<PAGE>
 
    
 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996     
 
                                                     REGISTRATION NO. 333-10875
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                              ------------------
                                
                             AMENDMENT NO. 4     
                                      TO
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                              ------------------
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
           DELAWARE                        4813                  54-1708481
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL  (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)  CLASSIFICATION CODE NUMBER)  IDENTIFICATION NO.)
 
                             8180 GREENSBORO DRIVE
                                  SUITE 1100
                            MCLEAN, VIRGINIA 22102
                                (703) 848-4625
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                              ------------------
 
                                 K. PAUL SINGH
                     CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                             8180 GREENSBORO DRIVE
                                  SUITE 1100
                            MCLEAN, VIRGINIA 22102
                                (703) 848-4625
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)
 
                              ------------------
 
                                  COPIES TO:
        JAMES D. EPSTEIN, ESQ.                DAVID J. BEVERIDGE, ESQ.
      PEPPER, HAMILTON & SCHEETZ                 SHEARMAN & STERLING
         3000 TWO LOGAN SQUARE                  599 LEXINGTON AVENUE
      PHILADELPHIA, PA 19103-2799                NEW YORK, NY 10022
            (215) 981-4000                         (212) 848-4000
 
                              ------------------
 
  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
                              ------------------
 
  If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
  If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
  If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
  If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
       
  THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>
 
                               EXPLANATORY NOTE
   
  This registration statement contains a prospectus relating to a public
offering in the United States (the "U.S. Offering") of an aggregate of
4,000,000 common shares, par value $0.01 per share (the "Common Shares"), of
Primus Telecommunications Group, Incorporated, together with separate
prospectus pages relating to a concurrent offering outside the United States
(the "International Offering") of an aggregate of 1,000,000 Common Shares. The
complete prospectus for the U.S. Offering follows immediately after this
Explanatory Note. After such prospectus are the following alternate pages for
the International Offering: a front cover page and a back cover page. All
other pages of the prospectus for the U.S. Offering are to be used for both
the U.S. Offering and the International Offering.     

<PAGE>
 
PROSPECTUS
                                
                             5,000,000 SHARES     
 
                               [INSERT LOGO HERE]
 
                                  COMMON STOCK
 
                               ------------------
   
  All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of Primus Telecommunications Group, Incorporated ("Primus" or the
"Company") offered hereby are being offered by the Company. Of the 5,000,000
shares of Common Stock being offered, 4,000,000 shares are being offered
initially in the United States and Canada (the "U.S. Offering") by the U.S.
Underwriters (as defined in "Underwriting") and 1,000,000 shares are being
concurrently offered outside the United States and Canada (the "International
Offering") by the International Managers (as defined in "Underwriting" and,
together with the U.S. Underwriters, the "Underwriters"). The U.S. Offering and
the International Offering are collectively referred to as the "Offering."     
   
  Prior to this offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "PRTL"
subject to notice of issuance.     
 
                               ------------------
 
    THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 8.
 
                               ------------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
 AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
 ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
 A CRIMINAL OFFENSE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>   
<CAPTION>

                                                       Underwriting
                                           Price to   Discounts and  Proceeds to
                                            Public    Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S>                                       <C>         <C>            <C>
Per Share...............................    $10.50        $.735        $9.765
- --------------------------------------------------------------------------------
Total(3)................................  $52,500,000   $3,675,000   $48,825,000
</TABLE>
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
    liabilities, including liabilities under the Securities Act of 1933, as
    amended. See "Underwriting."
(2) Before deducting estimated expenses of $1,200,000 payable by the Company.
   
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    750,000 additional shares of Common Stock on the same terms and conditions
    set forth herein, solely to cover over-allotments, if any. If such option
    is exercised in full, the total Price to Public, Underwriting Discounts and
    Commissions and Proceeds to Company will be $60,375,000, $4,226,250 and
    $56,148,750, respectively. See "Underwriting."     
 
                               ------------------
   
  The shares of Common Stock offered by this Prospectus are offered by the U.S.
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the U.S.
Underwriters and to certain further conditions. It is expected that delivery of
certificates representing the shares of Common Stock will be made at the
offices of Lehman Brothers Inc., New York, New York on or about November 13,
1996.     
 
                               ------------------
 
LEHMAN BROTHERS                                     DONALDSON, LUFKIN & JENRETTE
                                                       SECURITIES CORPORATION
   
November 7, 1996.     

<PAGE>
 
   
  All references herein to "U.S. dollars," "dollars" or "US$" are to United
States dollars. All references to "A$" are to Australian dollars, the official
currency of Australia. All references to "(Pounds)" are to British pounds, the
official currency of the United Kingdom. All references to "Pesos" are to
Mexican pesos, the official currency of Mexico. The exchange rate of
Australian dollars was A$1.2625 to US$1.00, of British pounds was
(Pounds)0.6098 to US$1.00 and of Mexican Pesos was P$7.9025 to US$1.00 at
November 6, 1996, based on the noon buying rate in New York City for cable
transfers in such currencies as certified for customs purposes by the Federal
Reserve Bank of New York.     
 
  The Consolidated Financial Statements of the Company are presented in
accordance with United States generally accepted accounting principles, and
amounts originally measured in foreign currencies for all periods presented
have been translated into U.S. dollars in accordance with the methodology set
forth in Note 2 to the Consolidated Financial Statements of the Company.
 
                            ADDITIONAL INFORMATION
 
  The Company is not currently subject to the information requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the Offering, the Company will be required to file reports and other
information with the Securities and Exchange Commission (the "Commission")
pursuant to the informational requirements of the Exchange Act.
 
  The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus, which is part of the
Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the Registration Statement. For further information
pertaining to the Company and the securities offered hereby, reference is made
to such Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents or provisions of
any documents referred to herein are not necessarily complete, and in each
instance, reference is made to the copy of the document filed as an exhibit to
the Registration Statement. The Company will issue annual and quarterly
reports. Annual reports will include audited financial statements prepared in
accordance with accounting principles generally accepted in the United States
and a report of its independent auditors with respect to the examination of
such financial statements. In addition, the Company will issue to its
securityholders such other unaudited quarterly or other interim reports as it
deems appropriate.
 
  The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
the Registration Statement may be obtained from the Commission at prescribed
rates from the Public Reference Section of the Commission at such address, and
at the Commission's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
 
  IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>
 
[MAP OF WORLD SHOWING PRIMUS' NETWORK, INCLUDING SWITCH LOCATIONS (OPERATIONAL,
    UNDER CONSTRUCTION AND PLANNED) AND FIBER LINKS BETWEEN SWITCH LOCATIONS
                            (EXISTING AND PLANNED)]

<PAGE>
 

                                    SUMMARY
 
  The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. As used in this Prospectus, except where the context
otherwise requires, the terms "Primus" and the "Company" refer to Primus
Telecommunications Group, Incorporated and all of its subsidiaries. Investors
should carefully consider the information set forth under the heading "Risk
Factors." Unless otherwise noted, all information in this Prospectus assumes
that the Underwriters' over-allotment option has not been exercised and has
been adjusted to give effect to a 3.381-for-1 stock split (the "Stock Split")
and the conversion of all outstanding shares of Series A Convertible Preferred
Stock ("Series A Stock") of the Company into shares of Common Stock (the
"Preferred Stock Conversion"). This Prospectus contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Prospective investors are cautioned that such
statements are only predictions and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth under the caption "Risk Factors" that could
cause actual results to differ materially from those indicated by such forward-
looking statements.
 

                                  THE COMPANY
 
  Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and consumer demand for
international telecommunications services generated by the globalization of
world economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-Pacific
and Europe as its primary service regions (the "Targeted Regions"). The Company
currently provides services in the United States, Australia and the United
Kingdom (the "Operating Hubs"), which are the most deregulated countries within
the Targeted Regions and which serve as regional hubs for expansion into
additional markets within the Targeted Regions. As part of the execution of
this strategy, the Company has commenced operations in Mexico and has installed
a switch in Canada. The Company expects to expand into additional markets as
deregulation occurs and the Company is permitted to offer a full range of
switched public telephone services in such markets.
 
  For the year ended December 31, 1995 and the six months ended June 30, 1996,
the Company had pro forma net revenue of approximately $126 million and $92
million, respectively, after giving effect to the Company's March 1996
acquisition of Axicorp Pty., Ltd. ("Axicorp"), the fourth largest
telecommunications provider in Australia. For the three months ended June 30,
1996, the Company had net revenue of approximately $48 million, of which
approximately $44 million, or 91%, was generated by the Company's Australian
operations. As of September 30, 1996, the Company had 285 full-time employees
and approximately 35,000 customers.
 
  The Company targets, on a retail basis, small- and medium-sized businesses
with significant international long distance traffic and ethnic residential
consumers and, on a wholesale basis, other telecommunications carriers and
resellers with international traffic. The Company provides a broad array of
competitively priced telecommunications services, including international long
distance to over 200 countries, domestic long distance, and international and
domestic private networks, as well as local switched and cellular services in
Australia, prepaid and calling cards in the United States and the United
Kingdom and toll-free services in the United States. The Company markets its
services through a variety of sales channels, including direct sales,
independent agents, direct marketing and associations.
 
                                       3

<PAGE>
 
 
  The Company is implementing its international telecommunications network (the
"Network") to reduce and control costs, improve service reliability and
increase flexibility to introduce new products and services. The Network
currently consists of an international gateway switch in Washington, D.C.,
points-of-presence in New York and London, and leased transmission capacity
connecting to the networks of other international and domestic carriers. The
Company also has correspondent agreements with the government-owned Postal,
Telephone and Telegraph Companies ("PTTs") in India, Iran and Honduras. The
Company has installed three additional international gateway switches in
Sydney, Melbourne and Toronto, a switch in Brisbane, and has acquired two
international gateway switches for installation in New York and Los Angeles and
two other switches for installation in Adelaide and Perth, all eight of which
are expected to be operational by the end of the first quarter of 1997. The
Company expects to acquire an additional switch for installation in London and
additional switches and points-of-presence for installation in other major
metropolitan areas of the Targeted Regions. The Company expects to connect its
gateway switches between Sydney and Los Angeles with a trans-Pacific fiber-
optic cable link by the end of the first quarter of 1997. The Company also
intends to purchase additional switches and ownership in international fiber-
optic cables, install international gateway satellite earth station facilities,
lease additional transmission capacity and, where necessary, obtain additional
correspondent agreements.
 
  The Company's objective is to become a leading provider of international and
domestic long distance voice, data and value-added services to its target
customers. The Company's strategy to achieve this objective is to focus on
providing a full range of competitively priced, high-quality services in the
Targeted Regions. Key elements in the Company's strategy include:
 
  .   Focus on Customers with Significant International Long
      Distance Usage. The Company's primary focus is providing
      telecommunications services to small- and medium-sized
      businesses with significant international long distance
      traffic and to ethnic residential consumers and, on a
      wholesale basis, to other telecommunications carriers and
      resellers with international traffic. The Company believes
      that the international long distance market offers an
      attractive business opportunity given its size and, as
      compared to the domestic long distance market, its higher
      revenue per minute, gross margin and expected growth rate.
      Although the Company expects to obtain a significant
      percentage of its revenues from offering international long
      distance services, the Company currently generates, and
      expects to continue to generate over the near term, a greater
      percentage of net revenue from domestic long distance
      services in an effort to build network traffic more quickly.
 
  .   Pursue Early Entry into Selected Deregulating Markets. Primus
      seeks to be an early entrant into selected overseas
      deregulating telecommunications markets where it believes
      there is significant demand for international long distance
      services, substantial growth and profit potential, and the
      opportunity to establish a customer base and achieve name
      recognition. The Company intends to use each Operating Hub as
      a base to expand into deregulating markets within the
      Targeted Regions and will focus its expansion efforts on
      major metropolitan areas with a high concentration of target
      customers with international traffic. The Company believes
      that management's international telecommunications experience
      will assist it in successfully identifying and launching
      operations in deregulating markets.
 
  .   Implement Intelligent International Network. The Company
      expects that the strategic development of the Network will
      lead to reduced transmission and other operating costs as a
      percentage of net revenue, reduced reliance on other carriers
      and more efficient network utilization. The Network will
      consist of (i) a global backbone network connecting
      intelligent gateway switches in the Targeted Regions, (ii) a
      domestic long distance network presence in each of the
      Operating Hubs and certain additional countries within the
      Targeted Regions and (iii) a combination of leased
      facilities, resale arrangements and correspondent agreements.
 
 
                                       4

<PAGE>
 
  .   Deliver Quality Services at Competitive Prices. The Company
      believes that it delivers high-quality services at
      competitive prices and provides a high level of customer
      service. The Company intends to maintain a low-cost structure
      in order to offer its customers international and domestic
      long distance services priced below that of its major
      competitors. In addition, the Company intends to maintain
      strong customer relationships through the use of trained and
      experienced service representatives and the provision of
      customized billing services.
 
  .   Provide a Comprehensive Package of Services. The Company
      seeks to provide a comprehensive package of services to
      create "one-stop shopping" for its targeted customers'
      telecommunications needs, particularly for small- and medium-
      sized businesses and ethnic residential consumers that prefer
      a full service telecommunications provider. The Company
      believes this approach strengthens its marketing efforts and
      increases customer retention.
 
  The Company acquired Axicorp, the fourth largest telecommunications provider
in Australia, in March 1996. Axicorp provides the Company early entry into the
deregulating Australian telecommunications market and will serve as the
Company's gateway to the Asia-Pacific region. Prior to the acquisition, Axicorp
was a switchless reseller of long distance, local switched and cellular
services. Since the acquisition, the Company has acquired five switches for use
in Australia, which are expected to be operational by the end of the first
quarter of 1997, and has focused on increasing the number of higher-margin,
higher-volume business customers with significant international long distance
traffic. As part of its increasing focus on business customers, the Company is
increasing Axicorp's direct sales force and reducing its reliance on marketing
through associations. The ongoing transformation of Axicorp's strategy and
operations to those of a facilities-based carrier focused on the provision of
international and domestic long distance services is an example of the
execution of the Company's business model. For the twelve months ended March
31, 1996, Axicorp generated net revenue of approximately $144 million. The
Company acquired Axicorp for $5.7 million in cash, including transaction costs,
455,000 shares of Series A Stock (convertible into 1,538,355 shares of Common
Stock on the date of the Offering) and seller financing consisting of two notes
aggregating $8.1 million. The cash portion of the purchase price was financed
through private placements of Common Stock.
 
  Primus was co-founded in 1994 by K. Paul Singh, its Chairman and Chief
Executive Officer, who formerly served as Vice President of Marketing for MCI.
Mr. Singh previously founded two other telecommunications companies, Overseas
Telecommunications, Inc. ("OTI") and the Cygnus Satellite Corporation
("Cygnus"), both of which focused on international telecommunications. OTI and
Cygnus were acquired by MCI and PanAmSat, respectively. The executive officers
of the Company and several of the other members of its management team have
substantial experience in the telecommunications and other related industries,
and have served in management positions with companies such as MCI, OTI, IBM
and M/A Com (subsequently acquired by Hughes Network Systems, Inc.). See
"Management--Executive Officers, Directors and Key Employees."
   
  On July 31, 1996, the Soros/Chatterjee Group (as defined in "Certain
Transactions") purchased an equity interest in the Company for an aggregate
purchase price of approximately $16.0 million (the "Private Equity Sale") and,
after giving effect to the Offering, will collectively beneficially own 7.7% of
the Common Stock. Additionally, on January 12, 1996, Teleglobe USA, Inc.
("Teleglobe"), invested approximately $1.46 million in the Company and, after
giving effect to the Offering, will beneficially own 2.4% of the Common Stock.
The net proceeds from the Private Equity Sale are being used to fund operating
losses, for working capital, for expansion of the Company's Network and for
other general corporate purposes, and the proceeds from the Teleglobe
investment were used to partially fund the acquisition of Axicorp. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."     
 
  The Company was incorporated in Delaware in February 1994. The executive
offices of the Company are located at 8180 Greensboro Drive, Suite 1100,
McLean, Virginia 22102 and its telephone number is (703) 848-4625.
 
                                       5

<PAGE>
 
                                  THE OFFERING
 

<TABLE>   
<S>                           <C>
Common Stock Offered by the
 Company
  U.S. Offering.............. 4,000,000 shares
  International Offering..... 1,000,000 shares
                              ------------------
    Total.................... 5,000,000 shares
Common Stock Outstanding af-
 ter the Offering............ 17,028,746 shares (1)
Use of Proceeds.............. The net proceeds will be used to expand the
                              Network, including purchasing transmission
                              equipment facilities and support systems,
                              international fiber capacity and satellite earth
                              station facilities for new and existing routes,
                              to fund operating losses, and for working
                              capital and other general corporate purposes.
                              See "Use of Proceeds."
Proposed Nasdaq National
 Market System Symbol........ PRTL
</TABLE>
    
- --------
   
(1)  Excludes 1,635,559 shares of Common Stock which may be issued upon
     exercise of outstanding options granted pursuant to the Company's employee
     stock option plan (the "Employee Plan") and the Company's director stock
     option plan (the "Director Plan," together with the Employee Plan, the
     "Plans"), and an additional 393,041 shares of Common Stock reserved for
     issuance pursuant to the Plans. The weighted average exercise price of all
     outstanding options is $3.04 per share. Also excludes up to 1,580,280
     shares of Common Stock which may be issued upon exercise of certain
     warrants held by the Soros/Chatterjee Group (the "Soros/Chatterjee
     Warrants"), assuming such warrants were to be exercised at the initial
     public offering price. The actual number of shares of Common Stock
     issuable upon exercise of these warrants will be up to 627,899 shares of
     Common Stock plus an indeterminate number of shares having a fair market
     value of $10 million as of the date of exercise. See "Management--Stock
     Option Plans," "Certain Transactions--Private Equity Sale," "Description
     of Capital Stock--Warrants" and Notes 8 and 13 to the Consolidated
     Financial Statements of the Company.     
 

                                  RISK FACTORS
 
  See "Risk Factors" beginning on page 8 for a discussion of certain
information that should be considered by prospective investors.
 
                                       6

<PAGE>
 
            SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
 
  The following table presents summary unaudited pro forma consolidated
financial data and certain actual balance sheet data which has been derived
from, and should be read in conjunction with, the Company's Unaudited Pro Forma
Consolidated Statements of Operations and related notes thereto, the Company's
Consolidated Balance Sheets and related notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
 
PRO FORMA STATEMENT OF OPERATIONS DATA:
 

<TABLE>   
<CAPTION>
                                      YEAR ENDED           SIX MONTHS
                                     DECEMBER 31,        ENDED JUNE 30,
                                     ------------ ----------------------------
                                         1995         1995           1996
                                     ------------ ------------- --------------
                                        (IN THOUSANDS, EXCEPT SHARE AND PER
                                                      SHARE)
<S>                                  <C>          <C>           <C>
Net revenue.........................  $  125,628   $   47,930     $   91,783
Cost of revenue.....................     114,639       43,141         83,918
                                      ----------   ----------     ----------
  Gross margin......................      10,989        4,789          7,865
Operating expenses:
  Selling, general and
   administrative...................      12,955        5,376          8,791
  Depreciation and amortization.....       1,842          879          1,098
                                      ----------   ----------     ----------
    Total operating expenses........      14,797        6,255          9,889
                                      ----------   ----------     ----------
Income (loss) from operations.......      (3,808)      (1,466)        (2,024)
Interest expense....................        (885)        (446)          (473)
Interest income.....................         132           30            209
Other income (expense)..............         --           --            (268)
                                      ----------   ----------     ----------
Income (loss) before income taxes...      (4,561)      (1,882)        (2,556)
Income taxes........................         124           68            743
                                      ----------   ----------     ----------
Net income (loss)...................  $   (4,685)  $   (1,950)    $   (3,299)
                                      ==========   ==========     ==========
Net earnings (loss) per common and
 common share equivalent............  $    (0.43)  $    (0.18)    $    (0.26)
                                      ==========   ==========     ==========
Weighted average number of common
 and common share equivalents
 outstanding........................  10,892,247   10,716,939     12,485,978
                                      ==========   ==========     ==========
<CAPTION>
                                                AS OF JUNE 30, 1996
                                     -----------------------------------------
                                                                  PRO FORMA
                                        ACTUAL    PRO FORMA (1) AS ADJUSTED(2)
                                     ------------ ------------- --------------
                                                  (IN THOUSANDS)
<S>                                  <C>          <C>           <C>
BALANCE SHEET DATA:
Cash and cash equivalents...........  $    4,398   $   20,198     $   67,823
Total assets........................      62,297       78,097        125,722
Total long-term obligations.........      16,929       16,929         16,929
Stockholders' equity (deficit)......      11,800       27,600         75,225
</TABLE>
    
- --------
(1) After giving effect to the Private Equity Sale.
   
(2) After giving effect to the Private Equity Sale and the sale of 5,000,000
    shares of Common Stock offered in the Offering, less underwriting
    discounts, commissions, and estimated expenses of the Offering payable by
    the Company.     
 
                                       7

<PAGE>
 

                                 RISK FACTORS
 
  In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the shares of the Common Stock
offered hereby.
 
LIMITED OPERATING HISTORY; ENTRY INTO DEVELOPING MARKETS
 
  The Company was founded in February 1994 and began generating operating
revenues in March 1995. Axicorp, the Company's principal operating subsidiary,
was acquired in March 1996. The Company has generated only limited net revenue
and has limited experience in operating its business. In addition, the Company
intends to enter markets where it has limited or no operating experience.
Furthermore, in many of the Company's target markets, the Company intends to
offer services that have previously been provided only by the local PTT.
Accordingly, there can be no assurance that the Company's future operations
will generate operating or net income, and the Company's prospects must
therefore be considered in light of the risks, expenses, problems and delays
inherent in establishing a new business in a rapidly changing industry. See
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
 
MANAGING RAPID GROWTH
 
  The Company's strategy of continuing its growth and expansion has placed,
and is expected to continue to place, a significant strain on the Company's
management, operational and financial resources and increased demands on its
systems and controls. The Company plans to develop the Network by adding
switches, cable and satellite facilities, expand its operations within the
United States, Australia and the United Kingdom, and expand into selected
additional markets within the Targeted Regions when business and regulatory
conditions warrant. In order to manage its growth effectively, the Company
must continue to implement and improve its operational and financial systems
and controls, purchase and utilize other transmission facilities, and expand,
train and manage its employee base. Inaccuracies in the Company's forecasts of
traffic could result in insufficient or excessive transmission facilities and
disproportionate fixed expenses. There can be no assurance that the Company
will be able to develop a facilities-based network or expand within its target
markets at the rate presently planned by the Company, or that the existing
regulatory barriers to such expansion will be reduced or eliminated. As the
Company proceeds with its development, there will be additional demands on the
Company's customer support, sales and marketing and administrative resources
and network infrastructure. There can be no assurance that the Company's
operating and financial control systems and infrastructure will be adequate to
maintain and effectively manage future growth. The failure to continue to
upgrade the administrative, operating and financial control systems or the
emergence of unexpected expansion difficulties could materially adversely
affect the Company's business, results of operations and financial condition.
See "--Dependence on Effective Information Systems."
 
HISTORICAL AND FUTURE NET LOSSES
 
  The Company incurred net losses in 1994 and 1995 and had an accumulated
deficit of approximately $6.2 million as of June 30, 1996. Although the
Company has experienced net revenue growth in each of its last six quarters,
such growth should not be considered to be indicative of future net revenue
growth, if any. The Company expects its net losses to increase as the Company
uses the proceeds of the Offering to accelerate the expansion of its
operations and build-out of the Network. There can be no assurance that the
Company's revenue will grow or be sustained in future periods or that the
Company will be able to achieve profitability in any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
 
NEED FOR ADDITIONAL FINANCING
 
  The Company believes that the net proceeds from the Offering, together with
the net proceeds from the Private Equity Sale, borrowing capacity under an
expected line of credit and available capital lease financing will be
sufficient to fund the Company's operating losses, capital expenditures and
other cash needs for the next
 
                                       8

<PAGE>
 
18 months. The Company, however, will need to raise additional capital from
public or private equity or debt sources in order to finance its future
growth, including financing the further construction of the Network and
expanding service within existing markets and to new markets, which can be
capital intensive, as well as its unanticipated working capital needs and
capital expenditure requirements. Furthermore, the Company may need to raise
additional funds in order to take advantage of unanticipated opportunities,
including more rapid international expansion or acquisitions of, investments
in or strategic alliances with, companies that are complementary to the
Company's current operations, or to develop new products or otherwise respond
to unanticipated competitive pressures. There can be no assurance that the
Company will be able to raise such capital on satisfactory terms or at all. If
the Company decides to raise additional funds through the incurrence of debt,
it would likely become subject to restrictive financial covenants. In the
event that the Company is unable to obtain such additional capital or is
unable to obtain such additional capital on acceptable terms, the Company may
be required to reduce the scope of its expansion, which could adversely affect
the Company's business, results of operations and financial condition and its
ability to compete. Additionally, if additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's then
current stockholders would be reduced and, if such equity securities take the
form of preferred stock, the holders of such preferred stock may have rights,
preferences or privileges senior to those of holders of Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of
Capital Stock--Preferred Stock."
 
INTENSE DOMESTIC AND INTERNATIONAL COMPETITION
   
  The long distance telecommunications industry is intensely competitive and
is significantly influenced by the marketing and pricing decisions of the
larger industry participants. In most countries, the industry has relatively
limited barriers to entry with numerous entities competing for the same
customers. Customers frequently change long distance providers in response to
the offering of lower rates or promotional incentives by competitors.
Generally, the Company's customers can switch carriers at any time. The
Company believes that competition in all of its markets is likely to increase
and that competition in non-United States markets is likely to become more
similar to competition in the United States market over time as such non-
United States markets continue to experience deregulatory influences. This
increase in competition could adversely affect net revenue per minute and
gross margin as a percentage of net revenue. In each of its Targeted Regions,
the Company competes primarily on the basis of price (particularly with
respect to its sales to other carriers), and also on the basis of customer
service and its ability to provide a variety of telecommunications products
and services. Prices for long-distance calls in several of the markets in
which the Company competes have declined in recent years and are likely to
continue to decrease. There can be no assurance that the Company will be able
to compete successfully in the future.     
 
  Many of the Company's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than the Company and a broader portfolio of services, control
transmission lines and have strong name recognition and loyalty, as well as
long-standing relationships with the Company's target customers. In addition,
many of the Company's competitors enjoy economies of scale that can result in
a lower cost structure for transmission and related costs, which could cause
significant pricing pressures within the industry. Several long distance
carriers in the United States have recently introduced pricing strategies that
provide for fixed, low rates for calls within the United States. Such a
strategy, if widely adopted, could have an adverse effect on the Company's
results of operations and financial condition if increases in
telecommunications usage do not result or are insufficient to offset the
effects of such price decreases. The Company's competitors include, among
others, AT&T, MCI, Sprint, WorldCom, Frontier and LCI in the United States;
Telstra, Optus and AAPT in Australia; and British Telecom, Mercury, AT&T,
WorldCom, Sprint and ACC in the United Kingdom. The Company also competes with
numerous other long distance providers, some of which focus their efforts on
the same customers targeted by the Company. In addition to these competitors,
recent and pending deregulation in various countries may encourage new
entrants. For example, as a result of the recently enacted Telecommunications
Act of 1996 (the "1996 Telecommunications Act") in the United States, once
certain conditions are met, Regional Bell Operating Companies ("RBOCs") will
be allowed to enter the domestic long distance market, AT&T, MCI and other
long distance carriers will be allowed to enter the local telephone services
market, and any entity (including cable television companies and utilities)
will be allowed to enter both the local service and long distance
telecommunications markets. Increased competition in
 
                                       9

<PAGE>
 
the United States as a result of the foregoing, and other competitive
developments, including entry by Internet service providers into the long-
distance market, could have an adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business--
Competition" and "Business--Government Regulation."
 
DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS
 
  Telephone calls made by the Company's customers are connected through
transmission lines that the Company leases under a variety of arrangements
with transmission facilities-based long distance carriers, many of which are,
or may become, competitors of the Company. The Company's ability to maintain
and expand its business is dependent upon whether the Company continues to
maintain favorable relationships with the transmission facilities-based
carriers from which the Company leases transmission lines. Although the
Company believes that its relationships with carriers generally are
satisfactory, the deterioration or termination of the Company's relationships
with one or more of those carriers could have a material adverse effect upon
the Company's cost structure, service quality, Network diversity, results of
operations and financial condition.
 
  Presently, most transmission lines used by the Company are obtained on a
per-call (or usage) basis, subjecting the Company to the possibility of
unanticipated price increases and service cancellations. Currently, usage
rates generally are less than the rates the Company charges its customers for
connecting calls through these lines. To the extent these variable costs
increase, the Company may experience reduced or, in certain circumstances,
negative margins for some services. As its traffic volume increases between
particular international markets, the Company expects to cease using variable
usage arrangements and enter into fixed monthly or longer-term leasing
arrangements, subject to obtaining any requisite authority. To the extent the
Company does so, and incorrectly projects traffic volume in a particular
geographic area, the Company would experience higher fixed costs without the
increased revenue. Moreover, certain of the vendors from whom the Company
leases transmission lines, including RBOCs and other Local Exchange Carriers
("LECs") in the United States, currently are subject to tariff controls and
other price constraints which in the future may be changed. Regulatory
proposals are pending that may affect the prices charged by the RBOCs and
other LECs to the Company, which could have a material adverse effect on the
Company's margins, business, financial condition and results of operations.
See "--Potential Adverse Effects of Regulation" and "Business--Government
Regulation."
 
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
 
  A key component of the Company's strategy is its planned expansion in
international markets. In many international markets, the existing carrier
will control access to the local networks, enjoy better brand recognition and
brand and customer loyalty, and have significant operational economies,
including a larger backbone network and correspondent agreements with PTTs.
Moreover, the incumbent may take many months to allow competitors, including
the Company, to interconnect to its switches within the target market. Pursuit
of international growth opportunities may require significant investments for
an extended period before returns, if any, on such investments are realized.
In addition, there can be no assurance that the Company will be able to obtain
the permits and operating licenses required for it to operate, obtain access
to local transmission facilities or to market, sell and deliver competitive
services in these markets.
 
  In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on
an international level, such as unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing
and managing foreign operations, problems in collecting accounts receivable,
political risks, fluctuations in currency exchange rates, foreign exchange
controls which restrict or prohibit repatriation of funds, technology export
and import restrictions or prohibitions, delays from customs brokers or
government agencies, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world, and potentially
adverse tax consequences resulting from operating in multiple jurisdictions
with different tax laws, which could materially adversely impact the Company's
international operations. A significant portion of the Company's net revenue
and expenses is denominated, and is expected to continue to be denominated, in
currencies other than U.S.
 
                                      10

<PAGE>
 
dollars, and changes in exchange rates may have a significant effect on the
Company's results of operations. In addition, the Company's business could be
adversely affected by a reversal in the current trend toward deregulation of
telecommunications carriers. In Mexico, and in certain other countries into
which the Company may choose to expand in the future, the Company may need to
enter into a joint venture or other strategic relationship with one or more
third parties in order to successfully conduct its operations (often with the
PTT or other dominant carrier in a developing country). There can be no
assurance that such factors will not have a material adverse effect on the
Company's future operations and, consequently, on the Company's business,
results of operations and financial condition, or that the Company will not
have to modify its current business practices.
 
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
 
  To complete its billing, the Company must record and process massive amounts
of data quickly and accurately. While the Company believes its management
information system is currently adequate, it will have to grow as the
Company's business expands and to change as new technological developments
occur. The Company expects to upgrade many of its accounting systems within
the upcoming 12-month period. The Company believes that the successful
implementation and integration of new information systems and backroom support
will be important to its continued growth, its ability to monitor and control
costs, to bill customers accurately and in a timely fashion and to achieve
operating efficiencies. There can be no assurance that the Company will not
encounter delays or cost-overruns or suffer adverse consequences in
implementing these systems. See "Business--Management Information and Billing
Systems." Any such delay or other malfunction of the Company's management
information systems could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
RISKS OF INDUSTRY CHANGES AFFECTING COMPETITIVENESS AND FINANCIAL RESULTS
 
  The international telecommunications industry is changing rapidly due to
deregulation, privatization of PTTs, technological improvements, expansion of
telecommunications infrastructure and the globalization of the world's
economies. There can be no assurance that one or more of these factors will
not vary in a manner that could have a material adverse effect on the Company.
In addition, deregulation in any particular market may cause such market to
shift unpredictably. There can be no assurance that the Company will be able
to compete effectively or adjust its contemplated plan of development to meet
changing market conditions.
 
  The telecommunications industry generally is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite transmission capacity for services similar
to those provided by the Company. Potential developments that could adversely
affect the Company if not anticipated or appropriately responded to include
improvements in transmission equipment, development of switching technology
allowing voice/data/video multimedia transmission simultaneously and
commercial availability of Internet-based domestic and international switched
voice/data/video services at prices lower than comparable services offered by
the Company. The Company's profitability will depend on its ability to
anticipate, access and adapt to rapid technological changes and its ability to
offer, on a timely and cost-effective basis, services that meet evolving
industry standards. There can be no assurance that the Company will be able to
access or adapt to such technological changes at a competitive price, maintain
competitive services or obtain new technologies on a timely basis or on
satisfactory terms. See "--Intense Domestic and International Competition."
 
DEVELOPMENT OF THE NETWORK
 
  The Company has only recently begun operating the Network. The long-term
success of the Company is dependent upon its ability to design, implement,
operate, manage and maintain the Network, activities in which the Company has
limited experience. In expanding the Network, the Company will incur
substantial indebtedness and additional fixed operating costs. There can be no
assurance that the Network can be completed in a timely manner or operated
efficiently. See "Business--Network." Any failure by the Company to properly
design, implement, operate, manage or maintain the Network could have a
material adverse effect on the Company's
 
                                      11

<PAGE>
 
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
"Business."
 
DEPENDENCE ON KEY PERSONNEL
 
  The Company is dependent on the efforts of its management team and its key
technical, marketing and sales personnel, particularly those of K. Paul Singh,
its Chairman and Chief Executive Officer. The loss of services of one or more
of these key individuals, particularly Mr. Singh, could materially and
adversely affect the business of the Company and its future prospects. The
Company has entered into an employment agreement with Mr. Singh, which expires
on May 30, 1999. The Company maintains and is the beneficiary under $10
million of key person life insurance on Mr. Singh, but not on the lives of any
other officer or director. The Company's future success will also depend on
its ability to attract and retain additional key management, technical and
sales personnel required in connection with the growth and development of its
business. Competition for qualified employees and personnel in the
telecommunications industry is intense, particularly in non-U.S. markets and,
from time to time, there are a limited number of persons with knowledge of and
experience in particular sectors of the telecommunications industry. There can
be no assurance that the Company will be successful in attracting and
retaining such executives and personnel. The loss of the services of key
personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Company's results of operations,
development efforts and ability to expand. See "Management."
 
POTENTIAL ADVERSE EFFECTS OF REGULATION
 
  As a multinational telecommunications company, Primus is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company,
that domestic or international regulators or third parties will not raise
material issues with regard to the Company's compliance or noncompliance with
applicable regulations or that regulatory activities will not have a material
adverse effect on the Company. Certain risks regarding the regulatory
framework in the principal jurisdictions in which the Company provides its
services are briefly described below.
 
  United States. In the United States, the provision of the Company's services
is subject to the provisions of the Communications Act of 1934, as amended
(the "Communications Act"), the 1996 Telecommunications Act and the Federal
Communications Commission (the "FCC") regulations thereunder, as well as the
applicable laws and regulations of the various states administered by the
relevant state public service commission ("PSC"). The recent trend in the
United States, for both federal and state regulation of telecommunications
service providers, has been in the direction of reduced regulation. Although
this trend facilitates market entry and competition by multiple providers, it
has also given AT&T, the largest international and domestic long distance
carrier in the United States, increased pricing and market entry flexibility
that has permitted it to compete more effectively with smaller carriers, such
as the Company. In addition, the recently enacted 1996 Telecommunications Act
has opened the Company's U.S. market to increased competition. There can be no
assurance that future regulatory, judicial and legislative changes in the
United States will not have a material adverse effect on the Company.
 
  Despite recent trends toward deregulation, the FCC and relevant state PSCs
continue to exercise extensive authority to regulate ownership of transmission
facilities, provision of services and the terms and conditions under which the
Company's services are provided. In addition, the Company is required by
federal and state law and regulations to file the tariffs listing the rates,
terms and conditions of the services it provides. Any failure to maintain
proper federal and state tariffs or certification or any finding by the
federal or state agencies that the Company is not operating under permissible
terms and conditions may result in an enforcement action or investigation,
either of which could have a material adverse effect on the Company.
 
  To originate and terminate calls in connection with providing their
services, long distance carriers such as the Company must purchase "access"
from the LECs or Competitive Local Exchange Carriers ("CLECs").
 
                                      12

<PAGE>
 
Access charges represent a significant portion of the Company's cost of
revenue and, generally, such access charges are regulated by the FCC. The FCC
has informally announced that it intends, in the near future, to undertake a
comprehensive review of its regulation of LEC access charges to better account
for increasing levels of local competition. Under alternative access charge
rate structures being considered by the FCC, LECs would be permitted to allow
volume discounts in the pricing of access charges. While the outcome of these
proceedings is uncertain, if these rate structures are adopted, many long
distance carriers, including the Company, could be placed at a significant
cost disadvantage to larger competitors.
 
  The FCC and certain state agencies also impose prior approval requirements
on transfers of control, including pro forma transfers of control resulting
from corporate reorganizations, and assignments of regulatory authorizations.
The FCC also regulates the nature and extent of foreign ownership and foreign
carrier affiliations of the Company. Such requirements may delay, prevent or
deter a change in control of the Company.
 
  Regulatory requirements pertinent to the Company's operations have recently
changed and will continue to change as a result of federal legislation, court
decisions, and new and revised policies of the FCC and state public service
commissions. Among other things, such changes may alter the ability of the
Company to compete with other service providers, to continue providing the
same services, or introduce services currently planned for the future. The
impact on the Company's operations of any changes in applicable regulatory
requirements cannot be predicted.
 
  Australia. In Australia, the provision of the Company's services is subject
to federal regulation pursuant to the Telecommunications Act 1991 of Australia
(the "Telecom Act") and federal regulation of anticompetitive practices
pursuant to the Trade Practices Act 1974. In addition, other federal
legislation, various regulations pursuant to delegated authority and
legislation, ministerial declarations, codes, directions, licenses, statements
of Commonwealth Government policy and court decisions affecting
telecommunications carriers also apply to the Company. There can be no
assurance that future declarations, codes, directions, licenses, regulations,
and judicial and legislative changes will not have a material adverse effect
on the Company.
 
  The Australian telecommunications industry continues to undergo
deregulation, and it is currently expected that the Australian Government will
license additional carriers, including the Company, to own transmission
facilities in July 1997. Both Telstra and Optus have requested that the
Australian Government defer such date, and there can be no assurance that the
deregulatory process will proceed in accordance with the Government's
announced timetable. Any delay in such deregulatory process or in the granting
of licenses to other entities interested in developing their own transmission
facilities in Australia could delay potential price reductions anticipated in
a more competitive market place, thereby delaying the Company's access to
potentially less expensive transmission and access facilities.
 
  The Australian Telecommunications Authority ("AUSTEL"), as the federal
telecommunications regulatory authority, currently has control over a broad
range of issues affecting the operation of the Australian telecommunications
industry including the licensing of carriers, the promotion of competition,
consumer protection and technical matters. As a reseller of domestic, local
and long distance service, cellular service, and international service, the
Company must comply with the terms of the class license that applies to all
service providers until July 1997 or later, if the deregulatory process in
Australia is delayed. The Company currently plans to become a licensed general
carrier as soon as it is practicable to do so. As a general licensed carrier,
the Company will be required to comply with the terms of its own license and
would be subject to greater regulatory controls such as in areas of regulation
of connectivity, provision of access to service providers, land access and
contributions to the net cost of universal service throughout Australia (to
provide telecommunications services at reasonable prices to remote sections of
that country) applicable to licensed facilities-based carriers.
 
  There can be no assurance that a change in government, in government policy
in relation to telecommunications or competition, in AUSTEL's enforcement of
the Telecom Act, in government policy for the restructuring of the various
regulatory authorities that is expected to occur as part of the July 1997
changes,
 
                                      13

<PAGE>
 
or a deferral of the implementation of the Australian Government's
deregulation policy (particularly due to current requests for a deferral by
Telstra and Optus), will not have a material adverse effect on the Company's
business, results of operations or financial condition.
 
