UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, 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, 1998   
                           -------------------

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

For the transition period from          to           

Commission file numbers 0-23232/1-14248


                         Arch Communications Group, Inc.
             (Exact name of Registrant as specified in its Charter)


             DELAWARE                                  31-1358569
      (State of incorporation)             (I.R.S. Employer Identification No.)

   1800 West Park Drive, Suite 250
     Westborough, Massachusetts                           01581
(address of principal executive offices)                (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:
    10 7/8% Senior Discount Notes due 2008       American Stock Exchange
              (Title of Class)            (Name of exchange on which registered)

             SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
                        SECURITIES EXCHANGE ACT OF 1934:
                      Common Stock Par Value $.01 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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant at March 10, 1999 was approximately $19,620,000.

The number of shares of Registrant's  Common Stock outstanding on March 10, 1999
was 21,215,583.

Portions of Registrant's  Definitive Proxy Statement for the 1999 Annual Meeting
of Stockholders  of the Registrant to be held on May 18, 1999, are  incorporated
by reference into Part III.



<PAGE>

                                     PART I

ITEM 1. BUSINESS

GENERAL

   Arch  Communications  Group,  Inc.  ("Arch  or the  "Company")  is a  leading
provider of wireless messaging services,  primarily paging services,  and is the
third largest  paging  company in the United States (based on units in service).
Arch had 4.3 million units in service at December 31, 1998.  Arch operates in 41
states and more than 180 of the 200 largest  markets in the United States.  Arch
offers local, regional and nationwide paging services employing digital networks
covering  approximately  85% of the United States  population.  Arch offers four
types of paging services  through its networks:  digital  display,  alphanumeric
display,   tone-only  and   tone-plus-voice.   Arch  also  offers  enhanced  and
complementary  services,  including voice mail,  personalized greeting,  message
storage and retrieval, pager loss protection and pager maintenance.

   Arch  has  achieved   significant  growth  in  units  in  service  through  a
combination of internal  growth and  acquisitions.  From January 1, 1996 through
December  31,  1998,  Arch's total number of units in service grew at a compound
rate on an  annualized  basis of 28.7%.  For the same  period  on an  annualized
basis, Arch's compound rate of internal units in service growth (excluding units
added  through  acquisitions)  was 23.8%.  From  commencement  of  operations in
September 1986, Arch has completed 33 acquisitions  representing an aggregate of
1.7 million units in service at the time of purchase.

   The following table sets forth certain information  regarding the approximate
number of units in service with Arch  subscribers and net increases in number of
units in service  through  internal growth and  acquisitions  during the periods
indicated:

<TABLE>
<CAPTION>


                                    Units in Service      Net Increase in      Increase in Units       Units in
                                     at Beginning of       Units through            through         Service at End
Year Ended August 31,                    Period          Internal Growth(1)     Acquisitions(2)       of Period
------------------------------           ------          ----------------       ------------          ---------
<S>                                    <C>                    <C>                 <C>                 <C>   
      1987...................              4,000                3,000                12,000              19,000
      1988...................             19,000                8,000                 3,000              30,000
      1989...................             30,000               14,000                34,000              78,000
      1990...................             78,000               20,000                 4,000             102,000
      1991...................            102,000               24,000                 1,000             127,000
      1992...................            127,000               33,000                    --             160,000
      1993...................            160,000               70,000                24,000             254,000
      1994...................            254,000              138,000                18,000             410,000
Four Months Ended December 31,
------------------------------
      1994...................            410,000               64,000                64,000             538,000
Year Ended December 31,
------------------------------
      1995...................            538,000              366,000             1,102,000           2,006,000
      1996...................          2,006,000              815,000               474,000           3,295,000
      1997...................          3,295,000              595,000                    --           3,890,000
      1998...................          3,890,000              386,000                    --           4,276,000
------------------------------
<FN>
(1)  Includes   internal  growth  in  acquired  paging  businesses  after  their acquisition by Arch.  Increases in 
     units through internal growth are net of subscriber cancellations during each applicable period.
(2)  Based on units in service of the acquired paging business at the time of their acquisition by Arch.
</FN>
</TABLE>


PENDING MOBILEMEDIA MERGER

   On August 18, 1998, the Company  entered into an Agreement and Plan of Merger
(as amended as of September 3, 1998,  December 1, 1998 and February 8, 1999, the
"MobileMedia  Merger  Agreement")  providing  for  a  merger  (the  "MobileMedia
Merger") of MobileMedia  Communications,  Inc.  ("MobileMedia")  with and into a
subsidiary of Arch.  The  MobileMedia  Merger is part of  MobileMedia's  Plan of
Reorganization   to  emerge  from  Chapter  11  bankruptcy   (as  amended,   the
"Reorganization  Plan").  Arch's stockholders approved the MobileMedia Merger on
January 26, 1999.  On February 5, 1999,  the Federal  Communications  Commission


                                       2
<PAGE>

(the "FCC")  released an order  approving  the  transfer  of  MobileMedia's  FCC
licenses to Arch in connection with the MobileMedia Merger,  subject to approval
and  confirmation  of the  Reorganization  Plan. The order granting the transfer
became a final order, no longer subject to  reconsideration  or judicial review,
on March 7, 1999. Consummation of the MobileMedia Merger and the associated debt
and  equity  financings  (described  below)   (collectively,   the  "MobileMedia
Transactions") is subject to the confirmation of the Reorganization  Plan by the
U.S. Bankruptcy Court for the District of Delaware,  the occurrence or waiver of
the conditions to the consummation of the  Reorganization  Plan,  performance by
third parties of their contractual  obligations,  the availability of sufficient
financing and other conditions. There can be no assurance the MobileMedia Merger
will be consummated.

   Pursuant to the  MobileMedia  Merger,  Arch will: (i) issue certain stock and
warrants;  (ii) pay $479.0 million in cash to certain  creditors of MobileMedia;
(iii) pay approximately $85.0 million of administrative expenses,  amounts to be
outstanding  at  the  Effective   Time  under  the  DIP  Credit   Agreement  and
transactional  and related  costs;  (iv) raise  $217.0  million in cash  through
rights offerings of its common stock (the "Rights Offering");  and (v) cause its
wholly owned subsidiary,  Arch Communications,  Inc. ("ACI") and ACI's principal
operating   subsidiary,   Arch  Paging  Inc.  ("API"),  to  borrow  a  total  of
approximately   $347.0   million.   After   consummation   of  the   MobileMedia
Transactions,  which is  expected  to occur  during the second  quarter of 1999,
MobileMedia will become a wholly owned subsidiary of API.

   Following the consummation of the MobileMedia Merger, Arch will be the second
largest paging operator in the United States as measured by units in service and
net revenues (total revenues less cost of products sold).

PAGING INDUSTRY OVERVIEW

   Paging is a method of wireless  communication  which uses an  assigned  radio
frequency to contact a paging  subscriber  anywhere within a designated  service
area. A subscriber  carries a pager which receives  messages by the transmission
of a one-way radio signal. To contact a subscriber, a message is usually sent by
placing a telephone call to the subscriber's  designated  telephone number.  The
telephone  call is received by an  electronic  paging  switch which  generates a
signal that is sent to radio  transmitters  in the service area.  Depending upon
the topography of the service area, the operating radius of a radio  transmitter
typically  ranges from three to 20 miles.  The  transmitters  broadcast a signal
that is received by the pager a subscriber carries,  which alerts the subscriber
by a tone or  vibration  that there is a voice,  tone,  digital or  alphanumeric
message.

   The paging industry has been in existence since 1969 when the FCC allocated a
group of radio  frequencies  for use in providing  one-way and two-way  types of
mobile  communications  services.  Industry sources estimate that, the number of
units in service in the United  States grew at an annual  rate of  approximately
25% between 1992 and 1997 although since 1997,  growth has slowed  considerably.
The paging industry has undergone  substantial  consolidation  over the past ten
years,   and  Arch  believes  that  the  top  five  paging  carriers   represent
approximately 50% of the units in service.  Nonetheless,  Arch believes that the
paging industry remains fragmented,  with more than 300 licensed carriers in the
United States, and will continue to undergo consolidation.

   Arch believes that paging is the most  cost-effective form of mobile wireless
communications.  Paging has an advantage  over  conventional  telephone  service
because a pager's  reception is not restricted to a single location,  and over a
cellular  telephone or broadband PCS handset  because a pager is smaller,  has a
longer battery life and, most importantly,  because pagers and air time required
to  transmit  an  average  message  cost  less than  equipment  and air time for
cellular telephones or broadband PCS handsets.  Paging subscribers generally pay
a flat  monthly  service  fee for pager  services,  regardless  of the number of
messages,  unlike cellular  telephone or broadband PCS subscribers,  whose bills
typically have a significant variable usage component.  For these reasons,  some
cellular subscribers use a pager in conjunction with their cellular telephone to
screen incoming calls and thus lower the expense of cellular  telephone service,
and  to a  lesser  extent,  some  broadband  PCS  subscribers  use  a  pager  in
conjunction with their broadband PCS handsets, which often incorporate messaging
functions, but have a much shorter battery life.

   The paging industry has benefited from technological  advances resulting from
research  and  development  conducted  by  vendors  of pagers  and  transmission
equipment.   Such  advances  include  microcircuitry,   liquid  crystal  display
technology  and  standard  digital  encoding  formats,  which have  enhanced the
capability and capacity of paging services while lowering equipment and air time
costs.  Technological  improvements  have enabled Arch to provide better quality
services at lower prices to its  subscribers  and have generally  contributed to
growth in the market for paging services.

   The paging industry has traditionally distributed its services through direct
marketing  and  sales  activities.  In  recent  years,  additional  channels  of
distribution  have  evolved,   including:   (i)  carrier-operated  stores;  (ii)

                                       3
<PAGE>

resellers,  who purchase  paging services on a wholesale basis from carriers and
resell those services on a retail basis to their own customers; (iii) agents who
solicit  customers for carriers and are compensated on a commission  basis; (iv)
retail outlets that often sell a variety of  merchandise,  including  pagers and
other  telecommunications  equipment; and (v) most recently, the Internet. While
most  paging  subscribers  traditionally  have  been  business  users,  industry
observers   believe  that  pager  use  among  retail   consumers  has  increased
significantly in recent years. In addition, paging subscribers have increasingly
chosen to purchase rather than lease their pagers.  These trends are expected to
continue.

BUSINESS STRATEGY

   Arch's  strategic  objective  is to  strengthen  its  position  as one of the
leading  nationwide  paging  companies in the United States.  Arch believes that
larger,  multi-market paging companies enjoy a number of competitive advantages,
including:  (i) operating efficiencies resulting from more intensive utilization
of  existing  paging  systems;   (ii)  economies  of  scale  in  purchasing  and
administration;  (iii)  broader  geographic  coverage  of paging  systems;  (iv)
greater access to capital markets and lower costs of capital; (v) the ability to
obtain  additional  radio  spectrum;  (vi) the  ability  to  offer  high-quality
services at competitive prices; and (vii) enhanced ability to attract and retain
management  personnel.  Arch  believes  that the  current  size and scope of its
operations  afford  it many of these  advantages,  and that it has the scope and
presence to effectively compete on a national level. In addition,  Arch believes
that the paging industry will undergo further consolidation, and Arch expects to
participate in such consolidation.

   Arch's  operating  objectives are to increase its Adjusted EBITDA (as defined
in Item 6 -- "Selected  Consolidated  Financial and Operating Data"), deploy its
capital  efficiently,  reduce its  financial  leverage  and expand its  customer
relationships.  Arch pursues the  following  strategies to achieve its operating
objectives:

      Low-Cost  Operating  Structure.  Arch has  selected a  low-cost  operating
   strategy as its principal  competitive  tactic. Arch believes that a low-cost
   operating  structure,  compared  to the  other  two  fundamental  competitive
   tactics in the paging  industry  (differentiated  premium  pricing  and niche
   positioning),  maximizes its  flexibility to offer  competitive  prices while
   still achieving target margins and Adjusted EBITDA. Arch maintains a low-cost
   operating structure through a combination of (i) the consolidation of certain
   operating  functions,  including  centralized  purchases from key vendors, to
   achieve  economies of scale,  and (ii) the  installation  of  technologically
   advanced  and reliable  transmission  systems.  In June 1998,  the Arch Board
   approved a divisional  reorganization (the "Divisional  Reorganization"),  as
   part of which Arch has consolidated  its seven operating  divisions into four
   operating  divisions and is in the process of consolidating  certain regional
   administrative   support   functions,    resulting   in   various   operating
   efficiencies.  The  Divisional  Reorganization,  once fully  implemented,  is
   expected  to result in annual cost  savings of  approximately  $15.0  million
   (approximately  $11.5  million  for salary  and  employee  benefits  and $3.5
   million for lease obligations).

      Efficient Capital  Deployment.  Arch's principal financial objective is to
   reduce  financial  leverage by reducing  capital  requirements and increasing
   Adjusted  EBITDA.  To reduce  capital  expenditures,  Arch has  implemented a
   company-wide  focus  on  the  sale,  rather  than  lease,  of  pagers,  since
   subscriber-owned  units  require a lower  level of  capital  investment  than
   Arch-owned   units.   As  a  result   of  these   efforts,   the   number  of
   subscriber-owned  units,  as a  percentage  of  net  new  units  in  service,
   increased from 65.2% in the year ended December 31, 1997 to 69.7% in the year
   ended  December 31,  1998.  In  addition,  Arch has  modified  its  incentive
   compensation  programs for line managers so that bonuses are based,  in part,
   on capital efficiency.

      Fast  Follower  on  N-PCS  Opportunities.  Consistent  with  its  low-cost
   provider  competitive  tactic,  Arch has focused  its  capital and  marketing
   resources on one-way  paging and other  enhanced  services  rather than N-PCS
   services.  However,  Arch  recognizes  the potential  benefits to current and
   prospective  customers and the associated market  opportunities  from certain
   N-PCS applications,  such as two-way text and voice messaging services.  Arch
   has taken steps to position  itself to  participate in new and emerging N-PCS
   services and applications,  including  marketing N-PCS services as a reseller
   and its 49.9% equity interest in Benbow PCS Ventures, Inc. ("Benbow").

      Capitalize on Revenue Enhancement Opportunities. Arch believes there are a
   number of new revenue opportunities  associated with its 4.3 million units in
   service,   including  increasing  the  proportion  of  subscribers  utilizing
   alphanumeric  display  services,  which generate higher revenue,  and selling
   value-added, non-facilities-based enhanced services such as voicemail, resale
   of long-distance service and fax storage and retrieval.

                                       4
<PAGE>

PAGING OPERATIONS

   Arch currently provides four basic types of paging services: digital display,
alphanumeric display, tone-only and tone-plus-voice.  Depending upon the type of
pager used, a subscriber may receive  information  displayed or broadcast by the
pager or may  receive a signal  from the pager  indicating  that the  subscriber
should call a prearranged number or a company operator to retrieve a message.

   A digital  display  pager  permits a caller to transmit to the  subscriber  a
numeric  message that may consist of a telephone  number,  an account  number or
coded information, and has the capability to store several such numeric messages
in memory for later recall by the  subscriber.  An  alphanumeric  display  pager
allows subscribers to receive and store messages  consisting of both numbers and
letters. A tone-only pager notifies the subscriber that a call has been received
by emitting an audible beeping sound or vibration. A tone-plus-voice pager emits
a beeping  sound  followed  by a brief  voice  message.  Arch  provides  digital
display,  alphanumeric  display and tone-only  service in all of its markets and
tone-plus-voice service in only a few markets.

   Digital display paging  service,  which was introduced by the paging industry
nearly 20 years ago, has in recent  years grown at a faster rate than  tone-only
or tone-plus-voice  service and currently  represents a majority of all units in
service. The growth of alphanumeric display service, which was introduced in the
mid-1980s,  has been  constrained by its difficult  data-input  and  specialized
equipment  requirements  and its relatively  high use of system  capacity during
transmission.  The  following  table  summarizes  the types of  Arch's  units in
service at the dates indicated:

                                               December 31,
                           ---------------------------------------------------
                                1996              1997              1998
                           ---------------   ---------------   ---------------
                             Units     %       Units     %       Units     %
Digital display..........  2,796,000   85%   3,284,000   85%   3,586,000   84%
Alphanumeric display.....    395,000   12      524,000   13      621,000   14
Tone-only................     54,000    2       43,000    1       35,000    1
Tone-plus-voice..........     50,000    1       39,000    1       34,000    1
                           =========  ====   =========  ====   =========  ====
     Total...............  3,295,000  100%   3,890,000  100%   4,276,000  100%
                           =========  ====   =========  ====   =========  ====


   Arch provides  paging service to subscribers  for a monthly fee.  Subscribers
either lease the pager from Arch for an additional fixed monthly fee or they own
the pager,  having  purchased  it either from Arch or from another  vendor.  The
monthly  service fee is generally based upon the type of service  provided,  the
geographic  area covered,  the number of pagers provided to the customer and the
period of the subscriber's  commitment.  Subscriber-owned  pagers provide a more
rapid recovery of Arch's capital  investment than pagers owned and maintained by
Arch,  but may  generate  less  recurring  revenue.  Arch also  sells  pagers to
third-party  resellers who lease or resell pagers to their own  subscribers  and
resell Arch's paging  services under marketing  agreements.  The following table
summarizes   the  number  of  Arch-owned   and  leased,   subscriber-owned   and
reseller-owned units in service at the dates indicated:

                                               December 31,
                           ---------------------------------------------------
                                1996              1997              1998
                           ---------------   ---------------   ---------------
                             Units     %       Units     %       Units     %
Arch-owned and leased....  1,533,000   47%   1,740,000   45%   1,857,000   43%
Subscriber-owned.........    914,000   28    1,087,000   28    1,135,000   27
Reseller-owned...........    848,000   25    1,063,000   27    1,284,000   30
                           =========  ====   =========  ====   =========  ====
     Total...............  3,295,000  100%   3,890,000  100%   4,276,000  100%
                           =========  ====   =========  ====   =========  ====

   Arch  provides  enhancements  and  ancillary  services  such as  voice  mail,
personalized greetings, message storage and retrieval, pager loss protection and
pager  maintenance  services.  Voice  mail  allows a caller to leave a  recorded
message that is stored in Arch's  computerized  message retrieval center. When a
message  is left,  the  subscriber  can be  automatically  alerted  through  the
subscriber's  pager and can retrieve the stored message by calling Arch's paging
terminal.  Personalized  greetings  allow the  subscriber to record a message to
greet  callers  who  reach the  subscriber's  pager or voice  mail box.  Message
storage and  retrieval  allows a subscriber  who leaves  Arch's  service area to
retrieve  calls that arrived  during the  subscriber's  absence from the service
area. Pager loss protection  allows  subscribers who lease pagers to limit their
costs of  replacement  upon loss or destruction  of a pager.  Pager  maintenance
services are offered to subscribers who own their own equipment. Arch is also in

                                       5
<PAGE>

the process of test marketing various non-facilities-based  value-added services
that can be integrated with existing paging services. These include, among other
services,  voicemail,  resale  of long  distance  service  and fax  storage  and
retrieval.

INVESTMENTS IN NARROWBAND PCS LICENSES

   Arch has taken the following  steps to position  itself to participate in new
and emerging N-PCS services and applications.

   Benbow PCS Ventures,  Inc. In connection with Arch's May 1996  acquisition of
Westlink Holdings,  Inc. ("Westlink"),  Arch acquired a 49.9% equity interest in
Benbow,  which  holds  directly  or  indirectly  exclusive  rights  to a 50  kHz
outbound/12.5  kHz  inbound  N-PCS  license  in each of the five  regions of the
United States. Benbow is a "designated entity" (a small,  minority-controlled or
female-controlled  business)  under FCC rules and is entitled to  discounts  and
installment payment schedules in the payment of its N-PCS licenses. Arch has the
right to  designate  one of Benbow's  three  directors  and has veto rights with
respect to specified major business decisions by Benbow.  Arch is obligated,  to
the extent such funds are not available to Benbow from other sources and subject
to the approval of Arch's designee on Benbow's Board of Directors, to advance to
Benbow  sufficient  funds to  service  debt  obligations  incurred  by Benbow in
connection   with  the   acquisition  of  its  N-PCS  licenses  and  to  finance
construction of an N-PCS system. The total purchase price for Benbow's licenses,
net of the discounts,  is $42.5  million.  Arch estimates that the total cost to
Benbow of servicing its  license-related  debt obligations and constructing such
N-PCS  system will be  approximately  $100.0  million  over the next five years.
Arch's  advances to Benbow are secured by Benbow's  assets,  bear interest at an
interest  rate equal to that paid by Arch on its senior debt,  are due on demand
and must be repaid prior to any distribution of profits by Benbow.  With certain
exceptions,  Arch has agreed not to exercise  its right to demand  repayment  of
such advances  prior to the  occurrence  of a default.  As of December 31, 1998,
Arch had  advanced  approximately  $22.9  million to Benbow.  Arch is  currently
evaluating  the  prospects  for  Benbow's  N-PCS  system  and  services  and the
likelihood of Benbow  generating  sufficient  revenue to repay the advances from
Arch (or  other  sources)  that  would  be  required  in order to fund  Benbow's
remaining  N-PCS license  obligations  and the  construction  of Benbow's  N-PCS
system.  Arch is  unable  to  predict  whether  Benbow  will  obtain  sufficient
financing  to  fund  Benbow's  remaining  N-PCS  license   obligations  and  the
construction  of Benbow's  N-PCS system or whether  Benbow will be able to repay
Arch's existing advances or any future advances from Arch or other sources.

   Pursuant to a five-year  agreement  with Benbow  expiring on October 1, 2000,
Arch provides, subject to Benbow's ultimate control,  management services and is
paid a management fee and is reimbursed for its expenses.  Arch also has a right
of first refusal to provide  Benbow with design,  engineering  and  construction
services  for its N-PCS system as well as to lease  certain  equipment to Benbow
for use in connection  with such system.  Arch has a right of first refusal with
respect  to any  transfer  of  shares  held by Ms.  June  Walsh,  who  holds the
remaining  50.1%  equity  interest  in  Benbow,  and Ms.  Walsh has the right to
require   Arch,   commencing   January  23,  2000  (or  sooner   under   certain
circumstances),  to repurchase (subject to prior FCC approval) her Benbow shares
for an amount  equal to the greater of (i) an amount  between  $3.5  million and
$5.0 million,  depending on the timing and  circumstances  under which Ms. Walsh
exercises  her put  option,  and (ii) the fair  market  value of her  shares (as
determined by arbitration  absent  agreement of the parties).  If Arch exercises
its right of first refusal or Ms. Walsh  exercises her put option,  Benbow could
lose some of the benefits of the discounts and installment payment schedules for
its FCC payments  unless  another  "designated  entity" under FCC rules acquired
control  of  Benbow.  See  Note 1 of  Notes  to  Arch's  Consolidated  Financial
Statements included elsewhere herein.

   On June 29, 1998,  Benbow acquired the  outstanding  stock of Page Call, Inc.
("Page Call") by issuing to Page Call's former stockholders  preferred stock and
a  promissory  note in the  aggregate  face amount of $17.2  million  with a 12%
annual  return.  At the time of the  closing,  Benbow  entered  into a five-year
consulting  agreement with one of Page Call's stockholders  requiring consulting
payments in the  aggregate  amount of  $911,000.  Benbow's  preferred  stock and
promissory  note are  exchangeable  for Arch Common Stock (i) at any time at the
option of the holders  thereof,  at an exchange price equal to the higher of (A)
$13.00  per  share  or (B)  the  market  price  of  Arch's  Common  Stock,  (ii)
mandatorily on April 8, 2000, at the then prevailing market price of Arch Common
Stock, or (iii)  automatically  at an exchange price of $13.00 per share, if the
market price of Arch Common Stock  equals or exceeds  $13.00 for 20  consecutive
trading days.  Arch is permitted to require Benbow to redeem its preferred stock
and promissory note at any time for cash. Arch entered into guarantees  (payable
in Arch's Common Stock or cash, at Arch's election) of all obligations of Benbow
under the Benbow  preferred  stock,  promissory  note and  consulting  agreement
described above.  Benbow's redemption of its preferred stock and promissory note
for cash,  or Arch's  payment of cash  pursuant  to its  guarantees  of Benbow's
preferred  stock and promissory  note,  would be subject to the  availability of

                                       6
<PAGE>

capital and any restrictions  contained in applicable debt instruments and under
the Delaware General  Corporation Law ("DGCL") (which currently would not permit
any such cash redemptions or payments). If Arch issues Arch Common Stock or pays
cash pursuant to its guarantees, Arch will receive from Benbow a promissory note
and non-voting,  non-convertible  preferred stock of Benbow with an annual yield
of 14.5%  payable  upon an  acquisition  of Benbow or earlier to the extent that
available  cash and  applicable law permit.  Page Call's  stockholders  received
customary  registration rights with respect to any shares of Arch's Common Stock
issued in exchange for Benbow's  preferred stock and promissory note or pursuant
to Arch's guarantees thereof.

