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, 1999

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from           to

Commission file number 33-72646

                            ARCH COMMUNICATIONS, INC.
             (Exact name of Registrant as specified in its Charter)

            DELAWARE                                    31-1236804
     (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: None

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

The Registrant meets the conditions set forth in General  Instruction  (I)(1)(a)
and (b) of Form 10-K and is filing this Form with the reduced disclosure format.

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: Not applicable

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant: Not applicable

The number of shares of Registrant's  Common Stock outstanding on March 28, 2000
was 848.7501.

                    DOCUMENTS INCORPORATED BY REFERENCE: None



<PAGE>

                                     PART I

ITEM 1.   BUSINESS

GENERAL

   Arch is a leading provider of wireless  communications services in the United
States. Arch has established a market presence in major metropolitan  markets as
well as in middle and small  markets.  Arch's  third-party  retail  distribution
agreements complement the more than 375 Arch-operated retail outlets. Similarly,
Arch's  nationwide  coverage  utilizing two paging  frequencies  enables Arch to
provide   higher-revenue   nationwide  services  to  more  subscribers.   Arch's
nationwide  coverage  also  enhances  Arch's  local  coverage  and  provides  an
opportunity for Arch to take advantage of Arch's distribution networks.  Arch is
a wholly-owned subsidiary of Arch Communications Group, Inc. ("Parent"). On June
29, 1998, Arch changed its name from USA Mobile  Communications  Inc. II to Arch
Communications, Inc.

   Arch's  plan to deploy  its  nationwide  narrowband  personal  communications
services spectrum using its existing network  infrastructure,  together with its
strategic   alliances,   should  permit  Arch  to  market  narrowband   personal
communications  services,  such as multi-market  alphanumeric and other advanced
messaging  services,  sooner  than it  would  otherwise  be able to,  and  these
services  are expected to offer higher  revenue and more growth  potential  than
basic paging services.  Arch's  investments to date in two national call centers
and additional regional call centers should supplement its previously  developed
call center and complement its strategy of evolving to regional customer service
centers. Achieving these intended benefits,  however, will depend on a number of
factors and no  assurance  can be given that the benefits  will be realized,  in
whole or in part.

PENDING PAGENET MERGER

   In November 1999,  Parent signed a definitive  agreement with Paging Network,
Inc.  (PageNet)  pursuant  to  which  PageNet  will  merge  with a  wholly-owned
subsidiary  of Arch.  Each  outstanding  share of PageNet  common  stock will be
converted into 0.1247 share of Parent common stock in the merger.

   Under the merger agreement,  PageNet is required to make an exchange offer of
PageNet common stock to holders of its  outstanding  8.875% senior  subordinated
notes due  2006,  its  10.125%  senior  subordinated  notes due 2007 and its 10%
senior subordinated notes due 2008 (collectively,  the "PageNet Notes"),  having
an aggregate  outstanding  principal  amount of $1.2 billion.  Under the PageNet
exchange  offer,  an aggregate of  616,830,757  shares of PageNet  common stock,
together  with  68.9% of the  equity  interest  in  PageNet's  subsidiary,  Vast
Solutions,  Inc.  would  be  exchanged  for  all of the  PageNet  Notes,  in the
aggregate.  In  connection  with the merger,  PageNet  would  distribute  to its
stockholders  (other than  holders who received  shares in the PageNet  exchange
offer),  11.6% of the equity interests in Vast Solutions.  After the merger, the
combined company would retain a 19.5% equity interest in Vast Solutions.

   Under the merger agreement Parent is required to make an exchange offer of up
to 29,651,984  shares of its common stock (in the  aggregate)  for all of its 10
7/8% senior discount notes due 2008.

   Under the merger agreement,  Parent's board of directors at the closing would
consist of 12 individuals,  at least six of whom would be designated by Parent's
existing  board of  directors.  The PageNet board of directors  would  designate
three  members,  and the three  largest  holders of PageNet  Notes would each be
entitled to designate one member. To the extent any such holder of PageNet Notes
did not elect to  designate a director,  the number of directors  designated  by
Parent's board of directors would increase.

   Arch expects the merger,  which has been  approved by the boards of directors
of  Parent  and  PageNet,  but is  subject  to  regulatory  review,  shareholder
approval,  other third-party consents and the completion of the exchange offers,
to be  completed  in the second or third  quarter of 2000.  Each of the  PageNet
exchange offer and Parent's exchange offer is conditioned upon acceptance by the
holders  of 97.5% of the  PageNet  Notes and  Parent's  senior  discount  notes,
respectively subject to reduction in specified circumstances.



                                       2
<PAGE>

   Under the merger  agreement,  PageNet is required to include a  "prepackaged"
plan of reorganization  under Chapter 11 of the Bankruptcy Code in the materials
relating  to the  PageNet  exchange  offer,  and to  solicit  consents  for this
prepackaged plan from holders of the PageNet Notes and its senior creditors.  In
certain  circumstances PageNet has agreed either to file the prepackaged plan in
lieu of  completing  the PageNet  exchange  offer or to pay Parent a termination
fee.

WIRELESS COMMUNICATIONS SERVICES, PRODUCTS AND OPERATIONS

   Arch provides wireless messaging services,  including numeric,  alphanumeric,
guaranteed  messaging  and send and receive  messaging.  Arch operates in all 50
states and the  District of Columbia  and in each of the 100 largest  markets in
the  United  States.  Arch  offers  these  services  on a  local,  regional  and
nationwide basis employing digital networks covering more than 90% of the United
States population.

   A numeric  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.

   Numeric paging service, which was introduced by the paging industry nearly 20
years ago, currently  represents a majority of all units in service.  The growth
of  alphanumeric  paging service has been  constrained by certain  difficulties,
such as inputting data,  specialized  equipment  requirements and its relatively
high use of system capacity during transmission, which has, to some extent, been
relieved by deploying alternate communications pathways, such as the Internet.

   Arch provides messaging service to subscribers for a monthly fee. Subscribers
either lease the unit from Arch for an additional  fixed monthly fee or they own
the  unit,  having  purchased  it  either  from  Arch  or from  another  vendor.
Arch-owned units leased to subscribers require capital investment by Arch, while
customer-owned  and maintained  units,  commonly  referred to as COAM units, and
those owned by resellers do not. The monthly service fee is generally based upon
the type of service provided,  the geographic area covered,  the number of units
provided  to  the  customer  and  the  period  of the  subscriber's  commitment.
Subscriber-owned   units  provide  a  more  rapid  recovery  of  Arch's  capital
investment  than units  owned and  maintained  by Arch,  but may  generate  less
recurring revenue.  Arch also sells units to third-party  resellers who lease or
resell  units to their own  subscribers  and resell  Arch's  wireless  messaging
services  under  marketing  agreements.  Resellers  are  responsible  for sales,
billing,  collection and equipment  maintenance costs. Arch sells other products
and  services,   including  units  and  accessories  and  unit  replacement  and
maintenance contracts.

   Arch  provides  enhancements  and  ancillary  services  such as  voice  mail,
wireless information delivery services,  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. Wireless information delivery allows subscribers to
receive stock quotes, news and weather through their Arch service.  Arch is also
in the process of test marketing  various other services that add value, and can
be integrated with existing paging services.

SUBSCRIBERS AND MARKETING

   Arch's  wireless   communications  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  personnel,  field sales  personnel  and
service forces,  members of the construction  industry and construction  trades,
real  estate  brokers  and  developers,  medical  personnel,  sales and  service
organizations,  specialty trade organizations,  manufacturing  organizations and
governmental agencies.



                                       3
<PAGE>

   Arch markets its services  through  three  primary  sales  channels:  direct,
reseller and retail.

   Direct. In the direct channel, Arch leases or sells equipment directly to its
customers  and bills and  services  such  customers.  Arch  markets its services
through a direct marketing and sales organization  which operated  approximately
375 retail stores as of December 31, 1999.  Arch's direct  customers  range from
individuals  and small-and  medium-sized  businesses to Fortune 500 accounts and
government agencies.  Business and government accounts typically experience less
turnover than consumer  accounts.  The direct  channel will continue to have the
highest  priority  among  Arch's  marketing  and sales  efforts,  because of its
critical  contribution to recurring revenue and projected growth.  Arch has been
engaged in  efforts to improve  sales  productivity  and  strengthen  its direct
channel  sales  force,  segments  of which  had  previously  suffered  from high
turnover and open positions under  MobileMedia's  ownership and  management.  In
addition,  Arch commenced  implementing  consumer direct marketing techniques in
1998. As of December 31, 1999,  the direct channel  accounted for  approximately
86.6% of recurring revenue.

   Reseller.  In the reseller  channel,  Arch sells  access to its  transmission
networks in bulk to a third party,  who then resells such  services to consumers
or small  businesses  or other end users.  Arch offers  access to its network to
resellers at bulk discounted  rates. The third party reseller  provides customer
service, is responsible for pager maintenance and repair costs, invoices the end
user and  retains  the credit risk of the end user,  although  Arch  retains the
credit risk of the  reseller.  Because  resellers are  responsible  for customer
equipment, the capital costs that would otherwise be borne by Arch are reduced.

   Arch's resellers generally are not exclusive  distributors of Arch's services
and often have access to networks of more than one provider.  Competition  among
service  providers  to  attract  and  maintain  reseller  distribution  is based
primarily upon price, including the sale of equipment to resellers at discounted
rates.  Arch intends to be an active  participant in the reseller channel and to
concentrate on accounts that are  profitable and where longer term  partnerships
can be  established  with  selected  resellers.  As of December  31,  1999,  the
reseller channel accounted for approximately 8.4% of recurring revenue.

   Retail.  In the retail channel,  Arch sells equipment to retailers and, after
the consumer  purchases the pager from the retailer,  the consumer contacts Arch
to activate  service.  The retail channel is targeted at the consumer market and
consists  primarily of national  retail chains.  Consumers  served by the retail
channel typically purchase,  rather than lease,  equipment.  This reduces Arch's
capital  investment  requirements.  Subscribers  obtained through  retailers are
billed and  serviced  directly  by Arch.  Retail  distribution  permits  Arch to
penetrate  the consumer  market by  supplementing  direct sales  efforts.  As of
December  31, 1999,  the retail  channel  accounted  for  approximately  5.0% of
recurring revenue.

   The wireless communications industry is highly competitive. Companies in this
industry  compete  on the basis of price,  coverage  area,  available  services,
transmission quality, system reliability and customer service.

   Arch  competes  by  maintaining  competitive  pricing  of  its  products  and
services,  by providing broad coverage  options through  high-quality,  reliable
transmission networks and by furnishing subscribers a superior level of customer
service.  Arch, the second  largest  paging  carrier in the United States,  also
offers enhanced services such as alphanumeric  messaging,  guaranteed  messaging
and send and receive messaging,  voice mail and voice mail notifications,  news,
sports,  weather  reports  and  stock  quotes  and  other  information  delivery
services.  Arch's primary competitors in the paging market, including Metrocall,
the  third  largest  paging   carrier  in  the  United   States,   and  each  of
Vodafone/AirTouch  and Weblink  Wireless,  both of which are among the top eight
largest  paging  carriers  in the United  States  offer  similar  services.  The
products  and  services  Arch offers also compete with a broad array of wireless
communications  services provided by broadband service providers.  Some of these
broadband  service providers  possess  financial,  technical and other resources
greater than those of Arch. Such providers  currently competing with Arch in one
or more markets include MCI/WorldCom, Sprint PCS, AirTouch/Vodafone, Nextel, and
Bell Atlantic.