  United Kingdom. In the United Kingdom, the provision of the Company's
services is subject to and affected by regulations introduced by the U.K.
telecommunications regulatory authority, the Office of Telecommunications
("Oftel") under the Telecommunications Act of 1984 (the "U.K.
Telecommunications Act"). Since the break up of the U.K. telecommunications
duopoly consisting of British Telecom and Mercury in 1991, it has been the
stated goal of Oftel to create a competitive marketplace from which detailed
regulation could eventually be withdrawn. The regulatory regime currently
being introduced by Oftel has a direct and material effect on the ability of
the Company to conduct its business. Oftel has imposed mandatory rate
reductions on British Telecom in the past, which reductions are expected to
continue for the foreseeable future, and this has had, and may continue to
have, the effect of reducing the prices the Company can charge its customers.
The Company currently holds a license to provide international simple resale
("ISR") services to all international points from the United Kingdom. In
addition, the Company (along with approximately 45 other applicants including
AT&T, WorldCom, and ACC) has recently made application to the U.K. Secretary
for Trade and Industry for a license to provide international facilities-based
voice services. Although the Company currently expects such license to be
granted by the end of the first quarter of 1997, there can be no assurance
that the Company will be granted the license by such time, or at all. Failure
to obtain such license would prevent the Company from providing facilities-
based services in the United Kingdom and would have an adverse effect on the
Company's ability to expand its operations. In addition, there can be no
assurance that future changes in regulation and government will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
 
  Other Jurisdictions. The Company currently provides limited services in
Mexico and Canada, and intends to expand its operations into other
jurisdictions as such markets deregulate and the Company is able to offer a
full range of switched public telephone services to its customers. In
addition, in countries which enact legislation intended to deregulate the
telecommunications sector, there may be significant delays in the adoption of
implementing regulations and uncertainties as to the implementation of the
deregulatory programs which could delay or make more expensive the Company's
entry into such additional markets. The ability of the Company to enter a
particular market and provide telecommunications services, particularly in
Mexico and other developing countries, is dependent upon the extent to which
the regulations in a particular market permit new entrants. In some countries,
regulators may make subjective judgments in awarding licenses and permits,
without any legal recourse for unsuccessful applicants. In the event the
Company is able to gain entry to such a market, no assurances can be given
that the Company will be able to provide a full range of services in such
market, that it will not have to significantly modify its operations to comply
with changes in the regulatory environment in such market, or that any such
changes will not have a material adverse effect on the Company's business,
results of operations or financial condition.
 
CONTROL OF THE COMPANY
   
  After completion of this Offering, the executive officers and directors of
the Company will continue to beneficially own 5,250,616 shares of Common
Stock, representing 29.9% of the Common Stock, including options to purchase
522,922 shares of Common Stock exercisable on or prior to January 6, 1997. The
executive officers and directors have also been granted options to purchase an
additional 753,744 shares of Common Stock which vest after January 6, 1997. Of
these amounts, Mr. K. Paul Singh, the Company's Chairman and Chief Executive
Officer beneficially owns 4,365,030 shares of Common Stock and options to
purchase an additional 338,100 shares, none of which vest or are exercisable
before January 6, 1997. In addition, the Soros/Chatterjee Group beneficially
owns 1,304,099 shares (including warrants to purchase 338,100 shares of Common
Stock exercisable on or prior to January 6, 1997) and has the right to acquire
an additional 1,242,180 shares (assuming they exercise their rights to acquire
these shares at the time of the consummation of the Offering). As a result, if
they act as a group, the executive officers, directors and the
Soros/Chatterjee Group will exercise significant influence over such matters
as the election of the directors of the Company, amendments     
 
                                      14

<PAGE>
 
to the Company's charter, other fundamental corporate transactions such as
mergers, asset sales, and the sale of the Company, and otherwise the direction
of the Company's business and affairs. See "Principal Stockholders" and
"Description of Capital Stock."
 
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DIVIDENDS; OWNERSHIP
OF AXICORP
 
  Primus is a holding company, the principal assets of which are its operating
subsidiaries in the United States, Australia, the United Kingdom and Mexico.
As a holding company, the Company's internal sources of funds to meet its cash
needs, including payment of expenses, are dividends and other permitted
payments from its direct and indirect subsidiaries, as well as its own credit
arrangements. The ability of the Company's operating subsidiaries to pay
dividends or make other payments to Primus may be restricted by the terms of
various credit arrangements entered into by such operating subsidiaries, as
well as statutory and other legal restrictions, and such payments may have
adverse tax consequences. The failure to pay any such dividends or make any
such other payments would restrict Primus's ability to utilize cash flow from
one subsidiary to cover shortfalls in working capital at another subsidiary
and could otherwise have a material adverse effect upon the Company's
business, financial condition and results of operations.
 
  Although the Company is the beneficial owner of 100% of the capital stock of
Axicorp, 157,333 shares, or approximately 27%, of such capital stock are
registered in the names of certain of the previous shareholders. These shares
will be registered in the name of the Company upon payment of approximately
$8.1 million, on a discounted basis, constituting the deferred portion of the
purchase price for Axicorp. In addition, the remaining 432,667 shares, or
approximately 73%, of Axicorp are pledged in favor of such previous
shareholders as security for the deferred purchase price for Axicorp. Under
the terms of the share mortgage, the previous shareholders have no right to
vote, participate in the governance of Axicorp, receive dividends or transfer
the Axicorp shares. Although the Company intends to pay the deferred purchase
price when due, any failure by the Company to make such payment, or any
failure by the previous shareholders to deliver the pledged shares upon the
making of such payment, could affect the Company's ownership interest in
Axicorp and have an adverse effect on the Company's ability to receive
dividends and other distributions from Axicorp. See "Use of Proceeds" and Note
12 to the Consolidated Financial Statements of the Company.
 
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE;
POSSIBLE VOLATILITY OF STOCK PRICE
 
  Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that following this Offering, an active
trading market will develop or, if developed, will be maintained. The initial
public offering price of the Common Stock offered hereby was determined by
negotiations between the Company and the Representatives (as herein defined)
of the Underwriters and may bear no relationship to the price at which the
Common Stock will trade after completion of this Offering. For factors
considered in determining the initial public offering price, see
"Underwriting." Historically, the market prices for securities of emerging
companies in the telecommunications industry have been highly volatile. After
completion of this Offering, the market price of the Common Stock could be
subject to significant fluctuations in response to various factors and events,
including the liquidity of the market for the Common Stock, variations in the
Company's quarterly operating results, regulatory or other changes (both
domestic and international) affecting the telecommunications industry
generally, announcements of business developments by the Company or its
competitors, the addition of customers in connection with acquisitions,
changes in the cost of long distance service or other operating costs and
changes in general market conditions.
 
ANTI-TAKEOVER PROVISIONS
 
  Prior to the completion of this Offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Amended
and Restated By-Laws (the "By-Laws") will be amended to include certain
provisions which may have the effect of delaying, deterring or preventing a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Company's
 
                                      15

<PAGE>
 
Board of Directors. Such provisions may also render the removal of directors
and management more difficult. Specifically, the Company's Certificate of
Incorporation or By-Laws will be amended to provide for a classified Board of
Directors serving staggered three-year terms, restrictions on who may call a
special meeting of stockholders and a prohibition on stockholder action by
written consent. In addition, the Company's Board of Directors has the
authority to issue up to 2,000,000 additional shares of preferred stock (the
"Preferred Stock") and to determine the price, rights, preferences, and
privileges of those shares without any further vote or actions by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of such additional shares
of Preferred Stock, while potentially providing desirable flexibility in
connection with possible acquisitions and serving other corporate purposes,
could have the effect of making it more difficult for a third party to
acquire, or may discourage a third party from attempting to acquire, a
majority of the outstanding voting stock of the Company. The Company has no
present intention to issue such additional shares of Preferred Stock. In
addition, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law (the "DGCL"), which will prohibit
the Company from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder unless the business
combination is approved in a prescribed manner. The application of Section 203
also could have the effect of delaying or preventing a change of control of
the Company. Furthermore, certain provisions of the Company's By-Laws,
including provisions that provide that the exact number of directors shall be
determined by a majority of the Board of Directors, that vacancies on the
Board of Directors may be filled by a majority vote of the directors then in
office, though less than a quorum, and that limit the ability of new majority
stockholders to remove directors, all of which may have the effect of delaying
or preventing changes in control or management of the Company, and which could
adversely affect the market price of the Company's Common Stock. Additionally,
certain Federal regulations require prior approval of certain transfers of
control which could also have the effect of delaying, deferring or preventing
a change of control. See "Business--Government Regulations." See "Management--
Classified Board of Directors," "Description of Capital Stock" and "Business--
Government Regulation."
 
SHARES ELIGIBLE FOR FUTURE SALE
   
  Sales of a substantial number of shares of Common Stock in the public market
after this Offering could adversely affect the market price of the shares of
Common Stock. In addition to the 5,000,000 shares of Common Stock offered
hereby which will be freely tradeable, an additional 5,071,500 shares will
become eligible for public sale beginning 180 days after the effective date of
the Registration Statement of which this Prospectus forms a part (the
"Effective Date"), subject to the provisions of Rule 144 promulgated under the
Securities Act. The volume limitations of Rule 144 will apply to the sale of
all of such shares held by affiliates of the Company. Following this Offering,
sales of substantial amounts of shares of Common Stock in the public market,
or even the potential for such sales, could adversely affect the prevailing
market price of the Common Stock and impair the Company's ability to raise
capital through the sale of equity securities. See "Principal Stockholders"
and "Shares Eligible for Future Sale."     
 
DILUTION
   
  Purchasers of Common Stock in this Offering will experience immediate and
substantial dilution in pro forma net tangible book value of $7.39 per share.
See "Dilution."     
 
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
   
  The Company may use a portion of the net proceeds from the Offering to pay
certain indebtedness as and when it comes due, including A$12 million
(Australian dollars) owing to the holders of Series A Stock and $2 million
owing to Teleglobe, a current stockholder of the Company. See "Use of
Proceeds." Upon completion of the Offering, certain additional benefits will
accrue to the current stockholders of the Company, including the creation of a
public market for their shares of Common Stock, an increase of $2.67 in the
net tangible book value per share of Common Stock, and ownership of Common
Stock in a Company having a substantially lower debt-to-equity ratio than
existed prior to completion of the Offering. Additionally, the aggregate
unrealized gain to current stockholders will be approximately $97 million. See
"--Dilution."     
 
                                      16

<PAGE>
 

                                USE OF PROCEEDS
   
  The net proceeds from the Offering will be approximately $47.6 million
($54.9 million if the Underwriter's over-allotment option is exercised in
full), less underwriting discounts and commissions and estimated expenses
payable by the Company. Up to $40 million of the net proceeds will be used to
expand the Network, including purchasing transmission equipment facilities and
support systems, international fiber capacity and satellite earth station
facilities for new and existing routes. The remaining net proceeds will be
used to fund operating losses, and for working capital and other general
corporate purposes.     
 
  The Company also may use a portion of the net proceeds to repay certain
existing indebtedness as it matures, including A$9.0 million of indebtedness
incurred as a portion of the purchase price for Axicorp, which is non-interest
bearing and matures on February 17, 1997, subject to extension at the
Company's option for an additional year at the prime rate plus one percent.
   
  The Company currently anticipates spending up to $70 million on the
improvement and expansion of the Network during the next 18 months. The
Company believes that the net proceeds from the Offering, together with the
net proceeds from the Private Equity Sale, borrowing capacity under an
expected line of credit and available capital lease financing, will be
sufficient to fund the Company's operating losses, capital expenditures and
other cash needs for the next 18 months. The Company is currently in
discussions to obtain a line of credit to provide it with additional
liquidity, although no assurance can be given that such a line of credit can
be obtained on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."     
 
  Pending use of the net proceeds for the above purposes, the Company intends
to invest such funds in short-term investment grade securities or shares of
investment companies investing primarily in such securities.
 
                                      17

<PAGE>
 
                                   DILUTION
   
  The pro forma net tangible book value of the Company at June 30, 1996 was
$5.3 million, or $0.44 per share of Common Stock. "Net tangible book value"
per share represents the amount of total tangible assets of the Company
reduced by the amount of its total liabilities and divided by the total number
of shares of Common Stock outstanding. The pro forma net tangible book value
per share as of June 30, 1996 gives effect to the Private Equity Sale,
Preferred Stock Conversion and Stock Split. Without taking into account any
other change in such pro forma net tangible book value after June 30, 1996,
other than to give effect to the sale by the Company of 5,000,000 shares of
Common Stock offered hereby and the receipt of the estimated net proceeds
therefrom, the pro forma as adjusted net tangible book value of the Company at
June 30, 1996 would have been approximately $52.9 million, or $3.11 per share
of Common Stock. This represents an immediate increase in such pro forma net
tangible book value of $2.67 per share of Common Stock to existing
stockholders and an immediate dilution of $7.39 per share of Common Stock to
persons purchasing shares at the public offering price ("New Investors").     
 
  The following table illustrates this per share dilution:
 

<TABLE>     
   <S>                                                             <C>   <C>
   Initial public offering price.................................        $10.50
     Pro forma net tangible book value per share at June 30,
      1996.......................................................  $0.44
     Increase attributable to New Investors......................   2.67
                                                                   -----
   Pro forma as adjusted net tangible book value per share after
    this Offering................................................          3.11
                                                                         ------
   Dilution in pro forma net tangible book value per share to New
    Investors....................................................        $ 7.39
                                                                         ======
</TABLE>
    
 
  The following table summarizes, on a pro forma as adjusted basis as of June
30, 1996, the differences between the existing holders of Common Stock,
including as a result of the Private Equity Sale and the Preferred Stock
Conversion, and the New Investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration to the
Company and the average price per share paid:
 

<TABLE>   
<CAPTION>
                                 SHARES PURCHASED  TOTAL CONSIDERATION  AVERAGE
                                ------------------ ------------------- PRICE PER
                                  NUMBER   PERCENT   AMOUNT    PERCENT   SHARE
                                ---------- ------- ----------- ------- ---------
<S>                             <C>        <C>     <C>         <C>     <C>
Existing Stockholders.......... 12,028,746  70.6%  $29,241,328  35.8%   $ 2.43
New Investors..................  5,000,000  29.4    52,500,000  64.2    $10.50
                                ----------  ----   -----------  ----
  Total........................ 17,028,746   100%  $81,741,328   100%
                                ==========  ====   ===========  ====
</TABLE>
    
   
  The above computations assume no exercise of any outstanding options or
warrants. At June 30, 1996, there were outstanding options to purchase
1,635,559 shares of Common Stock at a weighted average exercise price of $3.04
per share. Additionally, on July 31, 1996, the Company issued the
Soros/Chatterjee Warrants, which may be exercised for up to 1,580,280 shares
of Common Stock, assuming such warrants were exercised on the date of the
Offering at the initial public offering price. The actual number of shares of
Common Stock issuable upon exercise of the Soros/Chatterjee Warrants will be
up to 627,899 shares plus an indeterminate number of shares having a fair
market value of $10 million as of the date of exercise. To the extent
outstanding options or the Soros/Chatterjee Warrants are exercised, there will
be further dilution to new investors. See "Certain Transactions--Private
Equity Sale," "Management--Stock Option Plans" and Notes 8 and 13 to the
Consolidated Financial Statements of the Company.     
 

                                DIVIDEND POLICY
 
  To date, the Company has not paid any dividends on its capital stock. The
Company currently intends to retain any future earnings to fund operations and
the continued development of its business and, therefore, does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
Future cash dividends, if any, will be determined by the Board of Directors,
and will be based upon the Company's earnings, capital requirements, financial
condition and other factors deemed relevant by the Board of Directors. The
Company is currently in discussions to obtain a $25 million line of credit,
the agreements relating to which can be expected to include limitations on or
prohibitions against the Company's ability to pay dividends.
 
                                      18

<PAGE>
 

                                CAPITALIZATION
   
  The following table sets forth as of June 30, 1996: (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the
Company after giving effect to the Stock Split, the Private Equity Sale and
the Preferred Stock Conversion; and (iii) the pro forma as adjusted
capitalization of the Company after giving effect to the Stock Split, Private
Equity Sale, the Preferred Stock Conversion, and the sale of 5,000,000 shares
of Common Stock offered by the Company hereby, less underwriting discounts,
commissions, and estimated expenses of the Offering payable by the Company,
and the application of the estimated net proceeds therefrom. This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and notes thereto included elsewhere in this Prospectus.     
 

<TABLE>   
<CAPTION>
                                                         JUNE 30, 1996
                                                 -------------------------------
                                                                    PRO FORMA AS
                                                 ACTUAL   PRO FORMA   ADJUSTED
                                                 -------  --------- ------------
                                                         (IN THOUSANDS)
<S>                                              <C>      <C>       <C>
Cash and cash equivalents......................  $ 4,398   $20,198    $67,823
                                                 =======   =======    =======
Long-term obligations due within one year......  $10,627   $10,627    $10,627
Long-term obligations..........................    6,302     6,302      6,302
Stockholders' Equity:
Preferred Stock, $.01 par value--2,455,000
 shares authorized:
 Series A Convertible Preferred Stock--455,000
 shares
 authorized, issued and outstanding; none
 issued and outstanding pro forma and pro forma
 as adjusted...................................        5       --         --
Common Stock, $.01 par value--35,348,355 shares
 authorized;
 9,524,392, 12,028,746, and 17,028,746 shares
 actual, pro forma and pro
 forma as adjusted, respectively, issued and
 outstanding(1)................................       95       120        170
Additional paid-in capital.....................   17,985    33,765     81,340
Accumulated deficit............................   (6,235)   (6,235)    (6,235)
Cumulative translation adjustment..............      (50)      (50)       (50)
                                                 -------   -------    -------
  Total stockholders' equity...................   11,800    27,600     75,225
                                                 -------   -------    -------
   Total capitalization........................  $28,729   $44,529    $92,154
                                                 =======   =======    =======
</TABLE>
    
- --------
   
(1)  Excludes 1,690,500 and 338,100 shares reserved for issuance under the
     Employee Plan and Director Plan, respectively, of which options to
     purchase 1,432,699 and 202,860 shares, respectively, have been granted
     and are outstanding as of June 30, 1996. Also excludes 1,580,280 shares
     which may be issued under the Soros/Chatterjee Warrants assuming such
     warrants were exercised on the date of the Offering at the initial public
     offering price. The actual number of shares of Common Stock issuable upon
     exercise of the Soros/Chatterjee Warrants will be up to 627,899 shares
     plus an indeterminate number of shares having a fair market value of $10
     million as of the date of exercise. See "Management--Stock Option Plans"
     and "Description of Capital Stock--Warrants."     
 
                                      19

<PAGE>
 
                            SELECTED FINANCIAL DATA
 
  The following selected financial data should be read in conjunction with the
financial statements and the notes thereto contained elsewhere herein and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The statements of operations data for the Company for the period
from the Company's inception on February 4, 1994 to December 31, 1994 and the
year ended December 31, 1995, and the balance sheet data as of December 31,
1994 and 1995 have been derived from the financial statements of the Company,
which have been audited by Deloitte & Touche LLP, independent auditors. The
historical financial data for the Company for the six month periods ended June
30, 1995 and 1996 have been derived from the Company's unaudited financial
statements which, in the opinion of management, include all significant normal
and recurring adjustments necessary for a fair presentation of the financial
position and results of operations for such unaudited period. The historical
data for the Company for the six month period ended June 30, 1996 include the
historical results of Axicorp from March 1, 1996 (the date of acquisition).
The statements of operations data for Axicorp for the nine month period ended
March 31, 1995 and the twelve months ended March 31, 1996 have been derived
from the financial statements of Axicorp, which have been audited by Price
Waterhouse, independent chartered accountants. The historical financial data
for Axicorp for the period from Axicorp's inception on September 17, 1993 to
June 30, 1994 has been derived from Axicorp's unaudited financial statements
which, in the opinion of management, include all significant normal and
recurring adjustments necessary for a fair presentation of the financial
position and results of operations for such unaudited period.
 

<TABLE>   
<CAPTION>
                                            AXICORP (THE PREDECESSOR)                       THE COMPANY
                                        --------------------------------- ------------------------------------------------
                                        PERIOD FROM              TWELVE   PERIOD FROM                    SIX MONTHS
                                         INCEPTION  NINE MONTHS  MONTHS    INCEPTION                        ENDED
                                          THROUGH      ENDED      ENDED     THROUGH     YEAR ENDED        JUNE 30,
                                         JUNE 30,    MARCH 31,  MARCH 31, DECEMBER 31, DECEMBER 31, ----------------------
                                           1994        1995       1996        1994         1995        1995        1996
                                        ----------- ----------- --------- ------------ ------------ ----------  ----------
                                                         (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                     <C>         <C>         <C>       <C>          <C>          <C>         <C>
STATEMENT OF OPERATIONS DATA:          
Net revenue...........................    $12,587     $44,797   $144,345   $     --     $    1,167  $      221  $   65,415
Cost of revenue.......................     11,366      40,405    131,712         --          1,384         203      60,162
                                          -------     -------   --------   ---------    ----------  ----------  ----------
 Gross margin (deficit)...............      1,221       4,392     12,633         --           (217)         18       5,253
Operating expenses:                    
 Selling, general and                  
  administrative......................      1,313       4,277     11,558         557         2,024         714       6,707
 Depreciation and amortization........          5          43        235          12           160          65         798
                                          -------     -------   --------   ---------    ----------  ----------  ----------
  Total operating expenses............      1,318       4,320     11,793         569         2,184         779       7,505
                                          -------     -------   --------   ---------    ----------  ----------  ----------
Income (loss) from operations.........        (97)         72        840        (569)       (2,401)       (761)     (2,252)
Interest expense......................        --          --         --          (13)          (59)        (33)       (335)
Interest income.......................        --           30        219           5            35           1          85
Other income (expense)................        --          --         --          --            --          --         (268)
                                          -------     -------   --------   ---------    ----------  ----------  ----------
Income (loss) before income taxes.....        (97)        102      1,059        (577)       (2,425)       (793)     (2,770)
Income taxes..........................        --            4        492         --            --          --          462
                                          -------     -------   --------   ---------    ----------  ----------  ----------
Net income (loss).....................    $   (97)    $    98   $    567   $    (577)   $   (2,425) $     (793) $   (3,232)
                                          =======     =======   ========   =========    ==========  ==========  ==========
Net loss per common and common share   
 equivalents..........................                                     $    (.07)   $     (.22) $     (.07) $     (.26)
                                                                           =========    ==========  ==========  ==========
Weighted average number of common and  
 common share equivalents              
 outstanding..........................                                     8,560,126    10,892,247  10,716,939  12,485,978
- ---------------------------------------
                                                                           =========    ==========  ==========  ==========
</TABLE>
    
 

<TABLE>
<CAPTION>

                                                              THE COMPANY
                                                         -----------------------
                                                         DECEMBER 31,
                                                         -------------- JUNE 30,
                                                         1994    1995     1996
                                                         ------ ------- --------
                                                             (IN THOUSANDS)
<S>                                                      <C>    <C>     <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 221  $ 2,296 $ 4,398
Total assets............................................   487    5,042  62,297
Total long-term obligations.............................    13      528  16,929
Stockholders' equity (deficit)..........................   (71)   2,562  11,800
</TABLE>

 
                                      20

<PAGE>
 
           UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
 
  The following unaudited pro forma consolidated statements of operations data
give effect to the March 1, 1996 acquisition of Axicorp in each case as if it
occurred on January 1, 1995. The unaudited pro forma consolidated statement of
operations data for the six months ended June 30, 1996 includes the operations
of the Company for the six months ended June 30, 1996, which includes the
results of operations of Axicorp since March 1, 1996 (the date of acquisition)
and the operations of Axicorp for the months of January and February 1996. The
unaudited pro forma consolidated statement of operations data for the six
months ended June 30, 1995 includes the results of operations of the Company
and of Axicorp for six months ended June 30, 1995. The unaudited consolidated
pro forma statement of operations data for the year ended December 31, 1995
includes the results of operations data of the Company and Axicorp for the
year ended December 31, 1995.
 
  The unaudited pro forma consolidated statements of operations are presented
for informational purposes only and are not necessarily indicative of the
results of operations that would have been achieved had the acquisition of
Axicorp been completed as of the beginning of the periods presented, nor are
they necessarily indicative of the Company's future results of operations. The
unaudited pro forma consolidated statements of operations should be read in
conjunction with the historical financial statements of the Company and
Axicorp, including the related notes thereto.
 
                                      21

<PAGE>
 
                       PRIMUS TELECOMMUNICATIONS GROUP,
                         INCORPORATED AND SUBSIDIARIES
 
           UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE SIX MONTHS ENDED JUNE 30, 1996
 

<TABLE>   
<CAPTION>
                                                       PRO FORMA
                                                      ADJUSTMENTS
                                 THE                   RELATED TO
                              COMPANY(1)  AXICORP(2) ACQUISITION(3) AS ADJUSTED
                              ----------  ---------- -------------- -----------
                              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                           <C>         <C>        <C>            <C>
Net revenue.................. $   65,415   $26,368       $ --       $   91,783
Cost of revenue..............     60,162    23,756         --           83,918
                              ----------   -------       -----      ----------
  Gross margin...............      5,253     2,612         --            7,865
Operating expenses:
  Selling, general and admin-
   istrative.................      6,707     2,084         --            8,791
  Depreciation and amortiza-
   tion......................        798        48         252           1,098
                              ----------   -------       -----      ----------
    Total operating ex-
     penses..................      7,505     2,132         252           9,889
                              ----------   -------       -----      ----------
Income (loss) from opera-
 tions.......................     (2,252)      480        (252)         (2,024)
Interest expense.............       (335)      --         (138)           (473)
Interest income..............         85       124         --              209
Other income (expense).......       (268)      --          --             (268)
                              ----------   -------       -----      ----------
Income (loss) before income
 taxes.......................     (2,770)      604        (390)         (2,556)
Income taxes.................        462       281         --              743
                              ----------   -------       -----      ----------
Net income (loss)............ $   (3,232)  $   323       $(390)     $   (3,299)
                              ==========   =======       =====      ==========
Net loss per common and com-
 mon share equivalents....... $     (.26)                           $     (.26)
                              ==========                            ==========
Weighted average number of
 common and common share
 equivalents outstanding..... 12,485,978                            12,485,978
                              ==========                            ==========
</TABLE>
    
- --------
(1) Reflects the historical results of operations of the Company for the six
    months ended June 30, 1996, including Axicorp's operations from March 1,
    1996 (acquisition date) to June 30, 1996, as set forth in the Consolidated
    Financial Statements of the Company appearing elsewhere in this
    Prospectus.
(2) Reflects the historical results of operations of Axicorp for the months of
    January and February 1996.
(3) The pro forma adjustments to depreciation and amortization reflect the
    following:
 

<TABLE>
   <S>                                                                     <C>
     Increase in amortization of the excess of cost over fair value of
     net assets acquired related to the purchase of Axicorp (computed us-
     ing the straight line method over thirty years--represents two
     months)                                                               $100
     Increase in amortization of the value associated with the customer
     list acquired related to the purchase of Axicorp (computed using the
     estimated run-off of the customer base (approximately five years)--
     represents two months)                                                 152
                                                                           ----
                                                                           $252
                                                                           ====
   The pro forma adjustment to increase interest expense relates to the
   issuance of notes payable of $8,110 related to the acquisition of
   Axicorp--represents two months                                          $138
                                                                           ====
   The pro forma adjustment to the income tax provision is zero as a val-
   uation reserve was applied in full to the tax benefit associated with
   the pro forma net loss before income taxes.
</TABLE>

 
                                      22

<PAGE>
 
                       PRIMUS TELECOMMUNICATIONS GROUP,
                         INCORPORATED AND SUBSIDIARIES
 
           UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE SIX MONTHS ENDED JUNE 30, 1995
 

<TABLE>   
<CAPTION>
                                                       PRO FORMA
                                                      ADJUSTMENTS
                                 THE                   RELATED TO
                              COMPANY(1)  AXICORP(2) ACQUISITION(3) AS ADJUSTED
                              ----------  ---------- -------------- -----------
                              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                           <C>         <C>        <C>            <C>
Net revenue.................. $      221   $47,709      $   --      $   47,930
Cost of revenue..............        203    42,938          --          43,141
                              ----------   -------      -------     ----------
  Gross margin...............         18     4,771          --           4,789
Operating expenses:
  Selling, general and admin-
   istrative.................        714     4,662          --           5,376
  Depreciation and amortiza-
   tion......................         65        58          756            879
                              ----------   -------      -------     ----------
    Total operating ex-
     penses..................        779     4,720          756          6,255
                              ----------   -------      -------     ----------
Income (loss) from opera-
 tions.......................       (761)       51         (756)        (1,466)
Interest expense.............        (33)      --          (413)          (446)
Interest income..............          1        29          --              30
Other income (expense).......        --        --           --             --
                              ----------   -------      -------     ----------
Income (loss) before income
 taxes.......................       (793)       80       (1,169)        (1,882)
Income taxes.................        --         68          --              68
                              ----------   -------      -------     ----------
Net income (loss)............ $     (793)  $    12      $(1,169)    $   (1,950)
                              ==========   =======      =======     ==========
Net loss per common and com-
 mon share equivalents....... $     (.07)                           $     (.18)
                              ==========                            ==========
Weighted average number of
 common and common share
 equivalents outstanding..... 10,716,939                            10,716,939
                              ==========                            ==========
</TABLE>
    
- --------
(1) Reflects the historical results of operations of the Company for the six
    months ended June 30, 1995, as set forth in the Consolidated Financial
    Statements of the Company appearing elsewhere in this Prospectus.
(2) Reflects the historical results of operations of Axicorp for the six
    months ended June 30, 1995.
(3) The pro forma adjustments to depreciation and amortization reflect the
    following:
 

<TABLE>
   <S>                                                                     <C>
     Increase in amortization of the excess of cost over fair value of
     net assets acquired related to the purchase of Axicorp (computed us-
     ing the straight line method over thirty years--represents six
     months)                                                               $300
     Increase in amortization of the value associated with the customer
     list acquired related to the purchase of Axicorp (computed using the
     estimated run-off of the customer base (approximately five years)--
     represents six months)                                                 456
                                                                           ----
                                                                           $756
                                                                           ====
   The pro forma adjustment to increase interest expense relates to the
   issuance of notes payable of $8,110 related to the acquisition of
   Axicorp--represents six months                                          $413
                                                                           ====
   The pro forma adjustment to income tax provision is zero as a valua-
   tion reserve was applied in full to the tax benefit associated with
   the pro forma net loss before income taxes.
</TABLE>

 
                                      23

<PAGE>
 
                        PRIMUS TELECOMMUNICATIONS GROUP,
                         INCORPORATED AND SUBSIDIARIES
 
           UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1995
 

<TABLE>   
<CAPTION>
                                                       PRO FORMA
                                                      ADJUSTMENTS
                                 THE                   RELATED TO
                              COMPANY(1)  AXICORP(2) ACQUISITION(3) AS ADJUSTED
                              ----------  ---------- -------------- -----------
                              (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                           <C>         <C>        <C>            <C>
Net revenue.................. $    1,167   $124,461     $   --      $  125,628
Cost of revenue..............      1,384    113,255         --         114,639
                              ----------   --------     -------     ----------
  Gross margin (deficit).....       (217)    11,206         --          10,989
Operating expenses:
  Selling, general and admin-
   istrative.................      2,024     10,931         --          12,955
  Depreciation and amortiza-
   tion......................        160        169       1,513          1,842
                              ----------   --------     -------     ----------
    Total operating ex-
     penses..................      2,184     11,100       1,513         14,797
                              ----------   --------     -------     ----------
Income (loss) from opera-
 tions.......................     (2,401)       106      (1,513)        (3,808)
Interest expense.............        (59)       --         (826)          (885)
Interest income..............         35         97         --             132
Other income (expense).......        --         --          --             --
                              ----------   --------     -------     ----------
Income (loss) before income
 taxes.......................     (2,425)       203      (2,339)        (4,561)
Income taxes.................        --         124         --             124
                              ----------   --------     -------     ----------
Net income (loss)............ $   (2,425)  $     79     $(2,339)    $   (4,685)
                              ==========   ========     =======     ==========
Net loss per common and com-
 mon share equivalents....... $     (.22)                           $     (.43)
                              ==========                            ==========
Weighted average number of
 common and common share
 equivalents outstanding..... 10,892,247                            10,892,247
                              ==========                            ==========
</TABLE>
    
- --------
(1) Reflects the historical results of operations of the Company for the year
    ended December 31, 1995 as set forth in the Consolidated Financial
    Statements of the Company appearing elsewhere in this Prospectus.
(2) Reflects the historical results of operations of Axicorp for the year ended
    December 31, 1995.
(3) The pro forma adjustments to depreciation and amortization reflect the
    following:
 

<TABLE>
   <S>                                                                   <C>
     Increase in amortization of the excess of cost over fair value of
     net assets acquired related to the purchase of Axicorp (computed
     using the straight line method over thirty years--represents
     twelve months).                                                     $  600
     Increase in amortization of the value associated with the customer
     list acquired related to the purchase of Axicorp (computed using
     the estimated run-off of the customer base (approximately five
     years)--represents twelve months)                                      913
                                                                         ------
                                                                         $1,513
                                                                         ======
   The pro forma adjustment to interest expense relates to the issuance
   of notes payable of $8,110 related to the acquisition of Axicorp--
   represents twelve months                                              $  826
                                                                         ======
   The pro forma adjustment to the income tax provision is zero as a
   valuation reserve was applied in full to the tax benefit associated
   with the pro forma net loss before income taxes.
</TABLE>

 
                                       24

<PAGE>
 

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
  The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto contained elsewhere in this Prospectus.
 
OVERVIEW
 
  Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and consumer demand for
international telecommunications services generated by the globalization of
the world's economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-
Pacific and Europe as its primary service regions. The Company currently
provides services in the United States, Australia and the United Kingdom,
which are the most deregulated countries within the Targeted Regions and which
serve as regional hubs for expansion into additional markets within the
Targeted Regions. As part of the execution of this strategy, the Company has
commenced operations in Mexico and has installed a switch in Canada. The
Company expects to expand into additional markets as deregulation occurs and
the Company is permitted to offer a full range of switched public telephone
services in such markets.
 
  The Company was founded in February 1994 and through the first half of 1995
was a development stage enterprise involved in various start-up activities
including raising capital, obtaining licenses, acquiring equipment, leasing
space, developing markets and recruiting and training personnel. The Company
began generating revenue during March 1995. On March 1, 1996 the Company
acquired Axicorp, the fourth largest telecommunications provider in Australia.
The acquisition of Axicorp has had a material effect on the Company's results
of operations for the six months ended June 30, 1996. The Company's Australian
operations generated approximately $44 million, or 91%, of the Company's net
revenue for the three months ended June 30, 1996. The acquisition of Axicorp
furthers the Company's objectives by providing a substantial customer base and
significant hub location in the Asia-Pacific market.
   
  The Company is investing substantial resources to transform Axicorp's
strategy and operations to those of a facilities-based carrier focused on the
provision of international and domestic long distance services. Prior to the
acquisition, Axicorp was a switchless reseller of long distance, local and
cellular service. Since the acquisition, the Company has acquired five
switches for use in Australia, all of which are expected to be operational by
the end of the first quarter of 1997, and has focused on increasing the number
of higher-margin, higher-volume business customers with significant
international long-distance traffic. Since the acquisition of Axicorp, the
Company has committed approximately $4 million to implement its Network in
Australia, including the purchase of switches, and anticipates that, of the up
to $70 million currently anticipated to be spent for improving and expanding
the Network over the next 18 months, approximately 30% will be spent in
Australia. As part of its increasing focus on business customers, the Company
is increasing the direct sales force of Axicorp and lessening its reliance on
marketing through associations. The Company has experienced and expects to
continue to experience lower gross margin as a percentage of net revenue for
Axicorp's local switched and cellular services, as compared to long distance
services.     
 
  Net revenue is derived from the number of minutes billed by the Company and
is recorded upon completion of calls. The Company generally prices its
services at a savings compared to the major carriers operating in the Targeted
Regions, which allows the Company to offer competitive pricing to its
customers. In Australia, net revenue is currently derived approximately
equally from the provision of long distance and from the provision of local
and cellular services, primarily to a broad mix of small- and medium-sized
businesses. The Company's net revenue in the United States is derived from
carrying a mix of business, consumer and wholesale carrier long distance
traffic. In the United Kingdom, net revenue is derived from the provision of
long distance services, primarily to ethnic residential consumers, as well as
to small- and medium-sized businesses. The Company intends to generate net
revenue from internal growth through focused sales and marketing efforts on a
retail basis
 
                                      25

<PAGE>
 
toward small- and medium-sized businesses with significant international long
distance traffic and ethnic residential consumers and, on a wholesale basis,
to other telecommunications carriers and resellers with international traffic
in the Targeted Regions.
 
  Prices in the long distance industry in the United States and the United
Kingdom have declined in recent years and as competition continues to
increase, the Company believes that prices are likely to continue to decrease.
Additionally, the Company believes that because deregulatory influences only
recently have begun to affect non-U.S. and non-U.K. telecommunications
markets, the deregulatory trend in such markets is expected to result in
greater competition which could adversely affect net revenue per minute and
gross margin as a percentage of net revenue. The Company believes, however,
that such decreases in prices will be at least partially offset by increased
telecommunications usage and decreased costs.
 
  Cost of revenue is primarily comprised of costs incurred from other domestic
and foreign telecommunications carriers to access, transport and terminate
calls. The majority of the Company's cost of revenue is variable, based upon
the number of minutes of use, with transmission and termination costs being
the Company's most significant expense. As the Company increases the portion
of traffic transmitted over its own facilities, cost of revenue increasingly
will reflect lease, ownership and maintenance costs of the Network. In order
to manage such costs, the Company pursues a flexible approach with respect to
Network expansion. The Company initially obtains transmission capacity on a
variable-cost, per-minute leased basis, next acquires additional capacity on a
fixed-cost basis when traffic volume makes such a commitment cost-effective,
and ultimately purchases and operates its own facilities only when traffic
levels justify such investment. The Company also seeks to lower its cost of
revenue through (a) optimizing the routing of calls over the least cost
routing, (b) increasing volumes on its fixed cost leased lines, thereby
spreading the allocation of fixed costs over a larger number of minutes, (c)
negotiating lower variable usage based costs with domestic and foreign service
providers and negotiating additional and lower cost correspondent agreements
with foreign PTTs, and (d) continuing to expand the Network when traffic
volumes justify such investment. See "Risk Factors--Managing Rapid Growth" and
"Business--Network."
 
  Typical of the long distance telecommunications industry, the Company
generally realizes a higher gross margin as a percentage of net revenue on its
international compared to its domestic long distance services and expects to
realize a higher gross margin as a percentage of net revenue on its retail
services compared to those realized on its wholesale services. In addition,
the Company generally realizes a higher gross margin as a percentage of net
revenue on its long distance services as compared to those realized on local
switched and cellular services. Although, after giving effect to the
acquisition of Axicorp, the Company's wholesale services represent only a
small percentage of its net revenue, the Company expects such services to
represent a significantly larger percentage of net revenue over time. While
wholesale services generate a lower gross margin as a percentage of net
revenue than retail services, the additional traffic volume of such wholesale
customers improves the utilization of the Network and allows the Company to
obtain greater volume discounts from its suppliers than it otherwise would
realize. The Company's overall gross margin as a percentage of net revenue may
fluctuate in the future based on its relative volumes of international versus
domestic long distance services and wholesale versus retail long distance
services.
 
  Selling, general and administrative expenses are comprised primarily of
salaries and benefits, commissions, occupancy costs, sales and marketing
expenses, advertising and administrative costs. These expenses have been
increasing over the past year, which is consistent with the development stage
nature of the Company, expansion of the United States and United Kingdom
operations, and the transformation of Axicorp's operations. The Company
expects this trend to continue and believes that additional selling, general
and administrative expenses will be necessary to support the expansion of
sales and marketing efforts and operations.
 
