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.
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- --------------------------------------------------------------------------------
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.
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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Upon any payment or distribution of assets of the Company to creditors upon
any liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets or liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash of all
amounts due on or to become due on or in respect of all Senior Indebtedness,
before the holders of the Convertible Debentures are entitled to receive any
payment (including any payment to holders of the Convertible Debentures made
in respect of any other debt subordinated to the Convertible Debentures) on
account of the principal of or interest on the Convertible Debentures or on
account of any purchase, redemption or other acquisition of the Convertible
Debentures by the Company.
The Company may not make any payments on the account of the Convertible
Debentures or on account of the purchase or redemption or other acquisition
of the Convertible Debentures (except, so long as the Partnership exists, in
shares of capital stock), if there has occurred and is continuing a default
in the payment of the principal of (or premium, if any) or interest on any
Senior Indebtedness (a "Senior Payment Default"). In addition, if any
default (other than a Senior Payment Default), or any event which after
notice or lapse of time (or both) would become a default, with respect to
certain Senior Indebtedness, permitting (after notice or lapse of time or
both) the holders thereof to accelerate the maturity thereof, has occurred
and is continuing (a "Senior Nonmonetary Default"), and the Company and the
Debenture Trustee have received written notice thereof from the holder of
such certain Senior Indebtedness, then the Company may not make any payments
with respect to the Convertible Debentures (except, so long as the
Partnership exists, payments in shares of capital stock), for a period (a
"blockage period") commencing on the date the Company and the Debenture
Trustee receive such written notice and ending on the earlier of
(i) 179 days after such date or (ii) the date, if any, on which the related
Senior Indebtedness is discharged or such default is waived in writing
or otherwise ceases to exist and any acceleration of Senior Indebtedness to
which such Senior Nonmonetary Default relates is rescinded.
In any event, not more than one blockage period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360 consecutive days when no blockage
period is in effect.
By reason of such subordination, in the event of any proceeding of the type
described above involving Citizens, creditors of Citizens who are holders of
Senior Indebtedness and general unsecured creditors of Citizens may recover
more, ratably, than the holder or holders of the Convertible Debentures.
The term "Senior Indebtedness" is defined to mean the principal of,
premium, if any, interest on, and any other payment due pursuant to any of
the following, whether incurred (as defined in the Indenture) on or prior to
the date of execution of the Indenture or thereafter incurred:
(a) all obligations of Citizens for money borrowed;
61
(b) all obligations of Citizens evidenced by notes, debentures,
bonds or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
(c) all capitalized lease obligations of Citizens;
(d) all reimbursement obligations of Citizens with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of Citizens;
(e) all obligations of Citizens issued or assumed as the
deferred purchase price of property or services, (but excluding trade
accounts payable and accrued liabilities arising in the ordinary course of
business);
(f) all payment obligations of Citizens under interest rate swap
or similar agreements or foreign currency hedge, exchange or similar agreements
at the time of determination, including any such obligations incurred by
Citizens solely to act as a hedge against increases in interest rates that
may occur under the terms of other outstanding variable or floating rate
indebtedness of Citizens;
(g) all obligations under lease transactions pursuant to which
Citizens or any of its subsidiaries are treated as the owner of the subject
property for United States federal income tax purposes;
(h) all obligations of the type referred to in clauses (a)
through (g) above of another person and all dividends of another person, the
payment of which, in either case, Citizens has assumed or guaranteed, or for
which Citizens is responsible or liable, directly or indirectly, jointly or
severally, as obligor, guarantor or otherwise; and
(i) all amendments, modifications, renewals, extensions,
refinancings, replacements and refundings by Citizens of any such
indebtedness referred to in clauses (a) through (h) above (and of any such
amended, modified, renewed, extended, refinanced, refunded or replaced
indebtedness);
provided, however, that the following shall not constitute Senior
Indebtedness; (a) any trade accounts payable or accrued liabilities arising
in the ordinary course of business, (b) any indebtedness owed to a person
when such person is a subsidiary of Citizens, or (c) any indebtedness which
by the terms of the instrument creating or evidencing the same expressly
provides that it is not superior in right of payment to the Convertible
Debentures.
As of September 30, 1995, Senior Indebtedness included (i) obligations in
the amount of $1,229,596,000 of the nature described in clauses (a) and (b) of
the above definition of Senior Indebtedness, plus (ii) other obligations
of Citizens of the nautre described in clauses (c) through (h) of the above
definition of Senior Indebtedness. See "Convertible Debentures -
Subordination." The Indenture does not limit Citizens' ability to incur
Senior Indebtedness.
