PROSPECTUS
$24,118,296
CITIZENS UTILITIES COMPANY
Common Stock
($.25 Par Value)
--------------------------
This Prospectus may be used by Citizens Utilities Trust, a statutory
Delaware business trust (the "Trust"), in connection with the annual elections
by the holders of its 5% Equity Providing Preferred Income Convertible
Securities ("Convertible Preferred Securities") to receive their distributions
on the Convertible Preferred Securities in shares of Common Stock, par value
$.25 per share ("Common Stock"), of Citizens Utilities Company ("Citizens" or
the "Company"). Holders of the Convertible Preferred Securities are 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")
payable quarterly in arrears on each January 31, April 30, July 31, and October
31 (each, a "Distribution Payment Date"). Distributions on the Convertible
Preferred Securities are payable in shares of Common Stock or, at the option of
either Citizens or the holder, in cash. The holders' elections may be made
annually during the Election Period (as defined herein). See "Distributions on
Convertible Preferred Securities."
This Prospectus may also be used by Citizens Utilities Capital L.P., a
Delaware limited partnership (the "Partnership"), which may receive the Common
Stock covered by this Prospectus in connection with Citizens' interest payments
on the 5% Convertible Subordinated Debentures Due 2036 ("Convertible
Debentures") and which may sell such stock in the open market. See "Prospectus
Summary" and "Distributions on Convertible Preferred Securities." Such sales of
Common Stock may be made from time to time in one or more transactions (which
may involve crosses or block transactions) on the New York Stock Exchange
("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. The
Partnership will effect such transactions by selling shares of Common Stock to
or through broker-dealers. Such broker-dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Partnership
and/or purchasers of shares of Common Stock for whom they may act (which
compensation may be in excess of customary commissions). The Partnership and
broker-dealers that participate with the Partnership in the distributions of
shares of Common Stock 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 may be deemed to be underwriting compensation. See "Plan of Distribution."
This Prospectus relates only to the shares of Common Stock of Citizens
payable as distributions on the Convertible Preferred Securities. This
Prospectus does not relate to, does not contain all relevant information with
respect to, and should not be used to make any investment decision regarding,
the Convertible Preferred Securities of the Trust. To make an investment
decision regarding the Convertible Preferred Securities, holders should refer to
the Prospectus of Citizens Utilities Trust dated January 16, 1996 for additional
relevant information.
The Common Stock is listed under the symbol "CZN" on the NYSE.
See "Risk Factors" on page 6 for a discussion of certain material risks
to be considered in connection with an investment in the Common Stock.
--------------------------
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.
--------------------------
The date of this Prospectus is December 22, 1997
smEPPICS and Equity Providing Preferred Income Convertible Securities are
servicemarks of Citizens Utilities Company.
<PAGE>
AVAILABLE INFORMATION
Citizens is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act") and in accordance therewith files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "SEC"). Such reports, proxy and information 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 Citicorp 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. The SEC also maintains a web site
(http://www.sec.gov.) that contains reports, proxy and information statements
and other information regarding Citizens. Certain securities of Citizens are
listed on the New York Stock Exchange, 20 Broad Street, New York, New York
10005, and reports, proxy material and other information concerning Citizens may
be inspected at the office of that Exchange. Citizens will furnish 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 such reports, proxy and
information statements and other information. Requests for such copies should be
directed to Office of the Secretary, Citizens Utilities Company, High Ridge
Park, Stamford, Connecticut 06905 (telephone (203) 614-5600).
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
special purpose entities and, have no independent operations. Further, Citizens
believes that financial statements of the Trust and the Partnership are not
material to the election of the holders of the Convertible Preferred Securities
pursuant to this Prospectus since the holders' election as to the nature of the
distribution hereby relates solely to Citizens' Common Stock.
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, 1996.
The Company's Quarterly Reports on Form 10-Q for the periods ended
March 31, June 30, and September 30, 1997.
The Company's Current Reports on Form 8-K filed on January 16, March
18, May 1 (as supplemented on May 2), July 11, July 23, August 7, and November
17, 1997.
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 Common Stock 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 203-614-5600).