  Since its inception, the Company has made, and expects to continue to make,
significant investments in the development of its operations in its Targeted
Regions and the development and expansion of the Network. The costs of
developing its operations and expanding the Network, including the purchase
and installation of switches, sales and marketing expenses and other
organizational costs, are significant. In addition, increased
 
                                      26

<PAGE>
 
   
capital investment activity in the future can be expected to affect the
Company's operating results in the near term due to increased depreciation
charges and interest expense in connection with borrowings to fund such
expenditures, which costs will be incurred in advance of the realization of
the expected improvements in operating results from such investments. Such
costs and investment activity have resulted in negative cash flows and
operating losses for the Company on an historical basis, which are expected to
continue to increase in the near future as the Company uses the proceeds of
the Offering to accelerate the expansion of its business and the build-out of
the Network. The Company currently anticipates spending up to $70 million on
the improvement and expansion of the Network during the next 18 months. See
"--Liquidity and Capital Resources" and "Use of Proceeds."     
 
  Although the Company's functional currency is the U.S. dollar, the majority
of the Company's net revenue is derived from its sales and operations outside
the United States. On a pro forma basis, approximately 94% and 99% of the
Company's net revenue was earned, and approximately 91% and 97% of the
Company's operating costs was incurred, in currencies other than the U.S.
dollar for the six months ended June 30, 1996 and the year ended December 31,
1995, respectively. In the future, the Company expects to continue to derive
the majority of its net revenue and incur the majority of its operating costs
outside the United States and changes in exchange rates may have a significant
effect on the Company's results of operations. The Company historically has
not engaged, and does not currently contemplate engaging, in hedging
transactions to mitigate foreign exchange risks. See "Risk Factors--Risks
Associated with International Operations."
 
RESULTS OF OPERATIONS
 
  As a result of the Company's acquisition of Axicorp on March 1, 1996 and the
development stage nature of the Company in the first quarter of 1995, the
Company believes that a comparison of the historical results of operations for
the six-month periods ended June 30, 1995 and 1996 is not meaningful and that
such results are not necessarily indicative of results for any future period.
Accordingly, the historical results of operations are supplemented with a more
extensive discussion of the pro forma results of operations for the six months
ended June 30, 1995 and 1996 and the pro forma quarterly results of operations
for each of the six quarters in the period ended June 30, 1996, which results
give effect to the acquisition of Axicorp as if it had occurred on January 1,
1995. A discussion of the Company's historical results of operations for the
six months ended June 30, 1995 and 1996, the period from inception (February
4, 1994) through December 31, 1994 and the year ended December 31, 1995, and a
discussion of Axicorp's historical results of operations for the years ended
March 31, 1995 and 1996 follow the discussion of the Company's pro forma
results of operations.
 
                                      27

<PAGE>
 
PRO FORMA RESULTS
 
 Results of Operations for the Six Months Ended June 30, 1996 Compared to the
Six Months Ended June 30, 1995
 
  The following table presents certain items from the Company's Unaudited Pro
Forma Consolidated Statements of Operations:
 

<TABLE>
<CAPTION>
                                                 SIX MONTHS ENDED JUNE 30,
                              YEAR ENDED        -------------------------------
                          DECEMBER 31, 1995         1995             1996
                          --------------------  --------------   --------------
                              $          %         $       %        $       %
                          ----------  --------  -------  -----   -------  -----
                              (IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S>                       <C>         <C>       <C>      <C>     <C>      <C>
Net revenue.............  $  125,628    100.0%  $47,930  100.0%  $91,783  100.0%
Cost of revenue.........     114,639     91.3    43,141   90.0    83,918   91.4
                          ----------  -------   -------  -----   -------  -----
  Gross margin..........      10,989      8.7     4,789   10.0     7,865    8.6
Operating expenses:
 Selling, general and
  administrative........      12,955     10.3     5,376   11.2     8,791    9.6
 Depreciation and amor-
  tization..............       1,842      1.5       879    1.8     1,098    1.2
                          ----------  -------   -------  -----   -------  -----
  Total operating ex-
   penses...............      14,797     11.8     6,255   13.1     9,889   10.8
                          ----------  -------   -------  -----   -------  -----
Income (loss) from oper-
 ations.................      (3,808)    (3.0)   (1,466)  (3.1)   (2,024)  (2.2)
Interest expense........        (885)    (0.7)     (446)  (0.9)     (473)  (0.5)
Interest income.........         132      0.1        30    0.1       209    0.2
Other income (expense)..         --       --        --     --       (268)  (0.3)
                          ----------  -------   -------  -----   -------  -----
Income (loss) before in-
 come taxes.............      (4,561)    (3.6)   (1,882)  (3.9)   (2,556)  (2.8)
Income taxes............         124      0.1        68    0.1       743    0.8
                          ----------  -------   -------  -----   -------  -----
Net income (loss).......  $   (4,685)    (3.7)% $(1,950)  (4.1)% $(3,299)  (3.6)%
                          ==========  =======   =======  =====   =======  =====
</TABLE>

 
  Net revenue increased 92%, or $43.9 million, from $47.9 million for the six
months ended June 30, 1995 to $91.8 million for the six months ended June 30,
1996. The Australian net revenue increased 80%, or $37.9 million, from $47.7
million to $85.6 million. The increase was attributable to growth in minutes
of traffic primarily from business customers, as well as an increased number
of cellular customers. Non-Australian net revenue was $6.2 million for the six
months ended June 30, 1996 as compared to minimal revenue of $0.2 million for
the six months ended June 30, 1995. The increase was attributable to a greater
number of customers in all non-Australian geographical regions of the
Company's business and an increase in minutes of use to higher rate per minute
countries, including India, Iran, Japan and Argentina. As the Company
continues to build its sales and marketing staff, establish additional carrier
arrangements and expand the Network, the Company expects the minutes of
traffic and associated revenue to continue to increase.
 
  Cost of revenue increased 95%, or $40.8 million, from $43.1 million for the
six months ended June 30, 1995 to $83.9 million for the six months ended June
30, 1996. The increase was a direct reflection of the increased traffic the
Company carried for customers. The Australian cost of revenue increased 79%,
or $34.1 million, from $42.9 million for the six months ended June 30, 1995 to
$77.0 million for the six months ended June 30, 1996. The Australian cost of
revenue increase is primarily driven by increased traffic and, to a lesser
extent, lower tariff rate discounts implemented by Telstra in February 1996.
The Australian cost of revenue as a percentage of revenue remained constant at
90%. The non-Australian cost of revenue increased $6.8 million as a result of
increased traffic. Cost of revenue as a percentage of net revenue increased
from 90% to 91%. The non-Australian cost of revenue as a percentage of net
revenue increased as a result of the lack of return traffic associated with
newly initiated correspondent agreements, and traffic being carried on more
expensive carriers because of lack of adequate capacity with lower cost
carriers.
 
  Gross margin increased 64%, or $3.1 million, from $4.8 million for the six
months ended June 30, 1995 to $7.9 million for the six months ended June 30,
1996. The Australian gross margin percentage remained constant at 10%. The
non-Australian operations reported a gross deficit of $0.8 million.
 
                                      28

<PAGE>
 
  Selling, general and administrative expenses increased 64%, or $3.4 million,
from $5.4 million for the six months ended June 30, 1995 to $8.8 million for
the six months ended June 30, 1996. The Australian operations increased
selling, general and administrative expenses $1.4 million as a result of
increased salaries and benefits, commissions and administrative expenses to
support the continued growth in the business. The Australian selling, general
and administrative expenses as a percentage of net revenue decreased from 10%
to 7% for the six months ended June 30, 1995 and 1996, respectively, as a
result of fixed costs being spread over an increasing revenue base. The non-
Australian operations account for the remaining increase of $2.0 million due
to growth in sales and marketing staffing levels, network operations expenses,
and customer service costs.
 
  Depreciation and amortization increased 25%, or $0.2 million, from $0.9
million for the six months ended June 30, 1995 to $1.1 million for the six
months ended June 30, 1996. The increase was primarily attributable to
depreciation for $0.7 million for capital additions associated with the
development of the customer billing system in Australia and $0.9 million of
capital additions for network equipment in the non-Australian markets.
 
  Interest expense increased 6% as a result of additional capital leases to
finance network switching equipment in the United States, as well as the
incurrence of $2.0 million of debt to Teleglobe in February of 1996.
 
  Interest income increased from a negligible amount in the six months ended
June 30, 1995 to $0.2 million in the six months ended June 30, 1996 as a
result of higher average cash balances invested overnight generated from the
private equity placements in December 1995 and February 1996.
 
  Other income (expense) is comprised of a foreign currency transaction loss
of $0.3 million for the six months ended June 30, 1996 associated with the
debt related to the acquisition of Axicorp, which is denominated in Australian
dollars. Fluctuations in the currency exchange rates between the Australian
and U.S. dollar will cause currency transaction gains or losses which will be
recognized in the current period results of operations.
 
  Income taxes is based on the income before taxes generated by Axicorp and
payable to the Australian federal government. There was no income tax
provision (benefit) reflected in either period for the non-Australian
operations as pre-tax losses were incurred in both periods and a full
valuation reserve was applied to the tax benefit.
 
                                      29

<PAGE>
 
 Quarterly Results of Operations
 
  The following table sets forth unaudited pro forma consolidated statement of
operations data for each of the six fiscal quarters in the period ended June
30, 1996 and has been prepared assuming the acquisition of Axicorp occurred as
of January 1, 1995. The pro forma quarterly information has been derived from,
and should be read in conjunction with, the Consolidated Financial Statements
of the Company, the Financial Statements of Axicorp and the notes thereto
included elsewhere in this Prospectus, and in management's opinion, reflects
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the information for the quarters presented. The
operating results for any quarter are not necessarily indicative of results
for any future period.
 

<TABLE>
<CAPTION>
                                   CONSOLIDATED PREDECESSOR AND COMPANY            COMPANY
                          -------------------------------------------------------- --------
                                                   QUARTER ENDED:
                          -----------------------------------------------------------------
                          MARCH 31, JUNE 30,  SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
                            1995      1995        1995          1995       1996      1996
                          --------- --------  ------------- ------------ --------- --------
                                       (IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S>                       <C>       <C>       <C>           <C>          <C>       <C>
Net revenue:
  United States, United
   Kingdom and Mexico...   $    17  $   204      $   276      $   670     $ 1,931  $ 4,229
  Australia.............    20,701   27,008       37,193       39,559      41,574   44,049
                           -------  -------      -------      -------     -------  -------
    Total net revenue...    20,718   27,212       37,469       40,229      43,505   48,278
Cost of revenue.........    18,491   24,650       34,366       37,130      39,284   44,634
                           -------  -------      -------      -------     -------  -------
  Gross margin..........     2,227    2,562        3,103        3,099       4,221    3,644
Operating expenses:
  Selling, general and
   administrative.......     2,574    2,802        3,593        3,986       3,958    4,834
  Depreciation and amor-
   tization.............       419      460          473          490         525      571
                           -------  -------      -------      -------     -------  -------
    Total operating ex-
     penses.............     2,993    3,262        4,066        4,476       4,483    5,405
                           -------  -------      -------      -------     -------  -------
Loss from operations....      (766)    (700)        (963)      (1,377)       (262)  (1,761)
Interest expense........      (221)    (226)        (219)        (221)       (236)    (238)
Interest income.........        22        8           36           66         170       38
Other income (expense)..       --       --           --           --         (213)     (55)
                           -------  -------      -------      -------     -------  -------
Loss before income tax-
 es.....................      (965)    (918)      (1,146)      (1,532)       (541)  (2,016)
Income taxes............       --        68           59           (2)        648       96
                           -------  -------      -------      -------     -------  -------
Net loss................   $  (965) $  (986)     $(1,205)     $(1,530)    $(1,189) $(2,112)
                           =======  =======      =======      =======     =======  =======
Net revenue growth per-
 centage:
  United States, United
   Kingdom and Mexico...       --   1,100.0%        35.3%       142.8%      188.2%   119.0%
  Australia.............       --      30.5%        37.7%         6.4%        5.1%     6.0%
    Total...............       --      31.3%        37.7%         7.4%        8.1%    11.0%
Gross margin percent-
 age....................      10.7%     9.4%         8.3%         7.7%        9.7%     7.5%
Selling, general and
 administrative expenses
 as a percentage of net
 revenue................      12.4%    10.3%         9.6%         9.9%        9.1%    10.0%
</TABLE>

 
  Quarterly net revenue increased from $20.7 million in the quarter ended
March 31, 1995 to $48.3 million in the quarter ended June 30, 1996. The
Australian net revenue growth in each quarter was due to an increase in
traffic volume primarily as a result of an increase in the business customer
base. The lower rate of growth in Australian net revenue from the quarter
ended September 30, 1995 as compared to the subsequent two quarters is
primarily a result of management's shift in focus to the sale of Axicorp to
the Company and, in the quarter ended June 30, 1996, management's strategic
decision to focus on higher-margin, higher-volume business
 
                                      30

<PAGE>
 
customers and an increase in the level of competition. The lower rate of
growth in the Company's net revenue from the quarter ended September 30, 1995
as compared to the three subsequent quarters is primarily a result of
management's strategic decision to focus on higher-margin, higher-volume
business customers and an increase in the level of competition in Australia,
offset by an increase in the traffic volumes primarily associated with
increased carrier traffic in the United States and the introduction of service
in the United Kingdom.
 
  Quarterly gross margin percentages have trended downward during the six
quarters from 11% in the quarter ended March 31, 1995 to 8% in the quarter
ended June 30, 1996. The reduction in the quarterly gross margin percentage in
each of the quarters of 1995 was primarily a result of the lower tariff rate
discounts implemented by Telstra in the Australian market. In the next two
quarters, gross margin percentages were favorably affected by, in Australia,
lower cost per minute of cellular service due to volume discounts and, in the
last quarter for the Company as a whole, current management's focus on higher-
margin, higher-volume business customers, offset by negative gross margin due
to start-up of non-Australian operations.
 
  The Company's quarterly selling, general and administrative expenses have
trended upward during the six month period from $2.6 million in the quarter
ended March 31, 1995 to $4.8 million in the quarter ended June 30, 1996. The
quarterly selling, general and administrative expense increase is reflective
of the worldwide growth in the Company's operations, including increased
personnel costs, network operations costs, sales and marketing expenses and
internal billing systems development costs. The selling, general and
administrative expenses in the fourth quarter of 1995 increased due to the
conversion costs associated with the Australian operations providing direct
billing and customer service to its customer base. In the quarter ended June
30, 1996, selling, general and administrative expenses increased as a
percentage of net revenue due to substantial expenditures incurred in the
commencement of non-Australian operations.
 
  Quarterly depreciation and amortization reflects an increasing trend as a
result of the Company's continued investment in property and equipment
primarily associated with the expansion of the Network. This trend is expected
to continue in the foreseeable future.
 
HISTORICAL RESULTS--PRIMUS
 
 Results of Operations for the Six Months Ended June 30, 1996 Compared to the
Six Months Ended June 30, 1995
 
  Net revenue increased $65.2 million, from $0.2 million for the six months
ended June 30, 1995 to $65.4 million for the six months ended June 30, 1996.
The growth was attributable to $59.3 million of net revenue associated with
Axicorp from the purchase date of March 1, 1996 through June 30, 1996. The
remaining $5.9 million of net revenue growth was associated primarily with the
commencement of the Company's United States and United Kingdom operations.
 
  Cost of revenue increased $60.0 million, from $0.2 million for the six
months ended June 30, 1995 to $60.2 million for the six months ended June 30,
1996 as a direct result of the increased net revenue. Axicorp's cost of
revenue for the four months ended June 30, 1996 was $53.2 million, or 90% of
Axicorp's net revenue during such period, while the non-Australian cost of
revenue for the full six months ended June 30, 1996 was $7.0 million or 113%
of non-Australian net revenue. The non-Australian cost of revenue reflects the
start-up nature of the Network and traffic being carried on more expensive
carriers until adequate capacity on lower cost carriers could be established.
In addition, the Company's cost of revenue as a percentage of net revenue was
effected by the lack of return traffic associated with newly-initiated
correspondent agreements.
 
  Selling, general and administrative expenses increased from $0.7 million to
$6.7 million for the six months ended June 30, 1995 to June 30, 1996.
Approximately $4.0 million of the increase was attributable to the four months
of activity associated with Axicorp and the remaining $2.0 million related to
the non-Australian operations as a result of increased staffing levels,
increased sales and marketing activity and network operation costs. The non-
Australian selling, general and administrative costs as a percentage of net
revenue for the six months ended June 30, 1996 was 44%, which is reflective of
the growth stage of such business. The Australian selling, general and
administrative expense as a percentage of net revenue was 7% for the four
months from acquisition to June 30, 1996.
 
                                      31

<PAGE>
 
  Depreciation and amortization increased $0.7 million, from $0.1 million for
the six months ended June 30, 1995 to $0.8 million for the six months ended
June 30, 1996. The majority of the increase was a result of the acquisition of
Axicorp and was comprised of amortization of goodwill and the customer lists
which totaled $0.5 million. The remaining increase is associated with
depreciation related to Axicorp's assets and increased depreciation expense
for the Company as a result of additional capital expenditures for switching
and network related equipment.
 
  Interest expense increased $0.3 million as a result of the additional debt
incurred by the Company in connection with the acquisition of Axicorp, which
totaled $8.4 million as of June 30, 1996, and was outstanding for the four-
month period from March 1, 1996 (the date of acquisition) to June 30, 1996.
Additionally, the Company incurred increased interest expense as a result of
the issuance of a $2.0 million note payable to a stockholder (Teleglobe) in
February 1996.
 
  Interest income of $0.1 million during the six months ended June 30, 1996
relates to the temporary investment of the funds received from the private
placements of equity made by the Company in 1995 and 1996.
 
  Other income (expense) of $0.3 million for the six months ended June 30,
1996 related to foreign currency transaction losses on the Australian dollar-
denominated debt incurred by the Company payable to the sellers for its
acquisition of Axicorp as a result in the appreciation of the Australian
dollar against the U.S. dollar during the period.
 
  Income taxes amount was fully attributable to the operations of Axicorp for
the four months from the date of purchase, and represented the amount of
expense for Australian federal government taxes.
 
 Results of Operations for the Year Ended December 31, 1995 Compared to the
Period from Inception (February 4, 1994) to December 31, 1994
 
  Net revenue and cost of revenue in 1995 were $1.2 million and $1.4 million,
respectively. During the period ended December 31, 1994, the Company did not
have net revenue or cost of revenue as it was in the development stage and
involved in various start-up activities including raising capital, obtaining
licenses, acquiring equipment, leasing space, developing markets, and
recruiting and training personnel. In March 1995, the Company began generating
net revenue and associated cost of revenue.
 
  Gross deficit for 1995 was $0.2 million. As the Company began generating
revenue in 1995, there were fixed network costs that were not offset by the
net revenue generated.
 
  Selling, general and administrative expenses increased from $0.6 million in
1994 to $2.0 million in 1995. The increase was primarily due to additional
costs incurred to support the formation of the Company's administrative,
management, sales and operations personnel.
 
  Depreciation and amortization increased to $0.2 million in 1995. The
increase in depreciation and amortization expense was directly related to the
purchase of Network equipment, including the Company's switch in Washington,
D.C.
 
HISTORICAL RESULTS--AXICORP
 
 Results of Operations for the Twelve Months Ended March 31, 1996 Compared to
the Twelve Months Ended March 31, 1995
 
  The audited financial statements of Axicorp included in this Prospectus
cover the twelve month period ended March 31, 1996 and the nine month period
ended March 31, 1995. In order to provide a more meaningful presentation of
the changes in the operations of Axicorp, the unaudited results of operations
for the three months ended June 30, 1994 have been combined with the audited
results for the nine-month period ended March 31, 1995 to arrive at a twelve-
month period ended March 31, 1995 ("fiscal 1995") for purposes of comparison
to the audited twelve-month period ended March 31, 1996 ("fiscal 1996").
 
                                      32

<PAGE>
 
  The following table presents certain items from Axicorp's Statement of
Operations:
 

<TABLE>
<CAPTION>
                            THREE     NINE
                            MONTHS   MONTHS
                            ENDED     ENDED    TWELVE MONTHS ENDED MARCH 31,
                           JUNE 30, MARCH 31, ----------------------------------
                             1994     1995         1995              1996
                           -------- --------- ---------------- -----------------
                                                 $       %         $       %
                                              -------- ------- --------- -------
                                 (IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S>                        <C>      <C>       <C>      <C>     <C>       <C>
Net revenue..............   $4,269   $44,797  $ 49,066  100.0% $ 144,345  100.0%
Cost of revenue..........    3,855    40,405    44,260   90.2    131,712   91.2
                            ------   -------  -------- ------  --------- ------
  Gross margin...........      414     4,392     4,806    9.8     12,633    8.8
Operating expenses:
  Selling, general and
   administrative........      480     4,277     4,757    9.7     11,558    8.0
  Depreciation and amor-
   tization..............        5        43        48    0.1        235    0.2
                            ------   -------  -------- ------  --------- ------
    Total operating ex-
     penses..............      485     4,320     4,805    9.8     11,793    8.2
                            ------   -------  -------- ------  --------- ------
Income (loss) from opera-
 tions...................      (71)       72         1    --         840    0.6
Interest expense.........      --        --        --     --         --     --
Interest income..........      --         30        30    0.1        219    0.2
Other income (expense)...      --        --        --     --         --     --
                            ------   -------  -------- ------  --------- ------
Income (loss) before in-
 come taxes..............      (71)      102        31    0.1      1,059    0.8
Income taxes.............      --          4         4    --         492    0.3
                            ------   -------  -------- ------  --------- ------
Net income (loss)........   $  (71)  $    98  $     27    0.1% $     567    0.4%
                            ======   =======  ======== ======  ========= ======
</TABLE>

 
  Net revenue increased 194%, or $95.2 million, from $49.1 million in fiscal
1995 to $144.3 million in fiscal 1996 primarily due to an increase in volume
of traffic as a result of an increased number of business customers. Net
revenue also increased as a result of an increase in the number of cellular
customers. The Company became one of four authorized resellers of Telstra's
analog and digital cellular service in May 1995.
 
  Cost of revenue increased 198%, or $87.4 million, from $44.3 million in
fiscal 1995 to $131.7 million in fiscal 1996. The increase was attributable to
increased minutes of use, a higher percentage of net revenue being
attributable to cellular services, which have lower margins than non-cellular
services, and lower tariff rate discounts to the Company implemented by
Telstra which were effective in February 1996. Cost of revenue is comprised of
those costs associated with the transmission and termination of traffic by
Telstra. As a percentage of net revenue, cost of revenue increased from 90% in
fiscal 1995 to 91% in fiscal 1996.
 
  Gross margin increased 163%, or $7.8 million, from $4.8 million in fiscal
1995 to $12.6 million in fiscal 1996. As a percentage of revenue, gross margin
decreased from 10% in fiscal 1995 to 9% in fiscal 1996 as a result of higher
cost of revenue.
 
  Selling, general and administrative expenses increased 143%, or $6.8
million, from $4.8 million in fiscal 1995 to $11.6 million in fiscal 1996. The
increase consisted of personnel costs, network operations cost, sales and
marketing expenses and internal billing systems development costs which were
attributable to the overall growth in the business during this period. As a
percentage of net revenue, selling, general and administrative expenses
decreased from 10% in fiscal 1995 to 8% in fiscal 1996, primarily as a result
of fixed costs being spread over a higher revenue base.
 
  Depreciation and amortization increased to $0.2 million in fiscal 1996. The
entire increase was attributable to $0.7 million of fiscal 1996 asset
expenditures primarily related to the internal development of Axicorp's
billing system and fiscal 1995 asset purchases of $0.3 million having a full
year of depreciation and amortization.
 
                                      33

<PAGE>
 
  Interest income increased $0.2 million from fiscal 1995 to fiscal 1996 as a
result of higher average cash and cash equivalent balances primarily generated
from operations.
 
  Income taxes represented the Australian federal statutory tax rate applied
to income before income taxes, net of permanently non-deductible items.
 
LIQUIDITY AND CAPITAL RESOURCES
   
  The Company's liquidity requirements arise from net cash used in operating
activities purchases of network equipment including switches, peripheral
equipment, and international fiber cable capacity and interest and principal
payments on outstanding indebtedness, including capital leases. From time to
time the Company evaluates acquisitions of businesses which complement the
business of the Company. Depending on the cash requirements of potential
transactions, the Company may finance such transactions with bank borrowings,
or the Company may raise additional funds through other financing vehicles.
The Company, however, presently has no understanding, commitment or agreement
with respect to any acquisition, and is not currently involved in
negotiations. There can be no assurance that if the Company were to pursue
such an opportunity, any such acquisition would occur or that the funds to
finance any such acquisition would be available on reasonable terms, if at
all.     
 
  Historically, the Company's net cash used in operating activities ($0.5
million, $2.0 million and $4.2 million for the period from February 4, 1994 to
December 31, 1994, the year ended December 31, 1995, and the six months ended
June 30, 1996, respectively) and liquidity needs have been funded from the
private placement of equity securities and, to a lesser extent, through
stockholder loans and capital leases. As of June 30, 1996, the Company had a
working capital deficit of $13.5 million primarily attributable to the current
portion of long-term obligations of $10.6 million. On July 31, 1996, the
Company sold $15.8 million, net of transaction costs, of additional equity in
the Private Equity Sale which, on a pro forma basis as of June 30, 1996, would
result in working capital of $2.3 million.
   
  The Company currently anticipates spending up to $70 million on the
improvement and expansion of the Network during the next 18 months, including
$10 million of capital expenditures in the remainder of 1996, which includes
the purchase of switches and related peripheral equipment for the
implementation of international gateways in Los Angeles and New York. The
expected 1997 and 1998 capital expenditures include switches, network
equipment, international fiber cable capacity and other international
facilities.     
   
  The Company currently is in discussions to obtain a $25 million line of
credit to provide it with additional funding to meet its capital requirements
and will use capital lease financings as appropriate. There can be no
assurance that the Company will be able to obtain a line of credit or capital
lease financing on commercially reasonable terms, if at all. The Company
believes that the net proceeds from the Offering, together with the net
proceeds from the Private Equity Sale, borrowing capacity under an expected
line of credit and available vendor financing, will be sufficient to fund the
Company's net cash used in operating activities, capital expenditures and
other cash needs for the next 18 months. Additional funding through the
incurrence of debt or sale of additional equity will be required to meet the
Company's growth plans beyond the first quarter of 1998, although there can be
no assurance that such additional funds can be obtained on acceptable terms,
if at all. If necessary funds are not available, the Company's business and
results of operations and the future expansion of the business could be
materially adversely affected.     
 
                                      34

<PAGE>
 

 
                                  BUSINESS
 
GENERAL
 
  Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and consumer demand for
international telecommunications services generated by the globalization of
the world's economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-
Pacific and Europe as its primary service regions. The Company currently
provides services in the United States, Australia and the United Kingdom,
which are the most deregulated countries within the Targeted Regions and which
serve as regional hubs for expansion into additional markets within the
Targeted Regions. As part of the execution of this strategy, the Company has
commenced operations in Mexico and has installed a switch in Canada. The
Company expects to expand into additional markets as deregulation occurs and
the Company is permitted to offer a full range of switched public telephone
services in such markets.
 
  For the year ended December 31, 1995 and the six months ended June 30, 1996,
the Company had pro forma net revenue of approximately $126 million and $92
million, respectively, after giving effect to the Company's March 1996
acquisition of Axicorp, the fourth largest telecommunications provider in
Australia. For the three months ended June 30, 1996, the Company had net
revenue of approximately $48 million. As of September 30, 1996, the Company
had 285 full-time employees and approximately 35,000 customers.
 
  The Company targets, on a retail basis, small- and medium-sized businesses
with significant international long distance traffic and ethnic residential
consumers and, on a wholesale basis, other telecommunications carriers and
resellers with international traffic. The Company provides a broad array of
competitively priced telecommunications services, including international long
distance to over 200 countries, domestic long distance, international and
domestic private networks, prepaid and calling cards and toll-free services,
as well as local switched and cellular services in Australia. The Company
markets its services through a variety of channels, including direct sales,
independent agents, direct marketing and associations.
 
  The Company is implementing an international telecommunications Network to
reduce and control costs, improve service reliability and increase flexibility
to introduce new products and services. The Network currently consists of an
international gateway switch in Washington, D.C., points-of-presence in New
York and London, and leased transmission capacity connecting to the networks
of other international and domestic carriers. The Company also has
correspondent agreements with government-owned PTTs in India, Iran and
Honduras. The Company has installed three additional international gateway
switches in Sydney, Melbourne and Toronto, a switch in Brisbane, and has
acquired two international gateway switches for installation in New York and
Los Angeles and two other switches for installation in Adelaide and Perth, all
eight of which are expected to be operational by the first quarter of 1997.
The Company expects to acquire an additional switch for installation in London
and additional switches and points-of-presence for installation in other major
metropolitan areas of the Targeted Regions. The Company expects to connect its
gateway switches between Sydney and Los Angeles with a trans-Pacific fiber-
optic cable link by the end of the first quarter of 1997. The Company also
intends to purchase additional switches and ownership in international fiber-
optic cables, install international gateway satellite earth station
facilities, lease additional transmission capacity and, where necessary,
obtain additional correspondent agreements.
 
INDUSTRY OVERVIEW
 
  General. The international long distance industry, which involves the
transmission of voice and data from the domestic telephone network of one
country to another, is undergoing a period of fundamental change that has
resulted, and is expected to continue to result, in significant growth in
usage of international telecommunications services. In 1994, the international
long distance industry accounted for $50 billion in revenues and 53 billion
minutes of use, up from $29 billion in revenues and 28 billion minutes of use
in 1989. Industry sources estimate that by the year 2000 this market will have
expanded to $93 billion in revenues and 111 billion minutes of use,
representing compound annual growth rates from 1994 of 11% and 13%,
respectively.
 
                                      35

<PAGE>
 
  The Company believes the growth in international long distance services is
being driven by (i) increased demand for international telecommunications
services generated by the globalization of the world's economies and the
worldwide trend toward deregulation of the telecommunications sector, (ii)
declining prices and a wider choice of products and services driven by greater
competition resulting from privatization and deregulation, (iii) increased
telephone density and accessibility resulting from technological advances and
greater investment in telecommunications infrastructure, including deployment
of wireless networks, and (iv) increased international business and leisure
travel.
 
  The competition spurred by privatization and deregulation, in addition to
resulting in a wider choice of products and services, has resulted in lower
prices. The Company believes, however, that the lower price environment
resulting from the increase in competition has been more than offset by cost
decreases, as well as an increase in telecommunications usage. For example,
based on FCC data for the period 1989 through 1994, per minute settlement
payments by U.S.-based carriers to PTTs fell 26%, from $0.70 per minute to
$0.52 per minute. Over this same period, however, per minute international
billed revenue fell only 5%, from $1.02 in 1989 to $0.97 in 1994. Therefore,
gross profit per international minute (before local access charges) grew from
$0.32 in 1989 to $0.45 in 1994, a 41% increase. Although there can be no
assurances, the Company believes that as settlement rates and costs for leased
capacity continue to decline, international long distance will continue to
provide high revenue and gross profit per minute. See "Risk Factors--Intense
Domestic and International Competition."
 
  Classification of Service Providers. International long distance carriers
generally can be categorized according to ownership and use of transmission
facilities and switches. Although no carrier utilizes exclusively owned
facilities for the transmission of all of its long distance traffic, carriers
vary from being primarily facilities-based (i.e. they own and operate their
own land based or undersea cable and switches) to those that are purely
resellers of another carrier's transmission network. Generally, the first-tier
long distance companies (e.g., AT&T, MCI and Sprint in the United States;
British Telecom and Mercury in the United Kingdom; and Telstra and Optus in
Australia) are transmission facilities-based carriers that own and operate a
domestic fiber-based network. Second-tier long distance companies (e.g.,
Frontier and LCI in the United States; WorldCom and ACC in the United Kingdom;
and AAPT in Australia) own switching facilities but generally do not own cable
transmission facilities. The third-tier of the market consists of long
distance companies that are generally switchless resellers that rely on the
transmission facilities of other carriers.
 
  Regulatory and Competitive Environment. Prior to deregulation, the long
distance carriers in any particular country generally were government-owned
monopoly carriers, such as British Telecom in the United Kingdom, Telstra in
Australia and Telmex in Mexico. Deregulation of a particular
telecommunications market typically has begun with the introduction of a
second long distance carrier, followed by the authorization of multiple
carriers. In the United States, one of the first deregulated markets,
deregulation began in the 1960's with MCI's authorization to provide long
distance service and was followed in 1984 by AT&T's divestiture of the RBOCs
and, most recently, by the passage of the 1996 Telecommunications Act.
Deregulation has occurred elsewhere, such as in the United Kingdom, and is
being implemented in other countries, including Australia and Mexico.
 
  Call Dynamics. A long distance telephone call consists of three parts:
origination, transport and termination. Generally, a domestic long distance
call originates on a local exchange network and is transported to the network
of a long distance carrier. The call is then carried along the long distance
network to another local exchange network where the call is terminated. An
international long distance call is similar to a domestic long distance call,
but typically involves at least two long distance carriers: the first carrier
transports the call from the country of origination, and the second carrier
terminates the call in the country of termination. These long distance
telephone calls are classified as one of three types of traffic. A call made
from the United States to the United Kingdom is referred to as outbound
traffic for the United States carrier and inbound traffic for the United
Kingdom carrier. The third type of traffic, international transit traffic,
originates and terminates outside a particular country, but is transported
through that country on a carrier's network. Since most major international
fiber optic cable systems are connected to the United States, and
international long-distance prices are
 
                                      36

<PAGE>
 
substantially lower in the United States than in other countries, a large
volume of international transit traffic is routed through the United States.
 
  International calls are transported by land-based or undersea cable or by
microwave via satellites. A carrier can obtain voice circuits on cable systems
either through ownership or leases. Ownership in cables is acquired either
through Indefeasible Rights of Use ("IRUs") or Minimum Assignable Ownership
Units ("MAOUs"). The fundamental difference between an IRU holder and an owner
of MAOUs is that the IRU holder is not entitled to participate in management
decisions relating to the cable system. Between two countries, a carrier from
each country owns a "half-circuit" of a cable, essentially dividing the
ownership of the cable into two equal components. Additionally, any carrier
generally may lease circuits on a cable from another carrier. Unless a carrier
owns a satellite, satellite circuits also must be leased from one of several
existing satellite systems.
 
  Accounting Rate System. Under the accounting rate system (also known as the
settlement system), which is the traditional regulatory model, international
long distance traffic is exchanged under bilateral correspondent agreements
between carriers in two countries. Correspondent agreements generally are three
to five years in length and provide for the termination of traffic in, and
return traffic to, the carriers' respective countries at a negotiated
accounting rate, known as the Total Accounting Rate ("TAR"). In addition,
correspondent agreements provide for network coordination and accounting and
settlement procedures between the carriers. Both carriers are responsible for
their own costs and expenses related to operating their respective halves of
the end-to-end international connection.
 
  Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between each party to a
correspondent agreement at a negotiated rate (which must be the same for all
United States-based carriers, unless the FCC approves an exception). For
example, if a foreign carrier charges a U.S. carrier $0.30 per minute to
terminate a call in the foreign country, the U.S. carrier would charge the
foreign carrier the same $0.30 per minute to terminate a call in the United
States. Additionally, the TAR is the same for all carriers transporting traffic
into a particular country, but varies from country to country. The term
"settlement costs" arises because carriers essentially pay each other on a net
basis determined by the difference between inbound and outbound traffic between
them. The following chart illustrates an international long distance call using
the settlement system:


TRADITIONAL METHOD OF TRANSPORTING INTERNATIONAL TRAFFEC -- USING CORRESPONDENT
  AGREEMENTS

            U.S.                                    FOREIGN COUNTRY

 [TRADITIONAL METHOD OF TRANSPORTING INTERNATIONAL TRAFFIC CHART APPEARS HERE]
 
  Correspondent agreements typically provide that a carrier will return
terminating traffic ("return traffic") in proportion to the traffic it
receives. Return traffic generally is more profitable than outgoing traffic
because the settlement
 
                                       37

<PAGE>
 
rate per minute is substantially greater than the incremental cost of
terminating a call in the country due to the lack of marketing expense and
billing costs, as well as the lower cost structure associated with terminating
calls in the United States. Generally, there is a six-month lag between
outbound traffic and the allocation of the corresponding return traffic and,
in certain instances, a minimum volume commitment must be achieved before
qualifying for receipt of return traffic.
 
  Alternative Calling Procedures. As the international long distance market
has deregulated, long distance companies have devised alternative calling
procedures ("ACPs") in order to complete calls more economically than under
the accounting rate system. Some of the more significant ACPs include (i)
transit, (ii) refiling or "hubbing," (iii) international simple resale ("ISR")
and (iv) call-back. The most common method is transit, which allows traffic
between two countries to be carried through a third country on another
carrier's network. This procedure, which requires agreement among the
particular long distance companies and the countries involved, generally is
used either for overflow traffic during peak periods or where a direct circuit
may not be available or justified based on traffic volume. Refiling or
"hubbing" of traffic, which takes advantage of disparities in settlement rates
between different countries, allows traffic to a potential country to be
treated as if it originated in another country that enjoys lower settlement
rates with the destination country, thereby resulting in a lower overall costs
on an end-to-end basis. United States based carriers are beneficiaries of
refiling on behalf of other carriers because of low international rates. The
difference between transit and refiling is that, with respect to transit, the
carrier in the destination country has a direct relationship with the
originating carrier, while with refiling, the carrier in the destination
country is likely not to even know the identity of the originating carrier.
The choice between transit and refiling is determined primarily by cost. With
ISR, a carrier may completely bypass the settlement system by connecting an
international leased line to the public switch telephone network ("PSTN") of a
foreign country or directly to a customer premise. ISR currently is allowed by
applicable regulatory authorities between a limited number of international
routes, including Canada-United Kingdom, United States-United Kingdom, United
States-Sweden and United Kingdom-Australia and is currently increasing in use.
Call-back avoids the high international rates in a particular country of
origin by providing dial tone in a second country with a lower rate, typically
the United States.
 
  Industry Strategies. Strategies to provide international long distance
services are driven by the emergence of ACPs and the increased demand for
seamless services on a global basis. First-tier service providers primarily
utilize correspondent agreements in order to provide international service.
Second-tier carriers and new entrants primarily are utilizing ACPs and are
developing networks to compete with the first-tier carriers and gain market
share. In response, first-tier carriers have formed alliances to provide
seamless services and one-stop shopping on a global basis. Examples include
Global One (an alliance among Sprint, Deutsche Telekom, France Telecom and
others), Concert (an alliance between British Telecom and MCI) and
WorldPartners (an alliance among AT&T, Unisource and others). Certain new
entrants, including the Company, are establishing their own operations in
multiple countries and, to the extent required to serve other selected
markets, alliances or other arrangements with other carriers.
 
  Description of Operating Markets. The following is a summary of the size,
growth prospects and competitive and regulatory environments of the domestic
and international long distance industries in the Targeted Regions:
 
  UNITED STATES. The United States long distance market is highly deregulated
and is the largest in the world. According to the FCC, in 1994 long distance
telephone revenue was $71.8 billion, including $13.2 billion from
international services (representing 15.5% of the total market). AT&T has
remained the largest long distance carrier in the U.S. market, with market
share of slightly more than 55%, while MCI and Sprint have market shares of
17% and 10%, respectively. AT&T, MCI and Sprint constitute what generally is
regarded as the first-tier in the United States long distance market. Other
large long distance companies with more limited ownership of transmission
capacity, such as WorldCom, Frontier and LCI, constitute the second-tier of
the industry. The remainder of the United States long distance market is
comprised of several hundred smaller companies, largely resellers, which are
known as third-tier carriers.
 
                                      38

<PAGE>
 
  AUSTRALIA. AUSTEL estimates that during 1994, the market for all
telecommunication services was A$15 billion and the Company believes that the
market for international and domestic long distance services in Australia
during 1994 accounted for approximately A$10 billion in revenues. Telstra and
Optus are classified as "carriers" because they can own and operate local,
national and international transmission networks. Telstra, which is owned by
the Australian government, is a traditional facilities-based carrier with a
market share of approximately 80%. In addition to the Company and Optus,
Telstra currently competes against switched-based resellers such as AAPT, and
several switchless resellers and call-back service providers, including
PacStar. Australia is planning to further deregulate its long distance market
in June 1997 by allowing service providers other than Telstra and Optus to own
transmission facilities.
 
