METROCALL INC - 10-K Annual Report

Back to GetFilings.com

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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

COMMISSION FILE NUMBER: 0-21924

METROCALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 54-1215634
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

6677 RICHMOND HIGHWAY, ALEXANDRIA, VIRGINIA 22306
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 660-6677

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NOT APPLICABLE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

TITLE OF CLASS
-----------

COMMON STOCK ($.01 PAR VALUE)

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 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 the 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 the 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. [ ]

The aggregate market value of the common stock held by non-affiliates of
the Registrant was approximately $5,673,124 based on the closing sales price on
March 4, 2002.

COMMON STOCK, PAR VALUE $0.01 -- 89,975,772 SHARES OUTSTANDING ON APRIL 1, 2002

DOCUMENTS INCORPORATED BY REFERENCE:

Additional documents will be filed with the Commission within 120 days
after the close of the fiscal year and are incorporated by reference into Part
III.

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

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes or incorporates forward-looking
statements. Metrocall has based these forward-looking statements on its current
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions including, among
other things those discussed under "Business" and "Management's Discussion and
Analysis of Financial Condition, and Results of Operations," and as follows:

- Metrocall's high leverage and need for substantial capital;

- Metrocall's suspension of subordinated debt interest payments and
possible acceleration of Metrocall's indebtedness as a result, among
other things, of its failure to pay scheduled subordinated debt interest
payments;

- Metrocall's history of net operating losses;

- the effects of the probable filing of a petition under the Bankruptcy
Code by or against Metrocall;

- Metrocall's ability to implement its new business strategies including
its ability to successfully implement its plan of reorganization under
Chapter 11;

- Metrocall's reliance on another messaging company -- itself subject to a
bankruptcy proceeding -- to provide access to a two-way messaging
network;

- Metrocall's ability to cover fixed charges;

- Metrocall's historical dependence on key suppliers, including Motorola
Inc. for advanced messaging devices and traditional paging equipment and
Glenayre Electronics, Inc. for terminals and transmitters.

- the restrictive covenants governing Metrocall's indebtedness;

- the impact of competition and technological developments;

2

- satellite transmission failures;

- subscriber turnover;

- litigation;

- regulatory changes;

- dependence on key management personnel.

- the reliance of Metrocall's current business model on a continued revenue
stream from advanced messaging which is otherwise subject to certain
risks.

Other matters set forth in this Annual Report on Form 10-K may also cause
actual results to differ materially from those described in the forward-looking
statements. Metrocall undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Annual Report on Form 10-K might not
occur.

ITEM 1. BUSINESS

GENERAL

Metrocall is a leading provider of local, regional and national one-way or
"traditional" paging and two-way or "advanced wireless data and messaging"
services. Through its one-way nationwide wireless network, Metrocall provides
messaging services to over 1,000 U.S. cities, including the top 100 Standard
Metropolitan Statistical Areas (SMSAs). Since 1993, Metrocall's subscriber base
has increased from less than 250,000 to a high of 6.3 million as of June 30,
2001 and is presently 5.4 million, including approximately 231,400 subscribers
receiving advanced data and messaging services. This growth was achieved through
a combination of internal growth and a program of mergers and acquisitions. As
of December 31, 2001, Metrocall was the second largest messaging company in the
United States based on the number of subscribers.

TRADITIONAL PAGING AND WIRELESS MESSAGING INDUSTRY OVERVIEW

Metrocall believes that traditional paging is the most cost-effective and
reliable means of conveying a variety of information rapidly over a wide
geographic area either directly to a person traveling or to various fixed
locations. Traditional paging, as a one-way communications tool, is a way to
communicate at a lower cost than current two-way communication methods, such as
cellular and personal communication services (PCS) telephones. For example, the
paging and messaging equipment and air time required to transmit an average
message cost less than the equipment and air time for cellular and PCS
telephones. Furthermore, pagers operate for longer periods due to superior
battery life, often exceeding one month on a single battery. Numeric and
alphanumeric subscribers generally pay a flat monthly service fee, which covers
a fixed number of messages sent to the subscriber. In addition, these messaging
devices are unobtrusive and portable.

Although the U.S. traditional paging industry has over 500 licensed paging
companies, Metrocall estimates that the six largest paging companies, including
Metrocall, currently serve more than 75% of the total paging subscribers in the
United States. These companies are facilities-based, Commercial Mobile Radio
Service (CMRS) providers, previously classified as either Radio Common Carrier
(RCC) or Private Carrier Paging (PCP) operators, servicing over 100,000
subscribers each in multiple markets and regions.

Metrocall continues to market advanced wireless data and messaging
services, which use narrowband PCS networks and currently include two-way
messaging and other short messaging-based services and applications through its
alliance agreement with Weblink Wireless, Inc. (Weblink). Metrocall believes
that this method of communication is also a way to communicate at a lower cost
than other forms of two-way wireless communications and for longer periods of
time due to superior battery life. In addition, advanced messaging devices,
which are supported by the ReFlex communications technology, cover a
substantially larger geographic area than broadband PCS networks. Because
advanced wireless messaging uses narrowband PCS networks, which utilize a
two-way spectrum, advanced messaging devices offer advantages over the

3

traditional one-way spectrum that some paging networks use. The two-way spectrum
enables a wireless device to emit a signal that notifies the network of the
device's location and permits the network to send the message to transmitters
closest to the messaging device. In contrast, one-way spectrum requires the
message to be sent to all transmitters within a geographic area and not
necessarily to those transmitters closest to the messaging device. Therefore, a
two-way device utilizes less air-time of the spectrum and creates more airtime
efficiency, particularly in the areas farthest from the messaging device.

Examples of advanced messaging services include:

- "Confirmation" or "response" messaging that sends a message back to the
network confirming that a message has been received;

- two-way messaging, which permits users to communicate wirelessly with
other portable messaging devices, Internet e-mail, as well as short
message "information pulls" which are initiated by the user and which
enable subscribers to receive customized stock quotes/portfolio
information, weather reports, Internet information access, corporate
Intranet information retrieval, and other information. This functionality
is completely wireless and untethers the user from the personal computer.

RECENT DEVELOPMENTS

Please see Item 7, "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" for a complete description of Recent
Developments.

METROCALL'S PAGING AND WIRELESS MESSAGING OPERATIONS

Services and Subscribers

Metrocall currently provides several traditional and advanced wireless data
and messaging services, including:

Traditional Paging Services

- Digital display (numeric) paging, which permits a subscriber to receive a
telephone number or other numeric coded information and to store several
such numeric messages that the customer can recall when desired;

- alphanumeric display paging, which allows subscribers to receive and
store text messages from a variety of sources including the Internet;

At December 31, 2001, 5,117,787 subscribers received traditional paging
services, of which approximately 77% of its subscriber devices in service were
digital display devices, and approximately 23% were alphanumeric display
devices.

Advanced Wireless Data and Messaging Services

- Hand-held wireless devices, which provide guaranteed delivery of messages
and the ability to respond to messages.

- Two-way messaging devices, which permit interactive peer to peer
messaging, device to e-mail messaging and ability to access
Internet-based, wireless content and enterprise, server based e-mail
solutions.

- Internet-based, wireless content includes Internet information on demand:
news, weather, flight status, financial updates, entertainment and
traffic.

- Enterprise, server-based e-mail solutions include the ability to:

- Send and receive e-mails to and from the messaging device with PCs
and other wireless devices;

- Access an e-mail inbox or open e-mail messages;

4

- Filter e-mails received on the messaging device through user
controls located on the device; and,

- Redirect e-mail attachments using the messaging device.

Metrocall introduced its advanced wireless data and messaging services in
2000. At December 31, 2001, 231,444 subscribers received these services.
Subscribers who use paging and advanced wireless data and messaging services
have traditionally included small business operators and employees,
professionals, medical personnel, sales and service providers, construction and
trades-people, and real estate brokers and developers.

Metrocall subscribers either buy or lease their messaging and paging
devices. Volume discounts on lease payments and service fees have been offered
to large volume subscribers. In some instances, Metrocall's subscribers are
resellers that purchase services at substantially discounted rates, but are
responsible for marketing, billing, collection and related costs with respect to
their customers.

Metrocall also provides enhancements and ancillary services for its
traditional and advanced messaging subscribers such as:

- personalized automated answering services, which allow a subscriber to
record a message that greets callers who reach the subscriber's voice
mailbox;

- message protection, which allows a traditional subscriber to retrieve any
calls that come in during the period when the subscriber was beyond the
reach of our radio transmitters;

- annual loss protection, which allows subscribers of leased messaging
devices to limit their cost of replacement upon loss or destruction of
the device; and

- maintenance services, which are offered to subscribers who own their own
pagers and advanced messaging devices.

Other Service Offerings

Metrocall also provides other wireless messaging and telecommunication
services, including:

- Cellular and PCS phones -- Metrocall distributes digital broadband and
PCS phones and other products through its distribution or dealer
agreements with AT&T Wireless, Inc. (AT&T Wireless), Nextel
Communications, Inc. (Nextel) and other carriers;

- Systems Applications -- Metrocall's systems applications division
provides solutions to communications challenges to an organization's
overall efficiency. This division integrates multiple platforms into one
universal system that also provides a conduit to the wireless world. By
offering these products Metrocall fulfills the communications demands of
large workforces such as corporations, manufacturers, municipalities, and
healthcare organizations, particularly in campus like settings.
Metrocall's Integrated Resource Management System manages in-house and
wide area messaging systems while reducing telecommunications costs.

- ATM Services -- Partnering with industry leaders, such as Cisco, Hewlett
Packard, Lucent and others, Metrocall has constructed a highly reliable
ATM network capable of supporting integrated voice, data, video and other
high speed, high volume mission critical elements.

SALES AND MARKETING

Direct Distribution Channels

- Direct Sales. Metrocall's direct sales personnel sell its messaging
services and products primarily to businesses, placing special emphasis
on key accounts of strategic importance. Metrocall's direct sales
personnel generally target businesses that have multiple work locations
or have highly mobile employees. Metrocall's sales compensation plans are
designed to motivate direct sales personnel to focus on selling rather
than leasing traditional pagers and advanced wireless data and messaging
devices, which reduces capital requirements, and to increase sales of
higher revenue product enhancements, such as nationwide coverage,
alphanumeric service and voice mail. In 2002, Metrocall expects to focus
its resources mainly on business and government subscribers in its direct
sales channel.
5

- Database Telemarketing. Metrocall's internal, professionally trained
staff generates sales by utilizing computerized lead management and
telemarketing techniques combined with its proprietary lead screening and
development protocol. Using acquired lists to focus their efforts,
Metrocall's internal staff targets groups of consumers and small
businesses who have a propensity to use paging and messaging services but
are either in a region where Metrocall does not have a direct sales
effort or have not been reached by other distribution channels. In
Metrocall's marketing efforts, it uses only commercially available public
information to analyze and target new customers and does not use
"Customer Proprietary Network Information" in a way that would conflict
with the Communications Act of 1934, as amended (the "Communications
Act"), or the Federal Communications Commission (FCC) rules.

- Company-Owned Retail Stores. Metrocall's retail outlets are designed to
sell higher ARPU services to the consumer market segment directly while
providing Metrocall with a point of presence to enhance its brand
recognition. These retail outlets take a variety of forms, such as mall
stores, kiosks, mall carts, retail merchandising units and mall center
locations. Products sold to consumers at company owned retail stores
include paging, messaging, cellular, PCS and satellite TV services and
related accessories. Many of these locations function as customer service
and payment centers in addition to offices for direct sales
representatives.

In 2002, Metrocall will reduce the number of its company-owned stores,
closing stores that do not meet certain operating criteria, (e.g. positive
operating cash flow statistics). Metrocall believes the de-emphasis and
reduction of this channel in 2002 will positively affect its consolidated
operating and free cash flows given that recurring revenues will continue
to be generated from subscribers receiving monthly airtime services while
compensation and rental expenses associated with these closed stores will
be eliminated. Metrocall believes the churn on this subscriber base will
continue to be high in 2002. As of March 31, 2002, there were 30
company-owned retail stores in operation.

Indirect Distribution Channels

Metrocall's indirect channels provide for the distribution of airtime
services to end-subscribers using an intermediary party to contract with
the end-subscriber. Metrocall contracts directly with, and invoices, the
intermediary for such airtime services. There is no contractual
relationship that exists between Metrocall and the end-subscriber. Unless
otherwise described below, Metrocall does not normally provide customer
service or billing support to the end-subscriber. Subscriber units placed
in the indirect distribution channels typically have ARPU statistics below
units placed in the direct distribution channels. In addition, operating
costs per unit to provide these services are significantly below that
required in the direct distribution channels. Metrocall's churn in its
indirect distributions has been at a much higher rate than its direct
distribution customers. Metrocall's retention efforts in these channels are
difficult because of the lack of visibility to the end-subscriber.
Metrocall expects that high churn rates in its indirect distribution
channels will continue in 2002. Metrocall expects to de-emphasize these
channels in 2002 in view of the resource requirements that would be
required to offset the expected churn. The indirect distribution channels
below accounted for approximately 23% of net revenues for the year ended
December 31, 2001.

- Resellers. Metrocall sells resellers bulk paging services for resale to
their own business clients and individual customers. Metrocall issues one
monthly bill to each reseller who is responsible for marketing, billing
and collection, and equipment maintenance. Through this channel,
Metrocall achieves high network utilization at low incremental cost, but
realizes much lower ARPU than through other distribution channels.

- Strategic Partners. Metrocall has entered into contractual agreements
with several selected national distribution partners who market its
paging services to their existing and future customers. Metrocall
supplies many of these partners with custom branded turnkey solutions for
network services, products, customer services, billing, collections and
fulfillment. Metrocall's strategy is to provide these value-added
services to enhance the business relationship and margin opportunities
for both parties.

6

Metrocall has entered into alliances with companies in the long distance,
local exchange, cable, Internet, retail, direct response and multi-level
marketing businesses such as Alltel Inc., AT&T Wireless and Verizon, Inc.
Metrocall believes that these programs will help deliver paging, advanced
messaging services and two-way messaging to market segments that its
other distribution channels may not reach cost-effectively.

- Retail Outlets. Metrocall sells pagers on a wholesale basis to retail
outlets, such as office supply, electronics and general merchandise
chains, for resale to their customers. Metrocall selects these outlets
based on factors such as the number of stores in a region and the extent
of their advertising. These outlets then sell the pager itself and
provide limited customer service to the consumer. Metrocall provides
sales incentives and advertising support, and trains sales personnel to
enhance a retail outlet's effectiveness and to ensure that the customer
is well educated regarding the product.

Metrocall has a national distribution agreement through 2003 with AT&T
Wireless, which enables Metrocall to exclusively distribute its paging
and wireless messaging products in over 625 AT&T Wireless retail stores.

- Dealer Network. Metrocall contracts with independent dealers,
representatives and agents, including such outlets as small cellular
phone dealers and independent specialty electronics stores. Metrocall
typically uses these dealers to reach specific consumer niches (e.g.,
ethnic or non-English speaking communities) and small businesses that are
more efficiently accessed through this channel than through Metrocall's
other distribution channels. In addition to selling the paging devices,
independent dealers assist the subscriber in choosing a service plan and
collect the initial payments. Metrocall pays independent dealers
commissions based on their sales of Metrocall services. It should be
noted that these dealers are finding it more difficult to generate
profitable business given the aggressive pricing by the large principals
in the industry and accordingly this channel is shrinking.

- Affiliates. Metrocall operates a network of paging carriers or
affiliates that resell services on the 152.480 MHz private carrier paging
frequency. These affiliates are independent owners of paging systems in
various markets throughout the nation who sell expanded coverage to their
customers. Utilizing Metrocall's infrastructure, these independent
networks provide wide area and nationwide paging on a single channel.

Subscribers by Geographic Region. Set forth below is the number of
messaging devices that Metrocall has in service by geographic region.

NUMBER OF DEVICES IN SERVICE

7

Subscribers by Distribution Channel. Set forth below is the respective
numbers and percentages of messaging devices that Metrocall services through its
distribution channels:

OWNERSHIP OF DEVICES IN SERVICE

NETWORK AND EQUIPMENT

Metrocall has developed a state-of-the-art paging and messaging system
utilizing current technology, which achieves optimal building penetration,
wide-area coverage and the ability to deliver new and enhanced messaging
services. This existing paging transmission equipment has significant capacity
to support future growth.

Metrocall's messaging services are initiated when telephone calls or short
message based text services are placed to its Company-maintained paging
terminals. These state-of-the-art terminals have a modular design that allows
significant future expansion by adding or replacing modules rather than
replacing the entire terminal. Metrocall's paging terminals direct pages from
the Public Switched Telephone Network (PSTN) or from the Intranet to Metrocall's
"Global Messaging Gateway", its primary satellite transmission hub located in
Stockton, California, which signals terrestrial network transmitters providing
coverage throughout the service area. Metrocall transmits a majority of its
traffic through this facility. The facility operates 24 hours per day, seven
days per week.

Metrocall has three exclusive nationwide one-way frequencies and a
nationwide 50/50 KHz narrowband personal communication (NPCS) license issued by
the FCC and is operating in each of the largest 100 SMSA's. Metrocall began
operating the nationwide network on one of the three one-way channels in
November 1993. Metrocall developed a special home gateway switch that allows all
of Metrocall's existing regional based paging terminals to route two-way
messaging data to this centralized gateway for delivery into the two-way ReFLEX
25 network owned by Weblink. Metrocall is also capable of providing local paging
in many markets served by the nationwide network by using nationwide
transmitters to carry local messages. Services provided through the nationwide
network are marketed to subscribers directly through Metrocall's sales force and
indirectly through retailers and resellers. Metrocall also operates a series of
regional operating systems or networks consisting of primary networks serving
Arizona, California, Utah, Texas, Florida, Illinois, Oregon, Washington,
Colorado and Nevada, and the area from Boston to the Virginia/North Carolina
border, and a ten (10) state region in the Southeastern portion of the U.S.

8

MANAGEMENT INFORMATION SYSTEMS, CUSTOMER INVOICING AND SERVICES

Metrocall has centralized certain operating functions and utilizes common
and distributed billing and subscriber management systems, which permits it to
increase its operating efficiencies and focus regional management on sales and
distribution. The functions Metrocall has centralized into its national
operations center in Alexandria, Virginia include accounting, management
information systems, inventory and order fulfillment.