2
<PAGE>
PROSPECTUS SUMMARY
This Prospectus relates only to the shares of Common Stock of Citizens
payable as distributions on the Convertible Preferred Securities. This
Prospectus does not relate to, does not contain all relevant information with
respect to, and should not be used to make any investment decision regarding,
the Convertible Preferred Securities of the Trust. To make an investment
decision regarding, the Convertible Preferred Securities, holders should refer
to the Prospectus of Citizens Utilities Trust dated January 16, 1996 for
additional relevant information.
Background
Citizens Utilities Trust is a Delaware statutory business trust, the
undivided common beneficial interests of which are owned by Citizens Utilities
Company ("Citizens" or the "Company"). On January 16, 1996, the Trust offered
its Convertible Preferred Securities to the public. The Trust owns all of the
limited partnership interests (the "Partnership Preferred Securities") of the
Partnership, a special purpose Delaware limited partnership. All of the
Partnership's general partnership interests are beneficially owned by Citizens.
The Partnership owns Convertible Debentures of Citizens, which makes quarterly
interest payments, ordinarily, in its shares of Common Stock, par value $.25 per
share ("Common Stock"). The Partnership and the Trust in turn make quarterly
distributions of shares or cash as elected by each holder of the Trust's
Convertible Preferred Securities.
Holders of the Convertible Preferred Securities are 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")
payable quarterly in arrears on each January 31, April 30, July 31, and October
31 (each, a "Distribution Payment Date"). Each holder of Convertible Preferred
Securities may elect annually during the Election Period (as defined herein) to
receive its distributions on the Convertible Preferred Securities in shares of
Common Stock of Citizens or in cash. Each quarter, the Partnership will collect
interest payments on the Convertible Debentures and, to the extent necessary to
satisfy cash distribution elections, will place orders with brokers to sell
shares of Common Stock received as such interest payments and pay the required
quarterly distributions on its Partnership Preferred Securities to the Trust.
The Trust will in turn pay to the holders of the Convertible Preferred
Securities the appropriate amount of cash and/or shares of Common Stock received
by the Partnership to satisfy the elections made pursuant to this Prospectus by
the holders.
Distributions on Convertible Preferred Securities
Payable in Common Stock
Distributions on the Convertible Preferred Securities are cumulative
from the date of original issuance of the Convertible Preferred Securities at
the Rate. Distributions are paid quarterly in arrears on the Distribution
Payment Dates (which are January 31, April 30, July 31 and October 31 of each
year). 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 or cash (a "Distribution
Election"). While Citizens has been paying, and intends to continue to elect to
pay, interest on the Convertible Debentures in Common Stock, Citizens may also
elect to pay interest on the Convertible Debentures in cash. If Citizens elects
to pay cash, a holder which has elected to receive stock shall instead receive
cash. At Citizens' election, interest payments may also be deferred. The
coordination of these election opportunities requires that the elections be made
within specific time periods. The following summary describes this time-table.
Holders of Convertible Preferred Securities can make a Distribution
Election:
3
To receive stock (a "Stock Distribution Election"), or
To receive cash (a "Cash Distribution Election").
If no Distribution Election is made, the holder is deemed to have made
a Cash Distribution Election.
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.
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 has been paying, and intends to continue paying,
interest on the Convertible Debentures in the form of Common Stock,
such notice will ordinarily state that payment will be made in Common
Stock (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 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 holders' 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.
4
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 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 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 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 transferred to the Partnership as an interest payment. If all
such Common Stock 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.
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 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.
5
RISK FACTORS
Prospective acquirers of Common Stock should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matter:
Market Risk on Distributions in Common Stock
The shares of Common Stock that a holder of Convertible 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 communications and public services
company which provides, either directly or through subsidiaries,
telecommunications, electric distribution, natural gas transmission and
distribution, water and wastewater services to customers in twenty states.
Subsidiaries of Citizens provide telecommunications, and divisions of Citizens
provide electric distribution and natural gas transmission and distribution
services, purchasing most of the electric power needed and all gas supplies.
Water and wastewater services are provided either by divisions of Citizens or by
its subsidiaries. Citizens Communications operates an integrated distribution
network over which it provides local, long distance, paging, cellular, network
sales and other communications products and services. Citizens also has
investments in Centennial Cellular Corp., a cellular telephone company, and
Electric Lightwave, Inc., a leading competitive provider of telecommunications
services for business and long distance carriers in the western United States.