   The  provision  of  broadband  wireless  services is  currently  dominated by
providers  using  three  types of  Federal  Communication  Commission  licenses:
cellular radiotelephone, broadband personal communications services, and digital
specialized  mobile radio services.  While all three of these broadband services
were created at different  times and utilize  different  technologies,  they are
used to offer  two-way  voice as well as short  messaging  services.  The  short


                                       4
<PAGE>

messaging services are identical to numeric and alphanumeric paging services and
thus broadband services can serve as a replacement to paging services.

   Insofar as broadband  services provide short messaging  service together with
two-way voice service,  they are more  sophisticated  than basic paging services
and command a greater  price.  The price of  broadband  services,  however,  has
fallen dramatically.  The decline in price of these services is reflected in the
decline of the  average  monthly  bill for  broadband  services  from  $42.78 in
December  1997 to  $39.43 in  December  1998.  Moreover,  today  many  broadband
providers  offer basic  service  packages for  approximately  $20 per month.  By
contrast, the average revenue per unit for pagers was estimated to be $10.17 per
month.

   While  broadband  services are more  expensive  than basic paging,  broadband
service  providers  typically  provide short messaging  service as an element of
their  basic  service  package  without  additional  charges.  In  other  words,
subscribers  that  purchase  broadband  service no longer need to subscribe to a
separate  paging  service  as well.  As a  result,  a large  fraction  of paging
customers  can readily  switch from paging to broadband  services.  The dramatic
decrease  in prices for  broadband  services  has led many  consumers  to select
broadband  services as an alternative to paging  services.  Indeed,  survey data
indicates that roughly 20 percent of paging customers that drop their service do
so in favor of broadband services.

   The  intensity of  competition  for  customers  will  continue to increase as
wireless  communications  products continue to be developed.  For example,  Arch
holds  one  nationwide  and five  regional  narrowband  personal  communications
services   licenses.   Competitors  of  Arch  also  hold   narrowband   personal
communications  services licenses.  Some of these competitors have substantially
greater resources than Arch. Some competitors currently offer a 2-way narrowband
personal  communications  wireless  data service from its own network.  Although
Arch cannot  predict the types of narrowband  personal  communications  services
which will be offered by those companies,  Arch expects that those services will
compete with the narrowband personal communications services and paging services
offered by Arch.


ITEM 2.   PROPERTIES

   At December 31, 1999, Arch owned 10 office buildings and leased office space,
including its executive offices, in approximately 375 locations in 42 states for
use  in its  paging  operations.  Arch  leases  transmitter  sites  and/or  owns
transmitters  on  commercial   broadcast  towers,   buildings  and  other  fixed
structures in  approximately  4,800 locations in all 50 states,  the U.S. Virgin
Islands and Puerto  Rico.  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.  Substantially  all of
Arch's and  MobileMedia's  tower  sites were sold  during 1998 and 1999 and Arch
currently rents transmitter space.


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 its financial condition or results of operations.


                                     PART II

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

   All of the common stock,  $0.01 par value per share of Arch is held by Parent
and is not publicly traded.

   Arch has never  declared or paid cash  dividends on the common stock and does
not  intend  to  declare  or pay  cash  dividends  on its  common  stock  in the
foreseeable  future.  Covenants in the credit  facility and debt  obligations of


                                       5
<PAGE>

Arch and its  subsidiaries  effectively  prohibit the  declaration or payment of
cash dividends by Arch for the foreseeable future. See Note 3.


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.

   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  wireless  communications
industry.  Adjusted EBITDA is also one of the primary financial measures used to
calculate  whether Arch and its  subsidiaries  are in compliance  with covenants
under their debt  agreements.  These  covenants,  among other things,  limit the
ability of Arch and its  subsidiaries to: incur  additional  indebtedness,  make
investments,  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  Arch.  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 restrictions imposed by the terms
of existing  indebtedness  or  limitations  imposed by  applicable  law upon the
payment of dividends or distributions.

MOBILEMEDIA MERGER

   In June 1999, Parent acquired MobileMedia Communications,  Inc., which is now
a  wholly-owned  subsidiary  of  Arch.  MobileMedia  had  been  operating  as  a
debtor-in-possession under chapter 11 of the Bankruptcy Code.

   Parent acquired  MobileMedia for a combination of cash and Parent securities,
as follows:

   o  Parent paid  approximately  $479.0 million in cash to secured creditors of
      MobileMedia;

   o  Parent  paid a total of $37.6  million  to pay  fees,  expenses  and other
      debts;

   o  Parent issued 4,781,656 shares of its common stock to unsecured  creditors
      of MobileMedia;



                                       6
<PAGE>

   o  Parent issued and sold 36,207,265 additional shares of its common stock to
      unsecured  creditors of MobileMedia  and Parent  stockholders  for a total
      purchase price of $217.2 million; and

   o  Parent  issued  to four  unsecured  creditors,  who had  agreed  to act as
      standby purchasers and to purchase shares not purchased by other unsecured
      creditors,  warrants to acquire 1,225,219 shares of its common stock on or
      before September 1, 2001 for $9.03 per share.

   Arch  borrowed  a total  of  $320.8  million  to help  fund  the  MobileMedia
acquisition.

   During the third quarter of 1999,  Arch's board of directors  approved  plans
covering the  elimination  of redundant  headcount and  facilities in connection
with the overall integration of operations. It is expected that integration will
be completed by December 31, 2000.  Because Arch  anticipates a net reduction of
approximately 10% of MobileMedia's  workforce and the closing of some facilities
and tower sites,  it  established a $14.5 million  acquisition  reserve which is
included as part of the purchase price of MobileMedia.  The initial  acquisition
reserve consisted of  approximately:

   o  $6.1 million for employee severance;

   o  $7.9 million for lease obligations and terminations; and

   o  $0.5 million of other costs.

There can be no assurance that the desired cost savings will be achieved or that
the   integration   of  the  two  companies  will  be   accomplished   smoothly,
expeditiously  or successfully.  See Note 9 to the Notes to Arch's  consolidated
financial statements.

RESULTS OF OPERATIONS

   The  following  table  presents   certain  items  from  Arch's   consolidated
statements  of  operations  as a percentage  of net  revenues and certain  other
information  for the periods  indicated  (dollars in  thousands  except per unit
data):
<TABLE>
<CAPTION>

                                                      Year Ended December 31,
                                                       1998             1999
                                                       ----             ----

<S>                                                  <C>           <C>
   Total revenues ................................       107.8 %        105.8 %
   Cost of products sold .........................        (7.8)          (5.8)
                                                     ---------     ----------
   Net revenues ..................................       100.0          100.0
   Operating expenses:
     Service, rental and maintenance .............        21.1           21.8
     Selling .....................................        12.8           13.9
     General and administrative ..................        29.2           29.8
     Depreciation and amortization ...............        57.4           50.8
     Restructuring charge ........................         3.8           (0.4)
                                                     ---------     ----------
   Operating income (loss) .......................       (24.3)%        (15.9)%
                                                     =========     ==========
   Net income (loss) .............................       (43.6)%        (40.7)%
                                                     =========     ==========
   Adjusted EBITDA ...............................        36.9 %         34.5 %
                                                     =========     ==========

   Cash flows provided by operating activities ...   $  84,210     $  100,505
   Cash flows used in investing activities .......   $ (82,868)    $ (627,166)
   Cash flows provided by (used in) financing
     activities ..................................   $  (3,207)    $  529,020
   Annual service, rental and maintenance expenses
     per unit in service .........................   $      20     $       23
</TABLE>





<PAGE>


     YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

   Total revenues  increased to $641.8 million,  a 55.2% increase,  in 1999 from
$413.6  million  in 1998 as the number of units in  service  increased  from 4.3
million at December 31, 1998 to 6.9 million at December 31,1999 primarily due to
the  MobileMedia  acquisition  in June 1999.  Net  revenues  increased to $606.9
million,  a 58.2% increase,  in 1999 from $383.7 million in 1998. Total revenues
and net  revenues  in 1999 were  adversely  affected by (1) the lack of industry
growth  for  basic  numeric  and  alphanumeric  paging  services  and  (2)  Arch
subscriber  cancellations  which led to a decrease  of 89,000  units in service,
excluding the addition of subscribers from the MobileMedia acquisition. Revenues
were also adversely affected in the fourth quarter of 1998 and in 1999 by:

   o  Arch's decision,  in anticipation of the MobileMedia  acquisition,  not to
      replace normal attrition among direct sales personnel;

   o  the reduced effectiveness of Arch's reseller channels of distribution; and

   o  reduced sales through Arch-operated retail stores.

   Arch  expects  revenue  to  continue  to be  adversely  affected  in  2000 by
declining  demand for basic  numeric  and  alphanumeric  paging  services.  Arch
believes  that the basic paging  industry did not grow during 1999,  that demand
for basic paging  services will decline in 2000 and the following years and that
any  significant  future growth in the paging  industry will be  attributable to
advanced  messaging  services,  such as send and receive and guaranteed  receipt
paging  services.  As a result,  Arch  believes  that it will  experience  a net
decline in the number of its units in service in 2000, excluding the addition of
subscribers  from the  PageNet  acquisition,  as  Arch's  addition  of  advanced
messaging subscribers is exceeded by its loss of basic paging subscribers.

   Service,  rental  and  maintenance  revenues,   which  consist  primarily  of
recurring  revenues  associated  with the sale or lease of units,  increased  to
$591.4  million,  a 59.3% increase,  in 1999 from $371.2 million in 1998.  These
increases  in revenues  were due  primarily to the net increase in the number of
units in  service  from 4.3  million  at  December  31,  1998 to 6.9  million at
December 31,  1999.  This net  increase in units was due to the  acquisition  of
MobileMedia  on June 3,  1999,  offset  by a net  decrease  of  89,000  units in
service. Maintenance revenues represented less than 10% of total service, rental
and maintenance  revenues in 1999 and 1998. Arch does not differentiate  between
service  and  rental  revenues.  Product  sales,  less  cost of  products  sold,
increased to $15.5  million,  a 23.6%  increase,  in 1999 from $12.5  million in
1998, respectively, as a result of the MobileMedia acquisition.

   Service,  rental  and  maintenance  expenses,   which  consist  primarily  of
telephone,  third party  carrier  fees and site rental  expenses,  increased  to
$132.4 million,  21.8% of net revenues, in 1999 from $80.8 million, 21.1% of net
revenues,  in  1998.  The  increase  was due  primarily  to  increased  expenses
associated with the provision of wireless  communications  services to a greater
number of units due to the MobileMedia  acquisition.  Annualized service, rental
and  maintenance  expenses  per unit  increased to $23 in 1999 from $20 in 1998.
This  increase was due primarily to the increase in wireless  messaging  systems
and associated expenses as a result of the MobileMedia merger.  However, the per
unit costs should decrease in the future if expected  synergies are achieved and
as existing systems become more populated  through the addition of new units and
the fixed costs of operating these systems are spread over a larger unit base.

