10-K405

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-14157

TELEPHONE AND DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware	36-2669023
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
30 North LaSalle Street, Chicago, Illinois	60602
(Address of principal executive offices)	(Zip code)
Registrant's Telephone Number:    (312) 630-1900
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, $.01 par value	American Stock Exchange
8.5% TDS-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust	American Stock Exchange
8.04% TDS-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust	American Stock Exchange
7.60% Series A Notes due 2041	New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:    None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X   No   

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  X 

        As of February 28, 2002, the aggregate market values of the registrant's Common Shares, Series A Common Shares and Preferred Shares held by non-affiliates were approximately $4.490 billion, $37.2 million and $20.1 million, respectively. The closing price of the Common Shares on February 28, 2002, was $87.15, as reported by the American Stock Exchange. Because no market exists for the Series A Common Shares and Preferred Shares, the registrant has assumed for purposes hereof that (i) each Series A Common Share has a market value equal to one Common Share because the Series A Common Shares were initially issued by the registrant in exchange for Common Shares on a one-for-one basis and are convertible on a share-for-share basis into Common Shares, (ii) each nonconvertible Preferred Share has a market value of $100 because each of such shares had a stated value of $100 when issued, and (iii) each convertible Preferred Share has a value of $87.15 times the number of Common Shares into which it was convertible on February 28, 2002.

        The number of shares outstanding of each of the registrant's classes of common stock, as of February 28, 2002, is 51,824,928 Common Shares, $.01 par value, and 6,775,973 Series A Common Shares, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

        Those sections or portions of the registrant's 2001 Annual Report to Shareholders and of the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held May 23, 2002, described in the cross reference sheet and table of contents attached hereto are incorporated by reference into Part II and III of this report.

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

		Page Number or Reference(1)
Item 1.	Business	3
Item 2.	Properties	40
Item 3.	Legal Proceedings	40
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	41	(2)
Item 6.	Selected Financial Data	41	(3)
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	41	(4)
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41	(4)
Item 8.	Financial Statements and Supplementary Data	41	(5)
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	41
Item 10.	Directors and Executive Officers of the Registrant	42	(6)
Item 11.	Executive Compensation	42	(7)
Item 12.	Security Ownership of Certain Beneficial Owners and Management	42	(8)
Item 13.	Certain Relationships and Related Transactions	42	(9)
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	43

(1)

Parenthetical references are to information incorporated by reference from the registrant's Exhibit 13, which includes portions of its Annual Report to Shareholders for the year ended December 31, 2001 ("Annual Report") and from the registrant's Notice of Annual Meeting of Shareholders and Proxy Statement for its Annual Meeting of Shareholders to be held on May 23, 2002 ("Proxy Statement").

(2)

Annual Report sections entitled "TDS Stock and Dividend Information" and "Market Price per Common Share by Quarter."

(3)

Annual Report section entitled "Selected Consolidated Financial Data."

(4)

Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition."

(5)

Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Common Stockholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Information (Unaudited)" and "Report of Independent Public Accountants."

(6)

Proxy Statement sections entitled "Election of Directors" and "Executive Officers."

(7)

Proxy Statement section entitled "Executive Compensation," except for the information specified in Item 402(a)(8) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

(8)

Proxy Statement section entitled "Security Ownership of Certain Beneficial Owners and Management."

(9)

Proxy Statement section entitled "Certain Relationships and Related Transactions."

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Telephone and Data Systems, Inc.
30 NORTH LASALLE STREET, CHICAGO, ILLINOIS 60602
TELEPHONE (312) 630-1900

PART I

Item 1. Business

        Telephone and Data Systems, Inc. ("TDS"), is a diversified telecommunications service company with wireless telephone and wireline telephone operations. At December 31, 2001, TDS served approximately 4.3 million customer units in 34 states, including 3,461,000 wireless telephones and 847,900 telephone access lines. U.S. Cellular provided 73.2% of TDS's consolidated revenues and 72.7% of consolidated operating income in 2001. TDS Telecom provided 26.8% of consolidated revenues and 27.3% of consolidated operating income in 2001. TDS also owns a substantial portfolio of investments in publicly traded telecommunications companies. TDS's long-term business strategy is to expand its existing operations through internal growth and acquisitions and to explore and develop other telecommunications businesses that management believes will utilize TDS expertise in providing customer focused telecommunications services.

        TDS conducts substantially all of its wireless operations through United States Cellular Corporation. At December 31, 2001, TDS owned 82.2% of the combined total of the outstanding Common Shares and Series A Common Shares of U.S. Cellular and controlled 96.0% of the combined voting power of both classes of common stock. U.S. Cellular is traded on the American Stock Exchange under the symbol "USM". At December 31, 2001, U.S. Cellular provided wireless telephone service to 3,461,000 customers through wireless systems serving 142 majority-owned ("consolidated") Federal Communications Commission ("FCC") licensed areas, which represent approximately 17% of the geography and approximately 9% of the population of the United States. Since 1985, when U.S. Cellular began providing cellular service in Knoxville, Tennessee and Tulsa, Oklahoma, U.S. Cellular has expanded its wireless networks and customer service operations to cover eight market clusters in 25 states as of December 31, 2001. The cellular licenses that it manages cover a total population of more than one million in each cluster, and cover a total population of more than two million in four such clusters. Overall, 92% of U.S. Cellular's 27.4 million cellular population equivalents are in markets which are consolidated and 8% are in markets in which U.S. Cellular holds an investment interest.

        TDS conducts substantially all of its wireline telephone operations through its wholly owned subsidiary, TDS Telecommunications Corporation ("TDS Telecom"). At December 31, 2001, TDS Telecom operated 109 Incumbent Local Exchange Carrier ("ILEC") telephone companies serving 650,700 access lines in 28 states. TDS Telecom is expanding by offering additional telecommunications products and services to existing customers and through the selective acquisition of local exchange telephone companies serving rural and suburban areas. TDS Telecom has acquired 9 telephone companies since the beginning of 1997. These acquisitions added 63,800 access lines during this five-year period, while internal growth added 102,400 lines. TDS Telecom also began offering services as a Competitive Local Exchange Carrier ("CLEC") in 1998 in certain markets in certain mid-sized cities which are geographically proximate to existing TDS Telecom ILEC markets. At December 31, 2001, TDS Telecom's CLECs served 197,200 access lines in 4 states.

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        TDS was incorporated in 1968 and changed its corporate domicile from Iowa to Delaware in 1998. TDS executive offices are located at 30 North LaSalle Street, Chicago, Illinois 60602. Its telephone number is 312-630-1900.

        Unless the context indicates otherwise: (i) references to "TDS" or the "Company" refer to Telephone and Data Systems, Inc., and its subsidiaries; (ii) references to "USM" or "U.S. Cellular" refer to United States Cellular Corporation and its subsidiaries; (iii) references to "TDS Telecom" refer to TDS Telecommunications Corporation and its subsidiaries; (iv) references to "MSA" or to a particular city refer to the Metropolitan Statistical Area, as designated by the U.S. Office of Management and Budget and used by the Federal Communications Commission ("FCC") in designating metropolitan cellular market areas; (v) references to "RSA" refer to the Rural Service Area, as used by the FCC in designating non-MSA cellular market areas; (vi) references to "MTA" refer to Metropolitan Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks A and B; (vii) references to "BTA" refer to Basic Trading Areas, used by the FCC in dividing the United States into PCS market areas for licenses in Blocks C through F; (viii) references to "PCS" refer to personal communications services, (ix) references to cellular, PCS, or wireless "markets" or "systems" refer to MSAs, RSAs, MTAs, BTAs, or any combination thereof; and (x) references to "population equivalents" mean the population of a market, based on 2001 Claritas estimates, multiplied by the percentage interests that TDS owns or has the right to acquire in an entity licensed or designated to receive a license ("licensee") from the FCC to operate a cellular or PCS system in such market.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT

        This Annual Report on Form 10-K, including exhibits, contains statements that are not based on historical fact, including the words "believes," "anticipates," "intends," "expects," and similar words. These statements constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be significantly different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, but are not limited to:

•

Increases in the level of competition in the markets in which TDS operates could adversely affect TDS's revenues or increase its costs to compete.



•

Advances or changes in telecommunications technology could render certain technologies used by TDS obsolete.



•

Changes in telecommunications regulatory environment could adversely affect TDS's financial condition or results of operations.



•

Changes in the supply or demand of the market for wireless licenses or telephone companies, increased competition, adverse developments in TDS's businesses or the industries in which TDS is involved and/or other factors could result in an impairment of the value of TDS's license costs and/or goodwill, which may require TDS to record a write down in the value of such assets.



•

Competition, construction delays and other challenges in executing TDS's expansion and development of its CLEC business could result in higher than planned losses, additional financing requirements and/or the write down of the CLEC assets if TDS is unable to successfully implement its plans in this business undertaking.



•

Continued depressed market values, continued declines thereof or other events evidencing an impairment in the value of TDS's investments in available-for-sale marketable equity securities that are other than temporary may require TDS to write down the value of such securities.



•

Settlement, judgments, restraints on its current manner of doing business and/or legal costs resulting from pending and future litigation could have an adverse effect on TDS's financial condition, results of operations or ability to do business.

4

•

Costs, integration problems or other factors associated with acquisitions/divestitures of properties and or licenses could have an adverse effect on TDS's financial condition or results of operations.



•

Changes in growth in the number of wireless customers, average revenue per unit, penetration rates, churn rates, roaming rates and the mix of products and services offered in wireless markets could have an adverse effect on TDS's wireless business operations.



•

Changes in growth in the number of ILEC and CLEC customers, churn rates and mix of products and services offered in ILEC and CLEC markets could have an adverse effect on such TDS business segments.



•

Changes in market conditions or other factors could limit or restrict the availability of financing on terms and prices acceptable to TDS, which could require TDS to reduce its construction, development and acquisition programs.



•

Changes in general economic and business conditions, both nationally and in the regions in which TDS operates, could have an adverse effect on TDS's businesses.

        TDS undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Readers should evaluate any statements in light of these important factors.

U.S. Cellular Operations

        TDS's wireless operations are conducted through U.S. Cellular and its subsidiaries. U.S. Cellular believes it is the eighth largest wireless company in the United States, based on internally prepared calculations of the aggregate number of customers in its consolidated markets compared to the number of customers disclosed by other wireless companies in their publicly released information. U.S. Cellular's business development strategy is to operate cellular and PCS market licensees in areas adjacent to or in proximity to its other markets, thereby building clusters of operating markets. U.S. Cellular anticipates that clustering will continue to provide it certain economies in its capital and operating costs. As the number of opportunities for outright acquisitions has decreased in recent years, and as U.S. Cellular's clusters have grown, U.S. Cellular's focus has shifted to include exchanges and divestitures of managed and investment interests which are considered less essential to U.S. Cellular's clustering strategy.

        In addition to the cellular licenses it owns, U.S. Cellular also owns or has the right to acquire, through joint ventures, interests in personal communication service ("PCS") licenses in 28 Basic Trading Area ("BTA") markets. These interests represent 6.6 million population equivalents, 3.6 million of which are in markets which are adjacent to U.S. Cellular's cellular markets and 3.0 million of which overlap U.S. Cellular's cellular markets. U.S. Cellular owns 100% of the interests in certain of these PCS markets, and will include the operations of these markets in its consolidated results. In the other PCS markets, U.S. Cellular owns or has the right to acquire a limited partner interest in a joint venture and will include the operations of these markets in its consolidated results because U.S. Cellular is considered to have a controlling financial interest in these partnerships for financial reporting purposes.

        U.S. Cellular is a limited partner in a joint venture which was a successful bidder for 17 PCS licenses in 13 markets in the January 2001 FCC spectrum auction. The joint venture has acquired five of such licenses in four markets, which are included in the PCS markets discussed in the preceding paragraph, and has deposits with the FCC for the remaining 12 licenses in nine markets. With respect to these remaining licenses, such licenses had been reauctioned by the FCC after defaults by winning bidders in a prior auction and were made subject by the FCC to the final outcome of certain legal proceedings initiated by the prior winning bidders. Due to the uncertainty surrounding the eventual ownership of these licenses, they are not included in U.S. Cellular's ownership interests as of December 31, 2001.

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        The following table summarizes the status of U.S. Cellular's interests in wireless markets at December 31, 2001.

	Total	Cellular	PCS
Included in Consolidated Operations (1)	168	142	26
To Be Included in Consolidated Operations (2)	2	—	2
Total To Be Included in Consolidated Operations	170	142	28
Accounted for Using Equity Method (3)	28	28	—
Accounted for Using Cost Method (4)	6	6	—
Total Markets	204	176	28

(1)

U.S. Cellular owns a controlling interest in each of the 142 cellular market and 15 PCS markets. U.S. Cellular owns a noncontrolling limited partner interest in 11 PCS markets, and includes the operations of these markets in its consolidated results because U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes.

(2)

U.S. Cellular has agreements to acquire noncontrolling limited partner interests in two PCS markets, and will include the operations of these markets in its consolidated results at the date of acquisition because U.S. Cellular will be considered to have the controlling financial interest for financial reporting purposes.

(3)

Represents cellular markets in which U.S. Cellular owns a noncontrolling interest and which are accounted for using the equity method. U.S. Cellular's investments in these markets are included in investment in unconsolidated entities on its balance sheet and its proportionate share of the net income of these markets is included in investment income on its income statement.

(4)

Represents cellular markets in which U.S. Cellular owns a noncontrolling interest and which are accounted for using the cost method. U.S. Cellular's investments in these markets are included in investment in unconsolidated entities on its balance sheet.

        Wireless systems in U.S. Cellular's 142 majority-owned markets served 3,461,000 customers at December 31, 2001, and contained 2,925 cell sites. The average penetration rate in U.S. Cellular's consolidated wireless markets was 13.48% at December 31, 2001, and the churn rate in all consolidated cellular markets averaged 1.9% per month for the twelve months ended December 31, 2001. Operational measures for U.S. Cellular's consolidated PCS markets were not material for 2001.

Wireless Telephone Operations

        The Wireless Telephone Industry.    Wireless telephone technology provides high-quality, high-capacity communications services to hand-held portable and in-vehicle wireless telephones. Wireless telephone systems are designed for maximum mobility of the customer. Access is provided through system interconnections to local, regional, national and world-wide telecommunications networks. Wireless telephone systems also offer a full range of ancillary services such as conference calling, call-waiting, call-forwarding, voice mail, facsimile and data transmission; those systems which have digital radio capabilities offer additional features such as caller ID and short messaging services.

        Wireless telephone systems divide each service area into smaller geographic areas or "cells." Each cell is served by radio transmitters and receivers operating on discrete radio frequencies licensed by the FCC. All of the cells in a system are connected to a computer-controlled Mobile Telephone Switching Office ("MTSO"). The MTSO is connected to the conventional ("landline") telephone network and potentially other MTSOs. Each conversation on a wireless phone involves a transmission over a specific set of radio frequencies from the wireless phone to a transmitter/receiver at a cell site. The transmission is forwarded from the cell site to the MTSO and from there may be forwarded to the landline telephone network to complete the call. As the wireless telephone moves from one cell to another, the MTSO determines radio signal strength and transfers ("hands off") the call from one cell to the next. This hand-off is not noticeable to either party on the phone call.

        The FCC currently grants two licenses to provide cellular telephone service in each cellular market. Multiple licenses have been granted in each PCS market, and PCS markets (BTAs and MTAs) overlap

6

with cellular markets. As a result, PCS license holders can and do compete with cellular license holders for customers. Competition for customers also includes competing communications technologies, such as:

•

conventional landline telephone,



•

Specialized Mobile Radio ("SMR") systems,



•

mobile satellite communications systems, and



•

radio paging.

        PCS has become available in nearly all areas of the United States, including substantially all of U.S. Cellular's markets, and U.S. Cellular expects other wireless operators to continue deployment of PCS in portions of all of U.S. Cellular's clusters throughout 2002 and beyond. Additionally, technologies such as Enhanced Specialized Mobile Radio ("ESMR") and mobile satellite communication systems are proving to be competitive with cellular service in many of U.S. Cellular's markets.

        The services available to wireless customers and the sources of revenue available to wireless system operators are similar to those provided by conventional landline telephone companies. Customers may be charged a separate fee for system access, airtime, long-distance calls and ancillary services. Wireless system operators also provide service to customers of other operators' wireless systems while the customers are temporarily located within the operators' service areas. Customers using service away from their home system are called "roamers." Roaming is available because technical standards require that analog cellular telephones be compatible in all market areas in the United States. Additionally, because U.S. Cellular has deployed digital radio technologies in substantially all of its service areas, its customers with digital or dual-mode (both analog and digital capabilities) wireless telephones can roam in other companies' service areas which have a compatible digital technology in place. Likewise, U.S. Cellular can provide roaming service to other companies' customers who have compatible digital wireless telephones, including PCS customers. In all cases, the system that provides the service to roamers will generate usage revenue, at rates that have been negotiated between the serving carrier and the customer's carrier.

        There have been a number of technical developments in the wireless industry since its inception. Currently, while most companies' MTSOs process information digitally, on certain cellular systems the radio transmission is on an analog basis. All PCS systems utilize digital radio transmission. Several years ago, certain digital transmission techniques were approved for implementation by the wireless industry. Time Division Multiple Access ("TDMA") technology was selected as one industry standard by the wireless industry and has been deployed by many wireless operators, including U.S. Cellular's operations in approximately two-thirds of its markets. Another digital technology, Code Division Multiple Access ("CDMA"), is also being deployed by U.S. Cellular in its remaining markets. In December 2001, U.S. Cellular announced its plans to deploy CDMA 1XRTT technology throughout all of its markets, over a three-year period ending in 2004.

        Digital radio technology offers several advantages, including greater privacy, less transmission noise, greater system capacity and potentially lower incremental costs to accommodate additional system usage. The conversion from analog to digital radio technology is continuing on an industry-wide basis; however, this process is expected to continue for a few more years. Cellular and PCS operators have deployed TDMA, CDMA and a third digital technology, Global System for Mobile Communication ("GSM"), in the markets where they have begun operations.

        U.S. Cellular's Operations.    From its inception in 1983 until 1993, U.S. Cellular was principally in a start-up phase. Until 1993, U.S. Cellular's activities had been concentrated significantly on the acquisition of interests in cellular licensees and on the construction and initial operation of wireless systems. The development of a wireless system is capital-intensive and requires substantial investment prior to and subsequent to initial operation. U.S. Cellular experienced operating losses and net losses from its inception until 1993. In the years since 1993, U.S. Cellular has significantly increased its operating cash flows and produced net income. Management anticipates further growth in wireless units in service and revenues as U.S. Cellular continues to expand through internal growth and as the PCS licenses acquired

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in 2001 become fully integrated into U.S. Cellular's operations. Expenses associated with this expansion may reduce the rate of growth in operating cash flows and operating income during the period of additional growth. In addition, U.S. Cellular anticipates that the seasonality of revenue streams and operating expenses may cause U.S. Cellular's operating cash flows and operating income to vary from quarter to quarter.

        While U.S. Cellular has produced operating income and net income since 1993, changes in any of several factors may reduce U.S. Cellular's growth in operating income and net income over the next few years. These factors include:

•

the growth rate in U.S. Cellular's customer base;



•

the usage and pricing of wireless services;



•

the cost to begin operations in new licensed areas;



•

the churn rate;



•

the cost of providing wireless services, including the cost of attracting and retaining customers;



•

continued competition from other wireless licensees and other telecommunication technologies; and



•

continuing technological advances which may provide additional competitive alternatives to wireless service.

        U.S. Cellular is building a substantial presence in selected geographic areas throughout the United States where it can efficiently integrate and manage wireless telephone systems. Its wireless interests include eight regional market clusters. See "U.S. Cellular's Wireless Interests."

        U.S. Cellular has acquired its wireless interests through the wireline application process for MSAs and RSAs, including settlements and exchanges with other applicants, and through acquisitions, including acquisitions from TDS and third parties.

Cellular Systems Development

        Acquisitions, Divestitures and Exchanges.    U.S. Cellular assesses its wireless holdings on an ongoing basis in order to maximize the benefits derived from clustering its markets. U.S. Cellular also reviews attractive opportunities for the acquisition of additional wireless spectrum. Over the past few years, U.S. Cellular has completed exchanges of minority interests or controlling interests in its less strategic markets for controlling interests in markets which better complement its clusters. U.S. Cellular has also completed outright sales of other less strategic markets, and has purchased controlling interests in markets which enhance its clusters. In 2001, U.S. Cellular began acquiring interests in PCS markets. These markets are either adjacent to U.S. Cellular's current operations, thus expanding its current clusters, or are in territories in which U.S. Cellular currently operates, and will add spectrum capacity to those operations. Prior to 2001, U.S. Cellular had not substantially increased its population equivalents during the past five years, but had shifted the balance of its holdings between investment and operating interests. As a result of its acquisition activities, currently 90% of U.S. Cellular's interests are in markets where it is the operator or expects to manage.

        U.S. Cellular may continue to make opportunistic acquisitions or exchanges in markets that further strengthen its market clusters and in other attractive markets. U.S. Cellular also seeks to acquire minority interests in markets where it already owns the majority interest and/or operates the market. There can be no assurance that U.S. Cellular, or TDS for the benefit of U.S. Cellular, will be able to negotiate additional acquisitions or exchanges on terms acceptable to it or that regulatory approvals, where required, will be received. U.S. Cellular plans to retain minority interests in certain wireless markets which it believes will earn a favorable return on investment. Other minority interests may be exchanged for interests in markets which enhance U.S. Cellular's market clusters or may be sold for cash or other consideration. U.S. Cellular also continues to evaluate the disposition of certain controlling interests which are not essential to its corporate development strategy.

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        Completed Acquisitions.    During 2001, U.S. Cellular, on its own behalf and through joint ventures, acquired majority interests in licenses in one cellular market and 26 PCS markets, representing a total population of 6.8 million, for $182.3 million. U.S. Cellular's proportionate ownership of the total population of 6.8 million represents 5.9 million population equivalents. Of these population equivalents, 3.0 million are in areas adjacent to U.S. Cellular's current operations and the remaining 2.9 million are in areas that overlap U.S. Cellular's current operations. The interests U.S. Cellular acquired through joint ventures are 100% owned by the joint ventures. Of the PCS interests acquired, interests representing a total population of 4.7 million are in 10 megahertz ("MHz") licenses, and the remaining interests are in 15 MHz - 30 MHz licenses.

        Pending Acquisitions.    As of December 31, 2001, U.S. Cellular had entered into agreements, through joint ventures, to acquire interests in PCS licenses in three markets. These interests, all in 10 MHz licenses, represent a total population of 911,000 and will be acquired in exchange for $18 million. Two of the three markets are adjacent to those in which U.S. Cellular already provides cellular service, and U.S. Cellular currently owns a PCS license in the third market through a joint venture. U.S. Cellular's proportionate ownership of the total population of 911,000 represents 644,000 population equivalents, all of which are in areas adjacent to U.S. Cellular's current operations. U.S. Cellular expects each of the pending transactions to be completed during the first half of 2002.

        U.S. Cellular is a limited partner in a joint venture that was a successful bidder for 17 licenses in 13 markets in the January 2001 FCC spectrum auction. The cost for the 17 licenses totaled $283.9 million. Although legally the general partner controls the joint venture, U.S. Cellular has included the joint venture in its consolidated financial statements because U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes. The joint venture has acquired 5 of such licenses in 4 markets for a total of $4.1 million and has deposits with the FCC totaling $56.1 million for the remaining licenses (classified as a current asset at December 31, 2001). Subject to the final outcome of the proceedings discussed below, the joint venture's portion of the funding could possibly aggregate up to an additional $223.7 million to fund the acquisition of the remaining licenses. In addition, U.S. Cellular has agreed to loan the general partner up to $20 million that could be used by the general partner to fund its investment in the licenses.

        With respect to the remaining 12 licenses in 9 markets, such licenses had been reauctioned by the FCC after defaults by winning bidders in a prior auction and were made subject by the FCC to the final outcome of certain legal proceedings initiated by the prior winning bidders. Following the reauction, one of the prior winning bidders obtained a court ruling that the FCC's actions were illegal. In an effort to resolve this matter, on November 15, 2001, the joint venture and other bidders in the reauction entered into a settlement agreement with the prior winning bidder and the FCC. However, the settlement agreement terminated due to the failure to satisfy a condition to obtain certain Congressional action by December 31, 2001. The U.S. Supreme Court has agreed to review this matter. In the event the prior winning bidder is successful in this litigation, the joint venture would receive a refund of its deposit of $56.1 million made to the FCC for such 12 licenses. The joint venture's financial requirements would then be limited to the 5 licenses in 4 markets that it acquired in 2001. If the FCC is successful in this litigation or the matter is otherwise resolved in a manner that will permit the joint venture to acquire the remaining licenses, the joint venture would be required to pay to the FCC the balance of the auction price for such licenses. The joint venture would likely then have significant financial requirements to build out such markets. The exact nature of U.S. Cellular's financial commitment going forward will be determined as the joint venture develops its long-term business and financing plans.

        U.S. Cellular maintains shelf registration of its Common Shares and Preferred Stock under the Securities Act of 1933 for issuance specifically in connection with acquisitions.

Wireless Interests and Clusters

        U.S. Cellular operates clusters of adjacent wireless systems in almost all of its markets, enabling its customers to benefit from larger local service areas than otherwise possible. Customers may make outgoing calls and receive incoming calls within this area without special roaming arrangements. In addition to benefits to customers, clustering also has provided to U.S. Cellular certain economies in its

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capital and operating costs. These economies are made possible through increased sharing of facilities, personnel and other costs and have enabled U.S. Cellular to maintain a relatively low per customer cost of service. The extent to which U.S. Cellular benefits from these revenue enhancements and economies of operation is dependent on market conditions, population size of each cluster and network engineering considerations.

        U.S. Cellular may continue to make opportunistic acquisitions and exchanges which will complement its established market clusters. From time to time, U.S. Cellular may also consider exchanging or selling its interests in markets which do not fit well with its long-term strategies.

        U.S. Cellular owned interests in wireless telephone systems in 176 cellular markets and 26 PCS markets at December 31, 2001, representing 30.4 million incremental population equivalents (i.e., population equivalents based on interests in cellular and PCS markets which do not overlap with each other). Including the PCS interests to be purchased during 2002, U.S. Cellular owned or had the right to acquire 176 cellular markets and 28 PCS markets, representing 31.0 million incremental population equivalents, at December 31, 2001. The following table summarizes the changes in U.S. Cellular's incremental population equivalents in recent years.

		December 31,
		2001	2000	1999	1998	1997
		(Thousands of population equivalents)(1)
Included in Consolidated Operations (2)
	Cellular	25,292	24,882	24,922	24,659	23,833
	PCS	2,985	—	—	—	—
To Be Included in Consolidated Operations (3)
	Cellular	—	127	—	—	—
	PCS	644	—	—	—	—
Total Markets To Be Included in Consolidated Operations
	Cellular	25,292	25,009	24,922	24,659	23,833
	PCS	3,629	—	—	—	—
Accounted for Using Equity Method (cellular only) (4)		2,053	2,324	2,310	2,568	2,617
Accounted for Using Cost Method (cellular only) (5)		75	44	44	45	46
Total
	Cellular	27,420	27,377	27,276	27,272	26,496
	PCS	3,629	—	—	—	—

(1)

Based on 2001 Claritas estimates for all years.

(2)

Includes incremental population equivalents in markets in which U.S. Cellular owns a controlling interest at the end of each respective year, and in 2001 also includes incremental population equivalents in PCS markets in which U.S. Cellular owns a noncontrolling limited partner interest but U.S. Cellular is considered to have the controlling financial interest for financial reporting purposes.

(3)

In 2001, includes incremental population equivalents in markets in which U.S. Cellular has the right to acquire noncontrolling limited partner interests in PCS markets in which U.S. Cellular will be considered to have the controlling financial interest for financial reporting purposes. In 2000, includes population equivalents in a market in which U.S. Cellular had the right, pursuant to agreements pending at the end of the year, to acquire a controlling interest.

(4)

Includes population equivalents in markets in which U.S. Cellular owns noncontrolling interests at the end of each respective year, and which are accounted for using the equity method.

(5)

Includes population equivalents in markets in which U.S. Cellular owns noncontrolling interests at the end of each respective year, and which are accounted for using the cost method.

        The following section details U.S. Cellular's wireless interests, including those it owned or had the right to acquire as of December 31, 2001. The table presented therein lists clusters of markets that U.S. Cellular manages. It also shows PCS markets that could potentially become part of U.S. Cellular's clusters through management agreements with joint venture partners. U.S. Cellular's market clusters show the areas in which U.S. Cellular is currently focusing its development efforts. These clusters have been devised with a long-term goal of allowing delivery of wireless service to areas of economic interest and along corridors of economic activity. The number of population equivalents represented by U.S. Cellular's wireless interests may have no direct relationship to the number of potential wireless customers or the revenues that may be realized from the operation of the related wireless systems.

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U.S. CELLULAR'S WIRELESS INTERESTS

        The table below sets forth certain information with respect to the interests in wireless markets which U.S. Cellular owned or had the right to acquire pursuant to definitive agreements as of December 31, 2001.

Cluster/Major Service Area			2001 Population(1)	Total Current and Acquirable Population Equivalents(1)
MIDWEST REGIONAL MARKET CLUSTER:
	Wisconsin		4,425,000	4,372,000
	Iowa		2,806,000	2,589,000
	Illinois/Indiana		1,751,000	1,639,000
	Missouri		905,000	905,000
	PCS Markets Which Have No Current Operations		6,406,000	2,796,000
		Total Midwest Regional Market Cluster	16,293,000	12,301,000
MID-ATLANTIC REGIONAL MARKET CLUSTER:
	Eastern North Carolina/South Carolina		2,768,000	2,761,000
	Virginia/North Carolina		1,388,000	1,380,000
	West Virginia/Maryland/Pennsylvania/Ohio		1,399,000	1,274,000
	PCS Markets Which Have No Current Operations		188,000	160,000
		Total Mid-Atlantic Regional Market Cluster	5,743,000	5,575,000
NORTHWEST REGIONAL MARKET CLUSTER:
	Washington/Oregon/Idaho		1,553,000	1,524,000
	Oregon/California		1,086,000	1,086,000
		Total Northwest Regional Market Cluster	2,639,000	2,610,000
FLORIDA/GEORGIA MARKET CLUSTER:
	Florida/Georgia		1,806,000	1,806,000
	PCS Markets Which Have No Current Operations		500,000	425,000
		Total Florida/Georgia Market Cluster	2,306,000	2,231,000
TEXAS/OKLAHOMA/MISSOURI/KANSAS REGIONAL MARKET CLUSTER:
	Texas/Oklahoma/Missouri/Kansas		2,202,000	1,545,000
	PCS Markets With Current Operations		48,000	37,000
	PCS Markets Which Have No Current Operations		166,000	135,000
		Total Texas/Oklahoma/Missouri/Kansas Regional Market Cluster:	2,416,000	1,717,000
MAINE/NEW HAMPSHIRE/VERMONT MARKET CLUSTER:			1,751,000	1,700,000
EASTERN TENNESSEE/WESTERN NORTH CAROLINA MARKET CLUSTER:
	Eastern Tennessee/Western North Carolina		1,377,000	1,347,000
	PCS Markets Which Have No Current Operations		105,000	76,000
		Total Eastern Tennessee/Western North Carolina Market Cluster:	1,482,000	1,423,000
SOUTHERN TEXAS MARKET CLUSTER:			1,326,000	1,326,000
OTHER MARKETS(2):			482,000	283,000
Total Managed Markets			34,438,000	29,166,000
Markets Managed by Others				1,883,000
Total Population Equivalents				31,049,000

(1)

"2001 Population represents the total population of the licensed area in which U.S. Cellular has an interest, based on 2001 Claritas estimates. "Total Current and Acquirable Population Equivalents" represents U.S. Cellular's proportionate share of the population in the "2001 Population" column, based on the percentage in the "Total" column. In PCS markets, U.S. Cellular only includes the portion of the licensed PCS areas owned or to be acquired that are not already served by a cellular market in which U.S. Cellular owns an interest and manages. PCS markets that overlap cellular markets or other PCS markets are not included in the totals above.

(2)

U.S. Cellular owns controlling interests in those markets, but the markets are managed by a third party pursuant to a management agreement.

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        System Design and Construction.    U.S. Cellular designs and constructs its systems in a manner it believes will permit it to provide high-quality service to substantially all types of wireless telephones, based on market and engineering studies which relate to specific markets. Engineering studies are performed by U.S. Cellular personnel or independent engineering firms. U.S. Cellular's switching equipment is digital, which reduces noise and crosstalk and is capable of interconnecting in a manner which reduces costs of operation. Both analog and digital radio transmissions are made between cell sites and the wireless telephones. At this time, however, approximately 75% of this traffic utilizes digital radio transmissions. Network reliability is given careful consideration and extensive redundancy is employed in virtually all aspects of U.S. Cellular's network design. Route diversity, ring topology and extensive use of emergency standby power are also utilized to enhance network reliability and minimize service disruption from any particular network failure.

        In accordance with its strategy of building and strengthening market clusters, U.S. Cellular has selected high capacity digital wireless switching systems that are capable of serving multiple markets through a single MTSO. U.S. Cellular's wireless systems are designed to facilitate the installation of equipment which will permit microwave interconnection between the MTSO and the cell site. U.S. Cellular has implemented such microwave interconnection in many of the wireless systems it operates. Otherwise, U.S. Cellular's systems will rely upon landline telephone connections to link cell sites with the MTSO. Although the installation of microwave network interconnection equipment requires a greater initial capital investment, a microwave network enables a system operator to avoid the current and future charges associated with leasing telephone lines from the landline telephone company, while generally improving system reliability. In addition, microwave facilities can be used to connect separate wireless systems to allow shared switching, which reduces the aggregate cost of the equipment necessary to operate multiple systems. Microwave facilities can also be used to carry long-distance calls, which reduces the costs of interconnecting to the landline network.

        U.S. Cellular has continued to expand its Wide Area Network ("WAN") to accommodate various business functions, including:

•

order processing



•

over the air provisioning



•

automatic call delivery



•

intersystem handoff



•

credit validation



•

fraud prevention



•

call data record collection



•

network management



•

long-distance traffic and



•

interconnectivity of all of U.S. Cellular's MTSOs and cell sites.

        In addition, the WAN accommodates virtually all internal data communications between various U.S. Cellular office locations and its retail locations to process customer activations. The WAN is deployed in U.S. Cellular's regional customer service centers ("Customer Care Centers") for all customer service functions using U.S. Cellular's new billing and information system.

        Management believes that currently available technologies will allow sufficient capacity on U.S. Cellular's networks to meet anticipated demand over the next few years.

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Costs of System Construction and Financing

        Construction of wireless systems is capital-intensive, requiring substantial investment for land and improvements, buildings, towers, MTSOs, cell site equipment, microwave equipment, engineering and installation. U.S. Cellular, consistent with FCC control requirements, uses primarily its own personnel to engineer and oversee construction of each wireless system it owns and operates.

        The costs (exclusive of license costs) of the systems in which U.S. Cellular owns an interest have historically been financed through capital contributions or through certain vendor financing. In recent years, these funding requirements have been met with cash generated by operations, proceeds from debt and equity offerings and proceeds from the sales of wireless interests.

Marketing

        U.S. Cellular's marketing plan is centered around rapid penetration of its market clusters, increasing customer awareness of wireless service and reducing churn. U.S. Cellular achieves increasing customer awareness through the use of traditional media such as TV, radio, and print advertising. Recently, U.S. Cellular has increased its use of other media such as the Internet, direct marketing and telemarketing. U.S. Cellular has achieved rapid penetration of its markets through a combination of promotional advertising and broad distribution. U.S. Cellular supports a multi-channel distribution program, including direct sales, agents and retail service centers in the vast majority of its markets, plus the Internet and telesales for customers who wish to contact U.S. Cellular through those media. U.S. Cellular maintains a relatively low customer churn by executing a vision centered around customer satisfaction, development of processes that are more customer-friendly, better training of frontline sales and support associates and the implementation of retention, churn modeling, and loyalty programs. The marketing plan stresses the value of U.S. Cellular's service offerings and incorporates combinations of rate plans and wireless telephone equipment which are designed to meet the needs of defined customer segments and their usage patterns.

        U.S. Cellular-owned and managed locations are designed to market wireless service to the consumer and small business segments in a familiar setting. In late 2000, U.S. Cellular expanded its e-commerce site to enable customers to purchase an expanded line of accessories online. U.S. Cellular anticipates that as customers become more comfortable with e-commerce, the Internet will become more of a robust marketing channel for sales of rate plans as well as accessories. To that end, U.S. Cellular continually modifies its Web site based on input from its customers. Traffic on its Web site is continually increasing as customers use the site for gathering information, purchasing handsets and accessories, signing up for service and finding the locations of its stores and agents.

        U.S. Cellular believes that success is dependent on having operations decisions made close to the customer. It manages each cluster of markets with a local staff, including sales, engineering and in some cases installation personnel. U.S. Cellular operates six regional Customer Care Centers whose personnel are responsible for customer service and certain other functions. Direct sales consultants market wireless service to business customers. Retail sales associates work out of U.S. Cellular's approximately 450 U.S. Cellular owned retail stores and kiosks and market wireless service primarily to the consumer and small business segments. U.S. Cellular maintains an ongoing training program to improve the effectiveness of sales consultants and retail associates by focusing their efforts on obtaining customers and maximizing the sale of high-use packages. These packages enable customers to buy packages of minutes for a fixed monthly rate.

        U.S. Cellular continues to expand its relationships with agents, dealers and non-U.S. Cellular retailers to obtain customers, and at year-end 2001 had contracts with nearly 900 of these businesses aggregating nearly 1,500 locations. Agents and dealers are independent business people who obtain customers for U.S. Cellular on a commission basis. U.S. Cellular's agents are generally in the business of selling wireless telephones, wireless service packages and other related products. U.S. Cellular's dealers include car stereo companies, major appliance dealers, office supply dealers and mass merchants including national companies such as Wal-Mart, Best Buy, Radio Shack and Circuit City. No single agent, dealer or other non-U.S. Cellular retailer accounted for 10% or more of U.S. Cellular's operating revenues during the past three years.

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        U.S. Cellular's Value Added Distributor agent channel, which complements U.S. Cellular's own distribution channels, is focused on the sale of U.S. Cellular's prepaid service product, TalkTracker®, to selected market segments.

        U.S. Cellular uses a variety of direct mail, billboard, radio, television and newspaper advertising to stimulate interest by prospective customers in purchasing U.S. Cellular's wireless service and to establish familiarity with U.S. Cellular's name. U.S. Cellular operates under a unified brand name and logo, U.S. Cellular^SM, across all its markets. In February 2001, U.S. Cellular established a new tag line, "We Connect With You"^SM, and developed a new series of TV and radio commercials to support its renewed focus on the customer and customer satisfaction. Customers expect a high level of satisfaction from their wireless provider and U.S. Cellular intends to deliver excellent service to its customers.

        U.S. Cellular continues to actively advertise its digital service offerings through both television and radio advertising, resulting in a significant increase in the number of customers using U.S. Cellular's digital services during 2001, and as of year-end 2001 nearly 70% of U.S. Cellular's customers were using digital rate plans. Advertising is directed at gaining customers, improving customers' awareness of the U.S. Cellular^SM brand, increasing existing customers' usage of U.S. Cellular's services and increasing the public awareness and understanding of the wireless services offered by U.S. Cellular. U.S. Cellular attempts to select the advertising and promotion media that are most appealing to the targeted groups of potential customers in each local market. U.S. Cellular supplements its advertising with a focused public relations program. This program combines nationally supported activities and unique local activities, events, and sponsorships to enhance public awareness of U.S. Cellular. These programs are aimed at supporting the communities in which U.S. Cellular serves. The programs range from loaning phones to public service operations in emergencies, to assisting victims of domestic abuse through U.S. Cellular's Stop Abuse From Existing programs, to supporting safe driving programs.

        The following table summarizes, by operating cluster, the total population, U.S. Cellular's customer units and penetration for U.S. Cellular's majority-owned and managed markets that were operational as of December 31, 2001.

Operating Clusters	Population(1)	Customers	Penetration
Midwest Regional Market Cluster	9,266,000	1,512,000	16.32	%
Mid-Atlantic Regional Market Cluster	5,133,000	555,000	10.81
Northwest Regional Market Cluster	2,575,000	340,000	13.20
Florida/Georgia Regional Market Cluster	1,728,000	174,000	10.07
Texas/Oklahoma/Missouri/Kansas Regional Market Cluster	2,145,000	308,000	14.36
Maine/New Hampshire/Vermont Regional Market Cluster	1,709,000	264,000	15.45
Eastern Tennessee/Western North Carolina Regional Market Cluster	1,322,000	172,000	13.01
Southern Texas Market Cluster	1,320,000	79,000	5.98
Other Markets	472,000	57,000	12.08
	25,670,000	3,461,000	13.48	%

(1)

Based on 2000 Claritas population estimates. In 2001, U.S. Cellular reported year-end market penetration based upon the prior year's population estimates (2000 Claritas). The prior year's population estimates were used for each of the previous quarter-end market penetration calculations during the year. Previously, U.S. Cellular used the current year's population estimates for reporting year-end market penetration. Had U.S. Cellular used 2001 Claritas population estimates as the basis for reporting 2001 year-end market penetration, the resulting market penetration would have been 13.12%.

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Customers and System Usage

        U.S. Cellular provides service to a broad range of customers from a wide spectrum of demographic segments. U.S. Cellular uses a segmentation model to classify businesses and consumers into logical groupings for developing new products and services, direct marketing campaigns, and retention efforts. Business users typically include a large proportion of individuals who work outside of their offices such as people in the construction, real estate, wholesale and retail distribution businesses and professionals. Increasingly, U.S. Cellular is providing wireless service to consumers and to customers who use their wireless telephones for mixed business and personal use as well as for security purposes. A major portion of U.S. Cellular's recent customer growth is from these segments.

        U.S. Cellular's wireless systems are used most extensively during normal business hours between 7:00 AM and 6:00 PM. On average, the retail customers in U.S. Cellular's consolidated markets used their wireless systems approximately 216 minutes per unit each month and generated retail service revenue of approximately $35.68 per month during 2001, compared to 157 minutes and $36.52 per month in 2000. Revenue generated by roamers using U.S. Cellular's systems ("inbound roaming"), together with local retail, toll and other revenues, brought U.S. Cellular's total average monthly service revenue per customer unit in consolidated markets to $46.28 during 2001. Average monthly service revenue per customer unit decreased approximately 6% during 2001. This decrease was primarily due to decreases in average revenue per minute of use from both retail customers and roamers, partially offset by an increase in the number of minutes used by both retail customers and roamers. Competitive pressures and U.S. Cellular's increasing use of pricing and other incentive programs to stimulate overall usage resulted in a decrease in average retail service revenue per minute of use in 2001. The decrease in inbound roaming revenue per minute was primarily due to the ongoing trend toward reduced per minute prices for roaming negotiated between U.S. Cellular and other wireless operators. U.S. Cellular anticipates that average monthly service revenue per customer unit will continue to decline in the future. However, this effect is more than offset by U.S. Cellular's increasing number of customers; therefore, U.S. Cellular expects total revenues to continue to grow for the next few years.

        U.S. Cellular's main sources of revenue are from its own customers and from inbound roaming customers. U.S. Cellular's roaming service allows a customer to place or receive a call in a wireless service area away from the customer's home service area. U.S. Cellular has entered into roaming agreements with operators of other wireless systems covering virtually all systems in the United States, Canada and Mexico. U.S. Cellular also has roaming agreements with most major PCS operators. Roaming agreements offer customers the opportunity to roam on these systems. These reciprocal agreements automatically pre-register the customers of U.S. Cellular's systems in the other carriers' systems. Also, a customer of a participating system roaming (i.e., traveling) in a U.S. Cellular market where this arrangement is in effect is able to make and receive calls on U.S. Cellular's system. The charge for this service is negotiated as part of the roaming agreement between U.S. Cellular and the roaming customer's carrier. The charge is billed by U.S. Cellular to the customer's home system, which then bills the customer. In some instances, based on competitive factors, many carriers, including U.S. Cellular, may charge lower amounts to their customers than the amounts actually charged to the carriers by other cellular carriers for roaming.

15

        The following table summarizes certain information about customers and market penetration in U.S. Cellular's consolidated operations.

			Year Ended or At December 31,
			2001			2000			1999			1998			1997
			(Dollars in thousands)
Majority-owned markets:
	Wireless markets in operation (1)			142			139			139			138			134
	Total population of markets in service (000s)			25,670			24,912			24,861			24,370			23,900
	Customer Units:
		at beginning of period (2)		3,061,000			2,602,000			2,183,000			1,710,000			1,073,000
		acquired (divested) during period (3)		46,000			(24,000	)		15,000			19,000			195,000
		additions during period (2)		1,095,000			1,154,000			1,000,000			896,000			746,000
		disconnects during period (2)		741,000			671,000			596,000			442,000			304,000
		at end of period (2)		3,461,000			3,061,000			2,602,000			2,183,000			1,710,000
	Market penetration at end of period (4)			13.48	%		12.29	%		10.47	%		8.96	%		7.15	%
Consolidated revenues			$	1,894,830		$	1,716,640		$	1,576,429		$	1,315,535		$	993,124
Depreciation expense				237,346			205,916			184,830			167,150			97,591
Amortization expense				63,312			59,782			45,142			39,629			34,788
Operating Income				317,212			292,313			255,842			176,075			129,543
Capital expenditures				503,334			305,417			277,450			320,417			318,748
Business segment assets			$	3,725,014		$	3,412,709		$	3,331,590		$	3,011,237		$	2,508,916

(1)

Represents the number of markets in which U.S. Cellular owned controlling interest. The revenues and expenses of these cellular markets are included in U.S. Cellular's consolidated revenues and expenses.

(2)

Represents the approximate number of revenue-generating wireless telephones served by the wireless markets referred to in footnote (1). The revenue generated by such wireless telephones is included in consolidated revenues.

(3)

Represents the approximate number of revenue-generating wireless telephones added to or subtracted from U.S. Cellular's customer base during the period due to acquisitions or divestitures of wireless licenses.

(4)

Computed by dividing the number of customer units at the end of the period by the total population of markets in service as estimated by Donnelley Marketing Service (1996) for 1997 or Claritas (1997-2000) for 1998-2001. In 2001, U.S. Cellular reported year-end market penetration based upon the prior year's population estimates (2000 Claritas). The prior year's population estimates were used for each of the previous quarter-end market penetration calculations during the year. Previously, U.S. Cellular used the current year's population estimates for reporting year-end market penetration. Had U.S. Cellular used 2001 Claritas population estimates as the basis for reporting 2001 year-end market penetration, the resulting market penetration would have been 13.12%. Total market population and market penetration amounts for prior years have been restated to conform to current period presentation.

Products and Services

        Wireless Telephones and Installation.    U.S. Cellular offers a full range of wireless telephones for use by its customers, including both analog and digital handsets. Features offered in some of the wireless telephones include hands-free calling, repeat dialing and others. In the systems where U.S. Cellular offers digital service, additional features such as caller ID and short messaging services are available on those wireless telephones. In U.S. Cellular's digital service areas, a majority of new customers are selecting dual-mode wireless telephones, which can be used on analog and digital networks, thereby enabling seamless roaming regardless of the customer's travel plans. New customers are selecting from a variety of portable wireless telephones. These units are stylish, compact, and fully featured as well as attractively priced. They appeal to newer segments of the customer population, especially a younger demographic group which looks at the wireless phone to some degree as a fashion statement.

        U.S. Cellular negotiates volume discounts with its wireless telephone suppliers. U.S. Cellular discounts wireless telephones to meet competition or to stimulate sales by reducing the cost of becoming a wireless customer. In these instances, where permitted by law, customers are generally required to sign a service contract with U.S. Cellular. U.S. Cellular also works with wireless equipment manufacturers in promoting specific equipment in its local advertising.

        U.S. Cellular has established service and/or installation facilities in many of its local markets to ensure quality installation and service of the wireless telephones it sells. These facilities allow U.S.

16

Cellular to improve its service by promptly assisting customers who experience equipment problems. Additionally, U.S. Cellular employs a repair facility in Tulsa, Oklahoma, to handle more complex service and repair issues.

        Wireless Services.    U.S. Cellular's customers are able to choose from a variety of packaged pricing plans which are designed to fit different calling patterns and customer needs. The ability to help a customer find the right technology and the right pricing plan is central to U.S. Cellular's brand positioning. U.S. Cellular generally offers local, regional and national consumer plans that can be tailored to a customer's needs by the addition of features or feature packages. Many consumer plans enable small work groups or families to share the plan minutes enabling the customer to get more value for their money. Business plans are offered to companies to meet their unique needs. During 2000, U.S. Cellular introduced a national rate plan, SpanAmerica^SM, where all calls regardless of where they are made or received are priced as a local call with no long distance or roaming charges. Additionally, U.S. Cellular redesigned its prepaid offering, TalkTracker®, based on customer input to make it more compatible with the lifestyles of the customers who want to buy this product.

        U.S. Cellular's customer bills typically show separate charges for custom-calling features, airtime in excess of the packaged amount, and toll calls. Custom-calling features provided by U.S. Cellular include wide-area call delivery, call forwarding, voice mail, call waiting, three-way calling and no-answer transfer.

Regulation

        Regulatory Environment.    The operations of U.S. Cellular are subject to FCC and state regulation. The wireless telephone licenses held by U.S. Cellular are granted by the FCC for the use of radio frequencies and are an important component of the overall value of the assets of U.S. Cellular. The construction, operation and transfer of wireless systems in the United States are regulated to varying degrees by the FCC pursuant to the Communications Act of 1934 ("Communications Act"). In 1996, Congress enacted the Telecommunications Act of 1996 ("Telecommunications Act"), which amended the Communications Act. The Telecommunications Act mandated significant changes in telecommunications rules and policies to promote competition, ensure the availability of telecommunications services to all parts of the nation and to streamline regulation of the telecommunications industry to remove regulatory burdens, as competition develops. The FCC has promulgated regulations governing construction and operation of wireless systems, licensing (including renewal of licenses) and technical standards for the provision of wireless telephone service under the Communications Act, and is implementing the legislative objectives of the Telecommunications Act, as discussed below.

        Licensing.    For cellular telephone licensing purposes, the FCC has divided the United States into separate geographic markets (MSAs and RSAs). In each market, the allocated cellular frequencies are divided into two equal blocks. During the application process, in the early 1980's, the FCC reserved one block of frequencies for non-wireline applicants and another block for wireline applicants. Subject to FCC approval, a cellular system may be sold to either a wireline or non-wireline entity.

        As of January 1, 2002, an entity which controls one cellular system in an MSA may also control the competing cellular system in that MSA. The FCC determined that wireless competition in MSAs among cellular, PCS and certain SMR carriers, which interconnect with the public switched telephone network, was sufficient to permit relaxation of the former prohibition on MSA cellular cross-ownership. However, the FCC has retained the rule which prohibits any entity which controls a cellular system in an RSA from owning an interest exceeding five percent in another cellular system in the same RSA.

        As of January 1, 2002, no entity may have a controlling interest in more than 55 MHz of cellular, PCS, or "covered" SMR spectrum in a given RSA or MSA (the "Spectrum Cap"). Cellular systems have 25 MHz of spectrum, and PCS systems may have 10, 15, or 30 MHz of spectrum. However, on January 1, 2003, this spectrum cap will be eliminated, and the FCC will determine whether acquisition of wireless licenses is in the public interest on a case-by-case basis under criteria which have not yet been specified.

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        The completion of acquisitions involving the transfer of control of a wireless system requires prior FCC approval. Acquisitions of minority interests generally do not require FCC approval. Whenever FCC approval is required, any interested party may file a petition to dismiss or deny the application for approval of the proposed transfer.

        The FCC must be notified each time an additional cell is constructed which enlarges the service area of a given market. The FCC's rules also generally require persons or entities holding wireless construction permits or licenses to coordinate their proposed frequency usage with neighboring wireless licensees in order to avoid electrical interference between adjacent systems. The height and power of base stations in the wireless system are regulated by FCC rules, as are the types of signals emitted by these stations. The FCC also regulates tower construction in accordance with its regulations, which carry out its responsibilities under the National Environmental Policy Act and Historic Preservation Act. In addition to regulation by the FCC, wireless systems are subject to certain Federal Aviation Administration ("FAA") regulations with respect to the siting, construction, painting and lighting of wireless transmitter towers and antennas as well as local zoning requirements.

        Beginning in 1996, the FCC has also imposed a requirement that all wireless licensees register and obtain FCC registration numbers for all of their antenna towers, which require prior FAA clearance. All new towers must be registered at the time of construction and existing towers were required to be registered by May 1998 on a staggered state-by-state basis. U.S. Cellular believes that it is in compliance with the FCC's tower registration requirements.

        Beginning in October 1997, wireless systems, which previously were "categorically excluded" from having to evaluate their facilities to ensure their compliance with federal "radio frequency" radiation requirements, were made subject to those requirements. As a result, all wireless towers of less than 10 meters in height, building mounted antennas and wireless telephones must comply with radio frequency radiation guidelines. Since October 1997, all new wireless facilities have had to be in compliance when they are brought into service. Since September 1, 2000, all existing facilities have had to be brought into compliance. U.S. Cellular believes that its facilities are in compliance with these requirements.

        Initial cellular telephone licenses were granted for ten-year periods. The FCC has established standards for conducting comparative renewal proceedings between a cellular licensee seeking renewal of its license and challengers filing competing applications. The FCC has: (i) established criteria for comparing the renewal applicant to challengers, including the standards under which a renewal expectancy will be granted to the applicant seeking license renewal; (ii) established basic qualifications standards for challengers; and (iii) provided procedures for preventing possible abuses in the comparative renewal process. The FCC has concluded that it will award a renewal expectancy if the licensee has (i) provided "substantial" performance, which is defined as "sound, favorable and substantially above a level of mediocre service just minimally justifying renewal," and (ii) complied with FCC rules, policies and the Communications Act. If renewal expectancy is awarded to an existing licensee, its license is renewed and competing applications are not considered. All of U.S. Cellular's licenses which it applied to have renewed between 1994 and 2001 were renewed.

        All of U.S. Cellular's approximately 1,100 FCC licenses for the microwave radio stations it uses to link its cell sites with each other and with its MTSOs had to be renewed in 2001. All of those licenses were renewed for ten year terms. All newly obtained microwave licenses received ten year terms as well.

        U.S. Cellular conducts and plans to conduct its operations in accordance with all relevant FCC rules and regulations and anticipates being able to qualify for a renewal expectancy in its upcoming renewal filings. Accordingly, U.S. Cellular believes that current regulations will have no significant effect on its operations and financial condition. However, changes in the regulation of wireless operators or their activities and of other mobile service providers could have a material adverse effect on U.S. Cellular's operations.

        The FCC has also provided that five years after the initial licenses are granted, unserved areas within markets previously granted to licensees may be applied for by both wireline and non-wireline entities and by third parties. U.S. Cellular's strategy with respect to system construction in its markets has been to build cells covering areas within such markets that U.S. Cellular considers economically feasible to

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serve or might conceivably wish to serve and to do so within the five-year period following issuance of the license. However, U.S. Cellular has also filed many unserved area applications and these applications have generally been routinely granted. In cases where applications for unserved areas are filed which are mutually exclusive and would result in overlapping service areas, the FCC decides between the competing applicants by an auction process.

        Pursuant to 1993 amendments to the Communications Act, cellular service is classified as a Commercial Mobile Radio Service ("CMRS"), in that it is service offered to the public, for a fee, which is interconnected to the public switched telephone network. The FCC has determined that it will forebear from requiring such carriers to comply with a number of statutory provisions otherwise applicable to common carriers, such as the filing of tariffs.

        Recent Events.    There are certain regulatory proceedings currently pending before the FCC which are of particular importance to the wireless industry. In one proceeding, the FCC has imposed new "enhanced 911" regulations on wireless carriers. Enhanced 911 capabilities will enable wireless systems to determine the precise location of persons making emergency calls. The new rules will require wireless carriers to work with local public safety officials to process 911 calls, including those made from mobile telephones not registered with the wireless system. Since April 1998, wireless carriers have had to be able to identify the cell from which the call has been made. The rules will require wireless systems to improve their ability to locate wireless 911 callers during 2002.

        U.S. Cellular filed a request for waiver of the FCC's E-911 deployment requirements on September 10, 2001, and supplemented that request on November 30, 2001. It seeks a waiver of the FCC's E-911 Rules to permit deployment of U.S. Cellular's preferred technological approach to meeting the FCC's location finding accuracy requirements after the deadlines provided in the relevant rule. U.S. Cellular believes its arguments for waiver are meritorious. However, there is no guarantee that its request for waiver will be granted or that U.S. Cellular will not be subject to FCC sanctions, including monetary forfeitures, for failure to comply with the requirements.

        The FCC has adopted a limited expansion of the obligation of cellular carriers to serve the roaming subscribers of broadband PCS providers, among others, even though the subscribers involved have no pre-existing service relationship with that carrier. Under these policies, broadband PCS providers may offer their subscribers handsets which are capable of operating over broadband PCS and cellular networks so that when their subscribers are out of range of broadband PCS networks, they will be able to obtain non-automatic access to cellular networks. The FCC expects that implementation of these roaming capabilities will promote competition between broadband PCS and cellular service providers.

        Currently pending before the FCC is a proposal to require all CMRS carriers to provide "automatic" roaming capabilities to customers of other systems, presumably with FCC regulation of rates and other terms and conditions. U.S. Cellular, along with most wireless carriers, has opposed this proposal as presently unnecessary, though U.S. Cellular has urged the FCC to scrutinize the roaming practices of large national carriers.

        The FCC has adopted requirements which will make it possible for subscribers to retain, subject to certain geographic and other limitations, their existing telephone numbers when they switch from one service provider to another. This number portability will include switching between Local Exchange Carriers ("LECs") and other wireline providers, between wireless service providers and between LEC/wireline and wireless providers. LECs, in the 100 largest MSAs, had implementation deadlines by the end of 1998 at those switches which received specific requests for number portability. The FCC has extended the compliance date for cellular, broadband PCS, and certain other wireless providers to November 2002.

        Cellular and broadband PCS providers must also be capable, by November 2002, of receiving from the numbering authorities telephone numbers in "blocks" of 1,000, rather than 10,000, as has been the case previously. This is intended to conserve telephone numbers, and extend the life of the current numbering system.

        U.S. Cellular is working to comply with both the number portability and number block requirements, which will be complex and require extensive capital investment.

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        In another proceeding, the FCC in 1996 adopted rules regarding the method by which wireless carriers and LECs shall compensate each other for interconnecting wireless and local exchange facilities. The FCC rules provided for symmetrical and reciprocal compensation between LECs and wireless carriers, and also prescribed interim interconnection proxy rates, which are much lower than the rates formerly paid by wireless carriers to LECs. Symmetrical and reciprocal compensation means they must pay each other at the same rate. Interconnection rate issues will be decided by the states. Wireless carriers are now paying and in the future can be expected to pay lower rates to LECs than they previously paid. This result was favorable to the wireless industry and somewhat unfavorable to LECs.

        The FCC is currently considering a proposal to eliminate reciprocal compensation between wireless carriers and LECs and to move toward a so-called "bill and keep" system. If adopted, this change in the rules would also be favorable to wireless carriers, as wireless customers still make more calls to wireline customers than vice versa.

        The primary purpose and effect of the Telecommunications Act is to open all telecommunications markets to competition. The Telecommunications Act makes most direct or indirect state and local barriers to competition unlawful. It directs the FCC to preempt all inconsistent state and local laws and regulations, after notice and comment proceedings. It also enables electric and other utilities to engage in telecommunications service through qualifying subsidiaries.

        Only narrow powers over competitive entry are left to state and local authorities. Each state retains the power to impose competitively neutral requirements that are consistent with the Telecommunications Act's universal service provisions and necessary for universal services, public safety and welfare, continued service quality and consumer rights. While a state may not impose requirements that effectively function as barriers to entry, it retains limited authority to regulate certain competitive practices in rural telephone company service areas.

        The Telecommunications Act establishes principles and a process for implementing a modified "universal service" policy. This policy seeks nationwide, affordable service and access to advanced telecommunications and information services. It calls for reasonably comparable urban and rural rates and services. The Telecommunications Act also requires universal service to schools, libraries and rural health facilities at discounted rates. Wireless carriers must provide such discounted rates to such organizations in accordance with federal regulations. The FCC has implemented the mandate of the Telecommunications Act to create a new universal service support mechanism "to ensure that all Americans have access to telecommunications services." The Telecommunications Act requires all interstate telecommunications providers, including wireless service providers, to "make an equitable and non-discriminatory contribution" to support the cost of providing universal service, unless their contribution would be de minimis. At present, the provision of landline telephone service in high cost areas is subsidized by access charges and other payments by interexchange carriers to LECs. Such payments, based on a percentage of the total "billed revenue" of carriers for a given previous period of time, began in 1998. Carriers are free to pass such charges on to their customers. Wireless carriers are also eligible to receive universal service support payments in certain circumstances under the new systems if they provide specified services in "high cost" areas. U.S. Cellular has sought designation as an "eligible telecommunications carrier" qualified to receive universal service support in certain states, has been designated as such a carrier in the state of Washington and has received "high cost" payments for services provided to high cost areas within that state. U.S. Cellular has also sought FCC clarification of the standards under which wireless eligible telecommunications carriers will be designated.

        Under a 1994 federal law, the Communications Assistance to Law Enforcement Act ("CALEA"), all telecommunications carriers, including U.S. Cellular and other wireless licensees, had to implement by June 30, 2000, certain equipment changes necessary to assist law enforcement authorities in achieving an enhanced ability to conduct electronic surveillance of those suspected of criminal activity. In August 1999, the FCC added certain additional capabilities necessary to meet requirements of such act, which were to become applicable by September 2001. However, the September 2001 deadline for implementing those capabilities was rendered inapplicable by an August 2000 decision of the U.S. Court of Appeals for the District of Columbia Circuit, which found that the FCC's decision to add most of those

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capabilities had not complied with CALEA. The FCC subsequently postponed that deadline, as it reconsiders which of the additional capabilities to impose. Also, issues remain as to when carriers may obtain reimbursement from the federal government for upgrades related to such requirements. The FCC did retain a November 2001 deadline for the provision by carriers to law enforcement authorities of certain "packet-switched" data. U.S. Cellular has asked the FCC for a two year postponement of its obligation to comply with that requirement and its request is pending. If the FCC refuses to grant the waiver request, it could impose sanctions, including monetary forfeitures, on U.S. Cellular for failure to comply with the requirements. U.S. Cellular will work diligently to comply with all applicable requirements of CALEA in cooperation with industry groups and standard setting bodies when its requirements have been clarified.

        The FCC has recently taken action in proceedings: (1) to ensure that the customers of wireless providers, among other carriers, will receive complete, accurate, and understandable bills; (2) to establish safeguards to protect against unauthorized access to customer information; though the validity of these rules is still doubtful, due to a 1999 court order; (3) to require improved access to telecommunications facilities by persons with disabilities; and (4) to set national policy for the allocation by state public utilities commissions of telephone numbers to wireline and wireless carriers.

        The FCC also has a pending proceeding to implement requirements for wireless providers to set interstate interexchange rates in each state at levels no higher than the rates charged to subscribers in any other state. U.S. Cellular will monitor that proceeding and comply with new federal requirements as they become applicable.

        The FCC has recently begun three proceedings which may have a considerable impact on wireless carriers. In the first, the FCC has sought comment on whether CMRS carriers may impose "access charges" on interexchange carriers for interconnecting with their facilities. It is uncertain whether such charges may be lawfully imposed and U.S. Cellular has not previously attempted to collect them. In the second proceeding, the FCC is considering whether CMRS carriers may obtain the use of certain facilities from wireline carriers (for example, for telephone lines linking cell sites) at the unbundled network element ("UNE") prices now charged to CLECs, which are lower than those charged to CMRS carriers. If the FCC decides that CMRS carriers can impose access charges and may obtain the use of wireline facilities at UNE prices, those results would be favorable to wireless carriers. In the past, however, U.S. Cellular has usually employed microwave facilities, and not leased wireline facilities, to link its cell sites.

        In another proceeding, the FCC is also considering allowing Mobile Satellite Service ("MSS") licensees to offer terrestrial wireless service in competition with CMRS carriers. If the FCC permits MSS licensees to offer terrestrial service that increased competition this could be unfavorable to existing CMRS carriers.

        The FCC has allocated a total of 140 MHz to broadband PCS, 20 MHz to unlicensed operations and 120 MHz to licensed operations, consisting of two 30 MHz blocks in each of the 51 Major Trading Areas ("MTAs") and one 30 MHz block and three 10 MHz blocks in each of 493 Basic Trading Areas ("BTAs"). As noted above, as of January 1, 2002, the relevant FCC Spectrum Cap Rule provides that one entity may control 55 MHz of CMRS spectrum per market, with the exception that no one entity may control the two cellular licensees in a single RSA. Also, even above the 55 MHz spectrum cap, cellular operators and those entities under common ownership with them are permitted to participate in the ownership of PCS licenses, except for licenses for PCS service areas in which the cellular operator owns a 20% or greater interest in a cellular licensee and the service area of which covers 10% or more of the population of the PCS service area. As of January 1, 2003, the spectrum cap will be abolished and the FCC will review wireless acquisitions on a case-by-case basis.

        PCS technology is similar in many respects to cellular technology. Where it has become commercially available, this technology is capable of offering capacity for wireless two-way and one-way voice, data and multimedia communications services and has resulted in increased competition with U.S. Cellular's operations in the markets where PCS systems have begun operations. The ability of these PCS licensees to complement or compete with existing cellular licensees will be affected by future FCC

21

rule-makings. These and other future technological and regulatory developments in the wireless telecommunications industry and the enhancement of current technologies will likely create new products and services that are competitive with the services currently offered by U.S. Cellular. There can be no assurance that U.S. Cellular will not be adversely affected by such technological and regulatory developments.

        In January 2000, the FCC took an action which may have an impact on both cellular and PCS licensees. Pursuant to a congressional directive, the FCC adopted service rules for licensing the commercial use of 30 MHz of spectrum in the 747-762 MHz and 777-792 MHz spectrum bands. That spectrum is to be auctioned, beginning in June 2002. Subsequently, the FCC adopted service rules for the 688-746 MHz band which is also scheduled to be auctioned in June 2002. The majority of the spectrum in these bands will be auctioned in large regional service areas, although there will be some portion available which covers individual MSA and RSA markets. There will be no eligibility restrictions on participation in the auctions for this spectrum. Cellular and PCS carriers and other entities will be eligible to bid in the auction. Use of the spectrum by licensees selected in the auction may be affected by the presence of incumbent broadcast licensees on some of the auctioned frequencies through at least December 31, 2006.

        There is also pending before the FCC a proceeding to allocate frequencies for third generation wireless use. It had been proposed that the bulk of this spectrum would come from spectrum now allocated to the Federal Government. However, that allocation is now in doubt and it is uncertain what spectrum will be allocated or when it will be. Third generation wireless is intended to provide high speed data services, as well as full motion video and other advanced wireless services. U.S. Cellular expects to provide advanced wireless services to its customers in accordance with customer demand and what is commercially reasonable.

        State and Local Regulation.    U.S. Cellular is also subject to state and local regulation in some instances. In 1981, the FCC preempted the states from exercising jurisdiction in the areas of licensing, technical standards and market structure. In 1993, Congress preempted states from regulating the entry of wireless systems into service and the rates charged by wireless systems to customers. The siting and construction of the wireless facilities, including transmitter towers, antennas and equipment shelters are still subject to state or local zoning and land use regulations. However, in 1996, Congress amended the Communications Act to provide that states could not discriminate against wireless carriers in tower zoning proceedings and had to decide on zoning requests with reasonable speed. In addition, states may still regulate other terms and conditions of wireless service.

        In 2000, the FCC ruled that the preemption provisions of the Communications Act do not preclude the states from acting under state tort, contract, and consumer protection laws to regulate the practices of CMRS carriers, even if such activities might have an incidental effect on wireless rates. The full implications of that ruling are not yet known, though it could lead to more state regulation of CMRS carriers particularly from the standpoint of consumer protection.

        The FCC is required to forbear from applying any statutory or regulatory provision that is not necessary to keep telecommunications rates and terms reasonable or to protect consumers. A state may not apply a statutory or regulatory provision that the FCC decides to forbear from applying. In addition, the FCC must review its telecommunications regulations every two years and change any that are no longer necessary. Further, the FCC is empowered under certain circumstances to preempt state regulatory authorities if a state is obstructing the Communications Act's basic purposes.

        U.S. Cellular and its subsidiaries have been and intend to remain active participants in proceedings before the FCC and state regulatory authorities. Proceedings with respect to the foregoing policy issues before the FCC and state regulatory authorities could have a significant impact on the competitive market structure among wireless providers and the relationships between wireless providers and other carriers. U.S. Cellular is unable to predict the scope, pace or financial impact of policy changes which could be adopted in these proceedings.

        The FCC has adopted rules specifying standards and the methods to be used in evaluating radiofrequency emissions from radio equipment, including network equipment and handsets used in

22

connection with commercial mobile radio service. These rules were upheld on appeal by the U.S. Court of Appeals for the Second Circuit. The U.S. Supreme Court declined to review the Second Circuit's ruling. U.S. Cellular's network facilities and the handsets it sells to customers comply with these standards.

        Media reports have suggested that radio frequency emissions from handsets, wireless data devices and cell sites may raise various health concerns, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Although some studies have suggested that radio frequency emissions may cause certain biological effects, all of the expert reviews conducted to date have concluded that the evidence does not support a finding of adverse health effects but that further research is appropriate. Research and studies are ongoing. These concerns over radio frequency emissions may discourage the use of handsets and wireless data devices and may result in significant restrictions on the location and operation of cell sites, all of which could have a material adverse effect on U.S. Cellular's results of operations. Several class action lawsuits have been filed against several other wireless service operators and several wireless phone manufacturers, asserting product liability, breach of warranty and other claims relating to radio frequency transmissions to and from handsets and wireless data devices. The lawsuits seek substantial monetary damages as well as injunctive relief. There can be no assurance that such lawsuits will not have a material adverse effect on the wireless industry, including U.S. Cellular.

Competition

        In markets where it owns and operates cellular licenses, U.S. Cellular's principal competitors for wireless telephone service in each market are the licensees of the second cellular system in that market and any PCS or ESMR licensees. Since each of these competitors operates its system using spectrum licensed by the FCC and has comparable technology and facilities, competition for customers between these systems in each market is principally on the basis of quality of service, price, size of area covered, services offered and responsiveness of customer service. The competing entities in many of the markets in which U.S. Cellular has an interest have financial resources which are substantially greater than those of U.S. Cellular and its partners in such markets.

        The FCC's rules require all operational wireless systems to provide, on a nondiscriminatory basis, wireless service to resellers which purchase blocks of mobile telephone numbers from an operational system and then resell them to the public.

        U.S. Cellular expects wireless operators to continue deployment of PCS in portions of all of U.S. Cellular's clusters throughout 2002 and beyond. In recent years, ESMR providers have initiated service in many of U.S. Cellular's markets. Although less directly a substitute for other wireless services, wireless data services and paging services may be adequate for those who do not need full two-way voice service. Similar technological advances or regulatory changes in the future may make available other alternatives to wireless service, thereby creating additional sources of competition.

        Continuing technological advances in the communications field make it difficult to predict the extent of additional future competition for wireless systems. For example, the FCC has allocated radio channels to mobile satellite systems in which transmissions from mobile units to satellites would augment or replace transmissions to cell sites. Such systems are designed primarily to serve the communications needs of remote locations and mobile satellite systems could provide viable competition for land-based cellular systems in such areas. Some initial deployments have been made and service is now being provided in certain areas. It is also possible that the FCC may in the future assign additional frequencies to cellular telephone service, PCS or ESMR service to provide for more competitors in each market.

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TDS Telecom Operations

Overview

        TDS's telephone operations are conducted through TDS Telecom and its subsidiaries. TDS Telecom is a wholly owned business unit of TDS. TDS Telecom's corporate headquarters are located in Madison, Wisconsin. TDS Telecom is a holding company providing high-quality telecommunication services, including full-service local exchange service, long-distance telephone service, and Internet access, to rural and suburban communities. TDS Telecom has 109 telephone company subsidiaries, ranging in size from approximately 500 to 67,000 access lines, that are considered Incumbent Local Exchange Carriers ("ILEC"). An ILEC is an independent local telephone company that traditionally has had the exclusive right and responsibility to provide local transmission and switching services in its designated service territory. TDS Telecom served approximately 650,700 access lines in 28 states through its ILEC subsidiaries at December 31, 2001. TDS Telecom also provides telecommunications services as a Competitive Local Exchange Carrier ("CLEC") through its subsidiaries—TDS METROCOM and USLink.

