request, and offered reasonable
indemnity, to the Debenture Trustee to institute such proceeding as trustee,
and the Debenture Trustee shall not have received from the holders of 66 2/3%
in aggregate principal amount of the outstanding Convertible Debentures a
direction inconsistent with such request and shall have failed to institute
such proceeding within 90 days.
66
Citizens will be required to furnish to the Debenture Trustee annually a
statement as to the performance by Citizens of certain of its obligations
under the Indenture and as to any default of such performance.
Modification of the Indenture
The Indenture may be amended by Citizens and the Debenture Trustee with the
consent of the holders of not less than 66 2/3% in aggregate principal amount
of the outstanding Convertible Debentures; provided, that no such
modification or amendment may, without the consent of the holder of each
outstanding Convertible Debenture affected thereby, (a) change the Maturity
of the principal of, or any installment of interest on, any Convertible
Debenture, (b) reduce the principal amount of, or interest on, any
Convertible Debenture, (c) change the premium payable upon redemption of any
Convertible Debenture, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Convertible Debenture,
(e) adversely affect the right to convert or exchange Convertible Debentures,
(f) modify the subordination provision in a manner adverse to the holders of
the Convertible Debentures, (g) reduce the above-stated percentage of
outstanding Convertible Debentures necessary to modify or amend the Indenture
or (h) reduce the percentage of aggregate principal amount of outstanding
Convertible Debentures necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults; and provided
further, that so long as any of the Convertible Preferred Securities or
Partnership Preferred Securities remain outstanding, no such amendment may
be made that adversely affects the holders of Convertible Preferred
Securities or Partnership Preferred Securities, and no termination of the
Indenture may occur, and no Indenture Event of Default or compliance with any
covenant under the Indenture may be waived by the holders of the Convertible
Debentures, without the prior consent of at least 66 2/3% of the aggregate
liquidation preference (or a majority of the aggregate liquidation preference
in the case of waiver of certain past defaults) of the Convertible Preferred
Securities or Partnership Preferred Securities then outstanding unless and
until the Convertible Debentures and all accrued or deferred and unpaid
interest thereon have been paid in full.
Governing Law
The Indenture and the Convertible Debentures will be governed by, and
construed in accordance with, the laws of the State of New York.
Information Concerning the Debenture Trustee
The Indenture contains certain limitations on the right of the Debenture
Trustee should it become a creditor of Citizens, to obtain payment of claims
in certain cases, or to realize for its own account on certain property
received in respect of any such claim as security or otherwise. The
Debenture Trustee will be permitted to engage in certain other transactions;
however, if it acquires any conflicting interest and there is a default under
the Convertible Debentures, it must eliminate such conflict or resign.
67
Citizens has agreed in the Indenture to indemnify and hold harmless the
Debenture Trustee against any losses or damages it may suffer as Debenture
Trustee.
Chemical Bank, the Debenture Trustee under the Indenture, has from time to
time engaged in transactions with, or performed services for, Citizens in the
ordinary course of business. Chemical is the trustee under an indenture
dated August 15, 1991, as supplemented, pursuant to which $700 million of
principal amount of debentures are outstanding thereunder. Chemical is also
a participant lender under the Company's $600 million of committed bank lines
of credit for general corporate purposes. As of January 15, 1996, no
amounts were outstanding under such bank lines of credit.