   CONXUS Communications, Inc. Arch currently holds an equity interest in CONXUS
Communications,  Inc. ("CONXUS"), formerly known as PCS Development Corporation,
which  holds  exclusive  rights  to a 50 kHz  outbound/50  kHz  inbound  two-way
messaging  license  throughout  the United  States.  CONXUS,  like Benbow,  is a
"designated entity" under FCC rules and is entitled to discounts and installment
payment schedules.

   Each  stockholder  of CONXUS is entitled to purchase  services from CONXUS at
"most favored  customer"  rates,  based on like  services.  CONXUS and Arch have
agreed  to   negotiate  in  good  faith  to  enter  into   mutually   acceptable
intercarrier,  network access and similar agreements. If Arch wishes to purchase
N-PCS  services  of the kind  offered  by CONXUS,  Arch has  agreed to  contract
exclusively  with  CONXUS  for  such  services  so  long as  such  services  are
competitive  in price and quality with  comparable  services  offered by others.
Arch is currently  authorized to act as a reseller of voice  messaging  services
through  CONXUS  pursuant  to an  agreement  renewable  from year to year unless
terminated by either party at least 90 days prior to December 31 of any year.

SUBSCRIBERS AND MARKETING

   Arch's paging  accounts are generally  businesses  with  employees who travel
frequently  but must be  immediately  accessible  to their offices or customers.
Arch's  subscribers  include  proprietors  of small  businesses,  professionals,
management  and medical  personnel,  field sales  personnel and service  forces,
members of the  construction  industry and trades,  and real estate  brokers and
developers.  Arch believes that pager use among retail  consumers  will increase
significantly in the future,  although  consumers do not currently account for a
substantial portion of Arch's subscriber base.

   Although  today  Arch  operates  in more  than  180 of the 200  largest  U.S.
markets,  Arch  historically  has focused on medium-sized and small market areas
with lower rates of pager penetration and attractive demographics. Arch believes
that such markets will continue to offer  significant  opportunities for growth,
and that its  national  scope and  presence  will also  provide Arch with growth
opportunities in larger markets.

   Arch  markets  its  paging  services  through  a direct  marketing  and sales
organization which, as of December 31, 1998,  operated  approximately 175 retail
stores.  Arch also markets its paging services  indirectly  through  independent
resellers, agents and retailers. Arch typically offers resellers paging services
in large  quantities at wholesale  rates that are lower than retail  rates,  and
resellers  offer  the  services  to  end-users  at a  markup.  Arch's  costs  of
administering and billing resellers are lower than the costs of direct end-users
on a per pager basis.

   Arch also acts as a reseller of other paging carriers' services when existing
or potential  Arch  customers  have travel  patterns that require paging service
beyond the coverage of Arch's own networks.

   In May 1997, Arch established a single national  identity,  Arch Paging,  for
its paging services which previously had been marketed under various trademarks.
As part of this  branding  initiative,  Arch  adopted a new  corporate  logo,  a
corporate-wide  positioning  strategy  tied to customer  service  delivery,  and
launched its Internet Web site at  www.arch.com.  Arch believes that its unified
branding  identity will give the Arch name national  exposure for the first time
and result in significant  economic leverage in its marketing and communications
efforts.

COMPETITION

   The paging industry is highly  competitive with price being the primary means
of differentiation among providers of numeric display paging services. Companies
in  the  industry  also  compete  on the  basis  of  coverage  area  offered  to
subscribers,  available  services  offered in addition to basic  numeric or tone
paging, transmission quality, system reliability and customer service.

   Arch competes by maintaining  competitive pricing of its products and service
offerings,  by providing  high-quality,  reliable  transmission  networks and by
furnishing  subscribers a superior level of customer  service.  Several  hundred
licensed  paging  companies  provide  only local  basic  numeric or tone  paging
service. Compared to these companies, Arch offers wireless messaging services on
a local,  regional  and  nationwide  basis.  In addition,  Arch offers  enhanced

                                       7
<PAGE>

services such as alphanumeric  paging,  voice mail and voice mail notifications,
news, sports, weather reports and stock quotes.

   Arch  competes  with one or more  competitors  in all  markets  in which they
operate.  Although  some  of  Arch's  competitors  are  small,  privately  owned
companies    serving   one   market   area,   others   are   large   diversified
telecommunications   companies   serving  numerous   markets.   Some  of  Arch's
competitors possess financial,  technical and other resources greater than those
of Arch.  Major paging carriers that currently  compete in one or more of Arch's
markets include PageNet, Metrocall, and AirTouch Communications, Inc.

   As paging services become increasingly  interactive,  and as two-way services
become  increasingly  competitive,  the scope of competition for  communications
service  customers  in Arch's  markets may  broaden.  For  example,  the FCC has
created potential sources of competition by auctioning new spectrum for wireless
communications services and local multipoint distribution service and holding an
auction in the 220-222 MHz  service.  Further,  the FCC has  announced  plans to
auction  licenses in the general  wireless  communications  services,  a service
created from spectrum reallocated from federal government use in 1995. Moreover,
entities  offering  service  on  wireless  two-way  communications   technology,
including cellular, broadband PCS and specialized mobile radio services, as well
as mobile  satellite  service  providers,  also compete with the paging services
that Arch provides.

SOURCES OF EQUIPMENT

   Arch does not  manufacture  any of the pagers or other  equipment used in its
paging  operations.  The equipment used in Arch's paging operations is generally
available  for  purchase  from  multiple  sources.  Arch  centralizes  price and
quantity negotiations for all of its operating  subsidiaries in order to achieve
cost savings from volume  purchases.  Arch buys pagers  primarily from Motorola,
Inc.  ("Motorola")  and NEC America Inc.  ("NEC") and  purchases  terminals  and
transmitters   primarily  from  Glenayre  Electronics,   Inc.  ("Glenayre")  and
Motorola.  Arch  anticipates  that  equipment  and pagers  will  continue  to be
available in the foreseeable  future,  consistent with normal  manufacturing and
delivery lead times.

   Because  of the high  degree  of  compatibility  among  different  models  of
transmitters,  computers and other paging  equipment  manufactured by suppliers,
Arch is able to design  its  systems  without  being  dependent  upon any single
source of such equipment.  Arch routinely  evaluates new  developments in paging
technology in connection  with the design and  enhancement of its paging systems
and selection of products to be offered to  subscribers.  Arch believes that its
paging system equipment is among the most  technologically  sophisticated in the
paging industry.

REGULATION

   Paging   operations  and  the  construction,   modification,   ownership  and
acquisition  of paging  systems are subject to extensive  regulation  by the FCC
under the Communications Act of 1934, as amended (the "Communications Act") and,
to a much more limited extent,  by public utility or public service  commissions
in certain states.  The following  description does not purport to be a complete
discussion of all present and proposed  legislation and regulations  relating to
Arch's paging operations.

   FEDERAL REGULATION

      Regulatory Classification.

   Paging  companies   historically  have  been  subject  to  different  federal
regulatory  requirements depending upon whether they were providing service as a
Radio Common Carrier ("RCC"),  a Private Carrier Paging Operator ("PCP") or as a
reseller.  Arch's paging  operations  encompass RCC, PCP and resale  operations.
However,  federal  legislation  enacted in 1993  required  the FCC to reduce the
disparities in the regulatory  treatment of similar mobile services (such as RCC
and PCP  services),  and the FCC has taken,  and  continues to take,  actions to
implement this legislation.  Under the new regulatory  structure,  all of Arch's
paging services are classified as CMRS. As a CMRS provider, Arch is regulated as
a common carrier,  except that the FCC has exempted paging services,  which have
been  found  to  be  highly  competitive,   from  some  typical  common  carrier
regulations, such as tariff filing and resale requirements.

   The  classification  of Arch's paging operations as CMRS affects the level of
permissible foreign ownership,  as discussed below, and the nature and extent of
the state regulation to which both may be subject.  In addition,  the FCC now is
required to resolve competing requests for CMRS spectrum by conducting auctions,
which  may have the  effect of  increasing  the  costs of  acquiring  additional
spectrum  in markets in which Arch  operates.  Also,  Arch is  obligated  to pay
certain regulatory fees in connection with its paging operations.

                                       8
<PAGE>

      FCC Regulatory Approvals and Authorizations

   The  Communications Act requires radio licensees such as Arch to obtain prior
approval  from  the  FCC  for the  assignment  or  transfer  of  control  of any
construction   permit  or  station  license  or   authorization  or  any  rights
thereunder.  This statutory requirement attaches to acquisitions of other paging
companies  (or  other  radio  licensees)  by  Arch as  well  as  transfers  of a
controlling  interest  in any of Arch's  licenses,  construction  permits or any
rights thereunder. To date, the FCC has approved each assignment and transfer of
control for which Arch has sought  approval.  Although there can be no assurance
that any future requests for approval of transfers of control and/or assignments
of  license  will be acted upon in a timely  manner by the FCC,  or that the FCC
will grant the  approval  requested,  Arch does not know of any reason  that any
such applications will not be approved or granted.

   Effective April 2, 1998, the FCC's Wireless  Telecommunications Bureau, which
directly  regulates  Arch's  paging  activities,  stopped  enforcing  its filing
requirements  with respect to pro forma  assignments and transfers of control of
certain wireless authorizations,  such as Arch's RCC and PCP licenses.  Pursuant
to this decision,  wireless  telecommunications carriers now only have to file a
written  notification  of a pro  forma  transaction  within  30 days  after  the
transaction  is completed.  This decision  expedites the process and reduces the
costs related to corporate  reorganizations;  however, Arch is still required to
obtain prior FCC approval for the pro forma assignment or transfer of control of
some of their licenses not covered by the forbearance decision,  such as certain
business radio and private operational fixed microwave authorizations.

   The FCC paging  licenses  granted to Arch are for  varying  terms of up to 10
years, at the end of which renewal  applications must be approved by the FCC. In
the past, paging license renewal applications generally have been granted by the
FCC upon a showing of compliance with FCC regulations and of adequate service to
the public.  Arch is unaware of any circumstances  which would prevent the grant
of any pending or future  renewal  applications;  however,  no assurance  can be
given that any of Arch's renewal  applications will be free of challenge or will
be granted by the FCC. It is possible  that there may be  competition  for radio
spectrum associated with licenses as they expire, thereby increasing the chances
of  third-party  interventions  in the  renewal  proceedings.  Other  than those
renewal  applications  still pending,  the FCC has thus far granted each license
renewal application that Arch has filed.

   The FCC's review and revision of rules affecting  paging companies is ongoing
and  the   regulatory   requirements   to  which  Arch  is  subject  may  change
significantly over time. For example, the FCC has decided to adopt a market area
licensing  scheme for all paging channels under which carriers would be licensed
to operate on a  particular  channel  throughout  a broad  geographic  area (for
example,  a Major  Trading  Area as defined by Rand  McNally)  rather than being
licensed on a site-by-site basis. These geographic area licenses will be awarded
pursuant to auction.  Incumbent paging licensees that do not acquire licenses at
auction  will be  entitled  to  interference  protection  from the  market  area
licensee.  Arch is participating actively in this proceeding in order to protect
its existing  operations  and retain  flexibility,  on an interim and  long-term
basis, to modify systems as necessary to meet subscriber demands.

   Currently, however, the Communications Act requires that Arch obtain licenses
from the FCC to use radio  frequencies  to conduct  their paging  operations  at
specified  locations.  FCC  licenses  issued  to Arch set  forth  the  technical
parameters,  such as power  strength  and  tower  height,  under  which  Arch is
authorized to use those frequencies.  In many instances, Arch requires the prior
approval of the FCC before it can implement any significant changes to its radio
systems.  Once the FCC's market area licensing rules are  implemented,  however,
these site-specific licensing obligations will be eliminated, with the exception
of  applications  still required by Section 22.369 of the FCC rules (request for
authority to operate in a designated  Quiet Zone),  Section  90.77  (request for
authority to operate in a protected radio receiving location) and Section 1.1301
et seq.  (construction/modification  that may have a  significant  environmental
impact) or for coordination with Canada or Mexico.

   The FCC has issued a Further  Notice of Proposed  Rulemaking in which the FCC
sought  comments  on, among other  matters,  whether it should  impose  coverage
requirements on licensees with nationwide  exclusivity  (such as Arch),  whether
these coverage requirements should be imposed on a nationwide or regional basis,
and whether--if such requirements are  imposed--failure to meet the requirements
should  result in a  revocation  of the  entire  nationwide  license or merely a
portion  of  the  license.   If  the  FCC  were  to  impose  stringent  coverage
requirements  on  licensees  with  nationwide  exclusivity,  Arch  might have to
accelerate the build-out of its systems in certain areas.

      Telecommunications Act of 1996

   The  Telecommunications  Act  directly  affects  Arch.  Some  aspects  of the
Telecommunications Act may place financial obligations upon Arch or subject Arch
to increased  competition.  For example,  the FCC has adopted  rules that govern
compensation  to be paid to pay phone  providers which has resulted in increased

                                       9
<PAGE>

costs for certain paging services including  toll-free 1-800 number paging. Arch
has  generally  passed  these costs on to its  subscribers,  which makes  Arch's
services more  expensive  and which could affect the  attraction or retention of
customers; however, there can be no assurance that Arch will be able to continue
to pass on  these  costs.  In  addition,  the FCC  also has  adopted  new  rules
regarding  payments by  telecommunications  companies  into a revamped fund that
will provide for the  widespread  availability  of  telecommunications  services
including   Universal   Service.    Prior   to   the   implementation   of   the
Telecommunications  Act, Universal Service obligations largely were met by local
telephone companies,  supplemented by long-distance  telephone companies.  Under
the new rules, all telecommunications  carriers, including paging companies, are
required to contribute to the Universal Service Fund. In addition, certain state
regulatory  authorities  have  enacted,  or have  indicated  that they intend to
enact, similar contribution  requirements based on intrastate revenues. Arch can
not yet know the full impact of these state contribution requirements. Moreover,
Arch is unable at this time to estimate the amount of any such  payments that it
will be able to bill to its  subscribers;  however,  payments into the Universal
Service Fund will likely increase the cost of doing business.

   Some aspects of the  Telecommunications Act could have a beneficial effect on
Arch's business.  For example,  proposed federal  guidelines  regarding  antenna
siting  issues  may  remove  local and state  barriers  to the  construction  of
communications  facilities,  although  states  and  municipalities  continue  to
exercise significant control with regard to such siting issues.

   Moreover, in a rulemaking  proceeding  pertaining to interconnection  between
local exchange  carriers  ("LECs") and commercial mobile radio services ("CMRS")
providers  such as  Arch,  the FCC has  concluded  that  LECs  are  required  to
compensate CMRS providers for the reasonable costs incurred by such providers in
terminating  traffic  that  originates  on  LEC  facilities,   and  vice  versa.
Consistent  with this ruling,  the FCC has determined that LECs may not charge a
CMRS provider or other  carrier for  terminating  LEC-originated  traffic or for
dedicated  facilities used to deliver  LEC-originated  traffic to one-way paging
networks. Nor may LECs charge CMRS providers for number activation and use fees.
These interconnection issues are still in dispute, and it is unclear whether the
FCC will maintain its current position.

      Future Regulation

   Depending on further FCC disposition of these issues,  Arch may or may not be
successful in securing  refunds,  future relief or both, with respect to charges
for termination of LEC-originated  local traffic.  If the FCC ultimately reaches
an  unfavorable  resolution,  then Arch  believes  that it would  pursue  relief
through settlement negotiations, administrative complaint procedures or both. If
these issues are ultimately  decided in favor of the LECs,  Arch likely would be
required to pay all past due contested charges and may also be assessed interest
and late charges for amounts withheld.

   From time to time,  legislation which could  potentially  affect Arch, either
beneficially or adversely,  is proposed by federal or state  legislators.  There
can be no assurance that legislation will not be enacted by the federal or state
governments, or that regulations will not be adopted or actions taken by the FCC
or state regulatory  authorities,  which might  materially  adversely affect the
business of Arch.  Changes such as the  allocation by the FCC of radio  spectrum
for services that compete with Arch's  business  could  adversely  affect Arch's
results  of  operations.  For  example,  pursuant  to  the  1994  Communications
Assistance for Law Enforcement Act ("CALEA"),  all telecommunications  carriers,
including  Arch, are subject to certain law  enforcement  assistance  capability
requirements.  These capability  requirements will likely necessitate  equipment
modifications.  Although  CALEA  requires  the federal  government  to reimburse
carriers for certain equipment modifications, it is unclear whether Arch will be
entitled to such a reimbursement and if so, how much Arch will receive.

     Foreign Ownership

   The Communications Act limits foreign investment in and ownership of entities
that are  licensed as radio  common  carriers by the FCC.  Arch owns or controls
several  radio  common  carriers  and is  accordingly  subject to these  foreign
investment restrictions.  Because Arch is a parent of radio common carriers (but
is not a radio common  carrier  itself),  Arch may not have more than 25% of its
stock owned or voted by aliens or their representatives, a foreign government or
its  representatives  or a foreign  corporation if the FCC finds that the public
interest would be served by denying such ownership. In connection with the World
Trade   Organization   Agreement   (the  "WTO   Agreement")--agreed   to  by  69
countries--the  FCC adopted rules effective  February 9, 1998 that create a very
strong presumption in favor of permitting a foreign interest in excess of 25% if
the foreign  investor's  home market  country  signed the WTO  Agreement  or can
otherwise  demonstrate  that it provides  effective  competitive  opportunities.

                                       10
<PAGE>

Arch's  subsidiaries that are radio common carrier licensees are subject to more
stringent requirements and may have only up to 20% of their stock owned or voted
by aliens or their representatives,  a foreign government or its representatives
or a foreign corporation.  This ownership  restriction is not subject to waiver.
Arch's Restated Certificate of Incorporation, as amended, permits the redemption
of shares of Arch's capital stock from foreign  stockholders  where necessary to
protect FCC licenses held by Arch or its subsidiaries, but such redemption would
be subject to the availability of capital to Arch and any restrictions contained
in applicable  debt  instruments  and under the DGCL (which  currently would not
permit any such  redemptions).  The failure to redeem such shares promptly could
jeopardize the FCC licenses held by Arch or its subsidiaries.

   State Regulation

   In  addition  to  regulation  by  the  FCC,  certain  states  impose  various
regulations on the common carrier paging operations of Arch. Regulations in some
states  historically  required Arch to obtain certificates of public convenience
and necessity before  constructing,  modifying or expanding paging facilities or
offering or abandoning paging services.  Rates, terms and conditions under which
Arch provided services, or any changes to those rates, have also been subject to
state  regulation.  However,  as a  general  rule,  states  are  preempted  from
exercising  rate and entry  regulation of CMRS, but may choose to regulate other
terms and conditions of service (for example, requiring the identification of an
agent to  receive  complaints).  States  also are  accorded  an  opportunity  to
petition  the FCC for  authority  to continue to regulate  CMRS rates if certain
conditions are met. State filings seeking rate authority have all been denied by
the FCC,  although  new  petitions  seeking such  authority  may be filed in the
future.   The  preemption  of  state  entry  regulation  was  confirmed  in  the
Telecommunications Act. In certain instances,  the construction and operation of
radio  transmitters also will be subject to zoning,  land use, public health and
safety,  consumer  protection  and  other  state  and local  taxes,  levies  and
ordinances.  Further,  some states and localities continue to exert jurisdiction
over (i) approval of acquisitions  and transfers of wireless  systems;  and (ii)
resolution  of consumer  complaints.  Arch  believes  that to date all  required
filings for Arch's paging operations have been made.

TRADEMARKS

   Arch owns the service marks "Arch" and "Arch Paging" as well as various other
trademarks.

EMPLOYEES

   At December 31, 1998,  Arch employed  approximately  2,600  persons.  None of
Arch's  employees  is  represented  by a labor  union.  Arch  believes  that its
employee relations are good.

ITEM 2. PROPERTIES

   At December  31, 1998,  Arch owned four office  buildings  and leased  office
space (including its executive  offices) in over 175 localities in 35 states for
use in conjunction with its paging  operations.  Arch leases  transmitter  sites
and/or owns  transmitters on commercial  broadcast  towers,  buildings and other
fixed  structures in approximately  3,400 locations in 45 states.  Arch's leases
are for various terms and provide for monthly lease  payments at various  rates.
Arch  believes  that it will be able to  obtain  additional  space as  needed at
acceptable  cost.  In April 1998,  Arch  announced  an agreement to sell certain
tower  site  assets  (the  "Tower  Site  Sale")  pursuant  to  which  Arch  sold
communications  towers, real estate, site management  contracts and/or leasehold
interests  involving  133  sites  (including  one site  acquired  from  entities
affiliated  with  Benbow)  in 22 states,  and is renting  space on the towers on
which it currently operates  communications  equipment to service its own paging
network.   As  of  February  28,  1999,  the  Company   completed  the  sale  of
substantially  all of the sites. As part of the Divisional  Reorganization,  the
Company has closed certain  office and retail  locations and it will continue to
evaluate its remaining real estate assets during 1999.

ITEM 3. LEGAL PROCEEDINGS

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

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

   No matters were submitted to a vote of  stockholders  during the three months
ended December 31, 1998.

                                       11
<PAGE>

                                     PART II

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

   The Company's  Common Stock,  $0.01 par value per share (the "Common Stock"),
is included in the NASDAQ National Market under the symbol "APGR". The following
table sets forth for the  periods  indicated  the high and low sales  prices per
share of the Common Stock as reported by the NASDAQ National Market.


   1998                                                      High         Low
   ----                                                      ----         ---
   First Quarter..................................         $  6.125     $ 3.000
   Second Quarter.................................         $  6.938     $ 3.500
   Third Quarter..................................         $  5.000     $ 1.688
   Fourth Quarter.................................         $  1.750     $ 0.688

   1997                                                      High         Low
   ----                                                      ----         ---
   First Quarter..................................         $ 10.000     $ 3.750
   Second Quarter.................................         $  8.375     $ 3.750
   Third Quarter..................................         $  9.500     $ 5.875
   Fourth Quarter.................................         $  9.125     $ 4.125


   The number of common stockholders of record as of March 10, 1999 was 175. The
Company believes that the number of beneficial common  stockholders is in excess
of 6,000.

   The Company has never declared or paid cash dividends on the Common Stock and
does not  intend to  declare or pay cash  dividends  on the Common  Stock in the
foreseeable   future.   Certain  covenants  in  the  credit  facility  and  debt
obligations of the Company and its subsidiaries  will  effectively  prohibit the
declaration  or payment of cash  dividends  by the Company  for the  foreseeable
future. See Note 3 to the Company's Consolidated Financial Statements; "Item 7 -
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  --Factors  Affecting Future Operating Results --API Credit Facility,
Bridge  Facility  and  Indenture  Restrictions";  and  "Item  7  -  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
--Factors Affecting Future Operating Results --No Dividends".

   By letter  dated July 27,  1998,  The Nasdaq Stock  Market,  Inc.  ("Nasdaq")
notified  the  Company  that its  Common  Stock was not in  compliance  with the
minimum closing bid price  requirement of $5.00 per share for continued  listing
on the Nasdaq  National  Market  ("NNM").  In response to Nasdaq's  letter,  the
Company sought and obtained  approval from its  stockholders on January 26, 1999
for a reverse stock split designed to increase the minimum  closing bid price of
the  Company's  Common  Stock above  $5.00 per share.  Nasdaq has  informed  the
Company  that it must be in  compliance  with  all  requirements  for  continued
listing on the NNM by March 31,  1999 or its Common  Stock will be  delisted  on
that date.  The Company is financing the pending  MobileMedia  Merger,  in part,
with the  proceeds  of ongoing  rights  offerings  being  made to  MobileMedia's
unsecured  creditors  and  the  Company's  existing  stockholders.  The  Company
believes  that  implementation  of the reverse stock split in the midst of these
rights  offerings  would cause  confusion  and possible  harm to investors  and,
accordingly,  has requested Nasdaq to extend the March 31, 1999 deadline so that
the reverse stock split can be implemented  in  conjunction  with the closing of
the MobileMedia  Merger.  However,  there can be no assurance  Nasdaq will grant
this extension. If the extension is not granted, the Company's Common Stock will
be delisted from Nasdaq on March 31, 1999 unless the Company has implemented the
reverse  stock split and the Common  Stock's  minimum  closing bid price exceeds
$5.00 per share.  Listing of the Common  Stock on the NNM is a condition  to the
consummation of the MobileMedia Merger. If the Common Stock is delisted from the
NNM on March 31, 1999, the Company intends to seek the immediate  listing of the
Common  Stock on the  Nasdaq  Small Cap  Market  and,  prior to the  MobileMedia
Merger,  to reapply for listing of the Common Stock on the NNM.  There can be no
assurance the Common Stock will be listed on the NNM at the  scheduled  time for
the MobileMedia  Merger.  None of the  information  relating to the Common Stock
contained in this Annual Report reflects the implementation of the reverse stock
split.