   Selling expenses increased to $84.2 million,  13.9% of net revenues,  in 1999
from $49.1  million,  12.8% of net revenues,  in 1998.  The increase in absolute
dollars  was  primarily  due  to  increased  headcount  and  the  increase  as a
percentage of net revenues was primarily due to redundant  headcount as a result
of the MobileMedia merger.

   General and administrative expenses increased to $180.7 million, 29.8% of net
revenues,  in 1999 from $112.2  million,  29.2% of net  revenues,  in 1998.  The
increase  in  absolute  dollars  was  due  primarily  to  increased   headcount,
administrative  and  facility  costs and the  increase  as a  percentage  of net
revenues  was  primarily  due to the  redundant  headcount,  administrative  and
facility costs associated with MobileMedia.

   Depreciation  and amortization  expenses  increased to $308.5 million in 1999
from  $220.2  million  in  1998.  The  increase  in these  expenses  principally
reflected the acquisition of MobileMedia. Additionally,  depreciation expense in
1999 included the write-off of  approximately  $7.1 million of costs  associated

                                       8
<PAGE>

with the  development  of an  integrated  billing and  management  system.  Arch
decided  to  discontinue   further   development  of  that  system  due  to  the
capabilities of the system acquired through the MobileMedia merger.

   Operating  losses were $96.8  million in 1999  compared  to $93.3  million in
1998, as a result of the factors outlined above.

   Net interest expense increased to $98.6 million in 1999 from $64.5 million in
1998.  The  increase  was  principally  attributable  to an  increase  in Arch's
outstanding debt due to the MobileMedia acquisition.

   Other  expense  increased to $45.1 million in 1999 from $2.0 million in 1998.
Other expense in 1999 included:

   o  $6.5  million  for a  write-off  of  Arch's  entire  investment  in CONXUS
      Communications,  Inc.,  a holder of send and receive  messaging  licenses.
      CONXUS filed for bankruptcy protection in May 1999.

   o  a $35.8  million  write-off of Arch's  investment  in Benbow PCS Ventures,
      Inc. another holder of send and receive messaging licenses.  In June 1999,
      Arch,  Benbow and  Benbow's  controlling  shareholder  agreed to terminate
      their business relationship and wind-up Benbow's business.

   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.

   On January 1, 1999, Arch adopted the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants  Statement of Position
98-5 (SOP 98-5). SOP 98-5 requires costs of start-up activities and organization
costs to be expensed as incurred.  Initial application of SOP 98-5 resulted in a
$3.4 million charge which was reported as the  cumulative  effect of a change in
accounting principle. This charge represents the unamortized portion of start-up
and organization costs which had been deferred in prior years.

   Net loss  increased to $247.1 million in 1999 from $167.1 million in 1998, as
a result of the factors outlined above.


FACTORS AFFECTING FUTURE OPERATING RESULTS

Continued losses are likely

   Arch has reported net losses in the past,  as has  MobileMedia.  Arch expects
that it will continue to report net losses and cannot give any  assurance  about
when, if ever, it is likely to attain profitability.

   Arch has reported net losses in all of the periods shown in the table below:

                                      Year Ended December 31,
                                   -----------------------------
                                     1997       1998      1999
                                     ----       ----      ----
                                        (dollars in millions)
   Net income (loss):
      Arch..................       $(146.6)   $(167.1)   $(247.1)
      MobileMedia...........       $(124.6)   $  35.6    $ 387.3 (1)

     (1) Through Arch's acquisition of MobileMedia on June 3, 1999

   These  historical  net losses  have  resulted  principally  from  substantial
depreciation and amortization  expense,  primarily  related to intangible assets
and  messaging  device   depreciation,   interest  expense,  the  impairment  of
long-lived  assets,  other costs of growth.  MobileMedia had net income of $35.6
million  during the year  ended  December  31,  1998  solely  because of a $94.2
million gain on the sale of  transmission  towers and related  equipment and net
income  of  $387.3  million  for  the  period  ended  June  3,  1999  due to the
forgiveness of debt arising out of MobileMedia's  bankruptcy proceedings.  After
giving effect to the MobileMedia acquisition, Arch would have incurred, on a pro
forma  basis,  losses  before  extraordinary  items  and  cumulative  effect  of
accounting  change of $154.2  million for the year ended  December  31, 1998 and
$271.1 million for the year ended December 31, 1999.



                                       9
<PAGE>

Declines in units in service are likely

   Cancellation  of units in service  can  significantly  affect the  results of
operations of wireless communications service providers. The sales and marketing
costs associated with attracting new subscribers are substantial compared to the
costs  of  providing  service  to  existing  customers.   Because  the  wireless
communications  business is  characterized  by high fixed  costs,  cancellations
directly and adversely affect earnings before interest,  taxes, depreciation and
amortization.  In 1999, Arch  experienced a decrease of 89,000 units in service,
excluding the addition of subscribers  from the  MobileMedia  acquisition.  Arch
believes  that the basic paging  industry did not grow during 1999,  that demand
for basic paging  services will decline in 2000 and the following years and that
any  significant  future growth in the paging  industry will be  attributable to
advanced  messaging  services,  such as send and receive and guaranteed  receipt
paging  services.  As a result,  Arch  believes  that it will  experience  a net
decline in the number of its units in service in 2000, excluding the addition of
subscribers  from the  PageNet  acquisition,  as  Arch's  addition  of  advanced
messaging subscribers is exceeded by its loss of basic paging subscribers.

Revenues and operating results may fluctuate, leading to fluctuations in trading
prices and possible liquidity problems

   Arch believes that future  fluctuations in its revenues and operating results
may occur due to many  factors.  Arch's  current and planned  expenses  and 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 cash flow growth. Arch may
be unable to adjust spending in a timely manner to compensate for any revenue or
cash flow  shortfall.  It is possible that, due to future  fluctuations,  Arch's
revenue,  cash  flow or  operating  results  may not  meet the  expectations  of
securities analysts or investors. This may have a material adverse effect on the
price of Arch's common stock.  If shortfalls  were to cause Arch not to meet the
financial  covenants  contained in its debt  instruments,  the debtholders could
declare a default  and seek  immediate  repayment.  In the worst  case,  if Arch
lacked funds to repay its debt, it could file for bankruptcy protection.

High degree of leverage may continue to burden operations

   Arch has been  highly  leveraged,  and will  remain  substantially  leveraged
following the PageNet merger. The following table compares the total debt, total
assets and latest  three-month  annualized  adjusted  earnings before  interest,
taxes,  depreciation and amortization  (EBITDA) of Arch at or as of December 31,
1999.

                                                  (dollars in millions)
   Total debt..........................                $   932.2
   Total assets........................                $ 1,345.1
   Annualized adjusted EBITDA..........                $   266.3

   Adjusted 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,  as  determined  by  Arch,  may  not
necessarily be comparable to similarly  titled data of other wireless  messaging
companies.

   Substantial leverage may have the following adverse consequences for Arch:

   o  This leverage may impair  Arch's  ability to obtain  additional  financing
      necessary for acquisitions, working capital, capital expenditures or other
      purposes on acceptable terms, if at all.

   o  A substantial portion of Arch's cash flow will be required to pay interest
      expense; this will reduce the funds which would otherwise be available for
      operations and future business opportunities.

   o  Arch's credit facilities and indentures  contain financial and restrictive
      covenants;  the  failure to comply with these  covenants  may result in an
      event of default which could have a material adverse effect on Arch if not
      cured or  waived.

   o  Arch may be more  highly  leveraged  than some of its  competitors  in the
      wireless  communications  industry, and this may place it at a competitive
      disadvantage.

   o  Any degree of leverage will make Arch more vulnerable to a downturn in its
      business or the economy generally than if it were not as leveraged.



                                       10
<PAGE>

Arch may not be able to reduce its financial leverage as it intends, and may not
be able to 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 adjusted EBITDA, it may be precluded from incurring
additional indebtedness due to cash flow coverage requirements under existing or
future debt instruments.

Growth and acquisition strategy

   Arch believes that the wireless communications industry has experienced,  and
will  continue to  experience,  consolidation  due to factors that favor larger,
multi-market  companies,  including:  o the ability to obtain  additional  radio
spectrum;  o greater  access to capital  markets and lower  costs of capital;  o
broader geographic  coverage of wireless messaging systems; o economies of scale
in the purchase of capital equipment; o operating  efficiencies;  and o enhanced
access to executive personnel.

   Arch has pursued, and intends to continue to pursue, acquisitions of wireless
communications  businesses as a key component of its growth  strategy.  However,
the  process  of  integrating   acquired   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.

   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.

Amortization  charges  from  the  PageNet  merger  and the  earlier  MobileMedia
acquisition may reduce Arch's earnings sooner than management expects

   Under purchase  accounting  treatment for the pending  PageNet merger and the
acquisition of MobileMedia Communications, Inc. in June 1999, Arch must record a
substantial amount of goodwill and other intangible assets.  This will result in
substantial  amortization  charges to the  consolidated  income of Arch over the
useful lives of those  assets.  Arch  estimates the amount of those charges will
total  approximately  $57.0  million  per year for ten  years.  However,  actual
charges in the early years could adversely affect reported results of operations
more than is currently  anticipated if the underlying  assets are impaired or if
the useful lives of the assets are less than currently estimated.

The  PageNet  merger may not take place.  If it does not take  place,  Arch will
incur  substantial  costs  and its  investors  will not  enjoy  the  anticipated
benefits of the merger

   The PageNet  merger will not take place unless many  conditions are satisfied
or waived.  These  conditions  include  stockholder  and  noteholder  approvals,
governmental approvals and the availability of senior credit facilities.  If the
PageNet merger does not take place, the contemplated benefits of the merger will
not be realized,  and Arch will not enjoy the anticipated benefits of the merger
despite incurring substantial transaction costs. If the PageNet merger agreement
is terminated after Arch pursues an alternative  offer,  Arch may be required to
pay a termination fee of $40.0 million.

Arch may need additional capital to expand its business which could be difficult
to obtain

     Arch's  business  strategy  requires  substantial  funds to be available to
finance  the  continued  development  and  future  growth and  expansion  of its
operations, including possible acquisitions.  Arch's future capital requirements
will depend on factors that include:


                                       11
<PAGE>

   o  subscriber growth;

   o  the type of  wireless  communications  devices  and  services  demanded by
      customers;

   o  technological developments;

   o  marketing and sales expenses;

   o  competitive conditions;

   o  the nature and timing of Arch's narrowband personal communications service
      strategy; and

   o  acquisition strategies and opportunities.

Arch  cannot  be  certain  that  additional  equity  or debt  financing  will be
available  to Arch when needed on  acceptable  terms,  if at all. If  sufficient
financing is unavailable  when needed,  Arch may be unable to develop or enhance
its  products,  take  advantage  of future  opportunities,  grow its business or
respond to competitive pressures or unanticipated needs.

Competition and  technological  change may undermine  Arch's market position and
adversely affect its results of operations

   Arch  may  not be  able to  compete  successfully  with  current  and  future
competitors in the wireless communications business or with competitors offering
alternative communication technologies. In particular:

   Competition may intensify from large companies and may reduce Arch's revenues
   and operating margins

      Arch may face significant additional competition in the future. This could
   have a material  adverse effect on its revenues and earnings before interest,
   taxes,  depreciation  and  amortization.  Some  competitors  possess  greater
   financial,  technical  and  other  resources  than  those of Arch.  Increased
   competition  from  broadband  personal   communications   service  providers,
   cellular  providers,  digital  specialized mobile radio providers,  dedicated
   data networks and wireless  information delivery service providers has led to
   competition from increasingly larger and better capitalized  competitors.  In
   addition,  Arch competes with the many other providers of paging and advanced
   messaging  services.  If any of such  competitors  were to devote  additional
   resources  to  the  wireless  communications  business  or  focus  on  Arch's
   historical  business segments,  they could secure Arch's customers and reduce
   demand for its products.  This could  materially  reduce  Arch's  revenue and
   operating margins.