Miscellaneous
The Indenture will provide that Citizens will pay all fees and expenses
related to (i) the issuance and sale of the Trust Securities, the Partnership
Securities and the Convertible Debentures, (ii) the organization, maintenance
and dissolution of Citizens Capital and the Trust, and other costs and
expenses of Citizens Capital and the Trust, (iii) the retention of the
Regular Trustees, (iv) the enforcement by the Property Trustee of the rights
of the holders of the Convertible Preferred Securities and (v) the extent
contemplated by the Indenture, the taxes of the Partnership and the Trust and
all liabilities, costs and expenses with respect to such taxes of the
Partnership and the Trust either by payment of Additional Interest or by
otherwise making funds available to the appropriate taxing authority or to
the Partnership or the Trust. The payment of such fees and expenses will be
fully and unconditionally guaranteed by Citizens.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
In the opinion of Skadden, Arps, Slate, Meagher & Flom, special tax
counsel to the Company, the Trust and Citizens Capital, the following are
the material United States federal income tax consequences of the issuance,
ownership and disposition of Convertible Preferred Securities. Unless
otherwise stated, this summary deals only with Convertible Preferred
Securities held as capital assets by holders who purchase the Convertible
Preferred Securities upon original issuance. The tax treatment of a holder
may vary depending on its particular situation. This summary does not address
all the tax consequences that may be relevant to holders who may be subject to
special tax treatment such as, for example, banks, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or except as specifically
described herein, foreign taxpayers. This summary does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable
to the Convertible Preferred Securities. This summary is based on the Code,
Treasury regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
68
Proposals Would Not Affect Tax Treatment
On December 7, 1995, the Treasury Department proposed legislation referred to
herein as the "Proposals" that, if enacted, would require certain debt
instruments that are not reflected as debt on the issuer's consolidated balance
sheet, such as the Convertible Debentures, to be characterized as equity of the
issuer for United States federal income tax purposes. On December 19, 1995, the
Treasury Department announced proposals regarding transitional relief from the
Proposals, stating that instruments will not be subject to the Proposals if
issued pursuant to a registration statement filed with the SEC on or before
December 7, 1995, to the extent of the aggregate amount of such instruments
described in the registration statement. The proposals for transitional relief
would exempt the Convertible Debentures from recharacterization under the
Proposals. Accordingly, even if the Proposals are enacted, they should not
affect the United States federal income tax treatment of the Convertible
Debentures, the Convertible Preferred Securities or the Partnership Preferred
Securities.
Classification of the Convertible Debentures
In connection with the issuance of the Convertible Debentures, Skadden,
Arps, Slate, Meagher & Flom, special tax counsel to Citizens, Citizens
Capital and the Trust, has rendered its opinion generally to the effect that,
under then current law and assuming full compliance with the terms of the
Indenture (and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Convertible Debentures will be
classified for United States federal income tax purposes as indebtedness of
Citizens.
Classification of Citizens Capital
In connection with the issuance of the Partnerhsip Preferred Securities,
Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Citizens,
Citizens Capital and the Trust, has rendered its opinion generally to the
effect that, under then current law and assuming full compliance with the
terms of the Limited Partnership Agreement and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, Citizens Capital will be classified for United States federal income
tax purposes as a partnership and not as an association taxable as a corpora-
tion.
Classification of the Trust
In connection with the issuance of the Convertible Preferred Securities,
Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Citizens,
Citizens Capital and the Trust, has rendered its opinion generally to the
effect that, under then current law and assuming full compliance with the
terms of the Declaration and the Indenture (and certain other documents), and
based on certain facts and assumptions contained in such opinion, the Trust
will be classified for United States federal income tax purposes as a grantor
trust and not as an association taxable as a corporation. Accordingly, for
United States federal income tax purposes, each holder of Convertible
Preferred Securities will generally be considered the owner of an undivided
interest in the Limited Partnership Securities held by the Trust, and each
holder will be required to include in its gross income its distributive share
of the net income of Citizens Capital, which net
69
income generally will be equal to the amount of OID accrued with respect to
the allocable share of the Convertible Debentures represented by its undivided
interest in the Limited Partnership Securities.
Potential Deferral of Interest Payments and Original Issue Discount
Because Citizens has the option, under the terms of the Convertible
Debentures, to defer payments of interest for up to 20 quarters, all of the
stated interest payments on the Convertible Debentures (whether made in cash
or Common Stock) will be treated as "original issue discount". Holders of
debt instruments issued with OID must include that discount in income on an
economic accrual basis without regard to the receipt of cash or Common Stock
attributable to the interest, regardless of their method of tax accounting.
