|UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-K

(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 X
 For the Fiscal Year Ended December 31, 2002
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from 
toCommission file number
0-23232

Arch Wireless, Inc.(Exact name of Registrant as specified in its Charter)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | DELAWARE
 (State of incorporation)                                                                 | 31-1358569
 (I.R.S. Employer Identification No.) | 
| | -------------------------------------------------------------------------------------------------- | ------------------------------------------------ | 
| | 1800 West Park Drive, Suite 250
Westborough, Massachusetts(address of principal executive offices) | 01581(Zip Code)                                  | 

|(508) 870-6700
(Registrants telephone number, including area code)


SECURITIES REGISTERED
PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934: None


SECURITIES REGISTERED
PURSUANT TO SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934: Common Stock Par Value
$0.001 Per Share (Title of class)


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


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


Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES 
X  NO


The aggregate market value of the
voting stock held by non-affiliates of the Registrant at June 28, 2002 was approximately
$12,911,461.


Indicate by check mark whether the
Registrant (1) has filed all documents and reports required to be filed by Sections 12, 13
or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. YES X  NO


The number of shares of
Registrants common stock outstanding on March 27, 2003 was 18,712,944.


Portions of the Registrants
Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders of the Registrant
are incorporated by reference into Part III.


TABLE OF CONTENTS
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               |                                                                                       |   
|-------------- | ------------------------------------------------------------------------------------- | --
|ITEM 1.        | BUSINESS                                                                              | 3 
|ITEM 2.        | PROPERTIES                                                                            | 9 
|ITEM 3.        | LEGAL PROCEEDINGS                                                                     | 9 
|ITEM 4.        | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   | 9 
|ITEM 5.        | MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 | 10
|ITEM 6.        | SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA                                    | 12
|ITEM 7.        | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 13
|ITEM 7A.       | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            | 31
|ITEM 8.        | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           | 31
|ITEM 9.        | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  | 31
|ITEM 14.       | CONTROLS AND PROCEDURES                                                               | 32
|ITEM 15.       | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       | 32
|SIGNATURES     | 34                                                                                   
|CERTIFICATIONS | 35                                                                                   

|2



PART I


ITEM 1.         BUSINESS


General


We
are a leading provider of wireless messaging and information services in the United
States. Currently, we provide one and two-way wireless messaging services. One-way
messaging consists of numeric and alphanumeric messaging services. Numeric messaging
services enable subscribers to receive messages that are composed entirely of numbers,
such as a phone number, while alphanumeric messages may include numbers and letters, which
enable subscribers to receive text messages. Two-way messaging services enable subscribers
to send and receive messages to and from other messaging devices, including pagers,
personal digital assistants, also called PDAs, and personal computers. We also offer
wireless information services, such as stock quotes, news, sports and weather updates,
voice mail, personalized greeting, message storage and retrieval and equipment loss and/or
maintenance protection for both one and two-way messaging subscribers. Our services are
commonly referred to as wireless messaging and information services.


Our
principal office is located at 1800 West Park Drive, Suite 250, Westborough, Massachusetts
01581, and our telephone number is (508) 870-6700. Our address on the world wide web is
www.arch.com. The information on our web site is not incorporated by reference into
this Annual Report on Form 10-K and should not be considered a part of this report. We
make available free of charge through our web site our annual, quarterly and current
reports, and any amendments to those reports, as soon as reasonably practicable after we
electronically file those reports with the Securities and Exchange Commission.


Our Recent Bankruptcy
and Reorganization


Certain
holders of 123⁄4% senior notes of Arch Wireless Communications, Inc., a wholly owned
subsidiary of Arch Wireless, Inc., filed an involuntary petition against it on November 9,
2001 under chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the
District of Massachusetts, Western Division. On December 6, 2001, Arch Wireless
Communications, Inc. consented to the involuntary petition and the bankruptcy court
entered an order for relief under chapter 11. Also on December 6, 2001, Arch and 19 of its
wholly owned domestic subsidiaries filed voluntary petitions for relief under chapter 11
with the bankruptcy court. These cases were jointly administered under the docket for Arch
Wireless, Inc., et al., Case No. 01-47330-HJB. After the voluntary petition was filed,
Arch and its domestic subsidiaries operated their businesses and managed their properties
as debtors-in-possession under the bankruptcy code until May 29, 2002, when we
emerged from bankruptcy. Arch and its subsidiaries are now operating their businesses and
properties as a group of reorganized entities pursuant to the terms of the plan of
reorganization.


Pursuant
to our plan of reorganization, all of our former equity securities were cancelled and the
holders of approximately $1.8 billion of our former indebtedness received securities which
represent substantially all of our consolidated capitalization, consisting of $200 million
aggregate principal amount of 10% senior subordinated secured notes, $100 million
aggregate principal amount of 12% subordinated secured compounding notes and approximately
95% of our new common stock. The remaining common stock is being distributed to certain
members of our senior management. All but one of our former directors have been replaced
by new directors, although no material changes have occurred in our senior management.


The
plan of reorganization provides that 20,000,000 shares will be issued; however, the number
of shares of new common stock to be distributed to individual former unsecured creditors,
and the actual distribution of such shares, is contingent upon the resolution of their
individual claims. As of December 31, 2002, a total of 18,464,072 shares had been issued
to former secured and unsecured creditors and senior management. The remaining shares will
be distributed upon resolution of various claims.


Industry Overview


The
mobile wireless telecommunications industry consists of multiple voice and data providers
which compete among one another, both directly and indirectly, for subscribers. Messaging
carriers like us provide customers with services such as numeric and alphanumeric
messaging. Customers receive these messaging services through a small, handheld device.
The device, often referred to as a pager, signals a subscriber when a message is received
through a tone and/or vibration and displays the incoming message on a small screen. With
numeric messaging services, the device displays numeric messages, such as a telephone
number. With alphanumeric messaging services, the device displays numeric or text
messages.

3



Some
messaging carriers also provide two-way messaging services using devices that enable
subscribers to respond to messages or create and send wireless email messages to other
messaging devices, including pagers, PDAs and personal computers. These two-way messaging
devices, often referred to as two-way pagers, are similar to one-way devices except that
they have a small qwerty keyboard which enables subscribers to type messages which are
sent to other devices as noted above.


In
addition to messaging services, one and two-way messaging devices may be used to access
voice mail, personalized greetings and message storage and retrieval services. Voice mail
allows a caller to leave a recorded message that is stored in the carriers
computerized message retrieval center. When a message is left, the subscriber can be
automatically alerted through the subscribers messaging device and can retrieve the
stored message by calling a designated telephone number. Personalized greetings allow the
subscriber to record a message to greet callers who reach the subscribers messaging
device or voice mailbox. Message storage and retrieval allows a subscriber who leaves his
or her designated service area to retrieve messages that arrived during the
subscribers absence from his or her service area. In addition to the services
discussed above, both one-way alphanumeric and two-way messaging devices may be used to
receive other wireless information services such as stock quotes and news, weather and
sports updates.


Mobile
telephone service providers such as cellular and broadband PCS carriers provide telephone
voice services as well as services that are functionally identical to the one and two-way
messaging services provided by wireless messaging carriers such as Arch. Customers
subscribing to cellular, broadband PCS or other mobile phone services utilize a wireless
handset through which they can make and receive voice telephone calls. These handsets are
commonly referred to as cellular or PCS telephones. These handsets are also capable of
receiving numeric and alphanumeric messages as well as information services, such as stock
quotes, news, weather and sports updates, voice mail, personalized greeting and message
storage and retrieval.


Technological
improvements have generally contributed to the market for wireless messaging services and
the provision of better quality services at lower prices to subscribers. These
improvements have enhanced the capability and capacity of mobile wireless messaging
networks and devices while lowering equipment and air time costs. These technological
improvements, and the degree of similarity in messaging devices, coverage and battery
life, have resulted in messaging services becoming more of a commodity product.


We
believe demand for our one-way messaging services declined in 2000, 2001 and 2002 and will
continue to decline in 2003. Trends in the latter half of 2002 suggest that demand for our
two-way messaging services may be decreasing as well. The decline in demand for our
messaging services is largely attributable to competition from cellular and broadband PCS
carriers and, to a lesser extent, the weak economy.


One-way
messaging subscribers, such as those we serve, typically pay a flat monthly service fee,
unlike subscribers to cellular telephone or PCS services, whose bills
historically have had a variable usage component. However, cellular, PCS and other mobile
phone companies now offer bundled service plans which include both local and long distance
minutes with caller ID, voice mail and numeric and alphanumeric messaging for use at no
additional charge as well as bundled service plans at fixed monthly rates. The fees and
prices of these and other plans have fallen so that these services compete directly with
one and two-way messaging services.


Wireless Messaging
Services, Products and Operations


We
provide one and two-way messaging services and wireless information services throughout
the United States, including the 100 largest markets, and in the U.S. Virgin Islands and
Puerto Rico. These services are offered on a local, regional and nationwide basis
employing digital networks that cover more than 90% of the United States population.


The
following table sets forth information about the approximate number of our units in
service and net changes in the number of units in service through internal operations and
acquisitions or divestitures since 1998:


4
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Units in Service
at Beginning ofPeriod                                   | Net Increase
(Decrease) inUnits throughInternalOperations | Increase(Decrease) in
Units throughAcquisitions /Divestitures | Units inService at Endof Period
|------------------------------------------------------------------------ | --------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------
|1998.................................................................... |                                                           |                                                               |                                
|1999.................................................................... |                                                           |                                                               |                                
|2000.................................................................... |                                                           |                                                               |                                
|2001.................................................................... |                                                           |                                                               |                                
|2002.................................................................... |                                                           |                                                               |                                

|Net
increase (decrease) in units through internal operations includes definitional changes
made in 1999 and 2000 after the acquisition of MobileMedia Communications, Inc. and Paging
Network, Inc., respectively, to reflect a common definition of units in service and is net
of subscriber cancellations during each applicable period. The net decrease in units
through acquisitions/divestitures in 2002 was due to the partial divestiture of
Archs interest in PageNet Canada, Inc. and Madison Telecommunications, Inc., two of its
Canadian subsidiaries, which resulted in the financial results of these subsidiaries
no longer being consolidated into our financial statements commencing in December 2002.
Increase in units through acquisitions/divestitures is based on units in service of
acquired companies at the time of our acquisition of them.


Our
customers are either businesses with employees who want to be accessible to their offices
or customers, individuals who wish to be accessible to friends or family members, or third
parties, known as resellers, that pay us to use our networks. Our customers include
proprietors of small businesses, professionals, management personnel, field sales
personnel and service forces, members of the construction industry and construction
trades, real estate brokers and developers, medical personnel, sales and service
organizations, specialty trade organizations, manufacturing organizations and government
agencies.


We
market and distribute our services through a direct sales force and a small indirect sales
force.


Direct.The
direct sales force leases or sells devices directly to customers ranging           from
small- and medium-sized businesses to Fortune 500 companies and government
          agencies and represents our most significant sales and marketing efforts. We
          intend to continue to market to commercial enterprises utilizing the direct
          sales force as these enterprises have typically disconnected service at a lower
          rate than individual consumers.


Indirect.The
indirect sales force sells devices and access to our messaging networks           to
third parties, or resellers, who then resell messaging services to consumers           or
small businesses. Resellers generally are not exclusive distributors of our
          services and often have access to networks of more than one provider.
          Competition among network providers to attract and maintain resellers is based
          primarily upon price. We intend to continue to provide access to our messaging
          networks to resellers and to concentrate on relationships that are profitable
          and where longer term partnerships can be established and maintained.


The
following tables set forth the units in service and revenue associated with our channels
of distribution:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | As of December 31,
|-------------------- | ------------------
|(units in thousands)
|
|Direct               |                   
|Indirect             |                   
|                     |                   
|Total                |                   
|                     |                   

|                       | For the Year Ended December 31,
|---------------------- | -------------------------------
|(dollars in thousands)
|
|Direct                 |                                
|Indirect               |                                
|                       |                                
|Total                  |                                
|                       |                                

|5



Our
customers may subscribe to one or two-way messaging services for a monthly service fee
which is generally based upon the type of service provided, the geographic area covered,
the number of devices provided to the customer and the period of commitment. Additional
services, such as stock quotes, news, weather and sports updates, voice mail, personalized
greeting, message storage and retrieval and equipment loss and/or maintenance protection
may be added to either one or two-way messaging services, as applicable, for an additional
monthly fee. Equipment loss protection allows subscribers who lease devices to limit their
cost of replacement upon loss or destruction of a messaging device. Maintenance services
are offered to subscribers who own their device.


A
one-way subscriber may select coverage on a local, regional or nationwide basis to best
meet his or her messaging needs. Local coverage generally allows the subscriber to receive
messages within a small geographic area, such as a city. Regional coverage allows a
subscriber to receive messages in a larger area, which may include a large portion of a
state or sometimes groups of states. Nationwide coverage allows a subscriber to receive
messages in major markets throughout the United States. The monthly fee generally
increases with coverage area. Two-way messaging is generally offered on a nationwide
basis.


The
following table summarizes the coverage areas and types of our units in service at
specified dates:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | December 31,
|----------------------------- | ------------
|(units in thousands)         
|
|Local / Regional Numeric      |             
|Local / Regional Alphanumeric |             
|Nationwide Numeric            |             
|Nationwide Alphanumeric       |             
|Two-Way Messaging             |             
|                              |             
|Total                         |             
|                              |             

|We
provide wireless messaging services to subscribers for a monthly fee, as described above.
In addition, subscribers either lease a messaging device from us for an additional fixed
monthly fee or they own the device, having purchased it either from us or from another
vendor. We also sell devices to resellers who lease or resell devices to their subscribers
and resell our wireless messaging services under marketing agreements.


The
following table summarizes the number of units in service owned by us, our subscribers and
our resellers at specified dates:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  | December 31,
|------------------------------------------------- | ------------
|(units in thousands)                             
|
|Owned and leased by Arch                          |             
|Owned by our subscribers                          |             
|Owned by resellers or their           subscribers |             
|                                                  |             
|Total                                             |             
|                                                  |             

|Messaging Networks and
Licenses


We
hold licenses to operate at various frequencies in the 150, 450 and 900 Mhz bands of the
broadcast band frequency spectrum. These licenses are utilized to provide one and two-way
messaging services over our networks.


We
operate local, regional and three nationwide one-way networks, which enable our
subscribers to receive messages over his or her desired geographic area. Our one-way
messaging networks operating in the 150 and 450 Mhz frequency bands utilize the POCSAG
messaging protocol, developed by Motorola, Inc. This protocol is older generation
technology and is less efficient due to slower transmission speeds. One-way networks
operating in 900 Mhz frequency bands utilize the FLEX  protocol also developed by
Motorola. The FLEX protocol is present generation technology having the advantage of
functioning at higher network speeds which increases the volume of messages that can be
transmitted over the network.

6



Our
two-way messaging network uses ReFLEX 25 protocol, also developed by Motorola.
ReFLEX 25 promotes spectrum efficiency and high network capacity through sub-channeling
 and frequency reuse which divides coverage areas into zones and sub-zones.
Messages are directed to the zone or sub-zone where the subscriber is located allowing the
same frequency to be reused to carry different traffic in other zones or sub-zones. As a
result, the ReFLEX 25 protocol allows the two-way network to transmit substantially
more messages than a one-way network using either the POCSAG or FLEX  protocols. The
two-way messaging network operates under a set of licenses, called narrowband PCS, which
as noted above use 900 Mhz frequencies. These licenses must comply with specified minimum
build-out requirements. We have satisfied the five-year build-out requirements established
by the Federal Communications Commission and we are in the process of completing the
10-year build-out requirements in accordance with separate construction deadlines for each
license, which occur between September 29, 2004 and January 25, 2005. We estimate the
remaining aggregate cost of these minimum build-outs will be $1 million or less.


Although
the capacity of our networks varies significantly market by market, we have a significant
amount of excess capacity, much of which was acquired in conjunction with our PageNet and
MobileMedia acquisitions. We have implemented a plan to manage network capacity and to
improve overall network efficiency by consolidating subscribers onto fewer, higher
capacity networks with increased transmission speeds. This plan is referred to as network
rationalization. Network rationalization will result in fewer networks and therefore fewer
transmitter locations which will result in lower future operating expenses.


Competition


The
wireless messaging industry is highly competitive. Companies compete on the basis of
price, coverage area, services offered, transmission quality, network reliability and
customer service.


We
compete by maintaining competitive pricing for our products and services, by providing
broad coverage options through high-quality, reliable messaging networks and by providing
quality customer service. Direct competitors for our messaging services include Metrocall,
Verizon Wireless, Weblink Wireless, Skytel (a division of WorldCom, Inc.) and a variety of
other regional and local providers. The products and services we offer also compete with a
broad array of wireless messaging services provided by cellular and PCS telephone
companies. This competition has intensified as prices for these services have declined,
and these providers have incorporated messaging capability into their handsets. Many of
these companies possess financial, technical and other resources greater than ours. Such
providers currently competing with us in one or more markets include AT&T Wireless,
Cingular, WorldCom, Sprint PCS, Verizon Wireless, T-Mobile and Nextel.


While
cellular, PCS and other mobile telephone services are, on average, more expensive than the
one and two-way messaging services we provide, such mobile telephone service providers
typically provide one and two-way messaging service as an element of their basic service
package. It is estimated that as many as 90% of all PCS and other mobile phone devices
currently sold in the United States are capable of sending and receiving one and two-way
messages. Subscribers that purchase these combined services no longer need to subscribe to
a separate messaging service. As a result, a large number of one and two-way messaging
customers can readily switch to cellular, PCS and other mobile telephone services. The
decrease in prices for cellular, PCS and other mobile telephone services has led many
customers to select combined voice and messaging services as an alternative to stand alone
messaging services.


Sources of Equipment


We
do not manufacture any of the messaging devices or other equipment that our customers need
to take advantage of our services. The equipment used in our operations is generally
available for purchase from only a few sources. Historically, we purchased messaging
devices primarily from Motorola and purchased terminals and transmitters primarily from
Glenayre Electronics, Inc.


Both
Motorola and Glenayre have discontinued the production of the messaging devices and
network equipment that we purchased from them. However, we have entered into a development
agreement with PerComm Inc. and we continue to evaluate several other vendors to obtain
alternative sources of two-way messaging devices. We are also testing one-way messaging
devices from several other existing sources. We believe that our existing inventory of
Motorola devices and purchases from other available sources of new and reconditioned
devices will be sufficient to meet our expected two-way device requirements through
September 30, 2003 and our one-way device requirements for the foreseeable future. We
expect our development agreement with PerComm will result in new two-way devices being
available to meet our future needs.

7



We
have entered into an agreement with Glenayre that provides us with certain continued
services and equipment into 2004. In addition, we currently have excess network equipment
as a result of our efforts to rationalize and deconstruct many of our one-way messaging
networks and from prior acquisitions of network equipment. Additional network equipment
for our two-way messaging network is also available from two other vendors, Sonik
Technologies, Inc. and TGA Technologies.


Regulation


Federal
RegulationOverview


Licenses
granted to us by the Federal Communications Commission have varying terms of up to 10
years, at which time the Federal Communications Commission must approve renewal
applications. In the past, Federal Communications Commission renewal applications
generally have been granted upon a showing of compliance with Federal Communications
Commission regulations and of adequate service to the public. It is possible that there
may be competition for radio spectrum associated with licenses as they expire, thereby
increasing the chance of third party intervention in the renewal proceedings. Other than
those still pending, the Federal Communications Commission has thus far granted each
license renewal we have filed.


The
Communications Act of 1934, as amended, requires radio licensees such as us to obtain
prior approval from the Federal Communications Commission for the assignment or transfer
of control of any construction permit or station license or authorization or any rights
thereunder. On December 19, 2001, in connection with the filing of the chapter 11 cases,
we sought permission from the Federal Communications Commission to execute an involuntary,
pro forma assignment of our licenses to Arch as debtor-in-possession. On January 14, 2002,
the Federal Communications Commission granted such permission. On January 23, 2002, we
sought permission from the Federal Communications Commission to effectuate the transfer of
control contemplated by the joint plan of reorganization. On March 28, 2002, the Federal
Communications Commission granted this request.


As
a result of various decisions by the Federal Communications Commission over the last few
years, we no longer pay fees for the termination of traffic originating on the networks of
local exchange carriers providing wireline services interconnected with our services and
in some instances we received refunds for prior payments to certain local exchange
carriers. We have entered into a number of interconnection agreements with local exchange
carriers in order to resolve various issues regarding charges imposed by local exchange
carriers for interconnection. We may be liable to local exchange carriers for the costs
associated with delivering traffic that does not originate on that local exchange
carriers network, referred to as transit traffic, resulting in some increased
interconnection costs for us, depending on further Federal Communications Commission
disposition of these issues and the agreements reached between us and the local exchange
carriers. If these issues are not ultimately decided through settlement negotiations or
via the Federal Communications Commission in our favor, we may be required to pay past due
contested transit traffic charges not addressed by existing agreements or offset against
payments due from local exchange carriers and may also be assessed interest and late
charges for amounts withheld. Although these requirements have not, to date, had a
material adverse effect on our operating results, these or similar requirements could in
the future have a material adverse effect on our operating results.


State Regulation


As
a result of the enactment by Congress of the Omnibus Budget Reconciliation Act of 1993 in
August 1993, states are now generally preempted from exercising rate or entry regulation
over any of our operations. States are not preempted, however, from regulating other
terms and conditions of our operations. States that regulate paging services also
may require us to obtain prior approval of (1) the acquisition of controlling interests in
other paging companies and (2) a change of control of Arch. At this time, we are not aware
of any proposed state legislation or regulations that would have a material adverse impact
on our existing operations.


Trademarks


We
own the service marks Arch and Arch Paging , and we hold federal
registrations for the service marks Arch Wireless and PageNet as
well as various other trademarks.


Employees


At
March 1, 2003, we employed approximately 3,300 persons. None of our employees is
represented by a labor union. We believe that our employee relations are good.

8



ITEM 2.         PROPERTIES


At
December 31, 2002, we owned ten office buildings and leased office space, including our
executive offices, in approximately 170 locations in 42 states. At December 31, 2002, two
of the owned office buildings were under contract to be sold for estimated net proceeds of
$3.0 million. One of these sales closed on January 28, 2003.


We
lease transmitter sites and/or own transmitters on commercial broadcast towers, buildings
and other fixed structures in approximately 11,400 locations in all 50 states, the U.S.
Virgin Islands and Puerto Rico. These leases are for various terms and provide for monthly
lease payments at various rates. We believe we will be able to obtain additional space as
needed at acceptable cost.


ITEM 3.         LEGAL PROCEEDINGS


Certain
holders of 123⁄4% senior notes of Arch Wireless Communications, Inc., a wholly owned
subsidiary of Arch Wireless, Inc., filed an involuntary petition against it on November 9,
2001 under chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the
District of Massachusetts, Western Division. On December 6, 2001, Arch Wireless
Communications, Inc. consented to the involuntary petition and the bankruptcy court
entered an order for relief under chapter 11. Also on December 6, 2001, Arch and 19 of its
wholly owned domestic subsidiaries filed voluntary petitions for relief under chapter 11
with the bankruptcy court. These cases were jointly administered under the docket for Arch
Wireless, Inc., et al., Case No. 01-47330-HJB. After the voluntary petition was filed,
Arch and its domestic subsidiaries operated their businesses and managed their properties
as debtors-in-possession under the bankruptcy code until May 29, 2002, when we
emerged from bankruptcy. Arch and its domestic subsidiaries are now operating their
businesses and properties as a group of reorganized entities pursuant to the terms of the
plan.


We
are involved in a number of lawsuits which we do not believe will have a material adverse
effect on our financial condition, results of operations or cash flows.


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


None.

9






PART II


ITEM 5.         MARKET FOR
REGISTRANTS COMMON EQUITY AND RELATED         
              STOCKHOLDER MATTERS


Our
common stock formerly traded on the Nasdaq National Market through April 27, 2001 and then
traded on the OTC Bulletin Board until May 29, 2002 under the symbol ARCH.
When we emerged from our chapter 11 proceedings on May 29, 2002, all of our formerly
outstanding common stock was cancelled in accordance with our plan of reorganization and
our former common stockholders ceased to have any ownership interest in us. The shares of
our new common stock that were issued under our plan of reorganization now trade on the
OTC Bulletin Board under the symbol AWIN.


Because
the value of one share of our new common stock bears no relation to the value of one share
of our old common stock, the trading prices of our new common stock are set forth
separately from the trading prices of our old common stock. The information regarding the
old common stock illustrates trends in our market capitalization in prior periods but
otherwise is not directly relevant to our current capitalization.


