PROSPECTUS
CITIZENS UTILITIES COMPANY
$10,883,543
Common Stock
__________________________
Citizens Utilities Trust is distributing this prospectus to you in connection
with your annual election, as a holder of the Trust's 5% Equity Providing
Preferred Income Convertible Securities ("EPPICS"), to receive your 1999
quarterly distributions on the EPPICS in shares of common stock of Citizens
Utilities Company or in cash. Your cumulative distributions are payable at an
annual Rate of 5% of the liquidation preference of $50 per EPPIC on each January
31, April 30, July 31, and October 31. These distributions are payable in shares
of common stock or, at either your or Citizens' option, in cash.
Citizens Utilities Capital L.P., a Delaware limited partnership, may also use
this prospectus in connection with sales of shares of Citizens common stock
received from Citizens in payment on its 5% Convertible Subordinated Debentures
Due 2036. The Partnership may make sales of this common stock from time to time
in transactions on the NYSE, in the over-the-counter market, in negotiated
transactions, or a combination of these methods, at market prices, at prices
related to market prices, or at negotiated prices. The Partnership will sell
these shares to or through broker-dealers. These sales will be made in order to
satisfy EPPICS holders' cash elections.
________________________
The common stock is listed under the symbol "CZN" on the New York Stock
Exchange.
________________________
See "Risk Factors" on page 5 of this prospectus for a discussion of risks
to be considered in connection with your investment decision. Also, please refer
to "Recent Developments" on page 6 for important information regarding the
proposed separation of Citizens.
_________________________
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
__________________________
Please note that this prospectus relates only to the shares of Citizens
common stock paid on the Convertible Debentures and payable as distributions on
the EPPICS. This prospectus does not relate to, does not contain all relevant
information with respect to, and you should not use this prospectus to make any
investment decision regarding, the EPPICS. If you wish to make an investment
decision regarding the EPPICS, you should instead refer to the prospectus of the
Trust dated January 16, 1996, as well as the publicly filed documents of
Citizens, for additional relevant information.
The date of this prospectus is December 28, 1998
EPPICS and Equity Providing Preferred Income Convertible Securities are
servicemarks of Citizens Utilities Company.
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TABLE OF CONTENTS
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Page Page
Prospectus Summary................................... 2 Direct Stock Purchase Plan................ 9
Risk Factors......................................... 5 Common Stock Price Range.................. 9
Cautionary Statement Regarding Forward-Looking The Partnership........................... 9
Statements......................................... 5 The Trust................................. 10
Citizens Utilities Company........................... 6 Distribution on Eppics.................... 10
Recent Developments.................................. 7 Certain Federal Income Tax
Citizens' Use of Proceeds from Stock Issuance Considerations......................... 16
and Sale........................................... 7 Plan of Distribution...................... 18
Description of Citizens Common Stock................. 8 Where You Can Find More Information....... 18
Dividends............................................ 8 Legal Opinions............................ 19
Preferred Stock...................................... 8 Experts................................... 20
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PROSPECTUS SUMMARY
This Summary may not contain all the information that may be important to
you. You should read the entire prospectus and the documents incorporated by
reference in the prospectus before making your investment decision. Whenever the
words "you" and "your" are used in this prospectus in the discussion of
distributions, these words mean the holders of the EPPICS and not the holders of
Citizens common stock. In this prospectus "Citizens" refers to Citizens
Utilities Company.
Background
Citizens Utilities Trust is a Delaware statutory business trust. On January
16, 1996, the Trust offered its EPPICS to the public. The Trust used the
proceeds received from that offering to buy the limited partnership interests of
the Partnership. The Partnership used proceeds from the Trust to buy Convertible
Debentures of Citizens. Citizens makes quarterly interest payments on the
Convertible Debentures to the Partnership, which then makes distribution
payments on the limited partnership interests to the Trust, which in turn makes
distribution payments on the EPPICS to you.
You may elect annually during an Election Period to receive your
distributions on the EPPICS in shares of Citizens common stock, par value $.01,
or in cash.