The OID accrual rules may also accelerate the timing of a holder's
recognition of income in certain situations. Actual payments
and distributions of stated interest (whether made in cash or Common Stock)
will not, however, be separately reported as taxable income. The amount of
OID that accrues in any quarter and is allocated to the holders of the Trust
Securities will approximately equal the amount of the interest that accrues
on the Convertible Debentures in that quarter at the stated interest rate.
Accordingly, unless Citizens exercises its option to defer interest payments
on the Convertible Debentures, a holder of Convertible Preferred Securities
(whether it makes a Cash Distribution Election or Stock Distribution
Election) should have the same adjusted tax basis in its Convertible
Preferred Securities at the beginning of each quarterly interest payment
period.
In the event that the interest payments on the Convertible Debentures are
deferred, holders will continue to accrue OID with respect to their Convert-
ible Preferred Securities on an economic accrual basis. During such period,
OID will accrue at the stated interest rate on both the principal amount of
the Convertible Debentures, and any accrued, but unpaid, interest.
Because income on the Convertible Preferred Securities will constitute
interest (in the form of OID), corporate holders of Convertible Preferred
Securities will not be entitled to a dividends-received deduction with
respect to any income recognized with respect to the Convertible Preferred
Securities.
Holders Making a Stock Distribution Election
A holder that makes a Stock Distribution Election will recognize the same
amount of OID with respect to its Convertible Preferred Securities as a
holder who makes a Cash Distribution Election. In addition, a holder that
makes a Stock Distribution Election will not recognize any gain or loss on
the receipt of the Common Stock from the Trust even though the fair market
value of the Common Stock on the interest payment date may be greater or
lesser than the cash equivalent amount of the interest payment. Furthermore,
a holder will not recognize any additional income or loss with respect to
cash it may receive in lieu of a fractional share of Common Stock.
A holder's tax basis in the Common Stock it receives in lieu of a cash
interest payment generally will equal Citizens Capital's tax basis in such
Common Stock. Citizens Capital's tax
70
basis in the Common Stock it receives as interest on the Convertible Debentures
should equal the fair market value of the Common Stock on the Share Transfer and
Valuation Date. It is anticipated that the fair market value of the Common
Stock on the Share Transfer and Valuation Date will equal the cash equivalent
amount of such interest payment. Accordingly, a holder who makes a Stock
Distribution Election generally should have a tax basis in the shares of
Common Stock it receives in lieu of a cash interest payment equal to the
cash equivalent amount of such interest payment (less any cash received in
lieu of a fractional share of Common Stock).
In light of the fact that the value of a share of Common Stock can be
expected to vary among interest payment dates, holders who make Stock
Distribution Elections may have different tax bases in shares of Common Stock
they receive on different payment dates. Holders should consult their tax
advisors regarding the tax consequences of the ownership and disposition of
shares of Common Stock with different tax bases.
A holder's tax basis in its Convertible Preferred Securities will be (i)
increased by the amount of OID accrued with respect to its Convertible
Preferred Securities and (ii) reduced by the tax basis of the Common Stock
(and the amount of cash received in lieu of fractional shares of Common
Stock) received as interest with respect to its Convertible Preferred
Securities. It is expected that the amount of OID accrued with respect to
a quarterly interest payment period will approximately equal the tax basis
of the Common Stock (and the amount of cash received in lieu of fractional
shares of Common Stock) received as interest with respect to such interest
payment period.
Receipt of Partnership Preferred Securities, Convertible Debentures or Cash
Upon Liquidation of Citizens Capital and the Trust.
