METROCALL INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-21924

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

DELAWARE 54-1215634
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 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

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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:

2

PART I. FINANCIAL INFORMATION

ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

METROCALL, INC. AND SUBSIDIARIES

DEBTOR-IN-POSSESSION
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC. AND SUBSIDIARIES

DEBTOR-IN-POSSESSION
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

See notes to interim condensed consolidated financial statements.
4

METROCALL, INC. AND SUBSIDIARIES

STATEMENT OF STOCKHOLDERS' EQUITY
DEBTOR-IN-POSSESSION
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC. AND SUBSIDIARIES

DEBTOR-IN-POSSESSION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

See notes to interim condensed consolidated financial statements.
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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002

1. GENERAL

Preparation of Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial
statements included herein have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). The interim
condensed consolidated financial statements include the consolidated accounts of
Metrocall, Inc. and our majority owned subsidiaries (collectively, the Company
or Metrocall). In the opinion of management, all adjustments (consisting of
normal recurring adjustments except as discussed herein) necessary for a fair
statement of the financial position, results of operations and cash flows for
the interim periods presented have been made. The preparation of the financial
statements includes estimates that are used when accounting for revenues,
allowance for uncollectible receivables, telecommunications expenses,
reorganization and restructuring expenses, and depreciation and amortization.
Actual results could differ from those estimates. The results of operations for
the six-month period ended June 30, 2002, are not necessarily indicative of the
results to be expected for the full year. Some information and footnote
disclosures normally included in financial statements or notes thereto prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such SEC rules and regulations. We believe, however, that
our disclosures are adequate to make the information presented not misleading.
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in Metrocall's 2001 Annual Report on Form 10-K.

Voluntary Chapter 11 Filing

On May 23, 2002, Metrocall (other than Metrocall Ventures, Inc.) executed
Lock-Up Agreements with eight out of the nine lenders holding in the aggregate
in excess of 89% of the claims under our senior secured credit facility (e.g.,
$133 million of principal) and each member of the ad hoc committee representing
holders of our senior subordinated notes representing approximately 67% of the
total outstanding unsecured public noteholder claims (e.g., $627 million of
principal). The Lock-Up Agreements, among other things, provide for and require
the senior lenders and the ad hoc noteholder committee members to support and
vote for the plan of reorganization described below.

On June 3, 2002, Metrocall, Inc. together with its licensing and operating
subsidiaries Metrocall USA, Inc., Advanced Nationwide Messaging Corporation Inc.
(ANMC), MSI Inc. (MSI), McCaw RCC Communications, Inc. (McCaw), and Mobilfone
Service, LP (Mobilfone) filed voluntary petitions for relief under chapter 11 of
the U.S. Bankruptcy Code for the District of Delaware and is presently operating
its businesses as debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court in Delaware (the "Bankruptcy Court"). The chapter 11
cases are being jointly administered for procedural purposes only before the
Bankruptcy Court under the docket of Metrocall, Inc. Case No. 02-11579. We have
continued to manage and operate our assets and businesses pending the
confirmation of a reorganization plan and subject to the supervision and orders
of the Bankruptcy Court. Metrocall Ventures, Inc. (Ventures), one of our
subsidiaries, did not file a voluntary petition and is not a party to the
chapter 11 proceedings.

Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to continue to operate
its business in the ordinary course and to reorganize its business for the
benefit of its creditors. In addition to permitting the rehabilitation of the
debtor, section 362 of the Bankruptcy Code generally provides for an automatic
stay of substantially all judicial, administrative and other actions or
proceedings against a debtor and its property, including all attempts to collect
claims or enforce liens that arose prior to the commencement of the debtor's
case under chapter 11. Also, the debtors may assume or reject pre-petition
executory contracts and unexpired leases pursuant

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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to section 365 of the Bankruptcy Code and other parties to executory contracts
or unexpired leases being rejected may assert rejection damage claims as
permitted thereunder.

On June 17, 2002, an official committee of unsecured creditors was
appointed by U.S. Trustee consisting of The Bank of New York, HSBC Bank USA, and
Product Support Services, Inc. This official committee has the right to be heard
on all matters that come before the Bankruptcy Court and has recommended to all
unsecured creditors that they support and vote for the plan of reorganization
described below.

As part of our chapter 11 case, Metrocall will routinely file pleadings,
documents and reports with the Bankruptcy Court which may contain updated,
additional or more detailed information about us, our assets and liabilities or
financial performance. Copies of the filings in our chapter 11 case are
available during regular business hours at the office of the Clerk of the
Bankruptcy Court or at the Bankruptcy Court's internet site at:
http://www.deb.uscourts.gov or Bankruptcy Management Corporation's internet site
at: http://www.bmccorp.net/metrocall.

Confirmation and consummation of a plan of reorganization are the principal
objectives of a chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against, and interests in, a debtor. On
June 3, 2002, we filed with the Bankruptcy Court our Proposed Joint Plan of
Reorganization and Disclosure Statement. On June 17, 2002, we filed our First
Amended Proposed Joint Plan of Reorganization and, on June 18, 2002, our First
Amended Disclosure Statement. Subsequently, on July 18, 2002, we submitted our
Second Proposed Joint Plan of Reorganization (the "Plan") and Proposed Second
Amended Disclosure Statement (the "Disclosure Statement"). Plan Supplements were
filed on July 3rd, July 18th, July 25th and August 1st, 2002. The Plan provides
for separate classes of claims and interests for creditors and equity holders of
each of the Debtors. In addition as part of its Plan, Metrocall will implement a
corporate restructuring intended to consolidate operations and preserve the
maximum value of the reorganized entities. Our restructuring includes the
implementation or completion of certain cost cutting measures including a
reduction in work force and elimination of certain redundancies in operations,
such as the closing and/or consolidation of certain office, retail and
operational facilities, much of which has been completed already.

The consolidation of our operations shall include the following:

(i) On or immediately prior to the date that the Plan is effective,
each of ANMC, MSI and Mobilfone will consolidate with and into McCaw and
all assets and liabilities of these companies will be conveyed to McCaw.

(ii) Immediately following the consolidation described above
Metrocall, Inc. will contribute all right, title and interest in all of its
assets to McCaw other than (a) certain intellectual property to be conveyed
to the license subsidiary, Metrocall USA, (b) a sufficient amount of cash
to pay claims and to administer the Metrocall, Inc. estate and (c) its
ownership interest in Inciscent, Metrocall USA or Ventures. These assets
shall be contributed subject to all existing liens in place at that time.
McCaw will simultaneously assume all of the underlying obligations
(including cure costs, if any) directly attributable to these assets;

(iii) Concurrently with the contributions by Metrocall, Inc. to McCaw,
Metrocall, Inc. will contribute certain intellectual property (including
trademarks, trade names, and copyrights) to Metrocall USA. Immediately
thereafter, Metrocall USA will enter into a license agreement with McCaw
for the use of the FCC licenses and other intellectual property; and

(iv) Metrocall, Inc., McCaw and Metrocall USA will then each
reorganize and continue in operations. Following the mergers and capital
contributions described above, McCaw and Metrocall

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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

USA shall each reincorporate under the laws of the State of Delaware with
amended and restated certificates of incorporation and by-laws.

The reorganized and reincorporated entities will be Metrocall Holdings,
Inc. (hereinafter referred to as HoldCo., formerly named Metrocall, Inc.),
Metrocall, Inc. (hereinafter referred to OpCo., formerly named McCaw) and
Metrocall USA, Inc. (hereinafter referred to as LicenseCo.), respectively.
HoldCo., LicenseCo. and OpCo. shall be governed by the laws of the State of
Delaware and shall each continue to maintain their respective separate corporate
existence with all its rights, privileges, immunities, powers and franchises.