The
following table sets forth the high and low sales prices per share of our common stock for
the quarterly periods indicated, which correspond to our quarterly fiscal periods for
financial reporting purposes. Prices for our old common stock are prices on the Nasdaq
National Market through April 27, 2001 and sales prices on the OTC Bulletin Board through
May 29, 2002. Prices for our new common stock are prices on the Nasdaq National Market
from May 30, 2002 through June 5, 2002 and sales prices on the OTC Bulletin Board after
that date.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Reorganized Company                   |         |        
|------------------------------------- | ------- | -------
|
|Fourth Quarter                        | $ 2.670 | $ 0.320
|Third Quarter                         | $ 1.010 | $ 0.420
|Second Quarter beginning May 30, 2002 | $ 6.000 | $ 0.850
|Predecessor Company                  
|Second Quarter through May 29, 2002   | $ 0.010 | $ 0.001
|First Quarter                         | $ 0.020 | $ 0.004
|2001                                  |        
|Fourth Quarter                        | $ 0.060 | $ 0.010
|Third Quarter                         | $ 0.180 | $ 0.010
|Second Quarter                        | $ 0.656 | $ 0.140
|First Quarter                         | $ 2.313 | $ 0.531

|The
number of common stockholders of record as of March 14, 2003 was 38. Arch believes
the number of beneficial common stockholders is approximately 1,200.


Proposed Transfer
Restrictions on Common Stock


As
more fully discussed in Factors Affecting Future Operating ResultsDeductions
for tax purposes from future activities and from retained tax attributes may be
insufficient to offset future federal taxable income and/or significant changes in the
ownership of our common stock may increase income tax payments, the market value of
our common stock could be adversely affected under certain circumstances. We are currently
reviewing alternatives which would restrict the transfer of our common stock in order to
protect the tax benefits associated with our federal income tax attributes; however, we
cannot assure you that any of these alternatives will enable us to avoid significant
limitations on the amounts and timing of the use of our tax attributes.

10






Dividend Policy


We
have never declared or paid any cash dividends on our common stock. We anticipate that
substantially all of our earnings in the foreseeable future will be used to finance our
business and repay our debt. The indentures for our outstanding indebtedness prohibit
declaration or payment of cash dividends to our stockholders. Therefore, we have no
current intention to pay dividends, and we do not expect to pay dividends while our notes
are outstanding. Our future dividend policy will depend on our earnings, capital
requirements and financial condition, as well as requirements of our financing agreements
and other factors that our board of directors considers relevant.


11






ITEM 6.         SELECTED
CONSOLIDATED FINANCIAL AND OPERATING DATA


The
following table sets forth our selected historical consolidated financial and operating
data for each of the five years ended December 31, 2002. The selected financial and
operating data as of December 31, 1998, 1999, 2000, 2001 and 2002 and for each of the four
years ended December 31, 2001, for the five months ended May 31, 2002 and the seven months
ended December 31, 2002 have been derived from our audited consolidated financial
statements. The consolidated financial statements for the years ended 1998 through 2001
were audited by Arthur Andersen LLP which has ceased operations. A copy of the report
previously issued by Arthur Andersen LLP on our financial statements as of December 31, 2000
and 2001 and for each of the three years in the period ended December 31, 2001 is included
elsewhere in this annual report. This previously issued report has not been reissued by
Arthur Andersen LLP.


The
following consolidated financial information should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes set forth below.


(dollars in thousands except per share
amounts)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                          | Predecessor Company |  |   | ReorganizedCompany
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- |  | - | ------------------
|
|
|Statements of Operations Data:                                                                                                                            |                     |  |   |                   
|Revenues                                                                                                                                                  |                     |  | $ | 413,635           
|Operating expenses:                                                                                                                                       |                     |  |   |                   
|Cost of products sold                                                                                                                                     |                     |  |   | 29,953            
|Service,
rental and maintenance (exclusive of depreciation, amortization and        
stock based and other compensation shown        separately below)    |                     |  |   | 80,782            
|Selling (exclusive of stock based and other        compensation shown separately below)                                                                   |                     |  |   | 49,132            
|General
and administrative (exclusive   
     of depreciation, amortization and stock based   
     and other compensation shown separately        below) |                     |  |   | 112,181           
|Depreciation and amortization                                                                                                                             |                     |  |   | 221,316           
|Stock based and other compensation                                                                                                                        |                     |  |   | --                
|Reorganization expense                                                                                                                                    |                     |  |   | --                
|Other operating expenses                                                                                                                                  |                     |  |   | 14,700            
|                                                                                                                                                          |                     |  |   |                   
|Operating income (loss)                                                                                                                                   |                     |  |   | (94,429           
|Interest and non-operating expenses,         net                                                                                                          |                     |  |   | (104,213          
|Gain (loss) on extinguishment of       debt                                                                                                               |                     |  |   | (1,720            
|Equity in loss of affiliate                                                                                                                               |                     |  |   | (5,689            
|                                                                                                                                                          |                     |  |   |                   
|Income (loss) before reorganization         items, net and
fresh start        accounting adjustments                                                      |                     |  |   | (206,051          
|Reorganization items, net                                                                                                                                 |                     |  |   | --                
|Fresh start accounting adjustments,        net                                                                                                            |                     |  |   | --                
|                                                                                                                                                          |                     |  |   |                   
|Income (loss) before
income taxes        and cumulative effect of change  
      in accounting principle                                                  |                     |  |   | (206,051          
|Benefit from (provision for)
 income        taxes                                                                                                         |                     |  |   | --                
|                                                                                                                                                          |                     |  |   |                   
|Income
(loss) before cumulative        effect of change in accounting
        principle                                                                   |                     |  |   | (206,051          
|Cumulative
effect of change in        accounting principle                                                                                                |                     |  |   | --                
|                                                                                                                                                          |                     |  |   |                   
|Net income (loss)                                                                                                                                         |                     |  | $ | (206,051          
|                                                                                                                                                          |                     |  |   |                   
|                                                                                                                                                          |                     |  |   |                   
|Basic/diluted income
(loss) per        common share before cumulative   
     effect of change in accounting        principle                             |                     |  | $ | (29.59            
|Cumulative effect of
change in        accounting principle per     
   basic/diluted common share                                                         |                     |  |   | --                
|                                                                                                                                                          |                     |  |   |                   
|Basic/diluted net
income (loss) per        common share                                                                                                   |                     |  | $ | (29.59            
|                                                                                                                                                          |                     |  |   |                   

|12






(dollars in thousands)
|-------------------------------

|                                                   | Predecessor Company |  |   | ReorganizedCompany
|-------------------------------------------------- | ------------------- |  | - | ------------------
|
|
|Other Operating Data:                              |                     |  |   |                   
|Capital expenditures, excluding        aquisitions |                     |  | $ | 113,184           

(dollars in thousands)

|                                            | As of December 31,
|------------------------------------------- | ------------------
|
|
|Balance Sheet Data:                         |                   
|Currrent assets                             |                   
|Total assets                                |                   
|Long-term debt, less current maturities (1) |                   
|Liabilities subject to compromise (1)       |                   
|Redeemable preferred stock (1)              |                   
|Stockholders' equity (deficit)              |                   

| | (1) | On December 6, 2001, Arch and its domestic subsidiaries filed petitions for
               relief under chapter 11 of the United States Bankruptcy Code. In accordance with
               AICPA Statement of Position 90-7 Financial Reporting by Entities in
               Reorganization under the Bankruptcy Code, at December 2001, Arch
               classified substantially all pre-petition liabilities and the redeemable
               preferred stock of the Debtors as Liabilities Subject to Compromise
               on the consolidated balance sheet. See Note 3 to the Consolidated Financial
               Statements.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


Forward-Looking
Statements


This
annual report contains forward-looking statements and information relating to Arch and its
subsidiaries that are based on managements beliefs as well as assumptions made by
and information currently available to management. These statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When
used herein, words such as anticipate, believe,
estimate, expect, intend and similar expressions, as
they relate to Arch or its management, identify forward-looking statements. Such
statements reflect our current views with respect to future events and are subject to
certain risks, uncertainties and assumptions, including but not limited to those factors
set forth below under the caption Factors Affecting Future Operating Results.
Should one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. Investors are
cautioned not to place undue reliance on these forward-looking statements, which speak
only as of their respective dates. We undertake no obligation to update or revise any
forward-looking statements. All subsequent written or oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in their
entirety by the discussion under Factors Affecting Future Operating Results.


Overview


The
following discussion and analysis should be read in conjunction with our consolidated
financial statements and notes thereto.



13




On
May 29, 2002, we emerged from proceedings under chapter 11 of the bankruptcy code.
Pursuant to our plan of reorganization, all of our former equity securities were cancelled
and the holders of approximately $1.8 billion of our former indebtedness received
securities which represent substantially all of our consolidated capitalization,
consisting of $200 million aggregate principal amount of 10% senior subordinated secured
notes, $100 million aggregate principal amount of 12% subordinated secured
compounding notes and approximately 95% of our new common stock. The remaining new common
stock is being distributed to certain members of our senior management. All but one of our
former directors have been replaced by new directors, although no material changes have
occurred in our senior management.


We
derive the majority of our revenues from fixed monthly or other periodic fees charged to
subscribers for wireless messaging services. Such fees are not generally dependent on
usage. As long as a subscriber remains on service, operating results benefit from the
recurring payment of these fees. Revenues are generally dependent on the number of units
in service and the monthly charge per unit. The number of units in service changes based
on subscribers added, referred to as gross placements, less units cancelled, or
disconnects. The net of gross placements and disconnects is commonly referred to as net
gains or losses of units in service. The absolute number of gross placements is monitored
on a monthly basis. In addition, the ratio of gross placements for a period to the number
of sales representatives for the same period, referred to as gross placements per sales
representative, is also reviewed. This measurement indicates the productivity of our
direct sales force and the sales level of each type of our messaging services and is an
indicator of the relationship of revenues and sales expenses. Disconnects are also
monitored on a monthly basis. The ratio of units disconnected in a period to average units
in service for the same period, called the disconnect rate, is an indicator of our success
at retaining subscribers which is important to maintain recurring revenues and control
operating expenses.


The
following table sets forth our gross placements and disconnects for the periods stated.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | For the Year Ended December 31,
|-------------------- | -------------------------------
|(units in thousands)
|
|Direct               |                                
|Indirect             |                                
|                     |                                
|Total                |                                
|                     |                                

|The
demand for one-way messaging services declined during the three years ended December 31,
2002, and we believe demand will continue to decline for the foreseeable future. As a
result of the PageNet acquisition units in service were adjusted to eliminate intercompany
accounts and to reflect a common definition of units in service. During 2000, units in
service decreased by 2,073,000 units, of which 888,000 were due to subscriber
cancellations and 1,185,000 due to definitional changes, excluding the addition of
subscribers from the PageNet acquisition. During 2001, units in service decreased by
3,394,000 units due to subscriber cancellations. During 2002, units in service decreased
by an additional 2,860,000 units, of which 2,584,000 were due to subscriber cancellations
and 276,000 were due to the partial divestiture of our interest in two Canadian
subsidiaries, which resulted in the financial results of these subsidiaries no longer
being consolidated into our financial statements commencing in December 2002. We expect to
continue to experience significant declines in the number of units in service during the foreseeable
future. Our ability to compete against cellular telephone and PCS providers is as yet
unproven.


The
other factor which contributes to revenue, in addition to the number of units in service,
is the monthly charge per unit. As previously discussed, the monthly charge is dependent
on the subscribers channel of distribution, messaging service desired, extent of
geographic coverage desired, whether the subscriber leases or owns the messaging device
and the number of units the customer has on his or her account. The ratio of revenues for
a period to the average units in service for the same period, commonly referred to as
average revenue per unit is a key revenue measurement because it indicates whether monthly
charges are increasing or decreasing. Average revenue per unit by distribution channel and
messaging service are monitored regularly.


Our
average revenue per unit has increased from $8.67 in 2000 to $9.42 for 2002. This increase
is due primarily to a change in the mix of units in service between the two channels of
distribution rather than price increases. The percentage of units in the indirect channel
has decreased from 38.0% at December 31, 2000 to 23.6% at December 31, 2002. During the
same period, the average revenue per unit for the indirect channel ranged from $2.93 to
$3.20 and the average revenue per unit for the direct channel ranged from $11.70 to
$11.56. The decrease in indirect units in service relative to the direct units in service
decrease resulted in the overall increase in average revenue per unit between 2000 and
2002.


14




Our
revenues were $851.1 million, $1.2 billion and $818.7 million for the years ended December
31, 2000, 2001 and 2002, respectively. The increase from 2000 to 2001 was due to the
PageNet acquisition, which was completed in November 2000.


As
noted above, the demand for one-way messaging services has declined over the three-year
period and, as a result, operating expense management and control are important to our
financial results. Certain of our operating expenses are especially important to overall
expense control, these operating expenses are categorized as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Service, rental and maintenance. These are the expenses associated with the
operation of our networks and the provision of messaging services and consist largely of
telephone charges to deliver messages over our networks and lease payments for locations
on which we maintain transmitters.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Selling. These are the costs associated with our direct and indirect sales forces.
This classification consists primarily of salaries and commissions and advertising
expense.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | General and administrative. These are costs associated with customer service,
inventory management, billing, collections, bad debts and other administrative functions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We
review the percentages of these operating expenses to revenues on a regular basis. These
ratios indicate whether operating expenses are decreasing at the same rate as revenues.
The ratio of revenues less the total of cost of products sold, service, rental and
maintenance, selling and general and administrative expenses to revenues is referred to as
operating margin. Operating margin is a key indicator of the operational efficiency of our
expense structure. Even though the operating expenses are classified as described above,
expense controls are also performed on a functional expense basis. In 2002, we incurred
approximately 72% of our operating expenses in three functional expense categories:
payroll and related expenses, lease payments for transmitter locations and telephone
expense.


Payroll
and related expenses include wages, commissions, incentives, employee benefits and taxes.
We review the number of employees in major functional work groups, for example, direct
sales, collections, customer service, etc., on a monthly basis. The ratio of the number of
employees in each functional work group to the number of direct units in service or total
units in service is reviewed to ensure functional groups that are largely dependent on the
number of units in service maintain or improve this ratio. We also review the design and
physical locations of functional groups to continuously improve efficiency and to simplify
organizational structures and minimize physical locations.


Lease
payments for transmitter locations are largely dependent on our messaging networks. As
described in Messaging Networks and Licenses, we operate many local and
regional one-way messaging networks, three nationwide one-way messaging networks and a
two-way messaging network. These networks each require locations on which to place
transmitters, receivers and antennas. Generally, lease payments are incurred for each
transmitter location. Therefore, lease payments for transmitter locations are highly
dependent on the number of transmitters, which in turn is dependent on the number of
networks. In addition, these expenses generally do not vary directly with the number of
subscribers or units in service, which is detrimental to our operating margin as revenues
decline. In order to reduce this expense, we have an active program to reduce the number
of networks and thus transmitter locations. In 2002, we removed 3,800 transmitters from
various networks and plan to remove approximately 4,800 additional transmitters in 2003.


Telephone
expenses are incurred to provide interconnection of our messaging networks, phone numbers
for customer use, points of contact for customer service and connectivity among our
offices. These expenses are dependent on the number of units in service and the number of
office and network locations. The dependence on units in service is related to the number
of phone numbers provided to customers and on the number of phone calls made to our call
centers, though this is not always a direct dependency. For example, the number or
duration of phone calls to our call centers may vary from period to period based on
factors other than the number of units in service, which could cause telephone expense to
vary irrespective of the number of units in service. In addition, certain phone numbers we
provide to our customers may have a usage component based on the number of calls to the
subscribers messaging device.


15




The
total of our cost of products sold, service, rental and maintenance, selling and general
and administrative expenses was $590.0 million, $875.9 million and $585.6 million for the
years ended December 31, 2000, 2001 and 2002, respectively, and operating margins were
30.7%, 24.7% and 28.5% in these years, respectively. The increase in these operating
expenses from 2000 to 2001 was because 2001 included a full year of PageNet results
compared to only two months in 2000. The reduction in operating margin for 2001 was due to
the redundant administrative and management personnel associated with the PageNet
acquisition. Although the integration of PageNets operations into ours reduced the
number of redundant personnel and the integration of PageNets operations was
substantially complete as of December 2001, these reductions did not occur at a rate which
was sufficient to offset the decrease in revenues for the same period. The reduction in
the total of our cost of products sold, service, rental and maintenance, selling and
general and administrative expenses for 2002 resulted in an increase in operating margin,
which indicates expense reductions kept pace with the decline in revenues. Since it is
anticipated that demand for one-way messaging will continue to decline in 2003, expense
reductions will continue to be necessary in order to maintain operating margins.


Application of Critical
Accounting Policies


The
following discussion and analysis of financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in conformity
with accounting principles generally accepted in the United States. The preparation of
these financial statements requires management to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues, expenses and related disclosures.
On an on-going basis, we evaluate estimates and assumptions, including but not limited to
those related to the impairment of long-lived assets, reserves for doubtful accounts and
service credits, revenue recognition, capitalization of device refurbishment costs and
asset retirement obligations. We base the estimates on historical experience and various
other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates under different assumptions or
conditions.


Impairment of Long-Lived
Assets


In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, we are
required to evaluate the carrying value of our long-lived assets and certain intangible
assets. SFAS No. 144 first requires an assessment of whether circumstances currently exist
which suggest the carrying value of long-lived assets may not be recoverable. At December
31, 2002, Arch does not believe any such conditions exist. Had these conditions existed,
we would assess the recoverability of the carrying value of our long-lived assets and
certain intangible assets based on estimated undiscounted cash flows to be generated from
such assets. In assessing the recoverability of these assets, we would project estimated
enterprise-level cash flows which would be based on various operating assumptions such as
average revenue per unit in service, disconnect rates, sales productivity rates and
workforce productivity ratios. If the projection of undiscounted cash flows did not exceed
the carrying value of the long-lived assets, we would be required to record an impairment
charge to the extent the carrying value exceeded the fair value of such assets.


In
conjunction with the application of the American Institute of Certified Public Accountants
Statement of Position 90-7, Financial Reporting by Entities in Reorganization under
the Bankruptcy Code (SOP 90-7), the assets have been recorded at their
fair values based principally on a third-party appraisal. However, if the assessment of
the criteria above were to change and the projected undiscounted cash flows were lower
than the carrying value of the assets, we would be required to record impairment charges
related to our long-lived assets.


We
recorded an impairment charge relating to our long-lived assets of $976.2 million in the
second quarter of 2001, which is included in depreciation and amortization expense in the
accompanying statements of operations.


Reserves for Doubtful
Accounts and Service Credits


We
record two reserves against our gross accounts receivable balance: an allowance for
doubtful accounts and an allowance for service credits. Provisions for these allowances
are recorded on a monthly basis and are included as a component of general and
administrative expense and a reduction of revenue, respectively.


16




Estimates
are used in determining the allowance 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 we review historical write-offs, including
comparisons of write-offs to provisions for doubtful accounts and as a percentage of
revenues. We compare the ratio of the reserve to gross receivables to historical levels
and we monitor amounts collected and related statistics. Our allowance for doubtful
accounts was $42.0 million and $12.8 million at December 31, 2001 and 2002, respectively.
While write-offs of customer accounts have historically been within our expectations and
the provisions established, we cannot guarantee that future write-off experience will be
consistent with historical rates, which could result in material differences in the
allowance for doubtful accounts and related provisions.


The
allowance for service credits and the related provisions are based on historical credit
percentages, current credit and aging trends and days billings outstanding. Days billings
outstanding is determined by dividing the daily average of amounts billed to customers
into the accounts receivable balance. This approach is used because it more accurately
represents the amounts included in accounts receivable and minimizes fluctuations that
occur in days sales outstanding due to the billing of quarterly, semi-annual and annual
contracts and the associated revenue that is deferred. A range of allowance balances is
developed and an allowance is recorded within that range based on our assessment of trends
in days billings outstanding, aging characteristics and other operating factors. Our
allowance for service credits was $9.7 million at December 31, 2002. While credits issued
have been within our expectations and the provisions established, we cannot guarantee that
future credit experience will be consistent with historical rates, which could result in
material differences in the allowance for service credits and related provisions.


Revenue Recognition


Our
revenue consists primarily of monthly service and lease fees charged to customers on a
monthly, quarterly, semi-annual or annual basis. Revenue also includes sales of messaging
devices directly to customers and other companies that resell our services. We recognize
revenue over the period the service is performed in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101). SAB 101 requires that four basic criteria be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or
services rendered, (3) the fee is fixed or determinable, and (4) collectibility is
reasonably assured. We believe, relative to the sale of one-way messaging devices, that
all of these conditions are met and since the services are deemed not to be essential to
the functionality of the devices, revenue from the sale of one-way messaging devices is
recognized at the time of shipment.


We
bundle the sale of two-way messaging devices with the related service and since,
currently, the sale of the service is essential to the functionality of the device, we do
not separately account for the sale of the device and the service. Revenue and the related
cost of sales are recognized over the expected customer relationship, which is currently
estimated to be two years. If the assumed length of the customer relationship differed
significantly or technology advances resulted in the service not being essential to the
functionality of the device; the timing of revenue and expense amortization and the
carrying value of the related deferred revenue and cost could be materially affected.


Capitalization of Device
Refurbishment Costs


We
incur significant costs associated with messaging devices, including the purchase of new
devices as well as the refurbishment of devices leased to customers. Device refurbishment
falls into two general categories; cosmetic cleaning and repair of external components
(i.e. lenses, clips, plastics, etc.) and significant refurbishment or replacement of
internal components, including component level repair and changes, which allow the device
to function on different messaging networks and on different frequencies. The costs
associated with cosmetic cleaning and repair of external components are expensed in the
period incurred. The costs associated with significant refurbishment extend the useful
life of the device and allow us to forego the purchase of a new messaging device.
Therefore, these costs are capitalized to fixed assets and depreciated over a one year
estimated life.


We
had approximately 4.0 million leased units in service as of December 31, 2002, which are
subject to customer return primarily for cancellation of service or exchanges for
different devices. We process several hundred thousand such returns on a quarterly basis
and most devices returned require either cosmetic or significant refurbishment. Due to the
high volume of devices processed, specific identification of repairs to specific pieces of
equipment is not practical, therefore, we capitalize a majority of the significant
refurbishment costs incurred. These costs consist of both internal costs, primarily
payroll and related expenses, parts consumed in the repair process, and third party
subcontracted repair services. The capitalization rate was determined based on an internal
product flow and cost analysis of our in-house repair facility. The capitalization of
these expenses results in lower operating expenses, but higher capital expenditures in
each period. For the years ended December 31, 2001 and 2002, $22.4 million and $14.4
million, respectively, were capitalized. If the capitalization rate were different from
the rate currently used, service, rental and maintenance expense and capital expenditures
would be affected in equal and opposite amounts and depreciation expense would differ on a
prospective basis.


17




Asset Retirement
Obligations


We
have adopted the provisions of SFAS No. 143, Accounting for Asset Retirement
Obligations in accordance with the requirements of SOP 90-7. SFAS No. 143 requires
the recognition of liabilities and corresponding assets for future obligations associated
with the retirement of assets. We have network assets that are located on leased
transmitter locations. The underlying leases generally require the removal of our
equipment at the end of the lease term, therefore a future obligation exists. We have
recognized an asset retirement obligation of approximately $2.5 million, $1.7 million of
which is included in current accrued expenses and the remaining $788,000 of which is
included in other long-term liabilities. Network assets have been increased to reflect
these costs and will be depreciated over the estimated lives of the network assets, which
range between one and ten years.


The
$1.7 million included in accrued expenses was estimated in conjunction with our efforts to
reduce the number of networks we operate. The primary variables associated with this
estimate are the number and types of equipment to be removed in 2003 and an estimate of
the outside contractor fees to remove each asset. These assumptions were based on
information included in our 2003 operating plan. Since this is a short-term liability, the
present value of the estimated retirement obligations is not materially different from the
gross liability.


The
$788,000 included in other long-term liabilities relates primarily to an estimate of the
assets to be removed at an estimated terminal date and has been recorded at its present
value assuming a 24% credit adjusted risk free rate, which was derived based upon the
yield of our 12% notes. The undiscounted future obligation of approximately $5.6 million
will be accreted to operating expense over a ten-year period using the interest method.
This estimate is based on the transmitter locations remaining after we have reduced the
number of networks we operate and assumes the underlying leases continue to be renewed to
that future date. The fees charged by outside contractors were assumed to increase by 3%
per year.


Management
believes these estimates are reasonable at the present time, but we can give no assurance
that changes in technology, our financial condition, the economy or other factors would
not result in a higher or lower asset retirement obligation. Any variations from our
estimates would generally result in a change in the assets and liabilities in equal
amounts and our operating results would differ in the future by any difference in
depreciation expense and accreted operating expense.