Under certain circumstances, as described under the caption "Convertible
Preferred Securities - Special Events Distribution", Convertible Debentures
may be distributed to holders in exchange for their Convertible Preferred
Securities and in liquidation of Citizens Capital and the Trust. Under
current law, such a distribution to holders, for United States federal
income tax purposes, would be treated as a nontaxable event to each holder,
and each holder would receive an aggregate tax basis in the Convertible
Debentures equal to such holder's aggregate tax basis in its Convertible
Preferred Securities. A holder's holding period in the Convertible
Debentures so received in liquidation of Citizens Capital and the Trust would
include the period during which the Convertible Preferred Securities were
held by such holder. If, however, the related Special Event is a Partnership
Tax Event or a Trust Tax Event which results in Citizens Capital or the Trust,
respectively, being treated as an association taxable as a corporation, the
distribution of the Convertible Debentures would likely constitute a taxable
event to holders of the Convertible Preferred Securities.
Under certain circumstances, as described under the caption "Convertible
Preferred Securities - Special Events Distribution", Limited Partnership
Securities may be distributed to holders in exchange for their Convertible
Preferred Securities and in liquidation of the Trust. Under current law,
such a distribution to holders, for United States federal income tax purposes,
71
would be treated as a nontaxable event to each holder, and each holder would
receive an aggregate tax basis in its Limited Partnership Securities equal to
such holder's aggregate tax basis in its Convertible Preferred Securities
exchanged therefor. A holder's holding period in the Limited Partnership
Securities so received in liquidation of the Trust would include the period
during which the Convertible Preferred Securities were held by such holder.
If, however, the related Special Event resulting in the liquidation of the
Trust is a Trust Tax Event which results in the Trust being treated as an
association taxable as a corporation, the distribution would likely
constitute a taxable event to the holders of the Convertible Preferred
Securities.
Under certain circumstances, as described under the caption "Convertible
Preferred Securities - Optional Redemption" and " - Redemption Upon Maturity
or Upon Acceleration," the Convertible Debentures may be redeemed by Citizens
for cash and the proceeds of such redemption distributed by Citizens Capital to
the Trust in redemption of the Limited Partnership Securities which, in turn,
will distribute such proceeds to holders in redemption of their Convertible
Preferred Securities. Under current law, such a redemption would, for United
States federal income tax purposes, constitute a taxable disposition of the
Convertible Preferred Securities, and a holder would recognize gain or loss
as if it sold such redeemed Convertible Preferred Securities for an amount of
cash equal to the proceeds received upon redemption. See "Convertible
Preferred Securities."
Disposition of Convertible Preferred Securities
A holder that sells Convertible Preferred Securities will recognize gain
or loss equal to the difference between the amount realized on the sale of
the Convertible Preferred Securities and the holder's adjusted tax basis in
such Convertible Preferred Securities. Such gain or loss will be a capital
gain or loss and will be a long-term capital gain or loss if the Convertible
Preferred Securities have been held for more than one year at the time of
sale.
A holder's tax basis in its Convertible Preferred Securities will be (i)
increased by the amount of OID accrued with respect to its Convertible
Preferred Securities and (ii) reduced by (x) the amount of cash and (y) the
tax basis of any shares of Common Stock received with respect to its
Convertible Preferred Securities. It is expected that the amount of OID
accrued with respect to a quarterly interest payment period will
approximately equal the amount of cash and the tax basis of the Common Stock,
if any, received as interest with respect to such interest payment period.
The Convertible Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid distributions and interest
with respect to the underlying Limited Partnership Securities and Convertible
Debentures, respectively. A holder who disposes of or converts its
Convertible Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest
on the Convertible Debentures through the date of disposition in income as
ordinary income, and to add such amount to the adjusted tax basis in its
Convertible Preferred Securities. To the extent the selling price is less
than the holder's adjusted tax basis (which basis will include, in the form
of OID, all accrued
72
but unpaid interest), a holder 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.
Exchange of Convertible Preferred Securities for Common Stock
A holder of Convertible Preferred Securities will not recognize income,
gain or loss upon the conversion, through the Conversion Agent, of
Convertible Preferred Securities into Common Stock in the manner described
under the caption "Convertible Preferred Securities - Conversion Rights."