        The table below sets forth, as of December 31, 2001, the nine largest states of TDS Telecom's ILEC operations based on the number of access lines and the total number of access lines operated by all of the telephone subsidiaries of TDS Telecom.

State		Number of Access Lines at December 31, 2001	% of Total
Wisconsin		151,237	23.2	%
Tennessee		103,330	15.9
Georgia		48,892	7.5
Minnesota		34,546	5.3
Indiana		30,836	4.7
Alabama		27,760	4.3
Maine		26,747	4.1
Michigan		25,930	4.0
New York		25,890	4.0
	Total for 9 Largest States	475,168	73.0
Other States		175,532	27.0
	Total	650,700	100.0	%

        TDS Telecom provides consumers and businesses with landline local telephone service through its switching and intra-city network. Long-distance or toll service is provided through connections with long-distance carriers, primarily AT&T and the Regional Bell Operating Companies ("RBOCs"), which purchase network access from TDS Telecom. In 2000, TDS Telecom entered the resale long distance business in its ILEC markets and served 125,300 long distance customers at December 31, 2001, an increase from 40,500 at December 31, 2000.

        In 1998, TDS Telecom began providing telecommunications services as a CLEC in the greater Madison and Appleton areas of Wisconsin under the TDS METROCOM brand name and in Minnesota markets including Minneapolis/St. Paul under the USLink brand name. CLEC is a term that depicts companies that enter the operating areas of traditional telephone companies to offer local exchange service and other telephone services. In 2001, TDS METROCOM began providing service in Lake County, Illinois and southern Michigan. TDS Telecom served approximately 197,200 access lines through its CLEC subsidiaries at December 31, 2001.

        Future growth in telephone operations is expected to be derived from providing service to new or presently underserved customers, expanding service in the areas currently served by TDS Telecom and others, upgrading existing customers to higher grades of service and increasing penetration of services. Additionally, growth is expected from increased usage of the network through both local and long-distance calling, additional services made possible by advances in technology, and the acquisition or development of additional ILEC and CLEC operations.

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        TDS Telecom is committed to offering its customers a full complement of telecommunications services and bundles those services in customer friendly packages to provide a single source for its customers' telecommunication needs. TDS Telecom intends to provide its customers with expanded communications products and services covering their local, long distance and data needs.

        The following table summarizes certain information regarding TDS Telecom's telephone operations:

		Year Ended or At December 31,
		2001			2000			1999			1998			1997
		(Dollars in thousands)
ILEC Access lines (1)			650,700			601,200			571,700			547,500			515,500
	% Residential		77.5%			78.1%			77.9%			78.1%			78.3%
	% Business (nonresidential)		22.5%			21.9%			22.1%			21.9%			21.7%
CLEC Access lines			197,200			112,100			65,900			34,100			—
Internet Customers:
	ILEC		117,500			72,100			63,600			42,300			—
	CLEC		13,700			11,200			9,400			5,800			—
Consolidated:
	Total Revenues	$	693,712		$	610,216		$	545,917		$	488,104		$	437,624
	Depreciation and amortization expense		149,361			133,445			123,350			111,402			98,021
	Operating income		118,943			127,753			114,551			94,412			100,143
	Construction expenditures		196,816			150,602			122,182			143,126			151,460
	Business segment assets	$	1,741,324		$	1,365,803		$	1,306,730		$	1,270,602		$	1,242,552
ILEC:
	Total Revenues	$	576,817		$	528,981		$	492,530		$	461,360		$	416,310
	Depreciation and amortization expense		131,787			124,389			117,443			108,173			96,488
	Operating income		161,916			142,708			124,093			103,875			100,371
	Construction expenditures		99,866			93,401			99,155			119,698			138,396
	Business segment assets	$	1,527,758		$	1,245,260		$	1,243,068		$	1,227,479		$	1,218,985
CLEC:
	Total Revenues	$	118,812		$	84,720		$	55,173		$	29,743		$	23,007
	Depreciation and amortization expense		17,574			9,056			5,907			3,229			1,533
	Operating income		(42,973	)		(14,955	)		(9,542	)		(9,463	)		(228	)
	Construction expenditures		96,950			57,201			23,027			23,428			13,064
	Business segment assets		213,566			120,543			63,662			43,123		$	23,567
Intra-company Revenue Elimination		$	(1,917	)	$	(3,485	)	$	(1,786	)	$	(2,999	)	$	(1,693	)

(1)

An "access line" is a single or multi-party circuit between the customer's establishment and the central switching office.

Business Strategy

        TDS Telecom has historically produced revenue growth in its ILEC markets by providing its customers with state-of-the-art telecommunications solutions, maintaining a high quality of on-going service and selectively acquiring local telephone companies. Management believes that TDS Telecom has a number of advantages as an ILEC, including a modern network substantially upgraded to provide a variety of Advanced Calling Services ("ACS"), a strong local presence, an established brand name, economies of scale not available to smaller independent operators, and attractive, growing markets. However, the competitive environment in the telecommunications industry has changed significantly as a result of technological advances, increasing customer requirements and regulatory changes, including the Telecommunications Act of 1996 ("the Telecommunications Act"). In response to this changing

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competitive environment, TDS Telecom's business plan is designed to leverage TDS Telecom's strength as an ILEC into a full-service telecommunications company that includes CLEC operations. The business plan provides for TDS Telecom to meet these challenges in three areas:

•

Growing and protecting TDS Telecom's core ILEC business;



•

Leveraging its strengths into attractive new markets (CLEC); and



•

Creating a robust line of data products and services, and selling them in existing markets and in new markets through the growth of CLEC operations.

        TDS Telecom's goal is to be a leading provider of electronically deliverable products in its ILEC markets. As of December 31, 2001, TDS Telecom was the 7th largest non-Bell local exchange telephone company in the United States based upon a survey by United States Telecommunications Association. This ranking was based on the number of telephone access lines served. Virtually all of TDS Telecom's access lines are served by digital switching technology, which, in conjunction with other technologies, allows TDS Telecom to offer additional premium services to its customers. These services include call forwarding, conference calling, caller identification (with and without name identification), selective call ringing and call waiting.

        As operating companies of one of the major independent local exchange holding companies in the United States, TDS Telecom's ILECs provide both local telephone service and access to the long distance network for customers in their respective service areas. The ILECs also provide directory advertising through a contract with another company, and billing and collection services to interexchange carriers ("IXCs"). IXCs are telephone companies that are allowed to provide long-distance telephone service between and within geographically defined Local and Access Transport Areas ("LATAs"). TDS Telecom provides centralized administrative and support services to field operations from its corporate offices in Madison, Wisconsin.

Grow and Protect Core ILEC Business

        A key component of TDS Telecom's business strategy is to grow and protect its existing ILEC markets. Management believes that this strategy encompasses many components including the customers within the market, market strategy, federal financing, federal support revenues, acquisition plans, competitors, and construction and development. These facets of the business are all impacted by regulations imposed by the FCC. Each component identified is discussed in detail below.

Retail and Wholesale Markets

        TDS Telecom's ILEC retail presence includes 112 sales and service offices in 28 states. These offices serve both residential and business customers. Approximately 78% of TDS Telecom's retail access lines serve residential customers and approximately 22% serve business customers. Retail customers are composed primarily of residential customers, businesses, government and institutional telecommunications users.

        The retail customer base is a mix of rural and suburban customers, with significant concentrations in the Upper Midwest and in the Southeast. Approximately 74% of TDS Telecom's residential customers live in rural areas, while the other 26% are located in suburban settings. TDS Telecom's promotional and sales strategy for the retail customer consists of two major initiatives: building brand equity by creating awareness of the TDS TELECOM brand name and using direct marketing to sell specific products and product groupings. The nature of TDS Telecom's markets has historically made direct marketing more effective than mass media such as radio and television. In addressing its consumer markets, TDS Telecom has made extensive and aggressive use of direct mail. It has been more selective, though still active, in the use of telemarketing as a means of generating awareness, qualified leads, and actual sales. Newspaper is used as well. Uniform branding has made the use of mass media more attractive, and TDS Telecom has increasingly incorporated these elements into its media mix.

        Most business customers could be described as small to medium sized businesses or small office/home office type customers. TDS Telecom focuses its marketing on information-intensive industries

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such as financial services, health services, realty, hotels and motels, education and government. TDS Telecom uses its direct sales force, targeted mailings, and telemarketing to sell products and services to the commercial markets, which are segmented into tiers based on size and strategic importance. Different sales and distribution channels are employed for each segment. Account executives focus on the most profitable customers by staying in contact with them on a regular basis. TDS Telecom employs a strong performance based compensation plan for its account executives targeted at revenue and customer satisfaction results.

        In nearly all of its markets, TDS Telecom offers the complete family of custom calling services including call waiting, call forwarding, three-way calling, and speed dialing. TDS Telecom's advanced calling services family of products is centered around Caller ID service. In 2001, the ACS family of services were available to 98% of the lines in service compared to 97% in 2000. Penetration of Caller ID increased from 27% to 28% of lines equipped.

        TDS Telecom's wholesale presence involves a diverse customer base. Wholesale services have traditionally provided a majority of TDS Telecom's revenues. TDS Telecom receives much of its ILEC revenue from the sale of traditional wholesale services, such as access service charges and billing and collections services to the IXCs. As a result, TDS Telecom continues to provide a high level of service to traditional IXC wholesale customers such as AT&T, MCI, Sprint and the RBOCs. Recent and proposed regulatory changes discussed below affect the sources of TDS Telecom's ILEC revenues.

Market Strategy

        TDS Telecom has three primary goals to support its grow and protect strategy. The goals are to build customer loyalty, grow revenues and control costs. Management of TDS Telecom believes it can achieve these goals by offering a continually updated flow of new products and services. This will be achieved by:

•

Creating value-added packages and bundles,



•

Building brand equity in the TDS TELECOM brand name, and



•

Providing superior customer service to its retail customers.

        Value Added Product Bundles and Packages.    Management of TDS Telecom believes that its consumer and business customers have a strong preference to purchase all of their telecommunications services from a single provider. TDS Telecom believes that by offering a full complement of telecommunications services and bundling those services in customer-friendly packages, it can build customer loyalty and reduce customer churn. TDS Telecom enhanced its product offerings in 2001 with the launch of TDS TrueTalk business plans, an enhancement of its existing residential long distance product. TDS TrueTalk offers four price-competitive long distance options for TDS Telecom residential customers and three new business plans. TDS TrueTalk is billed on TDS Telecom's local telephone bill and customers can call one number to ask questions on both local and long distance service. TDS Telecom also bundled TDS TrueTalk and TDS Internet Service into a discounted package. TDS Telecom will continue to pursue relationships with strategic partners to further develop the long distance, video and wireless components of its product mix.

        Brand Equity.    TDS Telecom continued to build on the branding process started in 1996. This process adopted the TDS TELECOM name as a unified brand name across its markets to build its brand image. In addition to using existing customer-facing avenues (bill statements, vehicles, and company signage), TDS Telecom greatly increased its Internet web presence. TDS Telecom's web site offers product and service information, company information, product/service ordering capability, e-service options, and account management. TDS Telecom also entered an alliance with a web-portal vendor to improve the Internet experience for its Internet customers. The TDS Telecom sites, including both the company core sites and the portal site, receive over 3.3 million page views per month. TDS Telecom continues to leverage its sales and marketing messages through cost-effective public relations activities and messages. Management of TDS Telecom believes that branding will increase the loyalty of its customers and reduce expenses through more cost-effective marketing.

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        Customer Service.    TDS Telecom distinguishes itself by the way customer service is offered to its retail customers. TDS Telecom is a large national company with a local sales and service office in the majority of its markets. This combination provides TDS Telecom's retail customers with the economies of scale and product offers generally associated with large companies. It also provides the high levels of personal customer service generally associated with small companies. TDS Telecom's professional service representatives and field representatives both live and work in the communities served. TDS Telecom believes that its strength in two key areas—product/price and customer service—provides a fundamental competitive advantage for TDS Telecom.

        TDS Telecom continued leveraging its Virtual Business Office ("VBO") initiative in 2001. This initiative enables multiple local sales and service offices to function as a single office. TDS Telecom continues to provide superior 24 hours-per-day, 7 days-per-week customer service. TDS Telecom continued to standardize training and procedures throughout 2001 to increase customer service levels without increasing costs. Customer surveys show that customer satisfaction with transactions in the VBO environment continues to be as good or better than satisfaction with transactions in the prior environment.

        The wholesale market's focus is on access revenues. TDS Telecom's operating telephone subsidiaries receive access revenue as compensation for carrying interstate and intrastate long-distance traffic on their networks. Access charges, billing and collection services and other primarily traditional wholesale offerings generated $326 million, or approximately 56%, of TDS Telecom's ILEC revenue for the year ended December 31, 2001. The interstate and intrastate access rates charged include the cost of providing service plus a fair rate of return.

        Most of the TDS Telecom ILECs participate in both the National Exchange Carrier Association ("NECA") interstate common line and traffic sensitive tariffs. TDS Telecom's operating companies also participate in the access revenue pools administered by the FCC-supervised NECA, which collects and distributes revenue from interstate access services. The FCC retains minimal regulatory oversight over interstate toll rates and other issues relating to interstate telephone service, but continues to regulate and has made recent changes to reform interstate access and jurisdictional separations.

        On November 8, 2001, the FCC issued an order that reformed access for rate-of-return regulated ILECs including the TDS Telecom ILECs. The changes will be transitioned during 2002-2003. Specifically, the FCC reformed the structure of interstate access by lowering per minute access charges paid by long distance carriers and raising business and residential subscriber line charges, and moved "implicit support" from access to a new uncapped explicit universal service fund. The FCC also sought additional comments on several other matters including incentive-type regulation and discontinuing separate long term support, so all support will be available to companies both inside and outside of the NECA pool. The FCC's decision preserves the current interstate rate of return and makes companies whole through increasing universal service and the federal subscriber line charge ("SLC") to replace decreasing access revenues.

        On May 22, 2001, the FCC released a 5-year interim jurisdictional separations reform order related to allocations of costs between interstate and intrastate operations. The decision allows both price cap and rate-of-return companies to freeze their allocation factors. The freeze of allocation factors will minimize the impact of growth in Internet minutes, which have been deemed local for separations purposes. The order also allows for a rate-of-return company to elect whether or not it wishes to freeze categories, which TDS Telecom has elected to do for several of its companies.

        TDS Telecom is actively involved with the FCC re-examination of all currently regulated forms of intercarrier compensation. The FCC has tentatively decided to move from the existing transitional intercarrier compensation regimes (i.e. access charges for long distance traffic and reciprocal compensation for the transport and termination of local traffic) to a more permanent "bill and keep" regime where carriers look to their end user customers for all costs of originating and terminating interstate long distance calls. The FCC believes it is essential to re-evaluate these existing regimes in light of increasing competition and new technologies, such as Internet and Internet-based services, which diminish the ability to continue to recover costs through intercarrier compensation. Depending upon the compensation method ordered, the immediate impact on small and mid-size companies could be the loss of

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access revenues unless these revenues can be recovered through a new universal service mechanism or reflected in higher rates to the local end user, or other methods of cost recovery can be created. TDS Telecom remains committed to finding a replacement for intercarrier compensation regimes which preserve our ability to maintain high levels of service at comparable rates.

        Where applicable and subject to state regulatory approval, TDS Telecom's ILEC subsidiaries utilize intrastate access tariffs and participate in intrastate revenue pools. However, many intrastate toll revenue pooling arrangements, formerly a source of substantial revenues to TDS Telecom's ILECs, have been replaced with access-charge-based arrangements. In these cases, access charges are typically set to generate revenue flows similar to those realized in the pooling process. To the extent that state-ordered access charge revisions reduce revenues, TDS Telecom may seek adjustments in other rates. Some states also utilize a state high cost fund or state SLCs to offset access charge reductions.

Federal Financing

        TDS Telecom's primary sources of long-term financing for additions to telephone plant and equipment have been the Rural Utilities Service ("RUS"), the Rural Telephone Bank ("RTB") and the Federal Financing Bank ("FFB"), agencies of the United States of America. The RUS has made primarily 35-year loans to telephone companies since 1949, at interest rates of 2% and 5%, for the purpose of improving telephone service in rural areas. Currently, the RUS is authorized to issue hardship loans at a 5% interest rate and other loans at an interest rate approximating the government's rate for instruments of comparable maturity. The RTB, established in 1971, makes loans at interest rates based on its average cost of money (5.17% for its fiscal year ended September 30, 2001), and in some cases makes loans concurrently with RUS loans. In addition, the RUS guarantees loans made to telephone companies by the FFB at the federal cost of money. All such loans have a maturity date based on the life of the assets being financed.

        Substantially all of TDS Telecom's telephone plant is pledged under, or is otherwise subject to, mortgages securing obligations of the operating telephone companies to the RUS, RTB and FFB. The amount of dividends on common stock that may be paid by the operating telephone companies is limited by certain financial requirements set forth in the mortgages. In any calendar year, companies with greater than 40% net worth to total assets can distribute the entire amount above 40%. The majority of TDS Telecom's telephone subsidiaries exceed this percentage. Approximately $659.3 million may be paid as dividends from the operating subsidiaries to TDS Telecom.

        At December 31, 2001, TDS Telecom's operating telephone companies had unadvanced loan commitments under the RUS, RTB and FFB loan programs aggregating approximately $105.6 million, at a weighted average annual interest rate of 5.30%, to finance specific construction activities in 2002 and future years. These loan commitments are generally issued for five-year periods and may be extended under certain circumstances. TDS Telecom's operating telephone companies may make further applications for additional loans from the RUS, RTB and FFB as their needs arise. There is no assurance that these applications will be accepted or what the terms or interest rates of any future loan commitments will be or that Congress will continue making the annual appropriations to fund these programs.

Federal Support Revenues

        To promote universal service, the FCC has developed a number of federal universal support mechanisms, including a High Cost Fund and Lifeline/Linkup support, to keep telephone rates affordable for both high-cost rural areas and low-income customers. Most of TDS ILEC subsidiaries utilize these support mechanisms, since they provide telephone service in rural areas and offer service to low-income customers. The FCC has used a staggered approach to reform these federal universal support mechanisms, with rural and non-rural companies being addressed separately. Non-rural companies began using the FCC's forward-looking cost proxy model to determine universal service support on January 1, 2000, while rural companies continued to operate under the status quo of embedded cost until the FCC issued its most recent decision in this matter.

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        On May 23, 2001, the FCC modified its existing universal service support mechanism for rural local telephone companies by adopting an interim embedded cost mechanism for a five-year period. The FCC specifically "re-based" the capped high-cost loop support fund for rural telephone companies, but retained an indexed cap on the fund. TDS Telecom should see an increase in revenues due to this re-basing. The FCC also created a "rural growth factor" that allows the high-cost loop support fund to grow based on annual changes in inflation and the total number of rural working loops, froze the high-cost loop support at $240, and created new state certification requirements for receiving universal service support. Furthermore, the FCC allowed companies to disaggregate and target high-cost universal service support below the study area so support can be more closely associated with the cost of providing service in different parts of an ILEC's service area. TDS Telecom may file disaggregation plans for each of its study areas during 2002. All forms of support available to ILECs are now "portable" to any local competitor that qualifies for support as an Eligible Telecommunications Carrier. Portable per-line support is based on the incumbent's per line support and could make it more attractive to enter as a competitor in high-cost TDS ILEC service areas.

        The FCC is currently looking into whether to freeze or otherwise control support growth when a competitor in an ILEC area qualifies for support. The FCC will also hold further proceedings with a Federal-State Joint Board while the five-year interim plan is in effect, in which it will look further at using its cost proxy model to determine rural ILEC's costs for universal service purposes and at whether its current separate rural and non-rural carrier support mechanisms can be better coordinated or consolidated into a single scheme.

        All carriers are required to contribute to the Universal Service Fund based on their interstate and international revenues. All carriers will now recoup their contributions through end user surcharges on their customer bills. A group led by long distance providers is seeking to persuade the FCC to recover all costs for universal service from local exchange company providers.

        Historically, telephone company acquisition and investment decisions assumed the ability to recover the cost and a reasonable rate of return through local service, access, and support revenues. As universal service and access are being reformed, these revenue streams are becoming less certain. Potential declining access rates and revisions to universal service support may lead to higher local rates and/or declining earnings while changes in the universal service funding system could affect TDS Telecom's acquisition and investment strategy.

Telephone Acquisitions—ILEC

        TDS and TDS Telecom continually review attractive opportunities to acquire operating telephone companies. Since January 1, 1997, TDS has acquired nine telephone companies and an additional minority interest in one telephone company serving a total of 63,800 net access lines for an aggregate consideration totaling $320.2 million, all of which were transferred to TDS Telecom. The consideration paid by TDS consisted of $298.3 million in cash and notes, 30,000 TDS Preferred Shares and 440,000 TDS Common Shares.

        Telephone holding companies and others actively compete for the acquisition of telephone companies and such acquisitions are subject to the consent or approval of regulatory agencies in most states and, in some cases, to federal waivers that may affect the form of regulation or amount of interstate cost recovery of acquired telephone exchanges. The TDS acquisition strategy is to focus on geographic clustering of telephone companies to achieve cost economies and to complement TDS Telecom's growth strategy. While management believes that it will be successful in making additional acquisitions, there can be no assurance that TDS or TDS Telecom will be able to negotiate additional acquisitions on terms acceptable to them or that regulatory approvals, where required, will be received.

        It has been TDS Telecom's practice to preserve, insofar as possible, the local management of each telephone company it acquires. TDS Telecom provides the telephone subsidiaries with centralized purchasing and general management and other services, at cost plus a reasonable rate of return on invested capital. These services afford the subsidiaries expertise in finance, accounting and treasury

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services; marketing; customer service; traffic; network management; engineering and construction; customer billing; rate administration; credit and collection; and the development of administrative and procedural practices.

        On November 16, 2001, TDS announced that it has entered into a definitive agreement to acquire MCT, Inc. of Contoocook, NH, a privately-held local exchange telephone company. The transaction is subject to certain conditions including regulatory approvals. The closing is expected to be in the second quarter of 2002. MCT, Inc., New Hampshire's largest independent telephone company, serves approximately 18,000 telephone access lines through eight telephone exchanges, together with 4,000 Internet and Digital Subscriber Line ("DSL") customers, and 2,300 cable TV customers primarily in south central New Hampshire.

        On February 14, 2002, TDS announced that it has entered into a definitive agreement to acquire Telecommunication Systems of New Hampshire, Inc. of Wilton, NH, a privately-held telecommunications company which owns the Wilton Telephone Company, Inc., Wilton, NH, and Hollis Telephone Company, Inc., Hollis, NH. The transaction is subject to certain conditions including regulatory approvals. The closing is expected to be in the second quarter of 2002. Wilton and Hollis telephone companies serve approximately 7,500 access lines in the two exchanges, together with 1,400 Internet and DSL customers in south central Hew Hampshire.

ILEC Markets Competition

        The Telecommunications Act of 1996 initiated a process of transformation in the telecommunications industry. Public policy has long embraced the dual objectives of universal service and competition. The Telecommunications Act, however, established local competition as a national telecommunications policy. The Telecommunications Act requires non-exempt ILECs to provide "reasonable and non-discriminatory" interconnection services and access to unbundled network elements to any CLEC that seeks to enter the ILEC's markets. The Telecommunications Act also allows CLECs to collocate network equipment in ILEC central offices and prevents ILECs and CLECs from unduly restricting each other from the use of facilities or information that enable competition. However, most of TDS Telecom ILECs currently remain exempt from the most burdensome market opening requirements under a provision discussed in the ILEC Regulation section below. The exemption rules, coupled with the economics of competing in lower population density markets and the high service quality TDS Telecom provides, may delay CLEC competitive entry in many TDS Telecom ILEC markets, although competitors are free to enter TDS Telecom ILEC markets without using the special ILEC methods covered by exemptions that remain in force. Moreover, TDS Telecom has received an interconnection request filed by a potential competitor and the request may lead to competitive entry. The interconnection request potentially impacts all of TDS Telecom's exchanges in the state of Tennessee.

        TDS Telecom expects competition in the telecommunications industry to be robust in the coming years, especially in the larger urban areas. Many CLEC business models have been tried, and some will likely prove successful in establishing long-term viable positions in the industry. TDS Telecom's strategy for retaining its ILEC customer base is to build customer loyalty by 1) providing superior service quality and customer care, 2) capitalizing on its local presence in the communities it serves, and 3) offering a suite of products and services bundled in response to customer preferences.

ILEC Markets Construction & Development

        In 2001, TDS Telecom continued its program of enhancing and expanding its service-providing network. TDS Telecom intends to meet competition by providing its customers with high-quality telecommunications services and building its network to take full advantage of advanced telecommunications technologies such as:

•

Signaling System 7 ("SS7"), a high-speed data network with dedicated access points that provides for various call set-up, call routing and enhanced calling features (99.8% of TDS Telecom ILEC customers are reached via switching systems equipped with SS7 functionality),

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•

CLASS Features, enhanced calling features available to subscribers, including Calling Line Identification,



•

Fiber optic fed Digital Serving Areas ("DSAs"), a defined geographic area within an exchange that is served by a digital loop carrier system. The digital loop carrier system extends the line side hardware of the central switch to the defined geographic area. Having this capability allows the expansion of services (such as higher data rates) to a greater number of customers residing at a distance from the Central Office Switching equipment, and



•

Digital Subscriber Line ("DSL"), a technology that provides a high-speed data access channel between the customer's personal computer and the equipment located at the central office. This technology is supported on ordinary copper telephone lines using a digital modem at the customer premise and a similar modem located at the central office or DSA. From there, the data is aggregated and transmitted via access pipes to an endpoint, such as the customer's Internet Service Provider (ISP).

        During 2001, TDS Telecom launched DSL service in 16 markets, bringing total markets served to 23. While DSL technology has distance limitations and not all subscribers will have access to high-speed Internet services, current generation DSL technology allows for deployment of high-speed Internet service in DSAs with suitably equipped line concentrators.

        As TDS Telecom upgrades and expands its network, it is also standardizing equipment and processes to increase efficiency and has centralized the monitoring and management of its network to reduce costs and improve service reliability. TDS Telecom formed strategic alliances with Lucent Technologies and Siemens Telecom Networks to modernize and standardize TDS Telecom's switching platform with the Lucent 5ESS-2000 and Siemens EWSD switches. This more standardized switching platform has assisted TDS Telecom in implementing its 24-hours-a-day/7-days-per-week Network Management Center. The Network Management Center continuously monitors the network in an effort to proactively identify and correct network faults prior to any customer impact.

        TDS Telecom's total 2002 ILEC capital budget is approximately $115 to $125 million, compared to actual capital expenditures of $99.9 million in 2001 and $93.4 million in 2000. The telephone capital additions budget for 2002 includes approximately $36.0 million for outside plant facilities and $45.0 million for switching facilities in the ILEC markets. Financing for the 2002 capital additions will be primarily provided by internally generated funds.

ILEC Regulation

        TDS Telecom subsidiaries are primarily incumbent local exchange carriers ("ILEC"), the traditional regulated local telephone companies in their communities. TDS Telecom's ILEC subsidiaries are regulated by federal and state regulatory agencies, and TDS Telecom seeks to maintain positive relationships with these regulators. Rates, including local rates, intrastate toll rates and intrastate access charges, are subject to state commission approval in most states. The regulators also establish and oversee implementation of the provisions of the Telecommunications Act including interconnection requirements, promotion of competition, and the deployment of advanced services. TDS Telecom will continue to pursue necessary changes in rate structures and regulation to maintain affordable rates and reasonable earnings. TDS Telecom has also elected alternative forms of regulation in several states and will continue to evaluate whether to pursue alternative regulation in its remaining states.

        For the TDS Telecom ILECs, state regulators generally approve rate adjustments, service areas, service standards, and accounting methods, and limit the return on capital based upon allowable levels. In some states, construction plans, borrowing, depreciation rates, affiliated charge transactions and certain other financial transactions are also subject to regulatory approval. States traditionally designated a single ILEC as the universal service provider in a local market and then regulated the entry of additional competing providers into the same local market. The Telecommunications Act, however, has

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almost completely pre-empted state authority over market entry. While a state may not impose requirements that effectively function as barriers to entry, and the FCC must pre-empt challenged state requirements if they impose such barriers to entry, a state still retains narrowly limited authority to regulate certain competitive practices in rural telephone company service areas.

        The Telecommunications Act establishes a general duty for all telecommunications carriers, including wireless providers, to interconnect with other carriers. Specifically, all local exchange carriers ("LECs"), including competitors to ILECs, are required to meet specific interconnection requirements including resale, number portability, dialing parity, access to rights-of-way and reciprocal compensation. Unless exempted or granted a suspension or modification from these requirements, ILECs also have additional interconnection obligations: (a) to negotiate in good faith the terms of interconnection; (b) to comply with more detailed interconnection terms, including non-discrimination and unbundling their network and service components so competitors may use only those elements they choose for providing their services; (c) to offer their retail services at wholesale rates to facilitate resale by their competitors; and (d) to allow other carriers to place equipment necessary for interconnection or access on their premises. The FCC also requires ILECs' rates for interconnection and network components to be based on "forward-looking economic costs," using a proxy cost model developed by the FCC.

        As defined in the Telecommunications Act, most of TDS Telecom's ILEC subsidiaries qualify as "rural telephone companies." As rural ILECs, they are exempt from the ILEC interconnection obligations until they receive a bona fide request for interconnection and the state commission lifts the exemption. As noted in the previous section, that process is underway in some TDS Telecom ILEC markets, where TDS Telecom is mounting a vigorous regulatory defense. FCC rules making it harder to keep the rural exemption were struck down by the 8^th Circuit Court of Appeals, and the U.S. Supreme Court did not accept these issues for review. The FCC and state commissions have also set forth extensive rules for mediating and arbitrating interconnection negotiations between ILECs and carriers requesting interconnection, services or network elements. The Telecommunications Act establishes deadlines, standards for state commission approval of interconnection agreements and recourse to the FCC if a state commission fails to act. The state commissions have also added further clarification and requirements. The FCC has pending proceedings to consider standards for providing required wholesale arrangements for non-exempt ILECs, and special access by all ILECs.

        The FCC is still considering rules and policies implementing various provisions of the Telecommunications Act. Many of the FCC determinations made to implement the Telecommunications Act and to facilitate competition involve investment and upgrades to TDS Telecom ILEC networks, and impose greater costs and obligations on ILECs than on their competitors. These investments and upgrades include requirements to implement local number portability so subscribers may change to competitors' services without changing their telephone numbers, network signaling information that must be provided to certain other carriers and pay phone providers, and other changes that require additional investments and expenses. TDS Telecom is seeking to comply with these requirements or to obtain the necessary suspensions or modifications where appropriate, while at the same time pursuing policies that provide a fair opportunity to recover its costs.

        The FCC continues to explore how to comply with the requirement in the Telecommunications Act for federal and state authorities to encourage nationwide advanced broadband infrastructure development that could require extensive additional investment. For example, in November 1999, the FCC released an order mandating line sharing. In its order, the FCC amended its unbundling rules to require ILECs to provide unbundled access to a new network element—the high frequency portion of the local loop. The FCC is currently reviewing its standards and rules for providing all unbundled network elements. As noted, most TDS Telecom ILECs are currently exempt from the interconnection and unbundling provisions of Section 251(c) of the Telecommunications Act. Until a TDS Telecom ILEC has received a bona fide request and the state commission has terminated the rural exemption, that ILEC will also not be required to provide line sharing. State commissions have also been seeking to mandate the deployment of advanced services and enhancements to the infrastructure (e.g., higher modem speeds, DSL), which will result in additional costs to condition the loops to provide the service. The FCC has opened a proceeding to consider issues surrounding ILEC broadband deployment and will also consider how to classify bundled broadband and information service offerings for regulatory purposes.

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        TDS Telecom seeks to maintain and enhance existing revenue streams despite heightened earnings review activity by state regulators and the advent of local exchange competition sparked by the Telecommunications Act. TDS Telecom is preparing for competition even though its operating subsidiaries remain governed by state regulators. For example, TDS Telecom is seeking the necessary pricing flexibility to adjust ILEC rate structures to a more competitive model by pursuing alternative forms of regulation. TDS Telecom also continues to participate in state and federal regulatory and legislative processes to urge that any telecommunications reform measures treat rural areas fairly and continue to provide sufficient contributions to high-cost rural service areas to keep TDS Telecom ILECs' rates affordable and allow for the continued development of rural infrastructure. The ongoing changes in public policy due to numerous court proceedings and the introduction of competition may affect the earnings of the operating subsidiaries, and TDS Telecom is not able to predict the impact of these changes.

        While the majority of TDS Telecom's ILEC subsidiaries continue to operate in a rate-of-return environment, a number of state commissions are negotiating, or have agreed to, alternative regulation plans with ILECs. Alternative regulation describes a regulatory framework that allows an ILEC to benefit from revenue growth and expense containment in exchange for price constraints and other restrictions. In recent years, TDS Telecom has been evaluating its options with respect to obtaining alternative forms of regulation in each state. All TDS Telecom subsidiaries in Alabama, Arkansas, Florida, Georgia, Michigan, Minnesota and Pennsylvania are now operating under an alternative form of regulation while the majority of subsidiaries in Wisconsin were under alternative regulation as of February 2002. In addition, alternative regulation for TDS Telecom subsidiaries in Indiana and New Hampshire may be implemented in 2002. The remaining states are currently under evaluation with the intent to pursue alternative regulation in those states in 2002 where it is found to be beneficial. For those states where alternative regulation is elected, TDS Telecom will need to ensure compliance within the constraints imposed, while taking advantage of the opportunities afforded under alternative regulation.

        While subsidiaries in those states under alternative regulation will not face as much regulatory scrutiny of their earnings, the subsidiaries in the remaining states will continue to file rate cases and face earnings reviews by the state regulatory commissions. Over the next several years, TDS Telecom will continue to deal with these planned traditional rate cases, as well as responding to an increasing number of commission-initiated earnings reviews. Furthermore, other regulatory issues will need to be addressed, such as responding to the financial impacts of universal service and access reform and changes to industry settlements.

        At the federal level, TDS Telecom's telephone subsidiaries continue under traditional rate-of-return regulation for interstate purposes, with an 11.25% authorized rate of return. In November 2001, the FCC opened a proceeding seeking comment on incentive regulation at the interstate level. TDS Telecom expects to participate fully in this proceeding.

        Access to affordable long-distance service in rural areas was achieved because the FCC ordered AT&T to provide nationwide average long distance rates. As a result of increasing competition, the FCC lifted all regulations relating to AT&T's interstate services in 1996. However, the Telecommunications Act preserves interstate toll rate averaging and imposes a nationwide policy that interstate and intrastate long-distance rates of all long-distance carriers should not be higher in rural areas than in urban areas they serve. In 1999, AT&T and several regional Bell operating companies began limiting and/or discontinuing their long distance services in TDS Telecom service areas. In response, TDS Telecom began to provide its own long distance service to its customers during 2000 and will continue to do so in the future.

Leverage Strengths Into CLEC Markets

        The second component of TDS Telecom's business strategy includes leveraging its existing strengths into CLEC markets. Management believes that this strategy encompasses many components including the customers within the market, market strategy, competitors, and construction and development. Additionally, planning for CLEC operations must consider the regulatory environment in which they operate. Each of these components will be discussed in detail below.

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        TDS Telecom's CLEC strategy maintains a geographic focus and is designed to leverage TDS Telecom's existing management and infrastructure to complement TDS Telecom's ILEC clustering strategy. TDS Telecom continues its controlled entry into certain targeted mid-size communities, regionally proximate to existing TDS Telecom facilities and service areas, with facilities-based entry as a CLEC. Management of TDS Telecom believes in carefully selecting these markets to reduce the likelihood of facing significant competition and to ensure that it can offer a significantly improved service level over that of the incumbent local exchange carrier. Because it can utilize the infrastructure (e.g. billing systems, network control center, operating systems, financial systems and control accounting, technology planners, etc.) built for the TDS Telecom ILEC business, management believes that TDS Telecom can become profitable in markets that may not support stand alone start-ups. Additionally, TDS Telecom believes that its CLECs can become profitable faster than stand alone start-ups at the higher end of its targeted range (over 200,000 population). As in its ILEC markets, TDS Telecom intends to be the single source for customers' wired telecommunications needs in its CLEC markets.

        TDS Telecom's first CLEC, based in Madison, Wisconsin, became operational in January 1998. TDS METROCOM is a facilities-based, full-service alternative to Ameritech/SBC, providing both voice and data services to commercial and consumer accounts, as well as wholesale services to IXCs and other carriers. TDS Telecom also operates as a CLEC in the greater Fox Valley area, suburban Milwaukee, Racine, Kenosha, Janesville and Beloit, Wisconsin markets. In early 2001, TDS Telecom began facility-based services in certain northern suburbs of Chicago and in Rockford, Illinois. In mid-2001, TDS Telecom extended its facility-based service to the greater Grand Rapids, Kalamazoo, Battle Creek, Holland, Grand Haven, Ann Arbor, the western suburbs of Detroit, Lansing and Jackson, Michigan markets.

        USLink began offering local service (in addition to its long distance and Internet products) on a resale basis in 1998 in Minnesota. TDS Telecom adopted a slightly different strategy in Minnesota by entering as a CLEC through USLink which previously had focused on the long distance business. In 2000 USLink deployed remote local switches in the Minneapolis/St. Paul suburbs of Eagan, Bloomington, Golden Valley, Burnsville and Shoreview. USLink converted approximately 20% of its business lines to unbundled network element platform (UNE-P) in 2000, which is a more profitable resale business model. In 2001 USLink continued to convert resale lines to switch and UNE-P platforms. USLink had approximately 60% of its business lines on switch or UNE-P at year-end 2001. USLink is targeting markets in Minnesota and North Dakota that are clustered around current switch areas and UNE-P areas that could be considered possible switch areas in the future. Resale sales are taking place exclusively for residential sales and only on an exception basis for business lines.

        TDS Telecom's combined CLEC strategy is currently focused on markets in Wisconsin, Illinois, Michigan, Minnesota and North Dakota. TDS Telecom continues to evaluate facilities-based markets for additional opportunities.

CLEC Telephone Markets

        The Telecommunications Act facilitates entry of TDS Telecom into new markets by requiring non-exempted ILECs (e.g., RBOCs) to provide reasonable and non-discriminatory interconnection services and access to unbundled network elements to any CLEC that seeks to enter the markets in which such ILECs already offer services. TDS Telecom, through its wholly owned subsidiaries, TDS METROCOM and USLink, has targeted certain mid-size, geographically clustered communities, for facilities-based entry as a CLEC. Management of TDS Telecom believes that the size of many of the target markets will sustain a limited number of facilities-based competitors in addition to the ILEC. While additional competitors may enter such markets as resellers, TDS Telecom believes only facility-based CLECs will be significantly profitable over the long term because ownership of facilities may provide a long-run cost advantage, discourage further competitors from entry and enable an alternative wholesale strategy for growth. To this end, TDS Telecom plans to build switching and other network facilities in its targeted CLEC markets. TDS Telecom plans to follow a "clustering" approach to building its CLECs which will allow it to seek regional long distance traffic, share service and repair resources, and realize

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marketing efficiencies. As in its ILEC markets, TDS Telecom intends to become an Integrated Communications Provider ("ICP") in its chosen CLEC markets by providing local, long distance, Internet and other services through its own facilities and via resale.

CLEC Market Strategy

        The CLEC strategy places primary emphasis on small and medium-sized commercial customers and on residential customers. Medium-sized commercial prospects are characterized by above-average access line to employee ratios, heavier utilization of data services, and a focus on using telecommunications for business improvement rather than on cost reduction concerns. The companies are generally growth-oriented and may be underserved by the ILEC or major IXCs. TDS Telecom pursues a personal selling approach for its primary target markets. This commercial approach builds on customer preference for integrated communication services and the customer's perception that some of the quality of the product is in the personalized service.

        While the CLEC is positioning itself as a high-quality provider, it expects price competition from the ILECs and other CLECs as they attempt to retain or gain customers. The CLEC operations will seek to maintain an efficient cost structure to ensure that it can match price-based initiatives from competitors. The ILEC is likely to be constrained in the short term by the existing regulatory environment; as a result, TDS Telecom's CLECs expect to be more flexible in responding to customer needs. To effectively compete in this new environment, TDS Telecom is continuing new product development to provide high quality, leading-edge services to its customers.

        TDS Telecom believes the targeted CLEC markets present a significant opportunity to market data services, as the major carriers serving these locations have typically under invested in these markets despite the growing demand. Switched data communications represents one of the fastest growing segments of the telecommunication services market. Computer proliferation, connectivity via local and wide area networks, the Internet and the emergence of multimedia applications are all driving demand. As a result, the domestic network infrastructure is strained at both the local and national levels. TDS Telecom's CLEC initiative will add local capacity in its selected cities designed to accommodate this growth.

CLEC Markets Competition

        Through its subsidiaries, TDS METROCOM and USLink, TDS Telecom competes as a CLEC in a number of markets in the upper Midwest. In all of these markets, the company faces competition from an incumbent RBOC (Ameritech/SBC or Qwest) and often from one or more CLECs.

        TDS Telecom will compete with the RBOCs on the basis of price, reliability, state-of-the-art technology, product offerings, route diversity, ease of ordering and customer service. However, the ILECs have long-standing relationships with their customers and are well established in their respective markets. Although the ILECs generally are subject to greater pricing and regulatory constraints than CLECs, ILECs are achieving increased pricing flexibility for their services as a result of, among other things, the Telecommunications Act. Competition for private line, special access and local exchange services is based primarily on: quality, capacity and reliability of network facilities; customer service; response to customer needs; service features and price. It is not based on any proprietary technology. As a result of the technology used in its networks, TDS Telecom may have cost and service quality advantages over some currently available ILEC networks. In addition, TDS Telecom believes that, in general, it will provide more attention and responsiveness to its customers than its ILEC competitors will.

        TDS Telecom also faces competition from other CLECs in most of the cities where TDS Telecom has CLEC operations. Future competition may also come from entities in a number of related industries. These entities include long distance carriers, cable TV companies, utilities, municipalities, wireless carriers, and private networks built by large end users. TDS METROCOM's competitive positioning against these carriers is based on regional focus, results-driven sales teams, personal customer care, simple and compelling offers, and consistent execution on the fundamentals—especially the back office provisioning processes required to offer competitive local service.

36

CLEC Markets Construction and Development Program

        In 2001, TDS Telecom continued its program of expanding and improving its CLEC service-providing network. TDS METROCOM expanded its service in Wisconsin and completed construction of markets in Illinois and Michigan. USLink continued to add capacity to their switches to accommodate expansion, added fiber routes and solidified its Internet backbone.

        The TDS Telecom capital budget for 2002 includes approximately $55 to $65 million for CLEC markets, compared to actual capital expenditures of $96.9 million in 2001 and $57.2 million in 2000. Financing for capital additions will be provided by TDS Telecom internally generated funds and short-term borrowing.

CLEC Markets Regulation

        A number of state and federal regulatory initiatives are important to TDS Telecom's CLEC operations. TDS METROCOM is now certified to operate in all five SBC/Ameritech states. TDS METROCOM has recently completed interconnection arbitration proceedings in Illinois and Michigan with very positive results. A number of issues remain in dispute in Wisconsin, causing a delay in the completion of a second-generation agreement. USLink is evaluating the possibility of negotiating a new agreement with Qwest to cover the states in which it operates.

        SBC/Ameritech has begun to file applications with state commissions for authority to enter the long distance market pursuant to Section 271 of the Telecommunications Act of 1996. This presents an important opportunity for TDS METROCOM to have influence on regulatory decisions that will affect the market in the foreseeable future. TDS METROCOM has and will continue to actively participate in proceedings that address access to SBC/Ameritech operation support systems and the creation of performance measures and penalty/remedy plans. Additionally, TDS METROCOM is working with other interested parties in various efforts to increase the enforcement authority of state commissions and their ability to fine SBC/Ameritech for substandard performance.

        Other state proceedings that may affect TDS METROCOM and USLink include investigations into the cost of unbundled network elements ("UNEs") and the creation of new quality of service rules for all carriers. TDS Telecom personnel will continue to be involved in these proceedings seeking to ensure access to UNEs at affordable prices and to limit additional regulatory burdens that may be placed on CLECs through new quality of service requirements.

        In the federal regulatory area, while FCC decisions in 2001 provided regulatory certainty regarding historical access charges and reciprocal compensation, these decisions had a negative impact on both current and future revenues due to mandated rate caps and could delay some planned expansion into new markets. TDS METROCOM has been active in requesting changes in the CLEC access charge system based on arguments that the FCC-imposed rate caps do not adequately compensate CLECs operating in smaller markets and providing service to residential customers. Additional significant proceedings dealing with access to UNEs and performance standards for providing network elements will be the focus of attention in 2002. TDS Telecom personnel will be deeply involved in these proceedings both individually and through CLEC associations.

Pursue Emerging Data Markets

        The third component of TDS Telecom's business strategy is to pursue emerging data markets. Data communications is one of the fastest growing segments of the telecommunications services industry. In light of the growth of Internet use and rapid introduction of new telecommunications technology, TDS Telecom intends to offer a suite of data products in all of its markets, thereby positioning itself as a full-service data networking service provider. TDS Telecom currently provides Internet access to its ILEC and CLEC customers. At December 31, 2001, TDS Telecom's ILEC and CLEC subsidiaries provided Internet services to approximately 117,500 and 13,700 customers, respectively.

37

Data Initiatives

        TDS Telecom continued to grow its line of business in the data communications market in 2001. TDS Telecom invested in its Internet line of business by upgrading its web hosting environment and product line, expanded its DSL offerings to new CLEC and ILEC markets, and grew its ISP customer base. As of December 31, 2001, TDS Telecom's Internet supported 131,200 customers. TDS Telecom plans to continue strong growth in the Internet business.

        TDS Telecom has successfully deployed DSL technology in selected ILEC and CLEC markets. TDS Telecom believes that growth of broadband access will exceed growth of dial-up services within the next two to three years, and that DSL technology will be a key technology in the growth of broadband Internet access. TDS Telecom will continue to deploy DSL as an important element of high-speed Internet access, remote LAN connectivity, and Virtual Private Network ("VPN") services; and as a complementary product to existing web hosting, messaging, and collocation services.

        TDS Telecom is a provider of data network monitoring and management ("DNMM") services to large businesses and government through expanded use of its own network management facilities, and its knowledgeable personnel. Such services consist of centralized network monitoring as well as network management. In 1997, the State of Wisconsin awarded TDS Telecom the "BadgerNet" Enterprise Network Monitoring Contract multi-year contract. The BadgerNet DNMM began operations in 1998 and is designed to provide a focal point for the operational management of network services and equipment for 24 state agencies, including schools and libraries. TDS Telecom is currently developing a standard DNMM product offering for the commercial marketplace. TDS Telecom believes that it has the experience, partnerships, technology and resource capacity to actively manage enterprise networks for third parties.

        Most of TDS Telecom's data products are in the early stages of development and the expansion of operations is not certain. Continued investment will be dependent on market demand and foreseeable growth prospects.

Investments

        TDS, U.S. Cellular and TDS Telecom hold various investments in publicly traded companies the majority of which were the result of sales or trades of non-strategic assets. Minority positions are held in Deutsche Telekom AG, Vodafone plc, Rural Cellular Corporation and VeriSign, Inc. These investments were valued at $2.7 billion as of December 31, 2001.

        These assets are classified for financial reporting purposes as available-for-sale securities. As of December 31, 2001, TDS included a cumulative unrealized loss, net of tax, of $352.1 million in other comprehensive income. Management does not consider the unrealized loss to be "other than temporary." Management continues to review the valuation of the investments on a periodic basis. If management determines in the future that the unrealized loss is other than temporary, the loss will be recognized and recorded in the income statement. TDS seeks to evaluate on an ongoing basis the financial condition, business, operations and prospects of the companies it owns stock in. Additionally, management monitors conditions in the securities markets and general economic and industry conditions along with other factors. TDS may purchase additional shares, sell or transfer shares in public or private transactions and/or may enter into privately negotiated derivative transactions to hedge the market risk of some or all of its positions in the securities.

        In September of 1999, the Board of Directors of TDS approved a plan of merger between Aerial Communications, Inc. ("Aerial"), its then over 80%-owned personal communications services company, and VoiceStream Wireless Corporation ("VoiceStream"). The merger closed on May 4, 2000. As a result of the merger, Aerial shareholders received 0.455 VoiceStream common shares for each share of Aerial stock they owned. TDS received 35,570,493 shares of VoiceStream common stock at closing. TDS subsequently received 266,778 shares of VoiceStream common stock as a dividend.

38

        On July 24, 2000, Deutsche Telekom AG announced a proposed merger of VoiceStream with Deutsche Telekom which was completed on May 31, 2001. As a result of the merger, TDS's 35,837,271 shares of VoiceStream common stock were converted into 131,461,861 Deutsche Telekom AG ordinary shares and $570.0 million in cash.

        U.S. Cellular holds 10,245,370 and TDS Telecom holds 2,700,545 American Depository Receipts for ordinary shares of Vodafone AirTouch plc. U.S. Cellular and TDS Telecom received AirTouch Communications, Inc. common shares in exchange for non-strategic assets. These AirTouch shares were then converted to Vodafone AirTouch plc American Depository Receipts upon the merger of AirTouch and Vodafone Group plc.

        U.S. Cellular holds 296,705 Class A common shares, 8,885 Class B common shares and 3,305 Class T convertible preferred shares of Rural Cellular Corporation. U.S. Cellular's Class T convertible preferred shares can be converted into 43,000 Class A and 22,292 Class B common shares. TDS Telecom holds 247,094 Class A common shares, 17,772 Class B common shares and 4,235 Class T convertible preferred shares of Rural Cellular Corporation. TDS Telecom's Class T convertible preferred shares can be converted into 83,648 Class B common shares.

        On December 12, 2001, Illuminet Holding, Inc. merged with VeriSign, Inc. In the merger, TDS's 2,490,012 Illuminet common shares were converted into 2,315,711 VeriSign common shares and TDS Telecom's 138,736 Illuminet shares were converted into 129,024 VeriSign common shares. The Illuminet shares were acquired in numerous business transactions over a number of years.

Employees

        TDS enjoys satisfactory employee relations. As of December 31, 2001, 9,300 persons were employed by TDS, 139 of whom are represented by unions.

39

Item 2.    Properties

        The property of TDS consists principally of switching and cell site equipment related to wireless telephone operations; telephone lines, central office equipment, telephone instruments and related equipment, and land and buildings related to land-line telephone operations. As of December 31, 2001, TDS's property, plant and equipment, net of accumulated depreciation, totaled approximately $2,558.0 million, $1,527.8 million at U.S. Cellular and $1,030.2 million at TDS Telecom.

        The plant and equipment of TDS is maintained in good operating condition and is suitable and adequate for TDS's business operations. The properties of the operating telephone subsidiaries are subject to the lien of the mortgages securing the funded debt of such companies. TDS leases most of its offices and transmitter sites used in its cellular business and owns substantially all of its central office buildings, local administrative buildings, warehouses, and storage facilities used in its telephone operations. All of TDS's cell and transmitter sites and telephone lines are located either on private or public property. Locations on private land are by virtue of easements or other arrangements.

Item 3.    Legal Proceedings

        TDS is involved in a number of legal proceedings before the FCC and various state and federal courts. Management does not believe that any such proceeding should have a material adverse impact on the financial position or results of operations of TDS.

        On April 11, 2000, two affiliates of U.S. Cellular, along with two unrelated wireless carriers, filed a declaratory judgment action in the United States District Court for the Northern District of Iowa against the Iowa Attorney General. This action was in response to the Attorney General's ongoing investigation of certain wireless industry practices involving wireless service agreements and related matters. The suit by U.S. Cellular and the other wireless carriers seeks to have certain state laws declared inapplicable to wireless service agreements and such practices. In response, the Iowa Attorney General filed suit in the Iowa State District Court for Polk County against U.S. Cellular, alleging violations of various state consumer credit and other consumer protection laws. The Attorney General is seeking injunctive relief, barring the enforcement of contracts in excess of four months, and related relief. The Attorney General is also seeking unspecified reimbursements for customers, statutory fines ($40,000 for certain violations and $5,000 for others, per violation) as well as fees and costs. This case was removed to the U.S. District Court for the Southern District of Iowa. On August 7, 2000 the U.S. District Court for the Southern District granted the Attorney General's motion to remand the case to state court. On September 15, 2000 the U.S. District Court in the Northern District dismissed U.S. Cellular's Complaint in its entirety. U.S. Cellular has filed an appeal of the grant of the motion to dismiss the Northern District case. On February 15, 2002, the Eighth Circuit Court of Appeals affirmed the District Court's opinion to abstain from adjudicating the claims of U.S. Cellular. U.S. Cellular vigorously denies the allegations of the Iowa Attorney General in the case now remanded to state court and intends to vigorously contest this case, if current settlement discussions are unsuccessful.

Item 4.    Submission of Matters to a Vote of Security Holders

        No matter was submitted to a vote of security holders during the fourth quarter of 2001.

40

PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

        Incorporated by reference from Exhibit 13, Annual Report sections entitled "TDS Stock and Dividend Information" and "Market Price per Common Share by Quarter."

Item 6.    Selected Financial Data

        Incorporated by reference from Exhibit 13, Annual Report section entitled "Selected Consolidated Financial Data," except for ratios of earnings to fixed charges, which are incorporated herein by reference from Exhibit 12 to this Annual Report on Form 10-K.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        Incorporated by reference from Exhibit 13, Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition."

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        Incorporated by reference from Exhibit 13, Annual Report section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" under the caption "Market Risk."

Item 8.    Financial Statements and Supplementary Data

        Incorporated by reference from Exhibit 13, Annual Report sections entitled "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Balance Sheets," "Consolidated Statements of Common Stockholders' Equity," "Notes to Consolidated Financial Statements," "Consolidated Quarterly Information (Unaudited)," and "Report of Independent Public Accountants."

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

41

PART III

Item 10.    Directors and Executive Officers of the Registrant

        Incorporated by reference from Proxy Statement sections entitled "Election of Directors" and "Executive Officers."

Item 11.    Executive Compensation

        Incorporated by reference from Proxy Statement section entitled "Executive Compensation" except for the information specified in Item 402(a)(8) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Item 12.    Beneficial Ownership of Certain Beneficial Owners and Management

        Incorporated by reference from Proxy Statement sections entitled "Security Ownership of Management" and "Principal Shareholders."

Item 13.    Certain Relationships and Related Transactions

        Incorporated by reference from Proxy Statement section entitled "Certain Relationships and Related Transactions."

42

PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K

        The following documents are filed as a part of this report:

(a)    (1) Financial Statements

Consolidated Statements of Operations	Annual Report*
Consolidated Statements of Cash Flows	Annual Report*
Consolidated Balance Sheets	Annual Report*
Consolidated Statements of Common Stockholders' Equity	Annual Report*
Notes to Consolidated Financial Statements	Annual Report*
Consolidated Quarterly Information (Unaudited)	Annual Report*
Report of Independent Public Accountants	Annual Report*

*

Incorporated by reference from Exhibit 13.

(2)

Schedules

		Location
Report of Independent Public Accountants on Financial Statement Schedules		page S-1
I.	Condensed Financial Information of Registrant-Balance Sheets as of December 31, 2001 and 2000 and Statements of Operations and Statements of Cash Flows for each of the Three Years in the Period Ended December 31, 2001	page S-2
II.	Valuation and Qualifying Accounts for each of the Three Years in the Period Ended December 31, 2001	page S-7

        All other schedules have been omitted because they are not applicable or not required because the required information is shown in the financial statements or notes thereto.

(3)

Exhibits

        The exhibits set forth in the accompanying Index to Exhibits are filed as a part of this Report. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of this Report.

43

Exhibit Number	Description
10.1	Salary Continuation Agreement for LeRoy T. Carlson dated May 20, 1977, as amended May 22, 1981 and May 25, 1984 is hereby incorporated by reference to TDS's Registration Statement on Form S-2, No. 2-92307.
10.2(a)	Supplemental Benefit Agreement for LeRoy T. Carlson dated March 21, 1980, as amended March 20, 1981 is hereby incorporated by reference to an exhibit to TDS's Registration Statement on Form S-7, No. 2-74615.
10.2(b)	Memorandum of Amendment to Supplemental Benefit Agreement dated May 28, 1991 is hereby incorporated by reference to Exhibit 10.2(b) to TDS's Annual Report Form 10-K for the year ended December 31, 1991.
10.3	Description of Terms of Letter Agreement with Sandra L. Helton dated August 7, 1998 is hereby incorporated by reference to Exhibit 10.3 to TDS's Annual Report on Form 10-K for the year ended December 31, 1998.
10.4	Telephone and Data Systems, Inc. 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1 to TDS's Registration Statement on Form S-8 (Registration No. 33-57257).
10.5(a)	Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit D to TDS's Proxy Statement/Prospectus dated March 24, 1998, which was part of TDS's Registration Statement on Form S-4 (Registration No. 333-42535).
10.5(b)	Amendment No. 1 to Telephone and Data Systems, Inc. 1998 Long Term Incentive Plan, is hereby incorporated by reference to Exhibit 10.6(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1999.
10.6	Amended and Restated Supplemental Executive Retirement Plan of TDS is hereby incorporated by reference to Exhibit 10.7 to TDS's Annual Report on Form 10-K for the year ended December 31, 1998.
10.10	Description of Terms of offer letter between United States Cellular Corporation and John E. Rooney dated March 28, 2000 is hereby incorporated by reference to Exhibit 10 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
10.11	Stock Option and Stock Appreciation Rights Plan, is hereby incorporated by reference to Exhibit B to United States Cellular Corporation's definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16, 1991.
10.12	Summary of 2001 Bonus Program for the Executive Vice Presidents of United States Cellular Corporation is hereby incorporated by reference to Exhibit 10.9 to United States Cellular Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.
10.13	United States Cellular Corporation 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 33-57255).
10.14	United States Cellular Corporation 1996 Senior Executive Stock Bonus and Restricted Stock Award Plan is hereby incorporated by reference to Exhibit 99.1 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-19405).
10.15	United States Cellular Corporation Special Retention Restricted Stock Award Plan is hereby incorporated by reference to Exhibit 99.1 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-23861).

44

10.16	United States Cellular Corporation 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.4 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-57063).
10.17	Form of 1997 Special Retention Restricted Stock Awards is hereby incorporated by reference to Exhibit 99.2 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-57063).
10.18	TDS Compensation Plan for Non-Employee Directors is hereby incorporated by reference to Exhibit 99.1 of TDS's Registration Statement on Form S-8 (Registration No. 333-23947).
10.19	Executive Deferred Compensation Agreement for James Barr III dated January 1, 1998, is hereby incorporated by reference to Exhibit 10.15 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.
10.20	Form of TDS Telecommunications Corporation Phantom Stock Option Incentive Agreement between TDS Telecommunications Corporation and James Barr III is hereby incorporated by reference to Exhibit 10.16 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.

(b)

Reports on Form 8-K filed during the quarter ended December 31, 2001.

        TDS filed a Current Report on Form 8-K, dated November 27, 2001, for the purpose of filing a news release. The news release announced that Black Crow Wireless L.P. had signed a settlement agreement reached among the FCC, the U.S. Government, Nextwave Personal Communications, Inc., and the majority of the winning bidders in the FCC's Auction No. 35. U.S. Cellular is an 85% Limited Partner of Black Crow Wireless.

        TDS filed a Current Report on Form 8-K, dated November 28, 2001, (filed December 3, 2001), announcing the completion of a public offering of $500 million of 7.6% Series A Notes due 2041. The Form 8-K also include copies of the Underwriting Agreement and First Supplemental Indenture as exhibits.

45

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

        To the Stockholders and Board of Directors of Telephone and Data Systems, Inc.:

        We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Telephone and Data Systems, Inc. and Subsidiaries Annual Report and incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 2002. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedules listed in Item 14(a)(2) are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These financial statement schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

Arthur Andersen LLP

Chicago, Illinois
January 25, 2002

S-1

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Balance Sheets

Assets

			December 31,
			2001		2000
			(Dollars in thousands)
CURRENT ASSETS
	Cash and cash equivalents		$	668	$	948
	Notes receivable from affiliates (Note B)			235,862		82,883
	Accounts Receivable
		Due from subsidiaries		6,345		14,204
		Other		650		3,316
	Prepaid income taxes			17,737		20,396
	Other current assets			5,854		5,896
				267,116		127,643
INVESTMENT IN SUBSIDIARIES				4,761,334		5,211,047
OTHER INVESTMENTS
	Notes receivable			52,666		44,141
	Minority interests and other investments			31,663		23,693
				84,329		67,834
PROPERTY AND EQUIPMENT
	Property and Equipment, net of accumulated depreciation			17,738		17,001
OTHER ASSETS AND DEFERRED CHARGES
	Net deferred income taxes			—		121,862
	Debt issuance expenses			27,105		12,020
	Development and acquisition expenses			1,088		1,186
	Other			208		298
				28,401		135,366
			$	5,158,918	$	5,558,891

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-2

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Balance Sheets

Liabilities and Stockholders' Equity

			December 31,
			2001			2000
			(Dollars in thousands)
CURRENT LIABILITIES
	Current portion of long-term debt		$	51,103		$	90
	Notes payable			—			444,000
	Notes payable to affiliates (Note C)			344,756			371,742
	Accounts payable
		Due to subsidiaries—income taxes		22,442			—
		Due to subsidiaries		272			248
		Other		20,545			14,156
	Accrued interest			15,738			16,788
	Other			16,760			7,360
				471,616			854,384
DEFERRED LIABILITIES AND CREDITS
	Postretirement benefits obligation other than pensions			899			899
	Deferred Income Taxes			11,727			—
	Other			15,149			11,024
				27,775			11,923
LONG-TERM DEBT, excluding current portion (Note D)				823,881			439,410
LONG-TERM DEBT, due to affiliates (Note E)				309,280			309,280
				1,133,161			748,690
PREFERRED SHARES				7,442			7,827
COMMON STOCKHOLDERS' EQUITY
	Common Shares, par value $.01 per share, respectively; authorized 100,000,000 shares; issued and outstanding 55,659,000 and 55,524,000 shares, respectively			557			555
	Series A Common Shares, par value $.01 per share, respectively; authorized 25,000,000 shares; issued and outstanding 6,778,000 and 6,880,000 shares, respectively			68			69
	Capital in excess of par value			1,826,840			1,816,619
	Treasury Shares, at cost, 3,868,000 and 3,716,000 shares, respectively			(406,894	)		(383,501	)
	Accumulated other comprehensive income from subsidiaries			(352,120	)		(178,344	)
	Retained earnings			2,450,473			2,680,669
				3,518,924			3,936,067
			$	5,158,918		$	5,558,891

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-3

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Statements of Operations

		Year Ended December 31,
		2001			2000			1999
		(Dollars in thousands)
Operating service revenues		$	68,859		$	65,540		$	68,426
Cost of sales and operating expenses			68,594			64,471			76,276
	Net operations		265			1,069			(7,850	)
Other income
	Interest income received from affiliates		24,318			26,992			23,343
	(Loss) Gain on investments		487			(11,000	)		—
	Other, net		(2,868	)		(8,337	)		(2,636	)
			21,937			7,655			20,707
Income before interest and income taxes			22,202			8,724			12,857
Interest expense			93,334			100,930			85,178
Income tax credit			(29,044	)		(75,786	)		(43,778	)
Corporate operations			(42,088	)		(16,420	)		(28,543	)
Equity in net income (loss) of subsidiaries and other investments			(131,875	)		127,635			319,869
Net income (loss) from continuing operations			(173,963	)		111,215			291,326
Discontinued operations, net of tax			(24,092	)		2,125,787			(111,492	)
Net income (loss)		$	(198,055	)	$	2,237,002		$	179,834

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

Note A:	Certain amounts reported in prior years have been reclassified to conform to current period presentations.
Note B:	Notes receivable from affiliates consist of notes from TDS Telecommunications Corporation and subsidiaries totaling $235.9 million at December 31, 2001 and $82.9 million at December 31, 2000. Interest on notes receivable is accrued at the current prime rate plus 1/2 percent (5.25% at December 31, 2001). The carrying value of notes receivable approximate fair values due to the short-term nature of these instruments.
Note C:	TDS provides cash management services to United States Cellular Corporation and TDS Telecommunications Corporation. Notes payable to affiliates consisting of amounts borrowed from these subsidiaries are payable upon demand and bear interest each month at the 30-day Dealer Commercial Paper High-Grade Unsecured Notes Rate as reported in the Wall Street Journal, plus 1/4%, or such higher rate as TDS may at its discretion offer on such deposits.
Note D:	The annual requirements for principal payments on long-term debt are $51.1 million in 2002, $0.1 million in 2003, $200.0 million in 2006 and $623.8 million thereafter.
Note E:	TDS Capital I, a subsidiary trust of TDS ("Capital I"), has outstanding 6,000,000 8.5% Company-Obligated Mandatorily Redeemable Preferred Securities. The sole asset of TDS Capital I is $154.6 million principal amount of TDS's 8.5% Subordinated Debentures due December 31, 2037.

S-4

	TDS Capital II, a subsidiary trust of TDS ("Capital II"), has outstanding 6,000,000 8.04% Company-Obligated Mandatorily Redeemable Preferred Securities. The sole asset of TDS Capital II is $154.6 million principal amount of TDS's 8.04% Subordinated Debentures due March 31, 2038.
	Payments due on the obligations of TDS Capital I and II under preferred securities issued by TDS Capital I and II are fully and unconditionally guaranteed by TDS to the extent each trust has funds available therefor. However, TDS's obligations are subordinate and junior in right of payment to certain other indebtedness of TDS. TDS has the right to defer payments of interest on the Subordinated Debentures by extending the interest payment period, at any time, for up to 20 consecutive quarters. If interest payments on the Subordinated Debentures are so deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon. In addition, during any such deferral, TDS may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its common stock.
	The 8.04% and 8.5% Subordinated Debentures are redeemable by TDS, in whole or in part, from time to time, on or after November 18, 2002, and March 31, 2003, respectively, or, in whole but not in part, at any time in the event of certain income tax circumstances. If the Subordinated Debentures are redeemed, TDS Capital I and II must redeem Preferred Securities on a pro rata basis having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so redeemed. In the event of the dissolution, winding up or termination of TDS Capital I and II, the holders of preferred securities will be entitled to receive, for each preferred security, a liquidation amount of $25 plus accrued and unpaid distributions thereon to the date of payment, unless, in connection with the dissolution, winding up or termination, Subordinated Debentures are distributed to the holders of the Preferred Securities.
Note F:	TDS purchased controlling interests in telephone companies for cash in 2001, 2000 and 1999. TDS assigned the acquired interests to TDS Telecommunications Corporation and accounted for the assignments as additional investments in TDS Telecommunications Corporation.

S-5

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT

Telephone and Data Systems, Inc. (Parent)

Statements of Cash Flows

			Year Ended December 31,
			2001			2000			1999
			(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income (loss) from continuing operations		$	(173,963	)	$	111,215		$	291,326
	Add (Deduct) adjustments to reconcile net income to net cash provided by operating activities
		Depreciation and amortization		6,901			8,285			10,137
		Loss (Gain) on investments		(487	)		11,000			—
		Deferred taxes		127,035			(13,652	)		(21,026	)
		Equity in net income of subsidiaries and other investments		131,875			(127,635	)		(319,869	)
		Other noncash expense		(15,448	)		(20,376	)		(17,809	)
		Change in accounts receivable		10,525			15,376			(175	)
		Change in accounts payable		26,376			(21,397	)		11,631
		Change in accrued taxes		6,409			43,015			(10,932	)
		Change in other assets and liabilities		8,110			1,354			3,402
				127,333			7,185			(53,315	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Acquisitions, net of cash acquired (Note F)			(212,447	)		(94,355	)		(2,450	)
	Capital expenditures			(7,449	)		(7,047	)		(6,703	)
	Proceeds from sale of investments			487			—			—
	Investments in subsidiaries			670			11,845			179
	Change in Notes Receivable			(8,525	)		(55,141	)		—
	Other investments			(823	)		(823	)		(226	)
				(228,087	)		(145,521	)		(9,200	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Long-term debt borrowings			484,250			—			—
	Repayment of long-term debt			(65,613	)		(1,653	)		(248	)
	Change in notes payable			(444,000	)		444,000			(170,889	)
	Change in notes payable to affiliates			(26,986	)		10,384			193,625
	Change in notes receivable from affiliates			(137,310	)		(2,742	)		13,744
	Common stock issued			8,624			10,304			7,991
	Redemption of preferred shares			(135	)		(769	)		(531	)
	Dividends from subsidiaries			356,861			6,790			7,973
	Dividends paid			(32,141	)		(30,472	)		(29,390	)
	Repurchase of Common Shares			(39,441	)		(290,069	)		(69,014	)
	Other Financing Activities			(3,635	)		—			—
				100,474			145,773			(46,739	)
CASH FLOWS FROM DISCONTINUED OPERATIONS				—			(39,728	)		141,859
NET DECREASE (INCREASE) IN CASH AND CASH EQUIVALENTS				(280	)		(32,291	)		32,605
CASH AND CASH EQUIVALENTS
	Beginning of period			948			33,239			634
	End of period		$	668		$	948		$	33,239

        The Notes to Consolidated Financial Statements, included in the Annual Report, are an integral part of these statements.