62
Certain Covenants of Citizens
Citizens will also covenant in the Indenture that (i) it will not declare
or pay any dividend or distribution (other than in shares of capital stock)
on any of the Company's capital stock, (ii) that neither it nor any of its
subsidiaries will redeem, purchase, acquire for value or make a liquidation
payment to any holder of, or with respect to, any of Citizens' capital stock
or any of Citizens' indebtedness for borrowed money which by its terms ranks
junior in subordination to the Convertible Debentures ("Other Subordinated
Indebtedness") (other than (x) as an issuance of capital stock upon
conversion of a convertible security or in payment of interest, premium or
principal or in payment in redemption, purchase or other acquisition or
liquidation of capital stock or Other Subordinated Indebtedness, (y) as a
result of reclassification of such capital stock or the exchange or
conversion of one class or series of capital stock for another class or
series of capital stock, or (z) in connection with the right of the Company
to purchase or reacquire shares of Common Stock under the First Supplemental
Indenture, the Declaration or the Limited Partnership Agreement), (iii) that
Citizens will not pay principal, interest or premium on Other Subordinated
Indebtedness (unless payable in shares of capital stock) and (iv) that
neither Citizens nor any of its subsidiaries will or make any guarantee of
payments which would be prohibited or limited by the foregoing (other than
payments under the Guarantees, payments of dividends by a subsidiary, or
guarantees of dividends or payments payable to Citizens), if at
such time (a) there shall have occurred any event that, with the giving of
notice or the lapse of time or both would constitute an Indenture Event of
Default, (b) Citizens shall be in default with respect to its payment or
other obligations under the Guarantees or (c) Citizens shall have deferred
the payment of interest and such deferral of interest payments or any
extension thereof shall be continuing. The term "Other Subordinated
Indebtedness" shall not include any indebtedness which is outstanding under
an instrument dated prior to the date of the Indenture which does not
expressly permit the deferral of payment or extension of the time for payment
of interest, premium or principal, or any installment thereof.
The Company also will covenant (i) to remain the General Partner of the
Partnership; provided that any permitted successor of the Company under the
Limited Partnership Agreement may succeed to the Company's duties as General
Partner, (ii) to cause at least 3% of the total value of the Partnership and
at least 3% of all interests in the capital, income, gain, loss, deduction
and credit of the Partnership to be held by the Company, as a General Partner
of the Partnership, (iii) not to voluntarily dissolve, wind-up or liquidate
the Partnership, (iv) to perform timely all of its duties as General Partner
(including the duty to declare and pay distributions on the Partnership
Preferred Securities), (v) to maintain direct ownership of all partnership
interests of the Partnership other than the Partnership Preferred Securities,
except as may be permitted by the Limited Partnership Agreement, (vi) to use
its reasonable efforts to cause the Partnership to remain a limited
partnership and otherwise to continue to be treated as a partnership for
United States federal income tax purposes; (vii) to issue Common Stock Series
A upon an election by holders to convert the Convertible Debentures; and
(viii) to own Convertible Common Securities equal to at least 3% of the total
undivided beneficial interests in the assets of the Trust.
63
The Company will also covenant that, so long as any Convertible Debentures
are held by the Partnership, the General Partner shall not (i) exercise its
option to select the form of payment of interest in violation of instructions
of the Special Representative, (ii) direct the time, method and place of
conducting any proceeding for any remedy available to the Special
Representative, or exercising any trust or power conferred on the Special
Representative with respect to the Convertible Debentures, (iii) waive any
past default which is waivable under the Indenture, (iv) exercise any right
to rescind or annul a declaration that the principal of all the Convertible
Debentures shall be due and payable or (v) consent to any amendment,
modification or termination of the Convertible Debentures or of the Indenture
without, in each case, obtaining the prior approval of the Property Trustee
after having received the prior consent of the holders of at least 66 2/3% or
more of the aggregate liquidation preference (or a majortiy of the aggregate
liquidation preference in the case of waiver of certain past defaults) of the
Convertible Preferred Securities then outstanding, provided, however, that
where a consent under the Convertible Debentures would require the consent
of each holder affected thereby, no such consent shall be given by the
General Partner without the prior consent of such Property Trustee, who has
received prior consent from each holder of the Convertible Preferred
Securities. The General Partner shall not revoke any action previously
authorized or approved by a vote of the Property Trustee after having
received the prior consent of the holders of the Convertible Preferred
Securities, without the approval of the holders of Convertible Preferred
Securities representing 66 2/3% or more (or 100% where the consent of each
holder affected thereby is required) of the aggregate liquidation preference
of the Convertible Preferred Securities.
The Company will further covenant that in the event of a merger,
consolidation or transfer of assets of the Company with or to another
corporation or entity, in which the Company is not the surviving corporation,
the surviving entity shall assume the obligations of the Company for the
Debentures under the Indenture by execution of a supplemental indenture.
Conversion of the Convertible Debentures
The Convertible Debentures will be convertible into Common Stock Series A
at the option of the holders of the Convertible Debentures, in whole or in
part, until and including five (5) Business Days prior to __________, 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.
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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
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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)
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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