Citizens, with administrative offices at High Ridge Park, Stamford,
Connecticut 06905 (telephone (203) 614-5600), was incorporated in Delaware in
1935 to acquire the assets and business of a predecessor corporation. Since
then, Citizens has grown as a result of investment in its own operations and the
acquisition of additional operations.
As a result of its diversification, Citizens is not dependent upon any
single geographic area for its revenues. Citizens is not aware of any other
utility company as fully diversified in geographic areas served. Citizens'
operations are conducted principally in small and medium-sized communities. No
material part of Citizens' 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 Citizens. Citizens'
consumer connections has increased from 26,150 in 1945, to 225,389 in 1965, to
610,585 in 1985, and to over 1,600,000 as of September 30, 1997.
Citizens continually considers and is carrying out expansion through
internal investments, acquisitions and joint ventures in the rapidly evolving
telecommunications industry and in traditional public services and related
fields.
6
USE OF PROCEEDS
At its election, Citizens may issue the shares of Common Stock to the
Partnership as payment of interest on its Convertible Debentures. Proceeds from
the sale by the Partnership of Common Stock will be deposited with the Trust to
the extent necessary for the Trust to make its cash distribution payments on the
Convertible Preferred Securities. The Company will receive no proceeds from the
issuance of such shares except to the extent that sales proceeds exceed the
amount necessary for the Trust to make the cash distribution payments or to the
extent that Citizens elects to receive cash distributions on its general
partnership interests in the Partnership or its common beneficial interests in
the Trust. Such proceeds, if any, would be incidental and would be used for
general corporate purposes.
DESCRIPTION OF COMMON STOCK
Until August 25, 1997 Citizens' Common Stock consisted of two series:
Common Stock Series A and Common Stock Series B. On that date all outstanding
shares of Common Stock Series A were exchanged for shares of Common Stock Series
B on a share-for-share basis for Common Stock Series B became the only Common
Stock outstanding, which are designated as "Common Stock". As of October 31,
1997 Citizens had outstanding 247,001,409 shares of Common Stock. As of October
31, 1997 there were 51,493 record holders of Citizens Common Stock. The holders
of Citizens Common Stock are entitled to one vote for each share on all matters
voted on by stockholders. The holders of Citizens Common Stock have no
preemptive rights.
DIVIDENDS ON COMMON STOCK
The holders of Citizens Common Stock are entitled to receive dividends
when and as declared by the Board of Directors of Citizens out of funds legally
available therefor. Although there can be no assurances as to the amount of any
future dividends, cash or stock dividends have been paid to holders of Citizens
Common Stock every year without interruption beginning in 1939. Commencing in
1990, Citizens has declared and paid quarterly stock dividends on shares of all
its outstanding Citizens Common Stock. The stock dividend rate is based on an
underlying cash equivalent. Citizens expects that under present United States
federal tax law, stock dividends on Citizens Common Stock, if paid and 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.
STOCK DIVIDEND SALE PLAN
Citizens has a Stock Dividend Sale Plan (the "Plan") which enables
Citizens Common Stock stockholders to elect to have their future stock dividends
sold and the cash proceeds of the sale (minus a per share commission, currently
2 cents) distributed to them quarterly. If a Citizens Common Stock stockholder's
account is held by a broker or custodial institution participating in the Plan,
the cash proceeds are sent to the broker or custodial institution. Generally,
for United States federal income tax purposes, the differences between the
proceeds from the sale of the stock dividends (the net cash received) and the
adjusted basis of the shares sold are treated as a capital transaction.
7
Citizens Common Stock stockholders may enroll throughout the year in
the Plan. After a Citizens Common Stock stockholder's account has been enrolled
in the Plan, future stock dividends in that account will be sold quarterly,
unless Citizens' Transfer Agent receives written notification from a stockholder
to withdraw that account from the Plan. Stockholders who withdraw an account
from the Plan will then receive quarterly stock dividends and are not eligible
to re-enroll that account in the Plan for 12 months. Citizens has reserved the
right to terminate the Plan at any time.