Immediately thereafter, distributions to creditors and equity interests of
the applicable debtors will commence and will include, among other
distributions:

(i) The execution by OpCo. of a new $60.0 million senior secured note
and the related loan and security agreements in favor of the senior lenders
under our existing pre-petition senior secured credit facility in
accordance with the Plan. OpCo. shall be the direct borrower of the senior
lenders as a result of the reorganization described above while LicenseCo
together with HoldCo. and Ventures will each guaranty the senior secured
note. The guaranty of HoldCo. shall be secured by a pledge of its stock and
ownership interests in LicenseCo., as well as a pledge of its stock and
ownership interests in OpCo., Ventures and Inciscent, Inc.;

(ii) The execution by HoldCo. of $20.0 million secured PIK notes and
related loan and security agreements in favor of the senior lenders in
accordance with Metrocall's Plan. LicenseCo. and Ventures shall each
guaranty the secured PIK notes;

(iii) OpCo., on the Effective Date, or as soon as practicable
thereafter, will pay all holders of allowed general unsecured claims
against any of the consolidated operating subsidiaries 100% of such allowed
claims in cash or pursuant to any other such arrangement as may be agreed
to between the parties;

(iv) Cash distributions to holders of allowed tax priority claims,
administrative claims and convenience claims;

(v) HoldCo., on the date that the Plan is effective, or as soon as
practicable thereafter, will distribute 5,300,000 shares of new preferred
stock, representing 88.3% of the preferred stock to be issued and $53.0
million of the total $60.0 million initial liquidation preference to
holders of the allowed claims of the senior lenders;

(vi) HoldCo. beginning on the date that the Plan is effective, and
through interim distributions thereafter (to give effect to resolutions of
disputed claims through reserves to be established), will distribute
530,000 shares of the new preferred stock, representing 8.3% of the
preferred stock to be issued and $5.0 million of the $60.0 million initial
liquidation preference to the holders of allowed general unsecured claims
against Metrocall, Inc.;

(vii) HoldCo. will issue the remaining 3.34% of the new preferred
stock, or 200,000 shares, representing $2.0 million of the $60.0 million
initial liquidation preference for distribution to Metrocall's senior
executives in connection with their respective new employment agreements
with HoldCo. and OpCo; and

(viii) HoldCo. will distribute 420,000 shares of the HoldCo. new
common stock, representing 42% of the shares to be issued to the allowed
claims of the senior lenders (subject to ratable dilution for the issuance
of restricted stock and options under a stock option plan to employees of
OpCo. not to exceed 7%) and on the Effective Date and through interim
distributions thereafter (to give effect to resolutions of disputed claims
through reserves to be established) will distribute 580,000 shares of

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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the HoldCo. new common stock, representing 58% of the total shares to be
issued, to the allowed holders of general unsecured claims against
Metrocall, Inc. (subject to ratable dilution for the issuance of restricted
stock and options under a stock option plan to employees of OpCo. not to
exceed 7%).

The Bankruptcy Code requires, subject to certain exceptions, that our Plan
be accepted by all impaired classes of claims and equity interests. Classes of
claims that are not "impaired" under a plan are deemed to have accepted the plan
and are not entitled to vote. Classes of claims and equity security interests
that would receive no distribution or benefit under a plan are deemed to have
rejected the plan and, likewise, are not entitled to vote. All other impaired
class are entitled to vote on the plan. A class of claims accepts a plan if the
holders of at least 66 2/3% in dollar amount and more than 50% in number of the
allowed claims in that class that actually vote on the plan, vote to accept the
plan. A class of equity interests accepts a plan if at least 66 2/3% of the
allowed interests in that class that actually vote on the plan vote to accept
the plan. Holders of claims or equity interests who fail to vote or who abstain
will not be counted to determine the acceptance or rejection of the plan by any
impaired class. Section 1129(b) of the Bankruptcy Code, commonly referred to as
the "cram down" provision, permits confirmation of a plan of reorganization over
the objection of one or more impaired classes under certain circumstances. We
will seek Bankruptcy Court authority to "cram down" the existing preferred and
common shareholders, who will receive no distributions under the Plan.

On July 18, 2002, the Bankruptcy Court entered an order (1) approving the
Disclosure Statement and scheduling a hearing for confirmation of the Plan, as
may be further amended, and for approval of the assumption and/or rejection of
executory contracts and unexpired leases, (2) establishing objection deadlines
and procedures, and (3) approving forms of notice and solicitation procedures.
The voting deadline is SEPTEMBER 4, 2002 AT 4:00 P.M., Eastern Time. The last
day to file objections to confirmation of the Plan or to the proposed
assumption, assignment and/or rejection of any executory contracts or unexpired
leases has been scheduled for SEPTEMBER 5, 2002 AT 4:00 P.M., Eastern Time.

Confirmation of a plan of reorganization by a bankruptcy court makes the
plan binding upon the debtor, any issuer of securities under the plan, and any
creditors or equity security holders of the debtor. Subject to certain limited
exceptions, the confirmation order discharges the debtor from any debt that
arose prior to the effective date of the plan and substitutes the obligations
specified under the confirmed plan. The hearing for confirmation of our Plan has
been scheduled for on SEPTEMBER 12, 2002 AT 1:30 P.M., Eastern Time.

A copy of the Plan and Disclosure Statement are attached hereto as Exhibits
99.2 and 99.3, respectively.

The accompanying interim consolidated condensed financial statements have
been prepared in accordance with AICPA Statement of Position No. (SOP) 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
and on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business.

Liabilities subject to compromise on the accompanying balance sheets refer
to the liabilities of Metrocall incurred prior to the Petition Date that are
with unrelated parties. In accordance with SOP 90-7, liabilities subject to
compromise are recorded at the estimated amount that is expected to be allowed
on pre-petition claims in the chapter 11 proceedings and are subject to future
adjustments. Adjustments may result from negotiations, actions of the Bankruptcy
Court, further developments with respect to disputed claims, rejection of
executory contracts and unexpired leases, proofs of claim,

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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

implementation of the Plan of Reorganization, or other events. Liabilities
subject to compromise consisted of the following as of June 30, 2002 (dollars in
thousands):

Current maturities of long-term debt........................ $759,802
Accrued interest............................................ 111,910
Accounts payable............................................ 13,424
Deferred revenues........................................... 10,200
Other current liabilities................................... 2,048
--------
Total liabilities subject to compromise................ $897,384
========

In order to record its debt instruments at the amount expected to be
allowed by the Bankruptcy Court in accordance with SOP 90-7, as of the Petition
Date, Metrocall wrote off the debt discount into reorganization expense. See
Note 4 for further detail of reorganization expense.

Metrocall is required to accrue interest expense during the chapter 11
proceedings only to the extent that it is probable that such interest will be
paid pursuant to the proceedings. As only the credit facility will have any
principal recovery pursuant to the Plan of Reorganization, Metrocall recognized
interest expense subsequent to the Petition Date only with respect to the loans
under the credit facility.

Metrocall obtained approval from the Bankruptcy Court to pay or otherwise
honor certain of its pre-petition obligations, including employee wages,
salaries, benefits and other employee obligations, pre-petition claims of
certain critical vendors, cure payments under contracts assumed under the
Bankruptcy Code, and certain other pre-petition claims. These amounts are
included in the liabilities not subject to compromise section of the interim
condensed consolidated balance sheets at June 30, 2002 to the extent they had
not been paid.

The confirmation of the plan of reorganization will result in our adopting
fresh-start accounting in accordance with SOP 90-7 which will materially change
the amounts and classifications reported in future consolidated financial
statements.

2. LIQUIDITY, RISKS AND OTHER IMPORTANT FACTORS

Product Sourcing and Key Suppliers

We do not manufacture any of the paging or messaging devices,
infrastructure and other equipment used in our operations. While the equipment
used in Metrocall's operations is available for purchase from multiple sources,
we have historically limited the number of suppliers to achieve volume cost
savings and, therefore, depend on such manufacturers to obtain sufficient
inventory. We have purchased messaging devices primarily from Motorola, Inc.
(Motorola) and purchased terminals and transmitters primarily from Glenayre
Electronics, Inc. (Glenayre). While both Motorola and Glenayre have announced
that they will no longer sell the messaging equipment we use, we have taken
measures to mitigate any risks to our business. We currently procure traditional
paging devices through a number of alternative manufacturers and similarly
expect that alternative sources for advanced messaging devices and network
equipment will be secured in the foreseeable future. In the first quarter of
2002, we entered into a final purchase agreement with Motorola pursuant to which
we prepaid Motorola for advanced messaging devices. We

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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

believe that this purchase agreement has provided us with sufficient quantities
of advanced messaging devices to meet our needs for the remainder of 2002.

Motorola has licensed both its one-way and two-way technology and patent
rights to multiple manufacturers. A current supply of one-way devices exists to
fulfill its future business prospects. Two-way messaging devices are in
development by multiple businesses and are expected to be available in the first
quarter of 2003. We can make no assurances, however, that we will have a source
for two-way devices of comparable quality or quantities that will be available
beyond 2002.

We currently receive maintenance and support services for our network
infrastructure components from Glenayre through a support services contract
which expires in April 2003 unless extended for an additional 12 months at our
option. We expect 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 we will not experience unexpected delays in obtaining equipment in the
future.

We offer our two-way messaging services using the Reflex25 protocol through
an 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 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 we have not obtained an order authorizing the
assumption of the alliance agreements in Metrocall's Chapter 11 cases on or
before April 30, 2002. On April 30, 2002, Weblink filed a motion in its
bankruptcy cases seeking approval of an extension of the date by which Metrocall
must assume the agreements to a date which is forty-five (45) days after a
bankruptcy filing by Metrocall but not later than October 30, 2002. On July 11,
2002, the Bankruptcy Court approved our assumption of the alliance agreement.