   New send and receive  wireless  messaging  technology  may  adversely  affect
   Arch's competitive position

      Competitors  are  currently  using and  developing  a variety  of send and
   receive wireless messaging technologies. Arch currently resells such send and
   receive  services  over the network of a  competitor.  Due to the  relatively
   recent  availability  of send and receive  messaging  products and  services,
   there have not yet been sales which would be sufficient  to fully  indicate a
   proven demand for such services among business or consumer subscribers.  Such
   services  will compete with other  available  methods of  telecommunications,
   including cellular and broadband personal communications  services, which are
   commonly  referred to as PCS, as well as specialized  mobile radio,  services
   and services  provided  over  dedicated  data  networks  which use  hand-held
   devices to send and receive  data.  Although  these  services  are  primarily
   focused on send and receive voice  communications,  they may include wireless
   messaging as an adjunct  service or may replace the need for send and receive
   messaging entirely. It is less expensive for an end user to obtain a cellular
   or PCS unit with data  capability  than the send and receive  messaging units
   currently available. This is because the nationwide cellular and PCS carriers
   have  subsidized the purchase of these units and because prices for broadband
   services have been  declining  rapidly,  making the two types of services and
   product offerings more comparable.

      Future  technological   advances  in  the   telecommunications   industry,
   including these send and receive messaging technologies,  as well as wireless
   information  and machine to machine and  machine to person  messaging,  among
   others,  could increase the number and type of new services or products which
   compete with the wireless  messaging services  historically  offered by Arch.
   Firms  seeking to provide  wireless  communications  through  these and other
   technologies  may bring  their  products  to market  faster or in packages of
   products that  consumers find more valuable than those which Arch proposes to
   provide.



                                       12
<PAGE>

      All of these factors could reduce Arch's market share and adversely affect
   its revenues and operating margins.

Obsolescence in company-owned units may impose additional costs on Arch

   Technological  change may also adversely  affect the value of the units owned
by Arch  that are  leased to its  subscribers.  If  Arch's  current  subscribers
request more technologically  advanced units,  including send and receive units,
Arch could incur additional inventory costs and capital expenditures if required
to replace units leased to its  subscribers  within a short period of time. Such
additional costs or capital expenditures could have a material adverse effect on
Arch's results of operations.

Government regulation may burden operations

   Licenses may not be automatically renewed

      Arch's Federal  Communications  Commission paging licenses are for varying
   terms of up to 10 years. When the licenses expire,  renewal applications must
   be approved by the Federal  Communications  Commission.  To date, the Federal
   Communications  Commission  has  approved  each  assignment  and  transfer of
   control for which Arch has sought  approval  but, no  assurance  can be given
   that any future  renewal  applications  will be free of  challenge or will be
   granted by the Federal  Communications  Commission.  Loss of  licenses  would
   impair Arch's operations.

   Regulatory changes could add burdens or benefit competing technologies

      The Federal Communications  Commission continually reviews and revises its
   rules affecting  wireless  communications  companies.  Therefore,  regulatory
   requirements that apply to Arch may change significantly over time.

Because Arch depends on third  parties,  that it does not control,  for products
and services, Arch's operations may be disrupted

   Arch  does  not  manufacture  any of the  equipment  customers  need  to take
advantage of its services.  It is dependent primarily on Motorola,  Inc. and NEC
America Inc. to obtain  sufficient  equipment  inventory for new subscribers and
replacement needs and on Glenayre Electronics,  Inc. and Motorola for sufficient
terminals and  transmitters to meet its expansion and replacement  requirements.
Significant delays in obtaining  equipment,  terminals or transmitters,  such as
MobileMedia  experienced before its bankruptcy filing, could lead to disruptions
in operations  and adverse  financial  consequences.  Motorola has announced its
intention   to   discontinue   manufacturing   transmitters   and  other  paging
infrastructure  during 2000,  although it will  continue to maintain and service
existing infrastructure into the future. Arch's purchase agreement with Motorola
expires on March 17, 2001.  There can be no assurance  that the  agreement  with
Motorola will be renewed or, if renewed,  that the renewed  agreement will be on
terms and  conditions  as favorable  to the combined  company as those under the
current agreement.

   Arch  relies on third  parties to  provide  satellite  transmission  for some
aspects  of its  wireless  communications  services.  To the  extent  there  are
satellite  outages or if satellite  coverage is impaired in other ways, Arch may
experience a loss of service until such time as satellite  coverage is restored,
which could have a material adverse effect due to customer complaints.

Loss of key personnel could adversely impact operations

   Arch's  success 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 any of its current executive  officers,  or maintain
life insurance on their lives, although 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.



                                       13
<PAGE>

Restrictions  under debt  instruments may prevent Arch from taking actions which
its board considers beneficial

   Various debt instruments impose operating and financial restrictions on Arch.
Arch's senior credit facility  requires  various Arch operating  subsidiaries to
maintain  specified  financial  ratios,  including a maximum  leverage  ratio, a
minimum  interest  coverage  ratio, a minimum debt service  coverage ratio and a
minimum fixed charge coverage ratio.  The senior credit facility was amended and
restated  on March  23,  2000 to  permit  the  PageNet  merger  and  includes  a
restriction on capital expenditures and a minimum revenue test. In addition, the
senior credit facility limits or restricts, among other things, Arch's operating
subsidiaries' ability to:

   o  declare dividends or repurchase capital stock;

   o  incur or pay back indebtedness;

   o  engage in mergers, consolidations, acquisitions and asset sales; or

   o  alter its lines of business or accounting methods.

   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  senior  credit
facility  and/or  other debt  instruments.  Upon the  occurrence  of an event of
default,  the  creditors  could elect to declare all amounts  outstanding  to be
immediately due and payable,  together with accrued and unpaid interest. If Arch
were  unable to repay any such  amounts,  the  senior  creditors  could  proceed
against any  collateral  securing  the  indebtedness.  If the lenders  under the
senior credit facility or other debt instruments accelerated 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 other indebtedness of Arch. In
addition,  because the senior credit facility and other debt  instruments  limit
Arch's ability to engage in some types of  transactions,  Arch may be prohibited
from entering into transactions that could be beneficial to Arch.

RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS

   In June 1998, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  (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 in earnings. Arch intends to adopt this standard effective January 1,
2001.  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.

   The Securities and Exchange  Commission  released Staff  Accounting  Bulletin
(SAB) No. 101,  "Revenue  Recognition in Financial  Statements",  on December 3,
1999.  This SAB  provides  additional  guidance  on the  accounting  for revenue
recognition,  including  both broad  conceptual  discussions  as well as certain
industry-specific  guidance. The guidance is effective for the second quarter of
fiscal  2000.  Arch does not  expect  SAB 101 to have a  material  impact on its
results of operations upon adoption.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The majority of Arch's  long-term  debt is subject to fixed rates of interest
or  interest  rate  protection.  In the event that the  interest  rate on Arch's
non-fixed  rate debt  fluctuates by 10% in either  direction,  Arch believes the
impact  on its  results  of  operations  would  be  immaterial.  Arch  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.




                                       14
<PAGE>

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

   None.


                                     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, 1998 and 1999

          Consolidated  Statements of  Operations for Each of the Three Years in
            the Period Ended December 31, 1999

          Consolidated  Statements of Stockholder's Equity for Each of the Three
            Years in the Period Ended December 31, 1999

          Consolidated  Statements of Cash Flows for Each of the Three  Years in
            the Period Ended December 31, 1999

          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, 1999.

(c)       Exhibits

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





                                       15
<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, INC.


                                        By: /s/ C. Edward Baker, Jr.
                                           -------------------------
                                             C. Edward Baker, Jr.
                                             Chairman of the Board and Chief
                                             Executive Officer
     March 29, 2000

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 Chief      March 29, 2000
-------------------------   Executive Officer (principal
C. Edward Baker, Jr.        executive officer)


/s/ John B. Saynor          Executive Vice President, Director   March 29, 2000
-------------------------
John B. Saynor


/s/ J. Roy Pottle           Executive Vice President and         March 29, 2000
-------------------------   Chief Financial Officer (principal
J. Roy Pottle               financial officer and principal
                            accounting officer)

/s/ R. Schorr Berman        Director                             March 29, 2000
-------------------------
R. Schorr Berman


/s/ Edwin M. Banks          Director                             March 29, 2000
-------------------------
Edwin M. Banks


/s/ James S. Hughes         Director                             March 29, 2000
-------------------------
James S. Hughes


 /s/ John Kornreich         Director                             March 29, 2000
-------------------------
John Kornreich


/s/ H. Sean Mathis          Director                             March 29, 2000
-------------------------
H. Sean Mathis


/s/ Allan L. Rayfield       Director                             March 29, 2000
-------------------------
Allan L. Rayfield


/s/ John A. Shane           Director                             March 29, 2000
-------------------------
John A. Shane



                                       16
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS

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

Consolidated Balance Sheets as of December 31, 1998 and 1999 ............   F-3

Consolidated Statements of Operations for Each of the Three
Years in the Period Ended December 31, 1999..............................   F-4

Consolidated Statements of Stockholder's Equity for Each of
the Three Years in the Period Ended December 31, 1999....................   F-5

Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1999..............................   F-6

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





                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Arch Communications, Inc.:

We  have  audited  the   accompanying   consolidated   balance  sheets  of  Arch
Communications,  Inc., a wholly-owned  subsidiary of Arch Communications  Group,
Inc. (a Delaware  corporation)  (the "Company") and  subsidiaries as of December
31,  1998 and 1999,  and the  related  consolidated  statements  of  operations,
stockholder's  equity and cash  flows for each of the three  years in the period
ended  December  31,  1999.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial position of Arch
Communications,  Inc. and subsidiaries as of December 31, 1998 and 1999, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 1999, in conformity  with  accounting  principles
generally accepted in the United States.