Citizens has been making the quarterly interest payments on the Convertible
Debentures to the Partnership in shares of Citizens common stock. When is does
so, the Partnership receives these common stock interest payments and, to the
extent necessary to satisfy your cash elections, places orders with brokers to
sell such shares. The Partnership then pays to the Trust the distributions on
the limited partnership interests in cash and/or shares. The Trust in turn pays
to you the appropriate amount of cash and/or shares of common stock to satisfy
your election.
Citizens may also elect to pay interest on the Convertible Debentures in
cash. If Citizens elects to pay cash, you will receive cash, even if you have
elected to receive stock.
Citizens may also elect to defer interest payments. If it does so the Trust
will not make distributions on the EPPICS.
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Important Information Regarding Your Annual Distribution Election
The coordination of your and Citizens' election opportunities requires that
your election be made within a specific time period. The following summary
describes this timetable:
Distribution Declaration Date - Whether Distributions Will Be Made
Whether Interest Payments Will Be in Cash or
Stock
o The Distribution Declaration Date will occur on or before December 9,
March 13, June 13 and September 12 of each year. If a scheduled
Distribution Declaration Date does not fall on a business day, it will
be the next preceding business day.
o On or prior to the Distribution Declaration Date, Citizens will
declare in a Distribution Declaration Notice whether it will:
o Make or defer the next interest payment.
o If Citizens states in the Distribution Declaration Notice that it will
pay and not defer the next interest payment, Citizens will also
provide you with the following information:
o Payment in Stock: Citizens may state in such notice that payment
will be made in common stock (a "Stock Payment Election")
having an Equivalent Value to the interest payment which ha
accrued for the period at the Rate.
o Payment in Cash: Citizens can alternatively state that it will
pay interest in cash (a "Cash Payment Election").
o Other Information: The Distribution Declaration Notice will
also inform you of the Record Date and, if Citizens makes a Stock
Payment Election, the Share Transfer and Valuation Date. The
Notice given each December will also inform you of the annual
Election Period procedures.
Record Date for Distributions
o The Record Date will occur on or before December 19, March 23, June 23
and September 22 of each year (at least ten calendar days after the
Distribution Declaration Date).
Election Period; Making a Stock or Cash Distribution Election
o The Election Period will be the ten-business day period in each year
commencing at least two business days after the December Record Date.
o The brokers, nominees or other entities which hold your account will
send you an election form on or about the first day of the Election
Period.
o During the Election Period you can make a Distribution Election:
o To receive stock (a "Stock Distribution Election") or to receive
cash(a "Cash Distribution Election").
o You make your Distribution Election by timely submitting the
election form back to the broker, nominee or other entity which
holds your account.
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o If you make no Distribution Election, you will be deemed to have
elected cash. Persons who purchase EPPICS between Election Periods may
not make a Distribution Election until the next Election Period and,
until then, are deemed to have elected cash.
o Your election will continue in effect until you make another election
in a subsequent Election Period.
o Late Distribution Elections will not be effective.
If Citizens Has Made a Stock Payment Election
Share Transfer and Valuation Date
o The Share Transfer and Valuation Date will generally occur on
or before January 18, April 17, July 18 and October 18 of each
year (at least nine Business Days before the Distribution
Payment Date).
o On each Share Transfer and Valuation Date:
o Citizens will determine the Equivalent Value; and
o Citizens will deliver shares of common stock with an
Equivalent Value to the Partnership.
Period from Share Transfer and Valuation Date to Distribution Payment
Date
o In the period from the Share Transfer and Valuation Date to the
Distribution Payment Date:
o The Partnership will sell common stock in amounts
sufficient to pay cash to those of you who have made a Cash
Distribution Election.
o To the extent cash proceeds from the sale of common stock are
insufficient to satisfy Cash Distribution Elections, Citizens
will provide the additional cash to the Partnership.
o Citizens may purchase from the Partnership some or all of the
common stock it had transferred to the Partnership as the
interest payment on the Convertible Debentures. If Citizens
purchases all of this common stock, you will receive your
distributions in cash, even if you had made a timely Stock
Distribution Election.