"Right-Size" Restructuring Plan

Our restructuring includes the completion of certain cost-cutting measures
that we began earlier in 2002. We believe that our expense reduction efforts
coupled with a customer base which provides for recurring revenues will allow us
to generate levels of operating and free cash flows that would provide a basis
for restructuring our debt obligations on our balance sheet and for an
improvement in our financial condition and position. We adopted a new business
plan at the beginning of 2002 which has reoriented our sales focus and
operations around servicing our business and government customers. The new plan
also reduces our cost structure to best match management's expectations of
future revenues and operating and free cash flows.

Metrocall's business objectives and operating strategy for the remainder of
2002 have included to-date, and will continue to focus on, maximizing operating
and free cash flows. Key elements of this strategy include:

- Subscriber retention efforts;

- Cost containment and reduction; and

- Advanced messaging.

SUBSCRIBER RETENTION EFFORTS -- We expect that the demand for our
traditional paging services and related revenues will continue to decrease
during the remainder of 2002 and beyond. We still intend to direct our attention
on the placement of traditional paging services but have shifted our sales
emphasis by focusing sales and advertising resources on existing and potential
business and government subscribers placed by our direct sales force. We believe
these customers provide a higher ARPU and lower deactivation percentages than
our other subscribers. We believe because of our more concentrated focus on
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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

our direct business and government customers and the expected decrease in demand
by subscribers, that we can reduce the number of our field service positions and
de-emphasize and/or reduce certain direct sales channels such as our
company-owned retail stores as well as certain indirect distribution channels,
both of which have high subscriber churn statistics.

As a result of our new business objectives and the de-emphasis of certain
sales channels, we expect to reduce our selling and marketing work force by the
end of 2002 by approximately 79 additional positions down to 709 at year end
2002 from 1,401 at the beginning of 2002. Metrocall began implementing these
reductions in March 2002. As of June 30, 2002, we had reduced positions in this
area by 613. We expect that many of these remaining reductions will occur
through normal attrition.

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

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

COST CONTAINMENT AND REDUCTION -- We believe we must further reduce our
operating expenses in the last six months of 2002 to offset the expected
continued reduction in our traditional paging subscriber base and a lower than
anticipated growth rate for advanced messaging subscribers in 2002. We believe
these reductions will be necessary to ensure that we will have the continued
liquidity and resources to continue to provide our traditional and advanced
messaging services. We believe we can further reduce our operating expenses
without affecting our 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; and

- Other initiatives.

Continued rationalization of network operations -- We expect to further
rationalize our network operations as we continue to migrate subscribers from
under-utilized frequencies. During 2002, we expect to deconstruct at least 224
transmitters and implement other telecommunication savings initiatives. As of
June 30, 2002, we deconstructed 211 transmitters and achieved telecommunication
expense reductions of approximately $1.8 million on an annual basis.

Consolidation of call center services -- At December 31, 2001, we had three
call centers in operation and numerous field operation centers that handled
customer service requirements. In early 2002, we consolidated two of the call
centers into one larger call center in Pensacola, Florida.

Consolidation of billing platforms -- We currently operate three separate
billing platforms. During 2002, we will convert two of these platforms into our
largest system, providing for a consolidated, more efficient billing platform
covering all of our operations. In mid-June 2002, we completed the conversion of
one platform and expect to complete the conversion of the second platform in
October 2002. The conversion of each of these systems will result in reductions
in licensing fees, MIS support, field service
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METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs and other incidental expenses. We believe these conversions will permit us
to more effectively manage our customer base and provide customer service
support.

Other initiatives -- Due to the reduction in our subscriber base, we
believe we will be able to reduce positions in general, administrative and
overhead support functions. Although we will focus on subscriber retention and
placements in our traditional operations, we believe 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, we
do not believe we will be required to employ the same number of employees as we
would in a growth mode. We also believe that this work force reduction is
possible given our management information systems, recent upgrades to our
customer service operations and the reduction in the subscriber base which has
resulted in a decrease in staffing requirements of our billing and collections
departments, inventory, and customer service areas and as such, expect no impact
on provisioning of airtime or customer services.

Overall, we expect to reduce our workforce by an annual total of
approximately 962 positions by the end of 2002. As of June 30, 2002,
approximately 792 reductions had occurred. Metrocall estimates severance and
other cash payouts to affected employees will equal up to $5.0 million of which
approximately $3.5 million was paid by June 30, 2002. Metrocall will seek to
take all measures necessary to maintain the morale of its employees and to
preserve the core of remaining employees that will be essential to Metrocall's
reorganization efforts.

There can be no assurances that we will achieve the desired savings as a
result of these initiatives.

ADVANCED MESSAGING -- Metrocall offers advanced messaging services using
narrowband PCS primarily through a strategic alliance agreement with Weblink.
Since December 31, 2000, we have added approximately 115,096 net subscribers to
these services; the majority of these subscribers rent their advanced messaging
devices from Metrocall for periods of up to or greater than 12 months. Under the
terms of the rental agreements with these customers, we receive monthly rental
revenue for each unit and do not expect to recover the device acquisition cost
for a period of up to 8 months following its placement. During the remainder of
2002, we expect to focus on the sale of advanced messaging devices and to
substantially limit the number of subscribers to which we offer leased products.
As a result, we do not expect to achieve the subscriber growth percentages we
had experienced in 2000 and 2001 but expect to substantially reduce the amount
of capital expenditures we incur.

Notwithstanding the above, our ability to offer narrowband PCS services
under our 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, our 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.

Our deteriorating financial results and lack of additional liquidity
indicate that there is substantial doubt about our ability to continue as a
going concern. Our ability to continue as a going concern is dependent upon
several factors, including, but not limited to, our ability to (i) generate
sufficient cash flows to meet our obligations, on a timely basis, (ii) implement
our reorganization plans, (iii) continue to obtain uninterrupted supplies and
services from our vendors, (iv) retain employees, and (v) reduce capital
expenditures and operating expenses.

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

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, Inc., Advanced Nationwide Messaging
Corporation, Inc., Mobilfone Service 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.

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

Revenue Recognition

We recognize revenue under service, rental and maintenance agreements with
customers as the related services are performed. We lease (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. We bundle the sale of two-way paging equipment with the related
service and recognize the revenue and related cost of sales over the expected
customer relationship, which we estimate is one year.

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 immediately 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.

Long-lived Assets

Long-lived assets to be held and used 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 measured by comparing the book
value to the estimated undiscounted future cash flows expected to result from
use of the assets and their eventual disposition. Based on our review at June
30, 2002, we believe that no permanent impairment in the carrying value of
long-lived assets existed at June 30, 2002.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and intangible assets with
indefinite lives no longer be amortized but reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives. Adoption of SFAS No. 142

15

METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

had no impact to the company's results from operations as all goodwill and
intangible assets were written off during 2001 through impairment charges.

The following table provides a reconciliation from reported net loss to net
loss adjusted to exclude goodwill amortization expense (dollars in thousands):

During the three months ended June 30, 2001, we reviewed the carrying value
of our long-lived assets for impairment. As a result, during the three months
ended June 30, 2001, we wrote down the carrying value of our long-lived assets
by approximately $279.7 million to their estimated fair value based on the
analysis. 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 interim condensed statements of operations for the
three and six months ended June 30, 2001. The amount of the write down affected
the carrying value of the following assets, which were acquired through mergers
and acquisitions of traditional paging customers and businesses (dollars in
thousands):

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. REORGANIZATION AND RESTRUCTURING EXPENSES

Reorganization expense in the accompanying interim condensed consolidated
statements of operations for the three and six months ended June 30, 2002
consist of the following (dollars in thousands):

16

METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For the three and six months ended June 30, 2002, $6.0 million and $7.1
million was paid for reorganization expenses, respectively.

5. CONTINGENCIES

Legal and Regulatory Matters

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

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. We sought, but were denied, permission to appeal this order to the
High Court of Australia. We have moved the Industrial Relations Commission to
stay this litigation in light of the automatic stay granted by the Bankruptcy
Court in connection with our reorganization proceedings. While the outcome is
uncertain, we believe the claim is without merit.

In November 2001, we 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, we 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, we obtained a permanent 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 us.

Spectrum Management, L.L.C. (Spectrum) had asserted a claim against us
alleging breaches of the contract under which we sold to Spectrum the electronic
tracking business that we had previously acquired from ProNet, Inc. We settled
this matter with Spectrum in July 2002 without adverse impact to our financial
statements. The settlement is subject to Bankruptcy Court approval, which is
being sought.