                                       12
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

   The following  Selected  Consolidated  Financial and Operating Data should be
read in conjunction  with Item 1 - "Business",  Item 7 "Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results  of  Operations"  and  the
Consolidated Financial Statements and Notes thereto. Dollars in thousands except
per share amounts.

<TABLE>
<CAPTION>

                                  Year Ended    Four Months Ended                                             
                                 August 31,(1)   December 31, (1)                  Year Ended December 31,
                                 ------------- -------------------  -----------------------------------------------------
                                     1994       1993        1994     1994(1)      1995       1996       1997       1998
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>      
Statements of Operations Data:
  Service, rental and maintenance
    revenues ....................  $  55,139  $  16,457  $  22,847  $  61,529  $ 138,466  $ 291,399  $ 351,944  $ 371,154
  Product sales .................     12,108      2,912      5,178     14,374     24,132     39,971     44,897     42,481
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Total revenues ................     67,247     19,369     28,025     75,903    162,598    331,370    396,841    413,635
  Cost of products sold .........    (10,124)    (2,027)    (4,690)   (12,787)   (20,789)   (27,469)   (29,158)   (29,953)
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                      57,123     17,342     23,335     63,116    141,809    303,901    367,683    383,682
  Operating expenses:
    Service, rental and
      maintenance ...............     13,123      3,959      5,231     14,395     29,673     64,957     79,836     80,782
    Selling .....................     10,243      3,058      4,338     11,523     24,502     46,962     51,474     49,132
    General and administrative...     17,717      5,510      7,022     19,229     40,448     86,181    106,041    112,181
    Depreciation and
      amortization ..............     16,997      5,549      6,873     18,321     60,205    191,871    232,347    221,316
    Restructuring charge ........        --         --         --         --         --         --         --      14,700
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Operating income (loss) .......       (957)      (734)      (129)      (352)   (13,019)   (86,070)  (102,015)   (94,429)
  Interest and non-operating
    expenses, net ...............     (4,112)    (1,132)    (1,993)    (4,973)   (22,522)   (75,927)   (97,159)  (104,213)
  Equity in loss of affiliate(2).        --         --         --         --      (3,977)    (1,968)    (3,872)    (5,689)
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Income (loss) before income
    tax benefit and extraordinary
    item ........................     (5,069)    (1,866)    (2,122)    (5,325)   (39,518)  (163,965)  (203,046)  (204,331)
  Income tax benefit ............        --         --         --         --       4,600     51,207     21,172        --
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Income (loss) before
    extraordinary item ..........     (5,069)    (1,866)    (2,122)    (5,325)   (34,918)  (112,758)  (181,874)  (204,331)
  Extraordinary item (3)  .......        --         --      (1,137)    (1,137)    (1,684)    (1,904)       --      (1,720)
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Net income (loss) .............  $  (5,069) $  (1,866) $  (3,259) $  (6,462) $ (36,602) $(114,662) $(181,874) $(206,051)
                                   =========  =========  =========  =========  =========  =========  =========  =========
Other Operating Data:
  Adjusted EBITDA (4) ...........  $  16,040  $   4,815  $   6,744  $  17,969  $  47,186  $ 105,801  $ 130,332  $ 141,587
  Adjusted EBITDA margin (5) ....         28%        28%        29%        28%        33%        35%        35%        37%
  Capital expenditures, excluding
    acquisitions ................  $  25,657  $   7,486  $  15,279  $  33,450  $  60,468  $ 165,206  $ 102,769  $ 113,184
  Cash flows provided by
     operating activities .......  $  14,781  $   5,306  $   4,680  $  14,155  $  14,749  $  37,802  $  63,590  $  81,105
  Cash flows used in investing
    activities ..................  $ (28,982) $  (7,486) $ (34,364) $ (55,860) $(192,549) $(490,626) $(102,769) $ (82,868)
  Cash flows provided by
    financing activities ........  $  14,636  $  11,290  $  26,108  $  29,454  $ 179,092  $ 452,678  $  39,010  $      68
  Units in service at end
    of period ...................    410,000    288,000    538,000    538,000  2,006,000  3,295,000  3,890,000  4,276,000

<CAPTION>

                                      As of
                                 August 31, (1)                           As of December 31,
                                 --------------    ---------------------------------------------------------------
                                      1994          1994          1995           1996          1997         1998
                                   ---------       -------      --------      ---------     ---------     --------
<S>                                <C>             <C>          <C>           <C>           <C>           <C>     
Balance Sheet Data:
  Current assets.................  $   6,751       $ 8,483      $ 33,671      $  43,611     $  51,025     $  50,712
  Total assets...................     76,255       117,858       785,376      1,146,756     1,020,720       904,285
  Long-term debt, less current
    maturities...................     67,328        93,420       457,044        918,150       968,896     1,003,499
  Redeemable preferred stock.....        --            --          3,376          3,712           --            --
  Stockholders' equity (deficit).     (3,304)        9,368       246,884        147,851       (33,255)     (213,463)
<FN>

(1)On October 17, 1994,  Arch  announced  that it was changing its fiscal year end from August 31 to December 31. Arch was
   required to file a transition  report on Form 10-K with audited  financial  statements for the period September 1, 1994


                                                            13
<PAGE>

   through December 31, 1994 and has elected to include herein, for comparative  purposes,  unaudited financial statements
   for the periods September 1, 1993 through December 31, 1993 and January 1, 1994 through December 31, 1994.

(2)Represents  Arch's pro rata share of USA Mobile  Communications  Holdings,  Inc.'s  ("USA  Mobile")  net losses for the
   period of time from Arch's acquisition of its initial 37% interest in USA Mobile on May 16, 1995 through the completion
   of Arch's  acquisition  of USA Mobile on September 7, 1995 and Arch's share of losses of the Benbow PCS Ventures,  Inc.
   since Arch's acquisition of Westlink in May 1996. See "Management's  Discussion and Analysis of Financial Condition and
   Results of Operations--Liquidity and Capital Resources".

(3)Reflects extraordinary charge resulting from prepayment of indebtedness.  See "Management's  Discussion and Analysis of
   Financial Condition and Results of Operations--Results of Operations".

(4)Adjusted  EBITDA,  as determined  by Arch,  consists of EBITDA  (earnings  before  interest,  taxes,  depreciation  and
   amortization) net of restructuring charges, equity in loss of affiliate and extraordinary items;  consequently Adjusted
   EBITDA may not necessarily be comparable to similarly titled data of other paging companies. EBITDA is commonly used by
   analysts and investors as a principal  measure of financial  performance in the paging industry.  EBITDA is also one of
   the primary  financial  measures used to calculate  whether Arch and its  subsidiaries are in compliance with covenants
   under their respective indebtedness which covenants, among other things, limit the ability of Arch and its subsidiaries
   to: incur additional  indebtedness,  advance funds to Benbow, pay dividends,  grant liens on its assets, merge, sell or
   acquire assets, repurchase or redeem capital stock, incur capital expenditures and prepay certain indebtedness.  EBITDA
   is also one of the financial  measures used by analysts to value the Company.  Therefore Arch management  believes that
   the presentation of EBITDA provides relevant information to investors. EBITDA should not be construed as an alternative
   to operating  income or cash flows from operating  activities as determined in accordance  with GAAP or as a measure of
   liquidity.  Amounts  reflected as EBITDA or Adjusted EBITDA are not necessarily  available for  discretionary  use as a
   result of, among other things,  restrictions  imposed by the terms of existing  indebtedness or limitations  imposed by
   applicable law upon the payment of dividends or distributions.  See "Management's  Discussion and Analysis of Financial
   Condition and Results of Operations".

   The following table reconciles net income to the presentation of Adjusted EBITDA:
</FN>
<CAPTION>

                                  Year Ended   Four Months Ended                                             
                                  August 31,      December 31,                      Year Ended December 31,
                                  ----------  -------------------  -----------------------------------------------------
                                     1994       1993        1994       1994       1995       1996       1997       1998
                                   ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                     (dollars in thousands)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>       
Net income (loss)................  $  (5,069) $  (1,866) $  (3,259) $  (6,462) $ (36,602) $(114,662) $(181,874) $(206,051)
Interest and non-operating
  expenses, net..................      4,112      1,132      1,993      4,973     22,522     75,927     97,159    104,213
Income tax benefit...............        --         --         --         --      (4,600)   (51,207)   (21,172)       --
Depreciation and amortization....     16,997      5,549      6,873     18,321     60,205    191,871    232,347    221,316 
Restructuring charge.............        --         --         --         --         --         --         --      14,700
Equity in loss of affiliate......        --         --         --         --       3,977      1,968      3,872      5,689
Extraordinary Item...............        --         --       1,137      1,137      1,684      1,904        --       1,720
                                   ---------   --------  ---------  ---------  ---------  ---------  ---------  ---------
Adjusted EBITDA..........          $  16,040   $  4,815  $  6,744   $  17,969  $  47,186  $ 105,801  $ 130,332  $ 141,587
                                   =========   ========  =========  =========  =========  =========  =========  =========
<FN>
(5)Calculated by dividing Arch Adjusted  EBITDA by total revenues less cost of products  sold.  EBITDA margin is a measure
   commonly used in the paging  industry to evaluate a company's  EBITDA  relative to total revenues less cost of products
   sold as an indicator of the efficiency of a company's operating structure.
</FN>
</TABLE>

                                       14
<PAGE>

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 the beliefs of Arch's
management as well as assumptions made by and information currently available to
Arch's  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 the current views of Arch
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. Arch
undertakes no obligation to update or revise any forward-looking statements. All
subsequent written or oral  forward-looking  statements  attributable to Arch or
persons  acting on behalf of Arch 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
Arch's Consolidated Financial Statements and Notes thereto included elsewhere in
this Annual Report.

   Arch is a leading provider of wireless messaging  services,  primarily paging
services,  and is the third largest paging company in the United States based on
its 4.3 million  units in service at December  31,  1998.  From  January 1, 1996
through  December  31,  1998,  Arch's total number of units in service grew at a
compound  rate on an  annualized  basis  of  28.7%.  For the same  period  on an
annualized  basis,  Arch's  compound  rate of  internal  unit in service  growth
(excluding units added through acquisitions) was 23.8%.

   Arch  derives  the  majority of its  revenues  from fixed  periodic  (usually
monthly)  fees,  not  dependent  on usage,  charged  to  subscribers  for paging
services. As long as a subscriber remains on service,  operating results benefit
from the recurring  payments of the fixed  periodic  fees without  incurrence of
additional  selling  expenses by Arch.  Arch's  service,  rental and maintenance
revenues and the related expenses exhibit  substantially  similar growth trends.
Arch's average revenue per subscriber has declined over the last three years for
two principal  reasons:  (i) an increase in the number of  subscriber  owned and
reseller owned pagers for which Arch receives no recurring equipment revenue and
(ii) an increase in the number of reseller  customers whose airtime is purchased
at wholesale  rates.  The  reduction in average  paging  revenue per  subscriber
resulting  from these  trends has been more than  offset by the  elimination  of
associated  expenses so that Arch's  margins  have  improved  over such  period.
Furthermore, recent data indicates such rate of decline has slowed.

   Arch has achieved  significant growth in units in service and Adjusted EBITDA
through a  combination  of  internal  growth  and  acquisitions,  including  the
acquisition  of Westlink in May 1996.  Arch's total revenues have increased from
$331.4 million in the year ended December 31, 1996 to $396.8 million in the year
ended  December  31, 1997 and to $413.6  million in the year ended  December 31,
1998. Over the same periods,  through  operating  efficiencies  and economies of
scale,  Arch has been able to reduce its per unit operating costs to enhance its
competitive  position in its markets.  Due to the rapid growth in its subscriber
base,  Arch has  incurred  significant  selling  expenses,  which are charged to
operations in the period incurred. Arch had net losses of $114.7 million, $181.9
million and $206.1 million in the years ended December 31, 1996,  1997 and 1998,
respectively,  as a result of significant depreciation and amortization expenses
related to acquired and developed  assets and interest  charges  associated with
indebtedness.  However,  as its  subscriber  base has  grown,  Arch's  operating
results have  improved,  as evidenced by an increase in it Adjusted  EBITDA from
$105.8 million in the year ended December 31, 1996 to $130.3 million in the year
ended  December  31, 1997 and to $141.6  million in the year ended  December 31,
1998.

   EBITDA is a commonly  used  measure of  financial  performance  in the paging
industry.  Adjusted  EBITDA  is  also  one of the  financial  measures  used  to
calculate whether Arch and its subsidiaries are in compliance with the covenants
under  their  respective  debt  agreements,  but should not be  construed  as an
alternative  to  operating  income or cash flows from  operating  activities  as
determined in accordance  with GAAP.  One of Arch's  financial  objectives is to
increase its Adjusted EBITDA, as such earnings are a significant source of funds


                                       15
<PAGE>

for servicing  indebtedness  and for investment in continued  growth,  including
purchase of pagers and paging system  equipment,  construction  and expansion of
paging systems,  and possible  acquisitions.  Adjusted EBITDA,  as determined by
Arch, may not necessarily be comparable to similarly titled data of other paging
companies.  Amounts  reflected as Adjusted EBITDA are not necessarily  available
for  discretionary  use as a result  of  restrictions  imposed  by the  terms of
existing or future indebtedness (including the repayment of such indebtedness or
the payment of interest thereon), limitations imposed by applicable law upon the
payment of dividends or distributions or capital expenditure requirements.

   TOWER SITE SALE

   In April 1998,  Arch  announced an agreement for the Tower Site Sale pursuant
to which Arch is selling  certain  tower  site  assets of ACI for  approximately
$38.0 million in cash (subject to  adjustment).  In the Tower Site Sale,  ACI is
selling  communications  towers, real estate,  site management  contracts and/or
leasehold  interests involving 133 sites in 22 states and will rent space on the
towers on which it currently  operates  communications  equipment to service its
own paging network.  ACI used the net proceeds from the Tower Site Sale to repay
indebtedness.  ACI held the  initial  closing of the Tower Site Sale on June 26,
1998 with gross proceeds to ACI of approximately  $12.0 million  (excluding $1.3
million  which was paid to entities  affiliated  with Benbow for certain  assets
owned by such entities and sold as part of this  transaction)  and held a second
closing on September 29, 1998 with gross proceeds to ACI of $20.4  million.  The
Company has completed the sale of substantially all of the tower sites.

   DIVISIONAL REORGANIZATION

   In June 1998, the Arch Board approved the Divisional Reorganization.  As part
of the Divisional Reorganization, which is being implemented over a period of 18
to 24 months,  Arch has consolidated its former Midwest,  Western,  and Northern
divisions  into four  existing  operating  divisions,  and is in the  process of
consolidating  certain  regional  administrative  support  functions,   such  as
customer service,  collections,  inventory and billing, to reduce redundancy and
take advantage of various operating efficiencies.

   Arch estimates that the Divisional  Reorganization,  once fully  implemented,
will result in annual cost savings of  approximately  $15.0 million.  These cost
savings  will  consist  primarily  of a  reduction  in  compensation  expense of
approximately  $11.5  million,  a reduction in rental  expense of facilities and
general and administrative costs of approximately $3.5 million.  Arch expects to
reinvest a portion of these cost savings to expand its sales activities, however
to date the extent of this  reinvestment and therefore the cost has not yet been
determined.

   In connection with the Divisional Reorganization,  Arch (i) anticipates a net
reduction of approximately 10% of its workforce,  (ii) is closing certain office
locations  and  redeploying  other  real  estate  assets  and (iii)  recorded  a
restructuring  charge of $14.7 million  during 1998.  The  restructuring  charge
consisted of approximately  (i) $9.7 million for employee  severance,  (ii) $3.5
million for lease obligations and terminations,  and (iii) $1.5 million of other
costs.  The  severance  costs and lease  obligations  will  require cash outlays
throughout  the  18  to  24  month  restructuring   period.   Arch's  management
anticipates the cash  requirements  for these items to be relatively  consistent
from quarter to quarter throughout the Divisional  Reorganization  period. These
cash outlays will be funded from  operations or the Company's  credit  facility.
There can be no assurance that the desired cost savings will be achieved or that
the anticipated reorganization of Arch's business will be accomplished smoothly,
expeditiously  or  successfully.  See Note 9 to  Arch's  Consolidated  Financial
Statements.

   SUBSIDIARY RESTRUCTURING

   On June 29,  1998,  Arch  effected  a number  of  restructuring  transactions
involving  certain of its direct and indirect  wholly owned  subsidiaries.  Arch
Communications Enterprises, Inc. ("ACE") was merged (the "ACE/USAM Merger") into
API, which was then a subsidiary of USA Mobile Communications, Inc. II ("USAM").
In connection with the ACE/USAM Merger,  USAM changed its name to ACI and issued
100 shares of its common stock to Arch.  Immediately  prior to and in connection
with the  ACE/USAM  Merger,  (i)  USAM  contributed  its  operating  assets  and
liabilities to an existing subsidiary of USAM, (ii) The Westlink Company,  which
held ACE's 49.9% equity  interest in Benbow,  distributed  its Benbow assets and
liabilities  to a new  subsidiary  of ACE,  The  Westlink  Company II, (iii) ACE
contributed its operating  assets and  liabilities to an existing  subsidiary of
ACE, (iv) all of USAM's  subsidiaries were merged into API, and (v) The Westlink
Company  II was  merged  into a new API  subsidiary,  Benbow  Investments,  Inc.
("Benbow Investments").

  In December 1998, Arch effected a further restructuring  involving certain of
its direct and indirect  wholly owned  subsidiaries  (the  "December  Subsidiary
Restructuring").  In connection with the December Subsidiary Restructuring,  (i)

                                       16
<PAGE>

The Beeper Company of America,  Inc. a Colorado  corporation  and a wholly owned
subsidiary of API was converted in to Arch LLC, and (ii) all of API's direct and
indirect domestic  subsidiaries,  other than Arch Connecticut  Valley,  Inc. and
Benbow Investments were directly or indirectly merged into Arch LLC.

PENDING MOBILEMEDIA MERGER

   On August 18, 1998, the Company entered into the MobileMedia Merger Agreement
providing  for  the  MobileMedia  Merger.  The  MobileMedia  Merger  is  part of
MobileMedia's  Reorganization Plan. Arch's stockholders approved the MobileMedia
Merger on January  26,  1999.  On February  5, 1999,  the FCC  released an order
approving the transfer of MobileMedia's  FCC licenses to Arch in connection with
the   MobileMedia   Merger,   subject  to  approval  and   confirmation  of  the
Reorganization  Plan. The order granting the transfer  became a final order,  no
longer  subject  to  reconsideration  or  judicial  review,  on March  7,  1999.
Consummation of the MobileMedia  Transactions is subject to the  confirmation of
the  Reorganization  Plan by the  U.S.  Bankruptcy  Court  for the  District  of
Delaware,  the occurrence or waiver of the conditions to the consummation of the
Reorganization   Plan,   performance  by  third  parties  of  their  contractual
obligations,  the  availability  of sufficient  financing and other  conditions.
There can be no assurance the MobileMedia Merger will be consummated.

   Pursuant to the  MobileMedia  Merger,  Arch will: (i) issue certain stock and
warrants;  (ii) pay $479.0 million in cash to certain  creditors of MobileMedia;
(iii) pay approximately $85.0 million of administrative expenses,  amounts to be
outstanding  at  the  Effective   Time  under  the  DIP  Credit   Agreement  and
transactional  and related costs;  (iv) raise $217.0 million in cash through the
Rights  Offering;  and (v) cause ACI and API to borrow a total of  approximately
$347.0 million.  After  consummation of the MobileMedia  Transactions,  which is
expected to occur during the second quarter of 1999,  MobileMedia  will become a
wholly owned subsidiary of API.

RESULTS OF OPERATIONS

   The  following  table  presents   certain  items  from  Arch's   Consolidated
Statements of Operations  as a percentage of net revenues  (total  revenues less
cost of products sold) and certain other  information for the periods  indicated
(dollars in thousands except per pager data):

                                                   Year Ended December 31,
                                                 1996       1997        1998
                                                 ----       ----        ----

Total revenues............................       109.0 %     107.9 %     107.8 %
Cost of products sold.....................        (9.0)       (7.9)       (7.8)
                                             ---------   ---------   ---------
Net revenues..............................       100.0       100.0       100.0
Operating expenses:
  Service, rental and maintenance.........        21.4        21.7        21.1
  Selling.................................        15.4        14.0        12.8
  General and administrative..............        28.4        28.8        29.2
  Depreciation and amortization...........        63.1        63.2        57.7
  Restructuring charge....................         --          --          3.8
                                             ---------   ---------   ---------
Operating income (loss)...................       (28.3)%     (27.7)%     (24.6)%
                                             =========   =========   =========
Net income (loss).........................       (37.7)%     (49.5)%     (53.7)%
                                             =========   =========   =========
Adjusted EBITDA...........................        34.8 %      35.4 %      36.9 %
                                             =========   =========   =========

Cash flows provided by operating activities  $  37,802   $  63,590   $  81,105
Cash flows used in investing activities....  $(490,626)  $(102,769)  $ (82,868)
Cash flows provided by financing activities  $ 452,678   $  39,010   $      68
Annual service, rental and maintenance 
  expenses per pager......................   $      25   $      22   $      20

                                       17
<PAGE>

   YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

   Total  revenues  increased  to $413.6  million (a 4.2%  increase) in the year
ended  December 31,  1998,  from $396.8  million in the year ended  December 31,
1997.  Net revenues  (total  revenues less cost of products  sold)  increased to
$383.7 million (a 4.4% increase) in the year ended December 31, 1998 from $367.7
million in the year ended December 31, 1997.  Total revenues and net revenues in
the year ended December 31, 1998 were adversely affected by a general slowing of
industry growth,  compared to prior years; revenues were also adversely affected
in the fourth quarter of 1998 by Arch's conscious decision not to replace normal
attrition among direct sales personnel in anticipation of the MobileMedia Merger
and by the reduced  effectiveness of certain reseller  channels of distribution.
Arch expects  revenue to continue to be adversely  affected in the first quarter
of 1999 due to its fourth quarter 1998 decision not to replace normal  attrition
among direct sales personnel and the reduced  effectiveness  of certain reseller
channels  of  distribution.  Service,  rental and  maintenance  revenues,  which
consist  primarily of recurring  revenues  associated  with the sale or lease of
pagers, increased to $371.2 million (a 5.5% increase) in the year ended December
31,  1998 from  $351.9  million  in the year  ended  December  31,  1997.  These
increases in revenues  were due  primarily  to the  increase,  through  internal
growth,  in the number of units in service from 3.9 million at December 31, 1997
to 4.3 million at December 31, 1998.  Maintenance revenues represented less than
10% of total  service,  rental  and  maintenance  revenues  in the  years  ended
December  31, 1998 and 1997.  Arch does not  differentiate  between  service and
rental revenues.  Product sales, less cost of products sold,  decreased to $12.5
million  (a 20.4%  decrease)  in the year  ended  December  31,  1998 from $15.7
million in the year ended  December  31,  1997,  respectively,  as a result of a
decline in the average revenue per pager sold.

   Service,  rental  and  maintenance  expenses,   which  consist  primarily  of
telephone  line and site rental  expenses,  increased to $80.8 million (21.1% of
net revenues) in the year ended  December 31, 1998 from $79.8 million  (21.7% of
net  revenues)  in the year  ended  December  31,  1997.  The  increase  was due
primarily  to  increased  expenses  associated  with  system  expansions  and an
increase in the number of units in service.  As existing  paging  systems become
more  populated  through  the  addition of new  subscribers,  the fixed costs of
operating  these  paging  systems  are spread  over a greater  subscriber  base.
Annualized service,  rental and maintenance  expenses per subscriber were $20.00
in the year ended December 31, 1998 compared to $22.00 in the corresponding 1997
period.

   Selling  expenses  decreased to $49.1 million  (12.8% of net revenues) in the
year ended  December 31, 1998 from $51.5 million  (14.0% of net revenues) in the
year ended  December 31, 1997.  The decrease was due  primarily to a decrease in
the number of net new  subscriber  additions and  nonrecurring  marketing  costs
incurred in 1997 to promote Arch's new Arch Paging brand identity. The number of
net new subscriber  additions  resulting from internal growth decreased by 35.1%
in the year ended  December  31, 1998  compared to the year ended  December  31,
1997,  primarily due to a general slowing of industry growth,  compared to prior
years; net new subscriber  additions were also adversely  affected in the fourth
quarter of 1998 by Arch's conscious decision, in anticipation of the MobileMedia
Merger,  not to replace normal attrition among direct sales personnel and by the
reduced  effectiveness  of certain reseller  channels.  Arch expects its selling
expenses to increase in 1999 due to increased hiring of direct sales personnel.