Metrocall maintained three national customer service call centers during
2001, which were critical factors in marketing and servicing the nationwide
network to all markets in the United States. Metrocall's centers handled
customer inquiries from existing and potential customers and supported its
distribution channel initiatives. At December 31, 2001, its three centers were
staffed with approximately 438 employees. During the first quarter of 2002
Metrocall consolidated its Kirkland, Washington and Pensacola, Florida centers
into a larger facility in Pensacola, Florida. This call center is open seven
days per week, 24 hours per day. Metrocall employs state-of-the-art call
management technology (such as an automated call distribution system and
interactive voice response capabilities) to provide quality customer service and
to track both the productivity and the quality of the performance of its
customer service representatives.

COMPETITION

The wireless communications industry is very competitive. Metrocall has
competed in its traditional paging operations by maintaining competitive pricing
of its products and services, by providing a broad assortment of coverage
options using its own messaging network infrastructure and through quality,
reliable customer service. Metrocall competes with hundreds of companies that
provide only traditional paging services on a local, regional or nationwide
basis and several companies that provide advanced wireless data and messaging
services using narrowband and broadband PCS services.

Metrocall also competes directly and indirectly with providers of
narrowband and broadband PCS services. Narrowband PCS provides enhanced or
advanced paging and messaging capabilities, such as "confirmation" or "response"
paging and two-way messaging, services which Metrocall provides in its advanced
wireless data and messaging operations through its alliance with WebLink.
Broadband PCS provides new types of communications devices that include
multi-functional portable phones and imaging devices. In addition, the flat rate
digital broadband PCS services is declining to a level that directly competes
with the traditional paging services offered by Metrocall. In addition, new
products and technologies being developed by and/or for broadband PCS providers
is resulting in increased competition for market share of existing and
prospective advanced messaging subscribers. Metrocall has distribution
agreements with AT&T Wireless, Nextel and other carriers enabling it to offer
digital broadband PCS telephones which may be bundled to subscribers along with
traditional paging or advanced wireless data and messaging services.

Although some of Metrocall's competitors are small, privately owned
companies that service one market, others are large diversified
telecommunications companies that serve several markets. Some of these
competitors possess financial, technical and other resources greater than those
of Metrocall. Major wireless messaging providers that Metrocall competes with in
more than one market include Arch, WebLink, Skytel Inc., a subsidiary of
WorldCom, Inc., Cingular, Verizon, and Motient, Inc.

The intensity of competition for communication service customers will
continue to increase as wireless communication products and technologies
continue to be developed and offer new and different services and applications.
In addition, FCC regulation concerning auctioning of new spectrum for wireless
communication services has created additional potential sources of competition.
Furthermore, entities offering service on wireless two-way communications
technology, including cellular, digital broadband PCS and narrowband PCS, and
providers of specialized mobile radio and mobile satellite services, also
compete with the services that Metrocall provides. There can be no assurances
that existing competing wireless communication technologies will not continue to
adversely impact Metrocall's traditional operations or that the future
development of new generation technologies and products will not adversely
affect Metrocall's traditional and advanced wireless messaging operations.

9

GOVERNMENT REGULATION

From time to time, federal and state legislators propose and enact
legislation that affects Metrocall's business, either beneficially or adversely,
such as by increasing competition or affecting the cost of its operations.
Additionally, the FCC and, to a lesser extent, state regulatory bodies, may
adopt rules, regulations or policies that may affect Metrocall's business.
Metrocall cannot predict the impact of such legislative actions on its
operations. The following description of certain regulatory factors does not
purport to be a complete summary of all present and proposed legislation and
regulations pertaining to Metrocall's operations.

Federal. Metrocall's operations are subject to extensive regulation by the
FCC under the Communications Act of 1934, as amended (the "Communications Act").
Under the Communications Act, Metrocall is required to obtain FCC licenses for
the use of radio frequencies to conduct its operations within specified
geographic areas. These licenses set forth the technical parameters, such as
maximum power and tower height, under which Metrocall may use such frequencies.
The FCC has licensed Metrocall to operate CMRS messaging services.

The FCC also requires messaging licensees to construct their stations and
begin service to the public within a specified period of time, and failure to do
so results in termination of the authorization. Under the traditional
site-specific approach to messaging licensing, a licensee received a
construction permit for facilities at a specific site, and that permit
automatically terminated if the facilities were not timely constructed and the
licensee failed to request an extension prior to the deadline. The failure to
construct some facilities did not, however, affect other facilities in a
licensee's system that had been constructed and placed into operation timely.
However, certain services that Metrocall has recently begun to offer are subject
to harsher penalties for failure to construct. For example, Metrocall's
narrowband PCS license is subject to the condition that Metrocall build
sufficient stations to cover 750,000 square kilometers, or 37.5% of the U.S.
population, by the fifth anniversary of the initial license grant; by the tenth
anniversary of the grant, it must build sufficient stations to cover 1,500,000
square kilometers, or 75% of the U.S. population. Metrocall has met the first
construction benchmark for its two-way messaging license, and expects to meet
the FCC's 10-year build out requirements.

The FCC has "forbearance" authority, which means it need not enforce
against all CMRS licensees the following common carrier regulations under Title
II of the Communications Act: any interstate tariff requirements, including
regulation of CMRS rates and practices; the collection of intercarrier
contracts; certification concerning interlocking directorates; and FCC approval
relating to market entry and exit. Additionally, the 1993 Budget Act preempted
state authority over CMRS entry and rate regulation. The Telecommunications Act
of 1996 (the "1996 Act") provided the FCC with additional "forbearance"
authority with regard to all telecommunications services. Pursuant to that
authority, the FCC has forborne from requiring wireless carriers to receive
prior FCC approval for certain non-substantial corporate stock transfers and
reorganizations.

The FCC issues CMRS Messaging licenses for terms of 10 years. Metrocall's
current licenses have expiration dates ranging from 2002 to 2010. The FCC must
approve renewal applications. In the past, the FCC has routinely granted
Metrocall's FCC renewal applications. Metrocall is also required to obtain prior
FCC approval for its acquisition of radio licenses held by other companies, as
well as transfers of controlling interests of any entities that hold radio
licenses. Although there can be no assurance that any future renewal or transfer
applications it files will be approved or acted upon in a timely manner by the
FCC, Metrocall knows of no reason to believe such applications would not be
approved or granted, based upon its experience to date. The FCC has authority to
restrict the operation of licensed radio facilities or to revoke or modify such
licenses. The FCC may adopt changes to its radio licensing rules at any time,
and may impose fines for violations of its rules.

The Communications Act also places limitations on foreign ownership of CMRS
licenses. These foreign ownership restrictions limit the percentage of Metrocall
common stock that may be owned or voted, directly or indirectly, by aliens or
their representatives, foreign governments or their representatives, or foreign
corporations. Metrocall's certificate of incorporation permits the redemption of
its common stock from stockholders where necessary to protect its compliance
with these requirements.
10

Messaging licenses have traditionally been issued on a site-specific basis.
In February 1997, the FCC adopted new rules to issue most messaging licenses for
large, FCC-defined service areas. Licenses for 929 MHz and 931 MHz messaging
frequencies will be issued for "Major Economic Area" or "MEA" geographic areas;
licenses for exclusive messaging frequencies in lower frequency bands will be
licensed in "Economic Areas" or "EAs." Shared messaging frequencies will
continue to be allocated on a shared basis and licensed in accordance with
existing, site-specific procedures; however, the FCC is considering changes to
the application and licensing rules for these frequencies. The FCC's change from
site-specific licenses to wide-area licenses granted at auction has had no
adverse impact on Metrocall. Although competitive bidding has increased the
costs of obtaining certain licenses, Metrocall has also been able to save on
certain application costs associated with modifying and adding facilities within
its service areas, and, no other entity will be able to apply for its
frequencies within those areas. Metrocall's three nationwide messaging
frequencies were not subject to competitive bidding.

The 1996 Act imposes a duty on all telecommunications carriers to provide
interconnection to other carriers, and requires local exchange carriers (LECs;
i.e., local telephone companies) to, among other things, establish reciprocal
compensation arrangements for the transport and termination of calls and provide
other telecommunications carriers access to their network elements on an
unbundled basis on reasonable and non-discriminatory rates, terms and
conditions. The LECs are now prohibited from charging messaging carriers for the
"transport and termination" of LEC-originated local calls. This prohibition
could lead to further cost savings for Metrocall. Moreover, under the 1996 Act
and the FCC's rules, messaging carriers are entitled to compensation from any
LEC for local calls that terminate on a messaging network, which has already led
to additional revenues for Metrocall.

The 1996 Act also requires the FCC to appoint an impartial entity to
administer telecommunications numbering and to make numbers available on an
equitable basis. In addition, the 1996 Act requires that state and local zoning
regulations shall not unreasonably discriminate among providers of "functionally
equivalent" wireless services, and shall not have the effect of prohibiting the
provision of personal wireless services. The 1996 Act provides for expedited
judicial review of state and local zoning decisions. Additionally, state and
local governments may not regulate the placement, construction and modification
of personal wireless service facilities on the basis of the environmental
effects of radio frequency emissions, if the facilities comply with the FCC's
requirements. Other provisions of the 1996 Act, however, may increase
competition, such as the provisions which allow the FCC to forbear from applying
regulations and provisions of the Communications Act to any class of carriers,
not only to CMRS, and the provisions allowing public utilities to provide
telecommunications services directly. These provisions may impose additional
regulatory costs (for example, provisions requiring contributions to universal
service by providers of interstate telecommunications). Some of these FCC rules
are subject to pending petitions for reconsideration and Court appeals.
Metrocall cannot predict the final outcome of any judicial or FCC proceeding or
the possible impact of future FCC proceedings on its business.

State. The 1993 Budget Act and related FCC orders preempt all state and
local rate and entry regulation of all CMRS operators. Entry regulations
typically refer to the process whereby a CMRS operator must apply to the state
to obtain a certificate to provide service in that state. Rate regulation
typically refers to the requirement that CMRS operators file a tariff describing
our billing rates, terms and conditions by which we provide messaging services.
Apart from rate and entry regulations, some states may continue to regulate
other aspects of Metrocall's business in the form of zoning regulations (subject
to the 1996 Act's prohibition on discrimination against or among wireless
telecommunications carriers), or "health and safety" measures. The 1993 Budget
Act does not preempt state authority to regulate such matters. Although there
can be no assurances given with respect to future state regulatory approvals,
based on Metrocall's experience to date, it knows of no reason to believe such
approvals would not be granted.

In 1997, the FCC held that the Budget Act does not prohibit states from
imposing requirements of CMRS carriers to contribute to funding "universal"
telephone service within the states. Approximately 25 states, in addition to the
FCC, now impose such "universal service fund" obligations on messaging carriers.
Although Metrocall incurs additional costs in contributing to state and federal
universal service funds, Metrocall typically passes through these costs/taxes to
its subscribers, as allowed by applicable regulations.
11

Regulatory Litigation. Metrocall has filed complaints with the FCC against
a number of Regional Bell Operating Companies ("RBOCs") and the largest
independent telephone company for violations of the FCC's interconnection and
local transport rules and the 1996 Act. The complaints alleged that these local
telephone companies are unlawfully charging for local transport of the telephone
companies' local traffic. Metrocall petitioned the FCC to rule that these local
transport charges are unlawful and to award Metrocall a reimbursement or credit
for any past charges assessed by the respective carriers since November 1, 1996,
the effective date of the FCC's transport rules. On May 31, 2000, the FCC
adopted a Memorandum, Opinion and Order granting most of the relief requested by
Metrocall; that decision was up held by U.S. Court of Appeals for the D.C.
Circuit. The FCC is now in the process of determining what, if any, damages will
be awarded to Metrocall. Metrocall has settled its damages claims with some, but
not all, of these defendants. Metrocall has filed a similar complaint with the
FCC against a small, independent local telephone company, alleging that this
telephone company had been imposing illegal interconnection charges on
Metrocall. Metrocall petitioned the FCC to order the telephone company to
reimburse payments Metrocall made to the telephone company respecting the
illegal charges. On February 8, 2002, the FCC issued a Memorandum Opinion and
Order, wherein it found the telephone company liable to Metrocall. The FCC
permitted Metrocall to file a supplemental complaint, to seek monetary damages
against the telephone company. Metrocall is currently engaged in settlement
discussions with this telephone company. There are no other litigation matters
pending before the FCC at this time which involve Metrocall and that would have
any material impact on Metrocall's business.

SEASONALITY

Generally, Metrocall's operating results are not significantly affected by
seasonal factors.

TRADEMARKS AND SERVICE MARKS

Metrocall uses the following trademarks and service marks:

- "Metrocall" -- a registered trademark with the U.S. Patent and Trademark
Office;

- "Datacall," "Metronet," "Metromessage," "In-Touch," "Metrofax", "One
Touch", "Message Track," "The Power in Paging" "Americas Wireless
Network", "My2Way", -- service marks;

- "Metrotext" -- a computer program designed for use in transmitting
alphanumeric messages from personal computers to pagers (copyright
registration has been granted).

EMPLOYEES

As of December 31, 2001, Metrocall employed approximately 2,976 full and
part-time employees none of whom is represented by a labor union. Metrocall
believes that its relationship with its employees is good.

In addition, in connection with its plan of reorganization, in 2002,
Metrocall terminated the 1993 and 1996 Stock Option Plans, and the Directors
Stock Option Plan although options outstanding to purchase shares of Metrocall
common stock under these Plans remain in effect.

ITEM 2. PROPERTIES

Metrocall does not hold title to any significant real property; although,
Metrocall and its affiliates own interests in certain properties. At December
31, 2001, Metrocall leased commercial office and retail space, including its
executive offices, at more than 420 locations used in its operations. These
office leases provided for monthly payments ranging from approximately $60 to
$143,000 and expire, subject to renewal options, on various dates through
January 2008.

12

Metrocall also leases numerous sites under long-term leases for its
transmitters on commercial broadcast towers, buildings and other fixed
structures. At December 31, 2001, Metrocall leased these transmitter sites for
monthly rentals ranging from approximately $40 to $8,800 that expire, subject to
renewal options, on various dates through January 2016.

ITEM 3. LEGAL PROCEEDINGS

Information regarding contingencies and legal proceedings is included in
Note 9 of the Notes to the Consolidated Financial Statements for the year ended
December 31, 2001, which is included under Item 8 of this report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

STOCK TRADING

Metrocall's common stock $0.01 par value per share was traded on the Nasdaq
SmallCap Market through April 12, 2001, and has traded since May 2001 on the OTC
Bulletin Board under the symbol "MCLLQ".

COMMON STOCK PRICE RANGES

On March 4, 2002 the last reported sales price of Metrocall's common stock
as traded Over the Counter was $0.07 per share and there were 1,976 stockholders
of record.

DIVIDEND POLICY

Metrocall has never declared or paid any cash dividends or distributions on
its common stock since its initial public offering of common stock in July 1993
and does not anticipate paying any cash dividends on its common stock in the
foreseeable future. Future cash dividends, if any, will be determined by its
Board of Directors. Certain covenants in Metrocall's credit facility, its
indentures and the terms of its Series A Convertible Preferred Stock (the
"Series A Preferred") restrict or prohibit the payment of cash dividends on its
common stock.

UNREGISTERED SECURITIES

Series A Preferred and Warrants. On November 15, 1996, Metrocall issued
159,600 shares of the Series A Preferred and 159,600 warrants representing the
right to purchase an aggregate of 2,957,529 shares of common stock (the
"Warrants"). The aggregate purchase price for the Series A Preferred and the
Warrants was $39.9 million. On November 15, 2001 the remaining 100,000 warrants
outstanding expired.

Each share of the Series A Preferred has a stated value of $250 per share,
a liquidation preference and redemption value equal to its stated value, certain
redemption rights and the right to elect directors to Metrocall's Board of
Directors. The Series A Preferred carries a dividend of 14% (subject to increase
upon the

13

occurrence of certain events), payable semi-annually in cash or in additional
shares of the Series A Preferred, at Metrocall's option. In addition, beginning
November 15, 2001, holders of the Series A Preferred have the right to convert
their Series A Preferred (including shares issued as dividends) into shares of
common stock based upon the market price of common stock at the time of
conversion. The Series A Preferred may, at the option of holders, be converted
sooner upon certain change of control events of Metrocall, as defined in the
Certificate of Designation for the Series A Preferred. During 2000 and 2001,
Metrocall issued 33,555 and 37,755 additional shares, respectively, of the
Series A Preferred as dividends to the holders of the Series A Preferred.

Common Stock. On March 17, 2000, Metrocall executed common stock purchase
agreements with each of three equity investors: HMTF, PSINet and Aether Systems,
Inc. Each of the three companies acquired approximately 7.8 million shares of
common stock. Each investor paid $2.19 per share, a total of approximately $51.3
million in the aggregate. Each of the three investors has the right to nominate
a representative to the Metrocall Board of Directors.

Metrocall also granted HMTF two options to purchase additional shares of
Metrocall common stock. Metrocall granted an option to purchase 8,333,333 shares
of common stock (Option I), at an exercise price of $3.00 per share, subject to
adjustment given certain events. Option I may be exercised by HMTF in whole but
not in part, at any time on or before March 17, 2001. Metrocall also granted
HMTF (i) an option to purchase 12,500,000 shares of common stock at an exercise
price of $4.00 per share plus (ii) if HMTF has not exercised Option I, 8,333,333
shares at an exercise price per share of $3.00,in each case subject to
adjustment given certain events (collectively, Option II). Option II may be
exercised in whole or in part but only in connection with the issuance of new
equity for cash to finance a business combination or acquisition (by means of
merger, consolidation, exchange, or acquisition of assets, or otherwise)
involving Metrocall or any of its subsidiaries and an aggregate transactional
consideration to the other entity or its equity and debt holders or to Metrocall
and its equity and debt holders having a fair value (as determined in good faith
by Metrocall's Board of Directors) of at least $50.0 million (a Qualified
Transaction). Option II will terminate on March 17, 2002, except that it can be
extended if there are pending active discussions with respect to a potential
Qualified Transaction or material changes in the Terms of a Qualified
Transaction. The Option I and Option II transactions are subject to the
expiration of the applicable Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the HSR Act) waiting period, the receipt of any required
consent of the FCC, and other customary closing conditions. Both Options I and
II expired unexercised on March 17, 2001 and 2002, respectively.

Metrocall has agreed to register for resale the shares of common stock held
by three equity investors, subject in each case to certain conditions and
limitations. Because the common stock investments are transactions not involving
a public offering, each investment was exempt from registration pursuant to
Section 4(2) of the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected financial and other data of
Metrocall. The historical financial data has been derived from the audited
consolidated financial statements and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and Metrocall's consolidated financial statements,
related notes thereto and other financial information included in the
consolidated financial statements.

