<PAGE>
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
                               ----------------
 
             [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
 
                                      OR
 
           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                         COMMISSION FILE NO. 0-29-092
 
                               ----------------
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                                       54-1708481
              DELAWARE                    (I.R.S. EMPLOYER IDENTIFICATION NO.)
   (STATE OR OTHER JURISDICTION OF
   INCORPORATION OR ORGANIZATION)                         22102
                                                       (ZIP CODE)
   1700 OLD MEADOW ROAD SUITE 300
             MCLEAN, VA
   (ADDRESS OF PRINCIPAL EXECUTIVE
              OFFICES)
                                (703) 902-2800
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 

            TITLE OF EACH CLASS      NAME OF EACH EXCHANGE ON WHICH REGISTERED
            -------------------      -----------------------------------------
                   NONE                              N/A
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                 COMMON STOCK
 
  INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES  X  NO
 
  INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANTS' KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [_]
 
  NON-AFFILIATES OF PRIMUS TELECOMMUNICATIONS GROUP, INC. HELD 14,202,148
SHARES OF COMMON STOCK AS OF FEBRUARY 28, 1998. THE FAIR MARKET VALUE OF THE
STOCK HELD BY NON-AFFILIATES IS $369,255,848 BASED ON THE SALE PRICE OF THE
SHARES ON FEBRUARY 28, 1998.
 
  AS OF FEBRUARY 28, 1998, 19,749,170 SHARES OF COMMON STOCK, PAR VALUE $.01,
WERE OUTSTANDING.
 
                     DOCUMENTS INCORPORATED BY REFERENCE:
 
  PORTIONS OF THE DEFINITIVE PROXY STATEMENT TO BE DELIVERED TO STOCKHOLDERS
IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY
REFERENCE INTO PART III.
 
 
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>
 

                                    PART I
 

ITEM 1. BUSINESS
 
GENERAL
 
  Primus Telecommunications Group, Inc. ("Primus" or the "Company"), organized
in 1994, is a global telecommunications company that focuses on the provision
of international and domestic long distance telecommunication services. The
Company is capitalizing on the increasing business and residential demand for
international telecommunications services as a result of 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, Europe and, most recently, with the pending acquisition of TresCom
International, Inc. ("TresCom"), the Caribbean, Central and South America, as
its primary service regions. The Company currently provides services in the
United States, Canada, Mexico, Australia, Japan and the United Kingdom. The
Company expects to continue to expand into additional countries as worldwide
deregulation continues and the Company is permitted to offer a full range of
switched public telephone services in those countries. See "--Acquisitions."
 
  The Company targets, on a retail basis, small- and medium-sized businesses
and ethnic residential customers with significant international long distance
traffic 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, domestic long distance, international and domestic private networks,
reorigination services, prepaid and calling cards and toll-free services, as
well as local and cellular services in Australia. The Company markets its
services through a variety of channels, including direct sales, independent
agents, and direct marketing.
 
NORTH AMERICA
 
  In the United States, Primus Telecommunications, Inc., provides long
distance services to small- and medium-sized businesses, residential
customers, and other telecommunication carriers. The Company maintains offices
in McLean, Virginia, New York City, Los Angeles, and Tampa. The Company
operates international gateway telephone switches in the New York City area,
Washington D.C. and Los Angeles which are connected with European and Asia-
Pacific countries through owned and leased international fiber cable systems.
The Company maintains a direct sales organization in these cities to sell to
business customers, and has a telemarketing center for small business sales in
Tampa. To reach residential customers, Primus advertises nationally in ethnic
newspapers and other publications, offering discounted rates for international
calls to targeted countries. Primus also utilizes independent agents to reach
and enhance sales to both business and residential customers. Primus has
established a direct sales force for marketing wholesale services to other
long distance carriers who utilize the Primus global intelligent network to
transmit international calls from the U.S. Primus maintains a national
customer service center in McLean staffed with multi-lingual representatives.
Primus also operates a global Network Management Center in McLean that
monitors the Primus global intelligent network.
 
  In Canada, Primus Canada provides long distance services to small- and
medium-sized businesses, residential customers, and other telecommunication
carriers. Primus Canada operates switches in Toronto and Vancouver, maintains
points-of-presence in Ottawa, Montreal, Calgary, and has sales and customer
service offices in Vancouver, Toronto, and Montreal.
 
  The Company currently has approximately 12,000 business customers and 31,
000 residential customers in North America.
 
ASIA-PACIFIC
 
  Primus' Australian operation, as a result of the 1996 acquisition of Axicorp
Pty., Ltd. ("Axicorp"), is the fourth largest long distance company in
Australia providing domestic and international long distance services, as well
as local and cellular service on a resale basis, to small- and medium-sized
business customers and ethnic residential customers. Primus has invested
substantial resources over the past two years to build a domestic and
international long distance network to transform its Australian operations
into a full facilities-based telecommunication carrier. During 1997, the
Company installed and began operating a five-city switched network
 
                                       1

<PAGE>
 
using Northern Telecom switches in Sydney, Melbourne, Perth, Adelaide, and
Brisbane. The Company purchased international fiber cable capacity during 1997
and has linked the Australian network to the United States via the TPC-5,
APCN, and Jassaurus cable systems, as well as to New Zealand. Primus Australia
became a fully licensed facilities-based telecommunications carrier on July 1,
1997. In August 1997, equal access was introduced in Australia, and Primus
began the process of migrating and connecting customers directly to its own
network. Primus markets its services through a combination of direct sales to
small- and medium-sized business customers, independent agents which market to
business and residential customers, and media advertising aimed at ethnic
residential customers living in Australia who make a high volume of
international calls. The Company currently has approximately 17,000 business
customers and 90,000 residential customers in Australia.
 
  Primus also entered the Japanese market in late 1997 through the acquisition
of Telepassport Network KK. Primus maintains an office in downtown Tokyo and a
switching platform to provide international calling services to resellers and
small businesses. Primus has applied for a full Class-I carrier license in
Japan which it expects to be awarded during 1998. Primus has interconnected
its Tokyo switch to Los Angeles via the TPC-5 fiber cable system.
 
EUROPE
 
  Primus Telecommunications, Ltd. is a fully licensed carrier in the United
Kingdom and provides national and international long distance services to
residential customers, small businesses, and other telecommunication carriers.
Primus operates an Ericsson AXE-10 international gateway telephone switch in
London, which is connected to the United States as well as other European
countries via owned and leased international fiber optic cable capacity.
Primus' European operations are headquartered in London and maintain a 24-hour
customer service call center. Primus markets its services in the United
Kingdom using a combination of direct sales, agents, and direct media
advertising to primarily ethnic customers who make a higher than average
percentage of international calls. During 1997, Primus expanded its European
customer and revenue base to include small- and medium-sized business
customers and other telecommunication carrier wholesale customers through
expansion of its direct sales force as well as agent channels. Primus
Telecommunications, Ltd. currently has approximately 25,000 residential
customers using its service. Primus is in the process of expanding its
services and network to continental Europe which has recently begun the
process of deregulation of its telecommunications markets.
 
  Primus was recently awarded a Class-4 switched voice telephone license in
Germany. The Company has opened its first sales office in Frankfurt, and has
purchased an Ericsson AXE-10 international gateway switch which is currently
being installed. Primus has also applied for a license and expects to begin
operations in France during 1998.
 
PRIMUS STRATEGY
 
  The Company's objective is to become a leading global provider of
international and domestic long distance voice, data and value-added services.
Key elements of Primus' 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, to ethnic residential customers 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.
 
  . 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 focuses its expansion efforts on major metropolitan areas
    with a high concentration of customers with international traffic.
 
                                       2

<PAGE>
 
  . Implement Intelligent International Network. The Company expects that
    continued strategic development of its global intelligent network (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 Company owns and operates its own
    switching facilities, and purchases international fiber optic cable
    capacity on an end to end basis when current and expected traffic levels
    justify such investment.
 
  . Deliver Quality Services at Competitive Prices. 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 continue to
    maintain strong customer relationships through the use of trained and
    experienced sales and service representatives.
 
  . 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 customers that prefer a
    full service telecommunications provider.
 
  . Growth through Selected Acquisitions. As part of its business strategy,
    the Company frequently evaluates potential acquisitions, joint ventures
    and strategic alliances. The Company views acquisitions as a means to
    enter additional markets and expand its operations within existing
    markets. The Company's acquisition criteria include long-distance service
    providers with an established customer base, complementary operations,
    licenses to operate as an international carrier, an experienced
    management team, and businesses in countries into which the Company seeks
    to enter.
 
SERVICES
 
  Primus offers a broad array of telecommunications services through its own
global intelligent network and through interconnection with the networks of
other carriers.
 
  The Company offers the following services:
 
    International and Domestic Long Distance. The Company provides
  international long distance voice services to over 200 countries and
  provides domestic long distance voice services within each country. Access
  methods required to originate a call vary according to regulatory
  requirements and the existing domestic telecommunications infrastructure.
 
    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.
 
    Toll-free Services. The Company offers domestic and international toll-
  free services.
 
    Prepaid and Calling Cards. The Company offers prepaid and calling cards
  that may be used by customers for domestic and international telephone
  calls both within and outside of 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 a predetermined monetary
  limit.
 
    Reorigination Services. In selected countries, the Company provides call
  reorigination services which allow country to country calling to originate
  from the United States, thereby taking advantage of lower United States
  accounting rates.
 
    Cellular Services. The Company resells Telstra analog and digital
  cellular services in Australia.
 
    Local Switched Services. The Company will provide in the future 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 service in Australia.
 
                                       3

<PAGE>
 
NETWORK
 
  The Company believes that the continued strategic development of its Network
will lead to reduced transmission and other operating costs as a percentage of
net revenue and reduced reliance on other carriers. The Network consists of
international and domestic switches and points of presence, and a combination
of owned undersea fiber optic cable, leased facilities, resale arrangements,
and correspondent agreements.
 
  The Network currently is comprised of 11 switches, including 7 international
gateway switches in Washington, D.C., New York, Los Angeles, Toronto
Vancouver, London, and Sydney, and additional domestic switches in Melbourne,
Brisbane, Perth and Adelaide. The Company is currently installing an
additional international gateway switch in Frankfurt, Germany. These
international gateway switches are connected to the domestic and international
networks of both the Company and other carriers in each country.
 
  The Company owns and leases international fiber optic cable capacity. The
Company currently has capacity via ownership and indefeasible rights of use on
the TAT 12/13, CANTAT, TPC-5, APCN, Jassaurus, and intra-Europe fiber optic
cable systems.
 
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.
 
  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 price savings compared to first-tier carriers and,
secondarily, its personalized approach to customer service and support,
including customized billing and bundled service offerings.
 
  Residential Consumers. The Company's residential sales and marketing
strategy targets ethnic residential consumers who generate high international
traffic volumes. The Company believes that they are attracted to Primus
because of price savings as compared to first-tier carriers, simplified
pricing structure, and multilingual customer service and support.
 
  Telecommunications Carriers and Resellers. The Company competes for the
business of other telecommunications carriers and resellers primarily on the
basis of price and service quality. Sales to other carriers and resellers help
the Company maximize the utilization of the Network and thereby reduce the
Company's fixed costs per minute of use.
 
SALES AND MARKETING
 
  The Company markets its services through a variety of sales channels, as
summarized below:
 
  Direct Sales Force. The Company's direct sales force is comprised of full-
time employees who focus on small- to medium-sized business customers with
substantial international traffic or traffic potential. The Company also
employs full-time direct sales representatives focused on ethnic residential
consumers and 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 commissions.
 
  The Company's direct sales efforts are organized into regional sales
offices. The Company currently has offices in Washington, D.C., New York City,
Los Angeles, Tampa, Toronto, Vancouver, Montreal, Mexico City, London,
Frankfurt, Melbourne, Sydney, Adelaide, Brisbane, Perth and Tokyo.
 
                                       4

<PAGE>
 
  Agents and Independent Sales Representatives. The Company supplements its
direct sales efforts with 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.
 
  Telemarketing. The Company employs full-time telemarketing sales personnel
to supplement sales efforts to ethnic residential consumers and small- and
medium-sized business customers.
 
  Media and Direct Mail. The Company uses a variety of print, television and
radio advertising to increase name recognition and generate new customers. The
Company reaches ethnic residential consumers by print advertising campaigns in
ethnic newspapers, and advertising on select radio and television programs.
 
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. In each country of operation, the
Company has numerous competitors. The Company believes that as the
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 the markets in which the Company competes
have declined historically 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.
 
  North America. 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, Sprint and WorldCom being the next largest providers. In the future,
under provisions of recently enacted federal legislation, the Company
anticipates that it will also compete with Regional Bell Operating Companies
("RBOCs"), Local Exchange Carriers ("LECs") and Internet providers in
providing domestic and international long-distance services.
 
  Asia-Pacific. 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 and AAPT and
a number of other switchless resellers. The Company believes that competition
in Australia will increase as more companies are awarded carrier licenses in
the future.
 
  Europe. 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 other licensed public telephone operators that are
constructing their own facilities-based networks, cable companies and switch-
based resellers.
 
GOVERNMENT REGULATION
 
  As a global telecommunications company, Primus is subject to varying degrees
of regulation in each of the jurisdictions in which it provides its services.
Regulation of the telecommunication marketplace within each country in which
the company operates can have a significant impact in the Company's ability to
operate and grow.
 
  United States. In the United States, the Company's services are subject to
the provisions of the Communications Act of 1934, as amended by the 1996
Telecommunications Act (the "Communications Act"),
 
                                       5

<PAGE>
 
and by the Federal Communications Commission ("FCC") regulations thereunder,
as well as the applicable laws and regulations of the various states.
 
  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.
 
  International common carriers, including 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.
 
  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 rules that establish 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 Company intends, where possible, to take advantage of lowered accounting
rates and flexible arrangements. The Company cannot predict how the FCC will
resolve pending international policy issues or how such resolutions will
affect its international business.
 
  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 Company has received the necessary certificate
and tariff approvals to provide intrastate long distance service in 48 states.
The Company is subject to a variety of tariffing, filing, and reporting
requirements imposed on authorized carriers by state public service
commissions ("PSCs"). 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 which, if granted, could
subject the Company to increased price competition.
 
  Regulation of the telecommunications industry is changing rapidly both
domestically and globally. 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 Company is unable to predict how the FCC will resolve the
pending international policy issues or how such resolution will affect its
international business. In addition, the World Trade Organization during 1997
reached a 69-nation agreement on telecommunications services, which reflects
efforts to dismantle government-owned telecommunications monopolies throughout
Europe and Asia. Although the Company believes that these deregulation efforts
will create opportunities for new entrants in the telecommunications service
industry, there can be no assurance that the agreement will be implemented in
a manner that would benefit the Company.
 
