ARCH COMMUNICATIONS GROUP INC /DE/, 10-K, 2000-03-30

ARCH COMMUNICATIONS GROUP INC /DE/
10-K, 2000-03-30
RADIOTELEPHONE COMMUNICATIONS

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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 X
For the Fiscal Year Ended December 31, 1999

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

Commission file 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
Class B Common Stock Par Value $.01 Per Share
Warrants
(Title of class)

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

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 10, 2000 was approximately $691,156,000.

The number of shares of Registrant's common stock outstanding on March 10, 2000
was 60,412,237. The number of shares of Registrant's class B common stock
outstanding on March 10, 2000 was 2,712,397.

Portions of Registrant's Definitive Proxy Statement for the 2000 Annual Meeting
of Stockholders of the Registrant to be held on May 16, 2000, are incorporated
by reference into Part III.

<PAGE>
PART I

ITEM 1. BUSINESS

GENERAL

Arch is a leading provider of wireless communications services in the United
States. Arch has established a market presence in major metropolitan markets as
well as in middle and small markets. Arch's third-party retail distribution
agreements complement the more than 375 Arch-operated retail outlets. Similarly,
Arch's nationwide coverage utilizing two paging frequencies enables Arch to
provide higher-revenue nationwide services to more subscribers. Arch's
nationwide coverage also enhances Arch's local coverage and provides an
opportunity for Arch to take advantage of Arch's distribution networks.

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

PENDING PAGENET MERGER

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

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

Under the merger agreement Arch is required to make an exchange offer of up
to 29,651,984 shares of its common stock (in the aggregate) for all of its
107/8% senior discount notes due 2008. As of March 16, 2000, Arch has issued
11,640,321 shares of its common stock in exchange for $176.0 million maturity
value of its 107/8% senior discount notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Sources of Funds". On March 24, 2000, Arch announced it had
entered into an agreement with Resurgence Asset Management, L.L.C. for the
exchange of an additional $100 million maturity value of 107/8% senior discount
notes for Arch preferred stock convertible into common stock at an exchange rate
of 66.1318 shares of Arch common stock per $1,000 of maturity value. In
addition, the agreement also requires Resurgence to sell to a third party, to be
selected by Resurgence, $53.9 million maturity value of 107/8% senior discount
notes which in turn is required to exchange the notes for 66.1318 shares of Arch
common stock per $1,000 of maturity value.

If the PageNet exchange offer and the Arch exchange offer were fully
subscribed, immediately following the merger (and the issuance of Arch common
stock in exchange for PageNet common stock, in the Arch exchange offer), current
holders of Arch common stock would own approximately 36.9% of the outstanding
Arch common stock, current holders of the Arch senior discount notes (including
Resurgence) would own approximately 10.5% of the outstanding Arch common stock,
current holders of PageNet common stock would own approximately 7.6% of the

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<PAGE>

outstanding Arch common stock and current holders of the PageNet Notes (in the
aggregate) would own approximately 45.0% of the outstanding Arch common stock.
In addition, following the merger Arch would have, on a pro forma basis, total
debt of approximately $1.8 billion.

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

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

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

INDUSTRY OVERVIEW

The mobile wireless communications industry originated in 1949 when the
Federal Communications Commission allocated a group of radio frequencies for use
in providing one-way and two-way types of mobile communications services.
Throughout its history, the industry has been characterized by rapid changes in
technology and growing consumer demand for mobile wireless communications
products with increased capabilities. Particularly since the 1980s, the number
of firms competing in this business has increased and now includes major
telecommunications companies such as AT&T, SBC Communications, and MCI/Worldcom.

Multiple voice and data providers compete among one another, both directly
and indirectly, for subscribers. Providers in the mobile wireless industry may
offer both two-way interactive voice services referred to as voice
communications, and traditional paging services, either separately or through a
device which combines two way voice communications and traditional paging
services, referred to as short messaging services, or may focus on providing a
more narrow range of services, e.g. data only. Arch presently offers both
numeric and alphanumeric messaging services, as well as guaranteed receipt, and
send and receive messaging services which have in part been offered initially
over facilities of other carriers. Arch provides voice communications as a
distributor for other carriers.

Technological improvements have generally contributed to strong growth in the
market for mobile wireless communications services and the provision of better
quality services at lower prices to subscribers. Companies providing traditional
paging have benefited from technological advances resulting from research and
development conducted by vendors of paging units and transmission equipment.
These advances include microcircuitry, liquid crystal display technology and
standard digital encoding formats. These advances have enhanced the capability
and capacity of mobile wireless messaging services while lowering equipment and
air time costs.

Other mobile wireless communications alternatives have similarly experienced
rapid changes through technological improvement which has resulted in more
consumer interest and demand. Much of this development has occurred in the
broadband services market which is currently dominated by providers using three
types of Federal Communications Commission licenses: cellular radiotelephone,
broadband personal communications services, and digital specialized mobile radio
services. While all three of these broadband services were created at different
times and utilize different technologies, they are used to offer two-way voice
as well as short messaging services. The short messaging services offered by
these broadband service providers are functionally identical to numeric and
alphanumeric paging services.

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<PAGE>

The number of new subscribers to broadband services continues to increase
each year. By one analyst's estimates, there were a total of over 86 million
subscribers to cellular, broadband personal communications services, and digital
specialized mobile radio services in the U.S. at the end of 1999. This estimate
reflects an increase of approximately 25% over the approximately 69 million
subscribers estimated at the end of 1998. This trend is expected to continue.
The same analysts predict, for broadband services, an average annual subscriber
growth rate of approximately 13% through the year 2003.

With regard to the paging market, Arch believes that there were approximately
45 million subscribers to basic numeric and alphanumeric paging services in the
United States at the end of 1999. Arch believes that the basic paging industry
did not grow during 1999, that demand for basic paging services will decline in
2000 and the following years and that any significant future growth in the
paging industry will be attributable to advanced messaging services, such as
send and receive and guaranteed receipt paging services.

Paging has historically been a distinct form of mobile wireless
communications; however, a significant percentage of two-way voice services are
now combining short messaging services with two-way voice capability in a single
unit. Customers who have traditionally used both services may now choose to
discontinue their traditional paging services in favor of the single unit and
combine services. Arch is committed to expanding its service offerings, such as
guaranteed receipt and send and receive messaging, to ensure that its services
remain competitive under rapidly changing market conditions.

Messaging subscribers such as those served by Arch pay a flat monthly service
fee for paging services, unlike subscribers of cellular telephone or broadband
personal communications services, whose bills typically have a significant
variable usage component. However, cellular and broadband personal
communications services firms are beginning to offer one rate, and other plans
which lower the price point so that these services compete directly with the
paging services Arch offers. Arch is sensitive to these technological and
availability changes and is working to design competitively attractive values
for the consumer even in the midst of these changes by cellular, broadband
personal communications services and digital specialized mobile radio providers.

The mobile wireless communications industry originally distributed its
services through direct marketing and sales activities. Later, additional
channels of distribution evolved. These channels include: (1) carrier-operated
stores, (2) resellers, who purchase services on a wholesale basis from carriers
and resell those services on a retail basis to their own customers; (3) agents
who solicit customers for carriers and are compensated on a commission basis;
(4) retail outlets that often sell a variety of merchandise, including pagers
and other telecommunications equipment; and (5) most recently, the Internet.

BUSINESS STRATEGY

Arch's strategic objective is to strengthen its position as one of the
leading providers of wireless communications services in the United States and
at the same time begin to position itself to remain competitive in the rapidly
expanding wireless communications market which now includes major
telecommunications companies such as MCI/Worldcom and AT&T.

Arch is committed to continuing to provide high-quality service to its
current customers while at the same time working to expand the wireless
communications choices it provides them. Arch has already begun to offer
guaranteed receipt messaging and send and receive messaging and seeks to
continue that development. Arch has recognized that in order to fully serve its
current customers it will need to have a strong presence in the narrowband
personal communications services market which will allow it to expand its
present offerings even further. The wireless communications industry is going to
continue to change and Arch seeks to position itself to offer wireless
communication options that are broad enough to meet the needs of most potential
customers. At the same time, Arch recognizes the need to offer a good value to
consumers, letting them utilize the services they need at economical prices.
This means providing local, regional and national services that allow customers
to choose the type of coverage that they require. Arch is aggressively seeking
cost savings and working to continue to operate more efficiently.

4
<PAGE>

Operating Strategy. Arch's operating objectives are to increase its adjusted
earnings before interest, income taxes, depreciation and amortization, deploy
its capital efficiently, reduce its financial leverage and expand its customer
relationships. Arch will pursue the following strategies to achieve its
operating objectives:

o Low-Cost Operating Structure. Arch has selected a low-cost operating
strategy as its principal competitive tactic. Management believes that
a low-cost operating structure, compared to differentiated premium
pricing and niche positioning, the other two fundamental competitive
tactics in the wireless communications industry, will maximize its
flexibility to offer competitive prices while still achieving target
margins and adjusted earnings before interest, income taxes,
depreciation and amortization. Arch will continue to improve its
low-cost operating structure by consolidating some operating functions,
including centralized purchases from key vendors, to achieve economies
of scale, and installing technologically advanced and reliable
transmission systems.

o Efficient Capital Deployment. Arch's principal financial objective is
to reduce financial leverage by reducing capital requirements and
increasing adjusted earnings before interest, income taxes,
depreciation and amortization. To reduce capital expenditures, Arch has
implemented a company-wide focus on the sale, rather than lease, of
pagers since subscriber-owned units require a lower level of capital
investment than company-owned units.

o Balanced Distribution. Arch's combination of direct sales,
company-owned stores and third party resellers are supplemented by its
distribution agreements with third-party regional and national
retailers. In addition, Arch's national accounts sales force enables
Arch to improve distribution to nationwide customers.

o Capitalize on Revenue Enhancement Opportunities. Arch has one of the
broadest product offerings in the industry, including traditional
paging services as well as new services such as guaranteed receipt
messaging and send and receive messaging services, wireless e-mail and
content delivery services. Arch has entered into a strategic alliance
with Weblink Wireless, formerly known as PageMart Wireless, to
accelerate delivery of these new services, utilizing portions of
Weblink Wireless' narrowband personal communications services network
in conjunction with Arch's own network while sharing specified costs
with Weblink Wireless. This will provide Arch with more economical and
broader access to higher average revenue per unit nationwide, regional
or text messaging services. To date, Arch has marketed these services
only on a limited basis through the resale of other carriers' services
on less attractive terms. Arch believes there will be a number of new
revenue opportunities associated with its approximately 6.9 million
units in service, including selling enhanced services which add value
such as voice mail. See "-- Wireless Communications Services, Products
and Operations" and "--Networks and Licenses".

WIRELESS COMMUNICATIONS SERVICES, PRODUCTS AND OPERATIONS

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

The following table sets forth information about the approximate number of
units in service with Arch subscribers and net changes in number of units
through internal operations and acquisitions since 1995:
<TABLE>
<CAPTION>
Net Increase
Units in (Decrease) in
Service at Units through Increase in Units in
Beginning of Internal Units through Service a
Year Ended December 31, Period Operations Acquisitions End of Period
----------------------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
1995................... 538,000 366,000 1,102,000 2,006,000
1996................... 2,006,000 815,000 474,000 3,295,000
1997................... 3,295,000 595,000 -- 3,890,000
1998................... 3,890,000 386,000 -- 4,276,000
1999................... 4,276,000 (89,000) 2,762,000 6,949,000
</TABLE>

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<PAGE>

Net increase (decrease) in units through internal operations includes
internal changes from acquired paging businesses after their acquisition by Arch
and is net of subscriber cancellations during each applicable period. Increase
in units through acquisitions is based on units in service of acquired paging
businesses at the time of their acquisition by Arch.

A numeric pager permits a caller to transmit to the subscriber a numeric
message that may consist of a telephone number, an account number or coded
information, and has the capability to store several such numeric messages in
memory for later recall by the subscriber. An alphanumeric display pager allows
subscribers to receive and store messages consisting of both numbers and
letters.

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

The following table summarizes the types of Arch's units in service at
specified dates:
<TABLE>
<CAPTION>

December 31,
----------------------------------------------------------------
1997 1998 1999
--------------------- -------------------- --------------------
Units % Units % Units %
<S> <C> <C> <C> <C> <C> <C>
Local Numeric............... 3,284,000 85% 3,586,000 84% 5,299,000 76%
Local Alphanumeric.......... 524,000 13 621,000 14 1,215,000 18
Tone-only and Voice......... 82,000 2 69,000 2 48,000 1
Nationwide Numeric.......... -- -- -- -- 219,000 3
Nationwide Alphanumeric..... -- -- -- -- 168,000 2
------------ -------- ------------ ------- ----------- --------
Total.................. 3,890,000 100% 4,276,000 100% 6,949,000 100%
============ ======== ============ ======= =========== ========
</TABLE>

Units reflected in chart include guaranteed and send and receive messaging
units.

Arch provides messaging service to subscribers for a monthly fee. Subscribers
either lease the unit from Arch for an additional fixed monthly fee or they own
the unit, having purchased it either from Arch or from another vendor.
Arch-owned units leased to subscribers require capital investment by Arch, while
customer-owned and maintained units, commonly referred to as COAM units, and
those owned by resellers do not. The monthly service fee is generally based upon
the type of service provided, the geographic area covered, the number of units
provided to the customer and the period of the subscriber's commitment.
Subscriber-owned units provide a more rapid recovery of Arch's capital
investment than units owned and maintained by Arch, but may generate less
recurring revenue. Arch also sells units to third-party resellers who lease or
resell units to their own subscribers and resell Arch's wireless messaging
services under marketing agreements. Resellers are responsible for sales,
billing, collection and equipment maintenance costs. Arch sells other products
and services, including units and accessories and unit replacement and
maintenance contracts. The following table summarizes the number of Arch-owned
and leased, subscriber-owned and reseller-owned units in service at specified
dates. Although the following table reflects an increase in Arch-owned and
leased units, this increase is due to Arch's acquisition of MobileMedia in 1999.
MobileMedia had a customer base that had proportionately larger accounts that
negotiated for leased units rather than subscriber units:
<TABLE>
<CAPTION>

December 31,
----------------------------------------------------------------
1997 1998 1999
--------------------- -------------------- --------------------
Units % Units % Units %
<S> <C> <C> <C> <C> <C> <C>
Arch-owned and leased....... 1,740,000 45% 1,857,000 43% 3,605,000 52%
Subscriber-owned............ 1,087,000 28 1,135,000 27 1,518,000 22
Reseller-owned.............. 1,063,000 27 1,284,000 30 1,826,000 26
------------ -------- ------------ ------- ----------- --------
Total.................. 3,890,000 100% 4,276,000 100% 6,949,000 100%
============ ======== ============ ======= =========== ========
</TABLE>

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

NETWORKS AND LICENSES

Arch operates local, regional and national networks which enable its
customers to receive pages over a broad geographical area. Many of these
networks were acquired in the MobileMedia acquisition. Arch's extensive
geographic coverage may be attractive to large corporate clients and retail
chains, which frequently demand national network coverage from their paging
service provider.

Although Arch's networks provide local, regional and national coverage, its
networks operate over numerous frequencies and are subject to capacity
constraints in certain geographic markets. Although the capacity of Arch's
networks varies significantly market by market, Arch has an adequate amount of
spectrum licensed to meet the capacity demands of projected growth for the next
several years.

Arch is seeking to improve overall network efficiency by deploying paging
terminals, consolidating subscribers on fewer, higher capacity networks and
increasing the transmission speed, or baud rate, of certain of its existing
networks. Arch believes its investments in its network infrastructure will
facilitate and improve the delivery of high quality communications services
while at the same time reducing associated costs of such services.

Nationwide Wireless Networks

Arch operates two nationwide 900 MHz networks. As part of its acquisition of
MobileMedia, Arch acquired MobileMedia's fully operational nationwide wireless
"8875" network, which was upgraded in 1996 to incorporate high-speed FLEX (TM)
technology developed by Motorola. In addition, in 1996, MobileMedia completed
the construction of a second nationwide "5375" network that uses FLEX (TM)
technology. The use of FLEX (TM) technology significantly increases transmission
capacity and represents a marked improvement over other systems that use older
paging protocols.

