As filed with the Securities and Exchange Commission on December 26, 1995

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 2001



                                                 REGISTRATION NO. 333-58044

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File Nos. 33-63615-00, 33-63615-01 and 33-63615-02--------------------------------------------------------------------------------
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                       --------------------------------------------------------


                                AMENDMENT NO. 2 to1
                                       TO
                                    FORM S-3
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                       ----------------------------------


                        CITIZENS UTILITIESCOMMUNICATIONS COMPANY
                    CITIZENS UTILITIES       CITIZENS UTILITIES
        COMPANYCOMMUNICATIONS CAPITAL L.P.                 TRUST (Exact name of registrant (Exact name of registrant (Exact name of registrant
 as specified in charter)  as specified in           as specified in       
                           certificate of limited    certificate of trust)
                           partnership)

       DELAWARE                DELAWARE                 DELAWARE
   (State or other          (State or other         (State or other
    jurisdiction of          jurisdiction of         jurisdiction of
    incorporation or         incorporation or        incorporation or
    organization)            organization)           organization)

      06-0619596             06-1441535                06-6420665
  (I.R.S. employer         (I.R.S. employer          (I.R.S. employer
identification number)  identification number)    identification number)

       High Ridge Park, Bldg. No.I
            (EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN CHARTER)




                          DELAWARE                                                     06-061956
                          DELAWARE                                                     22-6886170
              (STATE OR OTHER JURISDICTION OF                           (I.R.S. EMPLOYER IDENTIFICATION NUMBERS)
               INCORPORATION OR ORGANIZATION)
---------------------------------- 3 Stamford, ConnecticutHIGH RIDGE PARK, STAMFORD, CONNECTICUT 06905 (203) 329-8800 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) Robert J. DeSantis Vice President and Treasurer Citizens Utilities Company High Ridge Park, Bldg. No.614-5600 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF EACH REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ SCOTT N. SCHNEIDER VICE CHAIRMAN OF THE BOARD AND EXECUTIVE VICE PRESIDENT CITIZENS COMMUNICATIONS COMPANY 3 P.O. Box 3801 Stamford, ConnecticutHIGH RIDGE PARK STAMFORD, CT 06905 Tel. No.TEL. NO. (203) 329-8800 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Jonathan H. Churchill, Esq. Vincent Pagano, Jr., Esq. Boulanger, Hicks & Churchill, P.C. Simpson Thacher & Bartlett 135 East 57th Street 425 Lexington Avenue New York, New York 10022 New York, New York 10017 Tel. No. (212) 838-5600 Tel. No.614-5600 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENTS FOR SERVICE OF EACH REGISTRANT) ---------------------------------- COPIES TO: DAVID F. KROENLEIN, ESQ. CHRISTINE M. MARX, ESQ. VINCENT PAGANO, JR., ESQ. WINSTON & STRAWN DUANE, MORRIS & HECKSCHER LLP SIMPSON THACHER & BARTLETT 200 PARK AVENUE ONE RIVERFRONT PLAZA 425 LEXINGTON AVENUE NEW YORK, NY 10166 NEWARK, NJ 07102 NEW YORK, NY 10017-3954 (212) 294-2645 (973) 424-2000 (212) 455-2000 ____________________________________________ Approximate
---------------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of commencementthis registration statement as determined in light of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective.market conditions. If the only securities being registered on this formForm are being offered pursuant to dividend or interest reinvestment plans, please check the following box. []/ / If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]/X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box. []/ / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. []/ / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [] ____________________________________________/ / ---------------------------------- CALCULATION OF REGISTRATION FEE
CALCULATIONPROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE Title of each class AmountCitizens Communications Company Debt and Equity(1) Citizens Communications Capital Trust I Trust Preferred Securities(1) Citizens Communications Company common stock held by selling stockholder $105,748,643 $26,438(2) Citizens Communications Company guarantee with respect to be Proposed maximum Proposed maximum Amount of of securities to be registered (5) offering price aggregate registration registered per unit (6) offering price fee - ------------------- --------------- ---------------- ---------------- ------------ Convertible Preferred $201,250,000 $____________ $201,250,000 $69,396.55(7) Securities of Citizens (1)(2)(3) Utilities Trust ("Trust") (1)(2); Partnership Preferred Securities of Citizens Utilities Capital L.P. ("Citizens Capital")Trust I (1)(3); Common Stock Series A and B ($.25 par value) of Citizens Utilities Company ("Citizens")(4)(5) Total $3,000,000,000 100% (1)(3); Citizens Guarantee with respect to Trust's Convertible Preferred Securities (3)(4); Citizens Guarantee with respect to Citizens Capital's Partnership Preferred Securities(3)(4); Citizens Convertible Debentures (1)(3) Common Stock Series A and B ($.25 par value) of Citizens $40,000,000 $40,000,000 $13,793.10(7)$3,000,000,000 $750,000(6) (7)
(1) There are being registered hereunder anunder this registration statement such indeterminate number of (a) Convertible Preferred Securities with an aggregate liquidation valueshares of up to $201,250,000, (b) Partnership Preferred Securities into whichcommon stock and preferred stock, warrants and depositary shares of Citizens Communications Company and such Convertible Preferred Securities can be converted, (c) Convertible Debentures having aindeterminate principal amount of up to $201,250,000 into which Partnership Preferred Securities can be converted, (d) shares of Common Stock Series A of the Company into which such Convertible Debentures can be converted, and (e) shares of Common Stock Series B of the Company into which such Series A shares can be converted. (2) Includes $26,250,000 of Convertible Preferred Securitiesdebt securities, which may be soldsenior or subordinated, of Citizens Communications Company as shall have an aggregate initial offering price not to exceed $3,000,000,000. If any pay-in-kind debt securities or pay-in-kind preferred stock are issued, then the securities registered shall include such additional debt securities or shares of preferred stock such that the aggregate initial public offering price of all securities issued pursuant to an over-allotment option grantedthis registration statement will not exceed $3,000,000,000. Citizens Communications Company junior subordinated notes also may be issued to Citizens Communications Capital Trust I and later distributed upon dissolution and distribution of the Underwriters. (3) Noassets thereof, which would include such junior subordinated notes for which no separate consideration will be received for Citizens' Guarantees, Convertible Debenturesreceived. Any securities registered under this registration statement may be sold separately or Common Stock Series A or B, or Citizens Capital's Partnership Preferred Securities. (4) In addition, the undertakings of Citizens in the Declaration of Trust, the Limited Partnership Agreement and the Indentureas units with other securities registered under this registration statement. There are also being registered under this registration statement such indeterminate number of shares of common stock of Citizens Communications Company as may issued upon the exchange or conversion of debt securities, preferred stock, warrants or depositary shares. (2) The $26,438 registration fee payable in respect of the 9,139,900 shares of Citizens Communications Company common stock that may be sold by the selling stockholder forms part of the aggregate $750,000 registration fee payable in respect of the securities which are being registered. (5) This Registration Statement shall be deemedThe registration fee for the selling stockholder's shares is calculated based upon the average of the high and low price of $11.57 for Citizen's Communications Company's common stock on May 1, 2001 pursuant to cover additional securities to be issued in connection with or as a resultRule 457(c) under the Securities Act of stock splits, stock dividends or similar transactions. (6)1933. (3) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. (7) Previously paid. _____________________ The registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a)457 of the Securities Act of 1933. (4) No separate consideration will be received for the Citizens Communications Company guarantee. Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is payable in respect of the Citizens Communications Company guarantee. (5) Includes the obligations of Citizens Communications Company under the trust agreement, the subordinated indenture, the related series of junior subordinated notes, the guarantee and the agreements as to expenses and liabilities, which include Citizens Communications Company's covenant to pay any indebtedness, expenses or untilliabilities of the Registration Statement shall become effective on such date as the Commission, actingTrust's (other than obligations pursuant to said Section 8(a)the terms of the trust preferred securities or other similar interests), may determine. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED PROSPECTUS _____________________, 1996 - ---------- 3,500,000 Convertible Preferred Securities CITIZENS UTILITIES TRUST ____% Citizens Utilities Convertible Preferred Securities (liquidation preference $50 per security) Equity Providing Preferred Income Convertible Securities ("EPPICS") (servicemark) [COMPANY LOGO HERE] ----------------------------- The Equity Providing Preferred Income Convertible Securities (servicemark) ("Convertible Preferred Securities") offered hereby represent preferred undivided beneficial interests in the assets of Citizens Utilities Trust, a statutory Delaware business trust (the "Trust"). The undivided common beneficial interests in the Trust owned by Citizens Utilities Company, a Delaware corporation ("Citizens" or the "Company"), are called the "Convertible Common Securities" and, together with the Convertible Preferred Securities, are called the "Trust Securities." The Trust exists for the sole purpose of issuing the Trust Securities, investing the proceedsall as described belowin this registration statement. (6) Calculated pursuant to Rule 457(o) under the Securities Act of 1933 and, engaging in those activities necessary thereto. (continuedwith respect to debt securities, reflects the principal amount of any such securities issued at, or at a premium to, their principal amounts, and the issue price rather than the principal amount of any debt securities issued at an original issue discount. The $750,000 registration fee was paid prior to originally filing this registration statement on next page) -----------------------------March 30, 2001. (7) Pursuant to Rule 429 under the Securities Act of 1933, the prospectus included herein is a combined prospectus which also relates to registration statement No. 333-07047 and an additional $800,000,000 of securities eligible to be sold under that registration statement shall be carried forward to this registration statement. Citizens Communications Company previously paid a fee based on the rate applicable at the time the prior registration statement was filed. The amount of the fee paid herewith has been calculated after giving effect to the amount of securities being carried forward from this prior registration statement. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BYUNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ORIS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 7, 2001 $3,800,000,000 CITIZENS COMMUNICATIONS COMPANY COMMON STOCK PREFERRED STOCK DEPOSITARY SHARES DEBT SECURITIES COMMISSION NOR HASWARRANTS CITIZENS COMMUNICATIONS CAPITAL TRUST I TRUST PREFERRED SECURITIES GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY CITIZENS COMMUNICATIONS COMPANY --------------------- Citizens Communications Company intends to offer from time to time common stock, preferred stock, depositary shares, debt securities, and warrants to purchase these types of securities. In addition, Citizens Communications Company has established Citizens Communications Capital Trust I, or the Trust, as a Delaware statutory business trust. The Trust intends to offer trust preferred securities. The trust preferred securities will be guaranteed to the extent described herein by Citizens Communications Company. We may sell any combination of these securities in one or more offerings up to a total dollar amount of $3,800,000,000. We will provide specific terms of these securities in supplements to this prospectus. You should read this prospectus and any prospectus supplement carefully before you invest. In this prospectus, references to "Citizens" are to Citizens Communications Company and do not include its subsidiaries. References to the "Trust" are to Citizens Communications Capital Trust I and do not include Citizens. References to the "Company," "we," "us" and "our" do include Citizens, the Trust and its other subsidiaries. We may sell the securities directly or to or through underwriters or dealers, and also to other purchasers or through agents. The names of any underwriters or agents that are included in a sale of securities to you, and any applicable commissions or discounts, will be stated in an accompanying prospectus supplement. This prospectus also relates to approximately 9,139,900 shares, or the Resale Shares, of common stock of Citizens that may, from time to time, be sold by the person named in this prospectus under the caption "Selling Stockholder." The selling stockholder may from time to time sell the Resale Shares on the New York Stock Exchange or on any other national securities exchange on which our common stock may be listed or traded, in negotiated transactions or otherwise, at prices then prevailing or related to the then current market price or at negotiated prices. The Resale Shares may be sold directly or through brokers or dealers. See "Plan of Distribution." We will receive no part of the proceeds of any sales of the Resale Shares made hereunder. See "Use of Proceeds." All expenses of registration of the Resale Shares incurred in connection with the offering, as well as all selling and other expenses incurred by the selling stockholder, are being borne by us. A brief description of the securities we, or the selling stockholder, may offer can be found in this prospectus. Our common stock is quoted on the New York Stock Exchange under the symbol "CZN." The closing price of our common stock on the New York Stock Exchange on May 4, 2001 was $12.56. None of the other securities that we may offer under this prospectus is currently publicly traded. ------------------------ SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF MATTERS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THESE SECURITIES. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION ORNOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------------- Initial Public Underwriting Proceeds to the Offering Price Commission(1) Trust(2)(3) -------------- ------------- --------------- Per Convertible Preferred Security $50 (2) $ - ---------------------------------------------------------------------------- Total(4) $175,000,000 (2) $ ============================================================================ (1) The Trust and Citizens have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriting." (2) Proceeds from the offering will be contributed by the Trust to Citizens Capital and will be used by Citizens Capital to purchase the Convertible Debentures of Citizens. Therefore, the Underwriting Agreement provides that Citizens, as borrower with respect to the Convertible Debentures, will pay to the Underwriters, as compensation ("Underwriters' Compensation"), $____ per Convertible Preferred Security (or $_________ in the aggregate). See "Underwriting." (3) Expenses of the offering, which are payable by Citizens, are estimated to be $ 492,000. (4) Does not include the $40,000,000 of shares of Common Stock of Citizens included in the Registration Statement which may be received and either sold by Citizens Capital or distributed as quarterly distributions to holders of Convertible Preferred Securities. Such shares represent approximately the first three and one half years of such distributions. The Trust, Citizens Capital and Citizens have granted the Underwriters an option for 30 days to purchase up to an additional 525,000 Convertible Preferred Securities at the initial public offering price per Convertible Preferred Security solely to cover over-allotments. Citizens will pay to the Underwriters, as Underwriters' Compensation, $___ per Convertible Preferred Security purchased pursuant to this option. If such option is exercised in full, the total initial public offering price, underwriting commission and proceeds to the Trust will be $___________, $__________ and $_____________, respectively. See "Underwriting." ----------------- The Convertible Preferred Securities offered hereby are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the Convertible Preferred Securities will be made only in book-entry form through the facilities of The Depository Trust Company ("DTC") on or about ________________, 1996. --------------------------------- See "Risk Factors" for a discussion of certain material risks to be considered in connection with an investment in the Convertible Preferred Securities, including certain federal income tax consequences. See page 12. --------------------------------- Merrill Lynch & Co. Lehman Brothers The date of this Prospectusprospectus is ___________, 1996 (service mark)EPPICS and Equity Providing Preferred Income Convertible Securities are servicemarks which have been applied for by Citizens Utilities Company. (continued from previous page) The proceeds from the offering of the Convertible Preferred Securities and the sale of the Convertible Common Securities will be contributed by the Trust to Citizens Utilities Capital L.P., 2001 TABLE OF CONTENTS
PAGE -------- About This Prospectus....................................... 3 Risk Factors................................................ 4 Forward-Looking Statements.................................. 9 Use of Proceeds............................................. 10 Ratio of Earnings to Fixed Charges.......................... 10 Citizens Communications Company............................. 11 Citizens Communications Capital Trust I..................... 25 Accounting Treatment........................................ 25 Selling Stockholder......................................... 25 Description of Debt Securities.............................. 27 Description of Capital Stock................................ 35 Description of Warrants..................................... 37 Description of Depositary Shares............................ 39 Description of Trust Preferred Securities................... 41 Description of Guarantee.................................... 42 Plan of Distribution........................................ 45 Where You Can Find More Information......................... 46 Incorporation of Documents by Reference..................... 46 Legal Matters............................................... 48 Experts..................................................... 48
2 ABOUT THIS PROSPECTUS This document is called a Delaware limited partnership ("Citizens Capital" or the "Partnership"), which will issue to the Trust limited partnership interests (the "Partnership Preferred Securities") in Citizens Capital. The undivided beneficial general partnership interest in the Partnership will be owned, directly or indirectly, by Citizens, which general partnership interest, together with the Partnership Preferred Securities, are called the "Partnership Securities." Such proceeds will be used by the Partnership to purchase from Citizens its __% Convertible Subordinated Debentures due 2036 (the "Convertible Debentures") having the terms described herein. In the event of default under the Declaration (as defined herein), the Convertible Preferred Securities will have a preference with respect to quarterly distributions and amounts payable on liquidation and redemption over the Convertible Common Securities. Holders of the Convertible Preferred Securities will be entitled to receive cumulative distributions from the Trust, at an annual rate of __% of the liquidation preference of $50 per Convertible Preferred Security (the "Rate"), accruing from the date of original issuance and payable quarterly in arrears on January 31, April 30, July 31, and October 31, (each, a "Distribution Payment Date"), commencing _________________, 199_. Distributions are payable in shares of Citizens Common Stock Series A ("Common Stock" or "Common Stock Series A") or, at the option of either Citizens or the holder, in cash. See "Convertible Preferred Securities - Distributions." The Distribution Payment Dates correspond to the dates scheduled for the payment of interest on the Convertible Debentures, so such dates are also sometimes referred to as "Interest Payment Dates." Interest payment periods on the Convertible Debentures are quarterly. So long as no Indenture Event of Default (as defined herein) has occurredprospectus and is continuing, Citizens has the right, at any time and from time to time, to elect to defer the date on which one or more of the quarterly interest payments on the Convertible Debentures would otherwise become due and payable, in which event quarterly distribution payments on the Partnership Preferred Securities and on the Convertible Preferred Securities would be deferred (but would be compounded quarterly at the Rate and continue to accrue and accumulate). No such deferral may exceed 20 consecutive quarters nor extend the stated maturity date of the Convertible Debentures. It is an event of default under the Indenture (as defined herein) if, at the end of such deferral of interest payments, Citizens does not pay all accrued or deferred and unpaid interest. Upon such payment at the endpart of a deferral, the Trust must pay all accrued or deferred and unpaid distributions on the Convertible Preferred Securities. See "Convertible Preferred Securities - Distributions" and "Convertible Debentures - Option to Defer Interest Payments." Each Convertible Preferred Security is convertible in the manner described herein at the option of the holder, unless previously redeemed, into shares of Common Stock Series A of Citizens, at a conversion price of $____ per share of Common Stock Series A (equivalent to a conversion rate of ____ shares of Common Stock Series A for each $50 of liquidation preference of Convertible Preferred Securities), subject to adjustment. See "Convertible Preferred Securities - Conversion Rights." The Common Stock Series A is listed under the symbol "CZNA" on the New York Stock Exchange ("NYSE"). The last reported sale price per share of Common Stock Series A on the NYSE on December 20, 1995 was $13 1/8. See "Common Stock Price Range." The Convertible Debentures are redeemable by Citizens, at its option, in whole or in part, from time to time, on or after _________________, 1999, at 100% of the principal amount being redeemed, together with all accrued or deferred and unpaid interest (including any compound interest resulting from the deferral of interest payments). For purposes hereof, wherever this Prospectus speaks to "interest" or "distributions" payable on or with respect to any security offered hereunder, such terms include compound interest arising from any deferral of interest or distributions on such securities. If Citizens' Convertible Debentures are redeemed, the Trust must redeem Convertible Preferred Securities and Convertible Common Securities, on a pro rata basis, having an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so redeemed at $50 per Trust Security payable in cash plus accrued or deferred and unpaid distributions thereon in cash or Common Stock. See "Convertible Preferred Securities - Optional Redemption" and "Convertible Debentures - Optional Redemption." See also "Convertible Preferred Securities - Redemption on Maturity or Upon Acceleration" and "Convertible Debentures - Indenture Events of Default." Upon the occurrence of certain events (subject to the conditions described elsewhere herein) the Trust and/or the Partnership may be liquidated and the holders of the Convertible Preferred Securities could receive either Partnership Preferred Securities or Convertible Debentures in lieu of any liquidating cash distribution. See "Convertible Preferred Securities - Special Events Distribution." ii (continued from previous page) In the event of the liquidation, dissolution or winding up of the Trust, investors will be entitled to receive for each Convertible Preferred Security held a liquidation preference of $50 payable in cash, plus accrued or deferred and unpaid distributions payable in either cash or Common Stock, to the date of payment. See "Convertible Preferred Securities - Liquidation Rights." Under the Convertible Debentures, Citizens' payment obligation is absolute and unconditional. In addition, Citizens has payment obligations under the Partnership Guarantee (as hereafter defined) and the Trust Guarantees (as hereafter defined) (collectively, the "Guarantees"). Citizens will irrevocably guarantee, on a subordinated basis and to the extent set forth therein, with respect to each of the Trust Securities and the Partnership Preferred Securities, the payment of distributions, the redemption price, including all accrued or deferred and unpaid distributions, and payments on liquidation, but only to the extent of Common Stock and/or cash on hand. Each of the Guarantees will be unsecured and each will be subordinate to all Senior Indebtedness of Citizens (as defined below). The Guarantees, when taken together with Citizens obligations under the Convertible Debentures, the Indenture, the Declaration and the Limited Partnership Agreement (as defined herein), including its obligations to pay costs, expenses and certain indemnities of the Trust, constitute a full and unconditional guarantee of amounts due under the Convertible Preferred Securities. See "Guarantees." The Convertible Debentures are subordinated in right of payment to all of Citizens' Senior Indebtedness. See "Convertible Debentures - Subordination". Application will be made to list the Convertible Preferred Securities on the NYSE under the symbol "___." The Convertible Preferred Securities will be represented by a global certificate or certificates registered in the name of DTC or its nominee. Beneficial interests in the Convertible Preferred Securities will be shown on, and transfers thereof will be effected only through, records maintained by the participants in DTC. Except as described herein, Convertible Preferred Securities in certificated form will not be issued in exchange for the global certificate or certificates. See "Convertible Preferred Securities - Book-Entry-Only Issuance - The Depository Trust Company." $40,000,000 of Citizens Utilities Company Common Stock This Prospectus may be used by the Trust in connection with the elections by the holders of Convertible Preferred Securities to receive their distribution in Common Stock Series A. These elections may be made at the time of this offering and annually during the Election Period. See "Convertible Preferred Securities - Distributions."This Prospectus may also be used by Citizens Capital, which may receive the Common Stock Series A covered by this Prospectus in connection with Citizens' interest payments on the Convertible Debentures and which may sell such stock in the open market. See "Convertible Preferred Securities - Distributions." Such sales of Common Stock Series A may be made from time to time in one or more transactions (which may involve crosses or block transactions) on the NYSE or otherwise, pursuant to and in accordance with the rules of the NYSE, in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Citizens Capital will effect such transactions by selling shares of Common Stock Series A to or through broker-dealers. Such broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions from Citizens Capital and/or purchasers of shares of Common Stock Series A for whom they may act (which compensation may be in excess of customary commissions). Citizens Capital and broker-dealersregistration statement that participate with Citizens Capital in the distributions of shares of Common Stock Series A may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act of 1933 (the "1933 Act"), and any commissions received by them and any profit on the resale of shares of Common Stock Series A may be deemed to be underwriting compensation. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CONVERTIBLE PREFERRED SECURITIES OFFERED HEREBY AND COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. iii Table of Contents Page - ----------------- ---- AVAILABLE INFORMATION 2 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 3 PROPOSED TAX LEGISLATION 3 RATINGS OF COMPANY SECURITIES 3 PROSPECTUS SUMMARY 4 Citizens Utilities Company 4 Citizens Utilities Capital L.P. 4 Citizens Utilities Trust 4 Structural Overview 5 Consolidated Summary Financial Information 6 The Offering 7 Use Of Proceeds 11 RISK FACTORS 12 Subordinate Obligations Under Guarantees and Convertible Debentures 12 Dependence on Convertible Debenture Payments 12 Enforcement of Certain Rights by Holders of Convertible Preferred Securities 13 Option to Defer Payment of Distributions 13 Certain Tax Consequences of Deferral of Interest Payments on Convertible Debentures 14 Tax and Market Consequences of Redemption or Special Events Distribution 14 Enactment of December 1995 Tax Proposals 15 Limited Voting Rights 15 Trustee Conflicts of Interest 15 Trading Price and Taxes 16 No Prior Market for the Convertible Preferred Securities; Market Risk on Distributions in Common Stock 16 CITIZENS UTILITIES COMPANY 17 USE OF PROCEEDS 18 CAPITAL REQUIREMENTS AND FINANCING 18 DESCRIPTION OF COMMON STOCK SERIES A AND SERIES B 19 DIVIDENDS ON COMMON STOCK SERIES A AND SERIES B 20 COMMON STOCK TRANSFER AGENT 20 COMMON STOCK PRICE RANGE 20 FINANCIAL INFORMATION 21 CITIZENS UTILITIES CAPITAL L.P. 28 CITIZENS UTILITIES TRUST 29 DESCRIPTION OF THE SECURITIES 30 CONVERTIBLE PREFERRED SECURITIES 30 General 31 Distributions 31 How Distributions are Computed 31 Holders Can Elect Distributions in Common Stock or Cash 32 Distributions Flow From Citizens to Holders 32 How Distributions are Made 33 Record Dates 33 Other 34 Deferrals 34 Additional Interest 35 Conversion Rights 36 General 36 Conversion Price Adjustments - General 36 Conversion Price Adjustments - Merger, Consolidation or Sale of Assets of Citizens 37 Special Events Distribution 38 Ministerial Action 40 Optional Redemption 41 Redemption on Maturity or Upon Acceleration 41 Redemption Procedures; Generally 42 Liquidation Rights 43 Amendment to the Declaration 43 Merger, Consolidation or Sale of Assets of the Trust 44 Declaration Events of Default 44 Voting Rights 45 Book-Entry-Only Issuance - The Depository Trust Company 46 Information Concerning the Property Trustee 48 Transfer Agent, Paying Agent, Registrar and Conversion Agent 49 PARTNERSHIP PREFERRED SECURITIES 49 General 49 Distributions 50 Conversion Rights 50 Special Events Distribution 50 Optional Redemption 50 (iv) PARTNERSHIP PREFERRED SECURITIES (continued) Redemption on Maturity or Upon Acceleration 51 Redemption Procedures; Generally 51 Liquidation Rights 51 Merger, Consolidation or Sale of Assets of Citizens Capital 51 Limited Partnership Agreement Event of Default 52 Voting Rights 52 Amendment to the Limited Partnership Agreement 54 Transfer Agent, Paying Agent, Registrar and Conversion Agent 54 GUARANTEES 54 General 55 Certain Covenants of Citizens 56 Subordination 57 Amendments and Assignment 57 Termination 57 Events of Default 58 CONVERTIBLE DEBENTURES 58 General 59 Optional Redemption 59 Special Events Distribution 59 Interest 60 Option to Defer Interest Payments 60 Additional Interest 60 Subordination 60 Certain Covenants of Citizens 63 Conversion of the Convertible Debentures 64 Indenture Events of Default 65 Modification of the Indenture 67 Governing Law 67 Information Concerning the Debenture Trustee 67 Miscellaneous 68 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS 68 General 68 Proposals Would Not Affect Tax Treatment 69 Classification of the Convertible Debentures 69 Classification of Citizens Capital 69 Classification of the Trust 69 Potential Deferral of Interest Payments and Original Issue Discount 69 Holders Making a Stock Distribution Election 70 Receipt of Partnership Preferred Securities, Convertible Debentures or Cash Upon Liquidation of Citizens Capital and the Trust 71 Disposition of Convertible Preferred Securities 72 Exchange of Convertible Preferred Securities for Common Stock 73 Adjustment of Conversion Price 73 United States Alien Holders 74 Information Reporting and Backup Withholding 74 UNDERWRITING 75 LEGAL OPINIONS 77 EXPERTS 78 INDEX OF DEFINED TERMS 79 (v) AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 ("1934 Act") and in accordance therewith files reports, proxy statements and other information (collectively, "1934 Act Reports")we filed with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such material can also be obtainedusing a "shelf" registration or continuous offering process. Under this shelf process, we may from the Public Reference Sectiontime to time sell any combination of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Certain securities described in this prospectus. This prospectus provides you with a description of our business, certain risk factors and a general description of the Company are listedsecurities we may offer. Each time we sell securities, we will provide a prospectus supplement containing specific information about the terms of the securities being offered. That prospectus supplement will include a detailed and current discussion of any risk factors or other special considerations applicable to those securities. The prospectus supplement may also add, update or change information in this prospectus. If there is any inconsistency between the information in this prospectus together with additional information described under the heading "Where You Can Find More Information" and any prospectus supplement, you should rely on the New York Stock Exchange, 20 Broad Street, New York, New York 10005,information in that prospectus supplement. You should rely on the information provided in this prospectus and reports, proxy material and otherin any prospectus supplement, including the information concerning the Company may be inspected at the office of that Exchange. The Company hereby undertakesincorporated by reference. Neither we nor any underwriters or agents have authorized anyone to provide without charge,you with different information. We are not offering the securities in any state where the offer is prohibited. You should not assume that the information in this prospectus, any prospectus supplement, or any document incorporated by reference, is truthful or complete at any date other than the date mentioned on the cover page of those documents. 3 RISK FACTORS YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN ANY PROSPECTUS SUPPLEMENT BEFORE YOU DECIDE TO PURCHASE SECURITIES OFFERED BY THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. IN ADDITION, YOU SHOULD NOTE THAT THE PROSPECTUS SUPPLEMENT THAT WILL ACCOMPANY THIS PROSPECTUS WILL INCLUDE ANY ADDITIONAL RISK FACTORS THAT MAY SPECIFICALLY APPLY TO THE TYPE OF SECURITY THAT WE WILL OFFER UNDER THE PROSPECTUS SUPPLEMENT OR THAT MAY OTHERWISE APPLY. WE MAY BE UNABLE TO OBTAIN NEW FINANCING AND ANY NEW FINANCING WE DO OBTAIN MAY BE ON UNFAVORABLE TERMS. Since March 1999, we have contracted to (i) each personpurchase 2,034,700 telephone access lines for an aggregate purchase price of $6,321.0 million. As of March 31, 2001, we have closed on the purchase of 334,500 telephone access lines for an aggregate purchase price of $985.3 million, which was financed with drawings under our bank credit facilities, the sale of our commercial paper and the sale of marketable securities held by us. We will require $5,334.8 million to whomclose on the remaining purchases. Our remaining available credit facilities of $5,553.6 million as of March 31, 2001, together with cash flows, are sufficient to fund these acquisitions as they close. Our ability to draw on our $5,700.0 million credit facility will end on October 26, 2001 and the debt outstanding under this facility will mature on October 25, 2002. Accordingly, prior to October 25, 2002, we will need to establish a copypermanent capital structure consisting of this Prospectusa combination of replacement credit facilities and issuances of long-term debt and equity. We may not be able to obtain sufficient long-term debt financing and equity financing on favorable terms. Our ability to accomplish these objectives is delivered,subject to market conditions, relevant regulatory approvals, and (ii) any ownerour ability to maintain a favorable credit rating. We may only be able to obtain long-term debt financing at higher interest rates than we currently pay or with onerous covenants that could restrict our operating flexibility or adversely affect our overall financial results. WE WILL NEED TO TAKE ACTION IF WE ARE TO MAINTAIN OUR CREDIT RATINGS. It is our intention to maintain investment grade credit ratings for our senior unsecured indebtedness. In order to do so, we expect to take action to preserve the strength of Convertible Preferred Securities, upon writtenour balance sheet. More specifically, we expect that we may issue equity or oral request of such person, a copysecurities that the rating agencies deem to have equity characteristics, refinance our credit facility indebtedness, sell our public utility assets and perhaps raise capital through one or more joint ventures which we expect we would operate and to which we would sell some significant assets. The consummation of any and/or all of these transactions is dependent upon a number of conditions affecting our operations and the capital markets generally, including the receipt of any necessary regulatory approvals, favorable market reception to our issuance of long-term debt and equity securities and our continued success in operating our businesses. Failure to preserve the strength of our balance sheet through some combination of these transactions could result in a downgrading of the Company's 1934 Act Reports. Requests forratings applicable to our indebtedness. In addition, if we undertake any further acquisitions, such copies shouldacquisitions might have a detrimental effect on our credit ratings. WE MAY BE UNABLE TO SUCCESSFULLY DIVEST OUR PUBLIC UTILITIES SERVICES SEGMENTS IN A TIMELY MANNER WHICH MAY ADVERSELY AFFECT OUR FINANCING PLANS. A key component of our business strategy involves the divestiture of our public utilities services segments. Failure to sell our public utilities services segments on acceptable terms or to complete agreed sales within agreed time periods may adversely affect our ability to obtain new financing on acceptable terms to continue to expand our telecommunications business internally and to meet competitive challenges. Sales of our public utilities services segments require regulatory approval and in some cases contain financing conditions. We cannot be directed to Office ofsure that we will receive the Secretary, Citizens Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905 (telephone 203-329-8800). Citizens, the Trust and the Partnership have filed with the SEC a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the 1933 Act. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information, reference is hereby made to the Registration Statement. No separate financial statements of either the Partnershipnecessary regulatory approvals or the Trust have been included herein. Citizens, the Trust and the Partnership do not consider that such financial statements would be material to holders of Convertible Preferred Securities because the Trust and the Partnership are newly organized special purpose entities, have no operating history and no independent operations and are not engaged in, and do not propose to engage in, any activity other than as described under "Citizens Utilities Trust" and "Citizens Utilities Capital L.P." Further, Citizens believes that financial statements of the Trust and the Partnership are not material to the holders of the Convertible Preferred Securities since Citizens will guarantee the Convertible Preferred Securities and the Partnership Preferred Securities such that the holders of the Convertible Preferred Securities, with respect to the payment of distributions and amounts upon liquidation, dissolution and winding-up, are at least in the same position vis-a-vis the assets of Citizens as a preferred stockholder of Citizens. Citizens beneficially owns directly or indirectly all of Citizens Capital's partnership interests (other than the Partnership Preferred Securities, which are held by the Property Trustee (as defined herein) for the benefit of the holders of Convertible Preferred Securities) and beneficially owns directly or indirectly all of the undivided beneficial interests in the assets of the Trust (other than the beneficial interests represented by the Convertible Preferred Securities). See "Citizens Utilities Trust," "Citizens Utilities Capital L.P.," "Convertible Preferred Securities," "Guarantees" and "Convertible Debentures." In future filings under the 1934 Act, an audited footnote to the Company's annual financial statements will state that the Trust and the Partnership are wholly-owned by the Company, that the sole assets of the Trust are the Partnership Preferred Securities having a specified aggregate liquidation value, that the sole assets of the Partnership are the Convertible Debentures of the Company having a specified aggregate principal amount, and, considered together, the back-up undertakings, including the Guarantees, constitute a full and unconditional guarantee by the Company of the Trust's obligation under the Convertible Preferred Securities issued by the Trust. 2 ---------------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the SEC pursuant to the 1934 Act are incorporated into this Prospectus by reference: The Company's Annual Report on Form 10-K for the year ended December 31, 1994. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and on Forms 10-Q and 10-QA for the quarter ended June 30, 1995, and on Form 10-Q for the quarter ended September 30, 1995. The Company's Current Reports on Form 8-K relating to the acquisitions of certain telecommunications properties filed on July 5, August 9, and December 7, 1994, and June 1, 1995. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Actfinancing prior to the terminationexpirations of closing deadlines contained in our sale agreements. Therefore, the planned sale of our public utilities services segments may not occur within 4 the anticipated time periods. Examples of delays or factors which may affect our proposed transactions include: - Our agreements to sell our Arizona and Vermont electric divisions have been terminated due to the failure of the offeringproposed purchaser to obtain financing. - The California electricity generation crisis has stretched the resources of California utility regulators and may result in delays in approving the sale of our water and wastewater assets. Our agreement for the sale of this business may be terminated if regulatory approval is not received before September 30, 2001. - The Hawaii Public Utility Commission has denied the initial application requesting approval of the Convertible Preferred Securities shallproposed sale of our Kauai electric division to Kauai Island Electric Co-op. Our agreement for the sale of this division may be deemedterminated if regulatory approval is not received before February 2002. Our failure to consummate these divestitures at the expected prices could adversely affect our financing plans, credit ratings and internal expansion. UNTIL WE DIVEST OUR PUBLIC UTILITIES SERVICES SEGMENTS WE WILL BE SUBJECT TO THE RISKS OF THE PUBLIC UTILITIES BUSINESS. We intend to divest our public utilities services segments in order to focus on the telecommunications sector. Until we complete our divestitures on acceptable terms, we remain subject to continuing risks of the public utilities business. These risks include exposure to rapidly fluctuating prices for gas and electricity in a regulated or partially regulated environment and financial instability in the public utilities industry in certain states. For example: - In Arizona, we are disputing what we believe to be excessive power costs charged by our power supplier in the amount of $57.0 million through December 31, 2000. We have deferred charging these costs to consumers and have recorded them as a regulatory asset on our balance sheet in anticipation of recovering certain amounts through renegotiation with the power supplier. - In Vermont, we belong to a Vermont utility consortium that purchases power from a Canadian power generation facility. Two participants in the consortium, representing an aggregate of 83% of the purchase commitment, have experienced financial difficulties. If they default on their purchase commitments, we, as a 10% participant, and other members of the consortium will be obligated to purchase the defaulting parties' share of power on a pro rata basis. We will be exposed to any price differential between the price that we pay for the power and the market price for the power. - The market for energy has become more unstable recently, particularly in states such as California. Continued market instability in California or in other jurisdictions may have an adverse effect upon the energy market generally and our operations specifically. WE HAVE SUBSTANTIAL EXISTING INDEBTEDNESS AND WILL INCUR SUBSTANTIAL ADDITIONAL OBLIGATIONS. As of March 31, 2001, we had outstanding long-term indebtedness of approximately $2,981.5 million. This amount includes indebtedness of our 85%-owned subsidiary, Electric Lightwave, Inc., or ELI. We have credit facilities of $6,350.0 million of which $5,553.6 million was available as of March 31, 2001 to fund our currently contracted for acquisitions. Through March 31, 2002, we expect $181.2 million of this indebtedness to mature. As of March 31, 2001, ELI had outstanding long-term indebtedness of approximately $885.9 million. ELI has borrowed $400.0 million under a revolving line of credit with commercial banks that expires on November 21, 2002 and has issued $325.0 million in indebtedness that matures on May 14, 2004. In addition, ELI has entered into leases for telecommunication facilities, including one with a final purchase option due on April 30, 2002 in the amount of $110.0 million. We have guaranteed $911.1 million of indebtedness and other obligations of ELI. We do not expect that ELI will 5 have sufficient resources from internally generated funds to make all of these required payments. Therefore, ELI must rely upon the financial markets and us to refinance all or a portion of this indebtedness. There can be no assurance that ELI will be successful in refinancing this indebtedness. We have committed to continue to finance ELI's cash requirements through a revolving credit facility to ELI in the amount of $450.0 million that matures on October 30, 2005. As of March 31, 2001, $58.0 million principal amount was outstanding under this facility. We must use a portion of our future cash flow from operations to pay the principal and interest on our indebtedness, which will reduce the funds available for our operations, including capital investments and business expenses. This could hinder our ability to adjust to changing market and economic conditions. If we incur significant additional indebtedness, our credit ratings could be adversely affected. As a result, our borrowing costs could increase and our access to capital may be adversely affected. WE MAY BE UNABLE TO ACHIEVE IMPROVED OPERATING RESULTS FROM OUR NEWLY ACQUIRED OPERATIONS AND EFFICIENTLY INTEGRATE THESE OPERATIONS INTO OUR EXISTING BUSINESS. In order to accomplish growth in profitability, we will need to increase our revenues per customer through enhanced products and services as well as attract new customers while retaining our existing customer revenue base. In addition, we need to integrate our newly acquired operations into our existing business. Our strategy is premised, in part, on our ability to timely consummate our pending telecommunications acquisitions and to improve operating results in our existing and to-be-acquired telecommunications businesses by introducing new communications products and services, expanding the penetration of existing services and improving operating efficiencies. The rapid growth in the size of our telecommunications business though our acquisitions and our ongoing transformation into a telecommunications company poses challenges for us to monitor our operations, costs, regulatory compliance, and service quality and to maintain other necessary internal controls. If we are not able to meet these challenges effectively, our results of operations may be harmed. OUR ACTUAL OPERATING RESULTS WILL DIFFER FROM THE RESULTS INDICATED IN THE PRO FORMA FINANCIAL STATEMENTS AND THIS COULD ADVERSELY AFFECT THE VALUE OF THE SECURITIES. The pro forma information incorporated by reference in this Prospectusprospectus with regard to our pending acquisitions, while helpful in illustrating the financial characteristics of the combined company, does not attempt to predict or suggest future results. The pro forma information also does not attempt to show how the combined company would actually have performed had the companies and businesses been combined throughout these periods and performance might have been different. You should not rely on pro forma financial information as an indication of the results that would have been achieved if the acquisitions had taken place earlier or the future results that the companies and businesses will experience after completion of these transactions. In addition, we may enter transactions that would affect our financial condition and the value of the securities. Our pro forma financial statements do not reflect what would be the effect of any transaction, including joint ventures we may enter into. THE ACCESS CHARGE REVENUES WE RECEIVE MAY BE REDUCED AT ANY TIME. A significant portion of our revenues comes or is derived from access charges paid by interexchange carriers, or IXCs, for services we provide in originating and terminating intrastate and interstate long-distance telephone calls. The amount of access charge revenues we receive for these services is regulated by the Federal Communications Commission, or FCC, and state regulatory agencies. Recent rulings regarding access charges have lowered the amount of revenue we receive from this source. Additional actions by these agencies could further reduce the amount of access revenues we receive. In addition, a portion of our access revenues is received from state and federal universal 6 service funds based upon the high cost of providing telephone service to certain rural areas. In the future, there may be proposals by state or federal regulatory agencies to eliminate or reduce these revenues. A material reduction in the revenues we receive from these funds would adversely affect our financial results. WE FACE COMPETITION, WHICH COULD ADVERSELY AFFECT US. The telecommunications industry is a competitive industry. The traditional dividing lines between long distance, local, wireless, cable and internet services are becoming increasingly blurred. Through mergers and various service integration strategies, services providers are striving to provide integrated solutions both within and across geographic markets. As a diversified full service incumbent local exchange carrier, or ILEC, our competitors are competitive local exchange carriers, or CLECs, and other providers (or potential providers) of services, such as internet service providers, or ISPs, satellite companies, neighboring ILECs and cable companies that may provide services competitive with ours or services that we intend to introduce. We cannot assure you that we will be able to compete effectively with these industry participants in all of our operations. In addition, wireless providers currently compete in territories of all of our rural telephone exchange subsidiaries. Increased competition from these wireless providers is expected. We cannot predict the effects of greater competition from wireless providers. Furthermore, regions served by access lines that have not had substantial upgrading over the last several years are particularly vulnerable to competition. Until we complete the upgrade of our access lines, the services we provide in the areas served by these access lines are vulnerable to competition from operators of more updated systems. We expect competition to intensify as a result of the entrance of new competitors and the development of new technologies, products and services. We cannot predict which of many possible future technologies, products or services will be important to maintain our competitive position or what expenditures will be required to develop and provide these technologies, products or services. Our ability to compete successfully will depend on marketing and on our ability to anticipate and respond to various competitive factors affecting the industry, including a changing regulatory environment that may affect our competitors and us differently, new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. ELI FACES SUBSTANTIAL COMPETITION FOR ITS TELECOMMUNICATIONS SERVICES FROM LARGER COMPANIES. ELI's competitors for telecommunications services are primarily larger ILECs, CLECs and IXCs. Because it is not an incumbent provider, ELI's ability to succeed in the telecommunications services market depends to a large extent on its ability to build tailored, value-added network services for business customers and to maintain its customer base and develop additional business customers in its core geographic areas in light of changing technologies. We anticipate that general pricing competition and pressures will increase significantly. We have not obtained significant market share in any of the areas where we offer our CLEC services, nor do we expect to do so given the size of our telecommunications services markets, the intense competition therein and the diversity of customer requirements. There can be no assurance that we will be able to compete effectively in any of our markets. Furthermore, the recent bankruptcies and weakened financial position of a part hereofnumber of CLECs have resulted in a more demanding operating environment for CLECs, as both customers and suppliers are more concerned about each CLEC's creditworthiness. MANY OF OUR COMPETITORS HAVE SUPERIOR RESOURCES, WHICH MAY PLACE US AT A COST AND PRICE DISADVANTAGE. Many of our current and potential competitors have market presence, engineering, technical and marketing capabilities and financial, personnel and other resources substantially greater than ours. In addition, some of our competitors can raise capital at a lower cost than we can. Consequently, some competitors may be able to develop and expand their communications and network infrastructures 7 more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and sale of their products and services than we can. Also, the greater brand name recognition of some competitors may require us to price our services at lower levels in order to win business. Finally, the cost advantages of some competitors may give them the ability to reduce their prices for an extended period of time if they so choose. OUR COMPANY AND INDUSTRY ARE HIGHLY REGULATED, IMPOSING SUBSTANTIAL COMPLIANCE COSTS AND RESTRICTING OUR ABILITY TO COMPETE IN OUR TARGET MARKETS. As an ILEC, we are subject to significant regulation from federal, state and local authorities. This regulation restricts our ability to raise our rates, especially in our basic services, and imposes substantial compliance costs on us. Regulation restricts our ability to compete and, in some jurisdictions, it may restrict our ability to expand our services. In addition, changes to the regulations that govern us may have an adverse effect upon our business by reducing the allowable fees that we may charge, imposing additional compliance costs, or otherwise changing the nature of our operations and the competiton in our industry. IN THE FUTURE AS COMPETITION ENTERS OUR MARKETS, WE MAY BE UNABLE TO MEET THE TECHNOLOGICAL NEEDS OR EXPECTATIONS OF OUR CUSTOMERS. The telecommunications industry is subject to significant changes in technology. If we do not replace or upgrade technology and equipment that becomes obsolete, we will be unable to compete effectively because we will not be able to meet the needs or expectations of our customers. Replacing or upgrading our infrastructure could result in significant capital expenditures. DETERIORATING ECONOMIC CONDITIONS COULD HARM OUR BUSINESS. Demand for communications products and services may be adversely affected by a downturn in the United States economy as well as changes in the global economy. Key United States economic indicators have recently signaled a softening of the United States economy. As a result, we may experience decreased demand for our communications products and services. A decline in the demand for and usage of communications products and services could have an adverse effect on our results of operations and financial condition. Many of ELI's customers are in various internet-related businesses, including internet service providers, some of which have been adversely affected by recent business trends in that sector. To the extent the credit quality of these customers deteriorates or these customers seek bankruptcy protection, ELI's ability to collect receivables, and ultimately its operating results, may be adversely affected. AS A HOLDING COMPANY WITH RESPECT TO TELECOMMUNICATIONS ASSETS, WE WILL REQUIRE DIVIDENDS FROM SUBSIDIARIES TO MEET CASH REQUIREMENTS OR PAY DIVIDENDS. Citizens conducts all its telecommunications business operations through its subsidiaries and may arrange for certain telecommunications assets to be held in special purpose legal entities with separate financing. Accordingly, following the divestiture of our public utilities services segments, Citizens' only source of cash to pay dividends or make other distributions on its capital stock or to pay interest and principal on its outstanding indebtedness will be distributions relating to its ownership interest in its telecommunications subsidiaries and affiliates from the date of filingnet earnings and cash flow generated by such subsidiaries. We cannot be sure that Citizens' telecommunications subsidiaries will generate sufficient cash flow to pay or distribute such dividends or funds, or that applicable state law, regulatory action, and contractual restrictions, including negative covenants contained in any debt instruments of such documents. The Company hereby undertakessubsidiaries and affiliates, would permit such dividends, distributions or payments. 