  UNITED KINGDOM. Oftel estimates that the market for international and
domestic long distance services in the United Kingdom accounted for
approximately (Pounds)1.3 billion and (Pounds)4.2 billion in revenues,
respectively, during fiscal 1994. In the United Kingdom, British Telecom
historically has dominated the telecommunications market and is the largest
carrier. Mercury, which owns and operates interchange transmission facilities,
is the second largest carrier. The remainder of the United Kingdom long
distance market is comprised of an emerging market of licensed
telecommunications service providers, such as Energis, and switch-based
resellers, such as AT&T, WorldCom, MFS, ACC and Esprit.
 
  MEXICO. The market for long distance voice and data telephone services in
Mexico accounted for approximately 22.6 billion Pesos in 1994. In Mexico,
Telmex is currently the monopoly provider of long distance and local services.
In late 1996, however, the long distance market is scheduled to be opened to
competition. As a result, several United States-based long distance carriers
(such as AT&T and MCI) have formed alliances with Mexican partners to
construct long distance networks. Primus, along with MCI, WorldCom and others,
currently provides United States-Mexico cross border private line services.
 
PRIMUS STRATEGY
 
  The Company's objective is to become a leading provider of international and
domestic long distance voice, data and value-added services to its target
customers. The Company's strategy to achieve this objective is to focus on
providing a full range of competitively priced, high-quality services in the
Targeted Regions. Key elements in the Company's strategy include:
 
  . Focus on Customers with Significant International Long Distance
    Usage. The Company's primary focus is providing telecommunications
    services to small- and medium-sized businesses with significant
    international long distance traffic and to ethnic residential
    consumers and, on a wholesale basis, to other telecommunications
    carriers and resellers with international traffic. The Company
    believes that the international long distance market offers an
    attractive business opportunity given its size and, as compared to
    the domestic long distance market, its higher revenue per minute,
    gross margin and expected growth rate. Although the Company expects
    to obtain a significant percentage of its revenue from offering
    international long distance services, the Company currently
    generates, and expects to continue to generate over the near term, a
    greater percentage of net revenue from domestic long distance
    services in an effort to build network traffic more quickly.
 
  . Pursue Early Entry into Selected Deregulating Markets. Primus seeks
    to be an early entrant into selected deregulating telecommunications
    markets where it believes there is significant demand for
    international long distance services, substantial growth and profit
    potential, and the opportunity to establish a customer base and
    achieve name recognition. The Company intends to use each Operating
    Hub as a base to expand into deregulating markets within the Targeted
    Regions and will focus its expansion efforts on major metropolitan
    areas with a high concentration of target customers with
    international traffic. The Company believes that management's
    international telecommunications experience will assist it in
    successfully identifying and launching operations in deregulating
    markets.
 
                                      39

<PAGE>
 
  . Implement Intelligent International Network. The Company expects that
    the strategic development of the Network will lead to reduced
    transmission and other operating costs as a percentage of net
    revenue, reduced reliance on other carriers and more efficient
    network utilization. The Network will consist of (i) a global
    backbone network connecting intelligent gateway switches in the
    Targeted Regions, (ii) a domestic long distance network presence in
    each of the Operating Hubs and certain additional countries within
    the Targeted Regions, (iii) a combination of leased facilities,
    resale arrangements, and correspondent agreements. In an effort to
    manage transmission costs, the Company pursues a flexible approach
    with respect to Network expansion. The Company initially obtains
    additional transmission capacity on a variable-cost, per-minute
    basis, next acquires additional capacity on a fixed-cost basis when
    traffic volume makes such a commitment cost-effective, and ultimately
    purchases and operates its own facilities only when traffic levels
    justify such investment.
 
  . Deliver Quality Services at Competitive Prices. The Company believes
    that it delivers high-quality services at competitive prices and
    provides a high level of customer service. The Company intends to
    maintain a low-cost structure in order to offer its customers
    international and domestic long distance services priced below that
    of its major competitors. In addition, the Company intends to
    maintain strong customer relationships through the use of trained and
    experienced service representatives and the provision of customized
    billing services.
 
  . Provide a Comprehensive Package of Services. The Company seeks to
    provide a comprehensive package of services to create "one-stop
    shopping" for its targeted customers' telecommunications needs,
    particularly for small- and medium-sized businesses and ethnic
    residential consumers that prefer a full service telecommunications
    provider. The Company believes this approach strengthens its
    marketing efforts and increases customer retention.
 
NETWORK
 
  Network Design. The Network will consist of (i) a global backbone network
connecting intelligent gateway switches in the Targeted Regions, (ii) a
domestic long distance network presence within each of the Operating Hubs and
certain additional countries within the Targeted Regions and (iii) a
combination of leased facilities, resale arrangements and correspondent
agreements.
 
  The Company has targeted North America, Asia-Pacific and Europe for the
development of the Network. Within each of these Targeted Regions, the Company
has selected the United States (North America), Australia (Asia-Pacific) and
the United Kingdom (Europe) as regional hubs for expansion into additional
markets within the Targeted Regions. These countries were selected based on
their market size, potential growth and favorable regulatory environments. The
Company has a domestic presence within each of these countries and plans to
construct its global backbone network by interconnecting these countries via
international gateway switches, and owned and leased transmission facilities.
The Company has an established customer base in Australia and is in the
process of building its customer base in major metropolitan areas in the
Targeted Regions, which will provide the Company with separate points of
originating traffic that experience peak network usage at different times of
the day, thereby allowing the Company to attain higher utilization of the
Network. The Company expects to expand into additional markets as deregulation
occurs and the Company is permitted to offer a full range of switched public
telephone services. For instance, the Company has used its United States
operations to initiate operations with and into Mexico. The Company intends to
use its United Kingdom operations to coordinate efforts to enter other major
metropolitan European markets in the European Union, including those in France
and Germany, in conjunction with the scheduled deregulation of the
telecommunication industry in certain European Union countries in 1998.
 
                                      40

<PAGE>
 
  The following chart illustrates an international long distance call using the
Network from the United States to another market where the Company has an
international gateway switch:
 
 
   DIRECT METHOD OF TRANSPORTING INTERNATIONAL TRAFFIC - PRIMUS CONNECTIONS

       U.S.                                              FOREIGN COUNTRY


[DIRECT METHOD OF TRANSPORTING INTERNATIONAL TRAFFIC - PRIMUS CONNECTIONS 
 CHART APPEARS HERE]
 
  Network Implementation. The Network currently consists of an international
gateway switch in Washington, D.C., points-of-presence in New York and London,
and leased transmission capacity connecting to the networks of other
international and domestic carriers. The Company also has correspondent
agreements with India, Iran and Honduras. The Company has installed three
additional international gateway switches in Sydney, Melbourne and Toronto, a
switch in Brisbane, and has acquired two international gateway switches for
installation in New York and Los Angeles and two other switches for
installation in Adelaide and Perth, all eight of which are expected to be
operational by the end of the first quarter of 1997. The Company expects to
acquire an additional switch for installation in London and install additional
points-of-presence and switches in other major metropolitan areas of the
Targeted Regions as the traffic usage warrants the expenditure.
 
  Each of the international gateway switches will be connected to the domestic
and international networks of both the Company and other carriers in a
particular market, allowing the Company to (i) provide seamless service, (ii)
package and market the voice and data services purchased from other carriers
under the "Primus" brand name and (iii) divert a portion of that market's
United States-bound return traffic through the Company's switches in the United
States. In addition, until the Company's customer base grows and it penetrates
other deregulating telecommunications markets, the Company intends to transit a
significant portion of its traffic through the United States. After the
Company's customer base grows and it develops sufficient traffic, the Company
intends to develop its own leased or owned facilities to connect to its various
switches. Where traffic is light or moderate, the Company intends to obtain
capacity to transmit traffic on a per-minute variable cost basis. When traffic
volume increases and such commitments are cost effective, the Company intends
to either lease or purchase lines on a monthly or longer term basis at a fixed
cost and acquire economic interests in transmission capacity through IRUs to
international points.
 
  In countries with highly regulated markets and significant inbound traffic
from its customers and targeted customer segments, the Company intends to use
correspondent agreements when necessary. Assuming significant levels of inbound
and outbound traffic, correspondent agreements may allow the Company to offer
better value to customers calling these markets by improving the Company's
economics over these routes. The Company currently has correspondent agreements
with India, Iran and Honduras and is exploring the possibility of obtaining
additional correspondent agreements with PTTs in certain other countries which
are not expected to deregulate in the near future, although there can be no
assurance that the Company will enter into such agreements on favorable terms,
if at all.
 
                                       41

<PAGE>
 
SERVICES
 
  Primus offers a broad array of telecommunications services through the
Network and through interconnection with the networks of other carriers. While
over time the Company intends to offer a broad range of bundled
telecommunication services, the availability of services within a particular
market will depend upon regulatory constraints and the availability of
services for resale. In order to create a global brand identity, the Company
operates under the name "Primus" in all of the Targeted Regions. In addition,
the Company operates under the name "Axicorp" in Australia.
 
  The Company offers the following services in the United States, United
Kingdom and Australia:
 
  . International and Domestic Long Distance. The Company provides
    international long distance voice services to its customers to over
    200 countries and provides domestic long distance voice services
    within each of the Operating Hubs. On a market-by-market basis,
    access methods required to originate a call vary according to
    regulatory requirements and the existing domestic telecommunications
    infrastructure. In the United States, access methods available to the
    Company's customers include "1+", toll-free, dedicated (private line)
    and prefix code access. In the United Kingdom, dedicated and prefix
    code access are used to originate calls. In Australia, the Company
    currently is a reseller of services provided by Telstra. When the
    Company operates its own switches in Australia, its services will be
    accessed through the use of toll-free, dedicated and prefix code
    access.
 
  . Private Network Services. For business customers, the Company designs
    and implements international private network services that may be
    used for voice, data and video applications. These services are
    provided on a turnkey basis whereby the Company installs and operates
    equipment necessary to provide end-to-end services at the customer's
    premises. The Company's Mexican operations consist exclusively of the
    provision of private network services to selected multinational
    corporations.
 
  In addition, on a market-by-market basis, the Company provides on a stand
alone and/or bundled basis the following services which the Company expects to
introduce over time in all of its markets:
 
  . Prepaid and Calling Cards. The Company offers prepaid and calling
    cards that may be used by customers for domestic and international
    telephone calls within and from their home country. With the
    Company's prepaid card service, a customer purchases a card that
    entitles the customer to make phone calls on the card up to some
    monetary limit. The customer is provided an access number (local or
    toll free phone number) and personal identification number ("PIN").
    The customer dials the access number that accesses the Company's
    switch and an attached voice response unit. The unit confirms the
    authority of the user to use the account by requiring the PIN to be
    entered and confirms that a balance is available on the card. With
    the Company's calling card service, the customer selects a PIN. The
    account is then billed by Primus on a monthly basis as calls are made
    using the card. The Company's prepaid cards are offered in the United
    States and calling cards are offered in the United Kingdom. The
    Company expects to introduce global prepaid and calling cards in 1997
    that will enable customers to make telephone calls in most major
    countries while they are outside their home country.
 
  . Cellular Services. The Company is one of four national dealers
    selling Telstra analog and digital cellular services in Australia.
    The Company intends to provide cellular services on a resale basis in
    the United States and the United Kingdom by the end of 1997.
 
  . Local Switched Service. The Company intends to provide local service
    on a resale basis as part of its "one-stop shopping" marketing
    approach, subject to commercial feasibility and regulatory
    limitations. The Company currently provides local switched service in
    Australia.
 
  . Toll-free Services. The Company currently provides domestic and
    international toll-free services in the United States and intends to
    offer such services in the United Kingdom and Australia when its
    switches become operational in such countries.
 
                                      42

<PAGE>
 
  New services the Company seeks to introduce in selected markets in 1997
include:
 
  . Internet Services. The Company intends to offer switched and
    dedicated access to the Internet for use by commercial and
    residential customers. These services may be offered on a direct
    connection to the Internet or on a resale basis. Once connected to
    the Internet, customers will be able to access services provided by
    others such as World Wide Web browsing, electronic mail, news feeds
    and bulletin boards.
 
  . Data Services. The Company intends to offer packet-switched and frame
    relay data services in selected markets, a transmission standard
    which utilizes statistical multiplexing technology. Frame relay
    enables multiple users to share communication bandwidth for enhanced
    data transmission.
 
  . Value-Added Services. The Company intends to offer enhanced facsimile
    services, audio and video conferencing, and voice-mail.
 
  There can be no assurance that the Company will be able to launch such
services or that, if launched, such services will be successful.
 
  The Company strives to provide personalized customer service and believes
that the quality of its customer service is one of its competitive advantages.
The Company's larger customers are actively covered by dedicated account and
service representatives who seek to identify, prevent and solve problems. The
Company provides toll-free, 24-hour a day customer service in the United
States, the United Kingdom and Australia. As of September 30, 1996, the
Company employed 58 full-time and 10 part-time customer service
representatives.
 
CUSTOMERS
 
  The Company's primary focus is providing telecommunications services, on a
retail basis, to small- and medium-sized businesses with significant
international long distance traffic and ethnic residential consumers and, on a
wholesale basis, other carriers and resellers with international traffic.
During the Company's initial growth phase in each service market, however, the
Company expects that it will build revenue from a variety of customers with
either local or long distance (domestic or international) service needs. As of
September 30, 1996, the Company had 128 sales and marketing personnel
operating from 11 offices.
 
  Businesses. The Company's business sales and marketing efforts target small-
and medium-sized businesses with significant international long distance
traffic. The Company believes that these users are attracted to Primus
primarily due to its significant price savings compared to first-tier carriers
and, secondarily, its personalized approach to customer service and support,
including customized billing and bundled service offerings. The Company also
sells its services to large multinational corporations on an opportunistic
basis. As of September 30, 1996, the Company employed 68 full-time direct
sales representatives focused on the business market.
 
  Residential Consumers. The Company's residential sales and marketing
strategy targets ethnic residential consumers who generate high international
traffic volumes. The Company believes that these consumers will be attracted
to Primus because of its significant price savings as compared to first-tier
carriers, simplified pricing structure, multilingual customer service and
support and bundled service offerings. As of September 30, 1996, the Company
employed 35 full-time direct sales representatives focused on the ethnic
residential consumers.
 
  Telecommunications Carriers and Resellers. The Company competes for the
business of other telecommunications carriers and resellers primarily on the
basis of price and, to a lesser extent, service quality. The Company believes
that long distance services, when sold to telecommunications carriers and
other resellers, are, generally, a commodity product and therefore do not
benefit from special sales or promotional efforts. Sales to these other
carriers and resellers, however, help the Company maximize the use of the
Network and thereby minimize fixed costs per minute of use. As of September
30, 1996, the Company employed two direct sales professionals focused on
telecommunications carriers and resellers.
 
                                      43

<PAGE>
 
SALES AND MARKETING
 
  The Company markets its services through a variety of sales channels as
summarized below. The Company's use of these channels may vary from market to
market.
 

<TABLE>
<CAPTION>
                                  AGENTS AND                               MEDIA
                         DIRECT   INDEPENDENT                               AND
                         SALES       SALES                                 DIRECT
                         FORCE  REPRESENTATIVES TELEMARKETING ASSOCIATIONS  MAIL
                         ------ --------------- ------------- ------------ ------
<S>                      <C>    <C>             <C>           <C>          <C>
Small/Medium Business-
 es.....................    *           *              *            *         *
Consumers...............    *           *              *            *         *
Telecommunications
 Carriers/Resellers.....    *
Multinational Business-
 es.....................    *
</TABLE>


* = PICTURE OF TELEPHONE APPEARS HERE

  Direct Sales Force. The Company's direct sales force is comprised of 68
full-time employees who focus on small- to medium-sized business customers
with substantial international telecommunications traffic or traffic
potential. The Company also employs 35 full-time direct sales representatives
focused on ethnic residential consumers and two direct sales representatives
who exclusively sell wholesale services to other long distance carriers and
resellers. Direct sales personnel are compensated with a base salary plus
sales commissions.
 
  The Company's direct sales efforts are organized around regional hubs
supported by sales offices. The Company currently has offices in Washington,
D.C., Tampa, Toronto, Mexico City, London, Melbourne, Sydney, Adelaide,
Brisbane and Perth. The Company intends to open additional offices in Los
Angeles and New York City by the end of 1996 and other major United States
metropolitan areas thereafter. These targeted metropolitan areas have a large
number of small- and medium-sized businesses and significant ethnic
populations.
 
  Agents and Independent Sales Representatives. The Company supplements its
direct sales efforts with a network of agents and independent sales
representatives. These agents and representatives, who typically focus on
small- and medium-sized businesses, as well as ethnic residential consumers,
are paid commissions based on long distance revenue generated. Within major
metropolitan regions, the Company usually grants only nonexclusive sales
rights, requires its agents and representatives to maintain minimum quotas and
prohibits them from selling competitors' products.
 
  Telemarketing. The Company employs 23 full-time telemarketing sales persons
to supplement sales efforts to ethnic residential consumers and small- and
medium-sized business customers. From time to time, the Company also engages
outside telemarketing agents to supplement its internal telemarketing efforts.
 
  Associations. Axicorp successfully markets telecommunications services in
Australia to members of trade and professional associations. Axicorp develops
tailored marketing materials jointly with each association, attends meetings
and trade shows, sponsors events and advertises in newsletters. These
associations receive a fee based on revenue generated by sales to its members.
The Company intends to employ similar marketing programs in the United
Kingdom, the United States and in other markets as appropriate.
 
  Media and Direct Mail. The Company uses a variety of print, television and
radio to increase name recognition in new markets. The Company uses targeted
media and direct mail primarily to reach specific small business or consumer
groups. For example, the Company reaches ethnic residential consumers by
print, media advertising campaigns in ethnic newspapers, and on ethnic radio
and television programs.
 
MANAGEMENT INFORMATION AND BILLING SYSTEMS
 
  The Company uses various management information, network, and customer
billing systems in its different operating subsidiaries to support the
functions of network and traffic management, customer service, customer
billing, and financial reporting. Management believes that its systems are
adequate to meet the Company's needs in the near term, but as the Company
continues to grow, it will invest additional capital to purchase hardware and
software, license more specialized software, increase capacity and link its
systems among different countries.
 
                                      44

<PAGE>
 
  United States. In the United States, the Company operates systems for
billing and financial reporting. The Company uses a customer billing system
developed by Electronic Data Systems Inc. ("EDS"). Under an agreement with EDS
through the year 2000, EDS supplies, operates and maintains this system and is
responsible for providing back-up facilities and disaster recovery. The EDS
system is widely used in the telecommunications industry and has been
customized to meet the Company's specific needs. The Company direct bills its
business, reseller, and the majority of its residential customers. The Company
also has capabilities established through suppliers to bill certain
residential customers through their respective LECs, which charge for the
Company's service in a monthly, all inclusive invoice. In addition, the
Company has developed a proprietary, local area network-based customer service
and support information system which is on-line with the EDS platform. The
Company believes that using an EDS billing platform ensures access to one of
the most technologically advanced and feature rich multifunctional platforms
in the industry. In addition to the billing capabilities, the platform
includes on-line customer service, fraud control and the ability to generate a
variety of reports. For financial reporting, the Company uses a combination of
the EDS system and a PC-based accounting system package.
 
  Australia. In Australia, prior to its acquisition by the Company, Axicorp
had developed an in-house proprietary system for customer billing and customer
service and support. The Axicorp billing system is technologically advanced
and possesses features that allow Axicorp to provide its customers with a
single integrated invoice for long distance, local, and cellular services. All
customers are billed directly by Axicorp. Axicorp uses a purchased accounting
system package for financial reporting.
 
  United Kingdom. In the United Kingdom, the Company direct bills its
customers through a billing system provided by Telia, which is the Company's
main network provider. Customer service is supported by in-house systems and
financial reporting is done through a PC-based accounting system package. The
Company is evaluating alternative billing systems for use when the Company
installs its own switch in the United Kingdom.
 
COMPETITION
   
  The international telecommunications industry is highly competitive and
significantly affected by regulatory changes, marketing and pricing decisions
of the larger industry participants and the introduction of new services made
possible by technological advances. The Company believes that long distance
service providers compete on the basis of price, customer service, product
quality and breadth of services offered. The Company's Operating Hubs have
numerous competitors and there are limited barriers to entry in these markets.
The Company believes that as international telecommunications markets continue
to deregulate, competition in these markets will increase, similar to the
competitive environment that has developed in the United States following the
AT&T divestiture in 1984. Prices for long-distance calls in several of the
markets in which the Company competes have declined in recent years and are
likely to continue to decrease.     
 
  Many of the competitors are significantly larger, have substantially greater
financial, technical and marketing resources and larger networks than the
Company. These competitors include, among others, AT&T, MCI, Sprint, WorldCom,
Frontier and LCI in the United States; Telstra and Optus in Australia; and
British Telecom, Mercury, WorldCom and ACC in the United Kingdom.
Additionally, many larger competitors have formed global alliances, including
WorldPartners (AT&T and others), Concert (MCI and British Telecom) and Global
One (Sprint, France Telecom, Deutsche Telekom and others), in an attempt to
capture market share on a global basis.
   
  Privatization and deregulation have had, and are expected to continue to
have, significant effects on competition in the industry. For example, as a
result of legislation recently enacted in the United States, RBOCs will be
allowed to enter the long distance market, AT&T, MCI and other long distance
carriers will be allowed to enter the local telephone services market, and
cable television companies and utilities will be allowed to enter both the
local and long distance telecommunications markets. In addition, competition
has begun to increase in the European Union telecommunications markets in
anticipation of the scheduled 1998 deregulation of the telecommunications
industry in most European Union countries. This increase in competition could
adversely affect net revenue per minute and gross margin as a percentage of
net revenue.     
 
                                      45

<PAGE>
 
  The following is a brief summary of the competitive environment in each of
the three Operating Hubs:
 
  United States. In the United States, which is the most competitive and among
the most deregulated long distance markets in the world, competition is based
upon pricing, customer service, network quality, and the ability to provide
value-added services. AT&T is the largest supplier of long distance services,
with MCI and Sprint being the next largest providers. In the future, under
provisions of recently enacted federal legislation, the Company anticipates
that it will also compete with RBOCs, LECs and Internet providers in providing
domestic and international long-distance services.
 
  Australia. Australia is one of the most deregulated and competitive
telecommunications markets in the Asia-Pacific region. The Company's principal
competitors in Australia are Telstra, the dominant carrier, Optus, Vodafone,
AAPT and WXL, three other switched-based carriers and a number of switchless
resellers, including PacStar and CorpTel. See "--Network." The Company
believes that when certain carrier-status regulations are modified, currently
expected to occur in June 1997, competition in Australia will increase. The
Company competes in Australia by offering a comprehensive menu of
competitively-priced products and services, including value-added services,
and by providing superior customer service and support.
 
  United Kingdom. The Company's principal competitors in the United Kingdom
are British Telecom, the dominant supplier of telecommunications services in
the United Kingdom, and Mercury, a subsidiary of Cable & Wireless. The Company
also faces competition from licensed public telephone operators (which are
constructing their own facilities-based networks) such as Energis, Colt and
MFS, from cable companies such as Telewest and SBC CableComms, and from
switch-based resellers such as WorldCom, ACC and Esprit. Other United States-
based carriers also may enter the United Kingdom market. The Company competes
in the United Kingdom by offering competitively-priced bundled and stand-alone
services, personalized customer service and value-added services.
 
GOVERNMENT REGULATION
 
  As a multinational telecommunications company, Primus is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company,
that domestic or international regulators or third parties will not raise
material issues with regard to the Company's compliance or noncompliance with
applicable regulations or that regulatory activities will not have a material
adverse effect on the Company. See "Risk Factors--Potential Adverse Effects of
Regulation." The regulatory framework in certain jurisdictions in which the
Company provides its services is briefly described below.
 
  United States. In the United States, the provision of the Company's services
is subject to the provisions of the Communications Act, the 1996
Telecommunications Act and the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states. The FCC exercises
jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent such services involve
jurisdictionally interstate communications, while state regulatory authorities
retain jurisdiction over jurisdictionally intrastate communications.
   
  As a carrier offering services to the public, the Company must comply with
the requirements of common carriage under the Communications Act, including
the offering of service on a non-discriminatory basis at just and reasonable
rates, and obtaining FCC approval prior to any assignment of authorizations or
any transfer of de jure or de facto control of the Company. The Company is
classified as a non-dominant common carrier for domestic service and is not
required to obtain specific prior FCC approval to initiate or expand domestic
interstate services. Pursuant to authority granted to the Commission in the
1996 Telecommunications Act, the FCC no longer requires non-dominant
interexchange carriers, including the Company, to maintain tariffs for their
interstate, domestic interexchange services on file at the Commission. In an
October 31, 1996 order, the FCC ruled that after a nine-month transition
period, non-dominant carriers, like the Company, may not file domestic     
 
                                      46

<PAGE>
 
   
interstate tariffs. Non-dominant carriers will be required, however, to
provide rate and service information to customers, as well as maintain price
and service information to make such information available on a timely basis
to the Commission upon request. The Company may maintain its interstate tariff
filed pursuant to the FCC's earlier tariff filing rules during the nine-month
period.     
       
   DOMESTIC SERVICE REGULATION. The 1996 Telecommunications Act, enacted in
February 1996, is intended to increase competition in the United States
telecommunications markets. The legislation opens the local services markets
by requiring LECs to permit interconnection to their networks and by
establishing LEC obligations with respect to unbundled access, resale, number
portability, dialing parity, access to rights-of-way, mutual compensation and
other matters. In addition, the legislation codifies the LECs' equal access
and nondiscrimination obligations and preempts inconsistent state regulation.
The legislation also contains special provisions that eliminate the
restrictions on the RBOCs and the GTE Operating Companies (the "GTOCs") from
providing long distance services. These new provisions permit an RBOC to enter
the "out-of-region" long distance market immediately upon the receipt of any
state and/or federal regulatory approvals otherwise applicable to the
provision of long distance service. These new provisions also permit an RBOC
to enter the "in-region" long distance market if it satisfies procedural and
substantive requirements, including obtaining FCC approval upon a showing that
in certain situations facilities-based competition is present in its market,
and that it has entered into interconnection agreements which satisfy a 14-
point "checklist" of competitive requirements. The GTOCs are permitted to
enter the long distance market as of the date of enactment of the 1996
Telecommunications Act, without regard to limitations by region, although
necessary regulatory approvals to provide long distance services must be
obtained, and the GTOCs are subject to the provisions of the 1996
Telecommunications Act that impose interconnection and other requirements on
LECs. The 1996 Telecommunications Act also addresses a wide range of other
telecommunications issues that may potentially impact the Company's
operations. It is unknown at this time precisely the nature and extent of the
impact that the legislation will have on the Company. As required by the
legislation, the FCC will be conducting a large number of proceedings over the
next year to adopt rules and regulations to implement the new statutory
provisions and requirements. On August 1, 1996, the FCC adopted an
Interconnection Order implementing the requirements that incumbent LECs make
available to new entrants interconnection and unbundled network elements, and
offer retail services for resale at wholesale rates.
 
   STATE REGULATION. The Company's intrastate long distance operations are
subject to various state laws and regulations including, in most
jurisdictions, certification and tariff filing requirements. The vast majority
of the states require the Company to apply for certification to provide
intrastate telecommunications services, or at least to register or to be found
exempt from regulation, before commencing intrastate service. Certificates of
authority can generally be conditioned, modified, canceled, terminated, or
revoked by state regulatory authorities for failure to comply with state law
and/or the rules, regulations, and policies of the state regulatory
authorities. Fines and other penalties also may be imposed for such
violations.
 
  The Company has received the necessary certificate and tariff approvals to
provide intrastate long distance service in 37 states. Applications for
certification are pending or will be filed in 11 other states. Although the
Company intends and expects to obtain operating authority in each jurisdiction
in which operating authority is required, there can be no assurance that one
or more of these jurisdictions will not deny the Company's request for
operating authority. The Company monitors regulatory developments in all 50
states to ensure regulatory compliance. The Company provides interstate
service nationwide under FCC interstate tariffs. To the extent that any
incidental intrastate service is provided in any state where the Company has
not yet obtained any required certification, the state commissions in that
state may impose penalties for any such unauthorized provision of service.
 
  PSCs also regulate access charges and other pricing for telecommunications
services within each state. The RBOCs and other local exchange carriers have
been seeking reduction of state regulatory requirements, including greater
pricing flexibility. This could adversely affect the Company in several ways.
If regulations are changed to allow variable pricing of access charges based
on volume, the Company could be placed at a competitive
 
                                      47

<PAGE>
 
disadvantage over larger long distance carriers. The Company also could face
increased price competition from the RBOCs and other local exchange carriers
for intra-LATA and inter-LATA long distance services, which competition may be
increased by the removal of former restrictions on long distance service
offerings by the RBOCs as a result of the 1996 Telecommunications Act.
 
   INTERNATIONAL SERVICE REGULATION. International common carriers, such as
the Company, are required to obtain authority under Section 214 of the
Communications Act and file a tariff containing the rates, terms, and
conditions applicable to their services prior to initiating their
international telecommunications services. The Company has obtained all
required authorizations from the FCC to use, on a facilities and resale basis,
various transmission media for the provision of international switched
services and international private line services.
 
  Under new tariff rules applicable to international carriers, nondominant
international carriers such as the Company must file their international
tariffs and any revisions thereto with one day's notice in lieu of the 14-day
notice previously required. The Company has filed international tariffs for
switched and private line services with the FCC. Additionally, international
telecommunications service providers are required to file copies of their
contracts with other carriers, including correspondent agreements, with the
FCC within 30 days of execution. The Company has filed each of its
correspondent agreements with the FCC. The FCC's rules also require the
Company to file periodically a variety of reports regarding its international
traffic flows and use of international facilities. The FCC has recently
proposed to reduce certain reporting requirements of common carriers, although
the Company is unable to predict the outcome of this proposal.
 
  In addition to the general common carrier principles, the Company must
conduct its international business in compliance with the FCC's international
settlements policy ("ISP"). The ISP establishes the permissible boundaries for
U.S.-based carriers and their foreign correspondents to settle the cost of
terminating each other's traffic over their respective networks. The amount of
payments (the "settlement rate") is determined by the negotiated accounting
rate specified in the correspondent agreement. Under the ISP, unless prior
approval is obtained, the settlement rate generally must be one-half of the
accounting rate. Carriers must obtain waivers of the FCC's rules if they wish
to use an accounting rate that differs from the prevailing rate or vary the
settlement rate from one-half of the accounting rate. As a result of the FCC's
pro-competition policies, the recent trend has been to reduce accounting
rates.
 
  As a U.S.-based international carrier, the Company is also subject to the
FCC's "uniform settlements policy" designed to eliminate foreign carriers'
incentives and opportunities to discriminate in their correspondent agreements
among different U.S.-based carriers through "whipsawing." Whipsawing refers to
the practice of a foreign carrier to vary the accounting and/or settlement
rate offered to different U.S.-based carriers for the benefit of the foreign
carrier, which could secure various incentives by favoring one U.S-based
carrier over another. Under the uniform settlements policy, U.S.-based
carriers can only enter into correspondent agreements that contain the same
accounting rate offered to all U.S.-based carriers. When a U.S.-based carrier
negotiates an accounting rate with a foreign correspondent that is lower than
the accounting rate offered to another U.S.-based carrier for the same
service, the U.S.-based carrier with the lower rate must file a notification
letter with the FCC. If a U.S.-based carrier varies the terms and conditions
of its correspondent agreement in addition to lowering the accounting rate,
then the U.S.-based carrier must request a waiver of the FCC's rules. Both the
notification and the waiver requests are designed to ensure that all U.S.-
based carriers have an opportunity to compete for foreign correspondent return
traffic.
 
  Among other efforts to prevent the practice of whipsawing and inequitable
treatment of similarly situated U.S.-based carriers, the FCC adopted the
principle of proportionate return to ensure that competing U.S.-based carriers
have roughly equitable opportunities to receive the return traffic that
reduces the marginal cost of providing international service. Consistent with
its pro-competition policies, the FCC prohibits U.S.-based carriers from
bargaining for special concessions from foreign partners.
 
                                      48

<PAGE>
 
   FOREIGN OWNERSHIP LIMITATIONS. The Communications Act limits the ownership
of an entity holding a common carrier radio license by non-U.S. citizens,
foreign corporations and foreign governments. The Company does not currently
hold any radio licenses. These ownership restrictions currently do not apply
to non-radio facilities, such as fiber optic cable. There can be no assurance,
however, that foreign ownership restrictions will not be imposed on the
operation of non-radio facilities used for the provision of international
services. The FCC recently adopted new rules relating to the entry and
participation of foreign entities in the U.S. telecommunications market. Under
those rules, the FCC will scrutinize an ownership interest greater than 25%,
or a controlling interest at any level in a U.S. carrier by a dominant foreign
carrier, to determine whether the destination market of the foreign carrier
offers "effective, competitive opportunities" ("ECO"). The Commission imposes
the same ECO test and affiliation standard on U.S.-based carriers that invest
in dominant foreign carriers. The FCC may impose restrictions on affiliated
carriers not meeting the ECO test. The new rules also require international
carriers to notify the FCC 60 days in advance of an acquisition of a 10% or
greater interest by a foreign carrier in that U.S. carrier. The FCC has
discretion to determine that unique factors require application of the ECO
test or a change in regulatory status of the U.S. carrier even though the
foreign carrier's interest is less than 25%. These rules also reduce
international tariff notice requirements for dominant, foreign-affiliated
carriers from 45 days' notice to 14 days' notice. Such reduced tariff notice
requirements may make it easier for dominant, foreign-affiliated carriers to
compete with the Company. The 1996 Telecommunications Act partially amends
existing restrictions on foreign ownership of radio licenses by allowing
corporations with non-U.S. citizen officers or directors to hold radio
licenses. Other non-U.S. ownership restrictions, however, remain unchanged.
The effect on the Company of the 1996 Telecommunications Act or other new
legislation or regulations which may become applicable to the Company cannot
be determined.
 
   CHANGING U.S. REGULATIONS. Regulation of the telecommunications industry is
changing rapidly. The FCC is considering a number of international service
issues in the context of several policy rulemaking proceedings and in response
to specific petitions and applications filed by other international carriers.
The FCC's resolution of some of these issues in other proceedings may
adversely affect the Company's international business (by, for example,
permitting larger carriers to take advantage of accounting rate discounts for
high traffic volumes). The Company is unable to predict how the FCC will
resolve the pending international policy issues or how such resolution will
affect its international business. There can be no assurance that future
regulatory changes will not have a material adverse impact on the Company.
 
  Australia. In Australia, the provision of the Company's services is subject
to federal regulation pursuant to the Telecom Act and federal regulation of
anti-competitive practices pursuant to the Trade Practices Act 1974. In
addition, other federal legislation, various regulations pursuant to delegated
authority and legislation, ministerial declarations, codes, directions,
licenses, statements of the Commonwealth Government policy and court decisions
affecting telecommunications carriers also apply to the Company.
 
  The Australian market is undergoing deregulation in two phases. The first
phase of the deregulation process commenced in 1991 and continued in 1992 with
(1) the enactment of the Telecom Act, (2) the corporatization of the local
PTT, Telecom Australia, into the corporation now known as Telstra, (3) the
creation and licensing of a second general carrier, Optus, (4) an agreement by
the Australian Government with Optus not to grant another general carrier
license before July 1, 1997, (5) the creation of a system to enable service
providers to compete with the carriers in the provision of telecommunications
services from 1992, (6) the licensing of Vodafone as a third digital mobile
carrier, and (7) a declared Government policy of achieving full competition by
July 1, 1997, subject to regulation by the Australian Government and the
telecommunications regulatory authority (at the present time, AUSTEL), and
also by the competition regulatory authority (the Australian Competition and
Consumer Commission or "ACCC"), which is expected to be given new jurisdiction
over competition aspects of the Australian telecommunications industry. These
regulatory authorities will have responsibility for economic and technical
regulation of the telecommunications industry as well as promoting competition
and protecting consumers.
 
                                      49

<PAGE>
 
  The Australian telecommunications industry continues to undergo
deregulation, and it is currently expected that the Australian Government will
license additional carriers, including the Company, to own transmission
facilities in July 1997. The possible introduction of a new Telecommunications
Act or, alternatively, amendments to the Telecom Act and possibly to
Australia's competition law, the Trade Practices Act, are expected to be made
prior to July 1, 1997 in order to change some aspects of, and to clarify, the
regulatory framework for this second phase of deregulation. Both Telstra and
Optus have requested that the Australian Government defer such date, and there
can be no assurance that the deregulatory process will proceed in accordance
with the Australian Government's announced timetable. Any delay in such
deregulatory process or the granting of licenses to other entities interested
in developing their own transmission facilities in Australia could delay
potential price reductions to resellers anticipated in a more competitive
marketplace.
 
  In the Australian context, a distinction is drawn between carriers licensed
under the Telecom Act and all other providers of telecommunications services.
Telstra, Optus and Vodafone are the only licensed facilities-based carriers
currently operating in Australia with exclusive rights to the transmission
facilities that constitute their networks. Both Telstra and Optus are licensed
by the Australian Government as general carriers and mobile carriers. Telstra
has been designated by AUSTEL as a dominant carrier for international
services. However, Telstra is currently challenging AUSTEL's finding of
dominance in the Australian federal courts.
 
  Until July 1997, other operators may provide service on a resale basis
pursuant to a class license established by Part 10 of the Telecom Act. These
resellers operate in a switched-based or switchless environment and rely on
one or more of the licensed carriers. There are currently three types of class
licenses--service providers license, international service providers license,
and the public access cordless telecommunications services license. The class
licenses set forth the regulatory requirements applicable to all operators
providing services governed by such license. As a reseller of domestic, local
and long distance service, cellular service and international service, the
Company must comply with the terms of the class license that applies to all
service providers until July 1997, or later if the deregulatory process in
Australia is delayed.
 
  A service provider does not need to apply or register for a class license.
However, a registration system does exist, providing some advantages of
certainty to the service provider by ensuring that particular service is
provided under the relevant class license. The system has the commercial
disadvantage of disclosing certain information about a provider's activities.
In addition, a system of forced enrollment exists for AUSTEL to monitor
certain activities. This requirement for enrollment has been applied to
eligible international services.
 
  The remainder of the telecommunications services in Australia, including
value-added services, are open to competition. From July 1997, operators other
than Telstra, Optus and Vodafone may become general licensed carriers assuming
deregulation continues on its current timetable. Axicorp currently plans to
become a licensed general carrier after July 1997. As a general licensed
carrier, Axicorp will be required to comply with the terms of its own license
and will be subject to the greater regulatory controls applicable to licensed
facilities-based carriers.
 
  United Kingdom. In the United Kingdom, the provision of the Company's
services is subject to the provisions of the U.K. Telecommunications Act. The
Secretary of State for Trade and Industry, acting on the advice of the U.K.
Department of Trade and Industry (the "DTI") is responsible for granting UK
telecommunications licenses, while the Director General of Telecommunications
(the "Director General") and Oftel are responsible for enforcing the terms of
such licenses. Oftel attempts to promote effective competition both in
networks and in services to redress anticompetitive behavior. The Company is
also subject to general European Union law.
 
  Until 1981, British Telecom was virtually the sole provider of public
telecommunications services throughout the United Kingdom. This virtual
monopoly ended when, in 1981, the British government granted Mercury a license
to run its own telecommunications system under the British Telecommunications
Act 1981. Both British Telecom and Mercury are licensed under the subsequent
U.K. Telecommunications Act to run
 
                                      50

<PAGE>
 
transmission facilities-based telecommunications systems and provide
telecommunications services. In 1991, the British government established a
"multi-operator" policy to replace the duopoly that had existed between
British Telecom and Mercury. Under the multi-operator policy, the DTI will
recommend the grant of a license to operate a telecommunications network to
any applicant that the DTI believes has a reasonable business plan and where
there are no other overriding considerations not to grant such license. All
public telecommunications operators and international simple resellers operate
under individual licenses granted by the Secretary of State for Trade and
Industry pursuant to the U.K. Telecommunications Act. Any telecommunications
system with compatible equipment that is authorized to be run under an
individual license is permitted to interconnect to British Telecom's network.
Under the terms of British Telecom's license, it is required to allow any such
licensed operator to interconnect its system to British Telecom's system,
unless it is not reasonably practicable to do so (e.g., due to incompatible
equipment).
 
  The Company's subsidiary, Primus Telecommunications, Inc., holds an ISR
license that authorizes it to provide switched voice services over leased
private lines to all international points. In addition, the Company (along
with approximately 45 other applicants, including AT&T, WorldCom and ACC) has
recently made application to the U.K. Secretary for Trade and Industry for a
license to provide international facilities-based voice services. Although the
Company currently expects such license to be granted by the end of the first
quarter of 1997, there can be no assurance that the Company will be granted
the license by such time, or at all. Failure to obtain such license would
prevent the Company from providing facilities-based services in the United
Kingdom and would have an adverse effect on the Company's ability to expand
its operations.
 