   General and administrative expenses increased to $112.2 million (29.2% of net
revenues) in the year ended December 31, 1998, from $106.0 million (28.8% of net
revenues) in the year ended December 31, 1997. The increase was due primarily to
administrative  and facility  costs  associated  with  supporting  more units in
service.

   Depreciation  and  amortization  expenses  decreased to $221.3 million in the
year ended  December 31, 1998 from $232.3 million in the year ended December 31,
1997.  These  expenses   principally   reflect  Arch's  acquisitions  of  paging
businesses in prior periods accounted for as purchases, and investment in pagers
and other system expansion equipment to support growth.

   Operating  losses  were $94.4  million in the year ended  December  31,  1998
compared to $102.0  million in the year ended  December 31, 1997, as a result of
the factors outlined above.

   Net interest  expense  increased to $104.2 million in the year ended December
31, 1998 from $97.2 million in the year ended December 31, 1997. The increase is
principally  attributable to an increase in Arch's  outstanding  debt.  Interest
expense for the year ended  December  31, 1998 and 1997  includes  approximately
$37.0 million and $33.3 million, respectively, of non-cash interest accretion on
the 10 7/8% Senior Discount Notes.

   Arch  recognized  an income tax  benefit  of $21.2  million in the year ended
December 31, 1997. This benefit  represented the tax benefit of operating losses
incurred  subsequent to the  acquisitions  of USA Mobile and Westlink which were
available to offset deferred tax liabilities  arising from Arch's acquisition of


                                       18
<PAGE>

USA Mobile in September  1995 and Westlink in May 1996. The tax benefit of these
operating  losses  was  fully  recognized  during  1997.  Accordingly,  Arch has
established  a valuation  reserve  against its  deferred  tax assets which as of
December 31,1998 reduced the income tax benefit to zero. Arch does not expect to
recover,  in the foreseeable future, its deferred tax asset and will continue to
increase its valuation reserve  accordingly.  See Note 5 to Arch's  Consolidated
Financial Statements.

   In June  1998,  Arch  recognized  an  extraordinary  charge  of $1.7  million
representing  the write-off of unamortized  deferred  financing costs associated
with the prepayment of indebtedness under prior credit facilities.

   Net loss increased to $206.1 million in the year ended December 31, 1998 from
$181.9  million in the year ended  December 31, 1997, as a result of the factors
outlined above.

   YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

   Total revenues  increased  $65.5 million,  or 19.8%, to $396.8 million in the
year ended  December 31, 1997 from $331.4 million in the year ended December 31,
1996 and net revenues increased $63.8 million,  or 21.0%, from $303.9 million to
$367.7 million over the same period.  Service,  rental and maintenance  revenues
increased $60.5 million,  or 20.8%, to $351.9 million in the year ended December
31,  1997 from  $291.4  million  in the year  ended  December  31,  1996.  These
increases in revenues  were due primarily to the increase in the number of units
in service  from 3.3 million at December 31, 1996 to 3.9 million at December 31,
1997 and the full year impact of the Westlink acquisition which was completed in
May 1996.  Maintenance  revenues  represented  less  than 10% of total  service,
rental and  maintenance  revenues in the years ended December 31, 1996 and 1997.
Product sales,  less cost of products sold,  increased 25.9% to $15.7 million in
the year ended  December 31, 1997 from $12.5 million in the year ended  December
31, 1996 as a result of a greater number of pager unit sales.

   Service, rental and maintenance expenses increased to $79.8 million (21.7% of
net revenues) in the year ended  December 31, 1997 from $65.0 million  (21.4% of
net  revenues)  in the year  ended  December  31,  1996.  The  increase  was due
primarily  to  increased  expenses  associated  with system  expansions  and the
provision of paging services to a greater number of subscribers. Annual service,
rental and maintenance  expenses per subscriber  decreased to $22.00 in the year
ended December 31, 1997 from $25.00 in the year ended December 31, 1996.

   Selling  expenses  increased to $51.5 million  (14.0% of net revenues) in the
year ended  December 31, 1997 from $47.0 million  (15.4% of net revenues) in the
year ended  December 31, 1996.  The increase in selling  expenses was due to the
full year impact of the Westlink acquisition and the marketing costs incurred to
promote Arch's Arch Paging brand identity. Arch's selling cost per net new pager
in service  increased to $87.00 in the year ended  December 31, 1997 from $58.00
in the year ended  December 31, 1996,  primarily  due to fixed selling costs and
increased  marketing  costs  being  spread  over  fewer  net new  units put into
service.

   General and administrative expenses increased to $106.0 million (28.8% of net
revenues) in the year ended  December 31, 1997 from $86.2 million  (28.4% of net
revenues) in the year ended December 31, 1996. The increase in absolute  dollars
was due primarily to increased expenses associated with supporting more units in
service,  including  the full  year  impact  of  Westlink,  as well as  expenses
associated with the establishment of Arch's National Services Division.

   Depreciation and amortization  expenses increased to $232.3 million (63.2% of
net revenues) in the year ended  December 31, 1997 from $191.9 million (63.1% of
net revenues) in the year ended December 31, 1996. These expenses reflect Arch's
acquisitions  of paging  businesses,  accounted for as purchases,  and continued
investment in pagers and other system expansion  equipment to support  continued
growth.

   Operating  loss  increased to $102.0  million in the year ended  December 31,
1997 from $86.1  million in the year ended  December 31, 1996 as a result of the
factors outlined above.

   Net interest  expense  increased to $97.2 million in the year ended  December
31, 1997 from $75.9  million in the year ended  December 31, 1996.  The increase
was attributable to an increase in Arch's average  outstanding debt. In 1997 and
1996 interest  expense includes  approximately  $33.0 million and $24.0 million,
respectively, of non-cash  interest  accretion on Arch's 10 7/8% Senior Discount
Notes due 2008 under which  semi-annual  interest payments commence on September
15, 2001. See Note 3 to Arch's Consolidated Financial Statements.

   During the years ended December 31, 1997 and 1996, Arch recognized income tax
benefits of $21.2 million and $51.2 million, respectively,  representing the tax
benefit of operating  losses  subsequent  to the  acquisitions  of USA Mobile in


                                       19
<PAGE>

September 1995 and Westlink in May 1996 which were available to offset  deferred
tax liabilities arising from Arch's acquisitions of USA Mobile and Westlink.

   During  1996,  Arch  recognized  an  extraordinary  charge  of $1.9  million,
representing  the write-off of unamortized  deferred  financing costs associated
with the prepayment of indebtedness under a prior credit facility.

   Net loss increased to $181.9 million in the year ended December 31, 1997 from
$114.7  million in the year ended  December  31, 1996 as a result of the factors
outlined  above.  Included in the net loss for the years ended December 31, 1997
and  1996  were  charges  of  $3.9  million  and  $2.0  million,   respectively,
representing  Arch's  pro rata  share of  Benbow's  losses  since  the  Westlink
acquisition in May 1996.

LIQUIDITY AND CAPITAL RESOURCES

   Arch's business  strategy  requires the availability of substantial  funds to
finance the expansion of existing  operations,  to fund capital expenditures for
pagers and paging system equipment, to service debt and to finance acquisitions.

   CAPITAL EXPENDITURES AND COMMITMENTS

   Excluding acquisitions of paging businesses, Arch's capital expenditures were
$165.2 million in the year ended  December 31, 1996,  $102.8 million in the year
ended  December 31, 1997 and $113.2 million in the year ended December 31, 1998.
To date,  Arch has funded its  capital  expenditures  with net cash  provided by
operating activities and the incurrence of debt.

   Arch's  capital  expenditures  for the year  ending  December  31,  1998 were
primarily for the purchase of pagers,  paging system  equipment and transmission
equipment,  information  systems,  advances to Benbow (as  described  below) and
capitalized  financing  costs.  Arch believes that it will have  sufficient cash
available from operations and credit facilities to fund anticipated expenditures
for the year ended December 31, 1999.

   Arch is obligated,  to the extent such funds are not available to Benbow from
other sources and subject to the approval of Arch's  designee on Benbow's  Board
of  Directors,  to  advance  to  Benbow  sufficient  funds  to  service  its FCC
license-related  debt  obligations  incurred  by Benbow in  connection  with its
acquisition  of its  N-PCS  licenses  and to  finance  construction  of an N-PCS
system.  The  total  cost to  Benbow  of  servicing  its  debt  obligations  and
constructing  an N-PCS system  (including the effect of Benbow's  acquisition of
Page Call) will be  approximately  $100.0 million over the next five years.  See
"Business--Investments in Narrowband PCS Licenses".

   OTHER COMMITMENTS AND CONTINGENCIES

   Interest  payments  on the $467.4  million  principal  amount at  maturity of
Arch's 10 7/8%  Senior  Discount  Notes due 2008 (the "Senior  Discount  Notes")
commence  September 15, 2001. Arch expects to service such interest payments out
of cash made available to it by its subsidiaries.  Based on the principal amount
of Senior  Discount Notes  presently  outstanding,  such interest  payments will
equal $25.4  million on March 15 and  September 15 of each year until  scheduled
maturity on March 15, 2008. A default by Arch in its payment  obligations  under
the Senior Discount Notes could have a material  adverse effect on the business,
financial  condition,  results of operations or prospects of Arch.  See "Factors
Affecting Future Operating Results--Indebtedness and High Degree of Leverage".

   SOURCES OF FUNDS

   Arch's net cash provided by operating  activities  was $37.8  million,  $63.6
million and $81.1 million in the years ended  December 31, 1996,  1997 and 1998,
respectively.  Arch believes that its capital needs for the  foreseeable  future
will be funded with borrowings under current and future credit  facilities,  net
cash  provided  by  operations  and,   depending  on  Arch's  needs  and  market
conditions,  possible  sales  of  equity  or  debt  securities.  For  additional
information,  see Note 3 of Notes to Arch's Consolidated  Financial  Statements.
Arch's ability to access future  borrowings  will be dependent,  in part, on its
ability to continue to grow its Adjusted EBITDA.

      Issuance and Sale of Notes

   On June 29, 1998,  Arch through its  wholly-owned  subsidiary ACI, issued and
sold  $130.0  million  principal  amount of 12 3/4%  Senior  Notes due 2007 (the
"Notes") for net proceeds of $122.6 million (after deducting the discount to the
initial purchasers and offering expenses paid by ACI). The Notes were sold at an
initial price to investors of 98.049%. The Notes mature on July 1, 2007 and bear
interest  at a rate of 12 3/4% per annum,  payable  semi-annually  in arrears on
January 1 and July 1 of each year,  commencing  January  1, 1999.  See Note 3 to
Arch's Consolidated Financial Statements.



                                       20
<PAGE>

      Equity Investment

   On June 29, 1998,  two  partnerships  managed by Sandler  Capital  Management
Company, Inc., an investment management firm ("Sandler"),  together with certain
other private  investors,  made an equity investment in Arch of $25.0 million in
the form of Series C  Convertible  Preferred  Stock of Arch ("Series C Preferred
Stock"). Arch used $24.0 million of the net proceeds to repay indebtedness under
ACE's  existing  credit  facility  as part of the  establishment  of the Amended
Credit  Facility.  The Series C Preferred  Stock: (i) is convertible into Common
Stock of Arch at an  initial  conversion  price of $5.50 per  share,  subject to
certain adjustments; (ii) bears dividends at an annual rate of 8.0%, (A) payable
quarterly in cash or, at Arch's option, through the issuance of shares of Arch's
Common  Stock  valued at 95% of the then  prevailing  market price or (B) if not
paid  quarterly,  accumulating  and payable upon redemption or conversion of the
Series C Preferred Stock or liquidation of Arch; (iii) permits the holders after
seven years to require Arch, at Arch's option,  to redeem the Series C Preferred
Stock for cash or convert such shares into Arch's  Common Stock valued at 95% of
the then  prevailing  market price of Arch's  Common  Stock;  (iv) is subject to
redemption  for cash or conversion  into Arch's Common Stock at Arch's option in
certain  circumstances;  (v) in the event of a "Change of Control" as defined in
the  Indenture  governing  Arch's 10 7/8%  Senior  Discount  Notes due 2008 (the
"Senior Discount Notes Indenture"),  requires Arch, at its option, to redeem the
Series C Preferred  Stock for cash or convert  such  shares  into Arch's  Common
Stock valued at 95% of the then prevailing  market price of Arch's Common Stock,
with such cash  redemption or  conversion  being at a price equal to 105% of the
sum of the  original  purchase  price plus  accumulated  dividends;  (vi) limits
certain  mergers  or asset  sales by Arch;  (vii) so long as at least 50% of the
Series  C  Preferred  Stock  remains  outstanding,   limits  the  incurrence  of
indebtedness  and  "restricted  payments" in the same manner as contained in the
Senior  Discount Notes  Indenture;  and (viii) has certain voting and preemptive
rights.  Upon an event of redemption or conversion,  Arch, at this time, intends
to convert the Series C Preferred Stock into Arch Common Stock.

      API Credit Facility

   On  November  16,  1998,  the  lenders to API  approved  an increase in API's
existing  credit  facility  from $400.0  million to $600.0  million,  subject to
completing the MobileMedia Merger and certain other conditions.  The increase of
$200.0 million (the "API Credit Facility Increase") was to fund a portion of the
cash  necessary  for Arch to complete  the  MobileMedia  Merger.  The API Credit
Facility Increase was to be provided by four of API's existing lenders, provided
the MobileMedia Transactions were completed prior to March 31, 1999. In December
1998 and January  1999,  MobileMedia's  general  unsecured  creditors  ("Class 6
creditors") voted to accept the Reorganization  Plan. In February 1999, the U.S.
Bankruptcy Court for the District of Delaware ordered that certain  supplemental
disclosure be provided to the Class 6 creditors and that  MobileMedia  resolicit
votes  from that class on the  Reorganization  Plan,  set March 23,  1999 as the
deadline for re-voting by MobileMedia's  Class 6 Creditors on the Reorganization
Plan and for filing  objections to the  Reorganization  Plan,  and scheduled the
confirmations hearing on the Reorganization Plan to resume on March 26, 1999. As
a result of the resolicitation of votes of the holders of Class 6 creditors,  it
is not possible to consummate the MobileMedia Merger by March 31, 1999. The four
API lenders that were to fund the API Credit  Facility  Increase have  indicated
their  willingness  to seek approval to extend $135.0  million of the API Credit
Facility Increase through June 30, 1999, subject to formal approval,  definitive
documentation   and  negotiation  of  certain  terms.   See   "Business--Pending
MobileMedia  Merger"  and  Note 3 of  Notes  to  Arch's  Consolidated  Financial
Statements.

INFLATION

   Inflation has not had a material effect on Arch's  operations to date. Paging
systems  equipment  and  operating  costs have not increased in price and Arch's
pager costs have declined substantially in recent years. This reduction in costs
has generally been  reflected in lower pager prices  charged to subscribers  who
purchase their pagers.  Arch's  general  operating  expenses,  such as salaries,
employee  benefits  and  occupancy  costs,  are  subject to normal  inflationary
pressures.

FACTORS AFFECTING FUTURE OPERATING RESULTS

   GROWTH AND ACQUISITION STRATEGY

   Arch believes that the paging industry has experienced,  and will continue to
experience,  consolidation due to factors that favor larger, multi-market paging
companies,  including (i) the ability to obtain additional radio spectrum,  (ii)
greater  access to capital  markets and lower costs of  capital,  (iii)  broader
geographic  coverage of paging systems,  (iv) economies of scale in the purchase
of capital  equipment,  (v) operating  efficiencies  and (vi) enhanced access to
executive personnel.



                                       21
<PAGE>

   Arch has pursued,  and intends to continue to pursue,  acquisitions of paging
businesses as a key component of its growth  strategy.  However,  the process of
integrating  acquired paging businesses may involve unforeseen  difficulties and
may  require  a  disproportionate  amount  of the time and  attention  of Arch's
management.  No  assurance  can  be  given  that  suitable  acquisitions  can be
identified,  financed and  completed  on  acceptable  terms,  or that any future
acquisitions by Arch will be successful. See "Business--Paging Operations".

   Implementation  of Arch's growth  strategy will be subject to numerous  other
contingencies beyond the control of its management.  These contingencies include
national and regional economic conditions, interest rates, competition,  changes
in  regulation  or  technology  and the  ability to attract  and retain  skilled
employees.  Accordingly,  no assurance can be given that Arch's growth  strategy
will prove effective or that its goals will be achieved. See "Business--Business
Strategy" and "--Competition".

   FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

   Arch's business  strategy  requires the availability of substantial  funds to
finance  the  continued  development  and  future  growth and  expansion  of its
operations,  including possible acquisitions.  The amount of capital required by
Arch  following  the  MobileMedia  Merger  will depend upon a number of factors,
including subscriber growth, the type of paging devices and services demanded by
customers,  service revenues,  technological  developments,  marketing and sales
expenses, competitive conditions, the nature and timing of Arch's N-PCS strategy
and  acquisition  strategies and  opportunities.  No assurance can be given that
additional  equity or debt  financing  will be  available to Arch when needed on
acceptable  terms, if at all. The  unavailability  of sufficient  financing when
needed would have a material adverse effect on Arch.

    COMPETITION AND TECHNOLOGICAL CHANGE

   Arch faces  competition from other paging service providers in all markets in
which it  operates,  as well as from  certain  competitors  who hold  nationwide
licenses.  Monthly fees for basic paging services have, in general,  declined in
recent  years,  due in  part  to  competitive  conditions,  and  Arch  may  face
significant  price-based  competition  in the future which could have a material
adverse effect on Arch.  Certain  competitors of Arch possess greater financial,
technical  and  other   resources   than  Arch.  A  trend   towards   increasing
consolidation   in  the  paging   industry  in   particular   and  the  wireless
communications  industry in general in recent years has led to competition  from
increasingly  larger  and  better  capitalized  competitors.   If  any  of  such
competitors were to devote additional  resources to the paging business or focus
on Arch's particular markets, there could be a material adverse effect on Arch.

   Competitors  are currently  using and  developing a variety of two-way paging
technologies.  Arch does not presently provide such two-way services, other than
as  a  reseller.  Although  such  services  generally  are  higher  priced  than
traditional one-way paging services,  technological improvements could result in
increased  capacity and  efficiency for such two-way  paging  technologies  and,
accordingly,   could  result  in   increased   competition   for  Arch.   Future
technological  advances in the  telecommunications  industry  could increase new
services or products  competitive  with the paging services  provided by Arch or
could  require  Arch to  reduce  the  price of their  paging  services  or incur
additional  capital  expenditures to meet competitive  requirements.  Recent and
proposed   regulatory   changes  by  the  FCC  are  aimed  at  encouraging  such
technological  advances  and new  services.  Other  forms  of  wireless  two-way
communications   technology,   including   cellular   and   broadband   personal
communications  services ("PCS"),  and specialized  mobile radio services,  also
compete  with the  paging  services  that Arch  currently  provides.  While such
services  are  primarily  focused  on  two-way  voice  communications,   service
providers are, in many cases,  electing to provide paging services as an adjunct
to their primary services. Technological change also may affect the value of the
pagers  owned by Arch and  leased  to its  subscribers.  If  Arch's  subscribers
request more  technologically  advanced pagers,  including,  but not limited to,
two-way  pagers,  Arch  could  incur  additional  inventory  costs  and  capital
expenditures  if required to replace pagers leased to its  subscribers  within a
short period of time. Such additional  investment or capital  expenditures could
have a material adverse effect on Arch. There can be no assurance that Arch will
be able to compete  successfully  with  current  and future  competitors  in the
paging  business  or  with  competitors   offering   alternative   communication
technologies.  Pursuant to the CALEA, all telecommunications carriers, including
Arch, are subject to certain law enforcement assistance capability requirements.
These capability  requirements will likely necessitate equipment  modifications.
Although CALEA requires the federal government to reimburse carriers for certain
equipment  modifications,  it is unclear whether Arch will be entitled to such a
reimbursement  and if so,  how much Arch  will  receive.  See  "Business--Paging
Industry Overview and --Competition".



                                       22
<PAGE>

   GOVERNMENT REGULATION, FOREIGN OWNERSHIP AND POSSIBLE REDEMPTION

   The  paging  operations  of Arch are  subject  to  regulation  by the FCC and
various state regulatory  agencies.  The FCC paging licenses granted to Arch are
for varying terms of up to 10 years,  at the end of which  renewal  applications
must be approved by the FCC. In the past,  paging license  renewal  applications
generally  have been  granted by the FCC upon a showing of  compliance  with FCC
regulations  and of  adequate  service  to the  public.  Arch is  unaware of any
circumstances  which would  prevent  the grant of any pending or future  renewal
applications;  however,  no  assurance  can be given that any of Arch's  renewal
applications  will be free of  challenge  or will be granted  by the FCC.  It is
possible  that  there may be  competition  for radio  spectrum  associated  with
licenses  as  they  expire,  thereby  increasing  the  chances  of  third  party
interventions in the renewal proceedings.  Other than those renewal applications
still  pending,  the FCC has thus far granted each license  renewal  application
that Arch has filed.  There can be no assurance  that the FCC and various  state
regulatory  agencies will not propose or adopt  regulations or take actions that
would have a material adverse effect on Arch.

   The FCC's review and revision of rules affecting  paging companies is ongoing
and  the   regulatory   requirements   to  which  Arch  is  subject  may  change
significantly over time. For example, the FCC has decided to adopt a market area
licensing  scheme for all paging channels under which carriers would be licensed
to operate on a  particular  channel  throughout  a broad  geographic  area (for
example,  a Major  Trading  Area as defined by Rand  McNally)  rather than being
licensed on a site-by-site basis. These geographic area licenses will be awarded
pursuant to auction.  Incumbent paging licensees that do not acquire licenses at
auction  will be  entitled  to  interference  protection  from the  market  area
licensee.  Arch is participating actively in this proceeding in order to protect
its existing  operations  and retain  flexibility,  on an interim and  long-term
basis,  to modify systems as necessary to meet subscriber  demands.  The FCC has
issued a Further Notice of Proposed  Rulemaking in which the FCC sought comments
on, among other  matters,  whether it should  impose  coverage  requirements  on
licensees with  nationwide  exclusivity  (such as Arch),  whether these coverage
requirements   should  be  imposed  on  a  nationwide  or  regional  basis,  and
whether--if  such  requirements  are  imposed--failure  to meet the requirements
should  result in a  revocation  of the  entire  nationwide  license or merely a
portion  of  the  license.   If  the  FCC  were  to  impose  stringent  coverage
requirements  on  licensees  with  nationwide  exclusivity,  Arch  might have to
accelerate the build-out of its systems in certain areas.

   Changes in regulation of Arch's paging  businesses or the allocation of radio
spectrum for services that compete with Arch's business could  adversely  affect
its results of operations.  In addition,  some aspects of the Telecommunications
Act of 1996 (the  "Telecommunications  Act") may place  additional  burdens upon
Arch or subject Arch to increased competition.  For example, the FCC has adopted
rules  that  govern  compensation  to be paid to pay phone  providers  which has
resulted in increased  costs for certain  paging  services  including  toll-free
1-800  number  paging.   Arch  has  generally  passed  these  costs  on  to  its
subscribers,  which makes Arch's  services more expensive and which could affect
the  attraction  or retention of customers;  however,  there can be no assurance
that Arch will be able to continue to pass on these costs. In addition,  the FCC
also has adopted rules regarding payments by telecommunications companies into a
revamped   fund  that  will   provide  for  the   widespread   availability   of
telecommunications  services,  including  to  low-income  consumers  ("Universal
Service").  Prior to the implementation of the Telecommunications Act, Universal
Service obligations largely were met by local telephone companies,  supplemented
by   long-distance   telephone   companies.   Under  the  new   rules,   certain
telecommunications  carriers,  including  Arch,  are required to contribute to a
revised fund created for Universal  Service (the "Universal  Service Fund").  In
addition,  certain state regulatory  authorities have enacted, or have indicated
that they  intend to enact,  similar  contribution  requirements  based on state
revenues.  Arch can not yet know the full  impact  of these  state  contribution
requirements.  Moreover, Arch is not able at this time to estimate the amount of
any such  payments that it will be able to bill to their  subscribers;  however,
payments into the Universal  Service Fund will likely increase the cost of doing
business.