A holder of Convertible Preferred Securities will, however, recognize gain
upon the receipt of cash in lieu of a fractional share of Common Stock equal
to the amount of cash received less the holder's tax basis in such fractional
share. A holder's tax basis in the Common Stock received upon the exchange
and conversion of its Convertible Preferred Securities should generally be
equal to the holder's adjusted tax basis in the Convertible Preferred
Securities delivered to the Conversion Agent for exchange less the basis
allocated to any fractional share for which cash is received. A holder's
holding period in the Common Stock received upon exchange and conversion of
its Convertible Preferred Securities should generally begin on the date such
holder acquired the Convertible Preferred Securities delivered to the
Conversion Agent for exchange.
Adjustment of Conversion Price
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Convertible Preferred Securities as having received a constructive
distribution from Citizens in the event the conversion price of the
Convertible Debentures were adjusted if (i) as a result of such adjustment,
the proportionate interest (measured by the quantum of Citizens Common Stock
into or for which the Convertible Debentures are convertible or exchangeable)
of the holders of the Preferred Securities in the assets or earnings and
profits of Citizens were increased, and (ii) the adjustment was not made
pursuant to a bona fide, reasonable antidilution formula. An adjustment in
the conversion price would not be considered made pursuant to such a formula
if the adjustment was made to compensate for certain taxable distributions
with respect to the Common Stock. Thus, under certain circumstances, a
reduction in the conversion price for the holders may result in deemed
dividend income to holders to the extent of the current or accumulated
earnings and profits of Citizens. Holders of the Convertible Preferred
Securities would be required to include their allocable share of such deemed
dividend income in gross income but will not receive any cash related
thereto. An adjustment in the conversion price made to account for
nontaxable distributions of Common Stock made with respect to Common Stock
will generally not cause holders of Convertible Preferred Securities to
realize a constructive dividend from Citizens. In addition, the failure to
fully adjust the conversion price of the Convertible Debentures to reflect
distributions of stock dividends with respect to the Common Stock may result
in a taxable dividend to the holders of the Common Stock.
73
United States Alien Holders
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a nonresident fiduciary of a foreign estate or trust.
Under present United States federal income tax law, (i) payments by the
Trust or any of its paying agents (whether in the form of cash or Common
Stock) to any holder of a Convertible Preferred Security who or which is a
United States Alien Holder will not be subject to withholding of United
States federal income tax; provided that, (a) the beneficial owner of the
Convertible Preferred Security does not actually or constructively (including
by virtue of its interest in the underlying Convertible Debentures) own 10%
or more of the total combined voting power of all classes of stock of
Citizens entitled to vote, (b) the beneficial owner of the
Convertible Preferred Security is not a controlled foreign corporation that
is related to Citizens through stock ownership, and (c) either (A) the
beneficial owner of the Convertible Preferred Security certifies to the
Trust or its agent, under penalties of perjury, that it is not a United
States holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Convertible Preferred Security in such capacity,
that certifies to the Trust or its agent, under penalties of perjury, that
such statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof; and (ii) a United States Alien Holder
of a Convertible Preferred Security will not be subject to withholding of
United States federal income tax on any gain realized upon the sale or other
disposition of a Convertible Preferred Security, unless, in the case of a
United States Alien Holder who is an individual, such individual is present
in the United States for 183 days or more in the taxable year of sale or
other disposition, and certain other conditions are met.
If a United States Alien Holder is treated as receiving a deemed dividend
as a result of an adjustment of the conversion price of the Convertible
Debentures, as described above under "Adjustment of Conversion Price", such
deemed dividend may be subject to United States federal withholding tax at
a 30% (or lower treaty) rate.
Information Reporting and Backup Withholding
Income on the Convertible Preferred Securities will be reported to holders
on Form 1099, which form should be mailed to holders of Convertible Preferred
Securities by January 31 following each calendar year. Payments made on and
proceeds from the sale of Convertible Preferred Securities may be subject to
a "back-up" withholding tax of 31% unless the holder complies with certain
identification requirements. Any withheld amount will generally be allowed
as a credit against the holder's United States federal income tax, provided
the required information is timely filed with the Internal Revenue Service.