                                        /s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 16, 2000




                                      F-2
<PAGE>

                            ARCH COMMUNICATIONS, INC.
         (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                            ---------------------------
                                                                                1998          1999
                                                                            ------------   ------------
                                   ASSETS
<S>                                                                          <C>            <C>
   Current assets:
      Cash and cash equivalents ..........................................   $        22    $     2,381
      Accounts receivable (less reserves of $6,583 and $16,473 in 1998 and
        1999, respectively) ..............................................        30,753         61,167
      Inventories ........................................................        10,319          9,101
      Prepaid expenses and other .........................................         8,007         11,874
                                                                             -----------    -----------
        Total current assets .............................................        49,101         84,523
                                                                             -----------    -----------
   Property and equipment, at cost:
      Land, buildings and improvements ...................................        10,480         20,503
      Messaging and computer equipment ...................................       400,312        667,820
      Furniture, fixtures and vehicles ...................................        17,381         26,321
                                                                             -----------    -----------
                                                                                 428,173        714,644
      Less accumulated depreciation and amortization .....................       209,128        314,445
                                                                             -----------    -----------
      Property and equipment, net ........................................       219,045        400,199
                                                                             -----------    -----------
      Intangible and other assets (less accumulated amortization of
        $368,903 and $511,006 in 1998 and 1999, respectively) ............       626,439        860,424
                                                                             -----------    -----------
                                                                             $   894,585    $ 1,345,146
                                                                             ===========    ===========
                     LIABILITIES AND STOCKHOLDER'S EQUITY
   Current liabilities:
      Current maturities of long-term debt ...............................   $     1,250    $     8,060
      Accounts payable ...................................................        25,683         30,016
      Accrued restructuring charges ......................................        11,909         17,111
      Accrued expenses ...................................................        11,689         43,629
      Accrued interest ...................................................        20,922         30,267
      Customer deposits ..................................................         4,528          7,526
      Deferred revenue ...................................................        10,958         28,175
                                                                             -----------    -----------
        Total current liabilities ........................................        86,939        164,784
                                                                             -----------    -----------
   Long-term debt, less current maturities ...............................       618,354        924,132
                                                                             -----------    -----------
   Other long-term liabilities ...........................................        29,510         83,285
                                                                             -----------    -----------
   Commitments and contingencies
   Stockholder's equity:
      Common stock--$.01 par value, authorized 1,000 shares, issued and
        outstanding: 849 shares in 1998 and 1999 .........................          --             --
      Additional paid-in capital .........................................       642,406        902,621
      Accumulated deficit ................................................      (482,624)      (729,676)
                                                                             -----------    -----------
        Total stockholder's equity .......................................       159,782        172,945
                                                                             -----------    -----------
                                                                             $   894,585    $ 1,345,146
                                                                             ===========    ===========
</TABLE>




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




                                      F-3
<PAGE>

                            ARCH COMMUNICATIONS, INC.
         (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                         -----------------------------------
                                                            1997         1998         1999
                                                         ---------    ---------    ---------
<S>                                                      <C>          <C>          <C>
   Service, rental and maintenance revenues ..........   $ 351,944    $ 371,154    $ 591,389
   Product sales .....................................      44,897       42,481       50,435
                                                         ---------    ---------    ---------
        Total revenues ...............................     396,841      413,635      641,824
   Cost of products sold .............................     (29,158)     (29,953)     (34,954)
                                                         ---------    ---------    ---------
                                                           367,683      383,682      606,870
                                                         ---------    ---------    ---------
   Operating expenses:
     Service, rental and maintenance .................      79,836       80,782      132,400
     Selling .........................................      51,474       49,132       84,249
     General and administrative ......................     106,041      112,181      180,726
     Depreciation and amortization ...................     231,376      220,172      308,464
     Restructuring charge ............................        --         14,700       (2,200)
                                                         ---------    ---------    ---------
        Total operating expenses .....................     468,727      476,967      703,639
                                                         ---------    ---------    ---------
   Operating income (loss) ...........................    (101,044)     (93,285)     (96,769)
   Interest expense ..................................     (62,099)     (66,143)    (100,466)
   Interest income ...................................         796        1,685        1,825
   Other expense .....................................      (1,581)      (1,951)     (45,081)
   Equity in loss of affiliate .......................      (3,872)      (5,689)      (3,200)
                                                         ---------    ---------    ---------
   Income (loss) before income tax benefit,
     extraordinary items and accounting change .......    (167,800)    (165,383)    (243,691)
   Benefit from income taxes .........................      21,172         --           --
                                                         ---------    ---------    ---------
   Income (loss) before extraordinary items and
     accounting change ...............................    (146,628)    (165,383)    (243,691)
   Extraordinary gain (loss) from early extinguishment
     of debt .........................................        --         (1,720)        --
   Cumulative effect of accounting change ............        --           --         (3,361)
   ---------------------------------------------------   ---------    ---------    ---------

   Net income (loss) .................................   $(146,628)   $(167,103)   $(247,052)
                                                         =========    =========    =========
</TABLE>




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




                                      F-4
<PAGE>


                            ARCH COMMUNICATIONS, INC.
         (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>

                                                                   Additional                  Total
                                                           Common   Paid-in    Accumulated  Stockholder's
                                                            Stock   Capital      Deficit      Equity
                                                            -----   -------      -------      ------
<S>                                                         <C>    <C>          <C>          <C>
Balance, December 31, 1996.............................     $ --   $ 620,740    $(168,893)   $ 451,847
   Distribution to Arch Communications Group, Inc......       --      (3,177)          --       (3,177)
   Net loss............................................       --          --     (146,628)    (146,628)
                                                            ----   ---------    ---------    ---------
Balance, December 31, 1997.............................       --     617,563     (315,521)     302,042
   Capital contribution from Arch Communications
     Group, Inc........................................       --      24,843           --       24,843
   Net loss............................................       --          --     (167,103)    (167,103)
                                                            ----   ---------    ---------    ---------
Balance, December 31, 1998.............................       --     642,406     (482,624)     159,782
   Capital contribution from Arch Communications
     Group, Inc........................................       --     260,215           --      260,215
   Net loss............................................       --          --     (247,052)    (247,052)
                                                            ----   ---------    ---------    ---------
Balance, December 31, 1999.............................     $ --   $ 902,621    $(729,676)   $ 172,945
                                                            ====   =========    =========    =========
</TABLE>




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




                                      F-5
<PAGE>


                            ARCH COMMUNICATIONS, INC.
         (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                              -----------------------------------
                                                                 1997         1998         1999
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
   Cash flows from operating activities:
     Net income (loss) ....................................   $(146,628)   $(167,103)   $(247,052)
     Adjustments to reconcile net income (loss) to net
        cash provided by operating activities:
        Depreciation and amortization .....................     231,376      220,172      308,464
        Deferred income tax benefit .......................     (21,172)        --           --
        Extraordinary loss from early extinguishment of debt       --          1,720         --
        Cumulative effect of accounting change ............        --           --          3,361
        Equity in loss of affiliate .......................       3,872        5,689        3,200
        Accretion of discount on senior notes .............        --            141          864
        Gain on Tower Site Sale ...........................        --         (1,859)      (1,871)
        Write-off of N-PCS investments ....................        --           --         37,498
        Accounts receivable loss provision ................       7,181        8,545       15,265
        Changes in assets and liabilities, net of effect
           from acquisition of company:
           Accounts receivable ............................     (11,984)      (9,151)     (18,369)
           Inventories ....................................      (2,394)       2,314        1,728
           Prepaid expenses and other .....................        (386)      (3,090)       7,000
           Accounts payable and accrued expenses ..........       3,683       24,649       (2,938)
           Customer deposits and deferred revenue .........       1,058          549       (7,554)
           Other long-term liabilities ....................        --          1,634          909
                                                              ---------    ---------    ---------
   Net cash provided by operating activities ..............      64,606       84,210      100,505
                                                              ---------    ---------    ---------
   Cash flows from investing activities:
     Additions to property and equipment, net .............     (87,868)     (79,249)     (95,208)
     Additions to intangible and other assets .............     (14,899)     (33,935)     (18,443)
     Net proceeds from tower site sale ....................        --         30,316        3,046
     Acquisition of company, net of cash acquired .........        --           --       (516,561)
                                                              ---------    ---------    ---------
   Net cash used for investing activities .................    (102,767)     (82,868)    (627,166)
                                                              ---------    ---------    ---------
   Cash flows from financing activities:
     Issuance of long-term debt ...........................      91,000      460,964      473,783
     Repayment of long-term debt ..........................     (49,046)    (489,014)    (162,059)
     Capital contribution from (distribution to) Arch
        Communications Group, Inc. ........................      (3,177)      24,843      217,296
                                                              ---------    ---------    ---------
   Net cash provided by (used in) financing activities ....      38,777       (3,207)     529,020
                                                              ---------    ---------    ---------
   Net (decrease) increase in cash and cash equivalents ...         616       (1,865)       2,359
   Cash and cash equivalents, beginning of period .........       1,271        1,887           22
                                                              ---------    ---------    ---------
   Cash and cash equivalents, end of period ...............   $   1,887    $      22    $   2,381
                                                              =========    =========    =========
   Supplemental disclosure:
     Interest paid ........................................   $  61,322    $  56,249    $  90,249
                                                              =========    =========    =========
     Liabilities assumed in acquisition of company ........   $    --      $    --      $ 134,429
                                                              =========    =========    =========
</TABLE>




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




                                      F-6
<PAGE>

                            ARCH COMMUNICATIONS, INC.
         (A WHOLLY-OWNED SUBSIDIARY OF ARCH COMMUNICATIONS GROUP, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

   Organization--Arch  Communications,  Inc.  ("Arch"  or  the  "Company")  is a
leading  provider  of  wireless  messaging  services.  Arch  is  a  wholly-owned
subsidiary of Arch Communications Group, Inc. ("Parent"). On June 29, 1998, Arch
changed its name from USA Mobile  Communications Inc. II to Arch Communications,
Inc.

   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.  The Securities and Exchange  Commission
released  Staff  Accounting  Bulletin  (SAB) No. 101,  "Revenue  Recognition  in
Financial  Statements",  on  December  3,  1999.  This SAB  provides  additional
guidance  on the  accounting  for  revenue  recognition,  including  both  broad
conceptual  discussions  as  well as  certain  industry-specific  guidance.  The
guidance  is  effective  for the second  quarter of fiscal  2000.  Arch does not
expect  SAB 101 to have a material  impact on its  results  of  operations  upon
adoption.

   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  messaging  devices  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--Leased  messaging  devices sold or otherwise retired
are  removed  from the  accounts  at their net book  value  using the  first-in,
first-out  method.  Property and equipment is stated at cost and is  depreciated
using the straight-line method over the following estimated useful lives:

                                                             Estimated
   Asset Classification                                     Useful Life
   --------------------                                     -----------
   Buildings and improvements..........................      20 Years
   Leasehold improvements..............................     Lease Term
   Messaging devices...................................       3 Years
   Messaging 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 $108.0 million, $101.1 million and $144.9 million for the years ended
   December 31, 1997, 1998 and 1999, respectively.






                                      F-7
<PAGE>

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

                                                               December 31,
                                                              1998      1999
                                                              ----      ----

   Purchased Federal Communications Commission licenses     $256,519  $354,246
   Goodwill............................................      271,808   249,010
   Purchased subscriber lists..........................       56,825   239,114
   Deferred financing costs............................       13,983    12,796
   N-PCS investments...................................       17,847        --
   Other...............................................        9,457     5,258
                                                            --------  --------
                                                            $626,439  $860,424
                                                            ========  ========

   Amortization  expense  related to intangible  and other assets totaled $123.4
million,  $119.1  million and $163.6  million for the years ended  December  31,
1997, 1998 and 1999, respectively.

   Subscriber lists, Federal Communications Commission 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  Federal  Communications  Commission
application  and development  costs which are amortized using the  straight-line
method over their estimated useful lives, not exceeding ten years.

   In April 1998, the Accounting  Standards Executive Committee of the Financial
Accounting Standards Board issued Statement of Position (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.  Development and
start up costs include  nonrecurring,  direct costs incurred in the  development
and expansion of messaging  systems.  Arch adopted SOP 98-5 effective January 1,
1999. Initial  application of SOP 98-5 resulted in a $3.4 million charge,  which
was reported as the cumulative effect of a change in accounting principle.  This
charge  represents the unamortized  portion of start-up and organization  costs,
which had been deferred in prior years.