Narrowband Personal Communications Services Networks and Licenses

Narrowband personal communications services networks enable wireless
communications companies to offer send and receive messaging services and to
make more efficient use of radio spectrum than do non-personal communications
services networks. Arch has taken the following steps to position itself to
participate in new and emerging narrowband personal communications services and
applications.

Arch's Narrowband Personal Communications Services Licenses. MobileMedia
purchased five regional licenses through the Federal Communications Commission's
1994 auction of narrowband personal communications services licenses, providing
the equivalent of a nationwide 50 kHz outbound/12.5 kHz inbound PCS system. In
addition, MobileMedia acquired a second 2-way narrowband personal communications
services license for a nationwide 50 kHz outbound/12.5 kHz inbound system. In
order to retain these narrowband personal communications services licenses, Arch
must comply with specified minimum build-out requirements. With respect to each
of the regional personal communications service licenses purchased at the
Federal Communication Commission's 1994 auction, Arch has built out the related
personal communications service system to cover 150,000 sq. km. or 37.5% of each
of the five regional populations in compliance with applicable build out
requirements and is still required to extend the build out of the personal

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<PAGE>

communications service system to cover 300,000 sq. km. or 75% of each of the
five regional populations by April 27, 2005. With respect to the nationwide
personal communications service license acquired as part of the MobileMedia
acquisition, Arch built out the related personal communications service system
to cover 750,000 sq. km. or 37.5% of the U.S. population in compliance with
applicable build out requirements and is still required to extend the build out
of the related personal communications service system to cover 1,500,000 sq. km.
or 75% of the U.S. population by September 29, 2004. In each instance, the
population percentage will be determined by reference to population figures at
the time of the applicable deadline. Arch estimates that the costs of these
minimum build-outs would be approximately $9.0 million; however, Arch may exceed
these minimum build-out requirements in order to be able to provide nationwide
narrowband personal communications services. If Arch chooses to exceed its
minimum narrowband personal communications services build-out requirements, Arch
estimates that the costs will exceed $9.0 million.

Weblink Wireless, Inc. In May 1999, Arch and Weblink Wireless, Inc., formerly
PageMart Wireless, Inc. signed a five-year agreement for the provision of
narrowband personal communications services. Arch believes its arrangements with
Weblink will provide it with more economical and broader access to narrowband
personal communications services. The agreement calls for Arch and Weblink to
share capital and operating expenses. Under the agreement, Arch can market
narrowband personal communications advanced messaging services, including
guaranteed messaging and send and receive messaging, using portions of Weblink's
network in conjunction with Arch's network.

SUBSCRIBERS AND MARKETING

Arch's wireless communications accounts are generally businesses with
employees who travel frequently but must be immediately accessible to their
offices or customers. Arch's subscribers include proprietors of small
businesses, professionals, management personnel, field sales personnel and
service forces, members of the construction industry and construction trades,
real estate brokers and developers, medical personnel, sales and service
organizations, specialty trade organizations, manufacturing organizations and
governmental agencies.

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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<PAGE>

SOURCES OF EQUIPMENT

Arch does not manufacture any of the messaging equipment or other equipment
used in 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 to achieve cost
savings from volume purchases. Arch buys customer equipment primarily from
Motorola, NEC and Panasonic and purchased terminals and transmitters primarily
from Glenayre and Motorola. Motorola has announced its intention to discontinue
manufacturing transmitters and other paging infrastructure during 2000, although
it will continue to maintain and service existing infrastructure into the
future. Arch anticipates that equipment 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 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 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 system
equipment is among the most technologically sophisticated in the paging
industry.

REGULATION

Federal Regulation--Overview

Arch's wireless messaging operations are subject to regulation by the Federal
Communications Commission under the Communications Act of 1934, as amended.
Arch's operations are all classified as commercial mobile radio services and are
subject to common carrier regulation by the Federal Communications Commission.
The Federal Communications Commission has granted Arch licenses to use the radio
frequencies necessary to conduct its commercial mobile radio services
operations. Licenses issued by the Federal Communications Commission to Arch set
forth the technical parameters, such as power strength and tower height, under
which Arch is authorized to use those frequencies. Each Federal Communications
Commission license held by Arch has construction and operational requirements
that must be satisfied within set time frames. The Federal Communications
Commission has the authority to auction all new licenses over which commercial
mobile radio services can be offered. The Federal Communications Commission does
not have the authority to use auctions for license renewals or license
modifications.

The Federal Communications Commission licenses granted to Arch have varying
terms of up to 10 years, at the end of which time renewal applications must be
approved by the Federal Communications Commission. In the past, Federal
Communications Commission renewal applications have been routinely granted, in
most cases upon a demonstration of compliance with Federal Communications
Commission regulations and adequate service to the public. The Federal
Communications Commission has granted each renewal license Arch has filed, other
than those which are pending. 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 licenses will be renewed by the
Federal Communications Commission. Furthermore, although revocation and
involuntary modification of licenses are extraordinary regulatory measures, the
Federal Communications Commission has the authority to restrict the operation of
licensed facilities or revoke or modify licenses. No license of Arch has ever
been revoked or modified involuntarily.

The Federal Communications Commission's review and revision of rules
affecting companies such as Arch is ongoing. The regulatory requirements to
which Arch is subject may change significantly over time. For example, the
Federal Communications Commission has decided to adopt a market area licensing
scheme for non-nationwide paging channels under which carriers will be licensed
to operate on a particular channel throughout a broad geographic area, termed a
major economic area, rather than being licensed on a transmitter
site-by-transmitter site basis. These geographic area licenses are being awarded
through an auction. Incumbent paging licensees that do not acquire licenses at
auction will be entitled to interference protection from the market area
licensee.

In many instances Arch still requires the prior approval of the Federal
Communications Commission before it can implement any significant changes to
their radio systems. Once the Federal Communications Commission's market area

10
<PAGE>

licensing rules are implemented, however, these site-specific licensing
obligations will be eliminated, with specific exceptions.

The Federal Communications Commission has issued a Further Notice of Proposed
Rulemaking in which the Federal Communications Commission seeks comments on,
among other matters:

o whether it should impose coverage requirements on licensees with
nationwide exclusivity, such as Arch;

o whether these coverage requirements should be imposed on a nationwide
or regional basis; and

o whether - if such requirements are imposed - failure to meet the
requirements should result in a revocation of the entire nationwide
license or merely a portion of the license.

If the Federal Communications Commission were to impose additional, stringent
coverage requirements on licensees with nationwide exclusivity, Arch might have
to accelerate the build out of its systems.

The Communications Act requires licensees such as Arch to obtain prior
approval from the Federal Communications Commission for the transfer of control
of any construction permit or station license. The Communications Act also
requires prior approval by the Federal Communications Commission of acquisitions
of other commercial mobile radio service companies by Arch and transfers by Arch
of a controlling interest in any of their licenses or construction permits. The
Federal Communications Commission has approved each acquisition and transfer of
control for which Arch has sought approval. Arch also regularly applies for
Federal Communications Commission authority to use additional frequencies,
modify the technical parameters of existing licenses, expand their service
territory, provide new services, and modify the conditions under which they
provide service. Although there can be no assurance that any requests for
approval of applications filed by Arch will be approved or acted upon in a
timely manner by the Federal Communications Commission, or that the Federal
Communications Commission will grant the relief requested, Arch knows of no
reason to believe any such requests, applications, or relief will not be
approved or granted. Arch makes no representations, however, about the continued
availability of additional frequencies used to provide their services.

Foreign Ownership Restrictions

The Communications Act also limits foreign ownership of entities that
directly or indirectly hold certain licenses from the Federal Communications
Commission, including some of those held by Arch. Because Arch holds licenses
from the Federal Communications Commission only through subsidiaries, up to 25%
of its common stock can be owned or voted by aliens or their representatives, a
foreign government or its representatives, or a foreign corporation, without
restriction. However, if more than 25% of its common stock is owned or voted by
aliens or their representatives, a foreign corporation, or a foreign government
or its representatives, the Telecommunications Act of 1996 gives the Federal
Communications Commission the right to revoke or refuse to grant licenses if the
Federal Communications Commission finds that such revocation or refusal serves
the public interest. The Federal Communications Commission has indicated that,
pursuant to the World Trade Organization Telecommunications Agreement, it would
waive the 25% limitation in appropriate circumstances. Based upon information
obtained by Arch, Arch believes that substantially less than 25% of its issued
and outstanding common stock is owned by aliens or their representatives,
foreign governments or their representatives, or foreign corporations. Arch
subsidiaries that are radio common carrier licensees are subject to more
stringent requirements and may have only up to 20% of their stock owned or voted
by aliens or their representatives, a foreign government or their
representatives or a foreign corporation. This ownership restriction is not
subject to waiver.

Limitations on Allocation of Numbers

Increased demand for telephone numbers, particularly in metropolitan areas,
is causing depletion of numbers in some of the more popular area codes. Recent
plans to address this increased demand have included elements that could impact
Arch's operations, including the take-back of numbers already assigned for use
and service-specific plans whereby only some services, such as paging and
cellular, would be assigned numbers using a new area code, or plans which
require the pooling of blocks of numbers for use by multiple carriers. Arch
cannot provide any assurance that such plans will not be adopted by a federal or
state commission, or that such plans will not require Arch to incur further,
substantial expenses in order to continue to obtain telephone numbers for its
subscribers.

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<PAGE>

Interconnection

Recent amendments to the Communications Act are intended to promote
competition in local exchange services through the removal of legal or other
barriers to entry. Specifically, all telecommunications carriers have the duty
to interconnect with the facilities and equipment of other telecommunications
carriers. The Federal Communications Commission, and the 9th Circuit Court of
Appeals, among others, have interpreted this duty as requiring local exchange
carriers to compensate mobile wireless carriers for calls originated by
customers of the local exchange carriers which terminate on a mobile wireless
carrier's network. The Federal Communications Commission has also found unlawful
charges levied against messaging carriers in the past that have been assessed on
a monthly basis by the local exchange carriers for the use of interconnection
facilities, including telephone numbers. These findings by the Federal
Communications Commission have been challenged at the Federal Communications
Commission and in the courts. Arch cannot predict with certainty the ultimate
outcome of these proceedings. Compensation amounts may be determined in
subsequent proceedings either at the federal or state level, or may be
determined based on negotiations between the local exchange carriers and the
paging companies. Any agreements reached between the local exchange carriers and
the paging companies may be required to be submitted to state regulatory
commission for approval. Arch is in negotiations with local exchange carriers,
but it may or may not be successful in securing refunds, future relief, or both,
with respect to charges for termination of local exchange carriers originated
local traffic. If these issues are ultimately decided in favor of the local
exchange carriers, Arch may be required to pay past due contested charges and
may also be assessed interest and late charges for amounts withheld.

Additional Regulatory Obligations

While the Communications Act has had a beneficial effect for mobile wireless
providers, some provisions place or may place additional financial obligations
on Arch, and other carriers. As an example, some regulatory and judicial bodies,
interpret some sections of the Communications Act as requiring commercial mobile
radio service providers such as Arch to contribute to "Universal Service" or
other funds to assure the continued availability of local exchange service to
high cost areas, as well as to contribute funds to cover other designated costs
or societal goals. Further, providers of payphones must be compensated for all
calls placed from pay telephones to toll-free numbers. This latter requirement
increases Arch's costs of providing toll-free number service, and there are no
assurances that Arch will be able to continue to pass on their costs to their
subscribers. Beneficially, the Communications Act now limits the circumstances
under which states and local governments may deny a request by a commercial
mobile service provider to place transmission facilities, and gives the Federal
Communications Commission the authority to preempt the states in some
circumstances.

The Communications Assistance for Law Enforcement Act requires some
telecommunications companies, including Arch, to modify the design of their
equipment or services to ensure that electronic surveillance or interceptions
can be performed. Technical parameters applicable to the paging industry have
been established but not acknowledged by all governmental bodies to date.
Therefore, Arch cannot determine at this time what compliance measures will be
required or the costs thereof. In addition, the Federal Communications
Commission has instituted proceedings addressing the manner in which
telecommunications carriers are permitted to jointly market certain types of
services, and the manner in which telecommunications carriers render bills for
these services. Depending on the outcome of these proceedings, Arch, and other
telecommunications carriers could incur higher administration and other costs in
order to comply.

State Regulation

In addition to potential regulation by the Federal Communications Commission,
some states have the authority to regulate paging services, except where such
regulation affects or relates to the rates charged to customers and/or the
ability of a commercial mobile radio service provider like Arch to enter a
market. Such regulations have been preempted by the Communications Act, as
interpreted by the Federal Communications Commission. States may petition the
Federal Communications Commission for authority to continue to regulate
commercial mobile radio service rates if certain conditions are met. State
filings seeking rate authority have all been denied by the Federal
Communications Commission, although new petitions seeking such authority may be
filed in the future. Furthermore, some states and localities continue to exert
jurisdiction over (1) approval of acquisitions of assets and transfers of
licenses of mobile wireless systems and (2) resolution of consumer complaints.

12
<PAGE>

Arch believes that to date all required filings for their respective paging
operations have been made. All state approvals of acquisitions or transfers made
by Arch have been approved, and Arch does not know of any reason to believe such
approvals will not continue to be granted in connection with any future
requests, even if states exercise that review.

The Communications Act does not preempt state regulatory authority over other
aspects of Arch's operations, and some state may choose to exercise such
authority. Some state and local governments have imposed additional taxes or
fees upon some of the activities in which Arch is engaged. In addition, the
construction and operation of radio transmitters may be subject to zoning, land
use, public health and safety, consumer protection and other state and local
taxes, levies and ordinances. As noted above, the Federal Communications
Commission may delegate to the states authority over telephone number allocation
and assignment.

TRADEMARKS

In May 1997, Arch established a single national identity, Arch Paging, for
its paging services which previously had been marketed under various trademarks.
In addition, Arch adopted a new corporate logo, developed a corporate-wide
positioning strategy tied to customer service delivery, and launched its
Internet Web site at www.arch.com. At present, Arch has continued to market to
former MobileMedia customers under the MobileComm and MobileMedia brand names,
but is working to transition its marketing under the Arch name.

Arch owns the service marks "Arch", "Arch Paging" and "Arch Communications",
and holds federal registrations for the service marks "MobileComm" and
"MobileMedia" as well as various other trademarks.

EMPLOYEES

At December 31, 1999, Arch employed approximately 5,000 persons. None of
Arch's employees is represented by a labor union. Arch believes that its
employee relations are good.

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<PAGE>

ITEM 2. PROPERTIES

At December 31, 1999, Arch owned 10 office buildings and leased office space,
including its executive offices, in approximately 375 locations in 42 states for
use in its paging operations. Arch leases transmitter sites and/or owns
transmitters on commercial broadcast towers, buildings and other fixed
structures in approximately 4,800 locations in all 50 states, the U.S. Virgin
Islands and Puerto Rico. Arch's leases are for various terms and provide for
monthly lease payments at various rates. Arch believes that it will be able to
obtain additional space as needed at acceptable cost. Substantially all of
Arch's and MobileMedia's tower sites were sold during 1998 and 1999 and Arch
currently rents transmitter space.

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of stockholders during the three months
ended December 31, 1999.

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<PAGE>
PART II

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

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

1999 High Low
---- ---- ---
First Quarter............................. $ 7.500 $ 3.188
Second Quarter............................ $ 11.625 $ 3.375
Third Quarter............................. $ 8.875 $ 4.000
Fourth Quarter............................ $ 7.750 $ 3.500

1998 High Low
---- ---- ---
First Quarter............................. $ 18.375 $ 9.000
Second Quarter............................ $ 20.813 $ 10.500
Third Quarter............................. $ 15.000 $ 5.063
Fourth Quarter............................ $ 5.438 $ 2.063

The number of common stockholders of record as of March 15, 2000 was 1,633.
Arch believes that the number of beneficial common stockholders is in excess of
5,000.