74
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
UNDERWRITING
The underwriters of the offering of the Convertible Preferred Securities
named below (the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Lehman Brothers, Inc. are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions of an Underwriting Agreement (the "Underwriting Agreement"), to
purchase from the Trust the number of Convertible Preferred Securities set
forth opposite their respective names below.
Number of Convertible
Underwriters Preferred Securities
------------ --------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 1,450,000
Lehman Brothers Inc.............................. 1,450,000
Robert W. Baird & Co. Incorporated............... 100,000
Dean Witter Reynolds Inc......................... 100,000
Morgan Stanley & Co. Incorporated................ 100,000
NatWest Securities Limited....................... 100,000
PaineWebber Incorporated......................... 100,000
Janney Montgomery Scott Inc...................... 50,000
Edward D. Jones & Co., L.P. ..................... 50,000
-------------
Total.................................... 3,500,000
=============
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Convertible Preferred Securities are subject to
certain conditions. The Underwriting Agreement provides that, if any
Convertible Preferred Securities are purchased pursuant to the Underwriting
Agreement, all Convertible Preferred Securities agreed to be purchased
pursuant to the Underwriting Agreement must be so purchased.
75
The Trust, Citizens Capital and the Company have granted to the Underwriters
an option to purchase up to an additional 525,000 aggregate liquidation
value of Convertible Preferred Securities at the public offering price less
the aggregate underwriting discount, solely to cover over-allotments. The
option may be exercised at any time up to 30 days after the date of this
Prospectus.
The Underwriters propose initially to offer the Convertible Preferred
Securities directly to the public at the offering price set forth on the
cover page of this Prospectus, and to certain securities dealers at such
public offering price less a selling concession not in excess of $.65 per
Convertible Preferred Security. The selected dealers may reallow a discount
not in excess of $.10 per Convertible Preferred Security on sales to certain
other dealers. After the offering of the Convertible Preferred Securities,
the public offering price, concession and discount may be changed.
In view of the fact that the proceeds of the sale of the Convertible
Preferred Securities will ultimately be used to purchase the Convertible
Debentures of Citizens, the Underwriting Agreement provides that Citizens
will pay as compensation ("Underwriters' Compensation") to the Underwriters
arranging the investment therein of such proceeds, the amount of $1.125 per
Convertible Preferred Security (or $3,937,500 in the aggregate) for the
accounts of the several Underwriters.
The Company, Citizens Capital and the Trust have agreed to indemnify the
Underwriters against certain liabilities which may be incurred in connection
with the offering of the Convertible Preferred Securities and the exercise
of the over-allotment options, including liabilities under the 1933 Act.
The Trust, Citizens Capital and the Company have agreed, with certain
exceptions, that they will not sell or otherwise dispose of any Convertible
Preferred Securities, shares of Common Stock Series A or Common Stock
Series B or any securities convertible into or exchangable or exercisable
for any such Convertible Preferred Securities or common stock, or any equity
securities of the Company or the Trust substantially similar to the
Convertible Preferred Securities with certain designated exceptions, for a
period of 90 days from the date of this Prospectus without the written consent
of the Representatives.
The Convertible Preferred Securities have been approved for listing on the
NYSE, subject to official notice of issuance, under the symbol "CZNPr".
Trading of the Convertible Preferred Securities on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Convertible
Preferred Securities. The Representatives have advised the Trust that it
intends to make a market in the Convertible Preferred Securities prior to the
commencement of trading on the NYSE. The Representatives will have no
obligation to make a market in the Convertible Preferred Securities, however,
and may cease market making activities, if commenced, at any time.
Prior to this offering there has been no public market for the Convertible
Preferred Securities. In order to meet one of the requirements for listing
the Convertible Preferred Securities on the NYSE, the Underwriters will
undertake to meet the NYSE's distribution standards with respect to
Convertible Preferred Securities.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, Citizens and its subsidiaries in the
ordinary course of business.