The consolidated statements of operations data for fiscal years 1997, 1998,
1999, 2000 and 2001 presented below include the results of operations of the
acquired companies from their respective acquisition dates. Consolidated
statements of operations data for fiscal year 1997 exclude the operations of
ProNet, Inc. because this merger was completed on December 30, 1997. Units in
service at December 31, 1997 include approximately 1.3 million units acquired in
the ProNet merger. Metrocall completed the acquisition of the advanced messaging
division of AT&T Wireless on October 1, 1998.

14

- ---------------
a) Includes costs for legal, financial and investment banking services received
in connection with Metrocall's merger agreement with Weblink, which was
terminated on May 14, 2001 and other costs incurred by Metrocall and its debt
holders in connection with debt restructuring efforts.

b) In 2001, Metrocall wrote down the carrying value of its long-lived assets by
approximately $388.0 million to their estimated fair value as a result of
their impairment.

c) In 2000, Metrocall recorded an extraordinary item of $22.9 million for the
gain realized on the exchange of senior subordinated notes for common stock.

15

You should find the following definitions below useful in understanding
Metrocall's operating and other data:

- EBITDA or operating cash flow means earnings before interest,
reorganization expenses, taxes, depreciation and amortization, and
certain one-time charges. While not a measure under generally accepted
accounting principles, EBITDA is a standard measure of financial
performance in the paging industry. Metrocall believes EBITDA can be used
to measure its ability to service debt, fund capital expenditures and
expand its business. EBITDA as defined by Metrocall is used in its credit
facility and indentures as part of the tests to determine its ability to
incur debt and make restricted payments. EBITDA as defined by Metrocall
may not be comparable to similarly titled measures reported by other
companies since all companies do not calculate EBITDA in the same manner.
EBITDA should not be considered in isolation or as an alternative to net
income (loss), income (loss) from operations, cash flows from operating
activities, or any other measure of performance under GAAP. Cash
expenditures for various long-term assets, interest expense and income
taxes have been, and will be, incurred which are not reflected in the
EBITDA presentations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition
Liquidity and Capital Resources" for discussion of significant capital
requirements and commitments.

- EBITDA margin is calculated by dividing EBITDA by the amount of total
revenues less the net book value of products sold.

- ARPU is average monthly paging revenue per unit. ARPU is calculated by
dividing (a) service, rent and maintenance revenues for the period by (b)
the average number of units in service for the period. The ARPU
calculation excludes revenues derived from non-paging services such long
distance services.

- Average monthly operating expense per unit is calculated by dividing (a)
total recurring operating expenses before reorganization expenses and
depreciation and amortization for the period by (b) the average number of
units in service for the period.

- ---------------
(a) At December 31, 2000 and 2001 working capital deficit included current debt
balance of approximately $760.0 million which largely constitute debt with
scheduled non-current maturities; but which had been classified as current
debt. See Note 6 attached to the consolidated financial statements on long
term-debt and lease obligations for a more detailed explanation.

16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following discussion and analysis of the financial
condition and results of operations of Metrocall together with the Consolidated
Financial Statements and the notes to the Consolidated Financial Statements
included elsewhere in this Annual Report and the description of Metrocall's
business in "Business."

OVERVIEW

Metrocall is a leading provider of local, regional and national one-way or
"traditional" paging and two-way or "advanced wireless data and messaging"
services. Through its one-way nationwide wireless network, Metrocall provides
messaging services to over 1,000 U.S. cities, including the top 100 Standard
Metropolitan Statistical Areas (SMSAs). Since 1993, Metrocall's subscriber base
has increased from less than 250,000 to a high of 6.3 million as of June 30,
2001 and is presently 5.4 million, including approximately 231,400 subscribers
receiving advanced data and messaging services. This growth was achieved through
a combination of internal growth and a program of mergers and acquisitions. As
of December 31, 2001, Metrocall was the second largest messaging company in the
United States based on the number of subscribers.

Metrocall derives a majority of its revenues from fixed, periodic (usually
monthly) fees, generally not dependent on usage, charged to subscribers for
paging and wireless data services. While a subscriber continues to use its
services, operating results benefit from this recurring stream with minimal
requirements for incremental selling expenses or fixed costs. While Metrocall
expects to continue efforts to both maintain and add subscribers, Metrocall's
plan of reorganization assumes a substantial down-sizing of Metrocall's
operational platform. Further, Metrocall intends to direct its focus on certain
segments of the market that provide greater revenue stability and higher
margins.

RECENT DEVELOPMENTS

Paging/Messaging Environment and Industry Background

During 2001 Metrocall operations continued to be affected by the decrease
in demand for traditional paging services and a slower than anticipated increase
in revenues for advanced messaging. Revenues in 2001 decreased $47.0 million
from 2000 revenues, placing significant pressure on Metrocall's business
operations which require substantial funds to maintain paging operations,
subscriber base levels, capital expenditures and debt service requirements. In
March 2001, it appeared unlikely to Metrocall that it would be able to access
additional amounts of funds then available under its credit facility to fund any
cash shortfall requirements that may have been created by the reduction in net
revenues. In addition, it appeared to Metrocall that it would not generate
operating cash flows during its first quarter at the level required to maintain
compliance with the financial covenants of its credit facility.

Metrocall's business prospects may also be affected by events affecting
other companies in the paging industry and key vendors. Arch Wireless, Inc.
(Arch) and Weblink, the number one and three companies in the industry based on
the subscriber numbers, are also confronting financial difficulties and have
filed for protection under Chapter 11 of the Bankruptcy Code. Weblink presently
owns and operates the advanced messaging network used by Metrocall to provide
service to its advanced messaging and certain of its traditional paging
customers.

Product Sourcing and Key Suppliers

Metrocall does not manufacture any of the paging or messaging devices,
infrastructure and other equipment used in its operations. While the equipment
used in Metrocall's operations is available for purchase from multiple sources,
Metrocall has historically limited the number of suppliers to achieve volume
cost savings and, therefore, depends on such manufacturers to obtain sufficient
inventory. Metrocall has purchased messaging devices primarily from Motorola,
Inc. and purchased terminals and transmitters primarily from Glenayre
Electronics, Inc. While both Motorola and Glenayre have announced that they will
no longer sell messaging equipment used by Metrocall, Metrocall has taken
measures to mitigate any risks to its business.

17

Metrocall currently procures traditional paging devices through a number of
alternative manufacturers and similarly expects that alternative sources for
advanced messaging devices and network equipment will be secured in the
foreseeable future. Metrocall has, in the interim, entered into a final purchase
agreement with Motorola pursuant to which Metrocall has prepaid Motorola for
advanced messaging devices. Metrocall believes that this purchase agreement will
provide sufficient quantities of advanced messaging devices to meet its needs
for the remainder of 2002. Metrocall has also been engaged in discussions with a
number of potential alternate suppliers and manufacturers for these devices.

In February 2002, Motorola announced that Multitone Electronics, plc
intends to continue the role that Motorola had served as a device provider in
the messaging industry. Motorola has advised Metrocall that Multitone intends to
continue the manufacture of POCSAG, FLEX and ReFLEX protocol-based devices used
to provide Metrocall's traditional and advanced messaging services. Metrocall
can make no assurances that Multitone will actually continue the role that
Motorola had served as an industry device provider or be able to transition the
manufacture of POCSAG, FLEX and REFLEX devices to its operating facilities. A
significant time delay in this transition process or if this transaction were
not to occur could materially adversely affect Metrocall's advanced messaging
sales and services.

Metrocall currently receives maintenance and support services of its
network infrastructure components from Glenayre through a support services
contract which will expire in April 2002. Glenayre has presented Metrocall with
terms for continuation of these services for an additional 12 months and
Metrocall is presently reviewing this proposal. Metrocall expects that
infrastructure and equipment components will continue to be available from other
suppliers for the foreseeable future, consistent with normal manufacturing and
delivery lead times but cannot provide any assurance that it will not experience
unexpected delays in obtaining equipment in the future.

Metrocall offers its two-way messaging services using the Reflex25 protocol
through its alliance agreement with Weblink, which expires in April 2006.
Weblink filed for reorganization protection under Chapter 11 of the Bankruptcy
Code in May 2001 and has assumed this agreement in connection with such
proceedings on October 1, 2001. As part of the Court assumption order, as
amended, Weblink, provided that it is not in default at such time, may elect to
terminate the alliance agreements with Metrocall if Metrocall has not obtained
an order authorizing the assumption of the alliance agreements in Metrocall's
Chapter 11 cases on or before April 30, 2002. Metrocall does not believe that
Weblink will have the authority to exercise such termination rights given
certain unauthorized tower deconstructions by Weblink. Metrocall and Weblink
have agreed, subject to court approval in the Weblink bankruptcy cases, to amend
the alliance agreements to provide for an extension of the date by which
Metrocall must assume this agreement to a date which is the earlier of
forty-five (45) days after a bankruptcy filing by Metrocall or October 31, 2002.
Absent this extension, there can be no assurance that Metrocall will file its
own plan of reorganization in sufficient time to assume this agreement by the
stipulated April 30, 2002 deadline. There can also be no assurance that Weblink
will be able to successfully reorganize and restructure under the protections of
Chapter 11.

Financial Impact

In light of the circumstances described above, Metrocall suspended the
payments of interest due to holders of all series of its senior subordinated
notes on or after March 15, 2001. This action was necessitated to preserve cash
to support operations and stakeholder value. As of December 31, 2001, accrued
but unpaid interest on these notes totaled approximately $81.0 million. These
defaults permit holders of the subordinated notes to accelerate this
indebtedness, although, to date, no acceleration notice has been received.

In April 2001, Metrocall's bank lenders delivered a notice of default under
the bank credit facility premised on the failure to make the subordinated debt
interest payments. At that time, the bank lenders reduced their commitment from
$200.0 million to the $133.0 million presently outstanding under the credit
facility and have reserved their rights (including their rights to demand
default interest aggregating approximately $2.0 million) with respect to this
default, and absent a waiver or other agreement by the banks, could accelerate
Metrocall's debt. If the lenders seek to accelerate such indebtedness, Metrocall
would likely file for protection under Chapter 11 of the Bankruptcy Code. As a
result of suspension of interest payments on

18

the senior subordinated notes, notice of default on the bank debt and the
non-compliance with bank loan covenants, Metrocall has classified all its
outstanding indebtedness under its bank credit facility and its senior
subordinated notes as current liabilities at December 31, 2001 and 2000.

As illustrated in the table below, Metrocall does not believe at its
present levels of operating cash flows it could support the amortization and
debt service requirements of Metrocall's $626.8 million of aggregate principal
amount of senior subordinated notes. As the table illustrates, Metrocall was in
a free cash flow position only after it suspended interest payments to holders
of its senior subordinated notes ($'s in thousands):

During 2001, as revenues declined as a result of a continued decrease in
demand in traditional paging services, Metrocall implemented several expense
reduction and avoidance measures and placed restrictions on capital spending to
offset the impact of the revenue loss and to actually increase unlevered and
free cash flows from fiscal year 2000 levels while maintaining its airtime and
customer service requirements.

New Business Plan

Metrocall believes that its expense reduction efforts and a customer base
which provides for recurring revenues will allow Metrocall to generate levels of
operating and free cash flows that would provide a basis for restructuring its
debt obligations on its balance sheet and for an improvement in its financial
condition and position. In pursuit of these goals, Metrocall adopted a new
business plan to reorient its focus and operations. Metrocall's business plan
calls for it to refocus its sales efforts on its direct business and government
customers and further reduce its cost structure to an appropriate level that
could be sustained by management's expectations of future revenues and operating
and free cash flows.

Metrocall's business objectives and operating strategy for 2002 will focus
on maximizing its operating and free cash flows. Key elements of this strategy
include:

- Subscriber retention efforts;

- Cost containment and reduction;

- Advanced messaging.

SUBSCRIBER RETENTION EFFORTS -- Metrocall expects the demand for its
traditional paging services and related revenues will continue to decrease in
2002. Metrocall still intends to focus its attention on the placement of
traditional paging services but will shift its sales emphasis by focusing sales
and advertising resources on existing and potential business and government
subscribers placed by its direct sales force.

19

Metrocall believes that these customers directly provide a higher ARPU and lower
deactivation percentages than its other subscribers. Metrocall believes because
of its more concentrated focus on its direct business and government customers
and the expected decrease in demand by subscribers, it can reduce the number of
its field service representatives and de-emphasize and or reduce certain direct
sales channels such as its company-owned retail stores as well as its indirect
distribution channels, both of which have high subscriber churn statistics.

Metrocall expects to reduce its selling and marketing work force in 2002 by
approximately 517 positions as result of its new business objectives and the
de-emphasis of certain sales channels. Metrocall began implementing these
reductions in March 2002. Annual salary and benefit savings from this action are
estimated at approximately $15.7 million.

Metrocall has also revised its incentive commission plans for members of
its sales force who are successful in retaining subscribers that retain their
traditional service. Metrocall will seek to maintain a close relationship with
its existing customers by maintaining decentralized sales and marketing
operations and by providing value-added services tailored to customers' needs.

In addition, Metrocall will continue to offer advanced messaging services
and sell PCS phones to subscribers that require wireless messaging beyond the
capabilities of traditional paging. Metrocall currently sells cellular and PCS
phone services through alliance and dealer agreements with several carriers
including AT&T Wireless and Nextel. Metrocall believes these offerings assist to
partially offset revenue losses associated with subscriber churn and enable
Metrocall to continue to satisfy customer demands for a broader range of
wireless products and services.

COST CONTAINMENT AND REDUCTION -- Metrocall believes it must further reduce
its operating expenses in 2002 to offset the expected continued reduction in its
traditional paging subscriber base and a lower than anticipated growth rate for
advanced messaging subscribers in 2002. Metrocall believes these reductions will
be necessary to ensure it will have the continued liquidity and resources to
continue to provide its traditional and advanced messaging services. Metrocall
believes it can further reduce its operating expenses without affecting its
airtime or customer service because of further centralization of customer
service functions and the lower number of subscribers receiving services. Such
containment and reduction initiatives are expected to include:

- Continued rationalization of network operations

- Consolidation of call center services

- Consolidation of billing platforms

- Other initiatives

Continued rationalization of network operations -- Metrocall expects to
further rationalize its network operations as it continues to migrate
subscribers from under-utilized frequencies. During 2002, Metrocall expects to
deconstruct 224 towers and implement other telecommunication savings
initiatives. These efforts are expected to save Metrocall approximately $1.0
million in site rent expenses, $1.5 million in telecommunication costs and $2.7
million in salary and benefit related savings as a result of an expected
reduction of approximately 40 engineering positions in March and April 2002
required to service existing network operations.

Consolidation of call center services -- At December 31, 2001, Metrocall
had three call centers in operation and numerous field operation centers that
handled customer service requirements. In early 2002, Metrocall consolidated two
of its call centers into one larger call center in Pensacola, Florida. In
addition, as Metrocall further consolidates its billing platforms it expects to
reduce its field customer service representation by providing such services from
the Florida facility. As a result of these actions, Metrocall expects to reduce
its workforce by approximately 179 positions resulting in annual salary and
benefit savings of approximately $5.2 million. In addition, Metrocall expects to
reduce its facility rent expense by approximately $600,000 in 2002 and $800,000
annually from these consolidation efforts.

20

Consolidation of billing platforms -- Metrocall currently has three
separate billing platforms. During 2002, Metrocall will convert two of these
platforms into its largest system, providing for a consolidated, more efficient
billing platform covering all of Metrocall's operations. The conversions of
these systems are scheduled to be completed by mid-June 2002 and October 2002,
respectively. The conversion of each of these systems will result in reductions
in licensing fees, MIS support and other incidental expenses. These savings are
expected to reach $1.4 million on an annualized basis. Metrocall believes these
conversions will permit it to more effectively manage its customer base and
provide customer service support.

Other initiatives -- As a part of the cost reduction effort, due to the
decline in its subscriber base, Metrocall believes it will be able to eliminate
approximately 98 positions in general and administrative functions and in its
overhead support functions. Although Metrocall will focus on subscriber
retention and placements in its traditional operations, Metrocall believes that
the focus of these efforts will be on direct customer placements rather than in
indirect channels. In addition, given the expected overall reduction in
traditional subscribers, it does not believe it will be required to employ the
same number of employees as it would in a growth mode. Metrocall also believes
that this work force reduction is possible given its management information
systems, recent upgrades to its customer service operations and the reduction in
its subscriber base which has resulted in a decrease in staffing requirements of
its billing and collections departments, inventory, and customer service areas
and as such, expects no impact on provisioning of airtime or customer services.
Metrocall believes that these efforts will result in overall expense annual
salary and benefit savings of at least $2.8 million and $2.4 million in facility
costs.

From all of its subscriber retention efforts and cost containment and
reduction initiatives, Metrocall expects to save approximately $32.0 million
annually in salary and benefits, $3.2 million in facility rent costs and $5.0 in
other expenses including telecommunications costs and billing system software
licenses. Metrocall expects to reduce its workforce by approximately 850
positions during 2002, of which approximately 495 will be implemented by April
30, 2002. Metrocall estimates severance and other cash payouts to eligible
employees will equal up to $5.0 million, of which approximately $3.5 million is
expected to be paid by April 30, 2002. Metrocall will seek to take all measures
necessary to maintain the morale of its remaining employees and to preserve the
core of employees that will be essential to Metrocall's reorganization efforts.
Metrocall also expects to incur lease termination and other costs associated
with the closing of certain of its office and retail facilities in 2002.

There can be no assurances that Metrocall will achieve the desired savings
as a result of these initiatives. Many of these initiatives presume Metrocall is
able to implement its plan of reorganization under Chapter 11.

ADVANCED MESSAGING -- Metrocall offers advanced messaging services using
narrowband PCS primarily through a strategic alliance agreement with Weblink. In
2001, Metrocall added approximately 118,918 net subscribers to these services.
During 2001, of these new subscribers, Metrocall added approximately 56,000 of
the subscribers by renting advanced messaging devices to the subscriber for
periods of up to 12-24 months. Under the terms of the rental agreements with
these customers, Metrocall receives monthly rental revenue for each unit and
does not expect to recover the device acquisition cost for a period of up to 8
months following its placement. In 2002, Metrocall expects to focus on the sale
of advanced messaging devices and to substantially limit the number of
subscribers to which it offers leased product. As a result, Metrocall does not
expect to achieve the subscriber growth percentages it had experienced in 2000
and 2001 but does expect to substantially reduce the amount of capital
expenditures it incurs.