Arch has never declared or paid cash dividends on the common stock and does
not intend to declare or pay cash dividends on its common stock in the
foreseeable future. Covenants in the credit facility and debt obligations of
Arch and its subsidiaries effectively prohibit the declaration or payment of
cash dividends by Arch for the foreseeable future. In addition, the terms of
Arch's Series C preferred stock generally prohibit the payment of cash dividends
on common stock unless all accrued and unpaid dividends on the series C
preferred stock are paid in full. See Note 3 to the consolidated financial
statements.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth selected historical consolidated financial and
operating data of Arch for each of the five years ended December 31, 1999. The
selected financial and operating data as of December 31, 1995, 1996, 1997, 1998
and 1999 and for each of the five years ended December 31, 1999 have been
derived from Arch's audited consolidated financial statements and notes. You
should read the following consolidated financial information in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes set forth below.

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

The extraordinary item is an extraordinary gain or loss resulting from
prepayment of indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations".

Adjusted EBITDA, as determined by Arch, consists of EBITDA (earnings before
interest, taxes, depreciation and amortization) net of restructuring charges,
equity in loss of affiliate and extraordinary items; consequently adjusted
EBITDA may not necessarily be comparable to similarly titled data of other
paging companies. EBITDA is commonly used by analysts and investors as a
principal measure of financial performance in the wireless communications
industry. Adjusted EBITDA is also one of the primary financial measures used to

15
<PAGE>

calculate whether Arch and its subsidiaries are in compliance with covenants
under their debt agreements. These covenants, among other things, limit the
ability of Arch and its subsidiaries to: incur additional indebtedness, make
investments, pay dividends, grant liens on its assets, merge, sell or acquire
assets, repurchase or redeem capital stock, incur capital expenditures and
prepay certain indebtedness. EBITDA is also one of the financial measures used
by analysts to value Arch. Therefore Arch management believes that the
presentation of EBITDA provides relevant information to investors. EBITDA should
not be construed as an alternative to operating income or cash flows from
operating activities as determined in accordance with GAAP or as a measure of
liquidity. Amounts reflected as EBITDA or adjusted EBITDA are not necessarily
available for discretionary use as a result of restrictions imposed by the terms
of existing indebtedness or limitations imposed by applicable law upon the
payment of dividends or distributions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".

Adjusted EBITDA margin is calculated by dividing Arch's adjusted EBITDA by
total revenues less cost of products sold. EBITDA margin is a measure commonly
used in the wireless communications industry to evaluate a company's EBITDA
relative to total revenues less cost of products sold as an indicator of the
efficiency of a company's operating structure.
<TABLE>
<CAPTION>

Year Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Service, rental and maintenance revenues............ $ 138,466 $ 291,399 $ 351,944 $ 371,154 $ 591,389
Product sales....................................... 24,132 39,971 44,897 42,481 50,435
---------- ---------- ---------- ---------- ----------
Total revenues...................................... 162,598 331,370 396,841 413,635 641,824
Cost of products sold............................... (20,789) (27,469) (29,158) (29,953) (34,954)
---------- ---------- ---------- ---------- ----------
141,809 303,901 367,683 383,682 606,870
Operating expenses:
Service, rental and maintenance................... 29,673 64,957 79,836 80,782 132,400
Selling........................................... 24,502 46,962 51,474 49,132 84,249
General and administrative........................ 40,448 86,181 106,041 112,181 180,726
Depreciation and amortization..................... 60,205 191,871 232,347 221,316 309,434
Restructuring charge.............................. -- -- -- 14,700 (2,200)
---------- ---------- ---------- ---------- ----------
Operating income (loss)............................. (13,019) (86,070) (102,015) (94,429) (97,739)
Interest and non-operating expenses, net............ (22,522) (75,927) (97,159) (104,213) (188,249)
Equity in loss of affiliate......................... (3,977) (1,968) (3,872) (5,689) (3,200)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax benefit,
extraordinary item and accounting change.......... (39,518) (163,965) (203,046) (204,331) (289,188)
Income tax benefit.................................. 4,600 51,207 21,172 -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item and
accounting change................................. (34,918) (112,758) (181,874) (204,331) (289,188)
Extraordinary item.................................. (1,684) (1,904) -- (1,720) 6,963
Cumulative effect of accounting change.............. -- -- -- -- (3,361)
---------- ---------- ---------- ---------- ----------
Net income (loss)................................... $ (36,602) $ (114,662)$ (181,874) $ (206,051)$ (285,586)
========== ========== ========== ========== ==========

Basic/diluted income (loss) per common share before
extraordinary item and accounting change.......... $ (7.79) $ (16.59)$ (26.31) $ (29.34)$ (9.21)
Extraordinary item per basic/diluted common share... (0.37) (0.27) -- (0.25) 0.22
Cumulative effect of accounting change per
basic/diluted common share........................ -- -- -- -- (0.11)
---------- ---------- ---------- ---------- ----------
Basic/diluted net income per common share........... $ (8.16) $ (16.86)$ (26.31) $ (29.59)$ (9.10)
========== ========== ========== ========== ==========
Other Operating Data:
Capital expenditures, excluding acquisitions........ $ 60,468 $ 165,206 $ 102,769 $ 113,184 $ 113,651
Cash flows provided by operating activities......... $ 14,749 $ 37,802 $ 63,590 $ 83,380 $ 99,536
Cash flows used in investing activities............. $ (192,549) $ (490,626)$ (102,769) $ (82,868)$ (627,166)
Cash flows provided by (used in) financing activities $ 179,092 $ 452,678 $ 39,010 $ (2,207)$ 529,158
Adjusted EBITDA..................................... $ 47,186 $ 105,801 $ 130,332 $ 141,587 $ 209,495
Adjusted EBITDA margin.............................. 33% 35% 35% 37% 35%
Units in service at end of period................... 2,006,000 3,295,000 3,890,000 4,276,000 6,949,000

</TABLE>

16
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: (dollars in thousands)
Current assets...................................... $ 33,671 $ 43,611 $ 51,025 $ 50,712 $ 85,303
Total assets........................................ 785,376 1,146,756 1,020,720 904,285 1,353,045
Long-term debt, less current maturities............. 457,044 918,150 968,896 1,001,224 1,322,508
Redeemable preferred stock.......................... 3,376 3,712 -- -- --
Stockholders' equity (deficit)...................... 246,884 147,851 (33,255) (213,463) (217,559)
</TABLE>

The following table reconciles net income to the presentation of adjusted
EBITDA:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net income (loss)................................... $ (36,602) $ (114,662)$ (181,874) $ (206,051)$ (285,586)
Interest and non-operating expenses, net............ 22,522 75,927 97,159 104,213 188,249
Income tax benefit.................................. (4,600) (51,207) (21,172) -- --
Depreciation and amortization....................... 60,205 191,871 232,347 221,316 309,434
Restructuring charge................................ -- -- -- 14,700 (2,200)
Equity in loss of affiliate......................... 3,977 1,968 3,872 5,689 3,200
Extraordinary Item.................................. 1,684 1,904 -- 1,720 (6,963)
Cumulative effect of accounting change.............. -- -- -- -- 3,361
---------- ---------- ---------- ---------- ----------
Adjusted EBITDA..................................... $ 47,186 $ 105,801 $ 130,332 $ 141,587 $ 209,495
========== ========== ========== ========== ==========
</TABLE>

17
<PAGE>

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

FORWARD-LOOKING STATEMENTS

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

OVERVIEW

The following discussion and analysis should be read in conjunction with
Arch's consolidated financial statements and notes thereto included elsewhere in
this annual report.

Arch derives the majority of its revenues from fixed monthly or other
periodic fees charged to subscribers for wireless communication services. Such
fees are not generally dependant on usage. As long as a subscriber remains on
service, operating results benefit from the recurring payments of the fixed
periodic fees without incurrence of additional selling expenses by Arch. Arch's
service, rental and maintenance revenues and the related expenses exhibit
substantially similar growth trends. Arch's average revenue per subscriber has
declined over the last three years for three principal reasons:

o an increase in the number of reseller customers whose airtime is purchased
at wholesale rates;

o an increase in the number of subscriber owned and reseller owned units for
which Arch receives no recurring equipment revenue; and

o an increase in competition in certain of the markets in which Arch
operates.

The reduction in average revenue per subscriber resulting from these trends
has been more than offset by the reduction of expenses so that Arch's margins
had been improving until the consummation of the MobileMedia merger which
resulted in redundant management and administrative headcount. Arch expects the
margins to improve as the integration of the two companies eliminates these
redundant expenses.

Arch has achieved significant growth in units in service and adjusted
earnings before interest, taxes, depreciation and amortization (EBITDA) through
acquisitions and, prior to 1999, internal growth. During 1999, units in service
decreased by 89 thousand units, excluding the addition of subscribers from the
MobileMedia acquisition. From January 1, 1997 through December 31, 1999, Arch's
total number of units in service grew from 3.3 million to 6.9 million units.
Arch's total revenues have increased from $396.8 million in the year ended
December 31, 1997 to $413.6 million in the year ended December 31, 1998 and to
$641.8 million in the year ended December 31, 1999. Arch had net losses of
$181.9 million, $206.1 million and $285.6 million in the years ended December
31, 1997, 1998 and 1999, respectively, as a result of significant depreciation
and amortization expenses related to acquired and developed assets and interest
charges associated with indebtedness. As its subscriber base has grown, Arch's
adjusted EBITDA has increased from $130.3 million in the year ended December 31,
1997 to $141.6 million in the year ended December 31, 1998 and to $209.5 million
in the year ended December 31, 1999.

EBITDA is a commonly used measure of financial performance in the wireless
communications industry. Adjusted EBITDA is also one of the financial measures
used to calculate whether Arch and its subsidiaries are in compliance with the

18
<PAGE>

covenants under their respective debt agreements. Adjusted EBITDA should not be
construed as an alternative to operating income or cash flows from operating
activities as determined in accordance with GAAP. One of Arch's financial
objectives is to increase its adjusted EBITDA, since this is a significant
source of funds for servicing indebtedness and for investment in continued
growth, including purchase of messaging units and messaging system equipment,
construction and expansion of messaging systems, and possible acquisitions.
Adjusted EBITDA, as determined by Arch, may not necessarily be comparable to
similarly titled data of other wireless communications companies. Amounts
reflected as adjusted EBITDA are not necessarily available for discretionary use
as a result of restrictions imposed by the terms of existing or future
indebtedness, including the repayment of such indebtedness or the payment of
associated interest, limitations imposed by applicable law upon the payment of
dividends or distributions or capital expenditure requirements.

PENDING PAGENET MERGER

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

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

Under the merger agreement Arch is required to make an exchange offer of up
to 29,651,984 shares of its common stock (in the aggregate) for all of its
107/8% senior discount notes due 2008. As of March 16, 2000, Arch has issued
11,640,321 shares of its common stock in exchange for $176.0 million maturity
value of its 107/8% senior discount notes. See "Liquidity and Capital Resources
- -- Sources of Funds". If the PageNet exchange offer and the Arch exchange offer
were fully subscribed, immediately following the merger (and the issuance of
Arch common stock in exchange for PageNet common stock, in the Arch exchange
offer), current holders of Arch common stock would own approximately 36.9% of
the outstanding Arch common stock, current holders of the Arch senior discount
notes would own approximately 10.5% of the outstanding Arch common stock,
current holders of PageNet common stock would own approximately 7.6% of the
outstanding Arch common stock and current holders of the PageNet Notes (in the
aggregate) would own approximately 45.0% of the outstanding Arch common stock.
In addition, following the merger Arch would have, on a pro forma basis, total
debt of approximately $1.8 billion.

19
<PAGE>

certain circumstances PageNet has agreed either to file the prepackaged plan in
lieu of completing the PageNet exchange offer or to pay Arch a termination fee.

The agreement provides that each party may be obligated to pay the other a
termination fee equal to $40.0 million under the terms described under Note 2 to
the Notes to consolidated financial statements.

POTENTIAL EFFECTS OF THE PAGENET MERGER

If Arch acquires PageNet on the terms described above, the combined company
will have substantially larger assets, liabilities, revenues and expenses. On a
pro forma basis at December 31, 1999, the combined company would have had
approximately 15.2 million units in service, total assets of $2.9 billion and
total long term debt of $1.8 billion, assuming that all of the outstanding
discount notes are exchanged for common stock.

The PageNet merger is subject to regulatory approvals, stockholder and
noteholder consents and many other conditions and, in consequence, it may not
take place. If Arch does not acquire PageNet, the contemplated benefits of the
merger will not be realized, despite the incurrence of substantial transaction
costs, which are estimated at $10.0 million each for Arch and PageNet. If the
merger does not take place after one company pursues an alternative offer and
either company decides to terminate the merger agreement, one company may be
required to pay the other a $40.0 million termination fee.

MOBILEMEDIA MERGER

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

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

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

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

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

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

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

Arch also issued to the holders of its common stock and Series C preferred
stock on January 27, 1999 non-transferable rights to acquire up to 14,964,388
shares of its common stock at a price of $6.00 per share. A total of 102,964
non-transferable rights were exercised. Because non-transferable rights to
acquire 14,861,424 shares were not exercised, Arch issued in their place
warrants to purchase 14,861,424 shares of its common stock for $9.03 per share.

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

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

o $6.1 million for employee severance;

o $7.9 million for lease obligations and terminations; and

o $0.5 million of other costs.

20
<PAGE>

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

RESULTS OF OPERATIONS

The following table presents certain items from Arch's consolidated
statements of operations as a percentage of net revenues and certain other
information for the periods indicated (dollars in thousands except per unit
data):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Total revenues.................................... 107.9 % 107.8 % 105.8 %
Cost of products sold............................. (7.9) (7.8) (5.8)
-------- -------- --------
Net revenues...................................... 100.0 100.0 100.0
Operating expenses:
Service, rental and maintenance................. 21.7 21.1 21.8
Selling......................................... 14.0 12.8 13.9
General and administrative...................... 28.8 29.2 29.8
Depreciation and amortization................... 63.2 57.7 51.0
Restructuring charge............................ -- 3.8 (0.4)
-------- -------- --------

Operating income (loss)........................... (27.7)% (24.6)% (16.1)%
======== ======== ========

Net income (loss)................................. (49.5)% (53.7)% (47.1)%
======== ======== ========

Adjusted EBITDA.............................. 35.4 % 36.9 % 34.5 %
======== ======== ========

Cash flows provided by operating activities....... $ 63,590 $ 83,380 $ 99,536
Cash flows used in investing activities........... $ (102,769) $ (82,868) $ (627,166)
Cash flows provided by (used in) financing
activities...................................... $ 39,010 $ (2,207) $ 529,158
Annual service, rental and maintenance expenses
per unit in service............................. $ 22 $ 20 $ 23

</TABLE>

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

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

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

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

o reduced sales through Arch-operated retail stores.

Arch expects revenue to continue to be adversely affected in 2000 by
declining demand for basic numeric and alphanumeric paging services. Arch
believes that the basic paging industry did not grow during 1999, that demand
for basic paging services will decline in 2000 and the following years and that
any significant future growth in the paging industry will be attributable to
advanced messaging services, such as send and receive and guaranteed receipt
paging services. See "Industry Overview." As a result, Arch believes that it

21
<PAGE>

will experience a net decline in the number of its units in service in 2000,
excluding the addition of subscribers from the PageNet acquisition, as Arch's
addition of advanced messaging subscribers is exceeded by its loss of basic
paging subscribers.

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

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

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

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

Depreciation and amortization expenses increased to $309.4 million in 1999
from $221.3 million in 1998. The increase in these expenses principally
reflected the acquisition of MobileMedia. Additionally, depreciation expense in
1999 included the write-off of approximately $7.1 million of costs associated
with the development of an integrated billing and management system. Arch
decided to discontinue further development of that system due to the
capabilities of the system acquired through the MobileMedia merger.

Operating losses were $97.7 million in 1999 compared to $94.4 million in
1998, as a result of the factors outlined above.

Net interest expense increased to $143.0 million in 1999 from $102.3 million
in 1998. The increase was principally attributable to an increase in Arch's
outstanding debt due to the MobileMedia acquisition. Interest expense for 1999
included approximately $41.6 million of accreted interest on Arch's senior
discount notes, the payment of which is deferred. Interest expense for 1998
included approximately $37.1 million of accretion on these notes.