We have 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. We
petitioned the FCC to rule that these local transport charges are unlawful and
to award us 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 us; that decision was upheld by
U.S. Court of Appeals for the D.C. Circuit. We have settled our damages claims
with some of these defendants, and are in settlement discussions with the
remaining defendants. We have 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 us. We petitioned the FCC
to order the telephone company to reimburse payments that we

17

METROCALL, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 us. The FCC permitted us to file a supplemental
complaint, to seek monetary damages against the telephone company. We are
currently engaged in settlement discussions with this telephone company. There
are no other litigation matters pending before the FCC at this time which
involve us and that would have any material impact on our business.

6. RECENT 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 assets with indeterminate lives will no longer
be amortized but instead will be subject to periodic impairment testing. These
pronouncements, other than the disclosure requirements of SFAS No. 142, had no
impact on our 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. SFAS 143 is not
expected to have an impact on our financial statements.

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 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." SFAS 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). The adoption of SFAS 144 had no impact on
our financial statements.

In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." SFAS No 145 rescinds SFAS No. 4, which required all gains and
losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions", now
will be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4,
and thus SFAS No. 64 is no longer necessary because SFAS No. 4 has been
rescinded. The provisions of SFAS No. 145 related to the rescission of SFAS No.
4 are effective for financial statements issued for fiscal years beginning after
May 15, 2002. Any gain or loss that we had classified as an extraordinary item
in prior periods presented that does not meet the criteria in APB No. 30 for
classification as an extraordinary item will be reclassified.

18

ITEM 2. 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 quarterly report and on our Annual Report on Form
10-K for the year ended December 31, 2001.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q includes or incorporates forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to risks, uncertainties and assumptions which include:

- our ability to implement our new business strategies including the
ability to successfully implement our plan of reorganization under
Chapter 11;

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

- the restrictive covenants governing our indebtedness;

- the impact of competition and technological developments;

- satellite transmission failures;

- subscriber turnover;

- litigation;

- regulatory changes;

- dependence on key management personnel, and

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

Other matters set forth in this Report on Form 10-Q may also cause actual
results to differ materially from those described in the forward-looking
statements. We undertake 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 Quarterly Report on Form 10-Q might not occur.

OVERVIEW

We are a leading provider of local, regional and national one-way or
"traditional" paging and two-way or "advanced wireless data and messaging"
services. Through our one-way nationwide wireless network, we provide messaging
services to over 1,000 U.S. cities, including the top 100 Standard Metropolitan
Statistical Areas (SMSAs). Since 1993, our subscriber base has increased from
less than 250,000 to a high of 6.3 million as of June 30, 2001 and is presently
4.5 million, including approximately 220,000 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 June 30, 2002,
we were the second largest messaging company in the United States based on the
number of subscribers.

We derive a majority of our 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 we expect to continue
efforts to both maintain and add subscribers, our plan of reorganization assumes
a substantial down-sizing of our

19

operational platform. Further, we intend to direct our focus on certain segments
of the market that provide greater revenue stability and higher margins.

Voluntary Chapter 11 Filing

On May 23, 2002, Metrocall (other than Metrocall Ventures, Inc.) executed
Lock-Up Agreements with eight out of the nine lenders holding in the aggregate
in excess of 89% of the claims under our senior secured credit facility (e.g.,
$133 million of principal) and each member of the ad hoc committee representing
holders of our senior subordinated notes representing approximately 67% of the
total outstanding unsecured public noteholder claims (e.g., $627 million of
principal). The Lock-Up Agreements, among other things, provide for and require
the senior lenders and the ad hoc noteholder committee members to support and
vote for the plan of reorganization described below.

On June 3, 2002, Metrocall, Inc. together with its licensing and operating
subsidiaries Metrocall USA, Inc., Advanced Nationwide Messaging Corporation Inc.
(ANMC), MSI Inc. (MSI), McCaw RCC Communications, Inc. (McCaw), and Mobilfone
Service, LP (Mobilfone) filed voluntary petitions for relief under chapter 11 of
the U.S. Bankruptcy Code for the District of Delaware and is presently operating
its businesses as debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court in Delaware (the "Bankruptcy Court"). The chapter 11
cases are being jointly administered for procedural purposes only before the
Bankruptcy Court under the docket of Metrocall, Inc. Case No. 02-11579. We have
continued to manage and operate our assets and businesses pending the
confirmation of a reorganization plan and subject to the supervision and orders
of the Bankruptcy Court. Metrocall Ventures, Inc. (Ventures), one of our
subsidiaries, did not file a voluntary petition and is not a party to the
chapter 11 proceedings.

Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to continue to operate
its business in the ordinary course and to reorganize its business for the
benefit of its creditors. In addition to permitting the rehabilitation of the
debtor, section 362 of the Bankruptcy Code generally provides for an automatic
stay of substantially all judicial, administrative and other actions or
proceedings against a debtor and its property, including all attempts to collect
claims or enforce liens that arose prior to the commencement of the debtor's
case under chapter 11. Also, the debtors may assume or reject pre-petition
executory contracts and unexpired leases pursuant to section 365 of the
Bankruptcy Code and other parties to executory contracts or unexpired leases
being rejected may assert rejection damage claims as permitted thereunder.

On June 17, 2002, an official committee of unsecured creditors was
appointed by U.S. Trustee consisting of The Bank of New York, HSBC Bank USA, and
Product Support Services, Inc. This official committee has the right to be heard
on all matters that come before the Bankruptcy Court and has recommended to all
unsecured creditors that they support and vote for the plan of reorganization
described below.

As part of our chapter 11 case, Metrocall will routinely file pleadings,
documents and reports with the Bankruptcy Court which may contain updated,
additional or more detailed information about us, our assets and liabilities or
financial performance. Copies of the filings in our chapter 11 case are
available during regular business hours at the office of the Clerk of the
Bankruptcy Court or at the Bankruptcy Court's internet site at:
http://www.deb.uscourts.gov or Bankruptcy Management Corporation's internet site
at: http://www.bmccorp.net/metrocall.

Confirmation and consummation of a plan of reorganization are the principal
objectives of a chapter 11 reorganization case. A plan of reorganization sets
forth the means for satisfying claims against, and interests in, a debtor. On
June 3, 2002, we filed with the Bankruptcy Court our Proposed Joint Plan of
Reorganization and Disclosure Statement. On June 17, 2002, we filed our First
Amended Proposed Joint Plan of Reorganization and, on June 18, 2002, our First
Amended Disclosure Statement. Subsequently, on July 18, 2002, we submitted our
Second Proposed Joint Plan of Reorganization (the "Plan") and Proposed Second
Amended Disclosure Statement (the "Disclosure Statement"). Plan Supplements were
filed on July 3rd, July 18th, July 25th and August 1st, 2002. The Plan provides
for separate classes of claims and
20

interests for creditors and equity holders of each of the Debtors. In addition
as part of its Plan, Metrocall will implement a corporate restructuring intended
to consolidate operations and preserve the maximum value of the reorganized
entities. Our restructuring includes the implementation or completion of certain
cost cutting measures including a reduction in work force and elimination of
certain redundancies in operations, such as the closing and/or consolidation of
certain office, retail and operational facilities, much of which has been
completed already.

The consolidation of our operations shall include the following:

(i) On or immediately prior to the date that the Plan is effective,
each of ANMC, MSI and Mobilfone will consolidate with and into McCaw and
all assets and liabilities of these companies will be conveyed to McCaw.

(ii) Immediately following the consolidation described above
Metrocall, Inc. will contribute all right, title and interest in all of its
assets to McCaw other than (a) certain intellectual property to be conveyed
to the license subsidiary, Metrocall USA, (b) a sufficient amount of cash
to pay claims and to administer the Metrocall, Inc. estate and (c) its
ownership interest in Inciscent, Metrocall USA or Ventures. These assets
shall be contributed subject to all existing liens in place at that time.
McCaw will simultaneously assume all of the underlying obligations
(including cure costs, if any) directly attributable to these assets;

(iii) Concurrently with the contributions by Metrocall, Inc. to McCaw,
Metrocall, Inc. will contribute certain intellectual property (including
trademarks, trade names, and copyrights) to Metrocall USA. Immediately
thereafter, Metrocall USA will enter into a license agreement with McCaw
for the use of the FCC licenses and other intellectual property; and

(iv) Metrocall, Inc., McCaw and Metrocall USA will then each
reorganize and continue in operations. Following the mergers and capital
contributions described above, McCaw and Metrocall USA shall each
reincorporate under the laws of the State of Delaware with amended and
restated certificates of incorporation and by-laws.

The reorganized and reincorporated entities will be Metrocall Holdings,
Inc. (hereinafter referred to as HoldCo., formerly named Metrocall, Inc.),
Metrocall, Inc. (hereinafter referred to OpCo., formerly named McCaw) and
Metrocall USA, Inc. (hereinafter referred to as LicenseCo.), respectively.
HoldCo., LicenseCo. and OpCo. shall be governed by the laws of the State of
Delaware and shall each continue to maintain their respective separate corporate
existence with all its rights, privileges, immunities, powers and franchises.

