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                                  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 [NO FEE REQUIRED] X

For the Fiscal Year Ended December 31, 1997

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]

For the transition period from             to
Commission file numbers 0-23232/1-14248

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

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

      1800 West Park Drive, Suite 250
        Westborough, Massachusetts                         01581
 (address of principal executive offices)               (Zip Code)

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

             SECURITIES REGISTERED  PURSUANT TO SECTION 12(b) OF THE  SECURITIES
                        EXCHANGE ACT OF 1934:
 10 7/8% Senior Discount Notes due 2008         American Stock Exchange
         (Title of Class)                (Name of exchange on which registered)

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

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

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant at March 24, 1998 was approximately $111,580,000.

The number of shares of Registrant's  Common Stock outstanding on March 24, 1998
was 20,958,570

Portions of Registrant's  Definitive Proxy Statement for the 1998 Annual Meeting
of Stockholders  of the Registrant to be held on May 19, 1998, are  incorporated
by reference into Part III.



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                                     PART I


ITEM 1. BUSINESS

General

     Arch  Communications  Group,  Inc.  ("Arch" or the  "Company") is a leading
provider of wireless messaging services,  primarily paging services, and had 3.9
million  pagers in service as of December 31,  1997.  Arch has  operations  in a
total of 41 states and 180 of the 200 largest markets in the United States.

     The Company offers local, regional and nationwide paging services employing
digital networks  covering  approximately  85% of the United States  population.
Arch  offers  four  types of  paging  services:  digital  display,  alphanumeric
display,   tone-only  and   tone-plus-voice.   Arch  also  offers   enhanced  or
complementary services,  including voice mail,  personalized greetings,  message
storage and retrieval,  pager loss protection and pager maintenance.  As part of
its  business,  the  Company  rents,  sells and repairs  pagers.  The Company is
licensed by the Federal Communications  Commission ("FCC") to provide paging and
related  services  in the  markets  it  serves.  Generally,  such  licenses  are
exclusive to a particular radio frequency,  although multiple frequencies may be
licensed in any given market. See "Business -- Regulation".

     Arch has grown  rapidly  through  a  combination  of  internal  growth  and
acquisitions  since it began operations in 1986. The Company's net revenues (the
sum of service revenues and product sales, less the cost of product sales),  the
normal presentation of revenues in the paging industry, were $367,683,000 in the
year ended  December 31, 1997.  The Company's  operating  cash flow, or earnings
before  interest,  taxes,  depreciation and  amortization  ("EBITDA"),  the most
relevant  measure  of  operating  performance  for  the  paging  industry,   was
$130,332,000  for the year.  Because  paging is a  capital  intensive  industry,
particularly  during  periods of rapid growth,  and because the Company has made
sizeable  acquisitions  accounted  for by the  purchase  method  of  accounting,
significant  depreciation and  amortization  expenses are charged against Arch's
operations. Because the Company has incurred large amounts of debt in its growth
and in the course of its acquisition  program,  significant  interest expense is
charged  against  its  operations.  As a result of these  charges,  the  Company
historically  has incurred net losses,  including a net loss of $181,874,000 for
the year ended December 31, 1997.

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

               Pagers in
               Service at    Net Increase in      Increase in       Pagers in
Year Ended    Beginning of   Pagers through      Pagers through     Service at
August 31,      Period      Internal Growth(1)   Acquisitions(2)  End of Period

  1987....        4,000            3,000               12,000           19,000
  1988....       19,000            8,000                3,000           30,000
  1989....       30,000           14,000               34,000           78,000
  1990....       78,000           20,000                4,000          102,000
  1991....      102,000           24,000                1,000          127,000
  1992....      127,000           33,000                    -          160,000
  1993....      160,000           70,000               24,000          254,000
  1994....      254,000          138,000               18,000          410,000


 Four Months
   Ended
December 31,
  1994....      410,000           64,000               64,000          538,000


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               Pagers in
               Service at    Net Increase in      Increase in       Pagers in
Year Ended    Beginning of   Pagers through      Pagers through     Service at
December 31,    Period      Internal Growth(1)   Acquisitions(2)  End of Period

  1995....      538,000          366,000            1,102,000        2,006,000
  1996....    2,006,000          815,000              474,000        3,295,000
  1997....    3,295,000          595,000                -            3,890,000



(1)  Includes   internal  growth  in  acquired  paging  businesses  after  their
     acquisition by Arch. Increases in pagers through internal growth are net of
     subscriber cancellations during each applicable period.

(2)  Based on pagers in service of  acquired  paging  businesses  at the time of
     their acquisition by Arch.

Acquisition of USA Mobile

     On  September  7,  1995,  Arch  Communications   Group,  Inc.,  a  Delaware
corporation  ("Old Arch"),  completed its acquisition of USA Mobile,  a Delaware
corporation,  through  the merger (the  "Merger")  of Old Arch with and into USA
Mobile, which simultaneously changed its name to Arch Communications Group, Inc.
In  accordance  with  generally  accepted  accounting  principles,  Old Arch was
treated as the acquirer in the Merger for  accounting  and  financial  reporting
purposes,  and the Company  reports the historical  financial  statements of Old
Arch as the  historical  financial  statements  of the Company.  As used herein,
unless the context otherwise  requires,  the terms "Arch" or the "Company" refer
to Arch Communications  Group, Inc. from and after the Merger and Old Arch prior
to the Merger,  in each case together with its wholly-owned  direct and indirect
subsidiaries,  and the term "USA  Mobile"  refers to USA  Mobile  Communications
Holdings,  Inc. prior to the Merger  together with its  wholly-owned  direct and
indirect subsidiaries.

Paging Industry Overview

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

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

     Industry sources estimate that, since 1991, the number of pagers in service
in the United States has grown at an annual rate of  approximately  30% and will
continue  to grow at an annual  rate of  approximately  15% until the year 2000.
Based on industry sources,  Arch believes that there are in excess of 45 million
pagers  in  service  in  the  United  States  at  December  31,  1997.   Factors
contributing  to  this  growth  include:   (i)  a  continuing  shift  towards  a
service-based economy; (ii) increasing mobility of workers and the population at
large; (iii) increasing awareness of the benefits of mobile communications among
the  population  at  large;  (iv) the  relatively  high cost of  two-way  mobile
communications,  such as cellular telephone services; (v) introduction of new or
enhanced  paging  services,   including   nationwide  paging  capability;   (vi)

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continuing  improvements  in the  performance  of  paging  equipment;  and (vii)
significant  price/performance  improvements  in  paging  services.  The  paging
industry has undergone  substantial  consolidation  over the past ten years, and
Arch believes that the top five paging carriers  represent  approximately 50% of
the pagers in  service.  Nonetheless,  Arch  believes  that the paging  industry
remains  fragmented,  with more than 300 licensed carriers in the United States,
and will continue to undergo consolidation.

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

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

Business Strategy

     Arch's  strategic  objective  is to  strengthen  its position as one of the
leading  nationwide  paging  companies in the United States.  Arch believes that
larger,  multi-market paging companies enjoy a number of competitive advantages,
including:  (i) operating efficiencies resulting from more intensive utilization
of  existing  paging  systems;   (ii)  economies  of  scale  in  purchasing  and
administration;  (iii)  broader  geographic  coverage  of paging  systems;  (iv)
greater access to capital markets and lower costs of capital; (v) the ability to
obtain  additional  radio  spectrum;  (vi) the  ability  to  offer  high-quality
services at competitive prices; and (vii) enhanced ability to attract and retain
management  personnel.  Arch  believes  that the  current  size and scope of its
operations  afford it many of these  advantages.  Arch also  believes that major
paging  companies  need to have national  scope and presence in order to attract
marketing  affiliations  and other  opportunities  for  growth.  Arch's two most
recent acquisitions,  USA Mobile and Westlink Holdings,  Inc.  ("Westlink") have
enabled the Company to effectively compete on a national level and position Arch
to exploit such opportunities while continuing to pursue its growth strategy.

     Arch employs a three-part growth strategy to expand its subscriber base and
geographic operations:

     Continued Market Development and Penetration. Arch increases its subscriber
base through  continued  development  and  penetration of its existing  markets,
primarily  through  sales and marketing  efforts.  Expansion of Arch's sales and
marketing  activities  within areas of existing service coverage broadens Arch's
potential  subscriber base with minimal incremental capital investment and, over
time, contributes to higher margins through increased system utilization.

     Expansion of Sales and  Marketing  Activities.  Arch expands its  marketing
coverage,  principally  by opening new sales  offices,  to areas  contiguous  to
existing sales operations  within Arch's current system  coverage.  Expansion of
sales and marketing  activities  into new markets  contiguous to existing  sales
operations may solidify Arch's  presence in existing  markets and enable Arch to
leverage further its infrastructure within these markets.

     Acquisitions. Arch makes two types of acquisitions;  fold-in and strategic.
Fold-in  acquisitions  are acquisitions of paging  businesses  located within or
adjacent to Arch's current system coverage. Fold-in acquisitions increase Arch's
subscriber  base and  revenues  and offer  opportunities  to  achieve  operating
efficiencies  by  consolidating  staff,  eliminating  duplicative  overhead  and
integrating the acquired  subscribers  into Arch's own paging system and billing
and  collection  processes.  Arch also makes  strategic  acquisitions  to expand
Arch's  geographic  coverage into new markets  outside of Arch's  current system
coverage.

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     Although today Arch operates in 90 of the top 100 U.S. markets, the Company
historically has focused on medium-sized and small market areas with lower rates
of pager  penetration  and attractive  demographics  and Arch believes that such
markets  will  continue  to  offer  significant  opportunities  for  growth.  In
addition,  Arch believes that its  increasing  national  scope and presence will
provide  Arch with  growth  opportunities  in larger  markets,  including  major
metropolitan areas adjacent to certain of Arch's existing markets.

     Arch  believes  that its  selection  of  low-cost  operator  status  as its
competitive  tactic  provides it with  flexibility to offer  competitive  prices
while still  achieving  target  margins and  EBITDA.  Arch  maintains a low-cost
operating  structure  through a combination of (i) the  consolidation of certain
operating  functions,  including  centralized  purchases  from key  vendors,  to
achieve economies of scale, and (ii) the installation of efficient, high-quality
transmission systems.

     Arch believes that its decentralized organizational structure enables it to
offer superior  customer  service and to respond to subscriber needs quickly and
effectively.  Arch's operating regions operate largely as independent  entities,
while  strategic  planning,  equipment  purchasing,  capital  formation,  legal,
acquisition  and similar  functions are conducted on a  centralized  basis.  The
management of each operating region makes staffing, administrative,  operational
and marketing  decisions within guidelines  established by the senior management
of Arch.

     Arch has taken steps to position  itself to participate in new and emerging
services  and  applications  in  narrowband  wireless  personal   communications
("N-PCS").  These initiatives include (i) Arch's equity investment in Benbow PCS
Ventures,  Inc.  ("Benbow"),  which gives Arch access to two regional narrowband
PCS licenses  controlled by Benbow which will provide  coverage to a substantial
portion of the western  United States,  and (ii) an equity  investment in CONXUS
Communications,   Inc.  (formerly  PCS  Development  Corporation),  which  holds
exclusive rights to regional two way messaging licenses which provide nationwide
coverage.

Paging Operations

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

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

Subscribers and Marketing

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

     Arch  markets  its paging  services  through a direct  marketing  and sales
organization which, as of December 31, 1997,  operated  approximately 200 retail
stores.  Arch also markets its paging services  indirectly  through  independent
resellers,

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agents and retailers.  Arch typically  offers resellers paging services in large
quantities at wholesale  rates that are lower than retail  rates,  and resellers
offer the services to end-users at a mark-up.  Arch's costs of administering and
billing  resellers  are lower than the costs of direct  end-users on a per pager
basis.  Arch also acts as a reseller of other  paging  carriers'  services  when
existing or potential Arch  customers  have travel  patterns that require paging
service beyond the coverage of Arch's own networks.

Competition

     Arch experiences competition from one or more competitors in all markets in
which it operates,  but no single  competitor  competes  with Arch in all of its
markets, although certain competitors hold nationwide licenses that would enable
them to compete in all of Arch's markets if they choose to do so.  Although some
of Arch's  competitors are small,  privately owned companies  serving one market
area, others are large diversified telecommunications companies, including AT&T.
Some of Arch's  competitors  possess  financial,  technical and other  resources
greater than those of Arch. Major paging carriers that currently  compete in one
or more of Arch's markets include Paging Network, Inc., MobileMedia Corporation,
Metrocall,  Inc. and AirTouch  Communications,  Inc. As paging  services  become
increasingly   interactive,   and  as  two-way   services  become   increasingly
competitive,  the scope of competition for  communications  service customers in
Arch's  markets may broaden.  For example,  in 1995,  the FCC commenced  issuing
licenses  for  the  provision  of  broadband  personal  communications  services
("PCS"),  with  many  grants  going to  major  telecommunications  companies  or
conglomerates with greater financial resources than Arch. Some of these carriers
have initiated broadband PCS services in many major markets which include "short
messaging", a form of advanced alphanumeric paging, as part of its two-way voice
communications  product.  In addition,  the FCC has created potential sources of
competition  by opening up new  spectrum for such  services as General  Wireless
Communications Services ("GWCS") and Wireless Communications Services ("WCS") as
well as speeding up licensing of other services through  auctions  including the
Local Multipoint Distribution Service ("LMDS") and 220-222 MHz.