Other expense increased to $45.2 million in 1999 from $2.0 million in 1998.
Other expense in 1999 included:

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

o a $35.8 million write-off of Arch's investment in Benbow PCS Ventures,
Inc. another holder of send and receive messaging licenses. In June 1999,
Arch, Benbow and Benbow's controlling shareholder agreed to terminate
their business relationship and wind-up Benbow's business. For additional
information see "Liquidity and Capital Resources -- Other Commitments and
Contingencies".

22
<PAGE>

In October 1999, Arch recognized an extraordinary gain of $7.0 million on the
retirement of debt exchanged for Arch common stock. In June 1998, Arch
recognized an extraordinary charge of $1.7 million representing the write-off of
unamortized deferred financing costs associated with the prepayment of
indebtedness under prior credit facilities.

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

Net loss increased to $285.6 million in 1999 from $206.1 million in 1998, as
a result of the factors outlined above.

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

Total revenues increased to $413.6 million, a 4.2% increase, in 1998, from
$396.8 million in 1997 as the number of units in service increased from 3.9
million at December 31, 1997 to 4.3 million at December 31, 1998. Net revenues
increased to $383.7 million, a 4.4% increase in 1998 from $367.7 million in
1997. Total revenues and net revenues in 1998 were adversely affected by a
general slowing of industry growth, compared to prior years. Revenues were also
adversely affected in the fourth quarter of 1998 by:

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

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

o reduced sales through Arch-operated retail stores.

Service, rental and maintenance revenues, increased to $371.2 million, a 5.5%
increase, in 1998 from $351.9 million in 1997. These increases in revenues were
due primarily to the increase, through internal growth, in the number of units
in service from 3.9 million at December 31, 1997 to 4.3 million at December 31,
1998. Maintenance revenues represented less than 10% of total service, rental
and maintenance revenues in 1998 and 1997. Product sales, less cost of products
sold, decreased to $12.5 million, a 20.4% decrease, in 1998 from $15.7 million
in 1997, respectively, as a result of a decline in the average revenue per unit
sold.

Service, rental and maintenance expenses, increased to $80.8 million, 21.1%
of net revenues, in 1998 from $79.8 million, 21.7% of net revenues, in 1997. The
increase was due primarily to increased expenses associated with system
expansions and an increase in the number of units in service. Annualized
service, rental and maintenance expenses per subscriber were $20 in 1998
compared to $22 in 1997.

Selling expenses decreased to $49.1 million, 12.8% of net revenues, in 1998
from $51.5 million, 14.0% of net revenues, in 1997. The decrease was due
primarily to a decrease in the number of net new units in service and to
nonrecurring marketing costs incurred in 1997 to promote Arch's new Arch Paging
brand identity. The number of net new units in service resulting from internal
growth decreased by 35.1% in 1998 compared to 1997 primarily due to the factors
set forth above that adversely affected revenues.

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

Depreciation and amortization expenses decreased to $221.3 million in 1998
from $232.3 million in 1997. These expenses principally reflected Arch's
acquisitions in prior periods accounted for as purchases. They also reflected
investment in units and other system expansion equipment to support growth.

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

23
<PAGE>

Net interest expense increased to $104.2 million in 1998 from $97.2 million
in 1997. The increase was principally attributable to an increase in Arch's
outstanding debt. Interest expense for 1998 included approximately $37.0 million
of interest which accretes on Arch's senior discount notes even though the cash
payment of the interest is deferred. Interest expense for 1997 included
approximately $33.3 million of accretion on these notes.

Arch recognized an income tax benefit of $21.2 million in 1997. This benefit
represented the tax benefit of operating losses incurred subsequent to the
acquisitions of USA Mobile and Westlink which were available to offset deferred
tax liabilities arising from those acquisitions. The tax benefit of these
operating losses was fully recognized during 1997. Accordingly, Arch has
established a valuation reserve against its deferred tax assets which reduced
the income tax benefit to zero as of December 31,1998. Arch does not expect to
recover its deferred tax asset in the foreseeable future and will continue to
increase its valuation reserve accordingly. See Note 5 to Arch's Consolidated
Financial Statements.

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

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

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
subscriber equipment and network system equipment, to service debt and to
finance acquisitions. Arch's net cash flows from operating, investing and
financing activities for the periods indicated in the table below are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
---- ---- ----
(dollars in millions)
<S> <C> <C> <C>
Net cash provided by operating activities............... $ 63.6 $ 83.4 $ 99.5
Net cash used for investing activities.................. $(102.8) $ (82.9) $(627.2)
Net cash provided by (used in) financing activities..... $ 39.0 $ (2.2) $ 529.2
</TABLE>

Investing activities in 1999 included $516.6 million for the acquisition of
MobileMedia. Financing activities in 1999 included $217.2 million from the sale
of common stock to unsecured creditors of MobileMedia and borrowings of $320.8
million in connection with the acquisition of MobileMedia as described above.

CAPITAL EXPENDITURES AND COMMITMENTS

Excluding acquisitions of wireless messaging businesses, Arch's capital
expenditures were $102.8 million in 1997, $113.2 million in 1998 and $113.7
million in 1999. To date, Arch generally has funded its capital expenditures
with net cash provided by operating activities and the incurrence of debt.

Arch's 1999 capital expenditures primarily involved the purchase of wireless
messaging units, system and transmission equipment, information systems and
capitalized financing costs.

Arch estimates the amount of capital that will be required to fund capital
expenditures for 2000 will be approximately $120 million ($227 million on a pro
forma basis if the PageNet merger were consummated on January 1, 2000). Such
expenditures will be used primarily for subscriber equipment, network
infrastructure, information systems and the construction of certain markets for
the nationwide network of narrowband personal communications services. However,
the actual amount of capital to be required by the combined company will depend
on a number of factors. These include subscriber growth, the type of products
and services demanded by customers, service revenues, the nature and timing of
Arch's strategy to deploy its narrowband personal communications services
network, and acquisition strategies and opportunities. Arch believes that it
will have sufficient cash available from operations and credit facilities to
fund its capital expenditures for 2000.

24
<PAGE>

OTHER COMMITMENTS AND CONTINGENCIES

Through Arch's May 1996 acquisition of Westlink, Arch acquired a 49.9% equity
interest in Benbow PCS Ventures, Inc. Benbow holds exclusive rights to a 50kHz
outbound/12.5kHz inbound narrowband personal communications services license in
each of the five regions of the United States. Arch was formerly obligated to
advance Benbow sufficient funds to service debt obligations incurred by Benbow
in connection with its acquisition of its narrowband personal communications
services licenses and to finance construction of a narrowband personal
communications services system unless funds were available to Benbow from other
sources. Arch estimates that this obligation totaled approximately $100 million
at March 31, 1999. This obligation was subject to the approval of Arch's
designee on Benbow's board of directors. As of March 31, 1999 Arch had advanced
approximately $23.7 million to Benbow. In June 1999, Arch, Benbow and Benbow's
controlling stockholder agreed that:

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

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

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

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

On December 20, 1999, Benbow filed with the Federal Communications Commission
a proposal for debt forgiveness which, if approved, would result in (1)
surrender by Benbow of its five narrowband personal communications services
licenses back to the government, and (2) forgiveness by the government of the
remaining debt owed on the surrendered licenses and waiver of any applicable
default payments. A total of approximately $35.25 million in principal debt to
the government remains payable by Benbow on the five narrowband personal
communications services licenses. Benbow's debt forgiveness proposal is pending
and Arch can not determine whether the Federal Communications Commission
ultimately will approve it. In its debt-forgiveness proposal, however, Benbow
demonstrated that the proposal meets standards for debt forgiveness under
applicable federal law.

The June 1999 agreement between Arch, Benbow and Benbow's controlling
shareholder provides, regardless of the outcome of the debt forgiveness
proposal, that (1) Arch will fulfill all of its current financial obligations to
Benbow, (2) Arch is released from any further obligations to provide funding to
Benbow, and (3) Benbow's controlling shareholder will be paid for her Benbow
stock consistent with the preexisting agreement with Arch which requires Arch to
pay the controlling stockholder in Benbow, in installments, an aggregate amount
of $3.5 million (if the transaction closes before January 23, 2001) or $3.8
million (if the transaction closes on January 23, 2001). In addition to the
narrowband personal communications services licenses, Benbow holds conventional
paging licenses which would be transferred to Arch upon Federal Communications
Commission approval.

As a result of these arrangements, Benbow will not have any meaningful
business operations and is unlikely to retain its narrowband personal
communications services licenses. The closing of the transaction will not affect
the funding obligations of Arch in connection with Benbow's acquisition of
PageCall in June 1998 described below.

On June 29, 1998, Benbow acquired all of the outstanding stock of Page Call
by issuing to Page Call's former stockholders preferred stock and a 12%
promissory note for $17.2 million. Benbow also agreed to pay one of Page Call's
stockholders $911,000 over five years for consulting services. Benbow's
preferred stock and promissory note, which will total $22.8 million upon
maturity at April 8, 2000, are exchangeable for Arch common stock:

o at any time at the holders' option, at an exchange price equal to the
higher of (1) $39.00 per share or (2) the market price of Arch common
stock,

o mandatorily on April 8, 2000, at the then prevailing market price of
common stock, or

o automatically at an exchange price of $39.00 per share, if the market
price of Arch common stock equals or exceeds $39.00 for 20 consecutive
trading days.

Arch is permitted to require Benbow to redeem its preferred stock and
promissory note at any time for cash. Arch guaranteed all obligations of Benbow
under the Benbow preferred stock, promissory note and consulting agreement

25
<PAGE>

described above. Arch may elect to make payments under its guarantee in common
stock or cash. Benbow's redemption of its preferred stock and promissory note
for cash, or Arch's payment of cash pursuant to its guarantees of Benbow's
preferred stock and promissory note, would depend upon the availability of
capital and any restrictions contained in applicable debt instruments and under
the Delaware corporations statute, which currently would not permit any such
cash redemptions or payments. If Arch issues common stock or pays cash pursuant
to its guarantees, Arch will receive from Benbow a promissory note and
non-voting, non-convertible preferred stock of Benbow with an annual yield of
14.5% payable upon an acquisition of Benbow or earlier to the extent that
available cash and applicable law permit. Page Call's former stockholders
received customary registration rights for any shares of common stock issued in
exchange for Benbow's preferred stock and promissory note or pursuant to Arch's
guarantees. Since it is unlikely that Benbow will be able to meet these
obligations and Arch is currently required to settle the obligation in stock,
Arch has recorded the issuance of $22.8 million of its common stock in
additional paid-in capital and as a charge to operations, to satisfy the
obligation in April 2000.

Interest payments commence September 15, 2001 on the $272.4 million principal
amount at maturity of Arch's 107/8% senior discount notes outstanding as of
March 16, 2000. Unless all of the senior discount notes are tendered in the
exchange offer, Arch expects to service such interest payments out of cash made
available to it by its subsidiaries. Based on the principal amount outstanding
at March 16, 2000 and assuming that no notes are tendered, such interest
payments will equal a maximum of $14.8 million on March 15 and September 15 of
each year until scheduled maturity on March 15, 2008.

If the PageNet merger agreement is terminated after Arch pursues an
alternative offer, Arch may be required to pay a termination fee of $40.0
million.

SOURCES OF FUNDS

Arch believes that its capital needs for the foreseeable future will be
funded with borrowings under current and future credit facilities, net cash
provided by operations and, depending on Arch's needs and market conditions,
possible sales of equity or debt securities. For additional information, see
Note 3 to Arch's consolidated financial statements. Arch's ability to borrow in
the future will depend, in part, on its ability to continue to increase its
adjusted earnings before interest, taxes, depreciation and amortization.

Recent Issuance of Notes

In June 1999, a subsidiary or Arch issued $147.0 million principal amount of
13 3/4% senior notes due 2008 in a private placement pursuant to Rule 144A under
the Securities Act. The notes were sold at 95.091% of the face amount for net
proceeds of $134.6 million.

Credit Facility

An Arch subsidiary has a senior credit facility that currently permits it to
borrow up to $577.9 million consisting of (i) a $175.0 million reducing
revolving tranche A facility, (ii) a $100.0 million tranche B term loan and
(iii) a $302.9 million tranche C term loan.

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

On March 23, 2000, the senior credit facility was amended to add a $746.6
million tranche B-1 term loan to be used to repay obligations under PageNet's
existing credit facility upon completion of the pending PageNet merger. The
tranche B term loan will be amortized in quarterly installments commencing March
31, 2001, with an ultimate maturity date of June 30, 2006.

26
<PAGE>

Equity Issued in Exchange for Debt

In October 1999, Arch issued 809,545 shares of Arch common stock, which had a
weighted average closing price of $4.03 per share as of the dates of the
transactions, and warrants to purchase 540,487 shares of Arch common stock for
$9.03 per share in exchange for $8.9 million principal amount of Arch
convertible debentures. Arch also issued 2,327,120 shares of Arch common stock,
which had a weighted average closing price of $4.01 per share as of the dates of
the transactions, in exchange for $16.3 million accreted value ($19.0 million
maturity value) of its senior discount notes.

In February and March 2000, Arch issued 285,715 shares of Arch common stock,
which had a closing price of $10.875 per share as of the date of the
transaction, in exchange for $3.5 million principal amount of Arch convertible
debentures. Arch also issued 11,640,321 shares of Arch common stock, which had a
weighted average closing price of $12.87 per share as of the dates of the
transactions, in exchange for $157.4 million accreted value ($176.0 million
maturity value) of its senior discount notes. Following these transactions, on
March 16, 2000, Arch had $1.0 million principal amount of the convertible
debentures and $244.6 million accreted value ($272.4 million maturity value) of
senior discount notes outstanding.

On March 24, 2000, Arch announced it had entered into an agreement with
Resurgence Asset Management L.L.C. for the exchange of $90.0 million accreted
value ($100.0 million maturity value) of senior discount notes held by various
Resurgence entities for a new class of Arch's preferred stock to be called
Series D preferred stock. The Series D preferred stock will:

o be convertible at the holder's option at any time into an aggregate of
6,613,180 shares of common stock at an exchange ratio of 66.1318 shares of
common stock per $1,000 maturity value;

o be subject to mandatory conversion into an aggregate of 6,613,180 shares
of common stock upon completion of Arch's pending merger with PageNet;

o if not earlier converted, commencing March 15, 2001, bear semi-annual
dividends at the rate of 10 7/8% per annum, payable at Arch's option in
cash or through the issuance of a new class of Arch's preferred stock to
be called Series E preferred stock;

o be subject to mandatory redemption on March 15, 2008 if redemption is then
permitted by applicable law;

o vote with the common stock on an as converted basis; and

o rank upon liquidation senior to the common stock and on a parity with
Arch's existing Series C preferred stock.

If Arch issues Series E preferred stock as a dividend on the Series D
preferred stock, the Series E preferred stock will be identical to the Series D
preferred stock except that it will not (1) be subject to conversion into common
stock, (2) have any voting rights as required by law or (3) bear dividends.

Completion of the Resurgence exchange transactions is subject to:

o the sale by Resurgence to a third party to be selected by Resurgence of
$48.5 million accreted value ($53.9 million maturity value) of senior
discount notes and the third party's exchange of the notes for 3,562,189
shares of common stock at an exchange ratio of 66.1318 shares of common
stock per $1,000 of maturity value;

o receipt of Arch stockholder approval of a proposed increase in the number
of authorized shares of common stock from 65,000,000 to 150,000,000, which
approval will be sought at a special meeting of stockholder scheduled to
be held on April 3, 2000;

o filing of amendments to Arch's certificate of incorporation to reflect the
increase in the number of authorized shares of common stock and create the
Series D preferred stock and Series E preferred stock;

o receipt of all required regulatory and lender approvals; and

o completion of the transactions by April 30, 2000.

27
<PAGE>

INFLATION

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

FACTORS AFFECTING FUTURE OPERATING RESULTS

Continued losses are likely

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

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

Year Ended December 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
(dollars in millions)
Net income (loss):
Arch........................ $ (181.9) $ (206.1) $ (285.6)
MobileMedia................. $ (124.6) $ 35.6 $ 387.3 (1)

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

These historical net losses have resulted principally from substantial
depreciation and amortization expense, primarily related to intangible assets
and messaging device depreciation, interest expense, the impairment of
long-lived assets, other costs of growth. MobileMedia had net income of $35.6
million during the year ended December 31, 1998 solely because of a $94.2
million gain on the sale of transmission towers and related equipment and net
income of $387.3 million for the period ended June 3, 1999 due to the
forgiveness of debt arising out of MobileMedia's bankruptcy proceedings. After
giving effect to the MobileMedia acquisition, Arch would have incurred, on a pro
forma basis, losses before extraordinary items and cumulative effect of
accounting change of $193.2 million for the year ended December 31, 1998 and
$316.6 million for the year ended December 31, 1999.