8 FORWARD-LOOKING STATEMENTS Our forward-looking statements are subject to provide, without charge,a variety of factors that could cause actual results to each persondiffer significantly from current beliefs. Some statements and information contained in this prospectus and in the documents incorporated by reference into this prospectus are not historical facts, but are "forward-looking statements," as such term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "plans," "may," "will," "would," "could," "should," or "anticipates" or the negative of these words or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. Forward-looking statements may differ from actual future results due to, whom a copybut not limited to, those factors referenced under "Risk Factors" and/or any of the following possibilities: - changes in economic conditions; - changes in the capital markets; - changes in industry conditions; - changes in our credit rating; and - changes in accounting policies or practices adopted voluntarily or as required by regulations or generally accepted accounting principles. You should consider these important factors as well as those referenced under "Risk Factors" in evaluating any statement in this Prospectus is delivered, upon writtenprospectus or oral request of such person, a copy of anyotherwise made by us or on our behalf. We have no obligation to update or revise these forward-looking statements. 9 USE OF PROCEEDS Except as otherwise described in an accompanying prospectus supplement, we plan to use substantially all of the documents referrednet proceeds from the sale of any securities sold by us, together with internally generated funds and possible future borrowings, to above which have beenrefinance bank borrowings and other extensions of credit, to expand our networks, service offerings and related infrastructure, to fund working capital and pending as well as future acquisitions, to make further investments in related telecommunications businesses as well as for general corporate purposes. Until we use the proceeds of sales by us of any securities covered by this prospectus or may be incorporated by referenceany prospectus supplement in this Prospectus, other than exhibitsmanner, we may temporarily use them to such documents not specifically incorporated by reference herein. Requests for such copies should be directedmake short-term investments or to Officereduce short-term borrowings. All of the Treasurer, Citizens Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905 (telephone 203-329-8800). PROPOSED TAX LEGISLATION On December 7, 1995,Resale Shares offered hereby are being offered by the Treasury Department announced proposals as partselling stockholder. We will not receive any of President Clinton's Seven-Year Balanced Budget Proposal (the "Proposals") which, if enacted, would no longer permit issuers issuing certain debt securities that are not reflected as debt on the issuer's consolidated balance sheet, such as the Convertible Debentures, to claim an interest deduction for United States federal income tax purposes for interest payable on such securities. On December 19, 1995, the Treasury Department announced proposals regarding transitional reliefproceeds of any sales of Resales Shares made hereunder. The proceeds from the Proposals, stating that instrumentssale of trust preferred securities by the Trust will not be subjectinvested in junior subordinated notes issued by Citizens. Except as we may otherwise describe in a prospectus supplement, Citizens expects to use the net proceeds from the sale of the junior subordinated notes to the Proposals if issued pursuant to a registration statement filed with the SEC on or before December 7, 1995, to the extent of the aggregate amount of such instruments described in the registration statement. As the registration statement of which the Prospectus is a part was filed before December 7, 1995, such transitional relief would exempt this offering from the Proposals. RATINGS OF COMPANY SECURITIES Standard & Poor's Ratings Group, a division of McGraw-Hill ("Standard & Poor's"), and Fitch Investors Services, Inc. ("Fitch") have rated the Convertible Preferred Securities "AA" and Moody's Investors Service, Inc. ("Moody's") has rated the Convertible Preferred Securities "Aa3". Each of these is the next highest rating of such rating agency. Standard & Poor's has also rated the Company's outstanding publicly held Debentures and Industrial Development Revenue Bonds "AA+"; its commerical paper "A-1+"; and has ranked the Company's Common Stock "A+". Fitch has also rated the Company's outstanding publicly held Debentures and Industrial Development Revenue Bonds "AA+", its commercial paper "F-1+". Moody's has assigned ratings of "Aa3" to the Company's outstanding publicly held Debentures and "P-1" to the Company's commerical paper. Moody's and Fitch do not rank or rate Common Stock. Each of the commerical paper ratings and the Common Stock ranking is the highest rating of such rating agency. An explanation of the significances of ratings may be obtained from the rating agencies. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate. A credit rating of a security is not a recommendation to buy, sell or hold securities. There is no assurance that any rating will apply for any given period of time or that a rating may not be adjusted or withdrawn. 3 PROSPECTUS SUMMARY Citizens Utilities Company ("Citizens" or the "Company") Citizens Utilities Company is a diversified operating public utility which provides, either directly or through subsidiaries, telecommunications, natural gas transmission and distribution, electric distribution, water or wastewater services to customers in areas of nineteen states. Citizens holds a significant investment interest in Centennial Cellular Corp., a cellular telephone company, and also owns Electric Lightwave, Inc., an alternative telecommunications service provider operating in five western states. Beginning with 1945, the Company has increased its revenues, net income and earnings per share (adjusted for subsequent stock dividends and stock splits) every year without interruption. As a result of its diversification, the Company is not dependent upon any single geographic area or any one type of utility service for its revenues. Because of this diversity, no single regulatory body regulated or will regulate a utility service of the Company accounting for more than 12% of its revenuesTrust for the twelve months ended September 30, 1995, pro forma for the acquisitionspurposes set forth above. RATIO OF EARNINGS TO FIXED CHARGES The following table shows our consolidated ratio of certain telecommunications properties described hereafter. The Company is not awareearnings to fixed charges and our consolidated ratio of any other utility company as fully diversified in both geographic areas servedearnings to combined fixed charges and variety of services provided. The Company's operations are conducted principally in small and medium-sized communities. No material part of the Company's business is dependent upon a single customer or a small group of customers. The loss of any single customer or a small group of customers would not have a materially adverse effect upon the Company. The Company's consumer connections have increased from 26,150 in 1945, to 225,389 in 1965, to 610,585 in 1985, and to over 1,500,000 as of September 30, 1995. The Company continually considers and is carrying out expansion through acquisitions and joint ventures in the rapidly evolving telecommunications and cable television industries and in traditional public utility and related businesses. Citizens Utilities Capital L.P. ("Citizens Capital" or the "Partnership") Citizens Utilities Capital L.P. is a special purpose limited partnership formed under the laws of the State of Delaware. All of its partnership interests (other than the Partnership Preferred Securities and the interests of any Special Representative, as defined herein) will be beneficially owned directly or indirectly by Citizens (the "General Partnership Security" and, together with the Partnership Preferred Securities, the "Partnership Securities"). Citizens or one of its wholly owned subsidiaries will be the sole general partner of Citizens Capital and will contribute capital to the extent required to establish and maintain a General Partnership Security equal to at least 3% of the total capital of the Partnership. Citizens Capital exists for the sole purposes of (i) raising capital through the one-time issuance of its Partnership Securities, (ii) loaning such capital to Citizens in exchange for Convertible Debentures, (iii) collecting quarterly interest payments on the Convertible Debentures, placing orders with brokers to sell shares of Common Stock received as such interest payments and paying the required quarterly distributions on its Partnership Securities, (iv) effecting the conversion of the Partnership Preferred Securities into Common Stock Series A and (v) engaging in only those other activities necessary or incidental thereto. The Partnership will hold title to the Convertible Debentures and will have the power to exercise all rights, powers and privileges under the Indenture (as defined herein) as the holder of the Convertible Debentures. Citizens Utilities Trust (the "Trust") Citizens Utilities Trust, the issuer of the Convertible Preferred Securities, is a statutory business trust formed under the Delaware Business Trust Act (the "Trust Act") pursuant to a declaration of trust, dated as of October 13, 1995, executed by Citizens, as sponsor, and the trustees specified therein. The declaration of trust will be qualified as an indenture under the Trust Indenture Act of 1939 (the "Trust Indenture Act"). 4 Citizens owns and will own, directly or indirectly, all of the Convertible Common Securities of the Trust, which will amount to at least 3% of the total capital of the Trust. The Trust exists for the sole purposes of (i) issuing its Trust Securities, (ii) contributing the proceeds thereof to the Partnership to acquire the Partnership Preferred Securities and (iii) engaging in only those other activities necessary or incidental thereto. Structural Overview (Diagram) Diagram represents a structural overview of the component elements of the transactions which are the subject of this Prospectus. 5 Consolidated Summary Financial Information (In millions, except percentages, ratios and per share amounts) Twelve Months Ended September 30, 1995 Years Ended December 31, ---------------------- ------------------------ STATEMENT OF INCOME DATA Pro Forma(1) Actual 1994 1993 1992 ------------- ------ ---- ---- ---- Revenues $1,152 $1,038 $910 $619 $580 Operating Expenses 859 784 682 458 429 ------------- ------ ---- ---- ---- Income from Operations 293 254 228 161 151 Other Income 51 57 53 54 47 Interest Expense 80 89 73 37 39 ------------- ------ ---- ---- ---- Income before Income Taxes 264 222 208 178 159 Income Taxes 84 66 64 52 44 Income before Dividends ------------- ------ ---- ---- ---- on Convertible Preferred Securities 180 156 144 126 115 Dividends on Convertible Preferred Securities (2) 5 - - - - ------------- ------ ---- ---- ---- Net Income $ 175 $156 $144 $126 $115 ============= ====== ==== ==== ====preferred dividends. Earnings Per Share (3) $.80(4) $.74(4) $.73 $.64 $.60 Ratio of Earnings to Fixed Charges (5) 4.1 3.4 3.7 5.3 4.8 Ratio of Earnings to Combined Fixed Charges and Dividends on Convertible Preferred Securities (6) 3.8 3.4 3.7 5.3 4.8 At September 30, 1995 ------------------------------------------ CAPITALIZATION DATA Pro Forma(7) Actual ---------------------- --------------- Long-Term Debt $ 1,145 40% $ 1,072 41% Equity(8) 1,726 60% 1,551 59% ------- ----- ------- ----- Total Capitalization $ 2,871 100% $ 2,623 100% ======= ===== ======= ===== - ----------------------------- (1) The Pro Forma Statement of Income Data reflects the combined results of operations of Citizens and certain Telecommunications Properties (see "Pro Forma Financial Statements") acquired subsequent to September 30, 1994 and properties to be acquired (as of September 30, 1995) as if such properties had been acquired on October 1, 1994. This information should be read in conjunction with the Pro Forma Condensed Statements of Income beginning on page 24 of this Prospectus. The Pro Forma Statement of Income Data is not necessarily indicative of what the actual financial results would have been for the period had the transactions occurred on the date indicated and does not purport to indicate the financial results of future periods. (2) Presented net of Income Taxes. (3) Common Stock Series A and Series B per-share amounts have been adjusted retroactively for subsequent stock dividends and stock splits through September 30, 1995. No adjustment has been made for the 1.6% 1995 fourth quarter dividend as this adjustment is immaterial. (4) Reflects the discontinuance of subsidy contract revenues received through the end of 1994 from Pacific Bell. For the twelve months ended September 30, 1995 on both an Actual and Pro Forma basis this discontinuance had the effect of reducing Income before Income Taxes by $28.5 million and Earnings Per Share by $.09 as compared to prior periods. (5) "Earnings" consist of income (loss) before income taxes plus fixed charges. "Fixed Charges"charges and preferred dividends. Fixed charges consist of interest charges and an amount representing the interest factor included in rentals. (6)rentals (assumed to be one-third) and preference security dividend requirements.
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1996 1997 1998 1999(1) 2000 -------- -------- -------- -------- -------- Consolidated ratio of earnings to fixed charges......... 3.44 .98 1.28 2.22 .62 Consolidated ratio of earnings to combined fixed charges and preferred dividends............................... 3.22 .98 1.26 2.14 .64
- ------------------------ (1) In 1999, we recorded pre-tax non-operating gains of approximately $221.0 million related to the sale of our investments in Centennial Cellular Corp., Century Communications Corp. ("Century") and our interest in a cable television joint venture with a subsidiary of Century. Excluding such pre-tax non-operating gains, the ratio of earnings to fixed charges for 1999 is 0.67 and the ratio of earnings to combined fixed charges and preferred dividends for 1999 is 0.69. 10 CITIZENS COMMUNICATIONS COMPANY INTRODUCTION We are a telecommunications-focused company providing wireline communications services primarily to rural areas and small and medium-sized towns and cities as an incumbent local exchange carrier, or ILEC. In addition, we provide competitive local exchange carrier, or CLEC, service to business customers and to other communications carriers in certain metropolitan areas in the western United States through Electric Lightwave, Inc., our 85%-owned subsidiary. We also provide public utility services including natural gas transmission and distribution, electric transmission and distribution and water distribution and wastewater treatment services to primarily rural and suburban customers throughout the United States. With approximately 1.4 million telephone access lines in 17 states we were the eighth largest local access wireline telephone provider in the United States as of December 31, 2000. Upon consummation of telephone access line acquisitions contracted for during 1999 and 2000, we expect to be the sixth largest ILEC in the United States with approximately 3.1 million telephone access lines in 27 states. In fiscal years 1999 and 2000 revenues from our ILEC services segment were $903.2 million and $963.7 million, respectively, and our adjusted EBITDA, operating income plus depreciation and amortization, was $327.1 million and $434.1 million, respectively. Revenues in fiscal years 1999 and 2000 from our CLEC services segment were $187.0 million and $244.0 million, respectively, and adjusted EBITDA was $(57.6) million and $1.8 million respectively. In 1999, we announced plans to divest our public utilities services segments. Consistent with this effort, we have contracted to sell our water and wastewater utility services segments and portions of our gas and electric properties and are presently engaged in the sale of, or are seeking buyers for, our gas and electric properties. Pending these divestitures, we continue to provide gas and electric utility services and water and wastewater services. We are incorporated in Delaware, and the address of our principal executive offices is 3 High Ridge Park, Stamford, Connecticut 06905. Our telephone number is (203) 614-5600. TELECOMMUNICATIONS INDUSTRY OVERVIEW The Company intendstelecommunications industry involves the transmission of voice, data and video communications from the point of origination to pay the dividendspoint of termination. The industry has been undergoing rapid change due to deregulation, the construction of additional infrastructure and the introduction of new technologies, which has resulted in increased competition and demand for telecommunications services. ILECs provide local, toll, access and resale services, sell, install and maintain customer premises equipment and provide directory services. In our primary markets we are the incumbent provider of local exchange service. As a result, we are subject to greater regulation than CLECs and other non-incumbent carriers. ILECs establish their local market position because they are the primary provider of wire access to users of services in their areas. With these connections to customers, ILECs may provide local network services, network access services, long distance and data services and other related services. The basic "dial-tone" service is subject to substantial regulation, and the other services are subject to various levels of regulation. ILECs compete with other service providers through pricing, customer service, network quality and valued-added services, with the ILECs having an initial advantage as the existing provider of basic telephone services. We believe that we maintain this advantage in a number of the markets in which we operate as an ILEC. Currently, the five largest ILECs in the United States are Verizon, Qwest, SBC, BellSouth and Sprint and each of them is substantially larger than we are. The structure of the domestic telecommunications industry was strongly influenced by a 1982 court decree that required the divestiture by AT&T of its seven regional Bell operating companies, or RBOCs, and divided the 11 country into approximately 200 local access transport areas, or LATAs, that range in size from metropolitan areas to entire states. The original RBOCs were initially limited to providing local telephone service, access to long distance carriers and "in-region" long distance service, service within a LATA. The right to provide inter-LATA service was initially ceded to AT&T and other long distance carriers, as well as to ILECs other than the RBOCs. However, under the Telecommunications Act of 1996, or the 1996 Act, the RBOCs are permitted to provide inter-LATA long distance service, subject to certain conditions. We, as an ILEC, provide access to long distance services for our ILEC services segment customers. For each long distance call, the originating and terminating ILECs charge the long distance carrier an access fee to carry the call across their local networks. The long distance carrier charges the customer a fee for its transmission of the call, a portion of which consists of the access fees charged by the originating and terminating ILECs. To encourage the development of competition in the long distance market, the ILECs are required to provide all long distance carriers with access to local exchange service that is "equal in type, quality and price" to that provided to AT&T. These "equal access" and related provisions were intended to prevent preferential treatment of AT&T and to require that the ILECs charge the same access fees to all long distance carriers, regardless of their volume of traffic. We derive a significant portion of our revenues from these access fees. Continuing developments in multimedia applications are bringing new entrants to the telecommunications market. Internet service providers and cable television, satellite, entertainment and data transmission companies, for instance, are potential customers for voice, data and video communications over high bandwidth networks. BUSINESS STRATEGY We are transforming ourselves into a company that focuses exclusively on providing telecommunication services. We primarily operate in rural areas and small and medium-sized towns where we believe we have a competitive advantage due to our relatively larger size, greater resources, and local focus and lower levels of competition. We believe that our operations in these areas will provide us with steady revenue flow and margin enhancement opportunities. To reach our objective we intend to: TARGET TELECOMMUNICATIONS NEEDS OF RURAL AREAS AND SMALL AND MEDIUM-SIZED TOWNS AND CITIES. Following the consummation of our pending acquisitions, we expect to be the among the largest ILECs in the United States (the largest after Verizon, Qwest, SBC, BellSouth and Sprint) and, we believe, the largest ILEC that focuses primarily on serving rural areas and small and medium-sized towns and cities. Apart from the RBOCs, smaller, often family-owned ILECs have traditionally provided wireline telephone services in rural areas. As newer services such as data services, the internet and digital subscriber networks have created a catalyst for growth and consolidation in the telecommunications market, the larger telecommunications companies appear to be focusing their efforts on providing new services to urban markets and are in the process of divesting parts of their rural telephone access lines and exchanges. Many smaller ILECs, on the Convertible Preferred Securitiesother hand, lack the resources to improve their networks to provide these enhanced services to their consumers. We believe that, following the consummation of our pending acquisitions, our position as the largest ILEC focusing on rural and smaller markets will enable us to compete effectively against larger competitors because of our market focus and against smaller competitors because of our additional resources and economies of scale. CONTINUE TO ACHIEVE ECONOMIES OF SCALE THROUGH CLUSTERING AND INCREASE OPERATIONAL EFFICIENCIES. We continually seek the advantages and efficiencies of operating large local and regional telecommunications clusters. When we have completed our currently planned acquisitions, approximately two-thirds of our customers will be located in four states. In addition, a key part of our 12 growth strategy is the acquisition on an opportunistic basis of access lines and exchanges contiguous to our existing network. Locally and regionally-clustered systems enable us to reduce expenses through the consolidation of marketing and support functions and to place more experienced managers at the system level who are better equipped to meet the new competitive and regulatory challenges of today's telecommunications industry. Local and regional clusters will also increase the speed and effectiveness of our product and services deployment, enhancing our ability to increase both customers and revenues. INCREASE PENETRATION RATES OF THE SERVICES OFFERED TO OUR MARKETS. We intend to increase the penetration of existing value-added services such as second lines and enhanced services, such as call forwarding, conference calling, caller identification, internet, voicemail and call waiting, to our ILEC services segment including our current markets and to-be-acquired markets. At present, the penetration rates for enhanced services in our ILEC services segment in rural areas and small and medium-sized towns and cities are below industry averages. We believe that increased sales of value-added and enhanced services in existing ILEC markets will produce revenue with higher operating margins due to the relatively low marginal operating costs necessary to offer value-added and enhanced services in markets we already serve. We believe that our ability to integrate value-added and enhanced services with our core ILEC services will provide us with the opportunity to capture an increased percentage of our customers' telecommunications expenditures. RETAIN EXISTING CUSTOMERS AND ATTRACT NEW CUSTOMERS THROUGH THE INTRODUCTION OF NEW TECHNOLOGY AND IMPROVED MARKETING AND CUSTOMER SERVICES. Recent improvements in telecommunications technology as well as improvements to our network will allow us to offer new services such as digital subscriber network lines and other high-speed premium-priced data services to our existing and future customer base. We have sought to ensure that our network employs technologically current switching software and is positioned to support network growth. For example, we are gradually deploying digital subscriber line, or DSL, service in parts of our markets to provide broadband access where it is economically feasible. We believe that technological improvements in our existing and future markets will enable us to offer additional services for a low marginal increased operating cost. STRENGTHEN AND BUILD STRATEGIC PARTNERSHIPS AS A MEMBER OF THE LOCAL COMMUNITIES. We intend to continue to strengthen and build our relationships with local and community groups. Our relationships with such groups assist us in determining the range of features and services that consumers in our markets want. Much of our marketing and advertising efforts are directed to sponsoring local events and activities rather than mass media advertising. We believe that our local and community-based approach helps us build customer loyalty and brand awareness in the areas we serve. In addition, we intend to leverage our assets through strategic partnerships with appropriate partners. INCREASE UTILIZATION OF OUR CLEC'S HIGH-CAPACITY, INSTALLED, FIBER-OPTIC INFRASTRUCTURE. ELI is a CLEC that focuses on medium to large markets in the western United States. We presently provide financial support to ELI. ELI's primary focus in 2001 is increasing new and existing customer usage of its high-capacity, installed, fiber-optic infrastructure in its seven major cities and surrounding areas by increasing the penetration of existing on-net buildings and sales to customers that are connected to the network. We intend to continue to grow ELI's business so that it can operate profitably on a stand-alone basis. DIVEST OUR PUBLIC UTILITIES SERVICES SEGMENT'S BUSINESS AND ASSETS. As part of our strategy to transform our business focus entirely to that of a telecommunications services provider, we are in the process of monetizing our public utilities services segment's assets. We have entered into agreements to sell all of our water and wastewater treatment businesses, our Louisiana natural gas business and our Hawaii electric business and seek to dispose of the remainder of our public utilities services business and assets. Successful implementation of this divestiture program will allow us to focus on our core telecommunications business while simultaneously providing us with an internal source for a portion of the financing necessary for enlarging our telephone access line network. 13 TELECOMMUNICATIONS SERVICES Our telecommunications services are principally ILEC services and also include CLEC services delivered through ELI. As of December 31, 2000, we operated ILECs in 17 states, serving approximately 1.4 million access lines. Our ILEC services segment is presently marketed under the Citizens name but we intend to market these services under the Frontier name following the closing of the Frontier acquisition. Our CLEC services segment is marketed under the Electric Lightwave name and provides a variety of integrated telecommunications products designed to meet the customer's total communications needs. ILEC SERVICES Our ILEC services segment accounted for $963.7 million, or 53.5%, of our revenues in fiscal year 2000. In fiscal year 2000, approximately 56% of our ILEC services segment revenues came from federal and state universal service charges through the federal and local governments and regulated access charges paid by long distance operators and CLECs. Between 1990 and 2000 the population in our service areas grew overall by approximately 6%. In 1999 and 2000 the number of telephone access lines in our historic telephone systems increased by 4.8% and 4.0%, respectively. Our ILEC services business is primarily with retail customers and, to a lesser extent, business customers. Our ILEC services segment provides: - local network services, - enhanced services, - network access services, - long distance and data services, and - directory services. LOCAL NETWORK SERVICES. We provide telephone wireline access services in our service areas primarily to residential customers. We are the incumbent provider of basic telephone services in our service areas. Our present service areas are generally less densely populated than what we believe to be the primary service areas of the five largest ILECs. ENHANCED SERVICES. We offer our ILEC customers the following enhanced service features: call forwarding, conference calling, caller identification, voicemail and call waiting. We recently introduced Citizens Select and Citizens Select Plus as branded bundles of telecommunications services directed at our retail customer base in a majority of our markets. These plans permit customers to bundle their residential line with custom local area signaling services, or CLASS, and custom calling features for a single flat rate. Citizens Select allows customers to choose up to seven features with their residential line while Citizens Select Plus allows customers to bundle with their residential line as many features as desired plus voicemail. In connection with the pending Frontier acquisition, we may rebrand some or all of these services. NETWORK ACCESS SERVICES. We provide network access services to long distance carriers and other customers in connection with the use of our facilities to originate and terminate interstate and intrastate long distance telephone calls. We provide originating and switched terminating services to long distance carriers through switched services network. Such services are generally offered on a month-to-month basis and the service is billed on a minutes-of-use basis. Access charges to long distance carriers and other customers are based on access rates filed with the FCC for interstate services and with the respective state regulatory agency for intrastate services. LONG DISTANCE AND DATA SERVICES. Long distance network service to and from points outside of a telephone company's operating and data territories is provided by interconnection with the facilities of interexchange carriers, or IXCs. We believe that many customers prefer the convenience of obtaining their long distance service through their local telephone company and receiving a single bill. We also offer data services including internet dial up service, digital subscriber lines, frame relay and asynchronous transfer mode, or ATM, switching. As part of our integration strategy, we offer a 14 solution whereby other ILEC companies resell our integrated services. We offer this integrated solution to most of our customers. DIRECTORY SERVICES. Directory services involves the provision of residential and business directories. We provide this service through a third party contractor who pays us a percentage of its revenues realized from the directories. ILEC ASSET ACQUISITIONS We continually evaluate the possibility of acquiring additional telecommunications assets. Over the past few years, the number and size of available telecommunications assets has increased substantially. Although our primary focus will continue to be the acquisition of telephone access lines, exchange and operators that are proximate to our existing systems or that serve a customer base large enough for us to operate efficiently, we may also acquire other telecommunications interests. The following table sets forth certain information with respect to our telephone access lines as of December 31, 2000 and the additional lines we intend to acquire upon the expected closing of each of the referenced acquisitions.
VERIZON(2) QWEST(2) FRONTIER(2) STATE CITIZENS(1) ACQUISITION ACQUISITION ACQUISITION TOTAL - ----- ----------- ----------- ----------- ----------- --------- New York........................ 339,100 -- -- 698,200 1,037,300 Minnesota....................... 142,400 -- 187,100 129,600 459,100 Arizona......................... 163,000 8,600 171,500 -- 343,100 California...................... 145,600 55,100 -- -- 200,700 West Virginia................... 153,200 -- -- -- 153,200 Illinois........................ 112,200 -- -- 20,100 132,300 Iowa............................ -- -- 53,200 60,400 113,600 Tennessee....................... 102,500 -- -- -- 102,500 Nebraska........................ 62,200 -- 14,900 -- 77,100 Wisconsin....................... 27,800 -- -- 44,800 72,600 Idaho........................... 21,700 -- 33,900 -- 55,600 Colorado........................ -- -- 51,400 -- 51,400 Pennsylvania.................... 1,500 -- -- 42,900 44,400 Georgia......................... -- -- -- 29,000 29,000 Nevada.......................... 28,300 -- -- -- 28,300 Alabama......................... -- -- -- 27,700 27,700 Michigan........................ -- -- -- 27,200 27,200 Utah............................ 23,700 -- -- -- 23,700 Montana......................... 9,000 -- 11,900 -- 20,900 North Dakota.................... 17,000 -- -- -- 17,000 Oregon.......................... 15,100 -- -- -- 15,100 Washington...................... -- -- 10,000 -- 10,000 New Mexico...................... 6,900 -- -- -- 6,900 Mississippi..................... -- -- -- 6,500 6,500 Wyoming......................... -- -- 5,900 -- 5,900 Indiana......................... -- -- -- 5,700 5,700 Florida......................... -- -- -- 4,600 4,600 --------- ------ ------- --------- --------- Total........................... 1,371,200 63,700 539,800 1,096,700 3,071,400 ========= ====== ======= ========= =========
- ------------------------ (1) Represents telephone access lines owned or acquired through December 31, 2000 from Verizon (Nebraska, Minnesota and Illinois/Wisconsin) and Qwest (North Dakota). (2) Represents telephone access lines in acquisitions pending as of December 31, 2000. We intend to fully integrate our acquisitions with existing core telephone access line holdings by the end of the first half of 2002. We are acquiring telephone access lines on a state-by-state basis from each of Verizon and Qwest. As of December 31, 2000, we have acquired assets in several Verizon states, including Nebraska (62,200 access lines), Minnesota (142,400 access lines), Illinois/Wisconsin 15 (112,900 access lines), and one Qwest state, North Dakota (17,000 access lines). We expect the Frontier acquisition to close as a single transaction during the first half of 2001. Unlike the Verizon and Qwest acquisitions, which consist of exchanges only, the Frontier acquisition includes the operations, in addition to the assets, of Frontier Corp.'s ILEC businesses. Approximately one-half of the Frontier access lines are in the Rochester, New York metropolitan area and will give us substantially all of the wireline market share in Rochester. Rochester will be our sole metropolitan area telephone system at this time. ILEC TECHNOLOGY In 1999 we entered into a three-year agreement to outsource central office engineering of our ILEC switching facilities. This agreement provides for provisioning of current technology for our switching facilities, deploying the latest switch software throughout our network, provisioning of switch capacity to support network growth, integrating acquired properties onto a common network platform and providing other project management and service support resources. These improvements to our network will allow us to continue to offer enhanced services and other high-speed data services to our existing and future customer base. In addition, as we upgrade and extend our physical plant and operations over the next several years, the installation of digital switches and related software will continue to be an important component of our business strategy, as these features enhance our ability to offer additional services. We are in the process of installing advanced digital switching platforms in parts of our switching network. We expect to achieve cost reductions through the elimination of duplicative services and procedures and the consolidation of administrative functions. We believe that additional cost reductions may be obtainable from advanced switching platforms and outside plant delivery systems. We intend to pursue additional gains in productivity by investing in these technologies where feasible and by reengineering customer service processes. CLEC SERVICES ELI provides a broad range of wireline communications products and services to businesses in the western United States. ELI accounted for $240.8 million, or 13.4%, of our revenues in fiscal year 2000. ELI's facilities-based network consists of optical fiber plus voice and data switches. ELI has a national internet and data network with switches and routers in key cities, linked by leased transport facilities. As of December 31, 2000, ELI had 5,924 local and long-haul route miles of fiber-optic cable in service. During 2000, ELI completed construction of its long-haul fiber-optic Synchronous Optical Network, or SONET, network. ELI provides a full range of its services in the following seven cities and their surrounding areas: Boise, Idaho; Portland, Oregon; Salt Lake City, Utah; Seattle, Washington; Spokane, Washington; Phoenix, Arizona and Sacramento, California. This network spans more than 3,200 miles, crosses seven states and is one of the largest OC-192 SONET systems in the western United States. The network will include Dense Wave Division Multiplexing, or DWDM, equipment and will support voice and data traffic at speeds up to OC-192. DWDM is a technique for transmitting 16 or more different light-wave frequencies at speeds up to OC-192 on a single fiber to increase transmission capacity. DESCRIPTION OF CLEC SERVICES BUSINESS ELI offers switched service, including local dial tone, from eight Nortel DMS 500 switches in the seven metropolitan areas that ELI serves. This permits ELI to offer both voice and data services in these areas. ELI also has transmission equipment collocated with switches of the relevant ILEC operators at 55 locations. ELI has broadband points of presence in the following cities: Atlanta, Georgia; Austin, Texas; Chicago, Illinois; Cleveland, Ohio; Dallas, Texas; Denver, Colorado; Houston, Texas; Las Vegas, Nevada; Los Angeles, California; New York, New York; Philadelphia, Pennsylvania; San Diego, 16 California; San Francisco, California and Washington, D.C. This permits ELI to offer high-capacity data services in these areas. ELI has developed an internet backbone network that provides internet connectivity in each of its markets, including presence at all major network access points, and offers peering arrangements with other internet backbone service providers. A peering arrangement is an agreement where internet backbone service providers agree to allow each other direct access to internet data contained on their networks. ELI's broadband network consists of frame relay switches, ATM switches and network-to-network interfaces. ELI provides national and international coverage to its customers through strategic relationships with other communications providers. ELI owns or leases broadband, long-haul fiber-optic network connections between major cities in the western United States and within strategic markets across the nation. ELI seeks to maximize utilization of its network facilities and minimize network access costs and other interconnection costs. In the development of its long-haul facilities, ELI has formed strategic relationships with utility companies that enable it to use existing rights-of-way and fiber-optic facilities, use the construction expertise and local permitting experience of such companies and minimize its near-term cash requirements. These relationships allow ELI to extend its network infrastructure more quickly and economically. In 1999, ELI entered into a fiber-swap agreement to exchange unused fiber on its network for unused fiber on another carrier's network. This fiber-swap agreement will provide ELI with a fiber route from Salt Lake City to Dallas, routed through Denver. REGULATORY ENVIRONMENT ILEC SERVICES REGULATION The 1996 Act dramatically changed the landscape of the telecommunications industry. The main thrust of the 1996 Act was to open local telecommunications marketplaces to competition while enhancing universal service. We expect the 1996 Act, subsequent state and federal regulatory rulings and technological changes to lead to an overall reduction in the level of regulation for the telecommunications industry. Although the majority of our operations continues to be regulated extensively by various state regulatory agencies, often called public service commissions, and the FCC, we may experience reductions in the level of regulation for some of our ILEC operations in the future. However, upon the anticipated closing of the Frontier acquisition and of the remaining Qwest acquisitions, certain of our systems may be subject to a higher degree of scrutiny from the FCC and the applicable public service commissions. In any event, we are currently unable to determine the ultimate degree of reduction or increase in regulation in our operating territories. The 1996 Act preempts state and local laws to the extent that they prevent competitive entry into the provision of any communications service. Under the 1996 Act, however, states retain authority to impose requirements on carriers necessary to preserve universal service, protect public safety and welfare, ensure quality of service and protect consumers. States are also responsible for mediating and arbitrating interconnection agreements between CLECs and ILECs if voluntary negotiations fail. In order to create an environment in which local competition is a practical possibility, the 1996 Act imposes a number of access and interconnection requirements on all local communications providers. All local carriers must interconnect with other carriers, permit resale of their services, provide local telephone number portability and dialing parity, provide access to poles, ducts, conduits, and rights-of-way, and complete calls originated by competing carriers under reciprocal compensation or mutual termination arrangements. Many of our properties continue to be regulated under a regime that sets prices for a specific property based on its level of earnings. As a result of recent legislation enabling regulators to reduce the level of regulation in certain states and at the federal level, we have elected incentive regulation plans under which prices are capped in return for the elimination or relaxation of earnings oversight. Some states also allow us flexibility in price changes for optional services and relaxed reporting 17 requirements. The goal of these incentive regulation plans is to provide incentives to improve efficiencies and increase pricing flexibility for competitive services while ensuring that customers receive reasonable rates for basic services that continue to be deemed part of a monopoly while allowing us to continue to recover our costs in rates. Approximately 85% of our ILEC services segment revenue is subject to regulation including incentive regulation. The FCC regulates approximately 34% of this revenue, while various state regulatory agencies regulate approximately 51% of this revenue. We expect state lawmakers to continue to review the statutes governing the level and type of regulation for telecommunications services. Over the next few years, legislative and regulatory actions are expected to provide opportunities to restructure rates, introduce more flexible incentive regulation programs and possibly reduce the overall level of regulation. While we still believe that such actions will nonetheless allow us to recover our costs in revenues, we expect the election of incentive regulation plans and the expected reduction in the overall level of regulation to allow us to introduce new services more expeditiously than in the past. For interstate services regulated by the FCC, we have elected a form of Common Stockincentive regulation known as opposed to cash. Accordingly,price caps. Under price caps, interstate access rates are capped and adjusted annually by the difference between the Ratiolevel of Earningsinflation and a productivity factor. Most recently the productivity factor was set at 6.5%. Given the relatively low inflation rate in recent years, interstate access rates have been adjusted downward annually. In May 2000, the FCC adopted a revised methodology for regulating the interstate access rates of price cap companies through May 2005. The new program, known as the Coalition for Affordable Local and Long Distance Services, or CALLs plan, establishes a price floor for interstate-switched access services and phases out many of the subsidies in interstate access rates. Though the end-user charges and an expanded universal service program will continue to Fixed Chargesbenefit rural service providers such as our ILEC services segment, we believe we will be able to offset some of the reduction in interstate access rates. Annual adjustments based on the difference between inflation and the Ratio of Earnings to Combined Fixed Charges and Dividends on Preferred Securities6.5% productivity factor will continue for several years until the price floor for interstate switched access services is attributable toreached. We believe that the non-cash dividend. (7) The Pro Forma Capitalization Data reflectsCALLs plan has potential benefits for us in the permanent financingslong term. Although some of the Telecommunications Propertiesrequired rate reductions are front loaded, the price floor provides a degree of certainty that rate reductions will be curtailed in the future. We were successful in negotiating a price floor that recognized the unique cost characteristics of rural telecommunications providers as if such financings were in place on September 30, 1995. This information should be read in conjunction withopposed to being forced into a one size fits all program designed for larger companies. Under the Pro Forma Condensed Balance Sheet beginning on page 22CALLs plan, for many of this Prospectus. The Pro Forma Capitalization Dataour properties, the price floor is not necessarily indicative of whathigher than the actual capitalizationrate level that would have been required over time under the previous rate programs. In addition, shifting revenue from interstate access services to end user customers and universal service programs provides us more control over future revenue as access customers seek alternatives to switched access services. In 1998, the FCC determined that the federal universal service fund, or USF, for non-rural companies would be based on a forward-looking cost methodology, but chartered a Rural Task Force, or RTF, to develop a recommendation for the period hadfunding methodology for rural companies. Since many of our current properties are classified as rural, our federal USF will be driven by the transactions occurredrural methodology that is still under development. In October 2000, the RTF recommended the use of embedded cost instead of forward-looking costs to determine the USF for rural companies. In addition, the RTF suggested the FCC should adjust the caps on the date indicatedUSF to recognize inflation and allow rural companies the opportunity to recover some of the costs associated with incremental investment. The FCC has historically required an acquiring company to cap its federal USF for acquired exchanges at the level of the selling company. Since the seller often includes the acquired exchanges in a much larger USF study area, the amount of USF is often negligible. In addition, the purchasing company is not able to include its new investment in the USF calculation. The RTF concluded that this cap might deter investment in acquired properties. In addition, the FCC has historically capped certain corporate expenses. The RTF recommended this expense cap be indexed to reflect inflation. In December 2000, the Federal/State Universal Service Joint Board recommended that the FCC adopt the 18 RTF recommendations. Although the final FCC decision is still uncertain, if the FCC agrees with the Joint Board, the combination of the embedded cost methodology and some relief on the caps should provide rural providers like us with a more stable source of USF money over the next few years. Another goal of the 1996 Act was to remove implicit subsidies from the rates charged by local telecommunications companies. The CALLs plan addressed this requirement for interstate services. State legislatures and regulatory agencies are beginning to reduce the implicit subsidies in intrastate rates. The most common subsidies are in access rates that historically have been priced above their costs to allow basic local rates to be priced below cost. Legislation has been considered in several states to require regulators to eliminate these subsidies and implement state universal service programs where necessary to maintain reasonable basic local rates. However, not all the reductions in access charges are fully offset. In Tennessee for example, as a result of such legislation, we will be reducing intrastate access rates by $1 million per year for three years beginning in 2001. We anticipate additional state legislative and regulatory pressure to lower intrastate access rates in the near future. However, regulators are cognizant of the potential impact on basic local rates and are moving cautiously. Many states are embracing the need for state universal service funds to ensure protection for customers while ensuring that local telecommunications companies continue to have the incentive to recover in rates their investment in their networks and new services. State legislatures and regulators are also examining the provision of telecommunications services to previously unserved areas. Since many unserved areas are located in rural markets, we may be required to expand our service territory into some of these areas. Given the start-up costs involved with territory expansion, we expect legislatures and regulators to continue to move cautiously and provide some means of recovery for the costs associated with serving these new areas. CLEC SERVICES REGULATION The 1996 Act dramatically changed the national public policy framework for telecommunications. A central focus of this sweeping policy reform was to open local communications markets to competition. One result of the 1996 Act has been the development of CLECs which compete for business with the existing carriers. As a CLEC, ELI is subject to federal, state and local regulation. However, the level of regulation is typically less than an ILEC. The FCC exercises jurisdiction over all interstate communications services. State commissions retain jurisdiction over all intrastate communications services. Local governments may require ELI to obtain licenses or franchises regulating the use of public rights-of-way necessary to install and operate its networks. The FCC exercises regulatory jurisdiction over all facilities of, and services offered by, communications common carriers to the extent those facilities are used to provide, originate or terminate interstate communications. The FCC has established different levels of regulation for "dominant" carriers and "nondominant" carriers. The FCC regulates many of the rates, charges and services of dominant carriers to a greater degree than those of nondominant carriers. As a nondominant carrier, ELI may install and operate facilities for domestic interstate communications without prior FCC authorization. ELI is no longer required to maintain tariffs for domestic interstate long distance services. As a provider of international long distance services, ELI obtained FCC operating authority and maintains an international tariff. However, the FCC is also eliminating the requirement for international tariffs. ELI is also required to submit certain periodic reports to the FCC and pay regulatory fees. RBOCs had been barred from participating in the market for inter-LATA services, which is primarily long-distance traffic, in their service territories since the break up of the Bell System in 1984. The 1996 Act provides a mechanism for an RBOC and/or any successors to enter in-region inter-LATA markets. Full entry by the companies into inter-LATA markets will increase the level of competition faced by our long distance services. Before an RBOC or its successors can enter an inter-LATA market it must first meet specific criteria set out by section 271 of the 1996 Act. These criteria are commonly referred to as the "14 point checklist". The checklist is meant to ensure that these companies have opened up their local markets to competition before they compete in the long-distance markets in their regions. Verizon 19 and SBC Communications have both successfully filed inter-LATA applications with the FCC for some of their states. LOCAL GOVERNMENT AUTHORIZATIONS ELI has various interconnection agreements in the states in which it operates. These agreements govern reciprocal compensation relating to the transport and termination of traffic between the ILEC's and ELI's networks. On February 25, 1999, the FCC issued a Declaratory Ruling and Notice of Proposed Rulemaking that categorized calls terminated to internet service providers, or ISPs, as "largely" interstate in nature, which could have the effect of precluding these calls from reciprocal compensation charges. However, the ruling stated that the existing interconnection agreements and the state decisions that have defined them bind ILECs. The FCC gave the states authority to interpret existing interconnection agreements. Since this FCC order, five states in which we operate, Oregon, Washington, California, Utah and Arizona, have ruled that calls terminated to ISPs should be included in the calculation to determine reciprocal compensation. However, the FCC is expected to readdress this issue in 2001. Most state public service commissions require competitive communications providers, such as ELI, to obtain operating authority prior to initiating intrastate services. Most states also require the filing of tariffs or price lists and customer-specific contracts. ELI is not currently subject to rate-of-return or price regulation. However, ELI is subject to state-specific quality of service, universal service, periodic reporting and other regulatory requirements, although the extent of these requirements is generally less than those applicable to ILECs. COMPETITION ILEC SERVICES COMPETITION The 1996 Act and subsequent FCC interconnection decisions have established the relationships between ILECs and CLECs and the mechanisms for competitive market entry. Though carriers like us, who serve predominantly rural markets, did receive a qualified exemption from some of the technical requirements imposed upon all ILECs for interconnection arrangements, we did not receive an exemption from interconnection or local exchange competition in general. The exemption, known as the rural telephone company exemption, continues until a bona fide request for interconnection is received from a CLEC and a state public services commission with jurisdiction determines that discontinuance of the exemption is warranted. The state commission must determine that discontinuing the exemption will not adversely impact the availability of universal service in the state nor impose an undue economic hardship on us and that the requested interconnection is technically feasible. Though much of the initial competition in local telecommunications has been in more densely populated urban areas, we have begun to experience competition in some of our suburban and rural markets. These competitors mainly serve internet service providers and a few large business customers, but competition for residential customers is present in isolated areas. Under the 1996 Act and subsequent FCC and state rules, CLECs can compete using one or more of three mechanisms: - Construction of its own local exchange facilities, in which case the ILEC's sole obligation is interconnection for purposes of traffic interchange. - Purchase unbundled network elements, or UNEs, at cost from the ILEC and assemble them into local exchange services and/or supplement the facilities it already owns. - Resale of the ILEC's retail services purchased at wholesale rates from the ILEC. Some competitors have taken advantage of an ILEC's requirement to pay the CLEC reciprocal compensation for traffic delivered to the CLEC. The increase of traffic over the Internet has provided CLECs with an immediate mechanism to build traffic and reciprocal compensation revenues. In 2000, our ILECs paid $1.9 million in reciprocal compensation. While our ILECs are reciprocal compensation payors, ELI is a reciprocal compensation receiver. We expect the spread of Digital Subscriber Line and 20 other high speed network services that give customers a dedicated link to the internet, as well as the rural nature of our markets and expected actions by the FCC and the United States Congress to limit the future growth of reciprocal compensation. Beginning in late 1999, the FCC expanded the availability of UNEs by requiring ILECs to offer subloop unbundling, expanded extended loops, or EELs, and line sharing. Pursuant to this FCC decision, CLECs can purchase a portion of the ILECs' loop facilities at cost-based rates as opposed to the entire loop. EELs allow CLECs to purchase links to customer premises located outside the exchange where the CLEC is physically located at cost-based rates. Line sharing allows ILECs to purchase just the high frequency portion of the loop that permits the CLEC to offer high-speed data services more profitably, but leave the lower margin voice services for the same customer with the ILEC. In addition to expanding the availability of UNEs, in August 2000, the FCC expanded collocation requirements to include cageless collocation in ILEC facilities. These FCC decisions increase the CLECs' opportunities to reach customers economically thereby increasing their ability to compete. Under the 1996 Act, the RBOCs and their successors were precluded from competing in most long-distance markets until they satisfied the state regulatory authority and the FCC that their markets had been sufficiently opened to local exchange competition. Beginning in 1999, state regulators and the FCC began to allow the RBOCs and their successors to enter the long-distance market in some states. By the end of February 2001, RBOC long-distance entry was only allowed in New York, Texas, Oklahoma and Kansas. However, we expect additional states to follow suit in the near future. Because we currently offer long-distance service in New York and other states, it is possible that the entry of the RBOCs and their successors into this market could adversely impact our operations. Though much of the initial competition in local telecommunications has been in more densely populated urban areas, we have begun to experience competition in some of our suburban and rural markets. As of December 31, 2000, we had entered into 88 interconnection agreements. These agreements allow CLECs to connect with some of our ILEC networks and compete in our ILEC markets. In addition, in some markets, our ILEC services provide reciprocal compensation payments and local number portability. These competitors are mainly serving large business customers and internet service providers. Competition for residential customers is present in isolated areas. CLEC SERVICES COMPETITION ELI faces significant competition from ILECs in each of its facilities-based markets. Principal ILEC competitors include Qwest, SBC and Verizon. Facility and non-facility based CLEC competitors in ELI's markets include, among others: AT&T Local Services, Time Warner Telecom, MCI WorldCom and XO Communications. In each of the markets in which ELI operates, at least one other CLEC, and in some cases several other CLECs, offer many of the same local communications services that ELI provides, generally at similar prices. Potential and actual new market entrants in the local communications services business include RBOCs and their successors entering new geographic markets, IXCs, cable television companies, electric utilities, international carriers, satellite carriers, teleports, microwave carriers, wireless telephone system operators and private networks built by large end users. In addition, the current trend of business combinations and alliances in the communications industry, including mergers between RBOCs and their successors, may increase competition for ELI. With the passage of the 1996 Act and the entry of RBOCs and their successors into the long distance market, IXCs may be motivated to construct their own local facilities or otherwise acquire the right to use local facilities and/or resell the local services of ELI's competitors. 