   Moreover, in a rulemaking  proceeding  pertaining to interconnection  between
LECs and  CMRS  providers  such as Arch,  the FCC has  concluded  that  LECs are
required to compensate CMRS providers for the reasonable  costs incurred by such
providers in terminating  traffic that  originates on LEC  facilities,  and vice
versa.  Consistent  with this ruling,  the FCC has determined  that LECs may not
charge a CMRS provider or other carrier for terminating  LEC-originated  traffic
or for dedicated  facilities used to deliver  LEC-originated  traffic to one-way
paging  networks.  Nor may LECs charge CMRS providers for number  activation and
use fees. These  interconnection  issues are still in dispute, and it is unclear
whether the FCC will  maintain  its current  position.  Depending on further FCC
disposition  of these  issues,  Arch may or may not be  successful  in  securing
refunds,  future  relief or both,  with  respect to charges for  termination  of
LEC-originated local traffic. If these issues are ultimately resolved by the FCC
in favor of CMRS  providers,  then Arch will pursue  relief  through  settlement
negotiations,  administrative  complaint procedures or both. If these issues are

                                       23
<PAGE>

ultimately  decided in favor of the LECs,  Arch likely  would be required to pay
all past  due  contested  charges  and may also be  assessed  interest  and late
charges for the withheld amounts.  Although these  requirements have not to date
had a material  adverse effect on Arch, these or similar  requirements  could in
the   future   have  a  material   adverse   effect  on  Arch.   See   "Industry
Overview--Regulation".

   The  Communications  Act also limits  foreign  investment in and ownership of
entities  that are  licensed as radio common  carriers by the FCC.  Arch owns or
controls  several  radio  common  carriers and is  accordingly  subject to these
foreign  investment  restrictions.  Because  Arch is a parent  of  radio  common
carriers (but is not a radio common carrier itself), Arch may not have more than
25% of its stock  owned or voted by aliens or their  representatives,  a foreign
government or its representatives or a foreign corporation if the FCC finds that
the public  interest  would be served by denying such  ownership.  In connection
with  the  WTO  Agreement--agreed  to by 69  countries--the  FCC  adopted  rules
effective  February 9, 1998 that create a very  strong  presumption  in favor of
permitting a foreign  interest in excess of 25% if the foreign  investor's  home
market  country  signed the WTO Agreement.  Arch's  subsidiaries  that are radio
common carrier licensees are subject to more stringent requirements and may have
only up to 20% of their stock owned or voted by aliens or their representatives,
a foreign  government or their  representatives or a foreign  corporation.  This
ownership  restriction  is not  subject to waiver.  See  "Business--Regulation".
Arch's Restated Certificate of Incorporation,  as amended permits the redemption
of shares of Arch's capital stock from foreign  stockholders  where necessary to
protect FCC licenses held by Arch or its subsidiaries, but such redemption would
be subject to the availability of capital to Arch and any restrictions contained
in applicable  debt  instruments  and under the DGCL (which  currently would not
permit any such  redemptions).  The failure to redeem such shares promptly could
jeopardize the FCC licenses held by Arch or its subsidiaries.

   SUBSCRIBER TURNOVER

   The results of operations of wireless  messaging service  providers,  such as
Arch, can be significantly affected by subscriber  cancellations.  The sales and
marketing  costs  associated  with  attracting new  subscribers  are substantial
relative to the costs of providing  service to existing  customers.  Because the
paging business is characterized by high fixed costs, cancellations directly and
adversely affect EBITDA.  An increase in the subscriber  cancellation rate could
have a material adverse effect on Arch.

   DEPENDENCE ON THIRD PARTIES

   Arch does not  manufacture  any of the pagers used in its paging  operations.
Arch buys pagers  primarily from Motorola,  NEC and Panasonic  Communications  &
Systems  Company and  therefore  is dependent  on such  manufacturers  to obtain
sufficient  pager  inventory  for  new  subscriber  and  replacement  needs.  In
addition,  Arch purchases terminals and transmitters primarily from Glenayre and
Motorola and thus is dependent on such  manufacturers  for sufficient  terminals
and transmitters to meet their expansion and replacement requirements.  To date,
Arch has not experienced  significant  delays in obtaining pagers,  terminals or
transmitters,  but there can be no assurance that Arch will not experience  such
delays in the future.  Arch's purchase  agreement with Motorola  expires on June
19, 1999,  although it contains a provision  for  renewals  for one-year  terms.
There can be no assurance  that Arch's  agreement  with Motorola will be renewed
or, if renewed, that such agreement will be on terms and conditions as favorable
to Arch as those under the  current  agreements.  Although  Arch  believes  that
sufficient  alternative  sources of pagers,  terminals and  transmitters  exist,
there can be no assurance that Arch would not be materially  adversely  affected
if it were unable to obtain these items from current  supply sources or on terms
comparable to existing terms.  See  "Business--Sources  of Equipment".  Finally,
Arch relies on third parties to provide satellite  transmission for some aspects
of their  paging  services.  To the  extent  there are  satellite  outages or if
satellite coverage is otherwise impaired,  Arch may experience a loss of service
until such time as satellite  coverage is restored,  which could have a material
adverse effect on Arch.

   POSSIBLE ACQUISITION TRANSACTIONS

   Arch believes that the paging  industry will undergo  further  consolidation,
and Arch expects to participate in such continued industry  consolidation.  Arch
has  evaluated  and  expects  to  continue  to  evaluate  possible   acquisition
transactions  on an  ongoing  basis  and at any  given  time may be  engaged  in
discussions   with   respect  to  possible   acquisitions   or  other   business
combinations.  The process of integrating acquired paging businesses may involve
unforeseen  difficulties and may require a  disproportionate  amount of the time
and  attention  of Arch's  management  and  financial  and other  resources.  No
assurance can be given that suitable acquisition transactions can be identified,
financed and completed on acceptable terms, that Arch's future acquisitions will
be successful,  or that Arch will participate in any future consolidation of the
paging industry.


                                       24
<PAGE>

   DEPENDENCE ON KEY PERSONNEL

   The success of Arch will depend, to a significant  extent, upon the continued
services of a relatively small group of executive personnel.  Arch does not have
employment  agreements  with, or maintain life insurance on the lives of, any of
its current executive officers, although certain executive officers have entered
into  non-competition  agreements  and all executive  officers have entered into
executive  retention  agreements with Arch. The loss or unavailability of one or
more of its  executive  officers  or the  inability  to  attract  or retain  key
employees in the future could have a material adverse effect on Arch.

   IMPACT OF THE YEAR 2000 ISSUE

   The Year 2000 problem is the result of computer  programs being written using
two  digits  (rather  than four) to define the  applicable  year.  Any of Arch's
programs  that have  time-sensitive  software may recognize a date using "00" as
the year 1900 rather than the year 2000.  This could result in a system  failure
or miscalculations  causing  disruptions of operations,  including,  among other
things, a temporary inability to process  transactions,  send invoices or engage
in similar normal business  activities.  As a result,  the computerized  systems
(including  both  information  and   non-information   technology  systems)  and
applications  used by Arch are  being  reviewed,  evaluated  and,  if and  where
necessary,  modified or replaced to ensure that all financial,  information  and
operating systems are Year 2000 compliant.

   Arch has created a  cross-functional  project group (the "Y2K Project Group")
to work on the  Year  2000  problem.  The Y2K  Project  Group is  finishing  its
analysis of external and  internal  areas likely to be affected by the Year 2000
problem. It has classified the identified areas of concern into either a mission
critical or  non-mission  critical  status.  For the  external  areas,  Arch has
distributed  vendor  surveys to its primary and secondary  vendors.  The surveys
requested  information  about hardware and/or  software  supplied by information
technology  vendors as well as  non-information  technology  system vendors that
might use embedded  technologies  in their systems or products.  Information was
requested regarding the vendor's Year 2000 compliance planning,  timing, status,
testing  and  contingency  planning.  As part  of its  evaluation  of Year  2000
vulnerability  related  to its  pager and  paging  equipment  vendors,  Arch has
discussed with them their efforts to identify  potential issues  associated with
their  equipment  and/or  software  and has  concluded  that,  to the extent any
vulnerability exists, it has been addressed.  Internally,  Arch is completing an
inventory  audit of hardware and  software  testing for both its  corporate  and
divisional  operations.  These areas of operation include:  information systems,
finance,  operations,  inventory,  billing,  pager  activation  and  purchasing.
Additional testing is scheduled to conclude in the second quarter of 1999.

   Arch expects that it will incur costs to replace existing hardware,  software
and paging equipment, which will be capitalized and amortized in accordance with
Arch's existing  accounting  policies,  while maintenance or modification  costs
will be expensed as incurred.  Arch has upgraded  hardware to enable  compliance
testing  to  be   performed  on   dedicated   test   equipment  in  an  isolated
production-like environment.  Based on Arch's costs incurred to date, as well as
estimated  costs to be incurred over the next nine months,  Arch does not expect
that resolution of the Year 2000 problem will have a material  adverse effect on
its  results  of  operations  and  financial  condition.  Costs of the Year 2000
project are based on current estimates and actual results may vary significantly
from such estimates once detailed plans are developed and implemented.

   While it is Arch's  stated goal to be  compliant,  on an internal  basis,  by
September  30,  1999,  Arch  may face  the  possibility  that one or more of its
mission critical vendors,  such as its utility providers,  telephone carriers or
satellite carriers, may not be Year 2000 compliant. Because of the unique nature
of such vendors,  alternative  providers of these services may not be available.
Additionally, although Arch has initiated its test plan for its business-related
hardware and software applications,  there can be no assurance that such testing
will detect all  applications  that may be  affected  by the Year 2000  problem.
Lastly, Arch does not manufacture any of the pagers or paging-related  equipment
used by its customers or for its own paging operations.  Although Arch is in the
process  of  testing of such  equipment  it has relied to a large  extent on the
representations  and assessments of its vendors with respect to their readiness.
Arch can offer no assurances as to the accuracy of such vendors' representations
and assessments.

   Arch has  initiated  the process of designing  and  implementing  contingency
plans  relating to the Year 2000  problem.  To this end,  each  department  will
identify the likely risks and determine commercially  reasonable solutions.  The
Y2K  Project  Group  will  collect  and  review  the  determinations  on  both a
department-by-department  and company-wide  basis.  Arch intends to complete its
Year 2000 contingency planning during calendar year 1999.



                                       25
<PAGE>

   NO DIVIDENDS

   Arch has never  declared or paid cash  dividends.  Arch does not  intend,  to
declare or pay any cash dividends in the foreseeable  future.  Certain covenants
in the API  Credit  Facility  and in other  Arch debt  instruments,  effectively
prohibit  the  declaration  or  payment  of  cash  dividends  by  Arch  for  the
foreseeable  future.  In  addition,  the terms of the Series C  Preferred  Stock
generally  prohibit  the payment of cash  dividends  on Common  Stock unless all
accrued and unpaid  dividends on the Series C Preferred  Stock are paid in full.
See "Market for Registrant's Common Equity and Related Stockholder Matters".

   HISTORY OF LOSSES

   Since its inception,  Arch has not reported any net income. Arch reported net
losses of $114.7  million,  $181.9  million,  $206.1 million in the fiscal years
ended  December 31, 1996,  1997 and 1998,  respectively.  These  historical  net
losses have resulted principally from substantial  depreciation and amortization
expense, primarily related to intangible assets and pager depreciation, interest
expense and other costs of growth. Substantial and increased amounts of debt are
expected to be  outstanding  for the  foreseeable  future,  which will result in
significant  additional  interest  expense  which could have a material  adverse
effect  on  Arch.  Arch  expects  to  continue  to  report  net  losses  for the
foreseeable  future,  whether or not the MobileMedia Merger is consummated.  See
Arch's Consolidated Financial Statements included elsewhere herein.

   VOLATILITY OF TRADING PRICE

   The market price of Common Stock is subject to  significant  fluctuation  and
has  recently  declined.  Between  November  1, 1997 and  January 4,  1999,  the
reported  sale price of Common  Stock on the NASDAQ  National  Market has ranged
from a low of $.6875  per share (in  October  1998) to a high of $8.00 per share
(in November 1997).  The trading price of Common Stock following the MobileMedia
Merger will likely be affected by numerous  factors,  including the risk factors
set forth  herein,  as well as  prevailing  economic  and  financial  trends and
conditions in the public securities markets. During recent periods, share prices
of paging  companies  such as Arch have  exhibited a high degree of  volatility.
Shortfalls  in  revenues  or EBITDA  from the levels  anticipated  by the public
markets could have an immediate and  significant  adverse  effect on the trading
price of Arch's Common Stock in any given  period.  Such  shortfalls  may result
from events that are beyond Arch's immediate  control and can be  unpredictable.
The  trading  price of  Arch's  shares  may also be  affected  by  developments,
including  reported  financial results and fluctuations in trading prices of the
shares of other publicly held companies in the paging industry generally,  which
may  not  have  any  direct  relationship  with  Arch's  business  or  long-term
prospects.  See "Market for Registrant's  Common Equity and Related  Stockholder
Matters".

   INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE

   Arch is highly leveraged. At December 31, 1998, Arch and its subsidiaries had
outstanding $1.0 billion of total debt,  including (i) $125.0 million  principal
amount of ACI's 9 1/2%  Senior  Notes due 2004  (the "ACI 9 1/2%  Notes"),  (ii)
$100.0 million principal amount of ACI's 14% Senior Notes due 2004 (the "ACI 14%
Notes"),  (iii) $127.6 million  accreted value of ACI's 12 3/4% Senior Notes due
2007 (the "ACI 12 3/4%  Notes" and,  together  with the ACI 9 1/2% Notes and the
ACI 14% Notes,  the "ACI  Notes"),  (iv) $369.5  million  accreted  value of the
Senior  Discount  Notes,  (v) $13.4  million  principal  amount of Arch's 6 3/4%
Convertible Subordinated Debentures due 2003 (the "Arch Convertible Debentures")
and (vi) $267.0 million of borrowings under the API Credit Facility. Arch's high
degree of leverage may have adverse  consequences for Arch,  including:  (i) the
ability  of  Arch to  obtain  additional  financing  for  acquisitions,  working
capital, capital expenditures or other purposes, may be impaired or extinguished
or such  financing may not be available on acceptable  terms,  if at all; (ii) a
substantial  portion of the  Adjusted  EBITDA will be  required to pay  interest
expense,  which will reduce the funds which would  otherwise  be  available  for
operations and future business opportunities;  (iii) the API Credit Facility and
the indentures (the "Arch Indentures") under which the ACI Notes are outstanding
contain  financial and restrictive  covenants,  the failure to comply with which
may result in an event of default  which,  if not cured or waived,  could have a
material adverse effect on Arch; (iv) Arch may be more highly leveraged than its
competitors  which may place it at a competitive  disadvantage;  (v) Arch's high
degree of leverage will make it more vulnerable to a downturn in its business or
the economy  generally;  and (vi) Arch's high degree of leverage  may impair its
ability to participate in the future consolidation of the paging industry.  Arch
has  implemented  various  initiatives to reduce capital costs while  sustaining
acceptable  levels  of unit and  revenue  growth.  As a result,  Arch's  rate of
internal  growth in units in service has slowed and is expected to remain  below
the rates of internal growth  previously  achieved by Arch, but Arch has not yet
reduced its financial  leverage  significantly.  There can be no assurance  that
Arch will be able to reduce its financial  leverage  significantly  or that Arch


                                       26
<PAGE>

will achieve an appropriate balance between growth which it considers acceptable
and future  reductions  in  financial  leverage.  If Arch is not able to achieve
continued  growth in  EBITDA,  it may be  precluded  from  incurring  additional
indebtedness  due  to  cash  flow  coverage  requirements  under  existing  debt
instruments.  EBITDA  is  not a  measure  defined  in  GAAP  and  should  not be
considered in isolation or as a substitute for measures of performance  prepared
in accordance  with GAAP.  Adjusted  EBITDA may not necessarily be comparable to
similarly  titled  data of  other  paging  companies.  See  Arch's  Consolidated
Financial Statements and Notes thereto included elsewhere herein.

   MOBILEMEDIA MERGER CASH REQUIREMENTS

   To fund the estimated  cash payments  required by the  MobileMedia  Merger of
approximately  $347.0 million (consisting of $262.0 million to fund a portion of
the cash payments to MobileMedia's  secured  creditors and $85.0 million to fund
estimated  administrative  expenses,  amounts to be outstanding at the Effective
Time under the DIP Credit Agreement and transaction expenses),  API and The Bank
of New York,  Toronto Dominion (Texas),  Inc., Royal Bank of Canada and Barclays
Bank, PLC have executed a commitment letter for a $200.0 million increase to the
API  Credit  Facility  (the "API  Credit  Facility  Increase").  The API  Credit
Facility Increase was approved on November 16, 1998 by all API lenders, provided
the MobileMedia Transactions were completed prior to March 31, 1999. As a result
of the  resolicitation  of votes of the holders of Class 6 creditors,  it is not
possible  to  consummate  the   MobileMedia   Merger  by  March  31,  1999.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  --Liquidity and Capital Resources --API Credit  Facility".  The four
API lenders that were to fund the API Credit  Facility  Increase have  indicated
their  willingness  to seek approval to extend $135.0  million of the API Credit
Facility Increase through June 30, 1999, subject to formal approval,  definitive
documentation  and  negotiation  of certain terms.  In addition,  ACI intends to
issue $200.0 million of new senior notes (the "Planned ACI Notes"). There can be
no  assurance  that Arch will  complete  an offering of the Planned ACI Notes on
terms  satisfactory  to it,  if at all.  As a result,  ACI and The Bear  Stearns
Companies,  Inc., TD Securities (USA), Inc., the Bank of New York and Royal Bank
of Canada have executed a commitment letter for a $120.0 million bridge facility
(the  "Bridge  Facility")  which would be available to Arch in the absence of an
offering of the Planned ACI Notes.  The Bridge  Facility was scheduled to expire
on February 28, 1999 but ACI elected to extend it to June 30, 1999.  The Planned
ACI Notes, the Bridge Facility and the MobileMedia  Merger each require approval
by the Required Lenders (as defined in the API Credit  Facility),  and there can
be no assurance such approval will be granted. If API's lenders do not grant the
foregoing  approvals,  and Arch is not able to arrange alternative  financing to
make the cash payments  required by the  MobileMedia  Merger and therefore could
not  consummate  the  MobileMedia  Merger,  and Arch's  failure  to perform  its
obligations  under the MobileMedia  Merger  Agreement is not otherwise  excused,
Arch will be liable  to pay the  MobileMedia  Breakup  Fee of $32.5  million  to
MobileMedia.

   API CREDIT FACILITY, BRIDGE FACILITY AND INDENTURE RESTRICTIONS

   The API Credit Facility,  the Bridge Facility and the Arch Indentures  impose
(or will impose) certain  operating and financial  restrictions on Arch. The API
Credit Facility requires API and, in certain cases,  ACI, to maintain  specified
financial ratios,  among other  obligations,  including a maximum leverage ratio
and a minimum  fixed charge  coverage  ratio,  each as defined in the API Credit
Facility. In addition, the API Credit Facility limits or restricts,  among other
things,  API's ability to: (i) declare dividends or redeem or repurchase capital
stock;  (ii) prepay,  redeem or purchase  debt;  (iii) incur liens and engage in
sale/leaseback  transactions;   (iv)  make  loans  and  investments;  (v)  incur
indebtedness  and  contingent  obligations;  (vi) amend or otherwise  alter debt
instruments   and  other   material   agreements;   (vii)   engage  in  mergers,
consolidations, acquisitions and asset sales; (viii) engage in transactions with
affiliates;  and (ix) alter its lines of  business  or  accounting  methods.  In
addition, the Bridge Facility and the Arch Indentures limit, among other things:
(i)  the  incurrence  of  additional  indebtedness  by Arch  and its  Restricted
Subsidiaries  (as  defined  therein);  (ii) the payment of  dividends  and other
restricted payments by Arch and its Restricted Subsidiaries;  (iii) asset sales;
(iv) transactions with affiliates; (v) the incurrence of liens; and (vi) mergers
and consolidations. Arch's ability to comply with such covenants may be affected
by events  beyond its  control,  including  prevailing  economic  and  financial
conditions.  A breach of any of these  covenants could result in a default under
the API Credit Facility,  the Bridge Facility and/or the Arch  Indentures.  Upon
the occurrence of an event of default under the API Credit Facility,  the Bridge
Facility  or the Arch  Indentures,  the  creditors  could  elect to declare  all
amounts  outstanding,   together  with  accrued  and  unpaid  interest,   to  be
immediately due and payable. If Arch were unable to repay any such amounts,  the
creditors  could  proceed  against  the  collateral  securing  certain  of  such
indebtedness.  If the  lenders  under the API  Credit  Facility  accelerate  the
payment of such indebtedness,  there can be no assurance that the assets of Arch
would  be  sufficient  to  repay  in  full  such   indebtedness  and  the  other
indebtedness  of Arch,  including  the Arch Notes and any  borrowings  under the


                                       27
<PAGE>

Bridge  Facility.  In  addition,  because  the API Credit  Facility,  the Bridge
Facility  and the Arch  Indentures  limit (or will limit) the ability of Arch to
engage in certain transactions except under certain  circumstances,  Arch may be
prohibited  from  entering  into  transactions  that could be beneficial to Arch
including  the  MobileMedia  Merger,  which is  subject to the  approval  of the
Required  Lenders  (as  defined  under the API  Credit  Facility).  Arch will be
incurring additional  indebtedness in connection with the MobileMedia Merger and
the Reorganization.

   POSSIBLE FLUCTUATIONS IN REVENUES AND OPERATING RESULTS

   Arch believes that future  fluctuations in its revenues and operating results
are possible as the result of many factors,  including  competition,  subscriber
turnover,  new service developments and technological change. Arch's current and
planned debt repayment  levels are, to a large extent,  fixed in the short term,
and are based in part on its expectations as to future revenues, and Arch may be
unable to adjust  spending  in a timely  manner to  compensate  for any  revenue
shortfall.  Due to the  foregoing or other  factors,  it is possible that due to
future  fluctuations,  Arch's  revenue  or  operating  results  may not meet the
expectations  of  securities  analysts or  investors,  which may have a material
adverse effect on the price of Arch's Common Stock. See "Market for Registrant's
Common Equity and Related Stockholder Matters".

   DIVISIONAL REORGANIZATION

   In June 1998, the Arch Board approved the Divisional Reorganization.  As part
of such reorganization,  which is expected to be implemented over a period of 18
to 24 months,  Arch has  consolidated  its former Midwest,  Western and Northern
divisions  into four  existing  operating  divisions  and is in the  process  of
consolidating  certain  regional  administrative  support  functions,   such  as
customer service,  collections,  inventory and billing, to reduce redundancy and
to take advantage of various operating efficiencies. Once fully implemented, the
Divisional  Reorganization  is  expected  to result in annual  cost  savings  of
approximately  $15.0  million.  Arch expects to reinvest a portion of these cost
savings  to expand  its sales  activities.  In  connection  with the  Divisional
Reorganization, Arch (i) anticipates a net reduction of approximately 10% of its
workforce,  (ii) plans to close certain office locations and redeploy other real
estate  assets and (iii)  recorded a  restructuring  charge of $14.7  million in
1998. The  restructuring  charge consisted of approximately (i) $9.7 million for
employee severance, (ii) $3.5 million for lease obligations and terminations and
(iii) $1.5 million of other costs.  There can be no assurance  that the expected
cost savings will be achieved or that the reorganization of Arch's business will
be accomplished  smoothly,  expeditiously or  successfully.  The difficulties of
such  reorganization  may be increased  by the need to  integrate  MobileMedia's
operations  in multiple  locations and to combine two  corporate  cultures.  The
inability to successfully  integrate the operations of MobileMedia  would have a
material adverse effect on Arch.

   ANTI-TAKEOVER PROVISIONS

   Arch's Restated  Certificate of Incorporation,  as amended and Arch's By-laws
include  provisions for a classified Board of Directors,  the issuance of "blank
check"  preferred  stock  (the  terms  of which  may be fixed by the Arch  Board
without further  stockholder  approval),  a prohibition on stockholder action by
written  consent  in lieu  of a  meeting  and  certain  procedural  requirements
governing  stockholder  meetings.  Arch also has a stockholders  rights plan. In
addition,  Section 203 of the DGCL will, with certain exceptions,  prohibit Arch
from engaging in any business combination with any "interested  stockholder" (as
defined  therein)  for  a  three-year   period  following  the  date  that  such
stockholder  becomes an interested  stockholder.  Such  provisions  may have the
effect of delaying,  making more  difficult or preventing a change in control or
acquisition of Arch.

RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS

   In June 1997, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  ("SFAS")  No.  130  "Reporting   Comprehensive
Income".  SFAS No.  130  establishes  standards  for  reporting  and  display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general-purpose financial statements. Arch adopted SFAS No. 130
in 1998.  The adoption of this  standard did not have an effect on its reporting
of income.

   In June 1997, the Financial  Accounting  Standards  Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information".  SFAS No.
131 establishes  standards for reporting information about operating segments in
annual financial  statements and requires  selected  information about operating
segments in interim financial reports.  SFAS No. 131 also establishes  standards
for related disclosures about products and services,  geographic areas and major
customers.  Arch  adopted  SFAS No. 131 for its year ended  December  31,  1998.
Adoption of this standard did not have a significant impact on its reporting.

                                       28
<PAGE>

   In March 1998, the Accounting Standards Committee of the Financial Accounting
Standards Board issued  Statement of Position 98-1 ("SOP 98-1")  "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
establishes  criteria for capitalizing  costs of computer software  developed or
obtained for internal  use.  Arch adopted SOP 98-1 in 1998.  The adoption of SOP
98-1 has not had a material  effect on Arch's  financial  position or results of
operations.

   In April 1998, the Accounting  Standards Executive Committee of the Financial
Accounting  Standards  Board  issued  Statement  of Position  98-5 ("SOP  98-5")
"Reporting  on the Costs of Start-Up  Activities".  SOP 98-5  requires  costs of
start-up  activities  and  organization  costs to be expensed as incurred.  Arch
adopted SOP 98-5 effective January 1, 1999. Initial application of SOP 98-5 will
be reported as the cumulative  effect of a change in accounting  principle.  The
adoption  of SOP  98-5 is not  expected  to have a  material  effect  on  Arch's
financial position or results of operations.

   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 in 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  currently in earnings.  Arch intends to
adopt this standard  effective  January 1, 2000. Arch has not yet quantified the
impact of adopting SFAS No. 133 on its financial statements,  however,  adopting
SFAS No. 133 could  increase  volatility  in  earnings  and other  comprehensive
income.

                                       29
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The  majority of the  Company's  long-term  debt is subject to fixed rates of
interest or interest rate protection. In the event that the interest rate on the
Company's non-fixed rate debt fluctuates by 10% in either direction, the Company
believes  the  impact on its  results of  operations  would be  immaterial.  The
Company transacts  infrequently in foreign currency and therefore is not exposed
to significant foreign currency market risk.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The financial  statements  and schedules  listed in Item 14(a)(1) and (2) are
included in this Report beginning on Page F-1.

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

   None.


                                    PART III

   The information required by Items 10 through 13 are incorporated by reference
to the  Registrant's  definitive  Proxy Statement for its 1999 annual meeting of
stockholders scheduled to be held on May 18, 1999.



                                     PART IV

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

(a) (1)  Financial Statements

         Consolidated Balance Sheets as of December 31, 1997 and 1998

         Consolidated  Statements of  Operations  for Each of the Three Years in
            the Period Ended December 31, 1998

         Consolidated  Statements of Stockholders'  Equity (Deficit) for Each of
            the Three Years in the Period Ended December 31, 1998

         Consolidated  Statements  of Cash Flows for Each of the Three  Years in
            the Period Ended December 31, 1998

         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, 1998.

(c)      Exhibits

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


                                       30
<PAGE>

                                   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.

                                        ARCH COMMUNICATIONS GROUP, INC.




                                        By:      /s/  C. Edward Baker, Jr.
                                           -------------------------------------
                                               C. Edward Baker, Jr.
                                               Chairman of the Board and Chief 
                                               Executive Officer
   March 18, 1999

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.      Chairman of the Board and        March 18, 1999
---------------------------     Chief Executive Officer 
  C. Edward Baker, Jr.          (principal executive officer)



  /s/ John B. Saynor            Executive Vice President,        March 18, 1999
---------------------------     Director     
  John B. Saynor



  /s/ J. Roy Pottle             Executive Vice President         March 18, 1999
---------------------------     and Chief Financial Officer 
  J. Roy Pottle                 (principal financial officer and
                                principal accounting officer)


  /s/ R. Schorr Berman          Director                         March 18, 1999
---------------------------
  R. Schorr Berman



                                Director                         
---------------------------
  James S. Hughes



  /s/ John Kornreich            Director                         March 18, 1999
---------------------------
  John Kornreich



  /s/ Allan L. Rayfield         Director                         March 18, 1999
---------------------------
  Allan L. Rayfield



  /s/ John A. Shane             Director                         March 18, 1999
---------------------------
  John A. Shane


                                       31
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS



                                                                           Page
                                                                           ----
Report of Independent Public Accountants ................................   F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998 ............   F-3

Consolidated Statements of Operations for Each of the Three Years 
  in the Period Ended December 31, 1998 .................................   F-4

Consolidated Statements of Stockholders' Equity (Deficit) for Each 
  of the Three Years in the Period Ended December 31, 1998 ..............   F-5

Consolidated Statements of Cash Flows for Each of the Three Years 
  in the Period Ended December 31, 1998 .................................   F-6

Notes to Consolidated Financial Statements ..............................   F-7







                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Arch Communications Group, Inc.:

   We  have  audited  the  accompanying  consolidated  balance  sheets  of  Arch
Communications   Group,  Inc.  (a  Delaware  corporation)  (the  "Company")  and
subsidiaries  as of  December  31, 1997 and 1998,  and the related  consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended  December 31,  1998.  These  consolidated
financial  statements and the schedule referred to below are the  responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements and the schedule, based on our audits.

   We  conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  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  Communications  Group,  Inc. and  subsidiaries as of December 31, 1997 and
1998,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity  with generally
accepted accounting principles.

   Our  audits  were made for the  purpose  of  forming  an opinion on the basic
consolidated  financial statements taken as a whole. The schedule listed in Item
14(a)(2) 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  audits  of the  basic  consolidated  financial  statements  and,  in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
consolidated financial statements taken as a whole.





                                       /s/ Arthur Andersen LLP



   Boston, Massachusetts
   February 24, 1999




                                      F-2
<PAGE>

                         ARCH COMMUNICATIONS GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1998
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>

                                                                               1997          1998
                                                                               ----          ----
                                                ASSETS
<S>                                                                        <C>            <C>        
Current assets:
    Cash and cash equivalents.........................................     $     3,328    $     1,633
    Accounts receivable (less reserves of $5,744 and $6,583 in 1997 and
      1998, respectively).............................................          30,147         30,753
    Inventories.......................................................          12,633         10,319
    Prepaid expenses and other........................................           4,917          8,007
                                                                           -----------    -----------
        Total current assets..........................................          51,025         50,712
                                                                           -----------    -----------
Property and equipment, at cost:
    Land, buildings and improvements..................................          10,089         10,480
    Paging and computer equipment.....................................         361,713        400,312
    Furniture, fixtures and vehicles..................................          16,233         17,381
                                                                           -----------    -----------
                                                                               388,035        428,173 
    Less accumulated depreciation and amortization....................         146,542        209,128
                                                                           ------------   -----------
    Property and equipment, net.......................................         241,493        219,045
                                                                           ------------   -----------
Intangible and other assets (less accumulated amortization of $260,932
  and $372,122 in 1997 and 1998, respectively)........................         728,202        634,528
                                                                           -----------    -----------
                                                                           $ 1,020,720    $   904,285
                                                                           ===========    ===========
<CAPTION>

                            LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S>                                                                        <C>            <C>   
Current liabilities:
    Current maturities of long-term debt..............................     $    24,513    $     1,250 
    Accounts payable..................................................          22,486         25,683 
    Accrued restructuring charge......................................              --         11,909
    Accrued expenses..................................................          11,894         11,689
    Accrued interest..................................................          11,249         20,997
    Customer deposits.................................................           6,150          4,528
    Deferred revenue..................................................           8,787         10,958
                                                                           -----------    -----------
        Total current liabilities.....................................          85,079         87,014
                                                                           -----------    -----------
Long-term debt, less current maturities...............................         968,896      1,003,499
                                                                           -----------    -----------
Other long-term liabilities...........................................              --         27,235
                                                                           -----------    -----------
Commitments and contingencies Stockholders' equity (deficit):
    Preferred stock--$.01 par value, authorized 10,000,000 shares; issued
      250,000 shares ($26,030 aggregate liquidation preference).......              --              3
    Common stock--$.01 par value, authorized 75,000,000 shares, issued
      and outstanding: 20,863,563 and 21,215,583 shares in 1997 and
      1998, respectively..............................................             209            212
    Additional paid-in capital........................................         351,210        378,077
    Accumulated deficit...............................................        (384,674)      (591,755)
                                                                           -----------    -----------
        Total stockholders' equity (deficit)..........................         (33,255)      (213,463)
                                                                           -----------    -----------
                                                                           $ 1,020,720    $   904,285
                                                                           ===========    ===========
</TABLE>





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


                                      F-3
<PAGE>

                         ARCH COMMUNICATIONS GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            Years Ended December 31,
               (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                1996          1997         1998
                                                               ------        ------       ------
<S>                                                          <C>           <C>          <C>       
Service, rental and maintenance revenues..................   $  291,399    $  351,944   $  371,154
Product sales.............................................       39,971        44,897       42,481
                                                             ----------    ----------   ----------
     Total revenues.......................................      331,370       396,841      413,635
Cost of products sold.....................................      (27,469)      (29,158)     (29,953)
                                                             ----------    ----------   ----------
                                                                303,901       367,683      383,682
                                                             ----------    ----------   ----------
Operating expenses:
   Service, rental and maintenance........................       64,957        79,836       80,782
   Selling................................................       46,962        51,474       49,132
   General and administrative.............................       86,181       106,041      112,181
   Depreciation and amortization..........................      191,871       232,347      221,316
   Restructuring charge...................................           --            --       14,700
                                                             ----------    ----------   ----------
     Total operating expenses.............................      389,971       469,698      478,111
                                                             ----------    ----------   ----------
Operating income (loss)...................................      (86,070)     (102,015)     (94,429)
Interest expense..........................................      (77,353)      (98,063)    (105,979)
Interest income...........................................        1,426           904        1,766
Equity in loss of affiliate...............................       (1,968)       (3,872)      (5,689)
                                                             ----------    ----------   ----------
Income (loss) before income tax benefit and
   extraordinary item.....................................     (163,965)     (203,046)    (204,331)
Benefit from income taxes.................................       51,207        21,172           --
                                                             ----------    ----------   ----------
Income (loss) before extraordinary item...................     (112,758)     (181,874)    (204,331)
Extraordinary charge from early
   extinguishment of debt.................................       (1,904)           --       (1,720)
                                                             ----------    ----------   ----------
Net income (loss).........................................     (114,662)     (181,874)    (206,051)
Accretion of redeemable preferred stock...................         (336)          (32)          --
Preferred stock dividend..................................           --            --       (1,030)
                                                             ----------    ----------   ----------
Net income (loss) applicable to common
   stockholders...........................................   $ (114,998)   $ (181,906)  $ (207,081)
                                                             ==========    ==========   ==========
Basic/diluted income (loss) per common
   share before extraordinary item........................   $    (5.53)   $    (8.77)  $    (9.78)
Extraordinary charge from early
   extinguishment of debt per basic/diluted
   common share...........................................   $     (.09)   $       --   $     (.08)
                                                             ----------    ----------   ----------
Basic/diluted net income (loss) per common
   share..................................................   $    (5.62)   $    (8.77)  $    (9.86)
                                                             ==========    ==========   ==========
Basic/diluted weighted average number of
   common shares outstanding..............................   20,445,943    20,746,240   20,993,192
                                                             ==========    ==========   ==========
</TABLE>




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






                                      F-4
<PAGE>

                         ARCH COMMUNICATIONS GROUP, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                                     Total
                                                                        Additional               Stockholders'
                                                 Preferred    Common      Paid-in    Accumulated    Equity
                                                   Stock       Stock      Capital      Deficit     (Deficit)
                                                 ---------   ---------   ---------    ---------    ---------
<S>                                              <C>         <C>         <C>          <C>          <C>      
Balance, December 31, 1995 ...................   $    --     $     197   $ 334,825    $ (88,138)   $ 246,884
   Exercise of options to purchase 169,308
     shares of common stock ..................        --             2       1,469         --          1,471
   Issuance of 46,842 shares of common
     stock under Arch's Employee Stock
     Purchase Plan ...........................        --          --           373         --            373
   Issuance of 843,039 shares of common
     stock upon conversion of convertible
     subordinated debentures .................        --             8      14,113         --         14,121
   Accretion of redeemable preferred stock ...        --          --          (336)        --           (336)
   Net loss ..................................        --          --          --       (114,662)    (114,662)
                                                 ---------   ---------   ---------    ---------    ---------
Balance, December 31, 1996 ...................        --           207     350,444     (202,800)     147,851
   Issuance of 151,343 shares of common
     stock under Arch's Employee Stock
     Purchase Plan ...........................        --             2         798         --            800
   Accretion of redeemable preferred stock ...        --          --           (32)        --            (32)
   Net loss ..................................        --          --          --       (181,874)    (181,874)
                                                 ---------   ---------   ---------    ---------    ---------
Balance, December 31, 1997 ...................        --           209     351,210     (384,674)     (33,255)
   Exercise of options to purchase 94,032
     shares of common stock ..................        --             1         293         --            294
   Issuance of 250,000 shares of preferred
     stock ...................................           3        --        24,997         --         25,000
   Issuance of 257,988 shares of common
     stock under Arch's Employee Stock
     Purchase Plan ...........................        --             2         547         --            549
   Preferred stock dividend ..................        --          --         1,030       (1,030)        --
   Net loss ..................................        --          --          --       (206,051)    (206,051)
                                                 ---------   ---------   ---------    ---------    ---------
Balance, December 31, 1998 ...................   $       3   $     212   $ 378,077    $(591,755)   $(213,463)
                                                 =========   =========   =========    =========    =========
</TABLE>






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




                                      F-5
<PAGE>

                         ARCH COMMUNICATIONS GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31,
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                   1996           1997           1998
                                                               -----------    -----------    -----------
<S>                                                            <C>            <C>            <C>         
Cash flows from operating activities:
  Net income (loss) ........................................   $  (114,662)   $  (181,874)   $  (206,051)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
  Depreciation and amortization ............................       191,871        232,347        221,316
  Deferred income tax benefit ..............................       (51,207)       (21,172)          --
  Extraordinary charge from early extinguishment of debt ...         1,904           --            1,720
  Equity in loss of affiliate ..............................         1,968          3,872          5,689
  Accretion of discount on senior notes ....................        24,273         33,259         37,115
  Gain on Tower Site Sale ..................................          --             --           (2,500)
  Accounts receivable loss provision .......................         8,198          7,181          8,545
  Changes in assets and liabilities,  net of effect from
    acquisitions of paging companies:
    Accounts receivable ....................................       (15,513)       (11,984)        (9,151)
    Inventories ............................................         1,845         (2,394)         2,314
    Prepaid expenses and other .............................            89           (386)        (3,090)
    Accounts payable and accrued expenses ..................       (12,520)         3,683         24,649
    Customer deposits and deferred revenue .................         1,556          1,058            549
                                                               -----------    -----------    -----------
Net cash provided by operating activities ..................        37,802         63,590         81,105
                                                               -----------    -----------    -----------
Cash flows from investing activities:
  Additions to property and equipment, net .................      (138,899)       (87,868)       (79,249)
  Additions to intangible and other assets .................       (26,307)       (14,901)       (33,935)
  Net proceeds from Tower Site Sale ........................          --             --           30,316
  Acquisition of paging companies, net of cash acquired ....      (325,420)          --             --
                                                               -----------    -----------    -----------
Net cash used for investing activities .....................      (490,626)      (102,769)       (82,868)
                                                               -----------    -----------    -----------
Cash flows from financing activities:
  Issuance of long-term debt ...............................       676,000         91,000        463,239
  Repayment of long-term debt ..............................      (225,166)       (49,046)      (489,014)
  Repayment of redeemable preferred stock ..................          --           (3,744)          --
  Net proceeds from sale of preferred stock ................          --             --           25,000
  Net proceeds from sale of common stock ...................         1,844            800            843
                                                               -----------    -----------    -----------
Net cash provided by financing activities ..................       452,678         39,010             68
                                                               -----------    -----------    -----------
Net decrease in cash and cash equivalents ..................          (146)          (169)        (1,695)
Cash and cash equivalents, beginning of period .............         3,643          3,497          3,328
                                                               -----------    -----------    -----------
Cash and cash equivalents, end of period ...................   $     3,497    $     3,328    $     1,633
                                                               ===========    ===========    ===========
Supplemental disclosure:
  Interest paid ............................................   $    48,905    $    62,231    $    57,151
                                                               ===========    ===========    ===========
  Issuance of common stock for convertible debentures ......   $    14,121    $      --      $      --
                                                               ===========    ===========    ===========
  Accretion of redeemable preferred stock ..................   $       336    $        32    $      --
                                                               ===========    ===========    ===========
  Preferred stock dividend .................................   $      --      $      --      $     1,030
                                                               ===========    ===========    ===========
  Liabilities assumed in acquisition of paging companies ...   $    58,233    $      --      $      --
                                                               ===========    ===========    ===========
</TABLE>




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



                                      F-6
<PAGE>



                         ARCH COMMUNICATIONS GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Organization and Significant Accounting Policies

   Organization--Arch  Communications Group, Inc. ("Arch" or the "Company") is a
leading provider of wireless messaging services,  primarily paging services, and
is the third  largest  paging  company in the United  States  (based on units in
service).

   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.

   Revenue  Recognition--Arch   recognizes  revenue  under  rental  and  service
agreements  with customers as the related  services are  performed.  Maintenance
revenues and related costs are recognized  ratably over the respective  terms of
the agreements. Sales of equipment are recognized upon delivery. Commissions are
recognized as an expense when incurred.

   Use of Estimates--The  preparation of financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

   Cash  Equivalents--Cash  equivalents  include  short-term,   interest-bearing
instruments  purchased  with  remaining  maturities of three months or less. The
carrying amount  approximates  fair value due to the relatively  short period to
maturity of these instruments.

   Inventories--Inventories  consist of new pagers which are held  primarily for
resale.  Inventories  are  stated  at the  lower of cost or  market,  with  cost
determined on a first-in, first-out basis.

   Property and Equipment--Pagers 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 and is  depreciated  using the  straight-line
method over the following estimated useful lives:

     Asset Classification                          Estimated Useful Life
     --------------------                          ---------------------
     Buildings and improvements..................         20 Years
     Leasehold improvements......................        Lease Term
     Pagers......................................          3 Years
     Paging and computer equipment...............         5-8 Years
     Furniture and fixtures......................         5-8 Years
     Vehicles....................................          3 Years

   Depreciation  and  amortization  expense  related to property  and  equipment
totaled $87.5  million,  $108.0  million and $101.1  million for the years ended
December 31, 1996, 1997 and 1998, respectively.

   Intangible and Other  Assets--Intangible and other assets, net of accumulated
amortization, are composed of the following (in thousands):

                                                            December 31,
                                                         1997         1998
                                                         ----         ----
     Goodwill.....................................   $ 312,017    $ 271,808
     Purchased FCC licenses.......................     293,922      256,519
     Purchased subscriber lists...................      87,281       56,825
     Deferred financing costs.....................       8,752       22,072
     Investment in Benbow PCS Ventures, Inc.......       6,189       11,347
     Investment in CONXUS Communications, Inc.....       6,500        6,500
     Non-competition agreements...................       2,783        1,790
     Other........................................      10,758        7,667
                                                     ---------    ---------
                                                     $ 728,202    $ 634,528
                                                     =========    =========

                                      F-7
<PAGE>

   Amortization  expense  related to intangible  and other assets totaled $104.4
million,  $124.3  million and $120.2  million for the years ended  December  31,
1996, 1997 and 1998, respectively.

   Subscriber  lists,  Federal  Communications  Commission  ("FCC") licenses and
goodwill are amortized over their estimated  useful lives,  ranging from five to
ten  years  using  the  straight-line  method.  Non-competition  agreements  are
amortized over the terms of the agreements using the straight-line method. Other
assets  consist of  contract  rights,  organizational  and FCC  application  and
development costs which are amortized using the straight-line  method over their
estimated  useful lives not exceeding ten years.  Development and start up costs
include nonrecurring,  direct costs incurred in the development and expansion of
paging  systems,  and are amortized over a two-year  period.  In April 1998, the
Accounting  Standards Executive Committee of the Financial  Accounting Standards
Board issued Statement of Position 98-5 ("SOP 98-5")  "Reporting on the Costs of
Start-Up  Activities".  SOP 98-5  requires  costs  of  start-up  activities  and
organization  costs to be expensed as incurred.  Arch adopted SOP 98-5 effective
January  1,  1999.  Initial  application  of SOP 98-5  will be  reported  as the
cumulative effect of a change in accounting principle.

   Deferred financing costs incurred in connection with Arch's credit agreements
(see Note 3) are being  amortized  over  periods  not to exceed the terms of the
related agreements.  As credit agreements are amended and restated,  unamortized
deferred financing costs are written off as an extraordinary charge. During 1996
and  1998,  charges  of  $1.9  million  and  $1.7  million,  respectively,  were
recognized in connection with the closing of new credit facilities.

   In connection  with Arch's May 1996  acquisition of Westlink  Holdings,  Inc.
("Westlink")  (see Note 2), Arch acquired  Westlink's 49.9% share of the capital
stock of Benbow PCS Ventures, Inc. ("Benbow").  Benbow has exclusive rights to a
50kHz  outbound/12.5kHz  inbound narrowband personal  communications  license in
each of the central and western regions of the United States. Arch is obligated,
to the extent such funds are not  available  to Benbow from other  sources,  and
subject to the approval of Arch's  designee on Benbow's  Board of Directors,  to
advance Benbow  sufficient funds to service debt obligations  incurred by Benbow
in connection with its acquisition of its narrowband PCS licenses and to finance
the build out of a regional  narrowband PCS system.  Arch's investment in Benbow
is  accounted  for under the equity  method  whereby  Arch's  share of  Benbow's
losses,  since  the  acquisition  date of  Westlink,  are  recognized  in Arch's
accompanying  consolidated  statements of operations under the caption equity in
loss of affiliate.

   On November 8, 1994, CONXUS  Communications,  Inc.  ("CONXUS"),  formerly PCS
Development  Corporation,  was  successful  in acquiring the rights to a two-way
paging  license  in five  designated  regions  in the  United  States in the FCC
narrowband wireless spectrum auction. As of December 31, 1998, Arch's investment
in CONXUS totaled $6.5 million and is accounted for under the cost method.

   In accordance with Statement of Financial  Accounting  Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To
Be Disposed Of" Arch evaluates the  recoverability  of its carrying value of the
Company's  long-lived  assets and certain  intangible  assets based on estimated
undiscounted  cash flows to be generated from each of such assets as compared to
the original estimates used in measuring the assets. To the extent impairment is
identified,  Arch reduces the carrying value of such impaired  assets.  To date,
Arch has not had any such impairments.

   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,  its debt financing and interest rate  protection  agreements.
The fair value of cash is equal to the  carrying  value at December 31, 1997 and
1998.

   As  discussed  in Note 3, Arch's  debt  financing  primarily  consists of (1)
senior bank debt, (2) fixed rate senior notes and (3)  convertible  subordinated
debentures. Arch considers the fair value of senior bank debt to be equal to the
carrying  value  since the  related  facilities  bear a current  market  rate of
interest.  Arch's fixed rate senior  notes are traded  publicly.  The  following
table depicts the fair value of the fixed rate senior notes and the  convertible
subordinated  debentures  based on the current  market  quote as of December 31,
1997 and 1998 (in thousands):

                                      F-8
<PAGE>
<TABLE>
<CAPTION>
                                                       December 31, 1997        December 31, 1998
                                                     ---------------------   ----------------------
                                                     Carrying                Carrying
      Description                                      Value    Fair Value     Value     Fair Value
      -----------                                    ---------  ----------   ---------   ----------
<S>                                                  <C>        <C>          <C>         <C>       
      10 7/8% Senior Discount Notes due 2008.......  $ 332,532  $  288,418   $ 369,506   $  221,704
      9 1/2% Senior Notes due 2004.................    125,000     122,488     125,000      112,500
      14% Senior Notes due 2004....................    100,000     112,540     100,000      103,000
      12 3/4% Senior Notes due 2007................        --          --      127,604      127,604
      6 3/4% Convertible Subordinated Debentures 
        due 2003...................................     13,364       7,968      13,364        6,682
</TABLE>


   Arch had off-balance-sheet  interest rate protection agreements consisting of
interest  rate  swaps and  interest  rate caps with  notional  amounts of $140.0
million and $80.0 million, respectively, at December 31, 1997 and $265.0 million
and $40.0  million,  respectively,  at December 31, 1998. The fair values of the
interest   rate  swaps  and   interest   rate  caps  were  $47,000  and  $9,000,
respectively,  at December  31,  1997.  The cost to  terminate  the  outstanding
interest  rate swaps and interest rate caps at December 31, 1998 would have been
$6.4 million. See Note 3.