Distribution Payment Date
o The Distribution Payment Dates will be January 31, April 30, July 31
and October 31 of each year. If a scheduled Distribution Payment Date
does not fall on a business day, it will be the next business day.
o If Citizens had 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/or appropriate
amount of cash to satisfy your Stock and Cash Distribution
Elections and the Trust will transfer such shares and/or cash to
you.
o If Citizens had made a Cash Payment Election, on the Distribution
Payment Date Citizens will transfer cash to the Partnership in
payment of interest, the Partnership will transfer such cash to
the Trust and the Trust will transfer such cash to you.
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RISK FACTORS
You should carefully review all the information contained in this
prospectus, the information incorporated by reference in this prospectus, and
should particularly consider the following matters:
Market Risk on Distributions in Common Stock
The shares of common stock that you receive as a result of making a Stock
Distribution Election will have an Equivalent Value (determined on the Share
Transfer and Valuation Date - the date on which the shares 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 is
subject to market fluctuations. The market price of such shares may thereafter
decline and you would receive less than if you had made a Cash Distribution
Election.
Effect of Separation on Common Stock
After the separation (see the discussion in the section "Recent
Developments") Citizens expects that its common stock will continue to be traded
on the NYSE. As a result of the separation, the trading price of Citizens'
common stock may vary from the trading price of the common stock immediately
prior to the separation. The combined trading prices of Citizens' common stock
and the new telecommunications company's common stock after the separation may
be less than, equal to or greater than the trading prices of Citizens' common
stock prior to the separation.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. The forward-looking
statements are contained under the headings "Citizens Utilities Company,"
"Recent Developments" and "Dividends." These forward-looking statements are only
predictions or statements of current plans, which are constantly under review by
Citizens. Such forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed or
implied in the forward-looking statements. Many of the factors that will
determine these results are beyond our ability to control or predict. The Risk
Factors section in this prospectus expresses some of these risks and
uncertainties. Additional risks and uncertainties include, but are not limited
to, Citizens' ability to obtain the necessary regulatory and tax approvals and
complete the separation process, changes in the local and overall economy,
changes in market conditions for debt and equity securities, success in overall
strategy, and changes in legal or regulatory policy. This prospectus should be
read in conjunction with Citizens' filings with the U.S. Securities and Exchange
Commission including, but not limited to, reports on Forms 10-K, 10-Q and 8-K.
We caution you not to put undue reliance on any forward-looking statements. In
addition, we do not have any intention or obligation to update any
forward-looking statements after Citizens distributes this prospectus, even if
new information, future events or other circumstances have made them incorrect
or misleading.
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CITIZENS UTILITIES COMPANY
Citizens provides, either directly or through its subsidiaries:
o Public services, including
o electric distribution,
o natural gas transmission and distribution,
o water distribution, and
o Wastewater treatment services;
o Telecommunications services, including
o local network and long distance telephone service,
o network access services, and
o competitive local exchange carrier ("CLEC") services.
Its service areas cover primarily rural and suburban portions of twenty-two
states.
Citizens' administrative offices are located at Three High Ridge Park,
Stamford, Connecticut 06905 (telephone (203) 614-5600). Incorporated in Delaware
in 1935, Citizens has since grown as a result of its investment in its own
operations and from many acquisitions of additional communications, CLEC and
public services operations.
As a result of its diversification, Citizens is not dependent on any single
geographic area, customer or small group of customers for its revenues. The loss
of any single customer or small customer group would not have a material impact
on Citizens. Citizens' customers have grown from 26,150 in 1945 to 225,389 in
1965 to 610,585 in 1985 to approximately 1,800,000 as of September 30, 1998.
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.
Public Services
Divisions of Citizens provide electric distribution and natural gas
transmission and distribution services. These divisions purchase most of the
electric power and all natural gas supplies for these operations, except for
electric generating facilities and synthetic natural gas production in Hawaii.
Divisions and subsidiaries of Citizens provide water distribution and wastewater
treatment services.
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Telecommunications
Through subsidiaries, Citizens provides both regulated and competitive
communications and CLEC services to residential, business and wholesale
customers. Communications services consist of local network service, network
access services, long distance service, directory advertising, centrex, custom
calling and caller ID services, paging cellular, Internet access, voice mail and
conference calling. CLEC services consist of full-service, state-of-the-art
facilities-based voice and data communications services primarily to large- and
medium-sized communications intensive businesses and wholesale customers. CLEC
services are provided by Citizens' 83% owned subsidiary Electric Lightwave,
Inc., a leading CLEC for business and long distance carriers in the western
United States.