PageNet Merger


On
November 10, 2000, we completed the acquisition of PageNet for $1.35 billion consisting of
89,896,907 shares of common stock then valued at $263.4 million, the assumption of
liabilities of $1.06 billion and $27.6 million of transaction costs. In the merger, each
outstanding share of PageNets common stock was exchanged for 0.04796505 shares of
common stock.


Results of Operations


The
following table presents certain items from our consolidated statements of operations as a
percentage of revenues:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | Year Ended December 31,
|------------------------------- | -----------------------
|
|Total revenues                  |                        
|Operating expenses:             |                        
|Cost of products sold           |                        
|Service, rental and maintenance |                        
|Selling                         |                        
|General and administrative      |                        
|Depreciation and amortization   |                        
|Operating income (loss)         |                        
|Net income (loss)               |                        

|18




For
financial statement purposes, our results of operations and cash flows have been separated
as pre- and post-May 31, 2002 due to a change in basis of accounting in the underlying
assets and liabilities. See Note 3 of Notes to Consolidated Financial Statements. For
purposes of the following discussion we refer to our results prior to May 31, 2002 as
results for our predecessor company and we refer to our results after May 31, 2002 as
results for our reorganized company. The predecessor company financial data has been
compared in the section Comparison of the Predecessor Company Results of Operations
for the Five Months Ended May 31, 2002 to the Year Ended December 31, 2001 and
certain financial data of the year ended December 31, 2002 has been combined and discussed
in relation to the year ended December 31, 2001 in the section Year Ended December
31, 2002 Compared with Year Ended December 31, 2001". However, for the reasons
described in Note 3 and due to other non-recurring adjustments, the predecessor
companys financial statements for the periods before we emerged from bankruptcy are
not comparable to the reorganized companys financial statements for the seven months
ended December 31, 2002, and our results of operations prior to emergence from bankruptcy,
including the five-month period ended May 31, 2002, are not indicative of future results.
The following items are particularly noteworthy:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | a gain of $1.6 billion was recognized in May 2002 from the discharge and termination of
debt upon emergence from bankruptcy;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | o | a
gain of $47.9 million was recognized in May 2002 due to fresh start accounting
adjustments;
| | - | ---------------------------------------------------------------------------------------------

| | o | reorganization expenses of $22.5 million and $2.8 million were recognized in the five
months ended May 31, 2002 and the seven months ended December 31, 2002, respectively, and;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | we did not accrue $45.6 million and $30.4 million of contractual interest while we
operated in bankruptcy in the first and second quarters of 2002, respectively.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|Comparison of the
Predecessor Company Results of Operations for the Five Months Ended May 31, 2002 to the
Year Ended December 31, 2001


The
predecessor company had no results of operations after the effective date of the plan of
reorganization. Accordingly, there are seven fewer months for each item discussed in each
2002 period which exacerbates the quantitative change from the periods in the prior year
and prevents a meaningful comparison between the 2002 and 2001 periods. Please see the
section Year Ended December 31, 2002 Compared with Year Ended December 31,
2001, below for additional information.


Revenues
decreased to $365.4 million, a 68.6% decrease, for the five months ended May 31, 2002,
from $1.2 billion for the year ended December 31, 2001, as the number of units in service
decreased from 8.5 million at December 31, 2001 to 7.2 million at May 31, 2002 and the
five month period ended May 31, 2002 reflects an operating period that is seven months
shorter than the year ended December 31, 2001.


Service,
rental and maintenance expenses, which consist primarily of telephone expenses, fees paid
to other network providers, lease payments on transmitter locations and repair and
maintenance expenses, decreased to $106.0 million, or 29.0% of revenues, in the five
months ended May 31, 2002, from $306.3 million, or 26.3% of revenues in the year ended
December 31, 2001.


Selling
expenses decreased to $35.3 million, or 9.7% of revenues, for the five months ended May
31, 2002, from $138.3 million, or 11.9% of revenues, for the year ended December 31, 2001.
The decrease was due to fewer sales representatives resulting from continuing efforts to
manage sales force productivity such that as units in service decline fewer sales
personnel are required. In conjunction with efforts to reduce the number of sales
personnel, we combined the responsibilities of sales representatives to include both one
and two-way messaging services.


General
and administrative expenses decreased to $116.7 million, or 31.9% of revenues, for the
five months ended May 31, 2002, from $389.0 million, or 33.4% of revenues for the year
ended December 31, 2001. The decreases in general and administrative expenses were due
primarily to lower payroll and related expenses, facilities costs, outside services and
bad debt expense.


Depreciation
and amortization expenses decreased to $82.7 million in the five months ended May 31,
2002, from $1.6 billion in the year ended December 31, 2001. The decrease was principally
due to a $976.2 million impairment charge, recorded in June 2001, related to certain
one-way messaging equipment, computer equipment and intangible assets and the associated
reduction in the carrying value of the fixed and intangible assets.


19




Net
interest expense decreased to $2.2 million for the five months ended May 31, 2002, from
$226.9 million for the year ended December 31, 2001. As a result of filing for protection
under chapter 11, we stopped recording interest expense on our debt from December 6, 2001
through May 31, 2002. Contractual interest that was neither accrued nor recorded on debt
incurred before the bankruptcy filing was approximately $76.0 million and $13.0 million
for the five months ended May 31, 2002 and year ended December 31, 2001, respectively.


In
May 2002, upon emergence from chapter 11, we recognized a gain of $1.6 billion resulting
from the discharge and termination of debt incurred before the bankruptcy filing. For the
year ended December 31, 2001, we recognized a gain of $34.2 million on the retirement of
debt exchanged for predecessor company stock.


Reorganization
expense was $22.5 million in the five months ended May 31, 2002. These expenses consisted
of professional and other fees associated with our bankruptcy proceedings.


In
May 2002, upon emergence from chapter 11, we recorded fresh start accounting adjustments
resulting in a gain of $47.9 million. See Note 3 to the Consolidated Financial Statements.


We
recognized an income tax benefit of $122.0 million for the year ended December 31, 2001.
This amount represented the tax benefit of operating losses incurred subsequent to the
acquisition of PageNet, which were available to offset deferred tax liabilities arising
from the PageNet acquisition.


Year Ended December 31,
2002 Compared with Year Ended December 31, 2001


Revenues
consist primarily of recurring fees associated with the provision of messaging services,
rental of leased units and device sales. Device sales represented less than 10% of total
revenues for the years ended December 31, 2001 and 2002. We do not differentiate between
service and rental revenues.


Revenues
decreased to $818.7 million, a 29.6% decrease, from $1.2 billion for the year ended
December 31, 2001, as the number of units in service decreased from 8.5 million at
December 31, 2001 to 5.6 million at December 31, 2002. The $344.8 million decrease in
revenues consisted of a $317.6 million decrease in recurring fees associated with the
provision of messaging services and a $27.2 million decrease in revenues from device
sales. Approximately 82%, or $259.7 million, of the $317.6 million decrease in recurring
fees was due to the 2,860,000 net unit losses, while approximately 18%, or $57.9 million,
of the decrease in recurring fees was due to lower average revenue per unit. The $259.7
million revenue decline that occurred due to fewer units in service was comprised of a
$293.0 million decline in one-way messaging revenues partially offset by a $33.3 million
increase in two-way messaging revenues. The $57.9 million revenue decline that occurred
due to lower average revenue per unit consisted of revenue declines of $48.5 million and
$9.4 million related to one-way messaging and two-way messaging, respectively. The
disconnect rate, primarily in the direct channel, improved throughout 2002 from 4.1% in
the quarter ended March 31, 2002 to 3.5% in the quarter ended December 31, 2002. We
anticipate the disconnect rate in the direct channel to remain consistent with the results
of the quarter ended December 31, 2002, but we can give no assurance that this will occur
as many factors may cause changes in the disconnect rate. Some of these factors include
our program to reduce the number of networks we operate, the quality of our customer
service and the overall strength of the economy.


Two-way
messaging revenues increased to $127.3 million, or 15.5% of total revenues, in the year
ended December 31, 2002 from $103.5 million, or 8.9% of total revenues, in 2001. Two-way
messaging units in service increased from 334,000 at December 31, 2001 to 352,000 at
December 31, 2002.


Service,
rental and maintenance expenses, which consist primarily of telephone expenses, fees paid
to other network providers, lease payments for transmitter locations and repair and
maintenance expenses, decreased to $241.3 million, or 29.5% of revenues, in the year ended
December 31, 2002 from $306.3 million, or 26.3% of revenues in 2001. The majority of these
costs are fixed in the short term, and as a result, to date, we have not been able to
reduce service, rental and maintenance expenses at the same rate of decline as units in
service and revenues, resulting in an increase in these expenses as a percentage of
revenues. The decrease in expense was primarily a result of lower telephone expenses, fees
paid to other network providers, operator dispatch fees and payroll and related expenses.
The decrease in telephone expense of $27.6 million for the year resulted from (1)
permanent savings due to consolidation of network facilities, favorable rate adjustments
and lower usage-based charges due to declining units in service and (2) a $4.4 million
accrual adjustment due to favorable settlement of certain contract disputes. The decrease
in fees paid to other network providers was $14.0 million, due primarily to our efforts to
migrate customers from other network providers to our networks and to a lesser extent
lower units in service. The decrease in operator dispatch fees of $8.7 million was due
primarily to lower units in service and to a lesser extent the utilization of other means
to contact alphanumeric subscribers, such as the Internet. Payroll and related expenses
decreased by $8.8 million due to fewer employees in 2002, which resulted from the
integration of PageNet technical operations. We expect expenses in these categories to
continue to decrease in 2003, but not at the rate experienced in 2002.


20




We
believe the primary service, rental and maintenance expense reduction in 2003 will relate
to lease payments for transmitter locations. In the fourth quarter of 2002, we began to
recognize a beneficial trend in lease payments for transmitter locations as a result of
our ongoing program to reduce the number of networks we operate. We expect this trend to
continue in future periods, but cannot guarantee that the level of savings will increase
as these expenses are based on underlying contracts which, depending on the particular
contract, may or may not result in immediate expense savings.


Service,
rental and maintenance expenses related to two-way messaging, consisting primarily of
lease payments for transmitter locations, telephone expenses and fees paid to other
network providers, were $46.0 million in the year ended December 31, 2002 compared to
$46.1 million in 2001.


Selling
expenses include costs associated with acquiring new subscribers and maintaining current
subscribers. These expenses decreased to $73.2 million, or 8.9% of revenues, for the year
ended December 31, 2002 from $138.3 million, or 11.9% of revenues, for 2001. The decrease
was primarily due to fewer sales representatives. The reduction in the number of sales
representatives resulted from our continuing efforts to maintain sales force productivity
at historical levels, therefore as units in service decline, fewer sales personnel are
required. In conjunction with our efforts to reduce sales personnel, we combined the
responsibilities of sales representatives to include both one and two-way messaging
services. Therefore, no specific selling expenses pertain to one or two-way messaging
services.


General
and administrative expenses decreased to $252.9 million, or 30.9% of revenues for the year
ended December 31, 2002 from $389.0 million, or 33.4% of revenues in 2001. The decreases
in general and administrative expenses were due primarily to lower payroll and related
expenses, facilities costs, outside services and bad debt expense. The decrease in payroll
and related expense was $38.7 million. This decrease was the result of 937 fewer employees
during 2002 which were due to the consolidation of operating divisions and reductions in
certain functions which tend to vary with units in service, such as customer service,
collections and inventory. Facilities costs were $17.6 million lower in 2002 due to the
closure of facilities in conjunction with the PageNet integration and to a lesser extent
the consolidation of operating divisions. Outside services decreased $14.0 million due
primarily to lower consulting and temporary employee expenses in the current year which
were necessary in 2001 to complete the conversion of PageNets billing systems to our
billing system. Bad debt decreased $23.2 million due primarily to improved collections and
lower levels of overall accounts receivable which resulted from the decreases in revenues
described above. The expense associated with various operating taxes, such as gross
receipts, franchise and property taxes decreased $16.3 million during 2002. This decrease
was primarily due to the following:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | adjustments
based on changes in estimates of future liabilities of $4.7 million and          $3.6
million in the quarters ended June 30, 2002 and December 31, 2002, respectively
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | a
refund of approximately $3.7 million in the quarter ended December 31, 2002, which had
not been previously recorded, and
| | - | --------------------------------------------------------------------------------------------------------------------------

| | o | recognition
of $2.9 million of various state tax receivables in the quarter ended September 30, 2002.
| | - | -----------------------------------------------------------------------------------------------------

|There
are no specific general and administrative expenses associated with two-way messaging.


Depreciation
and amortization expenses decreased to $186.6 million in the year ended December 31, 2002
from $1.6 billion in 2001. The decrease was principally due to a $976.2 million impairment
charge, recorded in June 2001, related to certain one-way messaging equipment, computer
equipment and intangible assets and the associated reduction in the carrying value of
fixed and intangible assets. Depreciation and amortization expense for the seven months
ended December 31, 2002 included $12.1 million of additional depreciation on certain types
of one-way transmitters. The estimated useful life of these transmitters was reduced to be
consistent with their removal from service in connection with our program to reduce the
number of networks we operate. Approximately $9.3 million of this additional depreciation
was the result of reducing the carrying value of transmitters to scrap value as such
transmitters have been removed from service.


21




Stock
based and other compensation consists primarily of severance payments to persons we
previously employed and amortization of compensation expense associated with common stock
issued to certain members of management at the time of our emergence from chapter 11. The
increase in the seven months ended December 31, 2002 was due primarily to severance
payments in prior periods being charged to restructuring reserves which had been
established in conjunction with the integration of our operations with those of PageNet
and MobileMedia.


Operating
income was $39.6 million for the year ended December 31, 2002 compared to an operating
loss of $1.5 billion in 2001 as a result of the factors outlined above.


Net
interest expense decreased to $20.5 million for the year ended December 31, 2002 from
$226.9 in 2001. Due to our filing for protection under chapter 11, we stopped recording
interest expense on our bank debt and senior notes from December 6, 2001 through May 31,
2002. Contractual interest that was neither accrued nor recorded on debt incurred before
the bankruptcy filing was approximately $76.0 million and $13.0 million for the five
months ended May 31, 2002 and year ended December 31, 2001, respectively. Our current
outstanding notes are at fixed rates and therefore interest expense is dependent only on
outstanding balances. During the seven months ended December 31, 2002, we redeemed $90
million of the 10% notes, which will result in less interest expense in future periods.


In
May 2002, upon emergence from chapter 11, we recognized a gain of $1.6 billion resulting
from the discharge and termination of debt incurred before the bankruptcy filing. For the
year ended December 31, 2001, we recognized a gain of $34.2 million on the retirement of
debt exchanged for predecessor company stock.


Other
expense was $1.0 million for the year ended December 31, 2002, compared to other expense
of $31.9 million for the year ended December 31, 2001. In 2001, other expense included a
$15.0 million charge resulting from the application of SFAS No. 133 and a $7.5 million
charge resulting from the write-off of a note receivable from Vast Solutions, Inc., which
filed for bankruptcy in April 2001.


Reorganization
expense was $25.3 million in 2002. These expenses consisted of professional and other fees
associated with our bankruptcy proceedings.


In
May 2002, upon emergence from chapter 11, we recorded fresh start accounting adjustments
resulting in a gain of $47.9 million. See Note 3 to the Consolidated Financial Statements.


For
the seven months ended December 31, 2002, we recognized a $2.3 million deferred income tax
provision based on an effective tax rate of approximately 70%. This rate is higher than the
statutory income tax rates primarily due to non-deductible reorganization items recognized
in the seven-month period. We anticipate that provisions will be required in future
periods, however we anticipate the effective rate to be approximately 40%. We recognized
an income tax benefit of $122.0 million for the year ended December 31, 2001. This amount
represented the tax benefit of operating losses incurred subsequent to the acquisition of
PageNet, which was available to offset deferred tax liabilities arising from the PageNet
acquisition.


On
January 1, 2001, we adopted SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured at its fair value
and that changes in the derivatives fair value be recognized in earnings. Initial
application of SFAS No. 133 resulted in a $6.8 million charge in the quarter ended March
31, 2001, which was reported as the cumulative effect of a change in accounting principle.
This charge represented the impact of initially recording the derivatives at fair value as
of January 1, 2001.


Net
income was $1.7 billion for the year ended December 31, 2002 as a result of the factors
outlined above including a $1.6 billion gain on extinguishment of debt recorded in May
2002. Net loss was $1.6 billion for the year ended December 31, 2001 as a result of the
factors outlined above including the $976.2 million impairment charge recorded in June
2001.


Year Ended December 31,
2001 Compared with Year Ended December 31, 2000


Revenues
increased to $1,163.5 million, a 36.7% increase, in 2001 from $851.1 million in 2000
reflecting a full year of PageNets operations compared to only two months in 2000,
offset by the decline in units in service from 11.9 million at December 31, 2000 to 8.5
million at December 31, 2001. Revenues in 2000 and 2001 were adversely affected by the
declining demand for one-way messaging services, which led to subscriber cancellations of
3,394,000 units in service in 2001.


22




Two-way
messaging revenues increased to $103.5 million, 8.9% of total revenue, in 2001 from $9.4
million, 1.1% of total revenue, in 2000. We did not begin to sell two-way messaging
services until August 2000. Two-way messaging units in service increased from 158,000 at
December 31, 2000 to 334,000 at December 31, 2001.


Service,
rental and maintenance expenses increased to $306.3 million, or 26.3% of revenues, in 2001
from $183.0 million, or 21.5% of revenues in 2000. The increase in dollar amount was due
to the acquisition of PageNet in November 2000. Since many of these costs are fixed in the
short term, we were not able to reduce service, rental and maintenance expenses at the
same rate of decline as units in service and revenues, resulting in an increase as a
percentage of revenues. For 2001, there were $46.1 million of service, rental and
maintenance expenses associated with the provision of two-way messaging and information
services, compared to $12.3 million in 2000. This increase was due to a full year of
PageNet operations in 2001 compared to only two months in 2000.


Selling
expenses increased to $138.3 million, or 11.9% of revenues, in 2001 from $107.2 million,
or 12.6% of revenues, in 2000. The increase in dollar amount was due to the acquisition of
PageNet.


General
and administrative expenses increased to $389.0 million, or 33.4% of revenues, in 2001
from $263.9 million, or 31.0% of revenues in 2000. The increase was due to more employees
, administrative and facility costs associated with PageNets operations and
increased accounts receivable loss provisions offset by various cost savings initiatives.
These initiatives included workforce reductions, closing and consolidation of facilities
and operating divisions which resulted in annualized savings of approximately $144
million. The accounts receivable loss provision increased to $56.9 million in 2001 from
$33 million in 2000, due primarily to a full year of PageNet operations in 2001 compared
to only two months in 2000.


Depreciation
and amortization expense increased to $1.6 billion in 2001 from $500.8 million in 2000.
The increase was principally due to a $976.2 million impairment charge, recorded in June
2001, related to certain one-way messaging equipment, computer equipment and intangible
assets. This charge was determined based upon managements projections of future cash
flows. Since the future undiscounted cash flows did not exceed the carrying value of the
long-lived assets, an impairment existed. The fair value of the assets was determined
based on a discounted cash flow analysis and the difference in carrying value and fair
value resulted in the charge. See Note 5 to the Consolidated Financial Statements. The
remaining increase in these expenses was due to the acquisition of PageNet.


Other
operating expenses in 2001 consisted of $154.9 million of reorganization costs, $5.9
million associated with a prior recapitalization plan which we subsequently withdrew and
$2.0 million of restructuring charges. The reorganization costs include the accretion of
$133.8 million of debt discounts, the write off of $11.8 million of deferred financing
fees and $9.3 million of professional and other fees associated with the bankruptcy
filing. In 2000, other operating expenses consisted solely of restructuring costs. See
Note 12 to the Consolidated Financial Statements.


Operating
loss increased to $1.5 billion in 2001 from $245.1 million in 2000 as a result of the
factors outlined above.


Net
interest expense increased to $226.9 million in 2001 from $166.2 million in 2000. The
increase was due primarily to an increase in our outstanding debt due to the PageNet
acquisition, partially offset by lower interest rates during 2001. Interest expense for
2000 and 2001 included approximately $28.3 million and $37.2 million, respectively, of
accretion on assumed bank debt and senior debt, the payment of which was deferred.


In
2000 and 2001, we recognized gains of $58.6 million and $34.2 million, respectively, on
the retirement of debt exchanged for our stock.


Other
expense increased to $31.9 million in 2001 from $3.1 million in 2000. In 2001, other
expense included a $15.0 million charge related to changes in the market value of certain
interest rate swaps which were designated as a hedge for accounting purposes and a $7.5
million charge resulting from the write-off of a note receivable from Vast Solutions,
Inc., which filed for bankruptcy in April 2001.


We
recognized an income tax benefit of $46.0 million and $122.0 million in 2000 and 2001,
respectively. The benefit represented the tax benefit of operating losses incurred
subsequent to the acquisition of PageNet, which were available to offset deferred tax
liabilities arising from the PageNet acquisition.


23




On
January 1, 2001, we adopted SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured at its fair value
and that changes in the derivatives fair value be recognized in earnings. Initial
application of SFAS No. 133 resulted in a $6.8 million charge in the quarter ended March
31, 2001, which was reported as the cumulative effect of a change in accounting principle.
This charge represents the impact of initially recording the derivatives at fair value as
of January 1, 2001. All of these derivative instruments were terminated during 2001.


Net
loss increased to $1.6 billion in 2001 from $309.8 million in 2000, as a result of the
factors outlined above.


Liquidity and Capital
Resources


On
May 29, 2002, we emerged from chapter 11 bankruptcy proceedings with a new capital
structure consisting of:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | $300 million aggregate principal amount of long term notes, which included $200 million
principal amount of 10% notes due 2007 and $100 million principal amount of 12% notes due
2009, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | common
stock.
| | - | -------------

|Immediately
before the bankruptcy proceeding commenced on November 9, 2001, the predecessor
companys consolidated capitalization consisted of approximately $1.8 billion
aggregate principal amount or accreted value of bank debt and notes, as well as the
predecessor companys preferred stock and common stock.


Based
on current and anticipated levels of operations, we believe that net cash provided by
operating activities, together with cash on hand, will be adequate to meet our cash
requirements through the end of 2003.


In
the event that net cash provided by operating activities and cash on hand is not
sufficient to meet future cash requirements, we may be required to reduce planned capital
expenditures, sell assets or seek additional financing. We can provide no assurance that
reductions in planned capital expenditures or proceeds from asset sales would be
sufficient to cover shortfalls in available cash or that additional financing would be
available on acceptable terms.


Sources of Funds


Our
principal sources of cash are net cash provided by operating activities plus cash on hand.


Cash Flow.  Our net cash flows from operating, investing and financing activities for the periods
indicated in the table below were as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | Year Ended December 31,
|--------------------------------------------------- | -----------------------
|
|
|Net cash provided by operating activities           |                        
|Net cash (used in) provided by investing activities |                        
|Net cash provided by (used in) financing activities |                        

|Investing
activities in 2002 consisted primarily of capital expenditures. Financing activities in
2002 consisted solely of the repayment of debt.


Investing
activities of the predecessor company in 2001 included a cash inflow of $175.0 million
from the sale of FCC licenses offset by $109.4 million of capital expenditures. Investing
activities of the predecessor company in 2000 included a cash inflow of $47.8 million for
the acquisition PageNet offset by $140.3 million of capital expenditures. Financing
activities of the predecessor company in 2001 included repayments of debt of $178.1
million offset by proceeds from the sale of series F preferred stock of $75 million and
borrowings by two of our Canadian subsidiaries of approximately $7.9 million. Financing
activities of the predecessor company in 2000 included borrowings of $175.0 million offset
by repayments of debt of $63.6 million. As discussed above, as a result of our chapter 11
reorganization, all of the predecessor companys equity interests were cancelled.


Borrowings.  The
following table describes our principal borrowings at December 31, 2002 and
          associated debt service requirements.




24
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Principal Amount or
Compounded Value | Interest                                                                                           | Maturity Date | Required Amortization                                                                                
|------------------------------------ | -------------------------------------------------------------------------------------------------- | ------------- | -----------------------------------------------------------------------------------------------------
|$110.0 million                       | 10%, payable in cash semi-annually                                                                 | May 15, 2007  | $15 million semi-annually
commencing November 15, 2002 plus excess cash - see note (1) below         
|$107.2 million                       | 12%, accruing and compounding
semi-annually until 10% notes are repaid, payable in cash thereafter | May 15, 2009  | Upon total repayment of 10%
notes, semi-annually in amounts equal to excess cash - see note (1) below

|(1)
Excess cash payments are required:
|--------------------------------------

| | o | on
each November 15 and May 15, the payment dates, to the extent cash at the prior quarter
end exceeds $45 million ($35 million subsequent to September 30, 2004), after taking into
account required interest and principal payments due on the payment date;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | out
of the proceeds of asset sales in excess of $2 million; and
| | - | ---------------------------------------------------------------

| | o | out
of specified kinds of insurance and condemnation proceeds.
| | - | --------------------------------------------------------------

|We
will be required to pay approximately $40 million in cash to service required payments of
principal and interest through December 31, 2003 in addition to any optional redemptions
paid during that period. Since July 31, 2002, we have made or announced redemptions of the
10% notes totaling $115 million (including $25 million of optional redemptions made or
announced after December 31, 2002), plus accrued interest on the redemption amount. From
time to time, we may make additional optional redemptions of the 10% notes so long as
certain minimum cash balances are maintained.