   Basic/Diluted  Net Income  (Loss) Per Common Share -- In February  1997,  the
Financial  Accounting  Standards Board issued SFAS No. 128 "Earnings Per Share".
The Company adopted this standard in 1997. The adoption of this standard did not
have an effect on the  Company's  financial  position,  results of operations or
income  (loss) per share.  Basic net income  (loss) per common share is based on
the  weighted  average  number of  common  shares  outstanding.  Shares of stock
issuable  pursuant to stock  options  and upon  conversion  of the  subordinated
debentures  (see Note 3) or the Series C  Preferred  Stock (see Note 4) have not
been  considered,  as their effect would be  anti-dilutive  and thus diluted net
income (loss) per common share is the same as basic net income (loss) per common
share.

   Reclassifications--Certain  amounts of prior  periods  were  reclassified  to
conform with the 1998 presentation.

2.   Acquisitions

   In May 1996, Arch completed its  acquisition of all the  outstanding  capital
stock of  Westlink  for $325.4  million in cash,  including  direct  transaction
costs.  The  purchase  price was  allocated  based on the fair  values of assets
acquired and  liabilities  assumed  (including  deferred income taxes arising in
purchase  accounting),  which  amounted  to $383.6  million  and $58.2  million,
respectively.

   This acquisition has been accounted for as a purchase, and the results of its
operations have been included in the consolidated  financial statements from the
date of the  acquisition.  Goodwill  resulting  from  the  acquisition  is being
amortized over a ten-year period using the straight-line method.

   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 made at the beginning of the period presented, or of results that may occur
in the future.

                                                           Year Ended
                                                        December 31, 1996
                                                        -----------------
                                                   (unaudited and in thousands
                                                       except for per share
                                                             amounts)
    Revenues..............................................  $  358,900 
    Income (loss) before extraordinary item...............    (128,444)
    Net income (loss).....................................    (130,348)
    Basic/diluted net income (loss) per common share......       (6.39)



                                      F-9
<PAGE>

3.   Long-term Debt

   Long-term debt consisted of the following (in thousands):


                                                   December 31,
                                                 1997         1998
                                              ----------   ----------

     Senior Bank Debt .....................   $  422,500   $  267,000
     10 7/8% Senior Discount Notes due 2008      332,532      369,506
     9 1/2% Senior Notes due 2004 .........      125,000      125,000
     14% Senior Notes due 2004 ............      100,000      100,000
     12 3/4% Senior Notes due 2007 ........         --        127,604
     Convertible Subordinated Debentures ..       13,364       13,364
     Other ................................           13        2,275
                                              ----------   ----------
                                                 993,409    1,004,749
     Less-- Current maturities ............       24,513        1,250
                                              ----------   ----------
     Long-term debt .......................   $  968,896   $1,003,499
                                              ==========   ==========


   Senior Bank Debt--The Company, through its operating subsidiary, Arch Paging,
Inc.  ("API")  entered  into  senior  secured  revolving  credit  and term  loan
facilities in the aggregate  amount of $400.0  million  (collectively,  the "API
Credit Facility")  consisting of (i) a $175.0 million reducing  revolving credit
facility (the "Tranche A Facility"),  (ii) a $100.0  million  364-day  revolving
credit  facility under which the principal  amount  outstanding on June 27, 1999
will  convert  to a term  loan (the  "Tranche  B  Facility")  and (iii) a $125.0
million term loan (the "Tranche C Facility").

   The  Tranche A Facility  will be subject to  scheduled  quarterly  reductions
commencing on September 30, 2000 and will mature on June 30, 2005. The term loan
portion of the Tranche B Facility  will be amortized  in quarterly  installments
commencing  September 30, 2000, with an ultimate maturity date of June 30, 2005.
The  Tranche C Facility  will be  amortized  in annual  installments  commencing
December 31, 1999, with an ultimate maturity date of June 30, 2006.

   API's  obligations under the API Credit Facility are secured by its pledge of
its  interests  in Arch LLC and Arch  Connecticut  Valley,  Inc.  The API Credit
Facility is guaranteed by Arch, Arch  Communications,  Inc. ("ACI") and Arch LLC
and Arch  Connecticut  Valley,  Inc. Arch's  guarantee is secured by a pledge of
Arch's  stock  and  notes  in ACI,  and the  guarantees  of  Arch  LLC and  Arch
Connecticut Valley, Inc. are secured by a security interest in those assets that
were pledged under ACE's former credit facility.

   Borrowings  under the API Credit  Facility bear interest based on a reference
rate equal to either the Bank's  Alternate Base Rate or LIBOR, in each case plus
a margin  based on ACI's or API's  ratio of total  debt to  annualized  Adjusted
EBITDA.

   The API Credit Facility  requires payment of fees on the daily average amount
available  to be  borrowed  under  the  Tranche  A  Facility  and the  Tranche B
Facility,  which fees vary  depending  on ACI's or API's  ratio of total debt to
annualized Adjusted EBITDA.

   The API  Credit  Facility  requires  that at  least  50% of total  ACI  debt,
including outstanding  borrowings under the API Credit Facility, be subject to a
fixed  interest  rate or interest  rate  protection  agreements.  Entering  into
interest rate cap and swap  agreements  involves both the credit risk of dealing
with  counterparties  and their  ability to meet the terms of the  contracts and
interest rate risk. In the event of  nonperformance by the counterparty to these
interest  rate  protection  agreements,  API would be subject to the  prevailing
interest rates specified in the API Credit Facility.

   Under the interest rate swap agreements,  the Company will pay the difference
between  LIBOR and the fixed swap rate if the swap rate exceeds  LIBOR,  and the
Company will  receive the  difference  between  LIBOR and the fixed swap rate if
LIBOR  exceeds the swap rate.  Settlement  occurs on the  quarterly  reset dates
specified by the terms of the contracts.  The notional  principal  amount of the
interest  rate swaps  outstanding  was $65.0  million at December 31, 1998.  The
weighted  average fixed payment rate was 5.93%,  while the weighted average rate
of  variable  interest  payments  under  the API  Credit  Facility  was 5.30% at
December  31,  1998.  At  December  31,  1997 and 1998,  the  Company  had a net
receivable  of  $18,000  and a net  payable  of  $47,000,  respectively,  on the
interest rate swaps.

                                      F-10
<PAGE>

   The interest rate cap agreements will pay the Company the difference  between
LIBOR and the cap level if LIBOR  exceeds the cap levels at any of the quarterly
reset dates.  If LIBOR  remains  below the cap level,  no payment is made to the
Company. The total notional amount of the interest rate cap agreements was $40.0
million  with  cap  levels  between  7.5%  and  8% at  December  31,  1998.  The
transaction fees for these instruments are being amortized over the terms of the
agreements.

   The API Credit Facility contains restrictions that limit, among other things:
additional  indebtedness  and  encumbrances on assets;  cash dividends and other
distributions;  mergers and sales of assets;  the  repurchase  or  redemption of
capital stock; investments;  acquisitions that exceed certain dollar limitations
without the lenders' prior approval;  and prepayment of indebtedness  other than
indebtedness under the API Credit Facility. In addition, the API Credit Facility
requires API and its subsidiaries to meet certain financial covenants, including
covenants  with  respect  to ratios of EBITDA to fixed  charges,  EBITDA to debt
service,  EBITDA to interest  service and total  indebtedness  to EBITDA.  As of
December 31, 1998, API and its operating  subsidiaries  were in compliance  with
the covenants of the API Credit Facility.

   As of December 31, 1998, $267.0 million was outstanding and $93.5 million was
available  under the API Credit  Facility.  At December 31, 1998,  such advances
bore interest at an average annual rate of 8.45%.

   On  November  16,  1998,  the  lenders to API  approved  an increase in API's
existing  credit  facility  from $400.0  million to $600.0  million,  subject to
completing the MobileMedia Merger and certain other conditions.  The increase of
$200.0 million (the "API Credit Facility Increase") was to fund a portion of the
cash  necessary  for Arch to complete  the  MobileMedia  Merger.  The API Credit
Facility Increase was to be provided by four of API's existing lenders, provided
the MobileMedia Transactions were completed prior to March 31, 1999. As a result
of the  resolicitation  of votes of the holders of Class 6 creditors,  it is not
possible to consummate  the  MobileMedia  Merger by March 31, 1999. The four API
lenders that were to fund the API Credit Facility  Increase have indicated their
willingness to seek approval to extend $135.0 million of the API Credit Facility
Increase  through  June  30,  1999,  subject  to  formal  approval,   definitive
documentation and negotiation of certain terms.

   Senior  Notes--On March 12, 1996, Arch completed a public offering of 10 7/8%
Senior  Discount Notes due 2008 (the "Senior  Discount  Notes") in the aggregate
principal  amount at maturity of $467.4 million ($275.0 million initial accreted
value). Interest does not accrue on the Senior Discount Notes prior to March 15,
2001.  Commencing  September 15, 2001,  interest on the Senior Discount Notes is
payable  semi-annually  at an annual  rate of 10 7/8%.  The $266.1  million  net
proceeds  from the  issuance  of the  Senior  Discount  Notes,  after  deducting
underwriting  discounts  and  commissions  and  offering  expenses,   were  used
principally  to fund a portion of the purchase  price of Arch's  acquisition  of
Westlink (see Note 2).

   Interest on  ACI's 14% Senior Notes due 2004 (the "ACI 14% Notes")  and ACI's
9 1/2% Senior Notes due 2004 (the "ACI 9 1/2% Notes") (collectively, the "Senior
Notes") is payable  semiannually.  The Senior  Discount  Notes and Senior  Notes
contain certain restrictive and financial covenants,  which, among other things,
limit  the  ability  of Arch  or ACI  to:  incur  additional  indebtedness;  pay
dividends;  grant liens on its assets; sell assets; enter into transactions with
related parties; merge, consolidate or transfer substantially all of its assets;
redeem capital stock or subordinated debt; and make certain investments.

   Arch has entered into  interest rate swap  agreements in connection  with the
ACI 14%  Notes.  Under  the  interest  rate swap  agreements,  the  Company  has
effectively reduced the interest rate on the ACI 14% Notes from 14% to the fixed
swap rate of 9.45%. In the event of  nonperformance by the counterparty to these
interest  rate  protection  agreements,  the Company would be subject to the 14%
interest rate  specified on the notes.  As of December 31, 1998, the Company had
received  $2,275,000  in excess of the amounts  paid under the swap  agreements,
which is  included in  long-term  debt in the  accompanying  balance  sheet.  At
December  31,  1998,  the  Company  had a net  receivable  of  $733,500 on these
interest rate swaps.

   On June 29,  1998,  ACI issued and sold $130.0  million  principal  amount of
12 3/4%  Senior  Notes due 2007 (the "ACI 12 3/4%  Notes")  for net  proceeds of
$122.6  million  (after  deducting  the discount to the initial  purchasers  and
estimated  offering expenses payable by ACI). The ACI 12 3/4% Notes were sold at
an initial  price to investors of 98.049%.  The ACI 12 3/4% Notes mature on July
1, 2007 and bear interest at a rate of 12 3/4% per annum, payable  semi-annually
in arrears on January 1 and July 1 of each year, commencing January 1, 1999.

   The indenture under which the ACI 12 3/4% Notes were issued ("the Indenture")
contains certain covenants that, among other things, limit the ability of ACI to
incur  additional  indebtedness,  issue preferred  stock,  pay dividends or make
other  distributions,  repurchase  Capital Stock (as defined in the  Indenture),


                                      F-11
<PAGE>

repay subordinated indebtedness or make other Restricted Payments (as defined in
the  Indenture),  create certain  liens,  enter into certain  transactions  with
affiliates,  sell  assets,  issue or sell  Capital  Stock  of  ACI's  Restricted
Subsidiaries  (as defined in the  Indenture)  or enter into certain  mergers and
consolidations.

   Convertible  Subordinated  Debentures--On March 6, 1996, the holders of $14.1
million  principal amount of Arch's 6 3/4% Convertible  Subordinated  Debentures
due  2003  ("Arch  Convertible   Debentures")  elected  to  convert  their  Arch
Convertible  Debentures  into Arch common stock at a conversion  price of $16.75
per  share and  received  approximately  843,000  shares  of Arch  common  stock
together with a $1.6 million cash premium.

   Interest on the remaining outstanding Arch Convertible  Debentures is payable
semiannually  on June 1 and  December  1. The Arch  Convertible  Debentures  are
unsecured and are subordinated to all existing indebtedness of Arch.

   The Arch  Convertible  Debentures are  redeemable,  at the option of Arch, in
whole or in part, at certain prices declining  annually to 100% of the principal
amount at maturity plus accrued interest.  The Arch Convertible  Debentures also
are subject to  redemption  at the option of the holders,  at a price of 100% of
the  principal  amount plus accrued  interest,  upon the  occurrence  of certain
events.

   The Arch  Convertible  Debentures are convertible at their  principal  amount
into shares of Arch's  common stock at any time prior to  redemption or maturity
at an initial conversion price of $16.75 per share, subject to adjustment.

   Maturities of Debt--Scheduled long-term debt maturities at December 31, 1998,
are as follows (in thousands):


                  Year Ending December 31,
                  ------------------------
                  1999 .........................   $    1,250
                  2000 .........................       17,725
                  2001 .........................       29,650
                  2002 .........................       29,650
                  2003 .........................       43,014
                  Thereafter ...................      883,460
                                                   ----------
                                                   $1,004,749


4.   Redeemable Preferred Stock and Stockholders' Equity

   Redeemable  Preferred  Stock--In  connection  with the its merger  (the "USAM
Merger") with USA Mobile  Communications  Holdings,  Inc. ("USA  Mobile"),  Arch
assumed the obligations  associated with 22,530  outstanding  shares of Series A
Redeemable Preferred Stock issued by USA Mobile. The preferred stock is recorded
at its accreted  redemption  value,  based on 10% annual  accretion  through the
redemption  date.  On January 30,  1997,  all  outstanding  preferred  stock was
redeemed for $3.7 million in cash.

   Redeemable Series C Cumulative Convertible Preferred Stock--On June 29, 1998,
two  partnerships  managed by  Sandler  Capital  Management  Company,  Inc.,  an
investment  management  firm  ("Sandler"),  together  with certain other private
investors,  made an equity  investment  in Arch of $25.0  million in the form of
Series C Convertible  Preferred Stock of Arch ("Series C Preferred Stock").  The
Series C Preferred  Stock:  (i) is  convertible  into Common Stock of Arch at an
initial  conversion  price of $5.50 per share,  subject to certain  adjustments;
(ii) bears  dividends at an annual rate of 8.0%,  (A) payable  quarterly in cash
or, at Arch's  option,  through the  issuance of shares of Arch's  Common  Stock
valued at 95% of the then prevailing  market price or (B) if not paid quarterly,
accumulating and payable upon redemption or conversion of the Series C Preferred
Stock or  liquidation  of Arch;  (iii)  permits the holders after seven years to
require Arch, at Arch's option,  to redeem the Series C Preferred Stock for cash
or convert  such  shares  into  Arch's  Common  Stock  valued at 95% of the then
prevailing  market price of Arch's Common  Stock;  (iv) is subject to redemption
for cash or  conversion  into Arch's  Common  Stock at Arch's  option in certain
circumstances;  (v) in the event of a "Change  of  Control"  as  defined  in the
indenture  governing  Arch's 10 7/8% Senior Discount Notes due 2008 (the "Senior
Discount Notes Indenture"), requires Arch, at its option, to redeem the Series C
Preferred  Stock for cash or convert such shares into Arch's Common Stock valued
at 95% of the then  prevailing  market price of Arch's Common  Stock,  with such
cash  redemption or conversion  being at a price equal to 105% of the sum of the
original purchase price plus accumulated dividends;  (vi) limits certain mergers
or asset sales by Arch;  (vii) so long as at least 50% of the Series C Preferred
Stock remains outstanding, limits the incurrence of indebtedness and "restricted


                                      F-12
<PAGE>

payments"  in the  same  manner  as  contained  in  the  Senior  Discount  Notes
Indenture; and (viii) has certain voting and preemptive rights. Upon an event of
redemption  or  conversion,  Arch  currently  intends to convert  such  Series C
Preferred Stock into shares of Arch Common Stock.

   Stock Options--Arch has a 1989 Stock Option Plan (the "1989 Plan") and a 1997
Stock Option Plan (the "1997  Plan"),  which  provide for the grant of incentive
and  nonqualified  stock options to key employees,  directors and consultants to
purchase  Arch's common stock.  Incentive  stock options are granted at exercise
prices  not less  than  the fair  market  value  on the date of  grant.  Options
generally  vest over a  five-year  period  from the date of grant with the first
such vesting (20% of granted options)  occurring one year from the date of grant
and  continuing  ratably at 5% on a  quarterly  basis  thereafter.  However,  in
certain  circumstances,  options may be immediately  exercised in full.  Options
generally  have a duration of 10 years.  The 1989 Plan provides for the granting
of  options  to  purchase  a total of  1,128,944  shares  of common  stock.  All
outstanding  options on  September  7, 1995,  under the 1989 Plan,  became fully
exercisable  and vested as a result of the USAM Merger.  The 1997 Plan  provides
for the  granting of options to purchase a total of  6,000,000  shares of common
stock.

   Effective  October  23,  1996,  the  Compensation  Committee  of the Board of
Directors of Arch  authorized  the grant of new options to each employee who had
an  outstanding  option at a price greater than $12.50 (the fair market value of
Arch's common stock on October 23, 1996).  The new option would be for the total
number  of  shares  (both  vested  and  unvested)  subject  to  each  employee's
outstanding  stock  option  agreement(s).  As a result  of this  action  424,206
options were terminated and regranted at a price of $12.50.  The Company treated
this as a cancellation and reissuance under APB opinion No. 25,  "Accounting for
Stock Issued to Employees".

   As a result of the USAM Merger,  Arch assumed a stock option plan  originally
adopted by USA Mobile in 1994 and amended and  restated on January 26, 1995 (the
"1994 Plan"),  which provides for the grant of up to 601,500 options to purchase
Arch's common stock. Under the 1994 Plan, incentive stock options may be granted
to  employees  and  nonqualified  stock  options  may be granted  to  employees,
directors  and  consultants.  Incentive  stock  options  are granted at exercise
prices not less than the fair market value on the date of grant. Option duration
and vesting  provisions  are similar to the 1989 Plan. All  outstanding  options
under the 1994 Plan became fully  exercisable and vested as a result of the USAM
Merger.

   In January  1995,  Arch adopted a 1995 Outside  Directors'  Stock Option Plan
(the "1995  Directors'  Plan"),  which  terminated  upon  completion of the USAM
Merger.  Prior to termination of the 1995 Directors'  Plan,  15,000 options were
granted at an exercise price of $18.50 per share. Options have a duration of ten
years and vest over a  five-year  period  from the date of grant  with the first
such vesting (20% of granted options)  occurring one year from the date of grant
and continuing ratably at 5% on a quarterly basis thereafter.

   As a result of the USAM Merger, Arch assumed from USA Mobile the Non-Employee
Directors' Stock Option Plan (the "Outside Directors Plan"),  which provides for
the  grant  of  up  to  80,200  options  to  purchase  Arch's  common  stock  to
non-employee  directors  of Arch.  Outside  directors  receive  a grant of 3,000
options  annually  under  the  Outside  Directors  Plan,  and newly  elected  or
appointed  outside  directors receive options to purchase 3,000 shares of common
stock as of the date of their  initial  election  or  appointment.  Options  are
granted  at fair  market  value of  Arch's  common  stock on the date of  grant.
Options have a duration of ten years and vest over a three-year  period from the
date of grant with the first such vesting (25% of granted options)  occurring on
the date of grant and future vesting of 25% of granted options occurring on each
of the first three anniversaries of the date of grant.

   On December 16, 1997, the Compensation Committee of the Board of Directors of
Arch  authorized  the  Company to offer an  election  to its  employees  who had
outstanding  options at a price  greater  than $5.06 to cancel such  options and
accept  new  options at a lower  price.  In  January  1998,  as a result of this
election by certain of its employees,  the Company  canceled  1,083,216  options
with exercise prices ranging from $5.94 to $20.63 and granted the same number of
new options with an exercise price of $5.06 per share,  the fair market value of
the stock on December 16, 1997.

   On  December  29,  1997,  Arch  adopted  a  Deferred  Compensation  Plan  for
Nonemployee  Directors.  Under this plan,  outside directors may elect to defer,
for a specified period of time, receipt of some or all of the annual and meeting
fees which would  otherwise  be payable for service as a director.  A portion of
the deferred  compensation  may be converted  into phantom  stock units,  at the
election of the director.  The number of phantom stock units granted  equals the
amount of compensation to be deferred as phantom stock divided by the fair value
of Arch's common stock on the date the  compensation  would have  otherwise been
paid.  At the end of the  deferral  period,  the  phantom  stock  units  will be
converted to cash based on the fair market value of the  Company's  common stock


                                      F-13
<PAGE>

on the date of  distribution.  Deferred  compensation  is expensed  when earned.
Changes in the value of the phantom  stock units are recorded as  income/expense
based on the fair market value of the Company's common stock.

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

                                                                    Weighted
                                                                    Average
                                                        Number of   Exercise
                                                         Options      Price
    Options Outstanding at December 31, 1995 .......    1,005,755    $13.02
            Granted ................................      695,206     15.46
            Exercised ..............................     (169,308)     8.69
            Terminated .............................     (484,456)    21.60
                                                       ----------    ------
    Options Outstanding at December 31, 1996 .......    1,047,197     11.37
            Granted ................................      500,394      6.68
            Exercised ..............................         --        --
            Terminated .............................     (186,636)    10.65
                                                       ----------    ------
    Options Outstanding at December 31, 1997 .......    1,360,955      9.74
            Granted ................................    1,968,337      4.76
            Exercised ..............................      (94,032)     3.13
            Terminated .............................   (1,290,407)     9.51
                                                       ----------    ------
    Options Outstanding at December 31, 1998 .......    1,944,853    $ 5.17
                                                       ==========    ======
    Options Exercisable at December 31, 1998 .......      333,541    $ 6.92
                                                       ==========    ======


   The  following   table   summarizes  the  options   outstanding  and  options
exercisable by price range at December 31, 1998:

                                    Weighted
                                    Average    Weighted               Weighted
                                   Remaining   Average                Average
  Range of Exercise    Options    Contractual  Exercise    Options    Exercise
       Prices        Outstanding      Life       Price   Exercisable    Price
  $ 1.44 - $ 4.13      162,533        9.38      $ 3.36      4,500      $ 1.89
    4.53 -   4.53      511,201        9.17        4.53        --          --
    4.56 -   4.94      152,625        9.00        4.91      6,625        4.59
    5.06 -   5.06      969,057        9.04        5.06    231,827        5.06
    6.25 -  27.56      149,437        7.02       10.29     90,589       12.11
  ---------------    ---------        ----       -----    -------      ------
  $ 1.44 - $27.56    1,944,853        8.94      $ 5.17    333,541      $ 6.92
  ===============    =========        ====      ======    =======      ======


   Employee Stock Purchase Plans--On May 28, 1996, the stockholders approved the
1996  Employee  Stock  Purchase  Plan (the "1996  ESPP").  The 1996 ESPP  allows
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 1996, 1997 and 1998, 46,842, 151,343 and 257,988 shares were issued at an
average price per share of $7.97, $5.29 and $2.13, respectively. At December 31,
1998, 43,827 shares are available for future issuance.

   On January 26,  1999,  the  stockholders  approved  the 1999  Employee  Stock
Purchase Plan ( the "1999 ESPP").  The 1999 ESPP allows  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. The stockholders authorized 1,500,000
shares for future issuance under this plan.

   Accounting for Stock-Based  Compensation--Arch  accounts for its stock option
and stock purchase  plans under APB Opinion No. 25 "Accounting  for Stock Issued
to Employees". Since all options have been issued at a grant price equal to fair
market  value,  no  compensation  cost has been  recognized  in the Statement of
Operations.  Had  compensation  cost for these plans been determined  consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation",  Arch's net income


                                      F-14
<PAGE>

(loss) and income  (loss) per share would have been  increased to the  following
pro forma amounts:

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
                                                                    1996        1997          1998
                                                                -----------  -----------  -----------
                                                               (in thousands, except per share amounts)
<S>                                                             <C>          <C>          <C>        
     Net income (loss):                         As reported     $ (114,662)  $ (181,874)  $ (203,957)
                                                Pro forma         (115,786)    (183,470)    (205,971)
     Basic net income (loss) per common share:  As reported          (5.62)       (8.77)       (9.76)
                                                Pro forma            (5.68)       (8.85)       (9.86)
</TABLE>


   Because  the SFAS No. 123 method of  accounting  has not been  applied to the
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be  representative of that to be expected in future years. The fair
value  of each  option  grant  is  estimated  on the  date of  grant  using  the
Black-Scholes  option pricing model. In computing these pro forma amounts,  Arch
has 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 50% - 85%.