Declines in units in service are likely

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

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

Arch believes that future fluctuations in its revenues and operating results
may occur due to many factors. Arch's current and planned expenses and debt
repayment levels are, to a large extent, fixed in the short term, and are based
in part on its expectations as to future revenues and cash flow growth. Arch may
be unable to adjust spending in a timely manner to compensate for any revenue or
cash flow shortfall. It is possible that, due to future fluctuations, Arch's

28
<PAGE>

revenue, cash flow or operating results may not meet the expectations of
securities analysts or investors. This may have a material adverse effect on the
price of Arch's common stock. If shortfalls were to cause Arch not to meet the
financial covenants contained in its debt instruments, the debtholders could
declare a default and seek immediate repayment. In the worst case, if Arch
lacked funds to repay its debt, it could file for bankruptcy protection.

High degree of leverage may continue to burden operations

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

(dollars in millions)
Total debt.......................... $ 1,330.6
Total assets........................ $ 1,353.0
Annualized adjusted EBITDA.......... $ 266.3

Adjusted EBITDA is not a measure defined in GAAP and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with GAAP. Adjusted EBITDA, as determined by Arch, may not
necessarily be comparable to similarly titled data of other wireless messaging
companies.

Substantial leverage may have the following adverse consequences for Arch:

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

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

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

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

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

Arch may not be able to reduce its financial leverage as it intends, and may not
be able to achieve an appropriate balance between growth which it considers
acceptable and future reductions in financial leverage. If Arch is not able to
achieve continued growth in adjusted EBITDA, it may be precluded from incurring
additional indebtedness due to cash flow coverage requirements under existing or
future debt instruments.

Growth and acquisition strategy

Arch believes that the wireless communications industry has experienced, and
will continue to experience, consolidation due to factors that favor larger,
multi-market companies, including:

o the ability to obtain additional radio spectrum;

o greater access to capital markets and lower costs of capital;

o broader geographic coverage of wireless messaging systems;

o economies of scale in the purchase of capital equipment;

o operating efficiencies; and

o enhanced access to executive personnel.

Arch has pursued, and intends to continue to pursue, acquisitions of wireless
communications businesses as a key component of its growth strategy. However,
the process of integrating acquired businesses may involve unforeseen
difficulties and may require a disproportionate amount of the time and attention

29
<PAGE>

of Arch's management. No assurance can be given that suitable acquisitions can
be identified, financed and completed on acceptable terms, or that any future
acquisitions by Arch will be successful.

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

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

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

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

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

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

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

o subscriber growth;

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

o technological developments;

o marketing and sales expenses;

o competitive conditions;

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

o acquisition strategies and opportunities.

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

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

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

30
<PAGE>

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

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

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

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

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

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

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

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

Government regulation may burden operations

Licenses may not be automatically renewed

Arch's Federal Communications Commission paging licenses are for varying
terms of up to 10 years. When the licenses expire, renewal applications must
be approved by the Federal Communications Commission. To date, the Federal
Communications Commission has approved each assignment and transfer of
control for which Arch has sought approval but, no assurance can be given

31
<PAGE>

that any future renewal applications will be free of challenge or will be
granted by the Federal Communications Commission. Loss of licenses would
impair Arch's operations.

Regulatory changes could add burdens or benefit competing technologies

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

Acquisitions of Arch's stock by foreigners could jeopardize Arch's licenses

The Communications Act limits foreign investment in and ownership of radio
common carriers licensed by the Federal Communications Commission, as well as
their parent companies. Arch may not have more than 25% of its stock owned or
voted by aliens or their representatives, a foreign government or its
representatives or a foreign corporation if the Federal Communications
Commission finds that the public interest would be served by denying such
ownership. Arch's subsidiaries that are radio common carrier licensees are
subject to more stringent requirements and may have only up to 20% of their
stock owned or voted by aliens or their representatives, a foreign government
or their representatives or a foreign corporation. This ownership restriction
is not subject to waiver. Arch's charter permits the redemption of shares of
Arch's capital stock from foreign stockholders where necessary to protect
Federal Communications Commission licenses held by Arch or its subsidiaries,
but such a redemption would be subject to the availability of capital to Arch
and any restrictions contained in applicable debt instruments and under the
Delaware corporation statute. These restrictions currently would not permit
any such redemptions. The failure to redeem shares promptly could jeopardize
the Federal Communications Commission licenses held by Arch or its
subsidiaries.

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

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

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

Loss of key personnel could adversely impact operations

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

Charter provisions may impede takeovers of Arch that might benefit Arch
stockholders

Arch's certificate of incorporation and bylaws provide for:

o a classified board of directors, divided into three classes who are
elected for three-year terms;

32
<PAGE>

o the issuance of "blank check" preferred stock whose terms may be fixed by
Arch's board of directors without further stockholder approval;

o a prohibition on stockholder action by written consent in lieu of a
meeting; and

o procedural requirements governing stockholder meetings.

Arch also has a stockholders rights plan. In addition, Section 203 of the
Delaware corporations statute will, with some exceptions, prohibit Arch from
engaging in any business combination with any "interested stockholder" for a
three-year period after such stockholder becomes an interested stockholder.
These provisions may have the effect of delaying, making more difficult or
preventing a change in control or acquisition of Arch even though a transaction
like that might be beneficial to Arch's stockholders.

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

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

o declare dividends or repurchase capital stock;

o incur or pay back indebtedness;

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

o alter its lines of business or accounting methods.

Arch's ability to comply with such covenants may be affected by events beyond
its control, including prevailing economic and financial conditions. A breach of
any of these covenants could result in a default under the senior credit
facility and/or other debt instruments. Upon the occurrence of an event of
default, the creditors could elect to declare all amounts outstanding to be
immediately due and payable, together with accrued and unpaid interest. If Arch
were unable to repay any such amounts, the senior creditors could proceed
against any collateral securing the indebtedness. If the lenders under the
senior credit facility or other debt instruments accelerated the payment of such
indebtedness, there can be no assurance that the assets of Arch would be
sufficient to repay in full such indebtedness and other indebtedness of Arch. In
addition, because the senior credit facility and other debt instruments limit
Arch's ability to engage in some types of transactions, Arch may be prohibited
from entering into transactions that could be beneficial to Arch.

RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized in earnings. Arch intends to adopt this standard effective January 1,
2001. Arch has not yet quantified the impact of adopting SFAS No. 133 on its
financial statements; however, adopting SFAS No. 133 could increase volatility
in earnings and other comprehensive income.

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

33
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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 2000 annual meeting of
stockholders scheduled to be held on May 16, 2000.

34
<PAGE>

PART IV

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

(a) (1) Financial Statements

Consolidated Balance Sheets as of December 31, 1998 and 1999

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

Consolidated Statements of Stockholders' Equity (Deficit) for Each of
the Three Years in the Period Ended December 31, 1999

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

Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedule

Schedule II - Valuation and Qualifying Accounts

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the three months
ended December 31, 1999.

Current Report on Form 8-K dated November 7, 1999 (reporting that the
Company signed a definitive merger agreement with Paging Network,
Inc.) filed November 19, 1999.

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

35
<PAGE>

SIGNATURES

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

ARCH COMMUNICATIONS GROUP, INC.

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

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

/s/ C. Edward Baker, Jr. Chairman of the Board and Chief March 29, 2000
- ------------------------- Executive Officer (principal
C. Edward Baker, Jr. executive officer)

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

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

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

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

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

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

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

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

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

36
<PAGE>

INDEX TO FINANCIAL STATEMENTS

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

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

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

Consolidated Statements of Stockholders' Equity (Deficit) for
Each of the Three Years in the Period Ended December 31, 1999........ F-5

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

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

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Arch Communications 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, 1998 and 1999, 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, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

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

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 16, 2000 (except with
respect to the matters discussed
in Note 3 as to which the date
is March 16, 2000)

F-2
<PAGE>

ARCH COMMUNICATIONS GROUP, INC.

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

December 31,
---------------------------
1998 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 1,633 $ 3,161
Accounts receivable (less reserves of $6,583 and $16,473 in 1998 and
1999, respectively) ....................................................... 30,753 61,167
Inventories ................................................................. 10,319 9,101
Prepaid expenses and other .................................................. 8,007 11,874
----------- -----------
Total current assets ...................................................... 50,712 85,303
----------- -----------
Property and equipment, at cost:
Land, buildings and improvements ............................................ 10,480 20,503
Messaging and computer equipment ............................................ 400,312 667,820
Furniture, fixtures and vehicles ............................................ 17,381 26,321
----------- -----------
428,173 714,644
Less accumulated depreciation and amortization .............................. 209,128 314,445
----------- -----------
Property and equipment, net ................................................. 219,045 400,199
----------- -----------
Intangible and other assets (less accumulated amortization of $372,122
and $515,195 in 1998 and 1999, respectively) ................................ 634,528 867,543
----------- -----------
$ 904,285 $ 1,353,045
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ........................................ $ 1,250 $ 8,060
Accounts payable ............................................................ 25,683 30,016
Accrued restructuring charges ............................................... 11,909 17,111
Accrued expenses ............................................................ 11,689 43,629
Accrued interest ............................................................ 20,997 30,294
Customer deposits ........................................................... 4,528 7,526
Deferred revenue ............................................................ 10,958 28,175
----------- -----------
Total current liabilities ................................................. 87,014 164,811
----------- -----------
Long-term debt, less current maturities ........................................ 1,001,224 1,322,508
----------- -----------
Other long-term liabilities 29,510 83,285
------------ -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock--$.01 par value, authorized 10,000,000 shares; issued 250,000
shares (aggregate liquidation preference of $26,030 and
$28,176 in 1998 and 1999, respectively) ................................... 3 3
Common stock--$.01 par value, authorized 65,000,000 shares, issued and
outstanding: 7,071,861 and 47,263,500 shares in 1998 and 1999,
respectively .............................................................. 71 472
Class B common stock--$.01 par value, authorized 10,000,000 shares;
issued and outstanding: no shares in 1998 and 3,968,164 shares in
1999 ...................................................................... -- 40
Additional paid-in capital .................................................. 378,218 661,413
Accumulated deficit ......................................................... (591,755) (879,487)
----------- -----------
Total stockholders' equity (deficit) ...................................... (213,463) (217,559)
----------- -----------
$ 904,285 $ 1,353,045
=========== ===========
</TABLE>

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

F-3
<PAGE>

ARCH COMMUNICATIONS GROUP, INC.

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

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------

<S> <C> <C> <C>
Service, rental and maintenance revenues ............. $ 351,944 $ 371,154 $ 591,389
Product sales ........................................ 44,897 42,481 50,435
------------ ------------ ------------
Total revenues .................................. 396,841 413,635 641,824
Cost of products sold ................................ (29,158) (29,953) (34,954)
------------ ------------ ------------
367,683 383,682 606,870
------------ ------------ ------------
Operating expenses:
Service, rental and maintenance ................... 79,836 80,782 132,400
Selling ........................................... 51,474 49,132 84,249
General and administrative ........................ 106,041 112,181 180,726
Depreciation and amortization ..................... 232,347 221,316 309,434
Restructuring charge .............................. -- 14,700 (2,200)
------------ ------------ ------------
Total operating expenses ........................ 469,698 478,111 704,609
------------ ------------ ------------
Operating income (loss) .............................. (102,015) (94,429) (97,739)
Interest expense ..................................... (96,482) (104,019) (144,924)
Interest income ...................................... 904 1,766 1,896
Other expense ........................................ (1,581) (1,960) (45,221)
Equity in loss of affiliate .......................... (3,872) (5,689) (3,200)
------------ ------------ ------------
Income (loss) before income tax benefit, extraordinary
items and accounting change ....................... (203,046) (204,331) (289,188)
Benefit from income taxes ............................ 21,172 -- --
------------ ------------ ------------
Income (loss) before extraordinary items and
accounting change ................................. (181,874) (204,331) (289,188)
Extraordinary gain (loss) from early extinguishment of
debt .............................................. -- (1,720) 6,963
Cumulative effect of accounting change ............... -- -- (3,361)
------------ ------------ ------------
Net income (loss) .................................... (181,874) (206,051) (285,586)
Accretion of redeemable preferred stock .............. (32) -- --
Preferred stock dividend ............................. -- (1,030) (2,146)
------------ ------------ ------------
Net income (loss) applicable to common stockholders .. $ (181,906) $ (207,081) $ (287,732)
============ ============ ============
Basic/diluted income (loss) per common share before
extraordinary item and accounting change .......... $ (26.31) $ (29.34) $ (9.21)
Extraordinary gain (loss) from early extinguishment of
debt per basic/diluted common share ............... -- (0.25) 0.22
Cumulative effect of accounting change per
basic/diluted common share ........................ -- -- (0.11)
------------ ------------ ------------
Basic/diluted net income (loss) per common share ..... $ (26.31) $ (29.59) $ (9.10)
============ ============ ============
Basic/diluted weighted average number of common shares
outstanding ....................................... 6,915,413 6,997,730 31,603,410
============ ============ ============
</TABLE>

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

F-4
<PAGE>

ARCH COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)

<TABLE>
<CAPTION>
Total
Class B Additional Stockholders'
Preferred Common Common Paid-in Accumulated Equity
Stock Stock Stock Capital Deficit (Deficit)
------ ------ ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996........................ $ -- $ 70 $ -- $ 350,581 $ (202,800) $ 147,851
Issuance of 50,447 shares of common stock
under Arch's employee stock purchase plan.... -- -- -- 800 -- 800
Accretion of redeemable preferred stock........ -- -- -- (32) -- (32)
Net loss....................................... -- -- -- -- (181,874) (181,874)
------ ------ ------ ---------- ----------- ----------
Balance, December 31, 1997........................ -- 70 -- 351,349 (384,674) (33,255)
Exercise of options to purchase 31,344 shares
of common stock.............................. -- -- -- 294 -- 294
Issuance of 250,000 shares of preferred stock.. 3 -- -- 24,997 -- 25,000
Issuance of 85,996 shares of common stock
under Arch's employee stock purchase plan.... -- 1 -- 548 -- 549
Preferred stock dividend....................... -- -- -- 1,030 (1,030) --
Net loss....................................... -- -- -- -- (206,051) (206,051)
------ ------ ------ ---------- ----------- ----------
Balance, December 31, 1998........................ 3 71 -- 378,218 (591,755) (213,463)
Issuance of 30,847,004 shares of common stock
and 5,360,261 of Class B common stock in
rights offering.............................. -- 308 54 216,881 -- 217,243
Issuance of 4,781,656 shares of common stock
to acquire company........................... -- 48 -- 20,035 -- 20,083
Shares to be issued in connection with the
Benbow settlement............................ -- -- -- 22,836 -- 22,836
Issuance of 3,136,665 shares of common stock
in exchange for debt......................... -- 31 -- 21,106 -- 21,137
Issuance of 34,217 shares of common stock
under Arch's employee stock purchase plan.... -- -- -- 191 -- 191
Conversion of Class B common stock into common
stock........................................ -- 14 (14) -- -- --
Preferred stock dividend....................... -- -- -- 2,146 (2,146) --
Net loss....................................... -- -- -- -- (285,586) (285,586)
------ ------ ------ ---------- ----------- ----------
Balance, December 31, 1999........................ $ 3 $ 472 $ 40 $ 661,413 $ (879,487) $ (217,559)
====== ====== ====== ========== =========== ==========
</TABLE>