Notwithstanding the above, Metrocall's ability to offer narrowband PCS
services under its alliance agreement with Weblink could be affected by
Weblink's existing proceedings in Chapter 11 and by Metrocall's contemplated
reorganization under Chapter 11. In addition, Metrocall's ability to satisfy the
product demand for advanced messaging equipment could be affected by Motorola's
announcement to leave the product supply business and the uncertainty of the
availability of replacement product. Either of these contingencies could
adversely affect Metrocall's ability to offer narrowband PCS services.

21

Potential Restructuring

Metrocall is currently negotiating with its senior bank lenders and holders
of approximately 2/3 of its senior subordinated notes regarding the terms of a
pre-negotiated stand-alone plan of reorganization of Metrocall, which would be
confirmed through a plan of reorganization under Chapter 11 of the United States
Bankruptcy Code. Metrocall's proposed to its creditors a restructuring plan with
the following objectives:

- Deleveraging Metrocall to provide a viable capital structure in light of
revenue uncertainty;

- Restructuring existing debt to reflect projected cash flows;

- Maintaining competitiveness by not over-leveraging Metrocall's capital
structure relative to its competitors;

- Maximizing cash flows; and

- Providing the maximum enterprise value for all stakeholders.

It is contemplated that on or about April 30, 2002, Metrocall will file for
protection under Chapter 11 of the United States Bankruptcy Code and seek
expeditiously to obtain approval of a pre-negotiated reorganization plan. It is
likely that such plan will provide for reduced levels of bank debt, substantial
common equity to the holders of existing bank debt, common equity to general
unsecured creditors and no recovery to holders of existing preferred or common
stock of Metrocall.

There can be no assurances that Metrocall will reach agreement with its
bank lenders or its senior subordinated noteholders for the terms of a
consensual plan of reorganization under Chapter 11 of the United States
Bankruptcy Code.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Metrocall's deteriorating financial condition and lack of borrowing ability
indicate uncertainty as to whether it will be able to continue as a going
concern. Metrocall's ability to continue as a going concern is dependent upon
several factors, including, but not limited to Metrocall's ability (i) to
implement successfully its new business plan and to reduce capital expenditures
and operating expenses to generate sufficient cash flows, (ii) to obtain the
continued consent of its banks for its use of cash under Chapter 11, (iii) to
continue to obtain uninterrupted supplies and services from its vendors and to
retain employees, and (iv) to have continued access to Weblink's advanced
messaging network through the alliance agreements.

Metrocall's liquidity is directly influenced by its free cash flow
position. Since its March 15, 2001 announcement that it would suspend payments
of interest on its senior subordinated notes, Metrocall has reduced its
operating expense and capital expenditure requirements and, together with
suspension of interest payments on its senior subordinated notes, has achieved a
positive free cash flow position, meaning borrowings or other financings were
not required to support operations or debt service requirements. Metrocall's
continued operations and its ability to implement a stand-alone reorganization
in which additional borrowings are not required to support operations is key to
any stand-alone plan of reorganization. As described herein, Metrocall expects
to further reduce its operating expenses and capital expenditures in 2002.

Metrocall's liquidity position is also influenced by the timing of its
accounts receivable collections and disbursements to vendors and employees.
Metrocall invoices approximately 85% of its customers monthly in advance of
providing its services and its days receivables outstanding averaged 36 days in
2001. Employee salaries are paid on a bi-weekly basis and commission payments
are paid monthly in arrears. Payments to telecommunication providers and
facility and site landlords are made on a monthly basis. Metrocall has customary
trade terms with most of its vendors. In light of Metrocall's financial
circumstances, in several instances where alternative sources of procurement
were not available, several vendors have required Metrocall to pay for goods and
services in advance. For instance, Metrocall was required to pay to Motorola in
February 2002 as a result of Motorola's election to discontinue this segment of
its business, approximately $13.2 million for pager and advanced messaging
devices that will be delivered to Metrocall in the first and

22

second quarters of 2002. Metrocall believed this pre-payment for equipment was
necessary to ensure adequate availability of advanced messaging equipment for
the remainder of 2002.

At December 31, 2001, cash and cash equivalents balances were $24.1
million. At April 8, 2002, this balance had decreased to $15.3 million, as a
result of the prepaid equipment purchases from Motorola and other prepaid
amounts for services and equipment. Metrocall believes that these balances plus
cash expected to be generated from operations, should be sufficient to meet its
financial obligations and to fund capital expenditure requirements during 2002,
except for payments of interest on its senior subordinated notes. As discussed
above in "Recent Developments," Metrocall intends to restructure its outstanding
indebtedness, which will involve a filing under chapter 11 of the Bankruptcy
Code. Metrocall is discussing with its bank lenders regarding use of collateral
in a Chapter 11 case. Metrocall believes that its cash flow will be adequate to
fund its operations in a Chapter 11 proceeding without additional borrowings.

Cash Flows. Metrocall's cash flows from operating activities increased
approximately $16.0 million from $39.8 million for the twelve months ended
December 31, 2000 to $55.8 million for the twelve months ended December 31,
2001. The increase in net cash provided by operating activities was the result
of Metrocall's suspension of interest payments to its holders of its senior
subordinated notes of approximately $62.0 million as well as operating expense
reductions offset by reductions resulting from the net decline in revenues
during 2001.

Net cash used in investing activities decreased approximately $65.9 million
from $123.3 million for the twelve months ended December 31, 2000 to $57.4
million for the twelve months ended December 31, 2001. The net decrease was the
result of a decrease in cash used for business acquisitions of $12.5 million and
a decrease of $50.4 million in capital expenditures during 2001. Capital
expenditures during 2001 included approximately $51.4 million for subscriber
equipment on hand and net increases to the rental subscriber base. The balance
of capital expenditures was primarily for network and infrastructure development
and information systems and computer related equipment. Total capital
expenditures for fiscal year 2002 are expected to approximate $35.0-40.0
million, however they may be limited to a lower amount due to Metrocall's
liquidity position.

Net cash provided by financing activities decreased approximately $108.2
million from $107.4 million for the twelve months ended December 31, 2000 to
$(0.8) million for the twelve months ended December 31, 2001. The decrease in
net cash provided by financing activities in 2001 was a result of certain 2000
events that did not recur in 2001. For the twelve months ended December 31,
2000, Metrocall received net proceeds of $51.9 million from the issuances of
common stock primarily to three equity investors and was able to access its
credit facility and borrowed net amounts of $58.0 million. In 2001, Metrocall
received net proceeds of $315,000 from issuances of common stock under its
employee stock purchase plan and was unable to borrow amounts under its credit
facility due to its financial condition.

Total Debt. At December 31, 2001 and 2000, debt consisted of:

Total debt balances decreased $578,000 in 2001 as a result of principal
payments made under capital leases and other debt obligations partially offset
by discount accretion of $156,000 on Metrocall's 11% senior subordinated notes
due 2008. There were no principal repayments of amounts outstanding under the
credit facility or from senior subordinated notes.

23

Borrowings under credit facility

In May 2001, Metrocall's bank lenders delivered a notice of default based
on the failure to make the scheduled interest payments on the senior
subordinated debt at that time. The bank lenders have reserved their rights with
respect to these defaults and terminated any further availability under the $200
million commitment, and, absent a waiver or other agreement by the banks, could
accelerate Metrocall's bank debt. In the event the lenders seek to accelerate
this indebtedness, Metrocall likely would file for protection under Chapter 11
of the United States Bankruptcy Code prior to finalizing terms for a
pre-negotiated plan or reorganization.

In February 2002, Metrocall and its bank lenders entered into the Third
Amendment and Limited Waiver to the Fifth Amended and Restated Loan Agreement
(the "Third Amendment"), effective as of January 1, 2002. The amendment amended
certain sections, which generally pertain to the revocation of the option to
borrow a Eurodollar Advance. In addition, the applicable margin was also amended
to 2.875% effective January 1, 2002, retroactive for interest on all Base Rate
Advances outstanding for the period October 1, 2001 through January 1, 2002.

Under the credit facility, interest accrues on the Company's base rate
advances at the prime lending rate plus an applicable margin of 2.875%. Interest
payments are due monthly on the last business day of each month. Metrocall's
majority lenders have the ability to request an additional 2% default rate of
interest above the base rate plus applicable margin described above. The
majority lenders signatory to the Third Amendment agreed to a limited waiver
that prohibits them from demanding for payment any default interest that has
accrued between March 16, 2001 and February 25, 2002 on any amounts outstanding.

Senior subordinated notes

As discussed under Recent Developments, Metrocall suspended payment of
interest to holders of its senior subordinated notes on March 15, 2001.
Currently, Metrocall is in a default position under each series of its
subordinated notes. These defaults presently permit the holders of the
subordinated notes to accelerate this indebtedness. In the event any noteholder
seeks to accelerate its indebtedness, Metrocall likely would file for protection
under Chapter 11 of the Bankruptcy Code.

Commitments

Metrocall has operating leases for offices, retail stores and transmitting
sites with lease terms ranging from 1 to 15 years. Minimum annual lease payments
on operating leases having initial or remaining noncancelable lease terms in
excess of one year during the years 2002 and 2006 are $26.0 million, $18.7
million, $13.5 million, $7.8 million and $3.6 million, respectively.

CRITICAL ACCOUNTING POLICIES

Metrocall prepares its financial statements in conformity with generally
accepted accounting principles, which 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. Metrocall's management evaluates these estimates and
assumptions on an on-going basis. Actual results could differ from those
estimates.

Revenue Recognition

Metrocall recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Metrocall
leases (as lessor) pagers and messaging devices under operating leases.
Substantially all the leases are on a month-to-month basis. Advance billings for
services are deferred and recognized as revenue when earned. Sales of one-way
and ancillary equipment are recognized upon delivery. The company bundles the
sale of two-way paging equipment with the related service and recognizes the
revenue and related cost of sales over the expected customer relationship which
the company estimates is one year.

24

Impairment of Long-Lived Assets

All long-lived assets are reviewed for impairment on a periodic basis and
whenever events or changes in circumstances indicate that the carrying amount
should be reviewed. Impairment is determined by comparing the net book value to
the estimated undiscounted future cash flows expected to result from use of the
assets and their eventual disposition.

In the three months ended June 30, 2001 and December 31, 2001, Metrocall
reviewed the carrying value of its long lived assets for impairment. Factors
that indicated an impairment may have occurred during this period included a
continued reduction in revenues and operating cash flows, the termination of its
merger agreement with Weblink Wireless Inc. and continuing competitive industry
and economic conditions. Based on its analysis, which indicated the net book
value of such assets exceeded the estimated undiscounted future cash flows
expected from such assets over their remaining useful lives, Metrocall
determined that a write-down of $388.0 million to the carrying value of its
long-lived assets was necessary.

The estimated fair value of the long-lived assets was determined by
estimating future discounted cash flows of such assets over their remaining
useful lives. The amount of the write down has been reported in amortization
expenses on the accompanying statements of operations.

Reserve for Doubtful Accounts

Estimates are used in determining the reserve for doubtful accounts and are
based on historical collection experience, current trends and a percentage of
the accounts receivable aging categories. In determining these percentages
Metrocall reviews historical write-offs, including comparisons of write-offs to
provisions for doubtful accounts as a percentage of net revenues; Metrocall
compares the ratio of the reserve to gross receivables to historical levels and
Metrocall monitors collection amounts and statistics. While write-offs of
customer accounts have historically been within our expectations and the
provisions established, management cannot guarantee the Metrocall will continue
to experience the same write-off rates that it has in the past which could
result in material differences in the reserve for doubtful accounts and related
provisions for write-offs.

RESULTS OF OPERATIONS

The definitions below will be helpful in understanding the discussion of
Metrocall's results of operations.

Service, rent and maintenance revenues: include primarily monthly, quarterly,
semi-annually and annually billed recurring revenue, not generally dependent on
usage, charged to subscribers for paging and related services such as voice mail
and pager repair and replacement. Service, rent and maintenance revenues also
include revenues derived from cellular and long-distance services.

Net revenues: include service, rent and maintenance revenues and sales of
customer owned and maintained (COAM) pagers less net book value of products
sold.

Monthly average revenue per unit (ARPU): includes all monthly recurring revenues
excluding the long distance revenue, divided by the average number of
subscribers for the month, which is calculated by adding the beginning
subscribers for the month to the number of subscribers at the end of the month
and dividing that number by two.

Service, rent and maintenance expenses: include costs primarily related to the
management, operation and maintenance of Metrocall's network systems and
infrastructure.

Selling and marketing expenses: include salaries, commissions and administrative
costs of our sales force and related marketing and advertising expenses.

General and administrative expenses: include costs related to executive
management, accounting, office telephone, management information systems,
facilities and employee benefits.

25

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH DECEMBER 31, 2000

The following table sets forth the amounts of revenues and the percentage
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's Consolidated Statements of
Operations and certain other information for fiscal years 2001 and 2000 (all
dollars in thousands except per unit information):

Traditional paging service, rent and maintenance revenues decreased
approximately $81.2 million from $495.7 million in 2000 to $414.5 million in
2001. During 2001, traditional paging revenues decreased as a result of declines
in the number of subscribers receiving airtime services and a lower average
monthly revenue per unit statistics. In 2001, the number of direct distribution
subscribers decreased 89,518, which includes the impact of the units secured
through acquisitions of other paging entities of 232,529. Absent the acquisition
of Southeast Paging, Inc. in June 2001, the total direct subscriber decrease
would have been 322,047. This decrease was the result of placements of new
subscribers and cancellation of subscriber accounts as the result of a lessened
demand for paging services and conversion of certain existing customers to
Metrocall's advanced messaging services.

Metrocall's indirect distribution channels decreased 828,708 units in 2001.
This decrease occurred mainly in its reseller and strategic alliances channels.
The decrease was the result of a reduced demand for paging services; economic
conditions which caused many resellers to withdraw from selling paging services
and competing technologies.

Product sales from traditional operations decreased approximately $16.7
million from $53.4 million in 2000 to $36.7 million in 2001 and decreased as a
percentage of net revenues from 10.4% in 2000 to 8.4% in 2001. Net book value of
products sold decreased approximately $16.0 million from $33.0 million in 2000
to $17.0 million in 2001 and decreased as a percentage of net revenues from 6.4%
in 2000 to 3.9% in 2001. Fluctuations in traditional product sales and net book
value of products sold were the result of a reduction in

26

the number of subscriber units sold through direct distribution channels in the
twelve months ended December 30, 2001.

Metrocall expects that its traditional paging revenues, numbers of
subscribers and net product sales will continue to decrease in 2002. Please
refer to "New Business Plan" above for further discussion of Metrocall's
subscriber retention efforts in 2002.

Advanced messaging service, rent and maintenance revenues increased $36.9
million to approximately $45.9 million in 2001. The increase in service, rent
and maintenance revenues was the result of the placement of 118,918 additional
units since December 31, 2000, primarily two-way messaging devices. ARPU for the
twelve months ended December 31, 2001 increased by $8.84 to $22.25 from December
31, 2000. Metrocall launched its two-way messaging services in late March 2000
and service, rent and maintenance revenues were generated primarily from the
placement of 1.5-way and 1.75-way messaging devices through this time.

Product sales from advanced messaging operations increased approximately
$2.8 million to $6.5 million in 2001. Net book value of products sold increased
$4.7 million to approximately $9.2 million in 2001. Metrocall bundles the sale
of two-way messaging equipment with the related service and recognizes revenue
and related cost of sales over the expected life of the customer relationship.
Accordingly, product sales revenues and related costs are deferred and
recognized over the expected customer life.

OPERATING EXPENSES

The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Consolidated Statements of Operations and certain other information for fiscal
years 2000 and 2001 (all dollars in thousands except per unit information):

27

OPERATING EXPENSES PER UNIT IN SERVICE

Overall in 2001, Metrocall experienced a decrease in average monthly
operating costs per unit in service (operating expenses per unit before
depreciation and amortization) of $0.26 per unit. Each operating expense is
discussed separately below.

Service, rent and maintenance expenses. Service, rent and maintenance
expenses increased approximately $2.8 million from $120.3 million in 2000 to
$123.1 million in 2001 and increased as a percentage of net revenues from 22.9%
in 2000 to 25.8% in 2001. Monthly service, rent and maintenance expense per unit
increased from $1.65 per unit in 2000 to $1.69 per unit in 2001. Service, rent
and maintenance expenses increased $16.4 million as a result of provisioning
costs incurred in providing advanced messaging services to 118,918 additional
subscribers in 2001 mainly through its alliance agreement with Weblink. This
expense increase was almost fully offset by decreases in traditional messaging
costs such as reductions from the use of third-party paging and dispatch
providers and subscriber line costs; and reductions in salary and benefit costs
associated with reduced staffing levels in inventory, engineering and technical
functions in 2001. Metrocall expects that its service, rent and maintenance
expenses will decrease during 2002 as a result of its cost containment and
reduction initiatives described in Business Objectives. Please refer to "New
Business Plan" for further discussion on Metrocall's cost containment and
reduction initiatives.

Selling and marketing expenses. Selling and marketing expenses decreased
approximately $10.8 million from $103.4 million in 2000 to $92.5 million in 2001
and decreased as a percentage of net revenues from 19.7% in 2000 to 19.4% in
2001. The overall expense decrease was primarily the result of reductions in
print and media advertising of $5.1 million and salaries and commissions
expenses of $4.4 as a result of a slightly smaller sales and marketing force.
Monthly selling and marketing expense per unit has decreased from $1.42 per unit
in 2000 to $1.27 per unit in 2001. Metrocall expects that its selling and
marketing expenses will decrease in 2002 as a result of its revised subscriber
retention efforts, cost containment and reduction, and advanced messaging
initiatives. Please refer to "New Business Plan" above.

General and administrative expenses. General and administrative expenses
decreased approximately $10.9 million from $172.0 million in 2000 to $161.2
million in 2001 and increased as a percentage of net revenues from 32.8% in 2000
to 33.8% in 2001. The decreases in general and administrative expenses were
primarily the result of reductions in salary expenses of $5.2 million, telephone
administrative expenses of $2.8 million and contract services of approximately
$1.9 million. Monthly general and administrative expenses per unit decreased by
$0.15 from $2.36 in 2000 to $2.21 per unit in 2001 as a result of these events
and the increase in units outstanding. Metrocall expects its general and
administrative expenses to decrease in 2002 as a result of the consolidation of
two of its national call centers into one location, conversion of two of its
billing platforms into one platform and the other cost containment and reduction
initiatives described under "New Business Plan".

Reorganization expense. Reorganization expenses of $15.0 million consist
of costs incurred related to the Weblink merger which Metrocall terminated in
May 2001, and legal, investment banking, and other costs incurred to stabilize
the company and to evaluate its restructuring options. Metrocall expects that
restructuring costs will continue to be significant in future months as it
formulates and implements its restructuring plans.