   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
1998, a charge of $1.7 million was recognized in connection  with the closing of
a new credit facility.

   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 except as described below.

   N-PCS Investments--In connection with Arch's May 1996 acquisition of Westlink
Holdings,  Inc.,  Arch acquired  Westlink's  49.9% share of the capital stock of
Benbow  PCS  Ventures,   Inc.   Benbow  holds   exclusive   rights  to  a  50kHz
outbound/12.5kHz  inbound narrowband personal communications services license in
each of the five regions of the United  States.  Arch was formerly  obligated to
advance Benbow  sufficient funds to service debt obligations  incurred by Benbow
in connection  with its  acquisition of its narrowband  personal  communications
services  licenses  and  to  finance   construction  of  a  narrowband  personal
communications  services system unless funds were available to Benbow from other
sources.  This  obligation  was subject to the  approval  of Arch's  designee on
Benbow's board of directors. Arch's investment in Benbow was 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.

   In June 1999, Arch, Benbow and Benbow's controlling stockholder, agreed that:


                                      F-8
<PAGE>

   o  the shareholders  agreement,  the management  agreement and the employment
      agreement  governing  the  establishment  and  operation of Benbow will be
      terminated;

   o  Benbow  will  not  make  any  further  Federal  Communications  Commission
      payments  and will  not  pursue  construction  of an  narrowband  personal
      communications  services  system;

   o  Arch  will not be  obligated  to fund  Federal  Communications  Commission
      payments or construction of a narrowband personal  communications services
      system  by  Benbow;

   o  the parties will seek Federal  Communications  Commission  approval of the
      forgiveness of Benbow's remaining payment  obligations and the transfer of
      the controlling stockholder's equity interest in Benbow to Arch;

   o  the  closing of the  transaction  will occur on the earlier of January 23,
      2001 or receipt of Federal Communications Commission approval;

   o  Arch will pay the controlling stockholder,  in installments,  an aggregate
      amount of $3.5 million (if the transaction closes before January 23, 2001)
      or $3.8 million (if the transaction closes on January 23, 2001).

   As a  result  of these  arrangements,  Benbow  will  not have any  meaningful
business   operations  and  is  unlikely  to  retain  its  narrowband   personal
communications services licenses.  Therefore, Arch has written off substantially
all of its  investment  in Benbow in the amount of $8.2  million.  Arch has also
accrued the payment to the controlling stockholder of $3.8 million and legal and
other  expenses  of  approximately  $1.0  million  which is  included in accrued
expenses.  In addition,  Parent guaranteed  Benbow's  obligations in conjunction
with Benbow's June 1998 purchase of the stock of PageCall.  Since it is unlikely
that  Benbow  will be able to meet these  obligations  and  Parent is  currently
required to settle the  obligation in its stock,  Arch has recorded the issuance
of $22.8 million of Parent's common stock as a capital  contribution from Parent
and as a charge to operations, to satisfy the obligation in April 2000.

   On November 8, 1994, CONXUS Communications,  Inc. was successful in acquiring
the rights to an interactive messaging license in five designated regions in the
United  States in the  Federal  Communications  Commission  narrowband  wireless
spectrum auction. On May 18, 1999, CONXUS filed for Chapter 11 protection in the
U.S.  Bankruptcy  Court in  Delaware,  which case was  converted to a case under
Chapter 7 on August 17,  1999.  In June 1999,  Arch  wrote-off  its $6.5 million
investment in CONXUS.  On November 3, 1999, in order to document its disposition
of any  interest it has, if any, in CONXUS,  Arch  offered to transfer to CONXUS
its shares in CONXUS for no  consideration.  Which was accepted by the Chapter 7
trustee on December 9, 1999.

   All of the above  charges,  totaling  $42.3  million,  are  included in other
expense in 1999 in the accompanying statement of operations.


   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, 1998 and
1999.

   As discussed in Note 3, Arch's debt  financing  primarily  consists of senior
bank debt and fixed rate senior notes.  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 based on the  current  market  quote as of December  31, 1998 and 1999 (in
thousands):
<TABLE>
<CAPTION>
                                                          December 31, 1998     December 31, 1999
                                                         -------------------   -------------------
                                                         Carrying     Fair     Carrying     Fair
   Description                                            Value      Value      Value      Value
   -----------                                           --------   --------   --------   --------
<S>                                                      <C>        <C>        <C>        <C>
   9 1/2% Senior Notes due 2004 ......................    125,000    112,500    125,000     95,000
   14% Senior Notes due 2004 .........................    100,000    103,000    100,000     83,000
   12 3/4% Senior Notes due 2007 .....................    127,604    127,604    127,887    101,030
   13 3/4% Senior Notes due 2008 .....................       --         --      140,365    113,685
</TABLE>



                                      F-9
<PAGE>

   Arch had off-balance-sheet  interest rate protection agreements consisting of
interest  rate  swaps and  interest  rate caps with  notional  amounts of $265.0
million and $40.0 million, respectively, at December 31, 1998 and $107.0 million
and $10.0 million, respectively, at December 31, 1999. The cost to terminate the
outstanding  interest rate swaps and interest rate caps at December 31, 1998 and
1999 would have been $6.4 million and $4.5 million, respectively. See Note 3.

   In June 1998, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting  Standards  (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 in earnings. Arch intends to adopt this standard effective January 1,
2001.  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.

   Reclassifications--Certain  amounts of prior  periods  were  reclassified  to
conform with the 1999 presentation.

2. ACQUISITIONS

   On June 3, 1999 Arch completed its acquisition of MobileMedia Communications,
Inc. for $671.1 million,  consisting of cash paid of $516.6  million,  including
direct  transaction  costs,  4,781,656  shares of Parent  common stock valued at
$20.1 million and the  assumption of  liabilities  of $134.4  million.  The cash
payments were financed through the issuance of approximately 36.2 million shares
of Parent common stock in a rights offering for $6.00 per share, the issuance of
$147.0  million  principal  amount of 13 3/4% senior notes due 2008 (see Note 3)
and additional borrowings under the Company's credit facility.

   Parent issued to four unsecured  creditors,  who had agreed to act as standby
purchasers and to purchase shares not purchased by other unsecured  creditors in
the rights offering, warrants to acquire 1,225,219 shares of its common stock on
or  before  September  1,  2001 for $9.03  per  share.  The fair  value of these
warrants was determined to be immaterial.

   The purchase price was allocated  based on the fair values of assets acquired
and liabilities  assumed.  The acquisition has been accounted for as a purchase,
and  the  results  of  MobileMedia's   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  liabilities  assumed,  referred to above,  include an unfavorable  lease
accrual related to MobileMedia's  rentals on communications towers which were in
excess of market  rental rates.  This accrual  amounted to  approximately  $52.9
million and is included in other  long-term  liabilities.  This  accrual will be
amortized  over the remaining  lease term of 13 3/4 years.  Concurrent  with the
consummation  of the  acquisition,  Arch commenced the  development of a plan to
integrate the operations of MobileMedia.  The liabilities  assumed,  referred to
above, also includes a $14.5 million restructuring accrual to cover the costs to
eliminate  redundant  headcount and  facilities  in connection  with the overall
integration of operations (see Note 9).

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

                                                 Year Ended December 31,
                                                 ----------------------
                                                   1998            1999
                                                ---------       ---------
                                               (unaudited and in thousands)
   Revenues..................................   $ 854,862       $ 817,686
   Income (loss) before extraordinary item...    (154,203)       (271,093)
   Net income (loss).........................    (155,923)       (271,093)

   Pending Acquisition -- In November 1999, Parent signed a definitive agreement
with Paging Network,  Inc. (PageNet) pursuant to which PageNet will merge with a
wholly-owned  subsidiary of Arch. Each outstanding share of PageNet common stock
will be converted into 0.1247 share of Parent common stock in the merger.

   Under the merger agreement,  PageNet is required to make an exchange offer of
PageNet common stock to holders of its  outstanding  8.875% senior  subordinated
notes due  2006,  its  10.125%  senior  subordinated  notes due 2007 and its 10%
senior subordinated notes due 2008 (collectively,  the "PageNet Notes"),  having


                                      F-10
<PAGE>

an aggregate  outstanding  principal  amount of $1.2 billion.  Under the PageNet
exchange  offer,  an aggregate of  616,830,757  shares of PageNet  common stock,
together  with  68.9% of the  equity  interest  in  PageNet's  subsidiary,  Vast
Solutions, would be exchanged for all of the PageNet Notes, in the aggregate. In
connection with the Merger,  PageNet would distribute to its stockholders (other
than holders who received shares in the PageNet  exchange  offer),  11.6% of the
equity  interests in Vast  Solutions.  After the merger,  PageNet would retain a
19.5% equity interest in Vast Solutions.

   Under the merger agreement Parent is required to make an exchange offer of up
to  29,651,984  shares of its  common  stock (in the  aggregate)  for all of its
107/8% senior discount notes due 2008.

   Arch expects the merger,  which has been  approved by the boards of directors
of  Parent  and  PageNet,  but is  subject  to  regulatory  review,  shareholder
approval,  other third-party  consents and the completion of the exchange offers
and preferred stock  conversion,  to be completed in the second or third quarter
of 2000.  Each of the PageNet  exchange  offer and the Parent  exchange offer is
conditioned upon acceptance by the holders of 97.5% of the PageNet Notes and the
Parent senior discount notes, respectively, subject to reduction under specified
circumstances.

   The merger agreement  provides that under certain  circumstances a fee may be
payable  by  Arch  or  PageNet  upon   termination  of  the   agreement.   These
circumstances include withdrawal of the recommendation or approval of the merger
agreement or the merger by the Parent or PageNet board of directors, the failure
of shareholders  or noteholders to approve the transaction or exchange  followed
by the making of an alternative  proposal and Parent or PageNet entering into an
agreement with a third party within 12 months of such termination, and PageNet's
failure to file a  prepackaged  bankruptcy  plan in certain  circumstances.  The
termination  fee payable by Arch or PageNet under the merger  agreement is $40.0
million.

   The merger agreement  provides that either party may terminate the agreement,
without paying the above fee, if the merger is not consummated by June 30, 2000.
This  termination  date is  subject  to  extension  for 90 days  for  regulatory
approval  and is subject to  extension  to as late as  December  31,  2000 under
certain  circumstances  where  PageNet  files  for  protection  under  the  U.S.
Bankruptcy Code.

3. LONG-TERM DEBT

   Long-term debt consisted of the following:

                                                  December 31,
                                                1998        1999
                                                ----        ----
                                                 (in thousands)
     Senior Bank Debt.....................   $ 267,000   $ 438,940
     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     127,887
     13 3/4% Senior Notes due 2008........          --     140,365
                                             ---------   ---------
                                               619,604     932,192
     Less--Current maturities.............       1,250       8,060
                                             ---------   ---------
     Long-term debt.......................   $ 618,354   $ 924,132
                                             =========   =========

   Senior Bank Debt--The Company, through its operating subsidiary, Arch Paging,
Inc. (API) has a senior credit  facility in the current amount of $577.9 million
consisting of (i) a $175.0 million reducing revolving tranche A facility, (ii) a
$100.0  million  tranche B term loan and (iii) a $302.9  million  tranche C term
loan.