S-6

TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

		(Dollars in thousands)
Description		Balance at Beginning of Period			Charged to Costs and Expenses			Charged to Other Accounts		Deductions		Balance at End of Period
Column A		Column B			Column C-1			Column C-2		Column D		Column E
For the Year Ended December 31, 2001
Deducted from deferred state tax asset:
	For unrealized net operating losses	$	(26,509	)	$	(9,418	)	$	—	$	—	$	(35,927	)
Deducted from accounts receivable:
	For doubtful accounts		(13,664	)		(28,530	)		—		28,537		(13,657	)
For the Year Ended December 31, 2000
Deducted from deferred state tax asset:
	For unrealized net operating losses		(25,079	)		(1,430	)		—		—		(26,509	)
Deducted from accounts receivable:
	For doubtful accounts		(10,525	)		(27,794	)		—		24,655		(13,664	)
For the Year Ended December 31, 1999
Deducted from deferred state tax asset:
	For unrealized net operating losses		(27,779	)		2,700			—		—		(25,079	)
Deducted from accounts receivable:
	For doubtful accounts	$	(6,732	)	$	(26,938	)	$	—	$	23,145	$	(10,525	)

S-7

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TELEPHONE AND DATA SYSTEMS, INC.
By:	/s/  LEROY T. CARLSON, JR.
	LeRoy T. Carlson, Jr. President, (Chief Executive Officer)
By:	/s/  SANDRA L. HELTON
	Sandra L. Helton Executive Vice President (Chief Financial Officer)
By:	/s/  D. MICHAEL JACK
	D. Michael Jack Vice President and Controller (Principal Accounting Officer)

Dated March 27, 2002

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  LEROY T. CARLSON LeRoy T. Carlson	Director	March 27, 2002
/s/  LEROY T. CARLSON, JR. LeRoy T. Carlson, Jr.	Director	March 27, 2002
/s/  SANDRA L. HELTON Sandra L. Helton	Director	March 27, 2002
/s/  JAMES BARR III James Barr III	Director	March 27, 2002
/s/  WALTER C.D. CARLSON Walter C.D. Carlson	Director	March 27, 2002
/s/  LETITIA G.C. CARLSON Letitia G.C. Carlson	Director	March 27, 2002
/s/  HERBERT S. WANDER Herbert S. Wander	Director	March 27, 2002
/s/  DONALD C. NEBERGALL Donald C. Nebergall	Director	March 27, 2002
/s/  GEORGE W. OFF George W. Off	Director	March 27, 2002
/s/  MARTIN L. SOLOMON Martin L. Solomon	Director	March 27, 2002
/s/  KEVIN A. MUNDT Kevin A. Mundt	Director	March 27, 2002
/s/  MICHAEL D. BILLS Michael D. Bills	Director	March 27, 2002

INDEX TO EXHIBITS

Exhibit No.	Description of Document
3.1	Restated Certificate of Incorporation, as amended, are hereby incorporated by reference to Exhibit 3.1 to TDS's Report on Form 8-A/A filed on July 10, 1998.
3.2	Restated By-laws, as amended filed herewith.
4.1	Restated Certificate of Incorporation, as amended, are hereby incorporated by reference to Exhibit 3.1 to TDS's Report on Form 8-A/A filed on July 10, 1998.
4.2	Restated By-laws as amended, filed herewith as Exhibit 3.2.
4.3(a)	The Indenture between TDS and Harris Trust and Savings Bank, Trustee, dated February 1, 1991, under which TDS's Medium-Term Notes are issuable, is hereby incorporated by reference to TDS's Current Report on Form 8-K filed on February 19, 1991.
4.3(b)	Form of First Supplemental Indenture with Harris Trust and Savings Bank is hereby incorporated by reference to Exhibit 4.1(b) of Post Effective Amendment No. 1 to Form S-3 (Registration No. 33-68456).
4.4(a)	Revolving Credit Agreement, dated as of June 7,1996, among TDS and the First National Bank of Boston, as agent and LaSalle National Bank and Toronto Dominion (Texas), Inc. as co-agents, is hereby incorporated by reference to the registrant's Form 8-K dated July 1, 1996.
4.4(b)	Amendment No. 1 to Revolving Credit Agreement, is hereby incorporated by reference to Exhibit 4.4(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1999.
4.4(c)	Assignment and Assumption Agreement with respect to Revolving Credit Agreement, is hereby incorporated by reference to Exhibit 4.4(c) to TDS's Annual Report on Form 10-K for the year ended December 31, 1999.
4.5(a)	The Amended and Restated Declaration of Trust, dated November 18, 1997, by and among TDS, as Sponsor, the Trust, The First National Bank of Chicago, as Property Trustee, First Chicago Delaware, Inc., as Delaware Trustee and the Regular Trustees named therein, is hereby incorporated by reference to Exhibit 4.1 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.5(b)	The Amended and Restated Declaration of Trust, dated February 10, 1998, by and among TDS, as Sponsor, the Trust, The First National Bank of Chicago, as Property Trustee, First Chicago Delaware, Inc., as Delaware Trustee and the Regular Trustees named therein, is hereby incorporated by reference to Exhibit 4.1 to TDS's Current Report on Form 8-K filed on April 28, 1998, dated February 10, 1998.
4.5(c)	Form of First Supplemental Indenture to Amended and Restated Declaration of Trust relating to assumption of TDS Delaware is hereby incorporated by reference to Exhibit 4.7 of Post Effective Amendment No. 1 to Form S-3 (Registration No. 333-38355).
4.6(a)	The Subordinated Indenture, dated October 15, 1997, by and between TDS and the First National Bank of Chicago, as Trustee under which the Trust Originated Preferred Securities are issuable, is hereby incorporated by reference to Exhibit 4.3 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.6(b)	The Supplemental Indenture dated November 18, 1997, by and between TDS and the First National Bank of Chicago, as Trustee under which the Trust Originated Preferred Securities are issuable, is hereby incorporated by reference to Exhibit 4.4 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.6(c)	The Second Supplemental Indenture, dated as of February 10, 1998, by and among TDS and The First National Bank of Chicago, as Debt Trustees, is hereby incorporated by reference to Exhibit 4.3 to TDS's Current Report on Form 8-K filed on April 28, 1998, dated February 10, 1998.

4.6(d)	Form of Third Supplemental Indenture to Subordinated Indenture relating to assumption by TDS Delaware is hereby incorporated by reference to Exhibit 4.9 of Post Effective Amendment No. 1 to Form S-3 (Registration No. 333-38355).
4.7(a)	The Preferred Securities Guarantee Agreement, dated as of November 18, 1997, by and among TDS and The First National Bank of Chicago, as Guarantee Trustee for the benefit of the holders of Trust Preferred Securities of the Trust, is hereby incorporated by reference to Exhibit 4.2 to TDS's Current Report on Form 8-K filed on December 2, 1997, dated November 18, 1997.
4.7(b)	The Preferred Securities Guarantee Agreement, dated as of February 10, 1998, by and among TDS and The First National Bank of Chicago, as Guarantee Trustee for the benefit of the holders of Trust Preferred Securities of the Trust, is hereby incorporated by reference to Exhibit 4.2 to TDS's Current Report on Form 8-K filed on April 28, 1998, dated February 10, 1998.
4.7(c)	Form of First Supplemental Indenture to Preferred Securities Guarantee Agreement relating to assumption by TDS Delaware is hereby incorporated by reference to Exhibit 4.8 of Post Effective Amendment No. 1 to Form S-3 (Registration No. 333-38355).
4.8(a)	The Indenture between TDS and BNY Midwest Trust Company, dated November 1, 2001, under which TDS's 7.60% Series A Notes are issuable, is hereby incorporated by reference to TDS's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.
4.8(b)	The First Supplemental Indenture dated November 28, 2001, between TDS and BNY Midwest Trust Company is hereby incorporated by reference to Exhibit 1 to TDS's Report on Form 8-A, filed on November 29, 2001.
4.9	Revolving Credit Agreement, dated January 24, 2002, among TDS and Fleet National Bank, as administrative agent, LaSalle Bank National Association, First Union National Bank, and the Bank of Tokyo — Mitsubishi, Ltd., Chicago Branch as documentation agents, TD Securities (USA) Inc., Fleet Securities, Inc., and TDS Securities (USA) Inc. as arrangers, is filed herewith.
9.1(a)	Voting Trust Agreement, dated as of June 30, 1989, is hereby incorporated by reference to an exhibit to Post-Effective Amendment No. 3 to TDS's Registration Statement on Form S-1, No. 33-12943.
9.1(b)	Amendment dated as of May 9, 1991 to the Voting Trust Agreement dated as of June 30, 1989, is hereby incorporated by reference to Exhibit 9.2 to TDS's Annual Report on Form 10-K for the year ended December 31, 1991.
9.1(c)	Amendment dated as of November 20, 1992, to the Voting Trust Agreement dated as of June 30, 1989, as amended, is hereby incorporated by reference to Exhibit 9.1(c) to TDS's Annual Report on Form 10-K for the year ended December 31, 1992.
9.1(d)	Amendment dated as of May 22, 1998, to the Voting Trust Agreement dated as of June 30, 1989, as amended, is hereby incorporated by reference to Exhibit 99.3 to TDS's Current Report on Form 8-K filed on June 5, 1998.
10.1	Salary Continuation Agreement for LeRoy T. Carlson dated May 20, 1977, as amended May 22, 1981 and May 25, 1984 is hereby incorporated by reference to TDS's Registration Statement on Form S-2, No. 2-92307.
10.2(a)	Supplemental Benefit Agreement for LeRoy T. Carlson dated March 21, 1980, as amended March 20, 1981, is hereby incorporated by reference to an exhibit to TDS's Registration Statement on Form S-7, No. 2-74615.
10.2(b)	Memorandum of Amendment to Supplemental Benefit Agreement dated as of May 28, 1991, is hereby incorporated by reference to Exhibit 10.2(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1991.

10.3	Description of Terms of Letter Agreement with Sandra L. Helton dated August 7, 1998 is hereby incorporated by reference to Exhibit 10.3 to TDS's Annual Report on Form 10-K for the year ended December 31, 1998.
10.4	Telephone and Data Systems, Inc. 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1 to TDS's Registration Statement on Form S-8 (Registration No. 33-57257).
10.5(a)	Telephone and Data Systems, Inc. 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit D to TDS's Proxy Statement/Prospectus dated March 24, 1998 which was part of TDS's Registration Statement on Form S-4 (Registration No. 333-42535).
10.5(b)	Amendment No. 1 to Telephone and Data Systems, Inc. 1998 Long-term Incentive Plan, is hereby incorporated by reference to Exhibit 10.6(b) to TDS's Annual Report on Form 10-K for the year ended December 31, 1999.
10.6	Amended and Restated Supplemental Executive Retirement Plan is hereby incorporated by reference to Exhibit 10.7 to TDS's Annual Report on Form 10-K for the year ended December 31, 1998.
10.7	Securities Loan Agreement, dated June 13, 1995, between TDS and Merrill Lynch & Co. is hereby incorporated by reference to Exhibit 99.1 to the Form 8-K dated June 16, 1995 of United States Cellular Corporation.
10.8	Registration Rights Agreement among TDS, Merrill Lynch & Co. and United States Cellular Corporation is hereby incorporated by reference to Exhibit 99.2 to the Form 8-K dated June 16, 1995 of United States Cellular Corporation.
10.9	Common Share Delivery Arrangement Agreement among TDS, Merrill Lynch & Co. and United States Cellular Corporation is hereby incorporated by reference to Exhibit 99.3 to the Form 8-K dated June 16, 1995 of United States Cellular Corporation.
10.10	Description of terms of offer letter between United States Cellular Corporation and John E. Rooney dated March 28, 2000, is hereby incorporated by reference to Exhibit 10 to United States Cellular Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
10.11	Stock Option and Stock Appreciation Rights Plan, is hereby incorporated by reference to Exhibit B to United States Cellular Corporation's definitive Notice of Annual Meeting and Proxy Statement dated April 15, 1991, as filed with the Commission on April 16, 1991.
10.12	Summary of 2001 Bonus Program for the Executive Vice Presidents of United States Cellular Corporation is hereby incorporated by reference to Exhibit 10.9 to United States Cellular Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.
10.13	United States Cellular Corporation 1994 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.1 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 33-57255).
10.14	United States Cellular Corporation 1996 Senior Executive Stock Bonus and Restricted Stock Award Plan is hereby incorporated by reference to Exhibit 99.1 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-19405).
10.15	United States Cellular Corporation Special Retention Restricted Stock Award Plan is hereby incorporated by reference to Exhibit 99.1 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-23861).
10.16	United States Cellular Corporation 1998 Long-Term Incentive Plan is hereby incorporated by reference to Exhibit 99.4 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-57063).
10.17	Form of 1997 Special Retention Restricted Stock Awards is hereby incorporated by reference to Exhibit 99.2 to United States Cellular Corporation's Registration Statement on Form S-8 (Registration No. 333-57063).

10.18	TDS Compensation Plan for Non-Employee Directors is hereby incorporated by reference to Exhibit 99.1 of TDS's Registration Statement on Form S-8 (Registration No. 333-23947).
10.19	Executive Deferred Compensation Agreement for James Barr III dated January 1, 1998 is hereby incorporated by reference to Exhibit 10.15 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.
10.20	Form of TDS Telecommunications Corporation Phantom Stock Option Incentive Agreement between TDS Telecommunications Corporation and James Barr III is hereby incorporated by reference to Exhibit 10.16 to TDS's Annual Report on Form 10-K for the year ended December 31, 1997.
11	Statement regarding computation of earnings per share (included in Footnote 5 to financial statements in Exhibit 13).
12	Statements regarding computation of ratios.
13	Incorporated portions of 2001 Annual Report to Security Holders.
21	List of Subsidiaries of TDS.
23	Consent of independent public accountants.

Telephone and Data Systems, Inc.

30 North LaSalle Street
Chicago, Illinois 60602
312/630-1900

QuickLinks

CROSS REFERENCE SHEET AND TABLE OF CONTENTS
PART I
U.S. Cellular Operations
U.S. CELLULAR'S WIRELESS INTERESTS
Investments
Employees
PART II
PART III
PART IV
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Balance Sheets
Assets
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Balance Sheets
Liabilities and Stockholders' Equity
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Statements of Operations
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT Telephone and Data Systems, Inc. (Parent) Statements of Cash Flows
TELEPHONE AND DATA SYSTEMS, INC. AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
INDEX TO EXHIBITS

EX-3.2

                                    BYLAWS(1)

                                       OF

                        TELEPHONE AND DATA SYSTEMS, INC.

                            (a Delaware corporation)

                                    ARTICLE I

                                  STOCKHOLDERS

          SECTION 1.1. ANNUAL MEETING. The annual meeting of stockholders for
the election of directors and the transaction of such other business as may
properly come before such meeting shall be held on the first Wednesday of May of
each year, or on such other date, and at such time and place, within or without
the State of Delaware, as shall be determined by resolution of the Board of
Directors. If the day fixed for the annual meeting is a legal holiday, such
meeting shall be held on the next succeeding business day. If the election of
directors shall not be held on the day designated herein for the annual meeting
of stockholders, or at any adjournment thereof, the Board of Directors shall
cause such election to be held at a meeting of stockholders to be called as soon
thereafter as is convenient.

          SECTION 1.2. SPECIAL MEETINGS. Special meetings of stockholders may be
called by the Board of Directors, by the Chairman of the Board or the President
and shall be called by the President or the Secretary at the request in writing,
stating the purpose or purposes thereof, of holders of at least fifty percent of
the voting power of the capital stock of the Corporation issued and outstanding
and entitled to vote thereat. Special meetings of stockholders may be held at
such time and place, within or without the State of Delaware, as shall be
determined by resolution of the Board of Directors or as may be specified in the
call of any such special meeting. If not otherwise designated, the place of any
special meeting shall be the principal office of the Corporation in the State of
Illinois.

          SECTION 1.3. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice
of every meeting of stockholders, stating the place, date, time and purposes
thereof, shall, except when otherwise required by the Restated Certificate of
Incorporation of the Corporation, as it may be amended from time to time (the
"Restated Certificate of Incorporation"), or the laws of the State of Delaware,
be given at least 10 but not more than 60 days prior to such meeting to each
stockholder of record entitled to vote thereat, in the manner set forth in
Section 9.1 of these Bylaws, by or at the direction of the President or the
Secretary or the persons calling such meeting. Any meeting at which a quorum of
stockholders is present, in person or by proxy, may be adjourned from time to
time without notice, other than by announcement at such meeting,

- ----------
1.   As amended February 11,2002



until its business shall be completed. At such adjourned meeting, any business
may be transacted which might have been transacted at the original meeting. If
the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, written notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat as
above provided.

          SECTION 1.4. QUORUM. Except as otherwise provided by the laws of the
State of Delaware or the Restated Certificate of Incorporation, a majority of
the voting power of shares of capital stock of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
stockholders, notwithstanding the subsequent withdrawal of enough stockholders
to leave less than a quorum. If at any meeting a quorum shall not be present,
the chairman of such meeting shall adjourn such meeting to another time and/or
place without notice other than announcement at such meeting. If the adjournment
is for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, written notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote thereat as above provided.
At such adjourned meeting, if a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting, notwithstanding the subsequent withdrawal of enough stockholders to
leave less than a quorum.

          SECTION 1.5. VOTING.

          (a) Unless otherwise provided by law, the stockholders entitled to
vote at any meeting of stockholders and the number of votes to which such
stockholders are entitled shall be determined as provided in the Restated
Certificate of Incorporation. Unless otherwise provided by law or in the
Restated Certificate of Incorporation, directors shall be elected by a plurality
of the votes cast in the election of directors. Each other question shall,
unless otherwise provided by law, the Restated Certificate of Incorporation or
these By-laws, be decided by the vote of the holders of stock having a majority
of the votes which could be cast by the holders of all stock entitled to vote on
such question which are present in person or by proxy at the meeting.

          (b) Where a separate vote by a class or group is required by the laws
of the State of Delaware, the Restated Certificate of Incorporation or by these
Bylaws, a majority of the voting power of the outstanding shares of each such
class or group present in person or represented by proxy, shall constitute a
quorum entitled to take action with respect to the vote on that matter and the
affirmative vote of a majority of the voting power of the outstanding shares of
each class or group present in person or represented by proxy at the meeting
shall be the act of each such class or group.

          SECTION 1.6. PROXIES.

          (a) At every meeting of stockholders, each stockholder having the
right to vote thereat shall be entitled to vote in person or by proxy. Such
proxy shall be filed with the Secretary before or at the time of the meeting. No
proxy shall be valid after eleven months from its date, unless such proxy
provides for a longer period.

                                        2


          (b) A stockholder may authorize another person or persons to act for
such stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing by
any reasonable means, including, but not limited to, facsimile signature, or
(ii) by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission (a "Transmission") to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such Transmission; PROVIDED, HOWEVER, that any
such Transmission must either set forth or be submitted with information from
which it can be determined that such Transmission was authorized by such
stockholder. The inspector or inspectors appointed pursuant to Section 1.10 of
these Bylaws shall examine Transmissions to determine if they are valid. If it
is determined that a Transmission is valid, the person or persons making that
determination shall specify the information upon which such person or persons
relied. Any copy, facsimile telecommunication or other reliable reproduction of
such a writing or such a Transmission may be substituted or used in lieu of the
original writing or Transmission for any and all purposes for which the original
writing or Transmission could be used; PROVIDED, HOWEVER, that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or Transmission.

          SECTION 1.7. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.

          (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing such record
date shall be adopted by the Board of Directors, and which record date shall not
be more than 60 nor less than 10 days before the date of such meeting. If no
such record date shall have been fixed by the Board of Directors, such record
date shall be at the close of business on the day next preceding the day on
which such notice is given or, if such notice is waived, at the close of
business on the day next preceding the day on which such meeting shall be held.
A determination of stockholders of record entitled to notice of or to vote at
any meeting of stockholders shall apply to any adjournment of such meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.

          (b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing such record date shall be adopted by the Board
of Directors, and which record date shall not be more than 10 days after the
date upon which such resolution shall be adopted. If no such record date shall
have been fixed by the Board of Directors, such record date shall be, if no
prior action by the Board of Directors shall be required by the laws of the
State of Delaware, the first date on which a signed written consent setting
forth the action taken or proposed to be taken shall be delivered to the
Corporation at its registered office in the State of Delaware, at its principal
place of business or to the Secretary. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no such record date shall have been fixed by the Board of
Directors and prior action by the Board of Directors shall be required by the
laws

                                        3


of the State of Delaware, such record date shall be at the close of business on
the day on which the Board of Directors shall adopt the resolution taking such
prior action.

          (c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or any
allotment of any rights or the stockholders entitled to exercise any rights in
respect of any change, conversion or exchange of any capital stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing such record date shall be adopted by the Board of Directors, and which
record date shall not be more than 60 days prior to such payment, allotment or
other action. If no such record date shall have been fixed, such record date
shall be at the close of business on the day on which the Board of Directors
shall adopt the resolution relating to such payment, allotment or other action.

          SECTION 1.8. STOCKHOLDER LIST. The Secretary or any other officer who
has charge of the stock ledger of the Corporation shall prepare, at least 10
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to such meeting, during ordinary business
hours, for a period of at least 10 days prior to such meeting, either at a place
within the city where such meeting is to be held, which place shall be specified
in the notice of such meeting, or, if not so specified, at the place where such
meeting is to be held. The list shall also be produced and kept at the time and
place of such meeting during the whole time thereof, and may be inspected by any
stockholder who is present. Such stock ledger shall be the only evidence as to
who are the stockholders entitled to examine such stock ledger, such list or the
books of the Corporation or to vote in person or by proxy at any meeting of
stockholders.

          SECTION 1.9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of capital
stock of the Corporation standing in the name of another corporation, domestic
or foreign, and entitled to vote may be voted by such officer, agent or proxy as
the bylaws of such other corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such other corporation may determine.

          Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor, an incompetent or a corporation declared bankrupt and
entitled to vote may be voted by an administrator, executor, guardian,
conservator or trustee, as the case may be, either in person or by proxy,
without transfer of such shares into the name of the official so voting.

          A stockholder whose shares of capital stock of the Corporation are
pledged shall be entitled to vote such shares unless on the transfer books of
the Corporation the pledgor has expressly empowered the pledgee to vote such
shares, in which case only the pledgee, or such pledgee's proxy, may represent
such shares and vote thereon.

          Shares of capital stock of the Corporation belonging to the
Corporation, or to another corporation if a majority of the shares entitled to
vote in the election of directors of such other corporation shall be held by the
Corporation, shall not be voted at any meeting of stockholders and shall not be
counted in determining the total number of outstanding shares for

                                        4


the purpose of determining whether a quorum is present. Nothing in this Section
1.9 shall be construed to limit the right of the Corporation to vote shares of
capital stock of the Corporation held by it in a fiduciary capacity.

          SECTION 1.10. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.

          (a) The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more inspectors (individually an "Inspector," and
collectively the "Inspectors") to act at such meeting and make a written report
thereof. The Board of Directors may designate one or more persons as alternate
Inspectors to replace any Inspector who shall fail to act. If no Inspector or
alternate shall be able to act at such meeting, the person presiding at such
meeting shall appoint one or more other persons to act as Inspectors thereat.
Each Inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath faithfully to execute the duties of Inspector with strict
impartiality and according to the best of his or her ability.

          (b) The Inspectors shall (i) ascertain the number of shares of capital
stock of the Corporation outstanding and the voting power of each, (ii)
determine the shares of capital stock of the Corporation represented at such
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the Inspectors and
(v) certify their determination of the number of such shares represented at such
meeting and their count of all votes and ballots. The Inspectors may appoint or
retain other persons or entities to assist them in the performance of their
duties.

          (c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at such meeting shall be
announced at such meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery of the State of Delaware upon
application by any stockholder shall determine otherwise.

          (d) In determining the validity and counting of proxies and ballots,
the Inspectors shall be limited to an examination of the proxies, any envelopes
submitted with such proxies, any information provided in accordance with the
second paragraph of Section 1.6 of these Bylaws, ballots and the regular books
and records of the Corporation, except that the Inspectors may consider other
reliable information for the limited purpose of reconciling proxies and ballots
submitted by or on behalf of banks, brokers, their nominees or similar persons
which represent more votes than the holder of a proxy is authorized by a
stockholder of record to cast or more votes than such stockholder holds of
record. If the Inspectors consider other reliable information for the limited
purpose permitted herein, the Inspectors, at the time they make their
certification pursuant to paragraph (b) of this Section 1.10, shall specify the
precise information considered by them, including the person or persons from
whom they obtained such information, when the information was obtained, the
means by which such information was obtained and the basis for the Inspectors'
belief that such information is accurate and reliable.

          SECTION 1.11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action
required to be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote if a consent or consents in

                                        5


writing, setting forth the action so taken, shall be signed by persons entitled
to vote capital stock of the Corporation representing not less than 90% of the
voting power of the shares that would be necessary to authorize or take such
action at a meeting at which all shares of capital stock of the Corporation
entitled to vote thereon were present and voted. Every written consent shall
bear the date of signature of each stockholder (or his, her or its proxy) who
shall sign such consent. Prompt notice of the taking of corporate action without
a meeting of stockholders by less than unanimous written consent shall be given
to those stockholders who shall not have consented in writing. All such written
consents shall be delivered to the Corporation at its registered office in the
State of Delaware, at its principal place of business or to the Secretary.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent shall
be effective to authorize or take the corporate action referred to therein
unless, within 60 days of the earliest dated written consent delivered in the
manner required by this Section 1.11 to the Corporation, written consents signed
by a sufficient number of persons to authorize or take such action shall be
delivered to the Corporation at its registered office in the State of Delaware,
at its principal place of business or to the Secretary as aforesaid. All such
written consents shall be filed with the minutes of proceedings of the
stockholders and actions authorized or taken under such written consents shall
have the same force and effect as those adopted by vote of the stockholders at
any annual or special meeting thereof.

          SECTION 1.12. INTRODUCTION OF BUSINESS AT A MEETING OF STOCKHOLDERS.
At an annual or special meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before an annual or special meeting of stockholders. To be
properly brought before an annual or special meeting of stockholders, business
must be (a) in the case of a special meeting, specified in the notice of the
special meeting (or any supplement thereto) given by the Corporation, or (b) in
the case of an annual meeting, properly brought before the meeting by or at the
direction of the Board of Directors, or otherwise properly brought before the
annual meeting by a stockholder. For business to be properly brought before an
annual meeting of stockholders by a stockholder, the stockholder must have given
timely notice thereof in writing to the President or the Secretary of the
Corporation. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation not earlier than 120 calendar
days nor later than 90 calendar days in advance of the anniversary date of the
date of the Corporation's proxy statement to stockholders in connection with the
most recent preceding annual meeting of stockholders, except that if the date of
the current year's annual meeting has been changed by more than 30 calendar days
from the anniversary date of the most recent preceding annual meeting, a
stockholder proposal shall be received by the Corporation not later than the
close of business on the tenth day following the date of public notice of the
date of the current year's annual meeting.

          A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before an annual meeting of stockholders (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal, (c) the class and number of shares
of the Corporation which are beneficially owned by such stockholder on the date
of such stockholder's notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder's
notice and (d) any material interest of the stockholder in such proposal.

                                        6


          Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting of stockholders except in accordance with the
procedures set forth in this Section 1.12. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that the business was
not properly brought before the meeting in accordance with the procedures
prescribed by the Bylaws, and if he should so determine, he shall so declare to
the meeting and any such business not properly brought before the meeting shall
not be considered.

          SECTION 1.13. NOMINATION OF DIRECTORS. Only persons nominated in
accordance with the procedures set forth in this section shall be eligible for
election as directors. Nominations of persons for election to the Board may be
made at a meeting of stockholders (a) by or at the direction of the Board of
Directors, or (b) by any stockholder of the Corporation entitled to vote for the
election of directors at such meeting who complies with the notice procedures
set forth in this Section 1.13. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the President or the Secretary of the Corporation. To be timely, a
stockholder's notice must be received at the principal executive offices of the
Corporation not earlier than 120 calendar days nor later than 90 calendar days
in advance of the anniversary date of the date of the Corporation's proxy
statement to stockholders in connection with the preceding year's annual meeting
of stockholders, except that if the date of the current year's annual meeting
has been changed by more than 30 calendar days from the anniversary date of the
most recent preceding annual meeting, a nomination shall be received by the
Corporation not later than the close of business on the tenth day following the
date of public notice of the date of the current year's annual meeting.

          A stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation which are beneficially owned by such person on the
date of such stockholder's notice and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder and any other stockholders known by
such stockholder to be supporting such nominee and (ii) the class and number of
shares of the Corporation which are beneficially owned by such stockholder on
the date of such stockholder's notice and by any other stockholders known by
such stockholder to be supporting such nominee on the date of such stockholder's
notice.

          No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the Bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.

                                        7


          This Section 1.13 shall not apply to the election of a director to a
directorship which may be filled by the Board of Directors under the Delaware
General Corporation Law.

          SECTION 1.14. CONDUCT OF MEETINGS OF STOCKHOLDERS. The person that
shall preside as chairman at all meetings of stockholders shall be, if present,
the Chairman of the Board or, in his or her absence or failure to act, the
President, or in his or her absence or failure to act, the Chairman Emeritus,
and in his or her absence or failure to act, the senior officer of the
Corporation present shall postpone or adjourn the meeting to another time and/or
place without notice other than announcement at such meeting. The chairman of a
meeting of stockholders shall have the power to adopt and enforce rules for the
conduct of such meeting, including but not limited to the maintenance of order
and decorum. The chairman of the meeting may in his or her discretion postpone
or adjourn any meeting of the stockholders or adjournment thereof to another
time and/or place without notice other than announcement at such meeting.

                                   ARTICLE II

                                    DIRECTORS

          SECTION 2.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.

          SECTION 2.2. STAGGERED BOARD. The Board of Directors shall consist of
twelve members, to be divided into three classes and the number of directors of
each class shall be as equal as possible. The term of office of the third class
shall expire at the annual meeting of the stockholders in 2002; the first class
shall expire at the annual meeting of the stockholders in 2003; and the second
class shall expire at the annual meeting of the stockholders in 2004. At each
annual election, commencing at the next annual meeting of stockholders, the
successors to the class of directors whose term expires in that year shall be
elected to hold office for the term of three years to succeed those whose term
expires so that the term of office of one class of directors shall expire in
each year. Each director elected or appointed shall serve until his successor
shall be elected and qualify, or until his earlier death, resignation, removal
or disqualification.

          SECTION 2.3. RESIGNATION OR REMOVAL. Any director may resign by giving
written notice to the Board of Directors or the President. Any such resignation
shall take effect at the time of receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective. Directors may be
removed from office, either with or without cause, only as provided in the
Restated Certificate of Incorporation or the laws of the State of Delaware.

          SECTION 2.4. VACANCIES.

          (a) Except as otherwise required by the Restated Certificate of
Incorporation or the laws of the State of Delaware or these Bylaws, any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors provided in Section 2.2 of these Bylaws, may be
filled for the remainder of the unexpired term by the

                                        8


affirmative vote of a majority of the directors then in office, although less
than a quorum, by a sole remaining director or by the stockholders.

          (b) Except as otherwise required by the Restated Certificate of
Incorporation, when one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office for the remainder of the unexpired term of such office.

          SECTION 2.5. PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at such places, within or without the State of Delaware, as the Board of
Directors may from time to time determine or as may be specified in the call of
any such meeting.

          SECTION 2.6. REGULAR MEETINGS. A regular annual meeting of the Board
of Directors shall be held, without call or notice, immediately after and at the
same place as the annual meeting of stockholders, or at such other time and
place as may be fixed by resolution of the Board of Directors or specified by
the Secretary at the direction of the Chairman of the Board, the President or
the Chairman Emeritus, for the purpose of organizing the Board of Directors,
electing officers and transacting any other business that may properly come
before such meeting. If the stockholders shall elect the directors by written
consent of stockholders as permitted by Section 1.11 of these Bylaws, a special
meeting of the Board of Directors shall be called as soon as practicable after
such election for the purposes described in the preceding sentence. Additional
regular meetings of the Board of Directors may be held without call or notice at
such times as shall be fixed by resolution of the Board of Directors or
specified by the Secretary at the direction of the Chairman of the Board, the
President or the Chairman Emeritus.

          SECTION 2.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or the
Chairman Emeritus or by a majority of the directors then in office. Notice of
each special meeting shall be mailed by the Secretary to each director at least
three days before such meeting, or be given by the Secretary personally or by
telegraph or telecopy or by electronic mail at least four hours before such
meeting, in the manner set forth in Section 9.1 of these Bylaws. Such notice
shall set forth the date, time and place of such meeting but need not, unless
otherwise required by the laws of the State of Delaware, state the purpose of
such meeting.

          SECTION 2.8. QUORUM AND VOTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. The act of the majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, unless otherwise provided by the laws of the State of
Delaware, the Restated Certificate of Incorporation or these Bylaws. A majority
of the directors present at any meeting at which a quorum shall be present may
adjourn such meeting to any other date, time or place without further notice
other than announcement at such meeting. If at any meeting a quorum shall not be
present, a majority of the directors present may adjourn such meeting to any
other date, time or place upon notice to all directors pursuant to Section 2.7.

                                        9


          SECTION 2.9. TELEPHONIC MEETINGS. Members of the Board of Directors or
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or such committee through conference telephone
or similar communications equipment by means of which all persons participating
in such meeting can hear each other, and participation in any meeting conducted
pursuant to this Section 2.9 shall constitute presence in person at such
meeting.

          SECTION 2.10. PRESUMPTION OF ASSENT. Unless otherwise provided by the
laws of the State of Delaware, a director who is present at a meeting of the
Board of Directors or a committee thereof at which action is taken on any
corporate matter shall be presumed to have assented to the action taken unless
his or her dissent shall be entered in the minutes of such meeting or unless he
or she shall file his or her written dissent to such action with the person
acting as secretary of such meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary immediately after the
adjournment of such meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.

          SECTION 2.11. ACTION WITHOUT MEETING. Unless otherwise restricted by
the laws of the State of Delaware, the Restated Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or any committee thereof, may be taken without a meeting if
a written consent thereto is signed by all members of the Board of Directors or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or such committee.

          SECTION 2.12. MAJOR RESPONSIBILITIES. The major responsibilities of
the Board of Directors shall include, without limitation, oversight of the
Corporation's: strategy; condition, performance and longer-term value; customer,
economic, social, regulatory and technological environment; competitive
position; legal compliance; management organization; human resources; senior
management succession planning; and contribution to communities served and
society.

          SECTION 2.13. PRESIDING DIRECTOR. The presiding director at any
meeting of the Board of Directors shall be the Chairman of the Board, or in his
or her absence or failure to act, the President, or in his or her absence or
failure to act, the Chairman Emeritus, and in his or her absence or failure to
act, the meeting shall be postponed or adjourned to another time and/or place as
specified by a majority of the directors or sole director present at such
meeting, without notice other than announcement at such meeting.

          SECTION 2.14. EXECUTIVE COMMITTEE. The Board of Directors may, in its
discretion, by resolution passed by a majority of the entire Board of Directors,
designate an Executive Committee consisting of the Chairman of the Board, the
President, the Chairman Emeritus, and such number of other directors as the
Board of Directors shall determine. The Executive Committee shall have and may
exercise all of the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation with respect to any
matter which may require action prior to, or which in the opinion of the
Executive Committee may be inconvenient, inappropriate or undesirable to be
postponed until, the next meeting of the Board of Directors; PROVIDED, HOWEVER,
that the Executive Committee shall not have the power or authority of the Board
of Directors in reference to (a) approving or adopting, or

                                       10


recommending to the stockholders any action or matter expressly required by
Delaware law to be submitted to the stockholders for approval or (b) adopting,
amending or repealing these Bylaws. The presiding member at any meeting of the
Executive Committee shall be the Chairman of the Board, or in his or her absence
or failure to act, the President, or in his or her absence or failure to act,
the Chairman Emeritus, and in his or her absence or failure to act, the meeting
shall be postponed or adjourned to another time and/or place as specified by a
majority of the committee members or sole committee member present at such
meeting, without notice other than announcement at such meeting.

          SECTION 2.15. OTHER COMMITTEES. The Board of Directors may from time
to time, in its discretion, by resolution passed by a majority of the entire
Board of Directors, designate other committees of the Board of Directors
consisting of such number of directors as the Board of Directors shall
determine, which shall have and may exercise such lawfully delegable powers and
duties of the Board of Directors as shall be conferred or authorized by such
resolution. The Board of Directors shall have the power to change at any time
the members of any such committee, to fill vacancies and to dissolve any such
committee.

          SECTION 2.16. ALTERNATES. The Board of Directors may from time to time
designate from among the directors alternates to serve on any committee of the
Board of Directors to replace any absent or disqualified member at any meeting
of such committee. Whenever a quorum cannot be secured for any meeting of any
committee from among the regular members thereof and designated alternates, the
member or members, including alternates, of such committee present at such
meeting and not disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another director to act at such meeting in place of any
absent or disqualified member.

          SECTION 2.17. QUORUM AND MANNER OF ACTING OF COMMITTEES. A majority of
the members of any committee of the Board of Directors shall constitute a quorum
for the transaction of business at any meeting of such committee, and the act of
a majority of the members present at any meeting at which a quorum is present
shall be the act of such committee.

          SECTION 2.18. COMMITTEE CHAIRMAN, BOOKS AND RECORDS, ETC. Except as
otherwise provided herein, the chairman of each committee of the Board of
Directors shall be selected from among the members of such committee by the
Board of Directors.

          Each committee shall keep a record of its acts and proceedings, and
all actions of each committee shall be reported to the Board of Directors at its
next meeting.

          Each committee shall fix its own rules of procedure not inconsistent
with these Bylaws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.

          SECTION 2.19. CHAIRMAN OF THE BOARD. The Board of Directors shall
elect one director as Chairman of the Board; provided that in the event of the
death, resignation, removal or disqualification of the Chairman of the Board,
the vacancy in the position of Chairman of the Board shall be filled by a
director who is selected by the Board of Directors. The Chairman of the Board
shall manage and preside over the activities of the Board of Directors, enabling
it to

                                       11


perform its responsibilities, and in furtherance thereof shall, among other
things, (a) assign tasks to: the President or other senior management; the
General Counsel; the Secretary; committees of the Board of Directors; and
members of the Board of Directors, (b) establish governance and other procedures
for the activities of the Board of Directors, (c) propose committees of the
Board of Directors, and their chairs, members and charters, and (d) propose
persons to fill vacancies on the Board of Directors. The Chairman of the Board
shall also (a) provide counsel to the President and other senior management, (b)
arrange that appropriate communication, including full deliberation, occurs
among the directors of the Board of Directors, members of committees of the
Board of Directors and senior management on important matters, (c) serve as an
ex-officio member of each committee of the Board of Directors unless prohibited
from doing so by law or regulation, (d) establish agendas for meetings of the
Board of Directors and meetings of stockholders with advice from the President,
(e) establish a schedule of meetings of the Board of Directors and coordinate
the schedule of meetings of committees of the Board of Directors, and (f)
propose compensation for the Board of Directors and for committees of the Board
of Directors, chairs and members thereof. In the absence of the Chairman of the
Board or in the event of his or her inability or refusal to act, the duties of
the Chairman of the Board shall be performed by the President, or in the event
of his or her absence or inability or refusal to act, by the Chairman Emeritus
or, in the event of his or her absence or inability or refusal to act, by
another director selected by the Board of Directors. The Chairman of the Board
shall be elected by the Board of Directors at the first meeting of the Board of
Directors held after the election of directors. If the election of the Chairman
of the Board shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. A vacancy may be filled at any meeting of
the Board of Directors. The Chairman of the Board shall hold office until his or
her successor shall have been duly elected and shall have qualified or until his
or her earlier death, resignation, removal or disqualification.

          SECTION 2.20. RELIANCE UPON RECORDS. Every director, and every member
of any committee of the Board of Directors, shall, in the performance of his or
her duties, be fully protected in relying in good faith upon the records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of the Corporation's officers or employees, or
committees of the Board of Directors, or by any other person as to matters the
director or member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, including, but not limited to, such records,
information, opinions, reports or statements as to the value and amount of the
assets, liabilities and/or net profits of the Corporation, or any other facts
pertinent to the existence and amount of surplus or other funds from which
dividends might properly be declared and paid, or with which the Corporation's
capital stock might properly be purchased or redeemed.

          SECTION 2.21. INTERESTED DIRECTORS. The presence of a director, who is
directly or indirectly a party in a contract or transaction with the
Corporation, or between the Corporation and any other corporation, partnership,
association or other organization in which such director is a director or
officer or has a financial interest, may be counted in determining whether a
quorum is present at any meeting of the Board of Directors or a committee
thereof at which such contract or transaction is discussed or authorized, and
such director may participate in such meeting to the extent permitted by
applicable law, including Section 144 of the General Corporation Law of the
State of Delaware.

                                       12


          SECTION 2.22. COMPENSATION. Unless otherwise restricted by the laws of
the State of Delaware or the Restated Certificate of Incorporation, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors shall be paid their reasonable expenses, if any, of attendance at each
meeting of the Board of Directors or a committee thereof and may be paid a fixed
sum for attendance at each such meeting and an annual retainer or salary for
services as a chairman, director, committee chair or committee member. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.

                                   ARTICLE III

                                    OFFICERS

          SECTION 3.1. NUMBER AND DESIGNATION. The officers of the Corporation
shall be a President, a Chairman Emeritus, one or more Executive Vice
Presidents, Senior Vice Presidents and Vice Presidents, a General Counsel, a
Secretary, a Treasurer and a Controller, and such Assistant Secretaries,
Assistant Treasurers or other officers or agents as may be elected or appointed
by the Board of Directors. Any two or more offices may be held by the same
person unless the Restated Certificate of Incorporation or these Bylaws provide
otherwise.

          SECTION 3.2. ELECTION AND TERM OF OFFICE. The Chairman Emeritus of the
Corporation shall be LeRoy T. Carlson until the earlier of his retirement,
death, resignation, removal or disqualification and, in any such event, the
office of Chairman Emeritus shall be retired and shall cease to be an office of
this Corporation. The other officers of the Corporation shall be elected by the
Board of Directors at the first meeting of the Board of Directors held after the
election of directors. If the election of such other officers shall not be held
at such meeting, such election shall be held as soon thereafter as may be
convenient. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Except as otherwise provided herein, each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified or until his or her earlier death, resignation,
removal or disqualification.

          SECTION 3.3. REMOVAL AND RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Any officer or agent may resign at any time by
giving written notice to the Chairman of the Board or the President with a copy
to the Secretary. Any such resignation shall take effect at the time of receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.

          SECTION 3.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.

          SECTION 3.5. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall in general supervise and control all of the
business and affairs of the

                                       13


Corporation and supervise the duties assigned to the officers of the
Corporation. The President may execute, alone or with the Secretary or any other
officer of the Corporation authorized by the Board of Directors, any deeds,
mortgages, bonds, contracts or other instruments which the Board of Directors or
an authorized committee thereof has authorized to be executed, except in cases
where the execution thereof shall be expressly delegated by the Board of
Directors or a committee thereof or by these Bylaws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise executed,
and in general he or she shall perform all duties incident to the office of
President and such other duties as from time to time may be prescribed by the
Board of Directors or by the Chairman of the Board. In the event of the absence
of the President or in the event of his or her inability or refusal to act as
President for a continuous period of three months or in the event of his earlier
death, resignation, removal or disqualification (a "permanent absence"), the
Chairman of the Board or, in the event of the permanent absence of the Chairman
of the Board, and in the event of his or her inability or refusal to succeed to
and perform his or her duties, the Chairman Emeritus, shall, automatically and
without any action on the part of the Board of Directors or otherwise, succeed
to and perform the duties of the President and, when so acting, shall have all
the powers of and be subject to all the restrictions placed upon the President
set forth in this Section 3.5. In the event of the permanent absence of all such
persons, the vacancy in the position of President shall be filled with a person
who is selected by the Board of Directors.

          SECTION 3.6. CHAIRMAN EMERITUS. In the absence of both the President
and the Chairman of the Board or in the event of their inability or refusal to
act for a period of less than three months (a "temporary absence"), the Chairman
Emeritus shall perform the duties of the Chairman of the Board and the President
and, when so acting, shall have all the powers of, and be subject to all the
restrictions placed upon the Chairman of the Board and the President. He or she
may execute, alone or with the Secretary or any other officer of the Corporation
authorized by the Board of Directors, any deeds, mortgages, bonds, contracts or
other instruments which the Board of Directors or an authorized committee
thereof has authorized to be executed, except in cases where the execution
thereof shall be expressly delegated by the Board of Directors or a committee
thereof or by these Bylaws to some other officer or agent of the Corporation, or
shall be required by law to be otherwise executed, and in general he or she
shall perform all duties incident to the office of Chairman Emeritus and such
other duties as from time to time may be prescribed by the President, the
Chairman of the Board or the Board of Directors.

          SECTION 3.7. EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. The
Executive Vice President and Chief Financial Officer shall in general supervise
and control the financial business and financial affairs of the Corporation. The
Executive Vice President and Chief Financial Officer shall supervise the duties
assigned to the Secretary, the Treasurer and the Controller and in general he or
she shall perform all the duties incident to the offices of Executive Vice
President and Chief Financial Officer and such other duties as from time to time
may be assigned to him or her by the Chairman of the Board, the President, the
Chairman Emeritus or the Board of Directors.

          SECTION 3.8. THE EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS,
VICE PRESIDENTS AND SUBSIDIARY CEOs. In the temporary absence of the President ,
the Executive Vice Presidents, the Senior Vice Presidents, the Vice Presidents
and the chief executive officers of subsidiaries of the Corporation ("Subsidiary
CEOs") shall, from time to time, perform such

                                       14


specific duties of the President as may be delegated to one or more of such
persons in writing by the Chairman of the Board, or in the temporary absence of
the Chairman of the Board, by the Chairman Emeritus and, when so acting, shall
have such powers and be subject to such restrictions as would be applicable to
the President with respect to such specific duties. The Board of Directors may
also designate certain Executive Vice Presidents, Senior Vice Presidents or Vice
Presidents as being in charge of designated divisions, plants or functions of
the Corporation's business and add appropriate descriptions to their titles. In
addition, any Executive Vice President, Senior Vice President or Vice President
shall perform such duties as from time to time may be assigned to him or her by
the Chairman of the Board, the President, the Chairman Emeritus or the Board of
Directors.

          SECTION 3.9. GENERAL COUNSEL. The General Counsel shall be the
principal legal officer of the Corporation and shall be responsible for and have
charge of all legal matters affecting the Corporation, its subsidiaries, and
those affiliated entities which it controls. The General Counsel shall perform
or supervise the performance of all duties incident to such legal matters,
together with such other duties as from time to time may be assigned to him by
the Chairman of the Board, the President, the Chairman Emeritus or the Board of
Directors. The duties and powers of the General Counsel shall extend to all
subsidiaries of the Corporation and, insofar as the Chairman of the Board, the
President, or the Chairman Emeritus may deem appropriate and practicable, to all
affiliated entities.

          SECTION 3.10. THE SECRETARY. The Secretary shall (a) keep the minutes
of proceedings of the stockholders, the Board of Directors and any committee of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation; (d) affix the seal of the Corporation or a
facsimile thereof, or cause it to be affixed, and, when so affixed, attest the
seal by his or her signature, to all Certificates for shares of capital stock of
the Corporation prior to the issue thereof and to all other documents the
execution of which on behalf of the Corporation under its seal is duly
authorized by the Board of Directors or otherwise in accordance with the
provisions of these Bylaws; (e) keep a register of the post office address of
each stockholder, director or committee member, which shall be furnished to the
Secretary by such stockholder, director or member; (f) have general charge of
the stock transfer books of the Corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him or her by the Chairman of the Board, the President,
the Executive Vice President and Chief Financial Officer, the General Counsel,
the Chairman Emeritus or the Board of Directors.

          SECTION 3.11. THE TREASURER. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the Corporation,
receive and give receipts for moneys due and payable to the Corporation from any
source whatsoever, deposit all such moneys in the name of the Corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article IV of these Bylaws, disburse the funds
of the Corporation as ordered by the Board of Directors, the Chairman of the
Board, the President or the Executive Vice President and Chief Financial Officer
or as otherwise required in the conduct of the business of the Corporation and
render to the Chairman of the Board, the President, the Executive Vice President
and Chief Financial Officer or the Board of Directors,

                                       15


upon request, an accounting of all his or her transactions as Treasurer and a
report on the financial condition of the Corporation. The Treasurer shall in
general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him or her by the Chairman
of the Board, the President, the Executive Vice President and Chief Financial
Officer or the Board of Directors. If required by the Board of Directors or the
President, the Treasurer shall give a bond (which shall be renewed regularly),
in such sum and with such surety or sureties as the Board of Directors or the
President, shall determine, for the faithful discharge of his or her duties and
for the restoration to the Corporation, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his or her possession or under his
or her control belonging to the Corporation.

          SECTION 3.12. CONTROLLER. The Controller shall be the chief accounting
officer of the Corporation. The duties of the Controller shall be to maintain
adequate records of all assets, liabilities and transactions of the Corporation;
to see that adequate audits are currently and regularly performed; and, in
conjunction with other officers and department heads, to initiate and enforce
measures and procedures whereby the business of the Corporation shall be
conducted with the maximum safety, efficiency and economy. The Controller shall
establish and administer an adequate plan for the control of operations,
including systems and procedures required to properly maintain internal controls
on all financial transactions of the Corporation. The Controller shall perform
all duties as from time to time may be assigned to him or her by the Chairman of
the Board, the President, the Executive Vice President and Chief Financial
Officer or the Board of Directors. The duties and powers of the Controller shall
extend to all subsidiaries of the Corporation and, insofar as the Chairman of
the Board, the President or the Executive Vice President and Chief Financial
Officer may deem appropriate and practicable, to all affiliated entities.

          SECTION 3.13. ASSISTANT TREASURERS AND SECRETARIES. In the absence of
the Secretary or the Treasurer, as the case may be, or in the event of his or
her inability or refusal to act, the Assistant Secretaries and the Assistant
Treasurers, respectively, in the order determined by the Board of Directors (or
if there shall have been no such determination, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary or
the Treasurer, as the case may be. In addition, the Assistant Secretaries shall,
in general, perform such duties as may be assigned to them by the Chairman of
the Board, the President, the Executive Vice President and Chief Financial
Officer, the General Counsel, the Chairman Emeritus, the Secretary or the Board
of Directors. In addition, the Assistant Treasurers shall, in general, perform
such duties as may be assigned to them by the Chairman of the Board, the
President, the Executive Vice President and Chief Financial Officer, the
Treasurer or the Board of Directors. Each Assistant Treasurer shall, if required
by the Board of Directors or the President, give a bond (which shall be renewed
regularly), in such sum and with such surety or sureties as the Board of
Directors or the President shall determine, for the faithful discharge of his or
her duties.

          SECTION 3.14. SALARIES. The salaries and other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors or by such committee or officer as it shall designate for
such purpose. No officer shall be prevented from receiving such salary by reason
of the fact that he or she is also a director of the Corporation.

                                       16


                                   ARTICLE IV

                     CONTRACTS, LOANS, CHECKS, AND DEPOSITS

          SECTION 4.1. CONTRACTS. The Board of Directors may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.

          SECTION 4.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in the name of the
Corporation unless authorized by or pursuant to a resolution adopted by the
Board of Directors. Such authority may be general or confined to specific
instances.

          SECTION 4.3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money issued in the name of the Corporation shall be signed by
such officers, employees or agents of the Corporation as shall from time to time
be designated by the Board of Directors, the Chairman of the Board, the
President, the Chairman Emeritus, the Executive Vice President and Chief
Financial Officer or the Treasurer.

          SECTION 4.4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as shall be designated from
time to time by the Board of Directors, the Chairman of the Board, the
President, the Chairman Emeritus, the Executive Vice President and Chief
Financial Officer or the Treasurer; and such officers may designate any type of
depository arrangement (including, but not limited to, depository arrangements
resulting in net debits against the Corporation) as may from time to time be
offered or made available.

                                   ARTICLE V

                    CERTIFICATES OF STOCK AND THEIR TRANSFER

          SECTION 5.1. CERTIFICATES OF STOCK. Shares of capital stock of the
Corporation shall be represented by Certificates which shall be in such form as
may be determined by the Board of Directors, shall be numbered and shall be
entered on the books of the Corporation as they are issued. Such Certificates
shall indicate the holder's name and the number of shares evidenced thereby and
shall be signed by the Chairman of the Board, the President, the Chairman
Emeritus, an Executive Vice President, Senior Vice President or a Vice President
and by the Secretary or an Assistant Secretary. If any stock Certificate shall
be manually signed (a) by a transfer agent or an assistant transfer agent or (b)
by a transfer clerk acting on behalf of the Corporation and a registrar, the
signature of any officer of the Corporation may be facsimile. In case any such
officer whose facsimile signature has been used on any such stock Certificate
shall cease to be such officer, whether because of death, resignation, removal
or otherwise, before such stock Certificate shall have been delivered by the
Corporation, such stock Certificate may nevertheless be delivered by the
Corporation as though the person whose facsimile signature has been used thereon
had not ceased to be such officer.

                                       17


          SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors in individual cases, or by general resolution or by delegation to the
transfer agent for the Corporation, may direct that a new stock Certificate or
Certificates for shares of capital stock of the Corporation be issued in place
of any stock Certificate or Certificates theretofore issued by the Corporation
claimed to have been lost, stolen or destroyed, upon the filing of an affidavit
to that effect by the person claiming such loss, theft or destruction. When
authorizing such an issuance of a new stock Certificate or Certificates, the
Board of Directors may, in its discretion and as a condition precedent to such
issuance, require the owner of such lost, stolen or destroyed stock Certificate
or Certificates to advertise the same in such manner as the Corporation shall
require and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the stock Certificate or Certificates claimed to have been lost,
stolen or destroyed.

          SECTION 5.3. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a stock Certificate for shares of
capital stock of the Corporation duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer or, if the relevant stock
Certificate for shares of capital stock of the Corporation is claimed to have
been lost, stolen or destroyed, upon compliance with the provisions of Section
5.2 of these Bylaws, and upon payment of applicable taxes with respect to such
transfer, and in compliance with any restrictions on transfer applicable to such
stock Certificate or the shares represented thereby of which the Corporation
shall have notice and subject to such rules and regulations as the Board of
Directors may from time to time deem advisable concerning the transfer and
registration of stock Certificates for shares of capital stock of the
Corporation, the Corporation shall issue a new stock Certificate or Certificates
for such shares to the person entitled thereto, cancel the old stock Certificate
and record the transaction upon its books. Transfers of shares shall be made
only on the books of the Corporation by the registered holder thereof or by such
holder's attorney or successor duly authorized as evidenced by documents filed
with the Secretary or transfer agent of the Corporation. Whenever any transfer
of shares of capital stock of the Corporation shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of transfer
if, when the stock Certificate or Certificates representing such shares are
presented to the Corporation for transfer, both the transferor and transferee
request the Corporation to do so.

          SECTION 5.4. STOCKHOLDERS OF RECORD. The Corporation shall be entitled
to treat the holder of record of any share of capital stock of the Corporation
as the holder thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.

                                   ARTICLE VI

                               GENERAL PROVISIONS

          SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall be
the same as the calendar year.

                                       18


          SECTION 6.2. SEAL. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the words "CORPORATE SEAL" and
"DELAWARE"; and it shall otherwise be in the form approved by the Board of
Directors. Such seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or otherwise reproduced.

                                   ARTICLE VII

                                     OFFICES

          SECTION 7.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be located at 1209 Orange Street in
the City of Wilmington, County of New Castle, and the name of its registered
agent is Corporation Trust Company.

          SECTION 7.2. OTHER OFFICES. The Corporation may have offices at such
other places, both within or without the State of Delaware, as shall be
determined from time to time by the Board of Directors or as the business of the
Corporation may require.

                                  ARTICLE VIII

                                 INDEMNIFICATION

          SECTION 8.1. GENERAL.

          (a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that such person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.

          (b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of

                                       19


such action or suit if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.

          (c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b) of this Section
8.1, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.

          (d) Any indemnification under paragraphs (a) and (b) of this Section
8.1 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in paragraphs (a)
and (b) of this Section 8.1. Such determination shall be made (i) by the Board
of Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, (ii) if such a quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (iii) by the
stockholders.

          (e) Subject to compliance with the other terms and conditions of this
Section 8.1, expenses (including attorneys' fees) incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation pursuant to this Section 8.1. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon compliance with the terms and conditions set forth in this Section 8.1
or such other terms and conditions as the Board of Directors deems appropriate.

          (f) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office.

          (g) For purposes of this Article VIII, any reference to the
"Corporation" shall include, in addition to the resulting or surviving
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent

                                       20


corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article VIII with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.

          (h) For purposes of this Article VIII, any reference to "other
enterprise" shall include employee benefit plans; any reference to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and any reference to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.

          (i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.

          (j) Notwithstanding any other provisions of this Section 8.1, the
Corporation shall not make any payments pursuant to this Section 8.1 unless the
Corporation shall have first received adequate documentation demonstrating that
such amounts for which payment is requested were actually and reasonably
incurred for the purposes permitted to be reimbursed pursuant to this Section
8.1. Such documentation may include time records, fee and disbursement records
(including hourly rates), description of the work performed, periodic litigation
status reports, the legal basis for the indemnification claim, and other
information reasonably requested by the Corporation. If a written claim has been
made for payment or reimbursement of expenses, the Corporation may require
periodic status reports from the claimant or the counsel handling the defense of
such proceeding as to the status of such proceeding, the matters presented in
the proceeding for which indemnification is sought, the names of any expert
witnesses to be retained, the projected costs for such proceeding and any other
information which is customary to obtain in order to determine whether such
expenses were actually and reasonably incurred for the purposes permitted to be
reimbursed pursuant to this Section 8.1. In the event that the party requesting
indemnification or advancement of expenses has incurred costs in multiple
proceedings, or shared legal counsel with other claimants, or circumstances
exist where some costs are permitted or required to be reimbursed and some are
not, the party submitting the request for payment shall allocate such costs and
explain in sufficient detail a reasonable basis for the allocation of costs. If
the party requesting payment fails to make an allocation when necessary, or to
provide an adequate explanation for any such allocation, the Corporation shall
determine a reasonable basis for allocation based on the written information
furnished to it. If any information relating to the allocation of expenses or
any other matter is not properly supplied, the Corporation shall not be required
to make payment until such information is fully supplied. If a claim under this
Section 8.1 is not paid in full by the Corporation within ninety days after a
written claim meeting the requirements of this Section 8.1 has been received by
the Corporation, the claimant may at any time thereafter bring

                                       21


suit against the Corporation to recover the unpaid amount of the claim, plus any
interest required by law to be paid. Such suit may only be filed in the Circuit
Court of Cook County, Illinois, the federal district court for the Northern
District of Illinois, the Superior Court of Delaware, New Castle County, or the
federal district court for Delaware. It shall be a defense to any such action
that the claimant has not met the requirements of this Section 8.1, including
the provisions of this paragraph (j), or the standards of conduct which make it
permissible under the Delaware General Corporation Law for the Corporation to
pay the claimant for the amount claimed.

          (k) Notwithstanding any other provisions of this Section 8.1, nothing
herein shall require the Corporation to make an advance of expenses at any time.
In the event that any written claim for advancement of expenses is submitted to
the Corporation, this Section 8.1 shall apply to such written claim for
advancement of expenses except to the extent expressly required by the General
Corporation Law of the State of Delaware or applicable law. Any undertaking
shall comply with the requirements of paragraph (l) of this Section 8.1.

          (l) If any undertaking is permitted to be delivered by a person
pursuant to this Section 8.1 or the General Corporation Law of the State of
Delaware, the Corporation shall prescribe the form of undertaking. The
Corporation shall be a party to the instrument evidencing the undertaking. In
the event that there is doubt as to the collectibility of any amounts to be
advanced to a claimant which may be required to be repaid, or for other good and
sufficient reason, the Corporation may require adequate security for the
undertaking.

          (m) Except to the extent expressly required by the General Corporation
law of the State of Delaware or applicable law or except as otherwise approved
by the Board of Directors, the Corporation does not intend to provide
indemnification or advancement of expenses to any person who (i) has not acted
in good faith or has acted in a manner opposed to the best interests of the
Corporation; (ii) has initiated any action, suit or proceeding against the
Corporation which was not authorized by the Board of Directors of the
Corporation; (iii) has breached any agreement with the Corporation in any
material respect; (iv) has tortiously induced any director, officer, employee,
agent, customer or supplier of the Corporation or other person or entity to
breach his, her or its contractual obligations to the Corporation; (v) has
tortiously interfered with the Corporation's customers or business
relationships; (vi) has committed, threatened or conspired to commit any acts of
dishonesty, embezzlement, misappropriation of funds, theft of trade secrets,
fraud, breach of fiduciary duty or other crime or tort against the Corporation;
or (vii) has engaged in any other unlawful or tortious conduct against the
Corporation or its interests. To the extent permitted by the General Corporation
Law of the State of Delaware and applicable law, these rules of interpretation
shall be applied in construing all provisions of this Section 8.1.

          (n) Notwithstanding anything to the contrary in this Section 8.1, the
Corporation may provide indemnification to a person consistent with the
requirements of Section 145(a) and Section 145(b) of the General Corporation Law
of the State of Delaware and this Section 8.1, and the Corporation shall provide
indemnification to the extent required by Section 145(c) of the General
Corporation Law of the State of Delaware. The provisions of this Section 8.1 are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially enforceable provisions, to the extent so enforceable, shall
nevertheless be binding and enforceable.

                                       22


          SECTION 8.2. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him or her against such liability under the provisions of Section
145 of the General Corporation Law of the State of Delaware.

                                   ARTICLE IX

                                     NOTICES

          SECTION 9.1. MANNER OF NOTICE. Except as otherwise provided by law,
whenever under the provisions of the laws of the State of Delaware, the Restated
Certificate of Incorporation or these Bylaws notice is required to be given to
any stockholder, director or member of any committee of the Board of Directors,
such notice may be given by personal delivery or by depositing it, in a sealed
envelope, in the United States mails, air mail or first class, postage prepaid,
addressed, or by delivering it to a telegraph company, charges prepaid, for
transmission, or by transmitting it via telecopier or by electronic mail via the
Internet or similar system, to such stockholder, director or member either at
the address of such stockholder, director or member as it appears on the books
of the Corporation or, in the case of such a director or member, at his or her
business address; and such notice shall be deemed to be given at the time when
it is thus personally delivered, deposited, delivered or transmitted, as the
case may be. Such requirement for notice shall also be deemed satisfied, except
in the case of stockholder meetings with respect to which written notice is
required by law, if actual notice is received orally or by other writing by the
person entitled thereto as far in advance of the event with respect to which
notice is being given as the minimum notice period required by the laws of the
State of Delaware or these Bylaws.

          Whenever notice is required to be given under any provision of the
laws of the State of Delaware, the Restated Certificate of Incorporation or
these Bylaws to any stockholder to whom (a) notice of two consecutive annual
meetings of stockholders, and all notices of meetings of stockholders or of the
taking of action by stockholders by written consent without a meeting to such
stockholder during the period between such two consecutive annual meetings, or
(b) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities of the Corporation during a 12-month period, have been
mailed addressed to such stockholder at the address of such stockholder as shown
on the records of the Corporation and have been returned undeliverable, the
giving of such notice to such stockholder shall not be required. Any action or
meeting which shall be taken or held without notice to such stockholder shall
have the same force and effect as if such notice had been duly given. If any
such stockholder shall deliver to the Corporation a written notice setting forth
the then current address of such stockholder, the requirement that notice be
given to such stockholder shall be reinstated.

          SECTION 9.2. WAIVER OF NOTICE. Whenever any notice is required to be
given under any provision of the laws of the State of Delaware, the Restated
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person or persons entitled

                                       23


to such notice, whether before or after the time stated therein, shall be deemed
equivalent to such notice. Attendance by a person at a meeting shall constitute
a waiver of notice of such meeting, except when such person attends such meeting
for the express purpose of objecting, at the beginning of such meeting, to the
transaction of any business because such meeting has not been lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of stockholders, the Board of Directors or a
committee of the Board of Directors need be specified in any written waiver of
notice unless so required by the laws of the State of Delaware, the Restated
Certificate of Incorporation or these Bylaws.

                                    ARTICLE X

                                    DIVIDENDS

          The Board of Directors may from time to time declare, and the
Corporation may pay, dividends, in cash, in property or in shares of capital
stock of the Corporation, on its outstanding shares of capital stock in the
manner and upon the terms and conditions provided by law and by the Restated
Certificate of Incorporation.

                                   ARTICLE XI

                                   AMENDMENTS

          Except to the extent otherwise provided in the Restated Certificate of
Incorporation or these Bylaws, these Bylaws shall be subject to alteration,
amendment or repeal, and new Bylaws may be adopted (a) by the affirmative vote
of the holders of not less than a majority of the voting power of all
outstanding shares of capital stock of the Corporation entitled to vote for
matters other than the election of directors or (b) by the affirmative vote of
not less than a majority of the entire Board of Directors at any meeting of the
Board of Directors at which there is a quorum present and voting; PROVIDED,
HOWEVER, that the right to call a special meeting by holders of at least fifty
percent of the voting power of the capital stock of the Corporation issued and
outstanding and entitled to vote at a special meeting, as provided in Section
1.2 of these Bylaws, shall not be altered, amended or repealed with respect to
any group of shareholders entitled to call a special meeting, without the
approval by the affirmative vote of the holders of not less than a majority of
the voting power of the shares of capital stock which are held by such
shareholders and which are entitled to vote in such group at such special
meeting.

                                       24

EX-4.9

                           REVOLVING CREDIT AGREEMENT

                                   DATED AS OF

                                January 24, 2002

                                      AMONG

                        TELEPHONE AND DATA SYSTEMS, INC.,
                                  AS BORROWER,

                    THE FINANCIAL INSTITUTIONS NAMED HEREIN,

                              FLEET NATIONAL BANK,
                             AS ADMINISTRATIVE AGENT

                       LASALLE BANK NATIONAL ASSOCIATION,
                          FIRST UNION NATIONAL BANK and
               THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH
                             EACH AS DOCUMENT AGENTS

                            TD SECURITIES (USA) INC.,
                              AS SYNDICATION AGENT

                                       and

                         TORONTO DOMINION (TEXAS), INC.,
                                    AS A BANK

    with FLEET SECURITIES, INC. and TD SECURITIES (USA) INC., having acted as
                   JOINT LEAD ARRANGERS AND JOINT BOOKRUNNERS


                                TABLE OF CONTENTS

                                                                                                                         
Section 1. DEFINITIONS AND RULES OF INTERPRETATION...........................................................................1
          Section 1.1. DEFINITIONS...........................................................................................1
          Section 1.2. RULES OF INTERPRETATION..............................................................................12
Section 2. THE REVOLVING CREDIT FACILITY....................................................................................13
          Section 2.1. COMMITMENT TO LEND...................................................................................13
          Section 2.2. FACILITY FEE; UTILIZATION FEE........................................................................14
          Section 2.3. REDUCTION OF COMMITMENT..............................................................................14
          Section 2.4. THE NOTES FOR THE LOANS..............................................................................14
          Section 2.5. NOTICE AND MATTER OF BORROWING OR CONVERSION OF LOANS; SWING LINE....................................15
          Section 2.6. FUNDS FOR LOANS......................................................................................16
          Section 2.7. EUROS................................................................................................16
          Section 2.8. MANDATORY REPAYMENTS OF LOANS........................................................................18
          Section 2.9. OPTIONAL REPAYMENTS OF LOANS.........................................................................18
          Section 2.10. SETTLEMENTS.........................................................................................18
Section 2A. LETTERS OF CREDIT...............................................................................................20
          Section 2A.1. LETTER OF CREDIT COMMITMENTS........................................................................20
          Section 2A.2. REIMBURSEMENT OBLIGATIONS OF THE BORROWER...........................................................21
          Section 2A.3. LETTER OF CREDIT PAYMENTS...........................................................................21
          Section 2A.4. OBLIGATIONS ABSOLUTE................................................................................22
          Section 2A.5. RELIANCE BY ISSUER..................................................................................22
          Section 2A.6. LETTER OF CREDIT FEE................................................................................23
Section 3. INTEREST; CERTAIN GENERAL PROVISIONS.............................................................................23
          Section 3.1. INTEREST ON LOANS; PAYMENTS OF INTEREST..............................................................23
          Section 3.2. INTEREST PERIOD OPTIONS..............................................................................23
          Section 3.3. INDEMNITY............................................................................................24
          Section 3.4. FUNDS FOR PAYMENTS...................................................................................24
          Section 3.5. COMPUTATIONS.........................................................................................25
          Section 3.6. INABILITY TO DETERMINE EUROCURRENCY RATE.............................................................25
          Section 3.7. ILLEGALITY...........................................................................................26
          Section 3.8. ADDITIONAL COSTS, ETC................................................................................26
          Section 3.9. CERTIFICATE..........................................................................................27
          Section 3.10. CAPITAL ADEQUACY....................................................................................28
          Section 3.11. INTEREST ON OVERDUE AMOUNTS.........................................................................28
          Section 3.12. PAYMENT DATE ADJUSTMENT FOR NON-BUSINESS DAYS.......................................................28
          Section 3.13. CURRENCY MATTERS....................................................................................28
Section 4. REPRESENTATIONS AND WARRANTIES...................................................................................29
          Section 4.1. CORPORATE AUTHORITY..................................................................................29
          Section 4.2. GOVERNMENTAL APPROVALS...............................................................................30
          Section 4.3. TITLE TO PROPERTIES; LEASES..........................................................................30
          Section 4.4. FINANCIAL STATEMENTS.................................................................................30
          Section 4.5. NO MATERIAL CHANGES, ETC.............................................................................30
          Section 4.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC.................................................................30
          Section 4.7. NO LITIGATION........................................................................................30
          Section 4.8. NO MATERIALLY ADVERSE CONTRACTS, ETC.................................................................31
          Section 4.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.........................................................31
          Section 4.10. TAX STATUS..........................................................................................31
          Section 4.11. NO EVENT OF DEFAULT.................................................................................32
          Section 4.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS.........................................................32
          Section 4.13. CERTAIN TRANSACTIONS................................................................................32
          Section 4.14. ERISA COMPLIANCE....................................................................................32
          Section 4.15. PURPOSE CREDIT......................................................................................33
          Section 4.16. ENVIRONMENTAL COMPLIANCE............................................................................33







                                       ii

                                                                                                                         
          Section 4.17. COMPLIANCE WITH FAIR LABOR STANDARDS ACT............................................................34
          Section 4.18. SUBSIDIARIES........................................................................................34
          Section 4.19. SOLVENCY............................................................................................34
          Section 4.20. DISCLOSURE..........................................................................................34
Section 5. AFFIRMATIVE COVENANTS OF THE BORROWER............................................................................35
          Section 5.1. PUNCTUAL PAYMENT.....................................................................................35
          Section 5.2. MAINTENANCE OF OFFICE................................................................................35
          Section 5.3. RECORDS AND ACCOUNTS.................................................................................35
          Section 5.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION...................................................35
          Section 5.5. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES.......................................................36
          Section 5.6. INSURANCE............................................................................................37
          Section 5.7. TAXES; ETC...........................................................................................37
          Section 5.8. INSPECTION OF PROPERTIES AND BOOKS...................................................................37
          Section 5.9. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS...............................................38
          Section 5.10. PENSION PLANS.......................................................................................38
          Section 5.11. FURTHER ASSURANCES..................................................................................39
          Section 5.12. NOTICES.............................................................................................39
          Section 5.13. FAIR LABOR STANDARDS ACT............................................................................39
          Section 5.14. ENVIRONMENTAL EVENTS................................................................................39
          Section 5.15. NOTIFICATION OF CLAIMS..............................................................................39
          Section 5.16. USE OF PROCEEDS.....................................................................................39
          Section 5.17. NOTICE OF LITIGATION, JUDGMENT AND MATERIAL EVENTS..................................................39
Section 6. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.......................................................................40
          Section 6.1. INDEBTEDNESS.........................................................................................40
          Section 6.2. RESTRICTIONS ON LIENS................................................................................40
          Section 6.3. LIMITATION ON SALES, CONSOLIDATION, MERGER, ETC......................................................43
          Section 6.4. FEDERAL REGULATIONS..................................................................................43
          Section 6.5. RESTRICTIONS ON ABILITY TO REPAY LOANS...............................................................44
          Section 6.6. EMPLOYEE BENEFIT PLANS...............................................................................44
          Section 6.7. COMPLIANCE WITH ENVIRONMENTAL LAWS...................................................................44
          Section 6.8. LIMITATION ON SALE AND LEASEBACK.....................................................................44
Section 7. FINANCIAL COVENANTS OF THE BORROWER..............................................................................46
          Section 7.1. DEBT TO CAPITALIZATION RATIO.........................................................................46
          Section 7.2. INTEREST COVERAGE RATIO..............................................................................46
Section 8. CLOSING CONDITIONS...............................................................................................46
          Section 8.1. CORPORATE ACTION.....................................................................................46
          Section 8.2. LOAN DOCUMENTS.......................................................................................46
          Section 8.3. OPINION OF BORROWER'S LEGAL COUNSEL..................................................................46
          Section 8.4. CERTIFIED COPIES OF CHARTER DOCUMENTS................................................................46
          Section 8.5. INCUMBENCY CERTIFICATE...............................................................................46
          Section 8.6. GOOD STANDING CERTIFICATES...........................................................................47
          Section 8.7. PAYMENT OF FEES......................................................................................47
          Section 8.8. TERMINATION OF EXISTING CREDIT FACILITIES............................................................47
          Section 8.9. RECEIPT OF FINANCIAL STATEMENTS......................................................................47
Section 9. CONDITIONS TO ALL BORROWINGS.....................................................................................47
          Section 9.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT............................................................47
          Section 9.2. NO LEGAL IMPEDIMENT..................................................................................48
          Section 9.3. GOVERNMENTAL REGULATION..............................................................................48
          Section 9.4. PROCEEDINGS AND DOCUMENTS............................................................................48
          Section 9.5. NO MATERIAL ADVERSE CHANGE...........................................................................48
          Section 9.6. EXCHANGE LIMITATION..................................................................................48
Section 10. EVENTS OF DEFAULT; ACCELERATION.................................................................................48
Section 11. THE AGENTS......................................................................................................50
          Section 11.1. AUTHORIZATION.......................................................................................50
          Section 11.2. EMPLOYEES AND AGENTS................................................................................50
          Section 11.3. NO LIABILITY........................................................................................51





                                       iii
                                                                                                                         
          Section 11.4. NO REPRESENTATIONS..................................................................................51
          Section 11.5. PAYMENTS............................................................................................51
          Section 11.6. HOLDERS OF NOTES....................................................................................51
          Section 11.7. INDEMNITY...........................................................................................51
          Section 11.8. AGENTS AS BANKS.....................................................................................52
          Section 11.9. RESIGNATION.........................................................................................52
          Section 11.10. DOCUMENTATION AGENTS AND SYNDICATION AGENT.........................................................52
Section 12. EXPENSES........................................................................................................52
Section 13. INDEMNIFICATION.................................................................................................53
Section 14. SURVIVAL OF COVENANTS, ETC......................................................................................53
Section 15. ASSIGNMENT AND PARTICIPATION....................................................................................53
          Section 15.1. CONDITIONS TO ASSIGNMENT BY BANKS...................................................................53
          Section 15.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS......................................54
          Section 15.3. REGISTER............................................................................................55
          Section 15.4. NEW NOTES...........................................................................................55
          Section 15.5. PARTICIPATIONS......................................................................................55
          Section 15.6. DISCLOSURE..........................................................................................56
          Section 15.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER................................................56
          Section 15.8. MISCELLANEOUS ASSIGNMENT PROVISIONS.................................................................56
          Section 15.9. ASSIGNMENT BY BORROWER..............................................................................57
Section 16. NOTICES, ETC....................................................................................................57
Section 17. GOVERNING LAW...................................................................................................57
Section 18. HEADINGS........................................................................................................57
Section 19. COUNTERPARTS....................................................................................................57
Section 20. ENTIRE AGREEMENT, ETC...........................................................................................58
Section 21. WAIVER OF JURY TRIAL............................................................................................58
Section 22. CONSENTS, AMENDMENTS, WAIVERS, ETC..............................................................................58
Section 23. FCC APPROVAL....................................................................................................59
Section 24. SEVERABILITY....................................................................................................59
Section 25. CONFIDENTIALITY.................................................................................................59






                                      -iv-

                             SCHEDULES AND EXHIBITS

EXHIBIT A                           Form of Note
EXHIBIT B:                          Form of Loan Request
EXHIBIT C:                          Form of Compliance Certificate
EXHIBIT D:                          Form of Opinion of Borrower's Counsel
EXHIBIT E:                          Form of Assignment and Acceptance

SCHEDULE 1.1(a):                    Commitments
SCHEDULE 1.1(b):                    Eurocurrency Lending Offices
SCHEDULE 1.2:                       Margin Percentages
SCHEDULE 4.14:                      Assets and Accrued Benefits
SCHEDULE 4.18:                      Material Subsidiaries
SCHEDULE 6.2.                       Existing Liens
SCHEDULE 6.8:                       Sale and Leaseback Transactions



                           REVOLVING CREDIT AGREEMENT

     This REVOLVING CREDIT AGREEMENT is made as of the 24 day of January, 2002,
by and among TELEPHONE AND DATA SYSTEMS, INC. (the "BORROWER"), a Delaware
corporation having its principal place of business at 30 N. LaSalle Street,
Chicago, Illinois 60602, the financial institutions listed on SCHEDULE 1.1A
hereto (the "BANKS"), FLEET NATIONAL BANK, as administrative agent for the Banks
(the "ADMINISTRATIVE AGENT"), LASALLE BANK NATIONAL ASSOCIATION, FIRST UNION
NATIONAL BANK, AND THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH, as
documentation agents for the Banks (the "DOCUMENTATION AGENTS"), TD SECURITIES
(USA) INC., as syndication agent for the Banks (the "SYNDICATION AGENT"), and
TORONTO DOMINION (TEXAS), INC., as a Bank, with FLEET SECURITIES, INC. and TD
SECURITIES (USA) INC., having acted as joint lead arrangers and joint
bookrunners (the "ARRANGERS").