Depreciation expense. Depreciation expense increased approximately $85.3
million from $124.5 million in 2000 to $209.8 million in 2001. Approximately
$82.1 million was the result of a write-down to paging and plant equipment and
building and leasehold improvements for impairment in the three months ended

28

December 31, 2001. The remaining net increase of $3.2 million was primarily the
result of the depreciation expense on 2000 and 2001 additions to infrastructure
and subscriber equipment. Please refer to amortization below for further
description of the impairment write-down.

Amortization expense. Amortization expense related to the amortization of
identified intangible assets of companies acquired by Metrocall increased
approximately $204.5 million from $175.8 million in 2000 to $380.3 million in
2001, primarily as a result of impairment write-downs which occurred in the
three months ended June 30, 2001 and December 31, 2001. Metrocall wrote down the
carrying value of its goodwill and FCC licenses $107.0 million and $172.7
million respectively in the three months ended June 30, 2001. Factors that
indicated impairment had occurred included a continued reduction in revenues and
operating cash flows, the termination of a merger agreement with Weblink and
continuing competitive industry and economic conditions.

Metrocall wrote down the carrying value of certain of its long-lived assets
including the remaining carrying value of its intangible assets of $26.2 million
in the three months ended December 31, 2001. Factors that indicated an
impairment had occurred in this period included a greater than expected decrease
in actual and future expected recurring traditional revenues and subscribers,
and a slower than expected growth rate in revenues of its advanced messaging
business.

The amount of write down in each period was equal to the amount by which
the carrying value of Metrocall's long-lived assets exceeded the estimated
future discounted cash flows of such assets over their estimated useful lives.
Amortization expense was comprised of the following elements in 2000 and 2001
(all dollars in thousands):

Amortization expenses are expected to decrease in future periods.

Interest expense. Interest expense increased approximately $16.5 million,
from $84.2 million in 2000 to $100.7 million in 2001. Approximately $15.0
million represented the write-off of deferred financing costs on long-term debt
balances classified as current liabilities. Average debt balances were also
approximately $8.8 million higher in 2001 than 2000. The average balance of
Metrocall's credit facility during 2001 was $133.0 million and the average
principal amount outstanding on the senior subordinated notes was $626.8 during
2001. Total debt decreased $0.6 million from $761.9 million at December 31, 2000
to $761.3 million at December 31, 2001.

Income tax benefit. Income tax benefit decreased approximately $20.8
million from $20.8 million in 2000 to $0.00 million in 2001 as no tax benefit
was generated in 2001.

29

Net loss. Metrocall's net loss increased approximately $398.3 million from
$214.5 million in 2000 to $612.8 million in 2001 mainly as a result of the
above-mentioned events. Metrocall expects net losses to continue in future
periods.

Preferred dividends. Preferred dividends increased approximately $0.6
million in 2001 from $9.8 million in 2000 to $10.4 million in 2001. The increase
was a result of higher dividends paid to the holders of the Series A Preferred
due to the compounding nature of the preferred stock series.

EBITDA. EBITDA or operating cash flow as defined by Metrocall means
earnings before interest, taxes, reorganization related expenses, depreciation
and amortization. While not a measure under generally accepted accounting
principles, EBITDA is a standard measure of financial performance in the paging
industry. EBITDA may not be comparable to similarly titled measures reported by
other companies since all companies do not calculate EBITDA in the same manner.
EBITDA should not be considered as an alternative to net income (loss) from
operations, cash flows from operating activities, or any other measure of
financial performance under GAAP. EBITDA decreased $27.9 million from $128.7
million in 2000 to $100.8 million in 2001. The decrease was due to the decrease
in net revenue of $47.0 million offset by the decrease in operating expenses of
$19.0 million. EBITDA margin decreased from 24.5% in 2000 to 21.1% in 2001.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH DECEMBER 31, 1999

The following table sets forth the amounts of revenues and the percentage
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's Consolidated Statements of
Operations and certain other information for fiscal years 2000 and 1999 (all
dollars in thousands except per unit information):

Service, rent and maintenance revenues. Service, rent and maintenance
revenues decreased approximately $43.9 million, or 8.0%, from $548.7 million in
1999 to $504.8 million in 2000. The decrease in net revenues was primarily the
result of a change in subscriber mix to one more heavily weighted toward the
indirect distribution channels, which are characterized by lower ARPU. Since
December 31, 1999, the total number of subscribers receiving airtime services
has increased by 326,434. Of this increase, approximately 50,000 new subscribers
were added with the acquisition of NationPage in May 2000. The majority of the
remaining increase occurred in Metrocall's reseller and strategic alliance
distribution channels. In addition, since December 31, 1999, Metrocall has also
experienced a 26,700 decline in the number of subscribers in its direct
distribution channels, channels that are characterized by higher ARPU.
Metrocall's average service, rent and maintenance revenue per unit for
traditional paging services decreased $0.94 from $7.86 per unit in 1999 to $6.92
per unit in 2000.

Product sales. Product sales decreased approximately $4.3 million from
$61.5 million in 1999 to $57.2 million in 2000 and increased as a percentage of
net revenues from 10.8% in 1999 to 10.9% in 2000. This decrease in product sales
was primarily the result of a $6.1 million decline associated with the
divestiture of Metrocall's Electronic Tracking System division, which occurred
in November 1999, offset by an increase in unit sales of pagers and advanced
messaging devices during the quarter.

30

The following tables set forth the amounts of operating expenses and
related percentages of net revenues represented by certain items in Metrocall's
Consolidated Statements of Operations and certain other information for fiscal
years 1999 and 2000 (all dollars in thousands except per unit information):

Overall in 2000, Metrocall experienced a decrease in average monthly
operating costs per unit in service (operating expenses per unit before
depreciation and amortization) of $0.52 per unit. Each operating expense is
discussed separately below.

Service, rent and maintenance expenses. Service, rent and maintenance
expenses decreased approximately $26.7 million from $147.0 million in 1999 to
$120.3 million in 2000 and decreased as a percentage of revenues from 25.7% in
1999 to 22.9% in 2000. Monthly service, rent and maintenance expense per unit of
$1.65 in 2000 has decreased $0.46 per unit from $2.11 in 1999. Service, rent and
maintenance expenses have decreased in amount and as a percentage of revenues
primarily due to a decrease in telecommunication expenses as a result of
renegotiated telecommunications contracts, deconstruction of redundant
transmitter and antenna sites and other cost reduction initiatives.

Selling and marketing expenses. Selling and marketing expenses increased
approximately $6.4 million from $97.0 million in 1999 to $103.4 million in 2000
and increased as a percentage of net revenues from 17.0% in 1999 to 19.7% in
2000. The overall expense increase was primarily the result of an increase in
personnel costs related to an increase in the employee sales base and
advertising costs related to launching advanced messaging services. Selling and
marketing expenses increased as a percentage of revenues during 2000 as a result
of the decline in revenues. Monthly selling and marketing expenses per unit has
increased $0.03 from $1.39 per unit in 1999 to $1.42 per unit in 2000 as a
result of these.

General and administrative expenses. General and administrative expenses
increased approximately $1.4 million from $170.6 million in 1999 to $172.0
million in 2000 and increased as a percentage of net revenues from 29.9% in 1999
to 32.8% in 2000. The increases in general and administrative expenses were
primarily the result of approximately $4.0 million in legal, financing, advisory
and other costs incurred in connection with Metrocall's efforts to present a
competing reorganization plan and merger proposal for Paging Network, Inc.,
which was offset by a decrease in contract services of $1.5 million and medical
insurance of $1.5 million. Monthly general and administrative expenses per unit
decreased by $0.09 from $2.45 in 1999 to $2.36 per unit in 2000 as a result of
these events and the increase in units outstanding.

Depreciation expense. Depreciation expense increased approximately $27.5
million from $97.0 million in 1999 to $124.5 million in 2000. Metrocall changed
the depreciable lives of its subscriber devices purchased after June 30, 2000
from three years to two years. This change resulted from Metrocall's
expectations regarding future usage periods for subscriber devices considering
current and projected technological advances and customer desires for new
messaging technology. This change resulted in an increase in depreciation
expense of $7.8 million for the six months ended December 2000. The remaining
increase in depreciation

31

expense was the result of depreciation expenses incurred on fixed assets
acquired in the NationPage acquisition and the impact of 2000 depreciation on
1999 and 2000 additions to other property, plant and equipment and computer
hardware and software.

Amortization expense. Amortization expense related to the amortization of
identified intangible assets of companies acquired by Metrocall decreased
approximately $34.6 million from $210.4 million in 1999 to $175.8 million in
2000. This decrease was primarily the result of a reduction in intangibles as a
result of certain adjustments to the purchase accounting for prior business
combinations as a result of revisions to required valuation allowances on net
operating loss carryforwards partially offset by an increase in the result of
the amortization of intangibles recorded in connection with the NationPage
acquisition. Amortization expense was comprised of the following elements in
1999 and 2000 (all dollars in thousands):

Interest expense. Interest expense decreased approximately $0.9 million
from $85.1 million in 1999 to $84.2 million in 2000. The decrease was a result
of lower average debt balances during 2000. The average balance of Metrocall's
credit facility during 2000 was $102.7 million and the average principal amount
outstanding on the senior subordinated notes was $657.1 during 2000. Average
debt balances were approximately $31.2 million lower in 2000 than in 1999
primarily as a result of the exchange of senior subordinated notes into common
stock in 2000, but were partially offset by higher balances outstanding under
the credit facility. Total debt decreased $15.7 million from $777.6 million in
1999 to $761.9 million in 2000.

Income tax benefit. Income tax benefit decreased approximately $42.3
million from $63.1 million in 1999 to $20.8 million in 2000. The decrease in the
income tax benefit was primarily the result of the provision for a $62.5 million
valuation allowance provided against Metrocall's deferred tax assets in 2000.

Extraordinary item. Extraordinary item represents the net extraordinary
gain recorded as a result of the exchange of $73.4 million aggregate principal
amount of Metrocall's senior subordinated notes into Metrocall's common stock.
The $22.9 million net gain represented the difference between the carrying value
of the notes at the time of exchange and the fair value of the common stock
issued less the write-off of a portion of the deferred financing costs.

Net loss. Metrocall's net loss increased approximately $42.1 million from
$172.5 million in 1999 to $214.6 million in 2000. The increase in net loss was
primarily the result of the decrease in revenues as a result of the reduction in
ARPU, the decrease in the income tax benefit partially offset by the decrease in
operating expenses and gain from the exchange of senior subordinated notes into
common stock.

Preferred dividends. Preferred dividends decreased approximately $6.6
million from $16.4 million in 1999 to $9.8 million in 2000. The decrease was
primarily the result of the cessation of accrual dividends on the

32

Series C Preferred in February 2000 as a result of the exchange of the Series C
Preferred for Metrocall common stock.

Series C Preferred exchange inducement. In February 2000, Metrocall and
the holder of all the issued and outstanding shares of Metrocall's Series C
Preferred reached an agreement in which the holder of the Series C Preferred
agreed to exchange such shares for 13.25 million shares of Metrocall common
stock. The number of shares of common stock issued by Metrocall in the
transaction was approximately 3.1 million shares in excess of what Metrocall
would have issued had the holder elected to convert the Series C Preferred based
on its original conversion provisions. The $6.3 million inducement expense
represents the fair market value of the 3.1 million additional shares of common
stock that were issued by Metrocall. At the time of the transaction, the
carrying value of the Series C Preferred was approximately $105.4 million and
represented an obligation to Metrocall because the holder had the option to
require Metrocall to redeem the Series C Preferred in cash at the end of its
maturity period in 2010. Metrocall recorded the issuance of common stock and the
reduction of the $105.4 million carrying value of the Series C Preferred as an
increase to stockholders' equity, which represented an excess of $78.6 million
over the fair value of the common stock issued by Metrocall of $26.8 million.

Gain on repurchase of preferred stock. In January 1999, Metrocall
repurchased and retired all of the outstanding shares of its Series B Preferred
for $16.2 million, representing a $2.2 million discount from its carrying value.
The $2.2 million had been reflected as a gain for purposes of determining
Metrocall's loss attributable to common stockholders in 1999.

EBITDA. The decrease in EBITDA in 2000 of approximately $27.8 million was
primarily the result of the decrease in revenues in 2000 partially offset by the
decrease in service, rent and maintenance, selling and marketing and general and
administrative expenses. Metrocall's EBITDA margin decreased from 27.4% in 1999
to 24.5% in 2000.

INFLATION

Inflation is presently not a material factor affecting Metrocall's
business. Traditional one-way paging system equipment and operating costs have
not increased and one-way pager costs have declined significantly in recent
years. This reduction in costs has been reflected in lower prices charged to our
subscribers. General operating expenses such as salaries, employee benefits and
occupancy costs are, however, subject to inflationary pressures.

RISK FACTORS

FACTORS AFFECTING FUTURE OPERATING RESULTS

There are various factors that could adversely affect our business,
financial condition, prospects and results of operations. The principal factors
that have not been described elsewhere in this Report, are described below.

Bankruptcy Filing -- Although we expect to be able to continue operating in
the ordinary course of our business following our contemplated bankruptcy
filing, the filing and attendant adverse publicity, significant added expense
and compliance with the bankruptcy court requirements could be materially
disruptive to our operations and business relationships with creditors,
suppliers, customers and employees. Our financial constraints when combined with
our bankruptcy filing would limit our ability to respond to competitive and new
technology challenges to our services and to regulatory changes. Finally, there
can be no assurance that we would be able to successfully reorganize in any
bankruptcy proceeding.

Traditional Paging Services -- In 2001, Metrocall experienced a decrease in
traditional paging subscribers of approximately 918,000 units. Metrocall
believes that the demand for traditional paging services has decreased
industry-wide over the past two years and will continue to decline for the
foreseeable future. Because of our high fixed costs, subscription cancellations
cannot be fully offset by expense reductions and therefore would adversely
impact our cash flows. While we will make efforts to replace lost subscribers,
the marketing and other expenses associated with adding subscriptions is high
and could adversely affect our cash
33

flow in the short-term if the replacement efforts are successful and in the
longer term if they are not successful.

Advanced Messaging Services -- Metrocall experienced an increase in
subscribers receiving advanced messaging services of approximately 119,000 in
2001. Metrocall believes that its advanced messaging revenues will increase in
2002 over 2001 as a result of adding subscribers, however we do not expect that
the increase in subscriptions from the end of 2001 to the end of this year will
be significant as we refocus our financial resources away from equipment leasing
of advanced messaging products and due to technological developments of
competitive wireless messaging products using communications protocols not
presently accessible or available to Metrocall. Our ability to provide advanced
messaging services is also dependent on the ability of our alliance partner,
Weblink, to continue as a going concern and on our success in replacing Motorola
as our device manufacturer of the Reflex25 device. Please refer to pages 17 and
18 for a discussion of the alliance agreement with Weblink and supplier
arrangements with Motorola.

ADDITIONAL COMPETITION DUE TO TECHNOLOGICAL DEVELOPMENTS -- TECHNOLOGICAL
DEVELOPMENTS COULD LEAD TO INCREASED COMPETITION TO METROCALL.

Future technological developments in the wireless communications industry,
such as narrowband PCS and broadband PCS, could create new services or products
that compete with Metrocall's paging and wireless messaging services. See page 9
for a discussion of these developments. That increased competition might result
in loss of existing or future subscribers, loss of revenues and increase in
expenses to stay competitive.

Further developments of broadband PCS could also lead to increased
competition. Many companies now provide wireless telephone service using
broadband PCS technology and either have begun or will begin providing paging
service. As result, Metrocall might experience losses in subscribers and
recurring revenues and cost increases to stay competitive.

Other changes in technology could lower the cost of competing services and
products to a level at which Metrocall's pricing for its services and products
would cease to be competitive. Metrocall cannot assure you that it will be able
to develop or introduce new services and products on a timely basis and at
competitive prices, if at all, nor can Metrocall assure you that our profit
margins, inventory costs and cash flows will not be adversely affected by
technological developments.

SATELLITE FAILURES -- METROCALL'S ABILITY TO DELIVER PAGING AND MESSAGING
SERVICES COULD BE INTERRUPTED IF SATELLITE FAILURES OCCUR.

Metrocall transmits a majority of its paging traffic through its satellite
facility in Stockton, California. However, Metrocall relies on satellite
facilities operated by other companies to control many of the transmitters on
its nationwide and wide-area networks. Metrocall also uses land-based
communications facilities such as microwave stations and landline telephone
facilities to connect and control the paging base station transmitters in its
networks. The failure or disruption of transmissions by these satellites and
other facilities could disrupt our paging and messaging services and impair our
results of operations and adversely affect our ability to gain more subscribers
and increase revenues.

REGULATORY CHANGES AND COMPLIANCE -- CHANGES IN THE REGULATIONS THAT GOVERN
METROCALL'S BUSINESS MIGHT MAKE IT MORE DIFFICULT OR COSTLY TO OPERATE ITS
BUSINESS OR COMPLY WITH ITS CHANGES.

The FCC and to a lesser extent state regulatory agencies regulate our
paging and messaging operations. Those agencies might take actions, such as
changing licensing requirements or the allocation of radio spectrum that would
make it more difficult or costly for Metrocall to operate its business. For
example, the FCC has adopted rules under which it will issue licenses that would
permit companies to offer paging services on a wide-area basis through
competitive bidding. Metrocall believes these rules may simplify its regulatory
compliance burdens, particularly regarding adding or relocating transmitter
sites; however, those rules may also increase its costs of obtaining paging
licenses in the future. In addition, we cannot assure you that we will be able
to comply with all changes implemented by the agencies regulating its business,
such as changes in licensing or build-out requirements.
34

DEPENDENCE ON KEY MANAGEMENT PERSONNEL -- IF METROCALL IS UNABLE TO RETAIN KEY
MANAGEMENT PERSONNEL, IT MIGHT NOT BE ABLE TO FIND SUITABLE REPLACEMENTS ON A
TIMELY BASIS AND ITS BUSINESS OPERATIONS MIGHT BE ADVERSELY AFFECTED.

Metrocall's existing operations and continued future developments are
dependent to a significant extent upon the efforts and abilities of certain key
individuals, including William L. Collins III, its Chief Executive Officer, and
Vincent D. Kelly, its Chief Financial Officer. These individuals have
substantial expertise and experience in the paging and messaging industry, know
the intricacies of Metrocall's business operations and are responsible for the
development and implementation of the business plan that Metrocall has adopted
as the best opportunity to survive and succeed in the current environment.
Metrocall has employment contracts with the named individuals but does not have
non-competition contracts with or "key man" life insurance for any of them. If
Metrocall is unable to retain these individuals, it is unlikely Metrocall could
find individuals to replace them that would have the same degree of expertise,
experience, knowledge and insight into the industry and the business operations.
Even if Metrocall could find replacements, its business would be impaired from
the disruption associated with changes in management.