Immediately thereafter, distributions to creditors and equity interests of
the applicable debtors will commence and will include, among other
distributions:

(i) The execution by OpCo. of a new $60.0 million senior secured note
and the related loan and security agreements in favor of the senior lenders
under our existing pre-petition senior secured credit facility in
accordance with the Plan. OpCo. shall be the direct borrower of the senior
lenders as a result of the reorganization described above while LicenseCo
together with HoldCo. and Ventures will each guaranty the senior secured
note. The guaranty of HoldCo. shall be secured by a pledge of its stock and
ownership interests in LicenseCo., as well as a pledge of its stock and
ownership interests in OpCo., Ventures and Inciscent, Inc.

(ii) The execution by HoldCo. of $20.0 million secured PIK notes and
related loan and security agreements in favor of the senior lenders in
accordance with Metrocall's Plan. LicenseCo. and Ventures shall each
guaranty the secured PIK notes;

(iii) OpCo., on the Effective Date, or as soon as practicable
thereafter, will pay all holders of allowed general unsecured claims
against any of the consolidated operating subsidiaries 100% of such allowed
claims in cash or pursuant to any other such arrangement as may be agreed
to between the parties;

21

(iv) Cash distributions to holders of allowed tax priority claims,
administrative claims and convenience claims;

(v) HoldCo., on the date that the Plan is effective, or as soon as
practicable thereafter, will distribute 5,300,000 shares of new preferred
stock, representing 88.3% of the preferred stock to be issued and $53.0
million of the total $60.0 million initial liquidation preference to
holders of the allowed claims of the senior lenders;

(vi) HoldCo. beginning on the date that the Plan is effective, and
through interim distributions thereafter (to give effect to resolutions of
disputed claims through reserves to be established), will distribute
530,000 shares of the new preferred stock, representing 8.3% of the
preferred stock to be issued and $5.0 million of the $60.0 million initial
liquidation preference to the holders of allowed general unsecured claims
against Metrocall, Inc.;

(vii) HoldCo. will issue the remaining 3.34% of the new preferred
stock, or 200,000 shares, representing $2.0 million of the $60.0 million
initial liquidation preference for distribution to the Metrocall's senior
executives in connection with their respective new employment agreements
with HoldCo. and OpCo; and

(viii) HoldCo. will distribute 420,000 shares of the HoldCo. new
common stock, representing 42% of the shares to be issued to the allowed
claims of the senior lenders (subject to ratable dilution for the issuance
of restricted stock and options under a stock option plan to employees of
OpCo. not to exceed 7%) and on the Effective Date and through interim
distributions thereafter (to give effect to resolutions of disputed claims
through reserves to be established) will distribute 580,000 shares of the
HoldCo. new common stock, representing 58% of the total shares to be
issued, to the allowed holders of general unsecured claims against
Metrocall, Inc. (subject to ratable dilution for the issuance of restricted
stock and options under a stock option plan to employees of OpCo. not to
exceed 7%).

The Bankruptcy Code requires, subject to certain exceptions, that our Plan
be accepted by all impaired classes of claims and equity interests. Classes of
claims that are not "impaired" under a plan are deemed to have accepted the plan
and are not entitled to vote. Classes of claims and equity security interests
that would receive no distribution or benefit under a plan are deemed to have
rejected the plan and, likewise, are not entitled to vote. All other impaired
class are entitled to vote on the plan. A class of claims accepts a plan if the
holders of at least 66 2/3% in dollar amount and more than 50% in number of the
allowed claims in that class that actually vote on the plan, vote to accept the
plan. A class of equity interests accepts a plan if at least 66 2/3% of the
allowed interests in that class that actually vote on the plan vote to accept
the plan. Holders of claims or equity interests who fail to vote or who abstain
will not be counted to determine the acceptance or rejection of the plan by any
impaired class. Section 1129(b) of the Bankruptcy Code, commonly referred to as
the "cram down" provision, permits confirmation of a plan of reorganization over
the objection of one or more impaired classes under certain circumstances. We
will seek Bankruptcy Court authority to "cram down" its existing preferred and
common shareholders, who will receive no distributions under the Plan.

On July 18, 2002, the Bankruptcy Court entered an order (1) approving the
Disclosure Statement and scheduling a hearing for confirmation of the Plan, as
may be further amended, and for approval of the assumption and/or rejection of
executory contracts and unexpired leases, (2) establishing objection deadlines
and procedures, and (3) approving forms of notice and solicitation procedures.
The voting deadline is SEPTEMBER 4, 2002 AT 4:00 P.M., Eastern Time. The last
day to file objections to confirmation of the Plan or to the proposed
assumption, assignment and/or rejection of any executory contracts or unexpired
leases has been scheduled for SEPTEMBER 5, 2002 AT 4:00 P.M., Eastern Time.

Confirmation of a plan of reorganization by a bankruptcy court makes the
plan binding upon the debtor, any issuer of securities under the plan, and any
creditors or equity security holders of the debtor. Subject to certain limited
exceptions, the confirmation order discharges the debtor from any debt that
arose prior to the effective date of the plan and substitutes the obligations
specified under the confirmed

22

plan. The hearing for confirmation of our Plan has been scheduled for on
SEPTEMBER 12, 2002 AT 1:30 P.M., Eastern Time.

A copy of the Plan and Disclosure Statement are attached hereto as Exhibits
99.2 and 99.3, respectively.

Product Sourcing and Key Suppliers

We do not manufacture any of the paging or messaging devices,
infrastructure and other equipment used in our operations. While the equipment
used in Metrocall's operations is available for purchase from multiple sources,
we have historically limited the number of suppliers to achieve volume cost
savings and, therefore, depend on such manufacturers to obtain sufficient
inventory. We have purchased messaging devices primarily from Motorola, Inc.
(Motorola) and purchased terminals and transmitters primarily from Glenayre
Electronics, Inc. (Glenayre). While both Motorola and Glenayre have announced
that they will no longer sell the messaging equipment we use, we have taken
measures to mitigate any risks to our business. We currently procure traditional
paging devices through a number of alternative manufacturers and similarly
expect that alternative sources for advanced messaging devices and network
equipment will be secured in the foreseeable future. In the first quarter of
2002, we entered into a final purchase agreement with Motorola pursuant to which
we prepaid Motorola for advanced messaging devices. We believe that this
purchase agreement has provided us with sufficient quantities of advanced
messaging devices to meet our needs for the remainder of 2002.

Motorola has licensed both its one-way and two-way technology and patent
rights to multiple manufacturers. A current supply of one-way devices exists to
fulfill its future business prospects. Two-way messaging devices are in
development by multiple businesses and are expected to be available in the first
quarter of 2003. We can make no assurances, however, that we will have a source
for two-way devices of comparable quality or quantities that will be available
beyond 2002.

We currently receive maintenance and support services for our network
infrastructure components from Glenayre through a support services contract
which expires in April 2003 unless extended for an additional 12 months at our
option. We expect 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 we will not experience unexpected delays in obtaining equipment in the
future.

We offer our two-way messaging services using the Reflex25 protocol through
an 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 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 we have not obtained an order authorizing the
assumption of the alliance agreements in Metrocall's Chapter 11 cases on or
before April 30, 2002. On April 30, 2002, Weblink filed a motion in its
bankruptcy cases seeking approval of an extension of the date by which Metrocall
must assume the agreements to a date which is forty-five (45) days after a
bankruptcy filing by Metrocall but not later than October 30, 2002. On July 11,
2002, the Bankruptcy Court approved our assumption of this agreement.

"Right-Size" Restructuring Plan

Our restructuring includes the completion of certain cost-cutting measures
that we began earlier in 2002. We believe that our expense reduction efforts
coupled with a customer base which provides for recurring revenues will allow us
to generate levels of operating and free cash flows that would provide a basis
for restructuring our debt obligations on our balance sheet and for an
improvement in our financial condition and position. We adopted a new business
plan at the beginning of 2002 which has reoriented our sales focus and
operations around servicing our direct business and government customers. The
new plan also reduces our cost structure to best match management's expectations
of future revenues and operating and free cash flows.
23

Metrocall's business objectives and operating strategy for the remainder of
2002 have included to-date, and will continue to focus on, maximizing operating
and free cash flows. Key elements of this strategy include:

- Subscriber retention efforts;

- Cost containment and reduction; and

- Advanced messaging.