     Section 1. DEFINITIONS AND RULES OF INTERPRETATION.

     Section 1.1. DEFINITIONS. The following terms shall have the meanings set
forth in this Section 1 or elsewhere in the provisions of this Credit Agreement
referred to below:

     ADMINISTRATIVE AGENT. Fleet National Bank, not in its individual capacity,
but acting as agent for the Banks.

     ADMINISTRATIVE AGENT'S OFFICE. See Section 3.4.

     ADMINISTRATIVE AGENT'S SPECIAL COUNSEL. Bingham Dana LLP of Boston,
Massachusetts, or such other counsel as may be approved by the Administrative
Agent.

     AFFILIATE. Any Person that would be considered to be an affiliate of the
Borrower under Rule 144A of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.

     AGENTS. Collectively, the Administrative Agent, the Documentation Agents
and the Syndication Agent.

     ASSIGNMENT AND ACCEPTANCE. See Section 15.1.

     BALANCE SHEET DATE. December 31, 2000.

     BANKS. The financial institutions listed on SCHEDULE 1.1(a), and any of
their successors and assigns.

     BASE RATE. The greater of: (a) the variable per annum rate of interest so
designated from time to time by the Administrative Agent at its office in
Boston, Massachusetts as its "PRIME RATE" MINUS .50% (i.e., 50 Basis Points), or
(b) the Federal Funds Rate PLUS .75% (i.e., 75 Basis



                                       -2-

Points). The "PRIME RATE" is a reference rate and does not necessarily represent
the lowest or best rate being charged to any customer. Changes in the rate of
interest resulting from changes in the "PRIME RATE" or the Federal Funds Rate
shall take place immediately without notice or demand of any kind.

     BASE RATE LOAN. Any Loan bearing interest determined by reference to the
Base Rate.

     BASIS POINTS. One one-hundredth of one percent (0.01%).

     BORROWER. Telephone and Data Systems, Inc., a Delaware corporation.

     BUSINESS DAY. Any day other than Saturday or Sunday on which banking
institutions in Boston, Massachusetts, New York, New York, and Chicago, Illinois
are open for the transaction of banking business and, in addition, (a) if
Eurocurrency Rate Loans denominated in Dollars are involved, a day which is also
a day in which commercial banks are open for international business (including
dealings in Dollar deposits) in London or such other Eurocurrency Interbank
Market as may be selected by the Administrative Agent in its sole discretion
acting in good faith; and (b) if Eurocurrency Rate Loans denominated in Euros
are involved (i) a day on which dealings in the Dollar and the Euro are carried
on in the London interbank market and such clearing system as is determined by
the Administrative Agent to be suitable for clearing or settlement of the Euro
is open for business; and (ii) Euro settlements of such dealings may be effected
in New York, New York and London, England.

     CAPITALIZED LEASE. As applied to any Person, any lease of property by such
Person as lessee or obligor, the discounted future rental payments under which
are required to be capitalized on the balance sheet of such Person in accordance
with Generally Accepted Accounting Principles.

     CAPITALIZED RENT. The present value (discounted semi-annually at a discount
rate equal to the weighted average rate of interest borne by the Obligations) of
the total net amount of rent payable for the remaining term of any lease of
property by the Borrower (including any period for which such lease has been
extended); PROVIDED that no such rental obligation shall be deemed to be
Capitalized Rent unless the lease resulted from a Sale and Leaseback
Transaction. The total net amount of rent payable under any lease for any period
shall be the total amount of the rent payable by the lessee with respect to such
period but shall not include amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rates, sewer rates
and similar charges.

     CHANGE IN CONTROL. Any event or series of related events (including the
sale or issuance (or series of sales or issuances) of equity interests of the
Borrower by the Borrower or by any holder or holders thereof, or any merger,
consolidation, recapitalization, reorganization or other transaction or
arrangement) as a result of which: (a) the Carlson Family Group shall together
cease to be "BENEFICIAL OWNERS" (as defined in Rule 13d-3 under the Exchange
Act) of voting interests in the Borrower having the voting power, by class or
through a combined total voting power of all classes of capital stock of the
Borrower, to elect at least a majority of the members of the board of directors
of the Borrower; or (b) any "CHANGE IN CONTROL" or any other similar event with
respect to the Borrower under and as defined in any of the instruments governing
any



                                       -3-

Funded Debt of the Borrower or of any of its Subsidiaries in an aggregate
principal amount exceeding $100,000,000 shall at any time occur. The term
"CARLSON FAMILY GROUP" shall mean any and all of the following persons: (i)
LeRoy T. Carlson or his spouse, Margaret Carlson; (ii) any child, grandchild,
great grandchild or other lineal descendant of LeRoy T. Carlson and Margaret
Carlson, including any person with such relationship by adoption, or the spouse
of any such person; (iii) the estate of the persons described in CLAUSES (i) and
(ii); (iv) any trust or similar arrangement, PROVIDED that persons described in
CLAUSES (i), (ii), or (iii) own more than 50% of the beneficial interests in
such trust or arrangement; (v) the voting trust which expires on June 30, 2009,
as amended from time to time, or any successor to such voting trust, including
the trustees of such voting trust; and (vi) any corporation, partnership,
limited liability company or other entity in which persons identified in CLAUSES
(i) through (v) own more than fifty percent (50%) of the voting interests in the
election of directors or other management of such entity.

     CLOSING DATE. January 24, 2002.

     CODE. The Internal Revenue Code of 1986, as amended and in effect from time
to time.

     COMMITMENT. With respect to each Bank, the amount set forth in the column
labeled COMMITMENT, opposite such Bank's name on SCHEDULE 1.1(a) hereto, as the
same may be reduced from time to time.

     COMMITMENT PERCENTAGE. With respect to each Bank, the percentage set forth
in the column labeled COMMITMENT PERCENTAGE, opposite such Bank's name on
SCHEDULE 1.1(a) thereto.

     COMPLIANCE CERTIFICATE. See Section 5.4(c).

     CONSOLIDATED OR CONSOLIDATED. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrower and all of its
Subsidiaries, consolidated in accordance with Generally Accepted Accounting
Principles.

     CONSOLIDATED CAPITALIZATION. The sum of (i) Funded Debt of the Borrower and
its Subsidiaries calculated on a consolidated basis, PLUS (ii) Consolidated Net
Worth PLUS (iii) deferred taxes and deferred investment credit to the extent
deducted in calculating Consolidated Net Worth.

     CONSOLIDATED EBITDA. For any period, an amount equal to (a) the sum of (i)
Consolidated Net Income for such period, PLUS (ii) depreciation, amortization
and all other non-cash charges deducted from Consolidated Net Income for such
period, PLUS (iii) to the extent deducted in the calculation of Consolidated Net
Income, Consolidated Interest Expense and taxes paid or payable for such period.

     CONSOLIDATED INTEREST EXPENSE. For any period, the aggregate amount of
interest required to be paid or payable in cash by the Borrower or any of its
Subsidiaries during such period on all Funded Debt of the Borrower or any of its
Subsidiaries outstanding during all or any part of such period, whether such
interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of Capitalized
Leases (including, without duplication, the interest for rental payments made
with respect to Sale and Leaseback Transactions) and including any Utilization
Fee and Facility Fee payable pursuant to Section 2.2.



                                       -4-

     CONSOLIDATED NET ASSETS. For any period, the net book value of all of the
property and assets of the Borrower and its Subsidiaries determined on a
consolidated basis.

     CONSOLIDATED NET INCOME. For any period, the net income of the Borrower and
its Subsidiaries for such period, after deduction of all expenses, taxes, and
other proper charges for such period, determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles, after eliminating
therefrom (a) all extraordinary nonrecurring gains or losses, including, without
limitation, any gains (or losses) from any sales of assets other than sales in
the ordinary course of business, and (b) non-cash dividends or non-cash
distributions from Investments.

     CONSOLIDATED NET WORTH. The excess of Consolidated Total Assets over
Consolidated Total Liabilities.

     CONSOLIDATED TOTAL ASSETS. All assets of the Borrower and its Subsidiaries
determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles.

     CONSOLIDATED TOTAL LIABILITIES. All liabilities of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles (including all Funded Debt and other indebtedness
of the Borrower and its Subsidiaries).

     CONTINUATION REQUEST. A notice given by the Borrower to the Administrative
Agent in accordance with Section 3.2 pursuant to which the Borrower notifies the
Administrative Agent of its election to continue a Loan for a particular
Interest Period.

     CREDIT AGREEMENT. This Revolving Credit Agreement, including the Schedules
and Exhibits hereto.

     DEBT RATING. At the relevant time of reference thereto, the debt rating
issued by S&P or Moody's with respect to unsecured indebtedness of the Borrower
not maturing within twelve months and not by its terms or pursuant to any other
contractual arrangement subordinated in right of payment to other indebtedness
of the Borrower.

     DEFAULT. See Section 10.

     DOLLAR EQUIVALENT. On any particular date, the amount in Dollars determined
pursuant to Section 2.7(c).

     DOLLARS. Dollars in lawful currency of the United States of America.

     DOMESTIC LENDING OFFICE. Initially, the office of each Bank designated as
such in Schedule 1.1(a) hereto; thereafter, such other office of such Bank, if
any, located within the United States that will be making or maintaining Base
Rate Loans.

     DRAWDOWN DATE. The date on which any Loan is made or is to be made in
accordance with Section 2.



                                       -5-

     ELIGIBLE ASSIGNEE. Any of (a) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (b) a
savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $1,000,000,000, calculated in accordance with generally
accepted accounting principles; (c) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, PROVIDED that such
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (d) the central
bank of any country which is a member of the OECD; (e) an Affiliate of a Bank
and (f) if, but only if, an Event of Default has occurred and is continuing, any
other bank, insurance company, commercial finance company or other financial
institution approved by the Administrative Agent, such approval not to be
unreasonably withheld. For purposes of this definition "AFFILIATE" means, with
respect to a specified Bank, another Person that directly, or indirectly through
one or more intermediaries, Controls or is Controlled by or is under common
Control with the Bank specified. "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative
thereto.

     ENVIRONMENTAL LAWS. See Section 4.16.

     ERISA. The Employee Retirement Income Security Act of 1974, as amended.

     ERISA AFFILIATE. Any Person which is treated as a single employer with the
Borrower under Section 414 of the Code.

     ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.

     EURIBOR RATE. For any Interest Period with respect to a Eurocurrency Rate
Loan denominated in Euros, a rate per annum equal to the quotient (rounded
upwards to the next higher one-sixteenth of one percent) of (a) the per annum
rate determined by the Administrative Agent to be the rate at which deposits in
Euro for a period comparable to such Interest Period appear on the Reuters
Screen EURIBOR01 as of 11:00 a.m., Brussels time, on the date that is two (2)
TARGET Settlement Days preceding the first day of such Interest Period;
provided, that if such rate does not appear on the Reuters Screen EURIBOR01, the
EURIBOR Rate shall be an interest rate per annum equal to the arithmetic mean
determined by the Administrative Agent of the rates per annum at which deposits
in Euro are offered by the three (3) major banks in the euro-zone interbank
market at approximately 11:00 a.m., Brussels time, on the day that is two (2)
TARGET Settlement Days preceding the first day of such Interest Period to other
leading banks in the euro-zone interbank market rate at which deposits in Euro
are offered, adjusted for reserves, divided by (b) a number equal to 1.00 minus
the Eurocurrency Reserve Requirement, if applicable.



                                       -6-

     EURO OR E. The euro referred to in the Council Regulation (EC) No. 1103/97
dated 17 June 1997 passed by the Council of the European Union, or, if
different, the then lawful currency of the member states of the European Union
that participate in the third stage of the Economic and Monetary Union.

     EURO NOTICE. See Section 2.7.

     EUROCURRENCY INTERBANK MARKET. Any lawful recognized market in which
deposits of Dollars or Euros are offered by international banking units of
United States banking institutions and by foreign banking institutions to each
other and in which foreign currency and exchange operations or eurocurrency
funding operations are customarily conducted.

     EUROCURRENCY LENDING OFFICE. Initially, the office of each Bank designated
as such on SCHEDULE 1.1(b) hereto and, thereafter, such other office of such
Bank, if any, that shall be making or maintaining Eurocurrency Rate Loans.

     EUROCURRENCY RATE. With respect to amounts denominated in Dollars, the
Eurodollar Rate, and with respect to amounts denominated in Euros, the EURIBOR
Rate.

     EUROCURRENCY RATE LOANS. Loans bearing interest calculated by reference to
the Eurocurrency Rate.

     EUROCURRENCY RESERVE REQUIREMENT. For any day with respect to a Loan, the
maximum rate (expressed as a decimal) at which any lender subject thereto would
be required to maintain reserves under Regulation D of the Board of Governors of
the Federal Reserve System (or any successor or similar regulations relating to
such reserve requirements) against "EUROCURRENCY LIABILITIES" (as that term is
used in Regulation D), if such liabilities were outstanding. The Eurocurrency
Reserve Requirement shall be adjusted automatically on and as of the effective
date of any change in the Eurocurrency Reserve Requirement.

     EURODOLLAR RATE. For any Interest Period with respect to a Loan denominated
in Dollars, the LIBOR rate per annum equal to the quotient (rounded upwards to
the next higher 1/16 of one percent) of (a) (i) the rate per annum for deposits
in Dollars for a period comparable to such Interest Period which appears on the
Telerate Page 3750 as of 11:00 a.m., London time, on the day that is two
Business Days prior to the beginning of such Interest Period, or (ii) if such
rate specified in clause (i) does not appear on the Telerate Page 3750, the rate
at which the Administrative Agent's Eurocurrency Lending Office is offered
Dollar deposits two Business Days prior to the beginning of such Interest Period
in the eurodollar interbank market where the eurodollar and foreign currency and
exchange operations of such Eurocurrency Lending Office are customarily
conducted at or about 11:00 a.m., Boston time, for delivery on the first day of
such Interest Period for the number of days comprised therein and in an amount
comparable to the amount of the Administrative Agent's Loan to which such
Interest Period applies, divided in either case by (b) a number equal to 1.00
minus the Eurocurrency Reserve Requirement.

     EVENT OF DEFAULT. See Section 10.

     FCC. The Federal Communications Commission (or any successor agency,
commission, bureau, department or other political subdivision) of the United
States.



                                       -7-

     FCC LICENSE. Any license, permit, certificate of compliance, franchise,
approval or authorization granted or issued by the FCC.

     FACILITY FEE. See Section 2.2.

     FEDERAL FUNDS RATE. For any day, the rate per annum equal to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or if such day is not a Business Day, of the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three funds
brokers of recognized standing selected by the Administrative Agent.

     FLEET. Fleet National Bank, in its individual capacity.

     FUNDED DEBT. As to any Person and without duplication, the amount of (a)
all indebtedness for borrowed money; (b) all obligations incurred as the
deferred purchase price of property or services (other than (i) trade payables
entered into in the ordinary course of business pursuant to ordinary terms, and
(ii) ordinary course purchase price adjustments); (c) all reimbursement and
other payment obligations with respect to letters of credit, bankers'
acceptances, surety bonds and other similar documents; (d) all obligations
evidenced by promissory notes, bonds, debentures or other similar instruments,
including all obligations so evidenced incurred in connection with the
acquisition of property or any business; (e) all Capitalized Lease obligations
and all indebtedness created under any conditional sale or other title retention
agreements or sales of accounts receivable; (f) all non-recourse indebtedness of
the kind described in CLAUSE (a) through CLAUSE (e) secured by liens on property
of the obligor; and (g) all guaranty obligations in respect of indebtedness of
the kind described in CLAUSE (a) through CLAUSE (f) above; EXCLUDING up to
$25,000,000 in the aggregate of contingent liabilities of the Borrower and its
Subsidiaries which are not required by Generally Accepted Accounting Principles
to be disclosed on the balance sheet of the Borrower and its Subsidiaries.

     FUNDED DEBT TO CAPITALIZATION RATIO. At the relevant time of reference
thereto, the ratio of (a) Funded Debt of the Borrower and its Subsidiaries
calculated on a consolidated basis to (b) Consolidated Capitalization.

     GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Principles that are consistent
with the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors in effect for the fiscal year of the Borrower ended
on the Balance Sheet Date, and to the extent consistent with such principles,
the accounting practice of the Borrower reflected in its financial statements
for the year ended on the Balance Sheet Date; PROVIDED that a certified public
accountant would, insofar as the use of such accounting principles is pertinent,
be in a position to deliver an unqualified opinion (other than a qualification
regarding changes in generally accepted accounting principles) as to financial
statements in which such principles have been properly applied.



                                       -8-

     GUARANTEED PENSION PLAN. Any pension plan maintained by the Borrower or any
of its Subsidiaries, or to which the Borrower or any of its Subsidiaries
contributes, that is required to pay plan termination insurance premiums to the
PBGC.

     HAZARDOUS SUBSTANCES. See Section 4.16.

     INTEREST COVERAGE RATIO. For each period consisting of four consecutive
fiscal quarters of the Borrower, the ratio of (i) Consolidated EBITDA for such
period to (ii) Consolidated Interest Expense for such period.

     INTEREST PAYMENT DATE. (a) As to any Eurocurrency Rate Loan in respect of
which the Interest Period, is (i) 3 months or less, the last day of such
Interest Period, and (ii) more than 3 months, the date that is 3 months from the
Drawdown Date thereof and the last day of such Interest Period, and (b) as to
any Base Rate Loan, the last day of each calendar quarter.

     INTEREST PERIOD. With respect to each Eurocurrency Loan, (a) initially, the
period commencing on the date such Loan is made and ending on the last day of a
period of either seven (7) days or 1, 2, 3, or 6 months as selected by the
Borrower in a Loan Request for any Eurocurrency Loan, and (b) thereafter, each
period commencing on the last day of the immediately preceding Interest Period
applicable to such Eurocurrency Rate Loan and ending on the last day of one of
the periods set forth above, as selected by the Borrower in a Continuation
Request; PROVIDED that all of the foregoing provisions relating to Interest
Periods are subject to the following:

     (i)   if any Interest Period with respect to any Eurocurrency Rate Loan
would otherwise end on a day that is not a Business Day, that Interest Period
shall be extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding Business
Day;

     (ii)  if the Borrower shall fail to give a Continuation Request as
provided in Section 3.2 with respect to any Eurocurrency Rate Loan, the Borrower
shall be deemed to have requested that a seven (7) day Interest Period apply to
such Eurocurrency Rate Loan commencing on the last day of the then current
Interest Period with respect thereto;

     (iii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of a calendar month unless such Interest Period is a seven day
Interest Period; and

     (iv)  the Borrower may not select an Interest Period for any Loan that
would extend beyond the scheduled Maturity Date.

     LETTER OF CREDIT. See Section 2A.1(a).

     LETTER OF CREDIT APPLICATION. See Section 2A.1(a).

     LETTER OF CREDIT FEE. See Section 2A.6.



                                       -9-

     LETTER OF CREDIT PARTICIPATION. See Section 2A.1(d).

     LIEN. Any mortgage, deed of trust, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever, including, without limitation, any conditional
sale or other title retention agreement, the interest of a lessor under a
Capitalized Lease, any financing lease having substantially the same economic
effect as any of the foregoing and the filing of any financing statement naming
the owner of the asset to which such Lien relates as debtor.

     LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit and the fee letters delivered by the
Borrower to the Administrative Agent.

     LOAN REQUEST. See Section 2.5.

     LOANS. Collectively, the loans advanced to the Borrower by the Banks
pursuant to this Credit Agreement.

     MAJORITY BANKS. As of any date, any two or more Banks holding more than
fifty percent (50%) of the outstanding principal amount of the Notes on such
date, and if no such principal is outstanding, any two or more Banks whose
aggregate Commitments constitute more than fifty percent (50%) of the Total
Commitment.

     MARGIN PERCENTAGE. At the relevant time of reference hereto, the applicable
rate per annum, expressed in Basis Points, set forth in the table attached
hereto as Schedule 1.2 beneath the column for the applicable Debt Rating in the
row labeled MARGIN PERCENTAGE.

     MATERIAL ADVERSE CHANGE. Any event, development, change or circumstance
that, either individually or when taken together with any such other event,
change or the like, (a) materially adversely affects, or could reasonably be
expected to materially adversely affect, the financial condition or business of
the Borrower and its Subsidiaries, taken as a whole, (b) materially adversely
affects, or could reasonably be expected to materially adversely affect, the
ability of the Borrower to perform any of its payment or other obligations under
this Credit Agreement or any of the other Loan Documents, or (c) materially
impairs, or could reasonably be expected to materially impair, the validity or
enforceability of this Credit Agreement or any of the other Loan Documents or
any of the rights or remedies of the Agents or the Banks thereunder.

     MATERIAL SUBSIDIARIES. Those Subsidiaries listed on SCHEDULE 4.18.

     MATURITY DATE. January 24, 2007; PROVIDED that in any case, if earlier, the
Maturity Date shall be deemed to occur on the date on which the outstanding
Loans hereunder are declared or become due and payable pursuant to the terms of
this Credit Agreement, including, without limitation, pursuant to Section 10
hereof, or on which the Total Commitment is terminated.

     MAXIMUM DRAWING AMOUNT. The maximum aggregate amount that the beneficiaries
may at any time draw under outstanding Letters of Credit, as such aggregate
amount may be reduced from time to time pursuant to the terms of the Letters of
Credit.



                                      -10-

     MOODY'S. Moody's Investors Service, Inc.

     MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by any of the Borrowers or
any ERISA Affiliate.

     NOTE RECORD. The grid attached to a Note, or the continuation of such grid,
or any other similar record maintained by the Bank holding such Note with
respect to any Loan.

     NOTES. The promissory notes issued pursuant to Section 2.4 of this Credit
Agreement evidencing the Loans.

     OBLIGATIONS. All indebtedness, obligations and liabilities of the Borrower
and its Subsidiaries to the Banks, individually or collectively, existing on the
date of this Credit Agreement or arising thereafter, direct or indirect, joint
or several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law or
otherwise, arising or incurred under this Credit Agreement or any of the other
Loan Documents or in respect of the Loans made or Reimbursement Obligations
incurred or any of the Notes, Letter of Credit Applications, Letters of Credit
or other instruments at any time evidencing any thereof.

     OUTSTANDING OR OUTSTANDING. With respect to the Loans, the aggregate unpaid
principal thereof as of any date of determination.

     OVERNIGHT RATE. For any day, (a) as to Loans denominated in Dollars, the
weighted average interest rate paid by the Administrative Agent for federal
funds acquired by the Administrative Agent, and (b) as to Loans denominated in
Euros, the rate of interest per annum at which overnight deposits in Euros, in
an amount approximately equal to the amount with respect to which such rate is
being determined, would be offered for such day by the Administrative Agent to
major banks in the London interbank market.

     PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of
ERISA and any successor entity or entities having similar responsibilities.

     PERSON. Any individual, corporation, partnership, limited liability
company, trust, unincorporated association, business, or other legal entity, and
any government or any governmental agency or political subdivision thereof.

     PROPRIETARY RIGHTS. See Section 4.6.

     RATE OF EXCHANGE. See Section 2.7(b).

     REAL ESTATE. All real property at any time owned or leased by the Borrower
or any of its Subsidiaries.

     REGISTER. See Section 15.3.

     REIMBURSEMENT OBLIGATION. The Borrower's obligation to reimburse the
Administrative Agent and the Banks on account of any drawing under any Letter of
Credit as provided in Section 2A.2.



                                      -11-

     S&P. Standard & Poor's Rating Group, Inc.

     SALE. Any sale, transfer or other disposition of assets (other than by
means of a simultaneous exchange of assets of a similar type and having a
comparable value), whether in one transaction or a series of related
transactions, if the assets so transferred have a value taken at the greater of
(i) fair value (which shall be the price at which the Board of Directors of the
relevant Person shall have agreed to sell such assets in an arm's length
transaction to a third party buyer which is not an Affiliate) or (ii) book
value, as of the date of reference thereto, in excess of five percent (5%) of
the Consolidated Net Worth of the Borrower.

     SALE AND LEASEBACK TRANSACTION. Any arrangement with any Person other than
a Tax Consolidated Subsidiary providing for the leasing (as lessee) by the
Borrower of any property (except for temporary leases for a term, including any
renewal thereof, of not more than three (3) years (provided that any such
temporary lease may be for a term of up to five (5) years if (a) the Board of
Directors reasonably finds such term to be in the best interest of the Borrower
and (b) the primary purpose of the transaction of which such lease is a part is
not to provide funds to or financing for the Borrower)), which property has been
or is to be sold or transferred by the Borrower (i) to any subsidiary of the
Borrower in contemplation of or in connection with such arrangement or (ii) to
such other Person.

     SAME DAY FUNDS. With respect to disbursements and payments in (a) Dollars,
immediately available funds, and (b) Euros, same day or other funds as may be
determined by the Administrative Agent to be customary in the place of
disbursement or payment for the settlement of international banking transactions
in Euros.

     SETTLEMENT. The making or receiving of payments, in immediately available
funds, by the Banks, to the extent necessary to cause each Bank's actual share
of the outstanding amount of Loans (after giving effect to any Loan Request) to
be equal to such Bank's Commitment Percentage of the outstanding amount of such
Loans (after giving effect to any Loan Request), in any case where, prior to
such event or action, the actual share is not so equal.

     SETTLEMENT AMOUNT. See Section 2.10(a).

     SETTLEMENT DATE. (a) The Drawdown Date relating to any Loan Request, (b)
Friday of each week, or if a Friday is not a Business Day, the Business Day
immediately following such Friday, (c) at the option of the Administrative
Agent, on any Business Day following a day on which the account officers of the
Administrative Agent active upon the Borrower's account become aware of the
existence of an Event of Default, (d) any Business Day on which the amount of
Loans outstanding from Fleet PLUS Fleet's Commitment Percentage of the sum of
the Maximum Drawing Amount and any Unpaid Reimbursement Obligations is equal to
or greater than Fleet's Commitment Percentage of the Total Commitment, (e) the
Business Day immediately following any Business Day on which the amount of Loans
outstanding increases or decreases by more than $10,000,000 as compared to the
previous Settlement Date, (f) any day on which any conversion of a Base Rate
Loan to a Eurocurrency Rate Loan occurs, or (g) any Business Day on which (i)
the amount of outstanding Loans decreases and (ii) the amount of the
Administrative Agent's Loans outstanding equals zero Dollars ($0).



                                      -12-

     SETTLING BANK. See Section 2.10(a).

     SUBSIDIARY. Any corporation, association, trust, or other business entity
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.

     TARGET SETTLEMENT DAY. Any day on which the Trans-European Automated
Real-Time Gross Settlement Express Transfer (TARGET) System is open.

     TAX CONSOLIDATED SUBSIDIARY. Any subsidiary of the Borrower with which, at
the time a Sale and Leaseback Transaction is entered into by the Borrower, the
Borrower would be entitled to file a consolidated federal income tax return.

     TELERATE PAGE 3750. The display page designated 3750 on the Dow Jones
Telerate Service (or such other page as may replace that page on that service,
or such other service as may replace the Dow Jones Telerate Service as a
customary reference for interest rates).

     TOTAL COMMITMENT. The sum of the Commitments of the Banks, as in effect
from time to time.

     UNIFORM CUSTOMS. See Section 2A.1(c).

     UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for which the
Borrower does not reimburse the Administrative Agent and the Banks on the date
specified in, and in accordance with, Section 2A.2.

     UTILIZATION AMOUNT. As of any date, the sum of (i) the Dollar Equivalent of
the Loans outstanding on such date PLUS (ii) the Maximum Drawing Amount as of
such date PLUS (iii) the Unpaid Reimbursement Obligations as of such date.

     UTILIZATION FEE. See Section 2.2(b).

     VOTING STOCK. Stock or similar interests, of any class or classes (however
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of the directors (or persons performing similar functions)
of the corporation, association, trust or other business entity involved,
whether or not the right so to vote exists by reason of the happening of a
contingency.

     Section 1.2. RULES OF INTERPRETATION.

     (a) A reference to any document or agreement shall include such document or
agreement as amended, modified or supplemented from time to time in accordance
with its terms and the terms of this Credit Agreement.

     (b) The singular includes the plural and the plural includes the singular.

     (c) A reference to any law includes any amendment or modification to such
law.



                                      -13-

     (d) A reference to any Person includes its permitted successors and
permitted assigns.

     (e) Accounting terms not otherwise defined herein have the meanings
assigned to them by Generally Accepted Accounting Principles applied on a
consistent basis by the accounting entity to which they refer.

     (f) The words "INCLUDE", "INCLUDES" and "INCLUDING" are not limiting.

     (g) All terms not specifically defined herein or by Generally Accepted
Accounting Principles, which terms are defined in the Uniform Commercial Code as
in effect in Massachusetts, have the meanings assigned to them therein.

     (h) Reference to a particular "Section." refers to that section of the
agreement in which such reference appears unless otherwise indicated.

     (i) The words "HEREIN", "HEREOF", "HEREUNDER" and words of like import
shall refer to the agreement in which they appear as a whole and not to any
particular Section or subdivision of that agreement unless otherwise
specifically indicated.

     (j) The Section references and defined terms set forth in parentheticals at
the end of certain definitions in Section 1.1 are intended for convenience of
reference only to cite to other sections of this Credit Agreement where such
terms are used and shall not define or limit the defined terms set forth in
Section 1.1.

     Section 2. THE REVOLVING CREDIT FACILITY.

     Section 2.1. COMMITMENT TO LEND. Subject to the terms and conditions set
forth in this Credit Agreement, each of the Banks severally agrees to lend to
the Borrower and the Borrower may borrow, repay, and reborrow from time to time
between the date of this Credit Agreement and the Maturity Date upon notice by
the Borrower to the Administrative Agent given in accordance with Section 2.5
such sums as may be requested by the Borrower up to a maximum aggregate
principal amount outstanding (after giving effect to all Loans then being
requested) at any one time equal to such Bank's Commitment minus such Bank's
Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations; PROVIDED THAT (i) subject to Section 2.7 hereof, such
borrowings up to a maximum aggregate principal amount outstanding (after giving
effect to all Loans then being requested) at any one time equal to a Dollar
Equivalent of $100,000,000 may be requested by the Borrower to be made in Euros,
(ii) all other borrowings shall be in Dollars, and (iii) the sum of the Dollar
Equivalent of the outstanding amount of the Loans (after giving effect to all
Loans then being requested) plus the Maximum Drawing Amount plus all Unpaid
Reimbursement Obligations shall not exceed the Total Commitment. The Loans shall
be made PRO RATA in accordance with each Bank's Commitment Percentage. Each
request for a Loan shall constitute a representation by the Borrower that the
conditions set forth in Section 8 and Section 9, in the case of the initial
Loans to be made on the Closing Date, and Section 9, in the case of all other
Loans, have been satisfied on the date of such request. Each Base Rate Loan
shall be denominated in Dollars, and each Eurocurrency Rate Loan shall be
denominated in Dollars or, subject to Section 2.7 hereof, in Euros.



                                      -14-

     Section 2.2. FACILITY FEE; UTILIZATION FEE.

     (a) The Borrower agrees to pay to the Administrative Agent for the accounts
of the Banks in accordance with their respective Commitment Percentages a
facility fee (the "FACILITY FEE") calculated daily on the Total Commitment in
effect on such date at the per annum rate equal to that amount set forth on
SCHEDULE 1.2 in the row headed FACILITY FEE beneath the column for the Debt
Rating in effect for such date. The amount of such Facility Fee shall be payable
quarterly in arrears on the last day of each March, June, September and December
and on the Maturity Date for the calendar quarter, or portion thereof, then
ended.

     (b) The Borrower agrees to pay to the Administrative Agent for the accounts
of the Banks in accordance with their respective Commitment Percentages a
utilization fee (the "UTILIZATION FEE") calculated daily on the Utilization
Amount at the per annum rate equal to one-tenth of one percent (0.10%) for each
day on which the Utilization Amount exceeds the product of (A) 0.50 multiplied
by (B) the Total Commitment in effect on such date. The amount of such
Utilization Fee shall be payable quarterly in arrears on the last day of each
March, June, September and December, on the Maturity Date for the calendar
quarter of the Borrower, or portion thereof, then ended.

     Section 2.3. REDUCTION OF COMMITMENT. The Borrower shall have the right at
any time and from time to time upon five (5) Business Days' written notice to
the Administrative Agent to reduce by $5,000,000 or an integral multiple of
$1,000,000 in excess thereof or terminate entirely the unborrowed portion of the
Total Commitment, whereupon the Commitments of the Banks shall be reduced PRO
RATA in accordance with their respective Commitment Percentages of the amount
specified in such notice or, as the case may be, terminated. Promptly after
receiving any notice of the Borrower delivered pursuant to this Section 2.3, the
Administrative Agent will notify the Banks of the substance thereof. No
reduction of the Commitments of the Banks may be reinstated. Notwithstanding the
provisions of Section 2.2(a), upon the effective date of any such termination,
the Borrower shall pay to the Administrative Agent for the respective accounts
of the Banks the full amount of any Facility Fee then accrued and unpaid with
respect to the portion of the Total Commitment so reduced; PROVIDED THAT an
invoice is provided to the Borrower by the Administrative Agent with respect to
such Facility Fee.

     Section 2.4. THE NOTES FOR THE LOANS. The Loans shall be evidenced by
separate promissory notes of the Borrower in substantially the form of EXHIBIT A
hereto (each a "NOTE"), dated the Closing Date and completed with appropriate
insertions. One Note shall be payable to the order of each Bank in a principal
amount equal to such Bank's Commitment or, if less, the outstanding amount of
all Loans made by such Bank, plus interest accrued thereon, as set forth below.
The Borrower irrevocably authorizes each Bank to make or cause to be made, at or
about the time of receipt of any payment of principal on such Bank's Note, an
appropriate notation reflecting such payment on the Note Record attached to such
Bank's Note. The outstanding amount of the Loans set forth on such Note Record
shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid
to such Bank, but the failure to record, or any error in so recording, any such
amount on such Note Record shall not limit or otherwise affect the obligations
of the Borrower hereunder or under any Note to make payments of principal of or
interest on any Note when due. Upon receipt of any affidavit of any officer of a
Bank as to the loss, theft, destruction or mutilation of its Note and, in the
case of any such loss, theft, destruction or mutilation, upon



                                      -15-

cancellation of such Note, the Borrower will issue, in lieu thereof, a
replacement Note in the same principal amount thereof and otherwise of like
tenor.

     Section 2.5. NOTICE AND MATTER OF BORROWING OR CONVERSION OF LOANS; SWING
LINE.

     (a) Whenever the Borrower desires to obtain a Loan hereunder or to convert
an outstanding Loan into a Loan of another type provided for in this Credit
Agreement, the Borrower shall give to the Administrative Agent written notice in
the form of EXHIBIT B hereto (or telephonic notice confirmed in a writing in the
form of EXHIBIT B hereto), which written notice must be received by the
Administrative Agent no later than (i) 11:00 a.m., Boston time, on the day on
which the requested Loan is to be made or converted to a Base Rate Loan, and
(ii) 11:00 a.m., Boston time, on the date two (2) Business Days before the day
on which the requested Loan is to be made or converted to a Eurocurrency Rate
Loan, provided, that any notice requesting a Loan be made or converted to Euros
must comply with the requirements of this Section 2.5(a) and the requirements of
a Euro Notice pursuant to Section 2.7. Each such notice (a "LOAN REQUEST") shall
specify the type of Loan (i.e., Base Rate Loan or Eurocurrency Rate Loan), the
Drawdown Date, or (as the case may be) the date of conversion, and principal
amount of each Loan, stated either in Dollars, or, subject to Section 2.7
hereof, in Euros, or the principal portion thereof to be converted, the interest
rate option to be applicable thereto, and the duration of the applicable
Interest Period, if any (subject in any case to the provisions of the definition
of the term "INTEREST PERIOD") and shall be substantially in the form of EXHIBIT
B; PROVIDED, HOWEVER, that when any Default or Event of Default is continuing,
no Base Rate Loan may be converted into a Eurocurrency Rate Loan.

     (b) Promptly upon receipt of any such Loan Request, the Administrative
Agent shall notify each of the Banks of the substance thereof. Each Loan Request
shall be irrevocable and binding on the Borrower, and shall obligate the
Borrower to accept the Loan of the type requested from the Banks on the proposed
Drawdown Date or (as the case may be) to convert the Loan or a portion thereof
as requested. Each Loan Request shall be in a minimum amount of $3,000,000 (or
the Dollar Equivalent thereof if requested in Euros) or an integral multiple of
$250,000 (or the Dollar Equivalent thereof if requested in Euros) in excess
thereof.

     (c) Notwithstanding the notice and minimum amount requirements set forth in
Section 2.5(a) and (b) but otherwise in accordance with the terms and conditions
of this Credit Agreement, the Administrative Agent may, in its sole discretion
and without conferring with the Banks, make Loans to the Borrower in an
aggregate principal amount not to exceed $20,000,000. The Borrower acknowledges
and agrees that the making of such Loans shall, in each case, be subject in all
respects to the provisions of this Credit Agreement as if they were Loans
covered by a Loan Request including, without limitation, the limitations set
forth in Section 2.1 and the requirements that the applicable provisions of
Section 8 (in the case of Loans made on the Closing Date) and Section 9 be
satisfied. All actions taken by the Administrative Agent pursuant to the
provisions of this Section 2.5(c) shall be conclusive and binding on the
Borrower and the Banks absent the Administrative Agent's gross negligence or
willful misconduct. Loans made pursuant to this Section 2.5(c) shall be Base
Rate Loans until converted in accordance with the provisions of the Credit
Agreement and, prior to a Settlement, such interest shall be for the account of
the Administrative Agent.



                                      -16-

     Section 2.6. FUNDS FOR LOANS.

     (a) Not later than 11:00 a.m. (Boston time) on the proposed Drawdown Date
of any Loans, each of the Banks, severally, will make available to the
Administrative Agent, at its head office, or, in the case of Loans in Euros,
such other location as the Administrative Agent may designate from time to time,
in Same Day Funds, the amount of such Bank's Commitment Percentage of the amount
of the requested Loans. Upon receipt from each Bank of such amount, and upon
receipt of the documents required by Section 8 and 9 and the satisfaction of the
other conditions set forth therein, to the extent applicable, the Administrative
Agent will make the aggregate amount of such Loans available to the Borrower.
The failure or refusal of any Bank to make available to the Administrative Agent
at the aforesaid time on any Drawdown Date the amount of its Commitment
Percentage of the requested Loans shall not relieve any other Bank from its
several obligation hereunder to make available to the Administrative Agent the
amount of such Bank's Commitment Percentage of the amount of the requested
Loans.

     (b) The Administrative Agent may (unless notified to the contrary by any
Bank prior to a Drawdown Date) assume that each Bank has made available to the
Administrative Agent on such Drawdown Date the amount of such Bank's Commitment
Percentage of the amount of the requested Loans to be made on such Drawdown
Date, and the Administrative Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the Borrower a corresponding
amount. If any Bank makes available to the Administrative Agent such amount
advanced by the Administrative Agent on a date after such Drawdown Date, such
Bank shall pay to the Administrative Agent on demand an amount equal to the
product of (i) the average computed for the period referred to in clause (iii)
below, of the Overnight Rate for each day included in such period, TIMES (ii)
the amount of such Bank's Commitment Percentage of the amount of such Loans,
TIMES (iii) a fraction, the numerator of which is the number of days that elapse
from and including such Drawdown Date to the date on which the amount of such
Bank's Commitment Percentage of the amount of such Loans shall become
immediately available to the Administrative Agent, and the denominator of which
is 360. If the amount of such Bank's Commitment Percentage of the amount of such
Loans is not made available to the Administrative Agent by such Bank within
three (3) Business Days of such Drawdown Date, the Administrative Agent shall be
entitled to recover such amount from the Borrower on demand, with interest
thereon at the rate per annum applicable to the Loans made on such Drawdown
Date. A statement of the Administrative Agent submitted to any Bank with respect
to any amounts owing under this paragraph shall be PRIMA FACIE evidence of the
amount due and owing to the Administrative Agent by such Bank.

     Section 2.7. EUROS.

     (a) REQUEST FOR EUROS. Subject to the limitations set forth in Section 2.1,
the Borrower may, upon at least four (4) Business Days' notice to the
Administrative Agent on the proposed Drawdown Date thereof) (a "EURO NOTICE"),
request that one or more Loans be made as Eurocurrency Rate Loans in Euros,
PROVIDED that any Loan proposed to be made under this Section 2.7(a) shall be in
an amount not less than the equivalent of $3,000,000 or a greater amount which
is an integral multiple of the equivalent of $250,000 in excess thereof. Each
Euro Notice requesting a Loan in Euros shall be by a Loan Request stating (a)
that the Loan is to be made in Euros and (b) the Borrower's account with the
Administrative Agent to which payment of the



                                      -17-

proceeds of such Loan is to be made. If any Bank, on or prior to the second
Business Day preceding the first day of any Interest Period for which a Euro
Notice has been delivered or on any funding date, determines (which
determination shall be conclusive) that the Euro is not freely transferable and
convertible into Dollars or that it will be impracticable for such Bank to fund
the Loan in Euros, then such Bank shall so notify Administrative Agent, which
notification shall be given immediately by the Administrative Agent to the
Borrower, and such Bank's portion of the requested Loan shall, notwithstanding
any contrary election by the Borrower or any other provisions hereof, be
denominated in Dollars as a Eurocurrency Rate Loan with a one month Interest
Period. In the event that the Borrower repays such portion of a Loan denominated
in Dollars as a Eurocurrency Rate Loan, in accordance with Section 2.9 hereof
and such repayment results in Loans outstanding that are not PRO RATA in
accordance with the Commitment Percentages, then all subsequent principal
repayments denominated in Euros which the applicable Bank did not advance shall
be made by the Borrower to the Administrative Agent for the respective accounts
of such Banks other than such Bank on a PRO RATA basis until such time as the
Loans are outstanding on a PRO RATA basis. Subject to the foregoing and to the
satisfaction of the terms and conditions of Sections 8 and 9, each Loan
requested to be made in Euros will be made on the date specified therefor in the
Euro Notice, in Euros and, upon being so made, will have the Interest Period
requested in the Euro Notice.

     (b) EXCHANGE RATE. For purposes of this Credit Agreement the amount in one
currency which shall be equivalent on any particular date to a specified amount
in another currency shall be that amount (as conclusively ascertained by the
Administrative Agent by its normal banking practices, absent manifest error) in
the first currency which is or could be purchased by the Administrative Agent
(in accordance with normal banking practices) with such specified amount in the
second currency in any recognized Eurocurrency Interbank Market selected by the
Administrative Agent in good faith for delivery on such date at the spot rate of
exchange prevailing at 11:00 a.m. (Boston time) (or as soon thereafter as
practicable) on such date (such amount described in this Section 2.7(b), the
"RATE OF EXCHANGE").

     (c) DENOMINATIONS. In the event that any portion of the funds available
under the terms of this Credit Agreement is denominated in Euros, the Dollar
Equivalent of such portion of the funds shall be calculated pursuant to Section
2.7(b) above. The amount so determined shall then be added to the amount already
outstanding in Dollars for the purpose of determining the remaining availability
of funds under Section 2.1 and Section 2.7(a) hereof and any required repayments
under the following Section 2.9(d).

     (d) REPAYMENT. If at any time prior to the Maturity Date, the Dollar
Equivalent of the aggregate principal amount outstanding of all Loans, Unpaid
Reimbursement Obligations and the Maximum Drawing Amount hereunder on the last
day of any calendar quarter shall exceed the Total Commitment as a result of
fluctuations in respective conversion rates, the Borrower shall pay or cause to
be paid immediately, upon demand made by the Administrative Agent, such amounts
as are sufficient to eliminate such excess and to reduce the Dollar Equivalent
of such aggregate principal amount outstanding to the Total Commitment. In the
event there are any Loans outstanding which are denominated in Euros, the
Administrative Agent shall provide the Banks and the Borrower with calculations
on the last day of each calendar quarter that such Loans are outstanding as to
the Dollar Equivalents of such Loans.



                                      -18-

     (e) FUNDING. Each Bank may make any Eurocurrency Rate Loan denominated in
Euros by causing any of its domestic or foreign branches or foreign affiliates
to make such Eurocurrency Rate Loan (whether or not such branch or affiliate is
named as a lending office on the signature pages hereof); PROVIDED that in such
event the obligation of the Borrower to repay such Eurocurrency Rate Loan shall
nevertheless be to such Bank and shall, for all purposes of this Credit
Agreement (including without limitation for purposes of the definition of the
term "MAJORITY BANKS") be deemed made by such Bank, to the extent of such
Eurocurrency Rate Loan, for the account of such branch or affiliate.

     Section 2.8. MANDATORY REPAYMENTS OF LOANS. The Borrower promises to pay
the outstanding amount of all Loans on the earlier to occur of a Change in
Control or the Maturity Date. In addition, if at any time the outstanding amount
of the Loans, the Maximum Drawing Amount and all Unpaid Reimbursement
Obligations exceeds the Total Commitment at such time, then the Borrower shall
immediately pay the amount of such excess to the Administrative Agent for
application: first, to any Unpaid Reimbursement Obligations; second, to the
Loans; and third, to provide to the Administrative Agent cash collateral for
Reimbursement Obligations as contemplated by Section 2A.2(b) and (c). Each
payment of any Unpaid Reimbursement Obligations or prepayment of Loans shall be
allocated among the Banks, in proportion, as nearly as practicable, to each
Reimbursement Obligation or (as the case may be) the respective unpaid principal
amount of each Banks' Note, with adjustments to the extent practicable to
equalize any prior payments or repayments not exactly in proportion.

     Section 2.9. OPTIONAL REPAYMENTS OF LOANS. The Borrower shall have the
right, at its election, to repay the outstanding amount of any Loans, as a whole
or in part, at any time without penalty or premium; PROVIDED that in the case of
any full or partial prepayment of the outstanding amount of any Loans prior to
the end of the Interest Period applicable thereto, the Borrower shall be
obligated to reimburse the Banks in respect thereof pursuant to Section 3.3. The
Borrower shall give the Administrative Agent, no later than 11:00 a.m. (Boston
time), at least two (2) Business Days' notice of any proposed repayment of Loans
denominated in Dollars or three (3) Business Days' notice of any proposed
repayment of Loans denominated in Euros, in each case specifying the proposed
date of repayment and the principal amount to be paid, which notice, if not in
writing, shall be promptly confirmed in writing. Each such partial payment of
Loans shall be in a minimum amount of $5,000,000 (or the Dollar Equivalent
thereof if in Euros) or an integral multiple of $1,000,000 (or the Dollar
Equivalent thereof if in Euros) in excess thereof. Each repayment pursuant to
this Section 2.9 shall be accompanied by the payment of accrued interest on the
principal repaid to the date of payment. Each such partial repayment of Loans
shall be allocated among the Banks, in proportion, as nearly as practicable, to
the respective unpaid principal amount of each Bank's Note, with adjustments to
the extent practicable to equalize any prior repayments not exactly in
proportion.

     Section 2.10. SETTLEMENTS.

     (a) GENERAL. On each Settlement Date, the Administrative Agent shall, not
later than 11:00 a.m. (Boston time), give telephonic or facsimile notice (a) to
the Banks and the Borrower of the respective outstanding amount of Loans made by
the Administrative Agent on behalf of the Banks from the immediately preceding
Settlement Date through the close of business on the prior day and the amount of
any Eurocurrency Rate Loans to be made (following the giving of



                                      -19-

notice pursuant to Section 2.5(a)(ii)) on such date pursuant to a Loan Request
and (b) to the Banks of the amount (a "SETTLEMENT AMOUNT") that each Bank (a
"SETTLING BANK") shall pay to effect a Settlement of any Loan. A statement of
the Administrative Agent submitted to the Banks and the Borrower or to the Banks
with respect to any amounts owing under this Section 2.10 shall be PRIMA FACIE
evidence of the amount due and owing. Each Settling Bank shall, not later than
3:00 p.m. (Boston time) on such Settlement Date, effect a wire transfer of Same
Day Funds to the Administrative Agent in the amount of the Settlement Amount for
such Settling Bank. All funds advanced by any Bank as a Settling Bank pursuant
to this Section 2.10 shall for all purposes be treated as a Loan made by such
Settling Bank to the Borrower and all funds received by any Bank pursuant to
this Section 2.10 shall for all purposes be treated as repayment of amounts owed
with respect to Loans made by such Bank. In the event that any bankruptcy,
reorganization, liquidation, receivership or similar cases or proceedings in
which the Borrower is a debtor prevents a Settling Bank from making any Loan to
effect a Settlement as contemplated hereby, such Settling Bank will make such
dispositions and arrangements with the other Banks with respect to such Loans,
either by way of purchase of participations, distribution, PRO TANTO assignment
of claims, subrogation or otherwise as shall result in each Bank's share of the
outstanding Loans being equal, as nearly as may be, to such Bank's Commitment
Percentage of the outstanding amount of the Loans.

     (b) FAILURE TO MAKE FUNDS AVAILABLE. The Administrative Agent may, unless
notified to the contrary by any Settling Bank prior to a Settlement Date, assume
that such Settling Bank has made or will make available to the Administrative
Agent on such Settlement Date the amount of such Settling Bank's Settlement
Amount, and the Administrative Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the Borrower a corresponding
amount. If any Settling Bank makes available to the Administrative Agent such
amount on a date after such Settlement Date, such Settling Bank shall pay to the
Administrative Agent on demand an amount equal to the product of (i) the average
computed for the period referred to in clause (iii) below, of the Overnight Rate
for each day included in such period, TIMES (ii) the amount of such Settlement
Amount, TIMES (iii) a fraction, the numerator of which is the number of days
that elapse from and including such Settlement Date to the date on which the
amount of such Settlement Amount shall become immediately available to the
Administrative Agent, and the denominator of which is 360. A statement of the
Administrative Agent submitted to such Settling Bank with respect to any amounts
owing under this Section 2.10(b) shall be prima facie evidence of the amount due
and owing to the Administrative Agent by such Settling Bank. If such Settling
Bank's Settlement Amount is not made available to the Administrative Agent by
such Settling Bank within three (3) Business Days following such Settlement
Date, the Administrative Agent shall be entitled to recover such amount from the
Borrower on demand, with interest thereon at the rate per annum applicable to
the Loans as of such Settlement Date.

     (c) NO EFFECT ON OTHER BANKS. The failure or refusal of any Settling Bank
to make available to the Administrative Agent at the aforesaid time and place on
any Settlement Date the amount of such Settling Bank's Settlement Amount shall
not (a) relieve any other Settling Bank from its several obligations hereunder
to make available to the Administrative Agent the amount of such other Settling
Bank's Settlement Amount or (b) impose upon any Bank, other than the Settling
Bank so failing or refusing, any liability with respect to such failure or
refusal or otherwise increase the Commitment of such other Bank.



                                      -20-

     Section 2A. LETTERS OF CREDIT.

     Section 2A.1. LETTER OF CREDIT COMMITMENTS.

     (a) COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms and
conditions hereof and the execution and delivery by the Borrower of a letter of
credit application on the Administrative Agent's customary form (a "LETTER OF
CREDIT APPLICATION"), the Administrative Agent on behalf of the Banks and in
reliance upon the agreement of the Banks set forth in Section 2A.1(d) and upon
the representations and warranties of the Borrower contained herein, agrees, in
its individual capacity, to issue, extend and renew for the account of the
Borrower one or more standby or documentary letters of credit (individually, a
"LETTER OF CREDIT"), in such form as may be requested from time to time by the
Borrower and agreed to by the Administrative Agent; PROVIDED, HOWEVER, that,
after giving effect to such request, (i) the sum of the aggregate Maximum
Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed
$50,000,000 at any one time and (ii) the sum of (A) the Maximum Drawing Amount
on all Letters of Credit, (B) all Unpaid Reimbursement Obligations, and (C) the
Dollar Equivalent of the amount of all Loans outstanding shall not exceed the
Total Commitment at such time.

     (b) LETTER OF CREDIT APPLICATIONS. Each Letter of Credit Application shall
be completed to the satisfaction of the Administrative Agent. In the event that
any provision of any Letter of Credit Application shall be inconsistent with any
provision of this Credit Agreement, then the provisions of this Credit Agreement
shall, to the extent of any such inconsistency, govern.

     (c) TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued, extended or
renewed hereunder shall, among other things, (i) provide for the payment of
sight drafts for honor thereunder when presented in accordance with the terms
thereof and when accompanied by the documents described therein, and (ii) have
an expiry date no later than the date which is fourteen (14) days (or, if the
Letter of Credit is confirmed by a confirmer or otherwise provides for one or
more nominated persons, forty-five (45) days) prior to the Maturity Date. Each
Letter of Credit so issued, extended or renewed shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 or any successor version thereto adopted
by the Administrative Agent in the ordinary course of its business as a letter
of credit issuer and in effect at the time of issuance of such Letter of Credit
(the "UNIFORM CUSTOMS") or, in the case of a standby Letter of Credit, either
the Uniform Customs or the International Standby Practices (ISP98),
International Chamber of Commerce Publication No. 590, or any successor code of
standby letter of credit practices among banks adopted by the Administrative
Agent in the ordinary course of its business as a standby letter of credit
issuer and in effect at the time of issuance of such Letter of Credit.

     (d) REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally agrees that it
shall be absolutely liable, without regard to the occurrence of any Default or
Event of Default or any other condition precedent whatsoever, to the extent of
such Bank's Commitment Percentage, to reimburse the Administrative Agent on
demand for the amount of each draft paid by the Administrative Agent under each
Letter of Credit to the extent that such amount is not reimbursed by the
Borrower pursuant to Section 2A.2 (such agreement for a Bank being called herein
the "LETTER OF CREDIT PARTICIPATION" of such Bank).



                                      -21-

     (e) PARTICIPATIONS OF BANKS. Each such payment made by a Bank shall be
treated as the purchase by such Bank of a participating interest in the
Borrower's Reimbursement Obligation under Section 2A.2 in an amount equal to
such payment. Each Bank shall share in accordance with its participating
interest in any interest which accrues pursuant to Section 2A.2.

     Section 2A.2. REIMBURSEMENT OBLIGATIONS OF THE BORROWER. In order to induce
the Administrative Agent to issue, extend and renew each Letter of Credit and
the Banks to participate therein, the Borrower hereby agrees to reimburse or pay
to the Administrative Agent, for the account of the Administrative Agent or (as
the case may be) the Banks, with respect to each Letter of Credit issued,
extended or renewed by the Administrative Agent hereunder,

     (a) except as otherwise expressly provided in Section 2A.2(b) and (c), on
each date that any draft presented under such Letter of Credit is honored by the
Administrative Agent, or the Administrative Agent otherwise makes a payment with
respect thereto, (i) the amount paid by the Administrative Agent under or with
respect to such Letter of Credit, and (ii) the amount of any taxes, fees,
charges or other costs and expenses whatsoever incurred by the Administrative
Agent or any Bank in connection with any payment made by the Administrative
Agent or any Bank under, or with respect to, such Letter of Credit,

     (b) upon the reduction (but not termination) of the Total Commitment to an
amount less than the Maximum Drawing Amount, an amount equal to such difference,
which amount shall be held by the Administrative Agent for the benefit of the
Banks and the Administrative Agent as cash collateral for all Reimbursement
Obligations, and

     (c) upon the termination of the Total Commitment, or the acceleration of
the Reimbursement Obligations with respect to all Letters of Credit in
accordance with Section 10, an amount equal to the then Maximum Drawing Amount
on all Letters of Credit, which amount shall be held by the Administrative Agent
for the benefit of the Banks and the Administrative Agent as cash collateral for
all Reimbursement Obligations.

     Each such payment shall be made to the Administrative Agent at the
Administrative Agent's Office in immediately available funds. Interest on any
and all amounts remaining unpaid by the Borrower under this Section 2A.2 at any
time from the date such amounts become due and payable (whether as stated in
this Section 2A.2, by acceleration or otherwise) until payment in full (whether
before or after judgment) shall be payable to the Administrative Agent on demand
at the rate specified in Section 3.11 for overdue principal on the Loans.

     Section 2A.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or
other demand for payment shall be made under any Letter of Credit, the
Administrative Agent shall notify the Borrower of the date and amount of the
draft presented or demand for payment and of the date and time when it expects
to pay such draft or honor such demand for payment. If the Borrower fails to
reimburse the Administrative Agent as provided in Section 2A.2 on or before the
date that such draft is paid or other payment is made by the Administrative
Agent, the Administrative Agent may at any time thereafter notify the Banks of
the amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m.
(Boston time) on the Business Day next following the receipt of such notice,
each Bank shall make available to the Administrative Agent, at the
Administrative Agent's Office, in immediately available funds, such Bank's
Commitment



                                      -22-

Percentage of such Unpaid Reimbursement Obligation, together with an amount
equal to the product of (a) the average, computed for the period referred to in
clause (c) below, of the Overnight Rate for each day included in such period,
TIMES (b) the amount equal to such Bank's Commitment Percentage of such Unpaid
Reimbursement Obligation, TIMES (c) a fraction, the numerator of which is the
number of days that elapse from and including the date the Administrative Agent
paid the draft presented for honor or otherwise made payment to the date on
which such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation
shall become immediately available to the Administrative Agent, and the
denominator of which is 360. The responsibility of the Administrative Agent to
the Borrower and the Banks shall be only to exercise reasonable care and to
determine that the documents (including each draft) delivered under each Letter
of Credit in connection with such presentment shall be in conformity in all
material respects with such Letter of Credit.

     Section 2A.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this
Section 2A shall be absolute and unconditional under any and all circumstances
and irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Administrative Agent, any
Bank or any beneficiary of a Letter of Credit. The Borrower further agrees with
the Administrative Agent and the Banks that the Administrative Agent and the
Banks shall not be responsible for, and the Borrower's Reimbursement Obligations
under Section 2A.2 shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even if such documents
should in fact prove to be in any or all respects invalid, fraudulent or forged,
or any dispute between or among the Borrower, the beneficiary of any Letter of
Credit or any financing institution or other party to which any Letter of Credit
may be transferred or any claims or defenses whatsoever of the Borrower against
the beneficiary of any Letter of Credit or any such transferee. The
Administrative Agent and the Banks shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit. The
Borrower agrees that any action taken or omitted by the Administrative Agent or
any Bank under or in connection with each Letter of Credit and the related
drafts and documents, if done in good faith, shall be binding upon the Borrower
and shall not result in any liability on the part of the Administrative Agent or
any Bank to the Borrower.

     Section 2A.5. RELIANCE BY ISSUER. To the extent not inconsistent with
Section 2A.4, the Administrative Agent shall be entitled to rely, and shall be
fully protected in relying upon, any Letter of Credit, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons and upon advice and statements of legal
counsel, independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Credit Agreement unless it
shall first have received such advice or concurrence of the Majority Banks as it
reasonably deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Credit Agreement in accordance with a request
of the Majority Banks, and



                                      -23-

such request and any action taken or failure to act pursuant thereto shall be
binding upon the Banks and all future holders of the Notes or of a Letter of
Credit Participation.

     Section 2A.6. LETTER OF CREDIT FEE. The Borrower shall pay a fee (in each
case, a "LETTER OF CREDIT FEE") to the Administrative Agent in respect of each
Letter of Credit in (a) an amount equal to the per annum rate set forth on
Schedule 1.2 in the applicable row headed Margin Percentage beneath the column
for the Debt Rating in effect for such date on the undrawn face amount of such
Letter of Credit for the accounts of the Banks in accordance with their
respective Commitment Percentages and (b) an amount equal to one-tenth of one
percent (0.10%) per annum on the undrawn face amount of such Letter of Credit
for the account of the Administrative Agent as a fronting fee. The accrued
Letter of Credit Fee shall be payable, quarterly in arrears, on the last day of
each March, June, September and December and on the Maturity Date for the
calendar quarter, or portion thereof, then ended. In respect of each Letter of
Credit, the Borrower shall also pay to the Administrative Agent for the
Administrative Agent's own account, at such other time or times as such charges
are customarily made by the Administrative Agent, the Administrative Agent's
customary issuance, amendment, negotiation or document examination and other
administrative fees as in effect from time to time.

     Section 3. INTEREST; CERTAIN GENERAL PROVISIONS.

     Section 3.1. INTEREST ON LOANS; PAYMENTS OF INTEREST.

     (a) Except as otherwise provided by Section 3.11 hereof, each Base Rate
Loan shall bear interest on the outstanding principal amount thereof at a rate
per annum equal to the Base Rate in effect from time to time, which rate shall
change contemporaneously with any change in the Base Rate.

     (b) Except as otherwise provided by Section 3.11 hereof, each Eurocurrency
Rate Loan shall bear interest on the outstanding principal amount thereof, for
each Interest Period applicable thereto, at a rate per annum equal to the
Eurocurrency Rate determined for such Interest Period, PLUS the applicable
Margin Percentage as in effect on the first day of such Interest Period.

     (c) The Borrower absolutely and unconditionally promises to pay all
interest accrued on each Loan in arrears on each Interest Payment Date with
respect thereto. Interest on Loans made in Dollars shall be paid in Dollars and
interest on Loans made in Euros shall be paid in Euros.

     Section 3.2. INTEREST PERIOD OPTIONS. Upon notice (a "CONTINUATION
REQUEST") given to the Administrative Agent no later than 11:00 a.m. (Boston
time) at least two (2) Business Days', or in the case of Eurocurrency Rate Loans
in Euros, four (4) Business Days', prior to the expiration of an Interest Period
applicable to any Eurocurrency Rate Loan, the Borrower may elect to continue
such Eurocurrency Rate Loan upon the expiration of the then applicable Interest
Period for another Interest Period of the duration specified in such notice;
PROVIDED, HOWEVER, that no Eurocurrency Rate Loan may be continued for an
Interest Period in excess of seven (7) days when any Default or Event of Default
is continuing; and PROVIDED FURTHER that the Eurocurrency Rate Loans to which a
particular Interest Period applies shall be in an aggregate principal amount of
$3,000,000 (or the equivalent thereof if requested in Euros) or an integral
multiple of



                                      -24-

$250,000 (or the equivalent thereof if requested in Euros) in excess thereof.
Each continuation of a Eurocurrency Rate Loan hereunder shall be allocated
between the Banks in proportion, as nearly as practicable, to such Bank's
Commitment Percentage or Commitment Percentage (as the case may be), with
adjustments to the extent practicable to equalize any prior continuations not
exactly in proportion.

     Section 3.3. INDEMNITY. The Borrower agrees to indemnify each Bank and to
hold each Bank harmless from any loss or expense that such Bank may sustain or
incur as a consequence of (a) default by the Borrower in payment of the
principal amount of or interest on any Loans, including any such loss or expense
arising from interest or fees payable by such Bank to lenders of funds obtained
by it in order to maintain its Loans, (b) default by the Borrower in making a
borrowing after the Borrower has given (or is deemed to have given) a Loan
Request or a Continuation Request in accordance with Sections 2.5 or 3.2 other
than as a result of a default by any Bank, (c) the making of any payment of a
Loan on a day that is not the last day of the applicable Interest Period with
respect thereto, including interest or fees payable by any Bank to lenders of
funds obtained by it in order to maintain any such Loan, to the extent not
off-set by income derived from the redeployment of such funds or (d) default by
the Borrower in making any repayment of a Loan after the Borrower has given a
notice in accordance with Section 2.9. This covenant shall survive the
termination of this Credit Agreement and payment of the Notes.

     Section 3.4. FUNDS FOR PAYMENTS. All payments of principal, interest on
Loans made to the Borrower which are denominated in Dollars, and all
Reimbursement Obligations, Facility Fees, Utilization Fees, Letter of Credit
Fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made on the due date thereof by the Borrower to the
Administrative Agent at the Administrative Agent's office at 100 Federal Street,
Boston, Massachusetts 02110 or at such other location in the Boston,
Massachusetts area that the Administrative Agent may from time to time designate
in writing (the "ADMINISTRATIVE AGENT'S OFFICE"), in each case in Dollars in
Same Day Funds. All payments of principal and interest on Loans made to the
Borrower which are denominated in Euros shall be made by the Borrower at a
depository designated by the Administrative Agent in a country in which Euros
are legal tender, in each case in Euros and in Same Day Funds. Each payment in
respect of any Loan made by the Borrower shall be made in the same currency in
which such Loan was made unless otherwise agreed by the Banks. All payments by
the Borrower hereunder and under any of the other Loan Documents shall be made
without setoff or counterclaim and free and clear of and without deduction for
any taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or hereafter
imposed or levied by any jurisdiction or any political subdivision thereof or
taxing or other authority therein unless the Borrower is compelled by law to
make such deduction or withholding. If any such obligation is imposed upon the
Borrower with respect to any amount payable by it hereunder or under any of the
other Loan Documents, the Borrower will pay to the Administrative Agent, for the
account of the Banks or (as the case may be) the Administrative Agent, on the
date on which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in Dollars as shall be necessary to enable the
Banks or the Administrative Agent to receive the same net amount which the Banks
or the Administrative Agent would have received on such due date had no such
obligation been imposed upon the Borrower. The Borrower will deliver promptly to
the Administrative Agent certificates or other valid vouchers for all taxes or
other charges deducted from or paid with respect to payments made by the
Borrower hereunder or



                                      -25-

under such other Loan Document. The Borrower may, within 90 days of the
imposition of any such obligation by any Bank, by notice in writing to the
Administrative Agent and such Bank, (a) require such Bank that imposed such
obligation to cooperate with the Borrower in obtaining an Eligible Assignee
satisfactory to the Administrative Agent as a replacement bank for such Bank and
in assigning such Bank's interest hereunder and under its Note to such Eligible
Assignee subject to the terms, conditions, and procedures of Section 15, or (b)
repay all amounts owed to such Bank, terminate such Bank's Commitments and
reduce the aggregate of the Commitments under the Credit Agreement by a
corresponding amount. Each Bank that is not incorporated or organized under the
laws of the United States of America or a state thereof or the District of
Columbia agrees that, on an annual basis, it will deliver to the Borrower and
the Administrative Agent two duly completed copies of United States Internal
Revenue Service Form W-8BEN or W-8ECI or successor applicable form, as the case
may be, certifying in each case that such Bank is entitled to receive payments
under this Credit Agreement and the Note payable to it, without deduction or
withholding of any United States federal income taxes.

     Section 3.5. COMPUTATIONS. All computations of interest on Eurocurrency
Rate Loans, the Facility Fee, the Letter of Credit Fees and the Utilization Fee
shall be based on a 360 day year and paid for the actual number of days elapsed.
All computations of interest on Base Rate Loans shall be based on a 365 day year
and paid for the actual number of days elapsed. Except as otherwise specifically
provided herein, whenever a payment hereunder or under any of the other Loan
Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Loans as
reflected on the Note Records from time to time shall be considered conclusive
and binding absent manifest mathematical error on the Borrower unless within
thirty (30) Business Days after receipt of any notice by the Administrative
Agent or any of the Banks of such outstanding amount, the Borrower shall notify
the Administrative Agent or such Bank to the contrary.

     Section 3.6. INABILITY TO DETERMINE EUROCURRENCY RATE. In the event the
Administrative Agent shall determine that adequate and reasonable methods do not
exist for ascertaining the Eurocurrency Rate that would otherwise determine the
rate of interest to be applicable during any Interest Period, the Administrative
Agent shall forthwith give telex notice of such determination (which shall be
conclusive and binding on the Borrower) to the Borrower at least one (1)
Business Day before the first day of such Interest Period. In such event, (a)
any Loan Request or Continuation Request with respect to Loans shall be
automatically withdrawn, (b) the Borrowers and the Banks shall negotiate in good
faith to agree on an alternative interest rate which is reasonably equivalent to
the Eurocurrency Rate; PROVIDED that if the Borrowers and the Banks are unable
to agree on such alternative interest rate prior to the last day of the then
current Interest Period, each Loan, if denominated in Dollars, then outstanding
will as of the last day of the then current Interest Period bear interest at a
per annum rate equal to the Base Rate in effect from time to time payable in
arrears on the last day of each fiscal quarter of the Borrower, and, if
denominated in Euros, will automatically, on the last day of the then current
Interest Period, be repaid, and (c) the obligations of the Banks to make
additional Loans shall be suspended until the Administrative Agent determines
that the circumstances giving rise to such suspension no longer exist, whereupon
the Administrative Agent shall so notify the Borrower and the Banks.



                                      -26-

     Section 3.7. ILLEGALITY. Notwithstanding any other provisions herein, if
any introduction of or change in any law, regulation, treaty or directive or in
the interpretation or application thereof shall make it unlawful, or any central
bank or other governmental authority having jurisdiction over any Bank or its
Eurocurrency Lending Office shall assert that it is unlawful, for such Bank or
its Eurocurrency Lending Office to make or maintain Loans that bear interest
calculated by reference to the Eurocurrency Rate, (a) such Bank shall forthwith
give notice by telefax of such circumstances, confirmed in a writing delivered
to the Borrower by courier or postal service (which notice shall be withdrawn by
such Bank when such Bank shall reasonably determine that it shall no longer be
illegal for such Bank or its Eurocurrency Lending Office to make or maintain
such Loans), (b) the commitment of such Bank to make or maintain Loans shall
forthwith be cancelled and (c) such Bank's Loans then outstanding, if any, shall
be converted automatically on the next succeeding last day of each Interest
Period applicable to such Loans or within such earlier period as may be required
by law to Loans which bear interest at a per annum rate equal to an alternative
interest rate which is reasonably equivalent to the Eurocurrency Rate upon which
the Administrative Agent and the Banks may in good faith agree; PROVIDED that if
the Borrower and the Banks are unable to agree on such alternative interest
rate, such Loans, if denominated in Dollars, shall bear interest at a per annum
rate equal to the Base Rate in effect from time to time payable in arrears on
the last day of each fiscal quarter of the Borrower, and, if denominated in
Euros, will automatically, on the last day of the then current Interest Period,
be repaid. The Borrower agrees promptly to pay the Administrative Agent for the
account of each Bank, upon demand by the Administrative Agent, any additional
amounts necessary to compensate the Banks for any costs incurred by the Banks in
making any conversion in accordance with this Section 3.7, including any
interest or fees payable by the Banks to lenders of funds obtained by them in
order to make or maintain their Loans (the Administrative Agent's written notice
of such costs, as certified to the Borrower, to be conclusive absent manifest
error).