COMMON STOCK TRANSFER AGENT
The transfer agent for the Company's Common Stock is Illinois Stock
Transfer Company.
CITIZENS UTILITIES CAPITAL L.P.
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, which
are owned by the Trust, and any interest of any special representative) are
beneficially owned by Citizens. Citizens is the sole general partner and the
Trust is a limited partner in the Partnership. The Partnership owns the
Convertible Debentures and will collect quarterly interest payments on the
Convertible Debentures, place orders with brokers to sell shares of Common Stock
received as such interest payments and pay the required quarterly distributions
on its Partnership Securities.
CITIZENS UTILITIES TRUST
Citizens Utilities Trust is a statutory business trust formed under the
Delaware Business Trust Act pursuant to a declaration of trust (the
"Declaration"). The Trust was formed to issue its Trust Securities and acquire
the Partnership Preferred Securities.
The Trust's business and affairs are conducted by the trustees of the
Trust ("Trustees") appointed by Citizens. There are four Trustees, two of whom
("Regular Trustees") are persons who are employees or officers of Citizens. The
third Trustee is The Chase Manhattan Bank, a New York banking corporation, which
acts as property trustee under the Declaration (the "Property Trustee"). The
fourth Trustee is Chase Manhattan Bank Delaware.
The Property Trustee maintains 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
makes payments of distributions to the holders of the Convertible Preferred
Securities out of funds from or securities held in the Property Account.
8
DISTRIBUTIONS ON
CONVERTIBLE PREFERRED SECURITIES
Distributions
Recipients of this Prospectus are encouraged to also review carefully
the section above entitled "Prospectus Summary - Distributions on Convertible
Preferred Securities Payable in Common Stock".
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.
How Distributions are Computed. Holders of the Convertible Preferred
Securities are entitled to receive cumulative distributions from the Trust in
the forms of payment described below, accruing at the Rate 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.
Holders Can Elect Distributions in Common Stock or Cash. In
anticipation of the continuing use of Citizens' shares of Common Stock 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 (a "Stock Distribution Election"), he will receive his
distributions in Common Stock, 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 certain partnership
events described in the Limited Partnership Agreement, the right of a holder to
make a Stock Distribution Election, and Citizens to make Stock Payment Elections
will terminate. In such event, interest payments and distributions will be made
only in cash.
- -----------------
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.
9
Distributions Flow From Citizens to Holders. Citizens has been and
intends to continue making interest payments on the Convertible Debentures in
shares of Common Stock 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 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.
How Distributions are Made. If Citizens pays interest on the
Convertible Debentures in shares of its Common Stock 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
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 under which the Convertible
Debentures are issued, 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 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 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 deposited with
the Partnership 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, 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").
10
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.
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 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 "-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. 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), 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 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
11
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 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. 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.
Book-Entry-Only Issuance - The Depository Trust Company
DTC acts as securities depository for the Convertible Preferred
Securities. The information in this section concerning DTC and DTC's book-entry
system is based upon information obtained from DTC.
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 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").
12
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.
All the Convertible Preferred Securities deposited by Participants with
DTC are registered in the name of DTC's nominee, Cede & Co. 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.
All distributions of cash and shares of Common Stock, and 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.
Cash distribution payments and distribution payments in shares of
Common Stock 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, the
Partnership 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.
A Beneficial Owner in a global Convertible Preferred Security must rely
on the procedures of DTC to exercise any rights under the Convertible Preferred
Securities, including elections as to form of payment.
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.
13
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
The following are what the Company believes are the material United
States federal income tax consequences relating to the receipt by holders of
shares of Common Stock as distributions on Convertible Preferred Securities.
Unless otherwise stated, this summary deals only with Convertible Preferred
Securities held as capital assets. 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 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 Common Stock. This summary is based on the Internal Revenue Code of 1986, as
amended, 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.
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" ("OID"). 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 Convertible Preferred 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
approximately 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
Convertible 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.
14
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
receives Common Stock will not recognize gain or loss on the receipt of such
Common Stock from the Trust even if the fair market value of the Common Stock on
the interest payment date differs from 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 the Partnership's tax basis in such Common
Stock. The Partnership's tax 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.