----------------------------
76
Common Stock Series A may be distributed by the Trust in connection with
the elections by the holders of the Convertible Preferred Securities to
receive their distributions in Common Stock Series A. These elections may be
made at the time of this offering and annually during the Election Period.
Sales of Common Stock Series A by Citizens Capital may be made from time
to time in one or more transactions (which may involve crosses or block
transactions) on the NYSE or otherwise, pursuant to and in accordance with
the rules of the NYSE, in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Citizens Capital will effect such
transactions by selling shares of Common Stock Series A to or through
broker-dealers. Such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from Citizens Capital
and/or purchasers of shares of Common Stock Series A for whom they may act
(which compensation may be in excess of customary commissions). Citizens
Capital and broker-dealers that participate with Citizens Capital in the
distributions of shares of Common Stock Series A may be deemed to be
"underwriters" within the meaning of Section 2(11) of the 1933 Act, and any
commissions received by them and any profit on the resale of shares of
Common Stock Series A may be deemed to be underwriting compensation.
LEGAL OPINIONS
The validity of the Convertible Preferred Securities, the Convertible
Preferred Securities Guarantee, the Partnership Guarantee, the Convertible
Debentures, the Partnership Preferred Securities and the Common Stock will
be passed upon by Boulanger, Hicks & Churchill, P.C., 135 East 57th Street,
New York, New York, and Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York, counsels for the Company, and by Simpson Thacher
& Bartlett (a partnership which includes professional corporations), 425
Lexington Avenue, New York, New York, counsel for the Underwriters, except
as to certain matters of Delaware law, as to which Boulanger, Hicks &
Churchill, P.C. and Simpson Thacher & Bartlett may rely upon the
opinion of Skadden, Arps, Slate, Meagher & Flom. Certain United States
federal income taxation matters will be passed upon for Citizens, Citizens
Capital and the Trust by Skadden, Arps, Slate, Meagher & Flom. Legal matters
relating to required authorization, if any, of the Convertible Preferred
Securities, the Convertible Preferred Securities Guarantee, the Partnership
Guarantee, the Convertible Debentures, the Partnership Preferred Securities
and the Common Stock by the public utilities commissions in the various
states will be passed upon by local counsel to Citizens in the states of
Arizona, Colorado, Hawaii, Louisiana, Tennessee, Vermont and West Virginia.
Boulanger, Hicks & Churchill, P.C., Skadden, Arps, Slate, Meagher & Flom and
Simpson Thacher & Bartlett may rely upon such counsel as to certain matters
governed by the laws of such states.
77
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994, 1993, and 1992, and for each of the years then ended, incorporated by
reference in this Prospectus from the Company's Annual Report on Form 10-K
have been so incorporated by reference in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of the Mountain State Telephone Company, Alltel
Nevada, Inc., Navajo Communications Company, Inc., and Contel of New York,
Inc. incorporated by reference herein, have been examined by Arthur Andersen
LLP to the extent and for the periods indicated in their reports, and have
been so incorporated by reference in reliance upon the reports of Arthur
Andersen LLP also incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
78
<PAGE>
INDEX OF DEFINED TERMS
Defined Terms Page
- ------------- ----
1933 Act 2
1934 Act 2
1934 Act Reports 2
1940 Act 38
Additional Interest 35
ALLTEL 18
ALLTEL Telecommunications Properties 18
Average Market Price 37
back-up undertakings 56
Base Indenture 58
Beneficial Owner 47
blockage period 61
Business Day 34
Cash Distribution Election 7
Cash Payment Election 8
Change in 1940 Act Law 38
Change in Tax Law 39
Citizens 1
Citizens Capital ii
Code 16
Common Stock ii
Common Stock Series A ii
Company 1