21 Competition for network services is based on price, quality, network reliability, customer service, service features and responsiveness to the customer's needs. As a point of differentiation from the ILECs, ELI's fiber-optic networks provide both diverse access routing and redundant electronics, design features not widely deployed within the ILEC's networks. ELI's competitors for high-speed data services include major IXCs, other CLECs and various providers of niche services, such as internet access providers, router management services and systems integrators. The interconnectivity of ELI's markets may create additional competitive advantages over other data service providers that must obtain local access from the ILEC or another CLEC in each market or that cannot obtain intercity transport rates on terms as favorable as those available to ELI. The market for internet access and related services in the United States is extremely competitive, with barriers to entry related to capital costs, bandwidth capacity and internal provisioning and operations processes. We expect that competition will intensify as existing services and network providers and new entrants compete for customers. In addition, new enhanced internet services such as managed router service and web hosting are constantly under development in the market and we expect additional innovation in this market by a range of competitors. ELI's current and future competitors include communications companies, including the RBOCs and their successors, IXCs, CLECs and cable television companies and other internet access providers. Many of these competitors have greater market presence and greater financial, technical, marketing and human resources, more extensive infrastructure and stronger customer and strategic relationships than are available to us. PUBLIC UTILITIES SERVICES We have historically provided public utilities services including natural gas transmission and distribution, electric transmission and distribution, water distribution and wastewater treatment services to primarily rural and suburban customers throughout the United States. In May 1998, we announced a plan of divestiture for our public utilities services properties. In 1999, we initially accounted for the planned divestiture of our public utilities services segments as discontinued operations. Because we have not yet entered into agreements to sell our entire gas and electric segments, we reclassified all our gas and electric assets and their related liabilities in the second half of 2000 as "net assets held for sale." As a result, our discontinued operations only reflect the assets and related liabilities of the water and wastewater businesses. NATURAL GAS Our natural gas segment provides natural gas transmission and distribution services in Louisiana, Arizona and Colorado, as well as synthetic natural gas and propane service in Hawaii to 473,500 primarily residential customers. Our natural gas segment accounted for $374.8 million, or 20.8%, of our revenues in fiscal year 2000. Natural gas services and/or rates charged are subject to the jurisdiction of federal and state regulatory agencies, except for the non-regulated propane rates charged to customers in Hawaii. We purchase the gas supply we need, except for our production of synthetic natural gas in Hawaii. We believe our natural gas supply is adequate to meet current demands and to provide for additional sales to new customers. The natural gas industry is subject to seasonal demand, except in Hawaii, with the peak demand occurring during the heating season of November 1 through March 31. Our natural gas segment experiences third-party competition from fuel oil, propane and other gas suppliers for most of our large consumption customers, of which there are few, and from electric suppliers for all of our customer base. The competitive position of gas at any given time depends primarily on the relative prices of gas and these other energy sources. 22 ELECTRIC Our electric segment provides electric transmission and distribution services in Arizona, Hawaii and Vermont to 123,500 primarily residential customers. Our electric segment accounted for $223.1 million, or 12.4%, of our revenues in fiscal year 2000. Electric services and/or rates charged are subject to the jurisdiction of federal and state regulatory agencies. We purchase approximately 81% of the electric energy needed to provide services to our customers. We believe our supply is adequate to meet current demands and to provide for additional sales to new customers. The majority of our generating facilities are on Kauai, Hawaii. We also have generating facilities in Arizona and Vermont, which are used mainly for back-up power supply. Generally, our electric segment does not purportexperience material seasonal fluctuations. The electric utility industry in the United States is undergoing fundamental changes. For many years electric utilities have been vertically integrated entities with the responsibility for the generation, transmission and distribution of electric power in a franchise territory. In return for monopoly status, electric utilities have been subject to indicatecomprehensive regulation at the capitalizationstate and federal level. The industry is now shifting toward electric customers being able to choose their energy provider much like telephone customers are able to choose their long distance provider. Generally, this involves splitting apart the generation and transmission of future periods. (8) Includes Common Equitypower from the remainder of the business, and Convertible Preferred Securities. 6having generators compete with one another in the sale of power directly to retail customers. The interconnected regional transmission grids will be operated independently, continuing as a federally regulated monopoly. Local transmission and distribution facilities would continue as state-regulated monopolies. This change in the industry is in various stages of development around the United States. The pace and degree of regulation vary from state to state. During the past year power supply costs have increased substantially, forcing distribution companies to incur higher costs to operate their electric businesses. As a result, companies have employed several varied tactics to try to control or offset these costs. These tactics include renegotiating prices with power suppliers and attempting to pass increased power costs on to customers through automatic adjustment mechanisms or rate proceedings. Regulators have resisted these efforts in an attempt to avoid a sudden, steep increase in electric rates, known as "rate shock." Pending final resolution of these issues, we will, where appropriate, seek authority to defer these costs in hopes of being allowed to recover them in the future. In addition, distribution companies have disputed past charges from their power suppliers. In Arizona, we are currently disputing with our power supplier the amount of what we believe are excessive power costs charged by our power supplier which, through December 31, 2000, total approximately $57.0 million. Our Vermont Electric Division is a member of the Vermont Joint Owners, a consortium of 14 Vermont utilities that has entered into a purchase power agreement with a Canadian power generation facility. The agreement provides for up to 450 MW of power and associated energy to be delivered to Vermont, in varying amounts, between 1990 and 2020. If any member of the consortium defaults on its share of power under the agreement, the remaining members of the consortium are required by "step-up" provisions of the agreement to assume responsibility for a defaulting member's share on a pro-rata basis. Currently the agreement's pricing exceeds market levels, and the Vermont Public Service Board has been unwilling to allow all members of the consortium full recovery through rates of power costs associated with the contract. The Vermont Board's decision has put at least one of the members of the consortium in a precarious financial condition. If the Vermont Board persists in its refusal and thereby forces one or more members of the consortium to default on their obligations under the contract, such default could shift significant additional cost burdens to our Vermont electric division. On February 15, 2000, we announced that we had agreed to sell our electric services segment. Our Arizona and Vermont electric divisions were under contract to be sold, but the parties terminated the agreement on March 7, 2001 due to the failure of the proposed purchaser to raise the required financing 23 and obtain the required regulatory approval necessary to meet its obligations under the contract for sale. We intend to pursue the disposition of the Vermont and Arizona electric divisions with alternative buyers. In August 2000, the Hawaii Public Utility Commission, or HPUC, denied the application requesting approval of the purchase of our Kauai electric division by the Kauai Island Electric Co-op for $270.0 million in cash including the assumption of certain liabilities. We are considering a variety of options, including the filing of a request for reconsideration of the decision or the filing of a new application. Our agreement for the sale of this division may be terminated if regulatory approval is not received before February 2002. In Kauai, historically, we received approximately 13% of our power from a third-party provider. As of January 2001, this third-party provider will no longer provide power due to the closure of their sugar operations. In order to avoid power outages, we have completed negotiations with a new-third party provider for a new purchase power agreement. This agreement is subject to approval by the HPUC. Current forecasts report that Kauai will require additional electrical generating capacity in 2002. As a result, we have entered into a 25-year purchase power agreement with Kauai Power Partners, an independent power producer, to provide firm power by July 2002. This agreement was recently approved by the HPUC. WATER AND WASTEWATER Through subsidiaries, we provide water distribution, wholesale water transmission, wastewater treatment, public works consulting and marketing and billing services to approximately 322,200 primarily residential customers in, Arizona, Illinois, California, Pennsylvania, Ohio, and Indiana. On October 18, 1999, we announced the agreement to sell our water and wastewater segment to American Water Works, Inc. for $745.0 million in cash and $90.0 million of assumed debt. This transaction is expected to close in the second half of 2001 following the receipt of regulatory approvals. However, our agreement for the sale of this business may be terminated if regulatory approval is not received before September 30, 2001. PROPERTIES Our principal offices are located in leased premises in Stamford, Connecticut. The Offering Issueroperations support office for our ILEC segment is located in Plano, Texas. This facility, which we own, accommodates approximately 1,100 employees and has the acreage necessary for phased expansion up to 750,000 square feet. In addition, our ILEC segment leases and owns office space in various markets throughout the United States. The operations support office for our CLEC segment is located in Vancouver, Washington. This building, which we own, is fully occupied. In addition, our CLEC segment leases local office space in various markets throughout the United States, and also maintains a warehouse facility in Portland, Oregon. Our CLEC segment also leases network hub and network equipment installation sites in various locations throughout the areas in which it provides services. Our ILEC and CLEC services segments own telephone properties which include: connecting lines between customers' premises and the central offices; central office switching equipment; fiber-optic and microwave radio facilities, buildings and land; and customer premise equipment. The connecting lines, including aerial and underground cable, conduit, poles, wires and microwave equipment, are located on public streets and highways or on privately owned land. We have permission to use these lands pursuant to local governmental consent or lease, permit, franchise, easement or other agreement. Our public utilities services segments are administered locally in the principal states in which they operate. Pending the sale of our public utilities services segments, we own: - gas production, transmission and distribution facilities; electric generation, transmission and distribution facilities; - water production, treatment, storage, transmission and distribution facilities; and - wastewater treatment, transmission, collection and discharge facilities. 24 CITIZENS COMMUNICATIONS CAPITAL TRUST I Citizens Utilitiescreated the Trust as a statutory business trust under Delaware law. The Trust's business trust.is defined in a trust agreement executed by Citizens, as depositor, and Chase Manhattan Bank USA, National Association, as the Delaware trustee. That trust agreement will be amended when the trust preferred securities are issued. The amended trust agreement will be in substantially the form filed with the Securities Offered 3,500,000 Convertible Preferred Securities representingand Exchange Commission, or SEC, as an exhibit to the registration statement, of which the prospectus is a part. The amended trust agreement is called the "Trust Agreement" in this prospectus. The Trust exists for the purposes of (1) issuing the trust preferred undivided beneficial interests insecurities to the assetspublic, (2) issuing common securities of the Trust with a liquidation preference of $50 per security (for a total of $175,000,000). Additionally,to Citizens and (3) using the Trust, the Partnership and Citizens have granted the Underwriters an option for 30 days to purchase up to an additional 525,000 Convertible Preferred Securities at the initial public offering price solely to cover over- allotments, if any. Distributions Distributions on the Convertible Preferred Securities will be cumulativeproceeds from the date of original issuance of the Convertible Preferred Securities attrust preferred securities and the Rate. Distributionscommon securities of the Trust to purchase junior subordinated notes of Citizens. The Trust may engage in only those other activities as are necessary, appropriate, convenient or incidental to those purposes. The preferred securities and the common securities of the Trust together are sometimes called the "Trust Securities" in this prospectus. The securities trustees--the administrative trustees, the property trustee and the Delaware trustee--will conduct the Trust's business and affairs. Citizens, as the holder of the common securities of the Trust, will be paid quarterlyappoint the securities trustees. Two of Citizens' officers initially will serve as administrative trustees. The Chase Manhattan Bank will serve as property trustee. Chase Manhattan Bank USA, National Association will serve as Delaware trustee. Citizens, as the holder of all the common securities of the Trust, will have the right to appoint, remove or replace any of the securities trustees, subject to the right of the holders of a majority of the trust preferred securities to appoint a substitute property trustee and Delaware trustee if an event of default with respect to the junior subordinated notes occurs. No separate financial statements of the Trust are included in arrears on the Distribution Payment Dates (which are January 31, April 30, July 31 and October 31 of each year) commencing ______________, 199_. Distributions on the Convertible Preferred Securities maythis prospectus. Citizens believes that those statements would 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 electionmaterial to receive their distributions in either Common Stock Series A or cash (a "Distribution Election"). While Citizens intends to elect to pay interest on the Convertible Debentures in Common Stock Series A, Citizens may also elect to pay interest on the Convertible Debentures in cash. At Citizens' election, interest payments may be deferred as described below under "Interest and Distribution Deferral Provisions." The coordination of these election opportunities require that the elections be made within specific time periods. The following summary describes this time-table. So that the summary may be read without frequent cross-referencing of terms defined elsewhere in this Prospectus, some terms which may be defined elsewhere in this Prospectus are re-defined herein for convenience. - - Concurrent with the offering, initial holders of Convertible Preferred Securities can make a Distribution Election: * To receive stock (a "Stock Distribution Election"), or * To receive cash (a "Cash Distribution Election"). * If no Distribution Election is made, the initial holder is deemed to have made a Cash Distribution Election. - - Holders other than initial holders are not entitled to make a Distribution Election until an Election Period (as defined below). Such holders, before such Election Period, will be deemed to have made a Cash Distribution Election. - - The "Distribution Declaration Date" will occur on or before December 9, March 13, June 13 and September 12 of each year (which date will be at least ten calendar days prior to the scheduled Record Date). On or prior to such date, Citizens must declare by written notice (the "Distribution Declaration Notice") whether it will: * Make the next interest payment, or * Defer the next interest payment. 7 * If the scheduled Distribution Declaration Date falls on a day which is not a Business Day, the Distribution Declaration Date shall be the next preceding day that is a Business Day. - - If the Distribution Declaration Notice states that interest will be paid and not deferred on the next Distribution Payment Date: * Since Citizens intends to pay interest on the Convertible Debentures in the form of Common Stock Series A, such notice will ordinarily state that payment will be made in Common Stock Series A (a "Stock Payment Election") having an Equivalent Value (as defined hereafter) to the interest payment which has accrued for the period at the Rate; however * Such notice can alternatively state that Citizens will pay interest in cash (a "Cash Payment Election"). In such case, a holder who makes a timely Stock Distribution Election will instead receive cash. * Such notice will also state the Record Date and the Share Transfer and Valuation Date (as defined hereafter). Such notice, if it relates to the January 31 Distribution Payment Date, will additionally inform holders of the Election Period procedures. - - The Record Date will occur on or before December 19, March 23, June 23trust preferred securities because the Trust has no independent operations and September 22 of each year (which will be at least 10 calendar days after the Distribution Declaration Date). As of this date, the official list of holders entitled to payment will be generated from information supplied by brokerage houses and nominees and others holding accounts for investors and DTC. - - During an "Election Period" (which, starting in 1996, will be the ten Business Days in each year commencing at least two Business Days after the scheduled Record Date relating to the January 31 Distribution Payment Date), a holder can change his Distribution Election by submitting an election form to the broker, nominee or other entity which holds such holder's account. Elections will continue in effect until another election is timely made in a subsequent annual Election Period. Late Distribution Elections will not be effective. * Election forms will be sent on or about the first daysole purpose of the Election Period to beneficial holdersTrust is investing the proceeds of Convertible Preferred Securities by the brokers, nominees or other entities which hold such holders' account. - - If Citizens makes a Stock Payment Election, the Share Transfer and Valuation Date will occur on or before January 18, April 17, July 18 and October 18 of each year (which date will be at least 9 Business Days before the Distribution Payment Date). * On each Share Transfer and Valuation Date, the Equivalent Value per share will be determined, and * Shares of Common Stock Series A with an Equivalent Value will be delivered by Citizens to the Partnership. - - In the period from the Share Transfer and Valuation Date to the Distribution Payment Date: * The Partnership will sell Common Stock Series A in amounts sufficient to pay cash to holders who have made a Cash Distribution Election. * To the extent cash proceeds from the sale of Common Stock Series A are insufficient to satisfy Cash Distribution Elections,its Trust Securities in the junior subordinated notes. Citizens does not expect that the Trust will be filing annual, quarterly or special reports with the SEC. The Trust's office address in the State of Delaware is c/o Chase Manhattan Bank USA, National Association, 1201 Market Street, Wilmington, Delaware 19801. The principal place of business of the Trust will be c/o Citizens, 3 High Ridge Park, Stamford, Connecticut 06905. The Trust's telephone number is (203) 614-5600. ACCOUNTING TREATMENT The Trust will be treated as a subsidiary of Citizens for financial reporting purposes. Accordingly, Citizens' consolidated financial statements will include the accounts of the Trust. The trust preferred securities, along with other trust preferred securities that Citizens guarantees on an equivalent basis, will be presented as a separate line item in Citizens' consolidated balance sheets, entitled "Guaranteed Preferred Beneficial Interests in Subordinated Notes of Citizens or Subsidiaries" or under a similar description. Citizens will providerecord distributions that the additional cash requirementTrust pays on the trust preferred securities as an expense in its consolidated statement of income. SELLING STOCKHOLDER This prospectus also relates to approximately 9,139,900 shares, or the Partnership. *Resale Shares, of common stock of Citizens that may purchase from time to time be sold by the Partnership some or allentity set forth below. An affiliate of Citibank, N.A. purchased shares of common stock in the Common Stock Series Apublic markets in connection with an equity 25 repurchase transaction between Citibank, N.A. and us. The shares of common stock were subsequently transferred to Salomon Smith Barney Inc., the Partnership asselling stockholder and an interest payment. If all such Common Stock Series A is purchased, holders making timely Stock Distribution Elections will receive their distributions in cash. - -affiliate of Citibank, N.A. The Distribution Payment Dates will be January 31, April 30, July 31 and October 31 of each year. 8 * If Citizens has made a Stock Payment Election, onfollowing table states the Distribution Payment Date the Partnership will transfer to the Trust the appropriate number of shares of Common Stock Series Aour outstanding common stock that the selling stockholder owns and appropriate amountthe number of cash to satisfyshares of common stock that may be sold from the Stock and Cash Distribution Electionsaccount of the holdersselling stockholder in connection with the settlement of the Convertible Preferred Securities.equity repurchase transaction.
NUMBER OF SHARES NAME AND ADDRESS NUMBER OF SHARES OWNED NUMBER OF SHARES THAT MAY OWNED AFTER THE OF STOCKHOLDER PRIOR TO THE OFFERING BE SOLD IN THE OFFERING OFFERING ---------------- ---------------------- ------------------------- ----------------- Salomon Smith Barney Inc. 9,909,066 9,139,900 769,166* 390 Greenwich Street New York, NY 10013
- ------------------------------ * If Citizens has made a Cash Payment Election, CitizensThis assumes that all shares that may be sold in the offering by the selling stockholder are sold in the offering. We will transfer cashpay all expenses in connection with the registration of the Resale Shares, including brokerage commissions allocable to the Partnership in payment of interest, at the Rate, and the Partnership will transfer such cash to the Trust, all on the Distribution Payment Date. * If the scheduled Distribution Payment Date falls on a day which is not a Business Day, the Distribution Payment Date shall be the next day that is a Business Day. If the Trust should be dissolved or liquidated by reasonsales of the occurrenceResale Shares and fees and disbursements of a Trust Event (as hereinafter defined)counsel and the Partnership Preferred Securities are distributed to the public investors, the time-table described above will remain applicable with the substitution of Partnership Preferred Securities for the Convertible Preferred Securities, and such other changes resulting from the eliminationrepresentatives of the Trust. However, inselling stockholder. We have also agreed to indemnify the event that the Partnership is dissolved or liquidated by reason of the occurrence of a Partnership Event (as hereinafter defined), the right of (i) a holder to make Distribution Electionsselling stockholder and (ii) Citizens to make Stock Payment Elections will terminate. In such event, interest paymentsits affiliates for certain matters. The selling stockholder and distributions will be made only in cash. See "Convertible Preferred Securities - Special Events Distribution." Interestits affiliates have performed investment banking and Distribution Deferral Provisions Citizens has the right, at any time andadvisory services for us from time to time for which they have received customary fees and expenses. The selling stockholder and its affiliates may, from time to electtime, engage in transactions with and perform services for us in the ordinary course of their business. 26 DESCRIPTION OF DEBT SECURITIES The following is a summary of the general terms of the debt securities. We will file a prospectus supplement that may contain additional terms when we issue debt securities. The terms presented here, together with the terms in a related prospectus supplement, which could be different from the terms described below, will be a description of the material terms of the debt securities. You should also read the indenture governing the applicable class of our debt securities. We have filed two forms of indentures, one each for senior debt securities and for subordinated debt securities, with the SEC as exhibits to defer the date onregistration statement of which this prospectus is a part. All capitalized terms have the meanings specified in the indentures. The terms and provisions of the debt securities described below will most likely be modified by the documents that set forth the specific terms of the debt securities issued. We may issue, from time to time, debt securities, in one or more series, that will consist of either our senior debt or our subordinated debt. Each series of debt securities we offer will be issued under an indenture between us and a trustee. Debt securities, whether senior or subordinated, may be issued as convertible debt securities or exchangeable debt securities. Unless otherwise provided for in the applicable prospectus supplement, the indenture governing our subordinated debt securities will be substantially similar to the indenture governing our senior debt securities other than as to subordination terms. GENERAL TERMS OF THE INDENTURES The indentures do not limit the amount of debt securities that we may issue. Each indenture provides that we may issue debt securities up to the principal amount that we may authorize and may be in any currency or currency unit that we may designate. The terms of the quarterly interest payments onindentures do not contain any covenants or other provisions designed to give holders of any debt securities protection against changes in our operations, financial condition or transactions involving us, but these types of provisions may be included in the Convertible Debentures would otherwise become due and payable bydocuments that set forth the giving of notice of deferral; provided that no such deferral, including extensions, if any, may exceed 20 consecutive quarters nor extend beyond the stated maturity datespecific terms of the Convertible Debentures. Asdebt securities. We may issue the debt securities issued under either indenture as "discount securities," which means they may be sold at a consequence, quarterly distributions on the Partnership Preferred Securities and on the Convertible Preferred Securities would be deferred during any such deferral of interest payments. At the end of any such deferrals, Citizens shall make all interest payments then accrued or deferred and unpaid (including any compounded interest). Upon the payment of all accrued or deferred and unpaid interest payments on the Convertible Debentures, the Partnership will pay in full all accrued or deferred and unpaid distributions to holders of the Partnership Preferred Securities, i.e., the Trust, and the Trust will pay in full all accrued or deferred and unpaid distributions to holders of the Convertible Preferred Securities. Citizens shall give the Regular Trustees (as defined herein) written notice of its selection ofdiscount below their stated principal amount. These debt securities, as well as other debt securities that are not issued at a deferred interest payment on or before the date the Regular Trustees are required to give notice of the record or payment date of any distribution payable on the Convertible Preferred Securities to the NYSE, the National Association of Securities Dealers Automated Quotation ("NASDAQ") system or other applicable self- regulatory organization, or to the holders of the Convertible Preferred Securities. See the discussion of the Distribution Declaration Notice and Distribution Declaration Date immediately above under "- Distributions." Citizens shall also give written notice of any deferred interest payment to the holders of the Convertible Preferred Securities. See "Risk Factors - Option to Defer Payment of Distributions," "Convertible Preferred Securities - - Distributions," "Convertible Debentures - Option to Defer Interest Payments." Should a deferral of interest payments occur, the holders of the Partnership Preferred Securities and the holders of the Convertible Preferred Securities would continue to accrue incomediscount, may, for United States federal income tax purposes, even though nobe treated as if they were issued with "original issue discount" because of interest paymentspayment and other characteristics. Special United States federal income tax considerations applicable to debt securities issued with original issue discount will be described in more detail in any applicable prospectus supplement. The applicable prospectus supplement for a series of debt securities that we issue will describe, among other things, the following terms of the offered debt securities: - the title; - any limit on the aggregate principal amount; - whether issued in fully registered form without coupons or distributions would in fact be paid. Citizens may not electa form registered as to defer interest payments while an Indenture Event of Default has occurred and is continuing. See "Risk Factorsprincipal only with coupons or in bearer form with coupons; - Certain Tax Consequences of Deferral of Interest Payments on Convertible Debentures," "Certain Federal Income Tax Considerations - Potential Deferral of Interest Payments and Original Issue Discount," and "Convertible Preferred Securities - Deferrals." Liquidation Preference $50 per Convertible Preferred Security in cash, plus an amount equal to any accrued or deferred and unpaid distributions in cash or Common Stock. 9 Conversion into Citizens Common Stock Series A Each Convertible Preferred Security is convertiblewhether issued in the manner described below at the optionform of the holder (unless previously redeemed) into shares of Common Stock Series A of Citizens, at a conversion price of $______ per share of Common Stock Series A (equivalent to a conversion rate of _____ shares of Common Stock Series A for each $50 of liquidation preference of Convertible Preferred Securities), subject to adjustment, as specified below. A holder of Convertible Preferred Securities wishing to exercise its conversion right as toone or more global securities and whether all or a portion of such Convertible Preferred Securities shall, in effect, surrender such Convertible Preferred Securities, or portion thereof, by submitting an irrevocable conversion notice to Chemical Bank who will, among other things, serve as the conversion agent (the "Conversion Agent"). See "Convertible Preferred Securities - Conversion Rights." Commencing in 1990, Citizens has followed the policy of paying quarterly dividends on both Series of its common stock in shares of common stock. The conversion priceprincipal amount of the Convertible Preferred Securitiesdebt securities is represented by a global security; - the price or prices at which the debt securities will be adjusted downwardissued; - the date or dates on which principal is payable; - the place or places where and the manner in which principal, premium or interest will be payable and the place or places where the debt securities may be presented for transfer and, if applicable, conversion or exchange; 27 - interest rates, and the dates from which interest, if any, will accrue, and the dates when interest is payable and the maturity; - the right, if any, to reflectextend the declarationinterest payment periods and the duration of each future quarterly stock dividend. Thethe extensions; - our rights or obligations to redeem or purchase the debt securities; - any sinking fund provisions; - conversion priceor exchange provisions, if any, including conversion or exchange prices or rates and adjustments to conversion or exchange prices or rates; - the currency or currencies of payment of principal or interest; - the terms applicable to any debt securities issued at a discount from their stated principal amount; - the terms, if any, under which any debt securities will rank junior to any of our other debt; - if the amount of payments of principal or interest is also subject to adjustmentbe determined by reference to an index or formula, or based on a coin or currency other than that in which the debt securities are stated to be payable, the manner in which these amounts are determined and the calculation agent, if any, with respect thereto; - if other circumstances. See "Convertible Preferred Securities - Conversion Rights." Optional Redemption The Convertible Debentures are redeemable by Citizens, in cash, at its option, in whole or in part, from time to time, on or after _________________, 1999, at 100%than the entire principal amount of the debt securities when issued, the portion of the principal amount being redeemed, together with accrued or deferred but unpaid interest, or at any time in certain circumstances, as specified below. If Citizens redeems Convertible Debentures, the Trust must redeem Convertible Preferred Securities and Convertible Common Securities having an aggregate liquidation amount equal to the aggregate principal amountpayable upon acceleration of the Convertible Debentures so redeemed at $50 per Trust Security in cash, plus accrued or deferred and unpaid distributions thereon in either cash or Common Stock. See "Convertible Preferred Securities - Optional Redemption" and "Convertible Debentures - Optional Redemption." Special Events Distribution Upon the occurrence of certain events (and subject to certain conditions), the Trust will be liquidated and the holders of the Convertible Preferred Securities will receive Partnership Preferred Securities in lieu of any cash distribution. Also upon the occurrence of certain events (and subject to certain conditions), both the Partnership and the Trust may be liquidated and the holders of the Convertible Preferred Securities may receive Convertible Debentures in lieu of any cash distribution. See "Convertible Preferred Securities - Special Events Distribution." Redemptions Terminate Convertibility If Convertible Preferred Securities are called for redemption, whether through the exercise by Citizens of its option after ________, 1999, or upon maturity or acceleration upon default, the conversion rights of holders with regard to the Convertible Preferred Securities will terminate five (5) Business Days prior to the redemption date. Redemption on Maturity or Upon Acceleration In addition, unless previously redeemed, Convertible Preferred Securities will be redeemed at maturity (on _____________, 2036) or as a result of acceleration upona default on our obligations; - if applicable, covenants affording holders of debt protection against changes in our operations, financial condition or transactions involving us; and - any other specific terms of any debt securities. The applicable prospectus supplement will present United States federal income tax considerations for holders of any debt securities and the securities exchange or quotation system on which any debt securities are listed or quoted. SENIOR DEBT SECURITIES Senior debt securities will be issued under the senior indenture. Payment of the Convertible Debentures. See "Convertible Preferred Securities - Redemptionprincipal of, premium, if any, and interest on Maturity or Upon Acceleration"senior debt securities will rank on a parity with all of our other unsecured and "Convertible Debentures - Events of Default." Guarantees Under the Convertible Debentures, Citizens' payment obligation is absolute and unconditional. In addition, Citizens has payment obligationsunsubordinated debt. SUBORDINATED DEBT SECURITIES GENERALLY Subordinated debt securities will be issued under the Partnership Guarantees and the Trust Guarantees. Pursuant to the Convertible Preferred Securities Guarantee Agreement (the "Convertible Preferred Securities Guarantee") and the Partnership Preferred Securities Guarantee Agreement (the "Partnership Guarantee"), Citizens will irrevocably agree, on a subordinated basis, to pay in full (a) the distributions by the Trust on the Convertible Preferred Securities and by 10 the Partnership on the Partnership Preferred Securities, (b) the redemption price (including all accrued or deferred and unpaid distributions)indenture. Payment of the Convertible Preferred Securitiesprincipal of, premium, if any, and the Partnership Preferred Securities and (c) paymentsinterest on liquidation with respect to the Convertible Preferred Securities and the Partnership Preferred Securities, in each case, only to the extent Common Stock and/or cash are on hand and available (and, in the case of Partnership Preferred Securities, legally available) therefor. A holder of Convertible Preferred Securities may enforce Citizens' obligations under the Guarantees directly against Citizens. See "Guarantees - General." The Guarantees will be unsecured and eachsubordinated debt securities will be subordinated to all Senior Indebtedness of Citizens. The Guarantees, when taken together with Citizen's obligations under the Convertible Debentures, the Indenture, the Declaration and the Limited Partnership Agreement, including its obligation to pay costs, expenses and certain indemnities of the Trust, constitute a full and unconditional guarantee of amounts due under the Convertible Preferred Securities. In the event of the bankruptcy, liquidation or winding-up of Citizens, its obligations under the Guarantees will rank junior to all Senior Indebtedness and, therefore, funds may not be available for payment under the Guarantees. See "Risk Factors - Subordinate Obligations Under Guarantees and Convertible Debentures," "Risk Factors - Dependence on Convertible Debenture Payments" and "Guarantees." Voting Rights Holders of the Convertible Preferred Securities will have limited voting rights. See "Convertible Preferred Securities - Voting Rights." Convertible Debentures The Convertible Debentures issued to the Partnership will have a maturity of 40 years and will bear interest at the Rate payable quarterly in arrears, payable in either an Equivalent Value of shares of Common Stock Series A or cash, at the option of Citizens. Citizens has the right to, and may, defer the payment of each quarterly interest payment (See "Interest and Distribution Deferral Provisions" above); Citizens will have the right to make payment of some, but need not make all, of such deferred quarterly interest payments during a deferral of interest payments. The absence of interest payments during a deferral of interest payments would not constitute a default or an event of default under the Indenture or any other of Citizens' currently outstanding indebtedness. Unless previously redeemed, the Convertible Debentures are convertible into shares of Common Stock Series A at the option of the holders thereof. The Convertible Debentures are redeemable at the option of Citizens, in whole or in part, from time to time on or after _________, 1999. See "Convertible Debentures - Optional Redemption." The payment of the principal and interest in cash on the Convertible Debentures will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness of Citizens, which is hereafter defined to generally include all indebtedness except trade accounts payable and liabilities incurredour senior debt. We will state in the ordinary courseapplicable prospectus supplement relating to any subordinated debt securities the subordination terms of business. See "Risk Factors - Subordinate Obligations Under Guarantees and Convertible Debentures," and "Risk Factors - Dependencethe securities as well as the aggregate amount of outstanding indebtedness, as of the most recent practicable date, that by its terms would be senior to the subordinated debt securities. We will also state in the prospectus supplement limitations, if any, on Convertible Debenture Payments." Use Of Proceeds The proceeds to be receivedissuance of additional senior indebtedness. JUNIOR SUBORDINATED NOTES In connection with the issuance of any trust preferred securities by the Trust, fromCitizens will issue to the saleTrust a series of junior subordinated notes. Citizens will also provide a guarantee of obligations of the Convertible Preferred Securities and the Convertible Common Securities will be contributed by the Trust to the Partnership to be invested thereby in the Convertible Debentures of Citizens, which, after paying the expenses associated with this offering, will use such funds to repay outstanding commercial paper issued to temporarily and partially fund the purchase price of certain acquired telecommunications propertiesas described herein and to permanently fund a portionunder "Description of the to-be-acquired telecommunications properties described herein. See "Use of Proceeds." See "Risk Factors" for a discussion of certain material risksGuarantee". The junior subordinated notes are expected to be considered in connection with an investment in the Convertible Preferred Securities. 11 RISK FACTORS Prospective purchasers of Convertible Preferred Securities should carefully review the information contained elsewhere in this Prospectus and should particularly consider the following matters: Subordinate Obligations Under Guarantees and Convertible Debentures Citizens' obligations under the Convertible Debentures and its obligations under the Guarantees arerank subordinate and junior in right of payment to all Senior Indebtedness of Citizens. AsCitizens' indebtedness, which may 28 include other subordinated notes, unless that indebtedness is expressly subordinated to or ranks on a parity with the junior subordinated notes. Specific terms of Septemberany junior subordinated notes issued in connection with the issuance of any trust preferred securities will be set forth in a prospectus supplement describing these issuances. CONVERSION OR EXCHANGE RIGHTS Debt securities may be convertible into or exchangeable for shares of our equity securities or equity securities of our subsidiaries or affiliates. The terms and conditions of conversion or exchange will be stated in the applicable prospectus supplement. The terms will include, among others, the following: - the conversion or exchange price; - the conversion or exchange period; - provisions regarding the convertibility or exchangeability of the debt securities, including who may convert or exchange; - events requiring adjustment to the conversion or exchange price; - provisions affecting conversion or exchange in the event of our redemption of the debt securities; and - any anti-dilution provisions, if applicable. EVENTS OF DEFAULT Unless otherwise provided for in the applicable prospectus supplement, the term "Event of Default," when used in either indenture, unless otherwise indicated, means any of the following: - failure to pay interest for 60 days after the date payment is due and payable; provided that if we extend an interest payment period in accordance with the terms of the debt securities, the extension will not be a failure to pay interest; - failure to pay principal or premium, if any, on any debt security when due, either at maturity, upon any redemption, by declaration or otherwise; - failure to make sinking fund payments when due; - failure to perform other covenants for 90 days after notice that performance was required; - events in bankruptcy, insolvency or reorganization of our company; or - any other Event of Default provided in the applicable resolution of our Board or supplemental indenture under which we issue a series of debt securities. An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under an indenture. If an Event of Default relating to the payment of interest, principal or any sinking fund installment involving any series of debt securities has occurred and is continuing, the trustee or the holders of not less than 25% in aggregate principal amount of the debt securities of each affected series may declare the entire principal of all the debt securities of that series to be due and payable immediately. If an Event of Default relating to the performance of other covenants occurs and is continuing for a period of 60 days after notice of that event, or if any other Event of Default occurs and is continuing involving all of the series of senior debt securities, then the trustee or the holders of not less than 25% in aggregate principal amount of all of the series of senior debt securities may declare the entire principal amount of all of the series of senior debt securities due and payable immediately. Similarly, if an Event of Default relating to the performance of other covenants occurs and is continuing for a period of 60 days after notice of that event, or if any other Event of Default occurs and is continuing involving all of the series of subordinated securities, then the trustee or the holders of 29 not less than 25% in aggregate principal amount of all of the series of subordinated securities may declare the entire principal amount of all of the series of subordinated securities due and payable immediately. If, however, the Event of Default relating to the performance of other covenants or any other Event of Default that has occurred and is continuing is for less than all of the series of senior debt securities or subordinated securities, as the case may be, then, the trustee or the holders of not less than 25% in aggregate principal amount of each affected series of the senior debt securities or the subordinated securities, as the case may be, may declare the entire principal amount of all debt securities of the affected series due and payable immediately. The holders of not less than a majority, or any applicable supermajority, in aggregate principal amount of the debt securities of a series may, after satisfying conditions, rescind and annul any of the above-described declarations and consequences involving the series. If an Event of Default relating to events in bankruptcy, insolvency or reorganization of our company occurs and is continuing, then the principal amount of all of the debt securities outstanding, and any accrued interest, will automatically become due and payable immediately, without any declaration or other act by the trustee or any holder. The indentures impose limitations on suits brought by holders of debt securities against us. Except for actions for payment of overdue principal or interest, no holder of debt securities of any series may institute any action against us under the relevant indenture unless: - the holder has previously given to the trustee written notice of default and continuance of such default; - the holders of at least 25% in principal amount of the outstanding debt securities of the affected series have requested that the trustee institute the action; - the requesting holders have offered the trustee reasonable indemnity for expenses and liabilities that may be incurred by bringing the action; - the trustee has not instituted the action within 60 days of the request; and - the trustee has not received inconsistent direction by the holders of a majority in principal amount of the outstanding debt securities of the series. We will be required to file annually with each trustee a certificate, signed by an officer of our company, stating whether or not the officer knows of any default by us in the performance, observance or fulfillment of any condition or covenant of the relevant indenture. REGISTERED GLOBAL SECURITIES We may issue the debt securities of a series in whole or in part in the form of one or more fully registered global securities. We will deposit any registered global securities with a depositary or with a nominee for a depositary identified in the applicable prospectus supplement and registered in the name of the depositary or nominee. In that case, we will issue one or more registered global securities denominated in an amount equal to the aggregate principal amount of all of the debt securities of the series to be issued and represented by the registered global security or securities. Unless and until it is exchanged in whole or in part for debt securities in definitive registered form, a registered global security may not be transferred except as a whole: - by the depositary for such registered global security to its nominee; - by a nominee of the depositary to the depositary or another nominee of the depositary; or - by the depositary or its nominee to a successor of the depositary or a nominee of the successor. 