  Canada. Telecommunications carriers are regulated generally by the Canadian
Radio-Television and Telecommunications Commission ("CRTC") which has enacted
policies and regulations that include the establishment of contribution
charges (the equivalent of access charges in the United States), deregulation
of the international segment of the long distance market, limitations on
switched hubbing, international simple resale ("ISR") and foreign ownership
rules for facilities-based carriers. Canada is expected to eliminate many of
these regulatory restrictions by October 1998. Teleglobe Canada, Inc.
("Teleglobe"), which currently has a monopoly over international services
until October 1, 1998, offers international carrier service on a
nondiscriminatory basis to both facilities-based carriers and resellers, who
may have direct access to its international gateways. The Company is not
permitted to provide international services other than transborder service to
the United States. The Company is also permitted to provide ISR of private
leased lines to carry switched traffic to certain countries, such as the
United States, the United Kingdom, Australia, New Zealand and Sweden on a
reciprocal basis. Despite these restrictions, Primus as a reseller is
virtually unregulated by the CRTC. Primus is a registered
 
                                       6

<PAGE>
 
reseller in Canada and, as such, is authorized to provide resold Canadian long
distance service without rate, price or tariff regulation, ownership
limitations, or other regulatory requirements.
 
  Australia. The provision of the Company's services is subject to federal
regulation. Two primary instruments of regulation have been the
Telecommunications Act 1991 and federal regulation of anti-competitive
practices pursuant to the Trade Practices Act 1974. The regulatory climate
changed in July 1997 with the implementation of the Telecommunications Act
1997 (the "Telecom Act"). These latest changes to the regulatory framework
have been described by the Australian Government as the achievement of the
Government's long term objective of an internationally competitive
telecommunications industry in Australia through full and open competition.
 
  In connection with the Telecom Act, the Company became one of five licensed
carriers permitted to own and operate transmission facilities in Australia.
Under the new regulatory framework, the Company does not require a carriage
license in order to supply carriage services to the public using network
facilities owned by another carrier. Instead, with respect to carriage
services, the Company must comply with legislated "service provider" rules
contained in the Telecom Act covering matters such as compliance with the
Telecom Act, operator services, regulation of access, directory assistance,
provision of information to allow maintenance of an integrated public number
database, and itemized billing.
 
  Also, in connection with the Telecom Act, two federal regulatory authorities
now exercise control over a broad range of issues affecting the operation of
the Australian telecommunications industry. The Australian Communications
Authority ("ACA") is the authority regulating matters including the licensing
of carriers and technical matters, and the Australian Competition and Consumer
Commission ("ACCC") has the role of promotion of competition and consumer
protection. The Company will be required to comply with the terms of its own
licenses, will be subject to the greater controls applicable to licensed
facilities-based carriers and will be under the regulatory control of the ACA
and the ACCC.
 
  United Kingdom. The Company's services are subject to the provisions of the
United Kingdom Telecommunications Act of 1984. The Secretary of State for
Trade and Industry, acting on the advice of the United Kingdom Department of
Trade and Industry (the "DTI") is responsible for granting United Kingdom
telecommunications licenses, while the Director General of Telecommunications
and the Office of Telecommunications ("Oftel") are responsible for enforcing
the terms of such licenses. Oftel attempts to promote effective competition
both in networks and in services to redress anti-competitive behavior. 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.
 
ACQUISITIONS
 
  On March 8, 1998 the Company purchased a controlling interest in Hotkey
Internet Services Pty., Ltd. ("Hotkey"), a Melbourne, Australia based internet
service provider. The Company's 60% ownership of Hotkey was purchased for
approximately $1.3 million. Prior to the Company's investment in Hotkey,
Primus' chairman, K. Paul Singh, owned approximately 14% of Hotkey. As a
result of the transaction Mr. Singh owns 4% of Hotkey.
 
  On February 4, 1998 the Company entered into an Agreement and Plan of Merger
("the Agreement") with TresCom, a facilities-based international
telecommunications provider specializing in traffic to the Caribbean and
Central and South America. The Agreement calls for Primus to acquire all of
the approximately 12.5 million outstanding shares of TresCom at a value of $10
per share, subject to certain potential adjustments, through the exchange of
newly issued shares of Primus' common stock. The transaction is subject to,
among other things, the approval of both Primus and TresCom stockholders and
certain regulatory authorities.
 
  On October 20, 1997 the Company completed the acquisition of the equity and
ownership interests of Telepassport L.L.C. ("Telepassport") and substantially
all of the assets of USFI, Inc. ("USFI") for a purchase price of $11.5 million
in cash. Telepassport and USFI were under common control and engaged in the
business of providing international and domestic long distance and
reorigination services in Europe, Asia, and South Africa. Operations included
a customer base in Germany and a wholly owned facilities-based carrier in
Japan.
 
                                       7

<PAGE>
 
  On April 8, 1997 the Company acquired the assets of Cam-Net Communications
Network, Inc. and its subsidiaries ("Cam-Net"), a Canadian provider of
international and domestic long distance services, for approximately $5
million in cash. Cam-Net had a Canadian customer base in excess of 20,000 and
switching facilities in Vancouver and Toronto.
 
EMPLOYEES
 
  The following table summarizes the number of full-time employees of the
Company as of December 31, 1997, by region and classification:
 

<TABLE>
<CAPTION>
                                                     NORTH   ASIA-
                                                    AMERICA PACIFIC EUROPE TOTAL
                                                    ------- ------- ------ -----
      <S>                                           <C>     <C>     <C>    <C>
      Management and Administrative................    47      32     10     89
      Sales and Marketing..........................    77      81     35    193
      Customer Service and Support.................    31      37     31     99
      Technical....................................    53      60     10    123
                                                      ---     ---    ---    ---
        Total......................................   208     210     86    504
                                                      ===     ===    ===    ===
</TABLE>

 
  The Company has never 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 excellent.
 

I
TEM 2. PROPERTIES
 
  The Company currently leases its corporate headquarters which is located in
McLean, Virginia. Additionally, the Company also leases administrative,
technical and sales office space in Washington, D.C., the New York City
metropolitan area, Los Angeles and Tampa in the United States; Melbourne,
Sydney, Brisbane, Perth and Adelaide in Australia; London in the United
Kingdom; Vancouver, Toronto and Montreal in Canada; Tokyo in Japan; Mexico
City in Mexico; and Frankfurt in Germany. Total leased space approximates
130,000 square feet and the total annual lease costs are approximately $2.9
million. The operating leases expire at various times through 2006.
 
  Certain communications equipment which includes network switches and
transmission lines are leased through operating and capital leases.
 
  Management believes that the Company's present administrative and sales
office facilities are adequate for its anticipated operations and that similar
space can readily be obtained as needed. The Company believes the current
leased facilities to house the communications equipment are adequate. However,
as the Company's network of switches grows, the Company expects to lease
additional locations to house the new equipment.
 

ITEM 3. LEGAL PROCEEDINGS
 
  The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company believes the outcome of pending legal
proceedings to which the Company is a party will not have a material adverse
effect on the Company's business, financial condition, results of operations,
or cash flows.
 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  Previously filed with the Company's Form 10-Q for the period ended September
30, 1997.
 
                                       8

<PAGE>
 

                                    PART II
 

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
COMMON STOCK
 
  The Company's Common Stock, par value $.01 per share (the "Common Stock"),
commenced trading on the Nasdaq Stock Market on November 7, 1996 under the
symbol "PRTL". Prior to that date there was no established public trading
market for the Common Stock. The following table sets forth, for the period
indicated, the high and low sales prices of the Company's Common Stock.
 

<TABLE>
<CAPTION>
      PERIOD                                                    HIGH    LOW
      ------                                                    ----    ----
      <S>                                                       <C>     <C>
      1996
      November 7, 1996 through December 31,1996................ $14 5/8 $10 1/2
      1997
      1st Quarter.............................................. $ 17    $ 7 3/8
      2nd Quarter.............................................. $11 1/8 $ 7 1/8
      3rd Quarter.............................................. $10 5/8 $ 7 5/8
      4th Quarter.............................................. $16 5/8 $ 10
</TABLE>

 
DIVIDEND POLICY
 
  The Company has not paid any cash dividends on its Common Stock to date. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. Dividends are currently restricted by
the senior note indenture, and may be restricted by other credit arrangements
entered into in the future by the Company. It is the present intention of the
Board of Directors to retain all earnings, if any, for use in the Company's
business operations and accordingly, the Board of Directors does not expect to
declare or pay any dividends in the foreseeable future.
 
HOLDERS
 
  As of February 28, 1998, the Company had approximately 282 holders of record
of its Common Stock. The Company believes that it has in excess of 400
beneficial owners.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
  On October 1, 1997, 1,842,941 shares of Common Stock were issued pursuant to
the exercise of warrants which previously had been issued in connection with a
$16 million private equity sale in July 1996. Such Common Stock was issued to
a limited group of institutional investors in reliance upon Section 4(2) of
the Securities Act of 1933 as a transaction not involving a public offering.
The Company received approximately $1.5 million in connection with such
warrant exercise. No commissions were paid to any underwriter, broker or
dealer in connection with such issuance.
 
                                       9

<PAGE>
 

ITEM 6. SELECTED FINANCIAL DATA
 
  The following sets forth selected financial data of the Company for the
years ended December 31, 1997, 1996, 1995 and from inception to December 31,
1994 as derived from the historical financial statements of the Company.
 

<TABLE>
<CAPTION>
                                                  FOR THE PERIOD ENDED
                                            -----------------------------------
                                              1997      1996     1995     1994
                                            --------  --------  -------  ------
                                             (IN THOUSANDS EXCEPT PER SHARE
                                                         DATA)
<S>                                         <C>       <C>       <C>      <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...............................  $280,197  $172,972  $ 1,167  $    0
Gross margin (deficit)....................  $ 27,466  $ 14,127  $  (217) $    0
Selling, general, administrative expenses.  $ 50,622  $ 20,114  $ 2,024  $  557
Loss from operations......................  $(29,889) $ (8,151) $(2,401) $ (569)
Net loss..................................  $(36,239) $ (8,764) $(2,425) $ (577)
Basic and diluted net loss per share......  $  (1.99) $  (0.75) $ (0.48) $(0.22)
BALANCE SHEET DATA:
(As of December 31)
Total assets..............................  $358,013  $140,560  $ 5,042  $  487
Total long term obligations...............  $231,211  $ 17,248  $   528  $   13
Total stockholders' equity (deficit)......  $ 42,526  $ 76,440  $ 2,562  $  (71)
</TABLE>

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS OVERVIEW
 
  Primus is a global telecommunications company that focuses on the provision
of international and domestic long distance telecommunications services. The
Company is capitalizing on the increasing business and residential demand for
international telecommunication services as a result of the globalization of
the world's economies and the worldwide trend toward deregulation of the
telecommunication sector. The Company has targeted North America, Asia-
Pacific, Europe and, most recently, with the pending acquisition of TresCom,
the Caribbean and Central and South America, as its primary service regions.
The Company currently provides services in the United States, Canada, Mexico,
Australia, Japan and the United Kingdom. The Company expects to continue to
expand into additional countries as worldwide deregulation continues and the
Company is permitted to offer a full range of switched public telephone
service in those countries.
 
  Net revenue is earned based on the number of minutes billed by the Company
and is recorded upon completion of a call. The Company generally prices its
services at a savings compared to the major carriers operating in the
Company's service regions. The Company's net revenue in North America is
derived from carrying a mix of business, consumer and wholesale carrier long
distance traffic. In Asia-Pacific, net revenue is derived from the provision
of long distance services and from the provision of local and cellular
services, primarily to small- and medium-sized businesses and residential
customers. In Europe, net revenue is derived from the provision of long
distance services to ethnic residential consumers, small- and medium-sized
businesses and to wholesale carriers.
 
  Cost of revenue is 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
be comprised of fixed lease costs.
 
  Although the Company's functional currency is the United States dollar, a
significant portion of the Company's net revenue is derived from its sales and
operations outside the United States. In the future, the Company expects to
continue to derive a significant portion of its net revenue and incur a
significant portion 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 in hedging
transactions.
 
                                      10

<PAGE>
 
OTHER OPERATING DATA
 
  The following information for the year ended December 31, 1997 (in
thousands), is provided for informational purposes and should be read in
conjunction with the Consolidated Financial Statements and Notes.
 

<TABLE>
<CAPTION>
                                                   MINUTES OF LONG DISTANCE USE
                                           NET    ------------------------------
                                         REVENUE  INTERNATIONAL DOMESTIC  TOTAL
                                         -------- ------------- -------- -------
      <S>                                <C>      <C>           <C>      <C>
      North America..................... $ 74,359    196,562     59,628  256,190
      Asia-Pacific......................  183,126     39,394    243,825  283,219
      United Kingdom....................   22,712     36,639     26,907   63,546
                                         --------    -------    -------  -------
        Total........................... $280,197    272,595    330,360  602,955
                                         ========    =======    =======  =======
</TABLE>

 
 Results of operations for the year ended December 31, 1997 as compared to the
year ended December 31, 1996
 
  Net revenue increased $107.2 million or 62%, from $173.0 million for the
year ended December 31, 1996 to $280.2 million for the year ended December 31,
1997. Of the increase, $57.8 million was associated with the Company's North
American operations and reflects a growth rate in excess of 300%. The growth
is a result of increased traffic volumes in wholesale carrier operations and,
to a lesser extent, in ethnic residential and business customer traffic.
Additionally, the purchases of the Company's Canadian operations in April 1997
and those of Telepassport/USFI in October 1997 contributed to the year-over-
year net revenue growth. The Asia-Pacific operations contributed $31.9 million
to the year-over-year net revenue growth, resulting in part from the
residential customer marketing campaigns commenced in early 1997. The 1997
results also reflect a full year of the Australian operations as compared to
ten months in 1996 as a result of the March 1, 1996 acquisition of these
operations. The Asia-Pacific net revenue growth was negatively impacted by
weakness in the Australian dollar during 1997 as compared to 1996. The
remaining net revenue growth of $17.6 million, a year-over-year growth rate in
excess of 300%, came from the European operations as a result of expansion
into the wholesale carrier marketplace during the third quarter of 1997 and
continued growth in the ethnic residential and business marketplaces.
 
  Cost of revenue increased $93.9 million, from $158.8 million, or 91.8% of
net revenue, for the year ended December 31, 1996 to $252.7 million, or 90.2%
of net revenue, for the year ended December 31, 1997. The increase in the cost
of revenue is a direct reflection of the increase in traffic volumes. The
decrease in the cost of revenue as a percentage of net revenue reflects the
investments made by the Company in its global intelligent network and the
associated migration of customer traffic onto the Network, particularly in
Australia with the advent of equal access in the second half of 1997.
 