RECENT DEVELOPMENTS
On May 18, 1998, Citizens announced it planned to separate the company's
telecommunications businesses and public services businesses into two
stand-alone, publicly traded companies. Citizens' telecommunications businesses,
with about 900,000 access lines in fifteen states, plus its 83% interest in
Electric Lightwave, Inc. and other telecommunications investments, would be
transferred to a new, as yet un-named, corporation. Citizens expects to then
distribute the new company's common stock to Citizens shareholders. After the
separation, Citizens' public services businesses would continue to be operated
as Citizens Utilities Company and would include its geographically diverse
public service operations with about 850,000 customers in ten states. The goal
of the separation is to enable each business to independently pursue its own
strategies, and to operate and compete more effectively.
The separation requires numerous federal and state regulatory approvals
before it can take effect. The approval process is ongoing. Citizens expects
that the separation will be completed in the second half of 1999.
All holders of shares of Citizens common stock will, at the time of the
separation, be entitled to receive the distribution of the new
telecommunications company's common stock.
EPPICS holders who elect common stock will receive quarterly common stock
distributions following the separation of the post-separation Citizens Utilities
Company, and not those of the new telecommunications company. The dollar value
of EPPICS distributions on each Share Transfer and Valuation Date will remain
unchanged. The post-separation Citizens Utilities Company will have, among other
things, a different capital structure, net asset value, operating revenues, net
income and earnings per share than Citizens does now. Citizens' credit rating,
dividend policy, share price and trading volatility may be different, too.
CITIZENS' USE OF PROCEEDS FROM STOCK ISSUANCE AND SALE
If Citizens issues shares of common stock as payment of interest on the
Convertible Debentures, the Partnership will sell the shares necessary to raise
the cash to pay the Trust, which will then make cash payments to the EPPICS
holders who elect to receive cash instead of Citizens shares. Citizens will
receive no proceeds from the issuance or sale of the common stock except to the
extent that (1) sales proceeds exceed the amount necessary for the Trust to make
its cash payments or (2) 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.
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DESCRIPTION OF CITIZENS COMMON STOCK
As of November 30, 1998, Citizens had 258,919,585 shares of common stock
outstanding and there were 47,508 record holders of Citizens common stock.
Shareholders are entitled to one vote for each share they hold on all matters on
which stockholders may vote. Citizens' shareholders have no preemptive rights.
Illinois Stock Transfer Company is the common stock transfer agent.
DIVIDENDS
Citizens' shareholders are entitled to receive dividends when and as
declared by Citizens' board of directors out of funds legally available. Since
1956, Citizens has paid quarterly dividends with respect to its common stock in
cash and shares of its common stock and, since 1990, has paid dividends on its
common stock only in common stock. On November 20, 1998, Citizens declared a
fourth quarter 0.75% common stock dividend with respect to its common stock,
payable on December 31, 1998. As announced on that date, Citizens' board of
directors has undertaken a review of Citizens' dividend policy with respect to
its common stock in conjunction with its separation plan, which is described
above in the section "Recent Developments." Resulting from this review, the
board has determined that, after payment of the fourth quarter 1998 stock
dividend, Citizens would discontinue paying common stock dividends with respect
to its common stock, at least through the separation. In the course of its
review the board has come to the conclusion that Citizens' common shareholders
are no longer rewarded by a dividend paid in common stock.
Dividend policies for both Citizens and the new telecommunications company
will be evaluated and subject to approval by each company's board of directors.
The November 20, 1998 action by the Citizens board of directors does not
affect Citizens' continuing right to elect to make quarterly interest payments
on its Convertible Debentures in cash or Citizens common stock. The November 20,
1998 board action also does not constitute a deferral of payments to EPPICS
holders as described in this prospectus in the section "Distributions on EPPICS
- - Distributions May Be Deferred."