30 1995, there was $1,229,596,000 The prospectus supplement relating to a series of Senior Indebtedness outstanding (not including certain other obligations, see "Convertible Debentures-Subordination"). The Convertible Debentures are also effectively subordinatedebt securities will describe the specific terms of the depositary arrangement involving any portion of the series represented by a registered global security. We anticipate that the following provisions will apply to all existingdepositary arrangements for debt securities: - ownership of beneficial interests in a registered global security will be limited to persons that have accounts with the depositary for such registered global security, these persons being referred to as "participants," or persons that may hold interests through participants; - upon the issuance of a registered global security, the depositary for the registered global security will credit, on its book-entry registration and future liabilities, including trade payables, to Citizens' subsidiaries and affiliates. There are no termstransfer system, the participants' accounts with the respective principal amounts of the debt securities represented by the registered global security beneficially owned by the participants; - any dealers, underwriters, or agents participating in the Convertible Preferred Securities,distribution of the Partnership Preferred Securities,debt securities will designate the Convertible Debentures or the Guarantees that limit Citizens' abilityaccounts to incur additional indebtedness, including indebtedness that ranks senior to the Convertible Debenturesbe credited; and - ownership of beneficial interest in such registered global security will be shown on, and the Guarantees, ortransfer of such ownership interest will be effected only through, records maintained by the depositary for such registered global security for interests of participants, and on the records of participants for interests of persons holding through participants. The laws of some states may require that specified purchasers of securities take physical delivery of the securities in definitive form. These laws may limit the ability of those persons to own, transfer or pledge beneficial interests in registered global securities. So long as the depositary for a registered global security, or its subsidiariesnominee, is the registered owner of the registered global security, the depositary or nominee, as the case may be, will be considered the sole owner or holder of the debt securities represented by the registered global security for all purposes under the relevant indenture. Except as stated below, owners of beneficial interests in a registered global security: - will not be entitled to incurhave the debt securities represented by a registered global security registered in their names; - will not receive or be entitled to receive physical delivery of the debt securities in the definitive form; and - will not be considered the owners or holders of the debt securities under the relevant indenture. Accordingly, each person owning a beneficial interest in a registered global security must rely on the procedures of the depositary for the registered global security and, if the person is not a participant, on the procedures of a participant through which the person owns its interest, to exercise any rights of a holder under the relevant indenture. We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a registered global security desires to give or take any action that a holder is entitled to give or take under the relevant indenture, the depositary for the registered global security would authorize the participants holding the relevant beneficial interests to give or take the action, and the participants would authorize beneficial owners owning through the participants to give or take the action or would otherwise act upon the instructions of beneficial owners holding through them. We will make payments of principal and premium, if any, and interest, if any, on debt securities represented by a registered global security registered in the name of a depositary or its nominee to the depositary or its nominee, as the case may be, as the registered owners of the registered global security. None of our company, the trustee or any other agent of our company or the trustee will be responsible or liable for any aspect of the records relating to, or payments made on account of, beneficial 31 ownership interests in the registered global security or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. We expect that the depositary for any debt securities represented by a registered global security, upon receipt of any payments of principal and premium, if any, and interest, if any, in respect of the registered global security, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the registered global security as shown on the records of the depositary. We also expect that standing customer instructions and customary practices will govern payments by participants to owners of beneficial interests in the registered global security held through the participants, as is now the case with the securities held for the accounts of customers in bearer form or registered in "street name." We also expect that any of these payments will be the responsibility of the participants. If the depositary for any debt securities represented by a registered global security is at any time unwilling or unable to continue as depositary or stops being a clearing agency registered under the Securities Exchange Act of 1934, we will appoint an eligible successor depositary. If we fail to appoint an eligible successor depositary within 90 days, we will issue the debt securities in definitive form in exchange for the registered global security. In addition, we may at any time and in our sole discretion decide not to have any of the debt securities of a series represented by one or more registered global securities. In that event, we will issue debt securities of the series in a definitive form in exchange for all of the registered global securities representing the debt securities. The trustee will register any debt securities issued in definitive form in exchange for a registered global security in the name or names as the depositary, based upon instructions from its participants, shall instruct the trustee. We may also issue bearer debt securities of a series in the form of one or more global securities, referred to as "bearer global securities." We will deposit these securities with a common depositary for Euroclear System and Clearstream Banking, or with a nominee for the depositary identified in the prospectus supplement relating to the series. The prospectus supplement relating to a series of debt securities represented by a bearer global security will describe the applicable terms and procedures. These will include the specific terms of the depositary arrangement and any specific procedures for the issuance of debt securities in definitive form in exchange for a bearer global security, in proportion to the series represented by a bearer global security. DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE We can discharge or defease our obligations under either indenture or both indentures as stated below or as provided in the applicable prospectus supplement. Unless otherwise provided in the applicable prospectus supplement, we may discharge obligations to holders of any series of debt securities that have not already been delivered to the relevant trustee for cancellation and that have either become due and payable or are by their terms to become due and payable, or are scheduled for redemption, within one year. We may effect a discharge by irrevocably depositing with the trustee cash or United States government obligations, as trust funds, in an amount certified to be enough to pay when due, whether at maturity, upon redemption or otherwise, the principal of, premium, if any, and interest on the debt securities and any mandatory sinking fund payments. Unless otherwise provided in the applicable prospectus supplement, we may also discharge any and all of our obligations to holders of any series of debt securities at any time, referred to as "defeasance." We may also be released from the obligations imposed by any covenants of any outstanding series of debt securities and provisions of the relevant indenture, and we may omit to comply with those covenants without creating an event of default under the relevant indenture, referred 32 to as "covenant defeasance." We may effect defeasance and covenant defeasance only if, among other things: - we irrevocably deposit with the trustee cash or United States government obligations, as trust funds, in an amount certified to be enough to pay at maturity, or upon redemption, the principal, premium, if any, and interest on all outstanding debt securities of the series; - we deliver to the trustee an opinion of counsel from a nationally recognized law firm to the effect that (i) in the case of covenant defeasance, the holders of the series of debt securities will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance, and will be subject to tax in the same manner and at the same times as if no covenant defeasance had occurred and (ii) in the case of defeasance, either we have received from, or there has been published by, the Internal Revenue Service a ruling or there has been a change in applicable United States federal income tax law, and based thereon, the holders of the series of debt securities will not recognize income, gain or loss for United States federal income tax purposes as a result of such defeasance, and will be subject to tax in the same manner as if no defeasance had occurred; and - in the case of subordinated debt securities, no event or condition shall exist that, based on the subordination provisions applicable to the series, would prevent us from making payments of principal of, premium, if any, and interest on any of the applicable subordinated debt securities at the date of the irrevocable deposit referred to above or at any time during the period ending on the 91st day after the deposit date. Although we may discharge or decrease our obligations under an indenture as described in the two preceding paragraphs, we may not avoid, among other things, our duty to register the transfer or exchange of any series of debt securities, to replace any temporary, mutilated, destroyed, lost or stolen series of debt securities or to maintain an office or agency in respect of any series of debt securities. MODIFICATION OF THE INDENTURES Except as provided in the applicable prospectus supplement, each indenture provides that we and the trustee may enter into supplemental indentures without the consent of the holders of debt securities to: - secure any debt securities; - evidence the assumption by a successor corporation of our obligations; - add covenants for the protection of the holders of debt securities; - cure any ambiguity or correct any inconsistency in the relevant indenture; - establish the forms or terms of debt securities of any series; and - evidence and provide for the acceptance of appointment by a successor trustee. The indentures also provide that we and the trustee may, with the consent of the holders of not less than a majority in aggregate principal amount of debt securities of all series of senior debt securities or of subordinated securities, as the case may be, then outstanding and affected, voting as one class, add any provisions to, or change in any manner, eliminate or modify in any way the provisions of, the relevant indenture or modify in any manner the rights of the holders of the debt securities. We and the trustee may not, however, without the consent of the holder of each outstanding debt security affected thereby: - extend the final maturity of any debt security; - reduce the principal amount or premium, if any; - reduce the rate or extend the time of payment of interest; - reduce any amount payable on redemption; 33 - change the currency in which the principal, unless otherwise provided for a series, premium, if any, or interest is payable; - reduce the amount of the principal of any debt security issued with an original issue discount that is payable upon acceleration or provable in bankruptcy; - impair the right to institute suit for the enforcement of any payment on any debt security when due; or - reduce the percentage of holders of debt securities of any series whose consent is required for any modification of the relevant indenture. CONCERNING THE TRUSTEE The indentures provide that there may be more than one trustee under each indenture, each for one or more series of debt securities. If there are different trustees for different series of debt securities under an indenture, each trustee will be a trustee under the relevant indenture separate and apart from the trust administered by any other trustee under the same indenture or any other indenture. Except as otherwise indicated in this prospectus or any prospectus supplement, any action permitted to be taken by a trustee may be taken by that trustee only on the one or more series of debt securities for which it is the trustee under the relevant indenture. Any trustee under the relevant indenture may resign or be removed from one or more series of debt securities. All payments of principal of, premium, if any, and interest on, and all registration, transfer, exchange, authentication and delivery of, the debt securities of a series will be effected by the relevant trustee for such series at an office designated by such trustee in New York, New York. If any trustee becomes a creditor of our company, each indenture places limitations on the right of the trustee to obtain payment of claims or to realize on property received in respect of any such claim as security otherwise. Any trustee may engage in other transactions. If it acquires any conflicting interest relating to any duties concerning the debt securities, however, it must eliminate the conflict or resign as trustee. The holders of a majority in aggregate principal amount of any series of debt securities then outstanding will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the relevant trustee concerning the applicable series of debt securities, provided that the direction: - would not conflict with any rule of law or with the relevant indenture; - would not be unduly prejudicial to the rights of another holder of the debt securities; and - would not involve any trustee in personal liability. The indentures provide that in case an Event of Default shall occur, not be cured and be known to any trustee, the relevant trustee must use the same degree of care as a prudent person would use in the conduct of his or her own affairs in the exercise of the trustee's power. No trustee will be under any obligation to exercise any of its rights or powers under an indenture at the request of any of the holders of the debt securities, unless the holders shall have offered to the trustee security and indemnity satisfactory to that trustee. NO INDIVIDUAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS OR DIRECTORS The indentures provide that no incorporator and no past, present or future shareholder, officer or director of our company or any successor corporation in their capacity as such shall have any individual liability for any of our obligations, covenants or agreements under the debt securities or the relevant indenture. GOVERNING LAW The indentures and the debt securities will be governed by, and construed in accordance with, the laws of the State of New York. 34 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 600,000,000 shares of common stock, par value $.25 per share, and 50,000,000 shares of preferred stock, par value $.01 per share. As of March 31, 2001, there were 266,485,914 shares of common stock outstanding, and no shares of preferred stock outstanding. COMMON STOCK VOTING RIGHTS The holders of common stock are entitled to one vote per share and are entitled to vote upon all matters that come before the stockholders, including the election of directors. Only those holders of our common stock that, as of any relevant date, would be entitled to elect a director at the next annual meeting of stockholders, may remove a director. Our directors may be removed, with or without cause. Vacancies in a directorship may be filled by: - the majority of directors then in office, except in vacancies resulting from the removal of directors by stockholders; or - the vote of the holders of the common stock, as of the date such vacancy is filled, entitled to elect such director at the next annual meeting of stockholders. DIVIDENDS Holders of common stock are entitled to receive dividends at the same rate if, as and when such dividends are declared by our board out of assets legally available therefor after payment of dividends required to be paid on shares of outstanding preferred stock. We may not make any dividend or distribution to any holder of common stock unless simultaneously with the dividend or distribution we make the same dividend or distribution with respect to each outstanding share of common stock. LIQUIDATION In the event of our liquidation, after payment of our debts and other liabilities and after making provision for the holders of preferred stock, if any, our remaining assets will be distributable ratably among the holders of common stock. OTHER PROVISIONS The holders of our common stock are not entitled to preemptive rights. All outstanding shares of common stock are, and all shares of common stock offered hereby when issued will be upon payment therefor, validly issued, fully paid and nonassessable. PREFERRED STOCK Our board of directors has the authority, without any further action by our stockholders to issue from time to time shares of preferred stock in one or more series and to fix the designations, preferences, rights, qualifications, limitations and restrictions thereof, including voting rights, dividend rights, dividend rates, conversion rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series. The issuance of preferred stock with voting rights could have an adverse effect on the voting power of holders of common stock by increasing the number of outstanding shares having voting rights. In addition, if our board of directors authorizes preferred stock with conversion rights, the number of shares of common stock outstanding could potentially be increased up to the authorized amount. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to holders of common stock. Any such issuance could also have the effect of delaying, deterring or preventing a change in control of us and may adversely affect the rights of holders of our common stock. 35 GENERAL CERTIFICATE OF INCORPORATION AND BY-LAWS Stockholders' rights and related matters are governed by the Delaware General Corporation Law and our certificate of incorporation and by-laws. The terms of our restated certificate of incorporation and our by-laws are more detailed than the general information provided in connection with the description of our capital stock or otherwise in this prospectus. Therefore, you should carefully consider the actual provisions of these documents. LIMITATION OF DIRECTORS' LIABILITY Our certificate of incorporation provides that none of our directors will be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director except for liability: - for any breach of the director's duty of loyalty to us or our stockholders; - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - under Section 174 of the Delaware General Corporation Law; or - for any transaction from which the director derived an improper personal benefit. The effect of these provisions will be to eliminate our rights and our stockholders' rights, through stockholders' derivatives suits on our behalf, to recover monetary damages against a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior, except in the situations described above. These provisions will not limit the liability of directors under federal securities laws and will not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his or her duty of care. TRANSFER AGENT The Transfer Agent and Registrar for our common stock is the Illinois Stock Transfer Company. 36 DESCRIPTION OF WARRANTS We may issue warrants for the purchase of debt securities, preferred stock or common stock. Warrants may be issued independently or together with debt securities, preferred stock or common stock offered by any prospectus supplement and may be attached to or separate from any such offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The warrant agent will act solely as our agent in connection with the warrants and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants. The following summary of selected provisions of the warrants does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the warrant agreement that will be filed with the SEC in connection with the offering of such warrants. DEBT WARRANTS The prospectus supplement relating to a particular issue of debt warrants will describe the terms of the debt warrants, including the following: - the title of the debt warrants; - the offering price for the debt warrants, if any; - the aggregate number of the debt warrants; - the designation and terms of the debt securities purchasable upon exercise of the debt warrants; - if applicable, the designation and terms of the debt securities with which the debt warrants are issued and the number of debt warrants issued with each debt security; - if applicable, the date from and after which the debt warrants and any debt securities issued therewith will be separately transferable; - the principal amount of debt securities purchasable upon exercise of a debt warrant and the price at which the principal amount of debt securities may be purchased upon exercise, which price may be payable in cash, securities, or other property; - the date on which the right to exercise the debt warrants shall commence and the date on which the right shall expire; - if applicable, the minimum or maximum amount of the debt warrants that may be exercised at any one time; - whether the debt warrants represented by the debt warrant certificates or debt securities that may be issued upon exercise of the debt warrants will be issued in registered or bearer form; - information with respect to book-entry procedures, if any; - the currency or currency units in which the offering price, if any, and the exercise price are payable; - if applicable, a discussion of material United States federal income tax considerations; - the antidilution provisions of the debt warrants, if any; - the redemption or call provisions, if any, applicable to the debt warrants; and - any additional indebtedness.terms of the debt warrants, including terms, procedures, and limitations relating to the exchange and exercise of the debt warrants. 37 STOCK WARRANTS The Convertible Preferred Securities Guarantee guaranteesprospectus supplement relating to any particular issue of preferred stock warrants or common stock warrants will describe the terms of the warrants, including the following: - the title of the warrants; - the offering price for the warrants, if any; - the aggregate number of the warrants; - the designation and terms of the common stock or preferred stock purchasable upon exercise of the warrants; - if applicable, the designation and terms of the offered securities with which the warrants are issued and the number of the warrants issued with each offered security; - if applicable, the date from and after which the warrants and any offered securities issued with them will be separately transferable; - the number of shares of common stock or preferred stock purchasable upon exercise of a warrant and the price at which the shares may be purchased upon exercise; - the date on which the right to exercise the warrants shall commence and the date on which the right shall expire; - if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time; - the currency or currency units in which the offering price, if any, and the exercise price are payable; - if applicable, a discussion of material United States federal income tax considerations; - the antidilution provisions of the warrants, if any; - the redemption or call provisions, if any, applicable to the warrants; and - any additional terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants. 38 DESCRIPTION OF DEPOSITARY SHARES The following information outlines some of the provisions of the deposit agreement, the depositary shares and the depositary receipts. This information may not be complete in all respects and is qualified entirely by reference to the relevant deposit agreement and depositary receipts with respect to the depositary shares relating to any particular series of preferred stock. The specific terms of any series of depositary shares will be described in the relevant prospectus supplement. If so described in the prospectus supplement, the terms of that series of depositary shares may differ and supersede some or all of the terms presented below. GENERAL We may elect to offer fractional interests in shares of preferred stock instead of whole shares of preferred stock. If so, we will allow a depositary to issue depositary shares to the public, each of which will represent a fractional interest in a share of the relevant series of preferred stock, as described in the relevant prospectus supplement, of a share of preferred stock. The shares of the preferred stock underlying any depositary shares will be deposited under a separate deposit agreement between us and a bank or trust company acting as depositary with respect to that series. The depositary will have its principal office in the United States and have a combined capital and surplus of at least $50,000,000. The relevant prospectus supplement relating to a series of depositary shares will mention the name and address of the depositary. Under the relevant deposit agreement, each owner of a depositary share will be entitled, in proportion to its fractional interest in a share of the preferred stock underlying that depositary share, to all the rights and preferences of that preferred stock, including dividend, voting, redemption, conversion, exchange and liquidation rights. Depositary shares will be evidenced by one or more depositary receipts issued under the relevant deposit agreement. Pending the preparation of definitive engraved depositary receipts, a depositary may, upon our order, issue temporary depositary receipts substantially identical to and entitling their holders to all the rights pertaining to the definitive depositary receipts, but not in definitive form. Definitive depositary receipts will be prepared without unreasonable delay and the temporary depositary receipts will be exchangeable for definitive depositary receipts at our expense. DIVIDENDS AND OTHER DISTRIBUTIONS The depositary will distribute all cash dividends or other cash distributions in respect of the preferred stock to the record depositary shareholders based on the number of the depositary shares owned by that holder on the relevant record date. The depositary will distribute only that amount which can be distributed without attributing to any depositary shareholders a fraction of one cent, and any balance not so distributed will be added to and treated as part of the next sum received by the depositary for distribution to the depositary shareholders of record. If there is a distribution other than in cash, the depositary will distribute property to the depositary shareholders of record on a pro rata basis, unless the depositary determines that it is not feasible to make that distribution. In that case, the depositary may, with our consultation, adopt a method it deems equitable and practicable for making that distribution, including any sale of property and the distribution of the net proceeds from that sale to the concerned holders. Each deposit agreement will also contain provisions relating to the manner in which any subscription or similar rights we offer to preferred stockholders of the relevant series will be made available to depositary shareholders. 39 WITHDRAWAL OF STOCK Upon surrender of depositary receipts at the depositary's office, the holder of the relevant depositary shares will be entitled to the number of whole shares of the related series of preferred stock and any money or other property those depositary shares represent. Depositary shareholders will be entitled to receive whole shares of the related preferred stock series on the basis described in the relevant prospectus supplement, but holders of those whole preferred stock shares will not afterward be entitled to receive depositary shares in exchange for their shares. If the depositary receipts the holder delivers evidence a depositary share number exceeding the whole share number of the related preferred stock series to be withdrawn, the depositary will deliver to that holder a new depositary receipt evidencing the excess depositary share number. REDEMPTION; LIQUIDATION The terms on which the depositary shares relating to the preferred stock of any series may be redeemed and any amounts distributable upon our liquidation, dissolution or winding up, will be described in the relevant prospectus supplement. CONVERSION The depositary shares, as such, are not convertible or exchangeable into our common stock or any of our other securities or property. Nevertheless, the prospectus supplement relating to an offering of depositary shares may provide that the holders of depositary receipts may surrender their depositary receipts to the depositary with written instructions to the depositary to instruct us to cause the conversion or exchange of the preferred stock represented by these depositary shares. VOTING Upon receiving notice of any meeting at which preferred stockholders of any series of preferred stock underlying the depositary shares are entitled to vote, the depositary will mail the information contained in that notice to the depositary shareholders of record relating to that series of preferred stock. Each depositary shareholder on the record date will be entitled to instruct the depositary on how to vote the shares of preferred stock underlying that holder's depositary shares. The depositary will vote the preferred stock shares underlying those depositary shares according to those instructions, and we will take actions we deem necessary to enable the depositary to do so. If the depositary does not receive specific instructions from the depositary shareholders relating to that series of preferred stock, it will abstain from voting those preferred stock shares, unless otherwise mentioned in the relevant prospectus supplement. AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT The depositary receipt form evidencing the depositary shares and the relevant deposit agreement may be amended by us and the depositary. However, any amendment that significantly affects the rights of the depositary shareholders will not be effective unless a majority of the outstanding depositary shareholders approve that amendment. We or the depositary may terminate a deposit agreement only if: - we have redeemed or reacquired all outstanding depositary shares relating to the deposit agreement; - all preferred stock of the relevant series has been withdrawn; - there has been a final distribution in respect of the relevant series of preferred stock in connection with our liquidation, dissolution or winding up and that distribution has been made to the relevant depositary shareholders; 40 - all outstanding depository shares have been converted into or exchanged for other securities; or - upon determination by Citizens to terminate the deposit agreement. CHARGES OF DEPOSITARY We will pay all charges of each depositary in connection with the initial deposit and any redemption of the preferred stock. Depositary shareholders will be required to pay any other transfer and other taxes and governmental charges and any other charges expressly provided in the deposit agreement to be for their accounts. Each depositary will forward to the relevant depositary shareholders all reports and communications that we are required to furnish to our preferred stockholders. Neither any depositary nor Citizens will be liable if it is prevented or delayed by law or any circumstance beyond its control in performing its obligations under any deposit agreement. The obligations of each depositary under any deposit agreement will be limited to performance in good faith of their duties under that agreement, and they will not be obligated to prosecute or defend any legal proceeding in respect of any depositary shares or preferred stock unless they are provided with satisfactory indemnity. They may rely upon written advice of counsel or accountants, or information provided by persons presenting preferred stock for deposit, depositary shareholders or other persons believed to be competent, and on documents believed to be genuine. TITLE We, each depositary and any of their agents may treat the registered owner of any depositary share as the absolute owner of that share, whether or not any payment for that depositary share is overdue and despite any notice to the contrary, for any purpose. RESIGNATION AND REMOVAL OF DEPOSITARY A depositary may resign at any time by delivering to us notice of its election to resign, and we may remove a depositary, and resignation or removal will take effect upon the appointment of a successor depositary and its acceptance of appointment. DESCRIPTION OF TRUST PREFERRED SECURITIES The following description of the trust preferred securities is only a summary and is not intended to be comprehensive. GENERAL The Trust Agreement authorizes the administrative trustees to issue the trust preferred securities and the trust common securities on behalf of the Trust. For additional information you should refer to the Trust Agreement. The form of the Trust Agreement is filed with the SEC as an exhibit to the registration statement, of which this prospectus is a part. The prospectus supplement describing the trust preferred securities will disclose the specific terms related to the offering, including the price or prices at which the trust preferred securities to be offered will be issued. Those terms will include some or all of the following: - the number of trust preferred securities; - the yearly distribution rate, or the method of determining that rate, and the date or dates on which distributions will be payable; 41 - the date or dates, or method of determining the date or dates, from which distributions will be cumulative; - the amount that will be paid out of the assets of the Trust to the holders of the Convertible Preferred Securitiestrust preferred securities upon the voluntary or involuntary dissolution, winding-up or termination of accruedthe Trust; - any obligation that the Trust has to purchase or redeem the trust preferred securities and unpaid quarterlythe price at which, the period within which, and the terms and conditions upon which the Trust will purchase or redeem them; - any voting rights of the trust preferred securities that are in addition to those legally required, including any right that the holders of the trust preferred securities have to approve certain actions under or amendments to the trust agreement; - any right that the Trust has to defer distributions amounts payable on redemption,the trust preferred securities in the event that Citizens extends the interest payment period on the junior subordinated notes; - any other rights, preferences, privileges, limitations or restrictions upon the trust preferred securities; and amounts payable on liquidation- Citizens will guarantee the trust preferred securities to the extent described below under the caption "Description of the Guarantee." The applicable prospectus supplement will describe any material United States federal income tax considerations that apply to the trust preferred securities. DESCRIPTION OF GUARANTEE In connection with the issuance of trust preferred securities by the Trust and junior subordinated notes to the Trust by Citizens, Citizens will execute the guarantee for the benefit of the holders of the preferred securities of the Trust. However, such amountsThe Chase Manhattan Bank will act as guarantee trustee. The guarantee trustee will hold the guarantee for the benefit of the holders of the trust preferred securities. The following description of the guarantee is only a summary and is not intended to be comprehensive. The form of guarantee is filed with the SEC as an exhibit to the registration statement, of which this prospectus is a part. GENERAL Citizens will irrevocably and unconditionally agree under the guarantee to pay in full the guarantee payments that are guaranteeddefined below, to the extent specified in the guarantee, to the holders of the trust preferred securities, to the extent that the guarantee payments are not paid by or on behalf of the Trust. Citizens is required to pay the guarantee payments to the extent specified in the guarantee regardless of any defense, right of set-off or counterclaim that Citizens may have or may assert against any person. The following payments and distributions on the trust preferred securities of the Trust are guarantee payments: - any acquired and unpaid distributions required to be paid on the trust preferred securities of the Trust, but only to the extent that the Trust has cash and/funds legally and immediately available for those distributions; - the redemption price for any trust preferred securities that the Trust calls for redemption, including all accrued and unpaid distributions to the redemption date, but only to the extent that the Trust has funds legally and immediately available for the payment; and 42 - upon a dissolution, winding-up or Common Stocktermination of the Trust, other than in connection with the distribution of junior subordinated notes to the holders of trust preferred securities or the redemption of all the trust preferred securities, the lesser of: - the sum of the liquidation amount and all accrued and unpaid distributions on handthe trust preferred securities of the Trust to the payment date, to the extent that the Trust has funds legally and immediately available thereforfor the payment; and - the payments thereof do not otherwise violate applicable law. The Guarantees, when taken together with Citizen's obligations underamount of assets of the Convertible Debentures,Trust remaining available for distribution to holders of the Indenture,trust preferred securities of the Declaration andTrust in liquidation of the Limited Partnership Agreement, includingTrust. Citizens may satisfy its obligation to pay costs, expenses and certain indemnitiesmake a guarantee payment by making that payment directly to the holders of the trust preferred securities or by causing the Trust constituteto make the payment to those holders. The guarantee will be a full and unconditional guarantee, of amounts due under the Convertible Preferred Securities. If Citizens weresubject to default on its obligation to pay interest or amounts payable on redemption or maturitycertain subordination provisions, of the Convertible Debentures,guarantee payments with respect to the Trust would lack available cash and/or Common Stock fortrust preferred securities from the time of issuance of the trust preferred securities, except that the guarantee will only apply to the payment of distributions and other payments on the trust preferred securities when the Trust has sufficient funds legally and immediately available to make those distributions or amounts payableother payments. If Citizens does not make the required payments on redemptionthe junior subordinated notes held by the Trust, the Trust will not make the payments on the trust preferred securities. SUBORDINATION Citizens' obligations under the guarantee will be unsecured obligations of Citizens. Those obligations will rank: - subordinate and junior in right of payment to all of Citizens' other liabilities, other than obligations or liabilities that rank equal in priority or subordinate by their terms; - equal in priority with Citizens' preferred stock and similar guarantees, and - senior to Citizens' common stock. The guarantee will be a guarantee of payment and not of collection. This means that the guaranteed party may institute a legal proceeding directly against Citizens, as guarantor, to enforce its rights under the guarantee without first instituting a legal proceeding against any other person or entity. The terms of the Convertible Preferred Securities. In such event,trust preferred securities are expected to provide that each holder of the trust preferred securities, by accepting the trust preferred securities, agrees to the subordination provisions and other terms of the guarantee. AMENDMENTS Citizens may amend the guarantee without the consent of any holder of the trust preferred securities if the amendment does not materially and adversely affect the rights of those holders. Citizens may otherwise amend the guarantee with the approval of 66 2/3% of the outstanding trust preferred securities. TERMINATION The guarantee will terminate and be of no further effect when: - the redemption price of the trust preferred securities is fully paid; 43 - Citizens distributes the junior subordinated notes to the holders of the Convertible Preferred Securities would nottrust preferred securities; or - the amounts payable upon liquidation of the Trust are fully paid. The guarantee will remain in effect or will be able to rely uponreinstated if at any time any holder the Convertible Preferred Securities Guarantee fortrust preferred securities must restore payment of such amounts. Onany sums paid to that holder with respect to the bankruptcy, liquidationtrust preferred securities or winding-upunder the guarantee. EVENTS OF DEFAULT An event of default will occur under the guarantee if Citizens fails to perform any of its payment obligations under the Convertible Preferred Securities Guarantee will rank junior to all Senior Indebtedness and, therefore, funds may not be available for payment under the Convertible Preferred Securities Guarantee. See "Guarantees" and "Convertible Debentures - Subordination." Dependence on Convertible Debenture Paymentsguarantee. The Trust's ability to pay amounts due on the Convertible Preferred Securities is solely dependent upon Citizens Capital's ability to pay amounts due on the Partnership Preferred Securities, which is in turn solely dependent upon Citizens' ability to make payments on the Convertible Debentures as and when required. Since Citizens is also the guarantor of the Convertible Preferred Securities, in the event that Citizens is unable to make payments on the 12 Convertible Debentures, or the Trust is unable to make payments on the Convertible Preferred Securities as and when required, there is a substantial likelihood that Citizens will be unable to make payments on the Convertible Preferred Securities Guarantee as and when required. See "Convertible Preferred Securities - Distributions" and "Guarantees - General." Enforcement of Certain Rights by Holders of Convertible Preferred Securities If a Declaration Event of Default (as defined herein) occurs and is continuing, then the holders of Convertible Preferred Securities would rely on the enforcement by the Property Trustee (as defined herein) of its rights as a limited partner of Citizens Capital (the holder of the Convertible Debentures) against Citizens. In addition, the holders of a majority in aggregate liquidation amount of the Convertible Preferred Securities willtrust preferred securities may waive any such event of default and its consequences on behalf of all of the holders of the trust preferred securities. The guarantee trustee is obligated to enforce the guarantee for the benefit of the holders of the trust preferred securities if an event of default occurs under the guarantee. The holders of a majority of the trust preferred securities of the guarantee have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Property Trusteeguarantee trustee with respect to the guarantee or to direct the exercise of any trust or power conferred uponthat the Property Trusteeguarantee trustee holds under the Declaration (as defined herein), including the right to direct the Property Trustee to exercise the remedies available to it as a limited partner of Citizens Capital. If the Property Trustee fails to enforce its right, aguarantee. Any holder of Convertible Preferred Securitiesthe trust preferred securities may institute a legal proceeding directly against Citizens to enforce the Property Trustee's rights as a limited partner of Citizens Capital, without first instituting any legal proceeding against the Property Trustee, Citizens Capital or any other person or entity. See "Convertible Preferred Securities - Declaration Events of Default," and "- Voting Rights." Option to Defer Payment of Distributions Citizens has the right, at any time and from time to time during the term of the Convertible Debentures, to elect to defer the date on which one or more of the quarterly interest payments would otherwise become due and payable by the giving of notice of deferral; provided that no deferred quarterly interest payment, including any extension of deferral, shall remain unpaid for more than 20 consecutive quarters or be deferred beyond the maturity of the Convertible Debentures. As a consequence, quarterly distributions on the Partnership Preferred Securities and on the Convertible Preferred Securities would be deferred during any such deferral of interest payments. However, unpaid distributions would be compounded quarterly at the Rate. In the event that Citizens exercises this right, Citizens shall not (i) declare or pay any dividend or distribution on any of its capital stock (other than dividends payable in capital stock), (ii) redeem, purchase, otherwise acquire or make a liquidation payment with respect to, any of its capital stock or any Other Subordinated Indebtedness (as defined herein), except in the form of capital stock, (iii) pay interest, principal or any premium (if any), on Other Subordinated Indebtedness, except in the form of capital stock, or (iv) make any guarantee payment with respect to the foregoing (other than payments under the Guarantees), during any such deferral period and until all distribution arrearages have been paid in full; provided, however, that during such deferral periods, Citizens may reacquire from the Partnership any securities the Partnership has received from Citizens and continues to hold. See "Convertible Debentures - Option to Defer Interest Payments" and "- Certain Covenants of Citizens." 13 Certain Tax Consequences of Deferral of Interest Payments on Convertible Debentures Should a deferral of interest payments occur, the holders of the Convertible Preferred Securities would continue to accrue income for United States federal income tax purposes which will be allocated, but not distributed, to holders of record of Convertible Preferred Securities. As a result, each such holder will include such interest in gross income for United States federal income tax purposes in advance of the receipt of cash or shares of Common Stock Series A and will not receive the cash or shares of Common Stock Series A related to such income if such holder disposes of or converts its Convertible Preferred Securities prior to the record date for payment of distributions. See "Certain Federal Income Tax Considerations - Potential Deferral of Interest Payments and Original Issue Discount." Citizens has no current intention of exercising its right to defer payments of interest on the Convertible Debentures. However, should Citizens determine to exercise such right in the future, the market price of the Convertible Preferred Securities is likely to be affected. A holder that disposes of or converts its Convertible Preferred Securities during such a deferral of interest payments, therefore, might not receive the same return on its investment as a holder that continues to hold its Convertible Preferred Securities. In addition, as a result of the existence of Citizen's right to defer interest payments, the market price of the Convertible Preferred Securities (which represent an undivided beneficial interest in the Convertible Debentures through the Partnership Preferred Securities) may be more volatile than other securities on which original issue discount accrues that do not have such rights. See "Certain Federal Income Tax Considerations - - Potential Deferral of Interest Payments and Original Issue Discount." Tax and Market Consequences of Redemption or Special Events Distribution At any time on or after _________, 1999, the Convertible Debentures are redeemable, in whole or in part, which would result in the redemption of the Partnership Securities and the Trust Securities. See "Convertible Debentures - - Optional Redemption." Once redemption has occurred holders of Convertible Preferred Securities will lose their conversion rights, which loss of rights may materially adversely impact the perceived value of such securities. In addition, upon the occurrence of certain events, the Trust and/or the Partnership could be liquidated and the holders of the Convertible Preferred Securities may receive Partnership Preferred Securities or Convertible Debentures in lieu of any liquidating cash distribution. See "Convertible Preferred Securities - Special Events Distribution." Under current United States federal income tax law, a distribution of Partnership Preferred Securities or Convertible Debentures upon the liquidation of the Trust or Citizens Capital would not be a taxable event to holders of the Convertible Preferred Securities. However, upon occurrence of an event which results in Citizens Capital or the Trust being treated as an association taxable as a corporation, a liquidation would probably be a taxable event to such holders. See "Certain Federal Income Tax Considerations - Receipt of Partnership Preferred Securities, Convertible Debentures or Cash Upon Liquidation of Citizens Capital and the Trust." 14 There can be no assurance as to the market prices for the Convertible Preferred Securities, or the Partnership Preferred Securities or the Convertible Debentures that may be distributed in exchange for the Convertible Preferred Securities, if a dissolution or liquidation of any kind were to occur. Accordingly, the Convertible Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Partnership Preferred Securities or Convertible Debentures that a holder of Convertible Preferred Securities may receive on some dissolution and liquidation, may trade at a discount to the price that the investor paid to purchase the Convertible Preferred Securities offered hereby. Because holders of Convertible Preferred Securities may receive Partnership Preferred Securities or Convertible Debentures upon the occurrence of certain events, prospective purchasers of Convertible Preferred Securities are also making an investment decision with regard to the Partnership Preferred Securities and Convertible Debentures and should carefully review all the information regarding the Partnership Preferred Securities and Convertible Debentures contained herein. See "Convertible Preferred Securities - Special Events Distribution," "Partnership Preferred Securities" and "Convertible Debentures." Enactment of December 1995 Tax Proposals On December 7, 1995, the Treasury Department announced Proposals which, if enacted, would no longer permit issuers issuing certain debt securities that are not reflected as debt on the issuer's consolidated balance sheet, such as the Convertible Debentures, to claim an interest deduction for United States federal income tax purposes for interest payable on such securities. On December 19, 1995, the Treasury Department announced proposals, stating that instruments will not be subject to the Proposals if issued pursuant to a registration statement filed with the SEC on or before December 7, 1995, to the extent of the aggregate amount of such instruments described in the registration statement, which would exempt the Convertible Debentures from the Proposals. The Company believes that, based upon the proposals for transitional relief, enactment of legislation derived from the Proposals should not affect the tax consequences to the Company or to the holders of Convertible Preferred Securities. However, there can be no assurance as to the final form of the Transitional Rules in this regard until such legislation is enacted. Limited Voting Rights Holders of the Convertible Preferred Securities will have limited voting rights and, except for the right of holders of Convertible Preferred Securities to enforce rights of the Property Trustee upon the occurrence of certain events described herein, will not be entitled to vote to appoint, remove or replace, or to increase or decrease the number of, Trust Trustees, which voting rights are vested exclusively in the holder of the Convertible Common Securities. See "Convertible Preferred Securities - Voting Rights." Trustee Conflicts of Interest Chemical Bank is the Property Trustee (as hereafter defined) for the Trust, and is also the trustee under the Indenture governing the Convertible Debentures. Chemical Bank will be the only trustee of the Trust which will act as indenture trustee for purposes of compliance with the Trust Indenture Act. In addition, Chemical Bank is the trustee under certain of the 15 Company's outstanding debentures which qualify as Senior Indebtedness for purposes of the Convertible Debentures offered hereby. The bank is also a participant in the Company's current lines of credit, of which no amount is outstanding as of the date hereof. In certain circumstances, Chemical Bank is authorized to act on behalf of the holders of the Convertible Debentures (and so, consequently, the Partnership Preferred Securities and Convertible Preferred Securities) in enforcing their rights and entitlements as described in this Prospectus. See "Convertible Preferred Securities - Declaration Events of Default." Chemical Bank is also authorized to act on behalf of certain holders of Citizens' Senior Indebtedness, and may be a creditor in its own right under the Company's bank lines of credit. In the event of a future default under the Company's Senior Indebtedness, line of credit or the securities offered hereby, Chemical Bank might have to resign its role as a trustee under any such Senior Indebtedness, or as the Trustee under the Convertible Debentures. In such event, a replacement would have to be appointed. Any such replacement Trustee would succeed to all of the rights, powers and duties of Chemical Bank vis-a-vis holders of the Convertible Preferred Securities, Partnership Preferred Securities and Convertible Debentures offered hereby. See "Convertible Debentures - Information Concerning the Debenture Trustee." Trading Price and Taxes The Convertible Preferred Securities may trade at a price that does not fully reflect the value of accrued but unpaid interest with respect to the underlying Convertible Debentures. A holder who disposes of his Convertible Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Convertible Debentures as a result of the original issue discount ("OID") requirements of the Internal Revenue Code of 1986, as amended (the "Code") through the date of disposition in income as ordinary income. The holder will also be required to add such amount to his adjusted tax basis on his pro-rata share of the underlying Convertible Debentures deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which will include, in the form of OID, all accrued but unpaid interest), a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. See "Certain Federal Income Tax Considerations - Potential Deferral of Interest Payments and Original Issue Discount" and "- Sales of Convertible Preferred Securities." No Prior Market for the Convertible Preferred Securities; Market Risk on Distributions in Common Stock The Convertible Preferred Securities constitute a new issue of securities with no established trading market. Application will be made to list the Convertible Preferred Securities on the NYSE. Listing on the NYSE will be subject to meeting the requirements of the NYSE. Even if approval for listing is received, there can be no assurance that an active market for the Convertible Preferred Securities will develop or be sustained in the future on the NYSE. Although the Underwriters have indicated to Citizens that they intend to make a market in the Convertible Preferred Securities, as permitted by applicable laws and regulations, they are not 16 obligated to do so and may discontinue any such market-making at any time without notice. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Convertible Preferred Securities. The shares of Common Stock Series A that a holder of Convertile Preferred Securities will receive as a result of making a Stock Distribution Election will have an Equivalent Value (as determined on the Share Transfer and Valuation Date on which they were deposited with the Partnership) equal to the cash amount that would be payable to a holder who has made a Cash Distribution Election. However, the value of such shares will be subject to market fluctuations and there can be no assurance that the market price of such shares will not thereafter decline. CITIZENS UTILITIES COMPANY Citizens Utilities Company is a diversified operating public utility which provides, either directly or through subsidiaries, telecommunications, natural gas transmission and distribution, electric distribution, water or wastewater services to customers in areas of nineteen states. Operating divisions of Citizens provide electric distribution and natural gas transmission and distribution public utility services, purchasing most of the electric power needed and all gas supplies. Telecommunications, water and wastewater public utility services are provided either by divisions of Citizens or by its subsidiaries. Citizens holds a significant investment interest in Centennial Cellular Corp., a cellular telephone company, and also owns Electric Lightwave, Inc., an alternative telecommunications service provider operating in five western states. Beginning with 1945, the Company has increased its revenues, net income and earnings per share (as adjusted for subsequent stock dividends and stock splits) every year without interruption. The Company, with administrative offices at High Ridge Park, Stamford, Connecticut 06905 (telephone 203-329-8800), was incorporated in Delaware in 1935 to acquire the assets and business of a predecessor corporation. Since then, the Company has grown as a result of investment in its own utility operations and the acquisition of numerous additional utility operations. As a result of its diversification, the Company is not dependent upon any single geographic area or any one type of utility service for its revenues. Because of this diversity, no single regulatory body regulated or will regulate a utility service of the Company accounting for more than 12% of its revenues for the twelve months ended September 30, 1995, pro forma for the acquisition of the telecommunications properties described hereafter. The Company is not aware of any other utility company as fully diversified in both geographic areas served and variety of services provided. The Company's operations are conducted principally in small and medium-sized communities. No material part of the Company's business is dependent upon a single customer or a small group of customers. The loss of any single customer or a small group of customers would not have a materially adverse effect upon the Company. The Company's consumer connections have increased from 26,150 in 1945, to 225,389 in 1965, to 610,585 in 1985, and to over 1,500,000 as of September 30, 1995. 17 The Company continually considers and is carrying out expansion through acquisitions and joint ventures in the rapidly evolving telecommunications and cable television industries and in traditional public utility and related businesses. On November 29, 1994, Citizens and ALLTEL Corporation ("ALLTEL") announced the signing of definitive agreements pursuant to which Citizens agreed to acquire from ALLTEL, for a total purchase price of $292 million, certain telephone properties serving approximately 110,000 local telephone access lines and certain cable television systems serving approximately 7,000 subscribers. The properties are located in eight states: Arizona, California, Nevada, New Mexico, Oregon, Tennessee, Utah and West Virginia ("ALLTEL Telecommunications Properties"). On June 30, 1995, 35,662 local telephone access lines in Oregon and West Virginia were transferred to the Company. On September 30, 1995, approximately 19,000 local telephone access lines in Tennessee were transferred to the Company. On October 31, 1995, approximately 18,000 local telephone access lines in Arizona, New Mexico and Utah and approximately 7,000 cable television lines in Arizona, New Mexico and California were transferred to the Company. The remaining ALLTEL Telecommunications Properties are expected to be transferred to the Company by early 1996. The purchases require the approval of the regulatory commissions of the states in which the properties are located. USE OF PROCEEDS The proceeds to be received by the Trust from the sale of the Convertible Preferred Securities and the Convertible Common Securities will be contributed by the Trust to the Partnership to be invested thereby in the Convertible Debentures. Citizens, after payment of the Underwriters' Compensation (as defined under "Underwriting") and other expenses of the offering, will use the net proceeds from the sale of such Convertible Debentures to the Partnership of approximately $______________ (approximately $________ if the Underwriters' overallotment option is exercised in full) to repay outstanding commercial paper issued to temporarily and partially fund the purchase price of certain acquired telecommunications properties described herein and to permanently fund a portion of the to-be-acquired telecommunications properties described herein. CAPITAL REQUIREMENTS AND FINANCING The purchase price for the ALLTEL Telecommunications Properties, net of property to be transferred to ALLTEL valued at $10 million, is $282 million. The Company intends to permanently finance the acquisition of the ALLTEL Telecommunications Properties approximately one-third ($94 million) from the issuance of equity securities, one-third ($94 million) from the issuance or assumption of debt securities, and one-third ($94 million) from Company cash and investments. As of September 30, 1995, approximately $79 million of the purchase price of other telecommunications properties acquired by the Company in 1994 remained temporarily financed with commercial paper classified as short-term debt pending the issuance of equity securities. The proceeds from the sale of the Convertible Preferred Securities will be used to satisfy the foregoing $173 million of permanent equity funding requirements. 18 The purchase price for the ALLTEL Telecommunications Properties transferred as of September 30, 1995 had been partially and temporarily financed with $17 million of commercial paper which was classified as long-term debt since the Company intended to refinance such commercial paper with long-term debt securities. As of September 30, 1995, the Company had an additional $60 million of outstanding commercial paper classified as long-term debt. The foregoing $77 million of commercial paper classified as long-term debt was refinanced with part of the proceeds from the $150 million Debenture issuance on October 20, 1995 (see "Pro Forma Condensed Balance Sheet" on page 22 herein). The Company carries out a continuous construction program to maintain reliable and safe service and to meet future customer service requirements. The Company estimates that expenditures for construction, extension and improvement of service relating to existing properties, including the acquired Telecommunications Properties, will require approximately $262 million in 1995. The Company's construction program is under continuous review and may be revised depending on business and economic conditions, regulatory action, governmental mandates, customer demand and other factors. Capital requirements are being financed from internally generated funds, the issuance of taxable and tax-exempt long-term debt, short-term borrowings, customer advances, and contributions in aid of construction. The Company maintains $600 million of committed bank lines of credit for general corporate purposes under which there were no amounts outstanding as of December 20, 1995. DESCRIPTION OF COMMON STOCK SERIES A AND SERIES B Citizens' common stock consists of two series: Common Stock Series A and Common Stock Series B. The Company has authorized 200,000,000 shares of Common Stock Series A and 300,000,000 shares of Common Stock Series B. As of December 1, 1995 the Company had outstanding 154,007,968 shares of Common Stock Series A and 71,300,452 shares of Common Stock Series B. As of December 1, 1995 there were 25,710 record holders of Common Stock Series A and 20,752 record holders of Common Stock Series B. The holders of Common Stock Series A and Common Stock Series B are entitled to one vote for each share on all matters voted on by stockholders. Pursuant to Citizens' Restated Certificate of Incorporation, the holders of Common Stock Series A and the holders of Common Stock Series B vote together as a single class on all matters to be voted on by stockholders, unless otherwise expressly required by applicable law. Common Stock Series A is convertible, on a share-for-share and tax-free basis, into Common Stock Series B at all times. Common Stock Series B is not convertible into Common Stock Series A. The Board of Directors of Citizens may, in its sole discretion and at any time, require all of the holders of Common Stock Series A to exchange all of their shares of Common Stock Series A for shares of Common Stock Series B on a share-for-share basis. The holders of Common Stock Series A and Series B participate ratably in liquidation. The holders of Common Stock Series A and B have no preemptive rights. 19 DIVIDENDS ON COMMON STOCK SERIES A AND SERIES B The holders of Common Stock Series A and B are entitled to receive dividends when and as declared by the Board of Directors of Citizens out of funds legally available therefor. Dividends have been paid to holders of common stock every year without interruption beginning in 1939 and, although there can be no assurances as to the amount of any future dividends, the Company has increased cash dividends and/or cash value equivalents every year without interruption beginning in 1946. Beginning in 1956, when the two- series common stock capitalization of Citizens was initiated, through 1989, only stock dividends were paid on Common Stock Series A and only cash dividends were paid on Common Stock Series B. Commencing in 1990, Citizens has declared and paid quarterly stock dividends at the same rate on shares of both Common Stock Series A and Common Stock Series B. The stock dividend rate is based on an underlying cash equivalent. The Company expects that under present federal tax law, stock dividends on Common Stock Series A and Common Stock Series B, if paid and received pro-rata and otherwise in the same manner as they have been since 1990, will be free of current federal income taxation on receipt. Such stock dividends are treated as capital transactions when and if sold. Gain or loss is based on the difference between sales price and adjusted basis per share. To the extent that stock dividends are declared on the Common Stock Series B, the same stock dividend must be declared on the Common Stock Series A. To the extent that cash dividends are paid out of funds that are legally available on the Common Stock Series B, stock dividends with an equivalent fair value must be paid during the same calendar year on the Common Stock Series A, unless cash dividends are declared on the Common Stock Series A at the same time and in an equal amount as on the Common Stock Series B. COMMON STOCK TRANSFER AGENT The transfer agent for the Company's Common Stock Series A and B is Illinois Stock Transfer Company. COMMON STOCK PRICE RANGE Citizens trades on the New York Stock Exchange under the symbols CZNA and CZNB for Common Stock Series A and Common Stock Series B, respectively. The table below indicates the high and low prices per share for the periods shown. The high and low prices per share were taken from the daily quotations published in The Wall Street Journal during the periods indicated. Prices have been adjusted retroactively for subsequent stock dividends and the August 31, 1993 2-for-1 stock split, and the July 24, 1992, 3-for-2 stock split, rounded to the nearest 1/8th. 20 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter* ----------- ----------- ----------- ----------- High Low High Low High Low High Low ---- --- ---- --- ---- --- ---- --- 1995 - ---- Series A $13.625 $11.750 $12.375 $10.250 $11.500 $10.625 $13.250 $10.625 Series B 13.625 11.750 12.375 10.500 11.500 10.750 13.250 10.625 1994 - ---- Series A 16.125 13.125 14.875 12.500 13.625 12.375 13.000 11.750 Series B 16.250 13.000 14.875 12.500 13.625 12.375 13.000 11.875 1993 - ---- Series A 15.750 12.000 16.500 14.250 16.375 11.875 17.750 14.375 Series B 15.750 12.125 16.500 14.125 16.375 11.875 17.625 14.375 1992 - ---- Series A 11.125 9.375 10.750 9.875 12.125 9.625 13.000 10.750 Series B 10.875 9.375 10.750 9.500 12.250 9.500 13.000 10.750 The reported last sale prices on the New York Stock Exchange on December 20, 1995 were $13 1/8 per share of Common Stock Series A and $13 1/4 per share of Common Stock Series B. *Through December 20, 1995. FINANCIAL INFORMATION The following financial information, including pro forma financial information reflecting the acquisition of certain telecommunications properties, is qualified in its entirety by, and should be read in conjunction with, the information appearing elsewhere herein and the documents and financial statements incorporated by reference herein. Revenues Twelve Months Ended September 30, 1995 -------------------------------------- (In Thousands) Business Sector Pro Forma Actual - ------------------ ----------------------- ------------------------- Telecommunications $ 711,256 61.7% $ 597,053 57.5% Natural Gas 192,992 16.8% 192,992 18.6% Electric 172,253 14.9% 172,253 16.6% Water/Wastewater 76,224 6.6% 76,224 7.3% ----------- --------- ----------- --------- Total $ 1,152,725 100 % $ 1,038,522 100 % =========== ========= =========== ========= 21 PRO FORMA FINANCIAL STATEMENTS Citizens Utilities Company and Telecommunications Properties Pro Forma Condensed Balance Sheet (In thousands) The following Pro Forma Condensed Balance Sheet represents the historical condensed balance sheet of Citizens at September 30, 1995, giving effect to the acquisitions of the yet to be acquired Telecommunications Properties (as defined in Note 1 on page 23) following the purchase method of accounting, as well as the completion of the permanent financings for the acquired Telecommunications Properties as if such acquisitions and financings were closed on September 30, 1995. The Pro Forma Condensed Balance Sheet should be read in conjunction with the historical financial statements and related notes thereto of Citizens which are incorporated by reference herein. The Pro Forma Condensed Balance Sheet is not necessarily indicative of what the actual financial position would have been had the transactions occurred at the date indicated and does not purport to indicate future financial position. As at September 30, 1995 ------------------------------------------- Pro Forma ---------------------------- Citizens Adjustments(1) Adjusted ----------- -------------- --------- Assets - ------ Current Assets: Cash $ 17,873 $309,997 (2) $ 22,145 (305,725)(3) Accounts Receivable 169,407 169,407 Other 37,467 37,467 ----------- ---------- Total Current Assets 224,747 229,019 ----------- ---------- Net Property, Plant and Equipment 2,730,936 152,075 (3) 2,883,011 ----------- ---------- Investments 335,525 (66,000)(2) 269,525 Regulatory Assets 179,186 179,186 Deferred Debits and Other Assets 196,534 196,534 ----------- -------------- ---------- $3,666,928 $ 90,347 $3,757,275 =========== ============== ========== Liabilities and Equity - ---------------------- Current Liabilities: Long-Term Debt Due Within One Year $ 4,003 $ (4,003)(2) $ 0 Short-Term Debt 153,650 (153,650)(3) 0 Other 268,456 268,456 ----------- ---------- Total Current Liabilities 426,109 268,456 Regulatory Liabilities 29,294 29,294 Deferred Credits and Other Liabilities 96,419 96,419 Deferred Income Taxes 273,137 273,137 Customer Advances for Construction and Contributions in Aid of Construction 219,200 219,200 Long-Term Debt 1,071,943 150,000 (2) (77,000)(2) 1,144,943 Company Obligated Mandatorily Redeemable Convertible Preferred Securities* 175,000 (2) 175,000 Common Equity 1,550,826 1,550,826 ----------- -------------- ---------- $3,666,928 $ 90,347 $3,757,275 =========== ============== ========== - -------------------- *Represents mandatorily redeemable securities of subsidiaries, the sole assets of which are convertible debentures of the Company. See Notes to Pro Forma Condensed Balance Sheet on page 23. 22 PRO FORMA FINANCIAL STATEMENTS (continued) Citizens Utilities Company and Telecommunications Properties Notes to Pro Forma Condensed Balance Sheet (1) In May 1993, Citizens and GTE Corp. ("GTE") signed definitive agreements pursuant to which Citizens agreed to acquire from GTE, for approximately $1.1 billion in cash, certain GTE telephone properties ("GTE Telephone Properties") serving approximately 500,000 local telephone access lines in eight states. On December 31, 1993, 189,123 local telephone access lines in Idaho, Tennessee, Utah and West Virginia were transferred to the Company. On June 30, 1994, 270,883 access lines in New York were transferred to the Company. On November 30, 1994, 37,802 access lines in Arizona and Montana were transferred to the Company and on December 30, 1994, 5,440 local telephone access lines in California were transferred to the Company. In November 1994, Citizens and ALLTEL signed definitive agreements pursuant to which Citizens agreed to acquire from ALLTEL, for $292 million, certain ALLTEL telecommunications properties ("ALLTEL Telecommunications Properties") serving approximately 110,000 local telephone access lines and certain cable television systems serving approximately 7,000 subscribers in eight states. The purchase price of the ALLTEL Telecommunications Properties (net of 3,600 Citizens telephone access lines which have been valued at $10 million and are to be transferred to ALLTEL in a tax free exchange) is $282 million. On June 30, 1995, 35,662 local telephone access lines in West Virginia and Oregon were transferred to the Company. On September 30, 1995, approximately 19,000 local telephone access lines in Tennessee were transferred to the Company. On October 31, 1995, approximately 18,000 local telephone access lines in Arizona, New Mexico and Utah and approximately 7,000 cable television lines in Arizona, New Mexico and California were transferred to the Company. The remaining local telephone access lines are expected to be transferred to the Company by early 1996. The GTE Telephone Properties and the ALLTEL Telecommunications Properties are collectively referred to as the "Telecommunications Properties." (2) Through September 30, 1995, the purchase price for the Telecommunications Properties had been permanently financed with approximately $392 million of cash and investments, $281.3 million of equity securities issued through an underwritten public offering, the Company's Direct Stock Purchase and Sale Plan and employee benefit plans, and $402 million of debt securities. The remainder of the purchase price of the Telecommunications Properties transferred as of September 30, 1995 had been temporarily financed with commercial paper, $153.7 million of which is classified as Short-Term Debt (to be repaid from cash and investments and the issuance of equity securities) and $17 million which is classified as Long-Term Debt (to be refinanced with Long-Term Debt). As of September 30, 1995, the Company had an additional $60 million in commercial paper outstanding classified as Long-Term Debt. When added to the $392 million of cash and investments used, $281.3 million of equity securities issued and the $402 million of debt securities which have been issued or assumed to permanently finance the acquisitions of the Telecommunications Properties, these adjustments reflect the anticipated permanent financing of the $1.381 billion purchase price (net of the property valued at $10 million to be transferred to ALLTEL) for the Telecommunications Properties with approximately equal components of cash and investments ($458 million), debt securities ($469 million), and equity securities ($454 million). These adjustments also reflect the use of a portion of the proceeds from the issuance of $150 million of debentures on October 20, 1995 to repay the above-described $77 million of commercial paper classified as Long-Term Debt, refund $4 million of Long-Term Debt Due Within One Year, permanently fund a portion of the purchase price of the Telecommunications Properties and for other general corporate purposes. (3) Reflects the use of permanent financing proceeds to pay the purchase price of the Telecommunications Properties to be transferred to Citizens after September 30, 1995 (net of the property valued at $10 million to be transferred to ALLTEL) and to repay all Short-Term Debt. 23 PRO FORMA FINANCIAL STATEMENTS (continued) Citizens Utilities Company and Telecommunications Properties Pro Forma Condensed Statement of Income (In thousands, except for per-share amounts) The following Pro Forma Condensed Statement of Income for the twelve months ended September 30, 1995 combines the historical statements of income of Citizens and the Telecommunications Properties as if the acquisitions and the permanent financings had been closed October 1, 1994. The Pro Forma Condensed Statement of Income should be read in conjunction with the historical financial statements and related notes thereto of Citizens and those of the Telecommunications Properties that have been audited and which are incorporated by reference herein. The Pro Forma Condensed Statement of Income is not necessarily indicative of what the actual financial results would have been for the period had the transactions occurred at the date indicated and does not purport to indicate the financial results of future periods. Twelve Months Ended September 30, 1995 -------------------------------------- Pro Forma ---------------------- Citizens Acquisitions*(1) Adjustments Combined -------- ---------------- ----------- -------- Revenues $1,038,522 $114,203 $1,152,725 Expenses: Operating Expenses 635,814 48,456 684,270 Depreciation and Amortization 148,650 24,733 $1,600 (3) 174,983 --------- ---------------- ----------- --------- Total Operating Expenses 784,464 73,189 1,600 859,253 Income from Operations 254,058 41,014 (1,600) 293,472 Other Income, net 57,147 1,190 (7,500)(4) 50,837 Interest Expense 88,909 5,451 (14,600)(5) 79,760 --------- ---------------- ----------- --------- Income Before Income Taxes 222,296 36,753 5,500 264,549 Income Taxes 65,754 13,765 4,700 (6) 84,219 --------- ---------------- ----------- --------- Income before Dividends on Convertible Preferred Securities 156,542 22,988 800 180,330 Dividends on Company Obligated Convertible Preferred Securities -- -- 5,100 (7) 5,100 --------- ---------------- ----------- --------- Net Income $ 156,542 $22,988 $ (4,300) $175,230 ========= ================ =========== ========= Earnings Per Share of Common Stock Series A and Series B** $.74(8)(9) $.80(8)(9) Weighted Average Common Shares** 212,038 219,347(8) - --------------------------------- *Represents the financial results from October 1, 1994 to the dates of acquisition for all the Telecommunications Properties acquired from October 1, 1994 through September 30, 1995 and the financial results for the entire twelve month period for the yet to be acquired Telecommunications Properties (as of September 30, 1995) net of the financial results for the property to be transferred to ALLTEL. Financial results for the Telecommunications Properties acquired from their dates of acquisition, or from October 1, 1994 if acquired prior thereto, through September 30, 1995 are included in Citizens' twelve months ended September 30, 1995 financial results. **No adjustment has been made for the 1.6% 1995 fourth quarter stock dividend as this adjustment is immaterial. See Notes to Pro Forma Condensed Statements of Income on page 26. 24 PRO FORMA FINANCIAL STATEMENTS (continued) Citizens Utilities Company and Telecommunications Properties Pro Forma Condensed Statement of Income (In thousands, except for per-share amounts) The following Pro Forma Condensed Statement of Income for the year ended December 31, 1994 combines the historical statements of income of Citizens and the Telecommunications Properties as if the acquisitions and the permanent financings had been closed January 1, 1994. The Pro Forma Condensed Statement of Income should be read in conjunction with the historical financial statements and related notes thereto of Citizens and those of the Telecommunications Properties that have been audited and which are incorporated by reference herein. The Pro Forma Condensed Statement of Income is not necessarily indicative of what the actual financial results would have been for the period had the transactions occurred at the date indicated and does not purport to indicate the financial results of future periods. Twelve Months Ended December 31, 1994 ------------------------------------- Pro Forma ---------------------- Citizens Acquisitions*(1) Adjustments Combined -------- ---------------- ----------- -------- Revenues $ 910,369 $254,815 $1,165,184 Expenses: Operating Expenses 567,070 123,170 $(4,600)(2) 685,640 Depreciation and Amortization 115,175 49,095 4,700 (3) 168,970 --------- ---------------- ----------- --------- Total Operating Expenses 682,245 172,265 100 854,610 Income from Operations 228,124 82,550 (100) 310,574 Other Income, net 52,940 847 (17,300)(4) 36,487 Interest Expense 72,744 13,172 (11,800)(5) 74,116 --------- ---------------- ----------- --------- Income Before Income Taxes 208,320 70,225 (5,600) 272,945 Income Taxes 64,323 24,137 5,800 (6) 94,260 --------- ---------------- ----------- --------- Income before Dividends on Convertible Preferred Securities 143,997 46,088 (11,400) 178,685 Dividends on Company Obligated Convertible Preferred Securities -- -- 5,100 (7) 5,100 --------- ---------------- ----------- --------- Net Income $ 143,997 $46,088 $(16,500) $173,585 ========= ================ =========== ========= Earnings Per Share of Common Stock Series A and Series B** $.73 $.79(8) Weighted Average Common Shares** 197,752 218,445(8) - ---------------------------- *Represents the financial results from January 1, 1994 to the dates of acquisition for all the Telecommunications Properties acquired from January 1, through December 31, 1994 and the financial results for the entire twelve month period for the yet to be acquired Telecommunications Properties (as of December 31, 1994) net of the financial results for the property to be transferred to ALLTEL. Financial results for the Telecommunications Properties acquired from their dates of acquisition through December 31, 1994 are included in Citizens' twelve months ended December 31, 1994 financial results. **Restated through the third quarter 1995 stock dividend. No adjustment has been made for the 1.6% 1995 fourth quarter stock dividend as this adjustment is immaterial. See Notes to Pro Forma Condensed Statements of Income on page 26. 25 PRO FORMA FINANCIAL STATEMENTS (continued) Citizens Utilities Company and Telecommunications Properties Notes to Pro Forma Condensed Statements of Income (1) In May 1993, Citizens and GTE Corp. ("GTE") signed definitive agreements pursuant to which Citizens agreed to acquire from GTE, for approximately $1.1 billion in cash, certain GTE telephone properties ("GTE Telephone Properties") serving approximately 500,000 local telephone access lines in eight states. On December 31, 1993, 189,123 local telephone access lines in Idaho, Tennessee, Utah and West Virginia were transferred to the Company. On June 30, 1994, 270,883 access lines in New York were transferred to the Company. On November 30, 1994, 37,802 access lines in Arizona and Montana were transferred to the Company and on December 30, 1994, 5,440 local telephone access lines in California were transferred to the Company. In November 1994, Citizens and ALLTEL signed definitive agreements pursuant to which Citizens agreed to acquire from ALLTEL, for $292 million, certain ALLTEL telecommunications properties ("ALLTEL Telecommunications Properties") serving approximately 110,000 local telephone access lines and certain cable television systems serving approximately 7,000 subscribers in eight states. The purchase price of the ALLTEL Telecommunications Properties (net of 3,600 Citizens telephone access lines which have been valued at $10 million and are to be transferred to ALLTEL in a tax free exchange) is $282 million. On June 30, 1995, 35,662 local telephone access lines in West Virginia and Oregon were transferred to the Company. On September 30, 1995, approximately 19,000 local telephone access lines in Tennessee were transferred to the Company. On October 31, 1995, approximately 18,000 local telephone access lines in Arizona, New Mexico and Utah and approximately 7,000 cable television lines in Arizona, New Mexico and California were transferred to the Company. The remaining local telephone access lines are expected to be transferred to the Company by early 1996. The GTE Telephone Properties and the ALLTEL Telecommunications Properties are collectively referred to as the "Telecommunications Properties." (2) Elimination of certain corporate overhead expenses allocated to certain of the Telecommunications Properties which will not have a continuing impact on the combined entity. (3) Represents amortization of $261 million of excess purchase price over net book value of assets acquired or to be acquired. Pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," the remaining $138 million of excess of purchase price over net book value of assets acquired will be deferred. The Company intends to seek from the public utilities commissions maximum recovery of the excess of purchase price over net book value in future rate proceedings. (4) Represents an adjustment to reflect the elimination from Other Income of all tax-exempt investment income associated with the $458 million of Company cash and investments which have been or are expected to be used to partially finance the acquisition of the Telecommunications Properties. The Company used $392 million of cash and investments from December 31, 1993 through September 30, 1995 to permanently finance the Telecommunications Properties acquisitions. (5) Represents an adjustment to reflect the inclusion in Interest Expense of all the interest expense on $469 million of debt securities which have been or are expected to be issued or assumed to partially finance the acquisition of the Telecommunications Properties, net of the elimination of interest expense on the temporary borrowings used to finance the acquisitions and on the debt securities which are associated with the Telecommunications Properties and which were not or will not be assumed by the Company. Through September 30, 1995, the purchase price for the Telecommunications Properties had been permanently financed with approximately $402 million of debt securities. (6) Adjustment to Income Taxes based on Income Before Income Taxes using the applicable incremental income tax rate. 26 PRO FORMA FINANCIAL STATEMENTS (continued) Citizens Utilities Company and Telecommunications Properties Notes to Pro Forma Condensed Statements of Income (7) The Dividend on Company Obligated Convertible Preferred Securities net of income taxes using the applicable incremental income tax rate. (8) The Pro Forma Earnings Per Share calculation and Pro Forma Weighted Average Common Shares are based on the weighted average number of common shares outstanding for the periods indicated including the number of additional shares issued or assumed to be issued to permanently finance the Telecommunications Properties, assuming such additional shares were outstanding for the entire twelve month periods. Through September 30, 1995, the Company financed $281.3 million of the acquisition of the Telecommunications Properties from the issuance of equity securities pursuant to the Company's Direct Stock Purchase and Sale Plan, employee benefit plans and an underwritten public offering. The shares issuable upon conversion of the Company Obligated Convertible Preferred Securities to be issued in this offering are not included in Pro Forma Weighted Average Common Shares since the Company Obligated Convertible Preferred Securities are not considered to be Common Stock Equivalents for purposes of the earnings per share calculation. Fully diluted earnings per share is not presented because the effect is immaterial. (9) Reflects the discontinuance of subsidy contract revenues received through the end of 1994 from Pacific Bell. For the twelve months ended September 30, 1995 on both an Actual and Pro Forma basis this discontinuance had the effect of reducing Income Before Income Taxes by $28.5 million and Earnings Per Share by $.09 as compared to prior periods. 27 CITIZENS UTILITIES CAPITAL L.P. Citizens Utilities Capital L.P. is a special purpose limited partnership formed on October 13, 1995 under the laws of the State of Delaware. All of its partnership interests (other than the Partnership Preferred Securities and any interests of any Special Representative) will be beneficially owned directly or indirectly by Citizens. Citizens or one of its wholly owned subsidiaries will be the sole general partner in Citizens Capital (in such capacity, the "General Partner"). CU CapitalCorp., a Delaware corporation and a wholly-owned subsidiary of Citizens ("CU Capital"), initially will be sole limited partner in Citizens Capital. Upon issuance of the Partnership Preferred Securities to the Trust, the Trust will become a limited partner in Citizens Capital and CU Capital will withdraw as a limited partner. The General Partner will contribute capital to the extent required to ensure that its capital contributions are equal to at least 3% of all capital contributed to Citizens Capital. Citizens Capital exists for the sole purposes of (i) raising capital through the one-time issuance of its Partnership Securities, (ii) loaning such capital to Citizens in exchange for Convertible Debentures, (iii) collecting quarterly interest payments, placing orders with brokers to sell shares of Common Stock received as such interest payments and paying the required quarterly distributions on its Partnership Securities (iv) effecting the conversion of the Partnership Preferred Securities into Common Stock Series A and (v) engaging in only those other activities necessary or incidental thereto. The General Partner will cause Citizens Capital to invest 99% of the total contributions in Citizens Capital in the Convertible Debentures and the remaining 1% in Eligible Investments, as defined in and provided for in the Amended and Restated Agreement of Limited Partnership of Citizens Capital (the "Limited Partnership Agreement"). To the extent that aggregate interest payments on the Convertible Debentures to Citizens Capital and on Eligible Investments exceed aggregate distributions required on the Partnership Preferred Securities and such distributions have been paid in full, Citizens Capital may at times have excess funds or securities, which shall be allocated to and may, in the General Partner's sole discretion, be distributed to the General Partner. Citizens Capital will exist for a maximum term of 45 years, unless earlier dissolved. The Limited Partnership Agreement provides that the General Partner will have liability for the debts and obligations of the Partnership, including taxes imposed on the Partnership but excluding taxes imposed on holders of Partnership Preferred Securities (in their capacities as holders) and withholding taxes. Certain obligations of the Partnership to the holders of the Partnership Preferred Securities are being separately guaranteed pursuant to the Partnership Guarantee. All of Citizens Capital's business and affairs will be conducted by the General Partner. Citizens Capital will hold title to the Convertible Debentures and will have the power to exercise all rights, powers, and privileges under the Indenture as the holder of the Convertible Debentures. The location of the principal executive offices of the General Partner is c/o Office of the Treasurer, Citizens Utilities Company, High Ridge Park, Building No. 3, Stamford, Connecticut 06905, telephone number (203) 329-8800. 28 CITIZENS UTILITIES TRUST Citizens Utilities Trust is a statutory business trust formed under the Trust Act pursuant to (i) a declaration of trust, dated as of October 13, 1995, executed by Citizens, as sponsor (the "Sponsor"), and the trustees of the Trust (the "Trust Trustees") and (ii) the filing of a certificate of trust with the Secretary of State of the State of Delaware on October 13, 1995. Such declaration will be amended and restated in its entirety (as so amended and restated, the "Declaration"). Citizens will own, directly or indirectly, all of the Convertible Common Securities, which will amount to at least 3% of the total capital of the Trust. The Trust exists for the sole purposes of (i) issuing its Trust Securities,(ii) contributing the proceeds thereof to Citizens Capital to acquire the Partnership Preferred Securities and (iii) engaging in only those other activities necessary or incidental thereto. The Trust has a term of approximately 45 years but may terminate earlier, as provided in the Declaration. The Trust's business and affairs will be conducted by the Trust Trustees appointed by Citizens as the direct or indirect holder of all the Convertible Common Securities. The duties and obligations of the Trust Trustees shall be governed by the Declaration. Pursuant to the Declaration, the number of Trust Trustees will initially be four. Two of the Trust Trustees ("Regular Trustees") will be persons who are employees or officers of or who are affiliated with Citizens. The third Trust Trustee will be a financial institution that is not affiliated with Citizens and has a specified minimum amount of aggregate capital and surplus of at least $50,000,000, which shall act as property trustee under the Declaration and as indenture trustee for the purposes of the Trust Indenture Act (the "Property Trustee"). Initially, Chemical Bank, a New York banking corporation, will be the Property Trustee until removed or replaced by the holder of the Convertible Common Securities. Chemical Bank will also act as indenture trustee under each of the Guarantees (the "Guarantee Trustee"). See "Guarantees." In addition, a fourth Trust Trustee will have a principal place of business or reside in the State of Delaware (the "Delaware Trustee"). Initially, Chemical Bank Delaware will be the Delaware Trustee. The Property Trustee will hold title to the Partnership Preferred Securities for the benefit of the holders of the Trust Securities. The Property Trustee will have the power to exercise all rights, powers, and privileges as the holder of the Partnership Preferred Securities. In addition, the Property Trustee will maintain exclusive control of a segregated non-interest bearing bank account (the "Property Account") to hold all payments made in cash or securities in respect of the Partnership Preferred Securities for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the Convertible Preferred Securities out of funds from or securities held in the Property Account. The Guarantee Trustee will hold the Convertible Preferred Securities Guarantee for the benefit of the holders of the Convertible Preferred Securities. Citizens, as the direct or indirect holder of all the Convertible Common Securities, will have the right to vote to appoint, remove or replace any Trust Trustees, including the Property Trustee, and to increase or decrease the number of Trust Trustees; provided, that, (i) if the Property Trustee does not act as Delaware Trustee, the number of Trust Trustees shall be at least four and (ii) at least two Trust Trustees shall be Regular Trustees. Citizens will pay all fees and expenses related to the Trust and the offering of the Convertible Preferred Securities. Citizens will have liability for debts and obligations, including taxes imposed on the Trust but 29 excluding taxes imposed on the holders of Convertible Preferred Securities (in their capacities as holders) and withholding taxes. Certain obligations of the Trust to the holders of the Trust Securities are being separately guaranteed under the Trust Guarantees. The Declaration does not permit the issuance by the Trust of any securities other than the Trust Securities or the incurrence of any indebtedness by the Trust. The rights of the holders of the Convertible Preferred Securities, including economic rights and rights to information, are set forth in the Declaration, the Trust Act and the Trust Indenture Act. See "Convertible Preferred Securities." The office of the Delaware Trustee for the Trust is 1201 Market Street, Wilmington, Delaware 19801. The location of the principal executive offices of the Trust is c/o Office of the Treasurer, Citizens Utilities Company, High Ridge Park, Building No. 3, Stamford, Connecticut 06905, telephone number (203) 329-8800. DESCRIPTION OF THE SECURITIES The securities offered hereby are: (i) __% Citizens Utilities Convertible Preferred Securities, with a liquidation preference of $50 per security; (ii) the Partnership Preferred Securities into which such Convertible Preferred Securities can be converted; (iii) the Guarantees (and the back-up undertakings, as defined herein) pursuant to which Citizens will guarantee, to the extent described therein, certain payments with respect to the Convertible Preferred Securities and the Partnership Preferred Securities; (iv) the Convertible Debentures; (v) the Common Stock Series A into which the Convertible Preferred Securities may be converted; (vi) the Common Stock Series A which will be issued in payment of interest on the Convertible Debentures; and (vii) the Common Stock Series B into which the Common Stock Series A can be converted. CONVERTIBLE PREFERRED SECURITIES The Convertible Preferred Securities will be issued pursuant to the terms of the Declaration. The Declaration will be qualified as an indenture under the Trust Indenture Act. The Property Trustee, Chemical Bank, will act as the indenture trustee for purposes of compliance with the provisions of the Trust Indenture Act. The terms of the Convertible Preferred Securities will include those stated in the Declaration and those made part of the Declaration by the Trust Indenture Act. The Convertible Common Securities rank pari passu, and payments will be made thereon on a pro rata basis, with the Convertible Preferred Securities, except that upon the occurrence of a Declaration Event of Default, the rights of the holders of the Convertible Common Securities to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the Convertible Preferred Securities. Therefore, the following summary of the principal terms and provisions of the Convertible Preferred Securities also relates to the principal terms and provisions of the Convertible Common Securities in the absence of a Declaration Event of Default. 30 General The Convertible Preferred Securities and Convertible Common Securities represent undivided beneficial interests in the assets of the Trust. All of the Convertible Common Securities will be owned, directly or indirectly, by Citizens. The Declaration does not permit the issuance by the Trust of any securities other than the Trust Securities or the incurrence of any indebtedness by the Trust. Pursuant to the Declaration, the Property Trustee will own the Partnership Preferred Securities purchased by the Trust for the benefit of the holders of the Trust Securities. The payment of distributions by the Trust, and payments upon redemption of the Convertible Preferred Securities or liquidation of the Trust, are guaranteed by Citizens to the extent described under "Guarantees". The Trust Guarantees do not cover payment of distributions when the Trust does not have sufficient available cash and/or Common Stock to pay such distributions. In such event, the remedy of a holder of Convertible Preferred Securities is to vote to direct the Property Trustee to enforce the Property Trustee's rights as limited partner of Citizens Capital or to act on his or her own behalf to enforce the Trust's rights under the Convertible Preferred Securities. See " - Voting Rights," "Partnership Preferred Securities - Voting Rights" and Guarantees - Events of Default." For United States federal income tax purposes, Convertible Preferred Security holders will recognize interest income as it accrues. So long as interest periods are not deferred, the distributions will approximately equal the accruals of such quarterly interest. Capital, income and distributions on Convertible Preferred Securities are not eligible for the corporate dividends-received deduction for United States federal income tax purposes. Holders of Convertible Preferred Securities will not have the right to remove or replace the Regular Trustees or the Property Trustee. Holders of the Convertible Preferred Securities will have no preemptive rights. Distributions Recipients of this Prospectus are encouraged to also review carefully the section entitled "Prospectus Summary - Distributions," which section contains a brief outline in summary form of the subject discussed below. How Distributions are Computed. Holders of the Convertible Preferred Securities will be entitled to receive cumulative distributions from the Trust in the forms of payment described below, accruing at the Rate from the date of original issuance and payable quarterly in arrears on the scheduled Distribution Payment Dates. When, as and if available for payment, distributions will be made by the Property Trustee. The amount of distributions payable for any period will be computed on the basis of twelve 30-day months and a 360-day year and, for any period shorter than a full quarter, will be computed on the basis of the actual number of days elapsed in such period. 31 Holders Can Elect Distributions in Common Stock Series A or Cash. In anticipation of the continuing use of Citizens' shares of Common Stock Series A to satisfy the interest requirements on the Convertible Debentures, each holder of a Convertible Preferred Security may elect annually during a designated period of ten Business Days how distributions from the Trust will be paid to him (a "Distribution Election"). If he makes an election to receive distributions in Common Stock Series A (a "Stock Distribution Election"), he will receive his distributions in Common Stock Series A, unless the Trust only has cash available for making distributions.(1) If he makes an election to receive distributions in cash (a "Cash Distribution Election"), he will receive his distribution in cash. If a holder makes no Distribution Election, he will automatically be deemed by the Trust to have made a Cash Distribution Election. Once made, Distribution Elections will stand as long as a holder owns his Convertible Preferred Security unless and until he makes a new Distribution Election by completing an election form and delivering the same to the broker, nominee or other entity which holds such holder's account during the annual Election Period (the procedures for which will be specified in the Distribution Declaration Notice). If a holder does not deliver a new election form within this period, then such holder's new election will not be effective. Any election by a holder of Convertible Preferred Securities will be canceled by a transfer of the Convertible Preferred Securities and the new holder will be entitled to make an election in the next Election Period. Prior to such Election Period, such new holder will be deemed to have made a Cash Distribution Election. In the event that the Partnership is dissolved or liquidated by reason of the occurrence of a Partnership Event, the right of (i) a holder to make a Stock Distribution Election, and (ii) Citizens to make Stock Payment Elections will terminate. In such event, interest payments and distributions will be made only in cash. See "Prospectus Summary - Distributions." Distributions Flow From Citizens to Holders. Currently, Citizens intends to make interest payments on the Convertible Debentures in shares of Common Stock Series A with a fair market value on the Share Transfer and Valuation Date equivalent to the interest payment due on the next scheduled Interest Payment Date ("Equivalent Value"). The "Share Transfer and Valuation Date" will be the date specified by Citizens in a written notice (the "Distribution Declaration Notice") to the Trust, the Partnership and the holders of the Convertible Preferred Securities, which Share Transfer and Valuation Date shall also be the date on which shares of Common Stock Series A are transferred by Citizens to the Partnership (as the holder of the Convertible Debentures) to satisfy the interest payment obligation on the Convertible Debentures. Currently, Citizens contemplates that the Share Transfer and Valuation Date will be at least nine Business Days before the Distribution Payment Date, but such time-frame may be subject to change to reflect evolving market practices and settlement procedures. If Citizens fails to make a timely declaration, Citizens shall be deemed to have elected to pay interest in the form of shares of Common Stock Series A. - ---------------------- (1) As noted above, Citizens may make a Cash Payment Election and pay interest on the Convertible Debentures in cash to the Partnership and, as General Partner of the Partnership, would then cause such cash to be distributed by the Partnership to the Trust. In such event, even though a holder may have made a Stock Distribution Election, he will receive cash as the Trust will only have cash with which to pay him. 32 How Distributions are Made. If Citizens pays interest on the Convertible Debentures in shares of its Common Stock Series A and delivers the same to the Partnership in payment of its interest obligations on the Convertible Debentures, holders of Trust Securities who have not made a Stock Distribution Election or who have revoked their Stock Distribution Election will receive cash at the Rate because the Partnership will sell sufficient shares of Common Stock Series A on the open market (or otherwise raise cash) so that the Partnership can pay the Trust (i) such number of shares and (ii) such amount of cash as will satisfy the Trust's obligation to make payments in stock and cash to holders in accordance with their elections. Pursuant to the Indenture, if shares are sold by the Partnership for less than the Equivalent Value, Citizens will pay any shortfall to insure that each holder of the Convertible Preferred Securities who has an effective made Cash Distribution Election receives cash distributions in an amount equal to the Rate. Citizens also has the right on the Distribution Declaration Date to elect to make interest payments on the Convertible Debentures in whole or in part by check or bank wire in immediately available funds. Also, after a Distribution Declaration Date on which it had elected to pay interest to the Partnership in shares of Common Stock Series A for the next succeeding interest payment, Citizens may exercise its right to thereafter substitute cash for such payment. In such case, all holders will receive cash distributions at the Rate. Further, at any time after the Share Transfer and Valuation Date, Citizens will also have the right to purchase some or all of the shares of Common Stock Series A deposited with Citizens Capital for cash at a price equal to the Equivalent Value. In such case, holders who have made a Stock Distribution Election may receive their distributions in cash at the Rate. If a Distribution Declaration Notice has specified that the distribution will be made in Common Stock Series A, and Citizens thereafter expects either to pay the distribution entirely in cash or to purchase some or all of the shares deposited with the Partnership, Citizens shall notify the Partnership, the Trust and the holders of the Convertible Preferred Securities in writing (which writing is also referred to herein as a "Cash Payment Election"). Distributions on the Convertible Preferred Securities must be paid to the extent that the Trust has funds or securities, as the case may be, available for and on hand to make the payment of such distributions. It is anticipated that the Trust's funds and securities on hand will be limited to funds and securities received from distributions on the Partnership Preferred Securities. If Citizens fails to make interest payments on the Convertible Debentures, the Partnership would not have funds or securities, as the case may be, to pay distributions to the Trust on the Partnership Preferred Securities, and the Trust would not have funds or securities, as the case may be, to pay distributions on the Convertible Preferred Securities. See "Risk Factors - Dependance on Convertible Debenture Payments," and "Guarantees." Record Dates. Distributions declared (as opposed to deferred) on the Convertible Preferred Securities will be payable to the holders thereof as they appear on the books and records of the Trust on the relevant Record Dates. Such distributions will be paid through the Property Trustee who will hold funds and securities received in respect of the Partnership 33 Preferred Securities in the Property Account for the benefit of the holders of the Trust Securities. Subject to any applicable laws and regulations and the Declaration, each such payment will be made as described under "Convertible Preferred Securities - Book-Entry-Only Issuance - The Depository Trust Company" below. In the event that any date on which distributions are payable on the Convertible Preferred Securities is not a Business Day, then payment of the distributions will be made on the next succeeding Business Day (and without any additional interest in respect of such delay). If such Business Day is in the next succeeding calendar year, however, the payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. A "Business Day" means any day other than a Saturday or a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. Other. Initial purchasers in the offering of the Convertible Preferred Securities may make their Distribution Elections during a period of seven calendar days after the offering. The Election Period will commence on or before December 21 of each year (a date which will be at least two Business Days after the scheduled Record Date relating to the January 31 distribution payment), beginning in 1996, and will end at the close of business ten Business Days later. Election forms and prospectuses will be sent to beneficial holders of Convertible Preferred Securities on the Record Date relating to the January 31 distribution payment each year on or about the first day of the Election Period. Timely Distribution Election forms should be delivered by beneficial holders of the Convertible Preferred Securities to the broker, nominee or other entity which holds such holder's account so that they are received by such broker, nominee or other entity on or before the close of business on the last day of the Election Period. The brokerage houses holding accounts for holders, nominees and other participants in DTC will transmit the same to DTC to the extent reasonably required to implement such elections. The Trust will be relying on information supplied through these procedures in determining how many shares of Common Stock Series A or how much cash to distribute on each Distribution Payment Date. While the Company, the Partnership and the Trust believe that such procedures are not dissimilar from those used in similar situations, each purchaser and holder of a Convertible Preferred Security is urged to consult with his broker to insure that his election is properly recorded. Questions may be addressed to the Company at the phone number and address appearing elsewhere herein. Deferrals Unless deferred, interest and distributions are payable in arrears on the Interest Payment Date and the Distribution Payment Date, respectively. Under the Indenture, Citizens has the right, at any time and from time to time, to elect to defer the date on which one or more of the quarterly interest payments on the Convertible Debentures would otherwise become due and payable by the giving of notice of deferral; provided that no such deferral, including any extension thereof, may exceed 20 consecutive quarters nor extend beyond the stated maturity date of the Convertible Debentures; and, provided, further, that in the event of such deferral, any interest so deferred shall not be deemed to have become due and payable until after such deferral period has ended. As a consequence, distributions on the Convertible Preferred 34 Securities would be deferred by the Trust during any such deferral of interest payments. If Citizens exercises this deferral right, it will be restricted from making certain distributions and payments (other than in shares of its capital stock) to holders of its capital stock, or to holders of indebtedness where such indebtedness ranks junior to the Convertible Debentures, and from making certain guarantee payments. Upon any such deferrals, interest will be compounded on each Interest Payment Date and accrued until paid at the Rate on any interest so deferred until the amount of such deferred interest (including compounded interest thereon) is paid in full. Citizens shall give the Regular Trustees written notice of its election to defer an interest payment on or before the Distribution Declaration Date. Citizens shall also give written notice of any deferred interest payment (and the consequential deferral of their distributions) to the holders of the Convertible Preferred Securities. See "Risk Factors - Option to Defer Payment of Distributions," and "Convertible Debentures - Option to Defer Interest Payments." If interest payments are deferred, the resulting deferred distributions and accrued and accumulated distributions thereon shall be paid to holders of record of the Convertible Preferred Securities as they appear on the books and records of the Trust on the record date established for payment, as opposed to any record date for purposes of any notice relating to the deferral of interest payments or distributions. As a result, any holder who sells Convertible Preferred Securities during a deferral period will transfer to the buyer his entitlement to any payment made at the end of any such deferral period. Any failure by Citizens to make interest payments on the Convertible Debentures in the absence of a deferral would constitute an Indenture Event of Default. Citizens may not elect to defer interest payments while an Indenture Event of Default has occurred and is continuing. Additional Interest Citizens is required to pay either (i) directly to such taxing authority, or (ii) to the Trust or Citizens Capital, as the case may be, or (iii) as additional interest ("Additional Interest") on the Conbertible Debentures, any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other domestic taxing authority upon either the Trust or Citizens Capital. To the extent that such payments give rise to additional taxes of Citizens Capital or the Trust, the Company shall also make payment for such additional taxes of Citizens Capital or the Trust. Citizens shall be required to pay Additional Interest or make such other payments in an amount and at such time so that the net amounts received as interest or distribution payments by Citizens Capital and the Trust, and distributable to the Trust and the holders of the Convertible Preferred Securities, respectively, after all such taxes, duties, assessments or governmental charges have been paid will not be less than the amount that would have been received and distributed by such entities, and the amount the holders of the Convertible Preferred Securities would have received, had no such taxes, duties, assessments or governmental charges been imposed. If such taxes or duties are paid to the Trust or Citizens Capital or as Additional Interest on the Convertible Debentures, then the Trust or Citizens Capital, as the case may be, is required to pay such amounts over to such taxing authority in satisfaction of such charges or assessments. 