  Selling, general and administrative expenses increased $30.5 million, from
$20.1 million to $50.6 million for the year ended December 31, 1997, as
compared to the year ended December 31, 1996. The increase is attributable to
the hiring of additional sales and marketing staff, and operations and
engineering personnel to operate the Company's global network; the addition of
the Canadian and Telepassport/USFI operations; a full year of the Company's
Australian operations versus ten months in the prior year; and increased
advertising and promotional expenses associated with the Company's residential
marketing campaigns.
 
  Depreciation and amortization increased from $2.2 million for the year ended
December 31, 1996 to $6.7 million for the year ended December 31, 1997. The
majority of the increase is associated with capital expenditures for
international fiber, telephone switches and related transmission equipment
being placed into service. Additionally, amortization expense increased as a
result of the additional intangible assets associated with the Company's
acquisitions during 1997.
 
  Interest expense increased from $0.9 million for the year ended December 31,
1996 to $12.9 million for the year ended December 31, 1997. The increase is
attributable to the interest expense associated with the Company's $225
million senior notes.
 
 
                                      11

<PAGE>
 
  Interest income increased from $0.8 million for the year ended December 31,
1996 to $6.2 million for the year ended December 31, 1997. The increase is due
to investment of the proceeds from the Company's senior notes offering and its
initial public equity offering.
 
  Other income (expense) for the years ended December 31, 1997 and 1996 is the
result of foreign currency transaction gains/losses on Australian dollar-
denominated debt incurred by the Company for its acquisition of Axicorp, due
to the fluctuations of the Australian dollar against the United States dollar
during the year. This debt was paid in full during 1997.
 
  Income taxes were attributable to the operations of the Company's United
Kingdom and Australian subsidiaries.
 
 Results of operations for the year ended December 31, 1996 as compared to the
year ended December 31, 1995
 
  Net revenue increased $171.8 million, from $1.2 million for the year ended
December 31, 1995 to $173.0 million for the year ended December 31, 1996. Of
the increase, $151.3 million was associated with the Company's Australian
operations, which were acquired March 1, 1996, while the remaining $20.5
million of net revenue growth was associated primarily with the commencement
and expansion of the Company's operations in the United States and the United
Kingdom.
 
  Cost of revenue increased $157.4 million, from $1.4 million for the year
ended December 31, 1995 to $158.8 million for the year ended December 31, 1996
as a direct result of the increase in traffic volume. Most of the Company's
costs of revenue are variable, since the Company had a limited Network during
this period and functioned primarily as a switchless reseller. The cost of
revenue in the United States reflects the start-up nature of the network
operations and traffic being carried on more expensive carriers until adequate
capacity on lower cost carriers could be established.
 
  Selling, general and administrative expenses increased $18.1 million, from
$2.0 million to $20.1 million for the year ended December 31, 1996 as compared
to the year ended December 31, 1995. Approximately $11.4 million of the
increase was attributable to the ten months of activity associated with the
Australian operations, and the remaining $6.7 million related to the non-
Australian operations was a result of increased staffing levels, increased
sales and marketing activity and network operations costs. The non-Australian
selling, general and administrative costs as a percentage of non-Australian
net revenue for the year ended December 31, 1996 was 40%, which is reflective
of the growth in the infrastructure necessary to support future non-Australian
net revenues. The Australian selling, general and administrative expense as a
percentage of Australian net revenue was 7.5% for the ten months ended
December 31, 1996.
 
  Depreciation and amortization increased from $0.2 million for the year ended
December 31, 1995 to $2.2 million for the year ended December 31, 1996. The
majority of the increase is a result of the acquisition of Axicorp and is
comprised of amortization of goodwill and the customer list which totaled $1.3
million. The remaining depreciation is related primarily to Axicorp's assets
and increased depreciation expense for the Company as a result of additional
capital expenditures for switching and network related equipment.
 
  Other income (expense) for the year ended December 31, 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 of the appreciation of the Australian dollar against the U.S.
dollar during the period.
 
  Income taxes were primarily attributable to the operations of Axicorp for
the ten months from the date of purchase, and represent the amount of expense
for Australian taxes.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company's liquidity requirements arise from net cash used in operating
activities; purchases of network equipment including switches, related
transmission equipment, and international fiber cable capacity; interest and
 
                                      12

<PAGE>
 
principal payments on outstanding indebtedness; and acquisition of businesses.
The Company has financed its growth to date through an August 1997 Senior
Notes and Warrants Offering, the November 1996 initial public offering and
other private placements of its common stock, and capital lease financing.
 
  The semi-annual interest payments due under the Senior Notes are pre-funded
by the restricted investments for payments through August 1, 2000.
 
  The Company believes that its cash and cash equivalents, restricted
investments, and capital lease and other financing (subject to the limitations
contained in the senior notes indenture) will be sufficient to fund the
Company's operating losses, debt service requirements, capital expenditures
(including the expansion of the Primus Network as currently contemplated), and
other working capital requirements for the combined operations for the
foreseeable future. As a result of the TresCom acquisition, the Company may
further expand its Network, particularly as countries in the Caribbean and
Central and South America experience deregulation. Such expansion may include
additions to the existing TresCom network as well as additions to the Primus
Network. The Company is currently analyzing the extent of such potential
Network additions, and the sources of any related financing. The Company's
level of indebtedness is substantial, and the Company must increase its net
cash flow in order to meet long-term debt service obligations. There can be no
assurance the Company will be successful in achieving the level of net cash
flow necessary to meet its long-term obligations.
 
YEAR 2000 COMPLIANCE
 
  In accordance with Securities and Exchange Commission Staff Legal Bulletin
No. 5, dated October 8, 1997, the Company has begun a review and assessment of
the anticipated costs, problems and uncertainties associated with Year 2000
issues. The Company is implementing a Year 2000 compliance plan whereby each
operating unit is responsible for identifying systems requiring modification
or conversion (both internal systems and those provided by or otherwise
available from outside vendors). The Company believes that Year 2000 issues
will not materially affect its products, services, or competitive conditions
and that its costs of addressing Year 2000 compliance will not materially
impact future operating results or financial condition.
 
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 
  Statements in this Annual Report on Form 10-K, including those concerning
the Company's expectations of future sales, net revenue, gross profit, net
income, network development, traffic development, capital expenditures,
selling, general and administrative expenses, service introductions and cash
requirements, include certain forward-looking statements. As such, actual
results may vary materially from such expectations. Factors which could cause
results to differ from expectations include risks associated with:
 
  Limited Operating History; Entry into Developing Markets. The Company was
founded in February 1994, began generating revenue in March 1995 and acquired
its operating subsidiary, Axicorp, in March 1996. The Company intends to enter
markets where it has limited or no operating experience. The Company's
prospects should be considered in light of risks, expenses, problems and
delays inherent in establishing a new business in a rapidly changing industry.
 
  Managing Rapid Growth. The Company's strategy of rapid growth has placed,
and is expected to continue to place, a significant strain on the Company. 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 additional transmission facilities, and expand, train and manage its
employees, all within a rapidly-changing regulatory environment. Inaccuracies
in the Company's forecast of traffic could result in insufficient or excessive
transmission facilities and disproportionate fixed expenses.
 
  Substantial Indebtedness; Liquidity. The Company currently has substantial
indebtedness and anticipates that it and its subsidiaries will incur
additional indebtedness in the future. The level of the Company's indebtedness
(i) could make it more difficult for it to make payments of interest on its
outstanding debt; (ii) could
limit the ability of the Company to obtain any necessary financing in the
future for working capital, capital
 
                                      13

<PAGE>
 
expenditures, debt service requirements or other purposes; (iii) requires that
a substantial portion of the
Company's cash flow from operations, if any, be dedicated to the payment of
principal and interest on its indebtedness and other obligations and,
accordingly, will not be available for use in its business; (iv) could limit
its flexibility in planning for, or reacting to, changes in its business; (v)
results in the Company being more highly leveraged than some of its
competitors, which may place it at a competitive disadvantage; and (vi) will
make it more vulnerable in the event of a downturn in its business.
 
  Historical and Future Operating Losses; Negative EBITDA; Net Losses. Since
inception, Primus had negative cash flow from operating activities and
negative EBITDA. In addition, Primus incurred net losses in 1995, 1996, and
1997, and has an accumulated deficit of approximately $48 million as of
December 31, 1997. The Company expects to continue to incur additional
operating losses, negative EBITDA and negative cash flow from operations as it
expands its operations and continues to build-out and upgrade its Network.
There can be no assurance that the Company's revenue will grow or be sustained
in future periods or that it will be able to achieve or sustain its
profitability or positive cash flow from operations in any future period.
 
  Acquisition Risks. Acquisitions, a key element in the Company's growth
strategy, involve operational risks, including the possibility that an
acquisition does not ultimately provide the benefits originally anticipated by
management, while the Company continues to incur operating expenses to provide
the services formerly provided by the acquired company, and financial risks
including the incurrence of indebtedness by the Company in order to effect the
acquisition (subject to the limitations contained in the Indenture) and the
consequent need to service that indebtedness. There can be no assurance that
the Company will be successful in identifying attractive acquisition
candidates, completing and financing additional acquisitions on favorable
terms, or integrating the acquired business or assets into its own.
 
  Intense Competition. The long distance telecommunications industry is
intensely competitive and is significantly influenced by the marketing and
pricing decisions of the larger industry participants. Competition in all of
the Company's markets is likely to increase and, as deregulatory influences
are experienced in markets outside the United States, competition in non-
United States markets is likely to become similar to the intense competition
in the United States. Many of the Company's competitors are significantly
larger, have substantially greater financial, technical and marketing
resources and larger networks than the Company, a broader portfolio of service
offerings, greater control over transmission lines, stronger name recognition
and customer 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 result in a lower cost structure for
transmission and related costs which could cause significant pricing pressures
within the industry.
 
  Dependence on Transmission Facilities-Based Carriers. 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 to carry the Company's traffic.
 
  International Operations. 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.
Moreover, the existing carrier may take many months to allow competitors,
including the Company, to interconnect to its switches within its territory.
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 services in international markets. In
addition, operating in international markets generally involves additional
risks, including: 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 repatriation of funds; technology export and import
restrictions; seasonal reductions in business activity during the summer
months; and potentially adverse tax consequences.
 
  Dependence on Effective Information Systems. The Company's management
information systems must grow as the Company's business expands and are
expected to change as new technological developments occur. There can be no
assurance that the Company will not encounter delays or cost-overruns or
suffer adverse consequences in implementing new systems when required. Any of
the Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000 and are vulnerable to
the Year 2000
 
                                      14

<PAGE>
 
problem which could result in a major system failure or miscalculations. There
can be no assurance that the Company will be able to successfully implement
upgrades to its systems to correct any year 2000 problem. A failure of the
Company's computer systems, or the failure of the Company's vendors or
customers to effectively upgrade their software and systems for transition to
the year 2000, could have a material adverse effect on the Company's business
and financial condition or results of operations.
 
  Industry Changes. The international telecommunications industry is changing
rapidly due to deregulation, privatization, technological improvements,
expansion of infrastructure and the globalization of the world's economies. In
order to compete effectively, the Company must adjust its contemplated plan of
development to meet changing market conditions. The telecommunications
industry is marked by the introduction of new product and service offerings
and technological improvements. The Company's profitability will depend on its
ability to anticipate, assess and adapt to rapid technological changes and its
ability to offer, on a timely and cost-effective basis, services that meet
evolving industry standards.
 
  Network Development; Migration of Traffic. The long-term success of the
Company is dependent upon its ability to design, implement, operate, manage
and maintain the Network. The Company could experience delays or cost overruns
in the implementation of the Network, or its ability to migrate traffic onto
its network, which could have a material adverse effect on the Company.
 
  Dependence on Key Personnel. The loss of the services of K. Paul Singh, the
Company's Chairman and Chief Executive Officer, or the services of its other
key personnel, or the inability of the Company to attract and retain
additional key management, technical and sales personnel (for which
competition is intense in the telecommunications industry), could have a
material adverse effect upon the Company.
 
  Government Regulation. The Company's operations are subject to constantly
changing regulation. There can be no assurance that future regulatory changes
will not have a material adverse effect on the Company, or that regulators or
third parties will not raise material issues with regard to the Company's
compliance or non-compliance with applicable regulations, any of which could
have a material adverse effect upon the company.
 

I
TEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  This requirement is not currently applicable to Primus.
 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Independent Auditors' Report.............................................. F-2
Consolidated Financial Statements
  Consolidated Statement of Operations for the years ended December 31,
   1997, 1996 and 1995.................................................... F-3
  Consolidated Balance Sheet--December 31, 1997 and 1996.................. F-4
  Consolidated Statement of Stockholders' Equity (Deficit) for the years
   ended December 31, 1997, 1996 and 1995................................. F-5
  Consolidated Statement of Cash Flows for the years ended December
   31,1997, 1996 and 1995................................................. F-6
  Notes to the Consolidated Financial Statements.......................... F-7
</TABLE>

 

                                   PART III
 
  The information required by Part III will be provided in the Company's
Registration Statement on Form S-4 (which includes its Proxy Statement for the
1998 Annual Meeting of Stockholders) (the "1998 S-4"), which will be filed
pursuant to Regulation 14A not later than April 30, 1998, and is incorporated
herein by this reference to the following extent.
 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
  None.
 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  Information relating to directors of the Company is set forth under the
caption entitled "Election of Directors of Primus" in the Company's 1998 S-4
and is incorporated herein by reference. Information relating to the executive
officers of the Company is set forth in the Company's 1998 S-4 under the
caption "Executive Officers and Directors of Primus" and is incorporated
herein by reference.
 
                                      15

<PAGE>
 

ITEM 11. EXECUTIVE COMPENSATION
 
  The information regarding compensation of officers and directors of the
Company is set forth under the caption entitled "Executive Compensation of
Primus" in the Company's 1998 S-4 and is incorporated herein by reference.
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  Information regarding ownership of certain of the Company's securities is
set forth under the captions entitled "Security Ownership of Certain
Beneficial Owners and Management of Primus" in the Company's 1998 S-4 and is
incorporated herein by reference.
 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Information regarding certain relationships and related transactions with
the Company is set forth under the caption entitled "Certain Transactions of
Primus" in the Company's 1998 S-4 and is incorporated herein by reference.
 

                                    PART IV
 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FROM 8-K
 
  a) Financial Statements and Schedules
 
    The financial statements as set forth under Item 8 of this report on Form
  10-K are incorporated herein by reference.
 