If
a change in control (as defined in the indenture) occurs, we will be required to make an
offer to purchase the 10% and 12% notes at 100% and 101%, respectively, of the outstanding
principal amount plus accrued and unpaid interest through the purchase date.


The
indentures for the 10% and 12% notes impose restrictions, including the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | prohibition on restricted payments, including cash dividends, redemptions of stock or
stock equivalents and optional payments on debt subordinated to the notes;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | prohibition
on incurring additional indebtedness;
| | - | -------------------------------------------------

| | o | prohibition
on liens on its assets;
| | - | -----------------------------------

| | o | prohibition
on making or maintaining investments except for permitted cash-equivalent type
instruments;
| | - | -------------------------------------------------------------------------------------------------------

| | o | prohibition
on consolidations, mergers or sale of assets outside the ordinary course of business;
| | - | -------------------------------------------------------------------------------------------------

| | o | prohibition
on transactions with affiliates; and
| | - | ------------------------------------------------

|compliance
with certain quarterly financial covenants including, but not limited to, (1) minimum
earnings before interest, income taxes, depreciation and amortization, (2) minimum number
of direct units in service, (3) minimum total consolidated service, rental and
maintenance revenues and (4) maximum capital expenditures.


In
August 2002, we entered into supplemental indentures for the 10% and 12% notes to correct
certain inconsistencies, errors and/or omissions in the indentures. Without these
supplemental indentures, we would not have been in compliance with the indentures.


In
March 2003, we entered into additional supplemental indentures for the 10% and 12% notes
to:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | allow for the net cash proceeds from an asset sale to be used to repay the 10% notes on an
optional redemption date, if such redemption date is earlier than the next interest
payment date;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | reduce the minimum requirements for earnings before interest, income taxes, depreciation
and amortization for certain quarters through March 31, 2004;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

|25
|--

| | o | reduce
the minimum direct units in service requirements for certain quarters through March 31,
2004; and
| | - | --------------------------------------------------------------------------------------------------------

| | o | reduce the minimum consolidated requirements for service, rental and maintenance revenue
for certain quarters through March 31, 2004.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

|Without
these supplemental indentures, we may not have been in compliance with the indentures on
various future dates.


Capital Expenditures and
Commitments


Our
2002 capital expenditures primarily consisted of the purchase and repair of wireless
messaging devices, system and transmission equipment and information systems. Excluding
acquisitions of wireless messaging businesses, our capital expenditures were $140.3
million in 2000, $109.4 million in 2001 and $84.4 million in 2002. We have generally
funded capital expenditures with net cash provided by operating activities.


We
estimate capital expenditures for 2003 will be approximately $40 to $50 million. These
expenditures will be used primarily for messaging devices, information systems equipment
and transmission equipment. However, the actual amount of capital we require will depend
on a number of factors, including; device replacement requirements of current customers,
subscriber additions, technological developments, competitive conditions and the nature
and timing of our strategy to consolidate networks.


Contractual
Obligations.   As of December 31, 2002, our contractual payment obligations under our
long-term debt agreements and operating leases for office and transmitter locations are
indicated in the table below.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                            | Payments Due by Period
(in thousands)
|--------------------------- | -------------------------------------
|
|Long-term debt obligations  |                                      
|Operating lease obligations |                                      
|                            |                                      
|Total                       |                                      
|                            |                                      

|Inflation


Inflation
has not had a material effect on our operations to date. System equipment and operating
costs have not increased in price and the price of wireless messaging devices have tended
to decline in recent years. This reduction in costs has generally been reflected in lower
prices charged to subscribers who purchase their wireless messaging devices. Our general
operating expenses, such as salaries, employee benefits and occupancy costs, are subject
to normal inflationary pressures.



Factors Affecting Future
Operating Results


The
following important factors, among others, could cause our actual operating results to
differ materially from those indicated or suggested by forward-looking statements made in
this Form 10-K or presented elsewhere by management from time to time.


Recent declines in our units in
service will likely continue or even accelerate; this trend may impair our financial
results.


In
2000, units in service decreased by 2,073,000, excluding the addition of subscribers from
our acquisition of PageNet; a decrease of 888,000 units was the result of subscriber
cancellations and a decrease of 1,185,000 units was due to definitional changes made after
the MobileMedia and PageNet acquisitions to reflect a common definition of units in
service. During 2001, units in service decreased by an additional 3,394,000 units due to
subscriber cancellations. During 2002, units in service decreased by a further 2,584,000
units due to subscriber cancellations and 276,000 units due to the partial divestiture of
our interests in two Canadian subsidiaries. We believe that demand for one-way messaging
services has been declining since 1999 and will continue to decline in the foreseeable
future. Additionally, management actions to reduce operating expenses, such as reductions
in the number of sales representatives and efforts to consolidate customers onto fewer
networks could lead to further subscriber cancellations. Based on all of the factors
discussed above, we expect to continue to experience significant declines in units in
service and revenues for the foreseeable future.

26






Reductions
in the number of units in service can significantly affect the results of operations of
wireless messaging service providers. The sale and marketing costs associated with
attracting new subscribers are substantial compared to the costs of providing service to
existing customers. Additionally, because the network-related operating expenses of
wireless messaging businesses are largely fixed in the short term, subscriber
cancellations can directly and adversely affect net cash provided by operating activities.


Revenues and operating results may
fluctuate, leading to possible liquidity problems.


We
believe that future fluctuations in revenues and operating results may occur due to many
factors, particularly the decreased demand for one-way messaging services and the
uncertain market for two-way messaging services. If the rate of decline of messaging units
exceeds our expectations, revenues will be negatively impacted, and such impact could be
material. Our network rationalization program may also negatively impact revenues as
customers experience a reduction in and possible disruptions of service in certain areas.
Our debt repayment levels are based in part on past expectations as to future revenues. We
may be unable to adjust spending in a timely manner to compensate for any future revenue
shortfall. It is possible that, due to these fluctuations, our revenues or operating
results may not meet the expectations of investors and creditors, or may cause us not to
meet the debt repayment schedules or the various financial covenants contained in our debt
instruments. Failure to make required debt payments or comply with financial covenants
would enable creditors to accelerate repayment of our debt. In this circumstance, it is
unlikely that we would have sufficient liquidity to repay the debt, which would
significantly impair the value of our debt and equity securities and could ultimately
result in us having to file for bankruptcy protection.


Operating expenses may not decline
at a rate that matches the decline in revenues, leading to a reduction in net cash
provided by operating activities, possible liquidity problems and an inability to service
or refinance outstanding debt.


In
order to continue to generate net cash provided by operating activities sufficient to
service outstanding debt, we anticipate significant reductions in operating expenses to
offset the decline in revenues. In particular, lease payments on transmitter locations and
telephone expense are the most significant costs associated with the operation of our
messaging networks, accounting for 32.7% of our service, rental and maintenance, selling
and general and administrative expenses in 2002. Reductions in these expenses are
dependent on our ability to successfully rationalize existing messaging networks,
ultimately resulting in fewer locations on which we are required to pay monthly lease and
telephone interconnection costs. Many of our leases for transmitter locations are
consolidated under master lease agreements with a few large national vendors. There can be
no assurance that our negotiations with these or other lessors that arise as a result of
our network rationalization program will result in a reduction of future lease payments
that is consistent with our strategy.


If
our assumed reductions in operating expenses are not met, or if revenues decline at a more
rapid rate than anticipated and that decline cannot be offset with additional
expensereductions, then net cash provided by operating activities
would be adversely affected. Lower than expected net cash provided by operating activities
could cause us to fail to make required debt repayments or comply with certain financial
covenants contained in our debt instruments, either of which would enable creditors to
accelerate repayment of our outstanding debt. In this circumstance, it is unlikely that we
would have sufficient liquidity to repay our debt and could ultimately result in us having
to file for bankruptcy protection.


We
are dependent on net cash provided by operating activities as our principal source of
liquidity. If we are not able to achieve anticipated levels of net cash provided by
operating activities, we may not be able to amend or refinance our existing debt
obligations and we may be precluded from incurring additional indebtedness due to
restrictions under existing or future debt instruments. Further, it is unlikely that
additional external sources of financing will be available to us under these
circumstances. If we were to fail to make required debt repayments or fail to comply with
financial covenants contained in our debt instruments, creditors could accelerate
repayment of our outstanding debt. In this circumstance, it is unlikely that we would have
sufficient liquidity to repay the debt, which would significantly impair the value of our
debt and equity securities and could ultimately result in us having to file for bankruptcy
protection.


27






Competition from mobile, cellular
and PCS telephone companies is intense. Many companies have introduced phones and services
with substantially the same features and functions as the one and two-way messaging
products and services provided by us, and have priced such devices and services
competitively.


We
face competition from other messaging providers in all markets in which we operate, as
well as from cellular, PCS and other mobile wireless telephone companies. While certain of
our competitors providing wireless messaging and information services are currently in
financial distress, they continue to create significant competition for a depleting
customer base notwithstanding the challenges of their financial difficulties. Providers of
mobile wireless phone services such as AT&T Wireless, Cingular, WorldCom, Sprint PCS,
Verizon, T-Mobile and Nextel now include wireless messaging as an adjunct service to voice
services. In addition, the availability of coverage for mobile phone services has
increased, making the two types of service and product offerings more comparable. Cellular
and PCS companies seeking to provide wireless messaging services have been able to bring
their products to market faster, at lower prices or in packages of products that consumers
and businesses find more valuable than those we provide. In addition, many of these
competitors, particularly cellular and PCS phone companies, possess greater financial,
technical and other resources than those available to us.


Our operations may be disrupted if
we are unable to obtain equipment or services from vendor sources in the future.


We
do not manufacture any of the messaging devices or other equipment that our customers need
to take advantage of our services. The equipment used in our operations were generally
available for purchase from only a few sources. Historically, we purchased messaging
devices primarily from Motorola and purchased terminals and transmitters primarily from
Glenayre Electronics, Inc.


Both
Motorola and Glenayre have discontinued the production of the messaging devices and
network equipment that we purchased from them. However, we have entered into a development
agreement with PerComm Inc. and continue to evaluate several other vendors to obtain
alternative sources of two-way messaging devices. We are also testing one-way messaging
devices from several other existing sources. We believe that our existing inventory of
Motorola devices and purchases from other available sources of new and reconditioned
devices will be sufficient to meet our expected two-way device requirements through
September 30, 2003 and our one-way device requirements for the foreseeable future.


We
have entered into an agreement with Glenayre which will provide us with certain continued
services and equipment into 2004. In addition, we currently have excess network equipment
as a result of our efforts to rationalize and deconstruct many of our one-way messaging
networks and from prior acquisitions of network equipment. Additional network equipment
for our two-way messaging network is available from two other vendors, Sonik Technologies,
Inc. and TGA Technologies.


Significant
delays in developing alternative sources of equipment could lead to disruptions in
operations and adverse financial consequences. There can be no assurance that we will be
able to secure alternative sources of messaging devices and all required network
equipment.


Restrictions under debt
instruments prevent us from declaring dividends, incurring debt, making acquisitions or
taking actions that management considers beneficial.


Our
debt instruments limit or restrict, among other things, our operating subsidiaries
ability to pay dividends, make investments, incur secured or unsecured indebtedness, incur
liens, dispose of assets, enter into transactions with affiliates, engage in any merger,
consolidation or sale of substantially all of our assets or cause our subsidiaries to sell
or issue stock.


We
might be prevented from taking some of these actions because we could not obtain the
necessary consents even though we believe taking such actions would be beneficial.


Deductions for tax purposes from
future activities and from retained tax attributes may be insufficient to offset future
federal taxable income and/or significant changes in the ownership of our common stock may
increase income tax payments.


We
currently anticipate generating taxable losses for the next several years and estimate
that, at December 31, 2003, our tax net operating losses will be between $175 million and
$200 million. Under current tax law, these net operating losses will not expire until
December 31, 2023. We currently anticipate that we will have sufficient tax deductions
from our operations following our emergence from chapter 11 proceedings, including from
the federal income tax attributes that we retained after our emergence from chapter 11, to
offset future federal taxable income (before these deductions) for the next several years.
The extent to which these tax attributes will be available to offset future federal
taxable income depends on certain factual and legal matters that are subject to varying
interpretations. Therefore, despite our expectations, it is possible that we may not have
sufficient tax attributes to offset future federal taxable income.


28






A
change in ownership, as defined in sections 382 and 383 of the Internal Revenue Code, of
our stock could significantly limit the amounts and timing of the use of various tax
attributes that existed as of our emergence from chapter 11 and of any tax attributes
generated between our emergence from chapter 11 and the date of such change in ownership,
including our tax net operating losses at December 31, 2003. Generally, a change in
ownership will occur if a greater than 50% cumulative change in ownership of our stock
occurs over any three-year period beginning at any time after we emerged from chapter 11.
We believe, based on available information, that since our emergence from chapter 11 we
have undergone a cumulative change in ownership of approximately 25%.


If
the deductions associated with future activities including from tax attributes that we
retained after our emergence from chapter 11 are insufficient to offset future federal
taxable income, or if a change in ownership occurs and such deductions are limited,
whether due to circumstances within or beyond our control, we would likely generate
taxable income and would be required to make current income tax payments. Any such
payments would result in lower net cash provided by operating activities, which would have
otherwise been available to repay our outstanding debt. In addition, depending on the
timing of any such change in ownership and the amount of taxable income generated, the
required tax payments could result in insufficient cash being available to service our
debt obligations. If we were to fail to make required debt repayments, creditors could
accelerate repayment of our outstanding debt. In this circumstance, it is unlikely that we
would have sufficient liquidity to repay the debt, which could ultimately result in our
having to file for bankruptcy protection.


To
help protect the tax benefits associated with our federal income tax attributes, we are
reviewing various alternatives to restrict the transfer of our common stock. However, we
cannot assure you that any of these alternatives will prevent a change in ownership or
otherwise enable us to avoid significant limitations on the amounts and timing of the use
of our tax attributes.


Loss of our key
personnel could adversely impact our operations


Our
success will depend, to a significant extent, upon the continued service of a relatively
small group of key executive and management personnel. We have employment agreements with
our chairman of the board and chief executive officer, our president and chief operating
officer and our executive vice president and chief financial officer, and we have issued
restricted stock, vesting over three years, to ten members of our senior management. Prior
to our chapter 11 filing, we entered into an agreement with our secured creditors
outlining, among other things, the terms of key employee retention and incentive
compensation plans for 2002 and 2003 for approximately 75 employees. The terms of these
arrangements, including a 2003 incentive compensation plan contemplating payments in early
2004 based upon our fiscal 2003 financial and operating results, were communicated to
participating employees.


Our
board of directors, in consultation with professional compensation advisors and with the
intention to provide management with market-competitive compensation, is considering
modifications to the 2003 incentive compensation plan and implementing a new long-term
incentive plan. Although the scope and terms of potential modifications, if any, are not
known at this time, these modifications will likely result in a reduction in the cash
compensation payable in 2004. The possibility that the amounts payable under a modified
incentive plan could be substantially lower than the amounts payable under the 2003
incentive compensation plan previously communicated to participating employees could
result in the loss of key personnel, which could result in a material adverse effect on
our future operating results, financial position and cash flows.


29






Recent and Pending
Accounting Pronouncements


In
July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets.
We adopted the requirements of SFAS No. 142 effective January 1, 2002. SFAS No. 142
requires companies to cease amortization of certain assets and provides a methodology to
test these assets for impairment on a periodic basis. We did not have any assets subject
to SFAS No. 142 on our balance sheet as of January 1, 2002 and therefore the adoption had
no impact on Archs results of operations or financial condition. Depreciation and
amortization expense in the first quarter of 2001 would have been reduced by $54.4 million
had the provisions of this statement been applied to that period.


In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. The objectives of SFAS No. 144 are to address
significant issues relating to the implementation of FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and to develop a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and, generally, its
provisions are to be applied prospectively. We adopted SFAS No. 144 on January 1, 2002.
The adoption had no impact on our results of operations or financial condition.


In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the recognition of liabilities associated with
obligations to incur future costs associated with asset retirements. The liability is
required to be recorded at fair value with any accretion in future periods recorded to
operating expenses. When the liability is initially recognized, the cost of the asset
retirement obligation is capitalized by increasing the carrying amount of the related
long-lived asset. This asset retirement cost is subsequently depreciated over the useful
life of the related asset. In accordance with the requirements of SOP 90-7 we adopted SFAS
No. 143 on June 1, 2002, and have recorded a $2.5 million asset retirement obligation,
$1.7 million of which is included in the caption accrued expenses and $788,000 of which is
included in the caption other long-term liabilities on the accompanying consolidated
balance sheets. We anticipate depreciating the related asset over periods ranging from one
to ten years. The long-term portion of the asset retirement obligation will accrete to
approximately $5.6 million using the effective interest method over ten years.


In
April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of SFAS No. 13, and Technical Corrections. In rescinding SFAS No.
4, Reporting Gains and Losses from Extinguishment of Debt, and SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, SFAS No.
145 eliminates the requirement that gains and losses from the extinguishment of debt be
aggregated and classified as an extraordinary item, net of the related income tax effect.
In accordance with the requirements of SOP 90-7, we adopted SFAS No. 145 and the
predecessor company recorded a $1.6 billion gain on extinguishment of debt in the five
month period ended May 31, 2002. In accordance with SFAS No. 145 this gain was recognized
as other income. In addition, the gains on early extinguishment of debt recorded in prior
years have been reclassified as other income.


In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, which addresses accounting for restructuring and similar
costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues
Task Force Issue (EITF) No. 94-3. We have adopted the provisions of SFAS No.
146. SFAS No. 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date management committed to an exit
plan. SFAS No. 146 also establishes that the liability should initially be measured and
recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing
future restructuring costs as well as the amounts recognized.


In
November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN No. 45 clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are
applicable for financial statements of interim periods ending after December 15, 2002. We
do not expect the adoption of FIN No. 45 to have a material impact on our results of
operations or financial condition.

30






In
November 2002, the EITF issued No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. EITF No. 00-21 addresses certain aspects of the accounting by
a vendor for arrangements under which it will perform multiple revenue-generating
activities. EITF No. 00-21 establishes three principles: revenue should be recognized
separately for separate units of accounting, revenue for a separate unit of accounting
should be recognized only when the arrangement consideration is reliably measurable and
the earnings process is substantially complete, and consideration should be allocated
among the separate units of accounting in an arrangement based on their fair values. EITF
No. 00-21 is effective for all revenue arrangements entered into in fiscal periods
beginning after June 15, 2003, with early adoption permitted. We do not expect the
adoption of EITF No. 00-21 to have a material impact on our results of operations or
financial condition.


In
January 2003, the FASB issued FIN No. 46 Consolidation of Variable Interest
Entities, an interpretation of ARB 51. FIN No. 46 provides guidance on the
identification of entities for which control is achieved through means other than through
voting rights called variable interest entities or VIEs and how to
determine when and which business enterprise should consolidate the VIE (the primary
beneficiary). This new model for consolidation applies to an entity which either (1)
the equity investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entitys activities without
receiving additional subordinated financial support from other parties. In addition, FIN
No. 46 requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. Certain transitional
disclosures are required in financial statements initially issued after January 31, 2003,
if it is reasonably possible that once this guidance is effective the enterprise will
either be required to consolidate a VIE or will hold a significant variable interest in a
VIE. Arch does not have any interests that would change our current reporting entity or
require additional disclosures outlined in FIN No. 46.



ITEM 7A.         QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Our
debt financing consists of fixed rate secured notes, which are secured by substantially
all of our assets.


Senior Subordinated Secured and
Subordinated Secured Compounding Notes, Fixed Rate Debt:


Our
fixed rate secured notes are traded publicly and are subject to market risk. The fair
values of the fixed rate senior notes were based on market quotes as of December 31, 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Principal Balance | Fair Value     | Stated Interest Rate | Scheduled Maturity
|----------------- | -------------- | -------------------- | ------------------
|$110.0 million    | $103.4 million | 10%                  | 2007              
|$107.2 million    | $ 62.2 million | 12%                  | 2009              

|ITEM 8.        FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA


The
financial statements and schedules listed in Item 15(a)(1) and (2) are included in this
Report beginning on Page F-1.

31






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


On
June 27, 2002, our board of directors and our audit committee dismissed Arthur Andersen
LLP as our independent auditors and engaged PricewaterhouseCoopers LLP to serve as our
independent auditors for the fiscal year ending December 31, 2002, effective June 27,
2002. Arthur Andersen LLPs audit report on our consolidated financial statements for
each of the fiscal years ended December 31, 2000 and 2001, respectively, contained an
explanatory paragraph regarding our ability to continue as a going concern. Except as
stated above, Arthur Andersen LLPs reports on our consolidated financial statements for
each of the fiscal years ended December 31, 2000 and 2001 did not contain any adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.


During
the fiscal years ended December 31, 2000 and 2001 and through June 2002, there were no
disagreements with Arthur Andersen LLP on any matter of accounting principle or practice,
financial statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen LLPs satisfaction, would have caused them to make reference to the
subject matter in conjunction with their report on our consolidated financial statements
for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.


We
requested Arthur Andersen LLP to furnish us with a letter addressed to the Securities and
Exchange Commission stating whether or not it agrees with the above statements. A copy of
that letter, dated June 28, 2002, was included with our current report on Form 8-K, filed
with the Securities and Exchange Commission on June 27, 2002.


Prior
to their engagement, neither we, nor anyone acting on our behalf, consulted
PricewaterhouseCoopers LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.


PART III


The
information required by Items 10 through 13 are incorporated by reference to the
Registrants definitive Proxy Statement for its 2003 annual meeting of stockholders.


PART IV


ITEM 14.        CONTROLS
AND PROCEDURES


(a)  Evaluation
of disclosure controls and procedures. Based on their evaluation of           Archs
disclosure controls and procedures (as defined in Rules 13a-14(c)           and 15d-14(c)
under the Securities Exchange Act of 1934) as of a date within 90           days of the
filing date of this Annual Report on Form 10-K, Archs Chief           Executive
Officer and Chief Financial Officer have concluded that Archs           disclosure
controls and procedures are effective to ensure that information           required to be
disclosed by Arch in the reports that it files or submits under           the Exchange
Act is recorded, processed, summarized and reported within the time           periods
specified in the SECs rules and forms.


(b)  Changes
in internal controls. There were no significant changes in Archs           internal
controls or in other factors that could significantly affect these           controls
subsequent to the date of their most recent evaluation.