35 Conversion Rights General. The Convertible Preferred Securities will be convertible, unless previously redeemed, at the option of the holder thereof and in the manner described below, into shares of Common Stock Series A of Citizens at a conversion price of $_______ per share of Common Stock Series A (equivalent to a conversion rate of____ shares of Common Stock Series A for each $50 of liquidation preference of Convertible Preferred Securities), subject to adjustment as described under - "Conversion Price Adjustments" below. A holder of Convertible Preferred Securities wishing to exercise its conversion right as to all or a portion of such Convertible Preferred Securities shall, in effect, surrender such Convertible Preferred Securities, or a portion thereof, by giving an irrevocable written Notice of Conversion, to the Conversion Agent. The Conversion Agent shall then, on behalf of such holder, cause the Convertible Preferred Securities to be exchanged for Partnership Preferred Securities, and in turn cause the Partnership Preferred Securities to be exchanged for Convertible Debentures, and immediately cause the Convertible Debentures to be converted into Common Stock Series A. Holders may obtain copies of the Notice of Conversion from the Conversion Agent. Convertible Preferred Securities that have been called for redemption will not be convertible after the close of business five (5) Business Days preceding the date fixed for redemption and no Convertible Preferred Security will be convertible after the close of business five (5) Business Days preceding ________________, 2036. Holders of Convertible Preferred Securities at the close of business on a Record Date will be entitled to receive the distribution payable on such securities on the corresponding Distribution Payment Date notwithstanding the conversion of such Convertible Preferred Securities following such Record Date. Except as provided in the immediately preceding sentence, the Trust will make no payment or allowance for accrued, deferred or otherwise unpaid distributions on converted Convertible Preferred Securities, or for any dividends or distributions on the shares of Common Stock Series A. Holders of shares of Common Stock Series A which are issuable upon conversion prior to or on a record date for any dividend or distribution on such shares shall be entitled to receive the same dividend or distribution as other holders of record of Common Stock Series A. Each conversion will be deemed to have been effected immediately prior to the close of business on the day on which the Notice of Conversion was received by the Trust. No fractional share of Common Stock Series A will be issued as a result of conversion; in lieu thereof such fractional interest will be settled in cash. Citizens will, subject to compliance with the requirements of any regulatory authority claiming jurisdiction over Citizens' business, reserve for issuance enough shares of Common Stock Series A so as to have sufficient shares legally available to effect such conversions. Conversion Price Adjustments - General. Commencing in 1990, Citizens has followed the policy of paying quarterly dividends on its common stock in shares of common stock. The conversion price of the Convertible Preferred Securities will be adjusted downward to reflect the declaration of each such stock dividend. The conversion price is also subject to adjustment in 36 certain events, including (a) the issuance of shares of Common Stock Series A as a dividend or a distribution with respect to its Common Stock Series A, (b) subdivisions, combinations and reclassification of Common Stock Series A, (c) the issuance to all holders of Common Stock Series A of rights or warrants entitling them (for a period not exceeding 45 days) to subscribe for shares of Common Stock Series A at less than the current market price, (d) the distribution to all holders of Common Stock Series A of evidences of indebtedness of the Company, securities or capital stock, cash or assets (including securities, but excluding those rights, warrants, dividends and distributions referred to above and dividends and distributions paid exclusively in cash), (e) the payment of dividends (and other distributions) on Common Stock Series A paid exclusively in cash, excluding cash dividends if the annualized per share amount thereof does not exceed 15% of the current market price of Common Stock Series A as of the Trading Day immediately preceding the date of declaration of such dividend, and (f) payment to holders of Common Stock Series A in respect of a tender or exchange offer (other than an odd-lot offer) by Citizens or any subsidiary of Citizens for Common Stock Series A at a price in excess of 110% of the current market price of Common Stock Series A as of the Trading Day next succeeding the last date tenders or exchanges may be made pursuant to such tender or exchange offer. A "Trading Day" means any day on which the NYSE (or any other market used for the determination of fair market value) is open for the trading of securities. No adjustment of the conversion price will be made upon the issuance of any shares of Common Stock Series A pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of Citizens and the investment of additional optional amounts in shares of Common Stock Series A under any such plan. No adjustment in the conversion price will be required unless such adjustment would require a change of at least one percent (1%) in the price then in effect; provided, however, that any adjustment that would not be required to be made shall be carried forward and taken into account in any subsequent adjustment. If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the holder of the Convertible Preferred Securities. Citizens from time to time may also reduce the conversion price of the Convertible Debentures (and thus the conversion price of the Convertible Preferred Securities) by any amount selected by Citizens for any period of at least 20 days, in which case Citizens shall give at least 15 days' notice of such reduction. Citizens may also, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Citizens Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for inome tax purposes. See "Certain Federal Income Tax Considerations - Adjustment of Conversion Price". Conversion Price Adjustments - Merger, Consolidation or Sale of Assets of Citizens. In the event that Citizens shall be a party to any transaction (including, without limitation, and with certain exceptions, (a) recapitalization or reclassification of the Common Stock Series A, (b) 37 consolidation of Citizens with, or merger of Citizens into, any other Person, or any merger of another Person into Citizens, (c) any sale or transfer of all or substantially all of the assets of Citizens or (d) any compulsory share exchange pursuant to which the Common Stock Series A is converted into the right to receive other securities, cash or other property, (each of the foregoing being referred to as a "Transaction"), then the holders of Convertible Preferred Securities then outstanding shall have the right to convert the Convertible Preferred Securities into the kind and amount of securities, cash and other property receivable upon the consummation of such Transaction by a holder of the number of shares of Common Stock Series A issuable upon conversion of such Convertible Preferred Securities immediately prior to such Transaction. In the case of a Transaction, each Convertible Preferred Security would become convertible into the securities, cash or property receivable by a holder of the number of shares of Common Stock Series A into which such Convertible Preferred Security was convertible immediately prior to such Transaction. This change could substantially lessen or eliminate the value of the conversion privilege associated with the Convertible Preferred Securities in the future. For example, if Citizens were acquired in a cash merger, each Convertible Preferred Security would become convertible solely into cash and would no longer be convertible into securities whose value would vary depending on the future prospects of Citizens and other factors. Special Events Distribution "Trust Investment Company Act Event" means that Citizens shall have (i) requested and received and (ii) delivered to the Regular Trustees, an opinion of a nationally recognized independent counsel experienced in practice under the Investment Company Act of 1940, as amended (the "1940 Act") (an "Investment Company Act Opinion") that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), there is a more than an insubstantial risk that the Trust is or will be considered an investment company which is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the first date of issuance of the Convertible Preferred Securities. "Trust Tax Event" means that Citizens shall have (i) requested and received and (ii) delivered to the Regular Trustees, an opinion of a nationally recognized independent tax counsel experienced in such matters (a "Tax Event Opinion") to the effect that, as a result of (a) any change or prospective change which is announced or publicly stated in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (b) any change or prospective change in an interpretation or application of any such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination), (c) any interpretation or pronouncement that provides for a position with respect to such laws or regulations that differs from the generally accepted position or (d) 38 any action by any governmental agency or body or regulatory authority, assuming such change is enacted, promulgated, issued or effective or such interpretation or pronouncement is issued or announced or becomes effective or such action is taken, in each case on or after the date of this Prospectus, there would be more than an insubstantial risk that (i) the Trust may be subject to United States federal income tax with respect to distributions accrued or received on the Partnership Preferred Securities or (ii) the Trust is subject to more than a de minimis amount of taxes, duties or other governmental charges. (For purposes hereof, the circumstances described in subsections (a) through (d) above are sometimes hereafter referred to as a "Change in Tax Law".) A Trust Tax Event and a Trust Investment Company Act Event are sometimes herein collectively or individually referred to as "Trust Events". "Partnership Tax Event" means that the General Partner shall have received a Tax Event Opinion to the effect that, as a result of a Change in Tax Law, there is more than an insubstantial risk that (i) Citizens Capital may be subject to United States federal income tax with respect to interest accrued or received on the Convertible Debentures or (ii) Citizens Capital is subject to more than a de minimis amount of taxes, duties or other governmental charges. "Partnership Investment Company Act Event" means that the General Partner shall have received an Investment Company Act Opinion that as a result of the occurrence of a Change in 1940 Act Law, there is more than an insubstantial risk that the Partnership is or will be considered an investment company which is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the first date of issuance of the Partnership Preferred Securities. A Partnership Tax Event and a Partnership Investment Company Act Event are sometimes herein collectively or individually referred to as "Partnership Events". "Company Tax Event" means that Citizens shall have obtained a Tax Event Opinion to the effect that, as a result of a Change in Tax Law, there is more than an insubstantial risk that interest payable to the holders of the Convertible Debentures would not be deductible by Citizens for United States federal income tax purposes. A Trust Event, Partnership Event, and Company Tax Event are sometimes herein collectively or individually referred to as "Special Events". "Rating Agency Event" shall occur when, and if, (i) any nationally recognized securities rating agency lowers its rating of the Company's senior, unsecured long-term debt to a rating less than the rating in effect on the date of the issuance of the Convertible Preferred Securities and (ii) Citizens has elected to transmit notice thereof to the Trust. If at any time a Trust Event shall occur and be continuing, the Regular Trustees will (except as set forth under Ministerial Action below) cause the Trust to be liquidated with the 39 result that Partnership Preferred Securities will be distributed to holders of the Trust Securities in liquidation of such holders' interests in the Trust, on a pro rata basis. If a Partnership Event has also occurred and is continuing, then Citizens may also cause the Partnership to be liquidated as well with the result that Convertible Debentures (and not Partnership Preferred Securities) will ultimately be received by the holders of the Trust Securities in liquidation of such holders' interests in the Trust, on a pro rata basis. If at any time a Partnership Event shall occur and be continuing, the General Partner may (except as set forth under Ministerial Action below) cause the Partnership to be liquidated with the result that Convertible Debentures will be distributed to the Trust in liquidation of its interests in the Partnership. Following a Partnership liquidation, holders of Convertible Preferred Securities would lose their right to make Distribution Elections, Citizens will lose its right to make Stock Payment Elections, and distributions to holders of Convertible Preferred Securities will be made only in cash. Upon the occurrence of a Company Tax Event, Citizens will (except as set forth under Ministerial Action below) have the right to cause the Trust and the Partnership to be liquidated with the result that Convertible Debentures will ultimately be received by the holders of the Trust Securities in liquidation of such holders' interest in the Trust, on a pro rata basis. Ministerial Action. If at the time of any such Special Event, Citizens, the Partnership or the Trust are actually aware of an opportunity to eliminate the adverse effect of the Special Event on the Trust, Citizens or the Partnership by taking some ministerial action (such as filing a form or making an election or pursuing some other similar reasonable measure) where the taking of such action does not involve a material cost, then neither Citizens, the Partnership nor the Trust shall liquidate the Partnership or the Trust by reason of such Special Event without first having pursued such ministerial action. If, at any time, a Rating Agency Event shall occur and be continuing, the Trust will be liquidated with the result that Partnership Preferred Securities will be distributed to the holders of the Trust Securities in liquidation of such holders' interests in the Trust, on a pro rata basis. In addition, Citizens may notify the Trustees that it will liquidate the Partnership with the result that Convertible Debentures (and not Partnership Preferred Securities) will be ultimately distributed to holders of Trust Securities, on a pro rata basis. After the date for any distribution of Partnership Preferred Securities or Convertible Debentures, as the case may be, upon dissolution and liquidation of the Trust (i) the Convertible Preferred Securities will be deemed to be no longer outstanding, (ii) the Depositary or its nominee, as the record holder of the Convertible Preferred Securities, will receive a registered global certificate or certificates representing the Partnership Preferred Securities or Convertible Debentures, as the case may be, and (iii) any certificates representing Convertible Preferred Securities not held by the Depositary or its nominee will be deemed to represent (a) Partnership Preferred Securities having an aggregate liquidation amount equal to the aggregate stated liquidation amount of, with a distribution rate identical to the distribution rate of, and accrued 40 or deferred and unpaid distributions equal to accrued or deferred and unpaid distributions on such Convertible Preferred Securities, or (b) Convertible Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued or deferred and unpaid interest equal to accrued or deferred and unpaid distributions on such Convertible Preferred Securities, as the case may be, until such certificates are presented to Citizens or its agent for transfer or reissuance. There can be no assurance as to the market prices for the Convertible Preferred Securities, or the Partnership Preferred Securities or Convertible Debentures that may be distributed in exchange for the Convertible Preferred Securities, if a dissolution and liquidation of the Trust were to occur. Accordingly, the Convertible Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Partnership Preferred Securities or Convertible Debentures, as the case may be, that an investor may receive if a dissolution and liquidation of the Trust were to occur, may trade at a discount or a premium to the price that the investor paid to purchase the Convertible Preferred Securities offered hereby. Upon the distribution of the Convertible Debentures or the Partnership Preferred Securities, the Company will use its best efforts to list such securities on the exchange that the Convertible Preferred Securities are then listed. Optional Redemption The Convertible Debentures are also subject to redemption by Citizens, at its option, in whole or in part, from time to time, on or after _________________, 1999 at 100% of the principal amount being redeemed, together with accrued or deferred and unpaid interest to the redemption date. If Citizens redeems Convertible Debentures, the Trust must redeem Trust Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so redeemed, at $50 per Trust Security in cash, plus accrued or deferred and unpaid distributions in either cash or Common Stock (such amount and form of payment being the "Redemption Price"). Redemption on Maturity or Upon Acceleration Additionally, Convertible Preferred Securities are also subject to redemption in whole, but not in part, upon any redemption of the Partnership Preferred Securities occurring upon the repayment at maturity (on _____________, 2036) or as a result of acceleration of the Convertible Debentures upon the occurrence of an Indenture Event of Default described under "Convertible Debentures - Events of Default." Upon the repayment of the Convertible Debentures, the proceeds from such repayment shall simultaneously be applied to redeem Convertible Preferred Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Convertible Debentures so repaid at the Redemption Price. In the case of such acceleration, the Convertible Preferred Securities will only be redeemed when repayment of the Convertible Debentures has actually been received by the Trust. 41 Redemption Procedures; Generally If Convertible Preferred Securities are called for redemption, conversion rights with regard thereto will terminate five (5) Business Days prior to the redemption date. If the Convertible Preferred Securities are called for redemption, optionally or at maturity or acceleration, Citizens may not redeem the Convertible Debentures called for redemption, unless all accrued or deferred and unpaid distributions have been paid in full on all Convertible Preferred Securities for all quarterly distribution periods terminating on or prior to the date of redemption. Notice of any redemption of Convertible Preferred Securities (which notice will be irrevocable) will be given to each record holder of Convertible Preferred Securities that are being redeemed or exchanged not fewer than thirty (30) nor more than sixty (60) days prior to the date fixed for redemption thereof. If a notice of redemption has been given, then on the redemption date, if the Partnership or Citizens, as the case may be, has paid to the Property Trustee a sufficient amount of cash and Common Stock in connection with the related redemption or maturity of Partnership Preferred Securities and/or the Convertible Debentures, the Property Trustee will irrevocably deposit such cash and Common Stock with the Paying Agent with irrevocable instructions to pay the applicable Redemption Price (i) to the holders of the Convertible Preferred Securities to be redeemed (in the event that such Convertible Preferred Securities are in definitive form) or (ii) to DTC (in the event that Convertible Preferred Securities are in book-entry form) with irrevocable instructions to pay the Redemption Price to the holders of the Convertible Preferred Securities to be redeemed. See "Book-Entry-Only Issuance - The Depository Trust Company." Upon satisfaction of the foregoing conditions, then immediately prior to the close of business on the date of such deposit or payment all rights of holders of such Convertible Preferred Securities so called for redemption will cease, except the right of the holders to receive the Redemption Price, and from and after the date fixed for redemption, such Convertible Preferred Securities will not accrue distributions or bear interest. In the event that any date fixed for redemption of Convertible Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding Business Day (and without any interest in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day. In the event that payment of the Redemption Price is improperly withheld or refused and not paid by either the Property Trustee or Citizens, distributions on the Convertible Preferred Securities called for redemption will continue to accrue at the Rate, compounded quarterly, to the extent that payment of such interest is legally available, until the Redemption Price is actually paid. In the event that fewer than all of the outstanding Convertible Preferred Securities are to be redeemed, the Convertible Preferred Securities to be redeemed will be selected as described under " - Book-Entry-Only Issuance - The Depositary Trust Company" below. Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), Citizens or its subsidiaries may at any time, and from time to time, 42 purchase outstanding Convertible Preferred Securities by tender, in the open market or by private agreement. Liquidation Rights In the event of any voluntary or involuntary liquidation, dissolution, or winding-up or termination of the Trust, the holders of Convertible Preferred Securities at the time outstanding will be entitled to receive, out of the assets of the Trust, after satisfaction of liabilities to creditors, a liquidation preference of $50 per Convertible Preferred Security payable in cash, plus all accrued or deferred and unpaid distributions, payable in either cash or Common Stock, to the date of payment (the "Liquidation Distribution"), unless, in connection with such liquidation, at the election of the Regular Trustees, either Partnership Preferred Securities or Convertible Debentures shall be distributed on a pro rata basis to the holders of the Convertible Preferred Securities. If, upon any such liquidation, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Convertible Preferred Securities shall be paid on a pro rata basis. The holders of the Convertible Common Securities will be entitled to receive distributions upon any such dissolution pro rata with the holders of the Convertible Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the Convertible Preferred Securities shall have a preference over the Convertible Common Securities with regard to such distributions. If, upon any liquidation of the Trust, the holders of Convertible Preferred Securities are paid in full the aggregate Liquidation Distribution to which they are entitled, then such holders will not be entitled to receive or share in any other assets of the Trust thereafter available for distribution to any other holders of beneficial interests in the Trust. As set forth in greater detail in the Declaration, the Trust shall be dissolved and its affairs shall be wound up upon the occurrence of certain events, including the earliest to occur of: (i) _______, 2040, the expiration of the term of the Trust; (ii) the bankruptcy of Citizens, (iii) upon the filing of a certificate of dissolution or its equivalent with respect to Citizens or the revocation of the charter of Citizens or of the Trust's certificate of trust in accordance with the terms of the Declaration, (iv) upon the distribution of Partnership Preferred Securities or Convertible Debentures upon the occurrence of any Rating Agency Event or Special Event and the dissolution and liquidation of the Trust, (v) upon the entry of a decree of a judicial dissolution of Citizens or the Trust, or (vi) upon the redemption of all the Trust Securities. Amendment to the Declaration The Declaration may be modified and amended if approved by the Regular Trustees (or, if there are more than two Regular Trustees, a majority of the Regular Trustees) (and in certain circumstances, by the Property Trustee or the Delaware Trustee); provided that, if any proposed 43 amendment provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up, or termination of the Trust other than pursuant to the terms of the Declaration, then such amendment or proposal shall not be effective except with the approval of at least 66 2/3% in liquidation amount of the Trust Securities affected thereby. Notwithstanding the foregoing, no amendment may be made to the Declaration if such amendment would (i) cause the Trust to be classified for purposes of United States federal income taxation as other than a grantor trust, (ii) reduce or otherwise adversely affect the powers of the Property Trustee, or (iii) cause the Trust to be deemed an investment company which is required to be registered under the 1940 Act. Merger, Consolidation or Sale of Assets of the Trust The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any entity, except as described below. The Trust may, with the consent of a majority of the Regular Trustees and without the consent of the holders of the Trust Securities, the Delaware Trustee or Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any state of the United States of America, subject to certain conditions set forth in the Declaration. The Trust shall not, except with the consent of the holders of 100% in liquidation amount of the Trust Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if such consolidation, amalgamate, merger or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. Declaration Events of Default An event of default under the Limited Partnership Agreement (a "Partnership Event of Default") constitutes an event of default under the Declaration with respect to the Trust Securities (a "Declaration Event of Default"), provided that, pursuant to the Declaration, the holder of the Convertible Common Securities will be deemed to have waived any Declaration Event of Default with respect to the Convertible Common Securities until all Declaration Events of Default with respect to the Convertible Preferred Securities have been cured, waived or otherwise eliminated. Until such Declaration Events of Default with respect to the Convertible Preferred Securities have been so cured, waived, or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the holders of the Convertible Preferred Securities and only the holders of the Convertible Preferred Securities will have the right to direct the Property Trustee with respect to certain matters under the Declaration, and therefore the Indenture. The holders of a majority in aggregate liquidation amount of Convertible Preferred Securities may vote to waive any Declaration Event of Default, provided that if the underlying Partnership Event of Default requires the consent of a Super Majority (as defined 44 below), a corresponding Super Majority of Convertible Preferred Securities will be required. A Partnership Event of Default may be waived as described in "Partnership Preferred Securities - Limited Partnership Agreement Events of Default" and " - Voting Rights." A waiver of a Partnership Event of Default by the Property Trustee constitutes a waiver of the corresponding Declaration Event of Default. Upon the occurrence of a Declaration Event of Default, the Property Trustee as the sole holder of the Partnership Preferred Securities of Citizens Capital, which is the sole holder of the Convertible Debentures, will have the right under the Declaration to enforce its rights as holder of the Partnership Preferred Securities. Citizens and the Trust are each required to file annually with the Property Trustee an officer's certificate as to its compliance with all conditions and covenants under the Declaration. Voting Rights Except as described herein, under the Trust Act, the Trust Indenture Act and under "Guarantees," and as otherwise required by law and the Declaration, the holders of the Convertible Preferred Securities will have no voting rights. Subject to the requirement that the Property Trustee obtain a tax opinion in certain circumstances as set forth in the last sentence of this paragraph, the Holders of a majority in aggregate liquidation amount of the Convertible Preferred Securities voting separately as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee or exercising any trust or power conferred upon the Property Trustee under the Declaration, including, for so long as the Property Trustee shall hold the Partnership Preferred Securities, causing the Special Representative (as hereafter defined) to, or, if the Property Trustee shall hold the Convertible Debentures directly, to (i) prosecute any proceeding for any remedy available to the Indenture Trustee or exercise any power conferred on the Indenture Trustee with respect to the Convertible Debentures, (ii) waive any waivable past default and its consequences that are waivable under the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal amount of all the Convertible Debentures shall be due and payable, provided, however, that when the Limited Partnership Agreement or the Indenture, as the case may be, requires the consent of the holders of greater than a majority in aggregate liquidation amount of Partnership Preferred Securities or greater than a majority in aggregate principal amount of Convertible Debentures, as the case may be, affected thereby (a "Super Majority"), a corresponding Super Majority of Convertible Preferred Securities will be required. If the Property Trustee fails to enforce its rights under the Declaration, any holder of Convertible Preferred Securities may institute a legal proceeding directly against any person to enforce the Property Trustee's rights under the Declaration, without first instituting a legal proceeding against the Property Trusteeguarantee trustee or any other person. Other thanperson or entity. THE GUARANTEE TRUSTEE The Chase Manhattan Bank is the guarantee trustee. It is also the property trustee, the subordinated indenture trustee, and the senior indenture trustee. Citizens and certain of its affiliates maintain deposit accounts and banking relationships with respect to directing the time, methodThe Chase Manhattan Bank. The Chase Manhattan Bank also serves as trustee or agent under other indentures and place of conducting any proceeding for a remedy as set forth above, the Property Trustee shall not take any of the above actions in accordance with the directions of the holders of the Convertible Preferred Securities unless the Property Trustee has obtained an opinion of tax counsel to the effect that, for the purposes of United States federal 45 income tax, the Trust will continue to be classified as a grantor trust after consummation of such action. Any approval or direction of holders of Convertible Preferred Securities may be given at a separate meeting of holders of Convertible Preferred Securities convened for such purpose, at a meeting of all of the holders of Trust Securities oragreements pursuant to written consent. No vote or consentwhich securities of the holders of the Convertible Preferred Securities will be required for the Trust to redeem and cancel Convertible Preferred Securities or to distribute Partnership Preferred Securities or Convertible Debentures in accordance with the Declaration and the terms of the Trust Securities. Any Convertible Preferred Securities that are owned by Citizens or by any entity directly or indirectly controlling or controlled by or under direct or indirect common control with Citizens shall not be entitled to vote or consent and shall, for such purposes, be treated as if they were not outstanding; provided, however, that holders of Convertible Preferred Securities that have been validly pledged by Citizens or any such entity to a party otherwise eligible to vote may vote or consent under any of the circumstances described above. Book-Entry-Only Issuance - The Depository Trust Company DTC will act as securities depository for the Convertible Preferred Securities and, to the extent distributed to the holders of the Convertible Preferred Securities, the Partnership Preferred Securities and the Convertible Debentures. The information in this section concerning DTC and DTC's book- entry system is based upon information obtained from DTC. The Convertible Preferred Securities will be issued only as fully-registered securities registered in the name of Cede & Co. (as nominee for DTC). One or more fully-registered global Convertible Preferred Security certificates will be issued, representing in the aggregate the total number of Convertible Preferred Securities, and will be deposited with DTC. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the global Convertible Preferred Securities as represented by a global certificate. DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations ("Direct Participants"). DTC is owned by 46 a number of its Direct Participants and by the NYSE, the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). Purchases of Convertible Preferred Securities within the DTC system must be made by or through Direct Participants, whichaffiliates are outstanding. The guarantee trustee will receive a credit for the Convertible Preferred Securities on DTC's records. The ownership interest of each actual purchaser of a Convertible Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct or Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Convertible Preferred Securities. Transfers of ownership interests in Convertible Preferred Securities are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Convertible Preferred Securities, except upon a resignation of DTC, upon the occurrence of an Indenture Event of Default or upon a decision by the Trust to discontinue the book-entry system for the Convertible Preferred Securities. To facilitate subsequent transfers, all the Convertible Preferred Securities deposited by Participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of Convertible Preferred Securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Convertible Preferred Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Convertible Preferred Securities are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices with respect to the Convertible Preferred Securities shall be sent to Cede & Co. If less than all of the Convertible Preferred Securities are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such securities to be redeemed. Although voting with respect to the Convertible Preferred Securities is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Convertible Preferred Securities. Under its usual procedures, DTC would mail an "Omnibus Proxy" (i.e., a proxy conferring on Direct Participants the right to vote as their 47 interests appear) to the Trust as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Convertible Preferred Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). Citizens and the Trust believe that the arrangements among DTC, Direct and Indirect Participants, and Beneficial Owners will enable the Beneficial Owners to exercise rights equivalent in substance to the rights that can be directly exercised by a holder of a beneficial interest in the Trust. Cash distribution payments and distribution payments in shares of Common Stock Series A on the Convertible Preferred Securities will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trust, Citizens Capital or Citizens, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of distributions to DTC is the responsibility of the Trust, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. Except as provided herein, a Beneficial Owner in a global Convertible Preferred Security will not be entitled to receive physical delivery of Convertible Preferred Securities. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the Convertible Preferred Securities, including elections as to form of payment. DTC may discontinue providing its services as securities depositary with respect to the Convertible Preferred Securities at any time by giving reasonable notice to the Trust. Under such circumstances, in the event that a successor securities depositary is not obtained, certificates representing the Convertible Preferred Securities will be printed and delivered. If an Indenture Event of Default occurs or if the Regular Trustees decide to discontinue use of the system of book-entry transfers through DTC (or a successor depositary), certificates representing the Convertible Preferred Securities will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that Citizens and the Trust believe to be reliable, but neither Citizens nor the Trust takes responsibility for the accuracy thereof. Information Concerning the Property Trustee The Property Trustee, prior to the occurrence of a default with respect to the Trust Securities, undertakes to perform only suchthose duties asthat are specifically set forth in each guarantee unless an event of default under the Declarationguarantee occurs and afteris continuing. If an event of default shalloccurs and is continuing, the guarantee trustee will exercise the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to suchthese provisions, the Property Trusteeguarantee trustee is 48 under no obligation to exercise any of the powers vested in it by the Declaration at the request of any holder of Convertible Preferred Securities, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The holders of Convertible Preferred Securities will not be required to offer such indemnity in the event such holders direct the Property Trustee to take any action following a Declaration Event of Default. Transfer Agent, Paying Agent, Registrar and Conversion Agent Chemical Bank will act as Paying Agent, Registrar, Transfer Agent and Conversion Agent for the Convertible Preferred Securities. Registration of transfers of Convertible Preferred Securities will be effected without charge by or on behalf of the Trust, but upon payment (with the giving of such indemnity as the Trust may require) in respect of any tax or other government charges which may be imposed in relation to it. PARTNERSHIP PREFERRED SECURITIES The following summary of the principal terms and provisions of the Partnership Preferred Securities does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Limited Partnership Agreement, a copy of the form of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. Under certain circumstances involving the dissolution and liquidation of the Trust following the occurrence of a Trust Event, Partnership Preferred Securities may be distributed to the holders of the Convertible Preferred Securities. See discussion below and in "Convertible Preferred Securities - Special Events Distribution." General The General Partnership Security, which constitutes all of the partnership interests in Citizens Capital other than the Partnership Preferred Securities owned by the Trust (and any interests of any Special Representative), will be owned directly or indirectly by Citizens at all times while the Convertible Preferred Securities are outstanding. The Limited Partnership Agreement authorizes and creates the Partnership Preferred Securities in Citizens Capital. The Partnership Preferred Securities will have a preference with respect to quarterly distributions and amounts payable on liquidation and redemption over the General Partnership Security. The Partnership Preferred Securities do not have a par value. The Limited Partnership Agreement does not permit the issuance of other partnership interests without the prior approval of the holders of not less than 66 2/3% of the aggregate liquidation preference of the Partnership Preferred Securities then outstanding. For United States federal income tax purposes, Partnership Preferred Securities holders will recognize interest income as it accrues. So long as interest payments are not deferred, the 49 distributions will approximately equal the accruals of such quarterly interest. Income received by Citizens Capital and distributions by the Partnership are not eligible for the corporate dividends-received deduction for United States federal income tax purposes. Holders of Partnership Preferred Securities will not have the right to remove or replace the General Partner. Holders of Partnership Preferred Securities will have no preemptive rights. Distributions The rights of holders of the Partnership Preferred Securities to receive cumulative distributions from Citizens Capital are essentially similar to those of the holders of the Convertible Preferred Securities. See "Convertible Preferred Securities - Distributions." However, the Partnership may only make distributions to the extent that there is (i) Common Stock Series A and/or cash on hand, and (ii) such funds are "legally available" (as defined under applicable Delaware law) therefor. Conversion Rights The Partnership Preferred Securities will be convertible at the option of the holders thereof and in a manner essentially similar to that of the Convertible Preferred Securities. See "Convertible Preferred Securities - Conversion Rights." Special Events Distribution The Partnership Securities are subject to distribution upon the occurrence of certain Special Events and the Rating Agency Event. See "Convertible Preferred Securities - Special Events Distribution" and "Convertible Debentures - Special Events Distribution." After the date for any distribution of Convertible Debentures upon dissolution and liquidation of Citizens Capital, (i) the Partnership Preferred Securities will no longer be deemed to be outstanding, (ii) the record holder of the Partnership Preferred Securities will receive a certificate or certificates representing the Convertible Debentures to be delivered upon such distribution, and (iii) any certificates representing Partnership Preferred Securities will be deemed to represent Convertible Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued or deferred and unpaid interest equal to accrued or deferred and unpaid distributions on such Partnership Preferred Securities until such certificates are presented to Citizens Capital or its agent for transfer or reissuance. Optional Redemption Partnership Preferred Securities are subject to optional redemption in essentially the same manner as the Convertible Preferred Securities. See "Convertible Preferred Securities - Optional Redemption." 50 Redemption on Maturity or Upon Acceleration Partnership Preferred Securities shall be subject to redemption upon the repayment at maturity or upon acceleration upon default of the Convertible Debentures in essentially the same manner as the Convertible Preferred Securities. See "Convertible Preferred Securities - Redemption on Maturity or Upon Acceleration." Redemption Procedures; Generally If Partnership Preferred Securities are called for redemption, the conversion right will terminate five (5) Business Days prior to the redemption date. The redemption procedures for Partnership Preferred Securities are similar to those of the Convertible Preferred Securities. See "Convertible Preferred Securities - Redemption Procedures; Generally." Upon the completion of such procedures, all rights of holders of such Partnership Preferred Securities so called for redemption will cease, except the right of the holders to receive the Redemption Price, but without interest on such Redemption Price. Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), Citizens or its subsidiaries may at any time, and from time to time, purchase outstanding Partnership Preferred Securities by tender, in the open market or by private agreement. Liquidation Rights In the event of any voluntary or involuntary liquidation, dissolution or winding-up or termination of Citizens Capital, the holders of Partnership Preferred Securities at the time outstanding will have liquidation rights essentially similar to those of the holders of the Convertible Preferred Securities. See "Convertible Preferred Securities - Liquidation Rights." Pursuant to the Limited Partnership Agreement, Citizens Capital shall be dissolved and its affairs shall be wound up upon the earliest to occur of (i) the expiration of the term of Citizens Capital, (ii) any bankruptcy, insolvency, expulsion or dissolution of the General Partner, (iii) upon the entry of a decree of a judicial dissolution or (iv) upon the written consent of all partners of Citizens Capital. Merger, Consolidation or Sale of Assets of Citizens Capital Citizens Capital may not consolidate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any entity, except as described below. Citizens Capital may, in order to avoid 1940 Act consequences adverse to Citizens or Citizens Capital or to the holders of the Partnership Preferred Securities, and in other limited situations, without the consent of the holders of the Partnership Preferred Securities, consolidate, merge with or into, or be replaced by a limited partnership or trust organized as 51 such under the laws of any state of the United States of America, subject to conditions set forth in the Limited Partnership Agreement. Limited Partnership Agreement Event of Default An Indenture Event of Default constitutes an event of default under the Limited Partnership Agreement with respect to the Partnership Preferred Securities (a "Partnership Event of Default"). The holders of a majority in aggregate liquidation amount of Partnership Preferred Securities may vote to waive any Partnership Event of Default, provided that if the underlying Indenture Event of Default requires the consent of a Super Majority, a corresponding Super Majority of Partnership Preferred Securities will be required. An Indenture Event of Default may be waived as described below in "Convertible Debentures - Indenture Event of Default" and "- Modification of the Indenture." A waiver of an Indenture Event of Default constitutes a waiver of the corresponding Partnership Event of Default. Upon the occurrence of a Partnership Event of Default, the Special Representative of Citizens Capital, as the sole holder of the Convertible Debentures, will have the right under the Indenture to declare the principal of and interest on the Convertible Debentures to be immediately due and payable. Voting Rights Except as provided below and under "Guarantees - Amendments and Assignment," "Convertible Debentures - Modification of the Indenture" and as otherwise required by law and provided by the Limited Partnership Agreement, the holders of the Partnership Preferred Securities will have no voting rights. If (i) an Indenture Event of Default occurs and is continuing with respect to the Convertible Debentures; or (ii) Citizens is in default under any of its payment obligations under the Partnership Guarantee, then the holders of a majority in aggregate liquidation preference of the Partnership Preferred Securities will be entitled to appoint and direct the actions of a special representative (a "Special Representative") to enforce Citizens Capital's rights under the Convertible Debentures, enforce the rights of the holders of Partnership Preferred Securities under the Partnership Guarantee and enforce the payments of distributions on the Partnership Preferred Securities. In such event, the General Partner or (after the passing of a specified period of time) the holders of 10% of the aggregate liquidation preference of the Partnership Preferred Securities will be entitled to convene a meeting. Any Special Representative so appointed shall vacate office immediately if Citizens Capital (or Citizens pursuant to the Partnership Guarantee) shall have paid in full all accrued or deferred and unpaid distributions on the Partnership Preferred Securities or such Indenture Event of Default or default, as the case may be, shall have been cured. Notwithstanding the appointment of any such Special Representative, Citizens will retain all rights as obligor under the Convertible Debentures, including the right to defer interest payments as provided under "Convertible Debentures - Option to Defer Interest Payments," and any such deferral will not constitute a default under the 52 Indenture or enable a holder of Partnership Preferred Securities to require the payment of a distribution. In the event that any quarterly distribution payment is deferred for 6 consecutive quarters, holders of a majority in aggregate liquidation preference of the Partnership Preferred Securities will have the right to appoint and direct the actions of a Special Representative, who will have limited rights to act on behalf of the holders of the Partnership Preferred Securities and, in effect, the Convertible Preferred Securities. Any Special Representative so appointed shall have the authority to enforce the rights of holders of Partnership Preferred Securities under the Convertible Debentures and the Partnership Guarantee and declare and pay distributions on the Partnership Preferred Securities. If any proposed amendment to the Limited Partnership Agreement provides for, or the General Partner otherwise proposes to effect, (x) any action that would materially adversely affect the powers, preferences or rights of the Partnership Preferred Securities, or (y) the liquidation, dissolution, winding-up or termination of Citizens Capital (other than as described under "- Merger, Consolidation or Sale of Assets of Citizens Capital"), then such amendment or action shall require the approval of the holders of at least 66 2/3% or more of the aggregate liquidation preference of the Partnership Preferred Securities; provided, however, that no such approval shall be required if (i) the liquidation, dissolution, winding-up or termination of Citizens Capital is proposed or initiated pursuant to the terms of the Limited Partnership Agreement relating to dissolution (see "- Liquidation Rights") or (ii) if Partnership Preferred Securities are distributed to the holders of Convertible Preferred Securities in exchange for such Convertible Preferred Securities in liquidation of the Trust. So long as the Convertible Debentures are held by Citizens Capital, the General Partner shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Special Representative, or exercising any trust or power conferred on the Special Representative with respect to the Convertible Debentures, (ii) waive any past default under the Indenture, (iii) exercise any right to rescind a declaration that the principal of all the Convertible Debentures shall be due and payable, (iv) consent to any amendment, modification or termination of the Convertible Debentures or of the Indenture without, in each case, obtaining the prior approval of the holders of at least 66 2/3% or more of the aggregate liquidation preference (or a majority of the aggregate liquidation preference in the case of waiver of certain past defaults) of the Partnership Preferred Securities; provided, however, that where a consent under the Convertible Debentures would require the consent of each holder affected thereby, no such consent shall be given by the General Partner without the prior consent of each holder of the Partnership Preferred Securities. The General Partner shall notify all holders of Partnership Preferred Securities of any notice of default received from the Debenture Trustee with respect to the Convertible Debentures. Any required approval of holders of Partnership Preferred Securities may be given at a meeting of such holders or pursuant to written consent. 