    Financial statement schedules have been omitted since they are either not
  required, not applicable, or the information is otherwise included.
 
  b) Reports on 8-K
 
    Form 8-K dated November 3, 1997 was filed to announce the acquisition of
  the assets of USFI, Inc. and the equity and ownership interests in
  Telepassport L.L.C.
 
  c) Exhibit listing
 

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER  DESCRIPTION
 ------- -----------
 <C>     <S>
   2.1   Asset Purchase Agreement by and among USFI, Inc., Primus
         Telecommunications, Inc., Primus Telecommunications Group,
         Incorporated, and US Cable Corporation, dated as of October 20, 1997;
         Incorporated by reference--Exhibit 2.1 of the Company's Current Report
         on Form 8-K dated November 3, 1997. (The exhibits and schedules listed
         in the table of contents to the Asset Purchase Agreement have been
         omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of
         such exhibits and schedules shall be furnished supplementally to the
         Securities and Exchange Commission upon request).
   2.2   Equity Purchase Agreement by and among Messrs. James D. Pearson,
         Stephen E. Myers, Michael C. Anderson, Primus Telecommunications,
         Inc., and Primus Telecommunications Group, Incorporated dated as of
         October 20, 1997; Incorporated by reference--Exhibit 2.2 of the
         Company's Current Report on Form 8-K dated November 3, 1997. (The
         exhibits and schedules listed in the table of contents to the Equity
         Purchase Agreement have been omitted in accordance with Item 601(b)(2)
         of Regulation S-K. A copy of such exhibits and schedules shall be
         furnished supplementally to the Securities and Exchange Commission
         upon request).
   2.3   Agreement and Plan of Merger by and among the Company, TresCom and
         Taurus Acquisition Corporation, dated as of February 3, 1998;
         Incorporated by reference--Exhibit 2.1 of the Company's 8-K dated
         February 12, 1998. (The schedules referred to therein have been
         omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of
         such schedules shall be furnished supplementally to the Securities and
         Exchange Commission upon request.)
   3.1   Amended and Restated Certificate of Incorporation; Incorporated by
         reference--Exhibit 3.1 of the Company's Registration Statement of Form
         S-1 (No. 333-10875).
</TABLE>

 
                                      16

<PAGE>
 

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER  DESCRIPTION
 ------- -----------
 <C>     <S>
   3.2   Certificate of Amendment of Certificate of Incorporation; Incorporated
         by reference--Exhibit 3.2 of the Company's Annual Report on Form 10-K
         for the year ended December 31, 1996.
   3.3   Amended and Restated By-Laws; Incorporated by reference--Exhibit 3.2
         of the Company's Registration Statement of Form S-1 (No. 333-10875).
   4.1   Specimen Certificate of the Company's Common Stock, par value $.01 per
         share; Incorporated by reference--Exhibit 4.1 of the Company's
         Registration Statement of Form S-1 (No. 333-10875).
   4.2   Form of Indenture; Incorporated by reference--Exhibit 4.1 of the
         Company's Registration Statement of Form S-1 (No. 333-30195).
   4.3   Form of Warrant Agreement; Incorporated by reference--Exhibit 4.2 of
         the Company's Registration Statement of Form S-1 (No. 333-30195).
  10.1   Switched Transit Agreement, dated June 5, 1995, between Teleglobe USA,
         Inc. and the Company for the provision of services to India;
         Incorporated by reference--Exhibit 10.2 of the Company's Registration
         Statement of Form S-1 (No. 333-10875).
  10.2   Hardpatch Transit Agreement, dated February 29, 1996, between
         Teleglobe USA, Inc. and the Company for the provision of services to
         Iran; Incorporated by reference--Exhibit 10.3 of the Company's
         Registration Statement of Form S-1 (No. 333-10875).
  10.3   Agreement for Billing and Related Services, dated February 23, 1995,
         between the Company and Electronic Data System Inc.; Incorporated by
         reference--Exhibit 10.4 of the Company's Registration Statement of
         Form S-1 (No. 333-10875).
  10.4   Employment Agreement, dated June 1, 1994, between the Company and K.
         Paul Singh; Incorporated by reference--Exhibit 10.5 of the Company's
         Registration Statement of Form S-1 (No. 333-10875).*
  10.5   Primus Telecommunications Group, Incorporated Stock Option Plan--
         Amended and Restated Effective March 21, 1997; Incorporated by
         reference to Exhibit 10.6 of the Company's Registration Statement Form
         S-1 (No. 333-10875).*
  10.6   Primus Telecommunications Group, Incorporated 1995 Director Stock
         Option Plan; Incorporated by reference to Exhibit 10.7 of the
         Company's Registration Statement Form S-1 (No. 333-10875).*
  10.7   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; Incorporated by reference--
         Exhibit 10.11 of the Company's Registration Statement of Form S-1 (No.
         333-10875).
  10.8   Service Provider Agreement between Telstra Corporation Limited and
         Axicorp Pty., Ltd. dated May 3, 1995; Incorporated by reference--
         Exhibit 10.12 of the Company's Registration Statement of Form S-1 (No.
         333-10875).
  10.9   Dealer Agreement between Telstra Corporation Limited and Axicorp Pty.,
         Ltd. dated January 8, 1996; Incorporated by reference--Exhibit 10.13
         of the Company's Registration Statement of Form S-1 (No. 333-10875).
  10.10  Hardpatch Transit Agreement dated October 5, 1995 between Teleglobe
         USA, Inc. and the Company for the provision of services to India;
         Incorporated by reference--Exhibit 10.14 of the Company's Registration
         Statement of Form S-1 (No. 333-10875).
  10.11  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; Incorporated by
         reference--Exhibit 10.15 of the Company's Registration Statement of
         Form S-1 (No. 333-10875).
</TABLE>

 
 
                                       17

<PAGE>
 

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER  DESCRIPTION
 ------- -----------
 <S>     <C>  
  10.12  Primus Telecommunications Group, Incorporated Employee Stock Purchase
         Plan; Incorporated by reference--Exhibit 10.15 of the Company's
         Registration Statement Form S-1 (No. 333-30195).*
  10.13  Primus Telecommunications Group, Incorporated 401(k) Plan;
         Incorporated by reference Exhibit 4.4 of the Company's Registration
         Statement on Form S-8 (No. 333-35005).*
  10.14  Stockholder Agreement among Warburg, Pincus Investors, LP, K. Paul
         Singh and the Company, dated as of February 3, 1998; Incorporated by
         reference--Exhibit 10.1 of the Company's Current Report on Form 8-K
         dated February 12, 1998.
  10.15  Voting Agreement between the Company and Wesley T. O'Brien, dated as
         of February 3, 1998; Incorporated by reference--Exhibit 10.4 of the
         Company's Current Report on Form 8-K dated February 12, 1998.
  10.16  Voting Agreement between the Company and Rudy McGlasgan dated as of
         February 3, 1998, Incorporated by reference--Exhibit 10.5 of the
         Company's Current Report on Form 8-K dated February 12, 1998.
  10.17  Master Lease Agreement dated as of November 21, 1997 between NTFC
         Capital Corporation and Primus Telecommunications, Inc.
  21.1   Subsidiaries of the Registrant.
  24.1   Power of Attorney (included on Page 19).
  27.1   Financial Data Schedule for the Company for the year ended December
         31, 1997.
</TABLE>

- --------
* Management Contract or compensatory benefit plan.
 
                                       18

<PAGE>
 

                                  SIGNATURES
 
  Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on behalf by the undersigned, thereunto duly authorized.
 
                                          PRIMUS TELECOMMUNICATIONS GROUP,
                                           INCORPORATED
 
                                                    /s/ K. Paul Singh
                                          By:__________________________________
                                                      K. Paul Singh
                                          Chairman of the Board, President and
                                                 Chief Executive Officer
 
  KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints K. Paul Singh and Neil L. Hazard, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this Form 10-K of the
Securities and Exchange Commission for the fiscal year of Primus
Telecommunications Group, Incorporated ended December 31, 1997, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
 

<TABLE>
<S>  <C>
</TABLE>

              SIGNATURE                      TITLE                   DATE
 
    /s/    K. Paul Singh             Chairman, President       March 18, 1998
- -----------------------------------   and Chief Executive
           K. Paul Singh              Officer (principal
                                      executive officer)
                                      and Director
 
    /s/   Neil L. Hazard             Executive Vice            March 18, 1998
- -----------------------------------   President and Chief
          Neil L. Hazard              Financial Officer
                                      (principal
                                      financial officer
                                      and principal
                                      accounting officer)
 
    /s/  John F. DePodesta           Executive Vice            March 18, 1998
- -----------------------------------   President, Law and
         John F. DePodesta            Regulatory Affairs
                                      and Director
 
    /s/   Herman Fialkov             Director                  March 18, 1998
- -----------------------------------
          Herman Fialkov
 
    /s/ David E. Hershberg           Director                  March 18, 1998
- -----------------------------------
        David E. Hershberg
 
    /s/     John Puente              Director                  March 18, 1998
- -----------------------------------
            John Puente
 
                                      19

<PAGE>
 
                       INDEX TO FINANCIAL STATEMENTS AND
                                    EXHIBITS
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Independent Auditors' Report.............................................. F-2
Consolidated Financial Statements:
  Consolidated Statement of Operations for the years ended December 31,
   1997, 1996, and 1995................................................... F-3
  Consolidated Balance Sheet--December 31, 1997 and 1996.................. F-4
  Consolidated Statement of Stockholders' Equity (Deficit) for the years
   ended December 31, 1997, 1996, and 1995................................ F-5
  Consolidated Statement of Cash Flows for the years ended December 31,
   1997, 1996, and 1995................................................... F-6
  Notes to Consolidated Financial Statements.............................. F-7

Exhibits:

  Exhibit 27.1--Financial Data Schedule................................... E-1
</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 (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1997. These 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 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 Telecommunication
Group, Incorporated and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
 
DELOITTE & TOUCHE LLP
 
Washington, D.C.
February 12, 1998, except for Note 15 as to which the date is March 8, 1998

 
                                      F-2

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                      FOR THE YEAR ENDED
                                                         DECEMBER 31,
                                                   ---------------------------
                                                     1997      1996     1995
                                                   --------  --------  -------
<S>                                                <C>       <C>       <C>
NET REVENUE....................................... $280,197  $172,972   $1,167
COST OF REVENUE...................................  252,731   158,845    1,384
                                                   --------  --------  -------
GROSS MARGIN (DEFICIT)............................   27,466    14,127     (217)
                                                   --------  --------  -------
OPERATING EXPENSES:
  Selling, general and administrative.............   50,622    20,114    2,024
  Depreciation and amortization...................    6,733     2,164      160
                                                   --------  --------  -------
    Total operating expenses......................   57,355    22,278    2,184
                                                   --------  --------  -------
LOSS FROM OPERATIONS..............................  (29,889)   (8,151)  (2,401)
INTEREST EXPENSE..................................  (12,914)     (857)     (59)
INTEREST INCOME ..................................    6,238       785       35
OTHER INCOME (EXPENSE)............................      407      (345)      --
                                                   --------  --------  -------
LOSS BEFORE INCOME TAXES..........................  (36,158)   (8,568)  (2,425)
INCOME TAXES......................................      (81)     (196)      --
                                                   --------  --------  -------
NET LOSS.......................................... $(36,239) $ (8,764) $(2,425)
                                                   ========  ========  =======
BASIC AND DILUTED NET LOSS PER SHARE.............. $  (1.99) $  (0.75) $ (0.48)
                                                   ========  ========  =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING......................................   18,250    11,660    5,019
                                                   ========  ========  =======
</TABLE>

 
 
                See notes to consolidated financial statements.
 
                                      F-3

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
                           CONSOLIDATED BALANCE SHEET
 

<TABLE>
<CAPTION>
                                                      DECEMBER 31, DECEMBER 31,
                       ASSETS                             1997         1996
                       ------                         ------------ ------------
                                                           (IN THOUSANDS,
                                                        EXCEPT SHARE AMOUNTS)
<S>                                                   <C>          <C>
CURRENT ASSETS:
  Cash and cash equivalents..........................   $115,232     $ 35,474
  Restricted investments.............................     22,774           --
  Short-term investments.............................         --       25,125
  Accounts receivable (net of allowance of $5,044 and
   $2,585)...........................................     58,172       35,217
  Prepaid expenses and othe current assets...........      5,152          910
                                                        --------     --------
    Total current assets.............................    201,330       96,726
RESTRICTED INVESTMENTS...............................     50,776           --
PROPERTY AND EQUIPMENT--Net..........................     59,241       16,596
INTANGIBLES--Net.....................................     33,164       21,246
DEFERRED INCOME TAXES................................      2,620        4,951
OTHER ASSETS.........................................     10,882        1,041
                                                        --------     --------
  TOTAL ASSETS.......................................   $358,013     $140,560
                                                        ========     ========
<CAPTION>
        LIABILITIES AND STOCKHOLDERS' EQUITY
        ------------------------------------
<S>                                                   <C>          <C>
CURRENT LIABILITIES:
  Accounts payable...................................   $ 56,358     $ 32,675
  Accrued expenses and other current liabilities.....     12,468        7,931
  Accrued interest...................................     11,016          847
  Deferred income taxes..............................      4,434        5,419
  Current portion of long-term obligations...........      1,059       10,572
                                                        --------     --------
    Total current liabilities........................     85,335       57,444
LONG TERM OBLIGATIONS................................    230,152        6,676
                                                        --------     --------
    Total liabilities................................    315,487       64,120
                                                        --------     --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value--authorized
   2,455,000 shares; none issued and outstanding ....         --           --
  Common stock, $.01 par value--authorized 40,000,000
   shares; issued and outstanding, 19,662,233 and
   17,778,731 shares.................................        197          178
  Additional paid-in capital.........................     92,181       88,106
  Accumulated deficit................................   (48,005)     (11,766)
  Cumulative foreign currency translation adjustment.    (1,847)         (78)
                                                        --------     --------
    Total stockholders' equity.......................     42,526       76,440
                                                        --------     --------
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........   $358,013     $140,560
                                                        ========     ========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-4

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
 
                                 (IN THOUSANDS)
 