In addition, Metrocall may experience increased rates of attrition or
employee turnover as a result of its announced intended Chapter 11 bankruptcy
filing. While Metrocall has commenced a restructuring plan that will include a
work force reduction of approximately 850 positions during 2002, Metrocall will
remain reliant on certain core personnel in various aspects of its business to
successfully implement its plan of reorganization. Metrocall intends to
implement appropriate retention plans and/or incentives to attempt to mitigate
the flight of these necessary personnel either preceding or during Metrocall's
Chapter 11 cases. However, Metrocall can make no assurances that such efforts
will be successful or that the departure of certain key personnel will not
impair Metrocall's ability to implement its plan.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Metrocall's total debt has been classified as a current liability on the
accompanying balance sheet as a result of the suspension of interest payments to
holders of its senior subordinated notes and the expected non-compliance with
certain of the financial covenants of its credit facility at December 31, 2001.
As such, there is a risk that the lenders of such debt will request immediate
payment of such amounts. Please refer to "Recent Developments" in Item I.

At December 31, 2001, total debt consisted of borrowings outstanding under
its credit facility and fixed rate senior subordinated notes.

SENIOR SECURED DEBT, VARIABLE RATE DEBT:

The borrowings outstanding under Metrocall's credit facility are secured by
substantially all of Metrocall's assets. The credit facility debt is closely
held by a group of lenders.

Metrocall's credit facility bears interest at floating rates and matures in
2005 and as such is subject to risks associated with changes in interest rates.
Effective March 16, 2001, Metrocall's lenders exercised their option to increase
the borrowing rate under the facility to prime plus a margin of 2.875%. In
February 2002, Metrocall and the bank lenders entered into a Third Amendment and
Limited Waiver of the Fifth Amended and Restated Loan Agreement providing for,
among other things, a waiver of the lenders' demand for any accrued and unpaid
default interest from March 16, 2001 to February 25, 2002.

35

SENIOR SUBORDINATED NOTES, FIXED RATE:

Metrocall's senior subordinate notes are publicly traded and subject to
market risk. In addition, they are subordinated to the secured status of
borrowing under the credit facility ($'s in thousands):

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Additional documents will be filed with the Commission within 120 days
after the close of the fiscal year and are incorporated by reference into Part
III.

ITEM 11. EXECUTIVE COMPENSATION

Additional documents will be filed with the Commission within 120 days
after the close of the fiscal year and are incorporated by reference into Part
III.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Additional documents will be filed with the Commission within 120 days
after the close of the fiscal year and are incorporated by reference into Part
III.

36

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Additional documents will be filed with the Commission within 120 days
after the close of the fiscal year and are incorporated by reference into Part
III.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The following financial statements are included in Part II Item 8

All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial statements
or notes thereto.

(b) Reports on Form 8-K

Form 8-K dated February 2, 2001 reporting that Metrocall and its bank
lenders entered into the second amendment to the Fifth Amended and Restated
Credit Facility (the "Credit Facility"), effective as of December 31, 2000.

Form 8-K dated March 15, 2001 filing a press release regarding Metrocall's
results for the fourth quarter 2000, restructuring efforts, and initiatives to
address its liquidity concerns.

Form 8-K dated April 3, 2001, reporting the change of Section 5 -"Other
Items", to include notice of the postponement of its annual meeting of
stockholders due to circumstances resulting from the planned Weblink Wireless
Inc., and Metrocall Inc., restructuring and merger agreement. Form 8-K/A dated
April 6, 2001 amending the Form 8-K dated April 3, 2001, to include a
description of the amendment to the Rights Agreement, dated February 25, 2000
between Metrocall, Inc. and First Chicago Trust Company of New York(the "Rights
Agent").

Form 8-K dated September 19, 2001, reporting the change of Section 5 --
"Other Items", to include notice of the hearing of motions by Weblink
Wireless,Inc. in the United States Bankruptcy Court for the Northern District of
Texas Dallas Division seeking the entry of an order approving the debtors'
assumption of the Strategic Alliance Agreements and National Services Agreement,
each as amended.

37

(c) Exhibits

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

+ Filed herewith.
(a) Incorporated by reference to Metrocall's Registration
Statement on Form 8-A filed with the Commission on February
25, 2000.
(b) Incorporated by reference to Metrocall's Current Report on
Form 8-K filed with the Commission on January 4, 1999.
(c) Incorporated by reference to Metrocall's Current Report on
Form 8-K filed with the Commission on October 23, 1997.
(d) Incorporated by reference to Metrocall's Registration
Statement on Form S-1, as amended (File No. 33-96042) filed
with the Commission on September 27, 1995.
(e) Incorporated by reference to ProNet's Current Report on Form
8-K filed with the Commission on July 5, 1995.
(f) Incorporated by reference to Metrocall's Annual Report on
Form 10-K for the year ended December 31, 1998 filed with
the Commission on March 31, 1999.
(g) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 filed with
the Commission on May 15, 1998.
(h) Incorporated by reference to the Registration Statement on
Form S-1 of A+ Communications, Inc., as amended (File No.
33-95208) filed with the Commission on September 18, 1995.
(i) Incorporated by reference to Metrocall's Annual Report on
Form 10-K for the year ended December 31, 1996 filed with
the Commission on March 31, 1997.
(j) Incorporated by reference to Metrocall's Current Report on
Form 8-K filed with the Commission on November 21, 1996.
(k) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 filed with
the Commission on May 15, 2000.
(l) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000 filed with the
Commission on August 14, 2000.

39

(m) Incorporated by reference to Metrocall's Current Report on
Form 8-K filed with the Commission on February 2, 2001.
(n) Incorporated by reference to Metrocall's Annual Report on
Form 10-K for the year ended December 31, 1999 filed with
the Commission on March 11, 2000.
(o) Incorporated by reference to Metrocall's Proxy Statement
filed with the Commission on August 31, 1998.
(p) Incorporated by reference to Metrocall's Registration
Statement on Form S-4, as amended (File No. 333-06919) filed
with the Commission on June 27, 1996.
(q) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 filed
with the Commission on November 14, 1997.
(r) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 filed with the
Commission on August 14, 1998.
(s) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 filed with the
Commission on August 13, 1999.
(t) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 filed
with the Commission on November 14, 1994.
(u) Incorporated by reference to Metrocall's Current Report on
Form 8-K/A, as amended, filed with the Commission on April
6, 2001.
(v) Incorporated by reference to Metrocall's Schedule 13D/A, as
amended, filed with the Commission on July 18, 2001.
(w) Incorporated by reference to Metrocall's Annual Report on
Form 10-K/A, as amended, for the year ended December 31,
2000 filed with the Commission on April 30, 2001.
(x) Incorporated by reference to Metrocall's Annual Report on
Form 10-K, for the year ended December 31, 2000 filed with
the Commission on April 2, 2001.
(y) Incorporated by reference to Metrocall's Current Report on
Form 8-K, filed with the Commission on March 4, 2002.

40

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 on this 12th day of
April, 2002.

METROCALL, INC.

By: /s/ WILLIAM L. COLLINS III
------------------------------------
William L. Collins III
Chairman of the Board

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

41

METROCALL, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Metrocall, Inc.:

We have audited the accompanying consolidated balance sheets of Metrocall,
Inc. and subsidiaries (a Delaware Corporation) as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders'
equity/(deficit) and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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
an 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 Metrocall, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has net capital and working capital deficiencies that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

/s/ ARTHUR ANDERSEN LLP

Vienna, Virginia
February 15, 2002

F-2

METROCALL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3

METROCALL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

METROCALL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

METROCALL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Metrocall, Inc. and subsidiaries (Metrocall), is a leading provider of
local, regional and national paging and advanced wireless data and messaging
services in the United States. Through its nationwide wireless network,
Metrocall provides messaging services to over 1,000 U.S. cities, including the
top 100 Standard Metropolitan Statistical Areas.

2. RECENT DEVELOPMENTS, LIQUIDITY AND RISKS

Paging/Messaging Environment and Industry Background

During 2001 Metrocall operations continued to be affected by the decrease
in demand for traditional paging services and a slower than anticipated increase
in revenues for advanced messaging. Revenues in 2001 decreased $47.0 million
from 2000 revenues, placing significant pressure on Metrocall's business
operations which require substantial funds to maintain paging operations,
subscriber base levels, capital expenditures and debt service requirements. In
March 2001, it appeared unlikely to Metrocall that it would be able to access
additional amounts of funds then available under its credit facility to fund any
cash shortfall requirements that may have been created by the reduction in net
revenues. In addition, it appeared to Metrocall that it would not generate
operating cash flows during its first quarter at the level required to maintain
compliance with the financial covenants of its credit facility.

Metrocall's business prospects may also be affected by events affecting
other companies in the paging industry and key vendors. Arch Wireless, Inc.
(Arch) and Weblink, the number one and three companies in the industry based on
the subscriber numbers, are also confronting financial difficulties and have
filed for protection under Chapter 11 of the Bankruptcy Code. Weblink presently
owns and operates the advanced messaging network used by Metrocall to provide
service to its advanced messaging and certain of its traditional paging
customers.

Product Sourcing and Key Suppliers

Metrocall does not manufacture any of the paging or messaging devices,
infrastructure and other equipment used in its operations. While the equipment
used in Metrocall's operations is available for purchase from multiple sources,
Metrocall has historically limited the number of suppliers to achieve volume
cost savings and, therefore, depends on such manufacturers to obtain sufficient
inventory. Metrocall has purchased messaging devices primarily from Motorola,
Inc. and purchased terminals and transmitters primarily from Glenayre
Electronics, Inc. While both Motorola and Glenayre have announced that they will
no longer sell messaging equipment used by Metrocall, Metrocall has taken
measures to mitigate any risks to its business. Metrocall currently procures
traditional paging devices through a number of alternative manufacturers and
similarly expects that alternative sources for advanced messaging devices and
network equipment will be secured in the foreseeable future. Metrocall has, in
the interim, entered into a final purchase agreement with Motorola pursuant to
which Metrocall has prepaid Motorola for advanced messaging devices. Metrocall
has also been engaged in discussions with a number of potential alternate
suppliers and manufacturers for these devices.

In February 2002, Motorola announced that Multitone Electronics, plc
intends to continue the role that Motorola had served as a device provider in
the messaging industry. Motorola has advised the Company that Multitone intends
to continue the manufacture of certain protocol-based devices used to provide
Metrocall's traditional and advanced messaging services. Metrocall can make no
assurances that Multitone will actually continue the role that Motorola had
served as an industry device provider or be able to transition the manufacture
of these devices to its operating facilities. A significant time delay in this
transition process or if this transaction were not to occur could materially
adversely affect Metrocall's advanced messaging sales and services.

F-7

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Metrocall currently receives maintenance and support services of its
network infrastructure components from Glenayre through a support services
contract which will expire in April 2002. Glenayre has presented Metrocall with
terms for continuation of these services for an additional 12 months and is
presently reviewing this proposal. Metrocall expects that infrastructure and
equipment components will continue to be available from other suppliers for the
foreseeable future, consistent with normal manufacturing and delivery lead times
but cannot provide any assurance that it will not experience unexpected delays
in obtaining equipment in the future.

Metrocall offers its two-way messaging services using the Reflex25
communications protocol through its alliance agreement with Weblink, which
expires in April 2006. Weblink filed for reorganization protection under Chapter
11 of the Bankruptcy Code in May 2001 and has assumed this agreement in
connection with such proceedings on October 1, 2001. As part of the Court
assumption order, as amended, Weblink, provided that it is not in default at
such time, may elect to terminate the alliance agreements with Metrocall if
Metrocall has not obtained an order authorizing the assumption of the alliance
agreements in Metrocall's Chapter 11 cases on or before April 30, 2002.
Metrocall does not believe that Weblink will have the authority to exercise such
termination rights given certain unauthorized tower deconstructions by Weblink.
Metrocall and Weblink have agreed subject to court approval in the Weblink
bankruptcy cases, to amend the alliance agreement to a date which is the earlier
of forty-five (45) days after bankruptcy filing by Metrocall or October 31,
2002. Absent this extension, there can be no assurance that Metrocall will file
its own plan of reorganization in sufficient time to assume this agreement by
the stipulated April 30, 2002 deadline. There can also be no assurance that
Weblink will be able to successfully reorganize and restructure under the
protections of Chapter 11.

Financial Impact

In light of the circumstances described above, Metrocall suspended the
payments of interest due to holders of all series of its senior subordinated
notes on or after March 15, 2001, this action was necessitated to preserve cash
to support operations and stakeholder value. As of December 31, 2001, accrued
but unpaid interest on these notes totaled approximately $81.0 million. These
defaults permit holders of the subordinated notes to accelerate this
indebtedness, although, to date, no acceleration notice has been received.

In April 2001, Metrocall's bank lenders delivered a notice of default under
the bank credit facility premised on the failure to make the subordinated debt
interest payments. At that time, the bank lenders reduced their commitment from
$200.0 million to the $133.0 million presently outstanding under the credit
facility and have reserved their rights (including their rights to demand
default interest aggregating approximately $2.0 million) with respect to this
default, and absent a waiver or other agreement by the banks, could accelerate
Metrocall's debt. If the lenders seek to accelerate such indebtedness, Metrocall
would likely file for protection under Chapter 11 of the Bankruptcy Code. As a
result of suspension of interest payments on the senior subordinated notes,
notice of default on the bank debt and the non-compliance with bank loan
covenants, Metrocall has classified all its outstanding indebtedness under its
bank credit facility and its senior subordinated notes as current liabilities at
December 31, 2001 and 2000.

Potential Restructuring

Metrocall is currently negotiating with its senior bank lenders and holders
of approximately 2/3 of its senior subordinated notes regarding the terms of a
pre-negotiated stand-alone plan of reorganization of Metrocall,

F-8

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

which would be confirmed through a plan of reorganization under Chapter 11 of
the United States Bankruptcy Code. Metrocall proposed to its creditors a
restructuring plan with the following objectives:

- Deleveraging Metrocall to provide a viable capital structure in light of
revenue uncertainty;

- Restructuring existing debt to reflect projected cash flows;

- Maintaining competitiveness by not over-leveraging Metrocall's capital
structure relative to its competitors;

- Maximizing cash flows; and

- Providing the maximum enterprise value for all stakeholders.

It is contemplated that on or about April 30, 2002, Metrocall will file for
protection under Chapter 11 of the United States Bankruptcy Code and seek
expeditiously to obtain approval of a pre-negotiated reorganization plan. It is
likely that such plan will provide for reduced levels of bank debt, substantial
common equity to the holders of existing bank debt, common equity to general
unsecured creditors and no recovery to holders of existing preferred or common
stock of Metrocall.

Metrocall's deteriorating financial results and lack of additional
liquidity indicate that it may not be able to continue as a going concern.
Metrocall's ability to continue as a going concern is dependent upon several
factors, including, but not limited to, the continued non-demand for immediate
payment of outstanding indebtedness by the holders of its Notes and the bank
lenders under its credit facility agreement and Metrocall's ability to (i)
generate sufficient cash flows to meet its obligations, other than the cash
interest payments due under its Notes, on a timely basis, (ii) obtain additional
or restructured financing, including potential debtor-in-possession borrowings
if it is required to file for protection under chapter 11, (iii) to continue to
obtain uninterrupted supplies and services from its vendors, and to retain
employees, and (iv) reduce capital expenditures and operating expenses.

The accompanying financial statements do not include any adjustments
relating to the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that might be
necessary should Metrocall file for protection under chapter 11 and/or be unable
to continue as a going concern.

Metrocall is also subject to additional risks and uncertainties including,
but not limited to, changes in technology, business integration, competition,
government regulation and subscriber turnover.

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In addition to Metrocall, Inc., the accompanying consolidated financial
statements include the accounts of Metrocall's wholly owned operating
subsidiaries McCaw RCC Communications, Advanced Nationwide Messaging
Corporation, and Mobilfone LP; Metrocall Ventures, Inc. which holds a 61%
interest in Beacon Peak Associates Ltd. ("Beacon Peak") and other limited
partnership or LLC interests; and Metrocall USA, Inc., a non-operating
wholly-owned subsidiary that holds certain regulatory licenses issued by the
Federal Communications Commission (the "FCC") and other intellectual property.
Beacon Peak owns land, adjacent to Metrocall's headquarters building, which is
valued at cost. The minority interest in Beacon Peak was $510,000 as of December
31, 2000 and 2001.

In May 2000, Metrocall purchased 100% of the outstanding common stock of
NationPage, Inc. and NPI Holdings, Inc. (collectively "NationPage") for $12.2
million in cash. The acquisition was financed through cash balances on hand. In
June 2001, Metrocall purchased 100% of the outstanding common stock of South

F-9

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

East Paging, Inc. for $4.9 million. The consideration was paid to the seller in
the form of future airtime paging services to be provided by Metrocall to the
seller.

All significant inter-company transactions have been eliminated in
consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

Accounting for Investment in Inciscent, Inc.

During 2000, Metrocall invested $15 million in return for preferred stock,
which on a fully-diluted basis represented an approximate 39% interest in
Inciscent, Inc. at December 31, 2001. The consideration given Inciscent was
comprised of $5.0 million of in-kind services to be provided by Metrocall over a
5 year period and a $10.0 million 5-year license agreement granting Inciscent
access to Metrocall's subscriber lists.

Metrocall has accounted for its preferred stock investment in Inciscent
similar to the equity method of accounting. Metrocall has reflected its
investment in other assets and its obligation for in-kind services and
obligation to provide access to its subscriber base as deferred revenue on the
accompanying balance sheets. Metrocall recognizes revenue on the in-kind
services provided to Inciscent as they are performed and recognizes revenue
ratably on the license to access its customer base over the five-year license
period after elimination of Metrocall's share of profits on the transactions.
The company recognized revenue related to these services of $0.8 million and
$1.0 million in 2000 and 2001 respectively, and recognized losses related to its
preferred stock investment in Inciscent of $5.0 million and $6.2 million in 2000
and 2001, respectively. Metrocall's investment in Inciscent was $9.3 million and
$2.0 million at December 31, 2000 and 2001 respectively. Total deferred revenue
was $13.2 million and $11.2 million at December 31, 2000 and 2001, respectively.
Metrocall periodically reviews its investment in Inciscent for impairment and
has determined that no impairment adjustment to the carrying value of its
investment is required at December 31, 2001.