32




ITEM 15.        EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a)(1) |  | Financial Statements
|------ |  | --------------------

| | Consolidated
 Balance Sheets as of December 31, 2001 (Predecessor Company) and December 31, 2002
(Reorganized Company)
| | ----------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Operations for Each of the Two Years in the Period Ended December 31, 2001,
the Five Months Ended May 31, 2002 (Predecessor Company) and the Seven Months Ended
December 31, 2002 (Reorganized Company)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Stockholders Equity (Deficit) for Each of the Two Years in the Period
Ended December 31, 2001, the Five Months Ended May 31, 2002 (Predecessor Company) and the
Seven Months Ended December 31, 2002 (Reorganized Company)
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Cash Flows for Each of the Two Years in the Period Ended December 31, 2001,
the Five Months Ended May 31, 2002 (Predecessor Company) and the Seven Months Ended
December 31, 2002 (Reorganized Company)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notes to Consolidated Financial
Statements
| | ------------------------------------------

|(a)(2) |  | Financial Statement Schedule
|------ |  | ----------------------------

| | Schedule II  Valuation and Qualifying Accounts
| | -----------------------------------------------

|(b) |  | Reports on Form 8-K
|--- |  | -------------------

| | No
reports on Form 8-K were filed during the three months ended December 31, 2002:
| | ----------------------------------------------------------------------------------

|(c) |  | Exhibits
|--- |  | --------

| |  | The exhibits
listed in the accompanying index to exhibits are filed as part of this annual report on
Form 10-K.
| |  | ---------------------------------------------------------------------------------------------------------------

|33




SIGNATURES


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

|March 28, 2003 |  | ARCH WIRELESS, INC.By:   /s/ C. Edward Baker, Jr.C. Edward Baker, Jr.
       Chairman of the Board and Chief Executive Officer
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------

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

|                                                   |  |                                                                                                                     |               
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | --------------
|/s/ C. Edward Baker, Jr.C. Edward Baker, Jr.       |  | Chairman of the Board and Chief Executive
Officer (principal executive officer)                                     | March 28, 2003
|/s/ J. Roy PottleJ. Roy Pottle                     |  | Executive Vice President and Chief Financial
Officer (principal financial officer and principal accounting officer) | March 28, 2003
|/s/ William C. BousquetteWilliam C. Bousquette     |  | Director                                                                                                            | March 28, 2003
|/s/ James V. ContinenzaJames V. Continenza         |  | Director                                                                                                            | March 28, 2003
|/s/ Eric GoldEric Gold                             |  | Director                                                                                                            | March 28, 2003
|/s/ Carroll D. McHenryCarroll D. McHenry           |  | Director                                                                                                            | March 28, 2003
|/s/ Matthew OristanoMatthew Oristano               |  | Director                                                                                                            | March 28, 2003
|/s/ William E. Redmond, Jr.William E. Redmond, Jr. |  | Director                                                                                                            | March 28, 2003
|/s/ Samme L. ThompsonSamme L. Thompson             |  | Director                                                                                                            | March 28, 2003
|/s/ Carroll R. WetzelCarroll R. Wetzel             |  | Vice Chairman of the Board                                                                                          | March 28, 2003

|34



CERTIFICATIONS


I,
C. Edward Baker, certify that:
|--------------------------------------------------------

| | 1. | I have reviewed this annual report on Form 10-K of Arch Wireless, Inc.;
| | -- | -----------------------------------------------------------------------

| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
               of a material fact or omit to state a material fact necessary to make the
               statements made, in light of the circumstances under which such statements were
               made, not misleading with respect to the period covered by this annual report;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial information
               included in this annual report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this annual report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | a) | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| |  |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | b) | evaluated the effectiveness of the registrants disclosure controls and
          procedures as of a date within 90 days prior to the filing date of this annual
          report (the Evaluation Date); and
| |  |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | c) | presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| |  |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The registrants other certifying officers and I have disclosed, based on
               our most recent evaluation, to the registrants auditors and the audit
               committee of registrants board of directors (or persons performing the
               equivalent function):
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| |  |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| |  |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The registrants other certifying officers and I have indicated in this
               annual report whether or not there were significant changes in internal controls
               or in other factors that could significantly affect internal controls subsequent
               to the date of our most recent evaluation, including any corrective actions with
               regard to significant deficiencies and material weaknesses.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:   March 28, 2003 | /s/ C. Edward BakerC. Edward Baker     Chairman and Chief Executive Officer
|----------------------- | ---------------------------------------------------------------------------

|35




CERTIFICATIONS


I,
J. Roy Pottle, certify that:
|-------------------------------------------------------

| | 1. | I have reviewed this annual report on Form 10-K of Arch Wireless, Inc.;
| | -- | -----------------------------------------------------------------------

| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
               of a material fact or omit to state a material fact necessary to make the
               statements made, in light of the circumstances under which such statements were
               made, not misleading with respect to the period covered by this annual report;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based on my knowledge, the financial statements, and other financial information
               included in this annual report, fairly present in all material respects the
               financial condition, results of operations and cash flows of the registrant as
               of, and for, the periods presented in this annual report;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The registrants other certifying officers and I are responsible for
               establishing and maintaining disclosure controls and procedures (as defined in
               Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | a) | designed such disclosure controls and procedures to ensure that material
          information relating to the registrant, including its consolidated subsidiaries,
          is made known to us by others within those entities, particularly during the
          period in which this annual report is being prepared;
| |  |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| |  |  | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | c) | presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;
| |  |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The registrants other certifying officers and I have disclosed, based on
               our most recent evaluation, to the registrants auditors and the audit
               committee of registrants board of directors (or persons performing the
               equivalent function):
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| |  |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| |  |  | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The registrants other certifying officers and I have indicated in this
               annual report whether or not there were significant changes in internal controls
               or in other factors that could significantly affect internal controls subsequent
               to the date of our most recent evaluation, including any corrective actions with
               regard to significant deficiencies and material weaknesses.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated:   March 28, 2003 | /s/ J. Roy PottleJ. Roy Pottle     Executive Vice President      and Chief Financial Officer
|----------------------- | --------------------------------------------------------------------------------------------

|36





INDEX TO FINANCIAL
STATEMENTS
|-------------------------------------

|                                                                                                                                                                                                                                                                            |  | Page
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Reports of Independent Accountants                                                                                                                                                                                                                                          |  | F-2 
|Consolidated
Balance Sheets as of December 31, 2001 (Predecessor Company) and      December 31,
   2002 (Reorganized Company)                                                                                                                                               |  | F-5 
|Consolidated
Statements of Operations for Each of the Two Years in the Period      Ended
   December 31, 2001, the Five Months Ended May 31, 2002 (Predecessor      Company) and
the Seven Months Ended December 31, 2002 (Reorganized      Company)                        |  | F-6 
|Consolidated
Statements of Stockholders' Equity (Deficit) for Each of the Two      Years in the
   Period Ended December 31, 2001, the Five Months Ended May 31,      2002 (Predecessor
   Company) and the Seven Months Ended December 31, 2002      (Reorganized Company) |  | F-7 
|Consolidated
Statements of Cash Flows for Each of the Two      Years in the Period Ended
   December 31, 2001, the Five Months Ended May 31,      2002 (Predecessor Company) and
the Seven Months Ended December 31, 2002      (Reorganized Company)                        |  | F-8 
|Notes to Consolidated
Financial Statements                                                                                                                                                                                                                                  |  | F-9 

|F-1




REPORT OF INDEPENDENT
ACCOUNTANTS


To the Board of Directors
and Stockholdersof Arch Wireless, Inc.:


In
our opinion, the accompanying consolidated statements of operations, of cash flows and of
changes in stockholders equity for the period from January 1, 2002 to May 31, 2002
present fairly, in all material respects, the results of operations and cash flows of Arch
Wireless, Inc. and its subsidiaries (Predecessor Company) for the period from January 1,
2002 to May 31, 2002 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in accordance
with auditing standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion. The consolidated financial statements of Arch
Wireless, Inc. and its subsidiaries as of December 31, 2001 and for each of the two years
in the period ended December 31, 2001, prior to the adjustments discussed in Note 1, were
audited by other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements in their report
dated March 7, 2002 (except for the matter discussed in Note 15 to the 2001 financial
statements as to which the date is May 29, 2002).


As
discussed in Note 3 to the consolidated financial statements, the Company emerged from
Chapter 11 bankruptcy on May 29, 2002. Upon emergence from bankruptcy, the Company changed
its basis of financial statement presentation to reflect the adoption of fresh start
accounting in accordance with American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code.


As
discussed above, the consolidated financial statements of Arch Wireless, Inc. as of
December 31, 2001, and for each of the two years in the period ended December 31, 2001,
were audited by other independent accountants who have ceased operations. As described in
Note 1 to the consolidated financial statements, these consolidated financial statements
have been restated to reclassify gains on the extinguishment of debt in compliance with
Statement of Financial Accounting Standards (SFAS) No. 145, Rescission
of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections as of April
2002", which was adopted by the Reorganized Company as of June 1, 2002. We audited
the adjustments described in Note 1 to the consolidated financial statements that were
applied to restate the 2001 and 2000 consolidated financial statements. In our opinion,
such adjustments are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2001 or 2000 consolidated
financial statements of Arch Wireless, Inc. other than with respect to such adjustments
and, accordingly, we do not express an opinion or any other form of assurance on the 2001
or 2000 consolidated financial statements taken as a whole.


/s/
PricewaterhouseCoopers LLP


Boston, MassachusettsMarch 5, 2003

F-2



REPORT OF INDEPENDENT
ACCOUNTANTS


To the Board of Directors
and Stockholdersof Arch Wireless, Inc.:


In
our opinion, the accompanying consolidated balance sheet as of December 31, 2002 and the
related consolidated statements of operations, of cash flows and of changes in
stockholders equity present fairly, in all material respects, the financial position
of Arch Wireless, Inc. and its subsidiaries (Reorganized Company) at December 31, 2002,
and the results of their operations and their cash flows for the period from June 1, 2002
to December 31, 2002 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the
Companys management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in accordance
with auditing standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.


As
discussed in Note 3 to the consolidated financial statements, the Company emerged from
Chapter 11 bankruptcy on May 29, 2002. Upon emergence from bankruptcy, the Company changed
its basis of financial statement presentation to reflect the adoption of fresh start
accounting in accordance with American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code.


/s/
PricewaterhouseCoopers LLP


Boston, MassachusettsMarch 5, 2003


F-3




The Report of Independent Public
Accountants below is a copy of a report previously issued by Arthur Andersen LLP, which
has not been reissued by Arthur Andersen LLP. The consolidated balance sheet at December
31, 2000 and the consolidated statements of operations, cash flows and stockholders equity
for the year ended December 31, 1999 are not required to be presented in this Form 10-K.
The note references in the opinion below are to the financial statements included in our
Form 10-K/A for the year ended December 31, 2001 filed June 13, 2002. As discussed in
Note 1 in the consolidated financial statements, the Company has revised its consolidated
financial statements for the years ended December 31, 2001 and 2000 to reclassify gains
on the extinguishment of debt in compliance with Statement of Financial Accounting
Standards No. 145, Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and
Technical Corrections as of April 2002", which was adopted by the Reorganized
Company as of June 1, 2002. The Arthur Andersen LLP report does not extend to these
revisions. The revisions related to these reclassifications were reported on by
PricewaterhouseCoopers LLP, as stated in their report appearing herein.


REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS


To
Arch Wireless, Inc.:


We
have audited the accompanying consolidated balance sheets of Arch Wireless, Inc. (a
Delaware corporation) (the Company) and subsidiaries as of December 31, 2000,
as restated (see Note 14), and 2001, and the related consolidated statements of
operations, stockholders equity (deficit), as restated (see Note 14), and cash flows
for each of the three years in the period ended December 31, 2001. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.


In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arch Wireless, Inc. and
subsidiaries as of December 31, 2000, as restated (see Note 14), and 2001, and the results
of their operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted in the
United States.


The
accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 2 to the financial statements, on
December 6, 2001, the Company and substantially all of its domestic subsidiaries
voluntarily filed for protection under Chapter 11 of the United States Bankruptcy Code,
which raises substantial doubt about the Companys ability to continue as a going
concern in its present form. Managements plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


As
explained in Note 1 to the financial statements, effective January 1, 2001, the Company
changed its method of accounting for derivative instrument and hedging activities in
accordance with Statement of Financial Accounting Standards No. 133 Accounting for
Derivative Instruments and Hedging Activities.


/s/ Arthur Andersen LLP


Boston, MassachusettsMarch 7, 2002
(exceptfor the matter discussed in Note 15 as to which the date is May 29, 2002)

F-4




ARCH WIRELESS, INC.

CONSOLIDATED BALANCE
SHEETS(in thousands, except
share and per share amounts)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                 | PredecessorCompany |  |   | ReorganizedCompany
|-------------------------------------------------------------------------------------------------------------------------------- | ------------------ |  | - | ------------------
|
|
|Current assets:                                                                                                                  |                    |  |   |                   
|Cash and cash equivalents                                                                                                        |                    |  | $ | 72,200            
|Accounts receivable
(less reserves of $41,987 and $22,492 in 2001 and 2002,      respectively)                                   |                    |  |   | 90,158            
|Deposits                                                                                                                         |                    |  |   | 2,624             
|Prepaid rent                                                                                                                     |                    |  |   | 12,882            
|Restricted cash                                                                                                                  |                    |  |   | 34,579            
|Prepaid expenses and other                                                                                                       |                    |  |   | 32,010            
|                                                                                                                                 |                    |  |   |                   
|Total current assets                                                                                                             |                    |  |   | 244,453           
|                                                                                                                                 |                    |  |   |                   
|Property and equipment:                                                                                                          |                    |  |   |                   
|Land, buildings and improvements                                                                                                 |                    |  |   | 38,254            
|Messaging and computer equipment                                                                                                 |                    |  |   | 1,341,391         
|Furniture, fixtures and vehicles                                                                                                 |                    |  |   | 58,118            
|                                                                                                                                 |                    |  |   |                   
|                                                                                                                                 |                    |  |   | 1,437,763         
|Less accumulated depreciation and amortization                                                                                   |                    |  |   | 1,031,741         
|                                                                                                                                 |                    |  |   |                   
|Property and equipment, net                                                                                                      |                    |  |   | 406,022           
|                                                                                                                                 |                    |  |   |                   
|Assets held for sale                                                                                                             |                    |  |   | --                
|                                                                                                                                 |                    |  |   |                   
|Intangible and other assets (less accumulated amortization of $1,518,461  and $3,510 in 2001 and 2002, respectively)             |                    |  |   | 1,158             
|                                                                                                                                 |                    |  |   |                   
|                                                                                                                                 |                    |  | $ | 651,633           
|                                                                                                                                 |                    |  |   |                   
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                   |                    |  |   |                   
|Liabilities not subject to compromise:                                                                                           |                    |  |   |                   
|Current liabilities:                                                                                                             |                    |  |   |                   
|Current maturities of long-term debt                                                                                             |                    |  | $ | 67,271            
|Accounts payable                                                                                                                 |                    |  |   | 9,028             
|Accrued compensation and benefits                                                                                                |                    |  |   | 14,618            
|Accrued network costs                                                                                                            |                    |  |   | 16,160            
|Accrued property and sales taxes                                                                                                 |                    |  |   | 17,070            
|Accrued interest                                                                                                                 |                    |  |   | 4                 
|Accrued other expenses                                                                                                           |                    |  |   | 18,611            
|Customer deposits                                                                                                                |                    |  |   | 10,677            
|Deferred revenue                                                                                                                 |                    |  |   | 43,842            
|                                                                                                                                 |                    |  |   |                   
|Total current liabilities                                                                                                        |                    |  |   | 197,281           
|                                                                                                                                 |                    |  |   |                   
|Long-term debt, less current maturities                                                                                          |                    |  |   | --                
|                                                                                                                                 |                    |  |   |                   
|Other long-term liabilities                                                                                                      |                    |  |   | 14,983            
|                                                                                                                                 |                    |  |   |                   
|Liabilities subject to compromise                                                                                                |                    |  |   | 2,096,280         
|                                                                                                                                 |                    |  |   |                   
|Commitments and contingencies                                                                                                    |                    |  |   |                   
|Stockholders' equity (deficit):                                                                                                  |                    |  |   |                   
|Common stock--$0.001 par value,
authorized 50,000,000 shares, issued and      outstanding: 20,000,000 shares in 2002             |                    |  |   | --                
|Predecessor common stock--$0.01 par value,
authorized 320,000,000     shares, issued and outstanding: 182,434,590 shares in 2001 |                    |  |   | 1,824             
|Additional paid-in capital                                                                                                       |                    |  |   | 1,107,233         
|Deferred stock compensation                                                                                                      |                    |  |   | --                
|Accumulated other comprehensive income                                                                                           |                    |  |   | 1,991             
|Retained earnings (accumulated deficit)                                                                                          |                    |  |   | (2,767,959        
|                                                                                                                                 |                    |  |   |                   
|Total stockholders' equity (deficit)                                                                                             |                    |  |   | (1,656,911        
|                                                                                                                                 |                    |  |   |                   
|                                                                                                                                 |                    |  | $ | 651,633           
|                                                                                                                                 |                    |  |   |                   

|The accompanying notes are an
integral part of these consolidated financial statements.


F-5



ARCH WIRELESS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share amounts)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                 | Predecessor Company(Note 2) |  |   | ReorganizedCompany(Note 2)
|------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------- |  | - | --------------------------
|
|
|Revenues                                                                                                                                         |                             |  | $ | 851,082                   
|Operating expenses:                                                                                                                              |                             |  |   |                           
|Cost of products sold (exclusive of depreciation,
     amortization and stock based and other compensation     shown separately below)           |                             |  |   | 35,861                    
|Service, rental and maintenance (exclusive of
     depreciation, amortization and stock based and other     compensation shown separately below) |                             |  |   | 182,993                   
|Selling (exclusive of stock based and other
     compensation shown separately below)                                                            |                             |  |   | 107,208                   
|General and administrative (exclusive of
     depreciation, amortization and stock based and      other compensation shown separately below)     |                             |  |   | 263,901                   
|Depreciation and amortization                                                                                                                    |                             |  |   | 500,831                   
|Stock based and other compensation                                                                                                               |                             |  |   | --                        
|Reorganization expenses                                                                                                                          |                             |  |   | --                        
|Other operating expenses                                                                                                                         |                             |  |   | 5,425                     
|                                                                                                                                                 |                             |  |   |                           
|Total operating expenses                                                                                                                         |                             |  |   | 1,096,219                 
|                                                                                                                                                 |                             |  |   |                           
|Operating income (loss)                                                                                                                          |                             |  |   | (245,137                  
|Interest expense                                                                                                                                 |                             |  |   | (167,621                  
|Interest income                                                                                                                                  |                             |  |   | 1,451                     
|Gain on extinguishment of debt                                                                                                                   |                             |  |   | 58,603                    
|Other income (expense)                                                                                                                           |                             |  |   | (3,082                    
|                                                                                                                                                 |                             |  |   |                           
|Income (loss) before reorganization items, net   and fresh start accounting adjustments                                                          |                             |  |   | (355,786                  
|Reorganization items, net                                                                                                                        |                             |  |   | --                        
|Fresh start accounting adjustments                                                                                                               |                             |  |   | --                        
|                                                                                                                                                 |                             |  |   |                           
|Income (loss) before income tax benefit and   cumulative effect of change in accounting   principle                                              |                             |  |   | (355,786                  
|Benefit (provision) for income taxes                                                                                                             |                             |  |   | 46,006                    
|                                                                                                                                                 |                             |  |   |                           
|Income (loss) before cumulative effect of    change in accounting principle                                                                      |                             |  |   | (309,780                  
|Cumulative effect of change in accounting   principle                                                                                            |                             |  |   | --                        
|                                                                                                                                                 |                             |  |   |                           
|Net income (loss)                                                                                                                                |                             |  |   | (309,780                  
|Accretion of redeemable preferred stock                                                                                                          |                             |  |   | (4,223                    
|Preferred stock dividend                                                                                                                         |                             |  |   | (2,329                    
|                                                                                                                                                 |                             |  |   |                           
|Net income (loss) applicable to common    stockholders                                                                                           |                             |  | $ | (316,332                  
|                                                                                                                                                 |                             |  |   |                           
|Basic/diluted income (loss) per common share
   before cumulative effect of change in    accounting principle                                    |                             |  | $ | (4.10                     
|Cumulative effect of change in accounting
   principle per basic/diluted common share                                                            |                             |  |   | --                        
|                                                                                                                                                 |                             |  |   |                           
|Basic/diluted net income (loss) per   common share                                                                                               |                             |  | $ | (4.10                     
|                                                                                                                                                 |                             |  |   |                           
|Basic/diluted weighted average number of
   common shares outstanding                                                                            |                             |  |   | 77,122,659                
|                                                                                                                                                 |                             |  |   |                           

|The accompanying notes are an
integral part of these consolidated financial statements.


F-6





ARCH WIRELESS, INC.

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) (in thousands, except
share amounts)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                 | CommonStock | Class BCommonStock | AdditionalPaid-inCapital | DeferredStockCompensation | AccumulatedOtherComprehensiveIncome (loss) | RetainedEarnings(AccumulatedDeficit) | TotalStockholders'Equity(Deficit)
|---------------------------------------------------------------------------------------------------------------- | ----------- | ------------------ | ------------------------ | ------------------------- | ------------------------------------------ | ------------------------------------ | ---------------------------------
|Predecessor Company                                                                                              |             |                    |                          |                           |                                            |                                      |                                  
|Balance, December 31, 1999                                                                                       |             |                    | $                        | 472                       |                                            | $                                    | 40                               
|Net loss                                                                                                         |             |                    |                          | --                        |                                            |                                      | --                               
|Foreign
currency translation       adjustments                                                                   |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                   
|Total comprehensive loss                                                                                         |             |                    |                          |                           |                                            |                                      |                                  
|Issuance of
89,896,907 shares      of common stock to acquire   
   company                                      |             |                    |                          | 899                       |                                            |                                      | --                               
|Issuance of
12,468,632 shares      of common stock in  
    exchange for debt                                    |             |                    |                          | 125                       |                                            |                                      | --                               
|Issuance of
6,613,180 shares of      common stock in exchange   
   for redeemable preferred      stock          |             |                    |                          | 66                        |                                            |                                      | --                               
|Issuance of
2,856,721 shares of      common stock in connection  
    with the Benbow settlement                 |             |                    |                          | 28                        |                                            |                                      | --                               
|Issuance of
459,133 shares of      common stock under Arch's 
     employee stock purchase      plan             |             |                    |                          | 5                         |                                            |                                      | --                               
|Exercise of
Warrants to      purchase 2,364 shares of    
  common stock                                         |             |                    |                          | --                        |                                            |                                      | --                               
|Conversion of
Class B      common stock into common    
  stock                                                  |             |                    |                          | 20                        |                                            |                                      | (20                              
|Preferred stock accretion                                                                                        |             |                    |                          | --                        |                                            |                                      | --                               
|Preferred stock dividend                                                                                         |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                    |                          |                           |                                            |                                      |                                  
|Balance, December 31, 2000                                                                                       |             |                    |                          | 1,615                     |                                            |                                      | 20                               
|Net loss                                                                                                         |             |                    |                          | --                        |                                            |                                      | --                               
|Foreign
currency translation       adjustments                                                                   |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                   
|Total comprehensive loss                                                                                         |             |                    |                          |                           |                                            |                                      |                                  
|Issuance of
18,905,989 shares      of common stock in  
    exchange for debt                                    |             |                    |                          | 189                       |                                            |                                      | --                               
|Conversion of
Class B      common stock into common    
  stock                                                  |             |                    |                          | 20                        |                                            |                                      | (20                              
|Preferred stock dividend                                                                                         |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                    |                          |                           |                                            |                                      |                                  
|Balance, December 31, 2001                                                                                       |             |                    |                          | 1,824                     |                                            |                                      | --                               
|Net income                                                                                                       |             |                    |                          | --                        |                                            |                                      | --                               
|Foreign
currency translation       adjustments                                                                   |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                   
|Total comprehensive loss                                                                                         |             |                    |                          |                           |                                            |                                      |                                  
|Cancellation of
predecessor      equity interests upon  
    emergence from bankruptcy                           |             |                    |                          | (1,824                    | )                                          |                                      | --                               
|Issuance of
20,000,000 shares      of reorganized company   
   common stock upon      emergence from bankruptcy |             |                    |                          | 20                        |                                            |                                      | --                               
|                                                                                                                 |             |                    |                          |                           |                                            |                                      |                                  
|Balance, May 31, 2002                                                                                            |             |                    | $                        | 20                        |                                            | $                                    | --                               
|                                                                                                                 |             |                    |                          |                           |                                            |                                      |                                  
|                                                                                                                
|Reorganized Company                                                                                              |             |                    |                          |                           |                                            |                                      |                                  
|Balance, June 1, 2002                                                                                            |             |                    | $                        | 20                        |                                            | $                                    | --                               
|Net income                                                                                                       |             |                    |                          | --                        |                                            |                                      | --                               
|Foreign
currency translation       adjustments                                                                   |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                   
|Total comprehensive income                                                                                       |             |                    |                          |                           |                                            |                                      |                                  
|Partial
divestiture of Canadian      subsidiaries                                                                |             |                    |                          | --                        |                                            |                                      | --                               
|Amortization
of deferred stock      compensation                                                                 |             |                    |                          | --                        |                                            |                                      | --                               
|                                                                                                                 |             |                    |                          |                           |                                            |                                      |                                  
|Balance, December 31, 2002                                                                                       |             |                    | $                        | 20                        |                                            | $                                    | --                               
|                                                                                                                 |             |                    |                          |                           |                                            |                                      |                                  

|The accompanying notes are an
integral part of these consolidated financial statements.


F-7



ARCH WIRELESS, INC.