     Section 3.8. ADDITIONAL COSTS, ETC. If any present or future, or any change
in any present or future, applicable law, which expression, as used herein,
includes statutes, rules and regulations thereunder and interpretations thereof
by any competent court or by any governmental or other regulatory body or
official charged with the administration or the interpretation thereof and
requests, directives, instructions and notices at any time or from time to time
hereafter made upon or otherwise issued to any Bank by any central bank or other
fiscal, monetary or other authority (whether or not having the force of law),
shall:

     (a) subject any Bank to any tax, levy, impost, duty, charge, fee, deduction
or withholding of any nature with respect to this Credit Agreement, the other
Loan Documents, any Letters of Credit, such Bank's Commitment or the Loans
advanced by such Bank (other than taxes based upon or measured by the income or
profits of such Bank), or

     (b) materially change the basis of taxation (except for changes in taxes on
income or profits) of payments to any Bank of the principal of or the interest
on any Loans or any other amounts payable to such Bank under this Credit
Agreement or the other Loan Documents, or

     (c) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Credit Agreement) any special
deposit, reserve, assessment, liquidity, or other similar requirements against
assets held by, or deposits in or for the account of, or loans by, or
commitments of, or letters of credit issued by, an office of any Bank, or



                                      -27-

     (d) impose on any Bank any other conditions or requirements with respect to
this Credit Agreement, the other Loan Documents, any Letters of Credit, the
Loans, such Bank's Commitment or any class of loans or commitments of which any
of the Loans or such Bank's Commitment forms a part;

and the result of any of the foregoing is

         (i) to increase the cost to any Bank of making, funding, issuing,
     renewing, extending or maintaining the Loans, any Letter of Credit or such
     Bank's Commitment, or

         (ii) to reduce the amount of principal, interest or other amounts
     payable to such Bank hereunder on account of such Bank's Commitment, the
     Loans or any Letter of Credit, or

         (iii) to require such Bank to make any payment or to forego any
     interest or Reimbursement Obligation or other sum payable hereunder, the
     amount of which payment or foregone interest or Reimbursement Obligation or
     other sum is calculated by reference to the gross amount of any sum
     receivable or deemed received by such Bank from the Borrower hereunder,

then, and in each such case, the Borrower will, upon written demand made by such
Bank at any time and from time to time and as often as the occasion therefor may
arise, pay to such Bank such additional amounts as will be sufficient to
compensate such Bank for such additional cost, reduction, payment or foregone
interest or Reimbursement Obligation or other sum (after such Bank shall have
allocated the same fairly and equitably among all customers of any class
generally affected thereby); PROVIDED that in the event that such additional
cost, reduction, payment, or foregone interest or Reimbursement Obligations or
other sum which was incurred by such Bank is subsequently returned or reimbursed
to such Bank, such Bank shall return or reimburse to the Borrower any additional
amount paid pursuant to this Section 3.8 by the Borrower to such Bank with
respect thereto. In the event that any of the foregoing events occur, each Bank
will use its reasonable efforts to take such actions as are reasonably feasible
and available to such Bank to decrease the additional costs payable hereunder;
PROVIDED that no Bank shall be required to transfer any activities related to
this Agreement to any jurisdiction in which such Bank does not at such time
regularly conduct ordinary banking operations or to a jurisdiction which
otherwise will be disadvantageous to such Bank. Such Bank shall give the
Borrower written notice of any event causing such additional cost, reduction,
payment or foregone interest or Reimbursement Obligation or other sum within 90
days of the occurrence thereof and the Borrower shall not be liable for any such
costs incurred prior to the date which is 90 days prior to the date of such
notice.

     Section 3.9. CERTIFICATE. A certificate setting forth any additional
amounts payable pursuant to Sections 3.7 and 3.8 and the changes as a result of
which such amounts are due and the computations in reasonable detail pursuant to
which such amounts were calculated, submitted by any Bank to the Borrower, shall
be conclusive absent manifest error. Upon delivery of a notice to such Bank no
more than thirty (30) Business Days after receipt of such certificate, the
Borrower shall have reasonable opportunity to review and discuss such
computations with a responsible officer at such Bank.



                                      -28-

     Section 3.10. CAPITAL ADEQUACY. If any present or future, or any change in
any present or future, law, governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law) or the interpretation thereof
by a court or governmental authority with appropriate jurisdiction affects the
amount of capital required or expected to be maintained by any Bank or any
corporation controlling such Bank and such Bank determines that the amount of
capital required to be maintained by it or such corporation is increased by or
based upon the existence of its Commitment or the Loans made pursuant hereto,
then such Bank may notify the Borrower of such fact. To the extent that the
costs of such increased capital requirements are not reflected in the rates of
interest payable hereunder, the Borrower and such Bank shall thereafter attempt
to negotiate in good faith, within thirty (30) days of the day on which the
Borrower receives such notice, an adjustment payable hereunder that will
adequately compensate such Bank in light of these circumstances. If the Borrower
and such Bank are unable to agree to such adjustment within thirty (30) days of
the date on which the Borrower receives such notice, then commencing on the date
of such notice (but not earlier than the effective date of any such increased
capital requirement), the fees payable hereunder shall increase by an amount
that will, in such Bank's reasonable determination, provide adequate
compensation to such Bank, such amount to be conclusive and binding on the
Borrower, absent manifest error. Each Bank shall allocate such cost increases
among its customers in good faith and on an equitable basis.

     Section 3.11. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the
extent permitted by applicable law) interest on the Loans and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall bear
interest compounded daily and payable on demand at a rate per annum which is two
percent (2%) above the per annum interest rate otherwise applicable thereto,
until such amount shall be paid in full (after as well as before judgment).

     Section 3.12. PAYMENT DATE ADJUSTMENT FOR NON-BUSINESS DAYS. Unless
otherwise explicitly set forth herein, if any payment hereunder becomes due on a
day which is not a Business Day, the due date of such payment shall be extended
to the next succeeding Business Day, and such extension of time shall be
included in computing interest and fees in connection with such payment.

     Section 3.13. CURRENCY MATTERS. Dollars are the currency of account and
payment for each and every sum at any time due from the Borrower hereunder;
provided that:

     (a) except as expressly provided in this Credit Agreement, each repayment
of a Loan or a part thereof shall be made in the currency in which such Loan is
denominated at the time of that repayment;

     (b) each payment of interest shall be made in the currency in which such
principal or other sum in respect of which such interest is payable, is
denominated;

     (c) each payment of Letter of Credit Fees, the Facility Fees and the
Utilization Fees shall be in Dollars;

     (d) each payment in respect of costs, expenses and indemnities shall be
made in the currency in which the same were incurred; and

     (e) any amount expressed to be payable in Euros shall be paid in Euros.



                                  -29-

     No payment to the Administrative Agent or any Bank (whether under any
judgment or court order or otherwise) shall discharge the obligation or
liability in respect of which it was made unless and until the Administrative
Agent or such Bank shall have received payment in full in the currency in which
such obligation or liability was incurred, and to the extent that the amount of
any such payment shall, on actual conversion into such currency, fall short of
such obligation or liability expressed in that currency, the Borrower shall
indemnify and hold harmless the Administrative Agent or such Bank, as the case
may be, with respect to the amount of the shortfall, with such indemnity
surviving the termination of this Credit Agreement and any legal proceeding,
judgment or court order pursuant to which the original payment was made which
resulted in the shortfall.

     Section 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Banks and the Administrative Agent as follows:

     Section 4.1. CORPORATE AUTHORITY.

     (a) INCORPORATION; GOOD STANDING. Each of the Borrower and its Material
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, (ii) has all requisite
corporate power and authority and legal right to own and operate its property,
to lease the property it operates as lessee and to conduct its business as now
conducted and as presently contemplated, and (iii) is in good standing as a
foreign corporation and is duly authorized to do business in each jurisdiction
where such qualification is necessary except where (x) a failure to be so
qualified would not have a materially adverse effect on the business, assets or
financial condition of the Borrower or the Borrower and its Material
Subsidiaries, taken as a whole or the Borrower's ability to perform the
Obligations or (y) the Borrower or such Subsidiary has applied for qualification
to do business in such jurisdiction and such application is pending.

     (b) AUTHORIZATION. The execution, delivery and performance of this Credit
Agreement and the other Loan Documents to which the Borrower is or is to become
a party and the transactions contemplated hereby and thereby (i) are within the
corporate authority and legal right of the Borrower, (ii) have been duly
authorized by all necessary corporate proceedings, (iii) do not conflict with or
result in any breach or contravention of any provision of law, statute, rule or
regulation to which the Borrower is subject or any judgment, order, writ,
injunction, license or permit applicable to the Borrower which would have a
materially adverse effect on the business, assets or financial condition of the
Borrower or the Borrower and its Material Subsidiaries, taken as a whole and
(iv) do not conflict with any provision of the corporate charter or bylaws of,
or any agreement or other instrument binding upon, the Borrower.

     (c) ENFORCEABILITY. The execution and delivery of this Credit Agreement and
the other Loan Documents to which the Borrower is or is to become a party will
result in valid and legally binding obligations of the Borrower enforceable
against it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that availability of
the remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.



                                       30

     Section 4.2. GOVERNMENTAL APPROVALS. The execution, delivery and
performance by the Borrower of this Credit Agreement and the other Loan
Documents to which the Borrower is or is to become a party and the transactions
contemplated hereby and thereby do not require the Borrower to obtain the
approval or consent of, to make a filing with, or to perform or obtain the
performance of any other act by or in respect of any governmental agency or
authority other than those already obtained or performed.

     Section 4.3. TITLE TO PROPERTIES; LEASES. Other than as noted on the
audited consolidated financial statements of the Borrower and its Subsidiaries
as at the Balance Sheet Date, the Borrower and its Subsidiaries own all of the
assets reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries as at the Balance Sheet Date or acquired since that date (except
property and assets sold or otherwise disposed of in the ordinary course of
business since that date and except for defects of title to certain real
property which do not materially impair the value or usefulness thereof),
subject to no rights of others, including any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances,
except for liens permitted pursuant to Section 6.2. The Borrower and its
Material Subsidiaries enjoy peaceful and undisturbed possession under all leases
under which they are operating, and all said leases are valid and subsisting and
in full force and effect except to the extent that the failure to enjoy peaceful
and undisturbed possession of such lease or the failure of such lease to be
valid, subsisting and in full force and effect does not have a material adverse
effect on the assets, financial condition or business of the Borrower and its
Material Subsidiaries, taken as a whole.

     Section 4.4. FINANCIAL STATEMENTS. There has been furnished to each of the
Banks a consolidated balance sheet of the Borrower and its Subsidiaries as at
the Balance Sheet Date, and related consolidated statements of income, retained
earnings and cash flow for the fiscal year then ended, certified by Arthur
Andersen and Company, the Borrower's independent certified public accountants.
There has also been furnished to each of the Banks an unaudited consolidated
balance sheet of the Borrower and its Subsidiaries as at the end of fiscal
quarter ending September 30, 2001, and the related consolidated statement of
income and consolidated statement of cash flow for the portion of the Borrower's
fiscal year then elapsed, all in reasonable detail. Such balance sheets and
statements of income, retained earnings and cash flow have been prepared in
accordance with Generally Accepted Accounting Principles consistently applied
and are correct and complete and fairly present the financial condition of the
Borrower and its Material Subsidiaries as at the close of business on the date
thereof and the consolidated results of operations for the fiscal period then
ended. There are no contingent liabilities of the Borrower or any of its
Subsidiaries as of each such date involving material amounts, known to the
officers of the Borrower and not disclosed in said balance sheet and the related
notes thereto.

     Section 4.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there
has occurred no Material Adverse Change.

     Section 4.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower and
its Subsidiaries, respectively, possesses or has a valid right to use all
material franchises, patents, copyrights, inventions, technology, trademark
registrations, trademarks, trade names, trade secrets, service marks, FCC
Licenses, other licenses and permits, and rights in respect of the foregoing
and, to the best of its knowledge, patent and trademark applications and rights
in respect thereto



                                      -31-

(collectively, the "PROPRIETARY RIGHTS"), adequate for the conduct of its
business substantially as now conducted without known conflict with any rights
of others which could affect or impair in a material manner the business or
assets of the Borrower and its Material Subsidiaries, taken as a whole. Except
as disclosed in the financial statements referred to in Section 4.4 hereof, the
Borrower is not aware of any existing or threatened infringement or
misappropriation of (a) any Proprietary Rights of others by the Borrower or any
of its Subsidiaries or (b) any Proprietary Rights of the Borrower or any of its
Subsidiaries by others, in any way which might materially adversely affect the
business, assets or condition, financial or otherwise, of the Borrower and its
Material Subsidiaries, taken as a whole.

     Section 4.7. NO LITIGATION. There are no actions, suits, proceedings or
investigations of any kind pending or, to the Borrower's knowledge, threatened
against the Borrower or any of its Subsidiaries before any court, tribunal or
administrative agency or board that, if adversely determined are reasonably
likely to in the aggregate, materially adversely affect the properties, assets,
financial condition or business of the Borrower and its Material Subsidiaries,
taken as a whole or materially impair the right of the Borrower and its Material
Subsidiaries, taken as a whole, to carry on business substantially as now
conducted by them, or result in any substantial liability not adequately covered
by insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet of the Borrower, or which question the validity of
this Credit Agreement or any of the other Loan Documents, or any action taken or
to be taken pursuant hereto or thereto. There are no final judgments against the
Borrower or any of its Subsidiaries that, with other outstanding final
judgments, undischarged and not covered by insurance, exceeds in the aggregate
five percent (5%) of the Consolidated Net Worth of the Borrower.

     Section 4.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or, to
the Borrower's knowledge, is expected in the future to have a materially adverse
effect on the business, assets or financial condition of the Borrower and its
Material Subsidiaries, taken as a whole. Neither the Borrower nor any of its
Subsidiaries is a party to any contract or agreement that has or, to the best of
the Borrower's knowledge, is expected, in the judgment of the Borrower's
officers, to have any materially adverse effect on the business of the Borrower
and its Material Subsidiaries, taken as a whole.

     Section 4.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the
Borrower nor any of its Subsidiaries is in violation of any provision of its
charter documents, bylaws, or any agreement or instrument to which it is subject
or by which it or any of its properties are bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that are reasonably likely to result in the imposition of substantial
penalties or materially and adversely affect the financial condition, properties
or business of the Borrower and its Material Subsidiaries, taken as a whole or
the Borrower's ability to perform the Obligations.

     Section 4.10. TAX STATUS. The Borrower and, to the best of the Borrower's
knowledge, its Subsidiaries have (a) made or filed all federal and state income
and all other material tax returns, reports and declarations required by any
jurisdiction to which any of them is subject or properly filed for and received
extensions with respect thereto which are still in full force and effect and
which have been fully complied with in all material respects, (b) paid all taxes
and other governmental assessments and charges shown or determined to be due on
such returns, reports



                                      -32-

and declarations, except those being contested in good faith by appropriate
proceedings and for which adequate reserves, to the extent required by Generally
Accepted Accounting Principles, have been established and (c) set aside on their
books provisions reasonably adequate for the payment of all estimated taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Borrower know of
no basis for any such claim.

     Section 4.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.

     Section 4.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the
Borrower nor any of its Subsidiaries is a "HOLDING COMPANY", or a "SUBSIDIARY
COMPANY" of a "HOLDING COMPANY", or an "AFFILIATE" of a "HOLDING COMPANY", as
such terms are defined in the Public Utility Holding Company Act of 1935; nor is
it a "REGISTERED INVESTMENT COMPANY", or an "AFFILIATED COMPANY" or a "PRINCIPAL
UNDERWRITER" of a "REGISTERED INVESTMENT COMPANY", as such terms are defined in
the Investment Company Act of 1940.

     Section 4.13. CERTAIN TRANSACTIONS. Except for arm's length transactions
pursuant to which the Borrower makes payments in the ordinary course of business
upon terms no less favorable than the Borrower could obtain from third parties
and transactions disclosed in the Borrower's Form 10-K filed with the Securities
and Exchange Commission for its fiscal year ending December 31, 2000, none of
the officers, directors or other key employees of the Borrower or any of its
Material Subsidiaries is presently a party to any transaction with the Borrower
or any of its Material Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such key employee or, to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any officer, director,
or any such key employee has a substantial interest or is an officer, director,
trustee or partner.

     Section 4.14. ERISA COMPLIANCE.

     (a) IN GENERAL. To the best of the Borrower's knowledge, the Borrower and
its Subsidiaries have complied in all material respects with provisions of the
Code, to the extent applicable, and of ERISA relevant to the Borrower's Pension
Plans (as defined in Section 3(2) of ERISA), including the provisions thereof
respecting funding requirements for, and the termination of, such plans and
respecting prohibited transactions thereunder, and the funding of any Guaranteed
Pension Plan complies with the minimum funding standards of Section 412 of the
Code.

     (b) GUARANTEED PENSION PLANS. Each contribution required to be made to a
Guaranteed Pension Plan, whether required to be made to avoid the incurrence of
an accumulated funding deficiency, the notice or lien provisions of Section
302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated
funding deficiency or extension of amortization periods has been received with
respect to any Guaranteed Pension Plan. No liability to the PBGC (other than
required insurance premiums, all of which have been paid) has



                                      -33-

been incurred by the Borrowers or any ERISA Affiliate with respect to any
Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or
any other event or condition which presents a material risk of termination of
any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each
Guaranteed Pension Plan (which in each case occurred within twelve months of the
date of this representation), and except as disclosed on SCHEDULE 4.14 attached
hereto, the current value of all accrued benefits under each of such plans did
not, as of the latest valuation date, exceed the then current value of the
assets of such plans allocable to such accrued benefits based upon the actuarial
methods and assumptions used for such plans.

     (c) MULTIEMPLOYER PLANS. Neither the Borrower nor any ERISA Affiliate has
incurred any material liability (including secondary liability) to any
Multiemployer Plan as a result of a complete or partial withdrawal from such
Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of
assets described in Section 4204 of ERISA. Neither the Borrower nor any ERISA
Affiliate has been notified that any Multiemployer Plan is in reorganization or
insolvent under and within the meaning of Section 4241 or Section 4245 of ERISA
or that any Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA.

     Section 4.15. PURPOSE CREDIT.

     (a) The Borrower has not engaged principally or as one of its important
activities in the business of extending credit for the purpose of "PURCHASING"
or "CARRYING" any "MARGIN STOCK" within the respective meanings of each of the
quoted terms under Regulation U of the Board of Governors of the Federal Reserve
System.

     (b) The Borrower shall not, directly or indirectly, apply any part of the
proceeds of the Notes for the purpose of or in connection with the Borrower's
broker-dealer activities, if any, within the meaning of Regulation T of the
Federal Reserve Board (Title 12, Part 220, Code of Federal Regulations, as
amended) or any published regulations, interpretations or rulings thereunder.

     (c) The issuance of the Notes and the application of the proceeds thereof
by the Borrower will not contravene Regulation X of the Federal Reserve Board
(Title 12, Part 224, Code of Federal Regulations, as amended) or any published
regulations, interpretations or rulings thereunder.

     Section 4.16. ENVIRONMENTAL COMPLIANCE.

     (a) The Borrower has no actual knowledge that any operator of the Real
Estate, has violated, or is alleged to have violated, any judgment, decree,
order, law, license, rule or regulation pertaining to environmental matters
(hereinafter "ENVIRONMENTAL LAWS"), which violation would have a material
adverse effect on the environment or the business, assets or financial condition
of the Borrower or any of its Material Subsidiaries, taken as a whole.

     (b) Neither the Borrower nor any of its Material Subsidiaries has received
notice from any third party including, without limitation, any federal, state or
local governmental authority, (i) that any one of them has been identified by
the United States Environmental Protection Agency ("EPA") as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 with respect to a site listed on the National



                                      -34-

Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste,
as defined by 42 U.S.C. Section 6903(5), any hazardous substances as defined by
42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42 U.S.C.
Section 9601(33) and any toxic substances, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws (hereinafter
"HAZARDOUS SUBSTANCES") which any one of them has generated, transported or
disposed of has been found at any site at which a federal, state or local agency
or other third party has conducted or has ordered that the Borrower or any of
its Material Subsidiaries conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is or shall
be a named party to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise) arising out of
any third party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances.

     (c) Neither the Borrower nor any of its Material Subsidiaries are subject
to any applicable environmental law requiring the performance of Hazardous
Substances site assessments, or the removal or remediation of Hazardous
Substances, or the giving of notice to any governmental agency or the recording
or delivery to other Persons of an environmental disclosure document or
statement by virtue of the transactions set forth herein and contemplated hereby
or the effectiveness of any other transactions contemplated hereby.

     Section 4.17. COMPLIANCE WITH FAIR LABOR STANDARDS ACT. To the best of the
Borrower's knowledge, the Borrower has at all times operated its business in
compliance with all applicable provisions of the Fair Labor Standards Act of
1938 (29 U.S.C. Sections 106 And 207) except to the extent that the Borrower's
failure to comply therewith would not have a material adverse affect on the
business, assets or condition, financial or otherwise, of the Borrower and its
Material Subsidiaries, taken as a whole. To the best of the Borrower's
knowledge, none of the Borrower's inventory has been produced by employees who
are or were employed in violation of the minimum wage or maximum hour provisions
of such Act or any regulations thereunder.

     Section 4.18. SUBSIDIARIES. Attached hereto as SCHEDULE 4.18 is a schedule
showing with respect to each Material Subsidiary the jurisdiction in which it is
organized and the approximate percentage of the outstanding Voting Stock of that
Subsidiary held either by the Borrower or another Subsidiary. All of the
outstanding capital stock of each Material Subsidiary has been duly authorized
and issued and is fully-paid and non-assessable; and, except as indicated in
SCHEDULE 4.18, free and clear of any pledge, charge, lien, security interest or
other encumbrance or restriction on transfer.

     Section 4.19. SOLVENCY. The Borrower, both before and after giving effect
to the transactions contemplated by this Credit Agreement and the other Loan
Documents (a) is solvent, (b) has assets having a fair value in excess of their
liabilities, (c) has assets having a fair value in excess of the amount required
to pay its liabilities on existing debts as such debts become absolute and
matured, and (d) has, and expects to continue to have, access to adequate
capital for the conduct of its business and the ability to pay its debts from
time to time incurred in connection with the operation of its business as such
debts mature.

     Section 4.20. DISCLOSURE. No representation or warranty made by the
Borrower in any of the Loan Documents or in any other document furnished from
time to time in connection herewith or



                                      -35-

therewith, contains any misrepresentation of a material fact or omits to
state any material fact necessary to make the statements herein or therein not
misleading. There is no fact known to the Borrower that materially adversely
affects, or that might reasonably be expected to materially adversely affect,
the business, property or financial condition of the Borrower and its Material
Subsidiaries on a consolidated basis.

     Section 5. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants
and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of
Credit or Note is outstanding or any Bank has any obligation to make any Loans
or the Administrative Agent has any obligation to issue, extend or renew any
Letters of Credit:

     Section 5.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loans, all Reimbursement
Obligations, the Letter of Credit Fees, the Facility Fee, and the Utilization
Fee, all in accordance with the terms of this Credit Agreement and the Notes.

     Section 5.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief
executive office in Chicago, Illinois, or at such other place in the United
States of America as the Borrower shall designate upon written notice to the
Administrative Agent, where notices, presentations and demands to or upon the
Borrower in respect of the Loan Documents may be given or made.

     Section 5.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause
each of its Subsidiaries to keep, true and accurate records and books of account
in which full, true and correct entries will be made in accordance with
Generally Accepted Accounting Principles and (b) maintain adequate accounts and
reserves for all taxes (including income taxes), depreciation, depletion,
obsolescence and amortization of its properties and the properties of its
Subsidiaries, contingencies, and other reserves.

     Section 5.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrower will deliver to each of the Banks or, with respect to subsection (f) of
this Section 5.4 only, make available to each of the Banks at the Borrower's
principal place of business:

     (a) as soon as practicable, but in any event not later than ninety (90)
days after the end of each fiscal year of the Borrower, the consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such year, and the
related consolidated statements of income, retained earnings and cash flows for
such year, each setting forth in comparative form the figures for the previous
fiscal year and all such consolidated statements to be in reasonable detail,
prepared in accordance with Generally Accepted Accounting Principles, and
certified without material qualification as to any circumstance which could
reasonably be expected to have a material adverse effect on the Borrower and its
Material Subsidiaries, taken as a whole, by independent public accountants of
nationally recognized standing selected by the Borrower and acceptable to the
Majority Banks, together with a written statement from such accountants to the
effect that they have read a copy of this Credit Agreement, and that, in making
the examination necessary to said certification, they have obtained no knowledge
of any Default or Event of Default, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default they shall disclose
in such statement any such Default or Event of Default;



                                      -36-

PROVIDED that such accountants shall not be liable to the Banks for failure to
obtain knowledge of any Default or Event of Default;

     (b) as soon as practicable, but in any event not later than forty-five (45)
days after the end of each of the first three fiscal quarters in each of the
Borrower's fiscal years, copies of the unaudited consolidated balance sheet of
the Borrower and its Subsidiaries as at the end of such quarter, and the related
consolidated statements of income and cash flows for such quarter and the
portion of the Borrower's fiscal year then elapsed, together with comparative
consolidated figures for the same periods of the preceding year, all in
reasonable detail and prepared in accordance with Generally Accepted Accounting
Principles and accompanied by a certificate of the principal financial officer
of the Borrower stating that the information contained in such financial
statements is correct and complete and fairly presents the financial position of
the Borrower and its Subsidiaries on the date thereof and the results of their
operations for the periods covered thereby (subject to year-end adjustments);

     (c) simultaneously with the delivery of the financial statements
referred to in subsection s (a) and (b) above, a statement certified by the
principal financial officer of the Borrower in substantially the form of
EXHIBIT C hereto and setting forth in reasonable detail computations (based
on the four-fiscal quarter period then ended) evidencing compliance with the
covenants contained in Sections 7.1 and 7.2 as at the end of the period
covered by such statements or during such period as may be required, and (if
applicable) reconciliations to reflect changes in Generally Accepted
Accounting Principles since the Balance Sheet Date (each a "COMPLIANCE
CERTIFICATE");

     (d) contemporaneously with the filing or mailing thereof, copies of all
material of a financial nature filed with the Securities and Exchange Commission
or sent to the stockholders of the Borrower or any holder of the Borrower's
Funded Debt;

     (e) promptly upon request by the Administrative Agent or any Bank, all
detailed audits or reports submitted to the Borrower by independent public
accountants in connection with any annual or interim audits of the books of the
Borrower or any Material Subsidiary; and

     (f) from time to time upon request by the Administrative Agent or any Bank,
such other financial data and information (including, without limitation,
accountants management letters and such other information regarding the business
and affairs and condition, financial and other, of the Borrower, its
Subsidiaries and their respective properties) as the Administrative Agent or any
Bank may reasonably request, subject to the confidentiality provisions set forth
in Section 25 hereof.

     Section 5.5. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, material rights, franchises and
Proprietary Rights and those of its Subsidiaries except to the extent that the
Borrower's failure to do so will not have a materially adverse effect on the
assets, financial condition or business of the Borrower and its Material
Subsidiaries, taken as a whole. It (a) will cause all of its material properties
and those of its Subsidiaries used or useful in the conduct of its business or
the business of its Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all reasonably necessary equipment,
(b)



                                      -37-

will cause to be made all reasonably necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (c) will, and will cause
each of its Material Subsidiaries to, continue to engage primarily in the
businesses now conducted by them and in related businesses; PROVIDED that
nothing in this Section 5.5 shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties or those of its Material
Subsidiaries if such discontinuance is, in the sole judgment of the Borrower,
desirable in the conduct of its or their business and that do not in the
aggregate materially adversely affect the business of the Borrower and its
Material Subsidiaries on a consolidated basis.

     Section 5.6. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers
insurance with respect to its insurable properties and business against such
casualties and contingencies as shall be in accordance with the general
practices of businesses engaged in similar activities in similar geographic
areas and in amounts, containing such terms, in such forms and for such periods
as may be reasonably satisfactory to the Administrative Agent; PROVIDED,
HOWEVER, that the Borrower and any Subsidiary may self-insure for physical
damage to automobiles, welfare benefits and against liability to workers in any
state or jurisdiction, or may effect worker's compensation insurance therein
through an insurance fund operated by such state or jurisdiction; and PROVIDED,
FURTHER, that notwithstanding anything to the contrary contained herein, the
Borrower or such Subsidiary will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire or explosion in amounts sufficient to prevent the Borrower or
such Subsidiary from becoming a co-insurer and not in any event less than 80% of
the full insurable value of the property insured.

     Section 5.7. TAXES; ETC. The Borrower will, and will cause each of its
Subsidiaries to, (a) duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue or (b) properly file for and receive
extensions for such payment and duly pay and discharge, or cause to be paid and
discharged, within such extension period, all taxes, assessments and other
governmental charges (other than taxes, assessments and other governmental
charges imposed by foreign jurisdictions, including states in which neither the
Borrower nor any of its Subsidiaries conducts a material portion of its
business, that in the aggregate are not material to the business or assets of
the Borrower on an individual basis or of the Borrower and its Subsidiaries on a
consolidated basis) imposed upon it and its real properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies that if unpaid might by law
become a lien or charge upon any of its property; PROVIDED that any such tax,
assessment, charge, levy or claim need not be paid if the validity or amount
thereof shall currently be contested in good faith by appropriate proceedings
and if the Borrower or such Subsidiary shall have set aside on its books
adequate reserves with respect thereto; and PROVIDED FURTHER that the Borrower
and each Subsidiary of the Borrower will pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any lien that may have attached as security therefor.

     Section 5.8. INSPECTION OF PROPERTIES AND BOOKS. The Borrower shall permit
the Banks, through the Administrative Agent or any of the Banks' other
designated representatives, to visit and inspect any of the properties of the
Borrower or any of its Subsidiaries, to examine the books of



                                      -38-

account of the Borrower and its Subsidiaries (and to make copies thereof and
extracts therefrom), and to discuss the affairs, finances and accounts of the
Borrower and its Subsidiaries with, and to be advised as to the same by, its and
their officers, employees and independent public accountants (such accountants
being hereby authorized by the Borrower to so discuss and advise) all at such
reasonable times and intervals as the Administrative Agent or any Bank may
reasonably request. In connection with any such inspections or discussions, each
Bank, on behalf of itself and any representative authorized by it, agrees to
treat all non-public information as confidential information pursuant to Section
25 and to take all reasonable precautions to prevent such confidential
information from being exposed to third parties and to those of its employees
and representatives who do not need to know such confidential information;
PROVIDED that this Section 5.8 shall not affect the disclosure by any Bank of
information required to be disclosed to its auditors, regulatory agencies or
pursuant to subpoena or other legal process or by virtue of any other law,
regulation, order or interpretation.

     Section 5.9. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Borrower will, and will cause each of its Material Subsidiaries to, comply with
(a) the applicable laws and regulations wherever its business is conducted,
including all Environmental Laws which may be in effect from time to time, (b)
the provisions of its charter documents and by-laws, (c) all agreements and
instruments by which it or any of its properties or business may be bound and
(d) all applicable decrees, orders, and judgments; if in each such case failure
to comply would have a materially adverse effect on the Borrower and its
Material Subsidiaries, taken as a whole. If at any time any authorization,
consent, approval, permit or license from any officer, agency or instrumentality
of any government shall become necessary or required in order that the Borrower
may fulfill any of the Obligations, the Borrower will promptly take or cause to
be taken all reasonable steps within the power of the Borrower to obtain such
authorization, consent, approval, permit or license and furnish the Banks with
evidence thereof.

     Section 5.10. PENSION PLANS. The Borrower and any ERISA Affiliate shall:

     (a) promptly after the Borrower or any ERISA Affiliate knows or has reason
to know that any ERISA Reportable Event has occurred, notify the Administrative
Agent that such ERISA Reportable Event has occurred;

     (b) promptly upon request make available to each Bank at the Borrower's
principal place of business a copy of (i) any actuarial statement related to any
pension plan required to be submitted under Section 103(d) of ERISA or (ii) any
notice, report or demand sent or received by a pension plan under Section 4065
of ERISA;

     (c) furnish to each Bank forthwith, a copy of (i) any notice of a
pension plan termination sent to the PBGC under Section 4041(a) of ERISA and
(ii) any notice, report or demand sent or received by a pension plan under
Sections 4041, 4042, 4043, 4063, 4066 or 4068 of ERISA; and

     (d) furnish to each Bank a copy of any request for waiver from the funding
standards or extension of the amortization periods required by Section 412 of
the Code no later than the date on which the request is submitted to the
Department of Labor or the Internal Revenue Service, as the case may be.



                                      -39-

     Section 5.11. FURTHER ASSURANCES. The Borrower will cooperate with the
Banks and the Administrative Agent and execute such further instruments and
documents as the Banks or the Administrative Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.

     Section 5.12. NOTICES. The Borrower will promptly notify the Administrative
Agent and each of the Banks in writing of the occurrence of any Default or Event
of Default. If any Person shall give any notice or take any other action in
respect of a claimed default (whether or not constituting an Event of Default)
under this Credit Agreement or any other note, evidence of indebtedness,
indenture or other obligation to which or with respect to which the Borrower or
any of its Subsidiaries is a party or obligor, whether as principal or surety,
the Borrower shall forthwith give written notice thereof to each of the Banks,
describing the notice or action and the nature of the claimed default.

     Section 5.13. FAIR LABOR STANDARDS ACT. The Borrower will, and will
cause each of its Subsidiaries to, at all times operate its business in
compliance with all applicable provisions of the Fair Labor Standards Act of
1938 (29 U.S.C. Sections 206 and 207) if the failure to comply with such
provisions might reasonably be expected to have a materially adverse affect
on the Borrower and its Subsidiaries, taken as a whole.

     Section 5.14. ENVIRONMENTAL EVENTS. The Borrower will promptly give notice
to the Administrative Agent (a) of any violation of any Environmental Law that
the Borrower or any of its Subsidiaries reports in writing or is reportable by
such Person in writing (or for which any written report supplemental to any oral
report is made) to any federal, state or local environmental agency and (b) upon
becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental liability,
or any federal, state or local environmental agency or board, that might
reasonably be expected to materially adversely affect the assets, liabilities,
financial conditions or operations of the Borrower and its Material Subsidiaries
on a consolidated basis.

     Section 5.15. NOTIFICATION OF CLAIMS. The Borrower will, immediately upon
becoming aware thereof, notify the Administrative Agent in writing of any
uninsured set-off, claims (including, with respect to the Real Estate,
environmental claims), withholdings or other defenses which might reasonably be
expected to have a materially adverse affect on the assets, liabilities,
financial conditions or operations of the Borrower and its Material Subsidiaries
on a consolidated basis.

     Section 5.16. USE OF PROCEEDS. The Borrower will use the proceeds of the
Loans and obtain Letters of Credit solely for general corporate purposes,
including without limitation the financing of capital expenditures and
acquisitions and for working capital purposes.

     Section 5.17. NOTICE OF LITIGATION, JUDGMENT AND MATERIAL EVENTS. The
Borrower will give notice to the Administrative Agent in writing within fifteen
(15) days of becoming aware of any litigation or proceedings threatened in
writing or any pending litigation and proceedings affecting the Borrower or any
of its Subsidiaries or to which the Borrower or any of its Subsidiaries is or
becomes a party involving an uninsured claim against the Borrower individually
or the Borrower and its Subsidiaries on a consolidated basis that could
reasonably be



                                      -40-

expected to have a materially adverse effect on the Borrower and its
Subsidiaries on a consolidated basis and stating the nature and status of such
litigation or proceedings. The Borrower will, and will cause each of its
Subsidiaries to, give notice to the Administrative Agent, in writing, in form
and detail satisfactory to the Administrative Agent, (a) within ten (10) days of
any judgment not covered by insurance or reserves, final or otherwise, against
the Borrower or any of its Subsidiaries in an amount which in aggregate with
other such judgments against the Borrower or any of its Subsidiaries exceeds
five percent (5%) of the Consolidated Net Worth of the Borrower and (b) promptly
after becoming aware thereof, of the occurrence of any event that it is
reasonable to expect will be required to be reported to or filed with the
Securities and Exchange Commission.

     Section 6. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower
covenants and agrees that, so long as any Loan, Unpaid Reimbursement
Obligations, Letter of Credit or Note is outstanding or any Bank has any
obligation to make any Loans or the Administrative Agent has any obligation to
issue, extend or renew any Letters of Credit:

     Section 6.1. INDEBTEDNESS. The Borrower will not, and will not permit any
of its Subsidiaries to incur any Funded Debt if an Event of Default will occur
hereunder immediately after giving effect thereto as a consequence of the
incurrence of such Funded Debt. The Borrower will not incur any obligation to
repay money borrowed in an aggregate amount in excess of $225,000,000 under or
in connection with any line of credit having an initial or scheduled maturity
date of less than one year from the initial borrowing date or renewal date
therefor.

     Section 6.2. RESTRICTIONS ON LIENS. The Borrower shall not, and shall not
cause or permit any of its Subsidiaries to, create, incur or permit to exist any
Liens of any kind on any property or assets of any character, whether now owned
or hereafter acquired other than the following Liens:

     (a) Liens to secure taxes, assessments and other government charges in
respect of obligations not overdue or liens on properties to secure claims for
labor, material or supplies in respect of obligations not overdue or in respect
of which the Borrower or relevant Subsidiary shall at the time in good faith be
prosecuting an appeal or proceeding for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review and for which
any reserves required in accordance with Generally Accepted Accounting
Principles have been established;

     (b) deposits or pledges made in connection with, or to secure payment of,
workmen's compensation, unemployment insurance, old age pensions or other social
security obligations;

     (c) Liens on properties in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower or
relevant Subsidiary shall at the time in good faith be prosecuting an appeal or
proceeding for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review and for which any reserves required
in accordance with Generally Accepted Accounting Principles have been
established;



                                      -41-

     (d) Liens of carriers, warehousemen, mechanics and materialmen, and other
like liens on properties in existence less than 120 days from the date of
creation thereof in respect of obligations not overdue;

     (e) encumbrances consisting of easements, rights of way, zoning
restrictions, restrictions on the use of real property and defects and
irregularities in the title thereto, landlord's or lessor's liens under leases
to which the Borrower or relevant Subsidiary is a party, and other minor liens
or encumbrances none of which in the opinion of the Borrower interferes
materially with the use of the property affected in the ordinary conduct of the
business of the Borrower or such Subsidiary, which defects do not individually
or in the aggregate have a materially adverse effect on the business of the
Borrower or such Subsidiary individually or of the Borrower and its Subsidiaries
on a consolidated basis;

     (f) presently outstanding Liens listed on SCHEDULE 6.2. hereto;

     (g) Liens on property existing at the time the Borrower or relevant
Subsidiary acquires such property and not created in anticipation of such
acquisition, purchase money security interests in or purchase money mortgages on
real or personal property acquired or constructed after the date hereof to
secure Funded Debt permitted to be incurred hereunder and incurred in connection
with the acquisition or construction of such property at the time of or within
270 days following the acquisition of such property, which security interests or
mortgages cover only the real or personal property so acquired, and Liens on
existing properties or assets to secure Funded Debt permitted hereunder and
incurred for improvements on such properties or assets;

     (h) Liens on the property of a Person (i) existing at the time such Person
is merged into or consolidated with the Borrower or relevant Subsidiary as
permitted hereby or at the time of a sale, lease or other disposition of the
properties of a Person as an entirety or substantially as an entirety to the
Borrower or relevant Subsidiary as permitted hereby, (ii) resulting from such
merger, consolidation, sale, lease or disposition by virtue of any Lien on
property granted by the Borrower or relevant Subsidiary as permitted hereby
prior to such merger, consolidation, sale, lease or disposition (and not in
contemplation thereof or in connection therewith) which applies to
after-acquired property of the Borrower or relevant Subsidiary, or (iii)
resulting from such merger, consolidation, sale, lease or disposition pursuant
to a Lien or contractual provision granted or entered into by such Person prior
to such merger, consolidation, sale, lease or disposition (and not at the
request of the Borrower or relevant Subsidiary); PROVIDED that any such Lien
referred to in clause (i) shall not apply to any property of the Borrower or
relevant Subsidiary other than the property subject thereto at the time such
Person or properties were acquired and any such Lien referred to in clause (ii)
or (iii) shall not apply to any property of the Borrower or relevant Subsidiary
other than the property so acquired;

     (i) Liens arising by reason of deposits with, or the giving of any form of
security to, any governmental agency or any body created or approved by law or
governmental regulation, which Lien is required by law or governmental
regulation as a condition to the transaction of any business or the exercise of
any privilege, franchise, license or permit and Liens in favor of a government
or governmental entity to secure partial progress, advance or other payments, or
other obligations, pursuant to any contract or statute or to secure any
indebtedness incurred for



                                      -42-

the purpose of financing all or any part of the costs of acquiring, constructing
or improving the property subject to such Liens (including, without limitation,
Liens incurred in connection with pollution control, industrial revenue, private
activity bond or similar financing);

     (j) Liens incurred by any telephone company owned by the Borrower or any of
its Subsidiaries to secure Funded Debt owing to governmental entities such as
the Rural Utility Services, Rural Electrification Administration, Rural
Telephone Bank or Rural Telephone Finance Cooperative and Liens incurred by the
Borrower or any of its Subsidiaries to secure the indebtedness incurred to
finance the purchase of equipment or services;

     (k) Liens on any equity interests owned by the Borrower or any of its
Subsidiaries in (i) Deutsche Telekom AG, Rural Cellular Corporation, Verisign,
Inc., Vodafone Group plc or any of their respective successors, or (ii) any
other Person or Persons that are not directly, or indirectly through one or more
intermediaries, controlled by the Borrower or by any of its Subsidiaries;

     For the purposes of this provision, the term "CONTROL" (including, with
correlative meanings, the terms "CONTROLLED BY", "UNDER COMMON CONTROL" and
other terms of similar import, shall mean the possession, directly or indirectly
through one or more intermediaries, of the power to elect at least a majority of
the members of the board of directors or other management of any person, whether
through the ownership of voting securities, by contract or otherwise.

     (l) Liens incurred on deposits made in the ordinary course of business to
secure surety and appeal bonds, leases, return-on-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);

     (m) Liens upon or in any property or assets now owned or from time to time
hereafter acquired by United States Cellular Corporation or any of its
Subsidiaries related in any way to the ownership by United States Cellular
Corporation or by any of its Subsidiaries of wireless telecommunications towers,
including, but not limited to, tower structures, land on which towers are
located, other real estate associated with such towers, leases for towers or for
tower sites, subleases, licenses, collocation arrangements, easements and all
other real property and other tangible or intangible assets related thereto;

     (n) any extension, renewal or replacement (or successive extensions,
renewals or replacements) in whole or in part of any Lien referred to in the
foregoing clauses (a) through (m), inclusive; PROVIDED, HOWEVER, that the
principal amount secured thereby shall not exceed the principal amount secured
thereby at the time of such extension, renewal or replacement, and that such
extension, renewal or replacement shall be limited to all or a part of the
property which secured the obligation so extended, renewed or replaced (plus
improvements to such property); and

     (o) any other Liens on the property and assets of the Borrower and its
Subsidiaries so long as the net book value of all of the property and assets
subject to all of such other Liens, together with the net book value of all of
the property and assets subject to Sale and Leaseback



                                      -43-

Transactions permitted by Section 6.8(g), shall not at any time in the aggregate
exceed twenty percent (20%) of Consolidated Net Assets.

     Section 6.3. LIMITATION ON SALES, CONSOLIDATION, MERGER, ETC.

     (a) The Borrower will not, and will not permit any of its Subsidiaries to
complete a Sale if a Default or Event of Default is continuing, or would result
immediately after giving effect to such Sale.

     (b) Nothing contained in this Credit Agreement shall prevent any
consolidation of the Borrower with or merger of the Borrower into any other
Person or Persons (whether or not affiliated with the Borrower), or successive
consolidations or mergers to which the Borrower or its successor or successors
shall be a party or parties, PROVIDED that, the Borrower hereby consents and
agrees that, upon any such consolidation or merger, the due and punctual payment
of the principal of and interest on all of the Loans and the due and punctual
performance and observance of all of the covenants, conditions and other
obligations of the Credit Agreement and the Notes to be performed and observed
by the Borrower, shall be expressly assumed in an agreement satisfactory in form
and substance to the Administrative Agent and the Banks, executed and delivered
to the Administrative Agent by the Person formed by such consolidation or
merger, PROVIDED, FURTHER, that the Person formed by such consolidation or
merger shall be a Person organized and existing under the laws of the United
States, any state thereof or the District of Columbia, and PROVIDED, FURTHER,
that immediately before and after giving effect to any such transaction (and
treating any Funded Debt or Sale and Leaseback Transaction which becomes an
obligation of the resulting or surviving Person as a result of such transaction
as having been incurred or entered into by such Person at the time of such
transaction), no Default or Event of Default shall exist. Unless the conditions
prescribed above in this Section 6.3(b) are satisfied, no such consolidation or
merger shall be permitted.

     (c) Nothing contained in this Credit Agreement shall prevent any
consolidation of any Subsidiary of the Borrower with, or merger of any
Subsidiary of the Borrower into, any other Person or Persons (whether or not
affiliated with the Borrower), or successive consolidations or mergers to which
any such Subsidiary of the Borrower or its successor or successors shall be a
party or parties, PROVIDED that, immediately before and after giving effect to
any such transaction, no Default or Event of Default shall exist. Unless the
condition prescribed above in this Section 6.3(c) is satisfied, no such
consolidation or merger shall be permitted.

     Section 6.4. FEDERAL REGULATIONS. The Borrower will not, and will not
permit any of its Subsidiaries to, engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"PURCHASING" or "CARRYING" any "MARGIN STOCK" within the respective meanings of
each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System. The Borrower will not, directly or indirectly, use any
part of the proceeds of any Loans for "PURCHASING" or "CARRYING" any "MARGIN
STOCK" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System or for any
purpose that violates, or that would be inconsistent with, the provisions of the
Regulations of such Board of Governors.



                                      -44-

     Section 6.5. RESTRICTIONS ON ABILITY TO REPAY LOANS. The Borrower will not,
and will not permit any of its Material Subsidiaries to, become or remain
subject to any restriction which could reasonably be expected to impair the
Borrower's ability to repay in full its Obligations hereunder, including,
without limitation, any restriction which would prohibit the distribution by any
Material Subsidiary to the Borrower of proceeds from asset sales.

     Section 6.6. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will:

     (a) engage in any "PROHIBITED TRANSACTION" within the meaning of Section
406 of ERISA or Section 4975 of the Code which could result in a material
liability for the Borrower or any of its Subsidiaries; or

     (b) permit any Guaranteed Pension Plan (other than those maintained by
Persons that become ERISA Affiliates after the Closing Date) to incur an
"ACCUMULATED FUNDING DEFICIENCY", as such term is defined in Section 302 of
ERISA, in excess of $500,000, whether or not such deficiency is or may be
waived; or

     (c) fail to contribute to any Guaranteed Pension Plan to an extent which,
or terminate any Guaranteed Pension Plan in a manner which, could result in the
imposition of a lien or encumbrance on the assets of the Borrower or any of its
Subsidiaries pursuant to Section 302(f) or Section 4068 of ERISA; or

     (d) permit or take any action which would result in the aggregate benefit
liabilities (with the meaning of Section 4001 of ERISA) of all Guaranteed
Pension Plans (other than those maintained by Persons that become ERISA
Affiliates after the Closing Date) exceeding the value of the aggregate assets
of such Plans by more than $500,000, disregarding for this purpose the benefit
liabilities and assets of any such Plan with assets in excess of benefit
liabilities.

     Section 6.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as permitted by any
applicable Environmental Laws, the Borrower will not, and will not permit any of
its Subsidiaries to, (a) use any of the Real Estate or any portion thereof for
the handling, processing, storage or disposal of Hazardous Substances, (b) cause
or permit to be located on any of the Real Estate any underground tank or other
underground storage receptacle for Hazardous Substances, (c) generate any
Hazardous Substances on any of the Real Estate, (d) conduct any activity at any
Real Estate or use any Real Estate in any manner which is likely to cause a
release (i.e., releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing or dumping) of
Hazardous Substances on, upon or into the Real Estate or (e) otherwise conduct
any activity at any Real Estate or use any Real Estate in any manner that might
reasonably be expected to violate any Environmental Law or bring such Real
Estate in violation of any Environmental Law if any of the foregoing would be
reasonably likely to have a material adverse effect on the Borrower and its
Subsidiaries, taken as a whole.

     Section 6.8. LIMITATION ON SALE AND LEASEBACK. The Borrower will not, and
will not cause or permit any of its Subsidiaries to, enter into any Sale and
Leaseback Transactions, other than the following:

     (a) presently outstanding Sale and Leaseback Transactions listed on
SCHEDULE 6.8 hereto;



                                  -45-

     (b) any Sale and Leaseback Transaction entered into by the Borrower to
finance the payment of all or any part of the purchase price of such real or
personal property (including any improvements to existing property) acquired or
constructed after the date hereof at the time of or within 270 days following
the acquisition or construction of such property, which covers only the real or
personal property so acquired and does not in the aggregate exceed the lesser of
the purchase price or the fair market value of such property;

     (c) any Sale and Leaseback Transaction involving property of a Person
existing at the time such Person is merged into or consolidated with the
Borrower as permitted hereby or at the time of a sale, lease or other
disposition of the properties of a Person as an entirety or substantially as an
entirety to the Borrower as permitted hereby;

     (d) any Sale and Leaseback Transaction in which the lessor is a government
or governmental entity and which Sale and Leaseback Transaction is entered into
to secure partial progress, advance or other payments, or other obligations,
pursuant to any contract or statute or to secure any indebtedness incurred for
the purpose of securing all or any part of the cost of constructing or improving
the property subject to such Sale and Leaseback Transaction (including, without
limitation, Sale and Leaseback Transactions incurred in connection with
pollution control, industrial revenue, private activity bond or similar
financing);

     (e) any Sale and Leaseback Transaction the net proceeds of which are at
least equal to the fair value (as determined by the Borrower's Board of
Directors) of the property leased pursuant to such Sale and Leaseback
Transaction, so long as within 270 days of the effective date of such Sale and
Leaseback Transaction, the Borrower applies (or irrevocably commits to an escrow
account for the purpose or purposes hereinafter mentioned) an amount equal to
the net proceeds of such Sale and Leaseback Transaction to either (x) the
purchase of other property having a fair market value at least equal to the fair
market value of the property leased in such Sale and Leaseback Transaction and
having a similar utility and function or (y) the repayment of Funded Debt of the
Borrower or the retirement of preferred stock of any Subsidiary (other than
preferred stock owned by the Borrower or any Subsidiary) and if any such
repayment is applied to the Loans under this Credit Agreement then upon such
repayment the Total Commitment shall be automatically reduced by an amount equal
to the amount of such repayment;

     (f) any Sale and Leaseback Transaction involving any property or assets now
owned or from time to time hereafter acquired by United States Cellular
Corporation or any of its Subsidiaries related in any way to the ownership by
United States Cellular Corporation or by any of its Subsidiaries of wireless
telecommunications towers, including, but not limited to, tower structures, land
on which towers are located, other real estate associated with such towers,
leases for towers or for tower sites, subleases, licenses, collocation
arrangements, easements and all other real property and other tangible or
intangible assets related thereto;

     (g) any other Sale and Leaseback Transactions so long as the net book
value of all of the property and assets subject to all of such other Sale and
Leaseback Transactions, together with the net book value of all of the
property and assets subject to Liens permitted by Section 6.2(o), shall not
at any time in the aggregate exceed more than twenty percent (20%) of
Consolidated Net Assets; and



                                      -46-

     (h) any Sale and Leaseback Transaction involving the extension, renewal or
replacement (or successive extensions, renewals or replacements) in whole or in
part of a lease pursuant to a Sale and Leaseback Transaction referred to in the
foregoing clauses (a) through (g), inclusive; provided, however, that any such
lease, extension, renewal or replacement shall be limited to all or any part of
the same property leased under the lease so extended, renewed or replaced (plus
improvements to such property).

     Section 7. FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and
agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of
Credit or Note is outstanding or any Bank has any obligation to make any Loans
or the Administrative Agent has any obligation to issue, extend or renew any
Letters of Credit:

     Section 7.1. DEBT TO CAPITALIZATION RATIO. The Borrower will not permit its
Funded Debt to Capitalization Ratio to exceed sixty-five percent at any time.

     Section 7.2. INTEREST COVERAGE RATIO. The Borrower will not permit its
Interest Coverage Ratio for any period consisting of the four consecutive fiscal
quarters of the Borrower most recently ended to be less than 3.00 to 1.00.

     Section 8. CLOSING CONDITIONS. The effectiveness of this Agreement and the
obligation of any Bank to make the initial Loans and of the Administrative Agent
to issue any initial Letters of Credit on the Closing Date shall be subject to
the satisfaction of the following conditions precedent:

     Section 8.1. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Borrower of this Credit Agreement and
the other Loan Documents to which it is or is to become a party shall have been
duly and effectively taken, and evidence thereof satisfactory to the Banks shall
have been provided to each of the Banks.

     Section 8.2. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to each of the
Banks. Each Bank shall have received a fully executed copy of each such
document.

     Section 8.3. OPINION OF BORROWER'S LEGAL COUNSEL. Each of the Banks and the
Administrative Agent shall have received from legal counsel to the Borrower, a
favorable opinion addressed to the Banks and the Administrative Agent dated the
Closing Date, in substantially the form of EXHIBIT D hereto.

     Section 8.4. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall
have received from the Borrower a copy of the Borrower's charter or other
incorporation documents and by-laws certified by the Secretary of the Borrower
to be true and complete as of the Closing Date.

     Section 8.5. INCUMBENCY CERTIFICATE. Each of the Banks shall have received
from the Borrower an incumbency certificate, dated the Closing Date, signed by a
duly authorized officer of the Borrower, and giving the name and bearing a
specimen signature of each individual who shall be authorized: (a) to sign, in
the name and on behalf of the Borrower, each of the Loan Documents



                                      -47-

to which it is or is to become a party; (b) to make Loan Requests, Continuation
Requests and to apply for Letters of Credit; and (c) to give notices and to take
other action on its behalf under the Loan Documents.

     Section 8.6. GOOD STANDING CERTIFICATES. The Administrative Agent shall
have received, with a copy for each Bank, A certificate from the Secretary of
State, or other appropriate authority of such jurisdiction, evidencing the good
standing of the Borrower in the jurisdiction of its incorporation and each
jurisdiction in which a failure to so qualify could have a materially adverse
effect on the business, operations, property or financial or other condition of
the Borrower.

     Section 8.7. PAYMENT OF FEES. The Borrower shall have paid (a) to the
Agents all fees which the Borrower is obligated to pay on the Closing Date
pursuant to the fee letters executed by the Borrower and the Agents in
connection with this Credit Agreement and (b) to the Administrative Agent's
Special Counsel all invoiced amounts which the Borrower is obligated to pay
pursuant to Section 12(c).

     Section 8.8. TERMINATION OF EXISTING CREDIT FACILITIES. The Borrower shall
have terminated its existing $500,000,000 credit facility governed by the
Revolving Credit Agreement, dated as of June 7, 1996, and its existing
$600,000,000 credit facility governed by the Revolving Credit Agreement, dated
as of May 14, 2001. The Borrower shall have made arrangements satisfactory to
the Administrative Agent to repay all loans, interest, fees and other amounts
owing under such credit facilities on the Closing Date from the proceeds this
Credit Agreement or otherwise.

     Section 8.9. RECEIPT OF FINANCIAL STATEMENTS. Each of the Banks shall have
received from the Borrower a certified copy of the Borrower's audited
consolidated balance sheet and the related consolidated statements of income,
retained earnings and cash flows for the Borrower's fiscal year ended December
31, 2000, each setting forth in comparative form the figures for the previous
fiscal year and all such consolidated statements to be in reasonable detail.
Each of the Banks shall also have received from the Borrower a copy of the
Borrower's unaudited consolidated balance sheet and related consolidated
statements of income and cash flows for the Borrower's fiscal quarter ended
September 30, 2001, together with comparative consolidated figures for the same
period of the preceding year.

     Section 9. CONDITIONS TO ALL BORROWINGS. The obligation of any Bank to make
any Loan, and of the Administrative Agent to issue, extend or renew any Letter
of Credit, in each case whether on or after the Closing Date, shall also be
subject to the satisfaction of the following conditions precedent:

     Section 9.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of the Borrower contained in this Credit
Agreement or in any document or instrument delivered pursuant to or in
connection with this Credit Agreement shall be true as of the date as of which
they were made and shall also be true at and as of the time of the making of the
Loan or the issuance, extension or renewal of such Letter of Credit, with the
same effect as if made at and as of that time (except to the extent of changes
resulting from transactions contemplated or permitted by this Credit Agreement
and changes occurring in the ordinary course of business that



                                      -48-

singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing. The
Administrative Agent shall have received a certificate of the Borrower signed by
an authorized officer of the Borrower to such effect.

     Section 9.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of any Bank would make it illegal for such Bank to make the Loans or to
participate in the issuance, extension or renewal of any Letter of Credit or in
the reasonable opinion of the Administrative Agent would make it illegal for the
Administrative Agent to issue, extend or renew any Letter of Credit.

     Section 9.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.

     Section 9.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with
the transactions contemplated by this Credit Agreement and all documents
incident thereto shall be satisfactory in substance and in form to the Banks and
to the Administrative Agent's Special Counsel, and the Banks and such counsel
shall have received all information and such counterpart originals or certified
or other copies of such documents as the Banks may reasonably request.

     Section 9.5. NO MATERIAL ADVERSE CHANGE. No Material Adverse Change shall
have occurred since December 31, 2000.

     Section 9.6. EXCHANGE LIMITATION. There exists no reason whatsoever,
including without limitation, by reason of the application of any so-called
"CURRENCY EXCHANGE" laws or regulations (as in effect at the time of any
proposed borrowing hereunder) which could reasonably be expected to interfere
with the Borrower satisfying any of its obligations hereunder in full at such
time as such Obligations become due and payable pursuant to the terms hereof.

     Section 10. EVENTS OF DEFAULT; ACCELERATION. If any of the following events
("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "DEFAULTS") shall occur:


     (a) the Borrower shall fail to pay any principal of the Loans or any
Reimbursement Obligation when the same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment;

     (b) the Borrower shall fail to pay any interest on the Loans, any Letter of
Credit Fee, the Facility Fee, the Utilization Fee or other sums due hereunder or
under any of the other Loan Documents, on or prior to the second day immediately
succeeding the day on which the same shall become due and payable, whether at
the stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment;

     (c) the Borrower or any Subsidiary of the Borrower shall fail to comply
with any of its covenants contained in Sections 5.9, 5.10, 5.12, 5.15 through
5.17, inclusive, Section 6 or Section 7;



                                      -49-

     (d) the Borrower fails to perform any term, covenant or agreement contained
in Section 5.4 for five (5) days after written notice of such failure has been
given to the Borrower by the Administrative Agent or the Borrower shall fail to
perform any other term, covenant or agreement contained herein or in any of the
other Loan Documents (other than those specified elsewhere in this Section 10)
for thirty (30) days after written notice of such failure has been given to the
Borrower by the Administrative Agent or, if such performance is not possible
within such thirty (30) day period, the Borrower shall fail to undertake such
performance within such thirty (30) day period and thereafter to diligently and
in good faith pursue the completion of such performance;

     (e) any representation or warranty of the Borrower or any of its
Subsidiaries in this Credit Agreement or any of the other Loan Documents or in
any other document or instrument delivered pursuant to or in connection with
this Credit Agreement shall prove to have been false in any material respect
upon the date when made;

     (f) the Borrower or any of its Subsidiaries shall (i) fail to pay at
maturity, or within any applicable period of grace, any obligation for borrowed
money in an aggregate amount equal to or greater than 2% of the Consolidated
Capitalization of the Borrower or (ii) fail to observe or perform any term,
covenant or agreement relating to or contained in any instrument or agreement
evidencing or securing any obligation for borrowed money which results in the
acceleration (whether by declaration or automatically) of such indebtedness in
an aggregate amount equal to or greater than 2% of the Consolidated
Capitalization of the Borrower;

     (g) the Borrower or any of its Material Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its inability to
pay or generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Borrower or any of its Material Subsidiaries or of
any substantial part of the assets of the Borrower or any of its Material
Subsidiaries or shall commence any case or other proceeding relating to the
Borrower or any of its Material Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect, or
shall take any action to authorize or in furtherance of any of the foregoing, or
if any such petition or application shall be filed or any such case or other
proceeding shall be commenced against the Borrower or any of its Material
Subsidiaries and the Borrower or any of its Material Subsidiaries shall indicate
its approval thereof, consent thereto or acquiescence therein;

     (h) a decree or order is entered appointing any such trustee, custodian,
liquidator or receiver or adjudicating the Borrower or any of its Material
Subsidiaries bankrupt or insolvent, or approving a petition in any such case or
other proceeding, or a decree or order for relief is entered in respect of the
Borrower or any Material Subsidiary of the Borrower in an involuntary case under
federal bankruptcy laws as now or hereafter constituted;

     (i) there shall remain in force, undischarged, unsatisfied and unstayed,
for more than thirty (30) days, whether or not consecutive, any final judgment
against the Borrower or any of its Subsidiaries that, with other outstanding
final judgments, undischarged and not



                                      -50-

covered by insurance, against such Person(s) exceeds in the aggregate five (5)
percent of the Consolidated Net Worth of the Borrower; or

     (j) a Change in Control occurs;

then, and in any such event, so long as the same may be continuing, the
Administrative Agent may, and upon the request of the Majority Banks shall, by
notice in writing to the Borrower declare all amounts owing with respect to this
Credit Agreement, the Notes, the other Loan Documents and all Reimbursement
Obligations to be, and they shall thereupon forthwith become, immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower; PROVIDED that in the
event of any Event of Default specified in Section 10(g) or Section 10(h), all
such amounts shall become immediately due and payable automatically and without
any requirement of notice from the Administrative Agent or any Bank.

     If any one or more of the Events of Default specified in Section 10(g) or
Section 10(h) shall occur, any unused portion of the credit hereunder shall
forthwith terminate and each of the Banks shall be relieved of all obligations
to make Loans hereunder and the Administrative Agent shall be relieved of all
further obligations to issue, extend or renew Letters of Credit. If any other
Event of Default shall have occurred and be continuing, the Administrative
Agent, upon the request of the Majority Banks, shall, by notice to the Borrower,
terminate the unused portion of the credit hereunder, and upon such notice being
given such unused portion of the credit hereunder shall terminate immediately
and each of the Banks shall be relieved of all further obligations to make Loans
and the Administrative Agent shall be relieved of all further obligations to
issue, extend or renew Letters of Credit. If any such notice is given to the
Borrower, the Administrative Agent will forthwith furnish a copy thereof to each
of the Banks. No termination of the credit hereunder shall relieve the Borrower
of any of the Obligations or any of its existing obligations to the Banks
arising under other agreements or instruments.

     Section 11. THE AGENTS.

     Section 11.1. AUTHORIZATION. The Administrative Agent is authorized to take
such action on behalf of each of the Banks and to exercise all such powers as
are hereunder and in related documents delegated to the Administrative Agent,
together with such powers as are reasonably incident thereto; PROVIDED that no
duties or responsibilities not expressly assumed herein or therein shall be
implied to have been assumed by the Administrative Agent. The relationship among
the Agents, on the one hand, and the Banks, on the other hand, shall be that of
agent and principal only and nothing contained in this Credit Agreement or any
of the related documents shall be construed to constitute the Agents as trustees
of the Banks.

     Section 11.2. EMPLOYEES AND AGENTS. The Administrative Agent may exercise
its powers and execute its duties by or through employees or agents and shall be
entitled to take, and to rely on, advice of counsel concerning all matters
pertaining to its rights and duties under this Credit Agreement and the other
Loan Documents. The Administrative Agent may utilize the services of such
Persons as the Administrative Agent in its sole discretion may reasonably
determine, and upon the occurrence and during the continuation of a Default or
an Event of Default, all reasonable fees and expenses of any such Persons shall
be paid by the Borrower.



                                      -51-

     Section 11.3. NO LIABILITY. None of the Agents nor any of their respective
shareholders, directors, officers or employees nor any other Person assisting
them in their duties nor any agent or employee thereof, shall be liable for any
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Agents or such
other Person, as the case may be, may be liable for losses due to its own
willful misconduct or gross negligence.

     Section 11.4. NO REPRESENTATIONS. The Agents shall not be responsible for
the execution or validity or enforceability of this Credit Agreement, the Notes,
the Letters of Credit or any instrument at any time constituting, or intended to
constitute, collateral security for the Notes, or for the value of any such
collateral security or for the validity, enforceability or collectability of any
such amounts owing with respect to the Notes, or for any recitals or statements,
warranties or representations made herein or in any of the other Loan Documents
or in any certificate or instrument hereafter furnished to it by or on behalf of
the Borrower, or be bound to ascertain or inquire as to the performance or
observance of any of the terms, conditions, covenants or agreements herein or in
any instrument at any time constituting, or intended to constitute, collateral
security for the Notes. The Agents shall not be bound to ascertain whether any
notice, consent, waiver or request delivered to them by the Borrower or any
holder of any of the Notes shall have been duly authorized or is true, accurate
and complete. The Agents have not made nor do they now make any representations
or warranties, express or implied, nor do they assume any liability to the
Banks, with respect to the credit worthiness or financial conditions of the
Borrower or any of its Subsidiaries. Each Bank acknowledges that it has,
independently and without reliance upon the Agents or the other Banks, and based
upon such information and documents as it has deemed appropriate, made its own
credit analysis and decision to enter into this Credit Agreement.

     Section 11.5. PAYMENTS. If in the opinion of the Administrative Agent the
distribution of any amount received by it in such capacity hereunder or under
the Notes might involve it in liability, it may refrain from making distribution
until its right to make distribution shall have been adjudicated by a court of
competent jurisdiction. If a court of competent jurisdiction shall adjudge that
any amount received and distributed by the Administrative Agent is to be repaid,
each Person to whom any such distribution shall have been made shall either
repay to the Administrative Agent its proportionate share of the amount so
adjudged to be repaid or shall pay over the same in such manner and to such
Persons as shall be determined by such court. With respect to Obligations, a
payment to the Administrative Agent shall be deemed to be a payment to each Bank
of its PRO RATA share of such payment.

     Section 11.6. HOLDERS OF NOTES. The Administrative Agent may deem and treat
the payee of any Note or the purchaser of any Letter of Credit Participation as
the absolute owner thereof for all purposes hereof until it shall have been
furnished in writing with a different name by such payee or by a subsequent
holder.

     Section 11.7. INDEMNITY. The Banks jointly and severally agree hereby to
indemnify and hold harmless the Agents from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agents have not been reimbursed
by the Borrower as required by Section 12 or Section 13), and liabilities of
every



                                      -52-

nature and character arising out of or related to this Credit Agreement or the
Notes or the transactions contemplated or evidenced hereby or thereby, or the
Agents' actions taken hereunder or thereunder, except to the extent that any of
the same shall be directly caused by such Agent's own willful misconduct or
gross negligence.

     Section 11.8. AGENTS AS BANKS. In their individual capacities, Fleet,
LaSalle Bank National Association, Wachovia Bank, N.A., The Bank of
Tokyo-Mitsubishi, Ltd., Chicago Branch, and Toronto Dominion (Texas), Inc. shall
have the same obligations and the same rights, powers and privileges in respect
to its Commitments and the Loans made by it, and as the holder of any of the
Notes and as the purchaser of any Letter of Credit Participations, as Fleet
would have were it not also an Agent or an Affiliate of an Agent.

     Section 11.9. RESIGNATION. Any Agent may resign at any time by giving
ninety (90) days' prior written notice thereof to the Banks and the Borrower.
Upon any such resignation, the Majority Banks shall have the right to appoint
another Bank or any other financial institution as the successor Agent. Unless a
Default or Event of Default shall have occurred and be continuing, such
successor, if other than a Bank, shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, as the case may be. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation, the provisions of this Credit Agreement shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.

     Section 11.10. DOCUMENTATION AGENTS AND SYNDICATION AGENT. Neither the
Documentation Agents nor the Syndication Agent shall have any right, power,
obligation, liability, responsibility or duty under this Credit Agreement other
than those applicable to all Banks as such.

     Section 12. EXPENSES. The Borrower agrees to pay (a) the reasonable cost of
producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (b) any taxes (including
any interest and penalties in respect thereto) payable by the Administrative
Agent or the Banks (other than taxes based upon the Administrative Agent's or
any Bank's net income) on or with respect to the transactions contemplated by
this Credit Agreement (the Borrower hereby agreeing to indemnify the Banks with
respect thereto), (c) the reasonable fees, expenses and disbursements of the
Administrative Agent's Special Counsel or any local counsel to the
Administrative Agent incurred in connection with the preparation, syndication,
administration or interpretation of the Loan Documents and other instruments
mentioned herein, each closing hereunder, and amendments, modifications,
approvals, consents or waivers hereto or hereunder regardless of whether any
such transaction is consummated, (d) the fees, expenses and disbursements of the
Administrative Agent incurred by the Administrative Agent in connection with the
preparation, syndication, administration or interpretation of the Loan Documents
and other instruments mentioned herein, each closing hereunder and amendments,
modifications, approvals, consents or waivers hereto or hereunder, regardless of
whether any such transaction is consummated, and (e) all reasonable
out-of-pocket



                                      -53-

expenses (including reasonable attorneys' (which attorneys may be, but shall not
be required to be, employees of any Bank or the Administrative Agent) fees and
costs) incurred by any Bank or the Administrative Agent in connection with (i)
the enforcement of any of the Loan Documents against the Borrower or any of its
Subsidiaries or the administration thereof after the occurrence of a Default or
Event of Default, (ii) any so-called "WORK-OUT" of the Obligations and (iii) any
litigation, proceeding or dispute whether arising hereunder or otherwise in
connection with the transactions contemplated hereby or under the other Loan
Documents, in any way related to any Bank's or the Administrative Agent's
relationship with the Borrower or any of its Subsidiaries. The covenants of this
Section 12 shall survive payment or satisfaction of payment of amounts owing
under or with respect to the Loan Documents.

     Section 13. INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Administrative Agent and the Banks from and against any and all
claims, actions and suits whether groundless or otherwise, and from and against
any and all liabilities, losses, damages and expenses of every nature and
character arising out of this Credit Agreement or any of the other Loan
Documents or the transactions evidenced hereby unless any such claims, actions
or suits arise out of the Administrative Agent's or the Banks' intentional
misconduct or gross negligence. In litigation, or the preparation therefor, the
Banks and the Administrative Agent shall be entitled to select their own counsel
and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly
the reasonable fees and expenses of such counsel. If, and to the extent that the
obligations of the Borrower under this Section 13 are unenforceable for any
reason, the Borrower hereby agrees to make the maximum contribution to the
payment in satisfaction of such obligations which is permissible under
applicable law. The covenants of this Section 13 shall survive payment or
satisfaction of payment of amounts owing under or with respect to the Loan
Documents.

     Section 14. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower pursuant hereto shall be deemed to have been relied upon by the
Banks and the Administrative Agent, notwithstanding any investigation heretofore
or hereafter made by any of them, and shall survive the making by the Banks of
the Loans and the issuance, extension or renewal of any Letters of Credit, as
herein contemplated, and shall continue in full force and effect so long as any
Obligation remains outstanding or any Bank has any obligation to make any Loans
or the Administrative Agent has any obligation to issue, extend or renew any
Letter of Credit. All statements contained in any certificate or other paper
delivered to any Bank or the Administrative Agent at any time by or on behalf of
the Borrower pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by the Borrower
hereunder.