Revenue Recognition

Metrocall recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Metrocall
leases (as lessor) pagers and messaging devices under operating leases.
Substantially all the leases are on a month-to-month basis. Advance billings for
services are deferred and recognized as revenue when earned. Sales of one-way
and ancillary equipment are recognized upon delivery. The company bundles the
sale of two-way paging equipment with the related service and recognizes the
revenue and related cost of sales over the expected customer relationship, which
the company estimates is one year.

Credit Risk

Metrocall's assets that are exposed to credit risk primarily consist of its
accounts receivable. Accounts receivable are due from customers, resellers, and
governmental entities located in the United States. The carrying value of
accounts receivable approximates fair value.

F-10

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of investments, all having
maturities of ninety days or less when purchased. The carrying amount reported
in the accompanying balance sheets for cash equivalents approximates fair value
due to the short-term maturity of these instruments.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:

New pagers and advanced messaging devices are depreciated using the
half-year convention upon acquisition. Betterments to acquired pagers and the
net book value of lost pagers are charged to depreciation expense. Subscriber
equipment sold is recorded in the consolidated statements of operations at net
book value at the date of sale. Devices leased to customers under operating
leases continue to be depreciated over their remaining useful lives.

On July 1, 2000, Metrocall revised the estimated depreciable life of its
subscriber equipment purchased after June 30, 2000 from three years to two
years. The change in useful life resulted from Metrocall's expectations
regarding future usage periods for subscriber devices considering current and
projected technological advances and customer desires for new messaging
technology. As of December 31, 2000 and 2001, the balance of subscriber
equipment was $180.3 million and $104.2 million, respectively, net of
accumulated depreciation of $80.9 million and $45.3 million, respectively.

Purchases of property and equipment in the accompanying consolidated
statements of cash flows are reflected net of the net book value of products
sold to approximate the net addition to subscriber equipment.

Intangible Assets

Intangible assets, net of accumulated amortization, consist of the
following at December 31, 2000 and 2001 (dollars in thousands):

Accumulated amortization at December 31, 2000 was $633.4 million.

Identifiable intangibles, including goodwill allocated thereto, are
reviewed for impairment on a periodic basis and whenever events or changes in
circumstances indicate that the carrying amount should be reviewed.

F-11

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Impairment is determined by comparing the net book value to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition.

Metrocall currently evaluates enterprise level goodwill for impairment by
comparing estimated future undiscounted cash flows over the remaining life of
the goodwill to the carrying value of goodwill. If an impairment exists,
enterprise level goodwill is written down to its fair value based on estimated
future cash flows of Metrocall discounted at risk adjusted interest rates. In
2001, Metrocall wrote-down its intangible assets due to impairment. Please refer
to Note 4.

Debt Financing Costs

Debt financing costs, included in other assets on the accompanying
consolidated balance sheets, represent fees and other costs incurred in
connection with the issuance of long-term debt. These costs are amortized as
interest expense over the term of the related debt using the effective interest
rate method. At December 31, 2001, Metrocall wrote-off $15.0 million of deferred
financing costs related to debt classified as current liabilities.

Reorganization Expenses

Reorganization related expenses included in the accompanying statements of
operations include costs incurred for legal, financial and investment banking
services received in connection with Metrocall's merger agreement with Weblink
Wireless, Inc. (Weblink), which was terminated on May 14, 2001, and other costs
incurred by Metrocall and its bank lenders and unofficial creditors committee in
connection with the debt restructuring efforts described in Note 2.

Loss Per Common Share Attributable to Common Stockholders

Basic earnings per share is computed by dividing loss attributable to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share is similar to basic earnings per
share, except the weighted-average number of common shares outstanding is
increased to include stock options and warrants, that dilute earnings. Total
stock options outstanding of 7.2 million, 6.5 million, and 7.9 million, and
warrants outstanding of 159,600, 100,000, and 0 at December 31, 1999, 2000 and
2001, respectively, were excluded from the computation of diluted earnings
(loss) per share because of their anti-dilutive effect.

Income Taxes

Metrocall utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities, less
valuation allowances, if required.

Reclassifications

Certain reclassifications have been made to the prior year financial
statements to conform to the 2001 presentation.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" (effective July 1, 2001), and SFAS No. 142, "Goodwill and Other
Intangible Assets" (effective January 1, 2002). SFAS No. 141 prohibits
pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that
goodwill and certain intangible
F-12

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets with indeterminate lives will no longer be amortized but instead will be
subject to periodic impairment testing. These pronouncements should have no
impact on the Metrocall financial statements.

On August 16, 2001 the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (effective January 1, 2003), which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
standard requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. The entity is
required to capitalize the cost by increasing the carrying amount of the related
long-lived asset. The capitalized cost is then depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss.

On October 3, 2001 the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (effective January 1, 2002), that
replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." SFAS No. 144 requires that all long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured on a net
realizable value basis and will not include amounts for future operating losses.
The statement also broadens the reporting requirements for discontinued
operations to include disposal transactions of all components of an entity
(rather than segments of a business). Metrocall is currently evaluating the
impact of adopting SFAS Nos. 143 and 144.

Segment Reporting

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 changed the way companies
report selected segment information in financial statements. Metrocall operates
in one reportable segment.

4. LONG LIVED ASSETS

All long-lived assets are reviewed for impairment on a periodic basis and
whenever events or changes in circumstances indicate that the carrying amount
should be reviewed. Impairment is determined by comparing the net book value to
the estimated undiscounted future cash flows expected to result from use of the
assets and their eventual disposition.

In the three months ended June 30, 2001, Metrocall reviewed the carrying
value of its long lived assets for impairment. Factors that indicated an
impairment may have occurred during this period included a continued reduction
in revenues and operating cash flows, the termination of its merger agreement
with Weblink Wireless Inc. (Weblink) and continuing competitive industry and
economic conditions. Based on its analysis, which indicated the net book value
of such assets exceeded the estimated undiscounted future cash flows expected
from such assets over their remaining useful lives, Metrocall determined that a
write-down of $279.7 million to the carrying value of its intangible assets was
necessary.

The estimated fair value of the long-lived assets was determined by
estimating future discounted cash flows of such assets over their remaining
useful lives. The amount of the write down has been reported in amortization
expenses on the accompanying statements of operations. The amount of the write
down affected the carrying value of the following intangible assets ($'s in
thousands):

F-13

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the three months ended December 31, 2001, Metrocall again reviewed the
carrying value of its long-lived assets for impairment. Factors that indicated
an impairment had occurred in this period included a greater than expected
decline in actual and expected future recurring traditional revenues and
subscribers and a slower than expected growth rate in its advanced messaging
business. Based on its analysis, Metrocall wrote down the carrying value of its
long-lived assets by approximately $108.2 million to their estimated fair value,
which was determined by estimating future discounted cash flows of such assets
over their remaining useful lives. The amount of the write down has been
reported in depreciation and amortization expenses on the accompanying
statements of operations. The amount of the write down affected the carrying
value of the following assets ($'s in thousands):

5. SUPPLEMENTARY BALANCE SHEET INFORMATION

Prepaid expenses and other current assets and accrued expenses and other
current liabilities consist of (in thousands):

F-14

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT AND LEASE OBLIGATIONS

Long-term debt and capital lease obligation consist of the following ($'s
in thousands):

Scheduled maturities of long-term debt due after December 31, 2001 are as
follows (in thousands): $19,720 in 2002, $65,536 in 2003, $12,082 in 2004, and
$101,893 in 2005, and $562,118 thereafter. The company has classified all
amounts outstanding under its credit facility and senior notes as current
because the company is no longer in compliance with several of the financial
covenants on its credit facility and has failed to make scheduled interest
payments on its senior subordinated notes since March 15, 2001. See further
discussion in Note 2.

The estimated fair value of the long-term debt excluding capital lease
obligations is listed below. The fair value of the senior subordinated notes and
credit facility is based on market quotes or transactions as of or around the
dates indicated.

Credit Facility

On March 17, 2000, Metrocall and its bank lenders entered into a Fifth
Amended and Restated Credit Facility (the "credit facility"). Under the credit
facility, subject to certain conditions, Metrocall was permitted to borrow up to
$200.0 million under two loan facilities. Facility A was a $150.0 million
reducing revolving credit facility, and Facility B was a $50.0 million term loan
facility. The credit facility is secured by substantially all of the company's
assets.

In April 2001, Metrocall's bank lenders delivered a notice of default based
on the failure to make the scheduled interest payments on the senior
subordinated debt at that time. The bank lenders have reduced the level of their
commitments from an aggregate of $200.0 million to $133.0 million and have
reserved their rights with respect to this default, and, absent a waiver or
other agreement by the banks, could accelerate Metrocall's bank debt. In the
event any lender seeks to accelerate its indebtedness, Metrocall likely would
file

F-15

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for protection under Chapter 11 of the Bankruptcy Code. At December 31, 2001,
there was $133.0 million outstanding under the credit facility

In February, 2002, Metrocall and its bank lenders entered into the Third
Amendment and Limited Waiver to the Fifth Amended and Restated Loan Agreement
(the "Third Amendment"), effective as of January 1, 2002. The amendment amended
certain sections, which generally pertain to the revocation of the option to
borrow a eurodollar advance. In addition, the applicable margin was also amended
to 2.875% effective January 1, 2002, retroactive for interest on all base rate
advances outstanding for the period October 1, 2001 through January 1, 2002.

Under the credit facility, interest accrues on base rate advances at the
prime lending rate plus an applicable margin of 2.875%. Interest payments are
due monthly on the last business day of each month. Metrocall's majority lenders
have the ability to request an additional 2% default rate of interest above the
base rate plus applicable margin described above. The majority lenders signatory
to the Third Amendment agreed to a limited waiver that prohibits them from
demanding for payment of any default interest that has accrued between March 16,
2001 and January 1, 2002 on any amounts outstanding ($'s in thousands);

Senior Subordinated Notes/ Extraordinary Gain

During the year ended December 31, 2000, Metrocall issued 8,619,537 shares
of its common stock in exchange for $73.4 million aggregate principal amount of
its outstanding senior subordinated notes. As a result of these exchanges,
Metrocall recognized an extraordinary gain of $22.9 million, which represented
the difference between the carrying value of the notes at the time of the
exchange and the fair value of the common stock issued, less the write-off of a
pro-rata portion of the related deferred financing costs.

As described in Note 2, during 2001, Metrocall suspended the payments due
to the holders of its senior subordinated notes and consequently is in default
of the indentures of each series. Principal amounts outstanding and accrued, and
unpaid interest on each subordinated notes series at December 31, 2001 are as
follows ($'s in thousands):

F-16

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Each series of senior subordinated notes contains various covenants (that
Metrocall is currently in violation of), that among other restrictions, limit
the company's ability to incur additional indebtedness, pay dividends, engage in
certain transactions with affiliates, sell assets and engage in mergers and
consolidations except under certain circumstances.

In the event of a change of control of Metrocall, as defined in each
subordinated note indenture, each note holder will have the right to require
that Metrocall purchase such holders' subordinated notes at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid interest
to the date of repurchase.

Metrocall made cash payments of interest on long term debt of $74.1
million, $82.0 million and $21.0 million for the years ended December 31, 1999,
2000, and 2001 respectively.

LEASE OBLIGATIONS

Metrocall has various operating lease arrangements (as lessee) for office
space and communications equipment sites. Rental expenses related to operating
leases were approximately ($'s in thousands) $48,311, $47,547 and $52,704 for
the years ended December 31, 1999, 2000 and 2001, respectively.

Minimum rental payments as of December 31, 2001, required under operating
leases that have initial or remaining non-cancelable lease terms in excess of
one year are as follows ($'s in thousands): $26,038 in 2002, $18,674 in 2003,
$13,454 in 2004, $7,780 in 2005, $3,580 in 2006 and $2,291 thereafter.

Rent expense for lease agreements with related parties for office space,
tower sites and transmission systems, excluding consolidated entities, was
approximately (in thousands) $997.0, $980.0 and $14.0 for the years ended
December 31, 1999, 2000 and 2001, respectively. Metrocall leases office and
warehouse space from a company owned by a director. The annual rental commitment
under these leases is approximately $14.0.

7. COMMON AND PREFERRED STOCK:

At December 31, 2001, Metrocall's authorized capital stock consisted of
200,000,000 shares of common stock and 810,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred"), all with a par value $0.01 per
share.

Common Stock

Due to FCC limitations on the foreign ownership of FCC licenses, no more
than 20 percent of Metrocall's common stock may, in the aggregate, be owned
directly, or voted by a foreign government, a foreign corporation, or resident
of a foreign country. Metrocall's amended and restated certificate of
incorporation permits the redemption of the common stock from stockholders,
where necessary, to protect its regulatory licenses. Such stock may be redeemed
at fair market value or, if the stock was purchased within one year of such
redemption, at the lower of fair market value or such holder's purchase price.

Issuances of Common Stock

On March 17, 2000, Metrocall issued 23,411,633 shares of its common stock
for $2.19 per share to three investors including: PSINet Inc. (PSINet), Aether
Systems, Inc. (Aether) and an affiliate of Hicks, Muse, Tate & Furst
Incorporated (HMT&F). Total proceeds raised from the issuances were $51.3
million. Such proceeds were used for general corporate purposes. Pursuant to the
common stock purchase agreements with each of these investors, each investor has
the right to nominate a representative to Metrocall's Board of Directors.
Metrocall has agreed to register for resale the shares of common stock held by
these investors, subject in each case to certain conditions and limitations.
Because the common stock investments were

F-17

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transactions not involving a public offering, each investment was exempt from
registration pursuant to Section 4(2) of the Securities Act.

Each of the three equity investors also agreed to certain limitations until
March 17, 2002. These limitations include the following: each investor will not,
directly or indirectly, (i) increase its beneficial ownership of any securities
or rights or options to acquire beneficial ownership of any securities of
Metrocall, except by way of stock dividends, stock splits or distributions made
by Metrocall to holders of common stock (Aether may acquire up to 15% of the
issued and outstanding common stock, and HMT&F may acquire up to 15% of the
issued and outstanding common stock, which 15% ownership limit does not include
the shares issuable under or purchased pursuant to the Option Agreement); (ii)
make any public announcement with respect to or submit to Metrocall any proposal
for the acquisition of securities of Metrocall or for any merger, consolidation,
or business combination involving Metrocall or its affiliates or for any
purchase of a substantial portion of the assets of Metrocall or its affiliates;
(iii) make, or in any way participate in, any "solicitation" of "proxies" to
vote any voting securities of Metrocall or become a participant in any "election
contest" (as those terms are defined in Regulation 14A under the Securities
Exchange Act of 1934, as amended (the Exchange Act)); (iv) form, join, or in any
way participate in a "group" (within the meaning of Section 13(d)(3) of the
Exchange Act) with respect to any voting securities of Metrocall; or (v) seek to
influence or influence the management or policies of Metrocall, with the
exception of the investor's designee on the Board of Directors may act to take
action in his capacity as a director of Metrocall.

Metrocall also granted HMT&F two options to purchase additional shares of
Metrocall common stock. Metrocall granted an option to purchase 8,333,333 shares
of common stock (Option I), at an exercise price of $3.00 per share, subject to
adjustment under certain events. Option I may be exercised by HMT&F in whole but
not in part, at any time on or before March 17, 2001. Metrocall also granted
HMT&F (i) an option to purchase 12,500,000 shares of common stock at an exercise
price of $4.00 per share plus, (ii) if HMT&F has not exercised Option I,
8,333,333 shares of common stock at an exercise price per share of $3.00, in
each case subject to adjustment under certain events (collectively, Option II).
Option II may be exercised in whole or in part but only in connection with the
issuance of new equity for cash to finance a business combination or acquisition
(by means of merger, consolidation, exchange, or acquisition of assets, or
otherwise) involving Metrocall or any of its subsidiaries and an aggregate
transactional consideration to the other entity or its equity and debt holders
or to Metrocall and its equity and debt holders having a fair value (as
determined in good faith by Metrocall's Board of Directors) of at least
$50,000,000 (a Qualified Transaction). Option II will terminate on March 17,
2002, except that it can be extended if there are pending active discussions
with respect to a potential Qualified Transaction or material changes in the
terms of a Qualified Transaction. The Option I and Option II transactions are
subject to the expiration of the applicable HSR Act waiting period, the receipt
of any required consent of the FCC, and other customary closing conditions. Both
Options I and II expired unexercised on March 17, 2001 and 2002, respectively.

Series C Preferred

On March 17, 2000, Metrocall also issued 13,250,000 shares of its common
stock to AT&T Wireless, Inc, the sole holder of Metrocall's Series C Convertible
Preferred Stock (Series C Preferred) in exchange for all the issued and
outstanding shares of the Series C Preferred pursuant to a securities exchange
agreement dated February 2, 2000. Metrocall recorded the exchange transaction by
reducing the carrying value of the Series C Preferred at the time of the
transaction of $105.4 million with an increase to common stock and additional
paid-in capital on the balance sheet of $111.5 million and an inducement
expense, as explained below, of $6.3 million. This adjustment represented the
issuance of the shares of Metrocall common stock at its fair market value of
$26.8 million based on the market price per share of Metrocall's common stock on
February 2, 2000 resulting in the elimination of $78.6 million of excess
carrying value of the Series C Preferred, over the fair market value of the
common stock issued.

F-18

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Metrocall recognized an "inducement" expense for purposes of determining
the net loss applicable to common stockholders. The inducement expense
represented the excess of (1) the fair value of the 13,250,000 shares of common
stock issued to the holder of the Series C Preferred over (2) the fair value of
the common stock that would have been issued pursuant to the original conversion
terms of the Series C Preferred. Although the Series C Preferred was not
convertible into common stock at that time the exchange transaction occurred,
had the original conversion terms been followed, Metrocall would have issued
approximately 10,100,000 shares based on the carrying value of the Series C
Preferred on the date of the exchange. The inducement expense represents the
fair value of the 3,150,000 additional shares of common stock that was received
by the holder in the exchange or $6.3 million.

Series A Preferred

At December 31, 2001, there were 298,317 shares of the Series A Preferred
issued and outstanding, including 37,755 shares of Series A Preferred shares
issued during 2001 as dividends. Accrued but unpaid dividends at December 31,
2001, were approximately $1.3 million. Each share of the Series A Preferred has
a stated value of $250 per share and has a liquidation preference over shares of
Metrocall's common stock equal to the stated value per share. The Series A
Preferred carries a dividend of 14% of the stated value per year, payable
semiannually in cash or in additional shares of the Series A Preferred, at
Metrocall's option. Upon the occurrence of a triggering event, as defined in the
certificate of designation for the Series A Preferred, and so long as the
triggering event continues, the dividend rate increases to 16% per year.
Triggering events include, among other events, (i) Metrocall issues or incurs
indebtedness or equity securities senior with respect to payment of dividends or
distributions on liquidation or redemption to the Series A Preferred in
violation of limitations set forth in the certificate of designation, and (ii)
default on the payment of the principal indebtedness in an amount of $5,000,000
or more.