53 Amendment to the Limited Partnership Agreement Except as stated in "-Voting Rights" above, the Limited Partnership Agreement may be amended by a written instrument executed by the General Partner without the consent of any limited partner; provided, however, that no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result thereof would be to cause Citizens Capital to be treated as anything other than a partnership for purposes of United States income taxation or require Citizens Capital to register under the 1940 Act. In the event of (i) a liquidation of the Trust for any reason or (ii) any other distribution which effectively causes Partnership Preferred Securities to be distributed to holders of Trust Securities, the General Partner may, without the consent of the Limited Partners, amend the Limited Partnership Agreement to provide for (i) orderly dissemination, purchase, sale, exchange and replacement of such Partnership Preferred Securities, (ii) all other matters to the extent required by or desirable under then applicable law, and (iii) such other matters reasonably incidental or related thereto; provided, however, that no such amendment may materially adversely effect the rights, preferences and value of any class of such Partnership Preferred Securities without the consent of a majority in liquidation preference of the holders of the Partnership Preferred Securities so effected. Transfer Agent, Paying Agent, Registrar and Conversion Agent While all of the Partnership Preferred Securities are held by the Trust, the General Partner will act as Paying Agent, Registrar, Transfer Agent and Conversion Agent for the Partnership Preferred Securities. Registration of transfers of Partnership Preferred Securities will be effected without charge by or on behalf of Citizens Capital, but upon payment (with the giving of such indemnity as Citizens Capital may require) in respect of any tax or other government charges which may be imposed in relation to it. GUARANTEES The following is a description of the principal terms and provisions of the Convertible Preferred Securities Guarantee and the Convertible Common Securities Guarantee (collectively the "Trust Guarantees"), which will be executed and delivered by Citizens for the benefit of the holders from time to time of the Trust Securities, and the Partnership Guarantee (together with the Trust Guarantees, the "Guarantees"), which will be executed and delivered by Citizens for the benefit of the holders from time to time of the Partnership Preferred Securities. The following description is qualified in its entirety by reference to such agreements, copies of the forms of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. 54 General Each of the Partnership Guarantee and the Convertible Preferred Securities Guarantee will be qualified as an indenture under the Trust Indenture Act. Chemical Bank will act as indenture trustee under each such Guarantee (the "Guarantee Trustee"). The terms of each such Guarantee will be those set forth in such Guarantee and those made part of such Guarantee by the Trust Indenture Act. Pursuant to the Convertible Preferred Securities Guarantee, Citizens will irrevocably agree, on a subordinated basis and to the extent set forth therein, to pay in full to the holders of the Convertible Preferred Securities, the Guarantee Payments (as defined below) as and when due. The following payments, to the extent not paid by the Trust, are the "Guarantee Payments": (a) any accrued or deferred and unpaid distributions that are required to be paid on the Convertible Preferred Securities from cash and/or Common Stock available therefor; (b) the Redemption Price payable with respect to Convertible Preferred Securities called for redemption by the Trust out of cash and/or Common Stock available therefor; and (c) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Partnership Preferred Securities or Convertible Debentures to the holders of Convertible Preferred Securities or the redemption of all of the Convertible Preferred Securities) the lesser of (i) the Liquidation Distribution, to the extent that the Trust has cash and/or Common Stock available therefor and (ii) the amount of assets of the Trust available for distribution to holders of Convertible Preferred Securities in liquidation of the Trust. Pursuant to the Partnership Guarantee, Citizens will irrevocably agree, on a subordinated basis and to the extent set forth therein, to pay in full to the holders of the Partnership Preferred Securities, the Partnership Guarantee Payments (as defined below) as and when due. The following payments, to the extent not paid by Citizens Capital, are the "Partnership Guarantee Payments": (a) any accrued or deferred and unpaid distributions that are required to be paid on the Partnership Preferred Securities from cash and/or Common Stock legally available therefor; (b) the Redemption Price payable with respect to Partnership Preferred Securities called for redemption by Citizens Capital out of cash and/or Common Stock legally available therefor; and (c), upon a voluntary or involuntary dissolution, winding-up or termination of Citizens Capital (other than in connection with the distribution of Convertible Debentures to the holders of Partnership Preferred Securities or the redemption of all of the Partnership Preferred Securities), the lesser of (i) the Partnership Liquidation Distribution, to the extent that Citizens Capital has cash and/or Common Stock legally available therefor and (ii) the amount of assets of Citizens Capital available for distribution to holders of Partnership Preferred Securities in liquidation of Citizens Capital. Citizens has also agreed in the Convertible Common Securities Guarantee to irrevocably guarantee the obligations of the Trust with respect to the Convertible Common Securities to the same extent as the Convertible Preferred Securities Guarantee, except that, upon an Indenture Event of Default, holders of Convertible Preferred Securities shall have priority over holders of 55 Convertible Common Securities under the Convertible Common Securities Guarantee with respect to distributions and payments on liquidation, redemption or otherwise. Citizens asserts that the Guarantees, when taken together with Citizen's obligations under the Convertible Debentures, the Indenture, the Declaration and the Limited Partnership Agreement, including its obligation to pay costs, expenses and certain indemnities of the Trust ("back-up undertakings"), constitute a full and unconditional guarantee of amounts due under the Convertible Preferred Securities, the Partnership Preferred Securities and the Convertible Common Securities. Each Trust Guarantee, togther with the back-up undertakings, will be a full and unconditional guarantee with respect to the Trust Securities issued by the Trust but will not apply to any payment of distributions except to the extent the Trust shall have cash and/or Common Stock available therefor. The Partnership Guarantee, together with the back-up undertakings, will be a full and unconditional guarantee with respect to the Partnership Preferred Securities issued by Citizens Capital from the time of issuance of such Partnership Preferred Securities but will not apply to any payment of distributions except to the extent Citizens Capital shall have cash and/or Common Stock legally available therefor. If Citizens fails to make interest payments on the Convertible Debentures purchased by Citizens Capital, Citizens Capital will have insufficient funds to pay distributions on the Partnership Preferred Securities and the Trust will have insufficient funds to pay distributions on the Convertible Preferred Securities. The Guarantees do not cover payments of distributions when the Trust or Citizens Capital do not have sufficient cash and/or Common Stock to pay such distributions. Holders of the Trust Securities and Partnership Preferred Securities may proceed to enforce such obligations directly against Citizens as guarantor, rather than having to proceed first against the Trust or Citizens Capital. Such obligations will not be discharged except by payment of the Guarantee Payments or Partnership Guarantee Payments, as the case may be, in full. Certain Covenants of Citizens In the Partnership Guarantee Citizens will covenant and agree that, so long as any Partnership Preferred Securities are outstanding, and in the Convertible Preferred Securities Guarantee Citizens will covenant and agree that, so long as any Convertible Preferred Securities are outstanding, if Citizens exercises its right to defer interest payments on the Convertible Debentures or there shall have occurred any event that would constitute an event of default under either such Guarantee, the Limited Partnership Agreement or the Declaration, then (a) Citizens will not declare or pay any dividend or distribution (other than in shares of its capital stock) on any of Citizens' capital stock, (b) neither Citizens nor any of its subsidiaries will redeem, purchase, acquire for value or make a liquidation payment to any holder of, or with respect to, any of its capital stock or Other Subordinated Indebtedness (with certain exceptions, see "Convertible Debentures - Certain Covenants of Citizens"), (c) Citizens will not make any payment of principal, premium or interest (unless payable in shares of capital stock) on Other Subordinated Indebtedness, and (d) neither Citizens nor any of its subsidiaries will make any 56 guarantee of payments which would be prohibited or limited by the foregoing (other than payments under the Guarantees, payments of dividends by a subsidiary, or guarantees of dividends or payments payable to Citizens). As a part of the Guarantees, Citizens will agree that it will honor all obligations described therein relating to the conversion of the Convertible Preferred Securities and Partnership Preferred Securities into or for Common Stock Series A, as described in "Convertible Preferred Securities - Conversion Rights." Subordination Each Guarantee will constitute an unsecured obligation of Citizens and will rank subordinate and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness of Citizens and will be subject to other subordination provisions substantially identical to those relating to the Convertible Debentures. See "Convertible Debentures - Subordination." The terms of the Convertible Preferred Securities and the Partnership Preferred Securities provide that each holder of Convertible Preferred Securities and Partnership Preferred Securities by acceptance thereof agrees to the subordination provisions and other terms of the applicable Guarantee. On the bankruptcy, liquidation or winding-up of Citizens, its obligations under the Guarantees will rank junior to all Senior Indebtedness and, therefore, funds may not be available for payment under the Guarantees. As of September 30, 1995, Senior Indebtedness included (i) obligations in the amount of $1,229,596,000 of the nature described in clauses (a) and (b) of the definition of Senior Indebtedness, plus (ii) other obligations of Citizens of the nature described in clauses (c) through (h) of the definition of Senior Indebtedness. See "Convertible Debentures - Subordination." Amendments and Assignment Except with respect to any changes that do not adversely affect the rights of holders of the securities guaranteed therein, the terms of each Guarantee may be amended only with the prior approval of the holders of not less than 66 2/3% of the aggregate liquidation preference of the Convertible Preferred Securities or Partnership Preferred Securities, as the case may be, then outstanding. The manner of obtaining any such approval of holders of the Convertible Preferred Securities and the Partnership Preferred Securities will be as set forth in "Convertible Preferred Securities - Voting Rights" and "Partnership Preferred Securities - Voting Rights." All provisions contained in the Guarantees will bind the successors, assigns, receivers, trustees and representatives of Citizens and will inure to the benefit of the holders of the Convertible Preferred Securities or Partnership Preferred Securities, as the case may be. Termination Citizens' obligation to make Guarantee Payments under the Convertible Preferred Securities Guarantee will terminate as to each holder of Convertible Preferred Securities and be of no further force and effect upon (a) full payment of the Redemption Price of such holder's 57 Convertible Preferred Securities, (b) full payment of the amounts payable to such holder upon liquidation of the Trust, (c) the distribution of Common Stock Series A to such holder in respect of the conversion of all of such holder's Convertible Preferred Securities into Common Stock Series A or (d) distribution of the Partnership Preferred Securities or Convertible Debentures to such holder in respect of the exchange for all of such holder's Convertible Preferred Securities. Citizens' obligation to make Partnership Guarantee Payments under the Partnership Guarantee will terminate as to each holder of Partnership Preferred Securities and be of no further force and effect upon (a) full payment of the Partnership Redemption Price of such holder's Partnership Preferred Securities, (b) full payment of the amounts payable to such holder upon liquidation of Citizens Capital, (c) the distribution of Common Stock Series A to such holder in respect of the conversion of all of such holder's Partnership Preferred Securities into Common Stock Series A or (d) distribution of the Convertible Debentures to such holder in respect of the exchange for all of such holder's Partnership Preferred Securities. Events of Default An Event of Default under the Guarantees will occur upon the failure of Citizens to perform any of its payment or other obligations thereunder. The holders of a majority in aggregate liquidation amount of the Convertible Preferred Securities and the holders of a majority in aggregate liquidation amount of the Partnership Preferred Securities to which a Guarantee relates have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the respective Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce such Guarantee, any holder of Convertible Preferred Securities or Partnership Preferred Securities relating to such Guarantee may institute a legal proceeding directly against Citizens to enforce the Guarantees Trustee's rights under such Guarantee, without first instituting a legal proceeding against the Trust, Citizens Capital, the Guarantee Trustee or any other person. Citizens will be required to provide annually to the Guarantee Trustee an officer's certificate as to the full compliance by Citizens with its obligations under each of the Guarantees and as to any default in such obligation. CONVERTIBLE DEBENTURES The following summary of principal terms and provisions of the Convertible Debentures in which Citizens Capital will invest the proceeds of the issuance and sale of the Trust Securities does not purport to be complete and is qualified in its entirety by reference to the Indenture (the "Base Indenture") between Citizens and Chemical Bank, as trustee (the "Debenture Trustee"), supplemented by a First Supplemental Indenture (the Base Indenture, as so supplemented, is 58 hereinafter referred to as the "Indenture") forms of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Under certain circumstances involving the liquidation of the Trust following the occurrence of a Trust Event and a Partnership Event, Convertible Debentures may be distributed to the holders of the Trust Securities. See discussion below and in "Convertible Preferred Securities - Special Events Distribution." General The Convertible Debentures will be limited in aggregate principal amount to approximately $184,000,000, such amount being the sum of (i) the aggregate amount of the proceeds from the offering of the Convertible Preferred Securities and the issuance and sale of the Convertible Common Securities and (ii) the capital contributed to Citizens Capital by the General Partner (the "General Partner Payment"), less 1% of such sum, which amount may be increased to up to approximately $212,000,000 upon the exercise of the Underwriters' over-allotment option. The entire principal amount of the Convertible Debentures will become due and payable, together with any accrued or deferred and unpaid interest thereon on ___________, 2036. The Convertible Debentures are not entitled to the benefit of any sinking fund. The Convertible Debentures will be issued only in fully registered form, without coupons, in denominations of $50 and any integral multiple thereof. No service charge will be made for any registration of transfer or exchange of Convertible Debentures, but Citizens may require payment of a sum sufficient from the holders to cover any tax or other governmental charge payable in connection therewith. Optional Redemption Citizens will have the right to redeem the Convertible Debentures, at its option, in whole or in part, at any time on or after _________, 1999, at 100% of the principal amount being redeemed, together with all accrued or deferred and unpaid interest to the redemption date, plus Additional Interest, if any. Citizens may also redeem the Convertible Debentures as described in the following paragraph. Special Events Distribution As described elsewhere herein, the Convertible Debentures may be distributed to holders upon the occurrence of certain Special Events or a Rating Agency Event. For a fuller discussion of this feature, see "Convertible Preferred Securities - Special Events Distribution." However, if at the time there is available to Citizens, the Partnership or the Trust the opportunity to eliminate the adverse effect of the Special Event on the Trust, Citizens or the Partnership by taking some ministerial action, such as filing a form or making an election or pursuing some other similar reasonable measure, where the taking of such action does not involve a material 59 cost, Citizens may not liquidate the Partnership or the Trust without first having pursued such ministerial action. Interest The Convertible Debentures will bear interest at the Rate. As described elsewhere herein, interest may be payable in cash or securities. For a fuller discussion of interest, see the descriptions under "Prospectus Summary" and "Convertible Preferred Securities." Option to Defer Interest Payments As described in greater detail elsewhere herein, so long as no Indenture Event of Default has occurred or is continuing, Citizens has the right to elect to defer the date on which one or more of the quarterly interest payments would otherwise become due and payable. Upon any such deferrals, interest will compound on each scheduled Interest Payment Date and accrued until paid at the Rate on any unpaid interest so deferred until the amount of such deferred interest (including compounded interest thereon) is paid in full. See "Convertible Preferred Securities - Distributions" for a complete discussion of the terms and conditions governing such deferrals. Additional Interest Citizens is required to pay either (i) directly to such taxing authority, (ii) to the Trust or Citizens Capital, as the case may be, or (iii) as Additional Interest on the Convertible Debentures, any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other domestic taxing authority upon either the Trust or Citizens Capital. To the extent that such payments give rise to additional taxes of Citizens Capital or the Trust, the Company shall also make payment for such additional taxes of Citizens Capital or the Trust. Citizens shall be required to pay Additional Interest or make such other payments in an amount and at such time so that the net amounts received as interest or distribution payments by the Trust or Citizens Capital, and distributable to the Trust and the holders of the Convertible Preferred Securities, respectively, after all such taxes, duties, assessments or governmental charges have been paid will not be less than the amount that would have been received and distributed by such entities, and the amount the holders of the Convertible Preferred Securities would have received, had no such taxes, duties, assessments or governmental charges been imposed. If such taxes or duties are paid to the Trust or Citizens Capital or as Additional Interest on the Convertible Debentures, then the Trust or Citizens Capital, as the case may be, is required to pay such amounts over to such taxing authority in satisfaction of such charges or assessments. Subordination The Indenture provides that the Convertible Debentures are subordinate and subject in right of payment to the prior payment in full in cash of all Senior Indebtedness (as defined below) of Citizens. 60 Upon any payment or distribution of assets of the Company to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or liabilities or any bankruptcy, insolvency or similar proceedings of the Company, the holders of Senior Indebtedness will be entitled to receive payment in full in cash of all amounts due on or to become due on or in respect of all Senior Indebtedness, before the holders of the Convertible Debentures are entitled to receive any payment (including any payment to holders of the Convertible Debentures made in respect of any other debt subordinated to the Convertible Debentures) on account of the principal of or interest on the Convertible Debentures or on account of any purchase, redemption or other acquisition of the Convertible Debentures by the Company. The Company may not make any payments on the account of the Convertible Debentures or on account of the purchase or redemption or other acquisition of the Convertible Debentures (except, so long as the Partnership exists, in shares of capital stock), if there has occurred and is continuing a default in the payment of the principal of (or premium, if any) or interest on any Senior Indebtedness (a "Senior Payment Default"). In addition, if any default (other than a Senior Payment Default), or any event which after notice or lapse of time (or both) would become a default, with respect to certain Senior Indebtedness, permitting (after notice or lapse of time or both) the holders thereof to accelerate the maturity thereof, has occurred and is continuing (a "Senior Nonmonetary Default"), and the Company and the Debenture Trustee have received written notice thereof from the holder of such certain Senior Indebtedness, then the Company may not make any payments with respect to the Convertible Debentures (except, so long as the Partnership exists, payments in shares of capital stock), for a period (a "blockage period") commencing on the date the Company and the Debenture Trustee receive such written notice and ending on the earlier of (i) 179 days after such date or (ii) the date, if any, on which the related Senior Indebtedness is discharged or such default is waived in writing or otherwise ceases to exist and any acceleration of Senior Indebtedness to which such Senior Nonmonetary Default relates is rescinded. In any event, not more than one blockage period may be commenced during any period of 360 consecutive days, and there must be a period of at least 181 consecutive days in each period of 360 consecutive days when no blockage period is in effect. By reason of such subordination, in the event of any proceeding of the type described above involving Citizens, creditors of Citizens who are holders of Senior Indebtedness and general unsecured creditors of Citizens may recover more, ratably, than the holder or holders of the Convertible Debentures. The term "Senior Indebtedness" is defined to mean the principal of, premium, if any, interest on, and any other payment due pursuant to any of the following, whether incurred (as defined in the Indenture) on or prior to the date of execution of the Indenture or thereafter incurred: (a) all obligations of Citizens for money borrowed; 61 (b) all obligations of Citizens evidenced by notes, debentures, bonds or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (c) all capitalized lease obligations of Citizens; (d) all reimbursement obligations of Citizens with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of Citizens; (e) all obligations of Citizens issued or assumed as the deferred purchase price of property or services, (but excluding trade accounts payable and accrued liabilities arising in the ordinary course of business); (f) all payment obligations of Citizens under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements at the time of determination, including any such obligations incurred by Citizens solely to act as a hedge against increases in interest rates that may occur under the terms of other outstanding variable or floating rate indebtedness of Citizens; (g) all obligations under lease transactions pursuant to which Citizens or any of its subsidiaries are treated as the owner of the subject property for United States federal income tax purposes; (h) all obligations of the type referred to in clauses (a) through (g) above of another person and all dividends of another person, the payment of which, in either case, Citizens has assumed or guaranteed, or for which Citizens is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise; and (i) all amendments, modifications, renewals, extensions, refinancings, replacements and refundings by Citizens of any such indebtedness referred to in clauses (a) through (h) above (and of any such amended, modified, renewed, extended, refinanced, refunded or replaced indebtedness); provided, however, that the following shall not constitute Senior Indebtedness; (a) any trade accounts payable or accrued liabilities arising in the ordinary course of business, (b) any indebtedness owed to a person when such person is a subsidiary of Citizens, or (c) any indebtedness which by the terms of the instrument creating or evidencing the same expressly provides that it is not superior in right of payment to the Convertible Debentures. As of September 30, 1995, Senior Indebtedness included (i) obligations in the amount of $1,229,596,000 of the nature described in clauses (a) and (b) of the above definition of Senior Indebtedness, plus (ii) other obligations of Citizens of the nautre described in clauses (c) through (h) of the above definition of Senior Indebtedness. See "Convertible Debentures - Subordination." The Indenture does not limit Citizens' ability to incur Senior Indebtedness. 62 Certain Covenants of Citizens Citizens will also covenant in the Indenture that (i) it will not declare or pay any dividend or distribution (other than in shares of capital stock) on any of the Company's capital stock, (ii) that neither it nor any of its subsidiaries will redeem, purchase, acquire for value or make a liquidation payment to any holder of, or with respect to, any of Citizens' capital stock or any of Citizens' indebtedness for borrowed money which by its terms ranks junior in subordination to the Convertible Debentures ("Other Subordinated Indebtedness") (other than (x) as an issuance of capital stock upon conversion of a convertible security or in payment of interest, premium or principal or in payment in redemption, purchase or other acquisition or liquidation of capital stock or Other Subordinated Indebtedness, (y) as a result of reclassification of such capital stock or the exchange or conversion of one class or series of capital stock for another class or series of capital stock, or (z) in connection with the right of the Company to purchase or reacquire shares of Common Stock under the First Supplemental Indenture, the Declaration or the Limited Partnership Agreement), (iii) that Citizens will not pay principal, interest or premium on Other Subordinated Indebtedness (unless payable in shares of capital stock) and (iv) that neither Citizens nor any of its subsidiaries will or make any guarantee of payments which would be prohibited or limited by the foregoing (other than payments under the Guarantees, payments of dividends by a subsidiary, or guarantees of dividends or payments payable to Citizens), if at such time (a) there shall have occurred any event that, with the giving of notice or the lapse of time or both would constitute an Indenture Event of Default, (b) Citizens shall be in default with respect to its payment or other obligations under the Guarantees or (c) Citizens shall have deferred the payment of interest and such deferral of interest payments or any extension thereof shall be continuing. The term "Other Subordinated Indebtedness" shall not include any indebtedness which is outstanding under an instrument dated prior to the date of the Indenture which does not expressly permit the deferral of payment or extension of the time for payment of interest, premium or principal, or any installment thereof. The Company also will covenant (i) to remain the General Partner of the Partnership; provided that any permitted successor of the Company under the Limited Partnership Agreement may succeed to the Company's duties as General Partner, (ii) to cause at least 3% of the total value of the Partnership and at least 3% of all interests in the capital, income, gain, loss, deduction and credit of the Partnership to be held by the Company, as a General Partner of the Partnership, (iii) not to voluntarily dissolve, wind-up or liquidate the Partnership, (iv) to perform timely all of its duties as General Partner (including the duty to declare and pay distributions on the Partnership Preferred Securities), (v) to maintain direct ownership of all partnership interests of the Partnership other than the Partnership Preferred Securities, except as may be permitted by the Limited Partnership Agreement, (vi) to use its reasonable efforts to cause the Partnership to remain a limited partnership and otherwise to continue to be treated as a partnership for United States federal income tax purposes; (vii) to issue Common Stock Series A upon an election by holders to convert the Convertible Debentures; and (viii) to own Convertible Common Securities equal to at least 3% of the total undivided beneficial interests in the assets of the Trust. 63 The Company will also covenant that, so long as any Convertible Debentures are held by the Partnership, the General Partner shall not (i) exercise its option to select the form of payment of interest in violation of instructions of the Special Representative, (ii) direct the time, method and place of conducting any proceeding for any remedy available to the Special Representative, or exercising any trust or power conferred on the Special Representative with respect to the Convertible Debentures, (iii) waive any past default which is waivable under the Indenture, (iv) exercise any right to rescind or annul a declaration that the principal of all the Convertible Debentures shall be due and payable or (v) consent to any amendment, modification or termination of the Convertible Debentures or of the Indenture without, in each case, obtaining the prior approval of the Property Trustee after having received the prior consent of the holders of at least 66 2/3% or more of the aggregate liquidation preference (or a majortiy of the aggregate liquidation preference in the case of waiver of certain past defaults) of the Convertible Preferred Securities then outstanding, provided, however, that where a consent under the Convertible Debentures would require the consent of each holder affected thereby, no such consent shall be given by the General Partner without the prior consent of such Property Trustee, who has received prior consent from each holder of the Convertible Preferred Securities. The General Partner shall not revoke any action previously authorized or approved by a vote of the Property Trustee after having received the prior consent of the holders of the Convertible Preferred Securities, without the approval of the holders of Convertible Preferred Securities representing 66 2/3% or more (or 100% where the consent of each holder affected thereby is required) of the aggregate liquidation preference of the Convertible Preferred Securities. The Company will further covenant that in the event of a merger, consolidation or transfer of assets of the Company with or to another corporation or entity, in which the Company is not the surviving corporation, the surviving entity shall assume the obligations of the Company for the Debentures under the Indenture by execution of a supplemental indenture. Conversion of the Convertible Debentures The Convertible Debentures will be convertible into Common Stock Series A at the option of the holders of the Convertible Debentures, in whole or in part, until and including five (5) Business Days prior to __________, 2036, at a conversion price of $________ per share of Common Stock Series A for each Convertible Debenture, subject to the conversion price adjustments described under "Convertible Preferred Securities - Conversion Rights." If Convertible Debentures are called for redemption, the conversion right will terminate five (5) Business Days prior to the redemption date. In order to exercise the conversion privilege, the holder of any Convertible Debenture to be converted shall surrender such Debenture to the Conversion Agent with a written Notice of Conversion. Upon a delivery of the Convertible Preferred Securities and Notice of Conversion to the Conversion Agent, the Conversion Agent will convert such Convertible Debentures to Common Stock Series A on behalf of such holder. Citizens' delivery to the holders of the Convertible Debentures (through the Conversion 64 Agent) of the fixed number of shares of Common Stock Series A into which the Convertible Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) will be deemed to satisfy Citizens' obligation to pay the principal amount of the Convertible Debentures and any accrued and unpaid interest attributable to the period from the last date to which interest has been paid or duly provided for. See "Convertible Preferred Securities - Conversion Rights." Indenture Events of Default If one or more of the following events (each an "Indenture Event of Default") shall occur and be continuing: (a) failure to pay any principal of the Convertible Debentures when due, and such failure continues for a period of 15 days; (b) failure to pay any interest, other than Additional Interest (if any), on the Convertible Debentures when due and such failure continues for a period of 60 days; provided that a valid deferral of an interest payment by Citizens shall not constitute a default; (c) failure by Citizens to deliver shares of Common Stock Series A upon an election to convert Convertible Debentures for Common Stock Series A, and such failure continues for a period of five days; (d) failure by Citizens to perform in any material respect any other covenant in the Indenture for the benefit of the holders of Convertible Debentures continued for a period of 90 days after written notice to Citizens from the Debenture Trustee or the holders of a majority in principal or liquidation amount of Convertible Debentures, Partnership Preferred Securities or Convertible Preferred Securities; (e) the dissolution, winding-up, liquidation or termination of Citizens Capital (except as a result of a Special Event or Rating Agency Event, as permitted in the Limited Partnership Agreement); (f) the dissolution, winding-up, liquidation or termination of the Trust (except as a result of a Special Event or Rating Agency Event, as permitted in the Declaration); or (g) certain events of bankruptcy, insolvency or liquidation of Citizens, Citizens Capital or the Trust; then either the Debenture Trustee or the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding will have the right to declare the principal of and the interest on the Convertible Debentures and any other amount payable under the Convertible Debentures to be forthwith due and payable and to enforce the holders' other rights as creditors 65 with respect to the Convertible Debentures; provided, however, that if upon an Indenture Event of Default, the Debenture Trustee or the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding fail to declare the payment of all amounts on the Convertible Debentures to be immediately due and payable, the trustee for the holders of a majority in aggregate liquidation preference of Convertible Preferred Securities then outstanding shall have such right; provided further, however, that after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Convertible Debentures, or the holders of the Convertible Preferred Securities if they accelerated such payment, may, under certain circumstances, rescind and annul such acceleration if all Indenture Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. For information as to waiver of defaults, see "- Modification of the Indenture." Citizens Capital is the initial holder of the Convertible Debentures. However, while the Convertible Preferred Securities are outstanding, the General Partner of Citizens Capital has agreed not to waive an Indenture Event of Default without the consent of holders of 66 2/3% in aggregate liquidation preference of the Convertible Preferred Securities then outstanding. Additionally, under the terms of the Partnership Preferred Securities, the holders of outstanding Partnership Preferred Securities will have the rights described above under "Partnership Preferred Securities - Voting Rights," including the right to appoint a Special Representative, which shall be authorized to exercise the right of Citizens Capital, as the holder of Convertible Debentures, to accelerate the principal amount of the Convertible Debentures and accrued interest thereon and to enforce the other rights of holders of the Convertible Debentures as creditors under the Convertible Debentures. A default under any other indebtedness of Citizens would not constitute an Indenture Event of Default under the Convertible Debentures. Subject to the provision of the Indenture relating to the duties of the Debenture Trustee in case an Indenture Event of Default shall occur and be continuing, the Debenture Trustee will be under no obligation to exercise any of its rights or powers under the Indentureguarantee at the request or direction of any holders of Convertible Debentures, unless such holders shall have offered to the Debenture Trustee reasonable indemnity. Subject to such provisions for the indemnificationholder of the Debenture Trustee, the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee or exercising any trust or power conferred on the Debenture Trustee. Nopreferred securities unless that holder of any Convertible Debenture will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such holder shall have previously given to the Debenture Trustee written notice of a continuing Indenture Event of Default and, unless the holders of a majority in aggregate principal amount of the Convertible Debentures then outstanding also shall have made written request, and offeredoffers reasonable indemnity to the Debenture Trustee to institute such proceedingguarantee trustee against the costs, expenses and liabilities which it might incur as trustee, and the Debenture Trustee shall not have received from the holders of 66 2/3% in aggregate principal amount of the outstanding Convertible Debentures a direction inconsistent with such request and shall have failed to institute such proceeding within 90 days. 66result. AGREEMENT AS TO EXPENSES AND LIABILITIES Citizens will be required to furnish to the Debenture Trustee annually a statemententer into an Agreement as to the performance by Citizens of certain of its obligationsExpenses and Liabilities under the Indenture andTrust Agreement. The Agreement as to any default of such performance. Modification of the Indenture The Indenture may be amended by CitizensExpenses and the Debenture Trustee with the consent of the holders of not less than 66 2/3% in aggregate principal amount of the outstanding Convertible Debentures; provided, that no such modification or amendment may, without the consent of the holder of each outstanding Convertible Debenture affected thereby, (a) change the Maturity of the principal of, or any installment of interest on, any Convertible Debenture, (b) reduce the principal amount of, or interest on, any Convertible Debenture, (c) change the premium payable upon redemption of any Convertible Debenture, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Convertible Debenture, (e) adversely affect the right to convert or exchange Convertible Debentures, (f) modify the subordination provision in a manner adverse to the holders of the Convertible Debentures, (g) reduce the above-stated percentage of outstanding Convertible Debentures necessary to modify or amend the Indenture or (h) reduce the percentage of aggregate principal amount of outstanding Convertible Debentures necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults; and provided further, that so long as any of the Convertible Preferred Securities or Partnership Preferred Securities remain outstanding, no such amendment may be made that adversely affects the holders of Convertible Preferred Securities or Partnership Preferred Securities, and no termination of the Indenture may occur, and no Indenture Event of Default or compliance with any covenant under the Indenture may be waived by the holders of the Convertible Debentures, without the prior consent of at least 66 2/3% of the aggregate liquidation preference (or a majority of the aggregate liquidation preference in the case of waiver of certain past defaults) of the Convertible Preferred Securities or Partnership Preferred Securities then outstanding unless and until the Convertible Debentures and all accrued or deferred and unpaid interest thereon have been paid in full. Governing Law The Indenture and the Convertible Debentures will be governed by, and construed in accordance with, the laws of the State of New York. Information Concerning the Debenture Trustee The Indenture contains certain limitations on the right of the Debenture Trustee should it become a creditor of Citizens, to obtain payment of claims in certain cases, or to realize for its own account on certain property received in respect of any such claim as security or otherwise. The Debenture Trustee will be permitted to engage in certain other transactions; however, if it acquires any conflicting interest and there is a default under the Convertible Debentures, it must eliminate such conflict or resign. 67 Citizens has agreed in the Indenture to indemnify and hold harmless the Debenture Trustee against any losses or damages it may suffer as Debenture Trustee. Chemical Bank, the Debenture Trustee under the Indenture, has from time to time engaged in transactions with, or performed services for, Citizens in the ordinary course of business. Chemical is the trustee under an indenture dated August 15, 1991, as supplemented, pursuant to which $700 million of principal amount of debentures are outstanding thereunder. Chemical is also a participant lender under the Company's $600 million of committed bank lines of credit for general corporate purposes. As of December 20, 1995, no amounts were outstanding under such bank lines of credit. Miscellaneous The IndentureLiabilities will provide that Citizens will, pay all feeswith certain exceptions, irrevocably and unconditionally guarantee the full payment of any indebtedness, expenses related to (i) the issuance and saleor liabilities of the Trust Securities, the Partnership Securities and the Convertible Debentures, (ii) the organization, maintenance and dissolution of Citizens Capital andto each person or entity to whom the Trust and other costs and expensesbecomes indebted or liable. The exceptions are the obligations of Citizens Capital and the Trust (iii) the retention of the Regular Trustees, (iv) the enforcement by the Property Trustee of the rights ofto pay the holders of the Convertible Preferred Securities and (v) the extent contemplated by the Indenture, the taxes of the Partnership andtrust preferred securities or other similar interests in the Trust and all liabilities, costs and expenses with respect to such taxes of the Partnership and the Trust either by payment of Additional Interest or by otherwise making funds availableamounts due to the appropriate taxing authority or to the Partnership or the Trust. The payment of such fees and expenses will be fully and unconditionally guaranteed by Citizens. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS General In the opinion of Skadden, Arps, Slate, Meagher & Flom, special tax counsel to the Company, the Trust and Citizens Capital, the following are the material United States federal income tax consequences of the issuance, ownership and disposition of Convertible Preferred Securities. Unless otherwise stated, this summary deals only with Convertible Preferred Securities held as capital assets by holders who purchase the Convertible Preferred Securities upon original issuance. The tax treatment of a holder may vary depending on its particular situation. This summary does not address all the tax consequences that may be relevant to holders who may be subject to special tax treatment such as, for example, banks, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or except as specifically described herein, foreign taxpayers. This summary does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Convertible Preferred Securities. This summary is based on the Code, Treasury regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. 68 Proposals Would Not Affect Tax Treatment On December 7, 1995, the Treasury Department proposed legislation referred to herein as the "Proposals" that, if enacted, would require certain debt instruments that are not reflected as debt on the issuer's consolidated balance sheet, such as the Convertible Debentures, to be characterized as equity of the issuer for United States federal income tax purposes. On December 19, 1995, the Treasury Department announced proposals regarding transitional relief from the Proposals, stating that instruments will not be subject to the Proposals if issued pursuant to a registration statement filed with the SEC on or before December 7, 1995, to the extent of the aggregate amount of such instruments described in the registration statement. The proposals for transitional relief would exempt the Convertible Debentures from recharacterization under the Proposals. Accordingly, even if the Proposals are enacted, they should not affect the United States federal income tax treatment of the Convertible Debentures, the Convertible Preferred Securities or the Partnership Preferred Securities. Classification of the Convertible Debentures In connection with the issuance of the Convertible Debentures, Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Citizens, Citizens Capital and the Trust, has rendered its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Convertible Debentures will be classified for United States federal income tax purposes as indebtedness of Citizens. Classification of Citizens Capital In connection with the issuance of the Partnerhsip Preferred Securities, Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Citizens, Citizens Capital and the Trust, has rendered its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Limited Partnership Agreement and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, Citizens Capital will be classified for United States federal income tax purposes as a partnership and not as an association taxable as a corpora- tion. Classification of the Trust In connection with the issuance of the Convertible Preferred Securities, Skadden, Arps, Slate, Meagher & Flom, special tax counsel to Citizens, Citizens Capital and the Trust, has rendered its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Declaration and the Indenture (and certain other documents), and based on certain facts and assumptions contained in such opinion, the Trust will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Convertible Preferred Securities will generally be considered the owner of an undivided interest in the Limited Partnership Securities held by the Trust, and each holder will be required to include in its gross income its distributive share of the net income of Citizens Capital, which net income generally will be equal to the amount of OID accrued with respect to the allocable share 69 of the Convertible Debentures represented by its undivided interest in the Limited Partnership Securities. Potential Deferral of Interest Payments and Original Issue Discount Because Citizens has the option, under the terms of the Convertible Debentures,trust preferred securities or those similar interests. 44 PLAN OF DISTRIBUTION We may sell securities directly to defer payments of interest for uppurchasers, through agents, to 20 quarters, all of the stated interest payments on the Convertible Debentures (whether made in cashdealers, to underwriters or Common Stock) will be treated as "original issue discount". Holders of debt instruments issued with OID must include that discount in income on an economic accrual basis without regard to the receipt of cash or Common Stock attributable to the interest, regardless of their method of tax accounting. The OID accrual rules may also accelerate the timing of a holder's recognition of income in certain situations. Actual payments and distributions of stated interest (whether made in cash or Common Stock) will not, however, be separately reported as taxable income. The amount of OID that accrues in any quarter and is allocated to the holders of the Trust Securities will approximately equal the amount of the interest that accrues on the Convertible Debentures in that quarter at the stated interest rate. Accordingly, unless Citizens exercises its option to defer interest payments on the Convertible Debentures, a holder of Convertible Preferred Securities (whether it makes a Cash Distribution Election or Stock Distribution Election) should have the same adjusted tax basis in its Convertible Preferred Securities at the beginning of each quarterly interest payment period. In the event that the interest payments on the Convertible Debentures are deferred, holders will continue to accrue OID with respect to their Convert- ible Preferred Securities on an economic accrual basis. During such period, OID will accrue at the stated interest rate on both the principal amount of the Convertible Debentures, and any accrued, but unpaid, interest. Because income on the Convertible Preferred Securities will constitute interest (in the form of OID), corporate holders of Convertible Preferred Securities will not be entitled to a dividends-received deduction with respect to any income recognized with respect to the Convertible Preferred Securities. Holders Making a Stock Distribution Election A holder that makes a Stock Distribution Election will recognize the same amount of OID with respect to its Convertible Preferred Securities as a holder who makes a Cash Distribution Election. In addition, a holder that makes a Stock Distribution Election will not recognize any gain or loss on the receipt of the Common Stock from the Trust even though the fair market value of the Common Stock on the interest payment date may be greater or lesser than the cash equivalent amount of the interest payment. Furthermore, a holder will not recognize any additional income or loss with respect to cash it may receive in lieu of a fractional share of Common Stock. A holder's tax basis in the Common Stock it receives in lieu of a cash interest payment generally will equal Citizens Capital's tax basis in such Common Stock. Citizens Capital's tax 70 basis in the Common Stock it receives as interest on the Convertible Debentures should equal the fair market value of the Common Stock on the Share Transfer and Valuation Date. It is anticipated that the fair market value of the Common Stock on the Share Transfer and Valuation Date will equal the cash equivalent amount of such interest payment. Accordingly, a holder who makes a Stock Distribution Election generally should have a tax basis in the shares of Common Stock it receives in lieu of a cash interest payment equal to the cash equivalent amount of such interest payment (less any cash received in lieu of a fractional share of Common Stock). In light of the fact that the value of a share of Common Stock can be expected to vary among interest payment dates, holders who make Stock Distribution Elections may have different tax bases in shares of Common Stock they receive on different payment dates. Holders should consult their tax advisors regarding the tax consequences of the ownership and disposition of shares of Common Stock with different tax bases. A holder's tax basis in its Convertible Preferred Securities will be (i) increased by the amount of OID accrued with respect to its Convertible Preferred Securities and (ii) reduced by the tax basis of the Common Stock (and the amount of cash received in lieu of fractional shares of Common Stock) received as interest with respect to its Convertible Preferred Securities. It is expected that the amount of OID accrued with respect to a quarterly interest payment period will approximately equal the tax basis of the Common Stock (and the amount of cash received in lieu of fractional shares of Common Stock) received as interest with respect to such interest payment period. Receipt of Partnership Preferred Securities, Convertible Debentures or Cash Upon Liquidation of Citizens Capital and the Trust. Under certain circumstances, as described under the caption "Convertible Preferred Securities - Special Events Distribution", Convertible Debentures may be distributed to holders in exchange for their Convertible Preferred Securities and in liquidation of Citizens Capital and the Trust. Under current law, such a distribution to holders, for United States federal income tax purposes, would be treated as a nontaxable event to each holder, and each holder would receive an aggregate tax basis in the Convertible Debentures equal to such holder's aggregate tax basis in its Convertible Preferred Securities. A holder's holding period in the Convertible Debentures so received in liquidation of Citizens Capital and the Trust would include the period during which the Convertible Preferred Securities were held by such holder. If, however, the related Special Event is a Partnership Tax Event or a Trust Tax Event which results in Citizens Capital or the Trust, respectively, being treated as an association taxable as a corporation, the distribution of the Convertible Debentures would likely constitute a taxable event to holders of the Convertible Preferred Securities. Under certain circumstances, as described under the caption "Convertible Preferred Securities - Special Events Distribution", Limited Partnership Securities may be distributed to holders in exchange for their Convertible Preferred Securities and in liquidation of the Trust. Under current law, such a distribution to holders, for United States federal income tax purposes, 71 would be treated as a nontaxable event to each holder, and each holder would receive an aggregate tax basis in its Limited Partnership Securities equal to such holder's aggregate tax basis in its Convertible Preferred Securities exchanged therefor. A holder's holding period in the Limited Partnership Securities so received in liquidation of the Trust would include the period during which the Convertible Preferred Securities were held by such holder. If, however, the related Special Event resulting in the liquidation of the Trust is a Trust Tax Event which results in the Trust being treated as an association taxable as a corporation, the distribution would likely constitute a taxable event to the holders of the Convertible Preferred Securities. Under certain circumstances, as described under the caption "Convertible Preferred Securities - Optional Redemption" and " - Redemption Upon Maturity or Upon Acceleration," the Convertible Debentures may be redeemed by Citizens for cash and the proceeds of such redemption distributed by Citizens Capital to the Trust in redemption of the Limited Partnership Securities which, in turn, will distribute such proceeds to holders in redemption of their Convertible Preferred Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the Convertible Preferred Securities, and a holder would recognize gain or loss as if it sold such redeemed Convertible Preferred Securities for an amount of cash equal to the proceeds received upon redemption. See "Convertible Preferred Securities." Disposition of Convertible Preferred Securities A holder that sells Convertible Preferred Securities will recognize gain or loss equal to the difference between the amount realized on the sale of the Convertible Preferred Securities and the holder's adjusted tax basis in such Convertible Preferred Securities. Such gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if the Convertible Preferred Securities have been held for more than one year at the time of sale. A holder's tax basis in its Convertible Preferred Securities will be (i) increased by the amount of OID accrued with respect to its Convertible Preferred Securities and (ii) reduced by (x) the amount of cash and (y) the tax basis of any shares of Common Stock received with respect to its Convertible Preferred Securities. It is expected that the amount of OID accrued with respect to a quarterly interest payment period will approximately equal the amount of cash and the tax basis of the Common Stock, if any, received as interest with respect to such interest payment period. The Convertible Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid distributions and interest with respect to the underlying Limited Partnership Securities and Convertible Debentures, respectively. A holder who disposes of or converts its Convertible Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Convertible Debentures through the date of disposition in income as ordinary income, and to add such amount to the adjusted tax basis in its Convertible Preferred Securities. To the extent the selling price is less than the holder's adjusted tax basis (which basis will include, in the form of OID, all accrued 72 but unpaid interest), a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. Exchange of Convertible Preferred Securities for Common Stock A holder of Convertible Preferred Securities will not recognize income, gain or loss upon the conversion, through the Conversion Agent, of Convertible Preferred Securities into Common Stock in the manner described under the caption "Convertible Preferred Securities - Conversion Rights." A holder of Convertible Preferred Securities will, however, recognize gain upon the receipt of cash in lieu of a fractional share of Common Stock equal to the amount of cash received less the holder's tax basis in such fractional share. A holder's tax basis in the Common Stock received upon the exchange and conversion of its Convertible Preferred Securities should generally be equal to the holder's adjusted tax basis in the Convertible Preferred Securities delivered to the Conversion Agent for exchange less the basis allocated to any fractional share for which cash is received. A holder's holding period in the Common Stock received upon exchange and conversion of its Convertible Preferred Securities should generally begin on the date such holder acquired the Convertible Preferred Securities delivered to the Conversion Agent for exchange. Adjustment of Conversion Price Treasury Regulations promulgated under Section 305 of the Code would treat holders of Convertible Preferred Securities as having received a constructive distribution from Citizens in the event the conversion price of the Convertible Debentures were adjusted if (i) as a result of such adjustment, the proportionate interest (measured by the quantum of Citizens Common Stock into or for which the Convertible Debentures are convertible or exchangeable) of the holders of the Preferred Securities in the assets or earnings and profits of Citizens were increased, and (ii) the adjustment was not made pursuant to a bona fide, reasonable antidilution formula. An adjustment in the conversion price would not be considered made pursuant to such a formula if the adjustment was made to compensate for certain taxable distributions with respect to the Common Stock. Thus, under certain circumstances, a reduction in the conversion price for the holders may result in deemed dividend income to holders to the extent of the current or accumulated earnings and profits of Citizens. Holders of the Convertible Preferred Securities would be required to include their allocable share of such deemed dividend income in gross income but will not receive any cash related thereto. An adjustment in the conversion price made to account for nontaxable distributions of Common Stock made with respect to Common Stock will generally not cause holders of Convertible Preferred Securities to realize a constructive dividend from Citizens. In addition, the failure to fully adjust the conversion price of the Convertible Debentures to reflect distributions of stock dividends with respect to the Common Stock may result in a taxable dividend to the holders of the Common Stock. 