SUBSCRIBER RETENTION EFFORTS -- We expect that the demand for our
traditional paging services and related revenues will continue to decrease
during the remainder of 2002 and beyond. We still intend to focus our attention
on the placement of traditional paging services but have shifted our sales
emphasis by focusing sales and advertising resources on existing and potential
business and government subscribers placed by our direct sales force. We believe
these customers provide a higher ARPU and lower deactivation percentages than
our other subscribers. We believe because of our more concentrated focus on our
direct business and government customers and the expected decrease in demand by
subscribers, that we can reduce the number of our field service positions and
de-emphasize and/or reduce certain direct sales channels such as our
company-owned retail stores as well as certain indirect distribution channels,
both of which have high subscriber churn statistics.

As a result of our new business objectives and the de-emphasis of certain
sales channels, we expect to reduce our selling and marketing work force by the
end of 2002 by approximately 79 additional positions, down to 709 at year end
2002 from 1,401 at the beginning of 2002. Metrocall began implementing these
reductions in March 2002. As of June 30, 2002, we had reduced positions in this
area by 613. We expect that many of these remaining reductions will occur
through normal attrition.

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

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

COST CONTAINMENT AND REDUCTION -- We believe we must further reduce our
operating expenses in the last six months of 2002 to offset the expected
continued reduction in our traditional paging subscriber base and a lower than
anticipated growth rate for advanced messaging subscribers in 2002. We believe
these reductions will be necessary to ensure that we will have the continued
liquidity and resources to continue to provide our traditional and advanced
messaging services. We believe we can further reduce our operating expenses
without affecting our 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; and

- Other initiatives.

Continued rationalization of network operations -- We expect to further
rationalize our network operations as we continue to migrate subscribers from
under-utilized frequencies. During 2002, we expect to deconstruct at least 224
transmitters and implement other telecommunication savings initiatives. As of

24

June 30, 2002, we deconstructed 211 transmitters and achieved telecommunication
expense reductions of approximately $1.8 million on an annual basis.

Consolidation of call center services -- At December 31, 2001, we had three
call centers in operation and numerous field operation centers that handled
customer service requirements. In early 2002, we consolidated two of the call
centers into one larger call center in Pensacola, Florida.

Consolidation of billing platforms -- We currently operate three separate
billing platforms. During 2002, we will convert two of these platforms into our
largest system, providing for a consolidated, more efficient billing platform
covering all of our operations. In mid-June 2002, we completed the conversion of
one platform and expect to complete the conversion of the second platform in
October 2002. The conversion of each of these systems will result in reductions
in licensing fees, MIS support, field customer service costs and other
incidental expenses. We believe these conversions will permit us to more
effectively manage our customer base and provide customer service support.

Other initiatives -- Due to the reduction in our subscriber base, we
believe we will be able to reduce positions in general, administrative and
overhead support functions. Although we will focus on subscriber retention and
placements in our traditional operations, we believe 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, we
do not believe we will be required to employ the same number of employees as we
would in a growth mode. We also believe that this work force reduction is
possible given our management information systems, recent upgrades to our
customer service operations and the reduction in the subscriber base which has
resulted in a decrease in staffing requirements of our billing and collections
departments, inventory, and customer service areas and as such, expect no impact
on provisioning of airtime or customer services.

Overall, we expect to reduce our workforce by an annual total of
approximately 962 positions by the end of 2002. As of June 30, 2002,
approximately 792 reductions had occurred. Metrocall estimates severance and
other cash payouts to affected employees will equal up to $5.0 million of which
approximately $3.5 million was paid by June 30, 2002. We will seek to take all
measures necessary to maintain the morale of our employees and to preserve the
core of remaining employees that will be essential to Metrocall's reorganization
efforts.

There can be no assurances that we will achieve the desired savings as a
result of these initiatives.

ADVANCED MESSAGING -- Metrocall offers advanced messaging services using
narrowband PCS primarily through a strategic alliance agreement with Weblink.
Since December 31, 2000, we have added approximately 115,096 net subscribers to
these services; the majority of these subscribers rent their advanced messaging
devices from Metrocall for periods of up to or greater than 12 months. Under the
terms of the rental agreements with these customers, we receive monthly rental
revenue for each unit and do not expect to recover the device acquisition cost
for a period of up to 8 months following its placement. During the remainder of
2002, we expect to focus on the sale of advanced messaging devices and to
substantially limit the number of subscribers to which we offer leased products.
As a result, we do not expect to achieve the subscriber growth percentages we
had experienced in 2000 and 2001 but expect to substantially reduce the amount
of capital expenditures we incur.

Notwithstanding the above, our ability to offer narrowband PCS services
under our 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, our 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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Our present financial condition and lack of borrowing ability indicate
uncertainty as to whether we will be able to continue as a going concern. Our
ability to continue as a going concern is dependent upon
25

several factors, including, but not limited to our ability to (i) generate
sufficient cash flows to meet our obligations, on a timely basis; (ii) implement
our reorganization plan; (iii) continue to obtain uninterrupted supplies and
services from our vendors; (iv) retain employees, and (v) reduce capital
expenditures and operating expenses.

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

Our liquidity position is also influenced by the timing of accounts
receivable collections and disbursements to vendors and employees. We invoice
approximately 85% of our customers monthly in advance of providing our services
and our days receivables outstanding averaged 35 days. 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. We have customary trade terms with most of our vendors. In
light of Metrocall's financial circumstances, in several instances where
alternative sources of procurement were not available, several vendors have
required us 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. We believed this
pre-payment for equipment was necessary to ensure adequate availability of
advanced messaging equipment for the remainder of 2002.

Cash and cash equivalents balances were approximately $33.1 million and
$40.0 million at June 30, 2002 and August 9, 2002, respectively. We believe that
these balances plus cash expected to be generated from operations, will be
sufficient to meet our financial obligations and to fund capital expenditure
requirements during the remainder of 2002, except for payments of interest on
its senior subordinated notes. As discussed above in "Voluntary Chapter 11
Filing" we are in process of restructuring our outstanding indebtedness. We
believe that our cash flow will be adequate to fund our operations in the
chapter 11 proceeding without additional borrowings.

CASH FLOWS

For the six months ended June 30, 2002, net cash provided by operating
activities increased by approximately $17.0 million from $17.6 million for the
six months ended June 30, 2001 to $34.6 million for the six months ended June
30, 2002. The increase in cash provided by operating activities was primarily
the result of an increase in accounts payable, an increase in accrued interest,
and a reduction in deferred revenues.

Net cash used in investing activities decreased approximately $11.6 million
from $36.8 million for the six months ended June 30, 2001 to $25.2 million for
the six months ended June 30, 2002. The decrease in net cash used for investing
activities was primarily the result of a decrease in the purchase of subscriber
equipment. Capital expenditures were approximately $37.3 million and $25.7
million for the six-months ended June 30, 2001 and 2002, respectively. Capital
expenditures for the six months ended June 30, 2001 included approximately $32.5
million for subscriber equipment, representing increases in wireless devices on
hand and net increases and betterments to the rental subscriber base, while
subscriber equipment purchases for the six months ended June 30, 2002 were
approximately $22.2 million. The balance of capital expenditures included $2.5
million for information systems and computer related equipment, $0.6 million for
network construction and development and $0.4 million for general purchases
including leasehold improvements and office equipment.

26

Estimated capital expenditures for the remainder of 2002 are approximately
$16.0 million primarily for the acquisition of pagers, paging and transmission
equipment and information systems enhancement. Metrocall expects that its
capital expenditures for the year ending December 31, 2002, will be financed
through operating cash flow. Projected capital expenditures are subject to
change based on operation results, general business and economic conditions and
competitive pressures. Future cash requirements include investment in subscriber
equipment and network infrastructure.

Net cash used by financing activities decreased approximately $0.1 million
from $0.5 million for the six months ended June 30, 2001 to $0.4 million for the
six months ended June 30, 2002. Metrocall has not been able to draw on its
credit facility or raise additional cash proceeds through the equity markets.
Future cash requirements include debt service costs, primarily interest.

TOTAL DEBT

At June 30, 2002, we had senior secured borrowings outstanding under the
credit facility of $133.0 million and aggregate principal amount of unsecured
senior subordinated notes of approximately $626.8 million, which are included in
Current liabilities subject to compromise on the accompanying Condensed
Consolidated Balance Sheet.

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.

- Service, rent and maintenance expenses: include costs related to the
management, operation and maintenance of our network systems and customer
service support centers.

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

- General and administrative expenses: include executive management,
accounting, office telephone, repairs and maintenance, management
information systems and employee benefits.

THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH 2001

REVENUES

The following table sets forth the amounts of revenues and the percentages
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's

27

Interim Condensed Consolidated Statements of Operations and certain other
information for the three month periods ended June 30, 2001 and 2002.