    TARIFFS. Telecommunications tariffs on operators in the United Kingdom
(excluding British Telecom) are generally not subject to prior review or
approval by regulatory authorities, although Oftel has historically imposed
price caps on British Telecom. The current price caps on British Telecom
expire at the end of July 1997. Oftel is considering whether it will be able
to police anti-competitive behavior effectively and is currently conducting a
price control review of the U.K. telecommunications industry. Key elements of
Oftel's final proposals in connection with this review include terminating
price controls on British Telecom in 2001, limiting increases in
telecommunications services charges for residential customers to the rate of
inflation, and continued regulation of access charges by British Telecom to
its competing telecommunications service providers. With respect to the
creation of a detailed effective regulatory regime for the future, Oftel has
published its proposals in July 1995 in a document entitled "Effective
Competition: Framework for Action." Key elements of Oftel's plans included (1)
moving to an incremental cost basis for interconnection charges from 1997, (2)
withdrawing from detailed setting of some interconnection charges, (3)
providing for industry-wide contribution to the cost of maintaining "universal
service," (4) eliminating access deficit charges, (5) moving towards pricing
based on capacity charging for interconnection services and (6) developing an
interconnection regime for service providers. There can be no assurances that
such proposals will be implemented, in whole or in part, in the time frame
specified.
 
   FAIR TRADING PRACTICES. Oftel is the principal regulator of the competitive
aspects of the U.K. telecommunications industry. Oftel's limited authority in
this area is derived from the powers given to Oftel under the U.K.
Telecommunications Act and from the terms of the licenses granted under the
U.K. Telecommunications Act. Any dispute between Oftel and a
telecommunications service provider may be referred on appeal to the U.K.
Monopolies and Mergers Commission, which may conduct a detailed and lengthy
review of the facts surrounding such dispute. Furthermore, Oftel has no
authority to impose fines for a breach of the terms of a license issued under
the U.K. Telecommunications Act, and third parties have no right to damages
for a past breach. Oftel has expressed its view that the current regulatory
regime is both obscure and uncertain. Although Oftel is currently seeking more
power to police the competitive aspects of the U.K. telecommunications
industry, no assurances can be given that it will be successful in its efforts
or that it will be able to prohibit anti-competitive conduct harmful to the
Company. The Company is also subject to general European law, which, among
other things, prohibits certain anti-competitive agreements and abuses of
dominant market positions through Articles 85 and 86 of the Treaty of Rome.
The European Commission is entrusted with the principal
 
                                      51

<PAGE>
 
enforcement powers under European Union competition law. It has the power to
impose fines of up to 10% of a group's annual revenue in respect of breaches
of Articles 85 and 86. In most cases notification of potentially infringing
agreements to the Commission under Article 85 with a request for an exemption
protects against the risk of fines from the date of notification.
 
  In March 1996, Oftel published an interim report on incremental costs
detailing steps to develop a methodology to calculate such costs. The report
has identified two models: "top-down" developed by British Telecom, and
"bottom up" favored by the industry. Incremental costs play a key role in
Oftel's proposals for the control of British Telecom's interconnection charges
as of August 1997. There is a risk that if agreement to costing methodologies
to be used by British Telecom is delayed or does not occur, the matter will be
referred to the MMC which could mean that the implementation of proper
transparency and allocation of costs when operators are seeking
interconnection with British Telecom will be seriously delayed.
 
  Mexico. In Mexico, the provision of the Company's services is subject to the
provisions of the 1940 General Communications Law, 1995 Federal
Telecommunications Law and 1990 Telecommunications Regulations, which provide
the general legal framework for the regulation of telecommunications services
in Mexico. Since the enactment of the 1995 Federal Telecommunications Law, the
Mexican government has adopted several implementing rules regarding
interconnection, long distance services, numbering and signaling, and other
rules are pending.
 
  Pursuant to the 1995 Federal Telecommunications Law, the Mexican government
recently created an independent telecommunications commission that will
regulate and oversee the telecommunications sector in Mexico. The Federal
Telecommunications Commission will take over many of the functions and
responsibilities of the Secretariat of Communications and Transportation
("SCT"). In particular, the Commission's powers and attributions include (i)
the administration of the radioelectric spectrum, (ii) the administration of
the Telecommunications Registry, (iii) to promote and oversee the efficient
interconnection between the public telecommunications networks, (iv) to
resolve interconnection disputes between the concessionaires, (v) to impose
specific obligations on concessionaires that have substantial market power in
the relevant market and (vi) to opine regarding the granting, extension,
assignment or revocation of concessions and permits.
 
  The 1995 Federal Telecommunications Law classifies telecommunications
networks into public or private depending on the use of the network. Public
telecommunications networks are those networks that are used to provide
commercial telecommunications services to the public. Private
telecommunications networks are those that are used to satisfy the specific
telecommunications needs of persons and that do not offer telecommunications
services to the public.
 
  Operators of private networks do not require any authority from the
government unless they use the radio frequency spectrum. Public
telecommunications network operators require specific authority from the
government, which will vary depending on whether a carrier intends to resell
or operate as a facilities-based carrier. "Concessionaires" of public
telecommunications networks are those facilities-based carriers that require a
concession from the federal government to use the radio spectrum, satellite
links or any form of terrestrial cables to provide public telecommunications
services. "Resellers" (or "vendors") of telecommunication services are those
carriers that provide telecommunications services to the public through the
use of capacity acquired from concessionaires of public telecommunications
networks. Resellers only require a permit. No specific authority from the SCT
is required to provide value-added services. However, parties that wish to
provide value-added services must register in the SCT's Telecommunications
Registry. The Company obtained registration to provide such services in August
1996, and currently plans to provide value-added services including Internet
access, enhanced facsimile, voice mail retrieve functionalities, electronic
mail and call store and forward.
 
  The Company, through its subsidiary Primus Telecommunicaciones de Mexico,
S.A. de C.V., is currently providing private network management services to
companies that already have leased a private network to serve
 
                                      52

<PAGE>
 
their internal corporate needs. Private network management services qualify as
unregulated services in Mexico and do not require any type of authorization
from any government authority.
 
  In July 1994, the SCT issued the rules for the interconnection of competing
long distance carriers with Telmex's network. The rules provide that Telmex is
required to make 60 of its switches available to its competitors by January 1,
1997, and gradually increase the number of switches until all of its switches
are available to competitors after January 1, 2001. In addition, the rules
provide that as of January 1, 1997, competing carriers may, at their own cost,
interconnect to other switches in Mexico even if they are not included in the
list of 60 switches that Telmex has to make available by 1997.
 
  In this regard, in April 1996, the SCT established the structure of the
principal rates that Telmex will charge new long distance carriers for
interconnection with its network and set the rates for 1997 and 1998. On June
21, 1996, the SCT issued rules governing long distance services, as well as
the Basic Technical Plans for Numbering and for Signaling, which address a
number of technical issues relating to the commencement of competition in long
distance services. The new long distance rules establish the framework and
schedule for the provision of competitive long distance services including
rules regarding presubscription, numbering access codes, allocation of service
related liability, billing and collection and certain consultation and
information sharing mechanisms among service providers and the SCT. The rules,
however, do not address the transmission of international long distance
traffic.
 
AXICORP
 
  The Company acquired Axicorp, the fourth largest telecommunications provider
in Australia, in March 1996. Axicorp provides the Company early entry into the
deregulating Australian telecommunications market and will serve as the
Company's gateway to the Asia-Pacific region. The Company believes that the
ongoing transformation of Axicorp's strategy and operations to a facilities-
based carrier focused on the provision of international and domestic long
distance services is an example of the execution of the Company's business
model. For the twelve months ended March 31, 1996, Axicorp generated net
revenue of approximately $144 million.
 
  Axicorp began operations in September 1993 in order to capitalize on the
opportunities arising from the advent of the deregulation of the
telecommunications industry in Australia. Prior to the acquisition, Axicorp
pursued a strategy of reselling long distance, local switched and cellular
services at a discount to the prices charged by Telstra, the former monopoly
telecommunications provider in Australia. Axicorp originally marketed and sold
its services through sales agents to professional and trade associations. All
of Axicorp's billing and collection functions were conducted by Telstra.
 
  Since acquiring Axicorp in March 1996, Primus has been investing substantial
resources to transform Axicorp's strategy and operations to those of a
facilities-based carrier focused on the provision of international and
domestic long distance services. The Company has acquired five switches for
use in Australia, which are expected to be operational by the end of the first
quarter of 1997, and has focused on increasing the number of higher-margin,
higher-volume business customers with significant international long distance
traffic. As part of its increasing focus on business customers, the Company is
increasing Axicorp's direct sales force and reducing its reliance on marketing
through associations. In addition, Axicorp's switch network will be integrated
into the Network and the Company intends to offer additional services in
Australia, including prepaid and calling cards, audio-conferencing and toll-
free services.
 
  The Company believes that the integration of Axicorp into the Company's
operations and strategy will be enhanced by certain Australian regulatory
changes expected to become effective in July 1997. Under current regulations,
only Telstra and Optus are licensed as full service facilities-based carriers.
The Australian government, however, has indicated plans to deregulate the
Australian telecommunications market in July 1997, which would permit Axicorp
and others to own transmission facilities. Although both Telstra and Optus
have requested that the government delay the July 1997 implementation of
deregulation, the Company believes that
 
                                      53

<PAGE>
 
any such delay would not affect the Company's ability to own and operate the
network it is deploying within Australia. See "--Government Regulation."
 
  The Company acquired Axicorp for $5.7 million in cash, including transaction
costs, 455,000 shares of Series A Stock (convertible into 1,538,355 shares of
Common Stock on the date of the Offering) and seller financing recorded on a
discounted basis (the "Seller Financing"), consisting of $4.1 million payable
to Fujitsu Australia Limited and $4.0 million payable to the individual
shareholder sellers. As security for payment of the Seller Financing, the
sellers have collateral security interests in all of the outstanding Axicorp
shares, 27% as registered owner, which will be registered in the Company's
name upon payment of the Seller Financing, and 73% pursuant to a share
mortgage. In turn, the Company is holding 248,334 shares of the Series A Stock
issued to the individual sellers as collateral for the 27% of the Axicorp
shares registered in their names. These shares of Series A Stock will be
released to the sellers once the remaining Axicorp shares are received.
Pursuant to its terms, the Series A Stock will be converted into Common Stock
upon the completion of the Offering.
 
EMPLOYEES
 
  The following table summarizes the number of full-time employees of the
Company as of September 30, 1996, by region and classification:
 

<TABLE>
<CAPTION>
                                                  UNITED KINGDOM/  ASIA-
                                    NORTH AMERICA     EUROPE      PACIFIC TOTAL
                                    ------------- --------------- ------- -----
<S>                                 <C>           <C>             <C>     <C>
Management and Administrative......        8             11          23     42
Sales and Marketing................       41             34          53    128
Customer Service and Support.......       11             18          29     58
Technical..........................       10              7          40     57
                                         ---            ---         ---    ---
  Total............................       70             70         145    285
                                         ===            ===         ===    ===
</TABLE>

 
  The Company never has experienced a work stoppage, and none of its employees
is represented by a labor union or covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
 

PROPERTIES
 
  The Company's headquarters in McLean, Virginia consist of approximately
4,585 square feet of office space under a lease that expires in October 1999
and provides for a monthly rental of $8,000. The Company also leases 3,134
square feet of office space in an adjacent building under a lease which
expires in October 1999 and provides for a monthly rental of $2,100. In
addition the Company leases sales offices in Tampa, Florida and New York City
consisting of 2,859 and 350 square feet, respectively, which leases expire in
April 1998 and April 1997 and provide for a monthly rental of $2,000 and
$3,100 respectively. The Company also leases for $5,900 per month a 2,575
square foot facility which houses the Company's Washington, D.C. switch
through May 1997, and leases for $13,000 per month and $35,000 per month 5,350
and 3,000 square foot facilities in Los Angeles, California and Jersey City,
New Jersey, respectively, at which it intends to locate international gateway
switches.
 
  The Axicorp facilities consist of administrative offices and other
facilities aggregating approximately 30,000 square feet for total monthly
rental of $41,000. Axicorp's leases expire at varying times from January 1997
to August 1999. In the United Kingdom, the Company leases approximately 3,250
square feet of office space which expires in April 1999 and provides for a
monthly rental of $18,000. In Mexico, the Company leases approximately 750
square feet of office space in Mexico City for $1,650 per month and for a term
expiring in October 1997. In Toronto, the Company leases approximately 420
square feet under a lease providing for a monthly rental of $900 and expiring
July 2001.
 
  Management believes that the Company's present office facilities, together
with additional space currently under discussion with its Virginia landlord,
are adequate for its anticipated operations, and that similar space can
readily be obtained as needed. As its network of owned digital switches grows,
the Company will have to lease additional locations to house these facilities.
 
                                      54

<PAGE>
 
LEGAL PROCEEDINGS
 
  The Company is from time to time involved in litigation incidental to the
conduct of its business. There is no pending legal proceeding to which the
Company is a party which the Company believes is likely to have a material
adverse effect on the Company's business, financial condition or results of
operations.
 
                                      55

<PAGE>
 

                                  MANAGEMENT
 
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
 
  The executive officers, directors and key employees of the Company are as
follows:
 

<TABLE>   
<CAPTION>
                                                                    YEAR OF EXPIRATION
  NAME                   AGE                POSITION                OF TERM AS DIRECTOR
  ----                   ---                --------                -------------------
<S>                      <C> <C>                                    <C>
K. Paul Singh(1)........  45 Chairman of the Board of Directors,           1999
                              President, and Chief Executive
                              Officer
Neil L. Hazard..........  44 Executive Vice President and Chief             N/A
                              Financial Officer
John F. DePodesta.......  51 Executive Vice President, Law and             1999
                              Regulatory Affairs, and Director
George E. Mattos........  47 Vice President of Operations                   N/A
John Melick.............  37 Vice President of Sales and Marketing          N/A
Thomas R. Kloster.......  36 Corporate Controller                           N/A
Ravi Bhatia.............  48 Chief Operating Officer, Axicorp               N/A
Peter Slaney............  56 General Manager, Primus                        N/A
                              Telecommunications International,
                              Inc.
Paul Keenan.............  38 General Manager of Mobile Services,            N/A
                             Axicorp
Sim Thiam Soon..........  43 General Manager of Operations, Axicorp         N/A
Herman Fialkov(2)(3)....  74 Director                                      1997
David E. Hershberg(2)...  59 Director                                      1997
John Puente(1)(3).......  66 Director                                      1998
</TABLE>
    
- --------
(1) Member of Nominating Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
 
  K. Paul Singh co-founded the Company in 1994 with Mr. DePodesta and serves
as its Chairman, President and Chief Executive Officer. From 1991 until he co-
founded the Company, he served as the Vice President of Global Product
marketing for MCI. Prior to joining MCI, Mr. Singh was the Chairman and Chief
Executive Officer of OTI, a provider of private digital communications in over
26 countries which he founded in 1984 and was purchased by MCI in 1991. See
"Certain Transactions."
 
  Neil L. Hazard joined the Company in 1996 as its Executive Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Hazard was
employed by MCI in several executive positions, most recently as its Director
of Corporate Accounting and Financial Reporting, responsible for consolidation
of MCI's financial results, external reporting to stockholders and SEC
reporting. Mr. Hazard served as acting Controller of MCI for six months and as
Director of Global Product Marketing. Prior to joining MCI in 1991, Mr. Hazard
served as the Chief Financial Officer of OTI.
 
  John F. DePodesta co-founded the Company in 1994 with Mr. Singh, and serves
as a director and its Executive Vice President Law and Regulatory Affairs. In
addition to his position with the Company, Mr. DePodesta also currently serves
as the Senior Vice President, Law and Public Policy for Genesis Health
Ventures, Inc. and the Chairman of the Board of Iron Road Railways
Incorporated, which he co-founded in 1994. Additionally, since 1994 he has
been "of counsel" to the law firm of Pepper, Hamilton & Scheetz, where he was
previously a partner since 1979. Before joining Pepper, Hamilton & Scheetz,
Mr. DePodesta served as the General Counsel of Consolidated Rail Corporation.
See "Certain Transactions."
 
                                      56

<PAGE>
 
  George E. Mattos joined the Company in 1994 as its Vice-President of
Operations. Prior to joining the Company, Mr. Mattos held several positions
with MCI for over 10 years, most recently as a Senior Manager responsible for
the development of a software monitoring system for customer service,
installation, operation and maintenance of MCI's international
telecommunications network. Mr. Mattos previously was part of MCI's switching
and network intelligence facilities where he was responsible for commencing
switched voice service to various countries.
 
  John Melick joined the Company in 1994 as its Vice President of Sales and
Marketing. Prior to joining the Company, he was a Senior Manager with MCI
responsible for the day-to-day management of its global product portfolio in
Latin American and the Caribbean region. He joined MCI in 1991 at the time of
the acquisition of OTI where he managed the development of OTI's service
expansion into Mexico and Latin America.
 
  Thomas R. Kloster joined the Company in 1996 as its Corporate Controller.
Prior to joining the Company, Mr. Kloster was employed by MCI as Senior
Manager of Corporate Accounting and Reporting, responsible for various facets
of MCI's consolidation of financial results, external and internal reporting,
and accounting for ventures and emerging businesses. Prior to joining MCI in
1994, Mr. Kloster had been employed by Price Waterhouse LLP since 1988, most
recently serving as a Senior Manager.
 
  Ravi Bhatia joined the Company in October 1995 as the Managing Director of
Primus Telecommunications Pty., Ltd. (Australia) and in March 1996 became the
Chief Operating Officer of Axicorp and as such is responsible for implementing
the Company's business strategy in Australia. Mr. Bhatia has over 26 years of
international experience in the telecommunications industry, which includes 9
years of employment with MCI in various sales and marketing positions. Most
recently, he served as the Director of Sales and Marketing for MCI in the
South Pacific Region, based in Sydney.
 
  Peter Slaney joined the Company in 1996 as the Managing Director of Axicorp.
Mr. Slaney was previously a co-founder and served as Managing Director of
Axicorp since its inception in 1993. Prior to forming Axicorp, Mr. Slaney
served as General Manager of the Telecommunications Group of Paxus Australia,
a group that provided professional services and consulting to Telstra. The
majority of Mr. Slaney's career was spent at IBM Corporation where he worked
for 20 years in various capacities, including as an Account Executive Manager
in the personal computer market.
 
  Paul Keenan joined the Company in 1996 as General Manager of Axicorp's
cellular business unit. Mr. Keenan co-founded Axicorp in 1993 and served as
its General Manager, Finance and Administration until he joined the Company.
Prior to co-founding Axicorp, Mr. Keenan had been a Senior Consultant with
Paxus Australia since 1990.
 
  Sim Thiam Soon joined the Company in 1996 as General Manager of Operations
of Axicorp. Mr. Sim co-founded Axicorp in 1993 and served as its General
Manager of Operations until joining the Company. Prior to co-founding Axicorp,
Mr. Sim had been a Manager with Paxus Australia since 1990.
 
  Herman Fialkov became a director of the Company in 1995. He is currently the
General Partner of PolyVentures Associates, L.P., a venture capital firm and
has been associated with various venture capital firms since 1968. Previously,
he was an officer and director of General Instrument Corporation which he
joined in 1960 as a result of its acquisition of General Transistor
Corporation, a company Mr. Fialkov founded.
 
  David E. Hershberg became a director of the Company in 1995. Mr. Hershberg
is the founder, President and CEO of WorldComm Systems, Inc., a system
integrator of satellite earth stations. From 1976 to 1994, Mr. Hershberg was
the President and Chief Executive Officer of Satellite Transmission Systems,
Inc., a global provider of satellite telecommunications equipment, and became
a Group President of California Microwave, Inc., a company that acquired
Satellite Transmission Systems, Inc.
 
                                      57

<PAGE>
 
  John Puente became a director of the Company in 1995. From 1987 to 1995, he
was Chairman of the Board and CEO of Orion Network Systems, a satellite
telecommunications company. Mr. Puente is currently Chairman of the Board of
Telogy Networks, Inc., a privately-held company. Prior to joining Orion, Mr.
Puente was Vice Chairman of M/A-Com Inc., now known as Hughes Network Systems,
Inc., a diversified telecommunications and manufacturing company, which he
joined in 1978 when M/A-Com acquired Digital Communications Corporation, a
satellite terminal and packet switching manufacturer of which Mr. Puente was a
founder and Chief Executive Officer.
 
CLASSIFIED BOARD OF DIRECTORS
 
  Pursuant to the Company's By-Laws, the Board of Directors is divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class are elected to serve three-
year terms and approximately one-third of the directors sit for election at
each annual meeting of the Company's stockholders. A classified board of
directors may have the effect of deterring or delaying any attempt by any
group to obtain control of the Company by a proxy contest since such third
party would be required to have its nominees elected at two separate annual
meetings of the Board of Directors in order to elect a majority of the members
of the Board of Directors. Directors who are elected to fill a vacancy
(including vacancies created by an increase in the number of directors) must
be confirmed by the stockholders at the next annual meeting of stockholders
whether or not such director's term expires at such annual meeting. See
"Description of Capital Stock--Takeover Protection."
 
DIRECTOR COMPENSATION
 
  The Company pays cash compensation to outside board members who are not
otherwise consultants to the Company. Each such board member is entitled to
receive $500 for each meeting of the Board of Directors, or any committee
thereof, attended by such board member in person or by telephone. The Company
also has adopted a Director Plan under which options for up to a total of
338,100 shares of Common Stock will be issued to those directors of the
Company that are not also employees of the Company. Under the Director Plan,
each of the current non-employee directors has received options with respect
to a total of 50,715 shares at an exercise price of $2.96 per share.
 
COMMITTEES OF THE BOARD
 
  The Company's Board of Directors has appointed an Audit Committee,
Nominating Committee and a Compensation Committee.
   
  Audit Committee. The Audit Committee, which currently consists of Mr. Puente
and Mr. Fialkov, has the authority and responsibility to hire one or more
independent public accountants to audit the Company's books, records and
financial statements and to review the Company's systems of accounting
(including its systems of internal control); to discuss with such independent
public accountants the results of such audit and review; to conduct periodic
independent reviews of the systems of accounting (including systems of
internal control); and to make reports periodically to the Board of Directors
with respect to its findings.     
 
  Nominating Committee. The Nominating Committee, which currently consists of
Messrs. Puente (Chairman) and Singh, is responsible for selecting those
persons to be nominated to the Company's Board of Directors.
 
                                      58

<PAGE>
 
  Compensation Committee. The Compensation Committee, which currently consists
of Messrs. Fialkov (Chairman) and Hershberg, is responsible for fixing the
compensation of the Chief Executive Officer and the other executive officers,
as well as making recommendations to the Board of Directors with respect to
other compensation matters such as those relating to the operation of the
Plans and approving certain aspects of the Company's management bonus plan.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  None of the members of the Compensation Committee has any interlocking or
other relationship with the Company that would call into question his
independence with respect to his duties.
 

EXECUTIVE COMPENSATION
 
  The following table sets forth the compensation paid by the Company for
services rendered in all capacities during 1995 to the Company's chief
executive officer. No other executive officer of the Company received total
annual salary and bonus in excess of $100,000 during 1995.
 
                          SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                                  LONG-TERM
                                                                 COMPENSATION
                                   ANNUAL COMPENSATION              AWARDS
                             ----------------------------------- ------------
                                                    OTHER ANNUAL  SECURITIES
                                                    COMPENSATION  UNDERLYING   ALL OTHER
NAME AND PRINCIPAL POSITION  YEAR  SALARY     BONUS     ($)      OPTIONS ($)  COMPENSATION
- ---------------------------  ---- --------    ----- ------------ ------------ ------------
<S>                          <C>  <C>         <C>   <C>          <C>          <C>
K. Paul Singh,
 Chairman and Chief
 Executive Officer.....      1995 $185,000(1)  --       --           --           --
</TABLE>

- --------
(1) Of this amount, the payment of $77,200 was deferred and subsequently paid
    on July 31, 1996. See""--Employment Contract."
 
STOCK OPTION PLANS
 
  Employee Stock Option Plan. The Company established the Employee Plan for
its employees on January 2, 1995 which provides for the grant to selected
employees of the Company and its Subsidiaries who contribute to the
development and success of the Company and its Subsidiaries of both "incentive
stock options" within the meaning of Section 422 of the Code ("ISOs") and
options that are non-qualified for federal income tax purposes ("NQSOs"). The
total number of shares of Common Stock for which options may be granted
pursuant to the Employee Plan is 1,690,500, subject to certain adjustments
reflecting changes in the Company's capitalization. The Employee Plan is
currently administered by the Board of Directors, although it provides for its
administration by a Committee of the Board. The Board of Directors determines,
among other things, which employees will receive options under the Employee
Plan; the time when options will be granted; the type of option (ISO or NQSO,
or both) to be granted, the number of shares subject to each option, the time
or times when the options will become exercisable and expire, and, subject to
certain conditions discussed below, the option price and duration of the
option. Board members administering the Employee Plan may vote on any matters
affecting the administration of the Plan, except that no member may act upon
the granting of an option to himself or herself.
 
  The exercise price of the options granted under the Employee Plan is
determined by the Board of Directors, but may not be less than the fair market
value per share of the Common Stock on the date the option is granted. If,
however, an ISO is granted to any person who, at the time of the grant, owns
capital stock possessing more than 10% of the total combined voting power of
all classes of the Company's capital stock, then the exercise price for such
ISO may not be less than 110% of the fair market value per share of the Common
Stock on the date the option is granted. The Board of Directors also
determines the method of payment for the exercise of options under the
Employee Plan, and may consist entirely of cash, check, promissory notes or
Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price.
 
                                      59

<PAGE>
 
  Options are not assignable or transferrable other than by will or the laws
of descent and distribution. If an employee's employment with the Company is
terminated for any reason, such employee's options exercisable on the date of
termination are exercisable for three months following the date of
termination. If the Board of Directors makes a determination that a terminated
employee engaged in disloyalty to the Company, disclosed proprietary
information, is convicted of a felony, or breached the terms of a written
confidentiality agreement or non-competition agreement, all unexercised
options held by such employee terminate upon the earlier of the date of such
determination or the date of termination. If an employee becomes disabled or
deceased while an employee of the Company, such employee's options that are
exercisable on the date of disability or death will remain exercisable for
twelve months following the date of disability or death; provided, however,
that if a disabled employee commences employment with a competitor of the
Company during that twelve-month period, all options held by the employee
terminate immediately.
 
  Options issued pursuant to the Employee Plan outstanding on the date of a
"change in control" of the Company become immediately exercisable on such
date. A change in control for purposes of the Employee Plan includes the
acquisition by any person or entity of the beneficial ownership of 50% or more
of the voting power of the Company's stock, the approval by the Company's
shareholders of a merger, reorganization or consolidation of the Company in
which the Company's shareholders do not own 50% or more of the voting power of
the stock of the entity surviving such a transaction, the approval of the
Company's shareholders of an agreement of sale of all or substantially all of
the Company's assets, and the acceptance by the Company's shareholders of a
share exchange in which the Company's shareholders do not own 50% or more of
the voting power of the stock of the entity surviving such exchange.
 
  There are no federal income tax consequences to the Company on the grant or
exercise of an ISO. If an employee disposes of stock acquired through the
exercise of an ISO within one year after the date such stock is acquired or
within two years after the grant of the ISO (a "Disqualifying Disposition"),
the Company will be entitled to a deduction in an amount equal to the
difference between the fair market value of such stock on the date it is
acquired and the exercise price of the ISO. There are no tax consequences to
the Company if an ISO lapses before exercise or is forfeited. The grant of a
NQSO has no immediate tax consequences to the Company. Upon the exercise of a
NQSO by an employee, the Company is entitled to a deduction in an amount equal
to the difference between the fair market value of the share acquired through
exercise of the NQSO and the exercise price of the NQSO. There are no tax
consequences to the Company if a NQSO lapses before exercise or is forfeited.
 
  An employee who receives an ISO is not subject to federal income tax on the
grant or exercise of the ISO; however, the difference between the option price
and the fair market value of the Common Stock received on the exercise of the
ISO ("ISO Stock") is an adjustment for purposes of the alternative minimum
tax. Upon the exercise of an ISO, an employee will have a basis in the ISO
Stock received equal to the amount paid. An employee will be subject to
capital gain or loss upon the sale of ISO Stock, unless such sale constitutes
a Disqualifying Disposition, equal to the difference between the amount
received for the stock and the employee's basis in such. The gain or loss will
be long- or short-term, depending on the length of time the ISO Stock was held
prior to disposition. There are no tax consequences to an employee if an ISO
lapses before exercise or is forfeited.
 
  In the event of a Disqualifying Disposition, an employee will be required to
recognize (1) taxable ordinary income in an amount equal to the difference
between the fair market value of the ISO Stock on the date of exercise of the
ISO and the exercise price; and (2) capital gain or loss (long- or short-term,
as the case may be) in an amount equal to the difference between (a) the
amount realized by the employee upon the Disqualifying Disposition and (b) the
exercise price paid by the employee for the stock, increased by the amount of
ordinary income recognized by the employee, if any. If the disposition
generates an allowable loss (e.g., a sale to an unrelated party not within 30
days of purchase of Common Stock), then the amount required to be recognized
by the employee as ordinary income will be limited to the excess, if any, of
the amount realized on the sale over the basis of the stock.
 
                                      60

<PAGE>
 
  The Employee Plan allows an employee to pay an exercise price in cash or
shares of the Company's Common Stock. If the employee pays with shares of the
Company's Common Stock that are already owned, the basis of the newly acquired
ISO Stock will depend on the tax character and number of shares of the
previously owned stock used as payment. If an employee pays with shares
acquired upon other than the exercise of an ISO ("non-ISO Stock"), the
transaction will be tax-free to the extent that the number of shares received
does not exceed the number of shares of non-ISO Stock paid. The basis of the
number of shares of newly acquired ISO Stock which does not exceed the number
of shares of non-ISO Stock paid will be equal to the basis of the shares paid.
The employee's holding period with respect to such shares will include the
holding period of the shares of non-ISO Stock paid. To the extent that the
employee receives more new shares than shares surrendered, the "excess" shares
of ISO Stock will take a zero basis. If an employee exercises an ISO by using
stock that is previously acquired ISO Stock, however, certain special rules
apply. If the employee has not held the previously acquired ISO Stock for at
least two years from the date of grant of the related ISO and one year from
the date the employee acquired the previously acquired ISO Stock, the use of
such ISO Stock to pay the exercise price will constitute a Disqualifying
Disposition and subject the employee to income tax with respect to the ISO
Stock as described above. In such circumstances, the basis of the newly
acquired ISO Stock will be equal to the fair market value of the previously
acquired ISO Stock used as payment.
 
  The grant of a NQSO has no immediate tax consequences to an employee. The
exercise of a NQSO requires an employee to include in gross income the amount
by which the fair market value of the acquired shares exceeds the exercise
price on the exercise date. The Company is required to withhold income and
employment taxes from the employee's wages on account of this income. The
employee's basis in the acquired shares will be their fair market value on the
date of exercise. Upon a subsequent sale of such shares, the employee will
recognize capital gain or loss equal to the difference between the sales price
and the basis in the stock. The capital gain or loss will be long- or short-
term, depending on the length of time that the employee held the shares. There
are no tax consequences to an employee if a NQSO lapses before exercise or is
forfeited. If an employee uses previously owned Common Stock as payment for
the exercise price of a NQSO, to the extent the employee surrenders the same
number of shares received, the exchange is tax-free and the new shares will
have a basis equal to that of the shares surrendered. The holding period for
the new shares, moreover, will include the period the employee held the
surrendered shares. To the extent the employee receives more new shares than
shares surrendered, the "excess" shares are treated as having been acquired
for no consideration and the fair market value of such "excess" shares is
includible in the employee's income as compensation. The basis of the "excess"
shares is their fair market value at the time of receipt. If the previously
owned shares consist of ISO Stock for which the holding requirements were not
met such that their use as payment of the exercise price constituted a
Disqualifying Disposition, the employee will have the income tax consequences
described above.
 
  The Board of Directors has authority to suspend, terminate or discontinue
the Employee Plan or revise or amend it in any manner with respect to options
granted after the date of revision. No such revision, however, can change the
aggregate number of shares subject to the Employee Plan, change the
designation of employees eligible thereunder, or decrease the price at which
options may be granted. The Board may not grant any options under the Employee
Plan after January 2, 2005.
 
  Mr. Singh did not receive a grant or exercise any stock option or stock
appreciation right prior to or during the last fiscal year.
 
  Director Stock Option Plan. The Company also established a Director Plan on
July 27, 1995. The purpose of the Director Plan is to encourage ownership in
the Company by outside directors (present or future incumbent directors who
are not employees of the Company or any subsidiary) whose services are
considered essential to the Company's continued progress. Options granted
under the Director Plan are NQSOs. The Director Plan is administered by a
committee of the Board of Directors consisting of those directors who are not
eligible to receive grants thereunder. The total number of shares of Common
Stock for which options may be granted pursuant to the Director Plan is
338,100. On the effective date of the Director Plan or the first date
thereafter that any director becomes eligible to receive an award under the
Director Plan, each eligible director will
 
                                      61

<PAGE>
 
automatically receive an option to purchase 50,715 shares of Common Stock,
exercisable for 16,905 shares immediately, and 16,905 on each of the next two
anniversary dates of the grant date. All options become immediately
exercisable, however, upon the retirement of a director in accordance with any
mandatory retirement policy of the Board, upon the death or permanent
disability of a director, or if the Company merges with another Company and is
not the surviving corporation, the Company enters into an agreement to sell or
otherwise dispose of all or substantially all of its assets, or any person or
group acquires more than 20% of the Company's outstanding voting stock.
 
  The option price is the fair market value at the date on which an option is
granted. Payment for the exercise of options may consist of cash or Common
Stock. Options issued under the Director Plan are not transferrable other than
by will or the laws of descent and distribution. Options expire upon the
earlier of five years from the date they were granted or three years following
either the retirement or resignation of the director, the failure of the
director to be re-elected, or the permanent disability or death of the
director. No options may be granted under the Director Plan after December 31,
2005.
 
  The grant of a NQSO has no immediate tax consequences to the Company. Upon
the exercise of a NQSO by a director, the Company is entitled to a deduction
in an amount equal to the difference between the fair market value of the
share acquired through exercise of the NQSO and the exercise price of the
NQSO. There are no tax consequences to the Company if a NQSO lapses before
exercise or is forfeited.
 
  The tax consequences to a director upon the grant and exercise of a NQSO,
and the sale of Common Stock acquired upon exercise thereof, are identical to
those described for NQSOs under "--Employee Stock Option Plan" above, except
that the Company has no withholding obligations upon the exercise of a NQSO by
a director.
 
EMPLOYMENT CONTRACT
 
  The Company has entered into an employment agreement with Mr. Singh (the
"Singh Agreement"). The Singh Agreement is a five-year contract, with a term
beginning on June 1, 1994 and continuing until May 30, 1999, and from year to
year thereafter unless terminated. Under the terms of the Singh Agreement, Mr.
Singh is required to devote his full time efforts to the Company as Chairman
of the Board, President and CEO. The Company is required to compensate Mr.
Singh at an annual rate of $185,000 (which amount is reviewed annually by the
Board of Directors and is subject to increase at their discretion). Mr. Singh,
however, agreed to defer payment of his base salary from June 1, 1994 through
May 31, 1995, which was subsequently paid to him on July 31, 1996. The Company
is also obligated to (i) allow Mr. Singh to participate in any bonus or
incentive compensation plan approved for senior management of the Company,
(ii) provide life insurance in an amount equal to three times Mr. Singh's base
salary and disability insurance which provides monthly payments in an amount
equal to one-twelfth of his then applicable base salary, (iii) provide medical
insurance and (iv) pay up to $2,500 annually for Mr. Singh's personal tax and
financial planning services.
 
  The Company may terminate the Singh Agreement at any time in the event of
his disability or for cause, each as defined in the Singh Agreement. Mr. Singh
may resign from the Company at any time without penalty (other than the non-
competition obligations discussed below). If the Company terminates the Singh
Agreement for disability or cause, the Company will have no further
obligations to Mr. Singh. If, however, the Company terminates the Singh
Agreement other than for disability or cause, the Company will have the
following obligations: (i) if the termination is after May 30, 1999, the
Company must pay Mr. Singh one-twelfth of his then applicable base salary as
severance pay; and (ii) if the termination is before June 1, 1999, the Company
must pay to Mr. Singh, as they become due, all amounts otherwise payable if he
had remained employed by the Company until June 1, 1999. If Mr. Singh resigns,
he may not directly or indirectly compete with the Company's business until
six months after his resignation. If the Company terminates Mr. Singh's
employment for any reason, Mr. Singh may not directly or indirectly compete
with the Company's business until six months after the final payment of any
amounts owed to him under the Singh Agreement become due.
 
                                      62

<PAGE>
 

                             CERTAIN TRANSACTIONS
 
PRIVATE EQUITY SALE
 
  In July 1996, Primus completed the sale of 965,999 shares of Common Stock to
the (i) Quantum Industrial Partners LDC, the principal operating subsidiary of
Quantum Industrial Holdings Ltd., an investment fund advised by Soros Fund
Management, a private investment firm owned by Mr. George Soros, (ii) Winston
Partners II LDC, the principal operating subsidiary of Winston Partners II
Offshore Ltd., an investment fund advised by Chatterjee Management Company, a
private entity owned by Dr. Purnendu Chatterjee, (iii) Winston Partners II
LLC, an investment fund advised by Chatterjee Management Company and (iv) S-C
Phoenix Holdings, L.L.C., an investment vehicle owned by affiliates of Mr.
Soros and Dr. Chatterjee (collectively, the "Soros/Chatterjee Group"), for an
aggregate purchase price of approximately $8.0 million. The Soros/Chatterjee
Group also purchased, for an additional $8.0 million, the Soros/Chatterjee
Warrants which afford the Soros/Chatterjee Group the right to receive, upon
exercise, an indeterminate number of shares of Common Stock with a fair market
value of $10.0 million as of the date of exercise, plus up to 627,899
additional shares of Common Stock. Except for 338,100 shares which are
currently exercisable, the Soros/Chatterjee Warrants are exercisable on or
after July 31, 1997 and until July 31, 1999. The Soros/Chatterjee Warrants are
entitled to certain customary antidilution protection in the event of stock
splits, stock dividends, reorganizations and other similar events.
 
  The Soros/Chatterjee Group was granted registration rights pursuant to a
registration rights agreement with the Company (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, the Soros/Chatterjee
Group is entitled to demand registration of its shares after July 31, 1998, a
maximum of three times, the third demand being available only if the
Soros/Chatterjee Group has not registered 80% of its shares of Common Stock
after the first demand registration. The Company is not required to effect any
demand registration within 180 days after the effective date of a previous
demand registration and may postpone, on one occasion in any 365-day period
the filing or effectiveness of a registration statement for a demand
registration for up to 120 days under certain circumstances, including pending
material transactions or the filing by the Company of a registration statement
relating to the sale of shares for its own account. The Soros/Chatterjee Group
is also entitled to unlimited piggyback registrations. Such rights with
respect to this Offering have been waived. All such registrations would be at
the Company's expense, exclusive of underwriting discounts and commissions,
and legal fees (up to $25,000 for each such offering) incurred by the holders
of the registrable securities. The Company and the Soros/Chatterjee Group have
entered into customary indemnification and contribution provisions.
 
  The Soros/Chatterjee Group also entered into a securityholders agreement
with the Company and K. Paul Singh (the "Securityholders Agreement") under
which the Soros/Chatterjee Group has the right until consummation of this
Offering to appoint a nominee for a position as a member of the Board of
Directors of the Company, which the Soros/Chatterjee Group has advised the
Company that it will not exercise prior to consummation of this Offering (and
Mr. Singh has agreed to vote shares over which he has voting control for such
nominee). Pursuant to this agreement, members of the Soros/Chatterjee Group
were granted preemptive rights in connection with most future issuances of
capital stock, including public offerings. Such rights were waived with
respect to this Offering. Additionally, members of the Soros/Chatterjee Group
are entitled to tag-along rights to participate with Mr. Singh and members of
his family in sales of capital stock on the same terms and conditions as Mr.
Singh and members of his family. See "Description of Capital Stock--
Registration Rights." The Soros/Chatterjee Group shares are also subject to
drag along rights in the event holders of a majority of the Common Stock
decide to sell 80% or more of the outstanding capital stock of the Company.
The Securityholders Agreement provides that members of the Soros/Chatterjee
Group will not transfer shares of Common Stock to a company, or any affiliate,
that competes with the Company to a material extent in the provision of
telecommunications services in the United States, Australia, the United
Kingdom, France, Germany, Mexico, Canada, Italy or Hong Kong.
 