     Arch believes that  competition for paging  subscribers is based on quality
of service,  geographic  coverage and price. Arch believes it generally competes
effectively based on these factors.

Sources of Equipment

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

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

Regulation

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


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     Federal Regulation

     Paging  companies  historically  have been  subject  to  different  federal
regulatory  requirements depending upon whether they were providing service as a
Radio Common Carrier ("RCC"),  a Private Carrier Paging ("PCP") operator or as a
reseller.  Arch's paging  operations  encompass RCC, PCP and resale  operations.
However,  federal  legislation  enacted in 1993  required  the FCC to reduce the
disparities in the regulatory  treatment of similar mobile services (such as RCC
and PCP  services),  and the FCC has taken,  and  continues to take,  actions to
implement this legislation.

     Under the new  regulatory  structure,  all of Arch's  paging  services  are
classified as commercial mobile radio service ("CMRS"). As a CMRS provider, Arch
is  regulated  as a common  carrier,  except  that the FCC has  exempted  paging
services,  which have been  found to be highly  competitive,  from some  typical
common carrier regulations, such as tariff filing requirements.

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

     The FCC's  review and  revision  of rules  affecting  paging  companies  is
ongoing  and the  regulatory  requirements  to which Arch is subject  may change
significantly  over  time.  For  example,  the FCC has  adopted  a  market  area
licensing  scheme for all paging channels under which carriers would be licensed
to operate on a  particular  channel  throughout  a broad  geographic  area (for
example,  a Major  Trading  Area as defined by Rand  McNally)  rather than being
licensed on a site-by-site basis. These geographic area licenses will be awarded
pursuant  to an auction.  After  auction,  existing  paging  facilities  will be
entitled to protection as grandfathered  systems. Arch is participating actively
in this  proceeding  in order to  protect  its  existing  operations  and retain
flexibility,  on an interim and long-term  basis, to modify systems as necessary
to meet subscriber  demands.  The FCC is also considering whether CMRS operators
should be obligated to interconnect  their systems with others and be prohibited
from placing  restrictions on the resale of their services  (except with respect
to paging, which has already been relieved of the obligation to provide resale).
Arch depends in its business on the assignment and use of standard and toll free
telephone  numbers  for  its  paging  units.  The  FCC,  in  some  states,  have
proceedings  underway that may have a significant  impact on the manner in which
telephone numbers are assigned and utilized by common carriers, including paging
companies,  and on the ability of subscribers to retain their telephone  numbers
if, or when,  they  change  paging  companies.  Some of the  alternatives  under
consideration  by the  FCC,  if  adopted,  could  increase  the  cost to Arch of
telephone numbers, restrict the manner in which certain numbers could be used or
affect the ability of Arch to retain certain numbers previously assigned.

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

     The FCC licenses  granted to Arch are for varying terms of up to ten years,
at the end of which time renewal  applications must be approved by the FCC. Some
of the authorizations  held by Arch are subject to FCC construction  obligations
which must be met for the  licenses  to be  retained.  In the past,  FCC renewal
applications  routinely have been granted in most cases upon a demonstration  of
compliance with FCC regulations and adequate service to the public.  The FCC has
granted each renewal application Arch has filed. Although Arch is unaware of any
circumstances  which would  prevent  the grant of any pending or future  renewal
applications,  no assurance can be given that any of Arch's renewal applications
will be free of challenge or will be granted by the FCC.  Furthermore,  although
revocation and involuntary
                                        7
<PAGE> 8

modification of licenses are extraordinary  regulatory measures, the FCC has the
authority  to restrict  the  operation  of licensed  facilities  or to revoke or
modify licenses.

     The  Communications Act requires  licensees,  such as Arch, to obtain prior
approval  from  the  FCC  for the  assignment  or  transfer  of  control  of any
construction  permit  or  station  license,   or  any  rights  thereunder.   The
Communications  Act also requires prior approval by the FCC for  acquisitions of
the licenses of, or controlling  equity  interests in, other paging companies by
Arch. To date, the FCC has approved each  assignment and transfer of control for
which Arch has sought  approval.  Although  there can be no  assurance  that any
requests  for  approval  or  applications  filed by Arch will be acted upon in a
timely  manner by the FCC,  or that the FCC will  grant the  approval  or relief
requested, Arch knows of no reason to believe any such requests, applications or
relief  will not be  approved  or  granted.  Currently  underway at the FCC is a
proceeding  wherein  the FCC's  Wireless  Telecommunications  Bureau (the Bureau
directly  regulating  Arch's  paging  activities)  is proposing to eliminate all
filing  requirements  associated  with pro forma  assignments  and  transfers of
control of wireless authorizations. This proposal would expedite the process and
reduce the cost related to corporate reorganizations.

     The  Communications Act also limits foreign ownership of entities that hold
licenses from the FCC. Because Arch,  through its  subsidiaries,  holds licenses
from the FCC, in general, no more than 25% of Arch's stock may be owned or voted
by aliens or their representatives, a foreign government or its representatives,
or a foreign corporation.  An FCC licensee may, however,  make prior application
to the  FCC  for a  determination  that  it is in  the  public  interest  for an
individual licensee to exceed the 25 percent foreign ownership benchmark.

     The  Telecommunications  Act of 1996 directly affects Arch. Some aspects of
the new statute could have a beneficial effect on Arch's business.  For example,
proposed federal guidelines regarding antenna siting issues may remove local and
state barriers to the construction of communications facilities, although states
and municipalities  continue to exercise significant control with regard to such
siting  issues.  In  addition,  efforts  to  increase  competition  in the local
exchange and  interexchange  industries may reduce the cost to Arch of acquiring
necessary  communications  services  and  facilities.  On the other  hand,  some
provisions  relating to the  assignment of new area codes and universal  service
obligations   (and   potentially,   provisions   relating  to  telephone  number
portability)  place  additional  burdens  upon Arch or subject Arch to increased
competition.

     State Regulation

     In  addition  to  regulation  by the FCC,  certain  states  impose  various
regulations on the common carrier paging operations of Arch.  Regulation in some
states  historically  required Arch to obtain certificates of public convenience
and necessity before  constructing,  modifying or expanding paging facilities or
offering or abandoning paging services.  Rates, terms and conditions under which
Arch provided services, or any changes to those rates, have also been subject to
state regulation.  However,  under the Federal Budget Reconciliation Act of 1993
(the "Budget Act"), as a general rule, states are preempted from exercising rate
and entry  regulation  of CMRS,  but may  choose  to  regulate  other  terms and
conditions of service (for example,  requiring the identification of an agent to
receive  complaints).  The preemption of state entry regulation was confirmed in
the Telecommunications  Act of 1996. In certain instances,  the construction and
operation of radio transmitters also will be subject to zoning, land use, public
health and safety,  consumer  protection and other state and local taxes, levies
and ordinances. States also were accorded an opportunity to petition the FCC for
authority  to continue  to  regulate  CMRS rates under the Budget Act if certain
conditions  were met. State filings  seeking rate authority have all been denied
by the FCC,  although new petitions  seeking such  authority may be filed in the
future.

     States also may regulate terms and  conditions  (other than entry or rates)
of paging services  provided within such states.  Arch believes that to date all
required state filings for Arch's paging operations have been made.

     Future Regulation

     From time to time,  legislation which could potentially affect Arch, either
beneficially or adversely,  is proposed by federal or state  legislators.  There
can be no assurance that legislation will not be enacted by the federal or state
governments, or that regulations will not be adopted or actions taken by the FCC
or state regulatory authorities, which

                                        8
<PAGE> 9

might  materially  adversely  affect the  business of Arch.  Changes such as the
allocation  by the FCC of radio  spectrum for services  that compete with Arch's
business could adversely affect Arch's results of operations.

Trademarks

     The  Company  holds a  federal  registration  for the  service  mark  "Arch
Nationwide Paging(R)".

Employees

     At December 31, 1997, Arch employed approximately 2,800 personnel.  None of
Arch's  employees  is  represented  by a labor  union.  Arch  believes  that its
employee relations are good.

ITEM 2. PROPERTIES

     At December 31, 1997,  Arch owned five office  buildings  and leased office
space (including its executive  offices) in over 200 localities in 35 states for
use in conjunction with its paging  operations.  Arch also owned 141 transmitter
sites in 20 states and the transmitter  broadcast towers on most of those sites.
Arch leases  transmitter sites and/or owns transmitters on commercial  broadcast
towers, buildings and other fixed structures in approximately 3,189 locations in
45 states.  Arch's  leases are for various  terms and provide for monthly  lease
payments at various rates.  As of December 31, 1997,  Arch was obligated to make
total lease payments of  approximately  $16.9 million under its office  facility
and tower site leases for the year ending  December 31, 1998. Arch believes that
it will be able to obtain additional space as needed at an acceptable cost.

ITEM 3. LEGAL PROCEEDINGS

     The  Company is  involved  in various  lawsuits  and claims  arising in the
normal course of business.  The Company  believes that none of such matters will
have a material adverse effect on the Company's business or financial condition.

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

     No matters  were  submitted to  stockholders  during the three months ended
December 31, 1997.



                                       9
<PAGE> 10

                                     PART II



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


     The Company's  common stock is included in the Nasdaq National Market under
the symbol "APGR".  The following table sets forth for the periods indicated the
high and low last sales  prices per share of the common stock as reported by the
Nasdaq National Market.

    1997                                                     High      Low

    First Quarter........................................      9 3/4   3 7/8
    Second Quarter.......................................      8 1/8   3 13/16
    Third Quarter........................................      9 3/8   6 1/4
    Fourth Quarter.......................................      8 7/8   4 1/2

    1996
    First Quarter........................................     26 3/4    20
    Second Quarter.......................................     26 1/4    18 5/8
    Third Quarter........................................     19 1/2    12 1/2
    Fourth Quarter.......................................     13 1/2     8 3/8



     The  number of  stockholders  of record as of March 18,  1998 was 164.  The
Company  believes  that the number of  beneficial  stockholders  is in excess of
1500.

     The Company has never  declared or paid cash  dividends on the common stock
and does not intend to declare or pay cash  dividends on the common stock in the
foreseeable  future.  Certain  covenants  in  the  credit  facilities  and  debt
obligations of the Company and its subsidiaries  will  effectively  prohibit the
declaration  or payment of cash  dividends  by the Company  for the  foreseeable
future. See Note 3 to the Company's Consolidated Financial Statements.



                                       10
<PAGE> 11

ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

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

<TABLE>
<CAPTION>
                                                                              FOUR MONTHS ENDED       Year Ended
                                            YEAR ENDED DECEMBER 31,            DECEMBER 31, (1)     AUGUST, 31, (1)
                                    ---------------------------------------   -----------------   ------------------
                                      1997       1996       1995      1994      1994      1993      1994      1993

<S>                                <C>        <C>        <C>        <C>       <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA:
Service, rental & maintenance
  revenues ......................  $ 351,944  $ 291,399  $ 138,466  $ 61,529  $ 22,847  $ 16,457  $ 55,139  $ 39,610
Product sales ...................     44,897     39,971     24,132    14,374     5,178     2,912    12,108     5,698
                                   ---------  ---------  ---------  --------  --------  --------  --------  --------
Total revenues ..................    396,841    331,370    162,598    75,903    28,025    19,369    67,247    45,308
Cost of products sold ...........    (29,158)   (27,469)   (20,789)  (12,787)   (4,690)   (2,027)  (10,124)   (4,031)
                                   ---------  ---------  ---------  --------  --------  --------  --------  --------
                                     367,683    303,901    141,809    63,116    23,335    17,342    57,123    41,277
Operating expenses:
 Service, rental & maintenance ..     79,836     64,957     29,673    14,395     5,231     3,959    13,123     9,532
 Selling ........................     51,474     46,962     24,502    11,523     4,338     3,058    10,243     7,307
 General & administrative .......    106,041     86,181     40,448    19,229     7,022     5,510    17,717    13,123
 Depreciation & amortization ....    232,347    191,871     60,205    18,321     6,873     5,549    16,997    13,764
                                   ---------  ---------  ---------  --------  --------  --------  --------  --------

Operating income (loss) .........   (102,015)   (86,070)   (13,019)     (352)     (129)     (734)     (957)   (2,449)
Interest & non-operating
 expenses, net ..................    (97,159)   (75,927)   (22,522)   (4,973)   (1,993)   (1,132)   (4,112)   (2,861)
Equity in loss of affiliate(2) ..     (3,872)    (1,968)    (3,977)        -         -         -         -         -
                                   ---------  ---------  ---------  --------  --------  --------  --------  --------
Income (loss) before income
 tax benefit and extraordinary
 item ...........................   (203,046)  (163,965)   (39,518)   (5,325)   (2,122)   (1,866)   (5,069)   (5,310)
Income tax benefit ..............     21,172     51,207      4,600         -         -         -         -         -
                                   ---------  ---------  ---------  --------  --------  --------  --------  --------
Income (loss) before
 extraordinary item .............   (181,874)  (112,758)   (34,918)   (5,325)   (2,122)   (1,866)   (5,069)   (5,310)
Extraordinary item(3) ...........          -     (1,904)    (1,684)   (1,137)   (1,137)        -         -      (415)
                                   ---------  ---------  ---------  --------  --------  --------  --------  --------
Net income (loss) ...............  $(181,874) $(114,662) $ (36,602) $ (6,462) $ (3,259) $ (1,866) $ (5,069) $ (5,725)
                                   =========  =========  =========  ========  ========  ========  ========  ========