CONSOLIDATED
STATEMENTS OF CASH FLOWS(in thousands)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                               | Predecessor Company
(Note 2) |  |   | Reorganized
Company(Note 2)
|---------------------------------------------------------------------------------------------- | ---------------------------- |  | - | ---------------------------
|
|
|Cash flows from operating activities:                                                          |                              |  |   |                            
|Net income (loss)                                                                              |                              |  | $ | (309,780                   
|Adjustments to reconcile net income (loss) to
      net cash provided by operating activities: |                              |  |   |                            
|Depreciation and amortization                                                                  |                              |  |   | 500,831                    
|Fresh start accounting adjustments                                                             |                              |  |   | --                         
|Non-cash reorganization costs                                                                  |                              |  |   | --                         
|Deferred income tax (benefit) provision                                                        |                              |  |   | (46,006                    
|Gain on extinguishment of debt                                                                 |                              |  |   | (58,603                    
|Cumulative effect of accounting change                                                         |                              |  |   | --                         
|Accretion of long-term debt and other        non-cash interest expense                         |                              |  |   | 30,638                     
|Deferred stock compensation                                                                    |                              |  |   | --                         
|Gain on tower site sale                                                                        |                              |  |   | (1,983                     
|Write-off of note receivable                                                                   |                              |  |   | --                         
|Loss on sale of FCC licenses                                                                   |                              |  |   | --                         
|Provisions for doubtful accounts and        service adjustments                                |                              |  |   | 33,015                     
|Changes in assets and liabilities, net of       
effect from acquisitions of companies:        |                              |  |   |                            
|Accounts receivable                                                                            |                              |  |   | (41,129                    
|Prepaid expenses and other                                                                     |                              |  |   | 14,325                     
|Accounts payable and accrued expenses                                                          |                              |  |   | (74,550                    
|Customer deposits and deferred revenue                                                         |                              |  |   | (8,495                     
|Other long-term liabilities                                                                    |                              |  |   | (5,938                     
|                                                                                               |                              |  |   |                            
|Net cash provided by operating activities                                                      |                              |  |   | 32,325                     
|                                                                                               |                              |  |   |                            
|Cash flows from investing activities:                                                          |                              |  |   |                            
|Additions to property and equipment, net                                                       |                              |  |   | (127,833                   
|Additions to intangible and other assets                                                       |                              |  |   | (12,452                    
|Issuance of long-term note receivable                                                          |                              |  |   | --                         
|Cash balance related to partial divestiture      of Canadian Subsidiaries                      |                              |  |   | --                         
|Sale of FCC licenses                                                                           |                              |  |   | --                         
|Acquisition of companies, net of cash acquired                                                 |                              |  |   | 47,785                     
|                                                                                               |                              |  |   |                            
|Net cash (used for) provided by investing activities                                           |                              |  |   | (92,500                    
|                                                                                               |                              |  |   |                            
|Cash flows from financing activities:                                                          |                              |  |   |                            
|Issuance of long-term debt                                                                     |                              |  |   | 174,960                    
|Repayment of long-term debt                                                                    |                              |  |   | (63,560                    
|Net proceeds from sale of preferred stock                                                      |                              |  |   | --                         
|Net proceeds from sale of common stock                                                         |                              |  |   | 596                        
|                                                                                               |                              |  |   |                            
|Net cash provided by (used in) financing activities                                            |                              |  |   | 111,996                    
|                                                                                               |                              |  |   |                            
|Effect of exchange rate changes on cash                                                        |                              |  |   | 25                         
|                                                                                               |                              |  |   |                            
|Net (decrease) increase in cash and cash equivalents                                           |                              |  |   | 51,846                     
|Cash and cash equivalents, beginning of period                                                 |                              |  |   | 3,161                      
|                                                                                               |                              |  |   |                            
|Cash and cash equivalents, end of period                                                       |                              |  | $ | 55,007                     
|                                                                                               |                              |  |   |                            
|Supplemental disclosure:                                                                       |                              |  |   |                            
|Interest paid                                                                                  |                              |  | $ | 128,155                    
|Asset retirement obligation                                                                    |                              |  | $ | --                         
|Repayment of debt with restricted cash                                                         |                              |  | $ | --                         
|Issuance of new debt and common stock in      exchange for liabilities                         |                              |  | $ | --                         
|Reorganization expenses paid                                                                   |                              |  | $ | --                         
|Issuance of common stock for acquisitions of      companies                                    |                              |  | $ | 263,398                    
|Liabilities assumed in acquisitions of companies                                               |                              |  | $ | 1,059,431                  
|Issuance of Predecessor stock for debt                                                         |                              |  | $ | 156,976                    
|Issuance of common stock for redeemable preferred      stock                                   |                              |  | $ | 46,915                     
|Preferred stock dividend                                                                       |                              |  | $ | 2,329                      
|Accretion of redeemable preferred stock                                                        |                              |  | $ | 4,223                      

|The accompanying notes are an
integral part of these consolidated financial statements.

F-8




ARCH WIRELESS, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS


1.     Restated
Financial Statements


The
consolidated financial statements have been restated to reclassify gains on the
extinguishment of debt at December 31, 2001 and 2000 from extraordinary to operating
income in compliance with SFAS No. 145, Rescission of FAS Nos. 4, 44 and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002", which was adopted
as of June 1, 2002.


2.     Organization
and Significant Accounting Policies


OrganizationArch
Wireless, Inc. (Arch or the Company) is a leading provider of
wireless messaging and information services in the United States. Currently, Arch provides
one and two-way messaging services. One-way messaging consists of numeric and alphanumeric
messaging services. Numeric messaging services enable subscribers to receive messages that
are composed entirely of numbers, such as a phone number, while alphanumeric messages may
include numbers and letters, which enable subscribers to receive text messages. Two-way
messaging services enable subscribers to send and receive messages to and from other
wireless messaging devices, including pagers, personal digital assistants or PDAs and
personal computers. Arch also offers wireless information services, such as stock quotes,
news, weather and sports updates, voice mail, personalized greeting, message storage and
retrieval and equipment loss and/or maintenance protection to both one and two-way
messaging subscribers. These services are commonly referred to as wireless messaging and
information services.


Bankruptcy-Related
Financial ReportingThe consolidated financial statements of Arch prior to its
emergence from chapter 11 (the Predecessor Company) have been prepared in
accordance with the American Institute of Certified Public Accountants Statement of
Position 90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (SOP 90-7). Substantially all of the Predecessor
Companys pre-petition debt was in default. The accompanying Consolidated Financial
Statements present the Predecessor Companys pre-petition debt under the caption
Liabilities Subject to Compromise. This includes debt under the pre-petition
credit facility and senior notes, preferred stock and other liabilities. As required by
SOP 90-7, the Predecessor Company recorded the pre-petition debt instruments at the
allowed amount, as defined by SOP 90-7. Accordingly, the Predecessor Company accelerated
the accretion of its debt discounts and recorded an expense of approximately $133.8
million during December 2001, which is included in reorganization expense in the
Consolidated Statement of Operations. Reorganization expense in 2001 also includes the
write-off of $11.8 million of deferred financing costs and $9.3 million of professional
fees and other expenses directly related to the bankruptcy filing.


Arch
has prepared the consolidated financial statements on a going-concern basis of accounting.
This basis of accounting contemplates continuity of operations, realization of assets and
liquidation of liabilities (with the exception of pre-petition liabilities as described
above) in the normal course of business. Upon emergence from chapter 11, Arch (the
Reorganized Company) restated its assets and liabilities, in accordance with
SOP 90-7, on the fresh start basis of accounting which requires recording the assets on a
fair value basis similar to those required by SFAS No. 141 Business
Combinations.


Risks
and Other Important FactorsBased on current and anticipated levels of operations,
Archs management believes that Archs net cash provided by operating
activities, together with cash on hand, will be adequate to meet its cash requirements
through the end of 2003.


In
the event that net cash provided by operating activities and cash on hand are not
sufficient to meet future cash requirements, Arch may be required to reduce planned
capital expenditures, sell assets or seek additional financing. Arch can provide no
assurances that reductions in planned capital expenditures or proceeds from asset sales
would be sufficient to cover shortfalls in available cash or that additional financing
would be available or, if available, offered on acceptable terms.


Arch
believes that future fluctuations in its revenues and operating results may occur due to
many factors, particularly the decreased demand for our messaging services.  If the rate of
decline of messaging units exceeds Archs expectations, its revenues will be
negatively impacted, and such impact could be material. Archs network
rationalization program may also negatively impact revenues as customers experience a
reduction in, and possible disruptions of, service in certain areas. Archs debt
repayment levels are based in part on past expectations as to future revenues. Arch may be
unable to adjust spending in a timely manner to compensate for any future revenue
shortfall. It is possible that, due to these fluctuations, Archs revenue or
operating results may not meet the expectations of investors and creditors, or may cause
it not to meet the debt repayment schedules or the various financial covenants contained
in its debt instruments. Failure to make required debt payments or comply with financial
covenants would enable creditors to accelerate repayment of Archs debt. In this
circumstance, it is unlikely that Arch would have sufficient liquidity to repay the debt,
which would significantly impair the value of its debt and equity securities and could
ultimately result in Arch having to file for bankruptcy protection.
F-9






Principles
of ConsolidationThe accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments in affiliated
companies that are 20%  50% owned entities are accounted for under the equity method
of accounting.


Use
of EstimatesThe preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. On an on-going basis, Arch evaluates its estimates and
assumptions, including but not limited to those related to the impairment of long-lived
assets, reserves for doubtful accounts and service credits, revenue recognition and asset
retirement obligations. Arch bases its estimates on historical experience and various
other assumptions that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.


Long-Lived
AssetsLeased messaging devices sold or otherwise retired are removed from the
accounts at their net book value using the first-in, first-out method. Property and
equipment is stated at cost in 2001 and in accordance with SOP 90-7 in 2002 (see Note 3)
and is depreciated using the straight-line method over the following estimated useful
lives:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Asset Classification             | EstimatedUseful Life          
|-------------------------------- | ------------------------------
|Buildings and improvements       | 20 Years                      
|Leasehold improvements           | Shorter of 3Years or LeaseTerm
|Messaging devices                | 1 - 2 Years                   
|Messaging and computer equipment | 1.25 - 8 Years                
|Furniture and fixtures           | 5 Years                       
|Vehicles                         | 3 Years                       

|In
accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived
Assets, Arch is required to evaluate the carrying value of its long-lived assets and
certain intangible assets. SFAS No. 144 first requires an assessment of whether
circumstances currently exist which suggest the carrying value of long-lived assets may
not be recoverable. At December 31, 2002, Arch does not believe any such conditions exist.
Had these conditions existed, Arch would assess the recoverability of the carrying value
of its long-lived assets and certain intangible assets based on estimated undiscounted
cash flows to be generated from such assets. In assessing the recoverability of these
assets, Arch would project estimated enterprise-level cash flows which would be based on
various operating assumptions such as average revenue per unit in service, disconnect
rates, sales productivity rates and workforce productivity ratios. If the projection of
undiscounted cash flows did not exceed the carrying value of the long-lived assets, Arch
would be required to record an impairment charge to the extent the carrying value exceeded
the fair value of such assets. Arch recorded an impairment charge of $976.2 million in the
second quarter of 2001 (see Note 5).


Revenue
RecognitionArchs revenue consists primarily of monthly service and lease fees
charged to customers on a monthly, quarterly, semi-annual or annual basis. Revenue also
includes the sale of messaging devices directly to customers and other companies that
resell our services. We recognize revenue over the period the service is performed in
accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB 101). SAB 101 requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed
or determinable, and (4) collectibility is reasonably assured. Arch believes, relative to
the sale of one-way messaging devices, that all of these conditions are met and since the
services are deemed not to be essential to the functionality of the devices, revenue from
the sale of one-way messaging devices is recognized at the time of shipment.


Arch
bundles the sale of two-way messaging devices with the related service and since,
currently, the sale of the service is essential to the functionality of the device, we do
not separately account for the sale of the device and the service. Revenue and the related
cost of sales are recognized over the expected customer relationship, which is currently
estimated to be two years. If the assumed length of the customer relationship differed
significantly or technology advances resulted in the service not being essential to the
functionality of the device; the timing of revenue and expense amortization and the
carrying value of the related deferred revenue and cost could be materially affected.

F-10






Cash
EquivalentsCash equivalents include short-term, interest-bearing instruments
purchased with remaining maturities of three months or less.


Fair
Value of Financial InstrumentsArchs financial instruments, as defined under
SFAS No. 107 Disclosures about Fair Value of Financial Instruments, include
its cash, restricted cash, accounts receivable and accounts payable and debt financing.
The fair value of cash, restricted cash, accounts receivable and accounts payable are
equal to their carrying value at December 31, 2001 and 2002. The fair value of the debt is
included in Note 6.


Derivative
Instruments and Hedging ActivitiesIn June 1998, the Financial Accounting Standards
Board issued SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value and that
changes in the derivatives fair value be recognized in earnings. Arch adopted this
standard effective January 1, 2001. Arch has not designated any of the outstanding
derivatives as a hedge under SFAS No. 133. The initial application of SFAS No. 133
resulted in a $6.8 million charge, which was reported as the cumulative effect of a change
in accounting principle. This charge represents the impact of initially recording the
derivatives at fair value as of January 1, 2001. The changes in fair value of the
derivative instruments during 2001 of approximately $15.0 million have been recognized in
other expense. All of these derivative instruments were terminated during 2001.


Basic/Diluted
Net Income (Loss) Per Common ShareBasic net income (loss) per common share is based
on the weighted average number of common shares outstanding. Shares of Predecessor Company
stock issuable pursuant to Predecessor Company stock options and warrants and upon
conversion of the Predecessor Companys subordinated debentures or Series C Preferred
Stock were not considered, as their effect would have been anti-dilutive and thus diluted
net income (loss) per common share is the same as basic net income (loss) per common
share. The Reorganized Company has no outstanding stock options, warrants or other
convertible securities. The following dilutive effect of potential common shares was
excluded from the calculation of dilutive weighted average shares outstanding (in
thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         | Predecessor Company |       |    | ReorganizedCompany
|------------------------ | ------------------- | ----- | -- | ------------------
|
|
|Options and warrants     | 24,601              | 6,166 | -- |                   
|Series C preferred stock | 1,862               | 2,005 | -- |                   
|Convertible debt         | 19                  | 19    | -- |                   

|Stock-Based
CompensationPrior to December 2002, Arch accounted for its stock option and stock
purchase plans under the recognition and measurement principles of APB Opinion No. 25
Accounting for Stock Issued to Employees. Since all options were issued at a
grant price equal to fair market value, no compensation cost was recognized in the
statements of operations. In December 2002, the FASB released SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an
Amendment of FASB Statement No. 123, which Arch has adopted. The following table
illustrates the effect on net income and earnings per share if Arch had applied the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                 | Years Ended December 31,
|---------------------------------------------------------------- | ------------------------
|(in thousands, except per share amounts)                        
|Net income (loss), as reported                                   |                         
|Deduct: Total stock option based fair value compensation expense |                         
|                                                                 |                         
|Pro forma net income                                             |                         
|                                                                 |                         
|Basic net income (loss) per common share:                        |                         
|As reported                                                      |                         
|Pro forma                                                        |                         

|F-11




Income
TaxesArch accounts for income taxes under the provisions of SFAS No. 109
Accounting for Income Taxes. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases of assets
and liabilities, given the provisions of enacted laws.


New
Accounting PronouncementsIn July 2001, the FASB issued SFAS No. 142, Goodwill
and Other Intangible Assets. Arch adopted the requirements of SFAS No. 142 effective
January 1, 2002. SFAS No. 142 requires companies to cease amortization of certain assets
and provides a methodology to test these assets for impairment on a periodic basis. Arch
did not have any assets subject to SFAS No. 142 on its balance sheet as of January 1, 2002
and therefore the adoption had no impact on Archs results of operations or financial
condition. Depreciation and amortization expense in the first quarter of 2001 would have
been reduced by $54.4 million had the provisions of this statement been applied to that
period.


In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. The objectives of SFAS No. 144 are to address
significant issues relating to the implementation of FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and to develop a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and, generally, its
provisions are to be applied prospectively. Arch adopted SFAS No. 144 on January 1, 2002,
the adoption had no impact on Archs results of operations or financial condition.


In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the recognition of liabilities associated with
obligations to incur future costs associated with asset retirements. The liability is
required to be recorded at fair value with any accretion in future periods recorded to
operating expenses. When the liability is initially recognized, the cost of the asset
retirement obligation is capitalized by increasing the carrying amount of the related
long-lived asset. This asset retirement cost is subsequently depreciated over the useful
life of the related asset. In accordance with the requirements of SOP 90-7, Arch adopted
SFAS No. 143 on June 1, 2002, and have recorded a $2.5 million asset retirement
obligation, $1.7 million of which is included in the caption accrued other expenses and
$788,000 is included in the caption other long-term liabilities on the accompanying
consolidated balance sheets. We anticipate depreciating the related asset over periods
ranging from one to ten years. The long-term portion of the asset retirement obligation
will accrete to approximately $5.6 million using the effective interest method over ten
years.


In
April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of SFAS No. 13, and Technical Corrections. In rescinding SFAS No.
4, Reporting Gains and Losses from Extinguishment of Debt, and SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, SFAS No.
145 eliminates the requirement that gains and losses from the extinguishment of debt be
aggregated and classified as an extraordinary item, net of the related income tax effect.
In accordance with the requirements of SOP 90-7, Arch adopted SFAS No. 145 and the
Predecessor Company recorded a $1.6 billion gain on extinguishment of debt in the five
month period ended May 31, 2002. In accordance with SFAS No. 145 this gain was recognized
as other income. In addition, the gain on early extinguishment of debt recorded in the
prior years has been reclassified as other income.


In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, which addresses accounting for restructuring and similar
costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues
Task Force Issue (EITF) No. 94-3. Arch has adopted the provisions of SFAS No.
146. SFAS No. 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date management committed to an exit
plan. SFAS No. 146 also establishes that the liability should initially be measured and
recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing
future restructuring costs as well as the amounts recognized.


In
November 2002, the FASB issued FASB Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN No. 45 clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure requirements of FIN No. 45 are
applicable for financial statements of interim periods ending after December 15, 2002. We
do not expect the adoption of FIN No. 45 to have a material impact on our results of
operations or financial condition.

F-12






In
November 2002, the EITF issued No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. EITF No. 00-21 addresses certain aspects of the accounting by
a vendor for arrangements under which it will perform multiple revenue-generating
activities. EITF No. 00-21 establishes three principles: revenue should be recognized
separately for separate units of accounting, revenue for a separate unit of accounting
should be recognized only when the arrangement consideration is reliably measurable and
the earnings process is substantially complete, and consideration should be allocated
among the separate units of accounting in an arrangement based on their fair values. EITF
No. 00-21 is effective for all revenue arrangements entered into in fiscal periods
beginning after June 15, 2003, with early adoption permitted. We do not expect the
adoption of EITF No. 00-21 to have a material impact on our results of operations or
financial condition.


In
January 2003, the FASB issued FIN No. 46 Consolidation of Variable Interest
Entities, an interpretation of ARB 51. FIN No. 46 provides guidance on the
identification of entities for which control is achieved through means other than through
voting rights called variable interest entities or VIEs and how to
determine when and which business enterprise should consolidate the VIE (the primary
beneficiary). This new model for consolidation applies to an entity which either (1)
the equity investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entitys activities without
receiving additional subordinated financial support from other parties. In addition, FIN
No. 46 requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. Certain transitional
disclosures are required in financial statements initially issued after January 31, 2003,
if it is reasonably possible that once this guidance is effective the enterprise will
either be required to consolidate a VIE or will hold a significant variable interest in a
VIE. Arch does not have any interests that would change our current reporting entity or
require additional disclosures outlined in FIN No. 46.


3.     Petition
for Relief Under Chapter 11 and Fresh Start Accounting


Certain
holders of 123⁄4% Senior Notes due 2007 of Arch Wireless Communications, Inc. (AWCI),
a wholly-owned subsidiary of Arch, filed an involuntary petition against AWCI on November
9, 2001 under chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy
Court for the District of Massachusetts, Western Division. On December 6, 2001, AWCI
consented to the involuntary petition and the bankruptcy court entered an order for
relief with respect to AWCI under chapter 11 of the Bankruptcy Code. Also on December 6,
2001, Arch and its other wholly-owned, domestic subsidiaries, including Arch Wireless
Holdings, Inc. (AWHI), filed voluntary petitions for relief, under chapter
11, with the bankruptcy court. These cases are being jointly administered under the
docket for Arch Wireless, Inc., et al., Case No. 01-47330-HJB. From December 6, 2001
through May 28, 2002, Arch and its domestic subsidiaries (collectively, the Debtors)
operated their businesses and managed their property as debtors-in-possession under the
Bankruptcy Code. On May 15, 2002, the bankruptcy court entered an order confirming the
Debtors First Amended Joint Plan of Reorganization, as modified, and the plan
became effective on May 29, 2002. As a result of the bankruptcy courts order
confirming the plan of reorganization, Arch and its domestic subsidiaries now operate as
reorganized entities.


Pursuant
to Archs plan of reorganization, all of its former equity securities were cancelled
and the holders of approximately $1.8 billion of its former indebtedness received
securities which represent substantially all of Archs consolidated capitalization,
consisting of $200 million aggregate principal amount of 10% senior subordinated secured
notes, $100 million aggregate principal amount of 12% subordinated secured
compounding notes and approximately 95% of Archs currently outstanding common stock.
The remaining common stock of approximately 5% has been or will be distributed pursuant to
the terms of the 2002 Stock Incentive Plan to certain members of senior management. All
but one of Archs former directors have been replaced by new directors, although no
material changes have occurred in its senior management.


The
plan provides that 20,000,000 shares will be issued; however, the number of shares of new
common stock to be distributed to individual former unsecured creditors, and the actual
distribution of such shares, is contingent upon the resolution of their individual claims.
As of December 31, 2002, a total of 18,464,072 shares had been issued to former secured
and unsecured creditors and senior management. The remaining shares will be distributed
upon resolution of various claims. All 20,000,000 shares were deemed issued and
outstanding for accounting purposes at December 31, 2002.


The
accompanying Predecessor Company Consolidated Financial Statements have been prepared in
accordance with SOP 90-7 and on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary course of
business. Substantially all of the Predecessor Companys pre-petition debt was in
default at December 31, 2001. As described below, the accompanying Consolidated Financial
Statements present the Debtors pre-petition debt under the caption Liabilities
Subject to Compromise. This includes debt under the pre-petition credit facility and
senior notes. As required by SOP 90-7, the Company has recorded the Debtors
pre-petition debt instruments at the allowed amount, as defined by SOP 90-7. Accordingly,
the Company accelerated the accretion of its debt discounts and recorded an expense of
approximately $133.8 million during December 2001, which is included in other operating
expenses in the Consolidated Statement of Operations. Other operating expenses in 2001
also includes the write off of $11.8 million of deferred financing costs and $9.3 million
of professional fees and other expenses directly related to the bankruptcy filing.

F-13






As
reflected in the Predecessor Companys Consolidated Financial Statements,
Liabilities subject to compromise refer to Debtors liabilities incurred
prior to the commencement of the chapter 11 cases. The amounts of the various liabilities
that are subject to compromise are set forth below following the Debtor-In-Possession
financial statements. These amounts represent Archs estimate, as of December 31,
2001, of known or potential pre-petition claims to be resolved in connection with the
chapter 11 cases.


The
Debtors received approval from the Bankruptcy Court to pay or otherwise honor certain of
their pre-petition obligations, including employee wages, salaries, benefits and other
employee obligations, pre-petition claims of certain critical vendors, and certain other
pre-petition claims. These amounts are included in the liabilities not subject to
compromise section of the Predecessor Companys Consolidated Balance Sheet at
December 31, 2001 to the extent they had not been paid.


Contractual
interest expense not accrued or recorded on pre-petition debt was $13.0 million for 2001.


The
condensed financial statements of the Debtors at December 31, 2001 are presented as
follows:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ARCH WIRELESS, INC.
DEBTOR-IN-POSSESSION BALANCE SHEETDecember 31, 2001(in thousands)
|-------------------------------------------------------------------------------------
|                                                                                     
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|F-14
|----

|ARCH WIRELESS, INC.
DEBTOR-IN-POSSESSION STATEMENT OF OPERATIONSFor the Year Ended December 31, 2001
(in thousands)
|-------------------------------------------------------------------------------------------------------------------
|                                                                                                                   
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|ARCH WIRELESS, INC.
DEBTOR-IN-POSSESSION STATEMENT OF CASH FLOWSFor the Year Ended December 31, 2001
(in thousands)
|-------------------------------------------------------------------------------------------------------------------
|                                                                                                                   
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|F-15






The
amounts subject to compromise in the Consolidated and Debtor-in-Possession Balance Sheets
consist of the following items at December 31, 2001(in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounts payable                                 |  |  | $ | 21,790    | 
| | ------------------------------------------------ |  |  | - | --------- | 
| | Accrued restructuring                            |  |  |   | 17,496    | 
| | Accrued expenses                                 |  |  |   | 45,664    | 
| | Accrued interest                                 |  |  |   | 109,523   | 
| | Debt                                             |  |  |   | 1,735,689 | 
| | Other long-term liabilities                      |  |  |   | 46,418    | 
| | Series C and series F redeemable preferred stock |  |  |   | 119,700   | 
| |                                                  |  | 
| | Total liabilities subject to compromise          |  |  | $ | 2,096,280 | 
| |                                                  |  | 

|Although
May 29, 2002 was the effective date of Archs emergence from bankruptcy, for
financial reporting convenience, Arch accounted for consummation of the plan as of May 31,
2002.