73 United States Alien Holders For purposes of this discussion, a "United States Alien Holder" is any corporation, individual, partnership, estate or trust that is, as to the United States, a foreign corporation, a non-resident alien individual, a foreign partnership, or a nonresident fiduciary of a foreign estate or trust. Under present United States federal income tax law, (i) payments by the Trust or any of its paying agents (whether in the form of cash or Common Stock) to any holder of a Convertible Preferred Security who or which is a United States Alien Holder will not be subject to withholding of United States federal income tax; provided that, (a) the beneficial owner of the Convertible Preferred Security does not actually or constructively (including by virtue of its interest in the underlying Convertible Debentures) own 10% or more of the total combined voting power of all classes of stock of Citizens entitled to vote, (b) the beneficial owner of the Convertible Preferred Security is not a controlled foreign corporation that is related to Citizens through stock ownership, and (c) either (A) the beneficial owner of the Convertible Preferred Security certifies to the Trust or its agent, under penalties of perjury, that it is not a United States holder and provides its name and address or (B) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution"), and holds the Convertible Preferred Security in such capacity, that certifies to the Trust or its agent, under penalties of perjury, that such statement has been received from the beneficial owner by it or by a Financial Institution between it and the beneficial owner and furnishes the Trust or its agent with a copy thereof; and (ii) a United States Alien Holder of a Convertible Preferred Security will not be subject to withholding of United States federal income tax on any gain realized upon the sale or other disposition of a Convertible Preferred Security, unless, in the case of a United States Alien Holder who is an individual, such individual is present in the United States for 183 days or more in the taxable year of sale or other disposition, and certain other conditions are met. If a United States Alien Holder is treated as receiving a deemed dividend as a result of an adjustment of the conversion price of the Convertible Debentures, as described above under "Adjustment of Conversion Price", such deemed dividend may be subject to United States federal withholding tax at a 30% (or lower treaty) rate. Information Reporting and Backup Withholding Income on the Convertible Preferred Securities will be reported to holders on Form 1099, which form should be mailed to holders of Convertible Preferred Securities by January 31 following each calendar year. Payments made on and proceeds from the sale of Convertible Preferred Securities may be subject to a "back-up" withholding tax of 31% unless the holder complies with certain identification requirements. Any withheld amount will generally be allowed as a credit against the holder's United States federal income tax, provided the required information is timely filed with the Internal Revenue Service. 74 THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. UNDERWRITING The underwriters of the offering of the Convertible Preferred Securities named below (the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman Brothers, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions of an Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Trust the number of Convertible Preferred Securities set forth opposite their respective names below. Number of Convertible Underwriters Preferred Securities ------------ -------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated.................................... Lehman Brothers Inc.............................. ------------- Total.................................... 3,500,000 ============= The Underwriting Agreement provides that the obligations of the Underwriters to purchase Convertible Preferred Securities are subject to certain conditions. The Underwriting Agreement provides that, if any Convertible Preferred Securities are purchased pursuant to the Underwriting Agreement, all Convertible Preferred Securities agreed to be purchased pursuant to the Underwriting Agreement must be so purchased. The Trust, Citizens Capital and the Company have granted to the Underwriters an option to purchase up to an additional 525,000 aggregate liquidation value of Convertible Preferred Securities at the public offering price less the aggregate underwriting discount, solely to cover over-allotments. The option may be exercised at any time up to 30 days after the date of this Prospectus. The Underwriters propose initially to offer the Convertible Preferred Securities directly to the public at the offering price set forth on the cover page of this Prospectus, and to 75 certain securities dealers at such public offering price less a selling concession not in excess of $ per Convertible Preferred Security. The selected dealers may reallow a discount not in excess of $ per Convertible Preferred Security on sales to certain other dealers. After the offering of the Convertible Preferred Securities, the public offering price, concession and discount may be changed. In view of the fact that the proceeds of the sale of the Convertible Preferred Securities will ultimately be used to purchase the Convertible Debentures of Citizens, the Underwriting Agreement provides that Citizens will pay as compensation ("Underwriters' Compensation") to the Underwriters arranging the investment therein of such proceeds, an amount in New York Clearing House (next day) funds of $_____ per Convertible Preferred Security (or $_____ in the aggregate) for the accounts of the several Underwriters. The Company and the Trust have agreed to indemnify the Underwriters against certain liabilities which may be incurred in connection with the offering of the Convertible Preferred Securities and the exercise of the over-allotment options, including liabilities under the 1933 Act. The Trust and the Company have agreed, with certain exceptions, that they will not sell or otherwise dispose of any Convertible Preferred Securities, shares of Common Stock Series A or Common Stock Series B or any securities convertible into or exchangable or exercisable for any such Convertible Preferred Securities or common stock, with certain designated exceptions, for a period of 90 days from the date of this Prospectus without the written consent of the Representatives. Application will be made to list the Convertible Preferred Securities on the NYSE. Trading of the Convertible Preferred Securities on the NYSE is expected to commence within a 30-day period after the initial delivery of the Convertible Preferred Securities. The Representatives have advised the Trust that it intends to make a market in the Convertible Preferred Securities prior to the commencement of trading on the NYSE. The Representatives will have no obligation to make a market in the Convertible Preferred Securities, however, and may cease market making activities, if commenced, at any time. Prior to this offering there has been no public market for the Convertible Preferred Securities. In order to meet one of the requirements for listing the Convertible Preferred Securities on the NYSE, the Underwriters will undertake to meet the NYSE's distribution standards with respect to Convertible Preferred Securities. Certain of the Underwriters engage in transactions with, and, from time to time, have performed services for, Citizens and its subsidiaries in the ordinary course of business. ---------------------------- 76 Common Stock Series A may be distributed by the Trust in connection with the elections by the holders of the Convertible Preferred Securities to receive their distributions in Common Stock Series A. These elections may be made at the time of this offering and annually during the Election Period. Sales of Common Stock Series A by Citizens Capital may be made from time to time in one or more transactions (which may involve crosses or block transactions) on the NYSE or otherwise, pursuant to and in accordance with the rules of the NYSE, in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market pricesthese ways. Agents or at negotiated prices. Citizens Capital will effect such transactions by selling shares of Common Stock Series A to or through broker-dealers. Such broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions from Citizens Capital and/or purchasers of shares of Common Stock Series A for whom they may act (which compensation may be in excess of customary commissions). Citizens Capital and broker-dealers that participate with Citizens Capital in the distributions of shares of Common Stock Series Adealers may be deemed to be "underwriters" within the meaning of Section 2(11)the Securities Act of the 1933 Act, and any discounts or commissions received by them from us and any profit on the resale of securities by them may be considered underwriting discounts and commissions under the Securities Act of 1933. Any underwriter or agent will be identified, and any compensation received from us will be described in the prospectus supplement relating to those securities. We may directly solicit offers to purchase securities or designate agents to do so. Any agent will be named, and any commissions payable by us to such agent, or the method by which commissions can be determined, will be described, in the applicable prospectus supplement. If we use underwriters or dealers in a sale, the securities will be acquired by the underwriters or dealers for their own account. The underwriters or dealers may resell the securities from time to time in one or more transactions, including negotiated transactions at a fixed public offering price or at varying prices determined at the time of sale. The securities may be offered to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more of such firms. Unless otherwise indicated in the applicable prospectus supplement, the obligations of the underwriters to purchase all the securities of the series offered will be subject to customary conditions and the underwriters will be obligated to purchase all the securities of the series offered if any are purchased. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. We may authorize underwriters, dealers and agents to solicit offers by institutional investors to purchase offered securities under contracts providing for payment and delivery on a future date specified in the prospectus supplement. The prospectus supplement will also describe the public offering price for the securities and the commission payable for solicitation of these delayed delivery contracts. Delayed delivery contracts will contain definite fixed price and quantity terms. The obligations of a purchaser under these delayed delivery contracts will be subject to only two conditions: - that the institution's purchase of the securities at the time of delivery of the securities is not prohibited under the law of any jurisdiction to which the institution is subject; and - that we shall have sold to the underwriters the total principal amount of the offered securities, less the principal amount covered by the delayed delivery contracts. We may have agreements with agents, dealers and underwriters to indemnify them against specified liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments they may be required to make in respect of these liabilities. Agents, dealers or underwriters may engage in transactions with or perform services for us in the ordinary course of business. This prospectus also relates to the offer and sale from time to time by the selling stockholder identified in the section entitled "Selling Stockholder" and its respective pledgees, donees and other successors in interest of up to approximately 9,139,900 shares of Common Stock Series ACitizens common stock in the aggregate. We refer to such shares as the Resale Shares. The Resale Shares may be deemedsold from time to time by the selling stockholder. Such sales may be underwriting compensation. LEGAL OPINIONS The validitymade in underwritten offerings or in open market or block transactions or otherwise on any national securities exchange or automated interdealer quotation system on which shares of Citizens common stock are then listed, including the New York Stock Exchange, in the over-the-counter market, in private transactions or otherwise at prices related to prevailing market prices at the time of the Convertible Preferredsale or at negotiated prices. Some or all of the Resale Shares may be sold through brokers acting on behalf of the selling stockholder or to dealers for resale by such dealers. In connection with such sales, such brokers and dealers may receive compensation in the form of discounts or commissions from the selling stockholder and may receive commissions from the purchasers of such Resale Shares for whom they act as broker or agent, which discounts and commissions are not anticipated to exceed those customary in the types of transactions involved. The selling stockholder may offer to sell and may sell shares of our common stock in options transactions or deliver such shares to cover short sales "against the box." If necessary, a supplemental or amended 45 prospectus will describe the method of sale in greater detail. In effecting sales, brokers or dealers engaged by the selling stockholder and/or purchasers of the Resale Shares may arrange for other brokers or dealers to participate. In addition, any of the Resale Shares covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act of 1933 may be sold under Rule 144 rather than pursuant to this prospectus. If the Convertible PreferredResale Shares are sold in an underwritten offering, the Resale Shares will be acquired by the underwriters for their own accounts and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or prices at the time of the sale or at negotiated prices. Any initial public offering price and any discounts or commissions allowed or reallowed or paid to dealers may be changed from time to time. Underwriters may sell Resale Shares to or through brokers or dealers, and such brokers and dealers may receive compensation in the form of discounts, commissions or commissions from the underwriters and may receive commissions from the purchasers of the Resale Shares for whom they act as broker or agent, which discounts and commissions are not anticipated to exceed those customary in the types of transactions involved. Citizens has agreed to pay all expenses in connection with the registration of the Resale Shares, including brokerage commissions allocable to the sale of the Resale Shares and fees and disbursements of counsel and other representatives of the selling stockholder. The number of Resale Shares that may be actually sold by the selling stockholder will be determined by the selling stockholder, and may depend upon a number of factors, including, among other things, the market price of our common stock. Because the selling stockholder may offer all, some or none of the Resale Shares, and because the offering contemplated by this prospectus is currently not being underwritten, no estimate can be given as to the number of Resale Shares that will be held by the selling stockholder upon or prior to termination of this offering. Accordingly, there can be no assurance that the selling stockholder will sell any or all of the Resale Shares. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Securities Guarantee,Exchange Act of 1934 and, in accordance therewith, file reports and other information with the Partnership Guarantee,SEC. You may read and copy any document we file at the Convertible Debentures,SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located at 500 West Madison Street, 14th Floor, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can also be obtained by mail from the Partnership Preferred SecuritiesPublic Reference Section of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the prescribed rates. Please call the SEC at 1-800-SEC-0330 for more information on their public reference rooms and their copy charges, as well as the SEC's Public Reference Section's charges for mailing copies of the documents we have filed. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information on a delayed basis regarding registrants, including us, that file electronically with the SEC. Our common stock is listed on the New York Stock Exchange and any reports, proxy and information statements and other information we file with the SEC may also be inspected and copied at the offices of the New York Stock Exchange, Inc., located at 20 Broad Street, New York, New York 10005. INCORPORATION OF DOCUMENTS BY REFERENCE Some of the information that you may want to consider in deciding whether to invest in any of our securities is not included in this prospectus, but rather is incorporated by reference to specific reports that we have filed with the SEC. This allows us to disclose important information to you by referring you to those documents rather than repeating them in full in this prospectus. The information incorporated by reference in this prospectus contains important business and financial information. In addition, information that we file with the SEC after the date of this prospectus automatically updates and supersedes the information contained in this prospectus and incorporated filings. We have 46 previously filed the following documents with the SEC (File No. 001-11001) and are incorporating them by reference into this prospectus: - Annual Report on Form 10-K of Citizens Communications Company for the year ended December 31, 2000 and filed with the SEC on March 9, 2001; - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on May 7, 2001, including the audited financial statements of the selected US WEST exchanges and the Common StockFrontier ILEC businesses as of December 31, 2000 and 1999 for each of the years in the three year period ended December 31, 2000 and pro forma financial information; - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on April 27, 2001 including our press release announcing the approval by the New York Public Service Commission of the purchase of Global Crossing Ltd.'s local exchange carrier business (the Frontier ILEC businesses); - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on April 25, 2001, including our press release announcing the approval by the Louisiana Public Service Commission on April 23, 2001 of the sale to Atmos Energy Corporation of the LGS Natural Gas Company Subsidiary and the Louisiana Gas Service Company division; - Current Report on Form 8-K of Citizens Communication Company filed with the SEC on April 4, 2001, including our press release announcing the offering of $3.0 billion worth of debt and equity securities under a shelf registration statement; - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on March 29, 2001, including the audited financial statements of selected US WEST exchanges and the Frontier ILEC businesses as of December 31, 1999 and 1998 and for each of the years in the three-year period ended December 31, 1999 and the unaudited financial statements for the nine months ended September 30, 2000 and 1999 and pro forma financial information; - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on March 8, 2001, including our press release announcing fourth quarter results and including our financial and operating data tables; - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on February 13, 2001, including financial statements of the GTE combined entities as of September 30, 2000 and for the nine months ended September 30, 2000 and 1999 and financial statements of Contel of Minnesota, Inc. for the eight months ended August 31, 2000 and 1999, and pro forma financial information; and - Current Report on Form 8-K of Citizens Communications Company filed with the SEC on November 14, 2000, including the audited financial statements of the GTE combined entities and Contel of Minnesota, Inc. as of December 31, 1999 and 1998 and for each of the years in the three-year period ended December 31, 1999 and for the six months ended June 30, 2000 and 1999 and pro forma financial information. We also incorporate by reference all documents subsequently filed by us under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this prospectus until our offering is completed. We will provide you, upon written or oral request, with a copy of any of these documents, at no cost. You should direct your request, either in writing or by telephone, to Citizens Communications Company 3 High Ridge Park, Stamford, Connecticut 06905 Attn.: Office of the Secretary Telephone 203-614-5600. 47 LEGAL MATTERS The legality of securities issued by Citizens offered hereby will be passed upon by Boulanger, HicksWinston & Churchill, P.C., 135 East 57th Street, New York, New York, and Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York, counsels for the Company, and by Simpson Thacher & Bartlett (a partnership which includes professional corporations), 425 LexingtonStrawn, 200 Park Avenue, New York, New York, counsel for Citizens and for any underwriters by Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York. Richards, Layton & Finger, P.A., special Delaware counsel to the Underwriters, exceptTrust, will issue an opinion concerning certain matters of Delaware law relating to the validity of the trust preferred securities on behalf of the Trust. In giving their respective opinions, Winston & Strawn and Simpson Thacher & Bartlett may rely as to certain matters of Delaware law as to which Boulanger, Hicks & Churchill, P.C. and Simpson Thacher & Bartlett may rely upon the opinion of Skadden, Arps, Slate, MeagherRichards, Layton & Flom. Certain United States federal income taxation matters will be passed upon for Citizens, Citizens Capital and the Trust by Skadden, Arps, Slate, Meagher & Flom. Legal matters relating to required authorization, if any, of the Convertible Preferred Securities, the Convertible Preferred Securities Guarantee, the Partnership Guarantee, the Convertible Debentures, the Partnership Preferred Securities and the Common Stock by the public utilities commissions in the various states will be passed upon by local counsel to Citizens in the states of Arizona, Colorado, Hawaii, Louisiana, Tennessee, Vermont and West Virginia. Boulanger, Hicks & Churchill, P.C., Skadden, Arps, Slate, Meagher & Flom and Simpson Thacher & Bartlett may rely upon such counsel as to certain matters governed by the laws of such states. 77Finger, P.A. EXPERTS TheOur consolidated financial statements of the Company as of December 31, 1994, 1993,2000 and 1992,1999, and for each of the years thenin the three-year period ended December 31, 2000, incorporated by reference in this Prospectusprospectus from the Company'sour Annual Report on Form 10-K, have been so incorporated by reference in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of the Mountain State Telephone Company, Alltel Nevada, Inc., Navajo Communications Company, Inc.,GTE combined entities as of December 31, 1999 and Contel1998 and for each of New York, Inc.the years in the three-year period ended December 31, 1999, incorporated by reference herein, have been examined by Arthur Andersen LLP to the extent and for the periods indicated in their reports, andthis prospectus from our Current Report on Form 8-K filed November 14, 2000, have been so incorporated by reference in reliance upon the reportsreport of Arthur AndersenKPMG LLP, alsoindependent public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 78The financial statements of Contel of Minnesota, Inc. incorporated by reference in this prospectus and elsewhere in the registration statement to the extent and for the periods indicated in their reports dated January 27, 2000 and January 28, 1999 have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The special purpose financial statements of the selected, assets, liabilities and parent's equity of Qwest Communications International Inc.'s, formerly US WEST, Inc., selected Qwest exchanges, formerly selected US WEST exchanges, as of December 31, 2000 and 1999 and the related statements of revenue and expenses and cash flows for each of the three years in the period ended December 31, 2000, incorporated by reference in this prospectus from our Current Report on Form 8-K filed on May 7, 2001, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are so incorporated by reference in reliance upon the report of said firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The combined financial statements of the Frontier ILEC businesses as of December 31, 1999 and 2000, for the year ended December 31, 2000, the nine-month period ended September 30, 1999 and the three-month period ended December 31, 1999, incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The combined financial statements of the Frontier Incumbent Local Exchange Carrier Businesses as of December 31, 1997 and 1998 and for each of the two years in the period ended December 31, 1998, incorporated in this registration statement by reference to Citizens Communications Company's Current Report on Form 8-K of dated March 29, 2001, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 48 INDEX OF DEFINED TERMS Defined Terms Page - ------------- ---- 1933 Act 2 1934 Act 2 1934 Act Reports 2 1940 Act 38 Additional Interest 35 ALLTEL 18 ALLTEL Telecommunications Properties 18 Average Market Price 37 back-up undertakings 56 Base Indenture 58 Beneficial Owner 47 blockage period 61 Business Day 34 Cash Distribution Election 7 Cash Payment Election 8 Change in 1940 Act Law 38 Change in Tax Law 39 Citizens 1 Citizens Capital ii Code 16 Common Stock ii Common Stock Series A ii Company 1 Company Tax Event 39 Conversion Agent 10 Convertible Common Securities 1 Convertible Debentures ii Convertible Preferred Securities 1 Convertible Preferred Securities Guarantee 10 CUC Capital 28 Debenture Trustee 58 Declaration 29 Declaration Event of Default 44 Delaware Trustee 29 Direct Participants 46 Distribution Declaration Date 7 Distribution Declaration Notice 7 Distribution Election 7 Distribution Payment Date ii DTC iii Election Period 8 Eligible Investments 28 Financial Institution 74 79 INDEX OF DEFINED TERMS Defined Terms Page - ------------- ---- General Partner 28 General Partner Payment 59 General Partnership Security 4 GTE 23 GTE Telecommunications Properties 23 GTE Telephone Properties 23 Guarantee Payments 55 Guarantee Trustee 29 Guarantees iii Indenture 59 Indenture Event of Default 65 Indenture Trustee 58 Indirect Participants 47 Interest Payment Date ii Investment Company Act Opinion 38 Limited Partnership Agreement 28 Liquidation Distribution 43 NASDAQ 9 NYSE ii OID 16 Omnibus Proxy 47 Other Subordinated Indebtedness 63 Participants 46 Partnership ii Partnership Event of Default 44 Partnership Events 39 Partnership Guarantee 10 Partnership Guarantee Payments 55 Partnership Investment Company Act Event 39 Partnership Preferred Securities ii Partnership Securities ii Partnership Tax Event 39 Property Account 29 Property Trustee 29 Proposals 3 Rate ii Rating Agency Event 39 Record Date 8 Redemption Price 41 Registration Statement 2 Regular Trustees 29 Representatives 75 SEC 2 80 INDEX OF DEFINED TERMS Defined Terms Page - ------------- ---- Senior Indebtedness 61 Senior Nonmonetary Default 61 Senior Payment Default 61 Share Transfer and Valuation Date 32 Special Events 39 Special Representative 52 Sponsor 29 Stock Distribution Election 7 Stock Payment Election 8 Super Majority 45 Tax Event Opinion 38 Telecommunications Properties 23 Trading Day 37 Transaction 38 Transitional Rules 69 Trust 1 Trust Act 4 Trust Events 39 Trust Guarantees 54 Trust Indenture Act 4 Trust Investment Company Act Event 38 Trust Securities 1 Trust Tax Event 38 Trust Trustees 29 Underwriters 75 Underwriters' Compensation 1 Underwriting Agreement 75 United States Alien Holder 74 81 PART II.II INFORMATION NOT REQUIRED IN PROSPECTUS ItemITEM 14. Other Expenses of Issuance and Distribution. -------------------------------------------- Description Amount (1) ----------- ---------- Securities and Exchange Commission filing fee $ 83,190.00 Printing and engraving 30,000.00 Rating Agency Fee 39,375.00 Legal Services 300,000.00 Accounting services 12,000.00 New York Stock Exchange listing fee 15,000.00 Miscellaneous 12,435.00 ----------- Total(1) $492,000.00 =========== _____________________OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
DESCRIPTION AMOUNT(1) - ----------- ---------- Securities and Exchange Commission filing fee............... $ 750,000 Printing and engraving...................................... $ 50,000 Legal Services.............................................. $ 200,000 Accounting Services......................................... $1,500,000 Blue Sky Fees............................................... $ 15,000 Miscellaneous............................................... $ 50,000 ---------- Total(1).................................................. $2,565,000 ==========
- ------------------------ (1) All fees are estimated except for the Securities and Exchange Commission filing fee. ItemITEM 15. Indemnification of Directors and Officers. ------------------------------------------INDEMNIFICATION OF DIRECTORS AND OFFICERS. Citizens UtilitiesCommunications Company (the "Company"), beingis incorporated under the Delaware General Corporation Law and is empowered by Section 145 of suchthat law to indemnify officers and directors against certain expenses, liabilities and payments, including liabilities arising under the Securities Act of 1933, (the "Act"), as therein provided. In addition, By-Lawsby-laws 24 and 24A of theCitizens Communication Company and a resolution adopted by the Boardour board of Directorsdirectors in connection with the issuance of the Convertible Debenturessecurities provide for indemnification of specified persons, including our officers and directors of the Company for liabilities, including those arising under said Act, as provided in said By- Lawsby-laws and resolution. Generally, By-Lawsby-laws 24 and 24A of the Companyour by-laws provide that, to the fullest extent permitted by applicable law, the Companywe shall indemnify and hold harmless, among others, any officerof our officers or director of the Companydirectors or any other entity for which he or she is acting at theour request, of the Company, from and against any loss, damage or claim incurred by such person by reason of any act or omission performed or omitted by such person in good faith on behalf of the Company and in a manner such person reasonably believed to be in the best interests of the Company.our behalf. Such By-Laws,by-laws, generally speaking, also provides that, to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a person in defending against any such liability shall be advanced by the Companyus subject to specified conditions. TheCitizens Communications Company's Restated Certificate of Incorporation further provides that no director shall be liable to the Companyus or itsour stockholders for monetary damages for breach of fiduciary duty as a director, with stated exceptions. II-1 The CompanyWe also maintainsmaintain insurance providing coverage for the Companyus and itsour subsidiaries against obligations incurred as a result of indemnification of our officers and directors. The coverage also insures the officers and directors for a liability against which they may not be indemnified by the Companyus or itsour subsidiaries but excludes specified dishonest acts. The Declaration of Trust of Citizens Capital Trust (the "Trust") provides that to the fullest extent permitted by applicable law, the Trust shall indemnify and hold harmless each of the Trustees, any Affiliate of the Trustees, any officer, director, shareholder, member, partner, employee, representative or agent of the Trustees, or any employee or agent of the Trust or its Affiliates (each a "Trust Indemnified Person"), from and against any loss, damage or claim incurred by such Trust Indemnified Person by reason of any act or omission performed or omitted by such Trust Indemnified Person in good faith on behalf of the Trust and in a manner such Trust Indemnified Person reasonably believed to be within the scope of authority conferred on such Trust Indemnified Person by the Declaration of Trust, except that no Trust Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Trust Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. The Declaration of Trust also provides that, to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Trust Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Trust prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Trust of an undertaking by or on behalf of the Trust Indemnified Person to repay such amount if it shall be determined that the Trust Indemnified Person is not entitled to be indemnified as authorized in the Declaration of Trust. The Declaration of Trust further provides that no Trust Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person (as defined therein) or for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Trust Indemnified Person in good faith on behalf of the Trust and in a manner such Trust Indemnified Person reasonably believed to be within the scope of the authority conferred on such Trust Indemnified Person by the Declaration of Trust or by law, except that a Trust Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Trust Indemnified Person's gross negligence or willful misconduct with respect to acts or omissions. The Limited Partnership Agreement of Citizens Utilities L.P. (the "Partnership") provides that to the fullest extent permitted by applicable law, the Partnership shall indemnify and hold harmless each of the General Partner, and any Special Representative, any Affiliate of the General Partner or any Special Representative, any officer, director, shareholder, member, partner, employee, representative or agent of the General Partner or any Special Representative, or any employee or agent of the Partnership or its Affiliates (each a "Partnership Indemnified Person"), from and against any loss, damage or claim incurred by such Partnership Indemnified Person by reason of any act or omission performed or omitted by such Partnership Indemnified Person in good faith on behalf of the Partnership and in a manner such Partnership Indemnified Person reasonably believed to be within the scope of authority conferred on such Partnership II-2 Indemnified Person by the Limited Partnership Agreement, except that no Partnership Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Partnership Indemnified Person by reason of gross negligence or willful misconduct with respect to such acts or omissions. The Limited Partnership Agreement also provides that, to the fullest extent permitted by applicable law, expenses (including legal fees) incurred by a Partnership Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership of an undertaking by or on behalf of the Partnership Indemnified Person to repay such amount if it shall be determined that the Partnership Indemnified Person is not entitled to be indemnified as authorized in the Limited Partnership Agreement. The Limited Partnership Agreement further provides that no Partnership Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Partnership or any Covered Person (as defined therein) or for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Partnership Indemnified Person in good faith on behalf of the Partnership and in a manner such Partnership Indemnified Person reasonably believed to be within the scope of the authority conferred on such Partnership Indemnified Person by the Limited Partnership Agreement or by law, except that a Partnership Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Partnership Indemnified Person's gross negligence or willful misconduct with respect to acts or omissions. The directors and officers of the Company and the Regular Trustees of the Trust are covered by insurance policies indemnifying them against certain liabilities, including certain liabilities arising under the Act, which might be incurred by them in such capacities and against which they cannot be indemnified by the Company or the Trust. Any agents, dealers or underwriters who execute the agreement filed as Exhibit 1 of this Registration Statement will agree to indemnify the Company's directors and their officers and the Trustees who signed the Registration Statement against certain liabilities that may arise under the Securities Act with respect to information furnished to the Company or the Trust by or on behalf of any such indemnifying party. ItemITEM 16. Exhibits. ---------EXHIBITS. An Exhibit Index, containing a list of all exhibits to this registration statement commences on page II-11. ItemII-6. ITEM 17. Undertakings. -------------UNDERTAKINGS. The undersigned registrantsregistrant hereby undertake:undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Act; II-3Securities Act of 1933; II-1 (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that clauses (i) and (ii) above do not apply if the information required to be included in a post-effective amendment by those clauses is contained in periodic reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fideBONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That,The undersigned registrant hereby undertakes that for the purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be thean initial bona fideBONA FIDE offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or II-4 proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-5The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act of 1939 in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of such Act. II-2 SIGNATURES Pursuant to the requirements of the Securities Act the registrantof 1933, Citizens Communications Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to the Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Citycity of Stamford and State of Connecticut on the 22nd7th day of December, 1995. CITIZENS UTILITIES COMPANY By /s/ Robert J. DeSantis ---------------------- Robert J. DeSantisMay, 2001. CITIZENS COMMUNICATIONS COMPANY By: /s/ SCOTT N. SCHNEIDER ----------------------------------------- Name: Scott N. Schneider Title: Vice Chairman of the Board and Executive Vice President and Treasurer II-6
Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to the Registration Statementregistration statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Leonard Tow Chairman of the Board, December 22, 1995 - -----------------------
SIGNATURE TITLE DATE --------- ----- ---- Chairman of the Board, * Chief Executive Officer ------------------------------------------- (principal executive May 7, 2001 (Leonard Tow) officer), and Director * Vice Chairman of the Board, ------------------------------------------- Chief Operating Officer, May 7, 2001 (Rudy J. Graf) President and Director /s/ SCOTT N. SCHNEIDER Vice Chairman of the Board, ------------------------------------------- Executive Vice President May 7, 2001 (Scott N. Schneider) and Director * Vice President, Finance and ------------------------------------------- Treasurer (principal May 7, 2001 (Donald B. Armour) financial officer) Vice President and Chief * Accounting Officer ------------------------------------------- (principal accounting May 7, 2001 (Robert J. Larson) officer) * ------------------------------------------- Director May 7, 2001 (Norman I. Botwinik) * ------------------------------------------- Director May 7, 2001 (Aaron I. Fleischman)
II-3
SIGNATURE TITLE DATE --------- ----- ---- * ------------------------------------------- Director May 7, 2001 (Stanley Harfenist) ------------------------------------------- Director May , 2001 (Andrew N. Heine) * ------------------------------------------- Director May 7, 2001 (John L. Schroeder) * ------------------------------------------- Director May 7, 2001 (Robert D. Siff) * ------------------------------------------- Director May 7, 2001 (Robert A. Stanger) ------------------------------------------- Director May , 2001 (Charles H. Symington, Jr.) ------------------------------------------- Director May , 2001 (Edwin Tornberg) ------------------------------------------- Director May , 2001 (Claire L. Tow) Chief Financial Officer and Director /s/ Robert J. DeSantis Vice President December 22, 1995 - ----------------------- and Treasurer (Robert J. DeSantis) Director December 22, 1995 - ----------------------- (Norman I. Botwinik)* - ----------------------- Director December 22, 1995 (Stanley Harfenist)* Director December 22, 1995 - ----------------------- (Andrew N. Heine)* Director December 22, 1995 - ----------------------- (Aaron I. Fleischman)* Director December 22, 1995 - ----------------------- (Elwood A. Rickless)* Director December 22, 1995 - ----------------------- (John L. Schroeder)* Director December 22, 1995 - ----------------------- (Robert D. Siff)* Director December 22, 1995 - ----------------------- (Robert A. Stanger)* - ----------------------------- Director December 22, 1995 (Edwin Tornberg)* Director December 22, 1995 - ------------------- (Claire Tow)* Director December 22, 1995 - --------------- (Charles H. Symington, Jr.)* *By/s/ Robert J. DeSantis _____________________ Attorney-in-fact II-7
II-4 SIGNATURES Pursuant to the requirements of the Securities Act the registrantof 1933, Citizens Communications Capital Trust I certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to the Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Citycity of Stamford and State of Connecticut on the 22nd7th day of December, 1995. CITIZENS UTILITIES CAPITAL L.P. By Citizens Utilities Company, as General Partner By /s/ Robert J. DeSantis ---------------------- Robert J. DeSantis May, 2001. CITIZENS COMMUNICATIONS CAPITAL TRUST I By: Citizens Communications Company, Depositor By: /s/ DONALD B. ARMOUR ----------------------------------------- Name: Donald B. Armour Title:Vice President Finance and Treasurer II-8
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Donald B. Armour, as such person's true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for such person and in such person's name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and things requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 toregistration statement and the Registration Statement hasforegoing Power-of-Attorney have been signed below by the following persons in the capacities with respect to the General Partner of Citizens Utilities Capital L.P. and on the dates indicated. Signature Title Date - --------- ----- ----- /s/ Leonard Tow Chairman of the Board, December 22, 1995 - ------------------- Chief Executive Officer, (Leonard Tow) Chief Financial Officer and Director /s/ Robert J. DeSantis Vice President December 22, 1995 - ----------------------- and Treasurer (Robert J. DeSantis) __________________________ Director December 22, 1995 (Norman I. Botwinik)* _________________________ Director December 22, 1995 (Stanley Harfenist)* _________________________ Director December 22, 1995 (Andrew N. Heine)* _________________________ Director December 22, 1995 (Aaron I. Fleischman)* ________________________ Director December 22, 1995 (Elwood A. Rickless)* __________________________ Director December 22, 1995 (John L. Schroeder)* _________________________ Director December 22, 1995 (Robert D. Siff)* _________________________ Director December 22, 1995 (Robert A. Stanger)* ____________________________ Director December 22, 1995 (Edwin Tornberg)* _________________________ Director December 22, 1995 (Claire Tow)* ________________________ Director December 22, 1995 (Charles H. Symington, Jr.)* *By/s/ Robert J. DeSantis ---------------------- Attorney-in-fact II-9
SIGNATURE TITLE DATE --------- ----- ---- /s/ DONALD B. ARMOUR ------------------------------------------- Trustee May 7, 2001 (Donald B. Armour) /s/ ROBERT J. LARSON ------------------------------------------- Trustee May 7, 2001 (Robert J. Larson)
II-5 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3, and has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stamford and State of Connecticut on the 22nd day of December, 1995. CITIZENS UTILITIES TRUST By /s/ Robert J. DeSantis ---------------------- Robert J. DeSantis Regular Trustee By /s/ Edward O. Kipperman _______________________ Edward O. Kipperman Regular Trustee II-10 Exhibit Index Exhibit No. Description - -------- ----------- 1.1*** Form of Underwriting Agreement for the offering of the Convertible Preferred Securities being registeredEXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - --------------------- ------------------------------------------------------------ 1.1 Citizens Communications Company Restated Certificate of Incorporation, as restated May 19, 2000 (incorporated by reference to Exhibit 3-200.1 of the Registrant's Quarterly Report on Form 10-Q (Commission File No. 001-11001), for the six months ended June 30, 2000) 1.2 Citizens Communications Company By-laws, as amended to date (incorporated by reference to Exhibit 3-200.2 of the Registrant's Annual Report on Form 10-Q (Commission File No. 001-11001), for the nine months ended September 30, 2000) 1.3* Form of Equity Securities Underwriting Agreement 1.4* Form of Debt Securities Underwriting Agreement 4.1 Form of Indenture for Senior Debt Securities 4.2 Form of Indenture for Subordinated Debt Securities 4.3 Form of Warrant Agreement 4.4* Form of Deposit Agreement 4.5 Certificate of Trust of Citizens Communications Capital Trust I 4.6 Trust Agreement of Citizens Communications Capital Trust I 4.7 Form of Amended and Restated Trust Agreement 4.8 Form of Trust Preferred Security for Citizens Communications Capital Trust I (included in Exhibit 4.7 to this Registration Statement) 4.9 Form of Guarantee Agreement 4.10* Form of Junior Subordinated Note 5.1 Opinion of Winston & Strawn 5.2 Opinion of Richards, Layton & Finger, P.A. relating to Citizens Communications Capital Trust I 12.1 Statement of computation of ratio of earnings to fixed charges 23.1 Consent of Winston & Strawn (included in the opinion filed as Exhibit 5.1 to this registration statement) 23.2 Consent of Richards, Layton & Finger, P.A. (included in the opinion filed as Exhibit 5.2 to their registration statement) 23.3 Consent of KPMG LLP, independent public accountants 23.4 Consent of KPMG LLP, independent public accountants 23.5 Consent of Arthur Andersen LLP, independent public accountants 23.6 Consent of Arthur Andersen LLP, independent public accountants 23.7 Consent of Arthur Andersen LLP, independent public accountants 23.8 Consent of PricewaterhouseCoopers LLP, independent accountants 24.1 Power of Attorney from officers and directors with respect to Citizens Communications Company (previously filed) 24.2 Power of Attorney from trustees with respect to Citizens Communications Capital Trust I (included in the signature pages hereto) 25.1 Statement of Eligibility and Qualification on Form T-1 of The Chase Manhattan Bank, as Senior Trustee, under the Trust Indenture Act of 1939, as amended 25.2 Statement of Eligibility and Qualification on Form T-1 of The Chase Manhattan Bank, as Subordinated Trustee, under the Trust Indenture Act of 1939, as amended 25.3 Statement of Eligibility and Qualification on Form T-1 of The Chase Manhattan Bank, as Guarantee Trustee with respect to Citizens Capital Communications Trust I, under the Trust Indenture Act of 1939, as amended 25.4 Statement of Eligibility and Qualification on Form T-1, of The Chase Manhattan Bank, as Property Trustee under Citizens Communications Capital Trust I, under this Registration Statement. 3.1* Restated Certificate of Incorporation of Citizens Utilities Company, with all amendments to March 22, 1994. 4.1*** Certificate of Trust dated October 13, 1995, of Citizens Utilities Trust. 4.2 Form of Amended and Restated Declaration of Trust dated __________, 1996, of Citizens Utilities Trust, as amended and restated. 4.3 Form of Indenture dated ___________, 1996, between Citizens Utilities Company and Chemical Bank, as trustee. 4.4 Form of First Supplemental Indenture dated ___________, 1996, between Citizens Utilities Company and Chemical Bank, as trustee, with regard to the issuance of the Convertible Debentures. 4.5 Form of ___% Convertible Subordinated Debenture due _______, 2036 (contained as Exhibit A to Exhibit 4.4 above). 4.6*** Form of Certificate of Limited Partnership of Citizens Utilities Capital L.P. 4.7*** Form of Amended and Restated Limited Partnership Agreement dated ____, 1996 of Citizens Utilities Capital L.P. 4.8*** Form of Convertible Preferred Securities Guarantee Agreement dated ___________, 1996 between Citizens Utilities Company and Chemical Bank, as guarantee trustee. 4.9*** Form of Partnership Preferred Securities Guarantee Agreement dated __________, 1996 between Citizens Utilities Company and Chemical Bank, as guarantee trustee. 4.10 Form of Convertible Preferred Security Certificate (contained as Exhibit A-1 to Exhibit 4.2 above). 4.11*** Form of Partnership Preferred Security Certificate (contained as Annex A to Exhibit 4.7 above). 5.1 Opinion of Boulanger, Hicks & Churchill, P.C. II-11 5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom 8.1*** Opinion of Skadden, Arps, Slate, Meagher & Flom as to certain federal income tax matters. 12.1*** Computation of Ratio of Earnings to Combined Fixed Charges and Distributions on Convertible Preferred Securities of Citizens Utilities Company. 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Boulanger, Hicks & Churchill (to be contained in Exhibit No. 5.1). 23.4*** Consent of Skadden, Arps, Slate, Meagher & Flom (contained in Exhibit No. 8.1). 24*** Powers of Attorney. 25.1*** Form T-1, Statement of Eligibility Under the Trust Indenture Act of 1939, as amended of Chemical Bank, under the Declaration of Trust (contained in Exhibit 4.1). 25.2*
- ------------------------ ** Form T-1, Statement of Eligibility Under the Trust Indenture Act of 1939, as amended, of Chemical Bank, under (i) the Indenture (contained in Exhibit 4.3), (ii) the Convertible Preferred Securities Gurantee Agreement (contained in Exhibit 4.8) and (iii) the Partnership Preferred Securities Guarantee Agreement (contained in Exhibit 4.9). 25.3*** Form T-1, Statement of Eligibility Under the Trust Indenture Act of 1939, as amended, of Chemical Bank, under the Convertible Preferred Securities Guarantee Agreemnt (contained in Exhibit 4.8). 25.4*** Form T-1, Statement of Eligibility Under the Trust Indenture Act of 1939, as amended, of Chemical Bank, under the Partnership Preferred Securities Guarantee Agreement (contained in Exhibit 4.9). _________________________ * Exhibit No. 3.1 is incorporated by reference to such document, bearing the designation Exhibit No. 4.100.1 filed with the Company's Registration Statement on Form S-3 No. 33-51529 filed December 16, 1993. ** To be filed by amendment. *** Previously filed. II-12 ============================== ================================== No dealer, salesmanamendment or other person has been authorized to give any information or to make any representation, other than 3,500,000 those contained in this Prospectus, in connection with the offer made CITIZENS UTILITIES LOGOincorporated by this Prospectus, and, if given or made, such information or Convertible Preferred representations must not be relied Securities upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or thereof. This Prospectus does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. --------------------- TABLE OF CONTENTS Prospectus PAGE Available Information 2 -------------------- Incorporation of Certain Documents by Reference 3 PROSPECTUS Proposed Tax Legislation 3 ____________, 1996 Ratings of the Company's Securities 3 Prospectus Summary 4 Risk Factors 12 Citizens Utilities Company 17 --------------------- Use of Proceeds 18 Capital Requirements and Financing 18 Description of Common Stock Series A and Series B 19 Merrill Lynch & Co. Dividends on Common Stock Series A Lehman Brothers and Series B 20 Common Stock Transfer Agent 20 Common Stock Price Range 20 Financial Information 21 Citizens Utilities Capital L.P. 28 Citizens Utilities Trust 29 Description of the Securities 30 Convertible Preferred Securities 30 Partnership Preferred Securities 49 Guarantees 54 Convertible Debentures 58 Certain Federal Income Tax Considerations 68 Underwriting 75 Legal Opinions 77 Experts 78 Index of Defined Terms 79 ============================== ================================== reference. II-6