Holders of the Series A Preferred have the right, beginning five years from
the date of issuance, to convert their Series A Preferred (including shares
issued as dividends) into shares of common stock based on the market price of
the common stock at the time of conversion. The Series A Preferred may, at the
holders' option, be converted sooner upon a change of control of Metrocall, as
defined in the certificate of designation. At December 31, 2001, Metrocall had
the option to redeem the Series A Preferred in whole or in part (subject to
certain minimums for the stated value of $250 per share). The Series A Preferred
must be redeemed on November 15, 2008, for an amount equal to the stated value
plus accrued and unpaid dividends. Metrocall is accreting the Series A Preferred
stock to its redemption value.

Holders of Series A Preferred have the right to elect two members to
Metrocall's Board of Directors. If a triggering event has occurred and is
continuing, the holders of the Series A Preferred have the right to elect
additional directors so that directors elected by such holders shall constitute
no less than 40% of the members of the Board of Directors. Metrocall is required
to obtain the approval of the holders of not less than 75% of the Series A
Preferred before undertaking (i) any changes in Metrocall's certificate of
incorporation and bylaws that adversely affect the rights of holders of the
Series A Preferred, (ii) a liquidation, winding up or dissolution of Metrocall
or the purchase of shares of capital stock of Metrocall from holders of over 5%
of the issued and outstanding voting securities, (iii) any payment of dividends
on or redemption of common stock; or (iv) issuance of any additional shares of
the Series A Preferred (except in payment of dividends) or any shares of capital
stock having preferences on liquidation or dividends ranking equally to the
Series A Preferred. Metrocall is also required to obtain approval of holders of
not less than a majority of the issued and outstanding Series A Preferred before
undertaking (i) any acquisition involving consideration having a value equal to
or greater than 50% of the market capitalization of the company or (ii) any sale
of Metrocall unless it redeems the Series A Preferred.

F-19

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Warrants

In connection with the issuance of the Series A Preferred discussed above,
Metrocall issued 159,600 warrants to purchase common stock. Each warrant
represented the right of the holder to purchase 18.531 shares of common stock or
an aggregate of 2,957,529 shares of common stock at an exercise price per share
of $2.74. During 2000, 1,102,920 shares of common stock were issued upon
exercise of 59,600 warrants for proceeds of $2.678 million. Metrocall received
11,932 shares of Series A Preferred in lieu of full cash proceeds. The 100,000
remaining warrants expired, unexercised on November 15, 2001.

Preferred Stock Rights Plan

In February 2000, the Board of Directors adopted a stockholders' rights
plan and declared a dividend distribution of one preferred share purchase right
("Right") for each outstanding share of the common stock. Each Right, when
exercisable, entitles the registered holder to purchase from Metrocall 1/1000th
of a share of Series E Junior Participating Preferred Stock, par value $.01 per
share (the "Series E Preferred") at a price of $50 per 1/1000th share, subject
to adjustment (the "Purchase Price"). For purposes of the Rights Plan, the Board
of Directors has designated 100,000 shares of Series E Preferred, which amount
may be increased or decreased by the Board of Directors.

The Rights will separate from the common stock and a distribution of Right
Certificates (as defined below) will occur upon the earlier of the following
dates (the earlier of such dates, the "Distribution Date"): (1) twenty business
days following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
common stock (the "Share Acquisition Date"), or (2) twenty business days (or
such later date as the Board of Directors may determine) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person (other than the Excluded Persons as defined below) of 20%
or more of the outstanding shares of common stock, in either (1) or (2) other
than pursuant to a Qualified Offer (as defined below).

The Rights are not exercisable until the Distribution Date and will expire
at the close of business on February 25, 2010, unless earlier redeemed or
exchanged by Metrocall as provided in the Rights Agreement.

In the event that a person (other than the Excluded Persons, as defined)
becomes the beneficial owner of 20% or more of the then outstanding shares of
common stock (except pursuant to an offer for all outstanding shares of common
stock and on terms that at least a majority of independent directors determine
to be fair to and otherwise in the best interests of Metrocall and its
stockholders (a "Qualified Offer")) (a "Flip-in Event"), each holder of a Right
will, after the end of the Redemption Period (defined below), have the right to
exercise the Right by purchasing, for an amount equal to the Purchase Price,
shares of common stock (or, in certain circumstances, cash, property or other
securities of Metrocall) having a value (determined pursuant to a formula set
forth in the Rights Agreement) equal to two times such amount. Notwithstanding
any of the foregoing, following the occurrence of a Flip-in Event, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void. However,
Rights are not exercisable following the occurrence of a Flip-in Event until
such time as the Rights are no longer redeemable by Metrocall as set forth
below.

In the event that, at any time following the Share Acquisition Date, (1)
Metrocall is acquired in a merger or other consolidation transaction in which
Metrocall is not the surviving corporation (other than a merger or consolidation
transaction that follows a Qualified Offer), (2) Metrocall engages in a merger
or consolidation transaction (other than a merger or consolidation transaction
that follows a Qualified Offer) in which Metrocall is the surviving corporation
and its common stock is changed into or exchanged for other securities or
assets, or (3) 50% or more of Metrocall's assets or earning power is sold or
transferred (other than to

F-20

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Metrocall or a wholly owned subsidiary of Metrocall), each holder of a Right
(except Rights that previously have been voided as set forth above) shall, after
the expiration of the Redemption Period (defined below), have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the Purchase Price of the Right.

At any time after a person or group of affiliated or associated persons
becomes an Acquiring Person, the Board of Directors may exchange the Rights
(other than Rights owned by such person or group, which have become void), in
whole or in part, at an exchange ratio of one share of common stock, per Right
(subject to adjustment).

The Purchase Price payable, and the number of 1/1000ths of a Preferred
Share or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution to holders of the
Rights in certain circumstances.

In general, the Board of Directors may cause Metrocall to redeem the Rights
in whole, but not in part, at any time ending on the earlier of the close of
business on (1) the 20th day following the Share Acquisition Date or (2)
February 25, 2010 (the "Redemption Period") at a price of $.0001 per Right
(payable in cash, common stock or other consideration deemed appropriate by the
Board of Directors). Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of Metrocall, including, without
limitation, the right to vote or to receive dividends.

8. EMPLOYEE STOCK OPTION AND OTHER BENEFIT PLANS

STOCK OPTION PLANS

1993 Stock Option Plans

Under the 1993 Metrocall Stock Option Plan, as amended, (the "1993 Plan"),
options to purchase up to an aggregate of 975,000 shares of common stock were
reserved for grants to key employees. The 1993 Plan limits the maximum number of
shares that may be granted to any person eligible under the 1993 Plan to
325,000. All options have been issued with exercise prices equal to the fair
market value at date of grant. All options granted under the 1993 Plan become
fully vested and exercisable on the second anniversary of the date of grant.
Each option granted under the 1993 Plan will terminate no later than ten years
after the date the option was granted. In 2002, Metrocall terminated the 1993
Plan.

Under the 1993 Metrocall Directors Stock Option Plan (the "Directors
Plan"), options to purchase up to an aggregate of 25,000 shares of common stock
are available for grants to members of the Board of Directors who are neither
officers nor employees of Metrocall ("Eligible Director"). Options issued under
the Directors Plan vest fully on the six-month anniversary of the date of grant.
Each Eligible Director was also granted an option to purchase 1,000 shares of
common stock on the first and second anniversaries of the grant date of the
initial option if the director continues to be an Eligible Director on each of
such anniversary dates. In 2002, Metrocall terminated the Directors Plan.

1996 Stock Option Plan

Under the Metrocall 1996 Stock Option Plan (as amended, the "1996 Plan"),
options to purchase up to an aggregate of 10.5 million shares of common stock
have been reserved for grant to key employees, officers and non-employee
directors ("Qualified Directors"). The 1996 Plan limits the maximum number of
shares that may be granted to any person eligible under the 1996 Plan to 1
million in any calendar year. If any option granted under the 1996 Plan expires
or terminates prior to exercise in full, the shares subject to that option shall
be available for future grants under the 1996 Plan. Substantially all employees
and Qualified Directors of Metrocall are eligible to participate in the 1996
Plan. All options granted under the 1996 Plan become fully vested and
exercisable on the second anniversary of the date of grant. Each option granted
under the 1996

F-21

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Plan will terminate no later than ten years from the date the option was
granted. In 2002, Metrocall terminated the 1996 Plan.

Under the 1996 Plan, both incentive stock options and non-statutory stock
options are available for grant to employees. For incentive stock options, the
option price shall not be less than the fair market value of a share of common
stock on the date the option is granted. For non-statutory options, the option
price shall not be less than the par value of common stock. All options granted
to Qualified Directors shall be non-statutory options. Upon approval of the 1996
Plan, each Qualified Director was granted an initial option to purchase 10,000
shares of common stock. Thereafter, every Qualified Director will be granted an
initial option to purchase 10,000 shares of common stock at the time the
Qualified Director commences service on the Board of Directors. Subsequently,
each Qualified Director who received an initial grant of an option shall receive
an additional option to purchase 1,000 shares of common stock on each
anniversary of the initial option, provided that the director continues to be a
Qualified Director on each anniversary date. Options granted to Qualified
Directors shall become fully vested six months after the date of grant. The
exercise price for options granted to Qualified Directors shall be the fair
market value of common stock on the date the option is granted.

Employee Stock Purchase Plan

Under the Metrocall, Inc. 1996 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), up to 2.0 million shares of common stock may be purchased by
eligible employees through payroll deductions of up to 15% of their eligible
compensation with a maximum of 5,000 shares purchased in any one payroll
deduction period. Substantially all full-time employees are eligible to
participate in the Stock Purchase Plan. Participants may elect to purchase
shares of common stock at the lesser of 85% of the fair market value on either
the first or last trading day of each deduction period. No employee may purchase
in one calendar year shares of common stock having an aggregate fair market
value in excess of $25,000. Employees were issued 276,967 shares, 426,726
shares, and 761,240 shares of common stock in 1999, 2000, and 2001,
respectively, under the Stock Purchase Plan. Effective August 10, 2001,
Metrocall terminated the Stock Purchase Plan.

Accounting for Stock-Based Compensation

Metrocall accounts for its stock option plans under Accounting Principles
Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees." In
accordance with the recognition requirements set forth under this pronouncement,
no compensation expense was recognized for the three years ended December 31,
2001 because Metrocall had granted options to acquire common stock at exercise
prices equal to the fair value of the common stock on the dates of grant. In
1996, Metrocall had elected to adopt SFAS No. 123 "Accounting for Stock Based
Compensation" for disclosure purposes only.

For disclosure purposes, the fair value of each stock purchase and option
grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions in 1999 and 2000,
respectively: expected volatility of 79.77% and 211.52%, risk free interest rate
of 6.4% and 5.1% and expected life of ten years for all option grants. The
weighted-average fair value of stock options granted in 1999 and 2000 was $2.88
per share, $0.47 per share respectively. Metrocall granted no stock options in
2001.

Under the above model, the total value of stock options granted in 1999 and
2000 was approximately $5.0 million and $1.1 million, respectively, which would
be recognized ratably on a pro forma basis over the two year vesting period. Had
purchase plans been determined in accordance with SFAS No. 123, Metrocall

F-22

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loss and loss per share information would have been increased to the pro forma
amounts indicated below ($'s in thousands, except per share info):

The resulting pro forma compensation cost may not be representative of that
to be expected in future years. Stock option transactions are summarized as
follows:

The following table summarizes information about the options outstanding at
December 31, 2001:

F-23

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Profit Sharing Plan and Retirement Benefits

The Metrocall, Inc. Savings and Retirement Plan (the "Plan"), a combination
employee savings plan and discretionary profit-sharing plan, is open to all
employees working a minimum of twenty hours per week with at least six months of
service. The Plan qualifies under section 401(k) of the Internal Revenue Code
(the "IRC"). Under the Plan, participating employees may elect to voluntarily
contribute on a pretax basis between 1% and 15% of their salary up to the annual
maximum established by the IRC. Metrocall has agreed to match 50% of the
employee's contribution, up to 4% of each participant's gross salary.
Contributions made by Metrocall vest 20% per year beginning on the second
anniversary of the participant's employment. Other than Metrocall's matching
obligations, discussed above, profit sharing contributions are discretionary.
Metrocall's matching contributions under the Plan recorded were $1.4 million,
$1.5 million and $1.7 million for the years ended December 31, 1999, 2000 and
2001, respectively.

9. CONTINGENCIES

Metrocall is subject to certain legal and regulatory matters in the normal
course of business. In the opinion of management, the outcome of such assertions
will not have a material adverse effect on the financial position or the results
of the operations of Metrocall.

In November 1998, Electronic Tracking Systems Pty Limited ("ETS"), an
Australian company, commenced a proceeding against ProNet Inc. ("ProNet") (of
which Metrocall is the successor) before the Industrial Relations Commission of
New South Wales, Australia. ETS alleged that ProNet orally agreed to extend a
contract with ETS pursuant to which ProNet had licensed its electronic tracking
system to ETS in Australia and that ProNet breached the agreement. The complaint
seeks damages in the amount of $33 million (Australian) (approximately US $17
million at current exchange rates), as well as declaratory and other relief.
Metrocall had filed a motion to dismiss the proceeding on jurisdictional
grounds, including that the contract between ETS and ProNet provides for
arbitration in the State of Texas under Texas law. A justice of the Industrial
Relations Commission ruled that the Commission would exercise jurisdiction over
the dispute, and that decision has been upheld by a ruling of the full
Commission. Metrocall sought, but was denied, permission to appeal this order to
the High Court of Australia. Metrocall believes the claim is without merit.

In November 2001, Metrocall commenced an arbitration proceeding before the
American Arbitration Association pursuant to the contract between ProNet and ETS
seeking a declaration that ProNet did not breach the agreement and that
Metrocall has no liability to ETS. If successful, Metrocall will argue that this
arbitral determination, and not any adjudication by the Industrial Relations
Commission of New South Wales, determines the rights of the parties in the
United States and everywhere else in the world except Australia. To assure its
continued right to arbitrate, Metrocall sought and obtained a temporary
injunction from a Texas state court enjoining ETS and its principal from taking
any actions to try to enjoin or interfere with the AAA arbitration commenced by
Metrocall.

Spectrum Management, L.L.C. ("Spectrum") has asserted a claim against
Metrocall alleging breaches of the contract under which Metrocall sold to
Spectrum the electronic tracking business that it had previously acquired from
ProNet. Spectrum asserts that the alleged breaches have caused it to sustain
damages in the amount of $6 million. Spectrum has not taken any other action
with respect to this claim. Two former ProNet officers have recently been joined
as defendants to the Australian proceedings. In accordance with the Agreement
and Plan of Merger by which Metrocall acquired ProNet, Metrocall has agreed to
indemnify those former ProNet officers for the costs of their defense in the
suit. Metrocall believes this claim is without merit.

F-24

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES

As of December 31, 2001, Metrocall has a net operating loss carryforward of
approximately $451.0 million which expires in the years 2002 through 2021. The
benefits of this carryforward may be limited in the future as a result of
historical changes in the ownership of Metrocall. Net operating loss
carryforwards may be used to offset up to 90 percent of Metrocall's alternative
minimum taxable income.

As of December 31, 2001, the tax effect of the net operating loss
carryforward, together with net temporary differences, represents a deferred tax
asset for which management has provided a 100% valuation allowance due to the
uncertainty of future taxable income. This carryforward will provide a benefit
for financial reporting purposes if it is utilized to offset taxable income in
the future.

The components of net deferred tax assets (liabilities) were as follows as
of December 31, 2000 and 2001 ($'s in thousands):

F-25

METROCALL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The income tax benefit for the years ended December 31, 1999 and 2000, is
primarily the result of the amortization of the basis differences attributable
to purchase accounting related mergers and acquisitions occurring in 1998 and
prior years and is composed of the following ($'s in thousands):

The benefit for income taxes for the years ended December 31, 1999, 2000
and 2001, results in effective rates that differ from the Federal statutory rate
as follows:

Metrocall made cash payments for income taxes of $216,000, $80,000 and $0
for the years ended December 31, 1999, 2000 and 2001, respectively.

11. UNAUDITED QUARTERLY FINANCIAL DATA

The following table of unaudited quarterly financial data has been prepared
from the financial records of Metrocall, without audit, and reflects all
adjustments that are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods presented.
($'s in thousands, except per share amount):

The sum of the per share amounts may not equal the annual amounts because
of the changes in the weighted-average number of shares outstanding during the
year.

F-26

SCHEDULE II

METROCALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS)

- ---------------
(1) Allowance for doubtful accounts acquired for NationPage and SouthEast
Paging, Inc. in 2000 and 2001, respectively.

(2) Deductions represent write-offs of accounts receivable.

S-1

EXHIBIT INDEX

(m) Incorporated by reference to Metrocall's Current Report on
Form 8-K filed with the Commission on February 2, 2001.
(n) Incorporated by reference to Metrocall's Annual Report on
Form 10-K for the year ended December 31, 1999 filed with
the Commission on March 11, 2000.
(o) Incorporated by reference to Metrocall's Proxy Statement
filed with the Commission on August 31, 1998.
(p) Incorporated by reference to Metrocall's Registration
Statement on Form S-4, as amended (File No. 333-06919) filed
with the Commission on June 27, 1996.
(q) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 filed
with the Commission on November 14, 1997.
(r) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 filed with the
Commission on August 14, 1998.
(s) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 filed with the
Commission on August 13, 1999.
(t) Incorporated by reference to Metrocall's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 filed
with the Commission on November 14, 1994.
(u) Incorporated by reference to Metrocall's Current Report on
Form 8-K/A, as amended, filed with the Commission on April
6, 2001.
(v) Incorporated by reference to Metrocall's Schedule 13D/A, as
amended, filed with the Commission on July 18, 2001.
(w) Incorporated by reference to Metrocall's Annual Report on
Form 10-K/A, as amended, for the year ended December 31,
2000 filed with the Commission on April 30, 2001.
(x) Incorporated by reference to Metrocall's Annual Report on
Form 10-K, for the year ended December 31, 2000 filed with
the Commission on April 2, 2001.
(y) Incorporated by reference to Metrocall's Current Report on
Form 8-K, filed with the Commission on March 4, 2002.