Basic income (loss) per common
 share before extraordinary item   $   (8.77) $   (5.53) $   (2.60) $   (.74) $   (.29) $   (.26) $   (.71) $   (.74)
Extraordinary item(3) ...........          -       (.09)      (.12)     (.16)     (.16)        -         -      (.06)
Basic net income (loss) per
 common share(4) ................  $   (8.77) $   (5.62) $   (2.72) $   (.90) $   (.45) $   (.26) $   (.71) $   (.80)
Basic weighted average shares
 outstanding(4) .................  20,746,240 20,445,943 13,497,734 7,182,955 7,238,624 7,149,136 7,153,044 7,125,164

OTHER OPERATING DATA:
EBITDA(5) .......................  $ 130,332  $ 105,801  $  47,186  $  17,969 $  6,744  $  4,815  $  16,040 $  11,315
EBITDA margin (6) ...............        35%        35%        33%        28%      29%       28%        28%       27%
Capital expenditures, excluding
 acquisitions ...................  $ 102,769  $ 165,206  $  60,468  $  33,450 $ 15,279  $  7,486  $  25,657 $  20,853
Pagers in service, at end of
 period .........................  3,890,000  3,295,000  2,006,000    538,000  538,000   288,000    410,000   254,000
</TABLE>
<TABLE>
<CAPTION>
                                                         DECEMBER 31,                                AUGUST 31,
                                   -----------------------------------------------------      -----------------------
                                       1997           1996          1995         1994            1994           1993
                                       ----           ----          ----         ----            ----           ----
<S>                                <C>            <C>            <C>           <C>            <C>           <C>
BALANCE SHEET DATA:
Current assets ..................  $   51,025     $   43,611     $  33,671     $   8,483      $   6,751     $   4,690
Total assets ....................   1,020,720      1,146,756       785,376       117,858         76,255        62,209
Long-term debt, less current
 maturities .....................     968,896        918,150       457,044        93,420         67,328        49,748
Redeemable preferred stock ......           -          3,712         3,376             -              -             -
Stockholders' equity (deficit) ..     (33,255)       147,851       246,884         9,368         (3,304)        1,563
</TABLE>

                                       11
<PAGE> 12

(1)  On October 17, 1994,  Arch  announced  that it was changing its fiscal year
     end from August 31 to December  31. Arch was  required to file a transition
     report  on Form 10-K  with  audited  financial  statements  for the  period
     September  1, 1994  through  December  31,  1994 and has elected to include
     herein, for comparative  purposes,  unaudited financial  statements for the
     periods  September  1, 1993  through  December 31, 1993 and January 1, 1994
     through December 31, 1994.

(2)  Represents  Arch's pro rata share of USA Mobile's net losses for the period
     of time from Arch's  acquisition  of its initial 37% interest in USA Mobile
     on May 16, 1995 through the completion of Arch's  acquisition of USA Mobile
     on  September  7, 1995 and Arch's  pro rata  share of Benbow PCS  Ventures,
     Incorporated's losses since May 21, 1996.

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

(4)  Net income (loss) per common share is based on the weighted  average number
     of common shares  outstanding.  Other shares of stock issuable  pursuant to
     stock  options  and upon  conversion  of  Arch's  convertible  subordinated
     debentures have not been considered, as their effect would be anti-dilutive
     and thus  diluted net income  (loss) per common  share is the same as basic
     net income (loss) per common share.

(5)  EBITDA  is a  standard  measure  of  financial  performance  in the  paging
     industry  and is also  one of the  financial  measures  used  to  calculate
     whether Arch and its  subsidiaries  are in  compliance  with the  covenants
     under their  respective  indebtedness,  but should not be  construed  as an
     alternative to operating income or cash flows from operating  activities as
     determined in accordance  with generally  accepted  accounting  principles.
     EBITDA does not reflect  equity in loss of  affiliate,  income tax benefit,
     interest expense, net and extraordinary items.

(6) Calculated by dividing EBITDA by total revenues less cost of products sold.



                                       12
<PAGE> 13

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

Overview

     Arch is a leading provider of wireless messaging services, primarily paging
services,  and had 3.9 million  pagers in service as of December 31, 1997.  From
January 1, 1995 through  December 31, 1997, the Company's total  subscriber base
grew at a compound annual rate of 93.4% and its compound annual rate of internal
subscriber base growth (excluding pagers added through acquisitions) was 62.6%.

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

     Arch's total  revenues have increased from $162.6 million in the year ended
December 31, 1995 to $331.4  million in the year ended  December 31, 1996 and to
$396.8  million in the year ended  December  31,  1997.  Over the same  periods,
through  operating  efficiencies  and economies of scale,  Arch has been able to
reduce its per pager operating costs to enhance its competitive  position in its
markets.  Due to the rapid  growth in its  subscriber  base,  Arch has  incurred
significant  selling  expenses,  which are charged to  operations  in the period
incurred.  Arch has reported  net losses of $36.6  million,  $114.7  million and
$181.9  million  in  the  years  ended   December  31,  1995,   1996  and  1997,
respectively,  as a result of significant depreciation and amortization expenses
related to acquired and developed  assets and interest  charges  associated with
indebtedness.  However,  as its  subscriber  base has  grown,  Arch's  operating
results  have  improved,  as  evidenced  by an increase in its  earnings  before
interest,  taxes, depreciation and amortization ("EBITDA") from $47.2 million in
the year ended  December 31, 1995 to $105.8  million in the year ended  December
31, 1996 and to $130.3 million in the year ended December 31, 1997.

     EBITDA  is a  standard  measure  of  financial  performance  in the  paging
industry and also is one of the  financial  measures  used to calculate  whether
Arch and its  subsidiaries  are in  compliance  with the  covenants  under their
respective  debt  agreements,  but should not be construed as an  alternative to
operating  income or cash flows  from  operating  activities  as  determined  in
accordance  with  generally  accepted  accounting  principles.   One  of  Arch's
financial  objectives  is  to  increase  its  EBITDA,  as  such  earnings  are a
significant  source of funds for servicing  indebtedness  and for  investment in
continued  growth,  including  purchase of pagers and paging  system  equipment,
construction and expansion of paging systems and possible acquisitions.

Forward-Looking Statements

     This Form 10-K contains forward-looking  statements.  For this purpose, any
statements  contained  herein that are not statements of historical  fact may be
deemed to be  forward-looking  statements.  Without limiting the foregoing,  the
words "believes",  "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ  materially from
those indicated or suggested by such forward-looking  statements.  These factors
include,  without  limitation,  those set forth below under the caption "Factors
Affecting Future Operating Results".

Shift in Operating Focus

     In April 1997, the Company announced it was shifting its operating focus to
put a higher priority on leverage reduction than subscriber unit growth.  Arch's
deleveraging  efforts are focusing on, but are not limited to,  slowing  capital
expenditures,  implementing  across-the-board efficiencies and the possible sale
of non-strategic assets.

                                       13
<PAGE> 14

Results of Operations

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


                                               Year Ended December 31,
                                          1997         1996        1995

Total revenues....................       107.9%        109.0%      114.7%
Cost of products sold.............        (7.9)         (9.0)      (14.7)
Net revenues......................       100.0         100.0       100.0
Operating expenses:
  Service, rental and
    maintenance ..................        21.7          21.4        20.9
   Selling........................        14.0          15.4        17.3
   General and administrative.....        28.8          28.4        28.5
   Depreciation and amortization..        63.2          63.1        42.5

Operating income (loss)...........       (27.7)%       (28.3)%      (9.2)%

Net income (loss).................       (49.5)%       (37.7)%     (25.8)%

EBITDA............................        35.4%         34.8%       33.3%

Annual service, rental and
  maintenance expenses per pager..     $  22         $  25       $  28




     Year Ended December 31, 1997 Compared with Year Ended December 31, 1996

     Total revenues increased $65.5 million,  or 19.8%, to $396.8 million in the
year ended  December 31, 1997 from $331.4 million in the year ended December 31,
1996 and net revenues increased $63.8 million,  or 21.0%, from $303.9 million to
$367.7 million over the same period.  Service,  rental and maintenance revenues,
which consist primarily of recurring revenues  associated with the sale or lease
of pagers,  increased  $60.5  million,  or 20.8%,  to $351.9 million in the year
ended December 31, 1997 from $291.4 million in the year ended December 31, 1996.
These  increases in revenues were due primarily to the increase in the number of
pagers in service  from  3,295,000 at December 31, 1996 to 3,890,000 at December
31, 1997 and the full year impact of the Westlink  Holdings,  Inc.  ("Westlink")
acquisition  which was  completed  in May  1996.  All net new  subscribers  were
generated through internal growth.  Maintenance  revenues  represented less than
10% of total  service,  rental  and  maintenance  revenues  in the  years  ended
December  31, 1996 and 1997.  Arch does not  differentiate  between  service and
rental revenues.  Product sales, less cost of products sold,  increased 25.9% to
$15.7 million in the year ended December 31, 1997 from $12.5 million in the year
ended December 31, 1996 as a result of a greater number of pager unit sales.

     Service,  rental and  maintenance  expenses,  which  consist  primarily  of
telephone  line and site rental  expenses,  increased to $79.8 million (21.7% of
net revenues) in the year ended  December 31, 1997 from $65.0 million  (21.4% of
net  revenues)  in the year  ended  December  31,  1996.  The  increase  was due
primarily  to  increased  expenses  associated  with system  expansions  and the
provision of paging  services to a greater  number of  subscribers.  As existing
paging systems become more  populated  through the addition of new  subscribers,
the fixed  costs of  operating  these  paging  systems are spread over a greater
subscriber base. Annual service,  rental and maintenance expenses per subscriber
decreased to $22 in the year ended  December 31, 1997 from $25 in the year ended
December 31, 1996.


                                       14
<PAGE> 15

     Selling expenses  increased to $51.5 million (14.0% of net revenues) in the
year ended  December 31, 1997 from $47.0 million  (15.4% of net revenues) in the
year ended December 31, 1996. The increase in selling expenses was primarily due
to the full year impact of the  Westlink  acquisition  and the  marketing  costs
incurred to promote the Company's  Arch Paging brand  identity.  Arch's  selling
cost per net new pager in service  increased  to $87 in the year ended  December
31, 1997 from $58 in the year ended  December 31, 1996,  primarily  due to fixed
selling  costs and  increased  marketing  costs being  spread over fewer net new
pagers put into  service.  Most selling  expenses  are  directly  related to the
number of net new subscribers  added.  Therefore,  such expenses may increase in
the future if pagers in service are added at a more rapid rate than in the past.

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

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

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

     Net interest expense  increased to $97.2 million in the year ended December
31, 1997 from $75.9  million in the year ended  December 31, 1996.  The increase
was attributable to an increase in Arch's average  outstanding debt. In 1997 and
1996  interest  expense  includes  approximately  $33 million  and $24  million,
respectively,  of non-cash  interest  accretion on the  Company's  107/8% Senior
Discount Notes due 2008 under which  semi-annual  interest  payments commence on
September 15, 2001. See Note 3 to Arch's Consolidated Financial Statements.

     During the years ended December 31, 1997 and 1996,  the Company  recognized
income  tax  benefits  of  $21.2  million  and  $51.2   million,   respectively,
representing the tax benefit of operating losses  subsequent to the acquisitions
of USA Mobile  Communications  Holdings,  Inc. ("USA Mobile") and Westlink which
were  available to offset  deferred tax  liabilities  arising from the Company's
acquisitions of USA Mobile in September 1995 and Westlink in May 1996.

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

     Net loss  increased to $181.9  million in the year ended  December 31, 1997
from  $114.7  million in the year  ended  December  31,  1996 as a result of the
factors  outlined  above.  Included in the net loss for the years ended December
31, 1997 and 1996 were charges of $3.9 million and $2.0  million,  respectively,
representing  Arch's pro rata share of Benbow PCS  Ventures,  Inc.'s  ("Benbow")
losses since May 21, 1996.

     EBITDA  increased  23.2% to $130.3  million  (35.4% of net revenues) in the
year ended  December 31, 1997 from $105.8 million (34.8% of net revenues) in the
year ended December 31, 1996 as a result of the factors outlined above.


     Year Ended December 31, 1996 Compared with Year Ended December 31, 1995

     Total revenues  increased $168.8 million,  or 103.8%,  to $331.4 million in
the year ended  December 31, 1996 from $162.6 million in the year ended December
31, 1995 and net  revenues  increased  $162.1  million,  or 114.3%,  from $141.8
million to $303.9 million over the same period.  Service, rental and maintenance
revenues  increased  $152.9  million,  or 110.4%,  to $291.4 million in the year
ended December 31, 1996 from $138.5 million in the year ended December 31, 1995.
These  increases in revenues were due primarily to the increase in the number of
pagers in service  from  2,006,000 at December 31, 1995 to 3,295,000 at December
31, 1996.  Acquisitions  of paging  companies  added  474,000  pagers in service
during 1996, with the remaining  815,000 pagers added through  internal  growth.
Maintenance revenues represented less
                                       15
<PAGE> 16

than 10% of total service,  rental and  maintenance  revenues in the years ended
December 31, 1995 and 1996. Product sales, less cost of products sold, increased
274.0% to $12.5 million in the year ended December 31, 1996 from $3.3 million in
the year ended  December 31, 1995 as a result of a greater  number of pager unit
sales.