TELEGLOBE
 
  The Company entered into an agreement on January 12, 1996 with Teleglobe,
pursuant to which Teleglobe purchased 410,808 shares of Common Stock for a
total of $1,458,060. The equity investment was consummated
 
                                      63

<PAGE>
 
in February 1996 as was a loan by Teleglobe of $2.0 million to the Company.
The loan, which bears interest at 6.9% per annum (payable quarterly) and
matures on February 9, 1998, is secured by all the assets of the Company,
comprised principally of the stock of the subsidiaries (65% of the stock of
foreign subsidiaries was pledged). Related to the Teleglobe investments, the
Company and a number of its subsidiaries have entered into trading agreements
with Teleglobe with respect to their respective service offerings. The parties
have also agreed to cooperate in an effort to maximize efficiencies with
respect to network facilities.
 
  As part of the transaction, Teleglobe, the Company and Mr. Singh are party
to a shareholders' agreement (the "Teleglobe Agreement") providing Teleglobe
the same consent, preemptive and registration rights as may be granted in the
future to other shareholders of an equal or lesser percentage ownership in the
Company, and participation and tag-along rights whereby Teleglobe is entitled
to sell its shares of Common Stock when certain other shareholders sell or
when the Company issues equity securities that would result in a change of
control of the Company. The Teleglobe Agreement also obligates Teleglobe to
sell its shares if certain other shareholders sell and specified conditions
are met, and grants the Company a right of first refusal upon a sale of the
Teleglobe-owned Common Stock to any competitor of the Company. Teleglobe
waived any preemptive rights and registration rights that arose as a result of
the Private Equity Sale. See "--Teleglobe".
 
NSI PRIVATE PLACEMENTS
   
  In 1995 and 1996, the Company engaged Northeast Securities, Inc. ("NSI") to
serve as the placement agent for two private placements of the Company's
Common Stock. Mr. Andrew B. Krieger, a former director of Primus, served as a
broker-dealer in the private placements through an affiliation with NSI. In
connection with these offerings, the Company paid Mr. Krieger cash commissions
aggregating approximately $1,007,000. The Company also retained Krieger
Associates, of which Mr. Krieger is the President and Chief Executive Officer,
to perform certain financial and other consulting services and paid a total of
approximately $98,645 for the performance of such services during 1995 and
1996 (to date). In addition, in connection with these private placements, the
Company issued a total of 193,718 shares of Common Stock to Krieger Associates
and Mr. Krieger, and at the direction of Mr. Krieger issued a total of 74,003
shares of Common Stock to other individuals associated with the transaction.
The Company also issued, in connection with these private placements, a total
of 245,555 shares of Common Stock to NSI and certain of its employees
associated with the transactions.     
 
LOAN FROM CHAIRMAN AND CHIEF EXECUTIVE OFFICER
 
  In connection with the initial organization of the Company, K. Paul Singh,
the Company's Chairman of the Board and Chief Executive Officer, loaned the
Company approximately $320,000, accruing interest at a variable rate tied to
the prime rate. On March 31, 1995, the Company and Mr. Singh converted all
then outstanding principal and interest due ($350,000) into 555,559 shares of
Common Stock, at a price per share of $0.63, which shares were issued on such
date.
 
MANAGEMENT FEES
 
  Prior to the Company's acquisition of Axicorp, Axicorp paid a management fee
based on a percentage of revenue to a company owned primarily by certain
current officers of the Company, including Paul Keenan, Sim Thiam Soon and
Peter Slaney. Total management fees for the nine month period ended March 31,
1995, and the twelve month period ended March 31, 1996 were $616,000 and
$426,000, respectively.
 
LEGAL SERVICES
 
  From time to time, the Company has retained the law firm of Pepper, Hamilton
& Scheetz, of which John F. DePodesta, a director and an Executive Vice
President of the Company, is "of counsel," to perform legal services for it
and has paid such firm fees totaling $151,807 in 1996 (to date). See "Legal
Matters."
 
                                      64

<PAGE>
 
                            PRINCIPAL STOCKHOLDERS
   
  The following table sets forth information as of November 7, 1996 concerning
each person or group known to the Company to be the beneficial owner of more
than 5% of Common Stock, and concerning the beneficial ownership of Common
Stock by the Company's directors, K. Paul Singh and all executive officers and
directors of the Company as a group. Except as otherwise noted and subject to
community property laws, where applicable, each beneficial owner of the Common
Stock listed below has sole investment and voting power.     
 

<TABLE>   
<CAPTION>
                                           SHARES BENEFICIALLY OWNED(1)
                                      ---------------------------------------
                                                        PERCENT OF CLASS
                                                    -------------------------
                                         NUMBER        BEFORE       AFTER
NAME AND ADDRESS(2)                    OF SHARES    OFFERING(13) OFFERING(14)
- -------------------                   ------------  ------------ ------------
<S>                                   <C>           <C>          <C>
K. Paul Singh........................ 4,365,030(3)      36.3%        25.6%
Quantum Industrial Partners LDC......   652,050(4)       5.3%         3.8%
 c/o Curacao Corporation Company N.V.
 Kaya Flamboyan 9
 Willemstad, Curacao
 Netherlands Antilles
Winston Partners II LLC..............    81,505(5)         *            *
 c/o Chatterjee Advisors L.L.C.
 c/o The Chatterjee Group
 888 Seventh Avenue
 New York, New York 10106
S-C Phoenix Holdings, L.L.C. ........   391,229(6)       3.2%         2.3%
 c/o The Chatterjee Group
 888 Seventh Avenue
 New York, New York 10106
Winston Partners II LDC..............   179,315(7)       1.5%         1.1%
 c/o Curacao Corporation Company N.V.
 Kaya Flamboyan 9
 Willemstad, Curacao
 Netherlands Antilles
John F. DePodesta....................   319,690(8)       2.6%         1.9%
Herman Fialkov.......................    50,715(9)         *            *
David E. Hershberg...................    42,263(10)        *            *
John Puente..........................   152,855(11)      1.3%           *
All executive officers and directors
 as a group (13 people).............. 5,250,616(12)     41.8%        29.9%
</TABLE>
    
- --------
  * Less than 1%
   
 (1) Beneficial ownership is determined in accordance with the rules of the
     Commission, and includes voting or investment power with respect to the
     shares beneficially owned. Shares of Common Stock subject to options or
     warrants currently exercisable or exercisable on or prior to January 6,
     1997 are deemed outstanding for computing the percentage ownership of the
     person holding such options or warrants, but are not deemed outstanding
     for computing the percentage ownership of any other person.     
 (2) Unless otherwise noted in the chart, the address of all persons listed is
     c/o Primus Telecommunications Group, Incorporated, 8180 Greensboro Drive,
     Suite 1100, McLean, Virginia 22102.
 (3) Includes, 377,786 shares of Common Stock owned by Mr. Singh's spouse and
     children. Also includes 396,828 shares of Common Stock held of record by
     a series of revocable trusts of which Mr. Singh is the trustee and
     pursuant to which Mr. Singh has sole voting power and shared dispositive
     power.
   
 (4) Quantum Industrial Partners LDC ("Quantum Industrial") has vested
     investment discretion with respect to its portfolio investments,
     including the Common Stock, in an entity over which Mr. George Soros may
     be deemed to have sole and ultimate control. Mr. Soros and Dr. Purnendu
     Chatterjee, as a sub-advisor to Quantum Industrial, may be deemed to have
     shared beneficial ownership of Common Stock held by Quantum Industrial.
     Includes 169,050 shares of Common Stock issuable upon exercise of
     warrants granted to Quantum Industrial and exercisable on or prior to
     January 6, 1997.     
 
                                      65

<PAGE>
 
   
 (5) Winston Partners II LLC has vested investment discretion in its portfolio
     investments, including the Common Stock, in Chatterjee Management
     Company, an entity over which Dr. Chatterjee may be deemed to have sole
     and ultimate control. Dr. Chatterjee may be deemed to have beneficial
     ownership of Common Stock held by Winston Partners II LLC. Includes
     21,130 shares of Common Stock issuable upon exercise of warrants granted
     to Winston Partners II LLC and exercisable on or prior to January 6,
     1997.     
   
 (6) Mr. Soros and Dr. Chatterjee may be deemed to have shared beneficial
     ownership of Common Stock held by S-C Phoenix Holdings, L.L.C. Includes
     101,430 shares of Common Stock issuable upon exercise of warrants granted
     to S-C Phoenix Holdings, L.L.C. and exercisable on or prior to January 6,
     1997.     
   
 (7) Winston Partners II LDC has vested investment discretion in its portfolio
     investments, including the Common Stock, in Chatterjee Management
     Company, an entity over which Dr. Chatterjee may be deemed to have sole
     and ultimate control. Dr. Chatterjee may be deemed to have beneficial
     ownership of Common Stock held by Winston Partners II LDC. Includes
     46,489 shares of Common Stock issuable upon exercise of warrants granted
     to Winston Partners II LDC and exercisable on or prior to January 6,
     1997.     
   
 (8) Includes 101,430 shares of Common Stock issuable upon the exercise of
     options granted to Mr. DePodesta and exercisable on or prior to January
     6, 1997.     
   
 (9) Includes 33,810 shares of Common Stock issuable upon the exercise of
     options granted to Mr. Fialkov and exercisable on or prior to January 6,
     1997.     
   
(10) Includes 33,810 shares of Common Stock issuable upon the exercise of
     options granted to Mr. Hershberg and exercisable on or prior to January
     6, 1997 and 8,453 shares of Common Stock owned by a partnership of which
     Mr. Hershberg is a general partner.     
   
(11) Includes 33,810 shares of Common Stock issuable upon the exercise of
     options granted to Mr. Puente and exercisable on or prior to January 6,
     1997.     
   
(12) Includes 522,922 shares of Common Stock issuable upon the exercise of
     options granted to directors and executive officers and exercisable on or
     prior to January 6, 1997.     
   
(13) Applicable percentage of ownership as of November 7, 1996 is based upon
     12,028,746 shares of Common Stock outstanding and after giving effect to
     the conversion of preferred stock into 1,538,355 shares of Common Stock.
            
(14) Applicable percentage ownership after this Offering is based upon
     17,028,746 shares of Common Stock outstanding as of November 7, 1996
     after giving effect to the issuance of the 5,000,000 shares of Common
     Stock offered hereby and after giving effect to the conversion of
     preferred stock into 1,538,355 shares of Common Stock.     
 
                                      66

<PAGE>
 

                         DESCRIPTION OF CAPITAL STOCK
 
COMMON STOCK
   
  The Company is authorized to issue up to 40,000,000 shares of Common Stock,
par value $0.01 per share. As of November 7, 1996, the Company had 10,490,391
shares outstanding, 1,635,559 shares of Common Stock reserved for issuance
upon exercise of options granted pursuant to the Plans. An additional
1,580,280 shares of Common Stock may be issued pursuant to the
Soros/Chatterjee Warrants assuming such warrants were exercised on the date of
the Offering at the initial public offering price. The actual number of shares
of Common Stock issuable under the Soros/Chatterjee Warrants will be up to
627,899 shares plus an indeterminate number of shares having a fair market
value of $10 million as of the date of exercise. Holders of shares of Common
Stock are entitled to one vote per share on all matters to be voted upon by
the stockholders. Subject to such preferential rights of the issued and
outstanding Series A Stock more particularly described below, and such
preferential rights as the Company's Board of Directors may grant in
connection with future issuances of Preferred Stock, holders of shares of
Common Stock are entitled to receive such dividends as the Board of Directors
may declare in its discretion out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, after
payment of liabilities and any liquidation preference on any shares of
Preferred Stock then outstanding, the holders of shares of Common Stock are
entitled to a distribution of any remaining assets of the Company. Holders of
shares of Common Stock have no cumulative voting or preemptive rights. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby, when issued and paid for, will be, fully paid and nonassessable.     
 
PREFERRED STOCK
 
  The Company is authorized to issue up to 2,455,000 shares of Preferred
Stock, par value $0.01 per share, of which 455,000 shares are designated
Series A Stock. All shares of the Series A Stock were issued to the sellers in
the Axicorp transaction, 206,666 shares of which were delivered at closing and
the balance of which are being held by the Company to secure certain post-
closing obligations of the sellers. As a consequence of the consummation of
the Offering, all of the Series A Stock will convert into Common Stock on a
3.381 to one basis.
 
  Dividends are paid on Series A Stock when, as and in the same amount as paid
from time to time on the Common Stock. Holders of Series A Stock are not
entitled to vote on matters related to the Company other than certain matters
related to the capital structure of the Company or matters for which the law
provides for such vote. If the Company grants preemptive rights in connection
with certain issuances, sales or exchanges of Common Stock of the Company or
of securities convertible into Common Stock of the Company, holders of Series
A Stock are also granted such preemptive rights. A holder of Series A Stock
has the right at any time after March 1, 1998 to convert its Series A Stock,
share for share, into Common Stock of the Company. Upon the occurrence of
certain events, including the elimination of certain foreign ownership
restrictions on the Company, the occurrence of certain transfers of the
Company's stock or assets, or the public offering of more than 20% of the
Company's Common Stock, shares of Series A Stock automatically convert into
shares of Common Stock of the Company. Any particular conversion of shares of
Series A Stock held by certain foreign owners into shares of Common Stock of
the Company may be limited by foreign ownership restrictions applicable to the
Company.
 
  In addition to the Series A Stock, the Company, without further action by
the Stockholders, is also authorized to issue up to 2,000,000 shares of other
Preferred Stock, par value $0.01 per share ("Other Preferred Stock"). The
Company's Board of Directors may determine the timing, series, designation and
number of shares of Other Preferred Stock to be issued, as well as the rights,
preferences and limitations of such shares, including those related to voting
power, redemption, conversion, dividend rights and liquidation preferences.
The issuance of Other Preferred Stock could adversely affect the voting power
of the holders of Common Stock of the Company or have the effect of deterring
or delaying any attempt by a person, entity or group to obtain control of the
Company. See "--Takeover Protection."
 
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<PAGE>
 
WARRANTS
   
  As of November 7, 1996, there were outstanding Soros/Chatterjee Warrants
granting the Soros/Chatterjee Group the right to receive, upon exercise, up to
627,899 shares of Common Stock plus an indeterminate number of shares the fair
market value of which is $10.0 million on the date of exercise. Of the
Soros/Chatterjee Warrants, warrants to purchase 338,100 shares of Common Stock
are currently exercisable, with the remainder being exercisable on or after
July 31, 1997 and until July 31, 1999. The Soros/Chatterjee Warrants are
entitled to certain customary antidilution protection in the event of stock
splits, stock dividends, reorganizations and other similar events. The shares
of Common Stock issued pursuant to the Soros/Chatterjee Warrants as entitled
to certain registration rights described below. See "Certain Transactions--
Private Equity Sale."     
 
REGISTRATION RIGHTS
 
  Soros/Chatterjee Group. Pursuant to a registration rights agreement dated
July 31, 1996, the Soros/Chatterjee Group is entitled to demand registration
of its shares of Common Stock after July 31, 1998, up to three times, the
third demand being available only if the first two did not result in the
Soros/Chatterjee Group having registered 80% of its shares of Common Stock.
The Company is not required to effect any demand registration within 180 days
after the effective date of a previous demand registration and may postpone,
on one occasion in any 365-day period the filing or effectiveness of a
registration statement for a demand registration for up to 120 days under
certain circumstances, including pending material transactions or the filing
by the Company of a registration statement relating to the sale of shares for
its own account. The Soros/Chatterjee Group is also entitled to unlimited
piggyback registrations. Such rights with respect to this Offering have been
waived. All such registrations would be at the Company's expense, exclusive of
underwriting discounts and commissions, and legal fees (up to $25,000 for each
such offering) incurred by the holders of registrable securities. The Company
and the Soros/Chatterjee Group have entered into customary indemnification and
contribution provisions.
 
  Teleglobe. Under a shareholders' agreement between the Company, Mr. Singh
and Teleglobe, Teleglobe has the same consent, preemptive and registration
rights as may be granted in the future to other shareholders of an equal or
lesser percentage ownership in the Company. No such rights have been granted
to other shareholders other than in one instance in which Teleglobe waived its
rights. The shareholders' agreement also provides Teleglobe participation and
tag-along rights whereby Teleglobe is entitled to sell its shares of Common
Stock when certain other shareholders sell or when the Company issues equity
securities that would result in a change of control of the Company. The
agreement also obligates Teleglobe to sell its shares if certain other
shareholders sell and specified conditions are met, and grants the Company a
right of first refusal upon a sale of the Teleglobe-owned Common Stock to any
competitor of the Company.
 
  Other Registration Rights. Pursuant to the terms of the private placements
of Common Stock through NSI as placement agent, purchasers of such shares in
each such private placement (an aggregate of 4,042,084 shares) are entitled to
demand registration of such shares on one occasion (or a total of two demand
registrations) and to piggyback registration rights. The underwriter in any
such registrations may restrict the ability of such holders to include such
shares in a registered offering.
 
TAKEOVER PROTECTION
 
  The Company is subject to Section 203 of the DGCL which, subject to certain
exceptions, prohibits a Delaware corporation, the voting stock of which is
generally publicly traded (i.e., listed on a national securities exchange or
authorized for quotation on an inter-dealer quotation system of a registered
national securities association) or held of record by more than 2,000
stockholders, from engaging in any "business combination" (as defined below)
with any "interested stockholder" (as defined below) for a period of three
years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the
 
                                      68

<PAGE>
 
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers, and (y) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
(iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Section 203 of the DGCL defines "business combination" to
include: (i) any merger or consolidation involving the corporation and the
interested stockholder; (ii) any sale, transfer, pledge or other disposition
involving the interested stockholder of 10% or more of the assets of the
corporation; (iii) subject to certain exceptions, any transaction which
results in the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; (iv) any transaction involving the
corporation which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the
interested stockholder, or (v) the receipt by the interested stockholder of
the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation. In general, Section 203
defines an "interested stockholder" as any person who, together with any
affiliates or associates of such person, beneficially owns, directly or
indirectly, 15% or more of the outstanding voting stock of a Delaware
corporation.
   
  Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors is divided into three classes of directors each containing, as
nearly as possible, an equal number of directors. Directors within each class
are elected to serve three-year terms and approximately one-third of the
directors sit for election at each annual meeting of the Company's
stockholders. A classified board of directors may have the effect of deterring
or delaying any attempt by any group to obtain control of the Company by a
proxy contest since such third party would be required to have its nominees
elected at two separate annual meetings of the Board of Directors in order to
elect a majority of the members of the Board of Directors. Directors who are
elected to fill a vacancy (including vacancies created by an increase in the
number of directors) must be confirmed by the stockholders at the next annual
meeting of stockholders whether or not such director's term expires at such
annual meeting. In addition, the Company's Certificate of Incorporation
provides that stockholders may only act at stockholders' meetings and that
stockholders may not act by written consent.     
 
  The Company's By-Laws allow the Board of Directors to increase the number of
directors from time to time (though a decrease in the number of directors may
not have the effect of shortening the term of any incumbent director) and to
fill any vacancies on the Board of Directors, including vacancies resulting
from an increase in the number of directors. This provision is designed to
provide the Board of Directors with flexibility to deal with an attempted
hostile takeover by a stockholder who may acquire a majority voting interest
in the Company without paying a premium therefor. This provision allows the
Board of Directors to increase its size and prevent a "squeeze-out" of any
remaining minority interest soon after a new majority stockholder gains
control over the Company. Further, the By-Laws limit the new majority
stockholder's power to remove a current or all current directors before the
annual meeting in the absence of "cause." Cause for removal of a director is
limited to (i) a judicial determination that a director is of unsound mind,
(ii) a conviction of a director of an offense punishable by imprisonment for a
term of more than one year, (iii) a breach or failure by a director to perform
the statutory duties of said director's office if the breach or failure
constitutes self-dealing, willful misconduct or recklessness, or (iv) a
failure of a director, within 60 days after notice of his or her election, to
accept such office either in writing or by attending a meeting of the Board of
Directors and fulfilling such other requirements of qualification as the By-
Laws or Certificate of Incorporation may provide.
 
  Options under the Employee Plan outstanding on the date of a "change in
control" of the Company become immediately exercisable on such date. A change
in control for purposes of this exercise right includes the acquisition by any
person or entity of the beneficial ownership of 50% or more of the voting
power of the Company's stock, the approval by the Company's shareholders of a
merger, reorganization or consolidation of the Company in which the Company's
shareholders do not own 50% or more of the voting power of the stock of the
entity surviving such a transaction, the approval of the Company's
shareholders of an agreement of sale of
 
                                      69

<PAGE>
 
   
all or substantially all of the Company's assets, and the acceptance by the
Company's shareholders of a share exchange in which the Company's shareholders
do not own 50% or more of the voting power of the stock of the entity
surviving such exchange. See "Risk Factors--Anti-Takeover Provisions."     
 
DIRECTOR LIABILITY
 
  As permitted by Section 102(b)(7) of the DGCL, Article 11 of the Company's
Amended and Restated Certificate of Incorporation provides that no director of
the Company shall be liable to the Company for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends on or
redemption of the Company's capital stock, or (iv) for any transaction from
which the director derived an improper personal benefit.
 
TRANSFER AGENT AND REGISTRAR
 
  The transfer agent and registrar for the Common Stock is StockTrans, Inc.
 
                                      70

<PAGE>
 
                        SHARES ELIGIBLE FOR FUTURE SALE
   
  Upon completion of this Offering, the Company will have 17,028,746 shares of
Common Stock outstanding. Of these shares, the 5,000,000 shares of Common
Stock offered hereby (plus up to 750,000 additional shares if the Underwriters
exercise in full their over-allotment option), will be freely tradeable
without restriction or further registration, except for shares purchased by
"affiliates" or "underwriters" of the Company, as these terms are defined
under the Securities Act, subject to the resale limitations of Rule 144 under
the Securities Act and the regulations promulgated thereunder. The remaining
12,028,746 shares of Common Stock are restricted securities (the "Restricted
Shares") and may not be sold unless they are registered under the Securities
Act or are sold pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act. Of these 12,028,746
Restricted Shares, 11,489,625 shares will be subject to 180-day "lock-up"
agreements with Lehman Brothers more particularly described below. Upon
expiration of such lock-up agreements, 5,071,500 of the Restricted Shares will
become eligible for sale, subject to compliance with Rule 144. The remaining
6,957,246 Restricted Shares will become eligible for sale at various times
over a period of less than two years. In addition, the shares underlying
certain warrants and options will become eligible for sale subject to
applicable lock-up agreements and compliance with Rule 144.     
 
  In general, Rule 144 allows a person who has beneficially owned Restricted
Shares for at least two years, including persons who may be deemed affiliates
of the Company, to sell, within any three-month period, up to the number of
Restricted Shares that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock, and (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of
the sale is filed with the Commission. A person who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale
and who has beneficially owned his or her Restricted Shares for at least three
years would be entitled to sell such Restricted Shares without regard to the
volume limitations described above and certain other conditions of Rule 144.
The Commission has proposed certain amendments to Rule 144 that would reduce
by one year the holding periods required for shares subject to Rule 144 and
144(k) to become eligible for resale in the public market. This proposal, if
adopted, would increase the number of shares of Common Stock eligible for
immediate resale following the expiration of the lock-up agreements described
below. No assurance can be given concerning whether or when the proposal will
be adopted by the Commission.
 
  Under Rule 701, any employee, officer or director or consultant to the
Company who purchased shares pursuant to a written compensatory plan or
contract, including the Employee Plan and the Director Plan, who is not an
affiliate of the Company, is entitled to sell such shares without having to
comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell such shares
without having to comply with the Rule 144 period restrictions, in each case
commencing 90 days after the Effective Date.
 
  The Company intends to file one or more registration statements under the
Securities Act to register Common Stock to be issued pursuant to the exercise
of options, including options granted or to be granted under the Employee Plan
and the Director Plan.
 
  The holders of approximately 5,418,891 shares of Common Stock upon the
closing of this Offering, and the holders of the Soros/Chatterjee Warrants and
their permitted transferees, are entitled to certain demand and piggy-back
registration rights in respect of their shares. See "Description of Capital
Stock--Registration Rights."
 
  Prior to this Offering, there has been no public market for the securities
of the Company. No predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have
on the market price of the Common Stock. Nevertheless, sales of a substantial
number of such shares by existing stockholders or by stockholders purchasing
in this Offering could have a negative impact on the market price of the
Common Stock.
 
                                      71

<PAGE>
 
  CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCESTO NON-UNITED STATES HOLDERS
 
  The following is a general discussion of certain United States federal tax
consequences of the ownership and disposition of Common Stock by a holder
that, for United States federal income tax purposes, is not a "United States
person" (a "Non-United States Holder"). For purposes of this discussion, a
"United States person" means a citizen or resident alien individual of the
United States, a corporation, partnership or other entity created or organized
in the United States or under the laws of the United States or of any state,
or an estate or trust the income of which may be included in gross income for
United States federal income tax purposes regardless of its source. Resident
alien individuals will be subject to United States federal income tax with
respect to the Common Stock as if they were United States citizens.
 
  The Company has not obtained an opinion of counsel with respect to the tax
consequences discussed below, and nothing contained herein should be construed
as constituting such an opinion. Moreover, this discussion does not consider
any specific facts or circumstances that may apply to a particular Non-United
States Holder. Accordingly, prospective investors are urged to consult their
own tax advisors regarding the United States federal tax consequences of
owning and disposing of Common Stock (including such an investor's status as a
United States person or Non-United States Holder), as well as any tax
consequences that may arise under the laws of any state, municipality or other
taxing jurisdiction, including any foreign taxing jurisdiction.
 
DIVIDENDS
 
  Dividends paid by the Company to a Non-United States Holder will generally
be subject to withholding of United States federal income tax at the rate of
30% unless the dividend is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, in which
case the dividend will be subject to the same United States federal income tax
on net income that applies to United States persons (and, with respect to
corporate holders and under certain circumstances, the branch profits tax).
Non-United States Holders should consult any applicable United States income
tax treaties, which may provide for reduced withholding or other rules
different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim
treaty benefits or to otherwise claim a reduction of or exemption from
withholding under the foregoing rules, including in the case of dividends
effectively connected with a U.S. trade or business conducted by a Non-United
States Holder.
 
GAIN ON DISPOSITION
 
  Except under special rules for individuals described below, a Non-United
States Holder generally will not be subject to United States federal income
tax on gain resulting from a sale or other disposition of Common Stock unless
the gain is (i) effectively connected with the conduct of a United States
trade or business by the Non-United States Holder or (ii) treated as
effectively connected with such a trade or business because the Company is or
has been a "United States real property holding corporation" and certain other
conditions are satisfied as discussed below. Any gain from disposition of
Common Stock that is (or is treated as) effectively connected with a United
States trade or business will be subject to substantially the same United
States federal income tax treatment that applies to United States persons
(and, in the case of corporate Non-United States Holders, may be subject to
the branch profits tax), except as otherwise provided by an applicable United
States income tax treaty.
 
  A corporation is generally a "United States real property holding
corporation" for United States federal income tax purposes if the fair market
value of its United States real property interests equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business both within and
outside of the United States. The Company does not believe that it is a United
States real property holding corporation; however, there can be no assurance
that the Company will not become, or be determined to be, such a corporation.
Even if the Company becomes a United States real property holding corporation,
such status will not cause gain from the disposition of Common Stock to be
treated as effectively connected with a United States trade or business so
long as (i) the Common Stock is regularly traded
 
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<PAGE>
 
on an established securities market (as defined in Treasury Regulations) and
(ii) the Non-United States Holder has not held, directly or indirectly, more
than 5% of the Common Stock at any time during the five-year period ending on
the date of disposition.
 
  Special rules apply to individual Non-United States Holders. An individual
Non-United States Holder who recognizes gain from the disposition of Common
Stock held as a capital asset and is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of
disposition, generally will be taxed at a rate of 30% on any such gain (less
certain capital losses, if any, from United States sources), if the Non-United
States Holder either (i) has a "tax home" in the United States (as defined in
Treasury Regulations) or (ii) maintains an office or other fixed place of
business in the United States to which such gain is attributable. In addition,
certain individual Non-United States Holders who once were United States
citizens may be subject to special rules applicable to United States
expatriates.
 
  In 1990, 1992 and 1995, legislation was introduced that, if enacted, would
under certain circumstances have imposed federal income tax on gain realized
from dispositions of Common Stock by certain Non-United States Holders who
owned, at or prior to, the time of disposition 10% or more of the Common
Stock. There can be no assurance that similar legislation will not be proposed
and, if proposed, enacted in the future.
 
FEDERAL ESTATE TAXES
 
  Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States federal estate tax purposes and thus
will be subject to United States federal estate tax, unless an applicable
estate tax treaty provides otherwise.
 
INFORMATION REPORTING AND BACKUP WITHHOLDING
 
  The Company must report annually to the IRS and to each Non-United States
Holder the amount of dividends paid to, and the tax withheld with respect to,
such holder, regardless of whether any tax was actually withheld because, for
example, the withholding requirement was eliminated under an applicable United
States income tax treaty. That information may also be made available to the
tax authorities of the country in which the Non-United States Holder resides.
 
  United States federal withholding (which generally is imposed at the rate of
31% on certain payments to persons not otherwise exempt who fail to furnish
certain identifying information to the IRS) will generally not apply to
dividends paid to a Non-United States Holder that are subject to withholding
at the 30% rate (or would be so subject but for a reduced rate under an
applicable income tax treaty). In addition, the payer of dividends may rely on
the payee's foreign address in determining that the payee is exempt from
backup withholding, unless the payor has knowledge that the payee is in fact a
United States person.
 
  These backup withholding and information reporting requirements also apply
to the gross proceeds paid to a Non-United States Holder upon the disposition
of Common Stock by or through a United States office of a United States or
foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name and address and the holder either is a Non-United
States Holder or otherwise establishes an exemption from the requirements.
Information reporting requirements (but not backup withholding) will apply to
a payment of the proceeds of a disposition of Common Stock by or through a
foreign office of (i) a United States broker, (ii) a foreign broker 50% or
more of whose gross income for certain periods is effectively connected with
the conduct of a trade or business in the United States, or (iii) a foreign
broker that is a "controlled foreign corporation" for United States federal
income tax purposes, unless the broker has documentary evidence in its records
that the holder is a Non-United States Holder and certain other conditions are
met, or the holder otherwise established an exemption from the requirements.
Neither backup withholding nor information reporting will generally apply to a
payment of the proceeds of a disposition of Common Stock by or through a
foreign office of a foreign broker not described in the preceding sentence.
 
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<PAGE>
 
  Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non-United States Holder's United States federal income
tax liability, provided that required information is furnished to the IRS.
 
  The U.S. tax rules relating to the 30% withholding on dividends, backup
withholding and information reporting are currently under review by the
Treasury Department and their application to the Common Stock is subject to
change. Specifically, proposed regulations would, if enacted, amend the
ability of the payor to rely on the address of the recipient to determine the
correct withholding of tax. In general, under the proposed regulations a
recipient may be required to provide certain information and documentation to
the payor in order to preclude or reduce otherwise applicable withholdings.
Other changes to the rules described above have also been proposed.
 
                                      74

<PAGE>
 

                                 UNDERWRITING
 
  Under the terms of and subject to the conditions contained in the U.S.
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which the Prospectus forms a part, the underwriters
(the "U.S. Underwriters"), for whom Lehman Brothers Inc. and Donaldson, Lufkin
& Jenrette Securities Corporation are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company, and
the Company has agreed to sell to each U.S. Underwriter, the aggregate number
of shares of Common Stock set forth opposite the name of such U.S. Underwriter
below:
 

<TABLE>     
<CAPTION>
                                                                       NUMBER OF
           UNDERWRITERS                                                 SHARES
           ------------                                                ---------
   <S>                                                                 <C>
   Lehman Brothers Inc................................................ 1,385,000
   Donaldson, Lufkin & Jenrette Securities Corporation................ 1,385,000
   Bear, Stearns & Co. Inc. ..........................................    75,000
   Alex. Brown & Sons Incorporated....................................    75,000
   CS First Boston Corporation........................................    75,000
   Dean Witter Reynolds Inc. .........................................    75,000
   A.G. Edwards & Sons, Inc. .........................................    75,000
   Lazard Freres & Co. LLC............................................    75,000
   Merrill Lynch, Pierce, Fenner & Smith Incorporated.................    75,000
   Morgan Stanley & Co. Incorporated..................................    75,000
   PaineWebber Incorporated...........................................    75,000
   Salomon Brothers Inc...............................................    75,000
   J. C. Bradford & Co. ..............................................    40,000
   Chicago Corporation................................................    40,000
   Cruttenden & Company...............................................    40,000
   Furman Selz LLC....................................................    40,000
   Gabelli & Company, Inc. ...........................................    40,000
   Legg Mason Wood Walker Incorporated................................    40,000
   Northeast Securities, Inc. ........................................    40,000
   Brad Peery Inc. ...................................................    40,000
   Robinson-Humphrey Company, Inc. ...................................    40,000
   Scott & Stringfellow, Inc. ........................................    40,000
   SoundView Financial Group, Inc. ...................................    40,000
   Wheat First Butcher Singer.........................................    40,000
                                                                       ---------
       Total.......................................................... 4,000,000
                                                                       =========
</TABLE>
    
 
  Under the terms of and subject to the conditions contained in the
International Underwriting Agreement, the form of which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part, the
international managers (the "International Managers"), for whom Lehman
Brothers International (Europe) and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as lead managers (the "Lead Managers"), have severally
agreed to purchase from the Company, and the Company has agreed to sell to
each International Manager, the aggregate number of shares of Common Stock set
forth opposite the name of such Manager below:
 

<TABLE>     
<CAPTION>
                                                                       NUMBER OF
         INTERNATIONAL MANAGERS                                         SHARES
         ----------------------                                        ---------
   <S>                                                                 <C>
   Lehman Brothers International (Europe).............................   500,000
   Donaldson, Lufkin & Jenrette Securities Corporation................   500,000
                                                                       ---------
       Total.......................................................... 1,000,000
                                                                       =========
</TABLE>
    
 
                                      75

<PAGE>
 
  The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers, respectively, to
purchase shares of Common Stock are subject to the approval of certain legal
matters by counsel and to certain other conditions and that, if any of the
shares of Common Stock are purchased by the U.S. Underwriters pursuant to the
U.S. Underwriting Agreement or by the International Managers pursuant to the
International Underwriting Agreement, all the shares of Common Stock agreed to
be purchased by the U.S. Underwriters or the International Managers, as the
case may be, pursuant to their respective Underwriting Agreements must be so
purchased. The initial public offering price and underwriting discounts and
commissions for each of the U.S. Offering and the International Offering are
identical. The closing of each of the U.S. Offering and the International
Offering is conditioned upon the closing of the other.
   
  The Company has been advised by the Representatives and the Lead Managers
that the U.S. Underwriters and the International Managers propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page hereof, and to certain dealers at such public offering price
less a selling concession not in excess of $.44 per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $.10
per share to certain other Underwriters or to certain other brokers or
dealers. After the initial offering to the public, the offering price and
other selling terms may be changed by the Representatives and the Lead
Managers.     
   
  The Company has granted to the U.S. Underwriters and the International
Managers an option to purchase up to an additional 600,000 shares and 150,000
shares of Common Stock, respectively, exercisable solely to cover over-
allotments, at the initial offering price to the public, less the underwriting
discounts and commissions, shown on the cover page of this Prospectus. Any or
all of such options may be exercised at any time until 30 days after the date
of the U.S. Underwriting Agreement and the International Underwriting
Agreement, as the case may be. To the extent that an option is exercised, each
U.S. Underwriter or International Manager, as the case may be, will be
committed, subject to certain conditions, to purchase a number of the
additional shares of Common Stock proportionate to such Underwriter's initial
commitment as indicated in the preceding tables.     
 
  The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers (the "Agreement
Between") pursuant to which each U.S. Underwriter has agreed that, as part of
the distribution of the shares of Common Stock offered in the United States
and Canada, (a) it is not purchasing any of such shares for the account of
anyone other than a U.S. or Canadian Person (as defined below) and (b) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to such
shares to anyone other than a U.S. or Canadian Person. In addition, pursuant
to the Agreement Between, each International Manager has agreed that, as part
of the distribution of the shares of Common Stock offered outside the United
States and Canada, (a) it is not purchasing any of such shares for the account
of any U.S. or Canadian Person and (b) it has not offered or sold, and will
not offer, sell, resell or deliver, directly or indirectly, any of such shares
or distribute any prospectus relating to such shares to any U.S. or Canadian
Person.
 
  The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between, including (i) certain purchases and sales between the U.S.
Underwriters and the International Managers; (ii) certain offers, sales,
resales, deliveries or distributions to or through investment advisors or
other persons exercising investment discretion; (iii) purchases, offers or
sales by a U.S. Underwriter who is also acting as an International Manager for
the account of a Person other than a U.S. or Canadian Person and by an
International Manager who is also acting as a U.S. Underwriter for the account
of a U.S. or Canadian Person; and (iv) other transactions specifically
approved by the U.S. Underwriters and International Managers. As used herein,
"U.S. or Canadian Person" means any resident or citizen of the United States
or Canada, any corporation, partnership or other entity created or organized
in or under the laws of the United States or Canada or any political
subdivision thereof or any estate or trust the income of which is subject to
United States federal income taxation or Canadian income taxation regardless
of the source (other than the foreign branch of any U.S. or Canadian Person),
and includes any United States or Canadian branch of a person other than a
U.S. or Canadian Person. The term "United States" means the United
 
                                      76

<PAGE>
 
States of America (including the states thereof and the District of Columbia)
and its territories, its possessions and other areas subject to its
jurisdiction and the term "Canada" means Canada, its provinces, territories,
possessions and other areas subject to its jurisdiction.
 
  Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Managers of such number of shares of Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for Common Stock being sold by the
U.S. Underwriters and International Managers, less an amount not greater than
the selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Between, the number of
shares initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
 
  The Representatives and the Lead Managers have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
 
  The Prospectus is not, and under no circumstances is to be construed as, an
advertisement or a public offering of Common Stock in Canada or any province
or territory thereof. Any offer or sale of the shares of Common Stock in
Canada may only be made pursuant to an exemption from the requirement to file
a prospectus in the province or territory of Canada in which such offer or
sale is made.
 
  Each International Manager has represented and agreed that (i) it has not
offered or sold and prior to the date six months after the date of issue of
the shares of Common Stock will not offer or sell any shares of Common Stock
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 (the "1986 Act") with
respect to anything done by it in relation to the shares of Common Stock in,
from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on, and will only issue and pass on to any person in the United
Kingdom, any investment advertisement (within the meaning of the 1986 Act)
relating to the shares of Common Stock if that person falls within Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995.
 
  No action has been taken or will be taken in any jurisdiction by the Company
or the International Managers that would permit a public offering of the
shares offered pursuant to the Offering in any jurisdiction where action for
that purpose is required, other than the United States. Persons into whose
possession this Prospectus comes are required by the Company and the
International Managers to inform themselves about, and to observe any
restrictions as to, the offering of the shares offered pursuant to the
Offerings and the distribution of this Prospectus.
 
  Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.
 
  The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to reimburse certain expenses of the Underwriters.
 
  The Company and its stockholders, including all directors and officers,
subject to certain exceptions, have agreed not to, directly or indirectly,
offer for sale, sell or otherwise dispose of or announce the Offering of, any
shares of Common Stock for a period of 180 days after the date of this
Prospectus, without the prior written consent of Lehman Brothers Inc.
   
  The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "PRTL" subject to notice of issuance.     
 
                                      77

<PAGE>
 
DETERMINATION OF THE OFFERING PRICE
   
  Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock was determined by
negotiations among the Company, the Representatives and the Lead Managers.
Among the factors considered in such negotiations were prevailing market
conditions, the market values of publicly traded companies that the
Underwriters believed to be somewhat comparable to the Company, the demand for
the Common Stock and for similar securities of companies comparable to the
Company, the current state of the Company's development and other factors
deemed relevant. There can, however, be no assurance that the prices at which
the Common Stock will sell in the public market after the Offering will not be
lower than the price at which it will be sold in the Offering.     
 