<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, DECEMBER 31,
 1994...................    --  $  --    4,040  $ 41   $   465    $   (577)         --     $    (71)
 Common shares sold
  through private
  placement, net of
  transaction costs.....    --     --    2,234    22     3,996          --          --        4,018
 Conversion of related
  party debt to common
  stock.................    --     --      556     6       344          --          --          350
 Common shares unused
  for services
  performed.............    --     --      234     2       691          --          --          693
 Foreign currency
  translation
  adjustment............    --     --       --    --        --          --          (3)          (3)
 Net loss...............    --     --       --    --        --      (2,425)         --       (2,425)
                          ----  -----   ------  ----   -------    --------     -------     --------
BALANCE, DECEMBER 31,
 1995...................    --     --    7,064    71     5,496      (3,002)         (3)       2,562
 Common shares sold
  through private
  placement, net of
  transaction costs.....    --     --    3,148    31    21,837          --          --       21,868
 Common shares issued
  for services
  performed.............    --     --      279     3       987          --          --          990
 Preferred shares issued
  for Axicorp
  acquisition...........   455      5       --    --     5,455          --          --        5,460
 Common shares sold, net
  of transaction costs..    --     --    5,750    58    54,341          --          --       54,399
 Conversion of preferred
  shares to common
  shares................  (455)    (5)   1,538    15       (10)         --          --           --
 Foreign currency
  translation
  adjustment............    --     --       --    --        --          --         (75)         (75)
 Net loss...............    --     --       --    --        --      (8,764)         --       (8,764)
                          ----  -----   ------  ----   -------    --------     -------     --------
BALANCE, DECEMBER 31,
 1996...................    --     --   17,779   178    88,106     (11,766)        (78)      76,440
 Common shares issued
  upon exercise of
  warrants..............    --     --    1,843    19     1,453          --          --        1,472
 Common shares issued
  for 401(k) employer
  matching contribution.    --     --        5     0        45          --          --           45
 Common shares issued
  upon exercise of
  employee stock
  options...............    --     --       35     0        42          --          --           42
 Senior notes offering--
  warrants..............    --     --       --    --     2,535          --          --        2,535
 Foreign currency
  translation
  adjustment............    --     --       --    --        --          --      (1,769)      (1,769)
 Net loss...............    --     --       --    --        --     (36,239)         --      (36,239)
                          ----  -----   ------  ----   -------    --------     -------     --------
BALANCE, DECEMBER 31,
 1997...................    --  $  --   19,662  $197   $92,181    $(48,005)    $(1,847)    $ 42,526
                          ====  =====   ======  ====   =======    ========     =======     ========
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-5

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                     FOR THE YEAR ENDED
                                                        DECEMBER 31,
                                                 -----------------------------
                                                   1997       1996      1995
                                                 ---------  --------   -------
<S>                                              <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss....................................... $ (36,239) $ (8,764)  $(2,425)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization.................     6,733     2,164       160
  Sales allowance...............................     6,185     1,960       132
  Foreign currency transaction (gain) loss .....      (407)      345        --
  Stock issuance--401(k) plan employer match....        45        --        --
  Changes in assets and liabilities, net of
   effects of acquisitions:
   (Increase) decrease in accounts receivable...   (34,240)  (19,405)     (797)
   (Increase) decrease in prepaid expenses and
    other current assets........................    (4,080)     (227)      (62)
   (Increase) decrease in other assets..........     1,147    (1,621)     (533)
   Increase (decrease) in accounts payable......    30,247    11,729     1,195
   Increase (decrease) in accrued expense and
    other current liabilities...................     5,000     6,032       322
   Increase (decrease) in accrued interest
    payable.....................................    10,852       847         0
                                                 ---------  --------   -------
      Net cash used in operating activities.....   (14,757)   (6,940)   (2,008)
                                                 ---------  --------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment.............   (39,465)  (12,745)     (396)
 (Purchase) sale of short-term investments......    25,125   (25,125)       --
 Purchase of restricted investments.............   (73,550)       --        --
 Cash used in business acquisitions, net of cash
  acquired......................................   (16,349)   (1,701)       --
                                                 ---------  --------   -------
      Net cash used in investing activities.....  (104,239)  (39,571)     (396)
                                                 ---------  --------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on capital lease............      (529)     (112)      (64)
 Principal payments on long-term obligations....   (16,352)     (396)       --
 Sale of common stock, net of transaction costs.     1,514    77,576     4,543
 Proceeds from long-term obligations............   225,000     2,407        --
 Deferred financing costs.......................    (9,500)       --        --
                                                 ---------  --------   -------
      Net cash provided by financing activities.   200,133    79,475     4,479
                                                 ---------  --------   -------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND
 CASH EQUIVALENTS...............................    (1,379)      214        --
                                                 ---------  --------   -------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......    79,758    33,178     2,075
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..    35,474     2,296       221
                                                 ---------  --------   -------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 115,232  $ 35,474   $ 2,296
                                                 =========  ========   =======
SUPPLEMENTAL CASH FLOW INFORMATION
 Cash paid for interest......................... $   2,745  $    149   $    36
 Non-cash investing and financing activities
  Common stock issued for services..............        --  $    990   $   693
  Conversion of related party debt to common
   stock........................................        --        --   $   350
  Increase in capital lease liability for
   acquisition of equipment..................... $   8,228  $    388   $   578
  Increase in notes payable for acquisition of
   equipment....................................        --  $  2,826        --
</TABLE>

 
                See notes to consolidated financial statements.
 
                                      F-6

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION AND BUSINESS
 
  Primus Telecommunications Group, Incorporated (the "Company") is a global
telecommunications company that focuses on the provision of international and
domestic long distance telecommunications services. Incorporated in Delaware
in February 1994, the Company's customers include small-and medium-sized
businesses, residential consumers and other telecommunication carriers,
primarily located in North America, Asia-Pacific, and Europe. The Company
operates as a holding company and has wholly-owned operating subsidiaries in
the United States, Canada, Mexico, Australia, Japan, Germany and the United
Kingdom. The Company intends to enter the Caribbean, and the Central and South
American markets with its pending acquisition of TresCom International, Inc.
("TresCom"). See Note 15 below.
 
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 and are presented net of
estimated uncollectible amounts.
 
  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 the primary components of Other
Income (Expense) in the consolidated statement 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 to be cash and cash equivalents.
 
  Restricted Investments--Restricted investments consist of United States
Federal Government-backed obligations which are reflected at amortized cost.
These securities are classified as held-to-maturity and are restricted to
satisfy certain interest obligations on the Company's senior notes.
 
  Short Term Investments--Highly liquid investments in United States Federal
Government-backed obligations with original maturities in excess of three
months are classified as available-for-sale and reported at fair value. Cost
approximates fair value for all components of short-term investments;
unrealized gains and losses are reflected in stockholders' equity and are not
material.
 
  Property and Equipment--Property and equipment, which consists of furniture
and computer equipment, leasehold improvements, software, fiber optic cable
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 expense is computed using the straight-
line method over the estimated useful lives of the assets which range from
three to twenty-five years, or for leasehold improvements and leased
equipment, over the terms of the leases, whichever is shorter.
 
  Intangible Assets--At December 31, 1997 and 1996 intangible assets, net of
accumulated amortization, consist of goodwill of $27,848,000 and $17,434,000,
respectively, and customer lists of $5,316,000 and $3,812,000, respectively.
Goodwill is being amortized over 30 years on a straight-line basis and
customer lists
 
                                      F-7

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
over the estimated run-off of the customer bases not to exceed five years.
Accumulated amortization at December 31, 1997 and 1996, was $1,152,000 and
$498,000 related to goodwill and $1,939,000 and $762,000 related to customer
lists, respectively. The Company periodically evaluates the realizability of
intangible assets. In making such evaluations, the Company compares certain
financial indicators such as expected undiscounted future revenues and cash
flows to the carrying amount of the intangibles. The Company believes that no
impairments of intangible assets exist as of December 31, 1997.
 
  Deferred Financing Costs--Deferred financing costs incurred in connection
with the 1997 Senior Notes and Warrants Offering are reflected within other
assets on the balance sheet and are being amortized over the life of the
senior notes using the straight-line method, which does not differ materially
from the effective interest method.
 
  Stock-Based Compensation--In 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-
Based Compensation. Upon adoption of SFAS 123, the Company continues to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and has provided in
Note 10 pro forma disclosures of the effect on net loss and basic and diluted
net loss per share as if the fair value-based method prescribed by SFAS 123
had been applied in measuring compensation expense.
 
  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
disclosures of contingent 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 consist of trade
accounts receivable. The Company performs ongoing credit evaluations of its
customers but generally does not require collateral to support customer
receivables.
 
  Income Taxes--The Company recognizes income tax expense for financial
reporting purposes following the asset and liability approach for computing
deferred income taxes. Under this method, the deferred tax assets and
liabilities are determined based on the difference between financial reporting
and tax bases of assets and liabilities based on enacted tax rates. 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.
 
  Net Loss Per Share--During 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share and has computed basic
and diluted net loss per share based on the weighted average number of shares
of common stock and potential common stock outstanding during the period,
after giving effect to stock splits (Note 9). Potential common stock, for
purposes of determining diluted net loss per share, would include, where
applicable, the effects of dilutive stock options, warrants, and convertible
securities, and the effect of such potential common stock would be computed
using the treasury stock method or the if-converted method. None of the
Company's outstanding options and warrants are considered to be dilutive.
 
  Comparative net loss per share data have been restated for prior periods. In
connection therewith, common stock, options and warrants issued within one
year prior to the original filing of the Company's initial public offering
(IPO) at prices below the IPO price, which had previously been considered
outstanding for all periods presented even though antidilutive, have been
reflected in the computations of basic and diluted net loss per share in
accordance with SFAS No. 128 and Securities and Exchange Commission Staff
Accounting Bulletin No. 98, issued February 3, 1998. Such common stock has
been treated as outstanding only since issuance, and options and warrants have
been excluded from the computations as they are considered antidilutive.
 
                                      F-8

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  New Accounting Pronouncements--In 1998, the Company will be required to
adopt the provisions of Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company will report
comprehensive income in a separate statement which will show the effects of
the foreign currency translation adjustment as a component of comprehensive
income. The Company believes its segment disclosures under SFAS No. 131 will
be consistent with those currently presented.
 
  Reclassifications--Certain prior year amounts have been reclassified to
conform with certain current year presentation.
 
3. ACQUISITIONS
 
  On October 20, 1997, the Company completed the acquisition of the equity and
ownership interests in Telepassport L.L.C. ("Telepassport") for a purchase
price of $6.0 million. Additionally, on October 20, 1997, the Company
purchased substantially all of the assets of USFI, Inc. ("USFI") for $ 5.5
million. Telepassport and USFI were under common control and engaged in the
business of providing international and domestic telecommunication services,
including long distance and reorigination services in Europe, Asia, and South
Africa. The purchase price was allocated on a preliminary basis to the net
assets acquired based upon the estimated fair value of such net assets, which
resulted in an allocation of $7.75 million to goodwill.
 
  On April 8, 1997, the Company acquired the assets of Cam-Net Communications
Network, Inc. and its subsidiaries, a Canadian based provider of domestic and
international long distance service. The purchase price was approximately $5.0
million in cash.
 
  On March 1, 1996, the Company completed the acquisition of the outstanding
capital stock of Axicorp Pty., Ltd. ("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, which were subsequently converted to 1,538,355
common shares. The Company also issued two notes aggregating $8.1 million to
the sellers, both of which were repaid in full during 1997.
 
  The Company has accounted for all of the referenced acquisitions using the
purchase method. Accordingly, the results of operations of the acquired
companies are included in the consolidated results of operations of the
Company, as of the date of their respective acquisition.
 
  Pro forma operating results for the years ended December 31, 1997 and 1996,
as if the acquisitions of Telepassport, USFI and Axicorp had occurred as of
January 1, 1996, are as follows (in thousands, except per share amounts):
 

<TABLE>
<CAPTION>
                                                              1997      1996
                                                            --------  --------
      <S>                                                   <C>       <C>
      Net revenue.......................................... $300,672  $227,311
      Net loss............................................. $(44,905) $(17,555)
      Basic and diluted net loss per share................. $  (2.46) $  (1.26)
</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 acquisitions been consummated as of the above dates, nor
are they necessarily indicative of future operations.
 
                                      F-9

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

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                               ----------------
                                                                1997     1996
                                                               -------  -------
      <S>                                                      <C>      <C>
      Network equipment....................................... $48,246  $ 4,109
      Furniture and equipment.................................   9,334    1,272
      Leasehold improvements..................................   1,845      508
      Construction in progress................................   5,147   12,008
                                                               -------  -------
                                                                64,572   17,897
      Less: Accumulated depreciation and amortization.........  (5,331)  (1,301)
                                                               -------  -------
                                                               $59,241  $16,596
                                                               =======  =======
</TABLE>

 
  Equipment under capital leases totaled $9,194,000 and $966,000 with
accumulated depreciation of $835,000 and $207,000 at December 31, 1997 and
1996, respectively.
 
5. LONG-TERM OBLIGATIONS
 
  Long-term obligations consist of the following (in thousands) :
 

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ------------------
                                                               1997      1996
                                                             --------  --------
   <S>                                                       <C>       <C>
   Obligations under capital leases......................... $  8,487  $    788
   Senior Notes.............................................  222,616       --
   Note payable--equipment financing........................       --     2,826
   Note payable--stockholder................................       --     2,000
   Notes payable relating to Axicorp acquisition............       --     8,455
   Settlement obligation....................................      108     3,179
                                                             --------  --------
       Subtotal.............................................  231,211    17,248
   Less: Current portion of long-term obligations...........   (1,059)  (10,572)
                                                             --------  --------
                                                             $230,152  $  6,676
                                                             ========  ========
</TABLE>

 
  On August 4, 1997 the Company completed the sale of $225 million 11 3/4%
senior notes and warrants to purchase 392,654 shares of the Company's common
stock. The senior notes are due August 1, 2004 with early redemption at the
option of the Company at any time after August 1, 2001. Dividends are
currently restricted by the senior notes indenture. Interest payments are due
semi-annually on February 1st and August 1st. A portion of the proceeds from
this offering have been pledged to secure the first six semi-annual interest
payments on the senior notes and are reflected on the balance sheet as
restricted investments. A portion of the proceeds of this offering, $2.535
million, was allocated to the warrants, and the resulting debt discount is
being amortized over the life of the debt on the straight-line method which
does not differ materially from the effective interest method.
 
  Notes payable-equipment financing represents vendor financing of network
switching equipment for use in the Company's Australian network. This
obligation was paid in full in connection with the Company's senior notes and
warrants offering.
 
  In relation to an investment agreement, in February 1996 the Company issued
a $2.0 million note payable to Teleglobe. This obligation was paid in full in
connection with the Company's senior notes and warrants offering.
 
                                     F-10

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  In association with the acquisition of Axicorp on March 1, 1996, the Company
issued two notes to the sellers for a total of $8.5 million. These obligations
were paid in full in connection with the Company's senior notes and warrants
offering.
 
  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. Payments of $400,000 and
$1,583,000 were made in December 1996 and January 1997, respectively. The
remaining balance is due in 12 equal monthly payments which began in February
1997.
 
6. INCOME TAXES
 
  The income tax expense recorded results from current foreign taxes on
earnings at the Company's Australian and United Kingdom subsidiaries.
 