     Service, rental and maintenance expenses, increased to $65.0 million (21.4%
of net revenues) in the year ended  December 31, 1996 from $29.7 million  (20.9%
of net  revenues)  in the year ended  December  31,  1995.  The increase was due
primarily  to  increased  expenses  associated  with system  expansions  and the
provision of paging services to a greater number of subscribers. Annual service,
rental and  maintenance  expenses  per  subscriber  decreased to $25 in the year
ended December 31, 1996 from $28 in the year ended December 31, 1995.

     Selling expenses  increased to $47.0 million (15.4% of net revenues) in the
year ended  December 31, 1996 from $24.5 million  (17.3% of net revenues) in the
year ended  December 31, 1995.  The increase in selling  expenses was due to the
addition of sales personnel to support  continued growth in the subscriber base,
as the  number of net new  pagers in  service  resulting  from  internal  growth
increased  by 122.7%  from the year ended  December  31,  1995 to the year ended
December 31, 1996. Arch's selling cost per net new pager in service decreased to
$58 in the year ended  December 31, 1996 from $67 in the year ended December 31,
1995, primarily due to increased sales through indirect distribution channels.

     General and  administrative  expenses  increased to $86.2 million (28.4% of
net revenues) in the year ended  December 31, 1996 from $40.4 million  (28.5% of
net  revenues)  in the year  ended  December  31,  1995.  The  increase  was due
primarily  to  increased  expenses  associated  with  supporting  more pagers in
service.

     Depreciation and amortization  expenses  increased to $191.9 million (63.1%
of net revenues) in the year ended  December 31, 1996 from $60.2 million  (42.5%
of net revenues) in the year ended  December 31, 1995.  These  expenses  reflect
Arch's  acquisitions  of paging  businesses,  accounted  for as  purchases,  and
continued  investment in pagers and other system expansion  equipment to support
continued growth.

     Operating  loss  increased to $86.1 million in the year ended  December 31,
1996 from $13.0  million in the year ended  December 31, 1995 as a result of the
factors outlined above.

     Net interest expense  increased to $75.9 million in the year ended December
31, 1996 from $22.5  million in the year ended  December 31, 1995.  The increase
was  attributable to an increase in Arch's average  outstanding  debt.  Interest
expense  in  1996  includes  approximately  $24  million  of  non-cash  interest
accretion on the  Company's  107/8% Senior  Discount  Notes due 2008 under which
semi-annual  interest  payments  commence on September  15, 2001.  See Note 3 to
Arch's Consolidated Financial Statements.

     During the years ended December 31, 1996 and 1995,  the Company  recognized
income  tax  benefits  of  $51.2   million  and  $4.6   million,   respectively,
representing the tax benefit of operating losses  subsequent to the acquisitions
of USA  Mobile  and  Westlink  which  were  available  to  offset  deferred  tax
liabilities arising from the Company's acquisitions of USA Mobile and Westlink.

     During  1996 and 1995,  Arch  recognized  an  extraordinary  charge of $1.9
million  and  $1.7  million,   respectively,   representing   the  write-off  of
unamortized   deferred   financing  costs  associated  with  the  prepayment  of
indebtedness under separate prior credit facilities.

     Net loss  increased to $114.7  million in the year ended  December 31, 1996
from  $36.6  million  in the year  ended  December  31,  1995 as a result of the
factors outlined above. Included in the net loss for the year ended December 31,
1995 was a charge of $4.0  million  representing  Arch's  pro rata  share of USA
Mobile's net loss for the period of time from Arch's  acquisition of its initial
37%  interest in USA Mobile on May 16, 1995  through  the  completion  of Arch's
acquisition of USA Mobile on September 7, 1995. Included in the net loss for the
year ended  December 31, 1996 was a charge of $2.0 million  representing  Arch's
pro rata share of Benbow's losses since May 21, 1996.

     EBITDA  increased  124.2% to $105.8 million (34.8 % of net revenues) in the
year ended  December 31, 1996 from $47.2 million  (33.3% of net revenues) in the
year ended December 31, 1995 as a result of the factors outlined above.

                                       16
<PAGE> 17

Liquidity and Capital Resources

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

     Capital Expenditures and Commitments

     Excluding  acquisitions of paging businesses,  Arch's capital  expenditures
were $60.5 million in the year ended  December 31, 1995,  $165.2  million in the
year ended  December 31, 1996 and $102.8  million in the year ended December 31,
1997. To date, Arch has funded its capital  expenditures  with net cash provided
by operating activities, the issuance of equity securities and the incurrence of
debt.

     Arch has agreed,  to the extent such funds are not available to Benbow from
other sources and subject to the approval of Arch's  designee on Benbow's  Board
of Directors,  to advance to Benbow sufficient funds to service debt obligations
incurred by Benbow in connection  with its  acquisition  of its  narrowband  PCS
licenses and to finance the build out of a regional  narrowband PCS system. Arch
estimates that the total cost to Benbow of servicing such debt  obligations  and
constructing  such regional  narrowband  PCS system will be  approximately  $100
million over the next five years.

     Arch  currently  anticipates  capital  expenditures  of  approximately  $90
million to $100 million for the year ending December 31, 1998, primarily for the
purchase  of pagers and paging  system  equipment.  Such  amounts are subject to
change based on the Company's internal growth rate and acquisition  activity, if
any, during 1998. Arch believes that it will have sufficient cash available from
operations and credit facilities to fund these expenditures.

     Acquisitions

     In May 1996,  Arch  completed  its  acquisition  of Westlink for  aggregate
consideration of $325.4 million in cash (including  direct  transaction  costs).
See Note 2 to the Company's Consolidated Financial Statements.

     In September  1995,  Arch  completed its  acquisition  of USA Mobile for an
aggregate  consideration of $582.2 million,  consisting of $88.9 million in cash
(including direct transaction costs), 7,599,493 shares of common stock valued at
$209.0  million on the date of completion  and the  assumption of liabilities of
$284.3  million,  including  $241.2 million of long-term debt. See Note 2 to the
Company's Consolidated Financial Statements.

     During 1995, the Company also completed five  additional  acquisitions  for
aggregate  consideration  of $36.1  million in cash plus the issuance of 395,000
shares of common  stock valued at $6.9  million on the date of  completion.  See
Note 2 to the Company's Consolidated Financial Statements.

     The Company has pursued and intends to continue to pursue  acquisitions  of
paging  businesses  as part of its growth  strategy.  As a result,  the  Company
evaluates acquisition opportunities on an ongoing basis and from time to time is
engaged in discussions with respect to possible acquisitions.

     Sources of Funds

     Arch's net cash provided by operating  activities was $63.6 million,  $37.8
million and $14.7 million in the years ended  December 31, 1997,  1996 and 1995,
respectively.

     Arch  believes that its capital  needs for the  foreseeable  future will be
funded with  borrowings  under  current and future credit  facilities,  net cash
provided  by  operations  and,  depending  on the  Company's  needs  and  market
conditions,  possible  sales  of  equity  or  debt  securities.  For  additional
information, see Note 3 to the Company's Consolidated Financial Statements.


                                       17
<PAGE> 18

Inflation

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

Factors Affecting Future Operating Results

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

     Indebtedness and High Degree of Leverage

     The Company is highly  leveraged.  At December  31,  1997,  the Company had
outstanding $993.4 million of total debt, including: (i) $332.5 million accreted
value of the 10 7/8% Senior Discount Notes due 2008; (ii) $125 million principal
amount of the 9 1/2% Senior  Notes due 2004 of USA Mobile II; (iii) $100 million
principal  amount of the 14% Senior Notes due 2004 of USA Mobile II; (iv) $359.5
million borrowed under the Arch Enterprises  Credit Facility;  (v) $63.0 million
borrowed  under the USA  Mobile  II  Credit  Facility;  and (vi)  $13.4  million
principal amount of the Company's 6 3/4% Convertible Subordinated Debentures due
2003.  The ability of the Company to make  payments of principal and interest on
its indebtedness will be dependent upon the Company's subsidiaries achieving and
sustaining   levels  of   performance  in  the  future  that  will  permit  such
subsidiaries to pay sufficient dividends,  distributions or fees to the Company.
Many  factors,  some of which  will be beyond  the  Company's  control,  such as
prevailing economic  conditions,  will affect the performance of the Company and
its  subsidiaries.  In  addition,  covenants  imposed by the  current and future
credit  facilities and other  indebtedness  of the Company and its  subsidiaries
could  restrict  the  ability  of the  Company  and its  subsidiaries  to  incur
additional  indebtedness  and prohibit  certain  activities  and may limit other
aspects of the Company's operations.  There can be no assurance that the Company
or its  subsidiaries  will be able to  generate  sufficient  cash  flow to cover
required   interest  and   principal   payments  on  their  current  and  future
indebtedness.  If the Company is unable to meet interest and principal  payments
in the future, it may,  depending upon the circumstances  which then exist, seek
additional  equity  or  debt  financing,   attempt  to  refinance  its  existing
indebtedness  or sell all or part of its  business  or assets to raise  funds to
repay its indebtedness. There can be no assurance that sufficient equity or debt
financing  will be  available  or,  if  available,  that  it  will  be on  terms
acceptable  to the  Company,  that the  Company  will be able to  refinance  its
existing  indebtedness  or that  sufficient  funds could be raised through asset
sales. The Company's high degree of leverage may have important consequences for
the Company,  including:  (i) the ability of the Company and its subsidiaries to
obtain  additional   financing  for  acquisitions,   working  capital,   capital
expenditures or other purposes, if necessary,  may be impaired or such financing
may not be on favorable  terms;  (ii) a substantial  portion of the cash flow of
the  Company's  subsidiaries  will be used to pay interest  expense,  which will
reduce the funds which would  otherwise be available for  operations  and future
business opportunities;  (iii) the Company may be more highly leveraged than its
competitors  which  may  place it at a  competitive  disadvantage;  and (iv) the
Company's high degree of leverage will make it more  vulnerable to a downturn in
its business or the economy generally.

     Future Capital Needs

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


                                       18
<PAGE> 19

   History of Losses

     The  Company  has not  reported  any net income  since its  inception.  The
Company reported net losses of $181.9 million,  $114.7 million and $36.6 million
in the years ended  December 31, 1997,  1996 and 1995,  respectively.  These net
losses  have  resulted   principally  from  (i)  substantial   depreciation  and
amortization  expenses,   primarily  related  to  intangible  assets  and  pager
depreciation  and (ii) interest  expense on debt  incurred  primarily to finance
acquisitions  of paging  operations and other costs of growth.  Substantial  and
increased  amounts of debt are expected to be  outstanding  for the  foreseeable
future, which will result in significant additional interest expense which could
have a  substantial  negative  impact on the  Company.  The  Company  expects to
continue to report net losses for the foreseeable future.

     Growth and Acquisition Strategy

     The Company has pursued and intends to continue to pursue  acquisitions  of
paging  businesses  as well as the  continued  internal  growth of the Company's
paging  business.  The process of  integrating  acquired  paging  businesses may
involve unforeseen difficulties and may require a disproportionate amount of the
time and  attention of the  Company's  management  and the  financial  and other
resources of the Company.  No assurance  can be given that  suitable  additional
acquisitions can be identified,  financed and completed on acceptable  terms, or
that the Company's future acquisitions will be successful. Implementation of the
Company's  growth  strategies  will be subject to numerous  other  contingencies
beyond the  control of the  Company,  including  general 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 the Company's  growth  strategies will prove effective or that
the goals of the Company will be achieved.

     Dependence on Key Personnel

     The success of the Company will be dependent, to a significant extent, upon
the continued services of a relatively small group of executive  personnel.  The
Company does not have employment  agreements  with any of its current  executive
officers,   although   all  current   executive   officers   have  entered  into
non-competition and executive retention agreements with the Company. 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 an adverse  effect upon
the Company's operations.

     Competition and Technological Change

     The Company faces  competition  from other paging service  providers in all
markets  in which  it  operates  as well as from  certain  competitors  who hold
nationwide   licenses.   The  Company   believes  that  competition  for  paging
subscribers  is based on quality of service,  geographic  coverage and price and
that the Company generally competes effectively based on these factors.  Monthly
fees for basic paging  services  have,  in general,  declined  since the Company
commenced  operations in September 1986, due in part to competitive  conditions,
and the Company may face significant price-based competition in the future which
could adversely affect the Company.  Some of the Company's  competitors  possess
greater  financial,  technical  and other  resources  than the Company.  A trend
towards  increasing  consolidation  in the paging industry in particular and the
wireless  communications  industry  in  general  in  recent  years  has  led  to
competition from increasingly larger and better capitalized competitors.  If any
of such competitors were to devote  additional  resources to the paging business
or focus its  strategy  on the  Company's  markets,  the  Company's  results  of
operations  could  be  adversely   affected.   A  variety  of  wireless  two-way
communication  technologies currently are in use or under development.  Although
such technologies generally are higher priced than paging services or not widely
available,  technological  improvements  could result in increased  capacity and
efficiency for wireless two-way communication and, accordingly,  could result in
increased  competition  for the Company.  Two-way  service  providers also could
elect to provide paging service as an adjunct to their primary services.  Future
technological  advances in the  telecommunications  industry  could increase new
services  or  products  competitive  with the paging  services  provided  by the
Company or could require the Company to reduce the price of its paging  services
or incur  additional  capital  expenditures  to meet  competitive  requirements.
Recent and proposed  regulatory changes by the FCC are aimed at encouraging such
technological  advances  and new  services.  For  example,  the FCC has  created
potential sources of competition by opening up new spectrum for such services as
the  General   Wireless   Communications   Service  ("GWCS")  and  the  Wireless
Communications  Service  ("WCS")  as well as  speeding  up  licensing  of  other
services through auctions,  including the Local Multipoint  Distribution Service
("LMDS"),  220-222 MHz and broadband PCS services.  Entities offering service on
wireless two-way communications technology, including cellular

                                       19
<PAGE> 20

telephones and specialized  mobile radio services,  also compete with the paging
services that the Company  provides.  There can be no assurance that the Company
will be able to compete  successfully with its current and future competitors in
the paging  business  or with  competitors  offering  alternative  communication
technologies.