                                 LEGAL MATTERS
 
  The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania
and for the Underwriters by Shearman & Sterling, New York, New York. Mr. John
DePodesta, "of counsel" to Pepper, Hamilton & Scheetz, is a director and an
Executive Vice President of the Company, and the beneficial owner of 319,690
shares of Common Stock.
 

                                    EXPERTS
 
  The Consolidated Financial Statements of the Company as of December 31, 1994
and 1995, and for the period from inception (February 4, 1994) to December 31,
1994 and the year ended December 31, 1995 included in this Prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein. Such Consolidated Financial Statements have
been included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
 
  The Financial Statements of Axicorp, as of March 31, 1995 and 1996, and for
the nine months ended March 31, 1995 and the twelve months ended March 31,
1996 included in this Prospectus and in the Registration Statement have been
audited by Price Waterhouse, independent chartered accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
 
                                      78

<PAGE>
 

                         INDEX TO FINANCIAL STATEMENTS
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED:
  Independent Auditors' Report............................................  F-2
  Consolidated Balance Sheets as of December 31, 1994 and 1995 and June
   30, 1996 (unaudited)...................................................  F-3
  Consolidated Statements of Operations for the period from February 4,
   1994 (inception) to December 31, 1994, the year ended December 31, 1995
   and the six months ended June 30, 1995 (unaudited) and 1996
   (unaudited)............................................................  F-4
  Consolidated Statements of Stockholders' Equity (Deficit) for the period
   from February 4, 1994 (inception) to December 31, 1994, the year ended
   December 31, 1995 and the six months ended June 30, 1996 (unaudited)...  F-5
  Consolidated Statements of Cash Flows for the period from February 4,
   1994 (inception) to December 31, 1994, the year ended December 31, 1995
   and the six months ended June 30, 1995 (unaudited) and 1996
   (unaudited)............................................................  F-6
  Notes to Consolidated Financial Statements..............................  F-7
AXICORP PTY., LTD.:
  Report of Independent Accountants....................................... F-16
  Balance Sheets as of March 31, 1995 and 1996............................ F-17
  Statements of Operations for the nine months ended March 31, 1995 and
   for the twelve months ended March 31, 1996............................. F-18
  Statements of Stockholders' Equity for the nine months ended March 31,
   1995 and for the twelve months ended March 31, 1996.................... F-19
  Statements of Cash Flows for the nine months ended March 31, 1995 and
   for the twelve months ended March 31, 1996............................. F-20
  Notes to Financial Statements........................................... F-21

</TABLE>

 
                                      F-1

<PAGE>
 

                         INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors of 
  Primus Telecommunications Group, Incorporated:
 
  We have audited the accompanying consolidated balance sheets of Primus
Telecommunications Group, Incorporated and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the period from February 4,
1994 (date of incorporation) to December 31, 1994 and for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Primus Telecommunications
Group, Incorporated and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the period from February
4, 1994 (date of incorporation) to December 31, 1994 and the year ended
December 31, 1995, in conformity with generally accepted accounting
principles.
 
DELOITTE & TOUCHE LLP
Washington, D.C.
April 23, 1996, except for Note 13

 and Note 14, as to which the dates
 are July 31, 1996 and
 October 3, 1996, respectively
 
                                      F-2

<PAGE>
 
         PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          ----------------------    JUNE 30,
                                            1994        1995          1996
                                          ---------  -----------  ------------
                                                                  (UNAUDITED)
<S>                                       <C>        <C>          <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.............. $ 220,904  $ 2,295,843  $  4,397,604
  Accounts receivable (net of allowance
   of $132,353 at December 31, 1995 and
   $1,605,570 (unaudited) at June 30,
   1996).................................       --       664,697    24,848,696
  Prepaid expenses and other current as-
   sets..................................    42,743      388,263       557,103
                                          ---------  -----------  ------------
    Total current assets.................   263,647    3,348,803    29,803,403
PROPERTY AND EQUIPMENT--Net..............   116,919      948,876     5,570,230
INTANGIBLES--Net.........................       --           --     22,002,091
DEFERRED INCOME TAXES....................       --           --      4,211,808
OTHER ASSETS.............................   106,250      743,932       709,278
                                          ---------  -----------  ------------
TOTAL ASSETS............................. $ 486,816  $ 5,041,611  $ 62,296,810
                                          =========  ===========  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
 (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable....................... $  92,273  $ 1,284,341  $ 25,329,431
  Accrued expenses and other current lia-
   bilities..............................   122,300      667,748     3,501,252
  Due to related party...................   330,850          --            --
  Deferred income taxes..................       --           --      4,737,298
  Current portion of long-term obliga-
   tions.................................    12,882      101,804    10,626,541
                                          ---------  -----------  ------------
    Total current liabilities............   558,305    2,053,893    44,194,522
LONG-TERM OBLIGATIONS....................       --       425,866     6,302,152
                                          ---------  -----------  ------------
    Total liabilities....................   558,305    2,479,759    50,496,674
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
  Preferred stock, $.01 par value--
   2,455,000 shares authorized; issued
   and outstanding, 455,000 shares of
   Series A Convertible (unaudited) at
   June 30, 1996.........................       --           --          4,550
  Common stock, $.01 par value--
   authorized 16,905,000 shares in 1994
   and 1995; 35,348,355 shares
   (unaudited) June 30, 1996; issued and
   outstanding, 4,039,737 shares in 1994;
   7,063,491 shares in 1995; 9,524,392
   shares (unaudited) at June 30, 1996...    40,397       70,635        95,244
  Additional paid-in capital.............   465,394    5,496,216    17,985,238
  Accumulated deficit....................  (577,280)  (3,002,518)   (6,234,944)
  Cumulative translation adjustment......       --        (2,481)      (49,952)
                                          ---------  -----------  ------------
    Total stockholders' equity (defi-
     cit)................................   (71,489)   2,561,852    11,800,136
                                          ---------  -----------  ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
 EQUITY (DEFICIT)........................ $ 486,816  $ 5,041,611  $ 62,296,810
                                          =========  ===========  ============
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-3

<PAGE>
 
         PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 

<TABLE>   
<CAPTION>
                             PERIOD FROM
                             FEBRUARY 4,                   SIX MONTHS ENDED
                               1994 TO     YEAR ENDED          JUNE 30,
                             DECEMBER 31, DECEMBER 31,  -----------------------
                                 1994         1995         1995        1996
                             ------------ ------------  ----------  -----------
                                                             (UNAUDITED)
<S>                          <C>          <C>           <C>         <C>
NET REVENUE.................  $     --    $ 1,167,058   $  221,441  $65,414,924
COST OF REVENUE.............        --      1,383,763      203,284   60,162,429
                              ---------   -----------   ----------  -----------
GROSS MARGIN (DEFICIT)......        --       (216,705)      18,157    5,252,495
OPERATING EXPENSES:
  Selling, general, and ad-
   ministrative.............    556,545     2,024,383      714,710    6,707,373
  Depreciation and amortiza-
   tion.....................     12,474       160,024       64,764      797,421
                              ---------   -----------   ----------  -----------
    Total operating ex-
     penses.................    569,019     2,184,407      779,474    7,504,794
                              ---------   -----------   ----------  -----------
LOSS FROM OPERATIONS........   (569,019)   (2,401,112)    (761,317)  (2,252,299)
INTEREST EXPENSE............    (13,028)      (58,732)     (33,168)    (334,775)
INTEREST INCOME.............      4,767        34,606        1,405       85,191
OTHER INCOME (EXPENSE)......        --            --           --      (268,120)
                              ---------   -----------   ----------  -----------
LOSS BEFORE INCOME TAXES....   (577,280)   (2,425,238)    (793,080)  (2,770,003)
INCOME TAXES................        --            --           --      (462,423)
                              ---------   -----------   ----------  -----------
NET LOSS....................  $(577,280)  $(2,425,238)  $ (793,080) $(3,232,426)
                              =========   ===========   ==========  ===========
NET LOSS PER COMMON AND
 COMMON SHARE EQUIVALENTS...  $    (.07)  $      (.22)  $     (.07) $      (.26)
                              =========   ===========   ==========  ===========
WEIGHTED AVERAGE NUMBER OF
 COMMON AND COMMON SHARE
 EQUIVALENTS OUTSTANDING....  8,560,126    10,892,247   10,716,939   12,485,978
                              =========   ===========   ==========  ===========
</TABLE>
    
 
 
                See notes to consolidated financial statements.
 
                                      F-4

<PAGE>
 
         PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 

<TABLE>
<CAPTION>
                         PREFERRED STOCK    COMMON STOCK     ADDITIONAL                 CUMULATIVE  STOCKHOLDERS'
                         --------------- ------------------   PAID-IN     ACCUMULATED   TRANSLATION    EQUITY
                         SHARES  AMOUNT   SHARES    AMOUNT    CAPITAL       DEFICIT     ADJUSTMENT    (DEFICIT)
                         ------- ------- --------- -------- ------------  ------------  ----------- -------------
<S>                      <C>     <C>     <C>       <C>      <C>           <C>           <C>         <C>
BALANCE, FEBRUARY 4,
 1994 (DATE OF
 INCORPORATION).........     --  $   --        --  $    --  $        --   $        --    $     --   $        --
 Issuance of "founder's
  stock" to the
  Company's
  incorporator..........     --      --    178,574    1,786       (1,258)          --          --            528
 Investment made by
  Chairman and Chief
  Executive Officer.....     --      --  3,392,905   33,929      216,071           --          --        250,000
 Common shares issued
  for services
  performed.............     --      --     71,430      714        4,549           --          --          5,263
 Shares purchased by
  outside investors in
  the form of a trust...     --      --    396,828    3,968      246,032           --          --        250,000
 Net loss...............     --      --        --       --           --       (577,280)        --       (577,280)
                         ------- ------- --------- -------- ------------  ------------   ---------  ------------
BALANCE, DECEMBER 31,
 1994...................     --      --  4,039,737   40,397      465,394      (577,280)        --        (71,489)
 Common shares sold
  through private
  placement, net of
  transaction costs.....     --      --  2,233,817   22,338    3,995,497           --          --      4,017,835
 Conversion of related
  party debt to common
  stock.................     --      --    555,559    5,556      344,444           --          --        350,000
 Common shares issued
  for services
  performed.............     --      --    234,378    2,344      690,881           --          --        693,225
 Foreign currency
  translation
  adjustment............     --      --        --       --           --            --       (2,481)       (2,481)
 Net loss...............     --      --        --       --           --     (2,425,238)        --     (2,425,238)
                         ------- ------- --------- -------- ------------  ------------   ---------  ------------
BALANCE, DECEMBER 31,
 1995...................     --      --  7,063,491   70,635    5,496,216    (3,002,518)     (2,481)    2,561,852
 Common shares sold
  through private
  placement, net of
  transaction costs
  (unaudited)...........     --      --  1,771,194   17,712    4,665,645           --          --      4,683,357
 Common shares sold, net
  of transaction costs
  (unaudited)...........     --      --    410,808    4,108    1,380,836           --          --      1,384,944
 Common shares issued
  for services performed
  (unaudited)...........     --      --    278,899    2,789      987,091           --          --        989,880
 Preferred shares issued
  for Axicorp
  acquisition
  (unaudited)........... 455,000   4,550       --       --     5,455,450           --          --      5,460,000
 Foreign currency
  translation adjustment
  (unaudited)...........     --      --        --       --           --            --      (47,471)      (47,471)
 Net loss (unaudited)...     --      --        --       --           --     (3,232,426)        --     (3,232,426)
                         ------- ------- --------- -------- ------------  ------------   ---------  ------------
BALANCE, JUNE 30, 1996
 (UNAUDITED)............ 455,000 $ 4,550 9,524,392 $ 95,244 $ 17,985,238  $ (6,234,944)  $ (49,952) $ 11,800,136
                         ======= ======= ========= ======== ============  ============   =========  ============
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-5

<PAGE>
 
         PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 

<TABLE>
<CAPTION>
                             PERIOD FROM
                             FEBRUARY 4,                  SIX MONTHS ENDED
                               1994 TO     YEAR ENDED         JUNE 30,
                             DECEMBER 31, DECEMBER 31,  ----------------------
                                 1994         1995        1995        1996
                             ------------ ------------  ---------  -----------
                                                             (UNAUDITED)
<S>                          <C>          <C>           <C>        <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
  Net loss..................  $(577,280)  $(2,425,238)  $(793,080) $(3,232,426)
  Adjustments to reconcile
   net loss to net cash used
   in operating activities:
    Depreciation and
     amortization...........     12,474       160,024      64,763      790,420
    Sales allowances........        --        132,353         --       614,738
    Foreign currency
     transaction loss.......        --            --          --       268,120
    Deferred income taxes...        --            --          --       299,962
    Changes in assets and
     liabilities:
      (Increase) decrease in
       accounts receivable..        --       (797,050)   (199,200)  (8,040,516)
      (Increase) decrease in
       prepaid expenses and
       other current
       assets...............    (42,743)      (26,925)    (46,703)     (53,862)
      (Increase) decrease in
       deferred costs.......    (25,000)      (35,234)        --           --
      (Increase) decrease in
       other assets.........    (81,453)     (532,530)    (98,250)    (213,920)
      Increase (decrease) in
       accounts payable.....     92,273     1,194,991     209,442    4,717,673
      Increase (decrease) in
       accrued expenses and
       other liabilities....    135,656       321,697     246,069      614,686
                              ---------   -----------   ---------  -----------
        Net cash used in
         operating
         activities.........   (486,073)   (2,007,912)   (616,959)  (4,235,125)
                              ---------   -----------   ---------  -----------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
  Purchase of property and
   equipment................   (105,547)     (396,281)    (88,116)  (1,452,340)
  Cash used in business
   acquisition, net of cash
   acquired.................        --            --          --    (1,700,674)
                              ---------   -----------   ---------  -----------
        Net cash used in
         investing
         activities.........   (105,547)     (396,281)    (88,116)  (3,153,014)
                              ---------   -----------   ---------  -----------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
  Principal payments on
   capital lease............     (2,230)      (63,595)    (31,948)     (35,486)
  Principal borrowed from
   Chairman and Chief
   Executive Officer........    314,754           --          --           --
  Sale of common stock......    500,000     4,542,727     964,591    7,376,776
  Proceeds from notes
   payable--related party...        --            --          --     2,000,000
                              ---------   -----------   ---------  -----------
        Net cash provided by
         financing
         activities.........    812,524     4,479,132     932,643    9,341,290
                              ---------   -----------   ---------  -----------
EFFECT OF EXCHANGE RATE
 CHANGES ON CASH AND CASH
 EQUIVALENTS................        --            --          --       148,610
                              ---------   -----------   ---------  -----------
NET INCREASE IN CASH........    220,904     2,074,939     227,568    2,101,761
CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD........        --        220,904     220,904    2,295,843
                              ---------   -----------   ---------  -----------
CASH AND CASH EQUIVALENTS,
 END OF PERIOD..............  $ 220,904   $ 2,295,843   $ 448,472  $ 4,397,604
                              =========   ===========   =========  ===========
SUPPLEMENTAL CASH FLOW
 INFORMATION:
  Cash paid for interest....  $     --    $    36,249   $  14,397  $    39,354
                              ---------   -----------   ---------  -----------
  Non-cash investing and
   financing activities:
    Common stock issued for
     services...............  $   5,263   $   693,225   $     --   $   989,880
                              ---------   -----------   ---------  -----------
    Conversion of related
     party debt to common
     stock..................  $     --    $   350,000   $ 350,000  $       --
                              ---------   -----------   ---------  -----------
    Increase in capital
     lease liability for
     acquisition of property
     and equipment..........  $  15,112   $   578,381   $ 543,689  $   168,302
                              ---------   -----------   ---------  -----------
    Increase in notes
     payable for acquisition
     of switch equipment....  $     --    $       --    $     --   $ 2,362,500
                              ---------   -----------   ---------  -----------
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-6

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND BUSINESS
 
  Primus Telecommunications Group, Incorporated (the "Company"), formerly
Global Telecommunications, Inc., was incorporated in Delaware in February
1994. The Company was formed to capitalize on the increase in business and
consumer demand for international telecommunication services. The Company
operates as a holding company and currently has wholly-owned subsidiaries in
the United States, United Kingdom, Australia, and Mexico. Subsequent to
December 31, 1995, the Company purchased all of the outstanding capital stock
of Axicorp, Pty., Ltd. ("Axicorp"), an Australian telecommunications company
(see Note 12).
 
  In 1994, the Company, as a development stage enterprise, was involved in
various start-up activities including raising capital, obtaining licenses,
acquiring equipment, leasing space, developing markets, and recruiting and
training personnel. During 1995, the Company began revenue generating
operations and is no longer in the development stage.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
 
  Revenue Recognition--Revenues from long distance telecommunications services
are recognized when the services are provided.
 
  Cost of Revenue--Cost of revenue includes network costs which consist of
access, transport, and termination costs. Such costs are recognized when
incurred in connection with the provision of telecommunications services.
 
  Foreign Currency Translation--The assets and liabilities of the Company's
foreign subsidiaries are translated at the exchange rates in effect on the
reporting date, and income and expenses are translated at the average exchange
rate during the period. The net effect of such translation gains and losses
are accumulated as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are included in Other Income (Expense)
in the consolidated statements of operations.
 
  Cash and Cash Equivalents--The Company considers cash on hand, deposits in
banks, certificates of deposit, and overnight repurchase agreements with
original maturities of three months or less as cash and cash equivalents.
 
  Property and Equipment--Property and equipment, which consists of furniture,
leasehold improvements, and telecommunications equipment, is stated at cost
less accumulated depreciation and amortization. Expenditures for maintenance
and repairs that do not materially extend the useful lives of the assets are
charged to expense. Depreciation and amortization are computed using the
straight-line method over estimated useful lives of the assets, less their net
salvage value, which range from three to eight years, or for leasehold
improvements and leased equipment, over the terms of the leases, whichever is
shorter.
 
  Intangible Assets--At June 30, 1996, intangible assets consist of goodwill
of $17,733,000 (unaudited) and customer lists of $4,269,000 (unaudited).
Goodwill is being amortized over 30 years on a straight-line basis and
customer lists over the estimated run-off of the customer base not to exceed
five years. Accumulated amortization at June 30, 1996, was $199,248
(unaudited) and $304,920 (unaudited) related to the goodwill and customer
lists, respectively.
 
 
                                      F-7

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  New Accounting Pronouncements--As of January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The adoption had no effect on the financial position or results of operations
of the Company. SFAS No. 123, Accounting for Stock Based Compensation, becomes
effective and will be adopted by the Company as of December 31, 1996. The
Company does not plan to adopt the recognition and measurement provisions of
SFAS No. 123.
 
  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 at
the date of the financial statements and the reported amounts of net revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
 
  Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk principally consists of trade
accounts receivable. The Company's six largest customers account for
approximately 52% of gross accounts receivable as of December 31, 1995. At
June 30, 1996, no customer accounted for more than 10% (unaudited) of accounts
receivable. The Company performs ongoing credit evaluations of its customers
but generally does not require collateral to support customer receivables.
Losses on uncollectible accounts have consistently been within management's
expectations.
 
  Income Taxes--The Company recognizes income tax expense for book purposes
following the asset and liability approach for computing deferred income
taxes. Under this method, the deferred tax asset and liability are determined
based on the difference between financial reporting and tax basis of assets
and liabilities. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
 
  Deferred Costs--Legal, investment banking, and other incremental costs
associated with raising capital are recorded as deferred costs and are
included in Other Assets on the consolidated balance sheet. Such costs are
subsequently netted against the proceeds of the stock offerings to which they
relate. In the event that the offering is not successful, such costs would be
written off to operations in the period in which the related offering is
abandoned. Such amounts total $30,263 and $60,125 at December 31, 1994 and
1995, respectively. Subsequent to December 31, 1995, these costs have been
netted against the respective transactions. The Company has also capitalized
$92,609 related to the Axicorp acquisition at December 31, 1995 (see Note 12).
Such amounts were included in the purchase price accounting at acquisition.
There are no deferred costs included in the consolidated balance sheet at June
30, 1996 (unaudited).
   
  Net Loss Per Share--Net loss per common and common share equivalents at the
effective date of the Registration Statement has been computed based upon the
weighted average number of common and common share equivalents, outstanding
during each period. Common share equivalents consist of stock options and
warrants calculated using the modified treasury stock method. Retroactive
restatement has been made to share and per share amounts for the 3.381 to one
stock split and conversion of Series A Convertible Preferred Stock
contemplated by the Company as part of its initial public offering. Primary
and fully diluted loss per share are the same. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock and options
to purchase common stock issued subsequent to August 27, 1995 at prices below
the initial public offering price will be included as outstanding for all
periods presented, using the modified treasury stock method at the initial
public offering price per share even though the effect is to reduce the net
loss per share.     
 
 
  Interim Financial Information--The interim financial data as of June 30,
1996 and for the six-month periods ended June 30, 1995 and 1996, is unaudited.
The information reflects all adjustments, consisting only of normal recurring
adjustments that, in the opinion of management, are necessary to present
fairly the financial position and results of operations of the Company for the
periods indicated. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the full year.
 
                                      F-8

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
3. PROPERTY AND EQUIPMENT
 
  Property and equipment consist of the following:
 

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                             --------------------   JUNE 30,
                                               1994       1995        1996
                                             --------  ----------  -----------
                                                                   (UNAUDITED)
   <S>                                       <C>       <C>         <C>
   Network equipment........................ $    --   $  849,062  $5,237,817
   Furniture and equipment..................   55,625     161,071     417,701
   Billing system software..................      --          --      153,398
   Leasehold improvements...................   68,302      88,457     174,182
                                             --------  ----------  ----------
                                              123,927   1,098,590   5,983,098
   Less: Accumulated depreciation and amor-
    tization................................   (7,008)   (149,714)   (412,868)
                                             --------  ----------  ----------
                                             $116,919  $  948,876  $5,570,230
                                             ========  ==========  ==========
</TABLE>

 
  Equipment under capital leases totaled $578,382 and $746,685 (unaudited)
with accumulated depreciation of $75,501 and $130,956 (unaudited) at December
31, 1995 and June 30, 1996, respectively.
 
4. LONG-TERM OBLIGATIONS
 
  Long-term obligations consist of the following:
 

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                             -------------------    JUNE 30,
                                               1994      1995         1996
                                             --------  ---------  ------------
                                                                  (UNAUDITED)
   <S>                                       <C>       <C>        <C>
   Obligations under capital leases........  $ 12,882  $ 527,670  $    643,682
   Equipment financing.....................       --         --      2,362,500
   Note payable--related party.............       --         --      2,000,000
   Notes payable relating to Axicorp acqui-
    sition.................................       --         --      8,378,761
   Settlement obligation...................       --         --      3,543,750
                                             --------  ---------  ------------
     Subtotal..............................    12,882    527,670    16,928,693
   Less: Current portion of long-term obli-
    gations................................   (12,882)  (101,804)  (10,626,541)
                                             --------  ---------  ------------
                                             $    --   $ 425,866  $  6,302,152
                                             ========  =========  ============
</TABLE>

 
    At June 30, 1996, the following describes the components of long-term
obligations (unaudited):
 
    Equipment financing represents the purchase of network switching
  equipment for use in its Australian network financed by the vendor.
  Beginning in January 1997, 16 monthly payments of approximately $100,000
  are due to the vendor. In addition, a payment of approximately $788,000
  plus accrued interest is due in May 1998. Interest will accrue at the
  Corporate Overdraft Reference Rate plus 1%. At June 30, 1996, the Corporate
  Overdraft Reference Rate was 10.75%. The debt is secured by all of the
  assets of the Company's Australian subsidiary.
 
    In connection with an investment agreement, in February 1996 the Company
  issued a $2,000,000 note payable to Teleglobe, due February 9, 1998 which
  bears interest at 6.9% per annum payable quarterly. The debt is secured by
  all the assets of the Company.
 
    In connection with the acquisition of Axicorp on March 1, 1996, the
  Company issued two notes to the sellers for a total of $8.4 million which
  have been recorded on a discounted basis at a rate of 10.18% (see Note 12).
 
    In addition, in conjunction with the Axicorp acquisition, the Company
  accrued approximately $3.5 million to settle a pre-acquisition contingency
  between Axicorp and one of its competitors. This amount is expected to be
  paid during the next year.
 
                                      F-9

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
5. INCOME TAXES
 
  The tax expense (deferred) recorded for the six-month period ended June 30,
1996 results from foreign taxes on earnings at the Company's Australian
subsidiary.
 
  The differences between the tax provision (benefit) calculated at the
statutory federal income tax rate and the actual tax provision (benefit) for
each period is shown in the table below.
 

<TABLE>
<CAPTION>
                                   PERIOD ENDED          SIX MONTHS ENDED
                                   DECEMBER 31,              JUNE 30,
                               ----------------------  ----------------------
                                  1994        1995        1995        1996
                               ----------  ----------  ----------  ----------
                                                            (UNAUDITED)
<S>                            <C>         <C>         <C>         <C>
Tax benefit at federal statu-
 tory rate.................... $ (196,275) $ (824,581) $ (268,967) $ (941,801)
State income tax, net of fed-
 eral benefit.................    (22,860)    (91,069)    (30,852)   (108,030)
Foreign taxes.................        --          --          --      462,423
Unrecognized benefit of net
 operating loss...............    218,659     911,036     297,566   1,040,502
Other.........................        476       4,614       2,253       9,329
                               ----------  ----------  ----------  ----------
Income taxes.................. $      --   $      --   $      --   $  462,423
                               ==========  ==========  ==========  ==========
</TABLE>

 
 
  The significant components of the Company's deferred tax asset and liability
are as follows:
 

<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                          ----------------------   JUNE 30,
                                            1994        1995         1996
                                          ---------  -----------  -----------
                                                                  (UNAUDITED)
   <S>                                    <C>        <C>          <C>
   Deferred tax asset (non-current):
     Cash to accrual basis adjustments
      (U.S.)............................. $  93,012  $   366,783  $       --
     Accrued expenses....................       --           --       824,006
     Net operating loss carryforward.....   126,435      720,452    5,370,862
     Valuation allowance.................  (219,447)  (1,087,235)  (1,983,060)
                                          ---------  -----------  -----------
                                          $     --   $       --   $ 4,211,808
                                          =========  ===========  ===========
   Deferred tax liability (current):
     Accrued income...................... $     --   $       --   $ 4,158,040
     Cash to accrual basis adjustments
      (U.S.).............................       --           --       454,677
     Depreciation........................       --           --       124,581
                                          ---------  -----------  -----------
                                          $     --   $       --   $ 4,737,298
                                          =========  ===========  ===========
</TABLE>

 
  At December 31, 1995, the Company had a U.S. Federal net operating loss
carryforward of approximately $2,000,000, ($6,000,000 (unaudited) at June 30,
1996) that may be applied against future U.S. taxable income until it expires
between the years 2009 and 2010. The Company also has an Australian Federal
net operating loss carryforward of approximately $8.5 million (unaudited) at
June 30, 1996.
   
  Due to the "ownership change" of the Company in early 1996, pursuant to
Section 382 of the Internal Revenue Code, the utilization of the net operating
loss carryforward will be limited to approximately $1.3 million per year
during the carryforward period. A further "ownership change" resulting from
the Company's initial public offering (see Note 13) could cause further
limitations.     
 
                                     F-10

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
 
    Cash and Cash Equivalents--The carrying amount reported in the balance
  sheets for cash and cash equivalents approximates fair value.
 
    Accounts Receivable and Accounts Payable--The carrying amounts reported
  in the balance sheets for accounts receivable and accounts payable
  approximate fair value.
 
    Guarantee Required Under Telecommunications Agreement--The carrying
  amount reported in the balance sheets for the deposit held in the form of a
  certificate of deposit (see Note 7) approximates fair value plus accrued
  interest.
 
7. COMMITMENTS AND CONTINGENCIES
 
  The Company has entered into an employment contract with its Chairman and
Chief Executive Officer through May 30, 1999. Minimum payments over the
remaining period approximate $632,000 as of December 31, 1995 and $540,000
(unaudited) as of June 30, 1996.
 
  Future minimum lease payments under capital lease obligations and operating
leases as of December 31, 1995, are as follows:
 

<TABLE>
<CAPTION>
                                                            CAPITAL   OPERATING
                  YEAR ENDING DECEMBER 31,                  LEASES     LEASES
                  ------------------------                 ---------  ---------
   <S>                                                     <C>        <C>
   1996................................................... $ 158,113  $ 246,089
   1997...................................................   158,113    124,121
   1998...................................................   158,113        --
   1999...................................................   158,113        --
   2000...................................................    39,533        --
                                                           ---------  ---------
   Total minimum lease payments...........................   671,985  $ 370,210
                                                                      =========
   Less: Amount representing interest.....................  (144,315)
                                                           ---------
                                                           $ 527,670
                                                           =========
</TABLE>

 
  Rent expense under operating leases was $37,709, $214,508, $72,111
(unaudited) and $223,347 (unaudited) for the periods ended December 31, 1994,
December 31, 1995, June 30, 1995, and June 30, 1996, respectively.
 
  The Company began sending outbound traffic to India during 1995 and, in
connection with its international telecommunication services agreement with
Videsh Sanchar Nigan Limited of India, was required to provide a bank
guarantee of $400,000 in the form of a certificate of deposit that is included
in Other Assets at December 31, 1995.
 
8. STOCKHOLDERS' EQUITY
 
  The Company was incorporated in February 1994 through the issuance of
178,574 shares of common stock issued to the founder of the Company.
 
  In January 1995, the Company established an Employee Stock Option Plan (the
"Employee Plan"). The total number of shares of common stock authorized to be
issued under the Employee Plan was 845,250. Under the Employee Plan, awards
may be granted to key employees of the Company and its subsidiaries in the
form of Incentive Stock Options or Nonqualified Stock Options. The Employee
Plan allows the granting of options at an
 
                                     F-11

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
exercise price of no less than 100% (110% in the case of Incentive Stock
Options granted to employees holding more than ten percent of the voting stock
of the Company at the date of grant) of the stock's fair value at the date of
grant. The options vest over a period of up to three years, and no option will
be exercisable more than ten years from the date it is granted. There were
326,097 shares of common stock that remain eligible for future issuance under
the Employee Plan at December 31, 1995. Subsequent to year end, an additional
845,250 shares of common stock were authorized to be issued under the Employee
Plan.
 
  Effective March 13, 1995, the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") was amended to increase the number of
authorized shares of the Company's common stock from 1,000,000 shares to
5,000,000 shares and to split each share of common stock outstanding on March
13, 1995, into 2.1126709 shares of common stock. The Company also intends to
split all common shares at a ratio of 3.381 to one as of the effective date of
its planned initial public offering (see Note 14). All share amounts have been
restated to give effect to the stock splits.
 
  In December 1995, $358,500 was committed to the Company in exchange for
121,209 shares of the Company's common stock in conjunction with a private
placement. The shares were sold in December 1995 and the physical certificates
were issued in January 1996. This amount, net of transaction costs, is
recorded in Prepaid Expenses and Other Current Assets at December 31, 1995.
 
  During 1995, the Board of Directors authorized the Director Stock Option
Plan (the "Director Plan") for nonemployee directors. Under the Director Plan,
an option is automatically granted to each nonemployee director to purchase
50,715 shares of common stock, which vests over a two-year period. The option
price per share is the fair market value of a share of common stock on the
date the option is granted. No option will be exercisable more than ten years
from the date of grant. An aggregate of 338,100 shares of common stock were
reserved for issuance under the Director Plan.
 
  A summary of stock option activity during the year ended December 31, 1995,
and the six months ended June 30, 1996, is as follows:
 

<TABLE>
<CAPTION>
                                        EMPLOYEE PLAN         DIRECTOR PLAN
                                    --------------------- ---------------------
                                    NUMBER OF  EXERCISE   NUMBER OF  EXERCISE
                                     SHARES   PRICE RANGE  SHARES   PRICE RANGE
                                    --------- ----------- --------- -----------
<S>                                 <C>       <C>         <C>       <C>
Outstanding, January 1, 1995......        --  $      --        --      $ --
Granted during 1995...............    519,153  0.67-2.96   202,860      2.96
                                    --------- ----------   -------     -----
Outstanding, December 31, 1995....    519,153  0.67-2.96   202,860      2.96
Granted during the six-months
 ended June 30, 1996 (unaudited)..    913,546  2.96-3.55       --        --
                                    --------- ----------   -------     -----
Outstanding, June 30, 1996
 (unaudited)......................  1,432,699 $0.67-3.55   202,860     $2.96
                                    ========= ==========   =======     =====
Exercisable options at December
 31, 1995.........................    152,145 $     2.96    67,620     $2.96
                                    ========= ==========   =======     =====
Exercisable options at June 30,
 1996 (unaudited).................    185,955 $0.67-2.96    67,620     $2.96
                                    ========= ==========   =======     =====
</TABLE>

 
  No shares have been exercised as of December 31, 1995.
 
9. EMPLOYEE BENEFIT PLAN
 
  The Company has a 401(k) employee benefit plan (the "401(k) Plan") that
covers substantially all employees. The 401(k) Plan provides that employees
may contribute amounts not to exceed statutory limitations. No employer
contributions were made during 1995 or for the six months ended June 30, 1996
(unaudited).
 
                                     F-12

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
10. RELATED PARTIES
 
  In connection with capital raised by the Company, a former director of the
Company received 71,430 shares of common stock during 1994 for services
rendered. During 1995, the former director received commissions of 110,944
shares of common stock and was paid $541,921 in connection with the Company's
first private placement. Commissions due to the former director under the
first private placement equal $40,510 at December 31, 1995. Consulting fees
earned under this placement equal to $169,000 are due to the former director,
of which $145,000 was owed at December 31, 1995. During early 1996, the same
director received 82,774 shares of common stock and fees equal to $424,543
which relate to the second private placement (see Note 12). Consulting fees
earned in connection with this second placement equal $157,160. The stock and
cash commissions and consulting fees relate to services provided in
conjunction with the private placements and, as such, have been netted against
the proceeds of the respective placements.
 
  Debt owed to the Company's Chairman and Chief Executive Officer of $330,850
at December 31, 1994 was converted into 555,559 shares of the Company's common
stock at $0.63 per share in March 1995, for a balance due at the time of
conversion of $350,000.
 
  At December 31, 1994 and 1995, deferred salary owed to the Company's
Chairman and Chief Executive Officer was $112,598 and $201,341, respectively.
 
  Deferred salary of $40,000 owed to an officer of the Company for services
performed during 1995 were accrued at December 31, 1995. This balance was paid
in early 1996.
 
  During 1995, the Company purchased consulting services and certain computer
network equipment from a firm whose president is a brother of the Company's
Chairman and Chief Executive Officer for approximately $40,000.
 
11. VALUATION AND QUALIFYING ACCOUNTS
 
  Activity in the Company's allowance for doubtful accounts for the year ended
December 31, 1995 was as follows:
 

<TABLE>
<CAPTION>
          BALANCE AT              CHARGED TO                         BALANCE AT
      BEGINNING OF PERIOD     COSTS AND EXPENSES     DEDUCTIONS     END OF PERIOD
      -------------------     ------------------     ----------     -------------
      <S>                     <C>                    <C>            <C>
             $ --                  $132,353            $ --           $132,353
</TABLE>

 
12. SUBSEQUENT EVENTS
 
  Capital Stock--In February 1996, the Company's Certificate was amended to
authorize 2,455,000 shares of Preferred Stock (nonvoting) with a par value of
$0.01 per share and to increase the number of shares of Common Stock
authorized to 35,348,355 shares with a par value of $0.01 per share. On March
1, 1996, 455,000 shares of Series A Convertible Preferred Stock were issued in
connection with the purchase of Axicorp; and are convertible into common
shares at the option of the Company and under certain defined events.
 
  Private Placement--In early 1996, the Company raised approximately
$4,700,000, net of transaction costs, in a private placement. This placement
included the sale of 1,771,194 shares of common stock to numerous investors.
The Company also issued 278,899 shares of common stock for services rendered
in conjunction with this offering.
 
  Investment Agreement--In January 1996, the Company entered into an agreement
with Teleglobe, sold 410,808 shares of Common Stock for approximately
$1,400,000 and borrowed $2,000,000 (see Note 4).
 
                                     F-13

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Acquisition of Axicorp--On March 1, 1996, the Company completed the
acquisition of the outstanding capital stock of Axicorp, the fourth largest
telecommunications carrier in Australia. The purchase price consisted of cash,
Company stock, and seller financing. The Company paid $5.7 million cash,
including transaction costs, and issued 455,000 shares of its Series A
Convertible Preferred Stock. The Company also issued two notes to the sellers.
One note is for $4.1 million payable to Fujitsu Australia Limited which is due
in February 1997, and the other note is for a total of $4.0 million payable to
the individual shareholder sellers, which are due in two equal installments in
February 1997, and February 1998. These notes have been recorded at their
discounted value at the date of acquisition at an interest rate of 10.18%. The
portion of the shareholder note due in February 1997 can be extended for an
additional year at the Company's option. If the option is exercised the note
will accrue interest at the prime rate plus 1%.
 
  As security for payment of the Seller Financing, the sellers have collateral
security interests in all of the outstanding Axicorp shares, 27% as registered
owner, which will be registered in the Company's name upon payment of the
Seller Financing, and 73% pursuant to a share mortgage. In turn, the Company
is holding 248,334 shares of the Series A Convertible Preferred Stock issued
to the individual sellers as collateral for the 27% of the Axicorp shares
registered in their names. These shares will be released to the sellers once
the remaining Axicorp shares are received.
 
  For accounting purposes, the Company has treated the acquisition as a
purchase. Accordingly, the results of Axicorp's operations are included in the
consolidated results of operations of the Company beginning March 1, 1996.
 
  Pro forma operating results for the year ended December 31, 1995, and the
six months ended June 30, 1996, as if Axicorp had been acquired as of January
1, 1995, are as follows (unaudited):
 

<TABLE>     
<CAPTION>
                                                     YEAR ENDED     SIX MONTHS
                                                    DECEMBER 31,  ENDED JUNE 30,
                                                        1995           1996
                                                    ------------  --------------
   <S>                                              <C>           <C>
   Net revenue..................................... $125,628,000   $ 91,783,000
   Net loss........................................ $ (4,685,000)  $ (3,299,000)
   Loss per share.................................. $       (.43)  $       (.26)
</TABLE>
    
 
  The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the acquisition been consummated as of the above dates, nor
are they necessarily indicative of future operations.
 
  The following summarizes the allocation of the purchase price to the major
categories of assets acquired and liabilities assumed:
 

<TABLE>
   <S>                                                             <C>
   Current assets................................................. $ 20,136,000
   Customer lists.................................................    4,574,000
   Goodwill.......................................................   17,932,000
   Other assets...................................................    1,506,000
                                                                   ------------
                                                                     44,148,000
   Liabilities assumed............................................  (24,863,000)
   Notes payable..................................................   (8,110,000)
                                                                   ------------
   Cash paid and preferred shares issued.......................... $ 11,175,000
                                                                   ============
</TABLE>

 
                                     F-14

<PAGE>
 
        PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
13. PRIVATE EQUITY PLACEMENT
 
  On July 31, 1996 four affiliated institutional investors purchased 965,999
shares of the Company's common stock for $8 million, and for an additional $8
million received warrants to purchase an additional $10 million of common
stock (measured on the basis of fair market value of the common stock on the
date of exercise) and up to another 627,899 shares of Common Stock.
 
14. COMMON STOCK SPLIT AND CONVERSION OF PREFERRED STOCK
   
  In connection with the Company's initial public offering, the Board has
approved a split of all shares of Common Stock at a ratio of 3.381 to one as
of the effective date of the Registration Statement and amended the
Certificate to increase the authorized Common Stock to 40,000,000 shares. All
share amounts have been restated to give effect to this stock split.
Additionally, the Board has approved the conversion of all outstanding shares
of Preferred Stock into shares of Common Stock.     
 
                                     F-15

<PAGE>
 
 
                      REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Stockholders of Axicorp Pty., Ltd.
 
  In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of stockholders' equity present fairly, in
all material respects, the financial position of Axicorp Pty., Ltd. at
March 31, 1995 and 1996, and the results of its operations and its cash flows
for the period from July 1, 1994 to March 31, 1995 and for the year ended
March 31, 1996, all expressed in United States Dollars, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
 
 
PRICE WATERHOUSE
Melbourne, Australia
July 31, 1996

 
                                     F-16

<PAGE>
 
                               AXICORP PTY., LTD.
 