PREFERRED STOCK
Citizens is authorized to issue up to 50,000,000 shares of preferred stock,
par value $.01 per share. Under Citizens' Restated Certificate of Incorporation,
as amended, the board of directors may fix the designations, powers, preferences
and relative, participating, optional, conversion and other rights and the
qualifications, limitations and restrictions of such preferred stock, including
dividend rates and payment dates, liquidation preferences, conversion prices,
voting rights, redemption and sinking fund terms, and other specific terms.
Citizens may issue preferred stock in one or more classes and in one or more
series. If the directors create a class or series of preferred stock, they will
set forth the terms of such stock in the directors' resolution creating such
stock. Citizens has not yet issued any of the authorized preferred stock.
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DIRECT STOCK PURCHASE PLAN
Citizens has a Direct Stock Purchase Plan which permits shareholders who
have an account in the plan to add to their investment in common stock as often
as once a month, by making optional cash payments of at least $100 a month and
up to a maximum of $25,000 per quarter for each shareholder account.
Participants in the plan may sell shares owned by them up to a maximum of 5,000
shares a week. Typically the cost of carrying out transactions through the plan
will be lower than the cost that may be expected in the purchase with a small
number of shares directly through a broker.
COMMON STOCK PRICE RANGE
Citizens' common stock is listed and traded on the NYSE under the symbol
"CZN". Prior to the conversion of Citizens Common Stock Series A into Common
Stock Series B on August 25, 1997, the two series traded separately on the NYSE
under the symbols "CZNA" and "CZNB", respectively.
The table below indicates the high and low prices per share for the periods
shown. These prices were taken from the daily quotations published in The Wall
Street Journal during the periods indicated. Prices have been adjusted
retroactively for intervening stock dividends, and have been rounded to the
nearest 1/16th . No adjustment has been made to reflect the Company's .75%
fourth quarter 1998 stock dividend, as the adjustment is immaterial.
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1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------- --------------- ---------------- ---------------
High Low High Low High Low High Low
1998 10 15/16 8 15/16 11 1/4 9 9/16 10 1/16 6 15/16 9 1/8* 7 5/16*
1997
Series A 11 13/16 9 7/8 11 9/16 8 3/8 N/A N/A N/A N/A
Series B 11 13/16 10 11 9/16 7 11/16 9 1/16 7 5/8 10 3/16 8 7/8
1996
Series A 11 1/4 9 7/16 10 15/16 9 1/2 11 5/16 9 9/16 11 3/16 9 3/4
Series B 11 1/4 9 1/2 11 1/16 9 1/2 11 5/16 9 7/8 11 5/16 9 3/4
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* Through December 28, 1998.
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THE PARTNERSHIP
Citizens Utilities Capital L.P. is a Delaware special purpose limited
partnership. Citizens beneficially owns the general partnership interests in,
and is a general partner of, the Partnership. The Trust owns the limited
partnership interests ("Partnership Preferred Securities") in, and is a limited
partner of, the Partnership. The Partnership's function is to receive 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 to the holders of its partnership interests.
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THE TRUST
Citizens Utilities Trust is a Delaware statutory business trust formed
pursuant to a Declaration of Trust for the purpose of issuing the EPPICS and
acquiring the Partnership Preferred Securities.
The Trustees of the Trust, appointed by Citizens, conduct the Trust's
business and affairs. 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 (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
on the Partnership Preferred Securities for the benefit of the EPPICS holders.
The Property Trustee makes payments of distributions to its EPPICS holders out
of the funds or securities held in this account.
DISTRIBUTIONS ON EPPICS
If Distributions Will Be Made and Not Deferred
EPPICS Holders Can Elect Common Stock or Cash as Distributions
The Election. Each EPPICS holder may elect annually during a designated
period of ten business days how the Trust will pay distributions 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 remain in effect as long as a holder owns his EPPICS unless and
until he makes a new Distribution Election. A transfer of the ownership interest
in the EPPICS will cancel any election that an EPPICS holder has made. The
purchaser of his EPPICS will be entitled to make an election in the next
Election Period. Prior to this next Election Period, this new holder will be
deemed to have made a Cash Distribution Election. If the Partnership is
dissolved or liquidated due to the occurrence of certain events described in the
Limited Partnership Agreement, the right of an EPPICS holder to make a Stock
Distribution Election, and the right of Citizens to make Stock Payment
Elections, will terminate. If this happens, interest payments and distributions
will be made only in cash.