     Subscriber Turnover

     The results of operations of wireless messaging service providers,  such as
the Company,  can be  significantly  affected by subscriber  cancellations.  The
sales and  marketing  costs  associated  with  attracting  new  subscribers  are
substantial  relative to the costs of providing  service to existing  customers.
Because   the  paging   business   is   characterized   by  high  fixed   costs,
disconnection's  directly and adversely  affect operating cash flow. An increase
in its subscriber  cancellation  rate may adversely affect the Company's results
of operations.

     Dependence on Suppliers

     The  Company  does not  manufacture  any of the  pagers  used in its paging
operations.  The Company buys pagers primarily from Motorola,  Inc. ("Motorola")
and NEC America,  Inc. ("NEC") and therefore is dependent on such  manufacturers
to obtain  sufficient pager inventory for new subscriber and replacement  needs.
In addition,  the Company  purchases  terminals and transmitters  primarily from
Glenayre  Technologies,  Inc. ("Glenayre") and Motorola and thus is dependent on
such  manufacturers  for  sufficient  terminals  and  transmitters  to meet  its
expansion and replacement requirements. To date, the Company has not experienced
significant delays in obtaining pagers, terminals or transmitters, but there can
be no assurance that the Company will not experience  such delays in the future.
The  Company  has never had a  purchase  agreement  with  Glenayre  or NEC.  The
Company's  purchase  agreement with Motorola  expired in December  1997,  with a
provision  for  automatic  renewal  for a one-year  term.  Although  the Company
believes  that  sufficient   alternative   sources  of  pagers,   terminals  and
transmitters  exist,  there can be no  assurance  that the Company  would not be
adversely  affected if it were unable to obtain these items from current  supply
sources or on terms comparable to existing terms.

     Government Regulation, Foreign Ownership and Possible Redemption of Capital
     Stock

     The paging  operations  of the Company are subject to regulation by the FCC
and various  state  regulatory  agencies.  There can be no assurance  that those
agencies will not propose or adopt regulations or take actions that would have a
material adverse effect on the Company's business.  Changes in regulation of the
Company's  paging business or the allocation of radio spectrum for services that
compete with the Company's business could adversely affect the Company's results
of operations.  Indeed,  the FCC has created potential sources of competition by
opening up new  spectrum  for such  services as the GWCS and the WCS as well as,
speeding up licensing of other services  through  auctions,  including the LMDS,
220-222 MHz and broadband PCS services.  Further,  the FCC has recently  adopted
rules implementing a market area licensing scheme. In addition,  some aspects of
the  recently  enacted  Telecommunications  Act of 1996 could have a  beneficial
effect on Arch's business,  but other  provisions may place  additional  burdens
upon Arch or subject Arch to increased  competition.  The  Communications Act of
1934,  as  amended,  limits  foreign  ownership  of entities  that hold  certain
licenses from the FCC. Because the Company, through its subsidiaries,  holds FCC
licenses,  in general,  no more than 25% of the Company's  stock can be owned or
voted  by  aliens  or  their  representatives,   a  foreign  government  or  its
representative or a foreign  corporation,  the Company's Restated Certificate of
Incorporation  permits the  redemption of shares of the Company's  capital stock
from foreign  stockholders  where necessary to protect the Company's  regulatory
licenses, but such redemption would be subject to the availability of capital to
the  Company  and any  restrictions  contained  in the debt  instruments  of the
Company and under Delaware law. The failure to redeem such shares promptly could
jeopardize the Company's FCC licenses.

     Impact of the Year 2000 Issue

     The Company is  currently  working to resolve the  potential  impact of the
year 2000 on the  processing  of  date-sensitive  information  by the  Company's
computerized  systems and transmission  equipment.  The year 2000 problem is the
result of computer programs being written using two digits (rather than four) to
define  the  applicable   year.   Any  of  the  Company's   programs  that  have
time-sensitive  software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could  result in a system  failure or  miscalculations
causing disruptions of operations, including, among other things, a

                                       20
<PAGE> 21

temporary inability to process transactions, send invoices, or engage in similar
normal  business  activities.   Based  on  preliminary  information,   costs  of
addressing  potential  problems  are not  currently  expected to have a material
adverse  impact on the Company's  financial  position,  results of operations or
cash flows in future periods.  However, if the Company, its customers or vendors
are unable to resolve such processing issues in a timely manner, it could result
in a material  financial  risk.  Accordingly,  the  Company  plans to devote the
necessary  resources  to resolve  all  significant  year 2000 issues in a timely
manner.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not Applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


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

         None.




                                    PART III



     The  information  required  by  Items 10  through  13 are  incorporated  by
reference to the  Registrant's  definitive  Proxy  Statement for its 1998 annual
meeting of stockholders scheduled to be held on May 19, 1998.


                                       21
<PAGE> 22

                                     PART IV


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

(a) (1) Financial Statements

        Consolidated Balance Sheets as of December 31, 1997 and 1996

        Consolidated Statements of Operations for Each of the Three Years in the
          Period Ended December 31, 1997

        Consolidated  Statements of  Stockholders'  Equity (Deficit) for Each of
          the Three Years in the Period Ended December 31, 1997

        Consolidated Statements of Cash Flows for Each of the Three Years in the
          Period Ended December 31, 1997

        Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedule

        Schedule II - Valuation and Qualifying Accounts

(b)     Reports on Form 8-K

        Noreports on Form 8-K were filed during the three months ended  December
          31, 1997.

(c)     Exhibits

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

                                       22
<PAGE> 23

                                   SIGNATURES


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

                                             ARCH COMMUNICATIONS GROUP, INC.


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

March 27, 1998

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
on the dates indicated.



 /S/ C. EDWARD BAKER, JR.    Chairman of the Board and          March 27, 1998
--------------------------   Chief Executive Officer
                             (principal executive officer)


 /S/ JOHN B. SAYNOR          Executive Vice President,          March 27, 1998
-------------------------    Director


 /S/ J. ROY POTTLE           Executive Vice President           March 27, 1998
-------------------------    and Chief Financial Officer
                             (principal financial officer and
                             principal accounting officer)


 /S/ R. SCHORR BERMAN        Director                           March 27, 1998
-------------------------


 /S/ JAMES S. HUGHES         Director                           March 27, 1998
-------------------------


 /S/ ALLAN L. RAYFIELD       Director                           March 27, 1998
-------------------------


 /S/ JOHN A. SHANE           Director                           March 27, 1998
-------------------------


                                       23
<PAGE> 24

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



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

Consolidated Balance Sheets as of December 31, 1997 and 1996........      F-3

Consolidated Statements of Operations for Each of the Three
  Years in the Period Ended December 31, 1997.......................      F-4

Consolidated Statements of Stockholders' Equity (Deficit) for Each
  of the Three Years in the Period Ended December 31, 1997..........      F-5

Consolidated Statements of Cash Flows for Each of the Three
  Years in the Period Ended December 31, 1997.......................      F-6

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







                                      F-1
<PAGE> 25

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Arch Communications Group, Inc.:

     We have  audited  the  accompanying  consolidated  balance  sheets  of Arch
Communications   Group,  Inc.  (a  Delaware  corporation)  (the  "Company")  and
subsidiaries  as of  December  31,  1997 and 1996 and the  related  consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended  December 31,  1997.  These  consolidated
financial  statements and the schedule referred to below are the  responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements and schedule based on our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of Arch Communications  Group,
Inc. and  subsidiaries as of December 31, 1997 and 1996 and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial  statements taken as a whole. The schedule listed in the index at Item
14(a)(2) is presented for purposes of complying with the Securities and Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures applied in our audits of
the basic  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 financial statements taken as a whole.



                                                             ARTHUR ANDERSEN LLP


Boston,  Massachusetts
February 9, 1998

                                      F-2
<PAGE> 26

                         ARCH COMMUNICATIONS GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996
                      (in thousands, except share amounts)

                                                           1997         1996
                                                        ----------   ----------
                                     ASSETS
 Current assets:
    Cash and cash equivalents .......................   $    3,328   $    3,497
    Accounts receivable (less reserves of $5,744
     and $4,111 in 1997 and 1996, respectively) .....       30,147       25,344
    Inventories .....................................       12,633       10,239
    Prepaid expenses and other ......................        4,917        4,531
                                                        ----------   ----------
       Total current assets .........................       51,025       43,611
                                                        ----------   ----------
 Property and equipment, at cost:
    Land, buildings and improvements ................       10,089        8,780
    Paging and computer equipment ...................      361,713      339,391
    Furniture, fixtures and vehicles ................       16,233        9,921
                                                        ----------   ----------
                                                           388,035      358,092
    Less accumulated depreciation and amortization ..      146,542       96,448
                                                        ----------   ----------
    Property and equipment, net .....................      241,493      261,644
                                                        ----------   ----------
 Intangible and other assets (less accumulated
  amortization of $260,932 and $141,710 in 1997 and
  1996, respectively) ...............................      728,202      841,501
                                                        ----------   ----------
                                                        $1,020,720   $1,146,756
                                                        ==========   ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 Current liabilities:
    Current maturities of long-term debt ............   $   24,513   $       46
    Accounts payable ................................       22,486       17,395
    Accrued expenses ................................       11,894       14,287
    Accrued interest ................................       11,249       10,264
    Customer deposits ...............................        6,150        6,698
    Deferred revenue ................................        8,787        7,181
                                                        ----------   ----------
       Total current liabilities ....................       85,079       55,871
                                                        ----------   ----------
 Long-term debt, less current maturities ............      968,896      918,150
                                                        ----------   ----------
 Deferred income taxes ..............................         --         21,172
                                                        ----------   ----------
 Commitments and Contingencies

 Redeemable preferred stock .........................         --          3,712
                                                        ----------   ----------
 Stockholders' equity (deficit):
    Preferred stock -- $.01 par value, authorized
     10,000,000 shares, no shares issued ............         --           --
    Common stock -- $.01 par value, authorized
     75,000,000 shares, issued and outstanding:
     20,863,563 and 20,712,220 shares in 1997 and
     1996, respectively .............................          209          207
    Additional paid-in capital ......................      351,210      350,444
    Accumulated deficit .............................     (384,674)    (202,800)
                                                        ----------   ----------
       Total stockholders' equity (deficit) .........      (33,255)     147,851
                                                        ----------   ----------
                                                        $1,020,720   $1,146,756
                                                        ==========   ==========

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

                                      F-3
<PAGE> 27

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

<TABLE>
<CAPTION>
                                                                         1997            1996            1995
                                                                         ----            ----            ----
<S>                                                                 <C>             <C>             <C>
Service, rental and maintenance revenues ........................   $    351,944    $    291,399    $    138,466
Product sales ...................................................         44,897          39,971          24,132
                                                                    ------------    ------------    ------------
     Total revenues .............................................        396,841         331,370         162,598
Cost of products sold ...........................................        (29,158)        (27,469)        (20,789)
                                                                    ------------    ------------    ------------
                                                                         367,683         303,901         141,809
                                                                    ------------    ------------    ------------
Operating expenses:
  Service, rental and maintenance ...............................         79,836          64,957          29,673
  Selling .......................................................         51,474          46,962          24,502
  General and administrative ....................................        106,041          86,181          40,448
  Depreciation and amortization .................................        232,347         191,871          60,205
                                                                    ------------    ------------    ------------
     Total operating expenses ...................................        469,698         389,971         154,828
                                                                    ------------    ------------    ------------

Operating income (loss) .........................................       (102,015)        (86,070)        (13,019)
Interest expense ................................................        (98,063)        (77,353)        (22,560)
Interest income .................................................            904           1,426              38
Equity in loss of affiliate .....................................         (3,872)         (1,968)         (3,977)
                                                                    ------------    ------------    ------------
Income (loss) before income tax benefit and extraordinary item...       (203,046)       (163,965)        (39,518)
Benefit from income taxes .......................................         21,172          51,207           4,600
                                                                    ------------    ------------    ------------
Income (loss) before extraordinary item .........................       (181,874)       (112,758)        (34,918)
Extraordinary charge from early extinguishment of debt ..........           --            (1,904)         (1,684)
                                                                    ------------    ------------    ------------
Net income (loss) ...............................................       (181,874)       (114,662)        (36,602)
Accretion of redeemable preferred stock .........................            (32)           (336)           (102)
                                                                    ------------    ------------    ------------
Net income (loss) to common stockholders ........................   $   (181,906)   $   (114,998)   $    (36,704)
                                                                    ============    ============    ============