                                 BALANCE SHEETS
                   (IN US DOLLARS, EXCEPT SHARE INFORMATION)
 

<TABLE>
<CAPTION>
                                                              MARCH 31,
                                                       ------------------------
                                                          1995         1996
                                                       -----------  -----------
<S>                                                    <C>          <C>
                        ASSETS
Current assets:
  Cash and cash equivalents........................... $ 1,435,723  $ 3,218,079
  Accounts receivable--trade, net of allowances of
   $1,171 and $377,699, respectively..................   7,893,146   23,715,321
  Other current assets................................     299,126      300,928
                                                       -----------  -----------
    Total current assets..............................   9,627,995   27,234,328
Plant, equipment and computer software, net...........     365,532      844,337
Deferred tax assets...................................     320,774    2,997,919
Other non-current assets..............................       7,275        7,785
                                                       -----------  -----------
    Total assets...................................... $10,321,576  $31,084,369
                                                       ===========  ===========
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable--trade creditors................... $ 8,633,069  $23,616,272
  Accrued expenses and other liabilities..............     677,156    1,229,173
  Deferred tax liabilities............................     324,380    3,517,062
  Note payable to related party.......................     261,879    1,677,668
                                                       -----------  -----------
    Total current liabilities.........................   9,896,484   30,040,175
                                                       -----------  -----------
    Total liabilities.................................   9,896,484   30,040,175
                                                       -----------  -----------
Commitments and Contingencies (Note 7)
Stockholders' equity:
  Ordinary Shares, AUS$1 par value; 10,000,000 shares
   authorized; 590,000 shares issued and outstanding
   at March 31,1995, and
   March 31, 1996.....................................     427,514      427,514
  Special Cumulative Redeemable Preference Shares,
   AUS$1 par value; 100,000 shares authorized; 1,180
   shares issued at March 31, 1995 and March 31,
   1996...............................................         --           855
Retained (loss) earnings..............................      (5,931)     560,751
Cumulative translation adjustment.....................       3,509       55,074
                                                       -----------  -----------
    Total stockholders' equity........................     425,092    1,044,194
                                                       -----------  -----------
    Total liabilities and stockholders' equity........ $10,321,576  $31,084,369
                                                       ===========  ===========
</TABLE>

 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-17

<PAGE>
 
                               AXICORP PTY., LTD.
 
                            STATEMENTS OF OPERATIONS
                                (IN US DOLLARS)
 

<TABLE>
<CAPTION>
                                                       NINE MONTHS TWELVE MONTHS
                                                          ENDED        ENDED
                                                        MARCH 31,    MARCH 31,
                                                          1995         1996
                                                       ----------- -------------
<S>                                                    <C>         <C>
Net Revenue........................................... $44,796,839 $144,344,739
Cost of Revenue.......................................  40,404,651  131,712,076
                                                       ----------- ------------
Gross Margin..........................................   4,392,188   12,632,663
                                                       ----------- ------------
Operating Expenses
  Selling, General and Administrative.................   4,276,902   11,558,216
  Depreciation and Amortization.......................      42,955      234,610
                                                       ----------- ------------
Total Operating Expenses..............................   4,319,857   11,792,826
                                                       ----------- ------------
Income from Operations................................      72,331      839,837
Interest Income.......................................      29,654      219,300
                                                       ----------- ------------
Income before Income Taxes............................     101,985    1,059,137
Income Tax Provision..................................       3,753      492,455
                                                       ----------- ------------
Net Income............................................ $    98,232 $    566,682
                                                       =========== ============
</TABLE>

 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-18

<PAGE>
 
                               AXICORP PTY,. LTD.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                   (IN US DOLLARS, EXCEPT SHARE INFORMATION)
 

<TABLE>
<CAPTION>
                                           REDEEMABLE   SUBSCRIPTION
                         ORDINARY SHARES   PREFERENCE    RECEIVABLE  RETAINED   CUMULATIVE      TOTAL
                         ---------------- SHARE CAPITAL     FROM     EARNINGS   TRANSLATION STOCKHOLDERS'
                         SHARES   AMOUNT     AMOUNT     STOCKHOLDERS (DEFICIT)  ADJUSTMENT     EQUITY
                         ------- -------- ------------- ------------ ---------  ----------- -------------
<S>                      <C>     <C>      <C>           <C>          <C>        <C>         <C>
BALANCE AT JULY 1,
 1994................... 590,000 $427,514     $ --         $ --      $(104,163)   $   --     $  323,351
Issuance of Shares......     --       --        855         (855)          --         --            --
Foreign currency
 translation
 adjustment.............     --       --        --           --            --       3,509         3,509
Net income..............     --       --        --           --         98,232        --         98,232
                         ------- --------     -----        -----     ---------    -------    ----------
BALANCE AT MARCH 31,
 1995................... 590,000  427,514       855         (855)       (5,931)     3,509       425,092
Issuance of shares......     --       --        --           855           --         --            855
Foreign currency
 translation
 adjustment.............     --       --        --           --            --      51,565        51,565
Net income..............     --       --        --           --        566,682        --        566,682
                         ------- --------     -----        -----     ---------    -------    ----------
BALANCE AT MARCH 31,
 1996................... 590,000 $427,514     $ 855        $ --      $ 560,751    $55,074    $1,044,194
                         ======= ========     =====        =====     =========    =======    ==========
</TABLE>

 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-19

<PAGE>
 
                               AXICORP PTY., LTD.
 
                            STATEMENTS OF CASH FLOWS
                                (IN US DOLLARS)
 

<TABLE>
<CAPTION>
                                                      NINE MONTHS  TWELVE MONTHS
                                                         ENDED         ENDED
                                                       MARCH 31,     MARCH 31,
                                                         1995          1996
                                                      -----------  -------------
<S>                                                   <C>          <C>
Cash flows from operating activities:
  Net income......................................... $   98,232    $   566,682
  Adjustments to reconcile net income to net cash
   provided by operating activities:
  Depreciation.......................................     42,955        234,610
  Allowance for bad and doubtful accounts............      1,201        359,569
  Deferred tax expense...............................      3,729        492,746
  Changes in assets and liabilities:
    Accounts receivable.............................. (7,688,030)   (15,822,175)
    Other current assets.............................    (99,137)        36,895
    Accounts payable.................................  9,066,970     14,983,203
                                                      ----------    -----------
  Net cash provided by operating activities..........  1,425,920        851,530
                                                      ----------    -----------
Cash flows from investing activities:
  Purchase of plant, equipment and software..........   (342,030)      (667,526)
  Purchase of investments............................   (161,325)           --
  Proceeds from investments..........................        --         150,355
                                                      ----------    -----------
  Net cash used in investing activities..............   (503,355)      (517,171)
                                                      ----------    -----------
Cash flows from financing activities:
  Proceeds from issuance of shares...................     22,374            877
  Proceeds from notes payable--due to related party..    268,429      1,637,800
  Payments on short-term debt--due to related party..        --        (267,637)
                                                      ----------    -----------
  Net cash provided by financing activities..........    290,803      1,371,040
                                                      ----------    -----------
Effect of exchange rate changes on cash..............    (26,687)        76,957
Increase in cash.....................................  1,213,368      1,705,399
  Cash at the beginning of the period................    249,042      1,435,723
                                                      ----------    -----------
Cash at the end of the period........................ $1,435,723    $ 3,218,079
                                                      ==========    ===========
Supplemental disclosures:
  Cash paid for interest............................. $    2,008    $       --
  Cash paid for income taxes.........................        --         139,726
</TABLE>

 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-20

<PAGE>
 
       
                              AXICORP PTY., LTD.
 

                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1--THE COMPANY
 

 The Company
 
  Axicorp Pty., Ltd. ("Axicorp") was incorporated in Victoria, Australia in
1993. Axicorp's principal line of business is the provision of
telecommunication services.
 
  On March 1, 1996 Primus Telecommunications International, Inc. ("PTII"), a
wholly owned subsidiary of Primus Telecommunications Group Incorporated
("Primus"), a United States based long-distance telephone company, acquired
beneficial ownership of all of the outstanding capital stock in Axicorp in
issue at that date.
 
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
  These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
 
 Revenue recognition
 
  Axicorp's revenues are derived primarily from long-distance, mobile, local
and data telecommunication charges and are recognized when such services are
provided. Axicorp also derives revenue from sale of mobile equipment and sale
of valued added services. Revenue from such services are recognized when
delivered and provided.
 
 Cost of revenue
 
  Cost of revenue comprises telecommunications network usage charges and other
direct costs incurred in providing telecommunication services to customers,
and are recognized as services are provided.
 
 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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
 
 Plant, Equipment and Computer Software
 
  Plant, equipment and computer software are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is computed using
the straight line basis over the estimated useful lives of the assets.
 
  Axicorp has capitalized external software costs in relation to the
development of certain computer software, including a billing system, used by
Axicorp in its operations. As of March 31, 1995 and 1996 the accumulated
amortization for computer software is $20,145 and $137,404, respectively.
 
  Plant, equipment and computer software classes and their respective useful
lives are as follows:
 

<TABLE>
<CAPTION>
                                                                          YEARS
                                                                          ------
      <S>                                                                 <C>
      . Computer equipment...............................................   3
      . Furniture, leasehold improvements and equipment.................. 5 to 7
      . Computer software................................................ 2 to 3
</TABLE>

 
      The accompanying notes are an integral part of these statements.
 
                                     F-21

<PAGE>
 
                              AXICORP PTY., LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Foreign currency translation
 
  To date, Axicorp has conducted most of its business in Australian dollars.
The financial statements have been presented herein in U.S. dollars because
Primus's reporting currency is the U.S. dollar. All assets and liabilities are
translated into the U.S. dollar at the rate effective at the reporting date
and elements of the income statement are translated at average exchange rates
for the period. Translation differences are included in the foreign currency
translation adjustment (a component of stockholders' equity).
 
 Income Taxes
 
  Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of
assets and liabilities and are measured using the currently enacted tax rates
and laws.
 
 Concentration of credit risk
 
  Financial instruments that potentially subject Axicorp to credit risk
consist principally of trade receivables from its customers in Australia.
Axicorp generally requires no collateral from its customers. However, Axicorp
maintains an allowance for bad and doubtful accounts receivable based on the
expected collectibility of all accounts receivable. At March 31, 1995 and 1996
no customer accounted for more than 10% of accounts receivable.
 
 Accounting for impairment of long-lived assets
 
  In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS 121 requires impairment losses to be recorded for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset's carrying amount. SFAS 121 also addresses the accounting
for impairment losses associated with long-lived assets to be disposed of.
Axicorp adopted SFAS 121 in the first quarter of fiscal 1996. Adoption of SFAS
121 did not have a material impact on Axicorp's results of operations.
 
 Dividends
 
  Any dividend payments made by Axicorp would, under Australian Corporation
Law, be limited to Axicorp's retained earnings, which aggregated $560,751 at
March 31, 1996.
 
 Cash Equivalents
 
  Axicorp considers all liquid investments with a maturity of three months or
less to be cash equivalents.
 
NOTE 3--PLANT, EQUIPMENT AND COMPUTER SOFTWARE
 

<TABLE>
<CAPTION>
                                                           MARCH 31,  MARCH 31,
                                                             1995       1996
                                                           ---------  ---------
   <S>                                                     <C>        <C>
   Plant, equipment and computer software:
     Computer software.................................... $157,028   $ 479,414
     Computer hardware....................................  143,372     429,057
     Furniture, leasehold improvement and equipment.......  112,224     232,929
                                                           --------   ---------
                                                            412,624   1,141,400
   Less: accumulated depreciation and amortization........  (47,092)   (297,063)
                                                           --------   ---------
   Net plant and equipment................................ $365,532   $ 844,337
                                                           ========   =========
</TABLE>


       The accompanying notes are an integral part of these statements.
 
                                     F-22

<PAGE>
 
                              AXICORP PTY., LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 4--INCOME TAXES
 
  The provision for income taxes is attributable to:
 

<TABLE>
<CAPTION>
                                                       NINE MONTHS TWELVE MONTHS
                                                          ENDED        ENDED
                                                        MARCH 31,    MARCH 31,
                                                          1995         1996
                                                       ----------- -------------
   <S>                                                 <C>         <C>
   Current............................................   $  --       $    --
   Deferred...........................................    3,753       492,455
                                                         ------      --------
                                                         $3,753      $492,455
                                                         ======      ========
</TABLE>

 
  The provision for income taxes differs from the amount computed by applying
the Australian statutory federal income tax rate to income before provision
for income taxes. The sources and tax effect of the differences are as
follows:
 

<TABLE>
<CAPTION>
                                                      NINE MONTHS TWELVE MONTHS
                                                         ENDED        ENDED
                                                       MARCH 31,    MARCH 31,
                                                         1995         1996
                                                      ----------- -------------
   <S>                                                <C>         <C>
   Income tax at the Australian federal statutory
    rate of 36%
    (1995--33%)......................................   $33,655     $381,289
   Nondeductible expenses............................       --        86,764
   Other.............................................   (29,902)      24,402
                                                        -------     --------
                                                        $ 3,753     $492,455
                                                        =======     ========
</TABLE>

 
  Net deferred tax liabilities and assets reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of Axicorp's deferred tax liabilities and assets are as
follows:
 

<TABLE>
<CAPTION>
                                                         MARCH 31,  MARCH 31,
                                                           1995        1996
                                                         ---------  ----------
   <S>                                                   <C>        <C>
   Deferred tax liabilities:
     Accrued income..................................... $541,325   $4,234,068
     Capitalized software...............................   41,321      171,305
                                                         --------   ----------
     Total deferred tax liabilities.....................  582,646    4,405,373
                                                         --------   ----------
   Deferred tax assets:
     Plant and equipment................................      --        47,570
     Accrued employee entitlement.......................   20,520       59,797
     Other accruals.....................................  196,425      657,920
     Net tax loss carry forward.........................  362,095    3,120,943
                                                         --------   ----------
     Total deferred tax assets..........................  579,040    3,886,230
                                                         --------   ----------
   Net deferred tax liabilities......................... $ (3,606)  $ (519,143)
                                                         ========   ==========
</TABLE>

 
  Axicorp's carry forward tax losses of $8,669,286 are available to be offset
against future taxable income, without limitation, provided Axicorp continues
to maintain the same business in the year of loss recoupment which it carried
on prior to its acquisition by PTII. The losses arise principally because of
the treatment for

       The accompanying notes are an integral part of these statements.
 
                                     F-23

<PAGE>
 
                              AXICORP PTY., LTD.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
taxation purposes of amounts recorded as income receivable at year end which
are not taxable until their receipt in the following year of income.
Management believes that, based on the evidence of the performance of Axicorp
and other factors, the weight of available evidence indicates that it is more
likely than not that Axicorp will be able to utilize the carry forward tax
loss.
 
NOTE 5--RELATED PARTY TRANSACTIONS
 
  During the period April 1, 1994 to March 31, 1995 and the twelve months
ended March 31, 1996 Axicorp paid management fees of $616,000 and $426,000,
respectively, to a company owned primarily by officers and directors of
Axicorp. At March 31, 1995, Axicorp owed management fees of $238,000.
 
  At March 31, 1995 and 1996 Axicorp owed related parties $262,000 and
$1,678,000 respectively. The balance at March 31, 1996 is an unsecured loan,
interest at the prime rate of 12% and is repayable on demand.
 
NOTE 6--EMPLOYEE BENEFIT PLAN
 
  Axicorp is currently required by law to contribute 6% of each employee's
salary to a pension fund for the employee's retirement. Axicorp's contribution
to the pension fund aggregated approximately $44,000 and $157,000 during the
period July 1, 1994 to March 31, 1995 and the twelve months ended March 31,
1996, respectively.
 
NOTE 7--COMMITMENTS AND CONTINGENCIES
 
 Leases
 
  Axicorp leases its office facility and certain equipment under cancellable
lease arrangements. The cancellable office facility lease expires in 1997.
 
  Rental expense under all leases totalled $88,000 for the period from July 1,
1994 to March 31, 1995 and $238,000 during the twelve months ended March 31,
1996.
 
NOTE 8--SALES BY GEOGRAPHIC AREA
 
  Substantially all of the sales of Axicorp have been to customers in
Australia.
 
       The accompanying notes are an integral part of these statements.

                                     F-24

<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE U.S. UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICI-
TATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
 
                               -----------------
 
 
                              TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Additional Information...................................................   2
Summary..................................................................   3
Risk Factors.............................................................   8
Use of Proceeds..........................................................  17
Dilution.................................................................  18
Dividend Policy..........................................................  18
Capitalization...........................................................  19
Selected Financial Data..................................................  20
Unaudited Pro Forma Consolidated Statements of Operations................  21
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  25
Business.................................................................  35
Management...............................................................  56
Certain Transactions.....................................................  63
Principal Stockholders...................................................  65
Description of Capital Stock.............................................  67
Shares Eligible for Future Sale..........................................  71
Certain United States Federal Income Tax Consequences to Non-United
 States Holders..........................................................  72
Underwriting.............................................................  75
Legal Matters............................................................  78
Experts..................................................................  78
Index to Financial Statements............................................ F-1
</TABLE>

 
                               -----------------
   
 UNTIL DECEMBER 2, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD-
DITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
U.S. UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.     
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                                
                             5,000,000 SHARES     
 
                           [MAC LOGO APPEARS HERE]
 
 
                                 COMMON STOCK
 
                               -----------------
 
                                  PROSPECTUS
                                
                             November 7, 1996     
 
                               -----------------
 
 
                                LEHMAN BROTHERS
 
                         DONALDSON, LUFKIN & JENRETTE
                            SECURITIES CORPORATION
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                                                                              +
+                                                                              +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
       
PROSPECTUS
                                
                             5,000,000 SHARES     
 
                               [INSERT MAC LOGO]
 
                                  COMMON STOCK
 
                                 -------------
   
  All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of Primus Telecommunications Group, Incorporated ("Primus" or the
"Company") offered hereby are being offered by the Company. Of the 5,000,000
shares of Common Stock being offered, 1,000,000 shares are being offered
initially outside the United States and Canada (the "International Offering")
by the International Managers (as defined in "Underwriting") and 4,000,000
shares are being concurrently offered in the United States and Canada (the
"U.S. Offering") by the U.S. Underwriters (as defined in "Underwriting" and,
together with the International Managers, the "Underwriters"). The
International Offering and the U.S. Offering are collectively referred to as
the "Offering."     
   
  Prior to this offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market under the symbol "PRTL"
subject to notice of issuance.     
 
                                 -------------
 
    THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 8.
 
                                 -------------
 
 THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
 AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
 ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
 A CRIMINAL OFFENSE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>   
<CAPTION>

                                                       Underwriting
                                           Price to   Discounts and  Proceeds to
                                            Public    Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S>                                       <C>         <C>            <C>
Per Share...............................    $10.50        $.735        $9.765
- --------------------------------------------------------------------------------
Total(3)................................  $52,500,000   $3,675,000   $48,825,000
</TABLE>
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
    liabilities, including liabilities under the Securities Act of 1933, as
    amended. See "Underwriting."
(2) Before deducting estimated expenses of $1,200,000 payable by the Company.
   
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    750,000 additional shares of Common Stock on the same terms and conditions
    set forth herein, solely to cover over-allotments, if any. If such option
    is exercised in full, the total Price to Public, Underwriting Discounts and
    Commissions and Proceeds to Company will be $60,375,000, $4,226,250 and
    $56,148,750, respectively. See "Underwriting."     
 
                                 -------------
   
  The shares of Common Stock offered by this Prospectus are offered by the
International Managers subject to prior sale, withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain further conditions. It is expected that
delivery of certificates representing the shares of Common Stock will be made
at the offices of Lehman Brothers Inc., New York, New York on or about November
13, 1996.     
 
                                 -------------
 
LEHMAN BROTHERS                                     DONALDSON, LUFKIN & JENRETTE
                                                       SECURITIES CORPORATION
   
November 7, 1996.     

<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE INTERNATIONAL MAN-
AGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
 
                               -----------------
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Additional Information...................................................   2
Summary..................................................................   3
Risk Factors.............................................................   8
Use of Proceeds..........................................................  17
Dilution.................................................................  18
Dividend Policy..........................................................  18
Capitalization...........................................................  19
Selected Financial Data..................................................  20
Unaudited Pro Forma Consolidated Statements of Operations................  21
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  25
Business.................................................................  35
Management...............................................................  56
Certain Transactions.....................................................  63
Principal Stockholders...................................................  65
Description of Capital Stock.............................................  67
Shares Eligible for Future Sale..........................................  71
Certain United States Federal Tax Consequences to Non-United States
 Holders.................................................................  72
Underwriting.............................................................  75
Legal Matters............................................................  78
Experts..................................................................  78
Index to Financial Statements............................................ F-1
</TABLE>

 
                               -----------------
   
 UNTIL DECEMBER 2, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD-
DITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
INTERNATIONAL MANAGERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.     
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
                                
                             5,000,000 SHARES     
 
                           [MAC LOGO APPEARS HERE]
 
                                 COMMON STOCK
 
 
                               -----------------
 
                                  PROSPECTUS
                                
                             November 7, 1996     
 
                               -----------------
 
 
                                LEHMAN BROTHERS
 
                         DONALDSON, LUFKIN & JENRETTE
                            SECURITIES CORPORATION
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>
 

                                    PART II
 
                    INFORMATION NOT REQUIRED IN PROSPECTUS
 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
  The following table sets forth an itemization of all estimated expenses, all
of which will be paid by the Company, in connection with the issuance and
distribution of the securities being registered:
 

<TABLE>
<CAPTION>
      NATURE OF EXPENSE                                                AMOUNT
      -----------------                                              ----------
      <S>                                                            <C>
      SEC Registration Fee.......................................... $   37,061
      NASD Fee......................................................     11,540
      Nasdaq National Market Fee....................................     47,500
      Printing and engraving fees...................................    250,000
      Registrant's counsel fees and expenses........................    350,000
      Accounting fees and expenses..................................    250,000
      Blue Sky expenses and counsel fees............................     10,000
      Transfer agent and registrar fees.............................      2,000
      Miscellaneous.................................................    241,899
                                                                     ----------
        TOTAL....................................................... $1,200,000
                                                                     ==========
</TABLE>

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
  Section 145 of the Delaware General Corporation Law (the "DGCL") permits
each Delaware business corporation to indemnify its directors, officers,
employees and agents against liability for each such person's acts taken in
his or her capacity as a director, officer, employee or agent of the
corporation if such actions were taken in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action, if he or she had no
reasonable cause to believe his or her conduct was unlawful. Article X of the
Company's Amended and Restated By-Laws provides that the Company, to the full
extent permitted by Section 145 of the DGCL, shall indemnify all past and
present directors or officers of the Company and may indemnify all past or
present employees or other agents of the Company. To the extent that a
director, officer, employee or agent of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to
in such Article X, or in defense of any claim, issue or matter therein, he or
she shall be indemnified by the Company against actually and reasonably
incurred expenses in connection therewith. Such expenses may be paid by the
Company in advance of the final disposition of the action upon receipt of an
undertaking to repay the advance if it is ultimately determined that such
person is not entitled to indemnification.
 
  As permitted by Section 102(b)(7) of the DGCL, Article 11 of the Company's
Amended and Restated Certificate of Incorporation provides that no director of
the Company shall be liable to the Company for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends on or
redemption of the Company's capital stock, or (iv) for any transaction from
which the director derived an improper personal benefit.
 
  The Company expects to obtain a policy insuring it and its directors and
officers against certain liabilities, including liabilities under the
Securities Act.
 
  The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
 
                                     II-1

<PAGE>
 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
 
  The Company issued 178,574 shares of Common Stock to John F. DePodesta, its
incorporator, on February 4, 1994 for consideration of $250. Additionally, Mr.
Singh purchased 3,392,905 shares of Common Stock from the Company on June 1,
1994 for $250,000. A trust, the voting power of which is vested in Mr. Singh,
purchased 396,828 shares of Common Stock from the Company on September 30,
1994 for $250,000. During the fourth quarter of 1994, the Company issued to
Mr. Krieger, a former director of the Company, in recognition of the support
he gave to the Company, 71,430 shares of Common Stock. No underwriter or
placement agent participated in any of the foregoing issuances of securities.
 
  During the first quarter of 1995, the Company sold its Common Stock to a
group of private investors consisting of certain family members and colleagues
of Mr. Singh and Mr. DePodesta. The investors paid $300,000 for 476,204 shares
of Common Stock in this transaction. On March 31, 1995, pursuant to an
agreement whereby Mr. Singh forgave certain indebtedness in the amount of
$350,000 owed him by the Company, the Company issued Mr. Singh 555,559 shares
of Common Stock. No underwriter or placement agent participated in any of the
foregoing issuances of securities.
 
  As of December 31, 1995, 1,757,613 shares of the Company's Common Stock were
sold for an aggregate price of $5,198,500 to investors familiar with Mr. Singh
and the Company. This sale was placed by Northeast Securities, Inc. ("NSI"),
which used Andrew Krieger, a former director, as a selling agent. Underwriting
commissions and other expenses in this transaction were $787,440 and 234,378
shares of the Company's Common Stock. On January 31, 1996, NSI and Mr.
Krieger, both acting as placement agents, privately placed 1,771,194 shares of
the Company's Common Stock for an aggregate price of $6,286,404 to other
investors familiar with Mr. Singh and the Company. Underwriting commissions
and other expenses in this transaction totalled $613,167 and 278,899 shares of
the Company's Common Stock.
 
  On February 15, 1996, Teleglobe USA, Inc. invested in the Company by
purchasing 410,808 shares of the Company's Common Stock for $1,458,060. On
March 1, 1996, in connection with the Company's purchase of Axicorp, certain
vendors of Axicorp received 455,000 shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share. In addition, on July
31, 1996, the Soros/Chatterjee Group bought 965,999 shares of the Company's
Common Stock for approximately $8,000,000 and for $8,000,000 was issued
warrants to purchase additional shares of Common Stock. No underwriter or
placement agent participated in any of the foregoing issuances of securities.
 
  The Company believes that the foregoing described issuances of securities,
if they constitute sales, are exempt from registration under the Act by virtue
of the exemption provided by Section 4(2) thereof for transactions not
involving a public offering.
 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
  (A) EXHIBITS:
 

<TABLE>     
<CAPTION>
   EXHIBIT NO.                            DESCRIPTION
   -----------                            -----------
   <C>         <S>
     1.1       Form of U.S. Underwriting Agreement.(/1/)
     1.2       Form of International Underwriting Agreement.(/1/)
     3.1       Amended and Restated Certificate of Incorporation.(/1/)
     3.2       Amended and Restated By-Laws.(/1/)
     4.1       Specimen Certificate of the Company's Common Stock, par value
                $.01 per share.(/1/)
     5.1       Opinion of Pepper, Hamilton & Scheetz respecting the Common
                Stock registered hereby.(/1/)
    10.1       Share Acquisition Deed, dated March 1, 1996, between the Company
                and the shareholders of Axicorp Pty., Ltd.(/1/)
    10.2       Switched Transit Agreement, dated June 5, 1995, between
                Teleglobe USA, Inc. and the Company for the provision of
                services to India.(/1/)
    10.3       Hardpatch Transit Agreement, dated February 29, 1996, between
                Teleglobe USA, Inc. and the Company for the provision of
                services to Iran.(/1/)
</TABLE>
    
 
                                     II-2

<PAGE>
 

<TABLE>     
<CAPTION>
   EXHIBIT NO.                            DESCRIPTION
   -----------                            -----------
   <C>         <S>
    10.4       Agreement for Billing and Related Services, dated February 23,
                1995, between the Company and Electronic Data Systems Inc.(/1/)
    10.5       Employment Agreement, dated June 1, 1994, between the Company
                and K. Paul Singh.(/1/)
    10.6       Primus Telecommunications Group, Incorporated 1995 Stock Option
                Plan.(/1/)
    10.7       Primus Telecommunications Group, Incorporated 1995 Director
                Stock Option Plan.(/1/)
    10.8       International Correspondent Agreement between the Honduras
                Telecommunications Company and the Company dated November 30,
                1995.(/1/)
    10.9       Shareholders Agreement, dated February 22, 1996, among Teleglobe
                USA, Inc., K. Paul Singh and the Company.(/1/)
    10.10      Securityholders' Agreement, dated July 31, 1996, among the
                Company, K. Paul Singh, Quantum Industrial Partners LDC, S-C
                Phoenix Holdings, L.L.C., Winston Partners II LDC and Winston
                Partners LLC.(/1/)
    10.11      Registration Rights Agreement, dated July 31, 1996, among the
                Company, Quantum Industrial Partners LDC, S-C Phoenix Holdings,
                L.L.C., Winston Partners II LDC and Winston Partners LLC.(/1/)
    10.12      Service Provider Agreement between Telstra Corporation Limited
                and Axicorp Pty., Ltd. dated May 3, 1995.(/1/)
    10.13      Dealer Agreement between Telstra Corporation Limited and Axicorp
                Pty., Ltd. dated January 8, 1996.(/1/)
    10.14      Hardpatch Transit Agreement dated October 5, 1995 between
                Teleglobe USA, Inc. and the Company for the provision of
                services to India.(/1/)
    10.15      Securities Purchase Agreement dated as of July 31, 1996 among
                the Company, Quantum Industrial Partners LDC, S-C Phoenix
                Holdings, L.L.C., Winston Partners II LLC, and Winston Partners
                II LDC.(/1/)
    11.1       Statement re: Computation of Per Share Earnings.
    22.1       Subsidiaries of the Registrant.(/1/)
    23.1       Consent of Deloitte & Touche LLP (included on page II-5 of this
                Registration Statement).
    23.2       Consent of Price Waterhouse (included on page II-6 of this
                Registration Statement).
    23.3       Consent of Pepper, Hamilton & Scheetz (included in Exhibit
                5.1).(/1/)
    24.1       Powers of Attorney.(/1/)
    27.1       Financial Data Schedule for the Company for the year ended
                December 31, 1995.
    27.2       Financial Data Schedule for the Company for the six months ended
                June 30, 1996.
    27.3       Financial Data Schedule for Axicorp Pty., Ltd. for the twelve
                months ended March 31, 1996.(/1/)
</TABLE>
    
- --------
(1) Previously filed.
 
  (B) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
 
  All schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements
or the notes thereto.
 

ITEM 17. UNDERTAKINGS
 
  The undersigned registrant undertakes that insofar as indemnification for
liabilities arising under the Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred
 
                                     II-3

<PAGE>
 
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
 
  The undersigned registrant hereby undertakes that:
 
    (1) For purposes of determining any liability under the Act, the
  information omitted from the form of prospectus filed as part of this
  Registration Statement in reliance upon Rule 430A and contained in a form
  of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
  497(h) under the Act shall be deemed to be part of this Registration
  Statement as of the time it was declared effective.
 
    (2) For purposes of determining any liability under the Act, each post-
  effective amendment that contains a form of prospectus shall be deemed to
  be a new registration statement relating to the securities offered therein,
  and the offering of such securities at that time shall be deemed to be the
  initial bona fide offering thereof.
 
  The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
 
                                     II-4

<PAGE>
 
                         INDEPENDENT AUDITORS' CONSENT
   
  We consent to the use in this Amendment No. 4 to Registration Statement No.
333-10875 of Primus Telecommunications Group, Incorporated of our report dated
April 23, 1996, except for Note 13 and Note 14, as to which the dates are July
31, 1996 and October 3, 1996, respectively, appearing in the Prospectus, which
is part of this Registration Statement, and to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.     
 
Deloitte & Touche LLP
 
Washington, D.C.
   
November 7, 1996     
 
 
                                     II-5

<PAGE>
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
  We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 (File No. 333-10875) of our report dated
July 31, 1996, relating to the financial statements of Axicorp Pty., Ltd.,
which appears in such Prospectus. We also consent to the references to us under
the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse has not prepared or certified
such "Selected Financial Data."
 
Price Waterhouse
 
Melbourne, Australia
   
November 6, 1996     
 
                                      II-6

<PAGE>
 
                        SIGNATURES AND POWER OF ATTORNEY
   
  Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on the 6th day of November, 1996.     
 
                                         Primus Telecommunications Group,
                                          Incorporated
 
                                         By:        /s/ K. Paul Singh
                                             ----------------------------------
                                                      K. Paul Singh
                                              Chairman, President and Chief
                                                    Executive Officer
   
  Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on November 6, 1996 in the
capacities indicated:     
 
             SIGNATURES                                 TITLE
 
         /s/ K. Paul Singh               Director, Chairman, President and
- ------------------------------------      Chief Executive Officer (principal
           K. PAUL SINGH                  executive officer)
 
         /s/ Neil L. Hazard              Executive Vice President and Chief
- ------------------------------------      Financial Officer (principal
           NEIL L. HAZARD                 financial officer and principal
                                          accounting officer)
 
                 *                       Executive Vice President, Law and
- ------------------------------------      Regulatory Affairs and Director
         JOHN F. DEPODESTA
 
                 *                       Director
- ------------------------------------
           HERMAN FIALKOV
 
                 *                       Director
- ------------------------------------
         DAVID E. HERSHBERG
 
                 *                       Director
- ------------------------------------
            JOHN PUENTE
 
         /s/ K. Paul Singh
- ------------------------------------
  * K. Paul Singh, Attorney-in-Fact
 
                                      II-7

<PAGE>
 
                                 EXHIBIT INDEX
 

<TABLE>   
<CAPTION>
 EXHIBIT NUMBER                           DESCRIPTION
 --------------                           -----------
 <C>            <S>
  11.1          Statement Re: Computation of Per Share Earnings
  23.1          Consent of Deloitte & Touche LLP (included on Page II-5 of this
                 Registration Statement).
  23.2          Consent of Price Waterhouse (included on Page II-6 of this
                 Registration Statement).
  27.1          Financial Data Schedule for the Company for the year ended
                 December 31, 1995.
  27.2          Financial Data Schedule for the Company for the six months
                 ended June 30, 1996.
</TABLE>
    





<PAGE>
 
                                                                    EXHIBIT 11.1
                                                                    ------------

                 Primus Telecommunications Group, Incorporated
                               and Subsidiaries

                       Computation of Per Share Earnings


<TABLE>     
<CAPTION> 

                                                                                                   Six Months Ended 
                                                    Period from                                        June 30,
                                                 February 4, 1994           Year Ended            -----------------
PRIMARY EARNINGS PER SHARE                     to December 31, 1994      December 31, 1995         1995       1996
- --------------------------------------         --------------------      -----------------         ----       ----
<S>                                            <C>                       <C>                   <C>         <C> 

Historical net loss                              $         (577,280)       $    (2,425,238)    $ (793,080)  $(3,232,426)
                                                 ==================        ===============     ==========   ===========

Weighted average number of Common
 Shares outstanding                                       2,620,374              5,019,139      4,777,188     9,766,285

Add:  Common Share equivalents (as
 determined using the modified treasury
 stock method as described in Note 2
 of the Consolidated Financial 
 Statements)                                              5,939,752              5,873,108      5,939,751     2,719,693
                                                 ------------------        ---------------     ----------    ----------
Weighted average number of Common
 Shares used in calculation of
 primary loss per share                                   8,560,126             10,892,247     10,716,939    12,485,978
                                                 ==================        ===============     ==========    ==========
Loss per share - Primary                         $             (.07)       $          (.22)    $     (.07)   $     (.26)
                                                 ==================        ===============     ==========    ==========

FULLY DILUTED EARNINGS PER SHARE
- --------------------------------

Historical net loss                              $         (577,280)       $    (2,425,238)   $  (793,080)   (3,232,426)
                                                 ==================        ===============    ===========    ==========
                                                                                                            
Weighted average number of Common                                                                           
 Shares outstanding                                       2,620,374              5,019,139      4,777,188     9,766,285
                                                                                                            
Add: Common Share equivalents (as                                                                           
 determined using the modified                                                                              
 treasury stock method as described in                                                                      
 Note 2 of the Consolidated Financial                                                                       
 Statements).                                             5,939,752              5,946,011      6,018,359     2,805,909
                                                 ------------------        ---------------    -----------    ----------
Weighted average numbers of Common                                                                          
 Shares used in calculation of fully                                                                        
 diluted loss
 per share                                   8,560,126             10,965,150     10,795,547    12,572,194
                                                 ==================        ===============    ===========    ==========
                                                                                                            
Loss per share - Fully Diluted                   $             (.07)       $          (.22)   $      (.07)   $     (.26)
                                                 ==================        ===============    ===========    ==========
</TABLE>
      




<TABLE> <S> <C>


<PAGE>
 
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<CASH>                                       2,295,843
<SECURITIES>                                         0
<RECEIVABLES>                                  797,050
<ALLOWANCES>                                 (132,353)
<INVENTORY>                                          0
<CURRENT-ASSETS>                             3,348,803<F1>
<PP&E>                                       1,098,590
<DEPRECIATION>                               (149,714)
<TOTAL-ASSETS>                               5,041,611<F2>
<CURRENT-LIABILITIES>                        2,053,893
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                        70,635
<OTHER-SE>                                   2,491,217<F3>
<TOTAL-LIABILITY-AND-EQUITY>                 5,041,611<F4>
<SALES>                                              0
<TOTAL-REVENUES>                             1,167,058
<CGS>                                        1,383,763
<TOTAL-COSTS>                                3,568,170<F5>
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                            (58,732)
<INCOME-PRETAX>                            (2,425,238)<F6>
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (2,425,238)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (2,425,238)
<EPS-PRIMARY>                                    (.22)
<EPS-DILUTED>                                    (.22)
<FN>
<F1>INCLUDES PREPAID EXPENSES AND OTHER CURRENT ASSETS
<F2>INCLUDES INTANGIBLES, DEFERRED INCOME TAXES AND OTHER ASSETS
<F3>INCLUDES ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT AND CUMULATIVE
    TRANSLATION ADJUSTMENT
<F4>INCLUDES LONG-TERM OBLIGATIONS
<F5>INCLUDES COST OF GOODS SOLD AND TOTAL OPERATING EXPENSES
<F6>INCLUDES INTEREST INCOME, OTHER INCOME (EXPENSES)
</FN>
        

</TABLE>






<TABLE> <S> <C>


<PAGE>
 
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                             <C>                     
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>               DEC-31-1996
<PERIOD-START>                  JAN-01-1996
<PERIOD-END>                    JUN-30-1996
<CASH>                            4,397,604
<SECURITIES>                              0
<RECEIVABLES>                    26,454,266
<ALLOWANCES>                     (1,605,570)
<INVENTORY>                               0
<CURRENT-ASSETS>                 29,803,403<F1>
<PP&E>                            5,983,098
<DEPRECIATION>                     (412,868)
<TOTAL-ASSETS>                   62,296,810<F2>
<CURRENT-LIABILITIES>            44,194,522
<BONDS>                                   0
<PREFERRED-MANDATORY>                     0
<PREFERRED>                           4,550
<COMMON>                             95,244
<OTHER-SE>                       11,700,342<F3>
<TOTAL-LIABILITY-AND-EQUITY>     62,296,810<F4>
<SALES>                                   0
<TOTAL-REVENUES>                 65,414,924
<CGS>                            60,162,429
<TOTAL-COSTS>                    67,667,223<F5>
<OTHER-EXPENSES>                   (268,120)
<LOSS-PROVISION>                          0
<INTEREST-EXPENSE>                 (334,775)
<INCOME-PRETAX>                  (2,770,003)<F6>
<INCOME-TAX>                       (462,423)
<INCOME-CONTINUING>              (3,232,426)
<DISCONTINUED>                            0
<EXTRAORDINARY>                           0
<CHANGES>                                 0
<NET-INCOME>                     (3,232,426)
<EPS-PRIMARY>                          (.26)
<EPS-DILUTED>                          (.26)
<FN>
<F1>INCLUDES PREPAID EXPENSES AND OTHER CURRENT ASSETS
<F2>INCLUDES INTANGIBLES, DEFERRED INCOME TAXES AND OTHER ASSETS
<F3>INCLUDES ADDITIONAL PAID-IN CAPITAL, ACCUMULATED DEFICIT AND CUMULATIVE
    TRANSLATION ADJUSTMENT
<F4>INCLUDES LONG-TERM OBLIGATIONS
<F5>INCLUDES COST OF GOODS SOLD AND TOTAL OPERATING EXPENSES
<F6>INCLUDES INTEREST INCOME, OTHER INCOME (EXPENSES)
</FN>
        

 


</TABLE>