As
a result of the application of fresh start accounting, Archs financial results
during the year ended December 31, 2002 include two different bases of accounting and,
accordingly, the operating results and cash flows of the Reorganized Company and the
Predecessor Company are separately presented. The Reorganized Companys financial
statements are not comparable with those of the Predecessor Companys.


During
the five months ended May 31, 2002, the Predecessor Company recorded reorganization
expense of $22.5 million consisting of $15.3 million of professional fees, $3.1 million of
retention costs and $4.1 million paid or accrued to settle specific pre-petition
liabilities in conjunction with assumed contracts. Contractual interest expense not
accrued or recorded on pre-petition debt totaled $76.0 million for the five months ended
May 31, 2002.


The
fair value of the Reorganized Companys long-term debt and equity on the effective
date of the plan was determined to be $422.0 million ($416.1 million and $5.9 million
related to domestic and Canadian operations, respectively). A third party financial
advisor determined the value related to domestic operations based on a discounted cash
flow analysis utilizing Archs projections for 2002 through 2006, discounted at rates
ranging from 20% to 24%, and included the estimated effects of Archs net operating
loss carry-forwards. To approximate the value of all future cash flows after the
projection period, terminal multiples ranging from 4.0 to 5.0 were applied to 2006
forecasted net cash provided by operating activities less net cash used by investing
activities. Management determined the value of the Canadian operations.


The
reorganization value of Arch was determined to be $535.2 million, which includes the fair
value of the Reorganized Companys long-term debt and equity plus the fair value of
current liabilities at the date of emergence of $113.2 million. Under SOP 90-7, the
reorganization value was allocated to its tangible and identifiable intangible assets in
accordance with SFAS No. 141 Business Combinations and liabilities, including
debt, were recorded at their net present values. The net effect of all the fresh start
accounting adjustments resulted in a gain of $47.9 million, which is reflected in the
Predecessor Company financial statements for the five months ended May 31, 2002.

F-16






The
effects of the plan and the application of fresh start accounting on the Predecessor
Companys consolidated balance sheet were as follows:


ARCH WIRELESS, INC.REORGANIZED
CONSOLIDATED CONDENSED BALANCE SHEET(unaudited and in thousands)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | PredecessorCompany |  |   |            |   | ReorganizedCompany
|--------------------------------------- | ------------------ |  | - | ---------- | - | ------------------
|
|ASSETS                                  |                    |  |   |            |   |                   
|Current assets:                         |                    | 
|Cash and cash equivalents               |                    |  | $ | 39,527     |   | $                 
|Accounts receivable, net                |                    |  |   | 58,679     |   |                   
|Prepaid expenses and other              |                    |  |   | 62,452     |   |                   
|                                        |                    |  |   |            |   |                   
|Total current assets                    |                    |  |   | 160,658    |   |                   
|Property and equipment, net             |                    |  |   | 369,022    |   |                   
|Intangible and other assets, net        |                    |  |   | 265        |   |                   
|                                        |                    |  |   |            |   |                   
|                                        |                    |  | $ | 529,945    |   | $                 
|                                        |                    |  |   |            |   |                   
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                   
|Current liabilities:                    |                    | 
|Current maturities of long-term debt    |                    |  | $ | 30,190     |   | $                 
|Accounts payable                        |                    |  |   | 8,945      |   |                   
|Accrued expenses                        |                    |  |   | 61,835     |   |                   
|Customer deposits and deferred revenue  |                    |  |   | 58,879     |   |                   
|                                        |                    |  |   |            |   |                   
|Total current liabilities               |                    |  |   | 159,849    |   |                   
|Liabilities subject to compromise       |                    |  |   | 2,037,509  |   |                   
|Long-term debt, less current maturities |                    |  |   | --         |   |                   
|Other long-term liabilities             |                    |  |   | 1,836      |   |                   
|Stockholders' equity (deficit)          |                    |  |   | (1,669,249 | ) |                   
|                                        |                    |  |   |            |   |                   
|                                        |                    |  | $ | 529,945    |   | $                 
|                                        |                    |  |   |            |   |                   

---

|(A) | Discharge of pre-petition obligations including deferred gain on a sale leaseback and the write-off of
            associated fixed assets since the underlying lease agreement was rejected in conjunction with the
            reorganization.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Record new long-term debt issued pursuant to the plan of reorganization.
|--- | ------------------------------------------------------------------------

|(C) | Record new common stock issued pursuant to the plan of reorganization valued at $116.1 million and the net
            gain on extinguishment of debt resulting from notes (A) and (B) above.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(D) | Eliminate the deferred cost and related deferred revenue associated with SAB 101 revenue recognition as the
            asset has no value and no payment or service obligation exists for the Reorganized Company.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(E) | Adjust property and equipment to the fair value of the assets based on an independent appraisal.
|--- | ------------------------------------------------------------------------------------------------

|(F) | Adjust certain Canadian subsidiaries' debt to fair value.  Management determined the value of the bank debt
            in a manner consistent with the methodology used to value and restructure Arch's domestic subsidiaries.
            Management believes this method was reasonable since no market existed for this debt and the operations of
            these subsidiaries are largely identical to the operations of Arch's domestic subsidiaries.   The valuation
            was based on projected cash flows of these subsidiaries.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.      Acquisitions


On
November 10, 2000, Arch completed its acquisition of Paging Network, Inc.
(PageNet) for $1.35 billion consisting of 89,896,907 shares of Arch common
stock valued at $263.4 million, the assumption of liabilities of $1.06 billion, including
a deferred tax liability of $168.0 million arising in purchase accounting, and $27.6
million of transaction costs. In the merger, each outstanding share of PageNets
common stock was exchanged for 0.04796505 shares of Archs common stock.

F-17






The
acquisition was accounted for as a purchase, and the results of PageNets operations
have been included in the consolidated financial statements from the date of acquisition.
The purchase price for these acquisitions was allocated based on the fair values of assets
acquired and liabilities assumed.


The
following unaudited pro forma summary presents the consolidated results of operations as
if the acquisition had occurred at the beginning of the period presented, after giving
effect to certain adjustments, including depreciation and amortization of acquired assets
and interest expense on acquisition debt. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have occurred
had the acquisition been completed at the beginning of the period presented, or of results
that may occur in the future.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year EndedDecember 31, 2000                     
|------------------------------------------------
|Revenues                                        
|Income (loss) before extraordinary item         
|Net income (loss)                               
|Basic/diluted net income (loss) per common share

|5.      Long Lived Assets


Property
and EquipmentDepreciation and amortization expense related to property and equipment
totaled $211.8 million, $696.8 million (including $447.4 million of the impairment charge
 discussed below), $81.8 million and $100.4 million for the years ended December 31,
2000 and 2001, the five months ended May 31, 2002 and the seven months ended December 31,
2002, respectively.


Effective
October 1, 2002, Arch revised the estimated depreciable life of certain of its messaging
equipment from 5 years to 1.25 years. This change in useful life resulted from the timing
of Archs network rationalization program in order to align the useful lives of these
assets with their planned removal from service. As a result of this change, depreciation
expense increased approximately $12.1 million in the fourth quarter of 2002, approximately
$9.3 million of which was due to adjusting the carrying value of certain pieces of this
equipment to scrap value as they were removed from service at December 31, 2002.


On
July 1, 2001, Arch revised the estimated depreciable life of certain of its messaging and
computer equipment from eight to five years. This change in useful life resulted from
Archs expectations regarding future usage periods for this equipment considering
current and future technological advances. As a result of this change, depreciation
expense increased approximately $12.4 million in the second half of 2001.


On
October 1, 2000, Arch revised the estimated depreciable life of its subscriber devices
from three to two years. The change in useful life resulted from Archs expectations
regarding future usage periods for subscriber devices considering current and projected
technological advances and customer desires for new messaging technology. As a result of
this change, depreciation expense increased approximately $19.3 million in the fourth
quarter of 2000.


Assets
Held for SaleDuring the fourth quarter of 2002, Arch decided to place specific
office buildings up for sale as these buildings were no longer in use by Arch. Arch wrote
down the value of the buildings to estimated fair market value in the fourth quarter and
incurred a $788,000 impairment loss, which was included as a component of depreciation and
amortization expense.


The
details of the asset impairment are as follows (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Net book value of buildings before impairment |  |  | $ | 4,099 |  
|--------------------------------------------- |  |  | - | ----- | -
|Impairment of book value                      |  |  |   | (788  | )
|                                              |  | 
|Net book value of buildings after impairment  |  |  | $ | 3,311 |  
|                                              |  | 

|The
impairment was based upon preliminary contractual sales price of these buildings less
estimated costs to sell. The assets have been classified as Assets held for
Sale at December 31, 2002.

F-18






Intangible
and Other AssetsIntangible and other assets are comprised of the following at
December 31, 2002 (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Reorganized Company                                  | UsefulLife | Gross CarryingAmount | AccumulatedAmortization | Net Balance
|---------------------------------------------------- | ---------- | -------------------- | ----------------------- | -----------
|Purchased subscriber lists                           |            |                      |                         | 3 yrs      
|Purchased Federal Communications Commission licenses |            |                      |                         | 5 yrs      
|Other                                                |            |                      |                         |            
|                                                     |            |                      |                         |            
|                                                     |            |                      |                         |            
|                                                     |            |                      |                         |            

|Intangible
and other assets are comprised of the following at December 31, 2001 (in thousands):
|-----------------------------------------------------------------------------------------------

|Predecessor Company                                  | Gross CarryingAmount | AccumulatedAmortization | Net Balance
|---------------------------------------------------- | -------------------- | ----------------------- | -----------
|Purchased subscriber lists                           |                      |                         | $          
|Purchased Federal Communications Commission licenses |                      |                         |            
|Goodwill                                             |                      |                         |            
|Deferred financing costs                             |                      |                         |            
|Non competition agreements                           |                      |                         |            
|Other                                                |                      |                         |            
|                                                     |                      |                         |            
|                                                     |                      |                         | $          
|                                                     |                      |                         |            

|Aggregate
amortization expense for intangible assets for the seven months ended December 31, 2002,
the five months ended May 31, 2002 and the years ended December 31, 2001 and 2000 was $3.5
million, $0.9 million, $887.7 million (including $528.7 million of the impairment charge
referred to below) and $289.1 million, respectively. Estimated amortization expense for
intangible assets for fiscal years 2003 to 2007 is $5.1 million, $5.1 million, $3.1
million, $1.7 million and $0.7 million, respectively.


In
conjunction with the adoption of SOP 90-7, the assets were recorded at their fair values
based principally on a third-party appraisal.


In
July 2001, Arch developed projections in order to assess the carrying value of its
long-lived assets. These projections were managements best estimate, at the time, of
future results based on lower than expected operating results for the quarter ended June
30, 2001 and potential yearend liquidity constraints that could arise. The aggregate
undiscounted cash flows from these projections was compared to the carrying value of the
long-lived assets. Since the carrying value exceeded the aggregate undiscounted cash
flows, fair value of the assets was determined based on a discounted cash flow analysis.
As a result, Arch recorded an impairment charge of $976.2 million in the second quarter of
2001, which is included in depreciation and amortization expense in the statement of
operations, and reduced the carrying value of certain one-way messaging equipment,
computer equipment and intangible assets.


Included
in purchased Federal Communications Commissions licenses at December 31, 2000 was $175.0
million of 900 MHz SMR (Specialized Mobile Radio) licenses. In January 2001, Arch agreed
to sell its SMR licenses to Nextel Communications, Inc. Nextel acquired the SMR licenses
for an aggregate purchase price of $175 million and invested approximately $75 million in
a new equity issue, Arch series F 12% redeemable cumulative junior preferred stock. The
transaction was completed in two stages. In February 2001, Nextel advanced $250 million in
the form of a secured loan in the principal amount of $175 million and an unsecured loan
in the principal amount of $75 million to a newly created, stand-alone Arch subsidiary
that held the SMR licenses pending FCC regulatory approval of their transfer. The new Arch
subsidiary was not permitted to engage in any business other than ownership and
maintenance of the SMR licenses and did not have any liability or obligation with respect
to any of the debt obligations of Arch or its subsidiaries. In May 2001, upon transfer of
the SMR licenses to Nextel, the principal amount of the secured loan was offset against
the $175.0 million aggregate purchase price for the SMR licenses, and the principal amount
of the unsecured loan was exchanged for shares of series F preferred stock. Accrued
interest on the secured and unsecured loans was also paid in series F preferred stock.

F-19






During
the fourth quarter of 2000, the Company reviewed the remaining lives of its intangible
assets. Due to the nature of change for one-way messaging services and the new
technologies for two-way messaging services, effective October 1, 2000 the Company
changed the remaining lives on purchased subscriber lists, purchased Federal
Communications Commission licenses and goodwill which resulted from acquisitions prior to
2000 as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Intangible Asset Classification                      | Book Value atDecember 31,2000 | EstimatedUseful Life
|---------------------------------------------------- | ----------------------------- | --------------------
|Purchased Federal Communications Commission licenses |                               |                     
|Purchased subscriber lists                           |                               |                     
|Goodwill                                             |                               |                     

|These
changes resulted in additional amortization expense in 2000 of $103.5 million.


6.     Debt


Debt consisted
of the following (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | Predecessor Company | Reorganized Company
|--------------------------------------------------- | ------------------- | -------------------
|                                                    |                    
|                                                    |                    
|10% Senior Subordinated Secured Notes due 2007      |                     |                    
|12% Subordinated Secured Compounding Notes due 2009 |                     |                    
|Canadian Subsidiaries Bank Debt                     |                     |                    
|                                                    |                     |                    
|                                                    |                     |                    
|Less--Current maturities                            |                     |                    
|                                                    |                     |                    
|Long-term debt                                      |                     |                    
|                                                    |                     |                    

|Archs
debt consists of fixed rate senior notes, which are publicly traded. The fair values of
the fixed rate senior notes were based on market quotes as of December 31, 2002. There is
often limited trading in our notes and therefore quoted prices may not be an indication of
the value of the notes.


Upon
the effective date of the plan of reorganization, all of Archs pre-petition bank
debt and senior notes, except debt issued by two of Archs Canadian subsidiaries,
were discharged and terminated and the $50 million debtor-in-possession credit facility
obtained by the Debtors in connection with the chapter 11 filing was terminated. No
borrowings were outstanding on the debtor-in-possession credit facility.


On
the effective date of the plan of reorganization, AWHI issued $200 million of its 10%
Senior Subordinated Secured Notes due 2007 and $100 million of its 12% Subordinated
Secured Compounding Notes due 2009. The 10% notes accrue interest at 10% per annum payable
semi-annually in arrears. The 10% notes are secured by a lien on substantially all the
assets of Arch. AWHI is required to redeem $15 million of the 10% notes semi-annually on
May 15 and November 15. AWHI is also required to redeem the 10% notes semi-annually to the
extent AWHIs cash balance exceeds certain levels. AWHI must also redeem the 10%
notes from the net cash proceeds from: (1) the sale of assets in excess of $2 million and
(2) certain amounts from insurance or condemnation proceeds. AWHI may redeem the 10% notes
at any time prior to maturity, without premium or penalty. If a change of control (as
defined in the indenture) occurs, AWHI will be required to make an offer to purchase the
10% notes at 100% of the outstanding principal amount plus accrued and unpaid interest
through the purchase date. Since July 31, 2002, Arch has made or announced redemptions of
the 10% notes totaling $115 million (including $25 million of optional redemptions
announced subsequent to December 31, 2002), plus accrued interest on the redemption
amount.


Interest
compounds semi-annually on the 12% notes at 12% per annum with such interest being added
to the outstanding principal amount of the notes until the 10% notes are repaid in full,
thereafter interest will be paid semi-annually in cash. The 12% notes are secured by a
second lien on substantially all the assets of Arch. Arch is prohibited from redeeming the
12% notes until the 10% notes are paid in full. Following the repayment in full of the 10%
notes, AWHI will be required to redeem the 12% notes semi-annually to the extent
AWHIs cash balance exceeds certain levels. AWHI must also redeem the 12% notes from
the net cash proceeds from: (1) the sale of assets in excess of $2 million and (2) certain
amounts from insurance or condemnation proceeds, once the 10% notes have been paid in
full. AWHI may redeem the 12% notes, after the 10% notes have been repaid in full, at a
redemption price equal to the following percentage of the outstanding principal amount
plus accrued and unpaid interest through the purchase date:

F-20
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Prior to May 15, 2007  106%;
| | - | -----------------------------

| | o | May 15, 2007 to May 14, 2008  104%;
| | - | ------------------------------------

| | o | May 15, 2008 to May 14, 2009  102%;
| | - | ------------------------------------

| | o | on maturity date of May 15, 2009  100%.
| | - | ----------------------------------------

|If
a change in control (as defined in the indenture) occurs, AWHI will be required to make an
offer to purchase the 12% notes at 101% of the outstanding principal amount plus accrued
and unpaid interest through the purchase date.


The
indentures for the 10% and 12% notes impose restrictions on Arch and its subsidiaries,
including the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | prohibition on restricted payments, including cash dividends, redemptions of stock or
stock equivalents and optional payments on debt subordinated to the notes;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | prohibition
on incurring additional indebtedness;
| | - | -------------------------------------------------

| | o | prohibition
on liens on its assets;
| | - | -----------------------------------

| | o | prohibition
on making or maintaining investments except for permitted cash-equivalent type
instruments;
| | - | -------------------------------------------------------------------------------------------------------

| | o | prohibition
on consolidations, mergers or sale of assets outside the ordinary course of business;
| | - | -------------------------------------------------------------------------------------------------

| | o | prohibition
on transactions with affiliates; and
| | - | ------------------------------------------------

| | o | compliance
with certain quarterly financial covenants including, but not limited to, (i) minimum
earnings before  interest, income taxes, depreciation and amortization, (ii) minimum
number of direct units in service, (iii) minimum total consolidated service, rental and
maintenance revenues and (iv) maximum capital expenditures.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Maturities
of DebtScheduled long-term debt maturities at December 31, 2002 are as follows (in
thousands):
|----------------------------------------------------------------------------------------------------------

|Year Ending December 31, | 
|------------------------ | 
|2003                     | 
|2004                     | 
|2005                     | 
|2006                     | 
|2007                     | 
|Thereafter               | 
|                         | 
|                         | 
|                         | 

|Due
to the bankruptcy filing (see Note 3), pre-petition long-term debt of the Debtors was
reclassified to the caption Liabilities subject to compromise in the above
table and on the Consolidated Balance Sheet at December 31, 2001.


Debt
subject to compromise consisted of the following (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | December 31, 2001
|-------------------------------------- | -----------------
|
|Senior Bank Debt                       |                  
|10 7/8% Senior Discount Notes due 2008 |                  
|9 1/2% Senior Notes due 2004           |                  
|14% Senior Notes due 2004              |                  
|12 3/4% Senior Notes due 2007          |                  
|13 3/4% Senior Notes due 2008          |                  
|Other                                  |                  
|                                       |                  
|Long-term debt subject to compromise   |                  
|                                       |                  

|Canadian
Subsidiaries Bank DebtPageNet Canada, Inc. and Madison Telecommunications,
Inc. (collectively the Canadian Subsidiaries) were in default under their
credit agreements at December 31, 2001 and were operating in accordance with forbearance
agreements dated April 5, 2002. The forbearance agreements outlined the conditions under
which the Canadian Subsidiaries could continue operations and included a specific timeline
for management to arrange for a strategic alliance or a merger or acquisition. Since these
conditions were not met, on October 2, 2002 the creditors issued demand letters to the
Canadian Subsidiaries. These letters demanded payment of all outstanding obligations and
terminated the April 5, 2002 forbearance agreements. Subsequent to receipt of the demand
letters, the Canadian Subsidiaries requested and received approval for a subsequent
forbearance. The subsequent forbearance agreements require management of the Canadian
Subsidiaries to arrange and complete a transaction, on terms acceptable to the creditors,
involving the sale or assignment of the indebtedness or a sale of the Canadian
Subsidiaries or all of their assets.

F-21






On
December 9, 2002, the Canadian Subsidiaries and a group of investors, including Arch,
entered into an agreement to purchase and restructure the credit facilities of the
Canadian Subsidiaries. The group purchased the rights of the bank creditors under the
credit agreements for CDN$7,000,000 (inclusive of CDN$829,250 in broker fees and service
taxes), including Archs share of CDN$700,000. The group purchased a 90% economic
interest in the Canadian Subsidiaries in conjunction with the purchase and assumption of
the bank credit facilities. The remaining 10% equity interest was split evenly between
Arch, the minority shareholder of the Canadian Subsidiaries and management of the Canadian
Subsidiaries. Therefore, on a post-restructuring basis, Arch owns 12.33% of the Canadian
Subsidiaries. Effective with this transaction Arch discontinued the consolidation of the
Canadian Subsidiaries. Since Arch will have a representative on the board of directors of
the restructured Canadian Subsidiaries, Arch will account for this investment utilizing
the equity method of accounting. The carrying value of the investment in the Canadian
Subsidiaries is currently zero, therefore Arch will not recognize its share of the losses
from these subsidiaries.


As
of December 31, 2001, approximately CDN$67.3 million of borrowings were outstanding under
these credit facilities. The Canadian Subsidiaries were in violation of certain financial
covenants and therefore the outstanding balances were classified as current liabilities in
the consolidated balance sheet. Both credit agreements were scheduled to expire on
December 31, 2004. Borrowings under the agreements bore interest based on the agent
banks prime rate plus a margin based on specified ratios of debt to annualized
earnings before interest, income taxes, depreciation and amortization. The credit
agreements were secured by $34.6 million of cash collateral, which was classified as
restricted cash on the balance sheet at December 31, 2001, and a general security interest
in all the assets of the Canadian Subsidiaries. Subsequent to December 31, 2001, Arch
transferred the cash collateral to the secured creditors.


Debt
Exchanged for EquityIn 2000, Arch issued 285,973 shares of Arch common stock in
exchange for $3.5 million principal amount of Arch convertible debentures. Arch also
issued 12,182,659 shares of Arch common stock in exchange for $165.3 million accreted
value ($184.2 million maturity value) of its senior discount notes. Arch recorded a gain
of $14.2 million on the extinguishment of debt as a result of these transactions.


On
May 10, 2000, Arch announced it had completed an agreement with Resurgence Asset
Management L.L.C. for the exchange of $91.1 million accreted value ($100.0 million
maturity value) of senior discount notes held by various Resurgence entities for 1,000,000
shares of a new class of Archs preferred stock called Series D preferred stock. The
Series D preferred stock was converted into an aggregate of 6,613,180 shares of common
stock upon completion of Archs merger with PageNet.


Arch
recorded a gain of $44.4 million on the extinguishment of debt as a result of this
transaction based on the difference between the carrying value of the exchanged debt,
including deferred financing fees, and the fair value of the preferred stock issued. Arch
recorded $4.2 million of accretion on this preferred stock prior to its conversion to
common stock on November 10, 2000.


In
2001, Arch issued 18,905,989 shares of Arch common stock in exchange for $50.8 million
accreted value ($51.0 million maturity value) of its senior discount notes. Arch recorded
a gain of $34.2 million on the extinguishment of debt as a result of these transactions.


7.      Stockholders Equity


New
Common StockUpon the effective date of the plan of reorganization all of the
Predecessor Companys preferred and common stock, and all stock options were
cancelled. The Reorganized Companys authorized capital stock consists of 50,000,000
shares of common stock. Each share of common stock has a par value of $0.001 per share. As
of December 31, 2002, Arch had issued and outstanding 18,464,072 shares of common stock
and the remaining 1,535,928 shares will be issued pursuant to the plan of reorganization
from time to time as unsecured claims are resolved. The plan provides that exactly
20,000,000 shares will be issued, however, the number of shares of new common stock to be
distributed to individual former unsecured creditors is contingent upon the resolution of
their individual claims. All 20,000,000 shares were deemed issued and outstanding for
accounting purposes at December 31, 2002.


As
provided in the plan of reorganization, Arch adopted the 2002 Stock Incentive Plan which
authorizes the grant of up to 950,000 shares of common stock of the Reorganized Company to
be issued pursuant to the plan. On May 29, 2002, 882,200 shares were issued, at $0.001 per
share, to certain members of continuing management to vest 310,730 shares on each of May
29, 2003 and May 29, 2004 and 260,740 shares on May 29, 2005, subject to adjustment. Any
unvested shares granted under the 2002 Stock Incentive Plan are subject to repurchase by
Arch at the issue price of $0.001 per share if the employment of an employee entitled to
such grant is terminated for any reason other than in the case of Archs chief
executive officer, its president and chief operating officer and its executive vice
president and chief financial officer, a change of control. The fair value of the shares
was deemed to be $6.09 per share at the date of emergence from bankruptcy, therefore,
compensation expense of approximately $5.4 million is being recognized ratably over the
three year vesting period. The remaining shares authorized under the 2002 Stock Incentive
Plan will become issuable to management at $0.001 per share upon resolution of unsecured
claims to the extent allowable under the plan of reorganization.

