METROCALL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

COMMISSION FILE NUMBER: 0-21924

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

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

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

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

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

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

TITLE OF CLASS
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COMMON STOCK ($.01 PAR VALUE)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE:

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

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TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

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

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

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

- Metrocall's history of net operating losses;

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

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

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

- Metrocall's ability to cover fixed charges;

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

- the restrictive covenants governing Metrocall's indebtedness;

- the impact of competition and technological developments;

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- satellite transmission failures;

- subscriber turnover;

- litigation;

- regulatory changes;

- dependence on key management personnel.

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

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

ITEM 1. BUSINESS

GENERAL

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

TRADITIONAL PAGING AND WIRELESS MESSAGING INDUSTRY OVERVIEW

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

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

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

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

Examples of advanced messaging services include:

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

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

RECENT DEVELOPMENTS

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

METROCALL'S PAGING AND WIRELESS MESSAGING OPERATIONS

Services and Subscribers

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

Traditional Paging Services

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

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

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

Advanced Wireless Data and Messaging Services

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

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

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

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

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

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

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

- Redirect e-mail attachments using the messaging device.

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

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

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

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

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

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

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

Other Service Offerings

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

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

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

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

SALES AND MARKETING

Direct Distribution Channels

- Direct Sales. Metrocall's direct sales personnel sell its messaging
services and products primarily to businesses, placing special emphasis
on key accounts of strategic importance. Metrocall's direct sales
personnel generally target businesses that have multiple work locations
or have highly mobile employees. Metrocall's sales compensation plans are
designed to motivate direct sales personnel to focus on selling rather
than leasing traditional pagers and advanced wireless data and messaging
devices, which reduces capital requirements, and to increase sales of
higher revenue product enhancements, such as nationwide coverage,
alphanumeric service and voice mail. In 2002, Metrocall expects to focus
its resources mainly on business and government subscribers in its direct
sales channel.
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- Database Telemarketing. Metrocall's internal, professionally trained
staff generates sales by utilizing computerized lead management and
telemarketing techniques combined with its proprietary lead screening and
development protocol. Using acquired lists to focus their efforts,
Metrocall's internal staff targets groups of consumers and small
businesses who have a propensity to use paging and messaging services but
are either in a region where Metrocall does not have a direct sales
effort or have not been reached by other distribution channels. In
Metrocall's marketing efforts, it uses only commercially available public
information to analyze and target new customers and does not use
"Customer Proprietary Network Information" in a way that would conflict
with the Communications Act of 1934, as amended (the "Communications
Act"), or the Federal Communications Commission (FCC) rules.

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

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

Indirect Distribution Channels

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

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

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

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

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

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

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

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

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

NUMBER OF DEVICES IN SERVICE

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

OWNERSHIP OF DEVICES IN SERVICE

NETWORK AND EQUIPMENT

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

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

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

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MANAGEMENT INFORMATION SYSTEMS, CUSTOMER INVOICING AND SERVICES

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

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

COMPETITION

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

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

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

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

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GOVERNMENT REGULATION

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

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

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

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

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

The Communications Act also places limitations on foreign ownership of CMRS
licenses. These foreign ownership restrictions limit the percentage of Metrocall
common stock that may be owned or voted, directly or indirectly, by aliens or
their representatives, foreign governments or their representatives, or foreign
corporations. Metrocall's certificate of incorporation permits the redemption of
its common stock from stockholders where necessary to protect its compliance
with these requirements.
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Messaging licenses have traditionally been issued on a site-specific basis.
In February 1997, the FCC adopted new rules to issue most messaging licenses for
large, FCC-defined service areas. Licenses for 929 MHz and 931 MHz messaging
frequencies will be issued for "Major Economic Area" or "MEA" geographic areas;
licenses for exclusive messaging frequencies in lower frequency bands will be
licensed in "Economic Areas" or "EAs." Shared messaging frequencies will
continue to be allocated on a shared basis and licensed in accordance with
existing, site-specific procedures; however, the FCC is considering changes to
the application and licensing rules for these frequencies. The FCC's change from
site-specific licenses to wide-area licenses granted at auction has had no
adverse impact on Metrocall. Although competitive bidding has increased the
costs of obtaining certain licenses, Metrocall has also been able to save on
certain application costs associated with modifying and adding facilities within
its service areas, and, no other entity will be able to apply for its
frequencies within those areas. Metrocall's three nationwide messaging
frequencies were not subject to competitive bidding.

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

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

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

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

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

SEASONALITY

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

TRADEMARKS AND SERVICE MARKS

Metrocall uses the following trademarks and service marks:

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

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

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

EMPLOYEES

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

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

ITEM 2. PROPERTIES

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

12

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

ITEM 3. LEGAL PROCEEDINGS

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

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

None.

PART II

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

STOCK TRADING

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

COMMON STOCK PRICE RANGES

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

DIVIDEND POLICY

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

UNREGISTERED SECURITIES

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

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

13

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

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

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

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

ITEM 6. SELECTED FINANCIAL DATA

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

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

14

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

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

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

15

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

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

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

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

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

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

16

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

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

OVERVIEW

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

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

RECENT DEVELOPMENTS

Paging/Messaging Environment and Industry Background

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

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

Product Sourcing and Key Suppliers

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

17

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

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

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

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

Financial Impact

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

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

18

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

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

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

New Business Plan

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

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

- Subscriber retention efforts;

- Cost containment and reduction;

- Advanced messaging.

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

19

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

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

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

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

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

- Continued rationalization of network operations

- Consolidation of call center services

- Consolidation of billing platforms

- Other initiatives

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

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

20

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

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

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

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

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

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

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Potential Restructuring

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

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

- Restructuring existing debt to reflect projected cash flows;

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

- Maximizing cash flows; and

- Providing the maximum enterprise value for all stakeholders.

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

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

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

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

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

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

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

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Borrowings under credit facility

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

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

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

Senior subordinated notes

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

Commitments

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

CRITICAL ACCOUNTING POLICIES

Metrocall prepares its financial statements in conformity with generally
accepted accounting principles, which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Metrocall's management evaluates these estimates and
assumptions on an on-going basis. Actual results could differ from those
estimates.

Revenue Recognition

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

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Impairment of Long-Lived Assets

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

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

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

Reserve for Doubtful Accounts

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

RESULTS OF OPERATIONS

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

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

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

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

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

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

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

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

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

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

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

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

26

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

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

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

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

OPERATING EXPENSES

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

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OPERATING EXPENSES PER UNIT IN SERVICE