   The weighted average fair values  (computed  consistent with SFAS No. 123) of
options  granted  under all plans in 1996,  1997 and 1998 were $4.95,  $3.37 and
$2.78,  respectively.  The weighted  average fair value of shares sold under the
ESPP in 1996, 1997 and 1998 was $5.46, $2.83 and $1.88, respectively.

   Stockholders Rights Plan--Upon completion of the USAM Merger, Arch's existing
stockholders  rights  plan was  terminated.  In October  1995,  Arch's  Board of
Directors  adopted a new stockholders  rights plan (the "Rights") and declared a
dividend of one preferred stock purchase right (a "Right") for each  outstanding
share of common  stock to  stockholders  of record at the close of  business  on
October 25, 1995.  Each Right  entitles the  registered  holder to purchase from
Arch one  one-thousandth of a share of Series B Junior  Participating  Preferred
Stock, at a cash purchase price of $150, subject to adjustment.  Pursuant to the
Plan, the Rights  automatically  attach to and trade together with each share of
common stock. The Rights will not be exercisable or transferable separately from
the shares of common stock to which they are attached  until the  occurrence  of
certain  events.  The Rights  will expire on October 25,  2005,  unless  earlier
redeemed or exchanged by Arch in accordance with the Plan.

5.   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, 1997 and 1998 are as
follows (in thousands):

                                                  1997         1998
                                                  ----         ----
         Deferred tax assets ...............   $ 134,944    $ 179,484
         Deferred tax liabilities ..........     (90,122)     (67,652)
                                               ---------    ---------
                                                  44,822      111,832
         Valuation allowance ...............     (44,822)    (111,832)
                                               ---------    ---------
                                               $     --     $     --
                                               =========    =========


                                      F-15
<PAGE>

   The approximate effect of each type of temporary  difference and carryforward
at December 31, 1997 and 1998 is summarized as follows (in thousands):

                                                     1997          1998
                                                  ---------     ---------
     Net operating losses.....................    $ 106,214     $ 128,213
     Intangibles and other assets.............      (87,444)      (62,084)
     Depreciation of property and equipment...       24,388        39,941
     Accruals and reserves....................        1,664         5,762
                                                  ---------     ---------
                                                     44,822       111,832
     Valuation allowance......................      (44,822)     (111,832)
                                                  ---------     ---------
                                                  $     --      $     --
                                                  =========     =========

   The  effective  income tax rate differs from the  statutory  federal tax rate
primarily due to the nondeductibility of goodwill amortization and the inability
to recognize  the benefit of current net operating  loss ("NOL")  carryforwards.
The NOL carryforwards expire at various dates through 2013. The Internal Revenue
Code contains  provisions that may limit the NOL  carryforwards  available to be
used in any given year if certain events occur, including significant changes in
ownership, as defined.

   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.

6.   Commitments and Contingencies

   In the ordinary  course of  business,  the Company and its  subsidiaries  are
defendants in a variety of judicial  proceedings.  In the opinion of management,
there is no proceeding  pending,  or to the knowledge of management  threatened,
which, in the event of an adverse  decision,  would result in a material adverse
change in the financial condition of the Company.

   Arch has operating leases for office and transmitting  sites with lease terms
ranging from one month to approximately  ten 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, 1998 are as follows (in thousands):

                    Year Ending December 31,
                    ------------------------
                    1999 .........................   $21,372
                    2000 .........................    13,826
                    2001 .........................     8,853
                    2002 .........................     6,026
                    2003 .........................     2,495
                    Thereafter ...................     1,516
                                                     -------
                         Total ...................   $54,088
                                                     =======


   Total rent expense under  operating  leases for the years ended  December 31,
1996, 1997 and 1998 approximated $14.7 million, $19.8 million and $19.6 million,
respectively.

7.   Employee Benefit Plans

   Retirement Savings Plan--Arch has a retirement savings plan, qualifying under
Section  401(k) of the Internal  Revenue Code covering  eligible  employees,  as
defined.  Under the plan, 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 plan  provides for employer  matching
contributions.  Matching  contributions  for the years ended  December 31, 1996,
1997 and 1998 approximated $217,000, $302,000 and $278,000, respectively.


                                      F-16
<PAGE>

8.   Tower Site Sale

   In April 1998,  Arch announced an agreement to sell certain of its tower site
assets (the "Tower Site Sale") for approximately  $38.0 million in cash (subject
to  adjustment),  of which $1.3  million  was paid to entities  affiliated  with
Benbow in payment for certain  assets owned by such entities and included in the
Tower Site Sale. In the Tower Site Sale, Arch is selling  communications towers,
real estate, site management  contracts and/or leasehold interests involving 133
sites in 22 states  and will  rent  space on the  towers  on which it  currently
operates  communications  equipment to service its own paging network. Arch used
its net proceeds  from the Tower Site Sale to repay  indebtedness  under the API
Credit  Facility.  Arch held the initial  closing of the Tower Site Sale on June
26, 1998 with gross proceeds to Arch of approximately  $12.0 million  (excluding
$1.3  million  which was paid to  entities  affiliated  with  Benbow for certain
assets which such entities sold as part of this  transaction)  and held a second
closing on September 29, 1998 with gross proceeds to Arch of approximately $20.4
million.  

   Arch entered into options to repurchase  each site and until this  continuing
involvement   ends  the  gain  is  deferred  and  included  in  other  long-term
liabilities.  At December  31, 1998,  Arch had sold 117 of the 133 sites,  which
resulted in a total gain of approximately $23.5 million and through December 31,
1998  approximately  $2.5  million  of this  gain  had  been  recognized  in the
statement of operations and is included in operating income.

9.   Divisional Reorganization

   In June 1998,  Arch's Board of Directors  approved a reorganization of Arch's
operations  (the  "Divisional  Reorganization").   As  part  of  the  Divisional
Reorganization,  which is being  implemented  over a period of 18 to 24  months,
Arch has  consolidated its former Midwest,  Western and Northern  divisions into
four existing operating divisions and is in the process of consolidating certain
regional   administrative   support   functions,   such  as  customer   service,
collections,  inventory and billing,  to reduce redundancy and take advantage of
various   operating   efficiencies.    In   connection   with   the   Divisional
Reorganization, Arch (i) anticipates a net reduction of approximately 10% of its
workforce, (ii) is closing certain office locations and redeploying other assets
and (iii) recorded a restructuring  charge of $14.7 million,  or $0.70 per share
(basic and diluted) in 1998. The restructuring charge consisted of approximately
(i) $9.7 million for employee severance, (ii) $3.5 million for lease obligations
and terminations and (iii) $1.5 million of other costs.

   The provision for lease  obligations and  terminations  relates  primarily to
future lease  commitments on local,  regional and divisional  office  facilities
that  will be  closed  as  part of the  Divisional  Reorganization.  The  charge
represents future lease  obligations,  on such leases past the dates the offices
will be closed by the Company,  or for certain  leases,  the cost of terminating
the leases prior to their scheduled expiration.  Cash payments on the leases and
lease  terminations  will occur over the remaining lease terms,  the majority of
which expire prior to 2001.

   Through  the  elimination  of  certain  local  and  regional   administrative
operations and the consolidation of certain support functions,  the Company will
eliminate  approximately  280 net positions.  As a result of  eliminating  these
positions,  the Company will involuntarily terminate an estimated 900 personnel.
The  majority  of the  positions  to be  eliminated  will be related to customer
service,  collections,  inventory  and billing  functions  in local and regional
offices which will be closed as a result of the Divisional Reorganization. As of
December 31, 1998,  217  employees  had been  terminated  due to the  Divisional
Reorganization. The majority of the remaining severance and benefits costs to be
paid by the Company will be paid during 1999.

   The  Company's  restructuring  activity as of December 31, 1998 is as follows
(in thousands):


                                 Reserve
                                Initially     Utilization of    Remaining
                               Established       Reserve         Reserve
                               -----------       -------         -------
     Severance costs .........   $ 9,700         $ 2,165         $ 7,535
     Lease obligation costs ..     3,500             366           3,134
     Other costs .............     1,500             260           1,240
                                 -------         -------         -------
           Total .............   $14,700         $ 2,791         $11,909
                                 =======         =======         =======



                                      F-17
<PAGE>

10.      Segment Reporting

   The Company operates in one industry:  providing wireless messaging services.
On December 31, 1998, the Company operated approximately 175 retail stores in 35
states of the United States.

11.   Quarterly Financial Results (Unaudited)

   Quarterly  financial  information  for the years ended  December 31, 1997 and
1998 is summarized below (in thousands, except per share amounts):

<TABLE>
<CAPTION>


                                                          First      Second       Third        Fourth
                                                          Quarter     Quarter      Quarter     Quarter
<S>                                                      <C>         <C>         <C>          <C>      
Year Ended December 31, 1997:
Revenues...........................................      $  95,539   $  98,729   $ 101,331    $ 101,242
Operating income (loss)............................        (26,632)    (29,646)    (27,208)     (18,529)
Net income (loss)..................................        (45,815)    (49,390)    (47,645)     (39,024)
Basic net income (loss) per common share:
   Net income (loss)...............................          (2.21)      (2.38)      (2.29)       (1.88)
Year Ended December 31, 1998:
Revenues...........................................      $ 102,039   $ 103,546   $ 104,052    $ 103,998
Operating income (loss)............................        (19,418)    (35,356)    (20,783)     (18,872)
Income (loss) before extraordinary item............        (45,839)    (62,277)    (47,994)     (48,221)
Extraordinary charge...............................             --      (1,720)        --           --
Net income (loss)..................................        (45,839)    (63,997)    (47,994)     (48,221)
Basic net income (loss) per common share:
   Income (loss) before extraordinary item.........          (2.20)      (2.97)      (2.30)       (2.31)
   Extraordinary charge............................            --         (.08)        --           --
   Net income (loss)...............................          (2.20)      (3.05)      (2.30)       (2.31)
</TABLE>




                                      F-18
<PAGE>
                                                                  SCHEDULE II

                         ARCH COMMUNICATIONS GROUP, INC.

                        VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 1996, 1997 and 1998
                                 (in thousands)

<TABLE>
<CAPTION>


                                                Balance at                      Other                     Balance
                                                Beginning    Charged to     Additions to                  at End of
       Allowance for Doubtful Accounts          of Period      Expense      Allowance(1)     Write-Offs     Period
       -------------------------------          ---------      -------      ------------     ----------     ------
<S>                                               <C>            <C>           <C>            <C>          <C>    
Year ended December 31, 1996.............         $  2,125       $ 8,198       $ 1,757        $ (7,969)    $ 4,111
                                                  ========       =======       =======        ========     =======
Year ended December 31, 1997.............         $  4,111       $ 7,181       $    --        $ (5,548)    $ 5,744
                                                  ========       =======       =======        ========     =======
Year ended December 31, 1998.............         $  5,744       $ 8,545       $    --        $ (7,706)    $ 6,583
                                                  ========       =======       =======        ========     =======
<FN>
(1)      Additions arising through acquisitions of paging companies
</FN>
</TABLE>






<TABLE>
<CAPTION>
                                                Balance at                                                Balance
                                                Beginning    Charged to       Other                      at End of
        Accrued Restructuring Charge            of Period      Expense      Additions     Deductions       Period
        ----------------------------            ---------      -------      ---------     ----------       ------
<S>                                                <C>           <C>           <C>           <C>           <C>    
Year ended December 31, 1998.............          $    --       $14,700       $    --       $ (2,791)     $11,909
                                                   =======       =======       =======       ========      =======
</TABLE>




                                      S-1
<PAGE>

                                  EXHIBIT INDEX



     2.1  Agreement and Plan of Merger, dated as of August 18, 1998 by and among
          Arch  Communications   Group,  Inc.,  Farm  Team  Corp.,   MobileMedia
          Corporation and MobileMedia Communications, Inc. (1)
     2.2  First Amendment to Agreement and Plan of Merger, dated as of September
          3, 1998, by and among Arch Communications Group, Inc., Farm Team Corp.
          and MobileMedia Communications, Inc. (1)
     2.3  Second Amendment to Agreement and Plan of Merger, dated as of December
          1, 1998, by and among Arch Communications Group, Inc., Farm Team Corp.
          and MobileMedia Communications, Inc. (1)   
     2.4  Third Amendment to Agreement and Plan of Merger,  dated as of February
          8, 1999 by and among Arch Communications Group, Inc., Farm Team Corp.,
          MobileMedia Corporation and MobileMedia Communications, Inc. (14)
     3.1  Restated Certificate of Incorporation. (2)
     3.2  Certificate  of   Designations   establishing   the  Series  B  Junior
          Participating Preferred Stock. (3)
     3.3  Certificate  of  Correction,  filed  with  the  Secretary  of State of
          Delaware on February 15, 1996.  (2) 3.4  Certificate  of  Designations
          establishing the Series C Convertible Preferred Stock. (4)
     3.5  Form of  Certificate  of  Amendment  to the  Restated  Certificate  of
          Incorporation. (1)
     3.6  Form of  Certificate  of  Amendment  to the  Restated  Certificate  of
          Incorporation. (1)
     3.7  By-laws, as amended. (2)
     4.1  Indenture,  dated February 1, 1994, between Arch Communications,  Inc.
          (formerly  known as USA  Mobile  Communications,  Inc.  II) and United
          States Trust Company of New York,  as Trustee,  relating to the 9 1/2%
          Senior Notes due 2004 of Arch Communications, Inc. (5)
     4.2  Indenture, dated December 15, 1994, between Arch Communications,  Inc.
          and United States Trust  Company of New York, as Trustee,  relating to
          the 14% Senior Notes due 2004 of Arch Communications, Inc. (6)
     4.3  Indenture, dated June 29, 1998, between Arch Communications,  Inc. and
          U.S. Bank Trust National Association,  as Trustee,  relating to the 12
          3/4% Senior Notes due 2007 of Arch Communications, Inc. (4)
    10.1  Second Amended and Restated Credit Agreement  (Tranche A and Tranche C
          Facilities), dated June 29, 1998, among Arch Paging, Inc., the Lenders
          party thereto,  The Bank of New York, Royal Bank of Canada and Toronto
          Dominion (Texas), Inc. (4)
    10.2  Second  Amended and Restated  Credit  Agreement  (Tranche B Facility),
          dated June 29,  1998,  among Arch  Paging,  Inc.,  the  Lenders  party
          thereto.  The Bank of New  York,  Royal  Bank of  Canada  and  Toronto
          Dominion (Texas), Inc. (4)
    10.3* Amendment  No.  1 and  Amendment  No.  2 to  the  Second  Amended  and
          Restated Credit Agreement (Tranche A and Tranche C Facilities).
    10.4* Amendment  No.  1 and  Amendment  No.  2 to  the  Second  Amended  and
          Restated Credit Agreement (Tranche B Facility).
    10.5  Asset  Purchase  and Sale  Agreement,  dated  April  10,  1998,  among
          OmniAmerica,  Inc.  and certain  subsidiaries  of Arch  Communications
          Group, Inc. (4)
    10.6  Letter  Agreement,  dated June 10, 1998,  between Arch  Communications
          Group, Inc. and Motorola, Inc. (4) (7)
    10.7  Debtors'  Third  Amended  Joint  Plan of  Reorganization,  dated as of
          December 1, 1998. (1)
    10.8  Commitment Letters to Purchase Stock and Warrants,  dated as of August
          18, 1998, by and among Arch  Communications  Group, Inc.,  MobileMedia
          Communications,  Inc. and W.R. Huff Asset Management Co., L.L.C.,  The
          Northwestern Mutual Life Insurance Company, Northwestern Mutual Series
          Fund,  Inc.,  Credit Suisse First Boston  Corporation and Whippoorwill
          Associates, Inc. (1)
    10.9  Amendments to Commitment Letters to Purchase Stock and Warrants, dated
          as of September 3, 1998, by and among Arch Communications Group, Inc.,
          MobileMedia  Communications,  Inc. and W.R. Huff Asset Management Co.,
          L.L.C., The Northwestern  Mutual Life Insurance Company,  Northwestern
          Mutual Series Fund, Inc.,  Credit Suisse First Boston  Corporation and
          Whippoorwill Associates, Inc. (1)

<PAGE>

    10.10 Amendments  to  Commitment  Letters to  Purchase  Stock and  Warrants,
          dated as of December 1, 1998, by and among Arch Communications  Group,
          Inc., MobileMedia Communications,  Inc. and W.R. Huff Asset Management
          Co.,  L.L.C.,   The  Northwestern   Mutual  Life  Insurance   Company,
          Northwestern  Mutual  Series Fund,  Inc.,  Credit  Suisse First Boston
          Corporation and Whippoorwill Associates, Inc. (1)
    10.11 Amendments  to  Commitment  Letters to  Purchase  Stock and  Warrants,
          dated as of February 8, 1999, by and among Arch Communications  Group,
          Inc., MobileMedia Communications,  Inc. and W.R. Huff Asset Management
          Co.,  L.L.C.,   The  Northwestern   Mutual  Life  Insurance   Company,
          Northwestern  Mutual  Series Fund,  Inc.,  Credit  Suisse First Boston
          Corporation and Whippoorwill Associates, Inc. (14)
    10.12 Form of  Registration  Rights  Agreement,  among  Arch  Communications
          Group,   Inc.  and  W.R.  Huff  Asset  Management  Co.,  L.L.C.,   The
          Northwestern Mutual Life Insurance Company, Northwestern Mutual Series
          Fund,  Inc.,  Credit Suisse First Boston  Corporation and Whippoorwill
          Associates, Inc. (1)
    10.13 Form  of  Registration  Rights  Agreement  among  Arch  Communications
          Group, Inc. and certain stockholders. (1)
    10.14 Amendment  No. 1 to Rights  Agreement,  dated June 29,  1998,  between
          Arch Communications Group, Inc. and the Bank of New York. (1)
    10.15 Amendment  No. 2 to Rights  Agreement,  dated as of August  18,  1998,
          amending the Rights Agreement between Arch Communications  Group, Inc.
          and Bank of New York. (1)
    10.16 Amendment  No. 3 to Rights  Agreement,  dated as of September 3, 1998,
          amending the Rights Agreement between Arch Communications  Group, Inc.
          and Bank of New York. (1)
    10.17 Disclosure   Statement  of  Debtors'   Third  Amended  Joint  Plan  of
          Reorganization, dated December 3, 1998. (1)
    10.18 Form of Warrant  Agreement,  dated as of August 18, 1998, between Arch
          Communications Group, Inc. and Bank of New York as provided for in the
          First  Amendment to Agreement and Plan of Merger Dated as of September
          3, 1998 by and among Arch Communications  Group, Inc., Farm Team Corp.
          and MobileMedia Communications Inc. (1)
    10.19 Bridge  Commitment  Letter,  dated as of August 18,  1998,  among Arch
          Communications,  Inc., Arch  Communications  Group,  Inc. and The Bear
          Stearns  Companies,  Inc.,  The Bank of New York, TD Securities  (USA)
          Inc. and the Royal Bank of Canada. (1)
    10.20 Amendment No. 1 to  Registration  Rights  Agreement,  dated August 19,
          1998,  amending the Registration Rights Agreement dated as of June 29,
          1998 by and among Arch  Communications  Group,  Inc.  and the  Sandler
          Capital  Partners IV, LP, Sandler  Capital  Partners IV, FTE LP, South
          Fork Partners, The Georgica International Fund Limited, Aspen Partners
          and Consolidated Press International Limited. (1)
   +10.21 Amended and Restated Stock Option Plan (8)
   +10.22 Non-Employee Directors' Stock Option Plan (9)
   +10.23 1989 Stock Option Plan, as amended (2)
   +10.24 1995 Outside Directors' Stock Option Plan (10)
   +10.25 1996 Employee Stock Purchase Plan (11)
   +10.26 1997 Stop Option Plan (12)
   +10.27 Deferred Compensation Plan for Nonemployee Directors (13)
   +10.28 Form of Executive Retention Agreement by and between Messrs.  Baker,
          Daniels, Kuzia, Pottle and Saynor (13)
    10.29 Stock   Purchase   Agreement,   dated  June  29,   1998,   among  Arch
          Communications Group, Inc., Sandler Capital Partners IV, L.P., Sandler
          Capital Partners IV FTE, L.P., Harvey Sandler, John Kornreich, Michael
          J.  Marocco,   Andrew  Sandler,  South  Fork  Partners,  the  Georgica
          International  Fund Limited,  Aspen  Partners and  Consolidated  Press
          International Limited. (3)
    10.30 Registration  Rights  Agreement,  dated  June  29,  1998,  among  Arch
          Communications Group, Inc., Sandler Capital Partners IV, L.P., Sandler
          Capital Partners IV FTE, L.P., Harvey Sandler, John Kornreich, Michael
          J.  Marocco,   Andrew  Sandler,  South  Fork  Partners,  The  Georgica
          International  Fund Limited,  Aspen  Partners and  Consolidated  Press
          International Limited. (3)
    10.31 Exchange   Agreement,   dated   June  29,   1998,   between   Adelphia
          Communications Corporation and Benbow PCS Ventures, Inc. (3)
    10.32 Promissory  Note,  dated June 29,  1998,  in the  principal  amount of
          $285,015,  issued by Benbow PCS Ventures,  Inc. to Lisa-Gaye Shearing.
          (3)

<PAGE>

    10.33 Guaranty,  dated June 29, 1998,  given by Arch  Communications  Group,
          Inc. to Adelphia Communications Corporation. (3)
    10.34 Guaranty,  dated June 29, 1998,  given by Arch  Communications  Group,
          Inc. to Lisa-Gaye Shearing. (3)
    10.35 Registration  Rights  Agreement,  dated  June  29,  1998,  among  Arch
          Communications  Group, Inc., Adelphia  Communications  Corporation and
          Lisa-Gaye Shearing. (3)
   10.36* Preferred  Distributor  Agreement  dated June 1, 1998 by and between
          Arch Communications Group, Inc. and NEC America, Inc. (7)
    21.1* Subsidiaries of the Registrant.
    23.1* Consent of Arthur Andersen LLP.
    27.1* Financial Data Schedule.
----------------
     *    Filed herewith.
     +    Identifies exhibits constituting a management contract or compensation
          plan.
     (1)  Incorporated by reference from the Registration  Statement on Form S-4
          (file No. 333-63519) of Arch Communications Group, Inc.
     (2)  Incorporated by reference from the Registration  Statement on Form S-3
          (file No 333-542) of Arch Communications Group, Inc.
     (3)  Incorporated  by reference from the Current Report on Form 8-K of Arch
          Communications Group, Inc. dated October 13, 1995 and filed on October
          24, 1995.
     (4)  Incorporated by referenced from the Current Report on Form 8-K of Arch
          Communications Group, Inc. dated June 26, 1998.
     (5)  Incorporated by reference from the Registration  Statement on Form S-1
          (File No. 33-72646) of Arch Communications, Inc.
     (6)  Incorporated by reference from the Registration  Statement on Form S-1
          (File No. 33-85580) of Arch Communications, Inc.
     (7)  A  Confidential  Treatment  Request  has been  filed  with  respect to
          portions of this exhibit so incorporated by reference.
     (8)  Incorporated  by reference from the Annual Report on Form 10-K of Arch
          Communications  Group,  Inc. (then known as USA Mobile  Communications
          Holdings, Inc.) for the fiscal year ended December 31, 1994.
     (9)  Incorporated by reference from the Registration  Statement on Form S-4
          ( File No. 33-83648) of Arch Communications Group, Inc. (then known as
          USA Mobile Communications Holdings, Inc.)
     (10) Incorporated by reference from the Registration  Statement on Form S-3
          ( File No. 33-87474) of Arch Communications Group, Inc.
     (11) Incorporated  by reference from the Annual Report on Form 10-K of Arch
          Communications  Group,  Inc.  for the fiscal year ended  December  31,
          1995.
     (12) Incorporated  by reference from the Annual Report on Form 10-K of Arch
          Communications  Group,  Inc.  for the fiscal year ended  December  31,
          1996.
     (13) Incorporated  by reference from the Annual Report on Form 10-K of Arch
          Communications  Group,  Inc.  for the fiscal year ended  December  31,
          1997.
     (14) Incorporated  by reference from the Current Report on Form 8-K of Arch
          Communications Group, Inc., dated March 2, 1999.