  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 (in thousands) :
 

<TABLE>
<CAPTION>
                                                        FOR THE YEAR ENDED
                                                           DECEMBER 31,
                                                      ------------------------
                                                        1997     1996    1995
                                                      --------  -------  -----
   <S>                                                <C>       <C>      <C>
   Tax benefit at federal statutory rate............. $(12,294) $(2,913) $(825)
   State income tax, net of federal benefit..........   (2,100)    (491)   (91)
   Foreign taxes.....................................       81      196     --
   Unrecognized benefit of net operating losses......   14,394    3,387    911
   Other.............................................       --       17      5
                                                      --------  -------  -----
   Income taxes...................................... $     81  $   196  $  --
                                                      ========  =======  =====
</TABLE>

 
  The significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                               ----------------
                                                                1997     1996
                                                               -------  -------
   <S>                                                         <C>      <C>
   Deferred tax asset (non-current):
     Cash to accrual basis adjustments (U.S.)................. $   590  $   168
     Accrued expenses.........................................     936    1,456
     Net operating loss carryforwards.........................  17,856    6,055
     Valuation allowance...................................... (16,762)  (2,728)
                                                               -------  -------
                                                               $ 2,620  $ 4,951
                                                               =======  =======
   Deferred tax liability (current):
     Accrued income........................................... $ 3,523  $ 4,934
     Other....................................................     385      139
     Depreciation.............................................     526      346
                                                               -------  -------
                                                               $ 4,434  $ 5,419
                                                               =======  =======
</TABLE>

 
  At December 31, 1997, the Company had United States Federal net operating
loss carryforwards of approximately $24 million that may be applied against
future United States. taxable income until they expire between the years 2009
and 2012. The Company also has Australian Federal net operating loss
carryforwards of approximately $26 million at December 31, 1997.
 
                                     F-11

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Due to a deemed "ownership change" of the Company as a result of the
Company's initial public offering and private placements, pursuant to Section
382 of the Internal Revenue Code, the utilization of the net operating loss
carryforwards of approximately $4.0 million that expire in the year 2009 will
be limited to approximately $1.3 million per year during the carryforward
period.
 
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
  The carrying amounts reported in the balance sheet for cash and cash
equivalents, restricted and short-term investments, accounts receivable and
accounts payable approximate fair value. The estimated fair value of the
Company's senior notes (carrying value of $222.6 million) at December 31, 1997
was $241.9 million based upon market quotation.
 
8. COMMITMENTS AND CONTINGENCIES
 
  Future minimum lease payments under capital lease obligations and operating
leases as of December 31, 1997, are as follows (in thousands) :
 

<TABLE>
<CAPTION>
                                                              CAPITAL  OPERATING
   YEAR ENDING DECEMBER 31,                                   LEASES    LEASES
   ------------------------                                   -------  ---------
   <S>                                                        <C>      <C>
   1998...................................................... $ 1,942   $2,907
   1999......................................................   1,686    2,218
   2000......................................................   2,211      929
   2001......................................................   2,378      779
   2002......................................................   3,096      336
   Thereafter................................................      --      560
                                                              -------   ------
   Total minimum lease payments..............................  11,313   $7,729
                                                                        ======
   Less: Amount representing interest........................  (2,826)
                                                              -------
                                                              $ 8,487
                                                              =======
</TABLE>

 
  Rent expense under operating leases was $2,574,000, $1,050,000 and $215,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
 
9. STOCKHOLDERS' EQUITY
 
  On October 1, 1997, the Company issued 1,842,941 shares of its common stock
pursuant to the exercise of certain warrants, which had been issued in
connection with the Company's July 1996 private equity sale of $16 million. In
connection with such exercise, the Company received approximately $1.5
million.
 
  On August 4, 1997 the Company completed a senior notes and warrants
offering. Warrants valued at $2,535,000 to purchase 392,654 shares of the
Company's common stock at a price of $9.075 per share were issued.
 
  In November 1996, the Company completed an initial public offering of
5,750,000 shares of its common stock. The net proceeds to the Company (net of
underwriter discounts and offering expenses) were $54.4 million.
 
  In connection with the Company's initial public offering, the Board approved
a split of all shares of common stock at a ratio of 3.381 to one as of
November 7, 1996 and amended the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") to increase the authorized Common Stock to
40,000,000 shares.
 
                                     F-12

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  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. On March 1, 1996, 455,000 shares of Series A Convertible Preferred
Stock were issued in connection with the purchase of Axicorp. The outstanding
preferred stock was converted to common stock prior to the date of the
Company's initial public offering.
 
  In January 1996, the Company raised approximately $4.7 million, 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.
 
  Also in January 1996, the Company entered into an agreement with Teleglobe
USA, Inc., under which it sold 410,808 shares of common stock for
approximately $1.4 million and borrowed $2.0 million (see Note 5).
 
  In December 1995, $359,000 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.
 
  Effective March 13, 1995, the Company's 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.
 
  All share amounts have been restated to give effect to the November 7, 1996
and the March 13, 1995 stock splits.
 
10. STOCK-BASED COMPENSATION
 
  The Company has established an Employee Stock Option Plan (the "Employee
Plan"). The total number of shares of common stock authorized for issuance
under the Employee Plan is 3,690,500. 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 exercise price of no less than 100% 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.
 
  The Company has established a Director Stock Option Plan (the "Director
Plan") for nonemployee directors. Under the Director Plan, an option is
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 years ended December 31, is as
follows:
 

<TABLE>
<CAPTION>
                                 1997                1996               1995
                          ------------------- ------------------- ----------------
                                     WEIGHTED            WEIGHTED         WEIGHTED
                                     AVERAGE             AVERAGE          AVERAGE
                                     EXERCISE            EXERCISE         EXERCISE
                           SHARES     PRICE    SHARES     PRICE   SHARES   PRICE
                          ---------  -------- ---------  -------- ------- --------
<S>                       <C>        <C>      <C>        <C>      <C>     <C>
Options outstanding--Be-
 ginning of year........  1,583,661   $ 3.14    722,013   $2.64        --  $  --
Granted.................  1,062,500   $12.59    913,546   $3.35   722,013  $2.64
Exercised...............    (35,724)  $ 1.19         --   $  --        --  $  --
Forfeitures.............    (63,002)  $ 6.03    (51,898)  $3.55        --  $  --
                          ---------           ---------           -------
Outstanding--end of
 year...................  2,547,435   $ 6.96  1,583,661   $3.14   722,013  $2.64
                          =========   ======  =========   =====   =======  =====
Eligible for exercise--
 End of year............    894,944   $ 3.00    511,149   $2.81   219,765  $2.96
                          =========   ======  =========   =====   =======  =====
</TABLE>

 
 
                                     F-13

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following table summarizes information about stock options outstanding
at December 31, 1997 :
 

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
             ------------------------------------------ -----------------------
                               WEIGHTED      WEIGHTED                 WEIGHTED
                                AVERAGE      AVERAGE                  AVERAGE
               TOTAL           REMAINING     EXERCISE      TOTAL      EXERCISE
            OUTSTANDING      LIFE IN YEARS    PRICE     EXERCISABLE    PRICE
            -----------      -------------   --------   -----------   --------
             <S>             <C>             <C>        <C>           <C>
                72,128            2.0         $ 0.67       38,318      $0.67
               924,873            3.0         $ 2.96      684,200      $2.96
               507,184            3.3         $ 3.55      168,426      $3.55
               226,750            4.3         $ 8.25        4,000      $8.25
                83,500            4.8         $12.25           --
               733,000            5.0         $14.00           --
             ---------                                    -------
             2,547,435                                    894,944
             =========                                    =======
</TABLE>

 
  The weighted average fair value at date of grant for options granted during
1997, 1996 and 1995 was $x.xx, $1.38 and $1.04 per option, respectively. The
fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
 

<TABLE>
<CAPTION>
                                                          1997    1996    1995
                                                         ------- ------- -------
   <S>                                                   <C>     <C>     <C>
   Expected dividend yield..............................      0%      0%      0%
   Expected stock price volatility......................     80%     49%     49%
   Risk-free interest rate..............................    5.7%    6.0%    5.8%
   Expected option term................................. 4 years 4 years 4 years
</TABLE>

 
  If compensation cost for the Company's grants for stock-based compensation
had been recorded consistent with the fair value-based method of accounting
per SFAS 123, the Company's pro forma net loss, and pro forma basic and
diluted net loss per share for the years ending December 31, would be as
follows :
 

<TABLE>
<CAPTION>
                                                      1997     1996     1995
                                                    --------  -------  -------
   <S>                                              <C>       <C>      <C>
   Net loss (amounts in thousands)
     As reported................................... $(36,239) $(8,764) $(2,425)
     Pro forma..................................... $(37,111) $(9,242) $(2,702)
   Basic and diluted net loss per share
     As reported................................... $  (1.99) $ (0.75) $ (0.48)
     Pro forma..................................... $  (2.03) $ (0.79) $ (0.54)
</TABLE>

 
11. EMPLOYEE BENEFIT PLANS
 
  The Company has a 401(k) employee benefit plan (the "401(k) Plan") that
covers substantially all United States based employees. The 401(k) Plan
provides that employees may contribute amounts not to exceed statutory
limitations. During 1997, the shareholders adopted an employer matching
contribution of 50% of the first 6% of employee annual salary contributions.
The employer match is made in common stock of the Company and is subject to 3-
year cliff vesting. The Company contributed Primus common stock valued at
approximately $45,000 during 1997.
 
  During 1997, the Company's shareholders approved the adoption of an Employee
Stock Purchase Plan ("ESPP"). The ESPP allows employees to contribute up to
15% of their compensation to be used toward purchasing the Company's common
stock at 85% of the fair market value. The Plan commenced on January 1, 1998.
An aggregate of 2,000,000 shares of common stock were reserved for issuance
under the ESPP.
 
 
                                     F-14

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
12. RELATED PARTIES
 
  During 1995, a former director received commissions of 110,944 shares of
common stock and $542,000 in connection with the Company's first private
placement. Consulting fees earned by the former director under the 1995
private placement totaled $169,000. During 1996, the same former director
received commissions of 82,774 shares of common stock and $425,000 which
related to a second private placement. Consulting fees earned in connection
with this second private placement totaled $157,000. Total consulting fees due
the former director are $134,000 and $220,000 at December 31, 1997 and 1996,
respectively. 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.
 
13. VALUATION AND QUALIFYING ACCOUNTS
 
  Activity in the Company's allowance accounts for the years ended December
31, 1997, 1996 and 1995 were as follows (in thousands) :
 

<TABLE>
<CAPTION>
                               DOUBTFUL ACCOUNTS
- --------------------------------------------------------------------------------
            BALANCE AT          CHARGED TO                          BALANCE AT
PERIOD  BEGINNING OF PERIOD     OPERATIONS     DEDUCTIONS OTHER(1) END OF PERIOD
- ------  ------------------- ------------------ ---------- -------- -------------
<S>     <C>                 <C>                <C>        <C>      <C>
1995          $   --             $   132        $    --     $ --      $   132
1996          $  132             $ 1,960        $  (377)    $870      $ 2,585
1997          $2,585             $ 6,185        $(4,309)    $583      $ 5,044
<CAPTION>
                         DEFERRED TAX ASSET VALUATION
- --------------------------------------------------------------------------------
            BALANCE AT          CHARGED TO                          BALANCE AT
PERIOD  BEGINNING OF PERIOD COSTS AND EXPENSES DEDUCTIONS OTHER(1) END OF PERIOD
- ------  ------------------- ------------------ ---------- -------- -------------
<S>     <C>                 <C>                <C>        <C>      <C>
1995          $   --             $ 1,087        $    --     $ --      $ 1,087
1996          $1,087             $ 1,641        $    --     $ --      $ 2,728
1997          $2,728             $14,034        $    --     $ --      $16,672
</TABLE>

- --------
(1) Other additions represent the allowances for doubtful accounts, which were
    recorded in connection with business acquisitions.
 
                                     F-15

<PAGE>
 
                 PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
14. GEOGRAPHIC DATA
 
  The Company has subsidiaries in various foreign countries that provide
domestic and international long-distance telecommunications services. Summary
information with respect to the Company's geographic operations is as follows:
 

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                    ---------------------------
                                                      1997      1996     1995
                                                    --------  --------  -------
                                                         (IN THOUSANDS)
   <S>                                              <C>       <C>       <C>
   NET REVENUE
   North America................................... $ 74,359  $ 16,573  $ 1,167
   Asia-Pacific....................................  183,126   151,253       --
   Europe..........................................   22,712     5,146       --
                                                    --------  --------  -------
     Total......................................... $280,197  $172,972  $ 1,167
                                                    ========  ========  =======
   OPERATING INCOME (LOSS)
   North America................................... $(17,036) $ (6,364) $(2,276)
   Asia-Pacific....................................   (9,463)      525       --
   Europe..........................................   (3,390)   (2,312)    (125)
                                                    --------  --------  -------
     Total......................................... $(29,889) $ (8,151) $(2,401)
                                                    ========  ========  =======
<CAPTION>
                                                          DECEMBER 31,
                                                    ---------------------------
                                                      1997      1996     1995
                                                    --------  --------  -------
   <S>                                              <C>       <C>       <C>
   ASSETS
   North America................................... $251,729  $ 72,526  $ 4,996
   Asia-Pacific....................................   83,476    62,823       --
   Europe..........................................   22,808     5,211       46
                                                    --------  --------  -------
     Total......................................... $358,013  $140,560  $ 5,042
                                                    ========  ========  =======
</TABLE>

 
15. SUBSEQUENT EVENTS
 
  On March 8, 1998 the Company purchased a controlling interest in Hotkey
Internet Services Pty., Ltd. ("Hotkey"), a Melbourne, Australia based internet
service provider. The Company's 60% ownership of Hotkey was purchased for
approximately $1.3 million. Prior to the Company's investment in Hotkey,
Primus' chairman, K. Paul Singh, owned approximately 14% of Hotkey. As a
result of the transaction Mr. Singh owns 4% of Hotkey.
 
  On February 4, 1998 the Company entered into an Agreement and Plan of Merger
("the Agreement") with TresCom International, Inc. ("TresCom"), a facilities-
based international telecommunications provider specializing in traffic to the
Caribbean and Central and South America. The Agreement calls for the Company
to acquire all of the approximately 12.1 million outstanding TresCom shares at
a value of $10 per share, subject to certain potential adjustments, through an
exchange of the Company's shares of common stock. The transaction is subject
to, among other things the approval of both Primus and TresCom stockholders
and certain regulatory authorities.
 