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(1) Citizens may pay interest on the Convertible Debentures in cash to the
Partnership and, as general partner, would then cause the Partnership to
distribute such cash to the Trust. In this event 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.
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How to Make an Election. The Election Period commences on or before
December 21 of each year, a date which is at least two Business Days after the
scheduled Record Date relating to the January 31 distribution payment, and ends
at the close of business ten Business Days later. Citizens specifies the
election procedures in the Distribution Declaration Notice relating to the
January 31 interest payment. Election forms and prospectuses are sent to EPPICS
holders on the Record Date relating to the January 31 distribution payment each
year on or about the first day of the Election Period. An EPPICS holder makes an
election by completing the election form and delivering it to the broker,
nominee or other entity which holds his account so that the form is received on
or before the close of business on the last day of the Election Period. If an
EPPICS holder does not deliver an election form within this period, the election
will not be effective. The brokerage houses holding accounts for holders,
nominees and other participants in the Depository Trust Company ("DTC") will
transmit the forms to DTC to the extent reasonably required to implement such
elections. The Trust will rely 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 Citizens, the Partnership and the
Trust believe that such procedures are not dissimilar from those used in similar
situations, each EPPICS holder is urged to consult with his broker to insure
that his election is properly recorded.
Citizens Determines Whether to Pay and Manner of Paying Interest and
Distributions
Citizens Determines Whether and How to Pay. On or prior to the Distribution
Declaration Date, Citizens informs the Trust, the Partnership and the EPPICS
holders in a Distribution Declaration Notice whether it will make or defer the
next interest payment. The Distribution Declaration Date will occur on or before
December 9, March 13, June 13 and September 12 of each year. If Citizens states
that it will make the payment, it will also state whether it will make the
interest payment in stock or in cash. 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. Citizens has historically been 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").
Citizens specifies which date will be the "Share Transfer and Valuation Date" in
the Distribution Declaration Notice.
Citizens Pays in Stock - Holders Electing Cash Will Receive Cash. If
Citizens pays interest on the Convertible Debentures in Citizens shares and
delivers such shares to the Partnership, EPPICS holders who have made, or who
are deemed to have made, Cash Distribution Elections will receive payment in
cash. This is because the Partnership will sell sufficient shares of common
stock on the open market (or otherwise raise cash) to pay the Trust the number
of shares and/or the amount of cash necessary to meet the Trust's obligation to
make payments to EPPICS holders in accordance with their elections. If the
Partnership sells shares for less than the Equivalent Value, the Indenture
governing the Convertible Debentures requires that Citizens pay any shortfall.
This insures that each EPPICS holder who has an effective Cash Distribution
Election receives the proper amount of cash distributions.
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Citizens Pays in Stock - Holders Electing Stock Normally Receive Stock, But
May Receive Cash. If Citizens pays interest on the Convertible Debentures in
Citizens shares and delivers such shares to the Partnership, EPPICS holders who
have made Stock Distribution Elections will normally receive stock. However:
o 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 this case, all
EPPICS holders will receive cash distributions at the Rate.
o 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 states 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 will so notify the Partnership,
the Trust and EPPICS holders in writing.
Citizens Pays in Cash - All Holders Receive Cash Regardless of
Elections. Citizens 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. In this case,
all holders will receive cash distributions at the Rate.
Record Dates
Distributions declared on the EPPICS are payable to the holders
thereof as they appear on the books and records of the Trust on the
relevant Record Dates. The Record Dates will occur on or before December
19, March 23, June 23 and September 22 of each year, which is at least ten
calendar days after the Distribution Declaration Date.
Share Transfer and Valuation Date
Citizens specifies the "Share Transfer and Valuation Date" in the
Distribution Declaration Notice. On the Share Transfer and Valuation Date,
Citizens transfers shares of common stock to the Partnership to satisfy the
interest payment obligation on the Convertible Debentures. The Share
Transfer and Valuation Date has been, and Citizens contemplates that it
will continue to be, at least nine Business Days before the Distribution
Payment Date. However, this time frame may change to reflect evolving
market practices and settlement procedures.