   The tranche A facility  will be reduced on a quarterly  basis  commencing  on
September  30,  2000 and will mature on June 30,  2005.  The tranche B term loan
will be amortized in quarterly installments  commencing September 30, 2000, with
an  ultimate  maturity  date of June 30,  2005.  The  tranche C term loan  began
amortizing  in annual  installments  on  December  31,  1999,  with an  ultimate
maturity date of June 30, 2006.



                                      F-11
<PAGE>

   API's  obligations under the senior credit facility are secured by its pledge
of its  interests in certain of its  operating  subsidiaries.  The senior credit
facility is guaranteed by Parent and certain of Arch's  operating  subsidiaries.
Parent's  guarantee is secured by a pledge of Parent's  stock and notes in Arch,
and the  guarantees  of the  operating  subsidiaries  are  secured by a security
interest in certain assets of those operating subsidiaries.

   Borrowings  under  the  senior  credit  facility  bear  interest  based  on a
reference rate equal to either the agent bank's alternate base rate or LIBOR, in
each case plus a margin based on specified ratios of debt to annualized earnings
before interest, taxes, depreciation and amortization (EBITDA).

   The senior  credit  facility  requires  payment of fees on the daily  average
amount  available to be borrowed  under the tranche A facility.  These fees vary
depending on specified ratios of total debt to annualized EBITDA.

   The senior  credit  facility  requires  that at least 50% of total Arch debt,
including outstanding borrowings under the senior credit facility, be subject to
a fixed  interest rate or interest  rate  protection  agreements.  Entering into
interest  rate  protection  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,  Arch would be subject to the  prevailing
interest rates specified in the senior 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.  No interest  rate swaps on the senior
credit facility were outstanding at December 31, 1999. At December 31, 1998, the
Company had a net payable of $47,000, on the interest rate swaps.

   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 $10.0
million with a cap level of 8% at December 31, 1999.  The  transaction  fees for
these instruments are being amortized over the terms of the agreements.

   The senior credit  facility  contains  restrictions  that limit,  among other
things, Arch's operating subsidiaries' ability to:

   o  declare dividends or redeem or repurchase capital stock;

   o  prepay, redeem or purchase debt;

   o  incur liens and engage in sale/leaseback transactions;

   o  make  loans  and   investments;

   o  incur indebtedness and contingent obligations;

   o  amend or otherwise alter debt instruments and other material agreements;

   o  engage in mergers, consolidations, acquisitions and asset sales;

   o  alter its lines of business or accounting methods.

   In addition, the senior credit facility requires Arch and its subsidiaries to
meet certain financial  covenants,  including ratios of EBITDA to fixed charges,
EBITDA to debt service,  EBITDA to interest  service and total  indebtedness  to
EBITDA.  As of December 31, 1999,  Arch and its operating  subsidiaries  were in
compliance with the covenants of the senior credit facility.

   As of December 31, 1999,  $438.9 million was  outstanding  and $139.0 million
was  available  under the senior  credit  facility.  At December 31, 1999,  such
advances bore interest at an average annual rate of 11.62%.

   Senior  Notes--On June 3, 1999,  Arch received the proceeds of an offering of
$147.0  million  principal  amount at maturity of 13 3/4% senior notes due 2008.
The 13 3/4% notes  were sold at an initial  price to  investors  of 95.091%  for
proceeds of $139.8 million less offering  expenses of $5.2 million.  The 13 3/4%
notes mature on April 15, 2008 and bear interest at a rate of 13 3/4% per annum,
payable  semi-annually  in  arrears  on April 15 and  October  15 of each  year,
commencing October 15, 1999.



                                      F-12
<PAGE>

     Interest on the 13 3/4% notes, the 12 3/4% senior notes due 2007,  the 14%
senior  notes due 2004 and the 9 1/2% senior notes due 2004  (collectively,  the
"Senior  Notes")  is payable  semiannually.  The Senior  Notes  contain  certain
restrictive  and  financial  covenants,  which,  among other  things,  limit the
ability of Parent or Arch to:
   o  incur additional indebtedness;
   o  pay dividends;
   o  grant liens on its assets;
   o  sell assets; o enter into transactions with related parties;
   o  merge, consolidate or transfer substantially all of its assets;
   o  redeem capital stock or subordinated debt;
   o  make certain investments.

   Arch has entered into  interest rate swap  agreements in connection  with the
14% Notes. Under the interest rate swap agreements, Arch has effectively reduced
the interest rate on the 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,  Arch would be subject to the 14% interest rate specified
on the notes.  As of December 31, 1999, Arch had received $6.8 million in excess
of the  amounts  paid  under the swap  agreements,  which is  included  in other
long-term liabilities in the accompanying balance sheet.

   Maturities of Debt--Scheduled  long-term debt maturities at December 31, 1999
are as follows (in thousands):


   Year Ending December 31,
   ------------------------
   2000.............................     $     8,060
   2001.............................          15,560
   2002.............................          20,560
   2003.............................          25,560
   2004.............................         274,060
   Thereafter.......................         588,392
                                         -----------
                                         $   932,192
                                         ===========

4. 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, 1998 and 1999 are as
follows (in thousands):

                                                   1998        1999
                                                   ----        ----
   Deferred tax assets.....................   $ 179,484   $ 312,527
   Deferred tax liabilities................     (67,652)    (41,617)
                                              ---------   ---------
                                                111,832     270,910
   Valuation allowance.....................    (111,832)   (270,910)
                                              ---------   ---------
                                              $      --   $      --
                                              =========   =========



                                      F-13
<PAGE>

   The approximate effect of each type of temporary  difference and carryforward
at December 31, 1998 and 1999 is summarized as follows (in thousands):

                                                 1998        1999
                                                 ----        ----
   Net operating losses....................   $ 128,213   $ 174,588
   Intangibles and other assets............     (62,084)     36,029
   Depreciation of property and equipment..      39,941      42,703
   Accruals and reserves...................       5,762      17,590
                                              ---------   ---------
                                                111,832     270,910
   Valuation allowance.....................    (111,832)   (270,910)
                                              ---------   ---------
                                              $      --   $      --
                                              =========   =========

   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 2014.  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.  Of the  valuation  allowance  at December  31,  1999,
approximately $60.3 million will be recorded to goodwill when realized.

5. 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  fifty 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, 1999 are as follows (in thousands):

   Year Ending December 31,
   ------------------------
   2000......................................................    $   51,091
   2001......................................................        42,611
   2002......................................................        35,957
   2003......................................................        29,457
   2004......................................................        22,969
   Thereafter................................................       143,426
                                                                 ----------
       Total.................................................    $  325,511
                                                                 ==========

   Total rent expense under  operating  leases for the years ended  December 31,
1997, 1998 and 1999 approximated $19.8 million, $19.6 million and $48.3 million,
respectively.

6. EMPLOYEE BENEFIT PLANS

   Retirement Savings Plans--Arch has retirement savings plans, qualifying under
Section  401(k) of the Internal  Revenue Code covering  eligible  employees,  as
defined.  Under the plans, a participant  may elect to defer receipt of a stated
percentage  of  the  compensation  which  would  otherwise  be  payable  to  the
participant for any plan year (the deferred amount) provided,  however, that the
deferred  amount shall not exceed the maximum  amount  permitted  under  Section
401(k) of the Internal  Revenue Code.  The plans  provide for employer  matching
contributions.  Matching  contributions  for the years ended  December 31, 1997,


                                      F-14
<PAGE>

1998 and 1999 approximated $302,000, $278,000 and $960,000, respectively.

   Stock  Options--Employees  of Arch are eligible to be granted  options  under
Parent's  stock  option  plans  which  provide  for the grant of  incentive  and
nonqualified  stock  options to key  employees,  directors  and  consultants  to
purchase  Parent 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.  However,  in
certain circumstances,  options may be immediately  exercisable in full. Options
generally  have a duration of 10 years.  The plans  provide for the  granting of
options to purchase a total of 2,304,135 shares of common stock.

   On December 16, 1997, the Compensation Committee of the board of directors of
Parent  authorized  the Company to offer an election  to its  employees  who had
outstanding  options at a price  greater  than $15.19 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 361,072 options with
exercise prices ranging from $17.82 to $61.88 and granted the same number of new
options with an exercise price of $15.19 per share, the fair market value of the
stock on December 16, 1997.

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

                                                           Weighted
                                                 Number    Average
                                                   of      Exercise
                                                Options     Price
                                              ----------    ------
   Options Outstanding at December 31, 1996      349,065    $34.11
     Granted ..............................      166,785     20.03
     Exercised ............................         --        --
     Terminated ...........................      (62,207)    31.97
                                              ----------    ------
   Options Outstanding at December 31, 1997      453,643     29.22
     Granted ..............................      656,096     14.27
     Exercised ............................      (31,344)     9.38
     Terminated ...........................     (429,627)    28.54
                                              ----------    ------
   Options Outstanding at December 31, 1998      648,768     15.51
     Granted ..............................    1,295,666      7.80
     Exercised ............................         --        --
     Terminated ...........................     (109,672)    13.89
                                              ----------    ------
   Options Outstanding at December 31, 1999    1,834,762     10.16
                                              ==========    ======
   Options Exercisable at December 31, 1999      255,264    $17.00
                                              ==========    ======

   The  following   table   summarizes  the  options   outstanding  and  options
exercisable by price range at December 31, 1999:

                                              Weighted
                                               Average    Weighted    Weighted
                                              Remaining    Average    Average
      Range of        Options    Contractual  Exercise     Options    Exercise
   Exercise Prices  Outstanding     Life        Price    Exercisable   Price
   ---------------  -----------     ----        -----    -----------   -----
   $ 4.31 - $ 6.31      26,400      9.58       $ 5.70        7,900     $ 5.46
     7.83 -   7.83   1,263,266      9.42         7.83        2,000       7.83
    10.69 -  15.19     500,954      8.09        14.33      210,996      14.49
    18.75 -  23.63      32,974      5.99        20.76       23,516      21.03
    37.50 -  82.68      11,168      5.52        66.56       10,852      66.99
   ------   ------   ---------      ----       ------    ---------     ------
   $ 4.31 - $82.68   1,834,762      8.98       $10.16      255,264     $17.00
   ======   ======   =========      ====       ======    =========     ======

   Employee Stock Purchase  Plans--Employees of Arch may participate in Parent's
stock purchase plans which allow eligible employees the right to purchase Parent
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 1997,  1998 and 1999,  50,447,
85,996 and 34,217  shares were  issued at an average  price per share of $15.87,


                                      F-15
<PAGE>

$6.39 and  $5.60,  respectively.  At  December  31,  1999,  465,783  shares  are
available for future issuance.

   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  statements of
operations.  Had  compensation  cost for these plans been determined  consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation",  Arch's net income
(loss) and income  (loss) per share would have been  increased to the  following
pro forma amounts:

                                                Years Ended December 31,
                                             1997         1998         1999
                                             ----         ----         ----
                                                     (in thousands)
   Net income (loss), as reported......   $(146,628)   $(167,103)   $(247,052)
   Net income (loss), pro forma........    (148,224)    (169,117)    (249,536)

   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%--87%.