                                     F-16





<PAGE>

                                                                   Exhibit 10.17
 
                            MASTER LEASE AGREEMENT

     This MASTER LEASE AGREEMENT ("Agreement"), is dated as of November 2,
1997, by and between the following parties:

     LESSOR:         NTFC CAPITAL CORPORATION, a Delaware corporation with
                     offices at 220 Athens Way, Nashville, Tennessee 37228 and
                     its affiliate, successor or assigns

     LESSEE:         PRIMUS TELECOMMUNICATIONS, INC., a Delaware corporation
                     with its principal office at 2070 Chain Bridge Road, Suite
                     425, Vienna, VA 22182 ("Primus")

     LEASE AMOUNT:   US$6,000,000.00

     SUPPLIER:       NORTHERN TELECOM INC. (NORTEL)

     This is a Master Lease Agreement for the lease and purchase of the 
following equipment: New Northern Telecom DMS250/3000 and DMS250 telephone 
switches and related equipment to be installed at (i) 111 Pavonia Avenue, Jersey
City, New Jersey 07310, (ii) 624 South Grand Ave., Suite 2810, Los Angeles, 
California 90017 and, (iii) at a site in Sydney, New South Wales, Australia, by 
sublease to PRIMUS TELECOMMUNICATIONS PTY., LTD., a wholly owned subsidiary of 
Primus ("Installation Sites"), as more completely described in one or more 
Equipment Schedules attached hereto.  The parties may enter into one or more 
"Leases" pursuant hereto, all of which shall be subject to the terms set forth 
below.

     This Master Lease Agreement
 is entered into pursuant to that certain 
Commitment Letter dated August 25, 1997, from Lessor and accepted by Lessee as 
evidenced hereby ("Commitment Letter").

IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement by 
their duly authorized representatives:

NTFC CAPITAL CORPORATION                      PRIMUS TELECOMMUNICATIONS, INC.



BY: /s/                                       BY: /s/ 
   ----------------------------                  ------------------------------



<PAGE>
 
                            MASTER LEASE AGREEMENT

        1. LEASE: Subject to Lessee's compliance with its obligations herein, 
Lessor shall purchase and lease to Lessee, and Lessee shall lease from Lessor,
the equipment and associated items ("Equipment") that shall be described on or
referred to in any Equipment Schedule ("Schedule") to this Master Lease/Purchase
Agreement ("Agreement") which is executed from time to time by Lessor and Lessee
and which makes reference to this Agreement, all of which shall become a part
hereof. Terms and conditions set forth in this Agreement shall be incorporated
into each Schedule. To the extent certain computer programs and intelligence and
documentation used to describe, maintain and use the programs ("Software") are
furnished with the Equipment, and a non-exclusive license and/or sublicense is
granted in Lessee's agreement with the Supplier or another supplier to purchase
the Equipment ("Supplier Agreement"), Lessor grants to Lessee a similar non-
exclusive sublicense to use the Software only in conjunction with the Equipment
for so long as the Equipment is leased hereunder or purchased hereunder. The
Equipment and Software (collective, the "System") include all parts, repairs,
and accessions thereto necessary for the proper operation of the System. Any
references to "Lease" shall mean with respect to each System described in any
particular Schedule, this Agreement, the Schedule, the Consent of Supplier, the
Delivery and Acceptance Certificate, any riders, amendments, annexes and addenda
thereto, and other documents as may from time to time be made a part hereof.

        As conditions precedent to Lessor's obligations to purchase and lease 
any Equipment and sublicense the Software to Lessee, not later than the 
scheduled Commencement Date as set forth on the applicable Schedule, (a) Lessee 
and Lessor shall have both executed this Agreement and a Schedule, and Lessee 
shall have delivered to Lessor the other documentation contemplated herein, and 
(b) Lessor, in its reasonable opinion, shall determine that there has not been a
material adverse change in Lessee's financial condition. Upon Lessor's execution
and acceptance of the Schedule, Lessee hereby assigns to Lessor its rights to 
receive title to the Equipment and any non-exclusive sublicense to use the 
Software as of the Commencement Date (as defined below), and delegates to Lessor
its duty to pay to the Supplier the applicable portion of the Lease Amount (As 
stated above or in any Schedule) for the System under the Supplier Agreement, 
but no other right, interest or obligation thereunder. Effective upon the 
termination of the Term (as defined below and as shown in the applicable 
Schedule), for any reason after the commencement of the Lease, Lessee hereby 
assigns to Lessor and Lessor hereby accepts from Lessee, all of Lessee's then 
remaining rights pursuant to the applicable Supplier Agreement.

        2. TERM: Provided all other conditions precedent to a Lease have been
met, this Agreement will become effective as of the Effective Date stated above
(or such later date as may be stated on a subsequent Schedule) and shall
continue in effect for five (5) years thereafter or for so long as any Lease
remains in effect hereunder. Provided all other conditions precedent to a Lease
have been met, the lease term for the System described on each Schedule shall
commence on the Effective Date indicated on such Schedule (the "Commencement
Date"). If no Effective Date is indicated, the Commencement Date shall be the
earlier of the date of execution by the Lessee of Lessor' form of Delivery and
Acceptance Certificate or the date Lessor deems the System accepted pursuant to
Section 5 herein. ("Commencement Date"). Unless earlier terminated as expressly
provided for in the Lease, the lease term shall continue and be non-cancelable
for the full number of months or other periods set forth in such Schedule
("Term"). The Term may be earlier terminated upon the occurrence of any of the
following events: (a) the exercise by Lessee of the Purchase Option granted
hereunder or under the provisions of any Schedule, (c) the termination of a
Lease with respect to any System pursuant to the provisions of Section 13
hereof, and the payment of all amounts required to be paid by Lessee under that
Section, or (d) an Event of Default by Lessee and Lessor's election to terminate
a Lease pursuant to Section 17 hereof.

        3. RENT AND PAYMENT: Lessee shall pay to Lessor all the rental payments
in the amounts as shown below and in any applicable Schedule and Rent and
Purchase Option annex thereto ("Rent") during the entire Term of the Lease,
except as such Rent may be adjusted pursuant to this Section, plus such
additional amounts as are due Lessor under the Lease, Rent shall be paid monthly
(or other payment frequency designated in the applicable Schedule) in arrears on
the first day of the month next following the month for which a Rent payment is
due or on the dates set forth in the applicable Schedule (each such date being
hereinafter called a "Rent Payment Date").

                                       2


<PAGE>
 
Unless otherwise provided on a Schedule executed subsequent to the Effective
Date of this Agreement, the first twenty-four (24) monthly payments shall be
"Lease Rate Factor" payments only, calculated by multiplying the "Lease Rate
Factor" by the unpaid Lease Amount, and payable on the applicable Rent Payment
Date. The "Lease Rate Factor" shall be equal to an interest rate determined by
adding 495 basis points to the published yield on Five (5) Year Constant
Maturity United States Treasury Notes as reported in Federal Reserve Statistical
Release H.15(519), as published by the Board of Govenors of the Federal Reserve
System, or any successor publication by the Board of Governors of the Federal
Reserve System, most recently prior to the Effective Date with respect to the
applicable Lease for each System. Beginning with the twenty-fifth (25th) monthly
installment, each payment of Rent shall consist of a "Lease Rate Factor" payment
together with an amount constituting a partial repayment of the Lease Amount as
set forth below:

        Installment Number              Percentage of Lease Amount
        ------------------              --------------------------

              25-36                               1.667%
              37-48                               2.500%
              49-59                               4.167%
              60                          All Unpaid Lease Amount

The Rent for a System is based upon the Supplier's estimated total price of the 
System and the acceptance of the System by Lessee on or before the scheduled 
Commencement Date (as set forth in the applicable Schedule). If the applicable 
portion of the Lease Amount (as set forth above or in any applicable Schedule) 
of the installed System exceeds or is less than the estimate as a result of a 
job change order ("JCO"), the Lessee authorizes Lessor to adjust the Rent 
accordingly. If the Commencement Date occurs after the scheduled Commencement 
Date, and Lessor waives the condition precedent that the Commencement Date occur
on or before the scheduled Commencement Date, Lessor's then current Lease Rate 
Factor for similar transactions shall apply and the Lessee authorizes Lessor to 
adjust the Rent, if required. In the event the Rent is adjusted, the principal, 
interest and purchase option amounts as set forth in the Rent and Purchase 
Option Annex to the applicable Schedule shall also be adjusted. Lessor shall 
inform Lessee in writing of any such adjustment.

Whenever any payment of Rent or any other amount due under a Lease is not made 
within ten days after the date when due, Lessee agrees to pay on demand (as a 
fee to offset Lessor's collection and administrative expenses), one and one-half
percent (1 1/2%) per month of all overdue amounts from the due date until paid, 
but not exceeding the lawful maximum, if any.

        4.   PURCHASE OPTION: Unless otherwise provided in a Schedule executed 
subsequent hereto, Lessee may exercise a Purchase Option of one dollar ($1.00) 
with respect to each System leased pursuant hereto upon giving Lessor prior 
written notice thereof thirty (30) days before the expiration of the applicable 
Term.

Any prepayment of the unpaid Lease Amount for any System and early exercise of 
the Purchase Option shall be permitted only upon the payment of the entire 
unpaid Lease Amount, all other amounts then due hereunder, plus, if prepaid in 
the first three years, a "Prepayment Premium", which is a percentage of the 
Lease Amount, calculated as follows:

        Time of Prepayment              Prepayment Premium
        ------------------              ------------------

        With first year                         3%
        after Commencement Date

        Within second year                      2%
        after Commencement Date

        Within third year                       1%
        after Commencement Date

                                       3



<PAGE>
 
        5. DELIVERY AND ACCEPTANCE: All transportation, delivery and
installation arrangements and costs are the sole responsibility of Lessee,
Lessee assumes all risk of loss and the risk of any damages if the Supplier
fails to deliver or delays in the delivery of any System, or if any System is
unsatisfactory for any reason. Lessee agrees to accept the System, for purposes
of any Lease, by signing the Delivery and Acceptance Certificate within thirty
(30) days after the date such System is delivered. If Lessee fails or refuses to
sign the Delivery and Acceptance Certificate within thirty (30) days after the
delivery, (a) Lessor may declare Lessee's assignments and the delegation set
forth in Section 1 hereof to be null and void ab initio and thereupon the Lease
shall terminate; Lessor shall have no obligations under the Lease; and Lessee
shall, on demand, immediately pay to Lessor all amounts previously paid by
Lessor to Supplier, as Interim Funding Advances or otherwise, plus Lessor's 
out-of-pocket expenses and all accrued interest on such Interim Funding Advances
at the Interim Rate from the date of Lessor's payment to the Supplier to the
date all sums due from Lessee to Lessor under the Lease are paid in full; or (b)
unless Lessee gives Lessor written notice to the contrary within thirty (30)
days after the delivery, Lessor may conclusively assume that the System is
accepted by Lessee, and Lessor may purchase the Equipment and obtain a
sublicense to use the Software, with the Initial Term to commence as of the
thirtieth (30th) day after delivery, as determined by the Supplier.

        6.  NET LEASE, THIS LEASE IS A NET LEASE AND LESSOR SHALL NOT BE 
RESPONSIBLE FOR THE DELIVERY, INSTALLATION, MAINTENANCE, USE, OPERATION 
PERFORMANCE, SERVICE OR CONDITION OF ANY SYSTEM OR ANY DELAY IN, OR INADEQUACY 
OF, ANY OR ALL OF THE FOREGOING.

Lessee agrees that all of the Lessee's obligations under the Lease, specifically
including its non-cancelable obligation to pay all Rent and other amounts due,
are and shall be absolute and unconditional, and shall not be subject to any
delay, reduction, setoff, defence, counterclaim or recoupment for any reason
whatsoever including any failure of the System, or any part thereof, or any
misrepresentation of the Supplier or any other supplier, manufacturer,
Installer, vendor or distributor. Lessor and Lessee acknowledge that any
manufacturer's warranties inure to the benefit of Lessee, to the extent such
warranties are given, for so long as the System is leased, and Lessee agrees to
pursue any claim it has directly against the Supplier or any other supplier,
manufacturer, installer, vendor or distributor and agrees that it shall not
pursue any such claim against Lessor. Lessor agrees to cooperate with Lessee in
the latter's making claims under such warranties by providing such information
or documentation as Lessee may reasonably request, subject to applicable
confidentiality obligations of Lessor. Lessee shall continue to pay Lessor all
amounts payable under the Lease under any and all circumstances. Except as
specifically set forth in the Lease, nothing contained herein, in any Schedule,
or elsewhere shall be deemed to modify, limit or expand the rights, warranties,
remedies, liabilities contained in the Supplier Agreement, and neither Lessee
nor Lessor shall be any greater rights, warranties, or remedies than are
provided to Lessee pursuant to the Supplier Agreement.

        7. QUIET ENJOYMENT: Lessor warrants that neither Lessor, nor any 
assignee or anyone acting or claiming through Lessor will interfere with 
Lessee's quite enjoyment and use of the System so long as no Event of Default, 
shall have occurred under the Lease and be continuing.

        8. TAXES AND FEES: Lessee shall promptly reimburse Lessor, upon demand,
as additional Rent(s), or shall pay directly, if so requested by Lessor, all
license and registration fees, sales, use, personal property taxes and all other
taxes and charges imposed by any federal, state or local governmental or taxing
authority, relating to the purchase, ownership, leasing, subleasing, possession,
use, operation, or relocation of the System or upon the Rent or receipts with
respect to the Lease, excluding, however, all taxes computed upon the net income
of Lessor.

        9. DISCLAIMER OF WARRANTIES AND DAMAGES: LESSEE ACKNOWLEDGES THAT (I) 
THE SIZE, DESIGN, CAPACITY OF THE SYSTEM AND THE MANUFACTURER AND SUPPLIER HAVE
BEEN SELECTED BY LESSEE; (II) LESSOR IS NOT A MANUFACTURER SUPPLIER, DEALER, 
DISTRIBUTOR OR INSTALLER OF PROPERTY OF SUCH KIND; (III) NO MANUFACTURER OR 
SUPPLIER OR ANY OF THEIR REPRESENTATIVES IS AN AGENT OF LESSOR OR AUTHORIZED TO 
WAIVE OR ALTER ANY TERM OR CONDITION OF THE LEASE; AND (IV) EXCEPT FOR LESSOR'S 
WARRANTY OF QUIET ENJOYMENT, LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE ANY 
REPRESENTATION, WARRANTY OR COVENANT WRITTEN OR ORAL, STATUTORY, EXPRESS OR 
IMPLIED AS TO ANY MATTER WHATSOEVER INCLUDING, WITHOUT

                                       4


<PAGE>
 
LIMITATION, THE DESIGN, QUALITY CAPACITY, MATERIAL, WORKMANSHIP, OPERATION, 
CONDITION MERCHANT ABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR HIDDEN OR 
LATENT DEFECT OF THE SYSTEM OR ANY PORTION THEREOF, OR AS TO ANY PATENT, 
COPYRIGHT OR TRADEMARK INFRINGEMENT.