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Payment of Distributions
Distributions will be paid through the Property Trustee who will hold
the funds and securities received from the Partnership on the Partnership
Preferred Securities in the Property Account for the benefit of the EPPICS
holders. Distribution payments will be made as described under the section
entitled "-Book-Entry-Only Issuance - The Depository Trust Company" below.
If any date on which distributions are payable is not a business day, then
payment will be made on the next succeeding business day (and without any
additional interest due to this delay). If this business day is in the next
succeeding calendar year, however, the payment will instead be made on the
immediately preceding business day. 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.
Computation of Distributions
The amount of distributions payable for any period is computed on the
basis of twelve 30-day months and a 360-day year and, for any period
shorter than a full quarter, on the basis of the actual number of days
elapsed in such 90-day quarter.
Trust Must Pay if it Has the Funds or Securities and Cannot Pay if it
Does not Have such Funds or Securities
The Trust must pay distributions on the EPPICS to the extent that the
Trust has funds or securities, as the case may be, available for and on
hand to make the distribution payments. Citizens anticipates 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 the cash or securities to pay
distributions to the Trust on the Partnership Preferred Securities and the
Trust would then not have the cash or securities to pay distributions on
the EPPICS.
Distributions May Be Deferred
Under the Indenture, Citizens has the right to elect, at any time and
from time to time, to defer the date on which one or more of the quarterly
interest payments on the Convertible Debentures would otherwise become due
and payable; provided that:
o no such deferral, including any extension thereof, may exceed 20
consecutive quarters nor extend beyond the stated maturity date
of the Convertible Debentures; and
o in the event of such a deferral, any interest so deferred shall
not be deemed to have become due and payable until after such
deferral period has ended.
Distributions on the EPPICS would be deferred by the Trust during any
such deferral. 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 Citizens
pays the amount of such deferred interest (including compounded interest
thereon) in full. Citizens will 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
EPPICS holders. If interest payments are deferred, the resulting deferred
distributions and accrued and accumulated distributions thereon shall be
paid to holders of record of the EPPICS 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
EPPICS 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.
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Book-Entry-Only Issuance - The Depository Trust Company
DTC acts as securities depository for the EPPICS. The information in
this section concerning DTC and DTC's book-entry system is based upon
information Citizens has obtained from DTC.
DTC is:
o a limited-purpose trust company organized under the New York
Banking Law;
o a "banking organization" within the meaning of the New York
Banking Law;
o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
o 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. This eliminates 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 and the
National Association of Securities Dealers. 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 EPPICS within the DTC system must be made by or through
Direct Participants, which will receive a credit for the EPPICS on DTC's
records. The ownership interest of each actual purchaser of EPPICS
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records.
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All the EPPICS 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 EPPICS; DTC's records reflect only the identity of
the Direct Participants to whose accounts such EPPICS 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/or 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 EPPICS 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 global EPPICS must rely on the procedures of DTC
to exercise any rights under the EPPICS, including elections as to form of
payment.
DTC has advised Citizens that DTC management is aware that some
computer applications, systems, and the like for processing data
("Systems") that are dependent upon calendar dates, including dates before,
on, and after January 1, 2000, may encounter "Year 2000 problems." DTC has
informed its Participants and other members of the financial community (the
"Industry") that it has developed and is implementing a program so that its
Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC ("DTC Services"), continue
to function appropriately. This program includes a technical assessment and
a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and
their agents, as well as third party vendors from whom DTC licenses
software and hardware, and third party vendors on whom DTC relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom the Depositary acquires services to: (i) impress upon
them the importance of such services being Year 2000 compliant; and (ii)
determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process
of developing such contingency plans as it deems appropriate.
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According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification
of any kind.
Citizens and the Trust have obtained the information in this section
concerning DTC and DTC's book-entry system from sources that Citizens and
the Trust believe to be reliable, but neither Citizens nor the Trust takes
responsibility for the accuracy thereof.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General
Citizens believes that the following are the material United States
federal income tax consequences relating to the EPPICS holders' receipt of
shares of common stock as distributions on EPPICS. Unless otherwise stated,
this summary deals only with EPPICS held as capital assets. The tax
treatment of a holder may vary depending on his 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 EPPICS holders 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 EPPICS (whether he
makes a Cash Distribution Election or Stock Distribution Election) should
have approximately the same adjusted tax basis in his EPPICS at the
beginning of each quarterly interest payment period.