F-22







Redeemable
Series C Cumulative Convertible Preferred StockThe Predecessor Companys Series
C Preferred Stock was convertible into common stock at a conversion price of $16.38 per
share and bore dividends at an annual rate of 8.0%. The balance of $32.8 million, which
included accrued dividends through December 5, 2001, was included in liabilities subject
to compromise at December 31, 2001.


Series
F Redeemable Cumulative Junior Preferred Stock In May 2001, Predecessor Company
issued 793,219 shares of series F preferred stock. The series F preferred stock was
convertible into common stock at a conversion price equal to the then prevailing market
price of the common stock per share and bore dividends at an annual rate of 12.0%. The
balance of $86.9 million, which included accrued dividends through December 5, 2001, was
included in liabilities subject to compromise at December 31, 2001.


Stock
OptionsThe Predecessor Company had stock option plans, which provided for the grant
of incentive and nonqualified stock options to key employees, directors and consultants to
purchase common stock. Incentive stock options were granted at exercise prices not less
than the fair market value on the date of grant. Options generally vested over a five-year
period from the date of grant. However, in certain circumstances, options were immediately
exercisable in full. Options generally had a duration of 10 years. All outstanding options
under these plans were terminated in accordance with Archs plan of reorganization.


As
a result of the PageNet merger, each outstanding option to purchase PageNet common stock
became fully exercisable and vested and was converted into an option to purchase the same
number of shares of Arch common stock that the holder of the option would have received in
the merger if the holder had exercised the option immediately prior to the merger.


The
following table summarizes the activity under Archs stock option plans for the
periods presented:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | NumberofOptions | WeightedAverageExercisePrice
|---------------------------------------- | --------------- | ----------------------------
|Options outstanding at December 31, 1999 |                 |                             
|Granted                                  |                 |                             
|Assumed in merger                        |                 |                             
|Exercised                                |                 |                             
|Terminated                               |                 |                             
|                                         |                 |                             
|Options outstanding at December 31, 2000 |                 |                             
|Granted                                  |                 |                             
|Exercised                                |                 |                             
|Terminated                               |                 |                             
|                                         |                 |                             
|Options outstanding at December 31, 2001 |                 |                             
|Terminated                               |                 |                             
|Options outstanding at December 31, 2002 |                 |                             
|                                         |                 |                             
|Options exercisable at December 31, 2002 |                 |                             
|                                         |                 |                             

|Employee
Stock Purchase PlansThe Predecessor Companys employee stock purchase
plans allowed eligible employees the right to purchase common stock, through payroll
deductions not exceeding 10% of their compensation, at the lower of 85% of the market
price at the beginning or the end of each six-month offering period. During 2000, 459,133
shares were issued at an average price per share of $1.25. These plans were terminated in
accordance with Archs plan of reorganization.


Accounting
for Stock-Based CompensationArch accounted for its stock option plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. No stock-based employee
compensation cost was reflected in net income, as all options granted under the plans had
an exercise price equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net income and earnings per share if
Arch had applied the fair value recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, to stock-based employee compensation.

F-23
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Years Ended December 31,                                        
|----------------------------------------------------------------
|(in thousands, except per share amounts)                        
|Net income (loss), as reported                                  
|Deduct: Total stock option based fair value compensation expense
|                                                                
|Pro forma net income                                            
|                                                                
|Basic net income (loss) per common share:                       
|As reported                                                     
|Pro forma                                                       

|The
fair value of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model. In computing these pro forma amounts, Arch assumed risk-free
interest rates of 4.5%  6%, an expected life of 5 years, an expected dividend yield
of zero and an expected volatility of 0%  93%.


The
weighted average fair values (computed consistent with SFAS No. 123) of options granted
under all plans in 2000 and 2001 were $3.01 and $0.19, respectively. The weighted average
fair value of shares sold under the employee stock purchase plans in 2000 was $2.72.


8.      Income
Taxes


Arch
accounts for income taxes under the provisions of SFAS No. 109 Accounting for Income
Taxes. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities, given the
provisions of enacted laws.


The
components of the net deferred tax asset (liability) recognized in the accompanying
consolidated balance sheets at December 31, 2001 and 2002 are as follows (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         | 2001 | 2002
|------------------------ | ---- | ----
|Deferred tax assets      |      |     
|Deferred tax liabilities |      |     
|                         |      |     
|                         |      |     
|Valuation allowance      |      |     
|                         |      |     
|                         |      |     
|                         |      |     

|The
approximate effect of each type of temporary difference and carryforward at December 31,
2001 and 2002 is summarized as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2001 | 2002
|-------------------------------------- | ---- | ----
|Net operating losses                   |      |     
|Intangibles and other assets           |      |     
|Depreciation of property and equipment |      |     
|Accruals and reserves                  |      |     
|                                       |      |     
|                                       |      |     
|Valuation allowance                    |      |     
|                                       |      |     
|                                       |      |     
|                                       |      |     

|The
Company has established a valuation reserve against its net deferred tax asset until it
becomes more likely than not that this asset will be realized in the foreseeable future.


In
accordance with the provisions of the Internal Revenue Code, Arch is required to apply the
cancellation of debt income arising in conjunction with the provisions of its plan of
reorganization against certain tax assets existing as of the close of 2002. As a result,
Arch expects to have no net operating losses remaining and expects the tax basis of
certain other tax assets may be reduced.


SFAS
No. 109 establishes guidelines for companies that qualify for fresh start accounting under
SOP 90-7 and have a valuation allowance on its net deferred tax assets at the date of
emergence from bankruptcy. These provisions require that any subsequent reduction in a
deferred tax asset valuation allowance that existed at the date of fresh start accounting
be first credited against an asset established for reorganization value in excess of
amounts allocable to identifiable assets, then credited to other identifiable intangible
assets existing at the date of fresh start accounting and then, once these assets have
been reduced to zero, credited directly to additional paid in capital. As a result, the
release of valuation allowance for the period June 1, 2002 through December 31, 2002 has
reduced the carrying value of intangible assets by $2.3 million.

F-24






The
effective income tax rate differs from the statutory federal tax rate primarily due to
expenses associated with Archs chapter 11 filing which were expensed for book
purposes, but are not deductible in the determination of taxable income.


9.      Commitments
and Contingencies


Arch,
from time to time is involved in lawsuits arising in the normal course of business. Arch
believes that its pending lawsuits will not have a material adverse effect on its
financial position or results of operations.


Arch
has operating leases for office and transmitter locations with lease terms ranging from
one month to approximately eighteen years. In most cases, Arch expects that, in the normal
course of business, leases will be renewed or replaced by other leases.


Future
minimum lease payments under noncancellable operating leases at December 31, 2002 are as
follows (in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ending December 31, | 
|------------------------ | 
|2003                     | 
|2004                     | 
|2005                     | 
|2006                     | 
|2007                     | 
|Thereafter               | 
|                         | 
|Total                    | 
|                         | 

|Total
rent expense under operating leases for the years ended December 31, 2000 and 2001, the
five months ended May 31, 2002 and the seven months ended December 31, 2002 approximated
$81.2 million, $150.7 million, $59.8 million and $76.2 million, respectively.


As
a result of various decisions by the Federal Communications Commission, over the last few
years, we no longer pay fees for the termination of traffic originating on the networks of
local exchange carriers providing wireline services interconnected with our services and
in some instances we received refunds for prior payments to certain local exchange
carriers. We have entered into a number of interconnection agreements with local exchange
carriers in order to resolve various issues regarding charges imposed by local exchange
carriers for interconnection. We may be liable to local exchange carriers for the costs
associated with delivering traffic that does not originate on that local exchange
carriers network, referred to as transit traffic, resulting in some increased
interconnection costs for us, depending on further Federal Communications Commission
disposition of these issues and the agreements reached between us and the local exchange
carriers. If these issues are not ultimately decided through settlement negotiations or
via the Federal Communications Commission in our favor, we may be required to pay past due
contested transit traffic charges not addressed by existing agreements or offset against
payments due from local exchange carriers and may also be assessed interest and late
charges for amounts withheld. Although these requirements have not, to date, had a
material adverse effect on our operating results, these or similar requirements could, in
the future, have a material adverse effect on our operating results.


10.      Employee
Benefit Plans


Retirement
Savings PlansArch has retirement savings plans, qualifying under Section 401(k) of
the Internal Revenue Code covering eligible employees, as defined. Under the plans, a
participant may elect to defer receipt of a stated percentage of the compensation which
would otherwise be payable to the participant for any plan year (the deferred amount)
provided, however, that the deferred amount shall not exceed the maximum amount permitted
under Section 401(k) of the Internal Revenue Code. The plans provide for employer matching
contributions. Matching contributions for the years ended December 31, 2000 and 2001, the
five months ended May 31, 2002 and the seven months ended December 31, 2002 approximated
$1.2 million, $1.6 million, $0.7 million and $0.6 million, respectively.

F-25






11.      Other
Long-Term Liabilities


During
1998 and 1999, Arch sold communications towers, real estate, site management contracts
and/or leasehold interests involving 133 sites in 22 states and leased space on the towers
on which it maintained transmitters and related equipment to service its messaging
network. Net proceeds from the sales were approximately $33.4 million, Arch used the net
proceeds to repay indebtedness under its then existing credit facility.


Arch
entered into options to repurchase each tower and until this continuing involvement ended
the gain on the sale of the tower sites was deferred and included in other long-term
liabilities. At December 31, 2000 and 2001, approximately $20.2 million and $15.3 million
of the gain was deferred and approximately $2.0 million, $3.1 million and $1.3 million of
this gain was recognized in the statement of operations and was included in operating
income for each of the years ended December 31, 2000 and 2001 and for the five months
ended May 31, 2002, respectively. The remaining balance of $13.5 million was recorded as a
gain on extinguishment of debt upon Archs emergence from bankruptcy.


12.      Restructuring
Reserves


At
December 31, 2001, the Predecessor Company had restructuring reserves which primarily
represented lease cancellation costs totaling $17.5 million included in the caption
Liabilities subject to compromise on the consolidated balance sheets. Arch
rejected the underlying leases pursuant to the Companys chapter 11 bankruptcy
proceedings, therefore the reserve balances have been recognized in the statement of
operations and are included in gain on extinguishment of debt. No amount contained in the
December 31, 2001 reserve balance was paid during 2002.


13.      Segment
Reporting


In
conjunction with its emergence from chapter 11 during the quarter ended June 30, 2002,
Arch reassessed the segment disclosure requirements of SFAS No. 131 Disclosures
about Segments of an Enterprise and Related Information. Due to various operational
changes which occurred before and during the bankruptcy proceedings, such as the
elimination of dedicated sales and management resources for two-way messaging. Arch no
longer believes that its one and two-way messaging operations meet the disclosure
standards of separate operating segments as set forth in SFAS No. 131. Therefore, Arch
believes it currently has two operating segments: domestic operations and international
operations, but no reportable segments, as international operations are immaterial to the
consolidated entity. As of December 2002, Arch no longer consolidates the results of the
Canadian Subsidiaries, therefore the disclosures below reflect the subsidiaries
results up to that date (see Note 6).


Geographic Information
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|              | Predecessor Company | ReorganizedCompany
|------------- | ------------------- | ------------------
|              |                    
|Revenues:     |                     |                   
|United States |                     |                   
|Canada        |                     |                   
|              |                     |                   
|Total         |                     |                   
|              |                     |                   

|                   | Predecessor CompanyDecember 31, 2001 | Reorganized CompanyDecember 31, 2002
|------------------ | ------------------------------------ | ------------------------------------
|Long-lived assets: |                                      |                                     
|United States      |                                      |                                     
|Canada             |                                      |                                     
|                   |                                      |                                     
|Total              |                                      |                                     
|                   |                                      |                                     

|Prior
to emergence from chapter 11, Arch had determined that it had three reportable segments;
one-way messaging operations, two-way messaging operations and international operations.
Management made operating decisions and assessed individual performances based on these
segments. One-way messaging operations consisted of the provision of paging and other
one-way messaging services to Archs U.S. customers. Two-way messaging operations
consisted of the provision of two-way messaging services to Archs U.S. customers.
International operations consisted of the operations of the Canadian Subsidiaries, which
were primarily acquired in conjunction with Archs acquisition of PageNet in November
2000.

F-26






Each
of these segments incurred, and were charged, direct costs associated with their separate
operations. Common costs shared by one and two-way messaging operations were allocated
based on the estimated utilization of resources using various factors that attempted to
mirror the true economic cost of operating each segment.


Arch
did not begin to market and sell its two-way messaging products on a commercial scale
until August 2000. Prior to 2000, substantially all of the Companys operations
related to one-way messaging. The following table presents financial information related
to Archs segments as of and for the years ended December 31, 2000 and 2001 and as of
and for the five months ended May 31, 2002 (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year Ended December 31, 2000:                    | One-wayMessagingOperations | Two-wayMessagingOperations | InternationalOperations | Consolidated
|------------------------------------------------ | -------------------------- | -------------------------- | ----------------------- | ------------
|Revenues                                         |                            |                            | $                       | 838,425     
|Depreciation and amortization            expense |                            |                            |                         | 488,048     
|Operating income (loss)                          |                            |                            |                         | (216,591    
|Total assets                                     |                            |                            |                         | 1,981,156   
|Capital expenditures                             |                            |                            |                         | 111,047     
|Year Ended December 31, 2001:                    |                            |                           
|Revenues                                         |                            |                            | $                       | 1,042,767   
|Depreciation and amortization            expense |                            |                            |                         | 1,467,864   
|Operating income (loss)                          |                            |                            |                         | (1,338,525  
|Total assets                                     |                            |                            |                         | 375,558     
|Capital expenditures                             |                            |                            |                         | 50,823      
|Five Months Ended May 31, 2002:                  |                            |                           
|Revenues                                         |                            |                            | $                       | 303,773     
|Depreciation and amortization            expense |                            |                            |                         | 42,231      
|Operating income (loss)                          |                            |                            |                         | 43,622      
|Capital expenditures                             |                            |                            |                         | 19,995      

|14.     Quarterly
Financial Results (Unaudited)


Quarterly
financial information for the years ended December 31, 2001 and 2002 is summarized below
(in thousands, except per share amounts):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                    | Predecessor Company
|----------------------------------------------------------------------------------- | -------------------
|
|Year Ended December 31, 2001:                                                       |                    
|Revenues                                                                            |                    
|Operating income (loss)                                                             |                    
|Income (loss) before cumulative effect of change
           in accounting principle |                    
|Cumulative effect of change in accounting principle                                 |                    
|Net income (loss)                                                                   |                    
|Basic/diluted net income (loss) per common share:                                   |                    
|Income (loss) before cumulative effect of                                           |                    
|change in accounting principle                                                      |                    
|Cumulative effect of change in accounting
              principle                   |                    
|Net income (loss)                                                                   |                    

|F-27
|----

|                                                            | Predecessor Company | Reorganized Company
|----------------------------------------------------------- | ------------------- | -------------------
|                                                            |                    
|Year Ended December 31, 2002:                               |                     |                    
|Revenues                                                    |                     |                    
|Operating income (loss)                                     |                     |                    
|Net income (loss)                                           |                     |                    
|Basic/diluted net income (loss) per
           common share |                     |                    

|(1) | Arch recorded an impairment charge of $976.2 million in the second quarter of
          2001, which is included in depreciation and amortization expense in the
          statement of operations, and reduced the carrying value of certain one-way
          messaging equipment, computer equipment and intangible assets (see Note 5).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Arch recorded reorganization costs of $153.7 million in the fourth quarter of
          2001, associated with its chapter 11 bankruptcy filing (see Note 3).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Upon emergence from bankruptcy, Arch recorded a gain of $1.6 billion from the
          discharge and termination of debt, a gain of $47.9 million due to fresh start
          accounting adjustments and recognized $16.3 million of reorganization expenses
          during the two months ended May 31, 2002 (see Note 3).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-28






REPORT OF INDEPENDENT
ACCOUNTANTS


To the Board of Directors
and Stockholdersof Arch Wireless, Inc.:


Our
audit of the consolidated financial statements of Arch Wireless, Inc. and its subsidiaries
(Predecessor Company) referred to in our report dated March 5, 2003 appearing in this
Annual Report on Form 10-K also included an audit of the financial statement schedule for
the five months ended May 31, 2002 listed in Item 15a(2) of this Form 10-K. In our
opinion, the financial statement schedule for the five months ended May 31, 2002 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. The financial statement
schedules of Arch Wireless, Inc. for the two years ended December 31, 2001 were audited by
other independent accountants who have ceased operations. Those independent accountants
expressed an unqualified opinion on those financial statement schedules in their report
dated March 7, 2002.


/s/
PricewaterhouseCoopers LLP


Boston, Massachusetts
March 5, 2003

S-1






REPORT OF INDEPENDENT
ACCOUNTANTS


To the Board of Directors
and Stockholdersof Arch Wireless, Inc.:


Our
audit of the consolidated financial statements of Arch Wireless, Inc. and its subsidiaries
(Reorganized Company) referred to in our report dated March 5, 2003 appearing in this
Annual Report on Form 10-K also included an audit of the financial statement schedule for
the seven months ended December 31, 2002 listed in Item 15a(2) of this Form 10-K. In our
opinion, the financial statement schedule for the seven months ended December 31, 2002
presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.


/s/
PricewaterhouseCoopers LLP


Boston, Massachusetts
March 5, 2003

S-2






The Report of
Independent Public Accountants below is a copy of a report previously issued by Arthur
Andersen LLP, which has not been reissued by Arthur Andersen LLP.

REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS


To Arch Wireless, Inc.:


We
have audited in accordance with auditing standards generally accepted in the United
States, the consolidated financial statements of Arch Wireless, Inc. included in this Form
10-K and have issued our report thereon dated March 7, 2002. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II is the responsibility of the Companys management and is presented
for purposes of complying with the Securities and Exchange Commissions rules and is
not part of the basic consolidated financial statements. The schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.

/s/ Arthur Andersen LLP


Boston, Massachusetts
March 7, 2002

S-3






SCHEDULE II


ARCH
WIRELESS, INCVALUATION AND QUALIFYING ACCOUNTSYears Ended December 31, 2000, 2001 and 2002
(in thousands)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Reserve for Doubtful Accounts        | Balance atBeginning ofPeriod | Charged toOperations | OtherAdditions toAllowance(1) | Write-Offs | Balance atEnd ofPeriod
|------------------------------------ | ---------------------------- | -------------------- | ----------------------------- | ---------- | ----------------------
|Year ended December 31, 2000         |                              |                      | $                             | 16,473     |                       
|                                     |                              |                      |                               |            |                       
|Year ended December 31, 2001         |                              |                      | $                             | 62,918     |                       
|                                     |                              |                      |                               |            |                       
|Five Months ended May 31, 2002       |                              |                      | $                             | 41,987     |                       
|                                     |                              |                      |                               |            |                       
|Seven Months ended December 31, 2002 |                              |                      | $                             | 36,987     |                       
|                                     |                              |                      |                               |            |                       

|(1)    
          Additions arising through acquisitions of messaging companies
|-------------------------------------------------------------------------------

|Accrued Restructuring Charge         | Balance atBeginning ofPeriod | Charged toExpense | OtherAdditions | Deductions | Balance atEnd ofPeriod
|------------------------------------ | ---------------------------- | ----------------- | -------------- | ---------- | ----------------------
|
|Year ended December 31, 2000         |                              |                   | $              | 17,111     |                       
|                                     |                              |                   |                |            |                       
|Year ended December 31, 2001         |                              |                   | $              | 60,424     |                       
|                                     |                              |                   |                |            |                       
|Five Months ended May 31, 2002       |                              |                   | $              | 17,496     |                       
|                                     |                              |                   |                |            |                       
|Seven Months ended December 31, 2002 |                              |                   | $              | --         |                       
|                                     |                              |                   |                |            |                       

|S-4






EXHIBIT INDEX
|-----------------------

|2.1 | Debtor's
Final Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated March
8, 2002. (1)
|--- | -------------------------------------------------------------------------------------------------------------

|3.1 | Restated
Certificate of Incorporation. (2)
|--- | ------------------------------------------

|3.2 | By-laws,
as amended. (2)
|--- | ------------------------

|4.1 | Indenture,
dated May 29, 2002, among Arch Wireless Holdings, Inc. the guarantors listed therein and
                 The Bank of New York, as Trustee, relating to the 10% Senior
Subordinated Secured Notes due 2007                  of Arch Wireless Holdings, Inc. (3)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 | Indenture,
dated May 29, 2002, among Arch Wireless Holdings, Inc. the guarantors listed therein and
                 The Bank of New York, as Trustee, relating to the 12% Subordinated
Secured Compounding Notes due                  2009 of Arch Wireless Holdings, Inc. (4)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3* | Supplemental
Indenture, dated August 14, 2002, among Arch Wireless Holdings, Inc. the guarantors
listed therein and The Bank of New York, as Trustee, relating to the 10% Senior
Subordinated Secured Notes due 2007 of Arch Wireless Holdings, Inc.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4* | Supplemental
Indenture, dated August 14, 2002, among Arch Wireless Holdings, Inc. the guarantors
listed therein and The Bank of New York, as Trustee, relating to the 12% Subordinated
Secured Compounding Notes due 2009 of Arch Wireless Holdings, Inc.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5* | Supplemental
Indenture, dated March 6, 2003, among Arch Wireless Holdings, Inc. the guarantors listed
therein and The Bank of New York, as Trustee, relating to the 10% Senior Subordinated
Secured Notes due 2007 of Arch Wireless Holdings, Inc.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6* | Supplemental
Indenture, dated March 6, 2003, among Arch Wireless Holdings, Inc. the guarantors listed
therein and The Bank of New York, as Trustee, relating to the 12% Subordinated Secured
Compounding Notes due 2009 of Arch Wireless Holdings, Inc.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+10.1 | 2002
Stock Incentive Plan. (2)
|----- | ------------------------------

|10.2 | Registration
Rights Agreement, dated May 29, 2002, among Arch Wireless, Inc., Arch Wireless
                 Holdings, Inc. and the parties listed therein. (2)
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|+10.3 | First
Amendment and Restatement to Executive Employment Agreement, dated May 29, 2002, among
Arch                  Wireless, Inc., Arch Wireless Holdings, Inc., MobileMedia
Communications, Inc., Mobile Communications of America and C. Edward Baker, Jr. (2)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+10.4 | First
Amendment and Restatement to Executive Employment Agreement, dated May 29, 2002, among
Arch                  Wireless, Inc., Arch Wireless Holdings, Inc., MobileMedia
Communications, Inc., Mobile Communications of America and Lyndon R. Daniels. (2)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+10.5 | First
Amendment and Restatement to Executive Employment Agreement, dated May 29, 2002, among
Arch                  Wireless, Inc., Arch Wireless Holdings, Inc., MobileMedia
Communications, Inc., Mobile                  Communications of America and J. Roy
Pottle. (2)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|+10.6* | Arch
Wireless Holdings, Inc. Severance Benefits Plan
|------ | ----------------------------------------------------

|+10.7* | Arch
Wireless Holdings, Inc. Retention Plan
|------ | -------------------------------------------

|10.8* | Form
of Indemnification Plan by and between Arch Wireless, Inc., Arch Wireless Communications,
                 Inc., Arch Wireless Holdings, Inc., MobileMedia Communications, Inc. and
Arch Wireless Operating                  Company, Inc. and their officers and directors.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21.1* | Subsidiaries
of the Registrant.
|----- | -------------------------------

|99.1* | Certificate
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 dated March 28, 2003.
|----- | ---------------------------------------------------------------------------------------------------

|
|

|99.2* | Certificate
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 dated March 28, 2003.
|----- | ---------------------------------------------------------------------------------------------------

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|* | Filed herewith.
|- | ---------------

|+ | Identifies
exhibits constituting a management contract or compensation plan.
|- | ----------------------------------------------------------------------------

|(1) | Incorporated
by reference from the Current Report on Form 8-K of Arch Wireless, Inc. dated March 11,
2002 and filed on March 12, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated
by reference from the Current Report on Form 8-K of Arch Wireless,
                    Inc. dated May 15, 2002 and filed on May 30, 2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated
by reference from the Application for Qualification of Indentures
                    under the Trust Indenture Act of 1939 on Form T-3 of Arch Wireless
Holdings,                     Inc. (File No. 022-28581).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated
by reference from the Application for Qualification of Indentures
                    under the Trust Indenture Act of 1939 on Form T-3 of Arch Wireless
Holdings,                     Inc. (File No. 022-28580).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------