Basic income (loss) per common share before extraordinary item
  and accretion of preferred stock ..............................   $      (8.77)   $      (5.51)   $      (2.59)
Basic extraordinary charge from early extinguishment of
 debt per common share ..........................................           --              (.09)           (.12)
Basic accretion of redeemable preferred stock per common share ..           --              (.02)           (.01)
                                                                    ------------    ------------    ------------
Basic net income (loss) per common share ........................   $      (8.77)   $      (5.62)   $      (2.72)
                                                                    ============    ============    ============

Basic weighted average number of common shares outstanding ......     20,746,240      20,445,943      13,497,734
                                                                    ============    ============    ============
</TABLE>



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

                                      F-4
<PAGE> 28

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


<TABLE>
<CAPTION>

                                                               Additional                      Total
                                                      Common     Paid-In    Accumulated    Stockholders'
                                                       Stock     Capital      Deficit     Equity(Deficit)
                                                       -----     -------      -------    ---------------
<S>                                                 <C>         <C>          <C>          <C>
Balance, December 31, 1994 ......................   $      81   $  60,823    $ (51,536)   $   9,368
   Exercise of options to purchase 475,903
     shares of common stock .....................           5       5,137         --          5,142
   Issuance of 7,994,493 shares of common
     stock to acquire stock of paging companies .          80     215,819         --        215,899
   Issuance of 2,706,659 shares of common
     stock (net of issuance costs of $3,016) ....          27      46,354         --         46,381
   Issuance of 417,311 shares of common stock
     upon conversion of convertible
     subordinated debentures (net of costs of
     conversion of $192) ........................           4       6,794         --          6,798
   Accretion of redeemable preferred stock ......        --          (102)        --           (102)
   Net loss .....................................        --          --        (36,602)     (36,602)
                                                    ---------   ---------    ---------    ---------
Balance, December 31, 1995 ......................         197     334,825      (88,138)     246,884
  Exercise of options to purchase 169,308 shares
     of common stock ............................           2       1,469         --          1,471
  Issuance of 46,842 shares of common stock
     under Arch's Employee Stock Purchase Plan ..        --           373         --            373
  Issuance of 843,039 shares of common stock
     upon conversion of convertible subordinated
     debentures .................................           8      14,113         --         14,121
  Accretion of redeemable preferred stock .......        --          (336)        --           (336)
  Net loss ......................................        --          --       (114,662)    (114,662)
                                                    ---------   ---------    ---------    ---------
Balance, December 31, 1996 ......................         207     350,444     (202,800)     147,851
  Issuance of 151,343 shares of common stock
     under Arch's Employee Stock Purchase Plan ..           2         798         --            800
  Accretion of redeemable preferred stock .......        --           (32)        --            (32)
  Net loss ......................................        --          --       (181,874)    (181,874)
                                                    ---------   ---------    ---------    ---------
Balance, December 31, 1997 ......................   $     209   $ 351,210    $(384,674)   $ (33,255)
                                                    =========   =========    =========    =========
</TABLE>

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

                                      F-5
<PAGE> 29

                         ARCH COMMUNICATIONS GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Years Ended December 31,
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                       1997         1996         1995
                                                                       ----         ----         ----

<S>                                                                 <C>          <C>          <C>
Cash flows from operating activities:
  Net income (loss) .............................................   $(181,874)   $(114,662)   $ (36,602)
  Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
  Depreciation and amortization .................................     232,347      191,871       60,205
  Deferred income tax benefit ...................................     (21,172)     (51,207)      (4,600)
  Extraordinary charge from early extinguishment of debt ........        --          1,904        1,684
  Equity in loss of affiliate ...................................       3,872        1,968        3,977
  Accretion of discount on senior notes .........................      33,259       24,273         --
  Accounts receivable loss provision ............................       7,181        8,198        3,915
  Changes in assets and liabilities, net of effect from
  acquisitions of paging companies:
     Accounts receivable ........................................     (11,984)     (15,513)      (9,582)
     Inventories ................................................      (2,394)       1,845       (3,176)
     Prepaid expenses and other .................................        (386)          89         (511)
     Accounts payable and accrued expenses ......................       3,683      (12,520)        (551)
     Customer deposits and deferred revenue .....................       1,058        1,556          (10)
                                                                    ---------    ---------    ---------
Net cash provided by operating activities .......................      63,590       37,802       14,749
                                                                    ---------    ---------    ---------
Cash flows from investing activities:
  Additions to property and equipment, net ......................     (87,868)    (138,899)     (45,331)
  Additions to intangible and other assets ......................     (14,901)     (26,307)     (15,137)
  Acquisition of paging companies, net of cash acquired .........        --       (325,420)    (132,081)
                                                                    ---------    ---------    ---------
Net cash used for investing activities ..........................    (102,769)    (490,626)    (192,549)
                                                                    ---------    ---------    ---------
Cash flows from financing activities:
  Issuance of long-term debt ....................................      91,000      676,000      191,617
  Repayment of long-term debt ...................................     (49,046)    (225,166)     (63,705)
    Repayment of redeemable preferred stock .....................      (3,744)        --           --
  Net proceeds from sale of common stock ........................         800        1,844       51,180
                                                                    ---------    ---------    ---------
Net cash provided by financing activities .......................      39,010      452,678      179,092
                                                                    ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents ............        (169)        (146)       1,292
Cash and cash equivalents, beginning of period ..................       3,497        3,643        2,351
                                                                    ---------    ---------    ---------
Cash and cash equivalents, end of period ........................   $   3,328    $   3,497    $   3,643
                                                                    =========    =========    =========


Supplemental disclosure:
  Interest paid .................................................   $  62,231    $  48,905    $  20,933
                                                                    =========    =========    =========
  Issuance of common stock for acquisition of paging companies ..   $    --      $    --      $ 215,899
                                                                    =========    =========    =========
  Issuance of common stock for convertible debentures ...........   $    --      $  14,121    $   6,990
                                                                    =========    =========    =========
  Accretion of redeemable preferred stock .......................   $      32    $     336    $     102
                                                                    =========    =========    =========
  Liabilities assumed in acquisition of paging companies ........   $    --      $  58,233    $ 314,139
                                                                    =========    =========    =========
</TABLE>


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

                                      F-6
<PAGE> 30

                         ARCH COMMUNICATIONS GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization and Significant Accounting Policies

     Organization  -- Arch  Communications  Group,  Inc.  ("Arch")  is a leading
provider of wireless messaging services, primarily paging services.

     Principles of  Consolidation  -- The  accompanying  consolidated  financial
statements include the accounts of Arch and its wholly-owned  subsidiaries.  All
significant intercompany accounts and transactions have been eliminated.

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

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

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

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

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

                                                          Estimated
                      Asset Classification               Useful Life
                      --------------------               -----------

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

     Effective  October 1, 1995, Arch changed its estimate of the useful life of
pagers from four years to three  years.  This change was made to better  reflect
the estimated period during which pagers will produce  equipment rental revenue.
The change did not have a material effect on depreciation expense or net loss in
the quarter ended December 31, 1995.

     Depreciation  and  amortization  expense  related to property and equipment
totaled  $108,019,000,  $87,450,000 and $25,034,000 for the years ended December
31, 1997, 1996 and 1995, respectively.


                                      F-7
<PAGE> 31


     Intangible  and  Other  Assets  --  Intangible  and  other  assets,  net of
accumulated amortization, are composed of the following at December 31, 1997 and
1996 (in thousands):

                                                         1997       1996
                                                         ----       ----
      Goodwill .....................................   $312,017   $351,969
      Purchased FCC licenses .......................    293,922    330,483
      Purchased subscriber lists ...................     87,281    120,981
      Deferred financing costs .....................      8,752     12,449
      Investment in CONXUS Communications, Inc. ....      6,500      6,500
      Investment in Benbow PCS Ventures,Inc ........      6,189      3,642
      Non-competition agreements ...................      2,783      3,594
      Other ........................................     10,758     11,883
                                                       --------   --------
                                                       $728,202   $841,501
                                                       ========   ========

     Amortization  expense  related  to  intangible  and  other  assets  totaled
$124,328,000,  $104,421,000  and  $35,171,000  for the years ended  December 31,
1997, 1996 and 1995, respectively.

     Subscriber lists,  Federal  Communications  Commission ("FCC") licenses and
goodwill are amortized over their estimated  useful lives,  ranging from five to
ten  years  using  the  straight-line  method.  Non-competition  agreements  are
amortized over the terms of the agreements using the straight-line method. Other
assets  consist of  contract  rights,  organizational  and FCC  application  and
development costs which are amortized using the straight-line  method over their
estimated  useful lives not exceeding ten years.  Development and start up costs
include nonrecurring,  direct costs incurred in the development and expansion of
paging systems, and are amortized over a two-year period.

     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 or  renegotiated,
unamortized deferred financing costs are written-off as an extraordinary charge.
A  charge  of  $1,684,000  was  recognized  in the  second  quarter  of  1995 in
connection  with the closing of a new credit facility and a charge of $1,904,000
was recognized in the second  quarter of 1996 in connection  with the closing of
another new credit facility.

     On November 8, 1994, CONXUS Communications,  Inc. ("CONXUS"),  formerly PCS
Development  Corporation,  was  successful  in acquiring the rights to a two-way
paging  license  in five  designated  regions  in the  United  States in the FCC
narrowband  wireless spectrum auction. As of December 31, 1997 Arch's investment
in  CONXUS  totaled  $6.5  million  representing  an  equity  interest  of 10.5%
accounted for under the cost method.

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

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

     Fair Value of Financial  Instruments -- Arch's  financial  instruments,  as
defined  under  SFAS  No.  107  "Disclosures   about  Fair  Value  of  Financial
Instruments",  include its cash, its debt financing and interest rate protection
agreements.  The fair value of cash is equal to the  carrying  value at December
31, 1997 and 1996.


                                      F-8
<PAGE> 32

     As discussed  in Note 3, Arch's debt  financing  primarily  consists of (1)
senior bank debt, (2) fixed rate senior notes and (3)  convertible  subordinated
debentures. Arch considers the fair value of senior bank debt to be equal to the
carrying  value  since the  related  facilities  bear a current  market  rate of
interest.  Arch is  unable  to  determine  the  fair  value  of the  convertible
subordinated  debentures  due to the  specific  terms  and  conversion  features
available  in  their  respective  agreements.   These  various  facilities  were
negotiated with the creditors based on the facts and circumstances  available at
the time the debt was incurred. Since Arch has undergone significant change over
the past year,  management is unable to determine  what rates and terms would be
available currently.

     Arch's fixed rate senior notes are traded publicly. The following table
depicts  the fair value of this debt  based on the  current  market  quote as of
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
                                                    December 31, 1997     December 31, 1996
                                                   --------------------  --------------------
                                                   Carrying      Fair     Carrying     Fair
             Description                             Value       Value      Value      Value
             -----------                             -----       -----      -----      -----
<S>                                                 <C>        <C>        <C>        <C>
10 7/8% Senior Discount Notes due 2008 ..........   $332,532   $288,418   $299,273   $265,236
9 1/2% Senior Notes due 2004 of USA Mobile II ...    125,000    122,488    125,000    117,500
14% Senior Notes due 2004 of USA Mobile II ......    100,000    112,540    100,000    115,000
</TABLE>

     Arch had off balance sheet interest rate protection  agreements  consisting
of interest  rate swaps and  interest  rate caps with  notional  amounts of $140
million and $80 million,  respectively at December 31, 1997 and $165 million and
$55 million, respectively, at December 31, 1996. The fair values of the interest
rate swaps and  interest  rate caps were  $47,000 and $9,000,  respectively,  at
December 31, 1997 and $361,000 and $10,000, respectively, at December 31, 1996.

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


     Reclassifications  -- Certain amounts of prior periods were reclassified to
conform with the 1997 presentation.

2.   Acquisitions

     On May 21, 1996,  Arch  completed its  acquisition  of all the  outstanding
capital  stock  of  Westlink  for  $325.4  million  in  cash,  including  direct
transaction  costs. The purchase price was allocated based on the fair values of
assets acquired and liabilities assumed (including deferred income taxes arising
in purchase  accounting),  which  amounted to $383.6  million and $58.2 million,
respectively.

     On  September  7,  1995,  Arch  completed  its  acquisition  of USA  Mobile
Communications  Holdings,  Inc. ("USA Mobile"). The acquisition was completed in
two steps.  First,  in May 1995, Arch acquired  approximately  37%, or 5,450,000
shares, of USA Mobile's then outstanding common stock for $83.9 million in cash,
funded by borrowings  under the Arch  Enterprises  Credit Facility (see Note 3).
Accordingly,  Arch  accounted for its  investment in USA Mobile under the equity
method of accounting.  Arch recorded a charge of $4.0 million for the year ended
December 31, 1995 representing it's pro rata share of USA Mobile's net loss from
May until the  acquisition  was  completed.  Second,  on September 7, 1995,  the
acquisition  was  completed  through the merger of Arch with and into USA Mobile
("the Merger").  Upon  consummation  of the Merger,  USA Mobile was renamed Arch
Communications Group, Inc. In the Merger, each share of USA Mobile's outstanding
common stock was  exchanged for Arch common stock on a  .8020-for-one  basis (an
aggregate of 7,599,493 shares of Arch common stock) and the 5,450,000 USA Mobile
shares  purchased by Arch in May 1995 were  retired.  Outstanding  shares of USA
Mobile's  Series A  Redeemable  Preferred  Stock were not affected by the Merger
(see Note 4). Arch is treated as the acquirer in the Merger for  accounting  and
financial reporting purposes and the purchase price was allocated based upon the
fair market values of assets  acquired and  liabilities  assumed.  The aggregate
consideration paid or exchanged in the Merger was $582.2 million, consisting of

                                      F-9
<PAGE> 33

cash paid of $88.9 million, including direct transaction costs, 7,599,493 shares
of Arch common stock valued at $209.0  million and the assumption of liabilities
of $284.3 million, including $241.2 million of long-term debt.