     Section 15. ASSIGNMENT AND PARTICIPATION. Section 15.1. CONDITIONS TO
ASSIGNMENT BY BANKS. Except as provided herein, each Bank may assign to one or
more Eligible Assignees all or a portion of its interests, rights and
obligations under this Credit Agreement (including all or a portion of
Commitment Percentage, the Loans at the time owing to it, the Notes held by it
and its participation interest in the risk relating to any Letters of Credit);
PROVIDED that (a) the Administrative Agent and, so long as no Event of Default
has occurred and is continuing, the Borrower (unless such assignment is (i) to
any Federal Reserve Bank or (ii) from the Administrative Agent to an affiliate
of an Administrative Agent) shall have given its prior



                                      -54-

written consent to such assignment, which consent will not be unreasonably
withheld, (b) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Bank's rights and obligations under this Credit
Agreement, (c) each such assignment shall be in a minimum amount of $5,000,000
(or, if less, such Bank's entire Commitment), except in the case of an
assignment to an existing Bank), and (d) the parties to such assignment shall
execute and deliver to the Administrative Agent, for recording in the Register
(as hereinafter defined), an Assignment and Acceptance, substantially in the
form of EXHIBIT E hereto (an "ASSIGNMENT AND ACCEPTANCE"), together with any
Notes subject to such assignment. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business Days after
the execution thereof, (i) the assignee thereunder shall be a party hereto and,
to the extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder, (ii) the assigning Bank shall, to the extent
provided in such assignment and upon payment to the Administrative Agent of the
registration fee referred to in Section 15.3, be released from its obligations
under this Credit Agreement and (iii) SCHEDULE 1.1(a) shall be deemed to be
automatically amended to reflect the change in the Banks and each Bank's
Commitment and Commitment Percentage resulting from such Assignment and
Acceptance.

     Section 15.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS;
COVENANTS. By executing and delivering an Assignment and acceptance, the parties
to the assignment thereunder confirm to and agree with each other and the other
parties hereto as follows: (a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being assigned thereby free
and clear of any adverse claim, the assigning Bank makes no representation or
warranty, express or implied, and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or the
attachment, perfection or priority of any security interest or mortgage; (b) the
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrower and its Subsidiaries or
any other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower and its
Subsidiaries or any other Person primarily or secondarily liable in respect of
any of the Obligations of any of their obligations under this Credit Agreement
or any of the other Loan Documents or any other instrument or document furnished
pursuant hereto or thereto; (c) such assignee confirms that it has received a
copy of this Credit Agreement, together with copies of the most recent financial
statements referred to in Section 4.4 and Section 5.4 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (d) such assignee will,
independently and without reliance upon the assigning Bank, the Administrative
Agent or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Credit Agreement; (e) such assignee
represents and warrants that it is an Eligible Assignee; (f) such assignee
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Credit Agreement and the other
Loan Documents as are delegated to the Administrative Agent by the terms hereof
or thereof, together with such powers as are reasonably incidental thereto; (g)
such assignee agrees that it will perform in accordance with their terms all of
the obligations that by the terms of this Credit Agreement are required to be



                                      -55-

performed by it as a Bank; (h) such assignee represents and warrants that it is
legally authorized to enter into such Assignment and Acceptance; and (i) such
assignee acknowledges that it has made arrangements with the assigning Bank
satisfactory to such assignee with respect to its PRO RATA share of Letter of
Credit Fees in respect of outstanding Letters of Credit.

     Section 15.3. REGISTER. The Administrative Agent shall maintain a copy of
each Assignment and Acceptance delivered to it and a register or similar list
(the "REGISTER") for the recordation of the names and addresses of the Banks and
the Commitment Percentage of, and principal amount of the Loans owing to and
Letter of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Administrative Agent and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for all purposes of
this Credit Agreement. The Register shall be available for inspection by the
Borrower and the Banks at any reasonable time and from time to time upon
reasonable prior notice. Upon each such recordation, the assigning Bank agrees
to pay to the Administrative Agent a registration fee in the sum of $3,500.

     Section 15.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance
executed by the parties to such assignment, together with each Note subject to
such assignment, the Administrative Agent shall (a) record the information
contained therein in the Register, and (b) give prompt notice thereof to the
Borrower and the Banks (other than the assigning Bank). Within five (5) Business
Days after receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent, in exchange for each
surrendered Note, a new Note to the order of such Eligible Assignee in an amount
equal to the amount assumed by such Eligible Assignee pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained some portion
of its obligations hereunder, a new Note to the order of the assigning Bank in
an amount equal to the amount retained by it hereunder. Such new Notes shall
provide that they are replacements for the surrendered Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of the assigned
Notes. Upon the request of any Bank, the Borrower shall within five (5) days of
the issuance of any new Notes pursuant to this Section 15.4, at the requesting
Bank's expense, deliver an opinion of counsel, addressed to the Banks and the
Agents, relating to the due authorization, execution and delivery of such new
Notes and the legality, validity and binding effect thereof, in form and
substance satisfactory to the Banks. The surrendered Notes shall be cancelled
and returned to the Borrower.

     Section 15.5. PARTICIPATIONS. Each Bank may sell participations to one or
more banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED
that (a) each such participation shall be in an amount of not less than
$5,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any Facility Fees, Utilization Fee or Letter of Credit Fees to
which such participant is entitled or extend any regularly scheduled payment
date for principal or interest.



                                      -56-

     Section 15.6. DISCLOSURE. The Borrower agrees that in addition to
disclosures made in accordance with standard and customary banking practices,
any Bank may in accordance with the terms of Section 25 hereof disclose
information obtained by such Bank pursuant to this Credit Agreement to assignees
or participants and potential assignees or participants hereunder; PROVIDED that
such assignees or participants or potential assignees or participants shall
agree (a) to treat in confidence such information unless such information
otherwise becomes public knowledge, (b) not to disclose such information to a
third party, except as required by law or legal process and (c) not to make use
of such information for purposes of transactions unrelated to such contemplated
assignment or participation.

     Section 15.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Administrative Agent pursuant to Section
10, and the determination of the Majority Banks shall for all purposes of this
Agreement and the other Loan Documents be made without regard to such assignee
Bank's interest in any of the Loans or Reimbursement Obligations. If any Bank
sells a participating interest in any of the Loans or Reimbursement Obligations
to a participant, and such participant is the Borrower or an Affiliate of the
Borrower, then such transferor Bank shall promptly notify the Administrative
Agent of the sale of such participation. A transferor Bank shall have no right
to vote as a Bank hereunder or under any of the other Loan Documents for
purposes of granting consents or waivers or for purposes of agreeing to
amendments or modifications to any of the Loan Documents or for purposes of
making requests to the Administrative Agent pursuant to Section 10 to the extent
that such participation is beneficially owned by the Borrower or any Affiliate
of the Borrower, and the determination of the Majority Banks shall for all
purposes of this Agreement and the other Loan Documents be made without regard
to the interest of such transferor Bank in the Loans or Reimbursement
Obligations to the extent of such participation.

     Section 15.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall
retain its rights to be indemnified pursuant to Section 12 and Section 13 with
respect to any claims or actions arising prior to the date of such assignment.
Any assignee Bank that is not incorporated or organized under the laws of the
United States of America or any state thereof, shall, prior to the date on which
any interest or fees are payable hereunder or under any of the other Loan
Documents for its account, deliver to the Borrower and the Administrative Agent
two duly completed copies of United States Internal Revenue Service Form W-8BEN
or W-8ECI or successor applicable form, as the case may be, certifying in each
case that such Bank is entitled to receive payments under this Credit Agreement
or any of the other Loan Documents payable to it, without deduction or
withholding of any United States federal income taxes. Anything contained in
this Section 15 to the contrary notwithstanding, any Bank may at any time pledge
all or any portion of its interest and rights under this Credit Agreement
(including all or any portion of its Notes) to any of the twelve Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section
341. No such pledge or the enforcement thereof shall release the pledgor Bank
from its obligations hereunder or under any of the other Loan Documents.



                                      -57-

     Section 15.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of the Administrative Agent and each of the
Banks.

     Section 16. NOTICES, ETC. Except as otherwise expressly provided in this
Credit Agreement, all notices and other communications made or required to be
given pursuant to this Credit Agreement or the Notes or any Letter of Credit
Applications shall be in writing and shall be delivered in hand, mailed by
United States registered or certified first class mail, postage prepaid, or sent
by telegraph, telecopy, telefax or telex and confirmed by delivery via courier
or postal service, addressed as follows:

     (a) if to the Borrower, at 30 North LaSalle Street, Chicago, Illinois
60602, Attention: Corporate Treasurer, (with a copy to Michael G. Hron, Sidley
Austin Brown & Wood, Bank One Plaza, 10 South Dearborn Street, Chicago, Illinois
60603 and a copy to Gregory Wilkinson, Secretary of the Borrower at 8401
Greenway, Middleton, Wisconsin 53562-3539), or at such other address for notice
as the Borrower shall last have furnished in writing to the Person giving the
notice;

     (b) if to the Administrative Agent or Fleet, at the address set forth for
Fleet on SCHEDULE 1.1(a) hereto or such other address for notice as Fleet shall
last have furnished in writing to the Person giving the notice;

     (c) if to any other Agent or any other Bank, at the address set forth for
such Agent or Bank in SCHEDULE 1.1(a) hereto or such other address for notice as
such Agent or such Bank shall have last furnished in writing to the Person
giving the notice.

     Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if telecopied, or delivered by hand to a
responsible officer of the party to which it is directed, at the time of the
receipt thereof by such officer and (ii) if sent by registered or certified
first-class mail, postage prepaid, three days after the date mailed.

     Section 17. GOVERNING LAW. THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN
DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL FOR
ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID
STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW OTHER THAN
GENERAL OBLIGATIONS LAW SECTION 5-1401). THE BORROWER CONSENTS TO THE
JURISDICTION IN ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE STATE OF NEW
YORK IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE BANKS AND THE
AGENT UNDER THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

     Section 18. HEADINGS. The captions in this Credit Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof.

     Section 19. COUNTERPARTS. This Credit Agreement and any amendment hereof
may be executed in several counterparts and by each party on a separate
counterpart, each of which when so executed and delivered shall be an original,
and all of which together shall constitute one



                                      -58-

instrument. In proving this Credit Agreement it shall not be necessary to
produce or account for more than one such counterpart signed by the party
against whom enforcement is sought.

     Section 20. ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Credit Agreement nor any term hereof may be changed,
waived, discharged or terminated, except as provided in Section 22.

     Section 21. WAIVER OF JURY TRIAL. The Borrower hereby waives its right to a
jury trial with respect to any action or claim arising out of any dispute in
connection with this Credit Agreement or any of the other Loan Documents, any
rights or obligations hereunder or thereunder or the performance of such rights
and obligations. The Borrower (a) certifies that no representative, agent or
attorney of any Bank or the Administrative Agent has represented, expressly or
otherwise, that such Bank or the Administrative Agent would not, in the event of
litigation seek to enforce the foregoing waivers and (b) acknowledges that it
has been induced to enter into this Credit Agreement and the other Loan
Documents by, among other things, the mutual waivers and certifications
contained herein.

     Section 22. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise
expressly provided in this Credit Agreement, any consent or approval required or
permitted by this Credit Agreement to be given by the Banks may be given, and
any term of this Credit Agreement or of any other instrument related hereto or
mentioned herein may be amended, and the performance or observance by the
Borrower of any terms of this Credit Agreement or such other instrument or the
continuance of any Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or prospectively) with, but
only with, the written consent of the Borrower and the written consent of the
Majority Banks. Notwithstanding the foregoing, no amendment, modification or
waiver shall:

     (a) without the written consent of the Borrower and each Bank directly
affected thereby:

           (i) reduce or forgive the principal amount of any Loans or
     Reimbursement Obligations, or reduce the rate of interest on the Notes or
     the amount of the Facility Fee, the Utilization Fee or Letter of Credit
     Fees (other than interest accruing pursuant to Section 3.11 following the
     effective date of any waiver by the Majority Banks of the Default or Event
     of Default relating thereto);

           (ii) increase the amount of such Bank's Commitment or extend the
     expiration date of such Bank's Commitment; and

           (iii) postpone or extend the Maturity Date or any other regularly
     scheduled dates for payments of principal of, or interest on, the Loans or
     Reimbursement Obligations or any fees or other amounts payable to such Bank
     (it being understood that (A) a waiver of the application of the default
     rate of interest pursuant to Section 3.11, and (B) any vote to rescind any
     acceleration made pursuant to Section 10 of amounts owing with respect to
     the Loans and other Obligations shall require only the approval of the
     Majority Banks);



                                      -59-

     (b) without the written consent of all of the Banks, amend or waive
this Section 22 or the definition of Majority Banks;

     (c) without the written consent of the Administrative Agent, amend or waive
Section 2.5(c), Section 2.10, the amount or time of payment of Letter of Credit
Fees payable for the Administrative Agent's account or any other provision
applicable to the Administrative Agent; and

     (d) without the written consent of the Agents, amend or waive Section 11.

No waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent thereon. No course of dealing or delay or omission
on the part of any Bank or the Administrative Agent in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice
to or demand upon the Borrower shall entitle the Borrower to other or further
notice or demand in similar or other circumstances.

     Section 23. FCC APPROVAL. Notwithstanding anything to the contrary
contained in this Credit Agreement or in the other Loan Documents, neither the
Administrative Agent nor any Bank will take any action pursuant to this
Agreement or any of the other Loan Documents, which would constitute or result
in a change in control of the Borrower or any of its Subsidiaries requiring the
prior approval of the FCC without first obtaining such prior approval of the
FCC. After the occurrence of an Event of Default, the Borrower shall take or
cause to be taken any action which the Agents may reasonably request in order to
obtain from the FCC such approval as may be necessary to enable the Agents to
exercise and enjoy the full rights and benefits granted to the Administrative
Agent, for the benefit of the Banks by this Credit Agreement or any of the other
Loan Documents, including, at the Borrower's cost and expense, the use of the
Borrower's best efforts to assist in obtaining such approval for any action or
transaction contemplated by this Credit Agreement or any of the other Loan
Documents for which such approval is required by law.

     Section 24. SEVERABILITY. The provisions of this Credit Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Credit
Agreement in any jurisdiction.

     Section 25. CONFIDENTIALITY. Each of the Banks and the Administrative Agent
agrees to keep any non-public information delivered or made available to it
pursuant to this Credit Agreement or any other Loan Document confidential from
any Person other than officers, employees, agents, accountants, professional
advisors, counsel, designees or representatives of such Bank or the
Administrative Agent who are or are expected to become engaged in evaluating,
approving, structuring or administering this Credit Agreement or any of the
other Loan Documents; PROVIDED, THAT, nothing herein shall prevent the
Administrative Agent or any Bank from disclosing such information (i) to any
assignee or participant that has agreed in writing to comply with the
confidentiality provision of this Section 25 in connection with the contemplated
assignment or participation, (ii) to any of its Affiliates to the extent any
such Affiliates require such information in the ordinary course of the
Administrative Agent's or such



                                      -60-

Bank's credit committee or asset management procedures, or (iii) as required or
requested by any governmental authority or representative thereof or pursuant to
subpoena or other legal process, by virtue of any other law, regulation, order,
or interpretation, or as required in connection with the exercise or any remedy
under this Credit Agreement or any of the other Loan Documents.



                                      -61-

     IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement under seal as of the date first set forth above.

                       TELEPHONE AND DATA SYSTEMS, INC.

                       By:      /s/ LeRoy T. Carlson, Jr.
                                ------------------------------------------------
                                Name:  LeRoy T. Carlson, Jr.
                                Title: President and Chief Executive Officer

                       By:      /s/ Sandra L. Helton
                                ------------------------------------------------
                                Name:  Sandra L. Helton
                                Title: Executive Vice President and Chief
                                       Financial Officer

                       FLEET NATIONAL BANK, INDIVIDUALLY AND
                       AS ADMINISTRATIVE AGENT

                       By:      /s/ Ellery Willard
                                ------------------------------------------------
                                Name:  Ellery Willard
                                Title: Director

                       LASALLE BANK NATIONAL ASSOCIATION,
                       INDIVIDUALLY AND AS A DOCUMENTATION AGENT

                       By:      /s/ Jeffrey B. Michalson
                                ------------------------------------------------
                                Name:  Jeffrey B. Michalson
                                Title: Assistant Vice President

                       FIRST UNION NATIONAL BANK, INDIVIDUALLY AND
                       AS A DOCUMENTATION AGENT

                       By:      /s/ Brand Hosford
                                ------------------------------------------------
                                Name:  Brand Hosford
                                Title: Vice President



                                      -62-

                       THE BANK OF TOKYO-MITSUBISHI, LTD.,
                       CHICAGO BRANCH, INDIVIDUALLY AND AS A
                       DOCUMENTATION AGENT

                       By:      /s/ Shinichiro Munechika
                                ------------------------------------------------
                                Name:  Shinichiro Munechika
                                Title: Deputy General Manager

                       TORONTO DOMINION (TEXAS), INC.,
                       INDIVIDUALLY

                       By:      /s/ Debbie A. Greene
                                ------------------------------------------------
                                Name:  Debbie A. Greene
                                Title: Vice President

                       TD SECURITIES (USA) INC.,
                       AS SYNDICATION AGENT

                       By:      /s/ Thomas Hall
                                ------------------------------------------------
                                Name:  Thomas Hall
                                Title: Associate



                                      -63-

                       U.S. BANK NATIONAL ASSOCIATION

                       By:      /s/ Kenneth L. Altena
                                ------------------------------------------------
                                Name:  Kenneth L. Altena
                                Title: Senior Vice President



                                      -64-

                       THE NORTHERN TRUST COMPANY

                       By:      /s/ Doug Soussa
                                ------------------------------------------------
                                Name:  Doug Soussa
                                Title: Vice President



                                      -65-

                       WESTDEUTSCHE LANDSEBANK
                       GIROZENTRALE, NEW YORK BRANCH

                       By:      /s/ Barry S. Wadler
                                ------------------------------------------------
                                Name:  Barry S. Wadler
                                Title: Associate Director

                       By:      /s/ Lisa M. Walker
                                ------------------------------------------------
                                Name:  Lisa M. Walker
                                Title: Associate Director



                                      -66-

                       MERRILL LYNCH BANK USA

                       By:      /s/ D. Kevin Imlay
                                ------------------------------------------------
                                Name:  D. Kevin Imlay
                                Title: Senior Credit Officer



                                      -67-

                       MELLON BANK, N.A.

                       By:      /s/ Thomas J. Tarasovich, Jr.
                                ------------------------------------------------
                                Name:  Thomas J. Tarasovich, Jr.
                                Title: Lending Officer


                                      -68-

                       SUMITOMO MITSUI BANKING CORPORATION

                       By:      /s/ Leo E. Pagarigan
                                ------------------------------------------------
                                Name:  Leo E. Pagarigan
                                Title: Vice President


                                      -69-

                       BANKONE, N.A.

                       By:      /s/ Jennifer L. Jones
                                ------------------------------------------------
                                Name:  Jennifer L. Jones
                                Title: Associate Director



                                      -70-

                       CITIBANK, NA

                       By:      /s/ Maureen Maroney
                                ------------------------------------------------
                                Name:  Maureen Maroney
                                Title: Director



                                      -71-

                       CREDIT SUISSE FIRST BOSTON
                        CAYMAN ISLANDS BRANCH

                       By:      /s/ William S. Lutkins
                                ------------------------------------------------
                                Name:  William S. Lutkins
                                Title: Director



                                      -72-

                       THE BANK OF NEW YORK

                       By:      /s/ Geoffrey C. Brooks
                                ------------------------------------------------
                                Name:  Geoffrey C. Brooks
                                Title: Senior Vice President

EX-12

                                                                      EXHIBIT 12

   TELEPHONE AND DATA SYSTEMS, INC.
   RATIOS OF EARNINGS TO FIXED CHARGES




   (Dollars In Thousands)
                                                                           12 Months Ended
                                                                              12/31/01
                                                                           ---------------
                                                                        
EARNINGS:
   Income (Loss) from Continuing Operations before income taxes              $  (172,000)
     Add (Deduct):
      Earnings on Equity Method                                                  (49,376)
      Distributions from Minority Subsidiaries                                    16,644
      Minority interest in pre-tax income of subsidiaries that
        do not have fixed charges                                                 (9,764)
                                                                             ------------
                                                                                (214,496)
     Add fixed charges:
      Consolidated interest expense                                              128,519
      Interest Portion (1/3) of Consolidated Rent Expense                         18,645
                                                                             ------------
                                                                             $   (67,332)

FIXED CHARGES:
      Consolidated interest expense/TOPRS                                    $   128,519
      Interest Portion (1/3) of Consolidated Rent Expense                         18,645
                                                                             ------------
                                                                             $   147,164

RATIO OF EARNINGS TO FIXED CHARGES(1)                                              (0.46)
                                                                             ============

      Tax-Effected Redeemable Preferred Dividends                            $        59
      Fixed Charges                                                              147,164
                                                                             ------------
        Fixed Charges and Redeemable Preferred Dividends                     $   147,223

RATIO OF EARNINGS TO FIXED CHARGES
     AND REDEEMABLE PREFERRED DIVIDENDS                                            (0.46)
                                                                             ============

      Tax-Effected Preferred Dividends                                       $       824
      Fixed Charges                                                              147,164
                                                                             ------------
        Fixed Charges and Preferred Dividends                                $   147,988

RATIO OF EARNINGS TO FIXED CHARGES AND
     PREFERRED DIVIDENDS                                                           (0.45)
                                                                             ============

- -------------------
(1) The dollar amount of the deficiency resulting in a negative ratio is
    $214,496. In 2001, TDS recognized a pre-tax loss of $548,305 primarily as a
    result of two merger transactions. The conversion of TDS's investment in
    common stock of VoiceStream Wireless Corporation into shares of Deutsche
    Telekom and cash pursuant to a merger of VoiceStream and Deutsche Telekom
    resulted in a pre-tax loss of $644,929. The conversion of TDS's
    investment in common stock of Illuminet Holding, Inc into shares of
    VeriSign, Inc. pursuant to a merger resulted in a pre-tax gain of
    $96,137. The loss and gain, respectively, were the result of the change
    in the market price of VoiceStream and Illuminet stocks between the time
    TDS acquired such stock and the date of the merger transactions.
    Excluding this amount, the ratio of earnings to fixed charges for the
    twelve months ended December 31, 2001 would be 3.27.

EX-13

                                                                      EXHIBIT 13


- ------------------------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------

Year Ended or at December 31,                                2001            2000           1999           1998           1997
- ------------------------------------------------------------------------------------------------------------------------------
                                                                    (Dollars in thousands, except per share amounts)
                                                                                                     
Operating Revenues                                     $2,588,542     $ 2,326,856     $2,122,346     $1,803,639     $1,430,748
Operating Income                                          436,155         420,066        370,393        270,487        229,686
Gain (Loss) on Marketable Securities and
  Other Investments                                      (548,305)         15,716        345,938        262,698         41,438
Net Income (Loss) Available to Common from
  Continuing Operations
    From Operations                                       167,653         154,249        110,765         58,607         74,734
    From Gains (Losses)                                  (336,359)         (9,226)       179,414        124,964         14,705
                                                      ------------------------------------------------------------------------
                                                       $ (168,706)    $   145,023     $  290,179     $  183,571     $   89,439

Basic Weighted Average Shares Outstanding (000's)          58,661          59,922         61,436         60,982         60,211
Basic Earnings per Share
  from Continuing Operations                           $    (2.87)    $      2.42     $     4.72     $     3.01     $     1.49
Diluted Earnings per Share from
  Continuing Operations
    From Operations                                          2.86            2.54           1.78            .97           1.24
    From Gains (Losses)                                     (5.73)           (.15)          2.87           2.02            .24
                                                      ------------------------------------------------------------------------
                                                       $    (2.87)    $      2.39     $     4.65     $     2.99     $     1.48

Pretax Profit (Loss) on Revenues                             (6.6)%          14.9%          28.6%          21.8%          15.5%
Effective Income Tax (Benefit) Rate                         (26.1)%          43.1%          41.3%          40.9%          43.2%
Dividends per Common and Series A
  Common Share                                         $      .54     $       .50     $      .46     $      .44     $      .42

Cash and Cash Equivalents                              $  140,744     $    99,019     $  111,010     $   45,139     $   45,996
Working Capital                                          (141,860)       (457,311)       138,336       (192,179)      (448,958)
Property, Plant and Equipment, net                      2,558,031       2,186,025      2,095,889      2,020,092      1,892,556
Total Assets                                            8,046,792       8,634,609      5,397,476      5,091,554      4,580,881
Notes Payable                                             265,300         499,000             --        170,889        527,587
Long-term Debt (including current portion)              1,575,225       1,188,626      1,294,844      1,291,032      1,082,594
Common Stockholders' Equity                             3,518,924       3,936,067      2,448,261      2,253,195      1,969,557
Capital Expenditures                                   $  700,150     $   456,019     $  399,631     $  463,543     $  488,833
Current Ratio                                                  .8              .5            1.4             .7             .4
Common Equity per Share                                $    60.08     $     67.07     $    40.04     $    36.83     $    32.50
Return on Average Common Equity                              (4.5)%           4.5%          12.3%           8.7%           4.5%
                                                      ------------------------------------------------------------------------


                                       1


- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------

Telephone and Data Systems, Inc. ("TDS" or the "Company") is a diversified
telecommunications company that provided high-quality telecommunications
services to approximately 4.3 million wireless telephone and wireline telephone
customer units in 34 states at December 31, 2001. TDS conducts substantially
all of its wireless telephone operations through its 82.2%-owned subsidiary,
United States Cellular Corporation ("U.S. Cellular") and its wireline telephone
operations through its wholly-owned subsidiary, TDS Telecommunications
Corporation ("TDS Telecom").

The following discussion and analysis should be read in conjunction with TDS's
consolidated financial statements and the accompanying notes.

RESULTS OF OPERATIONS

OPERATING REVENUES increased 11% ($261.7 million) during 2001 and 10% ($204.5
million) during 2000 reflecting primarily the 14% and 17% growth in customer
units in 2001 and 2000, respectively. U.S. Cellular revenues increased $178.2
million in 2001 and $140.2 million in 2000 on 13% and 18% increases in customer
units, respectively. TDS Telecom revenues increased $83.5 million in 2001 and
$64.3 million in 2000 as access lines increased by 19% and 12%, respectively.
The increase in access lines is primarily related to the growth in the
competitive local exchange operations and acquisitions.

     OPERATING EXPENSES rose 13% ($245.6 million) in 2001 and 9% ($154.8
million) in 2000. U.S. Cellular operating expenses increased $153.3 million
during 2001 and $103.7 million during 2000 due primarily to the costs associated
with providing service to an expanding customer base and additional depreciation
and amortization expense. TDS Telecom operating expenses increased $92.3 million
during 2001 and $51.1 million during 2000 due to the expansion of the
competitive local exchange business and growth in local telephone operation.

     OPERATING INCOME increased 4% ($16.1 million) in 2001 and 13% ($49.7
million) in 2000. U.S. Cellular's operating income increased 9% ($24.9
million) in 2001 and 14% ($36.5 million) in 2000, reflecting the increase in
customers and revenues. TDS Telecom's operating income declined 7% ($8.8
million) in 2001 and increased 12% ($13.2 million) in 2000. The decrease in
TDS Telecom's operating income in 2001 reflects increased operating losses
from the competitive local exchange business due to continued expansion of
the business.



Year Ended December 31,              2001            2000          1999
- -----------------------------------------------------------------------
                                           (Dollars in thousands)
                                                      
Operating Income
  U.S. Cellular                  $317,212        $292,313      $255,842
  TDS Telecom
    ILEC                          161,916         142,708       124,093
    CLEC                          (42,973)        (14,955)       (9,542)
                                ---------------------------------------
                                  118,943         127,753       114,551
                                ---------------------------------------
      Operating Income           $436,155        $420,066      $370,393
                                =======================================


     INVESTMENT AND OTHER INCOME (EXPENSE) primarily includes gains and (losses)
on marketable securities and other investments, interest and dividend income and
investment income.

     GAIN (LOSS) ON MARKETABLE SECURITIES AND OTHER INVESTMENTS totaled
$(548.3) million in 2001, $15.7 million in 2000 and $345.9 million in 1999.
The Company held marketable securities of certain companies that were
involved in merger transactions in 2001 and 1999 generating significant gains
and losses. TDS recognized a gain or loss on the difference between the
historical basis in its investments and the value of the shares and cash
received from the mergers. In 2001, TDS realized a loss of $644.9 million as
a result of the merger between VoiceStream Wireless Corporation
("VoiceStream") and Deutsche Telekom AG. Partially offsetting the loss in
2001 was a gain of $96.1 million recorded as a result of the merger between

                                       2


Illuminet Holdings, Inc. and VeriSign Inc. In 1999, TDS recognized a $327.1
million gain as a result of the AirTouch Communications, Inc. merger with
Vodafone Group plc.

     TDS received $0.5 million as a final bankruptcy settlement in 2001 after
recording an $80.4 million write-off of its investment in a paging entity that
filed for bankruptcy protection in 2000. The sale of non-strategic cellular
interests and the settlement of a legal matter resulted in gains of $96.1
million in 2000. The sale of other non-strategic minority cellular interests and
other investments generated gains totaling $18.8 million in 1999.

     INVESTMENT INCOME, TDS's share of income in unconsolidated entities in
which it has a minority interest, totaled $50.6 million in 2001, $38.7 million
in 2000 and $31.3 million in 1999. TDS follows the equity method of accounting,
which recognizes TDS's proportionate share of the income and losses accruing to
it under the terms of its partnership or shareholder agreements, where TDS's
ownership interest equals or exceeds 20% for corporations and 3% for
partnerships. Investment income in 2000 included $8.0 million of equity losses
on a paging investment while no such equity losses are included in 2001.
Improved operating results of certain minority cellular interests in 2001 and
2000 also increased investment income.

     AMORTIZATION OF COSTS RELATED TO MINORITY INVESTMENTS totaled $1.3 million
in 2001, $10.3 million in 2000 and $12.9 million in 1999. The decrease in
amortization costs in 2001 is related primarily to the write-off of the paging
investment in 2000. Amortization of costs related to the paging investment
totaled $7.7 million in 2000 and $10.3 million in 1999.

     INTEREST EXPENSE increased 3% ($3.2 million) in 2001 and 1% ($575,000) in
2000. The increase in interest expense was related primarily to an increase in
short-term debt, prior to the sale of $500 million of 7.6% Series A Notes in
December 2001, offset somewhat by lower interest rates. Long-term interest
expense declined by $6.3 million due to the reduction in U.S. Cellular Liquid
Yield Option Notes ("LYONs") debt.

     INCOME TAX EXPENSE (BENEFIT) was a benefit of $44.9 million in 2001 and an
expense of $149.5 million in 2000 and $251.0 million in 1999. The period to
period change reflects primarily the changes in pretax income. The Company
reported a loss from continuing operations before income taxes and minority
interest in 2001. The income tax benefit recorded on such loss resulted in an
income tax benefit rate of 26.1% in 2001. The effective tax rate was 43.1% in
2000 and 41.3% in 1999. Income from continuing operations before income taxes
and minority interest includes gains and losses from marketable securities and
other investments. The effective income tax rate excluding such gains and losses
was 44.4%, 40.4% and 44.3% for the years ended December 31, 2001, 2000 and 1999,
respectively.

     MINORITY SHARE OF INCOME includes primarily the minority public
shareholders' share of U.S. Cellular's net income, the minority shareholders' or
partners' share of certain U.S. Cellular subsidiaries' net income or loss and
other minority interests. U.S. Cellular's minority public share of income
includes minority share of gains of $9.0 million in 2000 and $30.6 million in
1999. There was no minority share of gains in 2001.



Year Ended December 31,          2001          2000             1999
- --------------------------------------------------------------------
                                    (Dollars in thousands)
                                                   
Minority Share of Income
  U.S. Cellular
    Minority Public
      Shareholders           $(32,403)     $(41,929)        $(57,411)
    Subsidiaries'
      Minority Interests      (10,146)       (7,629)          (7,148)
                             ---------------------------------------
                              (42,549)      (49,558)         (64,559)
Other Subsidiaries              1,393        (1,867)            (558)
                             ---------------------------------------
                             $(41,156)     $(51,425)        $(65,117)
====================================================================


INCOME (LOSS) FROM CONTINUING OPERATIONS and DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS were significantly affected by gains and losses from
marketable securities and other investments. Income and diluted earnings per
share from continuing operations and from gains and losses are shown in the
following table.



Year Ended December 31,               2001          2000         1999
- --------------------------------------------------------------------------------
                             (Dollars in thousands, except per share amounts)
                                                    
INCOME FROM CONTINUING
  OPERATIONS
  Operations                     $ 168,111      $ 154,753    $ 111,912
  Gains (Losses)                  (336,359)        (9,226)     179,414
                                 --------------------------------------
                                 $(168,248)     $ 145,527    $ 291,326
                                 ======================================

DILUTED EARNINGS PER SHARE
  FROM CONTINUING OPERATIONS
Operations                       $    2.86      $    2.54    $    1.78
Gains (Losses)                       (5.73)         (0.15)        2.87
                                 --------------------------------------
                                 $   (2.87)     $    2.39    $    4.65
                                 ======================================



                                       3


DISCONTINUED OPERATIONS. The merger of Aerial Communications, Inc. ("Aerial")
with VoiceStream was completed on May 4, 2000. TDS recognized a gain of $2,125.8
million, net of tax, or $35.06 diluted earnings per share on this transaction.
The gain was reduced by $24.1 million, or $0.41 per share, in 2001 to reflect
adjustments to estimates used during the closing in the calculation of income
and other tax liabilities. In 1999, the loss on operations of Aerial, net of
tax, reduced net income by $111.5 million, or $1.78 per share.

     EXTRAORDINARY ITEM - LOSS ON DEBT EXTINGUISHMENT, NET OF MINORITY INTEREST,
is related to U.S. Cellular's retirement of LYONs. U.S. Cellular retired LYONs
with an aggregate carrying value of $25.4 million and $63.6 million during 2001
and 2000, respectively, for cash totaling $32.0 million and $99.4 million,
respectively. A loss, net of minority interest, of $5.7 million, or $0.10 loss
per share, in 2001, and $30.5 million, or $0.51 loss per share, in 2000,
reflects the difference between the purchase price and the carrying value.

     CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX AND MINORITY INTEREST
reflects the implementation of Staff Accounting Bulletin 101 ("SAB 101"),
"Revenue Recognition in Financial Statements" in 2000. U.S. Cellular defers
recognition of wireless activation and reconnection fees to the accounting
period when wireless service is provided to the customer. Under the prior method
of accounting, wireless activation fees were recognized at the time the customer
signed a wireless contract for service. The cumulative effect of this accounting
change reduced net income in 2000 by $3.8 million, or $0.06 per share.

WIRELESS TELEPHONE OPERATIONS

TDS provides wireless telephone service through United States Cellular
Corporation ("U.S. Cellular"), an 82.2%-owned subsidiary. U.S. Cellular owns,
manages and invests in wireless markets throughout the United States. Growth in
the customer base is the primary reason for the increase in U.S. Cellular's
results of operations in 2001 and 2000. The number of customer units increased
13% to 3,461,000 at December 31, 2001 and increased 18% to 3,061,000 at December
31, 2000. U.S. Cellular added 354,000 net new customer units from its marketing
efforts and 46,000 customer units from acquisitions in 2001. In 2000, 483,000
net new customer units were added from marketing efforts while
acquisition/divestiture activity reduced customer units by 24,000.




Year Ended December 31,                         2001           2000            1999
- -----------------------------------------------------------------------------------
                                                    (Dollars in thousands)
                                                                
Operating Revenues
  Retail service                         $1,408,253     $1,227,590      $1,089,249
  Inbound roaming                            272,361        292,437         318,659
  Long-distance and other                    145,771        133,895         117,752
                                         ------------------------------------------
    Service Revenues                       1,826,385      1,653,922       1,525,660
  Equipment sales                             68,445         62,718          50,769
                                         ------------------------------------------
                                           1,894,830      1,716,640       1,576,429
                                         ------------------------------------------
Operating Expenses
  System operations                          421,114        350,507         368,070
  Marketing and selling                      297,239        303,721         272,729
  Cost of equipment sold                     124,028        139,654         124,058
  General and administrative                 434,579        364,747         325,758
  Depreciation and amortization              300,658        265,698         229,972
                                         ------------------------------------------
                                           1,577,618      1,424,327       1,320,587
                                         ------------------------------------------
Operating Income                         $   317,212     $  292,313      $  255,842
===================================================================================
Consolidated Markets:
  Markets                                        142            139             139
  Market penetration                           13.48%         12.29%          10.47%
  Cell sites in service                        2,925          2,501           2,300
  Average monthly service
    revenue per customer unit            $     46.28     $    49.21      $    53.71
  Churn rate per month                           1.9%           2.0%            2.1%
    Cost per gross customer
      addition                           $       322     $      330      $      346
  Employees                                    5,150          5,250           4,800
===================================================================================



                                       4


     OPERATING REVENUES increased 10% ($178.2 million) in 2001 and 9% ($140.2
million) in 2000. The revenue increases were driven by the 13% and 18% growth in
customer units in 2001 and 2000, respectively. Lower revenue per customer, due
to competitive pricing pressures, incentive plans and consumer market
penetration, has partially offset the revenue growth from the increase in the
customer base. Average monthly service revenue per customer was $46.28 in 2001,
$49.21 in 2000 and $53.71 in 1999. Management anticipates that average monthly
service revenue per customer will continue to decrease as retail service and
inbound roaming revenue per minute of use decline.

     RETAIL SERVICE REVENUES (charges to U.S. Cellular's customers for local
system usage and usage of systems other than their local systems) increased 15%
($180.7 million) in 2001 and 13% ($138.3 million) in 2000 due primarily to the
growth in customers. Average monthly retail service revenue per customer was
$35.68 in 2001, $36.52 in 2000 and $38.35 in 1999. Local minutes of use averaged
216 per month in 2001, 157 per month in 2000 and 115 per month in 1999, while
average retail service revenue per minute continued to decline. Competitive
pressures and U.S. Cellular's use of incentive programs and rate plans to
stimulate overall usage resulted in the lower average monthly retail service
revenue per minute of use. The decrease in average monthly retail service
revenue per customer primarily reflects the increasing level of competition for
wireless services and the continued penetration of the consumer market.

     INBOUND ROAMING REVENUES (charges to other wireless service providers whose
customers use U.S. Cellular's systems when roaming) decreased 7% ($20.1 million)
in 2001 and 8% ($26.2 million) in 2000. Lower negotiated roaming rates have
offset increased minutes of use, resulting in decreased roaming revenues in both
years. Average monthly inbound roaming revenue per U.S. Cellular customer was
$6.90 in 2001, $8.70 in 2000 and $11.22 in 1999. In 2001, the increase in
minutes of use was in proportion to the growth in the number of customers
throughout the wireless industry. In 2000, the increase in minutes of use was
affected by certain pricing programs offered by other wireless companies that
began in the second half of 1999. Wireless customers who sign up for these
programs are given price incentives to roam in other markets, including U.S.
Cellular's markets, thus driving an increase in U.S. Cellular's inbound roaming
minutes of use.

     Management anticipates that the increase in inbound roaming minutes of use
will be proportionate to the growth in the number of customers throughout the
wireless industry in 2002. However, as other wireless operators begin or expand
service in U.S. Cellular markets, roaming partners could switch their business
to these operators, further slowing the growth in U.S. Cellular's inbound
roaming minutes of use. Average inbound roaming revenue per minute of use is
expected to continue to decline in the future, reflecting the general downward
trend in negotiated rates.

     LONG-DISTANCE AND OTHER SERVICE REVENUES increased 9% ($11.9 million) in
2001 and 14% ($16.1 million) in 2000. Average monthly long-distance and other
revenue per customer was $3.70 in 2001, $3.99 in 2000 and $4.15 in 1999.

     OPERATING EXPENSES increased 11% ($153.3 million) in 2001 and 8% ($103.7
million) in 2000. Operating expenses as a percent of service revenue were 86.4%
in 2001, 86.1% in 2000 and 86.6% in 1999. The overall increase in operating
expenses was due primarily to the increase in general and administrative
expenses ($69.8 million in 2001 and $39.0 million in 2000) and additional
depreciation and amortization on the increased investment in cell sites and
equipment ($35.0 million in 2001 and $35.7 million in 2000). The costs of
providing service to the expanding customer base increased $70.6 million in 2001
and decreased $17.6 million in 2000. The costs of expanding the customer base
decreased by $22.1 million in 2001 and increased $46.6 million in 2000.

     General and administrative expenses (costs of local business offices and
corporate expenses) as a percent of service revenues were 23.8% in 2001, 22.1%
in 2000 and 21.4% in 1999. The overall increases in administrative expenses
include the effects of an increase in expenses required to serve the growing
customer base and other expenses incurred related to the growth in U.S.
Cellular's business. Driven by additional costs incurred related to its customer
care centers, which centralized certain customer service functions,
administrative employee-related expenses increased $27.8 million in 2001 and
$6.3 million in 2000. Costs to retain customers and to provide digital phone
units to customers who migrated from analog to digital rate plans increased
expenses by $9.8 million in 2001 and $27.1 million in 2000.


                                       5


     Costs of providing service (system operations expenses) as a percent of
service revenues were 23.1% in 2001, 21.2% in 2000 and 24.1% in 1999. Systems
operations expenses include customer usage expenses (charges from other service
providers for wireline connection, toll and roaming costs incurred by customers'
use of systems other than their local systems), and maintenance, utility and
cell site expenses. The increase in systems operations expense in 2001 was
primarily due to a $38.8 million increase in the costs associated with customers
roaming on other companies' systems, a $19.6 million increase in the cost of
maintaining the network and a $12.2 million increase related to the increased
volume of minutes used on the systems. In 2000, systems operations expense
decreased primarily due to the $39.3 million decrease in outbound roaming
expenses reflecting a reduction in cost per minute of use related to the lower
roaming prices in the industry. The decrease in 2000 was partially offset by the
increased cost of local and roaming minutes used of $15.2 million and the
increased cost of maintaining the network of $7.6 million.

     Costs to expand the customer base consist of marketing and selling expenses
and the cost of equipment sold. These expenses less equipment sales revenue
represent the cost to add a new customer. The cost to add a new customer was
$322 in 2001, $330 in 2000 and $346 in 1999. Gross customer activations
(excluding acquisitions) declined 5% in 2001 to 1,095,000 and rose 15% in 2000
to 1,154,000 from 1,000,000 in 1999. The decrease in cost per gross customer
activation in 2001 and 2000 was primarily due to reductions in equipment
subsidies provided by U.S. Cellular to its customers. A decrease in advertising
expenses in 2000 also contributed to the lower cost per gross customer
activation.

     Depreciation and amortization expense as a percent of service revenues was
16.5% in 2001, 16.1% in 2000 and 15.1% in 1999. Depreciation expense increased
15% ($31.4 million) in 2001 and 11% ($21.1 million) in 2000, reflecting
increases in average fixed asset balances of 20% and 13%, respectively.
Increased fixed asset balances in both years resulted from the addition of new
cell sites built to improve coverage and capacity and from upgrades to provide
digital service. Amortization expense increased 6% ($3.5 million) in 2001 and
32% ($14.6 million) in 2000. The development costs related to U.S. Cellular's
new billing and information system, totaling $118 million, are being amortized
over a seven-year period beginning in the fourth quarter of 1999 resulting in
the increase in amortization expense in 2000.

     OPERATING INCOME increased 9% ($24.9 million) to $317.2 million in 2001
from $292.3 million in 2000 and increased 14% ($36.5 million) in 2000 from
$255.8 million in 1999. The improvement was primarily driven by the substantial
growth in customer units and revenue. Operating margin, as a percent of service
revenue, was 17.4% in 2001, 17.7% in 2000 and 16.8% in 1999.

     Management expects service revenues to continue to grow during 2002;
however, management anticipates that average monthly revenue per customer will
continue to decrease as retail service and inbound roaming revenue per minute of
use decline.

     Management believes U.S. Cellular's operating results reflect seasonality
in both service revenues, which tend to increase more slowly in the first and
fourth quarters, and operating expenses, which tend to be higher in the fourth
quarter due to increased marketing activities and customer growth. This
seasonality may cause operating income to vary from quarter to quarter.

     Competitors licensed to provide PCS services have initiated service in
certain U.S. Cellular markets over the past several years. U.S. Cellular expects
PCS operators to continue deployment of PCS in all its market clusters during
2002. U.S. Cellular's management continues to monitor other wireless
communications providers' strategies to determine how this additional
competition is affecting U.S. Cellular's results. The effects of additional
wireless competition have slowed customer growth in certain of U.S. Cellular's
markets. Coupled with the recent downturn in the nation's economy, the effect of
increased competition has caused U.S. Cellular customer growth in these markets
to be slower than management had targeted for in 2001. Management anticipates
that customer growth will be slower in the future, primarily as a result of the
increase in the number of competitors in its markets and the maturation of the
wireless industry.


                                       6



WIRELINE TELEPHONE OPERATIONS
TDS operates its wireline telephone business through TDS Telecommunications
Corporation ("TDS Telecom"), a wholly-owned subsidiary. TDS Telecom served
847,900 access lines at the end of 2001, an increase of 134,600 lines over 2000.
At the end of 2000, TDS Telecom served 713,300 lines, an increase of 75,700
lines over 1999. TDS Telecom provides service through local telephone
operations, or Incumbent Local Exchange Carrier ("ILEC") companies, and through
Competitive Local Exchange Carrier ("CLEC") companies.

     TDS Telecom's local telephone companies served 650,700 access lines at the
end of 2001 compared to 601,200 at the end of 2000 and 571,700 at the end of
1999. Local telephone operations have grown through acquisitions and internal
growth. Acquisitions added 43,400 lines in 2001 and 10,200 lines in 2000, and
internal growth added 6,100 lines in 2001 and 19,300 lines in 2000. Internal
growth in access lines has slowed, reflecting the softening of the economy.

TDS Telecom's competitive local exchange companies served 197,200 access lines
at the end of 2001 compared to 112,100 at the end of 2000 and 65,900 at the end
of 1999. Internal growth in access lines has increased as CLEC operations have
increased their presence in current markets and expanded into new markets.



Year Ended December 31,                       2001          2000          1999
- ------------------------------------------------------------------------------
                                                 (Dollars in thousands)
                                                             
LOCAL TELEPHONE OPERATIONS
  Operating Revenues
    Local Service                         $179,529      $168,775      $152,290
    Network access and
      long-distance                        319,410       285,738       269,188
    Miscellaneous                           77,878        74,468        71,052
                                          ------------------------------------
                                           576,817       528,981       492,530
                                          ------------------------------------
Operating Expenses
  Operating expenses                       283,114       261,884       250,994
  Depreciation and
    amortization                           131,787       124,389       117,443
                                          ------------------------------------
                                           414,901       386,273       368,437
                                          ------------------------------------
  Local Telephone
    Operating Income                      $161,916      $142,708      $124,093
                                          ------------------------------------
COMPETITIVE LOCAL
  EXCHANGE OPERATIONS
  Operating Revenues                      $118,812      $ 84,720      $ 55,173
                                          ------------------------------------
  Operating Expenses
    Operating expenses                     144,211        90,619        58,808
    Depreciation and
      amortization                          17,574         9,056         5,907
                                          ------------------------------------
                                           161,785        99,675        64,715
                                          ------------------------------------
  Competitive Local Exchange
    Operating (Loss)                      $(42,973)     $(14,955)     $ (9,542)
                                          ------------------------------------
  Intercompany revenue
    elimination                             (1,917)       (3,485)       (1,786)
  Intercompany expense
    elimination                             (1,917)       (3,485)       (1,786)
                                          ------------------------------------
Operating Income                          $118,943      $127,753      $114,551
==============================================================================

Access lines (ILEC)                        650,700       601,200       571,700
Access lines (CLEC)                        197,200       112,100        65,900
Growth in ILEC access lines:
  Acquisitions                              43,400        10,200           500
  Internal growth                            6,100        19,300        23,700
Average monthly revenue
  per ILEC access line                    $  77.76      $  74.75      $  73.00
Employees                                    3,410         2,820         2,590
==============================================================================


  OPERATING REVENUES increased 14% ($83.5 million) to $693.7 million in 2001,
and 12% ($64.3 million) to $610.2 million in 2000. The increase was due to
the growth in local telephone operations, including acquisitions, and the
expansion of competitive local exchange activities.


                                       7


     OPERATING EXPENSES totaled $574.8 million in 2001, up 19% ($92.3 million)
from 2000, and totaled $482.5 million in 2000, up 12% ($51.1 million) from 1999.

     OPERATING INCOME decreased 7% ($8.8 million) in 2001 and increased 12%
($13.2 million) in 2000. TDS Telecom's overall operating margin was 17.1% in
2001, 20.9% in 2000 and 21.0% in 1999.

     LOCAL TELEPHONE OPERATIONS

     OPERATING REVENUES increased 9% ($47.8 million) to $576.8 million in 2001
and 7% ($36.5 million) to $529.0 million in 2000. Average monthly revenue per
local telephone access line was $77.76 in 2001, $74.75 in 2000 and $73.00 in
1999. The majority of the increase in average monthly revenue per local
telephone access line in 2001 is related to the increase in long-distance
revenues. The increases in all years reflect growth in local service revenues.
Local telephone operating revenues are anticipated to continue their pattern of
moderate growth.

     LOCAL SERVICE REVENUES (provision of local telephone exchange service
within the franchise serving area of TDS Telecom's local telephone companies)
increased 6% ($10.8 million) in 2001 and 11% ($16.5 million) in 2000. Average
monthly local service revenue per customer was $24.20 in 2001, $23.85 in 2000
and $22.57 in 1999. Acquisitions increased revenues by $4.8 million in 2001.
Access line growth, excluding acquisitions, of 1.0% in 2001 and 3.4% in 2000,
resulted in increases in revenues of $3.5 million and $6.7 million,
respectively. The sale of custom calling and advanced features increased
revenues by $2.6 million in 2001 and $4.9 million in 2000.

     NETWORK ACCESS AND LONG-DISTANCE REVENUES (compensation for carrying
interstate and intrastate long-distance traffic on TDS Telecom's local telephone
networks) increased 12% ($33.7 million) in 2001 and 6% ($16.6 million) in 2000.
Average monthly network access and long-distance revenue per customer was
$43.06 in 2001, $40.38 in 2000 and $39.90 in 1999. Revenues increased by $16.3
million in 2001 and $2.4 million in 2000 as TDS Telecom began selling
long-distance service to its customers in the third quarter of 2000. Revenue
generated from access minute growth due to increased network usage increased
$7.1 million in 2001 and $8.3 million in 2000. Acquisitions increased revenues
by $6.5 million in 2001. Compensation from state and national revenue pools due
to increased costs of providing network access increased $4.3 million in 2001
and $2.3 million in 2000.

     MISCELLANEOUS REVENUES (charges for (i) leasing, selling, installing and
maintaining customer premise equipment, (ii) providing billing and collection
services, (iii) providing Internet services and (iv) selling of digital
broadcast satellite receivers) increased 5% ($3.4 million) in 2001 and 5% ($3.4
million) in 2000. Average monthly miscellaneous revenue per customer was $10.50
in 2001, $10.52 in 2000 and $10.53 in 1999.

     OPERATING EXPENSES increased 7% ($28.6 million) in 2001 and 5% ($17.8
million) in 2000. Local telephone expenses as a percent of local telephone
revenues were 71.9% in 2001, 73.0% in 2000 and 74.8% in 1999. Local telephone
expenses are anticipated to increase due to inflation and new revenue-producing
programs and to level off somewhat as a percent of operating revenues.

     The increases in local telephone expenses related primarily to the cost of
providing Internet service, the sale of long-distance service, acquisitions and
wage and benefit increases. TDS Telecom has emphasized cost containment measures
to offset rising costs. The sale of long-distance service by TDS Telecom
increased expenses by $10.7 million in 2001 and $1.7 million in 2000.
Acquisitions increased cash expenses by $10.0 million in 2001. Depreciation and
amortization expenses increased 6% ($7.4 million) in 2001, including $3.1
million from acquisitions, and 6% ($6.9 million) in 2000 as a result of
increased investment in plant and equipment.

     OPERATING INCOME increased 14% ($19.2 million) to $161.9 million in 2001
and 15% ($18.6 million) to $142.7 million in 2000 from $124.1 million in 1999.
The local telephone operating margin was 28.1% in 2001, 27.0% in 2000 and 25.2%
in 1999. The increase in operating margin was caused by the growth in revenue
along with the emphasis on controlling costs. Local telephone operating expenses
are expected to increase due to inflation while additional revenues and expenses
are expected from new or expanded product offerings.


                                       8



     TDS Telecom's local telephone operations are subject to the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the
Effects of Certain Types of Regulation." TDS Telecom periodically reviews the
criteria for applying these provisions to determine whether continuing
application of SFAS No. 71 is appropriate. TDS Telecom believes that such
criteria are still being met and therefore has no current plans to change its
method of accounting.

     In analyzing the effects of discontinuing the application of SFAS No. 71,
management has determined that the useful lives of plant assets used for
regulatory and financial reporting purposes are consistent with generally
accepted accounting principles, and therefore, any adjustments to
telecommunications plant would be immaterial, as would be any write-off of
regulatory assets and liabilities.

     COMPETITIVE LOCAL EXCHANGE OPERATIONS

     TDS Telecom launched competitive local exchange operations in five new
markets serving over 25 cities in Illinois and Michigan in 2001 and will
continue to explore opportunities for future growth. Access lines increased
by 76% in 2001 and 70% in 2000. TDS Telecom has incurred and expects to incur
substantial operating losses from expansion of competitive operations.

     OPERATING REVENUES (revenue from the provision of local and long-distance
telephone service and revenue from a long-distance provider) increased 40%
($34.1 million) to $118.8 million in 2001 and 54% ($29.5 million) to $84.7
million in 2000. The increases were primarily due to the increases in access
lines in both years.

     OPERATING EXPENSES increased 62% ($62.1 million) in 2001 and 54% ($35.0
million) in 2000 due primarily to the costs incurred to grow the customer base
and expand the service territories, especially new market areas in Wisconsin,
Illinois and Michigan.

     OPERATING LOSS was $43.0 million in 2001, $15.0 million in 2000 and $9.5
million in 1999. The competitive local exchange operating losses reflect the
expenses associated with the growth and expansion in the business. TDS Telecom
expects to continue to grow the competitive local exchange business in certain
mid-sized cities. Operating losses from competitive local exchange operations
are expected to increase in 2002 due to costs associated with market expansion.

INFLATION

Management believes that inflation affects TDS's business to no greater extent
than the general economy.

ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 141 "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets" in July 2001. These statements require,
among other things, that all future business combinations be accounted for using
the purchase method of accounting and prohibit the use of the
pooling-of-interest method. For acquisitions completed after July 1, 2001,
goodwill will not be amortized. In addition, effective January 1, 2002,
previously recorded goodwill and other intangible assets with indefinite lives
will no longer be amortized but will be subject to impairment tests.

     SFAS No. 142 defines the accounting for intangible assets. The accounting
for a recognized intangible asset is based on the useful life to the entity. An
intangible asset with a finite useful life is amortized; an intangible asset
with an indefinite useful life is not amortized. The useful life of the
intangible asset is the period over which the asset is expected to contribute
directly or indirectly to the future cash flows of the entity.

     An intangible asset that is not subject to amortization shall be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The impairment test shall consist of
a comparison of the fair value of an intangible asset with its carrying amount.
If the carrying amount of an intangible asset exceeds its fair value, an
impairment loss shall be recognized in an amount equal to that excess.

     SFAS No. 142 also defines the accounting for goodwill. Goodwill will be
tested for impairment annually. Impairment is the condition that exists when the
carrying amount of goodwill exceeds its implied fair value. If the carrying
amount of goodwill exceeds the implied fair value of that goodwill, an
impairment loss shall be recognized in an amount equal to that excess.

     The Company will adopt SFAS No. 142 on January 1, 2002, and will no longer
amortize cellular license costs, telephone franchise and other costs in excess
of the underlying book value of subsidiaries or goodwill for equity method
investments. Cellular license costs, telephone franchise and other costs, and
equity method goodwill totaled $1,334.5 million, $348.7 million and $76.8
million respectively, at December 31, 2001, and amortization for the year ended
December 31, 2001 totaled $37.6 million, $6.2 million and $1.3 million,
respectively.


                                       9


     In addition, pursuant to SFAS No. 142, the Company is assessing its
recorded balances of Cellular license costs and telephone franchise and other
costs for potential impairment. As allowed under the standard, the Company
expects to complete its impairment assessment in the first quarter of 2002. Any
required impairment charge would be recorded as a cumulative effect of
accounting change as of January 1, 2002. The Company does not currently expect
to record an impairment charge upon the completion of the initial impairment
review. However, there can be no assurance that at the time the review is
completed a material impairment charge will not be recorded.

     SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued in
June 2001, and will become effective for the Company beginning January 1, 2003.
SFAS No. 143 requires entities to record the fair value of a liability for legal
obligations associated with an asset retirement in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. The Company is currently reviewing the requirements of this new standard
and has not yet determined the impact, if any, on the Company's financial
position or results of operations.

     SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" was issued in October 2001, and became effective for the Company
beginning January 1, 2002. SFAS No. 144 requires entities to measure long-lived
assets at the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. SFAS No. 144
also revises standards for the reporting of discontinued operations. This
statement broadens the presentation of discontinued operations to include a
component of an entity (rather than a segment of a business). A component of an
entity comprises operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
The Company is currently reviewing the requirements of this new standard, but
does not expect implementation to have a material impact on its financial
position or results of operations.

     The Financial Accounting Standards Board issued an exposure draft on
November 15, 2001, "Rescission of FASB Statements No. 4, 44 and 64 and Technical
Corrections." This proposed Statement would rescind Statement 4 and Statement
64, an amendment to Statement 4, thereby eliminating the requirements that gains
and losses from extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. The
provisions of this Statement related to the rescission of Statement 4 shall be
applied as of the beginning of the fiscal year in which this Statement is
issued. The Board expects to issue the final Statement in the first quarter of
2002. When adopted, the Company would no longer report gains and losses on the
retirement of long-term debt as an extraordinary item.

FINANCIAL RESOURCES

The following table shows certain information relating to TDS's financial
resources and requirements.



Year Ended December 31,                       2001          2000          1999
- ------------------------------------------------------------------------------
                                                (Dollars in thousands)
                                                          
Cash flows from (used in)
  Operating activities                 $   545,805   $   755,422   $   479,832
  Investing activities                    (519,858)     (605,659)     (285,350)
  Financing activities                      15,778      (155,191)     (272,522)
  Discontinued operations                       --        (6,563)      143,911
                                       ---------------------------------------
Net increase (decrease) in
  cash and cash equivalents            $    41,725   $   (11,991)  $    65,871
==============================================================================

Capitalization                         $ 6,134,589   $ 6,362,631   $ 4,561,767

Percent equity to total capital               65.0%         68.6%         64.8%
Interest coverage ratio
  (excluding gains and losses)                3.9X          3.6x          3.1x
Book value per share                   $     56.36   $     63.07   $     39.25
Senior unsecured debt rating
  S&P/Moody's                                A-/A3         A-/A3      BBB/Baa3
Year-end stock price                   $     89.75   $     90.00   $    126.00
==============================================================================


     CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES represents a significant
source of funds to the Company. Income from continuing operations excluding all
noncash items totaled $583.7 million in 2001, $592.5 million in 2000 and $554.9
million in 1999. Proceeds from the settlement of litigation added $42.5 million
in 2000. Changes in assets and liabilities from operations required $37.9
million in 2001, provided $120.5 million in 2000 and required $75.0 million in
1999, reflecting timing differences in the collection of accounts receivable,
payment of accounts payable and accrued taxes.



Year Ended December 31,                       2001          2000          1999
- ------------------------------------------------------------------------------
                                                 (Dollars in thousands)
                                                          
Income (loss) from
  continuing operations                  $(168,248)  $   145,527   $   291,326
Noncash items included
  in income from continuing
  operations                               751,973       446,949       263,532
                                         -------------------------------------
Income from continuing
  operations excluding
  noncash items                            583,725       592,476       554,858
Proceeds from
  litigation settlement                         --        42,457            --
Changes in assets and
liabilities from operations                (37,920)      120,489       (75,026)
                                         -------------------------------------
                                         $ 545,805   $   755,422   $   479,832
==============================================================================



                                       10


     CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES primarily represents uses
of funds to acquire, construct and upgrade modern high-quality communications
networks and facilities as a basis for creating long-term value for shareowners.
In recent years, rapid changes in technology and new opportunities have required
substantial investments in revenue enhancing and cost reducing upgrades of TDS's
networks. Cash flows used for investing activities primarily represent cash
required for capital expenditures, and the acquisition of cellular and telephone
properties and wireless spectrum. Proceeds from merger transactions, the sale of
non-strategic properties and distributions from unconsolidated entities have
provided substantial funds in recent years which have partially offset the cash
requirements for investing activities; however, such sources cannot be relied
upon to provide continuing or regular sources of financing.

     The primary purpose of TDS's construction and expansion expenditures is to
provide for significant customer growth, to upgrade service, and to take
advantage of service-enhancing and cost-reducing technological developments in
order to maintain competitive services. Cash expenditures for capital additions
totaled $700.2 million in 2001, $456.0 million in 2000 and $399.6 million in
1999. U.S. Cellular's capital additions totaled $503.3 million in 2001, $305.4
million in 2000 and $277.4 million in 1999 representing expenditures to build
377 cell sites in 2001, 224 in 2000 and 225 in 1999, to change out analog
equipment for digital equipment and to improve business systems, primarily its
customer information system. TDS Telecom's capital additions for its local
telephone operations totaled $99.9 million in 2001, $93.4 million in 2000 and
$99.2 million in 1999 representing expenditures for switch modernization and
outside plant facilities to maintain and enhance the quality of service and
offer new revenue opportunities. TDS Telecom's capital additions also included
expenditures of $96.9 million in 2001, $57.2 million in 2000 and $23.0 million
in 1999 for switching and other network facilities for its competitive local
exchange business.

     Cash used for acquisitions, excluding cash acquired, totaled $392.8 million
in 2001, $200.7 million in 2000 and $31.3 million in 1999. TDS's acquisitions
include primarily the purchase of controlling interests in cellular telephone
and telephone properties, minority interests that increased the ownership of
majority-owned markets and wireless spectrum. These expenditures added the
majority interest in one cellular market, 26 PCS licenses and two telephone
companies representing 6.8 million population equivalents, 1,000 customer units
and 43,400 access lines in 2001. In 2000, the Company acquired the majority
interest in two cellular markets, one telephone company and a minority interest
in one telephone company representing 387,000 population equivalents and 10,200
access lines. In 1999, the Company acquired the majority interest in one
cellular market and one telephone company representing 245,000 population
equivalents, 15,000 customer units and 500 access lines. The 2000 expenditures
also include a deposit on certain PCS licenses. The PCS licenses were acquired
on U.S. Cellular's behalf and through joint ventures. The interests acquired
through joint ventures are 100% owned by the joint ventures, and the Company is
considered to have the controlling financial interest in these joint ventures
for financial reporting purposes.

     TDS received $570.0 million in cash from the merger of Deutsche Telekom
and VoiceStream in 2001 and $46.6 million in cash from the merger of AirTouch
and Vodafone in 1999. The sale of non-strategic cellular assets, and certain
other assets and properties provided $0.5 million in 2001, $73.0 million in
2000 and $73.4 million in 1999. TDS loans and advances, primarily to Airadigm
Communications, Inc., totaled $9.8 million in 2001 and $55.1 million in 2000.
Distributions from unconsolidated investments provided $16.6 million in 2001,
$34.8 million in 2000 and $26.1 million in 1999. The 2000 amount included a
special nonrecurring distribution of $11.8 million.


                                       11


     CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES primarily reflects changes
in short-term debt balances, cash used to repurchase common shares, cash used
for the repurchase and conversion of LYONs securities and proceeds from the sale
of long-term debt and equity securities to refinance short-term debt.

     The Company has used short-term debt to finance acquisitions, for general
corporate purposes and to repurchase common shares. Internally generated funds
as well as proceeds from the sale of non-strategic cellular and other
investments, from time to time, have been used to reduce short-term debt. In
addition, TDS has taken advantage of attractive opportunities to reduce
short-term debt with proceeds from the sale of long-term debt securities,
including sales of debt securities by subsidiaries. TDS has cash management
arrangements with its subsidiaries under which the subsidiaries may from time to
time deposit excess cash with TDS for investment.

     TDS received $484.2 million from the sale of $500 million 40-year 7.6%
Series A Notes in 2001. The proceeds were used to reduce short-term debt. A
total of $65.5 million was paid to retire medium-term notes called at par in
2001. Short-term debt required cash totaling $249.5 million in 2001 and $170.9
million in 1999, and provided $499.0 million in 2000. During 1999, TDS reduced
notes payable balances primarily through Aerial's repayment of intercompany
indebtedness as a result of Aerial's receipt of an equity investment from a
strategic investor, and as a result of internally generated cash and improved
cash management.

     The boards of directors of TDS and U.S. Cellular have authorized the
repurchase of common shares of TDS and U.S. Cellular. During 2001, 2000 and
1999, TDS repurchased 325,000 shares, 2,666,000 shares and 664,000 shares,
respectively, for an aggregate purchase price of $30.3 million, or an average of
$93.47 per share, $287.7 million, or an average of $107.94 per share, and $80.5
million, or an average of $121.18 per share, respectively. Cash required for the
repurchase of common shares totaled $39.4 million in 2001, $290.1 million in
2000 and $69.0 million in 1999 reflecting differences in the number of shares
acquired and timing differences in the cash disbursements. During 2001 and 2000,
U.S. Cellular repurchased 643,000 and 3,524,000 common shares for an aggregate
purchase price of $29.9 million, or an average of $46.45 per share and $234.8
million, or an average of $66.64 per share, respectively. Cash required for the
repurchase of U.S. Cellular common shares totaled $40.9 million and $223.8
million in 2001 and 2000, respectively.

     U.S. Cellular's LYONs securities are convertible, at the option of the
holders, at any time prior to maturity, redemption or purchase, into U.S.
Cellular common shares at a conversion rate of 9.475 U.S. Cellular common shares
per LYON. Upon notice of conversion, U.S. Cellular has the option to deliver to
holders either U.S. Cellular common shares or cash equal to the market value of
such common shares. In addition, U.S. Cellular has opportunistically repurchased
LYONs securities in private transactions and in open-market transactions. In
2001, U.S. Cellular paid $32.0 million and issued 644,000 U.S. Cellular common
shares to retire LYONs securities with a carrying value of $55.1 million. During
2000, U.S. Cellular retired LYONs securities with a carrying value of $126.2
million for cash totaling $99.4 million and for 1,416,000 U.S. Cellular common
shares.

     CASH FLOWS FROM DISCONTINUED OPERATIONS represents the net cash used to
fund the construction and operating activities of Aerial and cash provided by
financing activities of Aerial prior to the merger with VoiceStream. Aerial's
financing activities included investments aggregating $230 million in 1999 in
Aerial and one of its subsidiaries by a strategic investor. The cash provided by
these investments was, upon receipt, used to reduce intercompany debt incurred
to fund the construction and operating activities of Aerial.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that internal cash flow, existing cash and cash equivalents,
and funds available from line of credit arrangements provide sufficient
financial resources to finance its near-term capital, business development and
expansion expenditures. TDS and its subsidiaries have access to public and
private capital markets to help meet its long-term financing needs. TDS and its
subsidiaries anticipate accessing public and private capital markets to issue
debt and equity securities only when and if capital requirements, financial
market conditions and other factors warrant. However, the availability of
financial resources is dependent on economic events, business developments,
technological changes, financial conditions or other factors, some of which may
not be in TDS's control. If at any time financing is not available on terms
acceptable to TDS, TDS might be required to reduce its business development and
capital expenditure plans, which could have a materially adverse effect on its
business and financial condition. TDS does not believe that any circumstances
that could materially adversely affect TDS's liquidity or capital resources are
currently reasonably likely to occur, but it cannot provide assurances that such
circumstances will not occur or that they will not occur rapidly. Economic
downturns, changes in financial markets or other factors could rapidly change
the availability of TDS's liquidity and capital resources.

     As of December 31, 2001, the resources required for scheduled repayment of
long-term debt (including announced prepayments of medium-term notes), trust
originated securities, and aggregate minimum commitments under noncancelable
long-term operating leases, and with respect to 2002, announced acquisitions,
were as follows.


                                       12





Contractual                                                      After
Obligations           2002     2003    2004    2005     2006    5 years
- ------------------------------------------------------------------------
                                     (Dollars in Millions)
                                             
Long-term Debt
  Repayments(1)     $ 67.5    $17.2   $18.2   $21.7   $219.2   $ 1,402.2
Average
  Interest Rate
  on Debt             8.53%    7.23%   7.23%   7.47%    7.02%       7.26%
Trust Originated
  Securities        $   --    $  --   $  --   $  --   $   --   $   300.0
Operating
  Leases              62.9     56.9    51.5    47.3     41.7       168.9
Acquisitions          90.4       --      --      --       --          --
                    ----------------------------------------------------
                    $220.8    $74.1   $69.7   $69.0   $260.9   $ 1,871.1
========================================================================


(1) SCHEDULED DEBT REPAYMENTS INCLUDE LONG-TERM DEBT, THE CURRENT PORTION OF
    LONG-TERM DEBT AND EXCLUDES THE UNAMORTIZED DISCOUNT ON THE ZERO COUPON
    DEBENTURES (LYONS).

     At December 31, 2001, TDS and its subsidiaries are in compliance with all
covenants and other requirements set forth in long-term debt indentures. TDS
does not have any rating downgrade triggers that would accelerate the maturity
dates of its debt. However, a downgrade in TDS's credit rating could adversely
affect the terms on which it is able to renew existing, or obtain access to new,
credit facilities in the future.

     TDS and its subsidiaries had cash and cash equivalents totaling $140.7
million at December 31, 2001. In January 2002, TDS replaced its $500 million
revolving credit facility, all of which was unused at December 31, 2001, with a
new $600 million facility that expires in January 2007. Borrowings will bear
interest at the London Interbank Borrowing Rate ("LIBOR") plus a margin based on
the Company's credit rating (30 basis points at inception).

     TDS's interest cost would increase if TDS's credit rating goes down which
would increase TDS's cost of financing, but such credit facility would not cease
to be available solely as a result of a decline in its credit rating. However,
the continued availability of this revolving credit facility requires TDS to
comply with certain negative and affirmative covenants, maintain certain
financial ratios and to represent certain matters at the time of each borrowing.
At December 31, 2001, TDS was in compliance with all covenants and other
requirements set forth in the credit agreement.

     TDS also had $87 million of bank lines of credit for general corporate
purposes at December 31, 2001, all of which was unused. These line of credit
agreements provide for borrowings at negotiated rates up to the prime rate.

     U.S. Cellular's capital additions budget for 2002 is approximately
$620-$640 million, primarily to add additional cell sites to expand and enhance
coverage, to provide additional digital service capabilities including the
initial steps toward the migration to CDMA technology and to enhance office
systems. The conversion to CDMA is expected to be completed by 2004, at an
approximate cost of $400-$450 million, spread over the next three years. The
estimated capital additions in 2002 include $80-$95 million related to this
conversion. U.S. Cellular plans to finance its construction expenditures
primarily with internally generated cash and short-term debt. U.S. Cellular's
operating cash flow (operating income plus depreciation and amortization)
totaled $617.9 million in 2001, up 11% ($59.9 million) from 2000. In addition,
at December 31, 2001, U.S. Cellular had a $500 million of bank revolving line of
credit for general corporate purposes, $236 million of which was unused. This
line of credit provides for borrowing at LIBOR plus a contractual spread, based
on U.S. Cellular's credit rating. The contractual spread was 19.5 basis points
as of December 31, 2001.

     U.S. Cellular's interest cost would increase if its credit rating goes
down which would increase its cost of financing, but such line of credit
would not cease to be available solely as a result of a decline in its credit
rating. However, the continued availability of this revolving line of credit
requires U.S. Cellular to comply with certain negative and affirmative
covenants, maintain certain financial ratios and to represent certain matters
at the time of each borrowing. At December 31, 2001, U.S. Cellular was in
compliance with all covenants and other requirements set forth in the credit
agreement.