CONSOLIDATED PAGING OPERATIONS

TRADITIONAL PAGING OPERATIONS

Traditional paging service, rent and maintenance revenues decreased
approximately $21.7 million from $105.5 million for the three months ended June
30, 2001 ("2001") to $83.8 million for the three months ended June 30, 2002
("2002"). Over the past several months, traditional units in service have
decreased in both the direct and indirect distribution channels. From June 30,
2001, direct distribution channel subscribers have decreased 446,708 as a result
of subscriber conversions to Metrocall's advanced messaging services and
cancellations. From June 30, 2001, indirect distribution subscribers, mainly in
Metrocall's reseller and strategic alliance channels, have decreased by
1,215,144 units. The decrease in the number of indirect subscribers was mainly
the result of a decrease in demand for traditional paging products in the
reseller channel and our desire to increase the average monthly revenue per unit
(ARPU) in this relatively low ARPU distribution channel. As a result of the
decrease in the traditional subscriber base, ARPU for the three months ended
June 30, 2002 increased by $0.23 to $6.09 from June 30, 2001.

We expect that revenues generated from our traditional paging operations
will continue to decrease during the remainder of 2002. We expect that such
decreases will be the result of a reduction in the number of subscribers
receiving such services and a continued shift in the distribution mix toward
lower ARPU service offerings as two-way messaging products and services or other
competing technologies attract existing subscribers. Although a concerted
customer retention program has been implemented, we cannot guarantee that we
will be able to slow the rate of customer churn.

Product sales from traditional operations decreased approximately $3.6
million from $9.2 million in 2001 to $5.6 million in 2002 and decreased as a
percentage of net revenues from 8.3% in 2001 to 6.4% in 2002. Net book value of
products sold decreased approximately $1.4 million from $4.2 million in 2001 to

28

$2.8 million in 2002 and decreased as a percentage of net revenues from 3.8% in
2001 to 3.3% in 2002. Fluctuations in traditional product sales and net book
value of products sold were the result of a reduction in the number of
subscriber units sold through direct distribution channels in 2002.

ADVANCED MESSAGING OPERATIONS

Advanced messaging service, rent and maintenance revenues increased $3.7
million to approximately $14.9 million in 2002. The increase in service, rent
and maintenance revenues was the result of the placement of 18,599 additional
units since June 30, 2001, primarily two-way messaging devices. We launched our
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. We expect that our advanced messaging
service, rent and maintenance revenues will continue to increase gradually
during the remainder of 2002 if our financial resources are adequate to continue
investing in wireless data devices. There can be no assurances that such
revenues will continue to increase in future periods.

Product sales from advanced messaging operations increased approximately
$0.9 million to $2.2 million in 2002. Net book value of products sold increased
$0.4 million to approximately $2.8 million in 2002. 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
Interim Condensed Consolidated Statements of Operations and certain other
information for the periods ended June 30, 2001 and 2002.

Overall, we experienced an increase in average monthly operating costs per
unit in service (operating costs per unit before depreciation and amortization)
from 2001 to 2002. Average monthly operating cost per unit increased $0.11 from
$5.11 per unit for 2001 to $5.22 per unit for 2002. Each operating expense is
discussed separately below.

Service, rent and maintenance expenses decreased approximately $6.2 million
from $32.3 million in 2001 to $26.1 million in 2002 and decreased as a
percentage of net revenues from 26.7% in 2001 to 25.8% in 2002. Monthly service,
rent and maintenance expense per unit increased from $1.72 per unit in 2001 to
$1.81 per unit in 2002. Service, rent and maintenance expenses have decreased
primarily as a result of a decrease in subscriber line costs, rent, salaries and
dispatching costs. There has been a partially offsetting increase in tower rent
expenses, and an increase in the two-way provisioning costs to Weblink as a
result of the increased number of units that have been placed on the Weblink
network since June 30, 2001. The cost reductions mentioned are due to
rationalization and re-negotiation of dispatching and subscriber line costs and
other cost cutting initiatives. We expect that service, rent and maintenance
expenses will decrease during the remaining months of 2002 as a result of
anticipated tower de-constructions and other cost reduction initiatives.

Selling and marketing expenses decreased approximately $5.7 million from
$22.3 million in 2001 to $16.6 million in 2002 and decreased as a percentage of
net revenues from 18.5% in 2001 to 16.2% in 2002. The overall expense decrease
was primarily the result of reductions in salaries and commissions as a result
of a smaller sales and marketing force, and a reduction in print and media
advertising. Monthly selling and marketing expense per unit has decreased from
$1.19 per unit in 2001 to $1.15 per unit in 2002. We expect that selling and
marketing expenses may decrease slightly during the remaining months of 2002 as
we continue our cost reduction initiatives.

General and administrative expenses decreased by $8.8 million from $41.4
million in 2001 to $32.6 million, and decreased as a percentage of net revenues
from 34.3% in 2001 to 32.3% in 2002. The decrease in general and administrative
expenses was primarily the result of a reduction in salaries and other related
expenses, telephone administrative services, rent, and professional services,
due to several cost containment initiatives that focused on the back office
centralization and rationalization. We expect general and administrative
expenses to decrease in future quarters as a result of continuing cost reduction
initiatives. Such past initiatives have included a reduction in administrative
and overhead positions, minimization in the utilization of temporary and other
professional services and continued consolidation of certain overhead functions.

Reorganization and restructuring related expenses of $2.5 million were
included in the accompanying statements of operations for the three months ended
June 30, 2002. Such costs include costs incurred for legal, financial and
investment banking services received in connection with our debt restructuring
efforts described herein, severance costs, facility lease exit costs, and
accelerated amortization of debt discount. Our operational restructuring
initiatives are more fully described under "Right-Size Restructuring Plan."

Depreciation expense decreased approximately $13.0 million from $33.4
million in 2001 to $20.4 million in 2002. The decrease in depreciation expense
resulted mainly from a reduction in the basis of our assets, the result of an
impairment charge taken during the fourth quarter of 2001. This decline in
depreciation expenses should continue into the remainder of 2002 as further
assets become fully depreciated.

30

Amortization expenses decreased approximately $307.3 million from $307.3
million in 2001 to $0.00 in 2002. This decrease was the result of the write down
of all our intangible assets in 2001.

OTHER INCOME/(EXPENSES)

Interest expense decreased approximately $3.1 million, from $20.2 million
in 2001 to $17.1 million in 2002. The decrease was primarily the result of the
cessation of interest expense recorded on our senior subordinated notes on June
3, 2002 as a result of following AICPA Statement of Position (SOP) 90-7
following our chapter 11 filing. Contractual interest that would have been
recognized for the period June 3, 2002 to June 30, 2002 was $5.8 million.

Metrocall's net loss decreased approximately $333.1 million from $349.1
million in 2001 to $16.0 million in 2002 mainly as a result of the above
mentioned events.

Preferred dividends and accretion increased approximately $4.2 million in
2002 from $2.6 million in 2001 to $6.8 million in 2002 mainly as a result of the
accretion to the liquidation value of the outstanding share of preferred stock
following AICPA SOP 90-7 following our chapter 11 filing.

EBITDA or operating cash flow means earnings before interest,
reorganization and restructuring 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. EBITDA increased $0.8 million from $24.7 million in 2001 to $25.5
million in 2002. The increase was due to the decrease in operating expenses of
$20.6 million offset by a decrease in net revenue of $19.8 million. EBITDA
margin increased from 20.5% in 2001 to 25.3% in 2002.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH 2001

REVENUES

The following table sets forth the amounts of revenues and the percentages
of net revenues (defined as total revenues less the net book value of products
sold) represented by certain items in Metrocall's

31

Interim Condensed Consolidated Statements of Operations and certain other
information for the six month periods ended June 30, 2001 and 2002.

CONSOLIDATED PAGING OPERATIONS

TRADITIONAL PAGING OPERATIONS

Traditional paging service, rent and maintenance revenues decreased
approximately $44.8 million from $216.9 million for the six months ended June
30, 2001 ("2001") to $172.1 million for the six months ended June 30, 2002
("2002"). Over the past several months, traditional units in service have
decreased in both the direct and indirect distribution channels. From June 30,
2001, direct distribution channel subscribers have decreased 446,708 as a result
of subscriber conversions to Metrocall's advanced messaging services and
cancellations. From June 30, 2001, indirect distribution subscribers, mainly in
Metrocall's reseller and strategic alliance channels, have decreased by
1,215,144 units. The decrease in the number of indirect subscribers was mainly
the result of a decrease in demand for traditional paging products in the
reseller channel and our desire to increase the average monthly revenue per unit
(ARPU) in this relatively low ARPU distribution channel. As a result of the
decrease in the traditional subscriber base, and mainly indirect channels, ARPU
for the six months ended June 30, 2002 increased by $0.13 to $5.99 from June 30,
2001.