     During the year ended December 31, 1995,  Arch completed five  acquisitions
of paging companies,  in addition to the Merger, for purchase prices aggregating
approximately  $43.0  million,  consisting  of cash of $36.1 million and 395,000
shares of Arch common stock valued at $6.9 million.  Goodwill resulting from the
acquisitions  and the Merger is being amortized over a ten-year period using the
straight-line method.

     These acquisitions have been accounted for as purchases, and the results of
their  operations have been included in the  consolidated  financial  statements
from the dates of the respective acquisitions. The following unaudited pro forma
summary presents the  consolidated  results of operations as if the acquisitions
had occurred at the beginning of the periods  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 acquisitions  been made at the beginning of the
period presented, or of results that may occur in the future.

                                        (unaudited and in thousands except
                                              for per share amounts)
                                              Year Ended December 31,
                                       --------------------------------------
                                               1996               1995

Revenues..................................  $ 358,900           $321,963
Income (loss) before extraordinary item...   (128,444)           (92,395)
Net income (loss).........................   (130,348)           (94,079)
Basic net income (loss) per common share..      (6.39)             (6.97)


3.   Long-term Debt

     Long-term debt consisted of the following at December 31, 1997 and 1996 (in
thousands):

                                                          1997       1996
                                                          ----       ----
    Senior bank debt ................................   $422,500   $380,500
    10 7/8% Senior Discount Notes due 2008 ..........    332,532    299,273
    9 1/2% Senior Notes due 2004 of USA Mobile II ...    125,000    125,000
    14% Senior Notes due 2004 of USA Mobile II ......    100,000    100,000
    Convertible subordinated debentures .............     13,364     13,364
    Other ...........................................         13         59
                                                        --------   --------
                                                         993,409    918,196
    Less-current maturities .........................     24,513         46
                                                        --------   --------
    Long-term debt ..................................   $968,896   $918,150
                                                        ========   ========

     Senior Bank Debt -- Arch, through its operating  subsidiaries,  has entered
into  two  credit  agreements.  Arch  Communications  Enterprises,  Inc.  ("Arch
Enterprises"), a wholly-owned subsidiary of Arch, entered into a credit facility
dated May 5, 1995, as amended, with a group of banks and financial  institutions
who  agreed,  subject  to certain  terms and  conditions  to provide  (i) a $250
million,   seven-year   reducing   revolver   facility  (the  "Arch  Enterprises
Revolver"),  (ii) a $150  million,  seven-year  term loan (the  "Tranche  A Term
Loan"),  and (iii) a $100  million,  eight-year  term loan (the  "Tranche B Term
Loan").  The Arch Enterprises  Revolver,  which is available for working capital
and other  purposes,  the  Tranche  A Term Loan and the  Tranche B Term Loan are
collectively  referred  to as the Arch  Enterprises  Credit  Facility.  The Arch
Enterprises   Credit  Facility  is  secured  by  all  assets  of  the  operating
subsidiaries of Arch  Enterprises and a pledge of all the stock of Arch's direct
and indirect subsidiaries.  In addition,  Arch and the operating subsidiaries of
Arch  Enterprises  have  guaranteed all obligations  under the Arch  Enterprises
Credit Facility.

     The Arch Enterprises  Revolver is subject to scheduled mandatory reductions
commencing on December 31, 1999. The Tranche A Term Loan and Tranche B Term Loan
will be amortized in quarterly installments commencing on March 31, 1998.


                                      F-10
<PAGE> 34

     Except for the Tranche B Term Loan,  borrowings under the Credit Facilities
bear  interest  based on a reference  rate equal to either (i) the agent  bank's
Alternate  Base Rate,  or (ii) the agent bank's LIBOR rate,  in each case plus a
margin which is based on the ratio of total debt to  annualized  operating  cash
flow. Borrowings under the Tranche B Term Loan bear interest at either the agent
bank's  Alternate  Base Rate plus  1.75%,  or the agent  bank's  LIBOR rate plus
3.00%.  Interest is payable quarterly in arrears. In addition,  a commitment fee
of .375% per annum is payable on the average  daily  unused  portion of the Arch
Enterprises Revolver.

     Arch  Enterprises is also required to maintain  interest rate protection on
at  least  50% of  outstanding  borrowings  under  the Arch  Enterprises  Credit
Facility,  and has  therefore  entered into interest rate swap and interest rate
cap  agreements.  Entering into interest rate cap and swap  agreements  involves
both the credit risk of dealing with  counterparties  and their  ability to meet
the  terms  of  the   contracts   and  interest  rate  risk.  In  the  event  of
non-performance   by  the   counterparty   to  these  interest  rate  protection
agreements,  Arch Enterprises would be subject to the prevailing  interest rates
specified in the Arch Enterprises Credit Facility.

     Under  the  interest  rate  swap  agreements,  the  Company  will  pay  the
difference between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR,
and the Company will  receive the  difference  between  LIBOR and the fixed swap
rate if LIBOR exceeds the swap rate.  Settlement  occurs on the quarterly  reset
dates specified by the terms of the contracts.  The notional principal amount of
the interest rate swaps  outstanding  was $140 million at December 31, 1997. The
weighted  average fixed payment rate was 5.818% while the weighted  average rate
of variable  interest  payments under the Arch  Enterprises  Credit Facility was
5.872% at December  31, 1997.  At December 31, 1997 and 1996,  the Company had a
net  receivable of $18,000 and a net payable of $124,000,  respectively,  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 $80 million with cap levels  between  7.5% and 8% at December 31, 1997.  The
transaction fees for these instruments are being amortized over the terms of the
agreements.

     The Arch  Enterprises  Credit Facility  contains  restrictive and financial
covenants which,  among other things,  limit the ability of Arch Enterprises to:
incur  additional  indebtedness,  advance  funds to  Benbow  (see  Note 1),  pay
dividends,  grant liens on its assets, merge, sell or acquire assets; repurchase
or redeem capital stock;  incur capital  expenditures;  and prepay  indebtedness
other  than  indebtedness  under the Arch  Enterprises  Credit  Facility.  As of
December 31, 1997,  Arch  Enterprises  and its  operating  subsidiaries  were in
compliance with the covenants of the Arch Enterprises Credit Facility.

     As of December 31, 1997,  $359.5 million was  outstanding and $28.7 million
was available under the Arch Enterprises Credit Facility.  At December 31, 1997,
such advances bore interest at an average annual rate of 8.76%.

     USA  Mobile  Communications,  Inc.  II ("USA  Mobile  II")  and the  direct
subsidiaries  of USA Mobile II (the "USA Mobile II Borrowing  Subsidiaries)  are
parties to a $110 million  reducing  revolving  credit  facility dated March 19,
1997, as amended,  with a group of banks pursuant to which the banks have agreed
to make  advances  for working  capital and other  purposes  (the "USA Mobile II
Credit Facility").

     Upon the  closing of the USA Mobile II Credit  Facility,  the banks did not
require the  contemporaneous  grant of a security  interest in the assets of USA
Mobile II and its  subsidiaries but they have reserved the right to require such
a security interest upon the occurrence of certain triggering  events.  Arch and
USA Mobile II have  guaranteed  the  obligations  of the USA Mobile II Borrowing
Subsidiaries  under the USA  Mobile  II Credit  Facility.  Arch's  guarantee  is
secured by the pledge of the stock of Arch Enterprises and USA Mobile II.

     Obligations  under the USA Mobile II Credit Facility bear interest based on
a reference  rate equal to either (i) the agent  bank's  Alternate  Base Rate or
(ii) the agent bank's  LIBOR rate,  in each case plus a margin which is based on
the ratio of USA Mobile II's total  indebtedness  to annualized  operating  cash
flow. A commitment  fee of .375% per annum is also payable on the average  daily
unused portion of the USA Mobile II Credit Facility.

     The USA  Mobile II  Credit  Facility  contains  restrictive  and  financial
covenants  which,  among  other  things,  limit the ability of USA Mobile II to:
incur additional indebtedness,  pay dividends, grant liens on its assets, merge,
sell or acquire  assets;  repurchase  or redeem  capital  stock;  incur  capital
expenditures; and prepay indebtedness other than indebtedness

                                      F-11
<PAGE> 35

under the USA Mobile II Credit Facility.  As of December 31, 1997, USA Mobile II
and the USA Mobile Borrowing  Subsidiaries were in compliance with the covenants
of the USA Mobile II Credit Facility.

     As of December 31, 1997, $63.0 million was outstanding and $4.6 million was
available  under the USA Mobile II Credit  Facility.  At December 31, 1997, such
advances bore interest at an average annual rate of 8.55%.

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

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

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

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

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

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

     Maturities of Debt -- Scheduled  long-term debt  maturities at December 31,
1997, are as follows (in thousands):

                      Year Ending December 31,
                      ------------------------
                      1998 ...................   $ 24,513
                      1999 ...................     37,750
                      2000 ...................     83,000
                      2001 ...................     74,750
                      2002 ...................    122,500
                      Thereafter .............    650,896
                                                 --------
                                                 $993,409
                                                 ========


                                      F-12
<PAGE> 36

4.   Redeemable Preferred Stock and Stockholders' Equity

     Redeemable  Preferred  Stock -- In connection with the Merger (see Note 2),
Arch assumed the obligations associated with 22,530 outstanding shares of Series
A  Redeemable  Preferred  Stock  issued by USA Mobile.  The  preferred  stock is
recorded at its accreted redemption value, based on 10% annual accretion through
the redemption  date. On January 30, 1997 all  outstanding  preferred  stock was
redeemed for $3,744,000 in cash.

     Stock  Options -- Arch has a 1989 Stock Option Plan (the "1989 Plan") and a
1997  Stock  Option  Plan  (the  "1997  Plan")  which  provide  for the grant of
incentive  and  nonqualified  stock  options  to key  employees,  directors  and
consultants to purchase Arch's common stock. Incentive stock options are granted
at  exercise  prices not less than the fair  market  value on the date of grant.
Options  generally vest over a five-year  period from the date of grant with the
first such vesting (20% of granted options)  occurring one year from the date of
grant and continuing ratably at 5% on a quarterly basis thereafter.  However, in
certain  circumstances,  options may be immediately  exercised in full.  Options
generally  have a duration of 10 years.  The 1989 Plan provides for the granting
of  options  to  purchase  a total of  1,128,944  shares  of common  stock.  All
outstanding  options on  September  7, 1995,  under the 1989 Plan,  became fully
exercisable and vested as a result of the Merger. The 1997 Plan provides for the
granting of options to purchase a total of 1,500,000 shares of common stock.

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

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

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

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

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

     On  December  29,  1997,  Arch  adopted a  Deferred  Compensation  Plan for
Nonemployee  Directors.  Under this plan,  outside directors may elect to defer,
for a specified period of time, receipt of some or all of the annual and meeting
fees which would  otherwise  be payable for service as a director.  A portion of
the deferred compensation may be converted

                                      F-13
<PAGE> 37

into phantom stock units, at the election of the director. The number of phantom
stock units granted equals the amount of  compensation to be deferred as phantom
stock  divided  by the  fair  value  of  Arch's  common  stock  on the  date the
compensation  would have otherwise been paid. At the end of the deferral period,
the phantom stock units will be converted to cash based on the fair market value
of the Company's common stock on the date of distribution.


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


                                                    Number of   Weighted Average
                                                     Options     Exercise Price

       Options Outstanding at August 31, 1994 ....      602,744    $    7.19
            Granted ..............................       41,740    $   18.58
            Exercised ............................       (2,000)   $    5.94
            Terminated ...........................         --      $     --
                                                     ----------    ---------
       Options Outstanding at December 31, 1994 ..      642,484    $    7.95
            Granted ..............................      278,750    $   23.46
            Assumed in Merger ....................      571,024    $   11.59
            Exercised ............................     (475,903)   $   10.80
            Terminated ...........................      (10,600)   $   17.57
                                                     ----------    ---------
       Options Outstanding at December 31, 1995 ..    1,005,755    $   13.02
            Granted ..............................      695,206    $   15.46
            Exercised ............................     (169,308)   $    8.69
            Terminated ...........................     (484,456)   $   21.60
                                                     ----------    ---------
       Options Outstanding at December 31, 1996 ..    1,047,197    $   11.37
            Granted ..............................      500,394    $    6.68
            Exercised ............................         --      $     --
            Terminated ...........................     (190,636)   $   10.58
                                                     ----------    ---------
       Options Outstanding at December 31, 1997 ..    1,356,955    $    9.75
                                                     ==========    =========

       Options Exercisable at December 31 1997 ...      639,439    $    9.64
                                                     ==========    =========


     The  following  table  summarizes  the  options   outstanding  and  options
exercisable by price range at December 31, 1997:

                                  Weighted
                                  Average     Weighted                 Weighted
                                 Remaining     Average                  Average
Range of Exercise    Options    Contractual   Exercise    Options      Exercise
    Prices         Outstanding      Life        Price    Exercisable    Price
    ------         -----------      ----        -----    -----------    -----
$ 3.13 - $ 5.94      186,284        1.58      $  4.39      169,784     $  4.36
$ 6.25 - $ 8.25      617,654        7.45         7.09      195,010        7.77
$10.29 - $14.10      410,377        8.08        12.34      209,853       12.19
$15.85 - $20.63      124,640        8.10        20.12       51,292       19.66
$23.50 - $27.56       18,000        7.84        25.53       13,500       25.53
---------------       ------        ----        -----       ------       -----
$ 3.13 - $27.56    1,356,955        6.90      $  9.75      639,439     $  9.64
===============    =========        ====      =======      =======     =======


     Employee Stock Purchase Plan -- On May 28, 1996, the stockholders  approved
the 1996 Employee Stock Purchase Plan (ESPP). The ESPP allows eligible employees
the right to purchase common stock, through payroll deductions not exceeding 10%
of their compensation,  at the lower of 85% of the market price at the beginning
or the end of each six-month offering period.  During 1997 and 1996, 151,343 and
46,842  shares  were  issued at an  average  price per share of $5.29 and $7.97,
respectively.  At December  31, 1997,  51,815  shares are  available  for future
issuance.