Company Tax Event 39
Conversion Agent 10
Convertible Common Securities 1
Convertible Debentures ii
Convertible Preferred Securities 1
Convertible Preferred Securities Guarantee 10
CUC Capital 28
Debenture Trustee 58
Declaration 29
Declaration Event of Default 44
Delaware Trustee 29
Direct Participants 46
Distribution Declaration Date 7
Distribution Declaration Notice 7
Distribution Election 7
Distribution Payment Date ii
DTC iii
Election Period 8
Eligible Investments 28
Financial Institution 74
79
INDEX OF DEFINED TERMS
Defined Terms Page
- ------------- ----
General Partner 28
General Partner Payment 59
General Partnership Security 4
GTE 23
GTE Telecommunications Properties 23
GTE Telephone Properties 23
Guarantee Payments 55
Guarantee Trustee 29
Guarantees iii
Indenture 59
Indenture Event of Default 65
Indirect Participants 47
Interest Payment Date ii
Investment Company Act Opinion 38
Limited Partnership Agreement 28
Liquidation Distribution 43
NASDAQ 9
NYSE ii
OID 16
Omnibus Proxy 47
Other Subordinated Indebtedness 63
Participants 46
Partnership ii
Partnership Event of Default 44
Partnership Events 39
Partnership Guarantee 10
Partnership Guarantee Payments 55
Partnership Investment Company Act Event 39
Partnership Preferred Securities ii
Partnership Securities ii
Partnership Tax Event 39
Property Account 29
Property Trustee 29
Proposals 3
Rate ii
Rating Agency Event 39
Record Date 8
Redemption Price 41
Registration Statement 2
Regular Trustees 29
Representatives 75
SEC 2
80
INDEX OF DEFINED TERMS
Defined Terms Page
- ------------- ----
Senior Indebtedness 61
Senior Nonmonetary Default 61
Senior Payment Default 61
Share Transfer and Valuation Date 32
Special Events 39
Special Representative 52
Sponsor 29
Stock Distribution Election 7
Stock Payment Election 8
Super Majority 45
Tax Event Opinion 38
Telecommunications Properties 23
Trading Day 37
Transaction 38
Transitional Rules 69
Trust 1
Trust Act 4
Trust Events 39
Trust Guarantees 54
Trust Indenture Act 4
Trust Investment Company Act Event 38
Trust Securities 1
Trust Tax Event 38
Trust Trustees 29
Underwriters 75
Underwriters' Compensation 1
Underwriting Agreement 75
United States Alien Holder 74
81
============================== ==================================
No dealer, salesman or other
person has been authorized to
give any information or to make
any representation, other than 3,500,000
those contained in this Prospectus,
in connection with the offer made CITIZENS UTILITIES LOGO
by this Prospectus, and, if given
or made, such information or Convertible Preferred
representations must not be relied Securities
upon as having been authorized by
the Company. Neither the delivery
of this Prospectus nor any sale
made hereunder shall, under any
circumstances, create any
implication that there has been
no change in the affairs of the
Company since the date hereof or
thereof. This Prospectus does not
constitute an offer or solicitation
by anyone in any jurisdiction in
which such offer or solicitation is
not authorized or in which the person
making such offer is not qualified to
do so or to anyone to whom it is
unlawful to make such offer or
solicitation.
---------------------
TABLE OF CONTENTS
Prospectus PAGE
Available Information 2 --------------------
Incorporation of Certain Documents
by Reference 3 PROSPECTUS
Proposed Tax Legislation 3 January 16, 1996
Ratings of the Company's Securities 3
Prospectus Summary 4
Risk Factors 12
Citizens Utilities Company 17 ---------------------
Use of Proceeds 18
Capital Requirements and Financing 18
Description of Common Stock Series A
and Series B 19 Merrill Lynch & Co.
Dividends on Common Stock Series A Lehman Brothers
and Series B 20
Common Stock Price Range 20
Common Stock Transfer Agent 21
Financial Information 21
Citizens Utilities Capital L.P. 28
Citizens Utilities Trust 29
Description of the Securities 30
Convertible Preferred Securities 30
Partnership Preferred Securities 49
Guarantees 54
Convertible Debentures 58
Certain Federal Income Tax
Considerations 68
Underwriting 75
Legal Opinions 77
Experts 78
Index of Defined Terms 79
============================== ==================================