We expect that revenues generated from our traditional paging operations
will continue to decrease during the remainder of 2002. We expect that such
decreases will be the result of a reduction in the number of subscribers
receiving such services and a continued shift in the distribution mix toward
lower ARPU direct service offerings as two-way messaging products and services
or other competing technologies attract existing subscribers. Although a
concerted customer retention program has been implemented, we cannot guarantee
that we will be able to slow the rate of customer churn.

Product sales from traditional operations decreased approximately $9.0
million from $20.4 million in 2001 to $11.4 million in 2002 and decreased as a
percentage of net revenues from 9.0% in 2001 to 6.4% in

32

2002. Net book value of products sold decreased approximately $4.8 million from
$9.7 million in 2001 to $4.9 million in 2002 and decreased as a percentage of
net revenues from 4.3% in 2001 to 2.8% in 2002. Fluctuations in traditional
product sales and net book value of products sold were the result of a reduction
in the number of subscriber units sold through direct distribution channels in
2002.

ADVANCED MESSAGING OPERATIONS

Advanced messaging service, rent and maintenance revenues increased $10.1
million to approximately $29.5 million in 2002. The increase in service, rent
and maintenance revenues was the result of the placement of 18,599 additional
units since June 30, 2001, primarily two-way messaging devices. We launched our
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. We expect that our advanced messaging
service, rent and maintenance revenues will continue to increase gradually
during the remainder of 2002 if our financial resources are adequate to continue
investing in wireless data devices. There can be no assurances that such
revenues will continue to increase in future periods.

Product sales from advanced messaging operations increased approximately
$4.0 million to $5.6 million in 2002. Net book value of products sold increased
$2.3 million to approximately $5.6 million in 2002. 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, the majority of 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
Interim Condensed Consolidated Statements of Operations and certain other
information for the periods ended June 30, 2001 and 2002.

Overall, we experienced an increase in average monthly operating costs per
unit in service (operating costs per unit before depreciation and amortization)
from 2001 to 2002. Average monthly operating cost per unit increased $0.10 from
$5.24 per unit for 2001 to $5.34 per unit for 2002. Each operating expense is
discussed separately below.

Service, rent and maintenance expenses decreased approximately $10.0
million from $64.4 million in 2001 to $54.4 million in 2002 and decreased as a
percentage of net revenues from 26.2% in 2001 to 26.1% in 2002. Monthly service,
rent and maintenance expense per unit increased from $1.71 per unit in 2001 to
$1.81 per unit in 2002. Service, rent and maintenance expenses have decreased
primarily as a result of a decrease in subscriber line costs, supplies,
salaries, rent, repair and maintenance expenses and dispatching costs. There has
been a partially offsetting increase in tower rent expenses, and an increase in
the two-way provisioning costs to Weblink as a result of the increased number of
units that have been placed on the Weblink network since March 31, 2001. The
cost reductions mentioned are due to rationalization and re-negotiation of
dispatching and subscriber line costs and other cost cutting initiatives. We
expect that service, rent and maintenance expenses will decrease during the
remaining months of 2002 as a result of anticipated tower de-constructions and
other cost reduction initiatives.

Selling and marketing expenses decreased approximately $11.7 million from
$49.0 million in 2001 to $37.3 million in 2002 and decreased as a percentage of
net revenues from 20.0% in 2001 to 17.8% in 2002. The overall expense decrease
was primarily the result of reductions in salaries and commissions as a result
of a slightly smaller sales and marketing force, and a reduction in print and
media advertising. Monthly selling and marketing expense per unit has decreased
from $1.31 per unit in 2001 to $1.24 per unit in 2002. We expect that selling
and marketing expenses may decrease slightly during the remaining months of 2002
as we continue our cost reduction initiatives.

General and administrative expenses decreased by $14.2 million from $83.3
million in 2001 to $69.1 million, and decreased as a percentage of net revenues
from 34.0% in 2001 to 33.2% in 2002. The decrease in general and administrative
expenses was primarily the result of a reduction in salaries and other related
expenses, telephone administrative services, bad debt, rent and professional
service, due to several cost containment initiatives that focused on the back
office centralization and rationalization. We expect general and administrative
expenses to decrease in future quarters as a result of continuing cost reduction
initiatives. Such past initiatives have included a reduction in administrative
and overhead positions primarily through attrition, minimization in the
utilization of temporary and other professional services and continued
consolidation of certain overhead functions.

Reorganization related expenses of $12.6 million were included in the
accompanying statements of operations for the six months ended June 30, 2002.
Such costs include approximately $3.9 million costs incurred for legal,
financial and investment banking services received in connection with our debt
restructuring efforts described herein, severance costs of approximately $3.0
million, facility lease exit costs of approximately $4.7 million, and
accelerated amortization of debt discount of approximately $1.0 million.

Depreciation expense decreased approximately $23.4 million from $65.0
million in 2001 to $41.6 million in 2002. The decrease in depreciation expense
resulted mainly from a reduction in the basis of our assets, the result of an
impairment charge taken during the fourth quarter of 2001. This decline in
depreciation expenses should continue into the remainder of 2002 as additional
assets become fully depreciated.

34

Amortization expenses decreased approximately $334.8 million from $334.8
million in 2001 to $0.00 in 2002. This decrease was the result of the write down
of all our intangible assets in 2001.

OTHER INCOME/(EXPENSES)

Interest expense decreased approximately $4.5 million, from $41.2 million
in 2001 to $36.7 million in 2002. The decrease was primarily the result of the
cessation of interest expense on our senior subordinated notes on June 3, 2002
as a result of following AICPA SOP 90-7 following our chapter 11 filing.
Contractual interest that would have been recognized for the period June 3, 2002
to June 30, 2002 was $5.8 million.

Metrocall's net loss decreased approximately $361.1 million from $406.3
million in 2001 to $45.2 million in 2002 mainly as a result of the above
mentioned events.

Preferred dividends and accretion increased approximately $4.5 million in
2002 from $5.0 million in 2001 to $9.5 million in 2002 mainly as a result of the
accretion to liquidation value of the outstanding preferred stock following
AICPA SOP 90-7 following our chapter 11 filing.

EBITDA or operating cash flow means earnings before interest,
reorganization and restructuring 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. EBITDA decreased $1.3 million from $48.6 million in 2001 to $47.3
million in 2002. The decrease was due to the decrease in net revenue of $37.3
million offset by a decrease in operating expenses of $36.0 million. EBITDA
margin increased from 19.8% in 2001 to 22.8% in 2002.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2002, we had $133.0 million outstanding under our credit
facility and $626.8 million aggregate principal amount outstanding of senior
subordinate notes. Please refer to Item 2 with respect to treatment of such
obligations under our proposed plan of reorganization.

35

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to Note 5 of the interim condensed consolidated financial
statements.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

We are currently in default under the terms of the agreements governing our
senior secured credit facility and the indentures governing our senior
subordinated notes. As of June 30, 2002, accrued and unpaid interest through
June 2, 2002 for each series of senior subordinated note is reflected below:

We continue to make monthly interest payments on balances outstanding under
the credit facility. Please refer to Part I, Item 2 for further discussion.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits Required by Item 601 of Regulation S-K.

(b) Reports on Form 8-K

Form 8-K filed June 10, 2002 (i) reporting the entry by the Bankruptcy
Court of an Interim Order limiting certain transfers of the stock of Metrocall
and the mailing of a notice regarding the entry of the

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Interim Order to all known holders of Metrocall stock and (ii) filing the
Interim Order, the notice to Metrocall stockholders and a press release
regarding the entry of the Interim Order.

Form 8-K filed June 6, 2002 (i) reporting the filing by Metrocall, Inc. and
certain of its subsidiaries of voluntary petitions for reorganization under
chapter 11 of the Bankruptcy Code and (ii) filing a press release regarding the
chapter 11 filing.

Form 8-K filed May 28, 2002 (i) reporting the dismissal of Arthur Andersen
LLP and the retention of Ernst & Young LLP as Metrocall's independent auditors
for the fiscal year ended December 31, 2002 and (ii) filing a letter from Arthur
Andersen stating its agreement with the statements made in the Form 8-K.

Form 8-K filed May 24, 2002 (i) reporting that Metrocall and certain of its
creditors had entered into lock-up agreements establishing the terms and
conditions of a pre-negotiated plan of reorganization to be implemented through
a chapter 11 filing, and (ii) filing the executed lock-up agreements and a press
release regarding the lock-up agreements.

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SIGNATURES

Pursuant to the requirements 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.

Date: August 19, 2002 METROCALL, INC.

By: /s/ VINCENT D. KELLY
------------------------------------
Vincent D. Kelly
Chief Financial Officer,
Chief Operating Officer, Treasurer
and
Executive Vice President

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EXHIBIT INDEX