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 generally be capital
gain or loss and will be long-term capital gain or loss if the Convertible
Preferred Securities have been held for more than 18 months at the time of sale,
medium-term capital gain or loss if the Convertible Preferred Securities have
been held for more than one year but not more than 18 months at the time of
sale, and short-term capital gain or loss if the Convertible Preferred
Securities have been held for one year or less 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
15
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 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.
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 STOCK DISTRIBUTION ELECTION AND
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE COMMON STOCK AND 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.
PLAN OF DISTRIBUTION
Holders of the Convertible Preferred Securities are entitled to receive
cumulative distributions from the Trust at the Rate payable quarterly in arrears
on each Distribution Payment Date. Distributions are payable in shares of Common
Stock or, at the election of either Citizens or the holder, in cash. The
holders' elections may be made annually during the Election Period.
For the procedure to be followed by the Partnership and Trust in making
this election available to the holders of Convertible Preferred Securities
during the Election Period and to be followed by such holder in making his or
her election, please see "Prospectus Summary" and "Distributions on Convertible
Preferred Securities."
Citizens may issue the shares of Common Stock to the Partnership as
payment of interest on its Convertible Debentures. The Partnership may sell such
stock in the open market in order to satisfy the election requests, as described
herein and in the next paragraph.
Sales of Common Stock by the Partnership 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. The
Partnership will effect such transactions by selling shares of Common Stock to
or through broker-dealers. Such broker-dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Partnership
and/or purchasers of shares of Common Stock for whom they may act (which
compensation may be in excess of customary commissions). The Partnership has
arrangements with Lehman Brothers Inc. whereby Lehman will effect such sales of
Common Stock for the Partnership. The Partnership and broker-dealers that
participate with the Partnership in the distributions of shares of Common Stock
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 may be deemed to be underwriting compensation. The
Company has agreed to indemnify the Partnership against certain liabilities,
including certain liabilities under the Securities Act. Any expenses of any
sales of shares of Common Stock will be borne by the Company.
16
LEGAL OPINIONS
Certain United States federal income taxation matters relating to the
issuance of Common Stock as distributions on the Convertible Preferred
Securities were passed upon at the time of the issuance of the Convertible
Preferred Securities for Citizens, the Partnership and the Trust by Skadden,
Arps, Slate, Meagher & Flom LLP. At the time of the issuance of the Convertible
Preferred Securities, the validity of the Common Stock to be issued for
approximately the first two years was passed upon by Boulanger, Hicks &
Churchill, P.C., 135 East 57th Street, New York, New York, counsel for the
Company. Legal matters relating to required authorization, if any, of such
Common Stock by the public utilities commissions in the various states were
passed upon by local counsel to Citizens in the states of Arizona, Colorado,
Hawaii, Louisiana, and Vermont. Boulanger, Hicks & Churchill, P.C., relied upon
such counsel as to certain matters governed by the laws of such states.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996, 1995, and 1994, and for each of the years then ended, incorporated by
reference in this Prospectus from the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, 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.
17
<PAGE>
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No dealer, salesman or other person has been
authorized to give any information or to make any
representation, other than those contained in this
Prospectus, in connection with the offer made by this
Prospectus, and, if given or made, such information or
representations must not be relied 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.
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TABLE OF CONTENTS
Prospectus Page
Available Information................................ 2
Incorporation of Certain Documents
by Reference...................................... 2
Prospectus Summary................................... 3
Risk Factors......................................... 6
Citizens Utilities Company........................... 6
Use of Proceeds...................................... 7
Description of Common Stock.......................... 7
Dividends on Common Stock ........................... 7
Stock Dividend Sale Plan............................. 7
Common Stock Transfer Agent.......................... 8
Citizens Utilities Capital L.P....................... 8
Citizens Utilities Trust............................. 8
Distributions on Convertible Preferred Securities.... 9
Certain Federal Income Tax Considerations............ 14
Plan of Distribution................................. 16
Legal Opinions....................................... 17
Experts.............................................. 17
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$24,118,296
CITIZENS UTILITIES
COMPANY
Common Stock
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PROSPECTUS
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December 22, 1997
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