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In the event that the interest payments on the Convertible Debentures
are deferred, holders will continue to accrue OID with respect to their
EPPICS 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 EPPICS will constitute interest (in the form of
OID), corporate holders of EPPICS will not be entitled to a
dividends-received deduction with respect to any income recognized with
respect to the EPPICS.
Holders Making a Stock Distribution Election
A holder that makes a Stock Distribution Election will recognize the
same amount of OID with respect to his EPPICS 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 he may receive in lieu of a fractional share of
common stock.
A holder's tax basis in the common stock he 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 he
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 EPPICS
A holder that sells EPPICS will recognize gain or loss equal to the
difference between the amount realized on the sale of the EPPICS and the
holder's adjusted tax basis in such EPPICS. Such gain or loss will
generally be capital gain or loss and will be long-term capital gain or
loss if the EPPICS have been held for more than one year at the time of
sale.
A holder's tax basis in its EPPICS will be (i) increased by the amount
of OID accrued with respect to his EPPICS 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 EPPICS. 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.
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The EPPICS 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 his EPPICS 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 his EPPICS. 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.
This United States federal income tax discussion is included for
general information only and may not be applicable depending upon a
holder's particular situation. Holders should consult their own tax
advisors about the tax consequences to them of the Stock Distribution
Election and the purchase, ownership and disposition of the common stock
and the EPPICS 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
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.
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. Citizens 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 Citizens.
WHERE YOU CAN FIND MORE INFORMATION
Citizens files annual, quarterly and special reports, proxy statements
and other information with the SEC. Citizens' SEC filings are available to
the public over the Internet at the SEC's web site at http://www.sec.gov.
You may also read and copy any document Citizens files at the SEC's public
reference rooms 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. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.
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The SEC allows Citizens to "incorporate by reference" the information
it files with them, which means that Citizens can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information that Citizens files later with the SEC will automatically
update and supersede this information. Citizens incorporates by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until it sells all of the securities.
o Annual Report on Form 10-K for the year ended December 31, 1997;
o Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1998; and
o Current Reports on Form 8-K, filed March 13, April 7, May 6, May
19, August 14, and November 10, 1998.
You may request a copy of these filings at no cost, by writing or
telephoning Citizens at the following address:
Office of the Secretary
Citizens Utilities Company
High Ridge Park
Stamford, Connecticut 06905
(203) 614-5600
You may also visit Citizens at its Internet web site at
http://www.czn.net.
You should rely only on the information incorporated by reference or
provided in this prospectus. Citizens has not authorized anyone else to
provide you with different information. Citizens is not making an offer of
these securities in any state where the offer is not permitted. You should
not assume that Citizens has updated this prospectus after the date on the
front of this document. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of
this document.
LEGAL OPINIONS
Skadden, Arps, Slate, Meagher & Flom LLP passed upon certain United
States federal income taxation matters relating to the issuance of common
stock as distributions on the EPPICS at the time of the issuance of the
EPPICS in January 1996. Boulanger, Hicks & Churchill, P.C., 135 East 57th
Street, New York, New York, Citizens' counsel, passed upon the validity of
the common stock as distributions on the EPPICS at the time of the issuance
of the EPPICS. Local counsel to Citizens in the states of Arizona,
Colorado, Hawaii, Louisiana, and Vermont passed upon legal matters relating
to required authorization, if any, of the common stock by the public
utilities commissions in the various states. Boulanger, Hicks & Churchill,
P.C., relied upon such counsel as to certain matters governed by the laws
of such states.
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EXPERTS
The consolidated financial statements of Citizens as of December 31,
1997, 1996, and 1995, and for each of the years then ended, incorporated by
reference in this prospectus from Citizens' Annual Report on Form 10-K for
the year ended December 31, 1997, 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.
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CITIZENS UTILITIES
COMPANY
$10,883,543
Common Stock
______________________
PROSPECTUS
______________________
December 28, 1998