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

F-5
<PAGE>

ARCH COMMUNICATIONS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------

1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................... $(181,874) $(206,051) $(285,586)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization ........................ 232,347 221,316 309,434
Deferred income tax benefit .......................... (21,172) -- --
Extraordinary loss (gain) from early extinguishment of -- 1,720 (6,963)
debt
Cumulative effect of accounting change ............... -- -- 3,361
Equity in loss of affiliate .......................... 3,872 5,689 3,200
Accretion of discount on senior notes ................ 33,259 37,115 41,566
Other non-cash interest expense ...................... -- -- 2,904
Gain on Tower Site Sale .............................. -- (1,859) (1,871)
Write-off of N-PCS investments ....................... -- -- 37,498
Accounts receivable loss provision ................... 7,181 8,545 15,265
Changes in assets and liabilities, net of effect from
acquisition of company:
Accounts receivable ............................... (11,984) (9,151) (18,369)
Inventories ....................................... (2,394) 2,314 1,728
Prepaid expenses and other ........................ (386) (3,090) 7,000
Accounts payable and accrued expenses ............. 3,683 24,649 (2,986)
Customer deposits and deferred revenue ............ 1,058 549 (7,554)
Other long-term liabilities ....................... -- 1,634 909
--------- --------- ---------
Net cash provided by operating activities ................. 63,590 83,380 99,536
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment, net ............... (87,868) (79,249) (95,208)
Additions to intangible and other assets ............... (14,901) (33,935) (18,443)
Net proceeds from tower site sale ...................... -- 30,316 3,046
Acquisition of company, net of cash acquired ........... -- -- (516,561)
--------- --------- ---------
Net cash used for investing activities .................... (102,769) (82,868) (627,166)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt ............................. 91,000 460,964 473,783
Repayment of long-term debt ............................ (49,046) (489,014) (162,059)
Repayment of redeemable preferred stock ................ (3,744) -- --
Net proceeds from sale of preferred stock .............. -- 25,000 --
Net proceeds from sale of common stock ................. 800 843 217,434
--------- --------- ---------
Net cash provided by (used in) financing activities ....... 39,010 (2,207) 529,158
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ...... (169) (1,695) 1,528
Cash and cash equivalents, beginning of period ............ 3,497 3,328 1,633
--------- --------- ---------
Cash and cash equivalents, end of period .................. $ 3,328 $ 1,633 $ 3,161
========= ========= =========
Supplemental disclosure:
Interest paid .......................................... $ 62,231 $ 57,151 $ 91,151
========= ========= =========
Issuance of common stock for debt ...................... $ -- $ -- $ 21,137
========= ========= =========
Issuance of common stock for acquisition of company .... $ -- $ -- $ 20,083
========= ========= =========
Liabilities assumed in acquisition of company .......... $ -- $ -- $ 134,429
========= ========= =========
Preferred stock dividend ............................... $ -- $ 1,030 $ 2,146
========= ========= =========
Accretion of redeemable preferred stock ................ $ 32 $ -- $ --
========= ========= =========
</TABLE>

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

F-6
<PAGE>
ARCH COMMUNICATIONS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization--Arch Communications Group, Inc. ("Arch" or the "Company") is a
leading provider of wireless messaging services.

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

Revenue Recognition--Arch recognizes revenue under rental and service
agreements with customers as the related services are performed. Maintenance
revenues and related costs are recognized ratably over the respective terms of
the agreements. Sales of equipment are recognized upon delivery. Commissions are
recognized as an expense when incurred. The Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements", on December 3, 1999. This SAB provides additional
guidance on the accounting for revenue recognition, including both broad
conceptual discussions as well as certain industry-specific guidance. The
guidance is effective for the second quarter of fiscal 2000. Arch does not
expect SAB 101 to have a material impact on its results of operations upon
adoption.

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

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

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

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

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

Depreciation and amortization expense related to property and equipment
totaled $108.0 million, $101.1 million and $144.9 million for the years ended
December 31, 1997, 1998 and 1999, respectively.

F-7
<PAGE>

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

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

Purchased Federal Communications Commission licenses $256,519 $354,246
Goodwill ........................................... 271,808 249,010
Purchased subscriber lists ......................... 56,825 239,114
Deferred financing costs ........................... 22,072 19,915
N-PCS investments .................................. 17,847 --
Other .............................................. 9,457 5,258
-------- --------
$634,528 $867,543
======== ========

Amortization expense related to intangible and other assets totaled $124.3
million, $120.2 million and $164.6 million for the years ended December 31,
1997, 1998 and 1999, respectively.

Subscriber lists, Federal Communications Commission licenses and goodwill are
amortized over their estimated useful lives, ranging from five to ten years
using the straight-line method. Non-competition agreements are amortized over
the terms of the agreements using the straight-line method. Other assets consist
of contract rights, organizational and Federal Communications Commission
application and development costs which are amortized using the straight-line
method over their estimated useful lives, not exceeding ten years.

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

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

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

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

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

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

F-8
<PAGE>

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

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

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

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

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

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

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

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

Fair Value of Financial Instruments--Arch's financial instruments, as defined
under SFAS No. 107 "Disclosures about Fair Value of Financial Instruments",
include its cash, its debt financing and interest rate protection agreements.
The fair value of cash is equal to the carrying value at December 31, 1998 and
1999.

As discussed in Note 3, Arch's debt financing primarily consists of (1)
senior bank debt, (2) fixed rate senior notes and (3) convertible subordinated
debentures. Arch considers the fair value of senior bank debt to be equal to the
carrying value since the related facilities bear a current market rate of
interest. Arch's fixed rate senior notes are traded publicly. The following
table depicts the fair value of the fixed rate senior notes and the convertible
subordinated debentures based on the current market quote as of December 31,
1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------- -------------------
Carrying Fair Carrying Fair
Description Value Value Value Value
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
10 7/8% Senior Discount Notes due 2008 ............ $369,506 $221,704 $393,917 $173,323
9 1/2% Senior Notes due 2004 ...................... 125,000 112,500 125,000 95,000
14% Senior Notes due 2004 ......................... 100,000 103,000 100,000 83,000
12 3/4% Senior Notes due 2007 ..................... 127,604 127,604 127,887 101,030
13 3/4% Senior Notes due 2008 ..................... -- -- 140,365 113,685
6 3/4% Convertible Subordinated Debentures due 2003 13,364 6,682 4,459 1,812
</TABLE>

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

F-9
<PAGE>

Basic/Diluted Net Income (Loss) Per Common Share -- On June 28, 1999, Arch
effected a one for three reverse stock split. All share and per share data for
all periods presented have been adjusted to give effect to this reverse split.

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

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

2. ACQUISITIONS

On June 3, 1999 Arch completed its acquisition of MobileMedia Communications,
Inc. for $671.1 million, consisting of cash paid of $516.6 million, including
direct transaction costs, 4,781,656 shares of Arch common stock valued at $20.1
million and the assumption of liabilities of $134.4 million. The cash payments
were financed through the issuance of approximately 36.2 million shares of Arch
common stock (including approximately 5.4 million shares of Arch Class B common
shares) in a rights offering for $6.00 per share, the issuance of $147.0 million
principal amount of 13 3/4% senior notes due 2008 (see Note 3) and additional
borrowings under the Company's credit facility.

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

The purchase price was allocated based on the fair values of assets
acquired and liabilities assumed. The acquisition has been accounted for as a
purchase, and the results of MobileMedia's operations have been included in the
consolidated financial statements from the date of the acquisition. Goodwill
resulting from the acquisition is being amortized over a ten-year period using
the straight-line method.

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

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

Year Ended December 31,
----------------------
1998 1999
--------- ---------
(unaudited and in thousands
except for per share amounts)
Revenues ....................................... $ 854,862 $ 817,686
Income (loss) before extraordinary item ........ (193,151) (316,590)
Net income (loss) .............................. (194,871) (309,627)
Basic/diluted net income (loss) per common share (4.09) (6.39)

F-10
<PAGE>

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

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

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

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

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

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

3. LONG-TERM DEBT

Long-term debt consisted of the following:

December 31,
-----------------------
1998 1999
---------- ----------
(in thousands)
Senior Bank Debt .......................... $ 267,000 $ 438,940
107/8% Senior Discount Notes due 2008 ..... 369,506 393,917
9 1/2% Senior Notes due 2004 .............. 125,000 125,000
14% Senior Notes due 2004 ................. 100,000 100,000
12 3/4% Senior Notes due 2007 ............. 127,604 127,887
13 3/4% Senior Notes due 2008 ............. -- 140,365
Convertible Subordinated Debentures ....... 13,364 4,459
---------- ----------
1,002,474 1,330,568
Less--Current maturities 1,250 8,060
---------- ----------
Long-term debt ............................ $1,001,224 $1,322,508
========== ==========

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

F-11
<PAGE>

API's obligations under the senior credit facility are secured by its pledge
of its interests in certain of its operating subsidiaries. The senior credit
facility is guaranteed by Arch and certain of Arch's operating subsidiaries.
Arch's guarantee is secured by a pledge of Arch's stock and notes in its
wholly-owned subsidiary Arch Communications Inc. (ACI), and the guarantees of
the operating subsidiaries are secured by a security interest in certain assets
of those operating subsidiaries.

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

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

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

Under the interest rate swap agreements, the Company will pay the difference
between LIBOR and the fixed swap rate if the swap rate exceeds LIBOR, and the
Company will receive the difference between LIBOR and the fixed swap rate if
LIBOR exceeds the swap rate. Settlement occurs on the quarterly reset dates
specified by the terms of the contracts. No interest rate swaps on the senior
credit facility were outstanding at December 31, 1999. At December 31, 1998, the
Company had a net payable of $47,000, on the interest rate swaps.

The interest rate cap agreements will pay the Company the difference between
LIBOR and the cap level if LIBOR exceeds the cap levels at any of the quarterly
reset dates. If LIBOR remains below the cap level, no payment is made to the
Company. The total notional amount of the interest rate cap agreements was $10.0
million with a cap level of 8% at December 31, 1999. The transaction fees for
these instruments are being amortized over the terms of the agreements.

The senior credit facility contains restrictions that limit, among other
things, Arch's operating subsidiaries' ability to: o declare dividends or redeem
or repurchase capital stock;

o prepay, redeem or purchase debt;

o incur liens and engage in sale/leaseback transactions;

o make loans and investments;

o incur indebtedness and contingent obligations;

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

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

o alter its lines of business or accounting methods.

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

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

Senior Notes--Interest on Arch's 107/8% senior discount notes due 2008 does
not accrue prior to March 15, 2001. Commencing September 15, 2001, interest on
the senior discount notes is payable semi-annually at an annual rate of 107/8%.
The maturity value of the senior discount notes outstanding at December 31, 1999
was $448.4 million.

F-12
<PAGE>

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

Interest on the 13 3/4% notes, ACI's 12 3/4% senior notes due 2007, ACI's
14% senior notes due 2004 and ACI's 9 1/2% senior notes due 2004 (collectively,
the "Senior Notes") is payable semiannually. The senior discount notes and
Senior Notes contain certain restrictive and financial covenants, which, among
other things, limit the ability of Arch or ACI to:

o incur additional indebtedness;

o pay dividends;

o grant liens on its assets;

o sell assets;

o enter into transactions with related parties;

o merge, consolidate or transfer substantially all of its assets;

o redeem capital stock or subordinated debt;

o make certain investments.

Arch has entered into interest rate swap agreements in connection with the
ACI 14% Notes. Under the interest rate swap agreements, Arch has effectively
reduced the interest rate on the ACI 14% Notes from 14% to the fixed swap rate
of 9.45%. In the event of nonperformance by the counterparty to these interest
rate protection agreements, Arch would be subject to the 14% interest rate
specified on the notes. As of December 31, 1999, Arch had received $6.8 million
in excess of the amounts paid under the swap agreements, which is included in
other long-term liabilities in the accompanying balance sheet.

Convertible Subordinated Debentures-- The Arch convertible debentures are
convertible at their principal amount into shares of Arch common stock at any
time prior to redemption or maturity at an initial conversion price of $50.25
per share, subject to adjustment. 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
bear interest at a rate of 6 3/4% per annum, payable semiannually on June 1 and
December 1. The Arch convertible debentures are unsecured and are subordinated
to all existing indebtedness of Arch.

Debt Exchanged for Equity -- In October 1999, Arch completed transactions
with four bondholders in which Arch issued an aggregate of 3,136,665 shares of
Arch common stock and warrants to purchase 540,487 shares of Arch common stock
for $9.03 per share in exchange for $25.2 million accreted value of debt
securities. Under two of the exchange agreements, Arch issued 809,545 shares of
Arch common stock and warrants to purchase 540,487 shares of Arch common stock
for $9.03 per share in exchange for $8.9 million principal amount of Arch
convertible debentures. Arch recorded $2.9 million of non-cash interest expense
in conjunction with these transactions. Under the remaining exchange agreements,
Arch issued 2,327,120 shares of Arch common stock in exchange for $16.3 million
accreted value ($19.0 million maturity value) of its senior discount notes. Arch
recorded an extraordinary gain of $7.0 million on the early extinguishment of
debt as a result of these transactions.

In February and March 2000, Arch completed transactions in which Arch issued
an aggregate of 11,926,036 shares of Arch common stock in exchange for
approximately $160.9 million accreted value of debt securities. Under one of the
exchange agreements, Arch issued 285,715 shares of Arch common stock in exchange
for $3.5 million principal amount of Arch convertible debentures. Under the
other exchange agreements, Arch issued 11,640,321 shares of Arch common stock in
exchange for $157.4 million accreted value ($176.0 million maturity value) of
its senior discount notes.

F-13
<PAGE>

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

Year Ending December 31,
--------------------------
2000 ............................................. $ 8,060
2001 ............................................. 15,560
2002 ............................................. 20,560
2003 ............................................. 30,019
2004 ............................................. 274,060
Thereafter ....................................... 982,309
----------
$1,330,568
==========

4. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

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

Redeemable Series C Cumulative Convertible Preferred Stock--On June 29, 1998,
two partnerships managed by Sandler Capital Management Company, Inc., an
investment management firm, together with certain other private investors, made
an equity investment in Arch of $25.0 million in the form of Series C
Convertible Preferred Stock of Arch. The Series C Preferred Stock: (i) is
convertible into Arch common stock at a conversion price of $16.38 per share,
subject to certain adjustments; (ii) bears dividends at an annual rate of 8.0%,
(A) payable quarterly in cash or, at Arch's option, through the issuance of
shares of Arch common stock valued at 95% of the then prevailing market price or
(B) if not paid quarterly, accumulating and payable upon redemption or
conversion of the Series C Preferred Stock or liquidation of Arch; (iii) permits
the holders after seven years to require Arch, at Arch's option, to redeem the
Series C Preferred Stock for cash or convert such shares into Arch common stock
valued at 95% of the then prevailing market price of Arch common stock; (iv) is
subject to redemption for cash or conversion into Arch common stock at Arch's
option in certain circumstances; (v) in the event of a "Change of Control" as
defined in the indenture governing the senior discount notes, requires Arch, at
its option, to redeem the Series C Preferred Stock for cash or convert such
shares into Arch common stock valued at 95% of the then prevailing market price
of Arch common stock, with such cash redemption or conversion being at a price
equal to 105% of the sum of the original purchase price plus accumulated
dividends; (vi) limits certain mergers or asset sales by Arch; (vii) so long as
at least 50% of the Series C Preferred Stock remains outstanding, limits the
incurrence of indebtedness and "restricted payments" in the same manner as
contained in the senior discount notes indenture; and (viii) has certain voting
and preemptive rights. Upon an event of redemption or conversion, Arch currently
intends to convert such Series C Preferred Stock into shares of Arch common
stock.

Class B Common Stock--Shares of Arch Class B common stock are identical in
all respects to shares of Arch common stock, except that a holder of Class B
common stock is not entitled to vote in the election of directors and is
entitled to 1/100th vote per share on all other matters voted on by Arch
stockholders. Shares of class B common stock will automatically convert into an
identical number of shares of common stock upon transfer of Class B common
shares to any person or entity, other than any person or entity that received
shares of Class B common stock in the initial distribution of those shares or
any affiliate of such person or entity.

Warrants--In connection with the acquisition of MobileMedia, Arch issued
approximately 48.3 million warrants to purchase Arch common stock. Each warrant
represents the right to purchase one-third of one share of Arch common stock at
an exercise price of $3.01 ($9.03 per share). The warrants expire on September
1, 2001.