     TDS Telecom's capital additions budget for 2002 is approximately $170-$190
million. TDS Telecom expects the local telephone companies to spend
approximately $115-$125 million to provide for normal growth and to upgrade
plant and equipment to provide enhanced services. The competitive local exchange
companies are expected to spend approximately $55-$65 million to build switching
and other network facilities to expand its markets. TDS Telecom plans to finance
its construction expenditures using primarily internally generated cash.
Operating cash flow totaled $268.3 million in 2001, up 3% ($7.1 million) from
2000.


                                       13


     As of December 31, 2001, TDS gave notice to the note holders of its intent
to retire $51.0 million of Medium-Term Notes in the first quarter of 2002 that
were called at par value. This amount was classified as current portion of
long-term debt on the December 31, 2001 balance sheet. TDS may consider retiring
debt, when it becomes redeemable, when and if financial market conditions and
other factors warrant. The table below indicates the long-term debt which could
be retired in 2002 and the initial call dates of the remaining TDS long-term
debt to show the amounts that TDS could redeem in advance of the maturity date
if it chose to do so.



Redemption Amounts          Total         2002        2003       2004        2005      2006
- -------------------------------------------------------------------------------------------
                                                     (Dollars in Millions)
                                                                    
TDS Medium Term Notes     $  173.7     $  51.0      $ 65.5     $   --       $17.2    $ 40.0
TDS 7% Notes                 200.0       200.0          --         --          --        --
TDS 7.6% Series A Notes      500.0          --          --         --          --     500.0
U.S. Cellular 7.25% Notes    250.0          --          --      250.0          --        --
U.S. Cellular LYONs          140.2       140.2          --         --          --        --
TDS TELECOM Debt             288.9       288.9          --         --          --        --
Other Debt                    22.5         9.5          --         --         3.0      10.0
Mandatory
  Redeemable
  Preferred
  Securities                 300.0       150.0       150.0         --          --        --
                          -----------------------------------------------------------------
                          $1,875.3     $ 839.6      $215.5     $250.0       $20.2    $550.0
===========================================================================================


     TDS reviews attractive opportunities to acquire additional
telecommunications companies and wireless spectrum, which add value to the
business. At December 31, 2001, the Company had agreements to acquire two
telephone companies serving 25,500 access lines, and certain PCS licenses for
aggregate consideration of $90.4 million in cash.

     On November 1, 2000, the United States Bankruptcy Court for the Western
District of Wisconsin confirmed a plan of financial reorganization for Airadigm
Communications, Inc., a Wisconsin-based wireless service provider. Under the
terms of the plan of reorganization, TDS and an unrelated entity have committed
to provide funding to meet certain obligations of Airadigm. Airadigm continues
to operate as an independent company providing wireless services. Pursuant to
the plan of reorganization, under certain circumstances and subject to the FCC's
rules and regulations, TDS and the unrelated entity, or their respective
designees, may each acquire certain PCS licenses for areas of Wisconsin and Iowa
as well as other Airadigm assets. As of December 31, 2001, TDS had provided
funding of $52.7 million to Airadigm. Under the plan of reorganization, TDS's
portion of the funding and the cost of the assets to be acquired could possibly
aggregate up to an additional $145 million.

     U.S. Cellular is a limited partner in a joint venture that was a successful
bidder for 17 licenses in 13 markets in the January 2001 FCC spectrum auction.
The cost for the 17 licenses totaled $283.9 million. Although legally the
general partner controls the joint venture, the Company has included the joint
venture in its consolidated financial statements because U.S. Cellular is
considered to have controlling financial interest for financial reporting
purposes. The joint venture has acquired 5 of such licenses in 4 markets for a
total of $4.1 million and has deposits with the FCC totaling $56.1 million for
the remaining licenses (classified as a current asset at December 31, 2001).
Subject to the final outcome of the proceedings discussed below, the joint
venture's portion of the funding could possibly aggregate up to an additional
$223.7 million to fund the acquisition of the remaining licenses. In addition,
U.S. Cellular has agreed to loan the general partner up to $20 million that
could be used by the general partner to fund its investment in the licenses.

     With respect to the remaining 12 licenses in 9 markets, such licenses had
been reauctioned by the FCC after defaults by winning bidders in a prior auction
and were made subject by the FCC to the final outcome of certain legal
proceedings initiated by the prior winning bidders. Following the reauction, one
of the prior winning bidders obtained a court ruling that the FCC's actions were
illegal. In an effort to resolve this matter, on November 15, 2001, the joint
venture and other bidders in the reauction entered into a settlement agreement
with the prior winning bidder and the FCC. However, the settlement agreement
terminated due to the failure to satisfy a condition to obtain certain
Congressional action by December 31, 2001. The U.S. Supreme Court has agreed to
review this matter. In the event the prior winning bidder is successful in this
litigation, the joint venture would receive a refund of its deposit of $56.1
million made to the FCC for such 12 licenses. The joint venture's financial
requirements would then be limited to the 5 licenses in 4 markets that it
acquired in 2001. If the FCC is successful in this litigation or the matter is
otherwise resolved in a manner that will permit the joint venture to acquire the
remaining licenses, the joint venture would likely be required to pay to the FCC
the balance of the auction price for such licenses. The joint venture would then
have significant financial requirements to build out such markets. The exact
nature of U.S. Cellular's financial commitment going forward will be determined
as the joint venture develops its long-term business and financing plans.

     TDS paid total dividends on its common and preferred stock of $32.1 million
in 2001, $30.5 million in 2000 and $29.4 million in 1999. TDS does not
anticipate any change in its policy of paying dividends. TDS paid quarterly
dividends of $0.135, $0.125 and $0.115 in 2001, 2000 and 1999, respectively.


                                       14


     TDS and U.S. Cellular may continue the repurchase of their common shares,
as market conditions warrant, on the open market or at negotiated prices in
private transactions. The repurchase programs are intended to create value for
the shareholders. The repurchases of common shares will be funded by internal
cash flow, supplemented by short-term borrowings.

     The U.S. Cellular Board of Directors has authorized management to
opportunistically repurchase LYONs in private transactions. U.S. Cellular may
also purchase a limited amount of LYONs in open-market transactions from time to
time. U.S. Cellular LYONs are convertible, at the option of their holders, at
any time prior to maturity, redemption or purchase, into U.S. Cellular common
shares at a conversion rate of 9.475 U.S. Cellular common shares per LYON. Upon
conversion, U.S. Cellular has the option to deliver to holders either U.S.
Cellular common shares or cash equal to the market value of the U.S. Cellular
common shares into which the LYONs are convertible. U.S. Cellular may redeem the
notes for cash at the issue price plus accrued original issue discount through
the date of redemption.

     TDS holds various investments in publicly traded companies valued at
$2,700.2 million as of December 31, 2001. These assets are classified for
financial reporting purposes as available-for-sale securities. TDS may purchase
additional shares, sell or transfer shares in public or private transactions
and/or may enter into privately negotiated derivative transactions to hedge the
market risk of some or all of its positions in the securities.

MARKET RISK
TDS is subject to market rate risks due to fluctuations in interest rates and
equity markets. The majority of TDS's debt is in the form of long-term,
fixed-rate notes, convertible debt, debentures and trust securities with
original maturities ranging up to 40 years. Accordingly, fluctuations in
interest rates can lead to significant fluctuations in the fair value of such
instruments. TDS has not entered into any significant financial derivatives to
reduce its exposure to interest rate risks. The annual requirements for
principal payments on long-term debt and the average interest rates are shown
above in the Liquidity section. The aggregate principal amounts of long-term
debt were $1,746.0 million at December 31, 2001 and $1,438.5 million at December
31, 2000, the estimated fair value was $1,559.7 million and $1,367.9 million,
respectively, and the average interest rate on the debt was 7.28% and 7.14%,
respectively. The fair value was estimated using market prices for TDS's 7.6%
Series A Notes and U.S. Cellular LYONs and discounted cash flow analysis for the
remaining debt. The trust securities instruments totaling $300 million, with an
average interest rate of 8.27%, are due in 2037 and 2038. The fair value of the
trust securities was $299.2 million and $279.0 million based upon the market
price at December 31, 2001 and 2000, respectively.

     TDS maintains a portfolio of available-for-sale marketable equity
securities. The market value of these investments aggregated $2,700.2 million at
December 31, 2001 and $4,121.9 million at December 31, 2000. A hypothetical 10%
decrease in the share prices of these investments at December 31, 2001 would
result in a $270.0 million decline in the market value of the investments. As of
December 31, 2001, the net unrealized holding loss, net of tax, included in
accumulated other comprehensive loss totaled $352.1 million. Management does not
consider the unrealized loss to be "other than temporary." Management continues
to review the valuation of the investments on a periodic basis. If management
determines in the future that the unrealized loss is other than temporary, the
loss will be recognized and recorded in the income statement.

     CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management bases its estimates on historical experience and on
various other assumptions and information that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgements about the carrying values of assets and liabilities. Actual results
may differ from estimates under different assumptions or conditions.

     Management believes the following critical accounting policies reflect its
more significant judgements and estimates used in the preparation of its
consolidated financial statements.

     The Company holds a substantial amount of marketable securities that are
publicly traded and can have volatile share prices. The marketable securities
are marked to market each period with the change in value of the securities
reported as Other Comprehensive Income, net of income taxes, which is included
in the stockholders' equity section of the balance sheet. If management
determined that the decline in value of the marketable securities was "other
than temporary," the unrealized loss included in other comprehensive income
would be recognized and recorded as a loss in the income statement. Factors that
management reviews in determining an other than temporary decline include
whether there has been a significant change in the financial condition,
operational structure or near-term prospects of the issuer; how long the
security has been below historical cost; and whether TDS has the ability to
retain its investment in the issuer's securities to allow the market value to
return to historical cost levels.

     TDS has substantial investments in long-lived assets, including substantial
amounts of intangible assets, primarily cellular license costs and telephone
franchise costs (goodwill), as a result of acquisitions of wireless markets and
licenses, and telephone companies. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company evaluates the asset for
possible impairment based on


                                       15


an estimate of related undiscounted cash flows over the remaining asset life. If
an impairment is identified, a loss is recognized for the difference between the
fair value of the asset (less cost to sell) and the carrying value of the asset.

     TDS will adopt SFAS No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002, and will no longer amortize cellular license costs, telephone
franchise and other costs in excess of the underlying book value of
subsidiaries, and goodwill for equity method investments. In connection with
SFAS No. 142, TDS is assessing its recorded balances of cellular license costs
and telephone franchise and other costs for potential impairment. The Company
expects to complete its impairment assessment in the first quarter of 2002. Any
required impairment charge would be recorded as a cumulative effect of
accounting change as of January 1, 2002. The Company does not currently expect
to record an impairment charge upon the completion of the initial impairment
review. However, there can be no assurance that at the time the review is
completed a material impairment charge will not be recorded.

     Deferred tax assets are reduced by a valuation allowance when, in
management's opinion, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. TDS considers future taxable
income and ongoing prudent and feasible tax planning strategies in assessing
the need for the valuation allowance. If it were determined that TDS would be
able to realize the deferred tax asset in excess of its net recorded amount,
an adjustment to deferred tax assets would increase income. Likewise, if it
were determined that TDS would not be able to realize the net deferred tax
asset amount, an adjustment to deferred tax assets would reduce income.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT

     THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION AND OTHER SECTIONS OF THIS ANNUAL REPORT CONTAIN STATEMENTS
THAT ARE NOT BASED ON HISTORICAL FACT, INCLUDING THE WORDS "BELIEVES,"
"ANTICIPATES," "INTENDS," "EXPECTS" AND SIMILAR WORDS. THESE STATEMENTS
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE
THE ACTUAL RESULTS, EVENTS OR DEVELOPMENTS TO BE SIGNIFICANTLY DIFFERENT FROM
ANY FUTURE RESULTS, EVENTS OR DEVELOPMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE THE FOLLOWING:

- -    INCREASES IN THE LEVEL OF COMPLETION IN THE MARKETS IN WHICH TDS OPERATES
     COULD ADVERSELY AFFECT TDS'S REVENUES OR INCREASES ITS COSTS TO COMPETE.

- -    ADVANCES OR CHANGES IN TELECOMMUNICATIONS TECHNOLOGY COULD RENDER CERTAIN
     TECHNOLOGIES USED BY TDS OBSOLETE.

- -    CHANGES IN TELECOMMUNICATIONS REGULATORY ENVIRONMENT COULD ADVERSELY AFFECT
     TDS'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

- -    CHANGES IN THE SUPPLY OR DEMAND OF THE MARKET FOR WIRELESS LICENSES OR
     TELEPHONE COMPANIES, INCREASED COMPETITION, ADVERSE DEVELOPMENTS IN THE
     TDS'S BUSINESSES OR THE INDUSTRIES IN WHICH TDS IS INVOLVED AND/OR OTHER
     FACTORS COULD RESULT IN AN IMPAIRMENT OF THE VALUE OF TDS'S LICENSE COSTS
     AND/OR GOODWILL, WHICH MAY REQUIRE TDS TO RECORD A WRITE DOWN IN THE VALUE
     OF SUCH ASSETS.

- -    COMPETITION, CONSTRUCTION DELAYS AND OTHER CHALLENGES IN EXECUTING TDS'S
     EXPANSION AND DEVELOPMENT OF ITS CLEC BUSINESS COULD RESULT IN HIGHER THAN
     PLANNED LOSSES, ADDITIONAL FINANCING REQUIREMENTS AND/OR THE WRITE DOWN OF
     THE CLEC ASSETS IF TDS IS UNABLE TO SUCCESSFULLY IMPLEMENT ITS PLANS IN
     THIS BUSINESS UNDERTAKING.

- -    CONTINUED DEPRESSED MARKET VALUES, CONTINUED DECLINES THEREOF OR OTHER
     EVENTS EVIDENCING AN IMPAIRMENT IN THE VALUE OF TDS'S INVESTMENTS IN
     AVAILABLE-FOR-SALE MARKETABLE EQUITY SECURITIES THAT ARE OTHER THAN
     TEMPORARY MAY REQUIRE TDS TO WRITE DOWN THE VALUE OF SUCH SECURITIES.

- -    SETTLEMENT, JUDGMENTS, RESTRAINTS ON ITS CURRENT MANNER OF DOING BUSINESS
     AND/OR LEGAL COSTS RESULTING FROM PENDING AND FUTURE LITIGATION COULD HAVE
     AN ADVERSE EFFECT ON TDS'S FINANCIAL CONDITION, RESULTS OF OPERATIONS OR
     ABILITY TO DO BUSINESS.

- -    COSTS, INTEGRATION PROBLEMS OR OTHER FACTORS ASSOCIATED WITH
     ACQUISITIONS/DIVERSITIES OF PROPERTIES AND/OR LICENSES COULD HAVE AN
     ADVERSE EFFECT ON TDS'S FINANCIAL CONDITION OR RESULTS OR OPERATIONS.

- -    CHANGES IN GROWTH IN THE NUMBER OF WIRELESS CUSTOMERS, AVERAGE REVENUE
     PER UNIT, PENETRATION RATES, CHURN RATES, ROAMING RATES AND THE MIX OF
     PRODUCTS AND SERVICES OFFERED IN WIRELESS MARKETS COULD HAVE AN ADVERSE
     EFFECT ON TDS'S WIRELESS BUSINESS OPERATIONS.

- -    CHANGES IN GROWTH IN THE NUMBER OF ILEC AND CLEC CUSTOMERS, CHURN RATES AND
     MIX OF PRODUCTS AND SERVICES OFFERED IN ILEC AND CLEC MARKETS COULD HAVE AN
     ADVERSE EFFECT ON SUCH TDS BUSINESS SEGMENTS.

- -    CHANGES IN MARKET CONDITIONS OR OTHER FACTORS COULD LIMIT OR RESTRICT THE
     AVAILABILITY OF FINANCING ON TERMS AND PRICES ACCEPTABLE TO TDS, WHICH
     COULD REQUIRE TDS TO REDUCE ITS CONSTRUCTION, DEVELOPMENT AND ACQUISITION
     PROGRAMS.

- -    CHANGES IN GENERAL ECONOMIC AND BUSINESS CONDITIONS, BOTH NATIONALLY AND IN
     THE REGIONS IN WHICH TDS OPERATES, COULD HAVE AN ADVERSE EFFECT ON TDS'S
     BUSINESSES.

     TDS UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
READERS SHOULD EVALUATE ANY STATEMENTS IN LIGHT OF THESE IMPORTANT FACTORS.


                                       16





- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------

Year Ended December 31,                                                                     2001         2000            1999
- -----------------------------------------------------------------------------------------------------------------------------
                                                                              (Dollars in thousands, except per share amounts)
                                                                                                          
OPERATING REVENUES
  U.S. Cellular                                                                       $1,894,830   $1,716,640      $1,576,429
  TDS Telecom                                                                            693,712      610,216         545,917
                                                                                      ---------------------------------------
                                                                                       2,588,542    2,326,856       2,122,346
                                                                                      ---------------------------------------
OPERATING EXPENSES
  U.S. Cellular                                                                        1,577,618    1,424,327       1,320,587
  TDS Telecom                                                                            574,769      482,463         431,366
                                                                                      ---------------------------------------
                                                                                       2,152,387    1,906,790       1,751,953
                                                                                      ---------------------------------------
                                                                                         436,155      420,066         370,393
                                                                                      ---------------------------------------
OPERATING INCOME
INVESTMENT AND OTHER INCOME (EXPENSE)
  Interest and dividend income                                                            14,246       15,637           8,708
  Investment income                                                                       50,639       38,723          31,324
  Amortization of costs related to minority investments                                   (1,263)     (10,258)        (12,927)
  Gain (loss) on marketable securities and other investments                            (548,305)      15,716         345,938
  Other income (expense), net                                                              5,048       (8,082)        (11,198)
                                                                                      ---------------------------------------
                                                                                        (479,635)      51,736         361,845
                                                                                      ---------------------------------------
INCOME (LOSS) BEFORE INTEREST AND INCOME TAXES                                           (43,480)     471,802         732,238
Interest expense                                                                         103,710      100,559          99,984
Minority interest in income of subsidiary trust                                           24,810       24,810          24,810
                                                                                      ---------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
  MINORITY INTEREST                                                                     (172,000)     346,433         607,444
Income tax expense (benefit)                                                             (44,908)     149,481         251,001
                                                                                      ---------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST                       (127,092)     196,952         356,443
Minority share of income                                                                 (41,156)     (51,425)        (65,117)
                                                                                      ---------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS                                                (168,248)     145,527         291,326
                                                                                      ---------------------------------------
DISCONTINUED OPERATIONS
  Gain (loss) on disposal of Aerial, net of tax                                          (24,092)   2,125,787              --
  Loss from operations of Aerial, net of tax                                                  --           --        (111,492)
                                                                                      ---------------------------------------
                                                                                         (24,092)   2,125,787        (111,492)
                                                                                      ---------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                                                     (192,340)   2,271,314         179,834
EXTRAORDINARY ITEM-LOSS ON EXTINGUISHMENT OF DEBT, NET OF MINORITY INTEREST               (5,715)     (30,471)             --
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX AND MINORITY INTEREST                      --       (3,841)             --
                                                                                      ---------------------------------------
NET INCOME                                                                              (198,055)   2,237,002         179,834
Preferred Dividend Requirement                                                              (458)        (504)         (1,147)
                                                                                      ---------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON                                                 $ (198,513)  $2,236,498      $  178,687
=============================================================================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (000S)                                          58,661       59,922          61,436
BASIC EARNINGS PER SHARE
  Income (Loss) from Continuing Operations                                            $    (2.87)  $     2.42      $     4.72
  Net Income (Loss) Available to Common                                                    (3.38)       37.32            2.91
=============================================================================================================================
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (000S)                                        58,661       60,636          62,376
DILUTED EARNINGS PER SHARE
  Income (Loss) from Continuing Operations                                            $    (2.87)  $     2.39      $     4.65
  Net Income (Loss) Available to Common                                                    (3.38)       36.88            2.87
=============================================================================================================================
DIVIDENDS PER SHARE                                                                   $      .54   $      .50      $      .46
=============================================================================================================================


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       17





- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------

Year Ended December 31,                                                                  2001              2000            1999
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                (Dollars in thousands)
                                                                                                             
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES
  Income (loss) from continuing operations                                          $(168,248)        $ 145,527       $ 291,326
  Add (deduct) adjustments to reconcile income from continuing
    operations to net cash provided by operating activities
      Depreciation and amortization                                                   450,019           399,143         353,322
      Deferred income taxes, net                                                     (266,406)             (370)        175,047
      Investment income                                                               (50,639)          (38,723)        (31,324)
      Minority share of income                                                         41,156            51,425          65,117
      (Gain) Loss on cellular and other investments                                   548,305           (15,716)       (345,938)
      Noncash interest expense                                                         10,176            16,448          18,297
      Other noncash expense                                                            19,362            34,742          29,011
      Proceeds from litigation settlement                                                  --            42,457              --
    Changes in assets and liabilities from operations
      Change in accounts receivable                                                   (34,125)          (14,619)        (50,417)
      Change in materials and supplies                                                 (7,100)          (18,786)        (13,436)
      Change in accounts payable                                                       (7,828)           59,550         (22,421)
      Change in accrued taxes                                                          (1,151)           56,303         (17,051)
      Change in other assets and liabilities                                           12,284            38,041          28,299
                                                                                    -------------------------------------------
                                                                                      545,805           755,422         479,832
                                                                                    -------------------------------------------
CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES
  Capital expenditures                                                               (700,150)         (456,019)       (399,631)
  Acquisitions, net of cash acquired                                                 (392,842)         (200,718)        (31,323)
  Increase in notes receivable                                                         (9,763)          (55,141)             --
  Cash received from mergers                                                          570,035                --          46,606
  Proceeds from investment sales                                                          487            72,973          73,394
  Distributions from unconsolidated entities                                           16,644            34,834          26,061
  Investments in and advances to unconsolidated entities                                  (46)           (4,187)          5,497
  Other investing activities                                                           (4,223)            2,599          (5,954)
                                                                                    -------------------------------------------
                                                                                     (519,858)         (605,659)       (285,350)
                                                                                    -------------------------------------------
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES
  Change in notes payable                                                            (249,522)          499,000        (170,889)
  Issuance of long-term debt                                                          489,656             2,209           9,902
  Repayments of long-term debt                                                        (17,806)          (17,096)        (22,131)
  Prepayment of medium-term notes                                                     (65,500)               --              --
  Repurchase and conversion of LYONs                                                  (31,963)          (99,356)             --
  Repurchase of TDS Common Shares                                                     (39,441)         (290,069)        (69,014)
  Repurchase of U.S. Cellular Common Shares                                           (40,862)         (223,847)             --
  Dividends paid                                                                      (32,141)          (30,472)        (29,391)
  Other financing activities                                                            3,357             4,440           9,001
                                                                                    -------------------------------------------
                                                                                       15,778          (155,191)       (272,522)
                                                                                    -------------------------------------------
CASH FLOWS FROM DISCONTINUED OPERATIONS                                                    --            (6,563)        143,911
                                                                                    -------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   41,725           (11,991)         65,871

CASH AND CASH EQUIVALENTS
  Beginning of period                                                                  99,019           111,010          45,139
                                                                                    -------------------------------------------
  End of period                                                                     $ 140,744         $  99,019       $ 111,010
===============================================================================================================================


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       18





- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS - ASSETS
- ------------------------------------------------------------------------------------------------------------------------------

December 31,                                                                             2001               2000
- ----------------------------------------------------------------------------------------------------------------
                                                                                       (Dollars in thousands)
                                                                                                
CURRENT ASSETS
  Cash and cash equivalents                                                        $  140,744         $   99,019
  Accounts receivable
    Due from customers, less allowance of $13,657 and $13,664, respectively           202,714            189,078
    Other, principally connecting companies                                           176,447            148,407
  Deposit receivable from FCC                                                          56,060                 --
  Materials and supplies, at average cost                                              71,370             61,450
  Other current assets                                                                 27,021             29,146
                                                                                   -----------------------------
                                                                                      674,356            527,100
                                                                                   -----------------------------

INVESTMENTS
  Marketable equity securities                                                      2,700,230          4,121,904
  Intangible assets
    Cellular license costs, net of amortization                                     1,334,523          1,261,404
    Telephone franchise and other costs in excess of the underlying
      book value of subsidiaries, net of amortization                                 348,696            203,532
  Investments in unconsolidated entities                                              233,678            182,325
  Notes receivable                                                                    101,887             86,464
  Other investments                                                                    15,078             13,588
                                                                                   -----------------------------
                                                                                    4,734,092          5,869,217
                                                                                   -----------------------------

PROPERTY, PLANT AND EQUIPMENT, NET
  U.S. Cellular                                                                     1,527,805          1,265,347
  TDS Telecom                                                                       1,030,226            920,678
                                                                                   -----------------------------
                                                                                    2,558,031          2,186,025
                                                                                   -----------------------------

OTHER ASSETS AND DEFERRED CHARGES                                                      80,313             52,267
                                                                                   -----------------------------

                                                                                   $8,046,792         $8,634,609
================================================================================================================


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       19





- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS - LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------

December 31,                                                                             2001               2000
- ----------------------------------------------------------------------------------------------------------------
                                                                                        (Dollars in thousands)

                                                                                                
CURRENT LIABILITIES
  Current portion of long-term debt                                                $   67,461         $   15,639
  Notes payable                                                                       265,300            499,000
  Accounts payable                                                                    270,005            275,901
  Advance billings and customer deposits                                               68,044             61,958
  Accrued interest                                                                     24,264             24,912
  Accrued taxes                                                                        14,263             17,904
  Accrued compensation                                                                 56,973             52,314
  Other current liabilities                                                            49,906             36,783
                                                                                   -----------------------------
                                                                                      816,216            984,411
                                                                                   -----------------------------

DEFERRED LIABILITIES AND CREDITS
  Net deferred income tax liability                                                 1,378,280          1,756,217
  Other                                                                                50,468             45,990
                                                                                   -----------------------------
                                                                                    1,428,748          1,802,207
                                                                                   -----------------------------

LONG-TERM DEBT, excluding current portion                                           1,507,764          1,172,987
                                                                                   -----------------------------

MINORITY INTEREST in subsidiaries                                                     467,698            431,110
                                                                                   -----------------------------

COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
  SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES (a)                 300,000            300,000
                                                                                   -----------------------------

PREFERRED SHARES                                                                        7,442              7,827
                                                                                   -----------------------------

COMMON STOCKHOLDERS' EQUITY
  Common Shares, par value $.01 per share;
    authorized 100,000,000 shares; issued and outstanding
    55,659,000 and 55,524,000 shares, respectively                                        557                555
  Series A Common Shares, par value $.01 per share;
    authorized 25,000,000 shares; issued and outstanding
    6,778,000 and 6,880,000 shares, respectively                                           68                 69
  Capital in excess of par value                                                    1,826,840          1,816,619
  Treasury Shares, at cost, 3,868,000 and 3,716,000 shares, respectively             (406,894)          (383,501)
  Accumulated other comprehensive (loss)                                             (352,120)          (178,344)
  Retained earnings                                                                 2,450,473          2,680,669
                                                                                   -----------------------------
                                                                                    3,518,924          3,936,067
                                                                                   -----------------------------
                                                                                   $8,046,792         $8,634,609
================================================================================================================


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.

(a) AS DESCRIBED IN NOTE 17, THE SOLE ASSET OF TDS CAPITAL I IS $154.6 MILLION
    PRINCIPAL AMOUNT OF 8.5% SUBORDINATED DEBENTURES DUE 2037 FROM TDS, AND THE
    SOLE ASSET OF TDS CAPITAL II IS $154.6 MILLION PRINCIPAL AMOUNT OF 8.04%
    SUBORDINATED DEBENTURES DUE 2038 FROM TDS.


                                       20


CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY



                                                                                                Compre-    Accumulated
                                                     Series A    Capital in                     hensive     Other Com-
                                              Common   Common     Excess of       Treasury       Income     prehensive     Retained
                                              Shares   Shares     Par Value         Shares       (Loss)  Income (Loss)     Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                 (Dollars in thousands)
                                                                                                    
BALANCE, DECEMBER 31, 1998                     $ 550     $ 69    $1,882,710      $ (29,439)                  $  75,609   $  323,696
Comprehensive Income
  Net income                                      --       --            --             --   $  179,834             --      179,834
  Net unrealized gains on securities              --       --            --             --      103,462        103,462           --
                                                                                             ----------
  Comprehensive income                                                                       $  283,296
                                                                                             ==========
Dividends
  Common and series A common shares               --       --            --             --                          --      (28,290)
  Preferred shares                                --       --            --             --                          --       (1,101)
Repurchase Common Shares                          --       --            --        (80,457)                         --           --
Dividend Reinvestment, Incentive
  and Compensation Plans                           1        1           177          6,921                          --           --
Conversion of Preferred Shares                     3       --        17,273             --                          --           --
Other                                             --       --        (2,758)            --                          --           --
                                               ------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999                       554       70     1,897,402       (102,975)                    179,071      474,139
Comprehensive Income
  Net income                                      --       --            --             --   $2,237,002             --    2,237,002
  Net unrealized losses on securities             --       --            --             --     (357,415)      (357,415)          --
                                                                                             ----------
  Comprehensive income                                                                       $1,879,587
                                                                                             ==========
Dividends
  Common and series A common shares               --       --            --             --                          --      (29,904)
  Preferred shares                                --       --            --             --                          --         (568)
Repurchase Common Shares                          --       --            --       (287,732)                         --           --
Dividend Reinvestment, Incentive
  and Compensation Plans                          --       --         5,787          7,206                          --           --
Conversion of Series A and Preferred Shares        1       (1)          393             --                          --           --
Adjust Investment in Subsidiary for
  Common Share Issuances and Repurchases          --       --       (86,549)            --                          --           --
Other                                             --       --          (414)            --                          --           --
                                               ------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000                       555       69     1,816,619       (383,501)                   (178,344)   2,680,669
Comprehensive (Loss)
  Net (loss)                                      --       --            --             --   $ (198,055)            --     (198,055)
  Net unrealized losses on securities             --       --            --             --     (173,776)      (173,776)          --
                                                                                             ----------
  Comprehensive (loss)                                                                       $ (371,831)
                                                                                             ==========
Dividends
  Common and series A common shares               --       --            --             --                          --      (31,683)
  Preferred shares                                --       --            --             --                          --         (458)
Repurchase Common Shares                          --       --            --        (30,335)                         --           --
Dividend Reinvestment, Incentive
  and Compensation Plans                          --       --           995          6,942                          --           --
Conversion of Series A and Preferred Shares        2       (1)          746             --                          --           --
Adjust Investment in Subsidiary for
  Common Share Issuances and Repurchases          --       --         8,368             --                          --           --
Other                                             --       --           112             --                          --           --
                                               ------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001                     $ 557     $ 68    $1,826,840      $(406,894)                  $(352,120)  $2,450,473
===================================================================================================================================


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       21


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Telephone and Data Systems, Inc. ("TDS" or "the Company") is a diversified
telecommunications company that provided high-quality telecommunications
services to approximately 4.3 million cellular telephone and telephone customers
in 34 states at December 31, 2001. The Company conducts substantially all of its
wireless telephone operations through its 82.2%-owned subsidiary, United States
Cellular Corporation ("U.S. Cellular") and its wireline telephone operations
through its wholly-owned subsidiary, TDS Telecommunications Corporation ("TDS
Telecom").

     See Note 23 -- Business Segment Information for summary financial
information on each business segment.

PRINCIPLES OF CONSOLIDATION

The accounting policies of TDS conform to generally accepted accounting
principles. The consolidated financial statements include the accounts of TDS,
its majority-owned subsidiaries since acquisition and the cellular partnerships
in which TDS has a majority general partnership interest or has a controlling
financial interest. All material intercompany items have been eliminated.

BUSINESS COMBINATIONS

TDS uses the purchase method of accounting for business combinations. TDS
includes as investments in subsidiaries the value of the consideration given and
all direct and incremental costs relating to acquisitions. All costs relating to
unsuccessful negotiations for acquisitions are charged to expense.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain amounts reported in prior years have been reclassified to conform to
current period presentation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and those short-term, highly-liquid
investments with original maturities of three months or less. The carrying
amounts of Cash and cash equivalents approximate fair value due to the
short-term nature of these investments.

Outstanding checks aggregating $47.8 million and $35.3 million at December 31,
2001 and 2000, respectively, are classified as Accounts payable in the
Consolidated Balance Sheets. Sufficient funds were available to fund these
outstanding checks when presented for payment.

     TDS has cash management arrangements with its subsidiaries under which the
subsidiaries may from time to time deposit excess cash with TDS for investment
under TDS's cash management program.

MARKETABLE EQUITY SECURITIES

Marketable equity securities are classified as available-for-sale, and are
stated at fair market value. Net unrealized holding gains and losses are
included in Accumulated other comprehensive income. Realized gains and losses
are determined on the basis of specific identification.

     As of December 31, 2001, the net unrealized holding loss, net of tax,
aggregated $352.1 million. Management does not consider the unrealized loss to
be "other than temporary." Management continues to review the valuation of the
investments on a periodic basis. If management determines an unrealized loss is
other than temporary, the loss is recognized and recorded in the income
statement.

INTANGIBLE ASSETS

CELLULAR LICENSE COSTS

Cellular license costs consist of costs incurred in acquiring Federal
Communications Commission licenses to provide cellular service. These costs
include amounts paid to license applicants and owners of interests in cellular
entities awarded licenses and all direct and incremental costs relating to
acquiring the licenses. These costs are capitalized and were amortized through
charges to expense over 40 years upon commencement of operations. See Note 1 --
Recent Accounting Pronouncements.

TELEPHONE FRANCHISE AND OTHER COSTS IN EXCESS
OF THE UNDERLYING BOOK VALUE OF SUBSIDIARIES

Telephone franchise and other costs include the costs in excess of the
underlying book value of acquired telephone companies. Costs aggregating $399.8
million and $248.4 million at December 31, 2001 and 2000, respectively, relating
to acquisitions since November 1, 1970, were amortized on a straight-line basis
over a 40-year period. Costs in excess of the underlying book value relating to
acquisitions initiated before November 1, 1970, aggregating $6.5 million, were
not amortized. See Note 1 -- Recent Accounting Pronouncements.

INVESTMENTS IN UNCONSOLIDATED ENTITIES

Investments in unconsolidated entities consists of investments where the Company
holds a less than 50% ownership interest and where a quoted share price is not
available. The Company


                                       22


follows the equity method of accounting, which recognizes TDS's proportionate
share of the income and losses accruing to it under the terms of its partnership
or shareholder agreements, where the Company's ownership interest equals or
exceeds 20% for corporations and 3% for partnerships. Equity method investments
aggregated $179.9 million and $149.0 million at December 31, 2001 and 2000,
respectively. Income and losses from these entities are reflected in the
Consolidated Statements of Operations on a pretax basis as Investment income. At
December 31, 2001, the cumulative share of income from minority investments
accounted for under the equity method was $310.2 million, of which $119.4
million was undistributed. The cost method of accounting is followed for certain
minority interests where the Company's ownership interest is less than 20% for
corporations and 3% for partnerships. Cost method investments aggregated $53.8
million and $33.3 million at December 31, 2001 and 2000, respectively.

PROPERTY, PLANT AND EQUIPMENT

U.S. CELLULAR

U.S. Cellular's property, plant and equipment is stated at the original cost of
construction including capitalized costs of certain taxes and payroll-related
expenses.

     Renewals and betterments of units of property are recorded as additions to
cellular plant in service. The original cost of depreciable property retired
(along with the related accumulated depreciation) is removed from plant in
service and, together with removal cost less any salvage realized, is charged to
depreciation expense. Repairs and renewals of minor units of property are
charged to system operations expense.

TDS TELECOM

TDS Telecom's property, plant and equipment is stated at the original cost of
construction including the capitalized costs of certain taxes, payroll-related
expenses, and an allowance for funds used during construction.

     Renewals and betterments of units of property are recorded as additions to
telephone plant in service. The original cost of depreciable property retired is
removed from plant in service and, together with removal cost less any salvage
realized, is charged to accumulated depreciation. No gain or loss is recognized
on ordinary retirements of depreciable telephone property. Repairs and renewals
of minor units of property are charged to plant operations expense.

     The Company's incumbent local telephone operations follow accounting for
regulated enterprises prescribed by Statement of Financial Accounting Standards
("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation."
Management periodically reviews the criteria for applying these provisions to
determine whether continuing application of SFAS No. 71 is appropriate.
Management believes that such criteria are still being met and therefore has no
current plans to change its method of accounting.

     In analyzing the effects of discontinuing the application of SFAS No. 71,
management has determined that the useful lives of plant assets used for
regulatory and financial reporting purposes are consistent with generally
accepted accounting principles and, therefore, any adjustments to
telecommunications plant would be immaterial, as would be any write-off of
regulatory assets and liabilities.

DEPRECIATION

Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.

REVENUE RECOGNITION

Revenues from cellular operations primarily consist of charges for access,
airtime, roaming and value added services provided for U.S. Cellular's retail
customers; charges to customers of other systems who use U.S. Cellular's
cellular systems when roaming; charges for long-distance calls made on U.S.
Cellular's systems; end user equipment sales; and sales of accessories. Revenues
are recognized as services are rendered. Certain activation and reconnection
fees are recognized over average customer service periods. U.S. Cellular does
not defer any of the related direct incremental customer acquisition costs;
these costs are charged to expense as incurred. Unbilled revenues, resulting
from cellular service provided from the billing cycle date to the end of each
month and from other cellular carriers' customers using U.S. Cellular's cellular
systems for the last half of each month, are estimated and recorded. Equipment
sales represent a separate earnings process. Equipment and accessory sales are
recognized upon delivery to the customer and reflect charges to customers for
equipment purchased.

     TDS's telephone subsidiaries participate in revenue pools with other
telephone companies for interstate revenue and for certain intrastate revenue.
Such pools are funded by toll revenue and/or access charges within state
jurisdiction and by


                                       23


access charges in the interstate market. Revenues earned through the various
pooling processes are initially recorded based on TDS Telecom's estimates.

     Effective January 1, 2000, U.S. Cellular changed its method of accounting
for certain activation and reconnect fees charged to its customers when
initiating service through its retail and direct channels or when resuming
service after suspension. This accounting change is in compliance with Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." Based upon this guidance, U.S. Cellular recognizes these fees as
revenue ratably over the average customer service periods (ranging from six to
48 months). Prior to implementing SAB No. 101, U.S. Cellular recorded these fees
as operating revenues in the period they were charged to the customer. SAB No.
101 had no effect on the operating results of TDS Telecom.

     The cumulative effect of the accounting change on periods prior to 2000 was
recorded in 2000 reducing net income by $3.8 million, net of taxes of $3.7
million and minority interest of $820,000, or $.06 per basic and diluted share.
Had results for the year ended December 31, 1999, been restated, the effect of
this change would have been to decrease operating revenues by $4.5 million, net
income from continuing operations by $1.5 million and basic and diluted earnings
per share by $.03 and $.04, respectively.

ADVERTISING COSTS

The Company expenses advertising costs as incurred. Advertising expense totaled
$77.2 million, $77.0 million and $69.0 million in 2001, 2000, and 1999,
respectively.

INCOME TAXES

TDS files a consolidated federal income tax return. Deferred taxes are computed
using the liability method, whereby deferred tax assets are recognized for
deductible temporary differences and operating loss carryforwards, and deferred
tax liabilities are recognized for taxable temporary differences. Both deferred
tax assets and liabilities are measured using the current enacted tax rates.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax basis. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. Deferred tax assets are reduced by a valuation allowance when, in
management's opinion, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

COMPUTATION OF EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period.
Potentially dilutive securities included in diluted earnings per share represent
incremental shares issuable upon exercise of outstanding stock options or the
potential conversion of preferred stock to common shares. For the year ended
December 31, 2001, the diluted loss per share calculation excludes the effect of
the potentially dilutive securities because their inclusion would be
anti-dilutive.

STOCK-BASED COMPENSATION

The Company accounts for stock options, stock appreciation rights ("SARs") and
employee stock purchase plans under Accounting Principles Board ("APB") Opinion
No. 25 as allowed by SFAS No. 123 "Accounting for Stock-Based Compensation."

ASSET IMPAIRMENT

The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. The
Company evaluates the asset for possible impairment based on an estimate of
related undiscounted cash flows over the remaining asset life. If an impairment
is identified, a loss is recognized for the difference between the fair value
of the asset (less cost to sell) and the carrying value of the asset.

RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 141 "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets" in July 2001. These statements require,
among other things, that all future business combinations be accounted for using
the purchase method of accounting and prohibit the use of the
pooling-of-interest method. For acquisitions completed after July 1, 2001,
goodwill will not be amortized. In addition, effective January 1, 2002,
previously recorded goodwill and other intangible assets with indefinite lives
will no longer be amortized but will be subject to impairment tests.

     SFAS No. 142 defines the accounting for intangible assets. The accounting
for a recognized intangible asset is based on the useful life to the entity. An
intangible asset with a finite useful life is amortized; an intangible asset
with an indefinite useful life is not amortized. The useful life of the
intangible asset is the period over which the asset is expected to contribute
directly or indirectly to the future cash flows of the entity.


                                       24


     An intangible asset that is not subject to amortization shall be tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The impairment test shall consist of
a comparison of the fair value of an intangible asset with its carrying amount.
If the carrying amount of an intangible asset exceeds its fair value, an
impairment loss shall be recognized in an amount equal to that excess.

     SFAS No. 142 also defines the accounting for goodwill. Goodwill will be
tested for impairment annually. Impairment is the condition that exists when the
carrying amount of goodwill exceeds its implied fair value. If the carrying
amount of goodwill exceeds the implied fair value of that goodwill, an
impairment loss shall be recognized in an amount equal to that excess.

     The Company will adopt SFAS No. 142 on January 1, 2002, and will no longer
amortize cellular license costs, telephone franchise and other costs in excess
of the underlying book value of subsidiaries, or goodwill for equity method
investments. Cellular license costs, telephone franchise and other costs, and
equity method goodwill totaled $1,334.5 million, $348.7 million and $76.8
million, respectively, at December 31, 2001, and amortization for the year ended
December 31, 2001, totaled $37.6 million, $6.2 million and $1.3 million,
respectively.

     In addition, pursuant to SFAS No. 142, the Company is assessing its
recorded balances of Cellular license costs and telephone franchise and other
costs for potential impairment. As allowed under the standard, the Company
expects to complete its impairment assessment in the first quarter of 2002. Any
required impairment charge would be recorded as a cumulative effect of
accounting change as of January 1, 2002. The Company does not currently expect
to record an impairment charge upon the completion of the initial impairment
review. However, there can be no assurance that at the time the review is
completed a material impairment charge will not be recorded.

     SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued in
June 2001, and will become effective for the Company beginning January 1, 2003.
SFAS No. 143 requires entities to record the fair value of a liability for legal
obligations associated with an asset retirement in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. The Company is currently reviewing the requirements of this new standard
and has not yet determined the impact, if any, on the Company's financial
position or results of operations.

     SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" was issued in October 2001, and became effective for the Company
beginning January 1, 2002. SFAS No. 144 requires entities to measure long-lived
assets at the lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. SFAS No. 144
also revises standards for the reporting of discontinued operations. This
statement broadens the presentation of discontinued operations to include a
component of an entity (rather than a segment of a business). A component of an
entity comprises operations and cash flows that can be clearly distinguished,
operationally and for financial reporting purposes, from the rest of the entity.
The Company is currently reviewing the requirements of this new standard, but
does not expect implementation to have a material impact on its financial
position or results of operations.

     The Financial Accounting Standards Board issued an exposure draft on
November 15, 2001, "Rescission of FASB Statements No. 4, 44 and 64 and
Technical Corrections." This proposed Statement would rescind Statement 4 and
Statement 64, an amendment of Statement 4, thereby eliminating the requirements
that gains and losses from extinguishment of debt be aggregated and, if
material, classified as an extraordinary item, net of related income tax effect.
The provisions of this Statement related to the rescission of Statement 4 shall
be applied as of the beginning of the fiscal year in which this Statement is
issued. The Board expects to issue the final Statement in the first quarter of
2002. When adopted, the Company would no longer report gains and losses on the
retirement of long-term debt as an extraordinary item.

2  INCOME TAXES

Income tax provisions charged to net income from continuing operations are
summarized as follows.



Year Ended December 31,                2001            2000          1999
- -------------------------------------------------------------------------
                                             (Dollars in thousands)
                                                        
Current
  Federal                         $ 184,562        $126,596      $ 61,261
  State                              36,936          23,255        14,693
Deferred
  Federal                          (210,893)          6,196       149,752
  State                             (55,513)         (6,566)       25,295
                                  ---------------------------------------
Total income tax
  expense (benefit) from
  continuing operations           $ (44,908)       $149,481      $251,001
=========================================================================



                                       25


     A reconciliation of the Company's expected income tax expense (benefit)
from continuing operations computed at the statutory rate to reported income tax
expense (benefit) from continuing operations, and the statutory federal income
tax rate to the Company's effective income tax rate for continuing operations,
is as follows.



                             2001               2000               1999
                        --------------      -------------      --------------
Year Ended December 31,  Amount    Rate      Amount   Rate       Amount   Rate
- --------------------------------------------------------------------------------
                                            (Dollars in millions)
                                                        
Statutory federal
 income tax (benefit)   $(60.2)   (35.0)%    $121.3   35.0%     $212.6    35.0%
State income taxes,
 net of federal benefit   (4.8)    (2.8)       10.7    3.1        25.5     4.2
Amortization of license
 costs and costs in
 excess of book value      6.3      3.7         4.7    1.3         4.4     0.7
Minority share of
 income not included
 in consolidated
 tax return               (2.6)    (1.5)       (1.3)  (0.4)       (0.9)   (0.1)
Sale of investments        3.8      2.2        11.3    3.3          --      --
Resolution of prior
 period tax issues         9.8      5.7         3.6    1.0         5.2     0.9
Other differences, net     2.8      1.6        (0.8)  (0.2)        4.3     0.6
                        --------------------------------------------------------
Total income tax        $(44.9)   (26.1)%    $149.5   43.1%     $251.1    41.3%
================================================================================


     Income from continuing operations for each of the three years ended
December 31, 2001, includes gains and losses from marketable securities and
other investments. The effective income tax rate excluding such gains and losses
was 44.4%, 40.4% and 44.3% for the years ended December 31, 2001, 2000 and
1999, respectively.

     Income tax provisions charged to net income are summarized as follows.



Year Ended December 31,          2001         2000           1999
- --------------------------------------------------------------------
                                  (Dollars in thousands)
                                               
Current
 Federal                    $ 184,562   $   85,149      $   3,312
 State                         36,936       16,642          6,060
Deferred
 Federal                     (204,469)   1,299,481        179,343
 State                        (55,513)     234,081         31,528
                            ----------------------------------------
Total income tax
  expense (benefit)         $ (38,484)  $1,635,353      $ 220,243
====================================================================


     The Company's current net deferred tax assets totaled $3.6 million and $3.4
million as of December 31, 2001 and 2000, respectively. The net current deferred
tax asset primarily represents the deferred tax effects of the allowance for
doubtful accounts on customer receivables.

     The temporary differences that gave rise to the noncurrent deferred tax
assets and liabilities are as follows.



December 31,                                   2001        2000
- --------------------------------------------------------------------
                                          (Dollars in thousands)
                                                
Deferred Tax Asset
 Net operating loss carryforwards        $    46,526  $   35,032
 Taxes on acquisitions                        32,782      32,782
 Alternative minimum tax
  credit carryforward                             --      78,849
 Partnership investments                       5,970      69,738
 Other                                         1,962      11,205
                                         -----------  --------------
                                              87,240     227,606
Less valuation allowance                     (35,927)    (26,509)
                                         -----------  --------------
Total Deferred Tax Asset                      51,313     201,097
                                         -----------  --------------

Deferred Tax Liability
 Marketable equity securities              1,137,518   1,677,828
 Property, plant and equipment               178,869     184,248
 Licenses                                    113,206      95,238
                                         -----------  --------------
Total Deferred Tax Liability               1,429,593   1,957,314
                                         -----------  --------------
 Net Deferred Income Tax Liability       $ 1,378,280  $1,756,217
====================================================================


     TDS and certain subsidiaries had $494.6 million of state net operating loss
carryforward (generating a $41.1 million deferred tax asset) at December 31,
2001, expiring between 2002 and 2021, which is available to offset future
taxable income primarily of the individual subsidiaries which generated the
loss. In addition, certain subsidiaries which are not included in the federal
consolidated income tax return, but file separate tax returns, had a federal net
operating loss carryforward (generating a $5.4 million deferred tax asset)
available to offset future taxable income which expires between 2003 and 2021. A
valuation allowance was established for the state and federal operating loss
carryforwards since it is more likely than not that a portion will expire before
such carryforwards can be utilized.

     The financial reporting basis of the marketable equity securities was
greater than the tax basis at December 31, 2001, generating a $1,137.5 million
deferred tax liability.

3 DISCONTINUED OPERATIONS

     In September 1999, the Board of Directors of TDS approved a plan of merger
between Aerial Communications, Inc. ("Aerial"), its then over 80%-owned personal
communications services company, and VoiceStream Wireless Corporation
("VoiceStream"). The merger closed on May 4, 2000. As a result of the merger,
Aerial shareholders received 0.455 VoiceStream common shares for each share of
Aerial stock they owned. TDS


                                       26


received 35,570,493 shares of VoiceStream common stock valued at $3,899.4
million at closing. TDS recognized a gain of approximately $2,125.8 million, net
of $1,515.9 million in taxes, on this transaction. TDS had a basis in Aerial of
$287.8 million, including deferred losses of $75.9 million from September 17,
1999 to May 4, 2000. In 2001, the gain on disposal of Aerial was reduced by
$24.1 million, or $.41 per share, reflecting adjustments to estimates used
during the closing in the calculation of income and other tax liabilities.

Summarized income statement information relating to discontinued operations,
excluding any corporate charges and intercompany interest expense, is as
follows.



Year Ended December 31,                         2000          1999
- ---------------------------------------------------------------------
                                          (Dollars in thousands)
                                                 
Revenues                                 $    94,463   $   225,501
Expenses                                     164,148       435,509
                                         ----------------------------
Operating (Loss)                             (69,685)     (210,008)
Minority share of loss                        33,459        21,369
Other (expense) income                       (29,533)       (6,504)
Interest expense                              (8,605)      (22,119)
                                         ----------------------------
(Loss) Before Income Taxes                   (74,364)     (217,262)
Income tax (benefit)                         (36,624)      (67,650)
                                         ----------------------------
Net (Loss)                                   (37,740)     (149,612)
Losses deferred after measurement date        37,740        38,120
                                         ----------------------------
Net (Loss) from Discontinued Operations   $        --   $ (111,492)
=====================================================================


     Summarized cash flow statement information relating to discontinued
operations is as follows.



Year Ended December 31,                       2000          1999
- --------------------------------------------------------------------
                                           (Dollars in thousands)
                                                  
Cash flows from operating activities      $(55,851)     $(62,633)
Cash flows from investing activities       (17,325)      (32,351)
Cash flows from financing activities       108,180       239,213
                                          --------------------------
Cash provided (used) by
  discontinued operations                   35,004       144,229
(Increase) in cash included in
Net Assets of Discontinued Operations      (41,567)         (318)
                                          --------------------------
Cash flows from discontinued operations   $ (6,563)     $143,911
====================================================================


4 EXTRAORDINARY ITEM

U.S. Cellular retired Liquid Yield Option Notes ("LYONs") with an aggregate
carrying value of $25.4 million and $63.6 million during 2001 and 2000,
respectively, for cash totaling $32.0 million and $99.4 million, respectively.
These retirements resulted in an extraordinary loss of $5.7 million, net of
minority interest of $1.2 million, or $.10 per basic and diluted share, in 2001,
and $30.5 million, net of minority interest of $6.4 million, or $.51 per basic
and diluted share in 2000. There were no income tax benefits due to the
conversion feature associated with these LYONs.

5 EARNINGS PER SHARE

The amounts used in computing Earnings per Share from Continuing Operations and
the effect on income and the weighted average number of Common and Series A
Common Shares of dilutive potential common stock are as follows.



Year Ended December 31,             2001            2000        1999
- ----------------------------------------------------------------------
                                       (Dollars in thousands)
                                                 
BASIC EARNINGS PER SHARE
Income (Loss) from
  Continuing Operations        $(168,248)    $  145,527   $  291,326
Preferred Dividend
  Requirement                       (458)          (504)      (1,147)
                               ---------------------------------------
Income (Loss) from
  Continuing Operations
  Available to Common
  used in Basic Earnings
  per Share                     (168,706)       145,023      290,179
  Discontinued Operations
  Gain (loss) on disposal        (24,092)     2,125,787           --
  Loss from operations                --             --     (111,492)
Extraordinary item-loss
  on extinguishment of debt       (5,715)       (30,471)          --
Cumulative effect of
  accounting change                   --         (3,841)          --
                               ---------------------------------------
Net Income (Loss) Available
  to Common used in Basic
  Earnings per Share           $(198,513)    $2,236,498   $  178,687
=======================================================================

DILUTED EARNINGS PER SHARE
Income (Loss) from
  Continuing Operations
  Available to Common
  used in Basic Earnings
  per Share                    $(168,706)    $  145,023   $  290,179
Reduction in preferred
  dividends if Preferred
  Shares converted into
  Common Shares                       --            446        1,031
Minority income adjustment (1)        --           (798)        (937)
                               ---------------------------------------
Income (Loss) Available to
  Common from Continuing
  Operations used in Diluted
  Earnings per Share            (168,706)       144,671      290,273
Discontinued Operations
  Gain (loss) on disposal        (24,092)     2,125,787          --
  Loss from operations                --             --     (111,492)
Extraordinary item-loss
  on extinguishment of debt       (5,715)       (30,471)          --
Cumulative effect of
  accounting change                   --         (3,841)          --
                               ---------------------------------------
Net Income (Loss) Available
  to Common used in Diluted
  Earnings per Share           $(198,513)    $2,236,146   $  178,781
======================================================================


(1) THE MINORITY INCOME ADJUSTMENT REFLECTS THE ADDITIONAL MINORITY SHARE OF
    U.S. CELLULAR'S INCOME COMPUTED AS IF ALL OF U.S. CELLULAR'S ISSUABLE
    SECURITIES WERE OUTSTANDING.


                                       27




Year Ended December 31,             2001     2000         1999
- --------------------------------------------------------------------
                                      (Shares in thousands)
                                               
Weighted Average Number
  of Common Shares used in
  Basic Earnings per Share        58,661   59,922       61,436
Effect of Dilutive Securities:
  Common Shares
   outstanding if Preferred
   Shares converted (1)               --      206          550
  Stock options (2)                   --      498          377
  Common Shares issuable              --       10           13
                                 ------------------------------------
Weighted Average Number
  of Common Shares
  used in Diluted
  Earnings per Share              58,661   60,636       62,376
=====================================================================


(1) PREFERRED SHARES CONVERTIBLE INTO 239,514 COMMON SHARES IN 2001 WERE NOT
    INCLUDED IN COMPUTING DILUTED EARNINGS PER SHARE BECAUSE THEIR EFFECTS WERE
    ANTIDILUTIVE.
(2) STOCK OPTIONS CONVERTIBLE INTO 1,381,041 COMMON SHARES IN 2001 WERE NOT
    INCLUDED IN COMPUTING DILUTED EARNINGS PER SHARE BECAUSE THEIR EFFECTS WERE
    ANTIDILUTIVE.



Year Ended December 31,           2001     2000     1999
- ------------------------------------------------------------
                                         
BASIC EARNINGS PER SHARE
  Continuing Operations
    Excluding Gains             $ 2.86   $ 2.57   $ 1.80
    Gains (loss)(1)              (5.73)    (.15)    2.92
                                ----------------------------
                                 (2.87)    2.42     4.72
  Discontinued Operations
    Gain (loss) on disposal       (.41)   35.47       --
    Loss from operations            --       --    (1.81)
  Extraordinary Item-loss on
    extinguishment of debt        (.10)    (.51)      --
  Cumulative effect of
    accounting change               --     (.06)      --
                                ----------------------------
                                $(3.38)  $37.32   $ 2.91
============================================================

DILUTED EARNINGS PER SHARE
  Continuing Operations
    Excluding Gains             $ 2.86   $ 2.54   $ 1.78
    Gains (loss)(1)              (5.73)    (.15)    2.87
                                ----------------------------
                                 (2.87)    2.39     4.65
  Discontinued Operations
    Gain (loss) on disposal       (.41)   35.06       --
    Loss from operations            --       --    (1.78)
  Extraordinary Item-loss on
    extinguishment of debt        (.10)    (.51)      --
  Cumulative effect of
    accounting change               --     (.06)      --
                                ----------------------------
                                $(3.38)  $36.88   $ 2.87
============================================================


(1) INCOME FROM CONTINUING OPERATIONS AND BASIC AND DILUTED EARNINGS PER SHARE
    WERE SIGNIFICANTLY AFFECTED BY GAINS AND LOSSES FROM MARKETABLE SECURITIES
    AND OTHER INVESTMENTS. IN 2000, THE GAIN ON MARKETABLE SECURITIES AND OTHER
    INVESTMENTS WAS OFFSET BY INCOME TAXES ON SUCH GAINS RESULTING IN A NET
    LOSS.

6 MARKETABLE EQUITY SECURITIES

Information regarding the Company's marketable equity securities is summarized
as follows.



December 31,                                 2001           2000
- --------------------------------------------------------------------
                                        (Dollars in thousands)
                                                
Deutsche Telekom AG                   $ 2,257,200     $       --
  131,461,861 Ordinary Shares
VoiceStream Wireless Corp.                     --      3,579,281
  35,570,493 Common Shares
Vodafone AirTouch plc                     332,451        463,626
  12,945,915 ADRs
VeriSign, Inc.                             92,998             --
  2,444,735 Common Shares
Illuminet Holdings, Inc.                       --         57,115
  2,490,012 Common Shares
Rural Cellular Corporation                 16,006         21,312
  719,396 equivalent Common Shares
Other                                       1,575            570
                                      ------------------------------
Aggregate Fair Value                    2,700,230      4,121,904
Original Cost                           3,303,106      4,417,328
                                      ------------------------------
Gross Unrealized Holding (Losses)        (602,876)      (295,424)
Tax (benefit)                            (236,331)      (114,213)
                                      ------------------------------
Unrealized Holding (Losses), net of tax  (366,545)      (181,211)
Equity Method unrealized gains                397             --
Minority Share of Unrealized
  Holding Losses                           14,028          2,867
                                      ------------------------------
Net Unrealized Holding (Losses)       $  (352,120)    $ (178,344)
====================================================================


     Cash proceeds from the exchange of available-for-sale securities totaled
$570.0 million in 2001 and $46.6 million in 1999. Gross realized losses from the
exchange of available-for-sale securities totaled $548.8 million in 2001 and
gross realized gains totaled $327.1 million in 1999.

     The merger of Deutsche Telekom AG and VoiceStream Wireless Corporation was
completed in 2001. As a result of the merger, the Company's 35,837,271
VoiceStream common shares (including 266,778 shares received as a dividend in
2001) were converted into 131,461,861 Deutsche Telekom AG ordinary shares and
$570.0 million in cash, and the Company recognized a $644.9 million loss.

     The merger of VeriSign, Inc. and Illuminet Holdings, Inc. was also
completed in 2001. As a result of the merger, the Company's 2,628,748 Illuminet
shares (including 138,736 shares acquired through the acquisition of Chorus in
2001) were converted into 2,444,735 VeriSign, Inc. shares, and the
Company recognized a $96.1 million gain.


                                       28


     In 1999, Vodafone merged with AirTouch Communications, Inc. The Company
received 12,945,915 Vodafone AirTouch plc ADRs for its AirTouch Communications,
Inc. shares, and $46.6 million of cash, and recognized a $327.1 million gain.

7 INTANGIBLE ASSETS

CELLULAR LICENSE COSTS

Following is a schedule of activity of cellular license costs.



December 31,                         2001         2000          1999
- ----------------------------------------------------------------------
                                      (Dollars in thousands)
                                               
Balance, beginning of year    $ 1,261,404  $ 1,188,066  $  1,233,406
  Additions                       165,678      111,487        22,567
  Amortization                    (37,564)     (34,371)      (34,333)
  Sales                                --       (9,234)      (41,274)
  Deposit receivable from FCC     (56,060)          --            --
  Other changes                     1,065        5,456         7,700
                              ----------- -----------------------------
Balance, end of year          $ 1,334,523  $ 1,261,404  $  1,188,066
======================================================================


     Accumulated amortization of cellular license costs was $259.9 million and
$221.5 million at December 31, 2001 and 2000, respectively. Beginning January 1,
2002, upon implementation of SFAS No. 142, the Company expects to cease the
amortization of license costs.

TELEPHONE FRANCHISE AND OTHER COSTS IN EXCESS OF THE UNDERLYING BOOK VALUE OF
SUBSIDIARIES

Following is a schedule of activity of telephone franchise and other costs in
excess of the underlying book value.



December 31,                        2001        2000         1999
- ----------------------------------------------------------------------
                                      (Dollars in thousands)
                                              
Balance, beginning of year   $   203,532  $  177,677  $   181,517
  Additions                      151,401      31,656        1,500
  Amortization                    (6,237)     (5,801)      (5,340)
                             -----------------------------------------
Balance, end of year         $   348,696  $  203,532  $   177,677
======================================================================


     Accumulated amortization of excess cost was $57.6 million and $51.4 million
at December 31, 2001 and 2000, respectively. Beginning January 1, 2002, upon
implementation of SFAS No. 142, the Company will cease the amortization of
excess cost.

8 INVESTMENTS IN UNCONSOLIDATED ENTITIES

Following is a schedule of activity of investments in unconsolidated entities.



December 31,                      2001       2000       1999
- ---------------------------------------------------------------
                                   (Dollars in thousands)
                                           
Balance, beginning of year    $182,325   $240,709   $269,168
  Investment Income             50,639     38,723     31,324
  Distributions                (14,729)   (33,787)   (24,385)
  Amortization                  (1,257)    (9,291)   (12,036)
  Acquisitions                  23,000     50,093        203
  Sales                         (2,305)   (33,095)   (12,999)
  TSR Wireless write-down           --    (69,360)        --
  Other                         (3,995)    (1,667)   (10,566)
                              ---------------------------------
Balance, end of year          $233,678   $182,325   $240,709
===============================================================


     Investments in unconsolidated entities include goodwill and costs in excess
of the underlying book value of certain investments. These costs were amortized
from 10 to 40 years.

     The aggregate carrying value, net of accumulated amortization, of
investments in unconsolidated entities was $233.7 million at December 31, 2001,
of which $156.9 million represented the investment in underlying equity and
$76.8 million in unamortized goodwill. Beginning January 1, 2002, upon
implementation of SFAS No. 142, the Company will cease the amortization of
equity method goodwill.

     The Company's more significant investments in unconsolidated entities
consist of the following.



                                             Percentage Ownership
December 31,                                 2001         2000
- --------------------------------------------------------------------
                                                    
Cellular investments
  Los Angeles SMSA Limited Partnership        5.5%         5.5%
  Volcano Communications Company             45.0%        45.0%
  Raleigh-Durham MSA Limited Partnership      8.0%         8.0%
  Midwest Wireless Communication, LLC        15.7%        14.7%
  North Carolina RSA 1 Partnership           50.0%        50.0%
  Oklahoma City SMSA Limited Partnership     14.6%        14.6%
- --------------------------------------------------------------------


     TDS reduced the carrying value of its investment (including $11.0 million
of notes receivable) in TSR Wireless Holdings, LLC by $80.4 million to zero in
2000. The charge was included in the caption Gain (loss) on marketable
securities and other investments in the Consolidated Statements of Operations.
In December 2000, TSR Wireless filed for Chapter 7 bankruptcy.


                                       29


     Based primarily on data furnished to the Company by third parties, the
following summarizes the unaudited combined assets, liabilities and equity, and
the unaudited combined results of operations of the entities for which TDS's
investments are accounted for by the equity method.



December 31,                                2001        2000
- --------------------------------------------------------------------
                                   (Unaudited, dollars in millions)
                                                
Assets
  Current                               $    278      $  338
  Due from affiliates                        371           7
  Property and other                       1,431       1,307
                                        ----------------------------
                                        $  2,080      $1,652
====================================================================


                                              
Liabilities and Equity
  Current liabilities                   $    215      $  479
  Due to affiliates                           24          10
  Deferred credits                           123           7
  Long-term debt                              43          13
  Partners' capital and
    stockholders' equity                   1,675       1,143
                                        ----------------------------
                                        $  2,080      $1,652
====================================================================





Year Ended December 31,          2001     2000        1999
- --------------------------------------------------------------------
                                (Unaudited, dollars in millions)
                                           
Results of Operations
  Revenues                     $2,107   $1,996      $1,794
  Costs and expenses            1,504    1,472       1,492
                               -------------------------------------
    Operating Income              603      524         302
  Other income (expense)           (1)     (13)         29
  Interest expense                 (4)     (21)        (15)
  Income taxes                     (5)      (6)        (19)
                               -------------------------------------
Net income                     $  593   $  484       $ 297
====================================================================


9 NOTES RECEIVABLE

Notes receivable at December 31, 2001 and 2000, reflect primarily loans to
Airadigm Communications, Inc. ($52.7 million and $44.1 million, respectively)
and Kington Management Corporation ($44.2 million and $37.3 million,
respectively). The notes range in length from one to twelve years and bear
interest at rates from six to eleven percent.

     The notes have a weighted average interest rate of 8.2% and average life of
8.1 years at December 31, 2001. The carrying amount of Notes receivable
approximates their fair value.

10 PROPERTY, PLANT AND EQUIPMENT

U.S. CELLULAR

U.S. Cellular's property, plant and equipment consists of the following.



December 31,                                2001             2000
- --------------------------------------------------------------------
                                         (Dollars in thousands)
                                                
Cell site-related equipment          $ 1,274,315      $ 1,041,670
Land, buildings and leasehold
  improvements                           370,732          305,617
Switching-related equipment              251,706          201,202
Office furniture and equipment           132,305          114,399
Systems development                      168,591          163,150
Other operating equipment                 86,796           71,160
Work in process                          137,162           67,330
                                     -------------------------------
                                       2,421,607        1,964,528
Accumulated depreciation                 893,802          699,181
                                     -------------------------------
                                     $ 1,527,805      $ 1,265,347
====================================================================


     Useful lives range from four to twenty-five years for cell site-related
equipment, ten to twenty years for buildings and leasehold improvements, three
to eight years for switching-related equipment, three to five years for office
furniture and equipment, three to seven years for systems development, and ten
years for other operating equipment. The provision for depreciation as a
percentage of depreciable property was 12.1% in 2001, 13.0% in 2000, and 12.4%
in 1999.

TDS TELECOM

TDS Telecom's property, plant and equipment consists of the following.



December 31,                              2001               2000
- --------------------------------------------------------------------
                                          (Dollars in thousands)
                                                
Cable and wire                     $   991,354        $   873,308
Central office equipment               656,865            543,053
Office furniture and equipment         222,140            178,738
Land and buildings                      81,332             70,625
Other equipment                         75,017             66,020
Work in process                         33,775             51,695
                                     -------------------------------
                                     2,060,483          1,783,439
Accumulated depreciation             1,030,257            862,761
                                     -------------------------------
                                   $ 1,030,226        $   920,678
====================================================================



                                       30


     Useful lives range from fifteen to twenty years for cable and wire, eight
to twelve years for central office equipment, five to ten years for office
furniture and equipment, and ten to fifteen for other equipment. Buildings are
depreciated over thirty years. The provision for depreciation as a percentage of
depreciable property was 7.9% in 2001, 7.9% in 2000, and 7.8% in 1999.

11 SUPPLEMENTAL CASH FLOW DISCLOSURES

Following are supplemental cash flow disclosures for interest and income taxes
paid and certain noncash transactions.



Year Ended December 31,          2001        2000        1999
- --------------------------------------------------------------------
                                   (Dollars in thousands)
                                            
Interest paid                $ 91,629   $  82,629    $ 81,629
Income taxes paid             220,163      75,029      19,976
Common Shares issued for
  conversion of
  Preferred Shares                250         472      16,465
Conversion of LYONs
  for Common Shares
  of Subsidiary              $ 29,642   $  62,560    $ 2,096
====================================================================


12 ACQUISITIONS

Cash expenditures for acquisitions aggregated $392.8 million in 2001,
$200.7 million in 2000, and $31.3 million in 1999.

     On September 4, 2001, the Company acquired 100 percent of the outstanding
common shares of Chorus Communications Group, Ltd. The aggregate purchase price
was $202.8 million in cash, excluding cash acquired. The results of Chorus'
operations are included in the consolidated financial statements since that
date. Chorus is a telecommunications company serving approximately 43,000
business and residential access lines and 27,000 Internet customers primarily in
Wisconsin. Its other operations include selling, installing, and servicing
business telephone and videoconferencing systems, data networks, Internet access
and long-distance.

     The following table summarizes the estimated fair values of the Chorus
assets acquired and liabilities assumed at the date of acquisition.



September 4,                                        2001
- ---------------------------------------------------------------
                                      (Dollars in thousands)
                                          
Current assets, excluding cash acquired      $     9,089
Property, plant and equipment                     55,170
Investment in unconsolidated entities             23,000
Other assets                                       5,445
Goodwill                                         149,969
                                             -----------
  Total assets acquired                          242,673
                                             -----------
Current liabilities                              (26,546)
Non-current liabilities                           (7,307)
Long-term debt                                    (5,997)
                                             -----------
  Total liabilities assumed                      (39,850)
                                             -----------
  Net assets acquired                        $   202,823
===============================================================


     The $150.0 million of goodwill was assigned to the telephone segment. None
of the goodwill is expected to be deductible for tax purposes.

     In addition, during 2001 the Company acquired 100 percent of an
operating cellular market for $56.2 million in cash, certain PCS licenses for
$124.1 million in cash and a small telephone company and certain other assets
for $9.7 million in cash and $1.1 million of deferred cash payments. These
expenditures increased cellular license costs by $165.7 million and telephone
franchise and other costs by $1.4 million.

     During 2000, the Company acquired 100 percent of the stock of Southeast
Telephone Company, an operating telephone company serving approximately 10,000
access lines in southeastern Wisconsin, for $39.5 million in cash (net of cash
acquired). The Company also acquired additional interests in majority-owned
operations and in certain unconsolidated entities during 2000. The Company
purchased the 48.7% interest in a telephone company it did not own for $52.5
million in cash; purchased additional interests in certain majority-owned
cellular markets for $18.5 million in cash; made a deposit on certain PCS
licenses totaling $51.1 million; and purchased additional interests in certain
cellular markets where the Company holds a minority position for $39.1 million
in cash and $13.0 million of deferred cash payments. These expenditures
increased cellular license costs by $111.5 million, telephone franchise and
other costs by $31.6 million and investments in unconsolidated entities by $50.1
million.


                                       31


     During 1999, the Company acquired additional interests in majority-owned
markets, a controlling interest in a cellular market and a small operating
telephone company for an aggregate cash consideration of $31.3 million. These
expenditures increased cellular license costs by $22.6 million and telephone
franchise and other costs by $1.5 million.

13 GAIN (LOSS) ON MARKETABLE SECURITIES AND OTHER INVESTMENTS

During 2001, the Company recognized a $644.9 million loss as a result of the
VoiceStream Wireless Corporation merger with Deutsche Telekom AG and a $96.1
million gain as a result of the VeriSign, Inc. acquisition of Illuminet
Holdings, Inc. During 1999, the Company recognized a $327.1 million gain as a
result of the merger of AirTouch and Vodafone Group plc. The Company
recognizes gains and losses on the difference between the accounting basis of
the shares given up and the fair value of the shares and cash, if any,
received.

     The sale of non-strategic cellular interests and other investments, and the
write-down of the carrying value of the investment in TSR Wireless and the
settlement of a legal matter in 2000 generated net gains totaling $0.5 million,
$15.7 million and $18.8 million in 2001, 2000 and 1999, respectively.

     These transactions generated net cash proceeds of $570.5 million, $115.4
million and $120.0 million in 2001, 2000 and 1999, respectively.

14 NOTES PAYABLE

The Company has used short-term debt to finance acquisitions, for general
corporate purposes and to repurchase common shares. Proceeds from the sale of
long-term debt and equity securities from time to time have been used to reduce
such short-term debt. Proceeds from the sale of non-strategic cellular and other
investments from time to time have also been used to reduce short-term debt.