                                      F-14
<PAGE> 38

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

                                        (in thousands except per share amounts)
                                                 Year Ended December 31,
                                           1997           1996          1995

Net income (loss):      As reported   $  (181,874)   $  (114,662)   $  (36,602)
                        Pro forma        (183,470)      (115,786)      (36,740)

Basic net income (loss)
  per common share:     As reported         (8.77)         (5.62)        (2.72)
                        Pro forma           (8.85)         (5.68)        (2.73)

     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 a risk-free  interest  rate of 6%, an expected  life of 5 years,  an
expected dividend yield of zero and an expected volatility of 50% - 60%.

     The weighted average fair values (computed consistent with SFAS No. 123) of
options granted under all plans in 1997,  1996 and 1995,  were $3.37,  $4.95 and
$11.89,  respectively.  The weighted average fair value of shares sold under the
ESPP in 1997 and 1996 was $2.83 and $5.46, respectively.

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

5.   Income Taxes

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

     The components of the net deferred tax asset (liability)  recognized in the
accompanying  consolidated  balance  sheets at December 31, 1997 and 1996 are as
follows (in thousands):


                                                1997         1996
                                                ----         ----
            Deferred tax assets ..........   $ 134,944    $  94,597
            Deferred tax liabilities .....     (90,122)    (115,769)
                                             ---------    ---------
                                                44,822      (21,172)
            Valuation allowance ..........     (44,822)        --
                                             ---------    ---------
                                             $    --      $ (21,172)
                                             =========    =========



                                      F-15
<PAGE> 39

     The   approximate   effect  of  each  type  of  temporary   difference  and
carryforward  at  December  31,  1997  and 1996 is  summarized  as  follows  (in
thousands):

                                                     1997         1996
                                                     ----         ----
       Net operating losses ...................   $ 106,214    $  89,764
       Intangibles and other assets ...........     (87,444)    (115,769)
       Depreciation of property & equipment ...      24,388        3,692
       Accruals and reserves ..................       1,664        1,141
                                                  ---------    ---------
                                                     44,822      (21,172)
       Valuation allowance ....................     (44,822)        --
                                                  ---------    ---------
                                                  $    --      $ (21,172)
                                                  =========    =========

     The effective  income tax rate differs from the statutory  Federal tax rate
primarily  due  to  the  nondeductibility  of  goodwill  amortization.  The  net
operating  loss (NOL)  carryforwards  expire at various dates through 2012.  The
Internal Revenue Code contains  provisions that may limit the NOL  carryforwards
available  to be used in any  given  year if  certain  events  occur,  including
significant changes in ownership, as defined.

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


6.   Commitments and Contingencies

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

     Future  minimum lease  payments under  noncancellable  operating  leases at
December 31, 1997 are as follows (in thousands):


                       Year Ending December 31,
                       ------------------------
                       1998 ...................   $16,909
                       1999 ...................     7,706
                       2000 ...................     4,546
                       2001 ...................     2,689
                       2002 ...................       950
                       Thereafter .............     1,680
                                                  -------
                       Total ..................   $34,480
                                                  =======

     Total rent expense under operating  leases for the years ended December 31,
1997,  1996 and  1995  approximated  $19,836,000,  $14,746,000  and  $6,423,000,
respectively.

7.   Employee Benefit Plans

     Arch has a retirement savings plan,  qualifying under Section 401(k) of the
Internal Revenue Code covering eligible employees, as defined. Under the plan, a
participant  may  elect  to  defer  receipt  of  a  stated   percentage  of  the
compensation  which would  otherwise be payable to the  participant for any plan
year (the deferred amount) provided, however, that the deferred amount shall not
exceed the maximum amount permitted under Section 401(k) of the Internal Revenue
Code. The plan provides for Arch matching contributions.  Matching contributions
for the years ended  December 31,  1997,  1996 and 1995  approximated  $302,000,
$217,000 and $124,000, respectively.

                                      F-16
<PAGE> 40

8.   Quarterly Financial Results (unaudited)

     Quarterly  financial  information for the years ended December 31, 1997 and
1996 is summarized below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                     First       Second        Third      Fourth
                                                    Quarter      Quarter      Quarter     Quarter
                                                    -------      -------      -------     -------
<S>                                               <C>          <C>          <C>          <C>
Year Ended December 31, 1997:
   Revenues ...................................   $  95,539    $  98,729    $ 101,331    $ 101,242
   Operating income (loss) ....................     (26,632)     (29,646)     (27,208)     (18,529)
   Net income (loss) ..........................     (45,815)     (49,390)     (47,645)     (39,024)
   Basic net income (loss) per common share:
     Net income (loss) ........................       (2.21)       (2.38)       (2.29)       (1.88)

Year Ended December 31, 1996:
   Revenues ...................................   $  67,171    $  78,983    $  90,886    $  94,330
   Operating income (loss) ....................     (12,949)     (18,821)     (23,647)     (30,653)
   Income (loss) before extraordinary item ....     (19,377)     (25,678)     (32,178)     (35,525)
   Extraordinary charge .......................        --         (1,904)        --           --
   Net income (loss) ..........................     (19,377)     (27,582)     (32,178)     (35,525)
   Basic net income (loss) per common share:
     Income (loss) before extraordinary item ..        (.98)       (1.26)       (1.56)       (1.72)
     Extraordinary charge .....................        --           (.09)        --           --
     Net income (loss) ........................        (.98)       (1.35)       (1.56)       (1.72)
</TABLE>



                                      F-17
<PAGE> 41

                                                                     SCHEDULE II
                         ARCH COMMUNICATIONS GROUP, INC.
                        VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 1997, 1996 and 1995
                                 (in thousands)


<TABLE>
<CAPTION>
                                   Balance
                                      at                       Other                    Balance
                                  Beginning     Charged     Addition to                 at End
Allowance for Doubtful Accounts   of Period    to Expense   Allowance(1)  Write-Offs   of Period
-------------------------------   ---------    ----------   ------------  ----------   ---------
<S>                              <C>          <C>          <C>          <C>           <C>
Year ended December 31, 1997 .   $    4,111   $    7,181   $     --     $   (5,548)   $    5,744

Year ended December 31, 1996 .   $    2,125   $    8,198   $    1,757   $   (7,969)   $    4,111

Year ended December 31, 1995 .   $      707   $    3,915   $    1,251   $   (3,748)   $    2,125

</TABLE>

(1)   Additions arising through acquisitions of paging companies

                                      S-1
<PAGE> 42

                                      INDEX
<TABLE>
<CAPTION>
 Exhibit                                            Description
 -------                                            -----------
<S>          <C>
    3.1      -    Restated Certificate of Incorporation. (1)
    3.2      -    Certificate  of  Designations  establishing  the  Series B Junior  Participating
                  Preferred Stock. (2)
    3.3      -    Certificate  of  Correction,  filed with the  Secretary  of State of Delaware on
                  February 15, 1996.(1)
    3.4      -    By-laws, as amended.(1)
    4.1      -    Indenture,  dated February 1, 1994, between USA Mobile  Communications,  Inc. II
                  ("USA  Mobile  II") and United  States  Trust  Company of New York,  as Trustee,
                  relating to the 91/2% Senior Notes due 2004 of USA Mobile II. (3)
    4.2      -    Indenture,  dated  December  15, 1994,  between USA Mobile II and United  States
                  Trust  Company of New York,  as Trustee,  relating  to the 14% Senior  Notes due
                  2004 of USA Mobile II. (4)
    4.3      -    Indenture,  dated as of December 1, 1993, between Arch and The Bank of New York,
                  relating to the 63/4% Convertible Subordinated Debentures due 2003 of Arch. (5)
    4.4           -  Indenture,  dated  March  12,  1996,  between  Arch and IBJ
                  Schroder Bank & Trust  Company,  relating to the 107/8% Senior
                  Discount Notes due 2008 of Arch.(9)
   10.1      -    First  Amended and  Restated  Credit  Agreement  Dated May 21, 1996 By and Among
                  Arch Communications Enterprises,  Inc., the Lenders party thereto, the Co-Agents
                  party thereto, and The Bank of New York as Administrative Agent(8)
   10.2      -    Amendment No. 2 to the First  Amended and Restated  Credit  Agreement  Dated May
                  21, 1996 By and Among Arch Communications  Enterprises,  Inc., The Lenders party
                  thereto,   the  Co-Agents   party   thereto,   and  The  Bank  of  New  York  as
                  Administrative Agent. (12)
   10.3*!    -    Amendment  No. 5 and Waiver No. 1 to and under the First  Amended  and  Restated
                  Credit Agreement Dated May 21, 1996.
   10.4      -    First  Amended and  Restated  Credit  Agreement,  dated March 19, 1997 (the "USA
                  Mobile II Credit  Agreement"),  among  Premiere  Page of Kansas,  Inc.,  Q Media
                  Paging-Alabama,   Inc.,   USA   Mobile   Communications,   Inc.   III,  Q  Media
                  Company-Paging,  Inc.,  W.Q.  Communications,  Inc.,  USA Mobile II, The Lenders
                  Party Hereto, and The Bank of New York, as Administrative Agent.(12)
   10.5*!    -    Amendment No. 3 to the USA Mobile II Credit Agreement.
  +10.6      -    Amended and Restated Stock Option Plan. (6)
  +10.7      -    Non-Employee Directors' Stock Option Plan. (7)
  +10.8      -    1989 Stock Option Plan, as amended.(1)
  +10.9      -    1995 Outside Directors' Stock Option Plan (5)
 +10.10      -    1996 Employee Stock Purchase Plan(10)
 +10.11      -    1997 Stock Option Plan(11)
 +10.12*     -    Deferred Compensation Plan for Nonemployee Directors
 +10.13*     -    Form of Executive  Retention  Agreement  by and between Arch and Messrs.  Baker,
                  Daniels, Kuzia. Pottle and Saynor
  10.15      -    Letter  Agreement  dated  January  7,  1997 and  Amendment  1 dated  May 1, 1997
                  between Arch and Motorola, Inc. (12)
  21.1*      -    Subsidiaries of the Registrant.
  23.1*      -    Consent of Arthur Andersen LLP.
  27.1*      -    Financial Data Schedule
</TABLE>

*    Filed herewith
+    Identifies exhibits constituting a management contract or compensatory plan
!    Confidential treatment requested with respect to portions of this exhibit

(1)  Incorporated by reference from the Registration Statement on Form S-3 (File
     no. 333-542) of Arch.

(2)  Incorporated by reference from the Current Report on Form 8-K of Arch dated
     October 13, 1995 and filed on October 24, 1995.

(3)  Incorporated by reference from the Registration Statement on Form S-1 (File
     no. 33-72646) of USA Mobile II

(4)  Incorporated by reference from the Registration Statement on Form S-1 (File
     no. 33-85580) of USA Mobile II



<PAGE> 43


(5)  Incorporated by reference from the Registration Statement on Form S-3 (File
     no. 33-87474) of Arch.

(6)  Incorporated by reference from the Annual Report on Form 10-K of Arch (then
     known as USA Mobile) for the fiscal year ended December 31, 1994.

(7)  Incorporated by reference from the Registration Statement on Form S-4 (File
     no. 33-83648) of Arch (then known as USA Mobile).

(8)  Incorporated  by reference  from the Quarterly  Report on Form 10-Q of Arch
     for the quarter  ended June 30,  1996.  Confidential  treatment  previously
     granted with respect to portions of this exhibit.

(9)  Incorporated  by reference from Amendment No. 1 to the Quarterly  Report on
     Form  10-Q/A  for  the  quarter  ended  September  30,  1995.  Confidential
     treatment previously granted with respect to portions of this exhibit.

(10) Incorporated  by reference  from the Annual Report on Form 10-K of Arch for
     the fiscal year ended December 31, 1995.

(11) Incorporated  by reference  from the Annual Report on Form 10-K of Arch for
     the fiscal year ended December 31, 1996.

(12) Incorporated  by reference  from the Quarterly  Report on Form 10-Q of Arch
     for the quarter  ended March 31, 1997.  Confidential  Treatment  previously
     granted with respect to portions of this exhibit.