Stock Options--Arch has stock option plans which provide for the grant of
incentive and nonqualified stock options to key employees, directors and
consultants to purchase Arch common stock. Incentive stock options are granted
at exercise prices not less than the fair market value on the date of grant.
Options generally vest over a five-year period from the date of grant. However,
in certain circumstances, options may be immediately exercisable in full.
Options generally have a duration of 10 years. The plans provide for the
granting of options to purchase a total of 2,304,135 shares of common stock.

On December 16, 1997, the Compensation Committee of the board of directors of
Arch authorized the Company to offer an election to its employees who had
outstanding options at a price greater than $15.19 to cancel such options and

F-14
<PAGE>

accept new options at a lower price. In January 1998, as a result of this
election by certain of its employees, the Company canceled 361,072 options with
exercise prices ranging from $17.82 to $61.88 and granted the same number of new
options with an exercise price of $15.19 per share, the fair market value of the
stock on December 16, 1997.

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

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

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

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

Employee Stock Purchase Plans--The Company's employee stock purchase plans
allow 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, 1998 and 1999, 50,447, 85,996 and 34,217 shares were issued at an
average price per share of $15.87, $6.39 and $5.60, respectively. At December
31, 1999, 465,783 shares are available for future issuance.

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

Years Ended December 31,
------------------------
1997 1998 1999
---- ---- ----
(in thousands, except per
share amounts)
Net income (loss): As reported.. $(181,874) $(206,051) $(285,586)
Pro forma.... (183,470) (208,065) (288,070)
Basic net income (loss)
per common share: As reported.. (26.31) (29.59) (9.10)
Pro forma.... (26.55) (29.88) (9.18)

F-15
<PAGE>

Because the SFAS No. 123 method of accounting has not been applied to the
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model. In computing these pro forma amounts, Arch
has assumed risk-free interest rates of 4.5%--6%, an expected life of 5 years,
an expected dividend yield of zero and an expected volatility of 50%--87%.

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

Deferred Compensation Plan for Nonemployee Directors--Under the deferred
compensation plan for nonemployee directors, outside directors may elect to
defer, for a specified period of time, receipt of some or all of the annual and
meeting fees which would otherwise be payable for service as a director. A
portion of the deferred compensation may be converted into phantom stock units,
at the election of the director. The number of phantom stock units granted
equals the amount of compensation to be deferred as phantom stock divided by the
fair value of Arch 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 Arch common stock on
the date of distribution. Deferred compensation is expensed when earned. Changes
in the value of the phantom stock units are recorded as income/expense based on
the fair market value of Arch common stock.

Stockholders Rights Plan--In October 1995, Arch's board of directors adopted
a stockholders rights plan and declared a dividend of one preferred stock
purchase 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, 1998 and 1999 are as
follows (in thousands):

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

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

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

F-16
<PAGE>

The effective income tax rate differs from the statutory federal tax rate
primarily due to the nondeductibility of goodwill amortization and the inability
to recognize the benefit of current net operating loss (NOL) carryforwards. The
NOL carryforwards expire at various dates through 2014. The Internal Revenue
Code contains provisions that may limit the NOL carryforwards available to be
used in any given year if certain events occur, including significant changes in
ownership, as defined.

The Company has established a valuation reserve against its net deferred tax
asset until it becomes more likely than not that this asset will be realized in
the foreseeable future. Of the valuation allowance at December 31, 1999,
approximately $60.3 million will be recorded to goodwill when realized.

6. COMMITMENTS AND CONTINGENCIES

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

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

Future minimum lease payments under noncancellable operating leases at
December 31, 1999 are as follows (in thousands):

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

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

7. EMPLOYEE BENEFIT PLANS

Retirement Savings Plans--Arch has retirement savings plans, qualifying under
Section 401(k) of the Internal Revenue Code covering eligible employees, as
defined. Under the plans, a participant may elect to defer receipt of a stated
percentage of the compensation which would otherwise be payable to the
participant for any plan year (the deferred amount) provided, however, that the
deferred amount shall not exceed the maximum amount permitted under Section
401(k) of the Internal Revenue Code. The plans provide for employer matching
contributions. Matching contributions for the years ended December 31, 1997,
1998 and 1999 approximated $302,000, $278,000 and $960,000, respectively.

8. LONG-TERM LIABILITIES

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

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

F-17
<PAGE>

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

9. RESTRUCTURING RESERVES

Divisional reorganization -- In June 1998, Arch's board of directors approved
a reorganization of Arch's operations. As part of the divisional reorganization,
Arch is in the process of consolidating certain regional administrative support
functions, such as customer service, collections, inventory and billing, to
reduce redundancy and take advantage of various operating efficiencies. In
connection with the divisional reorganization, Arch:

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

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

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

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

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

Through the elimination of certain local and regional administrative
operations and the consolidation of certain support functions, the Company will
eliminate approximately 280 net positions. As a result of eliminating these
positions approximately 900 employees will be effected. The majority of the
positions which have been or will be eliminated are related to customer service,
collections, inventory and billing functions in local and regional offices which
will be closed. As of December 31, 1998 and 1999, 217 employees and 414
employees, respectively, had been terminated due to the divisional
reorganization. The remaining severance and benefits costs will be paid during
2000.

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

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

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

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

F-18
<PAGE>

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

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

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

10. SEGMENT REPORTING

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

11. QUARTERLY FINANCIAL RESULTS (UNAUDITED)

Quarterly financial information for the years ended December 31, 1998 and
1999 is summarized below (in thousands, except per share amounts):
<TABLE>
<CAPTION>

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenues........................................... $ 102,039 $ 103,546 $ 104,052 $ 103,998
Operating income (loss)............................ (19,418) (33,956) (20,783) (20,272)
Income (loss) before extraordinary item............ (45,839) (60,877) (47,994) (49,621)
Extraordinary charge............................... -- (1,720) -- --
Net income (loss).................................. (45,839) (62,597) (47,994) (49,621)
Basic/diluted net income (loss) per common share:
Income (loss) before extraordinary item......... (6.59) (8.71) (6.91) (7.14)
Extraordinary charge............................ -- (0.25) -- --
Net income (loss)............................... (6.59) (8.96) (6.91) (7.14)
YEAR ENDED DECEMBER 31, 1999:
Revenues........................................... 100,888 133,493 206,189 201,254
Operating income (loss)............................ (16,086) (34,546) (27,075) (20,032)
Income (loss) before extraordinary item and
accounting change............................... (45,763) (110,728) (67,739) (64,958)
Extraordinary gain................................. -- -- -- 6,963
Cumulative effect of accounting change............. (3,361) -- -- --
Net income (loss).................................. (49,124) (110,728) (67,739) (57,995)
Basic/diluted net income (loss) per common share:
Income (loss) before extraordinary item and
accounting change............................. (6.54) (5.65) (1.42) (1.29)
Extraordinary gain.............................. -- -- -- 0.14
Cumulative effect of accounting change.......... (0.48) -- -- --
Net income (loss)............................... (7.02) (5.65) (1.42) (1.15)
</TABLE>

F-19
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Arch Communications Group, Inc.:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Arch Communications
Group, Inc. included in this Form 10-K and have issued our report thereon dated
February 16, 2000 (except with respect to the matters discussed in Note 3, for
which the date is March 16, 2000).

Our audit was made for the purpose of forming
an opinion on the basic consolidated financial statements taken as a whole.
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. The schedule has
been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 16, 2000

S-1
<PAGE>

SCHEDULE II
ARCH COMMUNICATIONS GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>

Balance at Other Balance
Beginning Charged to Additions to at End of
Allowance for Doubtful Accounts of Period Expense Allowance(1) Write-Offs Period
- ------------------------------- --------- ------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997.... $ 4,111 $ 7,181 $ -- $ (5,548) $ 5,744
========= ========= ========== ========= ========
Year ended December 31, 1998.... $ 5,744 $ 8,545 $ -- $ (7,706) $ 6,583
========= ========= ========== ========= ========
Year ended December 31, 1999.... $ 6,583 $ 15,265 $ 13,243 $ (18,618) $ 16,473
========= ========= ========== ========= ========
</TABLE>

(1) Additions arising through acquisitions of messaging companies

Balance at Balance
Beginning Charged to Other at End of
Accrued Restructuring Charge of Period Expense Additions Deductions Period
- ---------------------------- --------- ------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998.... $ -- $ 14,700 $ -- $ (2,791) $ 11,909
========= ========== ========== ========= ========
Year ended December 31, 1999.... $ 11,909 $ (2,200) $ 14,508 $ (7,106) $ 17,111
========= ========== ========== ========= ========
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

2.1 Agreement and Plan of Merger, dated as of November 7, 1999, among Paging
Network, Inc., Arch Communications Group, Inc. and St. Louis Acquisition
Corp. (1)
2.2 Amendment to Agreement and Plan of Merger, dated as of January 7, 2000,
between Paging Network, Inc., Arch Communications Group, Inc. and St.
Louis Acquisition Corp. (2)
3.1 Restated Certificate of Incorporation. (3)
3.2 Certificate of Designations establishing the Series B Junior
Participating Preferred Stock, filed with the Secretary of the State of
Delaware on October 19, 1995. (4)
3.3 Certificate of Correction, filed with the Secretary of State of Delaware
on February 15, 1996. (3)
3.4 Certificate of Designations establishing the Series C Convertible
Preferred Stock, filed with the Secretary of State of Delaware on June 29,
1998. (5)
3.5 Certificate of Amendment of Restated Certificate of Incorporation, filed
with the Secretary of State of Delaware on June 4, 1996.
3.6 Certificate of Amendment of Restated Certificate of Incorporation, filed
with the Secretary of State of Delaware on May 27, 1999.
3.7 Certificate of Amendment of Restated Certificate of Incorporation, filed
with the Secretary of State of Delaware on June 16, 1999.
3.8 By-laws, as amended. (3)
4.1 Indenture, dated February 1, 1994, between Arch Communications, Inc.
(formerly known as USA Mobile Communications, Inc. II) and United States
Trust Company of New York, as Trustee, relating to the 9 1/2% Senior Notes
due 2004 of Arch Communications, Inc. (6)
4.2 Indenture, dated December 15, 1994, between Arch Communications, Inc. and
United States Trust Company of New York, as Trustee, relating to the 14%
Senior Notes due 2004 of Arch Communications, Inc. (7)
4.3 Indenture, dated June 29, 1998, between Arch Communications, Inc. and
U.S. Bank Trust National Association, as Trustee, relating to the 12 3/4%
Senior Notes due 2007 of Arch Communications, Inc. (5)
4.4 Indenture, dated April 9, 1999, between Arch Communications, Inc. and IBJ
Whitehall Bank & Trust Company, as Trustee, relating to the 13 3/4% Senior
Notes due 2008. (8)
10.1 Second Amended and Restated Credit Agreement (Tranche A and Tranche C
Facilities), dated June 29, 1998, among Arch Paging, Inc., the Lenders
party thereto, The Bank of New York, Royal Bank of Canada and Toronto
Dominion (Texas), Inc. (5)
10.2 Second Amended and Restated Credit Agreement (Tranche B Facility), dated
June 29, 1998, among Arch Paging, Inc., the Lenders party thereto. The
Bank of New York, Royal Bank of Canada and Toronto Dominion (Texas), Inc.
(5)
10.3 Amendment No. 1 and Amendment No. 2 to the Second Amended and Restated
Credit Agreement (Tranche A and Tranche C Facilities). (9)
10.4 Amendment No. 1 and Amendment No. 2 to the Second Amended and Restated
Credit Agreement (Tranche B Facility). (9)
10.5 Amendment No. 4 to the Second Amended and Restated Credit Agreement
(Tranche A and Tranche C Facilities). (10)
10.6 Amendment No. 4 to the Second Amended and Restated Credit Agreement
(Tranche B Facility). (10)
+10.7 Amended and Restated Stock Option Plan (12)
+10.8 Non-Employee Directors' Stock Option Plan (13)
+10.9 1989 Stock Option Plan, as amended (3)
+10.10 1995 Outside Directors' Stock Option Plan (14)
+10.11 1997 Stock Option Plan (15)
+10.12* 1999 Employee Stock Purchase Plan
+10.13 Deferred Compensation Plan for Nonemployee Directors (16)
+10.14 Form of Executive Retention Agreement by and between Messrs. Baker,
Daniels, Kuzia, Pottle and Saynor (16)
10.15 Stock Purchase Agreement, dated June 29, 1998, among Arch
Communications Group, Inc., Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., Harvey Sandler, John Kornreich, Michael J.
Marocco, Andrew Sandler, South Fork Partners, the Georgica International
Fund Limited, Aspen Partners and Consolidated Press International Limited.
(4)
10.16 Registration Rights Agreement, dated June 29, 1998, among Arch
Communications Group, Inc., Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., Harvey Sandler, John Kornreich, Michael J.
Marocco, Andrew Sandler, South Fork Partners, The Georgica International
Fund Limited, Aspen Partners and Consolidated Press International Limited.
(4)
10.17 Amendment No. 1 to Registration Rights Agreement, dated August 19,
1998, amending the Registration Rights Agreement dated as of June 29, 1998
by and among Arch Communications Group, Inc. and the Sandler Capital
Partners IV, LP, Sandler Capital Partners IV, FTE LP, South Fork Partners,
The Georgica International Fund Limited, Aspen Partners and Consolidated
Press International Limited. (11)
10.18 Exchange Agreement, dated June 29, 1998, between Adelphia
Communications Corporation and Benbow PCS Ventures, Inc. (4)
10.19 Promissory Note, dated June 29, 1998, in the principal amount of
$285,015, issued by Benbow PCS Ventures, Inc. to Lisa-Gaye Shearing. (4)
10.20 Guaranty, dated June 29, 1998, given by Arch Communications Group, Inc.
to Adelphia Communications Corporation. (4)
10.21 Guaranty, dated June 29, 1998, given by Arch Communications Group, Inc.
to Lisa-Gaye Shearing. (4)
10.22 Registration Rights Agreement, dated June 29, 1998, among Arch
Communications Group, Inc., Adelphia Communications Corporation and
Lisa-Gaye Shearing. (4)
10.23 Preferred Distributor Agreement dated June 1, 1998 by and between Arch
Communications Group, Inc. and NEC America, Inc. (9)(17)
10.24 Paging Products Sales Agreement, dated March 17, 1999, by and between
Motorola, Inc. and the Company. (10) (17)
10.25 Satellite Services Agreement, dated September 1, 1998, between AvData
Systems, Inc. and MobileMedia Communications, Inc. (10) (17)
10.26 Master Lease For Transmitter Systems Space by and between Pinnacle
Towers, Inc. and MobileMedia Communications, Inc. (10)
10.27* Letter agreement, dated March 23, 2000, between Arch Communications
Group, Inc. and Resurgence Asset Management L.L.C.
21.1* Subsidiaries of the Registrant.
23.1* Consent of Arthur Andersen LLP.
27.1* Financial Data Schedule.

- ----------------
* Filed herewith.
+ Identifies exhibits constituting a management contract or compensation
plan.
(1) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated November 7, 1999 and filed November 19,
1999.
(2) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated January 7, 2000 and filed January 21,
2000.
(3) Incorporated by reference from the Registration Statement on Form S-3
(File No. 333-542) of Arch Communications Group, Inc.
(4) Incorporated by reference from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated October 13, 1995 and filed on October 24,
1995.
(5) Incorporated by referenced from the Current Report on Form 8-K of Arch
Communications Group, Inc. dated June 26, 1998.
(6) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-72646) of Arch Communications, Inc.
(7) Incorporated by reference from the Registration Statement on Form S-1
(File No. 33-85580) of Arch Communications, Inc.
(8) Incorporated by reference from the Registration Statement on Form S-4
(File No. 333-83027) of Arch Communications, Inc.
(9) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. for the fiscal year ended December 31, 1998.
(10) Incorporated by reference from the Quarterly Report on Form 10-Q of Arch
Communications Group, Inc. for the quarter ended June 30, 1999.
(11) Incorporated by reference from the Registration Statement on Form S-4
(file No. 333-63519) of Arch Communications Group, Inc.
(12) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. (then known as USA Mobile Communications
Holdings, Inc.) for the fiscal year ended December 31, 1994.
(13) Incorporated by reference from the Registration Statement on Form S-4 (
File No. 33-83648) of Arch Communications Group, Inc. (then known as USA
Mobile Communications Holdings, Inc.)
(14) Incorporated by reference from the Registration Statement on Form S-3
(File No. 33-87474) of Arch Communications Group, Inc.
(15) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. for the fiscal year ended December 31, 1996.
(16) Incorporated by reference from the Annual Report on Form 10-K of Arch
Communications Group, Inc. for the fiscal year ended December 31, 1997.
(17) A Confidential Treatment Request has been filed with respect to portions
of this exhibit so incorporated by reference.