     TDS had a $500 million revolving credit facility with a group of banks at
December 31, 2001, all of which was unused. On January 24, 2002, TDS completed a
new $600 million credit facility with a group of banks replacing the existing
credit facility. The terms of the Revolving Credit Facility provide for
borrowings with interest at the London InterBank Offered Rate ("LIBOR") plus a
margin percentage based on the Company's credit rating. The margin percentage on
the new facility is 30.0 basis points (for a rate of 2.2% based on the LIBOR
rate at December 31, 2001). The margin percentage increases by 10.0 basis points
if more than 50% of the facility is outstanding. Interest and principal are due
the last day of the borrowing period, as selected by TDS, of either seven days
or one, two, three, or six months. TDS pays facility and administration fees at
an aggregate annual rate of 0.146% of the total $600 million facility. The
credit facility expires in January 2007.

     TDS also had $87 million in direct bank lines of credit at December 31,
2001, all of which was unused. The terms of the direct bank lines of credit
provide for borrowings at negotiated rates up to the prime rate.

     U.S. Cellular had a $500 million revolving credit facility with a group of
banks at December 31, 2001, $236 million of which was unused. The terms of the
credit facility provide for borrowings with interest at the LIBOR rate plus a
margin percentage based on the Company's credit rating. At December 31, 2001,
the margin percentage was 19.5 basis points (for a rate of 2.1%). Interest and
principal are due the last day of the borrowing period, as selected by U.S.
Cellular, of either seven days or one, two, three or six months. U.S. Cellular
pays facility and administration fees at an aggregate annual rate of 0.142% of
the total $500 million facility. The credit facility expires in August 2004.

     The carrying amount of short-term debt approximates fair value due to
the short-term nature of these instruments. Information concerning notes
payable is shown in the table that follows.



Year Ended December 31,             2001        2000          1999
- --------------------------------------------------------------------
                                     (Dollars in thousands)
                                                 
Balance at end of year          $265,300    $499,000      $     --
Weighted average interest
  rate at end of year                2.4%        6.9%           --
Maximum amount outstanding
  during the year               $584,850    $499,000      $214,968
Average amount outstanding
  during the year(1)            $412,804    $183,533      $148,818
Weighted average interest
  rate during the year(1)            4.3%        6.8%          5.8%
- --------------------------------------------------------------------


(1) THE AVERAGE WAS COMPUTED BASED ON MONTH-END BALANCES.


                                       32


15 LONG-TERM DEBT

Long-term debt is as follows.



December 31,                                     2001         2000
- --------------------------------------------------------------------
                                          (Dollars in thousands)
                                                  
TELEPHONE AND DATA SYSTEMS, INC. (PARENT)
  7.60% Series A Notes, due in 2041        $  500,000   $       --
  Medium-term notes, averaging 9.1%
    9.2% due in 2007                           22,000       87,500
    8.0% to 10.0% due 2021-2025                51,700      151,700
                                            --------------------------
                                              673,700      239,200
  7.0% notes, maturing in 2006                200,000      200,000
  Purchase contracts, averaging 7.2%,
    due through 2003                            1,283          300
                                            --------------------------
      Total Parent                            874,983      439,500
                                            --------------------------
SUBSIDIARIES
  U.S. Cellular
    6.0% zero coupon convertible
      redeemable debentures (LYONs),
      maturing in 2015                        310,941      437,169
    Unamortized discount                     (170,785)    (251,352)
                                            --------------------------
                                              140,156      185,817
    7.25% notes, maturing in 2007             250,000      250,000
    Other, 9.0% due 2005-2010                  13,000       13,000
  TDS Telecom
    RUS, RTB and FFB Mortgage
      Notes, various rates averaging
      5.6% in 2001 and 5.5% in 2000,
      due through 2031                        279,287      290,195
    Other long-term notes, various rates
      averaging 7.2% in 2001 and
      7.1% in 2000, due through 2006            9,631        6,945
  Other
    Long-term notes, 7.3% to 8.0%,
      due through 2009                          8,168        3,169
                                            --------------------------
      Total Subsidiaries                      700,242      749,126
                                            --------------------------
Total long-term debt                        1,575,225    1,188,626
  Less: Current portion of long-term debt      67,461       15,639
                                            --------------------------
Total long-term debt,
  excluding current portion                $1,507,764   $1,172,987
======================================================================


TELEPHONE AND DATA SYSTEMS, INC. (PARENT)

TDS sold $500 million principal amount of 7.6% unsecured Series A Notes in 2001
with proceeds to the Company of $484.2 million. The notes are due in 2041.
Interest is payable quarterly. The notes are redeemable beginning December 2006
at 100% of the principal amount plus accrued and unpaid interest.

     The Medium-Term Notes ("MTNs") mature at various times from 2007 to 2025.
Interest is payable semi-annually. The MTNs may be redeemed by the Company at
par value plus accrued but unpaid interest. TDS redeemed MTNs aggregating $65.5
million in 2001. As of December 31, 2001, MTNs aggregating $29.0 million may be
redeemed at anytime, and MTNs aggregating $22.0 million, $65.5 million, $17.2
million and $40.0 million have initial redemption dates in 2002, 2003, 2005, and
2006, respectively. The Company has notified the holders of the MTNs currently
redeemable and redeemable in 2002 ($51.0 million in aggregate) of its intent to
redeem these notes. These notes are reflected as current portion of long-term
debt on the balance sheet.

     The 7.0% unsecured notes are due August 2006. Interest is payable
semi-annually. The notes are redeemable at any time at the option of the
Company, at a redemption price equal to the greater of (a) 100% of the principal
amount of such notes, plus accrued but unpaid interest, or (b) the sum of the
present values of the remaining scheduled payments of principal and interest
thereon discounted to the redemption date on a semi-annual basis at the Treasury
Rate plus .25%.

SUBSIDIARIES -- U.S. CELLULAR

U.S. Cellular's 6.0% yield to maturity zero coupon convertible redeemable
unsecured notes (LYONs) are due in 2015. There is no periodic payment of
interest. Each note is convertible at the option of the holder at any time at
a conversion rate of 9.475 U.S. Cellular Common Shares per $1,000 of notes.
Upon notice of conversion, U.S. Cellular may elect to deliver its Common
Shares or cash equal to the market value of the Common Shares. U.S. Cellular
may redeem the notes for cash at the issue price plus accrued original issue
discount through the date of redemption. Holders have the right to exercise
their conversion option prior to the redemption date. During 2001, holders
converted $55.1 million carrying value of LYONs. U.S. Cellular delivered
$32.0 million in cash and 644,000 U.S. Cellular Common Shares for these
conversions. During 2000, holders converted $126.2 million carrying value of
LYONs. U.S. Cellular delivered $99.4 million in cash and 1,416,000 U.S.
Cellular Common Shares for these conversions. The LYONs converted for cash
resulted in an extraordinary loss. See Note 4 --Extraordinary Item for a
description of these transactions.

     U.S. Cellular's 7.25% unsecured senior notes are due 2007 and interest is
payable semi-annually. U.S. Cellular may redeem the notes beginning 2004 at
principal amount plus accrued interest.


                                       33


SUBSIDIARIES -- TDS TELECOM

TDS Telecom's RUS, RTB and FFB Mortgage Notes issued under certain loan
agreements with the Rural Utilities Service ("RUS"), Rural Telephone Bank
("RTB") and Federal Financing Bank ("FFB"), agencies of the United States of
America, are to be repaid in equal monthly or quarterly installments covering
principal and interest beginning six months to three years after dates of
issue and expiring through 2031. Substantially all telephone plant is pledged
under RUS and RTB mortgage notes and various other obligations of the
telephone subsidiaries.

CONSOLIDATED

The annual requirements for principal payments on long-term debt are
approximately $67.5 million, $17.2 million, $18.2 million, $21.7 million and
$219.2 million for the years 2002 through 2006, respectively.

     The carrying value and estimated fair value of the Company's Long-term Debt
were $1,575.2 million and $1,559.7 million at December 31, 2001, and $1,188.6
million and $1,367.9 million at December 31, 2000, respectively. The fair value
of the Company's Long-term Debt was estimated using market prices for the 7.6%
Series A Notes and the 6.0% zero coupon convertible debentures, and discounted
cash flow analysis for the remaining debt.

16 MINORITY INTEREST IN SUBSIDIARIES

The following table summarizes the minority shareholders' and partners'
interests in the equity of consolidated subsidiaries.



December 31,                                    2001         2000
- --------------------------------------------------------------------
                                          (Dollars in thousands)
                                                   
U.S. Cellular
  Public shareholders                       $409,000     $386,096
  Subsidiaries' partners and shareholders     46,432       34,933
                                            --------     --------
                                             455,432      421,029
Other minority interests                      12,266       10,081
                                            --------     --------
                                            $467,698     $431,110
====================================================================


     The Board of Directors of U.S. Cellular from time to time has authorized
the repurchase of U.S. Cellular Common Shares not owned by TDS. U.S. Cellular
may use repurchased shares to fund acquisitions, for the conversion of LYONs and
for other corporate purposes. U.S. Cellular repurchased 643,000 Common Shares in
2001 for $29.9 million and 3,524,000 Common Shares in 2000 for $234.8 million
and reissued 644,000 Common Shares in 2001 and 1,311,000 Common Shares in 2000
for the conversion of U.S. Cellular's zero coupon convertible debt.

17 COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
   SUBSIDIARY TRUST HOLDING SOLELY COMPANY SUBORDINATED DEBENTURES

TDS Capital I, a subsidiary trust of TDS ("Capital I"), has outstanding
6,000,000 8.5% Company-Obligated Mandatorily Redeemable Preferred Securities.
The sole asset of TDS Capital I is $154.6 million principal amount of TDS's 8.5%
Subordinated Debentures due December 31, 2037.

     TDS Capital II, a subsidiary trust of TDS ("Capital II"), has outstanding
6,000,000 8.04% Company-Obligated Mandatorily Redeemable Preferred Securities.
The sole asset of TDS Capital II is $154.6 million principal amount of TDS's
8.04% Subordinated Debentures due March 31, 2038.

     Payments due on the obligations of TDS Capital I and II under preferred
securities issued by TDS Capital I and II are fully and unconditionally
guaranteed by TDS to the extent each trust has funds available therefor.
However, TDS's obligations are subordinate and junior in right of payment to
certain other indebtedness of TDS. TDS has the right to defer payments of
interest on the Subordinated Debentures by extending the interest payment
period, at any time, for up to 20 consecutive quarters. If interest payments on
the Subordinated Debentures are so deferred, distributions on the preferred
securities will also be deferred. During any deferral, distributions will
continue to accrue with interest thereon. In addition, during any such deferral,
TDS may not declare or pay any dividend or other distribution on, or redeem or
purchase, any of its common stock.

     The 8.5% and 8.04% Subordinated Debentures are redeemable by TDS, in whole
or in part, from time to time, on or after November 18, 2002, and March 31,
2003, respectively, or, in whole but not in part, at any time in the event of
certain income tax circumstances. If the Subordinated Debentures are redeemed,
TDS Capital I and II must redeem preferred securities on a pro rata basis having
an aggregate liquidation amount equal to the aggregate principal amount of the
Subordinated Debentures so redeemed. In the event of the dissolution, winding up
or termination of TDS Capital I and II, the holders of preferred securities will
be entitled to receive, for each preferred security, a liquidation amount of $25
plus accrued and unpaid distributions thereon to the date of payment, unless, in
connection with the dissolution, winding up or termination, Subordinated
Debentures are distributed to the holders of the preferred securities.


                                       34


     The carrying value and estimated fair value of the preferred securities was
$300.0 million and $299.2 million, respectively, at December 31, 2001, and
$300.0 million and $279.0 million, respectively, at December 31, 2000. The fair
value of the preferred securities was determined using the market prices of the
preferred securities at December 31, 2001 and 2000.

18 PREFERRED SHARES

The holders of outstanding Preferred Shares are entitled to one vote per share.
The Company had 74,423 Preferred Shares authorized, issued and outstanding at
December 31, 2001, of which 69,287 Shares were redeemable at the option of TDS
and 5,136 Shares were redeemable at the option of the holder, at $100 per share
plus accrued and unpaid dividends. The average dividend rate was $6.01 per
share. At December 31, 2001, 68,840 Preferred Shares were convertible into
238,492 TDS Common Shares.

     The following is a schedule of Preferred Shares activity.



Year Ended December 31,           2001      2000      1999
- -------------------------------------------------------------
                                 (Dollars in thousands)
                                           
Balance, beginning of year     $ 7,827   $ 9,005    $ 25,985
Less:
  Conversion of preferred         (250)     (472)    (16,465)
  Redemption of preferred         (135)     (706)       (515)
                               --------------------------------
Balance, end of year           $ 7,442   $ 7,827    $  9,005
===============================================================


     The carrying value and estimated fair value of the Company's Preferred
Shares was $7.4 million and $5.4 million, respectively, at December 31, 2001,
and $7.8 million and $5.3 million, respectively, at December 31, 2000. The
fair value of the Company's Preferred Shares was estimated using discounted
cash flow analysis.

19 COMMON STOCKHOLDERS' EQUITY

COMMON STOCK

The holders of Common Shares are entitled to one vote per share. The holders of
Series A Common shares are entitled to ten votes per share. Series A Common
Shares are convertible, on a share-for-share basis, into Common Shares. TDS has
reserved 6,778,000 Common Shares at December 31,2001, for possible issuance
upon such conversion.

     The following table summarizes the number of Common and Series A Common
Shares outstanding.



                                                                 SERIES A COMMON
                                        COMMON SHARES              SHARES              TREASURY SHARES
- -----------------------------------------------------------------------------------------------------------
                                                               (Shares in thousands)
                                                                                        
Balance December 31, 1998                          54,988                  6,950                   (761)
  Repurchase Common Shares                             --                     --                   (664)
  Dividend reinvestment, incentive
     and compensation plans                             8                      9                    188
  Other                                                 7                     --                     --
  Conversion of Preferred shares                      409                     --                     --
                                                   --------------------------------------------------------
Balance December 31, 1999                          55,412                  6,959                 (1,237)
  Repurchase Common Shares                             --                     --                 (2,666)
  Conversion of Series A Common
      Shares                                           86                    (86)                    --
  Dividend reinvestment, incentive
     and compensation plans                             6                      7                    175
  Other                                                --                     --                     12
  Conversion of Preferred Shares                       20                     --                     --
                                                   --------------------------------------------------------
Balance December 31, 2000                          55,524                  6,880                 (3,716)
  Repurchase Common Shares                             --                     --                   (325)
  Conversion of Series A Common
     Shares                                           111                   (111)                    --
  Dividend reinvestment, incentive
     and compensation plans                             6                      9                    172
  Other                                                 5                     --                      1
  Conversion of Preferred Shares                       13                     --                     --
                                                   --------------------------------------------------------
Balance December 31, 2001                          55,659                  6,778                 (3,868)
===========================================================================================================


COMMON SHARE REPURCHASE PROGRAM

The Board of Directors of TDS from time to time has authorized the repurchase of
TDS Common Shares. The Company may use repurchased shares to fund acquisitions
and for other corporate purposes.

     The Company repurchased 325,000 Common shares in 2001 for $30.3 million,
2,666,000 Common Shares in 2000 for $287.7 million and 664,000 Common shares in
1999 for $80.5 million. The Company reissued 173,000 Common Shares in 2001,
187,000 in 2000 and 188,000 in 1999 for acquisitions and incentive and
compensation plans.


                                       35


ACCUMULATED OTHER COMPREHENSIVE INCOME(LOSS)

The cumulative balance of unrealized gains (losses) on securities and related
income tax effects included in Accumulated other comprehensive income(loss) are
as follows.



Year Ended December 31,                                      2001           2000            1999
- ------------------------------------------------------------------------------------------------
                                                             (Dollars in thousands)
                                                                              
Balance, beginning of year                              $(178,344)     $ 179,071       $  75,609
                                                        ----------------------------------------
Add(Deduct):
 Unrealized gains(losses)on securities                   (856,244)      (620,834)        504,055
 Income tax effect                                       (343,869)      (244,829)        201,801
                                                        ----------------------------------------
                                                         (512,375)      (376,005)       (302,254)
 Equity method unrealized gains                               397             --              --
 Minority share of unrealized (gains) losses               11,161         18,590         (32,179)
                                                        ----------------------------------------
Net unrealized gains (losses)                            (500,817)      (357,415)        270,075
                                                        ----------------------------------------
Deduct (Add):
 Recognized gains on sales of securities                 (548,793)            --         327,113
 Income tax expense (benefit)                            (221,752)            --         130,845
                                                        ----------------------------------------
                                                         (327,041)            --         196,268
 Minority share of recognized (gains)                          --             --         (29,655)
                                                        ----------------------------------------
Net recognized gains(losses) included in Net Income      (327,041)            --         166,613
                                                        ----------------------------------------
Net change in unrealized gains(losses) included in
 Comprehensive Income                                    (173,776)      (357,415)        103,462)
                                                        ----------------------------------------
Balance, end of year                                    $(352,120)     $(178,344)      $ 179,071
================================================================================================


20 DIVIDEND REINVESTMENT, INCENTIVE AND COMPENSATION PLANS

The following table summarizes Common and Series A common Shares issued,
including reissued Treasury Shares, for the employee stock ownership plans and
dividend reinvestment plans described below.



Year Ended December 31,                         2001           2000           1999
- ----------------------------------------------------------------------------------
                                                                  
Common Shares
 Tax-deferred savings plan                    18,000         14,000         25,000
 Dividend reinvestment plan                    6,000          5,000          8,000
 Employee stock purchase plan                 18,000         20,000          5,000
 Stock-based compensation plans              136,000        142,000        158,000
                                             -------------------------------------
                                             178,000        181,000        196,000
==================================================================================

Series A Common Shares
 Dividend reinvestment plan                    9,000          7,000          9,000
==================================================================================


TAX-DEFERRED SAVINGS PLAN

TDS has reserved 62,000 Common Shares for issuance under the TDS Tax-Deferred
Savings Plan, a qualified profit-sharing plan pursuant to Sections 401(a) and
401(k) of the Internal Revenue Code. Participating employees have the option of
investing their contributions in TDS Common Shares, U.S. Cellular Common Shares
or seven nonaffiliated funds.

DIVIDEND REINVESTMENT PLANS

TDS had reserved 427,000 Common Shares for issuance under the Automatic Dividend
Reinvestment and Stock Purchase Plan and 134,000 Series A Common Shares for
issuance under the Sereis A Common Share Automatic Dividend Reinvestment Plan.
These plans enable holders of TDS's Common Shares and Preferred Shares to
reinvest cash dividends in Common Shares and holders of Series A Common Shares
to reinvest cash dividends in Series A Common Shares. The purchase price of the
shares is 95% of the market value, based on the average of the daily high and
low sales prices for TDS's Common Shares on the American Stock Exchange for the
ten trading days preceding the date on which the purchase is made.

EMPLOYEE STOCK PURCHASE PLAN

TDS had reserved 167,000 Common Shares for sale to the employees of TDS and its
subsidiaries.

STOCK-BASED COMPENSATION PLANS

TDS had reserved 2,512,000 Common Shares for options granted and to be granted
to key employees. TDS has established certain plans that provide for the grant
of stock options to officers and employees. The options are exercisable over a
specified period not in excess of ten years. The options expire from 2002 to
2010 or 30 days after the date of the employee's termination of employment, if
earlier.

     No compensation costs have been recognized for the stock option and
employee stock purchase plans. Had compensation cost for all plans been
determined consistent with SFAS No. 123, " Accounting for Stock-Based
Compensation," the Company's net income and earnings per share from continuing
operations would have been reduced to the following pro forma amounts.



Year Ended December 31,                                       2001            2000            1999
- --------------------------------------------------------------------------------------------------
                                                                                 
Income(loss) from Continuing Operations
     As Reported                                         $(168,248)       $145,527        $291,326
     Pro Forma                                            (173,677)        138,024         287,674
Basic Earnings per Share from Continuing Operations
     As Reported                                             (2.87)           2.42            4.72
     Pro Forma                                               (2.97)           2.29            4.66
Diluted Earnings per Share from Continuing Operations
     As Reported                                             (2.87)           2.39            4.65
     Pro Forma                                           $   (2.97)       $   2.26        $   4.60
==================================================================================================



                                       36


     A summary of the status of TDS stock option plans at December 31,2001, 2000
and 1999 and changes during the years then endeed is presented in the table
and narrative that follows.



                                               Weighted           Weighted
                                Number          Average           Average
                               of Shares     Option Prices      Fair Values
- ---------------------------------------------------------------------------
                                                            
Stock Options:
Outstanding December 31, 1998
(777,000 exercisable)          1,003,000         $   38.70
  Granted                        124,000         $   63.82           $25.51
  Exercised                     (199,000)        $   31.32
  Cancelled                      (10,000)        $   43.75
                               ---------
Outstanding December 31, 1999
(813,000 exercisable)            918,000         $   43.66
  Granted                        584,000         $  111.50           $47.07
  Exercised                     (141,000)        $   41.10
  Canceled                       (28,000)        $   92.92
                               ---------
Outstanding December 31, 2000
(933,000 exercisable)          1,333,000         $   72.90
  Granted                        216,000         $   99.58           $51.05
  Exercised                     (153,000)        $   36.38
  Cancelled                       (5,000)        $  108.94
                               ---------
Outstanding December 31, 2001
(1,031,000 exercisable)        1,391,000         $   80.37
===========================================================================


     At December 31, 2001, 1,031,000 options are exercisable, have exercise
prices between $34.51 and $119.28 with a weighted average exercise price of
$69.39, and a weighted average remaining contractual life of 7.3 years. The
remaining 360,000 options are not exercisable, have exercise prices between
$87.05 and $119.08 with a weighted average exercise price of $111.87 and a
weighted average remaining contractual life of 8.6 years.

     The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: risk-free
interest rates of 4.9%, 5.2% and 5.2%; expected dividend yields of 0.7%,0.5% and
0.6%; expected lives of 8.1 years, 7.6 years and 7.5 years and expected
volatility of 32.3%, 29.4% and 27.3%.

21 EMPLOYEE BENEFIT PLANS

The Company sponsors a qualified noncontributory defined contribution pension
plan. Effective January 1, 2001, the Company merged two previous plans into a
new successor pension plan and combined the plan assets held for the previous
two plans. The plan provides benefits for the employees of TDS, TDS Telecom and
U.S. Cellular. (Employees of certain telephone subsidiaries are covered under
other pension plans or receive direct pension payments.) Under this plan,
pension costs are calculated separately for each participant and are funded
currently. TDS also sponsors an unfunded non-qualified deferred supplemental
executive retirement plan to supplement the benefits under these plans to offset
the reduction of benefits caused by the limitation on annual employee
compensation under tax laws.

     Total pension costs were $8.8 million, $8.6 million and $8.8 million in
2001, 2000 and 1999, respectively.

OTHER POSTRETIREMENT BENEFITS

The Company sponsors two defined benefit postretirement plans that cover most of
the employees of TDS, TDS Telecom and the subsidiaries of TDS Telecom. One plan
provides medical benefits and the other plan provides life insurance benefits.
Both plans are contributory, with retiree contributions adjusted annually. The
medical plan anticipates future cost sharing changes that are consistent with
the Company's intent to increase retiree contributions by the health care cost
trend rate.

     An amount not to exceed 25 percent of the total contribution to the pension
plan may be contributed to fund the cost of the medical benefits annually. An
additional contribution equal to a reasonable amortization of the past service
cost may be made without regard to the 25 percent limitation.

     The following table reconciles the beginning and ending balances of the
benefit obligation and the fair value of plan assets for the other
postretirement benefit plans.



December 31,                                                2001           2000
- -----------------------------------------------------------------------------------
                                                          (Dollars in Thousands)
                                                                  
Change in Benefit Obligation
  Benefit obligation at beginning of year                $20,109        $21,099
  Service cost                                               750          1,028
  Interest cost                                            1,482          1,592
  Amendments                                                  --         (2,612)
  Actuarial (gain) loss                                    6,249           (169)
  Benefits paid                                             (984)          (829)
                                                         ----------------------
  Benefit obligation at end of year                       27,606         20,109
                                                         ----------------------
Change in Plan Assets
  Fair value of plan assets at beginning of year          21,948         24,185
  Actual return on plan assets                            (3,036)        (1,432)
  Employer contribution                                       31             24
  Benefits paid                                             (984)          (829)
                                                         ----------------------
  Fair value of plan assets at end of year                17,959         21,948
                                                         ----------------------
Funded Status                                             (9,647)         1,839
Unrecognized net actuarial (gain) loss                     2,062         (9,250)
Unrecognized prior service cost                           (1,087)        (1,216)
                                                         ----------------------
(Accrued) benefit cost                                   $(8,672)       $(8,627)
===================================================================================



                                       37


     The following table sets forth the weighted average assumptions used in
accounting for the plans.



December 31,                                         2001           2000
- -------------------------------------------------------------------------------
                                                               
Discount rate                                        7.25%           7.5%
Expected return on plan assets                        8.5%           8.5%
- --------------------------------------------------------------------------------


     For measurement purposes, a 10.0% and 7.8% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2001 and 2000,
respectively. The 2001 annual rate of increase is expected to remain at 10% in
2002 and then decrease to 5.75% by 2010 while the 2000 annual rate of increase
was expected to decrease to 5.5% by 2002.

     Net periodic benefit cost for the years ended December 31, 2001, 2000 and
1999 include the following components.



Year Ended December 31,                                     2001           2000          1999
- ------------------------------------------------------------------------------------------------
                                                                    (Dollars in thousands)
                                                                              
Service cost                                             $   750        $ 1,028        $1,019
Interest cost on accumulated postretirement
  benefit obligation                                       1,482          1,592         1,475
Expected return on plan assets                            (1,836)        (1,909)       (1,498)
Net amortization and deferral                               (543)          (420)         (228)
                                                         ---------------------------------------
Net postretirement (income) cost                         $  (147)       $   291        $  768
================================================================================================


     The health care cost trend rate assumption has a significant effect on the
amounts reported. A one-percentage-point increase or decrease in assumed health
care cost trend rates would have the following effects.



                                                                 One Percentage Point
                                                              Increase         Decrease
- ------------------------------------------------------------------------------------------
                                                                (Dollars in thousands)
                                                                         
Effect on total of service and interest cost components        $   505         $   (432)
Effect on postretirement benefit obligation                    $ 3,456         $ (3,071)
- ------------------------------------------------------------------------------------------


22 COMMITMENTS AND CONTINGENCIES

CONSTRUCTION AND EXPANSION

The primary purpose of TDS's construction and expansion expenditures is to
provide for normal growth, to upgrade communications service, to expand into new
communication areas and to take advantage of service-enhancing and cost-reducing
technological developments. The U.S. Cellular capital additions budget totals
approximately $620-$640 million for 2002, primarily to add additional cell sites
to expand and enhance coverage, including adding digital service capabilities to
its systems. The TDS Telecom capital additions budget totals approximately
$170-$190 million for 2002, including approximately $115-$125 million for the
local telephone markets to provide for normal growth, and to upgrade plant and
equipment to provide enhanced services, and approximately $55-$65 million for
the competitive local exchange business to build switching and other network
facilities to expand operations.

PENDING ACQUISITIONS

At December 31, 2001, the Company had agreements to acquire a telephone company
and certain PCS licenses for aggregate consideration of $90.4 million in cash.

LEASE COMMITMENTS

TDS and its subsidiaries have leases for certain cellular plant facilities,
office space and data processing equipment, most of which are classified as
operating leases. For the years 2001, 2000 and 1999, rent expense for
noncancelable, long-term leases was $52.9 million, $48.0 million and $31.2
million, respectively, and rent expense under cancelable, short-term leases was
$3.0 million, $5.4 million and $14.6 million, respectively, At December 31,
2001, the aggregate minimum rental commitments under noncancelable, long-term
operating leases were as follows.



- ------------------------------------------------------------
                                              Minimum Future
                                             Rental Payments
- ------------------------------------------------------------
                                       (Dollars in thousands)
                                             
2002                                            $ 62,919
2003                                              56,918
2004                                              51,531
2005                                              47,350
2006                                              41,727
Thereafter                                      $168,857
- ------------------------------------------------------------


CONTINGENCIES

The Company is involved in legal proceedings before the Federal Communications
Commission and various state and federal courts from time to time. Management
does not believe that any of such proceedings should have a material adverse
impact on the financial position, results of operations or cash flows of the
Company.

OTHER COMMITMENTS

On November 1, 2000, the United States Bankruptcy Court for the Western District
of Wisconsin confirmed a plan of financial reorganization for Airadigm
Communications, Inc., a Wisconsin-based wireless services provider. Under the
terms of the plan of reorganization, TDS and an unrelated entity have committed
to provide funding to meet certain obligations of Airadigm. Airadigm continues
to operate as an independent company providing wireless services. Pursuant to
the plan of reorganization, under certain circumstances and subject to the FCC's
rules and regulations, TDS and the unrelated entity, or their respective
designees, may each acquire certain personal communications services licenses
for areas of Wisconsin and


                                       38


Iowa as well as other Airadigm assets. As of December 31, 2001, TDS had provided
funding of $52.7 million to Airadigm. Under the plan of reorganization, TDS's
portion of the funding and the cost of the assets to be acquired could possibly
aggregate up to an additional $145 million.

     U.S. Cellular is a limited partner in a joint venture that was a successful
bidder for 17 licenses in 13 markets in the January 2001 FCC spectrum auction.
The cost for the 17 licenses totaled $283.9 million. Although legally the
general partner controls the joint venture, the Company has included the joint
venture in its consolidated financial statements because U.S. Cellular is
considered to have controlling financial interest for financial reporting
purposes. The joint venture has acquired 5 of such licenses in 4 markets for a
total of $4.1 million and has deposits with the FCC totaling $56.1 million for
the remaining licenses (classified as a current asset at December 31, 2001).
Subject to the final outcome of the proceedings discussed below, the joint
venture's portion of the funding could possible aggregate up to an additional
$223.7 million to fund the acquisition of the remaining licenses. In addition,
U.S. Cellular has agreed to loan the general partner up to $20 million that
could be used by the general partner to fun its investment in the licenses.

     With respect to the remaining 12 licenses in 9 markets, such licenses had
been reauctioned by the FCC after defaults by winning bidders in a prior auction
and were made subject by the FCC to the final outcome of certain legal
proceedings initiated by the prior winning bidders. Following the reauction, one
of the prior winning bidders obtained a court ruling that the FCC's actions were
illegal. In an effort to resolve this matter, on November 15, 2001, the joint
venture and other bidders in the reauction entered into a settlement agreement
with the prior winning bidder and the FCC. However, the settlement agreement
terminated due to the failure to satisfy a condition to obtain certain
Congressional action by December 31, 2001. The U.S. Supreme Court has agreed to
review this matter. In the event the prior winning bidder is successful in this
litigation, the joint venture would receive a refund of its deposit of $56.1
million made to the FCC for such 12 licenses. The joint venture's financial
requirements would then be limited to the 5 licenses in 4 markets that it
acquired in 2001. If the FCC is successful in this litigation or the matter is
otherwise resolved in a manner that will permit the joint venture to acquire the
remaining licenses, the joint venture would likely be required to pay the FCC
the balance of the auction price for such licenses. The joint venture would then
have significant financial requirements to build out such markets. The exact
nature of U.S. Cellular's financial commitment going forward will be determined
as the joint venture develops its long-term business and financing plans.

23 BUSINESS SEGMENT INFORMATION

The Company conducts substantially all of its wireless telephone operations
through its 82.2%-owned subsidiary, United Sates Cellular Corporation ("U.S.
Cellular"). At December 31, 2001, U.S. Cellular provided cellular telephone
service to 3,461,000 customers through 142 majority-owned cellular
systems in 25 states. The Company conducts its wireline telephone operations
through its wholly owned subsidiary, TDS Telecommunications Corporation ("TDS
Telecom"). TDS Telecom provides service through local telephone operation, or
Incumbent Local Exchange Carrier ("ILEC") companies and through Competitive
Local Exchange Carrier ("CLEC") companies. At December 31, 2001, TDS Telecom
operated 109 incumbent telephone companies serving 650,700 access lines in 28
states and two competitive local exchange carriers serving 197,200 access
lines in four states.

     In September 1999, TDS approved a plan of merger between Aerial and
VoiceStream. The merger was completed in May 2000. The results of operations and
net assets of Aerial are reflected as discontinued operations in the
consolidated financial statements. See Note 3 -- Discontinued Operations.

     U.S. Cellular and TDS Telecom are billed for all services they receive from
TDS, consisting primarily of information processing and general management
services. Such billings are based on expenses specifically identified to U.S.
Cellular and TDS Telecom and on allocations of common expenses. Management
believes the method used to allocate common expenses is reasonable and that all
expenses and costs applicable to U.S. Cellular and TDS Telecom are reflected in
the accompanying business segment information on a basis which is representative
of what they would have been if U.S Cellular and TDS Telecom operated on a
stand-alone basis.


                                       39


Financial data for the Company's business segments for each of the years ended
December 31, 2001, 2000 and 1999 are as follows.



                                                                      TDS Telecom
Year Ended or at December 31, 2001          U.S. Cellular          ILEC          CLEC     All Other(1)        Total
- ---------------------------------------------------------------------------------------------------------------------
                                                                               (Dollars in thousands)
                                                                                          
Operating revenues                            $ 1,894,830    $  576,817     $ 118,812        $   (1,917) $2,588,542
Operating cash flow(2)                            617,870       293,703       (25,399)               --     886,174
Depreciation and amortization expense             300,658       131,787        17,574                --     450,019
Operating income (loss)                           317,212       161,916       (42,973)               --     436,155
Significant noncash items:
  Investment income                                41,934         1,739            --             6,966      50,639
  Gain (loss) on marketable securities
    and other investments                              --            --            --          (548,305)   (548,305)
Marketable securities                             272,390            --            --         2,427,840   2,700,230
Total assets                                    3,725,014     1,527,758       213,566         2,580,454   8,046,792
Investment in unconsolidated entities             159,454        48,320            --            25,904     233,678
Capital expenditures                          $   503,334    $   99,866     $  96,950        $       --  $  700,150
- ---------------------------------------------------------------------------------------------------------------------


                                                                      TDS Telecom
Year Ended or at December 31, 2001          U.S. Cellular          ILEC          CLEC     All Other(1)          Total
- -----------------------------------------------------------------------------------------------------------------------
                                                                               (Dollars in thousands)
                                                                                          
Operating revenues                            $ 1,716,640    $  528,981     $  84,720        $   (3,485) $2,326,856
Operating cash flow(2)                            558,011       267,097        (5,899)               --     819,209
Depreciation and amortization expense             265,698       124,389         9,056                --     399,143
Operating income (loss)                           292,313       142,708       (14,955)               --     420,066
Significant noncash items:
  Investment income                                43,727         1,731            --            (6,735)     38,723
  Gain (loss) on marketable securities
    and other investments                          96,075            --            --           (80,359)     15,716
Marketable securities                             377,900            --            --         3,744,004   4,121,904
Total assets                                    3,412,709     1,245,260       120,543         3,856,097   8,634,609
Investment in unconsolidated entities             137,474        24,619            --            20,232     182,325
Capital expenditures                          $   305,417    $   93,401     $  57,201        $       --  $  456,019
- -----------------------------------------------------------------------------------------------------------------------


                                                                      TDS Telecom
Year Ended or at December 31, 2001          U.S. Cellular          ILEC          CLEC     All Other(1)          Total
- -----------------------------------------------------------------------------------------------------------------------
                                                                               (Dollars in thousands)
                                                                                            
Operating revenues                            $ 1,576,429    $  492,530     $  55,173        $   (1,786) $2,122,346
Operating cash flow(2)                            485,814       241,536        (3,635)               --     723,715
Depreciation and amortization expense             229,972       117,443         5,907                --     353,322
Operating income (loss)                           255,842       124,093        (9,542)               --     370,393
Significant noncash items:
  Investment income                                30,374         1,369            --              (419)     31,324
  Gain (loss) on marketable securities
    and other investments                         266,744            --            --            79,194     345,938
Marketable securities                             540,711            --            --           302,569     843,280
Total assets                                    3,331,590     1,243,068        63,661           759,157   5,397,476
Investment in unconsolidated entities             111,471        14,183            --           115,055     240,709
Capital expenditures                          $   277,450    $   99,154     $  23,027        $       --  $  399,631
- -----------------------------------------------------------------------------------------------------------------------


(1) CONSISTS OF THE TDS CORPORATE OPERATIONS, TDS TELECOM INTERCOMPANY
    ELIMINATIONS, TDS CORPORATE AND TDS TELECOM MARKETABLE EQUITY SECURITIES,
    $258.8 MILLION OF DISCONTINUED OPERATIONS IN 1999 AND ALL OTHER BUSINESSES
    NOT INCLUDED IN THE U.S. CELLULAR OR TDS TELECOM SEGMENTS.
(2) OPERATING CASH FLOW IS OPERATING INCOME PLUS DEPRECIATION AND AMORTIZATION.


                                       40


- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------

Management of Telephone and Data Systems, Inc. has the responsibility for
preparing the accompanying consolidated financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis, and in
management's opinion are fairly presented. The financial statements include
amounts that are based on management's best estimates and judgments. Management
also prepared the other information in the annual report and is responsible for
its accuracy and consistency with the financial statements.

     Management of TDS has established and maintains a system of internal
control that provides reasonable assurance as to the integrity and reliability
of the financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial reporting.

     The system of internal control provides appropriate division of
responsibility and is documented written policies and procedures that
communicated to employees with significant roles the financial reporting
process and updated necessary. Management monitors the system internal
control for compliance, considers recommendations for improvements and
updates such policies and procedures as necessary. Monitoring includes an
internal auditing program to independently assess the effectiveness of the
internal controls recommend possible improvements thereto. Management
believes that TDS's system of internal control is adequate to accomplish the
objectives discussed herein. The concept of reasonable assurance recognizes
that the costs of a system of internal accounting controls should not exceed,
in management's judgment, the benefits to be derived.

     The consolidated financial statements of TDS have been audited by Arthur
Andersen LLP, Independent Public Accountants.

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF TELEPHONE AND DATA SYSTEMS, INC.:

We have audited the accompanying consolidated balance sheets of Telephone and
Data Systems, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of operations, common
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Telephone and Data Systems,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

     As explained in Note 1 of Notes to Consolidated Financial Statements,
effective January 1, 2000, the Company changed certain of its accounting
principles for revenue recognition as a result of the adoption of Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."

/s/ Arthur Andersen LLP
Chicago, Illinois
January 25, 2002


                                       41





- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------

Quarter Ended                                      March 31        June 30       Sept. 30         Dec. 31
- -------------------------------------------------------------------------------------------------------------
                                                      (Dollars in thousands, except per share amounts)
                                                                                    
2001
Operating Revenues                                 $600,369    $   642,301      $ 675,009       $ 670,863
Operating Income                                     90,490        122,243        118,419         105,003
Gain (Loss) on Marketable Securities
  and Other Investments                                  --       (644,929)            --          96,624
Net Income (Loss) Available to Common
  from Continuing Operations
    From Operations                                  31,104         46,652         52,832          37,065
    From Gains (losses)                                  --       (385,223)            --          48,864
                                                   ------------------------------------------------------
                                                     31,104       (338,571)        52,832          85,929

Net Income (Loss) Available to Common              $ 28,116    $  (339,832)     $  51,384       $  61,819
Weighted Average Shares Outstanding (000s)           58,718         58,683         58,711          58,561
Basic Earnings per Share
  from Continuing Operations                       $    .53    $     (5.77)     $     .90       $    1.47
Diluted Earnings per Share
  from Continuing Operations
    From Operations                                     .52            .80            .89             .63
    From Gains (losses)                                  --          (6.57)            --             .83
                                                   ------------------------------------------------------
                                                        .52          (5.77)           .89            1.46

Basic Earnings per Share - Net Income (Loss)            .48          (5.79)           .88            1.06
Diluted Earnings per Share - Net Income (Loss)     $    .47    $     (5.79)     $     .87       $    1.05

2000
Operating Revenues                                 $538,327    $   585,654      $ 605,511       $ 597,364
Operating Income                                     91,511        126,398        123,971          78,186
Gain (Loss) on Marketable Securities
  and Other Investments                              17,851        (50,000)        57,743          (9,878)
Net Income Available to Common
  from Continuing Operations
    From Operations                                  29,030         50,826         46,653          27,740
    From Gains (losses)                               6,361        (30,260)        20,428          (5,755)
                                                   ------------------------------------------------------
                                                     35,391         20,566         67,081          21,985
Net Income (Loss) Available to Common              $ 31,550    $ 2,142,894      $  46,168       $  15,886
Weighted Average Shares Outstanding (000s)           61,078         60,306         59,537          58,768
Basic Earnings per Share
  from Continuing Operations                       $    .58    $       .34      $    1.13       $    .37
Diluted Earnings per Share
  from Continuing Operations
    From Operations                                     .47            .83            .77             .46
    From Gains (losses)                                 .10           (.49)           .34            (.09)
                                                   ------------------------------------------------------
                                                        .57            .34           1.11             .37

Basic Earnings per Share - Net Income (Loss)            .52          35.53            .78             .27
Diluted Earnings per Share - Net Income (Loss)     $    .51    $     35.23      $     .76       $     .27
=============================================================================================================


NET INCOME AVAILABLE TO COMMON FROM CONTINUING OPERATIONS FOR 2001 AND 2000
INCLUDED SIGNIFICANT GAINS AND LOSSES FROM MARKETABLE SECURITIES AND OTHER
INVESTMENTS. THE TABLE ABOVE SUMMARIZES THE EFFECT OF THE GAINS AND LOSSES ON
NET INCOME AVAILABLE TO COMMON FROM CONTINUING OPERATIONS AND DILUTED EARNINGS
PER SHARE FROM CONTINUING OPERATIONS.

MANAGEMENT BELIEVES U.S. CELLULAR'S OPERATING RESULTS REFLECT SEASONALITY IN
BOTH SERVICE REVENUES, WHICH TEND TO INCREASE MORE SLOWLY IN THE FIRST AND
FOURTH QUARTERS, AND OPERATING EXPENSES, WHICH TEND TO BE HIGHER IN THE FOURTH
QUARTER DUE TO INCREASED MARKETING ACTIVITIES AND CUSTOMER GROWTH. THIS
SEASONALITY MAY CAUSE OPERATING INCOME TO VARY FROM QUARTER TO QUARTER.


                                       42


- --------------------------------------------------------------------------------
TDS STOCK AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------

TDS's Common Shares are listed on the American Stock Exchange ("AMEX") under the
symbol "TDS" and in the newspapers as "TeleData." As of February 28, 2002, TDS
Common Shares were held by 2,386 record owners and the Series A Common Shares
were held by 110 record owners. TDS has paid cash dividends on Common Shares
since 1974, and paid dividends of $.54 and $.50 per Common and Series A Common
Share during 2001 and 2000, respectively.

     The Common Shares of United States Cellular Corporation, an 82.2%-owned
subsidiary of TDS, are listed on the AMEX under the symbol "USM" and in the
newspapers as "US Cellular."

- --------------------------------------------------------------------------------
MARKET PRICE PER COMMON SHARE BY QUARTER
- --------------------------------------------------------------------------------

TDS's Series A Common Shares and Preferred Shares are not actively traded and
therefore, quotations are not reported for such securities. Dividends on TDS's
Preferred Shares have been paid quarterly since the dates of issue. The high and
low sales prices of the Common Shares on the AMEX as reported by the Dow Jones
News Service are as follows.



2001                       1st         2nd        3rd        4th
- --------------------------------------------------------------------------
                                                
High                 $   107.20      $ 110.60    $ 111.25   $ 98.90
Low                       85.16         89.50       86.60     87.50
Dividends Paid       $      .135     $    .135   $    .135  $   .135
- --------------------------------------------------------------------------


2000                       1st         2nd        3rd        4th
- --------------------------------------------------------------------------
                                                
High                 $   128.25      $ 114.63    $ 128.50   $113.20
Low                       93.63         89.75      100.75     80.60
Dividends Paid       $      .125     $    .125   $    .125  $   .125
- --------------------------------------------------------------------------



                                       43

EX-21

                        TELEPHONE AND DATA SYSTEMS, INC.
                       SUBSIDIARY AND AFFILIATED COMPANIES*
                                DECEMBER 31, 2001



                                                                                                 STATE OF
                                                                                                 INCORPORATION
                                                                                                 -------------
                                                                                              
U.S. CELLULAR
- -------------

   U.S. CELLULAR CORPORATION                                                                     DELAWARE

   BANGOR CELLULAR TELEPHONE CO., L.P.                                                           Partnership
   BLACK CROW WIRELESS, L.P.                                                                     Partnership
   BMG GROUP, LLC                                                                                OKLAHOMA
   CALIFORNIA RURAL SERVICE AREA #1, INC.                                                        CALIFORNIA
   CAROLINA CELLULAR, INC.                                                                       NORTH CAROLINA
   CEDAR RAPIDS CELLULAR TELEPHONE, L.P.                                                         Partnership
   CELLVEST, INC.                                                                                DELAWARE
   CENTRAL CELLULAR TELEPHONES LTD                                                               ILLINOIS
   CENTRAL FLORIDA CELLULAR TELEPHONE COMPANY, INC                                               FLORIDA
   CHAMPLAIN CELLULAR, INC                                                                       NEW YORK
   CHARLOTTESVILLE MSA CELLULAR PARTNERSHIP                                                      Partnership
   COMMUNITY CELLULAR TELEPHONE COMPANY                                                          TEXAS
   CROWN POINT CELLULAR INC.                                                                     NEW YORK
   DAVENPORT CELLULAR TELEPHONE COMPANY                                                          Partnership
   DAVENPORT CELLULAR TELEPHONE COMPANY, INC.                                                    DELAWARE
   DUBUQUE CELLULAR TELEPHONE, L.P.                                                              Partnership
   EASTERN NORTH CAROLINA CELLULAR JOINT VENTURE                                                 Partnership
   EAU CLAIRE MSA, INC.                                                                          WISCONSIN
   FLORIDA RSA # 8, INC.                                                                         DELAWARE
   GEORGIA RSA # 11, INC.                                                                        GEORGIA
   GRAY BUTTE JOINT VENTURE                                                                      Partnership
   GREEN BAY CELLTELCO                                                                           Partnership
   HARDY CELLULAR TELEPHONE COMPANY                                                              DELAWARE
   HUMPHREY COUNTY CELLULAR, INC.                                                                DELAWARE
   ILLINOIS RSA # 3, INC.                                                                        ILLINOIS
   INDIANA RSA # 4, INC.                                                                         DELAWARE
   INDIANA RSA # 5, INC.                                                                         INDIANA
   INDIANA RSA NO. 4 L.P.                                                                        Partnership
   INDIANA RSA NO. 5 L.P.                                                                        Partnership
   IOWA # 13, INC.                                                                               DELAWARE
   IOWA RSA # 3, INC.                                                                            DELAWARE
   IOWA RSA # 9, INC.                                                                            DELAWARE
   IOWA RSA # 12, INC.                                                                           DELAWARE
   JACKSONVILLE CELLULAR PARTNERSHIP                                                             Partnership
   JACKSONVILLE CELLULAR TELEPHONE COMPANY                                                       DELAWARE
   JACKSON SQUARE WIRELESS, L.P.                                                                 Partnership
   K-25 WIRELESS, L.P.                                                                           Partnership
   KANSAS # 15 LP                                                                                Partnership
   KANSAS RSA # 15, INC.                                                                         OHIO
   KENOSHA CELLULAR TELEPHONE, L.P.                                                              Partnership
   LACROSSE CELLULAR TELEPHONE COMPANY, INC.                                                     DELAWARE
   LEWISTON CELLTELLCO PARTNERSHIP                                                               Partnership
   MADISON CELLULAR TELEPHONE COMPANY                                                            Partnership
   MAINE RSA # 1, INC.                                                                           MAINE
   MAINE RSA # 4, INC.                                                                           MAINE
   MANCHESTER-NASHUA CELLULAR TELEPHONE, L.P.                                                    Partnership
   MCDANIEL CELLULAR TELEPHONE COMPANY                                                           DELAWARE
   MINNESOTA INVCO OF RSA # 7, INC.                                                              DELAWARE
   MINNESOTA INVCO OF RSA # 8, INC.                                                              DELAWARE
   MINNESOTA INVCO OF RSA # 9, INC.                                                              DELAWARE
   MINNESOTA INVCO OF RSA # 10, INC.                                                             DELAWARE
   MISSOURI # 15 RURAL CELLULAR, INC.                                                            MISSOURI
   MISSOURI RSA 11, INC.                                                                         DELAWARE
   N.H. #1 RURAL CELLULAR, INC.                                                                  NEW HAMPSHIRE
   NEW YORK RSA 2 CELLULAR PARTNERSHIP                                                           Partnership
   NEWPORT CELLULAR, INC.                                                                        NEW YORK
   NORTH CAROLINA RSA # 4, INC.                                                                  DELAWARE


                          *50% or more owned companies                    Page 1


                        TELEPHONE AND DATA SYSTEMS, INC.
                       SUBSIDIARY AND AFFILIATED COMPANIES*
                                DECEMBER 31, 2001



                                                                                                 STATE OF
                                                                                                 INCORPORATION
                                                                                                 -------------
                                                                                              
   NORTH CAROLINA RSA # 6, INC.                                                                  CALIFORNIA
   NORTH CAROLINA RSA # 9, INC.                                                                  NORTH CAROLINA
   NORTH CAROLINA RSA 1 PARTNERSHIP                                                              Partnership
   OHIO STATE CELLULAR PHONE COMPANY, INC.                                                       FLORIDA
   OREGON RSA # 2, INC.                                                                          OREGON
   OREGON RSA # 3, INC.                                                                          OREGON
   OREGON RSA NO. 2 LIMITED PARTNERSHIP                                                          Partnership
   OREGON RSA NO. 3 LIMITED PARTNERSHIP                                                          Partnership
   PEACE VALLEY CELLULAR TELEPHONE COMPANY                                                       DELAWARE
   RACINE CELLULAR TELEPHONE COMPANY                                                             Partnership
   ST. LAWRENCE SEAWAY RSA CELLULAR PARTNERSHIP                                                  Partnership
   TENNESSEE RSA # 3, INC.                                                                       DELAWARE
   TENNESSEE RSA # 4 SUB 2, INC.                                                                 TENNESSEE
   TEXAHOMA CELLULAR, L.P.                                                                       Partnership
   TEXAS # 20 RURAL CELLULAR, INC.                                                               TEXAS
   TEXAS INVCO OF RSA # 6, INC.                                                                  DELAWARE
   TOWNSHIP CELLULAR TELEPHONE COMPANY, INC.                                                     DELAWARE
   TULSA GENERAL PARTNERS, INC.                                                                  DELAWARE
   UNITED STATES CELLULAR INVESTMENT COMPANY, INC.                                               DELAWARE
   UNITED STATES CELLULAR INVESTMENT CO. OF ALLENTOWN                                            PENNSYLVANIA
   UNITED STATES CELLULAR INVESTMENT COMPANY OF EAU CLAIRE                                       WISCONSIN
   UNITED STATES CELLULAR INVESTMENT COMPANY OF FRESNO, INC.                                     CALIFORNIA
   UNITED STATES CELLULAR INVESTMENT COMPANY OF OKLAHOMA CITY, INC.                              OKLAHOMA
   UNITED STATES CELLULAR INVESTMENT COMPANY OF ROCKFORD                                         DELAWARE
   UNITED STATES CELLULAR INVESTMENT COMPANY OF SANTA CRUZ, INC.                                 CALIFORNIA
   UNITED STATES CELLULAR INVESTMENT CORPORATION OF LOS ANGELES                                  INDIANA
   UNITED STATES CELLULAR OPERATING COMPANY, INC.                                                DELAWARE
   UNITED STATES CELLULAR OPERATING COMPANY OF BANGOR                                            MAINE
   UNITED STATES CELLULAR OPERATING COMPANY OF CEDAR RAPIDS                                      DELAWARE
   UNITED STATES CELLULAR OPERATING COMPANY OF COLUMBIA                                          MISSOURI
   UNITED STATES CELLULAR OPERATING COMPANY OF DES MOINES                                        IOWA
   UNITED STATES CELLULAR OPERATING COMPANY OF DUBUQUE                                           IOWA
   UNITED STATES CELLULAR OPERATING COMPANY OF FT. PIERCE                                        FLORIDA
   UNITED STATES CELLULAR OPERATING COMPANY OF JOPLIN                                            MISSOURI
   UNITED STATES CELLULAR OPERATING COMPANY OF KENOSHA                                           DELAWARE
   UNITED STATES CELLULAR OPERATING COMPANY OF KNOXVILLE                                         TENNESSEE
   UNITED STATES CELLULAR OPERATING COMPANY OF LACROSSE, INC.                                    WISCONSIN
   UNITED STATES CELLULAR OPERATING COMPANY OF LEWISTON-AUBURN                                   MAINE
   UNITED STATES CELLULAR OPERATING COMPANY OF MANCHESTER-NASHUA, INC.                           NEW HAMPSHIRE
   UNITED STATES CELLULAR OPERATING COMPANY OF MEDFORD                                           OREGON
   UNITED STATES CELLULAR OPERATING COMPANY OF TULSA, INC.                                       OKLAHOMA
   UNITED STATES CELLULAR OPERATING COMPANY OF WATERLOO                                          IOWA
   UNITED STATES CELLULAR OPERATING COMPANY OF YAKIMA                                            WASHINGTON
   UNITED STATES CELLULAR TELEPHONE COMPANY (GREATER KNOXVILLE), L.P.                            Partnership
   UNITED STATES CELLULAR TELEPHONE OF GREATER TULSA, L.L.C.                                     OKLAHOMA
   UNIVERSAL CELLULAR FOR EAU CLAIRE MSA, INC.                                                   WISCONSIN
   USCC DISTRIBUTION CO.                                                                         DELAWARE
   USCC PAYROLL CORPORATION                                                                      DELAWARE
   USCC REAL ESTATE CORPORATION                                                                  DELAWARE
   USCC WIRELESS INVESTMENT, INC.                                                                DELAWARE
   USCCI CORPORATION                                                                             DELAWARE
   USCIC OF AMARILLO, INC.                                                                       DELAWARE
   USCIC OF DAYTONA, LLC                                                                         DELAWARE
   USCIC OF JACKSON, INC.                                                                        DELAWARE
   USCIC OF NORTH CAROLINA RSA # 1, INC.                                                         DELAWARE
   USCIC OF OHIO RSA #9, INC.                                                                    DELAWARE
   USCIC OF PENNSYLVANIA 5, INC.                                                                 DELAWARE
   USCOC OF CHARLOTTESVILLE, INC.                                                                VIRGINIA
   USCOC OF CORPUS CHRISTI, INC.                                                                 TEXAS
   USCOC OF CUMBERLAND, INC.                                                                     MARYLAND
   USCOC OF FLORIDA RSA #7, INC.                                                                 DELAWARE
   USCOC OF GREATER IOWA, INC                                                                    PENNSYLVANIA


                          *50% or more owned companies                    Page 2


                        TELEPHONE AND DATA S YSTEMS, INC.
                       SUBSIDIARY AND AFFILIATED COMPANIES*
                                DECEMBER 31, 2001



                                                                                                 STATE OF
                                                                                                 INCORPORATION
                                                                                                 -------------
                                                                                              
   USCOC OF IDAHO RSA # 5, INC                                                                   DELAWARE
   USCOC OF ILLINOIS RSA # 1, INC.                                                               VIRGINIA
   USCOC OF ILLINOIS RSA # 4, INC.                                                               ILLINOIS
   USCOC OF IOWA RSA # 1, INC.                                                                   IOWA
   USCOC OF IOWA RSA # 16, INC.                                                                  DELAWARE
   USCOC OF JACKSONVILLE, INC.                                                                   NORTH CAROLINA
   USCOC OF JACK-WIL, INC.                                                                       DELAWARE
   USCOC OF MISSOURI RSA # 13, INC.                                                              DELAWARE
   USCOC OF MISSOURI RSA # 5, INC.                                                               ILLINOIS
   USCOC OF NEW HAMPSHIRE RSA # 2, INC.                                                          DELAWARE
   USCOC OF NORTH CAROLINA RSA # 7, INC.                                                         NORTH CAROLINA
   USCOC OF OKLAHOMA RSA # 10, INC.                                                              OKLAHOMA
   USCOC OF OREGON RSA # 5, INC.                                                                 DELAWARE
   USCOC OF PENNSYLVANIA RSA #10-B2, INC.                                                        DELAWARE
   USCOC OF RICHLAND, INC.                                                                       WASHINGTON
   USCOC OF ROCKFORD, INC.                                                                       ILLINOIS
   USCOC OF SOUTH CAROLINA RSA # 4, INC.                                                         SOUTH CAROLINA
   USCOC OF ST.  JOSEPH, INC.                                                                    DELAWARE
   USCOC OF TALLAHASSEE                                                                          FLORIDA
   USCOC OF TEXAHOMA, INC.                                                                       TEXAS
   USCOC OF VICTORIA, INC.                                                                       TEXAS
   USCOC OF VIRGINIA RSA # 2, INC.                                                               VIRGINIA
   USCOC OF VIRGINIA RSA # 3, INC.                                                               VIRGINIA
   USCOC OF WASHINGTON 4, INC.                                                                   DELAWARE
   USCOC OF WILMINGTON, INC.                                                                     NORTH CAROLINA
   VERMONT RSA NO. 2-B2, INC.                                                                    DELAWARE
   VICTORIA CELLULAR CORPORATION                                                                 TEXAS
   VICTORIA CELLULAR PARTNERSHIP                                                                 Partnership
   VIRGINIA RSA # 4, INC.                                                                        VIRGINIA
   VIRGINIA RSA # 7, INC.                                                                        VIRGINIA
   WARD BUTTE JOINT VENTURE                                                                      Partnership
   WASHINGTON RSA # 5, INC.                                                                      WASHINGTON
   WATERLOO / CEDAR FALLS CELLTELCO PARTNERSHIP                                                  Partnership
   WESTELCOM CELLULAR, INC.                                                                      NEW YORK
   WESTERN SUB-RSA LIMITED PARTNERSHIP                                                           Partnership
   WILMINGTON CELLULAR PARTNERSHIP                                                               Partnership
   WILMINGTON CELLULAR TELEPHONE CO.                                                             NORTH CAROLINA
   X-10 WIRELESS, L.P.                                                                           Partnership
   Y-12 WIRELESS, L.P.                                                                           Partnership
   YAKIMA MSA LIMITED PARTNERSHIP                                                                Partnership
   YAKIMA VALLEY PAGING LIMITED PARTNERSHIP                                                      Partnership

TDS TELECOMMUNICATIONS
- ----------------------

   TDS TELECOMMUNICATIONS CORPORATION                                                            DELAWARE

   INCUMBENT LOCAL EXCHANGE COMPANIES
   ----------------------------------
   AMELIA TELEPHONE CORPORATION                                                                  VIRGINIA
   ARCADIA TELEPHONE COMPANY                                                                     OHIO
   ARIZONA TELEPHONE COMPANY                                                                     ARIZONA
   ARVIG TELEPHONE COMPANY                                                                       MINNESOTA
   ASOTIN TELEPHONE COMPANY                                                                      WASHINGTON
   BADGER TELECOM, INC.                                                                          WISCONSIN
   BARNARDSVILLE TELEPHONE COMPANY                                                               NORTH CAROLINA
   BLACK EARTH TELEPHONE COMPANY, INC.                                                           WISCONSIN
   BLUE RIDGE TELEPHONE COMPANY                                                                  GEORGIA
   BONDUEL TELEPHONE COMPANY                                                                     WISCONSIN
   BRIDGEWATER TELEPHONE COMPANY                                                                 MINNESOTA
   BURLINGTON, BRIGHTON & WHEATLAND TELEPHONE COMPANY                                            WISCONSIN
   BUTLER TELEPHONE COMPANY, INC.                                                                ALABAMA


                          *50% or more owned companies                    Page 3


                        TELEPHONE AND DATA SYSTEMS, INC.
                       SUBSIDIARY AND AFFILIATED COMPANIES*
                                DECEMBER 31, 2001



                                                                                                 STATE OF
                                                                                                 INCORPORATION
                                                                                                 -------------
                                                                                              
   CALHOUN CITY TELEPHONE COMPANY, INC.                                                          MISSISSIPPI
   CAMDEN TELEPHONE COMPANY                                                                      INDIANA
   CAMDEN TELEPHONE AND TELEGRAPH COMPANY, INC.                                                  GEORGIA
   CENTRAL STATE TELEPHONE COMPANY                                                               WISCONSIN
   CHATHAM TELEPHONE COMPANY                                                                     MICHIGAN
   CLEVELAND COUNTY TELEPHONE COMPANY, INC.                                                      ARKANSAS
   COBBOSSEECONTEE TELEPHONE COMPANY                                                             MAINE
   COMMUNICATIONS CORPORATION OF INDIANA                                                         INDIANA
   COMMUNICATIONS CORPORATION OF MICHIGAN                                                        MICHIGAN
   COMMUNICATIONS CORPORATION OF SOUTHERN INDIANA                                                INDIANA
   CONCORD TELEPHONE EXCHANGE, INC.                                                              TENNESSEE
   CONTINENTAL TELEPHONE COMPANY                                                                 OHIO
   DANUBE COMMUNICATIONS, INC.                                                                   MINNESOTA
   DECATUR TELEPHONE COMPANY                                                                     ARKANSAS
   DELTA COUNTY TELE-COMM, INC.                                                                  COLORADO
   DEPOSIT TELEPHONE COMPANY                                                                     NEW YORK
   DICKEYVILLE TELEPHONE CORPORATION                                                             WISCONSIN
   EASTCOAST TELECOM, INC.                                                                       WISCONSIN
   EDWARDS TELEPHONE COMPANY, INC.                                                               NEW YORK
   GRANTLAND TELECOM, INC.                                                                       WISCONSIN
   HAMPDEN TELEPHONE COMPANY                                                                     MAINE
   HAPPY VALLEY TELEPHONE COMPANY                                                                CALIFORNIA
   HARTLAND & ST. ALBANS TELEPHONE COMPANY                                                       MAINE
   HOME TELEPHONE COMPANY, INC.                                                                  INDIANA
   HOME TELEPHONE COMPANY                                                                        OREGON
   HOME TELEPHONE COMPANY OF PITTSBORO, INC.                                                     INDIANA
   HORNITOS TELEPHONE COMPANY                                                                    CALIFORNIA
   HUMPHREYS COUNTY TELEPHONE COMPANY                                                            TENNESSEE
   ISLAND TELEPHONE COMPANY                                                                      MICHIGAN
   KEARSARGE TELEPHONE COMPANY                                                                   NEW HAMPSHIRE
   LESLIE COUNTY TELEPHONE COMPANY, INC.                                                         KENTUCKY
   LEWIS RIVER TELEPHONE COMPANY                                                                 WASHINGTON
   LEWISPORT TELEPHONE COMPANY, INC.                                                             KENTUCKY
   LITTLE MIAMI COMMUNICATIONS CORPORATION                                                       OHIO
   LUDLOW TELEPHONE COMPANY                                                                      VERMONT
   MAHANOY & MAHANTANGO TELEPHONE COMPANY                                                        PENNSYLVANIA
   MCCLELLANVILLE TELEPHONE COMPANY, INC.                                                        SOUTH CAROLINA
   MCDANIEL TELEPHONE COMPANY                                                                    WASHINGTON
   MID-AMERICA TELEPHONE, INC.                                                                   OKLAHOMA
   MID-PLAINS, INC.                                                                              WISCONSIN
   MID-STATE TELEPHONE COMPANY                                                                   MINNESOTA
   MIDWAY TELEPHONE COMPANY                                                                      WISCONSIN
   MOUNT VERNON TELEPHONE COMPANY                                                                WISCONSIN
   MYRTLE TELEPHONE COMPANY, INC.                                                                MISSISSIPPI
   NELSON BALLGROUND TELEPHONE COMPANY                                                           GEORGIA
   NEW CASTLE TELEPHONE COMPANY                                                                  VIRGINIA
   NEW LONDON TELEPHONE COMPANY                                                                  MISSOURI
   NORTHFIELD TELEPHONE COMPANY                                                                  VERMONT
   NORWAY TELEPHONE COMPANY, INC.                                                                SOUTH CAROLINA
   OAKMAN TELEPHONE COMPANY, INC.                                                                ALABAMA
   OAKWOOD TELEPHONE COMPANY                                                                     OHIO
   OKLAHOMA COMMUNICATION SYSTEMS, INC.                                                          OKLAHOMA
   ORCHARD FARM TELEPHONE COMPANY                                                                MISSOURI
   ORISKANY FALLS TELEPHONE CORPORATION                                                          NEW YORK
   PEOPLES TELEPHONE COMPANY                                                                     ALABAMA
   PERKINSVILLE TELEPHONE COMPANY, INC.                                                          VERMONT
   PORT BYRON TELEPHONE COMPANY                                                                  NEW YORK
   POTLATCH TELEPHONE COMPANY, INC.                                                              IDAHO
   QUINCY TELEPHONE COMPANY                                                                      FLORIDA
   RIVERSIDE TELECOM, INC.                                                                       WISCONSIN
   S & W TELEPHONE COMPANY, INC.                                                                 INDIANA
   SALEM TELEPHONE COMPANY                                                                       KENTUCKY


                          *50% or more owned companies                    Page 4


                        TELEPHONE AND DATA SYSTEMS, INC.
                       SUBSIDIARY AND AFFILIATED COMPANIES*
                                DECEMBER 31, 2001



                                                                                                 STATE OF
                                                                                                 INCORPORATION
                                                                                                 -------------
                                                                                              
   SALUDA MOUNTAIN TELEPHONE COMPANY                                                             NORTH CAROLINA
   SCANDINAVIA TELEPHONE COMPANY                                                                 WISCONSIN
   SERVICE TELEPHONE COMPANY, INC.                                                               NORTH CAROLINA
   SHIAWASSEE TELEPHONE COMPANY                                                                  MICHIGAN
   SOMERSET TELEPHONE COMPANY                                                                    MAINE
   SOUTHEAST MISSISSIPPI TELEPHONE COMPANY                                                       MISSISSIPPI
   SOUTHEAST TELEPHONE COMPANY OF WISCONSIN, INC.                                                WISCONSIN
   SOUTHWESTERN TELEPHONE COMPANY                                                                ARIZONA
   ST STEPHEN TELEPHONE COMPANY                                                                  SOUTH CAROLINA
   STOCKBRIDGE & SHERWOOD TELEPHONE COMPANY, INC.                                                WISCONSIN
   STOUTLAND TELEPHONE COMPANY                                                                   MISSOURI
   STRASBURG TELEPHONE COMPANY                                                                   COLORADO
   SUGAR VALLEY TELEPHONE COMPANY                                                                PENNSYLVANIA
   TELLICO TELEPHONE COMPANY, INC.                                                               TENNESSEE
   TENNESSEE TELEPHONE COMPANY                                                                   TENNESSEE
   TENNEY TELEPHONE COMPANY                                                                      WISCONSIN
   THE FARMERS TELEPHONE COMPANY                                                                 WISCONSIN
   THE ISLAND TELEPHONE COMPANY                                                                  MAINE
   THE MERCHANTS & FARMERS TELEPHONE COMPANY                                                     INDIANA
   TIPTON TELEPHONE COMPANY, INC.                                                                INDIANA
   TOWNCOMM, INC.                                                                                NEW YORK
   TOWNSHIP TELEPHONE COMPANY                                                                    NEW YORK
   TRI-COUNTY TELEPHONE COMPANY, INC.                                                            INDIANA
   UTELCO, INC.                                                                                  WISCONSIN
   VANLUE TELEPHONE COMPANY                                                                      OHIO
   VERNON TELEPHONE COMPANY                                                                      NEW YORK
   VIRGINIA TELEPHONE COMPANY                                                                    VIRGINIA
   WARREN TELEPHONE COMPANY                                                                      MAINE
   WAUNAKEE TELEPHONE COMPANY, INC.                                                              WISCONSIN
   WEST PENOBSCOT TELEPHONE & TELEGRAPH COMPANY                                                  MAINE
   WILLISTON TELEPHONE COMPANY                                                                   SOUTH CAROLINA
   WINSTED TELEPHONE COMPANY                                                                     MINNESOTA
   WINTERHAVEN TELEPHONE COMPANY                                                                 CALIFORNIA
   WOLVERINE TELEPHONE COMPANY                                                                   MICHIGAN
   WYANDOTTE TELEPHONE COMPANY                                                                   OKLAHOMA

   OTHER COMPANIES
   ---------------
   ARVIG CELLULAR, INC.                                                                          MINNESOTA
   CAMDEN CELLULAR, INC.                                                                         DELAWARE
   CHORUS NETWORKS, INC.                                                                         WISCONSIN
   CHORUS PROPERTIES, LLC                                                                        WISCONSIN
   DTC-NYSINET                                                                                   NEW YORK
   GEORGIA RSA # 12 PARTNERSHIP                                                                  GEORGIA
   HBC TELECOM, INC.                                                                             MINNESOTA
   MPC OF ILLINOIS, INC.                                                                         ILLINOIS
   PIONEER COMMUNICATIONS, INC.                                                                  WISCONSIN
   TDS COMMUNICATIONS SOLUTIONS, INC.                                                            DELAWARE
   TDS DATACOM, INC.                                                                             DELAWARE
   TDS LONG DISTANCE CORPORATION                                                                 DELAWARE
   TDS METROCOM, INC.                                                                            DELAWARE
   TDS TELECOM SERVICE CORPORATION                                                               IOWA
   TDSI TELECOMMUNICATIONS CORPORATION                                                           DELAWARE
   TRI-COUNTY COMMUNICATIONS CORPORATION                                                         INDIANA
   TRI-COUNTY LONG DISTANCE                                                                      INDIANA
   U.S. LINK, INC.                                                                               MINNESOTA

TDS GROUP
- ---------

   AFFILIATE FUND                                                                                DELAWARE
   CCR ACQUISITION CO.                                                                           INDIANA
   COMMVEST, INC.                                                                                DELAWARE
   CTC ACQUISITION CORP. (DELEWARE)                                                              DELAWARE


                          *50% or more owned companies                    Page 5


                        TELEPHONE AND DATA SYSTEMS, INC.
                       SUBSIDIARY AND AFFILIATED COMPANIES*
                                DECEMBER 31, 2001



                                                                                                 STATE OF
                                                                                                 INCORPORATION
                                                                                                 -------------
                                                                                              
   MAPLE ACQUISITION CORP.                                                                       NEW HAMPSHIRE
   NATIONAL TELEPHONE & TELEGRAPH COMPANY                                                        CALIFORNIA
   NELSON-BALL GROUND CELLULAR TELEPHONE & SERVICES, INC.                                        GEORGIA
   RUDEVCO, INC.                                                                                 CALIFORNIA
   SUTTLE-STRAUS, INC.                                                                           WISCONSIN
   TDS CAPITAL TRUST I                                                                           DELAWARE
   TDS CAPITAL TRUST II                                                                          DELAWARE
   TDS CAPITAL TRUST III                                                                         DELAWARE
   TDSI CORPORATION                                                                              DELAWARE
   TELECOM TECHNOLOGIES FUND LLC (TTF)                                                           WISCONSIN

PAGING
- ------

   API MERGER CORP.                                                                              DELAWARE

   AMERICAN PAGING, INC. (OF CALIFORNIA)                                                         CALIFORNIA
   PAGING HOLDING CO.                                                                            DELAWARE



                          *50% or more owned companies                    Page 6

EX-23

                                                                     EXHIBIT 23

                     CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of Telephone and Data Systems, Inc. of our report
dated January 25, 2002 on the consolidated financial statements of Telephone
and Data Systems, Inc. and Subsidiaries, (the "Company") included in the
Company's 2001 Annual Report to Shareholders, to the inclusion in this Form
10-K of our report dated January 25, 2002 on the financial statement
schedules of the Company and to the incorporation by reference of such
reports into the Company's previously filed S-8 Registration Statements, File
No. 33-35172, File No. 33-57257, File No. 33-64035, File No. 333-23947, File
No. 333-58121, File No. 333-58127, File No. 333-76453 and File No. 333-71688,
and into the Company's previously filed S-3 Registration Statements, File No.
33-8564, File No. 33-8857, File No. 33-68456, File No. 33-59435 and File No.
333-38355, and into the Company's previously filed S-4 Registration
Statements, File No. 33-45570 and File No. 33-64293.

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 27, 2002