   The weighted average fair values  (computed  consistent with SFAS No. 123) of
options  granted under all plans in 1997,  1998 and 1999 were $10.11,  $8.34 and
$5.56,  respectively.  The weighted  average fair value of shares sold under the
employee stock purchase plans in 1997, 1998 and 1999 was $8.49, $5.64 and $3.13,
respectively.

7. RELATED PARTY TRANSACTIONS

   Intercompany  Transactions with Arch Communications Group, Inc.-- On June 29,
1998, two partnerships  managed by Sandler Capital Management Company,  Inc., an
investment management firm, together with certain other private investors,  made
an  equity  investment  in  Parent  of $25.0  million  in the  form of  series C
convertible  preferred stock of Parent.  Simultaneously,  Parent  contributed to
Arch as an equity  investment $24.0 million of the net proceeds from the sale of
series C  preferred  stock,  Arch  contributed  such  amount to API as an equity
investment and API used such amount to repay  indebtedness  under ACE's existing
credit facility as part of the establishment of the senior credit facility.

8. LONG-TERM LIABILITIES

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

   Arch entered into options to repurchase  each site and until this  continuing
involvement  ends the  gain on the  sale of the  tower  sites  is  deferred  and
included in other  long-term  liabilities.  At December 31, 1999,  approximately
$24.9  million of the gain is deferred  and  approximately  $1.9 million of this
gain has been  recognized  in the  statement  of  operations  and is included in
operating  income  for each of the  years  ended  December  31,  1998 and  1999,
respectively.

   Also included in other long-term  liabilities is an unfavorable lease accrual
related to MobileMedia's  rentals on communications  towers which were in excess
of market rental rates (see Note 2). At December 31, 1999, the remaining balance
of this accrual was approximately $51.5 million. This accrual is being amortized
over the  term of the  leases  with  approximately  13 3/4  years  remaining  at
December 31, 1999.





                                      F-16
<PAGE>

9. RESTRUCTURING RESERVES

   Divisional reorganization -- In June 1998, Arch's board of directors approved
a reorganization of Arch's operations. As part of the divisional reorganization,
Arch 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:

   o  anticipates a net reduction of approximately 10% of its workforce;

   o  is closing certain office locations and redeploying other assets; and

   o  recorded a restructuring charge of $14.7 million in 1998.

   In conjunction  with the completion of the  MobileMedia  merger in June 1999,
the timing and implementation of the divisional reorganization announced in June
1998 was reviewed by Arch  management.  The plan was reviewed within the context
of the combined  company  integration  plan which was approved by the Company in
the third quarter of 1999.  After this review it was determined that significant
changes needed to be made to the divisional  reorganization plan. In the quarter
ended September 30, 1999, the Company  identified  certain of its facilities and
network  leases  that will not be  utilized  following  the  integration  of the
Company and MobileMedia, resulting in an additional charge of $2.6 million. This
charge was offset by reductions to previously provided severance and other costs
of $4.8 million.

   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 this 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  approximately  900  employees  will be effected.  The majority of the
positions which have been or will be eliminated are related to customer service,
collections, inventory and billing functions in local and regional offices which
will be  closed.  As of  December  31,  1998 and  1999,  217  employees  and 414
employees,   respectively,   had   been   terminated   due  to  the   divisional
reorganization.  The remaining  severance and benefits costs will be paid during
2000.

   The  Company's  restructuring  activity as of December 31, 1999 is as follows
(in thousands):

                                Reserve
                               Initially    Reserve                   Remaining
                              Established  Adjustment  Amounts Paid    Reserve
                              -----------  ----------  ------------    -------
   Severance costs.........    $  9,700     $ (3,547)    $  5,123     $  1,030
   Lease obligation costs..       3,500        2,570          872        5,198
   Other costs.............       1,500       (1,223)         277           --
                               --------     --------     --------     --------
   Total...................    $ 14,700     $ (2,200)    $  6,272     $  6,228
                               ========     =========    ========     ========

   MobileMedia  Acquisition  Reserve  -- On  June  3,1999,  Arch  completed  its
acquisition of MobileMedia  and commenced the  development of plans to integrate
the operations of MobileMedia. During the third quarter of 1999, Arch's board of
directors  approved  plans covering the  elimination of redundant  headcount and
facilities in  connection  with the overall  integration  of  operations.  It is
expected that the integration  activity relating to the MobileMedia merger, will
be completed by December 31, 2000.

   In  connection  with the  MobileMedia  acquisition,  Arch  anticipates  a net
reduction of  approximately  10% of  MobileMedia's  workforce and the closing of
certain  facilities and tower sites.  This resulted in the establishment a $14.5
million  acquisition  reserve which is included as part of the purchase price of
MobileMedia. The initial acquisition reserve consisted of approximately (i) $6.1
million for  employee  severance,  (ii) $7.9 million for lease  obligations  and
terminations and (iii) $0.5 million of other costs.



                                      F-17
<PAGE>

     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 this 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
2003.

   Through the  elimination of redundant  management,  administrative,  customer
service,  collections  and  inventory  functions,  the  Company  will  eliminate
approximately  500 positions.  As of December 31, 1999,  174 former  MobileMedia
employees had been terminated.

   The MobileMedia  acquisition  reserve activity as of December 31, 1999 was as
follows (in thousands):

                                        Reserve
                                       Initially                   Remaining
                                       Established  Amounts Paid    Reserve
                                       -----------  ------------    -------
   Severance costs...................    $  6,058     $  3,380     $  2,678
   Lease obligation costs............       7,950          122        7,828
   Other costs.......................         500          123          377
                                         --------     --------     --------
   Total.............................    $ 14,508     $  3,625     $ 10,883
                                         ========     ========     ========

10.SEGMENT REPORTING

   The Company operates in one industry:  providing wireless messaging services.
On December 31, 1999, the Company  operated  approximately  375 retail stores in
the United States.

11.QUARTERLY FINANCIAL RESULTS (UNAUDITED)

   Quarterly  financial  information  for the years ended  December 31, 1998 and
1999 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, 1998:
   Revenues........................................     $ 102,039   $ 103,546   $ 104,052   $ 103,998
   Operating income (loss).........................       (19,175)    (33,714)    (20,568)    (19,828)
   Income (loss) before extraordinary item.........       (36,500)    (51,311)    (38,209)    (39,363)
   Extraordinary charge............................            --      (1,720)         --          --
   Net income (loss)...............................       (36,500)    (53,031)    (38,209)    (39,363)
   YEAR ENDED DECEMBER 31, 1999:
   Revenues........................................       100,888     133,493     206,189     201,254
   Operating income (loss).........................       (15,844)    (34,304)    (26,832)    (19,789)
   Income (loss) before accounting change..........       (35,297)   (100,155)    (56,872)    (51,367)
   Cumulative effect of accounting change..........        (3,361)         --          --          --
   Net income (loss)...............................       (38,658)   (100,155)    (56,872)    (51,367)
</TABLE>




                                      F-18
<PAGE>

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Arch Communications, Inc.:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Arch Communications,
Inc.  included  in this Form  10-K and have  issued  our  report  thereon  dated
February 16,  2000.  Our audit was made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. Schedule II is the
responsibility  of the  Company's  management  and is presented  for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements.  The schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements  and, in our  opinion,  fairly  states in all  material  respects the
financial  data  required  to be set  forth  therein  in  relation  to the basic
consolidated financial statements taken as a whole.


                                        /s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 16, 2000






                                      S-1
<PAGE>

                                                                     SCHEDULE II
                            ARCH COMMUNICATIONS, INC.
                        VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 1997, 1998 and 1999
                                 (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, 1997....    $   4,111    $   7,181    $       --    $  (5,548)   $  5,744
                                    =========    =========    ==========    =========    ========
Year ended December 31, 1998....    $   5,744    $   8,545    $       --    $  (7,706)   $  6,583
                                    =========    =========    ==========    =========    ========
Year ended December 31, 1999....    $   6,583    $  15,265    $   13,243    $ (18,618)   $ 16,473
                                    =========    =========    ==========    =========    ========
</TABLE>

(1)      Additions arising through acquisitions of messaging companies


<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>           <C>          <C>
Year ended December 31, 1998....    $      --    $   14,700   $       --    $  (2,791)   $ 11,909
                                    =========    ==========   ==========    =========    ========
Year ended December 31, 1999....    $  11,909    $   (2,200)  $   14,508    $  (7,106)   $ 17,111
                                    =========    ==========   ==========    =========    ========
</TABLE>






                                      S-2
<PAGE>


                                  EXHIBIT INDEX

 2.1  Agreement and Plan of Merger,  dated as of November 7, 1999,  among Paging
      Network,  Inc., Arch Communications  Group, Inc. and St. Louis Acquisition
      Corp. (1)
 2.2  Amendment  to Agreement  and Plan of Merger,  dated as of January 7, 2000,
      between Paging Network,  Inc.,  Arch  Communications  Group,  Inc. and St.
      Louis Acquisition Corp. (2)
 3.1  Restated Certificate of Incorporation. (3)
 3.2  By-laws, as amended. (3)
 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. (3)
 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)
 4.4  Indenture, dated April 9, 1999, between Arch Communications,  Inc. and IBJ
      Whitehall Bank & Trust Company, as Trustee, relating to the 13 3/4% Senior
      Notes due 2008. (6)
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). (7)
10.4  Amendment No. 1 and  Amendment No. 2 to the Second  Amended and Restated
      Credit Agreement (Tranche B Facility). (7)
10.5  Amendment  No. 4 to the Second  Amended and  Restated  Credit  Agreement
      (Tranche A and Tranche C Facilities). (8)
10.6  Amendment  No. 4 to the Second  Amended and  Restated  Credit  Agreement
      (Tranche B Facility). (8)
10.7  Preferred  Distributor  Agreement dated June 1, 1998 by and between Arch
      Communications Group, Inc. and NEC America, Inc. (7)(9)
10.8  Paging  Products Sales  Agreement,  dated March 17, 1999, by and between
      Motorola, Inc. and the Company. (8) (9)
10.9  Satellite  Services  Agreement,  dated September 1, 1998, between AvData
      Systems, Inc. and MobileMedia Communications, Inc. (8) (9)
10.10 Master  Lease For  Transmitter  Systems  Space by and between  Pinnacle
      Towers, Inc. and MobileMedia Communications, Inc. (8)
27.1* Financial Data Schedule.
----------------
  *   Filed herewith.
  +   Identifies  exhibits  constituting a management  contract or  compensation
      plan.
 (1)  Incorporated  by  reference  from the  Current  Report on Form 8-K of Arch
      Communications  Group,  Inc. dated November 7, 1999 and filed November 19,
      1999.
 (2)  Incorporated  by  reference  from the  Current  Report on Form 8-K of Arch
      Communications  Group,  Inc.  dated  January 7, 2000 and filed January 21,
      2000.
 (3)  Incorporated  by  reference  from the  Registration  Statement on Form S-1
      (File No. 33-85580) of Arch Communications, Inc.
 (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-4
      (File No. 333-83027) of Arch Communications, Inc.
 (7)  Incorporated  by  reference  from the  Annual  Report on Form 10-K of Arch
      Communications Group, Inc. for the fiscal year ended December 31, 1998.
 (8)  Incorporated  by reference from the Quarterly  Report on Form 10-Q of Arch
      Communications Group, Inc. for the quarter ended June 30, 1999.
 (9)  A Confidential  Treatment  Request has been filed with respect to portions
      of this exhibit so incorporated by reference.