Exhibit 10.12

ARCH COMMUNICATIONS GROUP, INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

January 26, 1999

The purpose of this Plan is to provide eligible employees of Arch Communications
Group, Inc. (the "Company") and certain of its subsidiaries with opportunities
to purchase shares of the Company's common stock, $.01 par value (the "Common
Stock"), commencing either (i) promptly after the Special Meeting approving this
Plan if such commencement date is on or before March 31, 1999 or (ii) July 1,
1999. One Million Five Hundred Thousand (1,500,000) shares of Common Stock in
the aggregate have been approved for this purpose.

1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by the Executive Compensation and Stock Option
Committee of the Board (the "Committee"). The Board or the Committee has
authority to make rules and regulations for the administration of the Plan and
its interpretation and decisions with regard thereto shall be final and
conclusive.

2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) at the time this Plan is adopted and any future subsidiary if such
subsidiary is specifically included by the Board or the Committee (an "Eligible
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:

(a) they are customarily employed by the Company or an Eligible Subsidiary
for more than 20 hours a week and for more than five months in a calendar
year; and

(b) they have been employed by the Company or an Eligible Subsidiary for
at least three months prior to enrolling in the Plan; and

(c) they are employees of the Company or an Eligible Subsidiary on the
first day of the applicable Plan Period (as defined below).

No employee may be granted an option hereunder if such employee, immediately
after the option is granted, owns 5% or more of the total combined voting power
or value of the stock of the Company or any subsidiary. For purposes of the
preceding sentence, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by
the employee.

3. Offerings. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. The first Offering will commence
either (i) promptly after the Special Meeting approving the Plan and run through
June 30, 1999 if such

<PAGE>

commencement date is on or before March 31, 1999 or (ii) July 1, 1999 and run
through December 31, 1999. Subsequent Offerings will begin each January 1 and
July 1, or the first business day thereafter (the "Offering Commencement
Dates"). Each Offering Commencement Date will begin a six-month period (a "Plan
Period") during which payroll deductions will be made and held for the purchase
of Common Stock at the end of the Plan Period.

4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form prior to the applicable Offering
Commencement Date to the employee's appropriate human resources department no
later than the date specified on the form. The form will authorize a regular
payroll deduction from the Compensation received by the employee during the Plan
Period. Unless an employee files a new form or withdraws from the Plan, his or
her deductions and purchases will continue at the same rate for future Offerings
under the Plan as long as the Plan remains in effect. The term "Compensation"
means the amount of money reportable on the employee's Federal Income Tax
Withholding Statement, including overtime, bonuses and sales commissions, but
excluding allowances and reimbursements for expenses, income or gains on the
exercise of Company stock options and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement.

5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction equal to any whole number percentage
between 1% and 10% of the Compensation he or she receives during the Plan Period
or such shorter period during which deductions from payroll are made. Any change
in Compensation during the Plan Period will result in an automatic corresponding
change in the dollar amount withheld.

No employee may be granted an Option (as defined in Section 9) which permits his
or her rights to purchase Common Stock under this Plan and any other employee
stock purchase plan (as defined in Section 423(b) of the Code) of the Company
and its subsidiaries, to accrue at a rate which exceeds $25,000 of the fair
market value of such Common Stock (determined at the Offering Commencement Date
of the Plan Period) for each calendar year in which the Option is outstanding at
any time.

6. Deduction Changes. An employee may decrease or discontinue his or her
payroll deduction once during any Plan Period by filing a new payroll deduction
authorization form. However, an employee may not increase his or her payroll
deduction during a Plan Period. If an employee elects to discontinue his or her
payroll deductions during a Plan Period, but does not elect to withdraw his or
her funds pursuant to Section 8 hereof, funds deducted prior to his or her
election to discontinue will be applied to the purchase of Common Stock on the
Exercise Date (as defined below).

7. Interest. Interest will not be paid on any employee accounts.

8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during

- 2 -
<PAGE>

the remainder of the Plan Period. The employee may participate in any subsequent
Offering in accordance with terms and conditions established by the Board or the
Committee.

9. Purchase of Shares. On the Offering Commencement Date of each Plan Period,
the Company will grant to each eligible employee who is then a participant in
the Plan an option ("Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price hereinafter provided for, such
number of whole shares of Common Stock of the Company reserved for the purposes
of the Plan as does not exceed the number of shares which can be purchased under
the limit on accruals in any calendar year set forth in Section 5.

The purchase price for each share purchased will be 85% of the closing price of
the Common Stock on (i) the first business day of such Plan Period or (ii) the
Exercise Date, whichever closing price shall be less. Such closing price shall
be (a) the closing price on any national securities exchange on which the Common
Stock is listed, (b) the closing price of the Common Stock on the Nasdaq
National Market or (c) the average of the closing bid and asked prices in the
over-the-counter-market, whichever is applicable, as published in The Wall
Street Journal. If no sales of Common Stock were made on such a day, the price
of the Common Stock for purposes of clauses (a) and (b) above shall be the
reported price for the next preceding day on which sales were made.

Each employee who continues to be a participant in the Plan on the Exercise Date
shall be deemed to have exercised his or her Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his or her
accumulated payroll deductions on such date will pay for pursuant to the formula
set forth above (but not in excess of the maximum number determined in the
manner set forth above).

Any balance remaining in an employee's payroll deduction account at the end of a
Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.

10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares in lieu
of issuing stock certificates.

11. Rights on Retirement, Death or Termination of Employment. In the event of
a participating employee's termination of employment prior to the last business
day of a Plan Period, no payroll deduction shall be taken from any pay due and
owing to an employee and the balance in the employee's account shall be paid to
the employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the

- 3 -
<PAGE>

employee (with any spousal consent required under state law) or (b) in the
absence of such a designated beneficiary, to the executor or administrator of
the employee's estate or (c) if no such executor or administrator has been
appointed to the knowledge of the Company, to such other person(s) as the
Company may, in its discretion, designate. If, prior to the last business day of
the Plan Period, the Eligible Subsidiary by which an employee is employed shall
cease to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not an Eligible Subsidiary, the employee shall
be deemed to have terminated employment for the purposes of this Plan.

12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his or her pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him or her.

13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.

14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.

15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.

16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Paragraph 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.

In the event of a merger or consolidation of the Company with or into another
corporation which does not involve Continuity of Control, or of a sale of all or
substantially all of the assets of the Company while unexercised Options remain
outstanding under the Plan, (a) subject to the provisions of clauses (b) and
(c), after the effective date of such transaction, each holder of an outstanding
Option shall be entitled, upon exercise of such Option, to receive in lieu of
shares of

- 4 -
<PAGE>

Common Stock, shares of such stock or other securities as the holders of shares
of Common Stock received pursuant to the terms of such transaction; or (b) all
outstanding Options may be cancelled by the Board or the Committee as of a date
prior to the effective date of any such transaction and all payroll deductions
shall be paid out to the participating employees; or (c) all outstanding Options
may be cancelled by the Board or the Committee as of the effective date of any
such transaction, provided that notice of such cancellation shall be given to
each holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his or
her account as of a date determined by the Board or the Committee, which date
shall not be less than ten (10) days preceding the effective date of such
transaction.

17. Amendment of the Plan. The Board may at any time, and from time to time,
amend this Plan in any respect, except that (a) if the approval of any such
amendment by the stockholders of the Company is required by Section 423 of the
Code, such amendment shall not be effected without such approval, and (b) in no
event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.

18. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.

19. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.

20. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.

The Plan shall be governed by Massachusetts law except to the extent that such
law is preempted by federal law.

21. Issuance of Shares. Shares may be issued upon exercise of an Option from
authorized but unissued Common Stock, from shares held in the treasury of the
Company, or from any other proper source.

22. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.

23. Effective Date and Approval of Stockholders. The Plan shall take effect
on either (i) a date promptly after the Special Meeting approving such Plan if
such commencement date is on or before March 31, 1999 or (ii) July 1, 1999
subject to approval by the stockholders of the Company as required by Section
423 of the Code, which approval must occur within twelve months of the adoption
of the Plan by the Board.

- 5 -
<PAGE>

Adopted by the Board of Directors
on September 1, 1998

Approved by the Stockholders on
January 26, 1999

Exhibit 10.27

March 23, 2000

Resurgence Asset Management, L.L.C.
10 New King Street, 1st Floor
White Plains, NY 10604

Re: Exchange of Senior Discount Notes

Ladies/Gentlemen:

The purpose of this letter is to confirm the agreement of Arch Communications
Group, Inc. ("Arch") and Resurgence Asset Management, L.L.C. ("Resurgence") as
follows:

1. Exchange of Senior Discount Notes. Resurgence agrees to exchange, or to
cause the exchange of, $100,000,000 in principal amount at maturity of Arch's 10
7/8% Senior Discount Notes Due 2008 (the "Notes") owned by Resurgence and/or
related entities (collectively, the "Resurgence Entities") for 1,000,000 shares
of Arch's Series D Convertible Preferred Stock ("Series D Stock") as described
in Section 2 below.

2. Terms of Preferred Stock.

(a) The Series D Stock will:

o be convertible into Arch's Common Stock at the holders' option at any
time at an exchange ratio of 66.1318 shares of Common Stock per $1,000
principal amount at maturity;

o be subject to mandatory conversion into Common Stock upon completion of
Arch's pending merger with Paging Network, Inc. ("PageNet");

o commencing March 15, 2001, bear semi-annual dividends at the rate of 10
7/8% per annum, payable at Arch's option in cash or through the
issuance of Arch's Series E Preferred Stock ("Series E Stock");

o be subject to mandatory redemption on March 15, 2008 if redemption is
then permitted by applicable law;

o vote with the Common Stock on an as-converted basis; and

o rank upon liquidation senior to the common stock and on a parity with
Arch's Series C Convertible Preferred Stock.

(b) If Arch issues Series E Stock as a dividend on the Series D Stock, the
Series E Stock will be identical to the Series D Stock except that it will not:

o be subject to conversion into common stock;

<PAGE>

o have any voting rights except as required by law; or

o bear dividends.

(c) The terms of the Series D Stock and Series E Stock shall conform to the
descriptions contained above and shall be contained in a Certificate of
Designations filed with the Secretary of State of Delaware. The Certificate of
Designations shall be in such form as is mutually agreed to by Arch and
Resurgence.

3. Representations. Arch and Resurgence (on behalf of itself and the
Resurgence Entities) hereby represent, warrant and agree as follows:

(a) Resurgence approached Arch and initiated negotiations with Arch regarding
the exchange of Notes for Series D Stock as contemplated hereby. Neither Arch
nor anyone acting on Arch's behalf approached Resurgence regarding this
transaction.

(b) Resurgence acknowledges that the transaction contemplated hereby is
intended to be exempt from registration by virtue of Section 3(a)(9) of the
Securities Act of 1933, as amended (the "Securities Act"). Resurgence knows of
no reason why such exemption is not available.

(c) Resurgence has had such opportunity as it has deemed adequate to obtain
from representatives of Arch such information as is necessary to permit
Resurgence to evaluate the merits and risks of the transaction contemplated
hereby.

(d) Resurgence has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the acquisition
of the Series D Stock, the Series E Stock and the Common Stock issued in respect
thereto and to make an informed investment decision with respect to such
acquisition.

(e) The shares of Series D Stock, Series E Stock and Common Stock issued upon
conversion of the Series D Stock and Series E Stock will not be "restricted
securities" within the meaning of Rule 144 under the Securities Act. The
certificate(s) representing the Shares will not bear a restrictive legend under
the Securities Act.

4. Conditions to Closing. The exchange of the Notes for Series D Stock as
contemplated hereby is subject to satisfaction of the following conditions:

(a) Resurgence Entities shall have sold to a third party selected by
Resurgence (the "Third Party") $53,865,000 principal amount at maturity of Notes
owned by Resurgence Entities (the "Third Party Notes") and the Third Party shall
have exchanged all of the Third Party Notes for shares of Arch Common Stock at
an exchange ratio of 66.1318 shares of Common Stock per $1,000 principal amount
at maturity.

(b) Arch's stockholders shall have approved the proposed increase in the
number of authorized shares of Common Stock from 65,000,000 to 150,000,000 and
an amendment to

- 2 -
<PAGE>

Arch's Certificate of Incorporation reflecting such increase shall have been
filed with the Secretary of State of Delaware.

(c) A Certificate of Designations establishing the terms of the Series D
Stock and Series E Stock and consistent with the terms hereof shall have been
filed with the Secretary of State of Delaware.

(d) Arch shall have reserved for issuance such number of shares of Series D
Stock, Series E Stock and Common Stock as may be issuable from time to time in
connection with the transactions contemplated hereby.

(e) Arch and the Resurgence Entities shall have received all required
regulatory approvals in connection with the transactions contemplated hereby.

(f) The transactions contemplated hereby shall have been approved by Arch's
bank lenders.

(g) The exchange of all Notes for Series D Stock and the exchange of all
Third Party Notes for Common Stock as contemplated hereby shall have been
completed by April 30, 2000.

5. Entire Agreement. This Agreement represents the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties. The parties
may amend or modify this Agreement, in such manner as may be agreed upon, only
by a written instrument executed by the parties hereto.

6. Expenses. Each party shall pay its own expenses in connection with this
Agreement and the transactions contemplated hereby.

7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.

8. Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

9. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall be one
and the same document.

- 3 -
<PAGE>

Please confirm your agreement by signing in the space indicated below.

ARCH COMMUNICATIONS GROUP, INC.

By: /s/ J. Roy Pottle
------------------------

Title: Chief Financial Officer
------------------------

Agreed:

RESURGENCE ASSET MANAGEMENT, L.L.C.

By: /s/ Robert T. Symington
----------------------------

Title: Managing Director
----------------------------

- 4 -

EXHIBIT 21.1

LIST OF SUBSIDIARIES

<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION DOES BUSINESS AS
- ----------------------------------------- ---------------------------- -----------------
<S> <C> <C>
Arch Canada Inc. Ontario, Canada
Arch Communications Enterprises LLC Delaware Arch Paging
Arch Communications, Inc. Delaware
Arch Connecticut Valley, Inc. Massachusetts Arch Paging
Arch Paging, Inc. Delaware Arch Paging
Benbow Investments, Inc. Delaware
MobileMedia Communications, Inc. Delaware
MobileMedia Communications
Corporation of America, Inc. Delaware Arch Paging
MobileMedia License Co., LLC Delaware
</TABLE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-97072, 33-97074, 33-87940, 333-07333,
333-26759, 333-56109, 333-79989, 333-79991 and 333-79993.

/s/ Arthur Andersen, LLP
Boston, Massachusetts
March 29, 2000

<ARTICLE> 5
<CIK> 0000915390
<NAME> Arch Communications Group, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,161
<SECURITIES> 0
<RECEIVABLES> 61,167
<ALLOWANCES> 16,473
<INVENTORY> 9,101
<CURRENT-ASSETS> 85,303
<PP&E> 714,644
<DEPRECIATION> 314,445
<TOTAL-ASSETS> 1,353,045
<CURRENT-LIABILITIES> 164,811
<BONDS> 1,322,508
0
3
<COMMON> 512
<OTHER-SE> (218,074)
<TOTAL-LIABILITY-AND-EQUITY> 1,353,045
<SALES> 50,435
<TOTAL-REVENUES> 641,824
<CGS> 34,954
<TOTAL-COSTS> 34,954
<OTHER-EXPENSES> 132,400
<LOSS-PROVISION> 15,265
<INTEREST-EXPENSE> 144,924
<INCOME-PRETAX> (289,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (289,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,963
<CHANGES> (3,361)
<NET-INCOME> (285,586)
<EPS-BASIC> (9.10)
<EPS-DILUTED> (9.10)

</TABLE>