LESSEE LEASES THE SYSTEM "AS IS", "WHERE IS." IN NO EVENT SHALL LESSOR BE 
LIABLE TO LESSEE OR ANY OTHER PERSON OR ENTITY FOR SPECIAL, DIRECT, INDIRECT, 
INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, ANY PERSONAL
INJURY DAMAGES, LOSS OF PROFITS OR SAVINGS, OR LOSS OF USE, OR FOR ANY DAMAGES 
BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR LESSOR'S NEGLIGENCE (OTHER THAN 
PERSONAL INJURY OR PROPERTY DAMAGE CAUSED BY LESSOR'S SOLE ACTIVE NEGLIGENCE), 
OR CONSEQUENTIAL DAMAGES OF ANY NATURE WHATSOEVER RESULTING FROM ANY BREACH OF 
THE LEASE, THE USE OF THE SYSTEM OR OTHERWISE:

        10. MAINTENANCE, USE AND OPERATION: At all times during the Term,
Lessee, at its sole cost and expense, shall maintain the System in good repair,
condition and working order in accordance with established maintenance
procedures such that the System performs in accordance with published
specifications, and Lessee shall maintain (and upgrade if necessary) the System
at all times within two of the Supplier's latest Product Computing Loads. Lessee
shall use the System and all parts thereof for its designated purpose and in
compliance with all applicable laws; and shall at all time keep the System in
its possession and control and not permit such System to be moved from the
Installation Sites, as set forth in the applicable Schedule, without Lessor's
prior written consent.

        11. TITLE, SECURITY; PERSONAL PROPERTY: upon the applicable 
Commencement Date, legal title to the Equipment shall vest in Lessor subject to 
Lessee's rights under the Lease, provided that Lessee shall immediately 
surrender possession of the System to Lessor upon (a) any termination of the 
Lease other than (i) Lessee's election of its Purchase Option pursuant hereto or
to the applicable Schedule (ii) the termination of a Lease pursuant to Section 
13 hereof and the payment by Lessee of all amounts required to be paid 
thereunder, or (b) the occurrence of an Event of Default and Lessors exercise of
that remedy pursuant to Section 17 hereof. Lessee shall execute upon such 
delivery any such instruments as Lessor may reasonably request to evidence such 
transfer without warranty or indemnity.

To secure the payment of the Rent and other sums due, as well as all of Lessee's
obligations under the Lease, Lessee grants to Lessor, and Lessor does hereby
retain, a security interest constituting a first lien on Lessee's right, title
and interest in and to the System, including the Equipment and Lessee's interest
in the Software, and on all modifications, attachments, and accessions thereto,
and on any proceeds therefrom. Lessee agrees to execute such additional
documents, including financing statements, affidavits, notice and similar
instruments, in form reasonably satisfactory to Lessor, which are necessary or
appropriate to establish and maintain its security interest.

The System is, and shall at all time be deemed to be, personal property even if 
the Equipment is affixed or attached to real property or any improvements 
thereon. At Lessor's request, Lessee shall at no charge promptly affix to the 
System any tags, decals, or plates furnished by Lessor indicating Lessor's 
interest in the System, and Lessee shall not permit their removal or 
concealment.  Lessee shall at all times keep the System free and clear of all 
liens and encumbrances except those arising through actions of Lessor or 
permitted in writing by Lessor. Lessee, at its expense, shall otherwise 
cooperate to defend the Interest of Lessor in the System and to maintain the 
status of the System and all part thereof as personal property.

If requested by Lessor, Lessee will, at Lessee's expense, furnish a waiver of 
any interest in the Equipment from any party having an interest in any real 
estate or building in which the Equipment is located or furnish an 
acknowledgement satisfactory to Lessor from any affiliate, landlord, mortgagee, 
easement grantor, or other person who is in a position to claim rights in 
property where the Equipment is located, promising to give Lessor notice of any 
claimed default by Lessee with respect to such property interest and an 
opportunity to remove the Equipment upon commercially reasonable terms. Lessor 
may inspect the System at any time during normal business hours of Lessee 
subject to Lessee's normal operational procedures.

        12. WARRANTIES, REPRESENTATIONS AND COVENANTS OF LESSEE: Lessee 
warrants,

                                       5

<PAGE>
 
represents, and covenants to Lessor and, so long as this Agreement is in effect 
and any part of Lessee's obligations to Lessor under any Lease remain
unfulfilled, and shall continue to warrant, represent and covenant at all times
that:

(a) Lessee is a corporation duly organized, validly existing, and in good 
standing under the laws of the state of its incorporation and is authorized 
to do business and is in good standing as a foreign corporation in each 
jurisdiction in which any Installation Site is located and is authorized and 
licensed under applicable law to operate as a facilities based carrier therein, 
and Lessee has the corporate power and capacity to enter into this Agreement and
any Lease pursuant to this Agreement and to perform all of its obligations 
hereunder and thereunder.

(b) This Agreement, the Schedule and all other related documents and the 
performance of Lessee's obligations hereunder have been duly and validly 
authorized and approved under all laws and regulations and procedures applicable
to Lessee, and under the terms and provisions of the resolutions of Lessee's 
governing body, a copy of which has been provided herewith; the consent of all 
necessary persons or bodies has been obtained and all of such documents executed
by Lessee have been duly and validly executed and delivered by authorized 
representatives of Lessee and constitute valid, legal and binding obligations of
Lessee enforceable against Lessee in accordance with their respective terms.

(c) No other approval, consent or withholding of objection is required from any 
governmental authority with respect to the entering into or performance by
Lessee of this Agreement and the transactions contemplated hereby.

(d) The entering into and performance of this Agreement and any Lease entered 
into pursuant hereto will not violate any judgment, order, law or regulation 
applicable to Lessee or result in any breach of, or constitute a default under, 
or result in the creation of any lien, charge, security interest or other 
encumbrance upon any assets of the Lessee or on any System pursuant to any 
instrument to which Lessee is a party of by which it or its assets may be bound.

(e) Lessee has conducted and continues to conduct its business in all material 
respects in accordance with applicable laws, and Lessee has paid all taxes, 
assessments and other governmental charges as and when due except those 
challenged in good faith by appropriate proceedings.

(f) There are no actions, suits or proceedings pending or threatened against or 
affecting Lessee in any court or before any governmental commission, board or 
authority which, if adversely determined, will have a material adverse effect on
the ability of Lessee to perform its obligations hereunder or under any Lease 
pursuant hereto.

(g) Lessor has a valid first perfected security interest in each System lease 
pursuant to this Agreement in each Installation Site where it may be located, 
which secures all payment obligations of Lessee hereunder.

        13. RETURN OF SYSTEM: At the end of the Term, or upon any prior 
termination of a Lease pursuant to the Terms of that Lease, unless Lessee has 
executed its Purchase Option pursuant to the Schedule or an Event of Loss shall 
have occurred and Lessor shall have received all sums due it pursuant to this 
Agreement, Lessee shall, at its own risk and sole expense, immediately return 
the System to Lessor, by properly removing, dissassembling and packing it for 
shipment, loading it on board a carrier acceptable to Lessor, and shipping the
same to a destination specified by Lessor, freight and insurance prepaid, in the
same condition and operation order as existing when received, ordinary wear and
tear expected, if, upon the expiration or earlier termination of the Lease, the
Lessee does not immediately return the System to Lessor, Lessee shall pay to
Lessor, upon demand, an amount equal to the Rent prorated on a daily basis for
each day from the including the termination or expiration date of the Lease
through and including the day Lessee ships the System to Lessor in accordance
with this Section. Lessee shall pay to Lessor any amount necessary to repair the
System in order for the Supplier or a maintenance organization, as applicable,
to accept the System from contract maintenance at its then current rate.

        14. INSURANCE: Lessee shall, at its expense, upon delivery of each 
System to its Installation Site and at all times thereafter, keep the System 
insured against all risks or loss or damage for an amount at least equal to the
applicable portion of the Lease Amount, as depreciated, or the replacement cost,
whichever is greater. Purchase Option Amount its that amount set forth in the
Rent and Purchase Option Amount Annex to the applicable Schedule. Lessee shall
also, at its expense, provide and maintain comprehensive general liability
insurance. All insurance policies shall name Lessor as an additional insured and
loss payee, as appropriate, and shall be with an

                                       6

<PAGE>
 
insurer, having a "Best Policy Holders" rating of "A" or better, and in such
form, amount and deductibles as are satisfactory to Lessor. The proceeds of any
such policies shall be payable to Lessor or Lessee, as their interests may
appear. Each such policy must state by endorsement that the insurer shall give
Lessor not less than thirty days prior written notice of any amendment, renewal
or cancellation. Lessee shall upon request, furnish to Lessor satisfactory
evidence that such insurance coverage is in effect. Lessee may self insure with
respect to the above coverage, with Lessor's prior written consent.

        15. CASUALTY: If any System, in whole or in part, shall be lost or 
stolen or destroyed, or damaged from any cause whatsoever, or is taken in any 
condemnation or similar proceedings by a governmental authority (any such event
is hereafter called an "Event of Loss"), Lessee shall promptly and fully notify 
Lessor thereof. Lessee shall, at its option (i) immediately place the affected 
Equipment and Software in good condition and working order, or (ii) replace the 
affected item with like equipment or software in good repair, condition and 
working order, or (iii) pay to Lessor, within ten days of the Event of Loss, an 
amount equal to the applicable portion of the Lease Amount, as depreciated, or 
the replacement value, whichever is greater for such affected Equipment or 
Software or, if such amount is not permitted by law, then the highest permitted 
amount shall apply, plus any other amounts then due and unpaid with respect to 
such Equipment and Software. If an Event of Loss occurs as to part of a System 
for which the purchase Option Amount is paid, such event shall be treated as 
applicable only to the affected Equipment or Software, whereupon the Lease with 
respect thereto shall abate from the date the Purchase Option Amount is actually
received by Lessor. Upon the making of all required payments by Lessee pursuant
to (iii) Lessee shall be entitled to retain possession of the applicable
Equipment or the sublicense to the applicable Software, (with no warranties)
subject to the rights, if any, of the insurer. If Lessor shall receive any
insurance proceeds or net awards, Lessor may, at its option, apply all or part
of such proceeds and awards to any obligations of Lessee to Lessor.

        16. DEFAULT: Lessee shall be in default under the Lease upon the 
occurrence of any of the following events ("Event of Default" or "default"): 
(a) failure by Lessee to pay any Installment of Rent or other amounts payable 
under the Lease for a period of ten (10) days; or (b) failure by Lessee to 
perform any other material term, covenant or condition contained in this 
Agreement or Schedule hereto or in any Lease hereunder or any other agreement of
Lessee given in connection with such a Lease, and such failure or breach shall 
continue uncured for twenty (20) days after receipt by Lessee of written notice 
thereof; or (c) the inaccuracy of any material representation, warranty or 
statement made by the Lessee hereunder or in connection with any Lease; or (d) 
the Lessee's becoming insolvent, making an assignment for the benefit of 
creditors, filing a voluntary petition or having an involuntary petition filed 
or action commenced against it under the United States Bankruptcy Code or any 
similar federal or state law; or (e) the Lessee's uncured or unwaived default, 
after the expiration of any applicable cure period, under indebtedness owed to 
any third party in the outstanding amount of $100,000 or more in the aggregate.

        17. REMEDIES: If an Event of Default has occurred, Lessor shall have the
right, in its sole discretion, to exercise any one or more of the following 
remedies: (a) declare any Lease entered into pursuant to this Agreement and/or 
any other lease or agreement between Lessor and Lessee to be in default; (b) 
terminate any Lease; (c) recover from Lessee any part of the Lease Amount 
remaining unpaid, together with any other accrued but unpaid Rent and any and 
all other amounts then due and unpaid, being the agreed upon monetary damages 
for such default ("Liquidated Damages"); (d) charge Lessee interest on all the 
Liquidated Damages due by Lessor at the rate of one and one-half percent per 
month from the date of default until paid, but in no event more than the maximum
rate permitted by law; (e) demand the Lessee return any System to Lessor in
accordance with Section 13 hereof; and (f) take possession of any System
wherever located, with or without demand or notice, or any court order or any
process by law. Upon repossession or return of a System, Lessor may at its sole
option, sell, lease or otherwise dispose of the System in a commercially
reasonable manner, with or without notice and on public or private bid, and
apply the proceeds thereof, if any, toward the Liquidated Damages but only after
deducting all expenses including, without limitation, reasonable attorneys' fees
incurred in enforcement of any remedy of Lessor. Lessee shall be liable for any
deficiency if the net proceeds available after the permitted deductions are less
than Liquidated Damages. No right or remedy is exclusive of any other provided
herein or permitted by law or equity. All rights and remedies shall be
cumulative and may be enforced concurrently or individually from time to time.

        18. INDEMNITY: Each Lease is a net lease. Therefore, to the extent 
allowed by law, Lessee shall indemnify Lessor against and hold Lessor harmless 
from, and covenants to defend Lessor against, any and all losses, claims, 
encumbrances, actions, suits, damages, obligations, liabilities and liens (and 
all costs and expenses, including

                                       7

<PAGE>
 
without limitation, reasonable attorneys' fees, incurred by Lessor in connection
therewith) arising out of or in any way related to the Lease including, without 
limitation, the selection, purchase, delivery, ownership, lease, licensing, 
possession, maintenance, condition, use, operation, rejection or return of the 
System, the recovery of claims under insurance policies thereon, from Lessee's 
failure to commence the Lease of a System, or from any misuse, breach or 
violation of the Software sublicense, including without limitation, unauthorized
duplication of or modification to the Software, or arising by operation of law,
excluding, however, any of the foregoing which result from the sole negligence
or willful misconduct of Lessor. Lessee agrees that upon written notice by
lessor of the assertion of any claims, liens, encumbrances, actions, damages,
obligations or liabilities, Lessee shall assume full responsibility for, or at
Lessor's sole option, reimburse Lessor for the defense thereof. The provisions
of this Section shall continue in full force and effect notwithstanding full
payment of the obligations under the Lease and survive the termination of the
Lease for any reason, provided, however, the provisions hereof shall not survive
longer than the applicable statute of limitations.

        19. ASSIGNMENT: Lessor may, in whole or in part, with notice to, but 
without the consent of Lessee, sell, assign, grant a security interest in, or 
pledge its interest in all or any portion of a System and/or a Lease and any 
amounts due or to become due hereunder to one or more third party assignees 
("Assignee"), which interests may be reassigned in whole or in part. No such 
assignment shall be effective against Lessee unless and until Lessee shall have
received a copy or written notice thereof identifying the name and address of
the Assignee. Upon receiving written notice from Lessor, Lessee shall if so
directed, pay all Rent and other amounts due directly to Assignee without
abatement, deduction or setoff and free from any deduction for any other person
or entity. Any Assignee shall be entitled to rely on lessee's agreements as
stated in the Lease, as applicable, and shall be considered a third-party
beneficiary thereof. Lessee shall also promptly execute and deliver to Lessor or
any Assignee any additional documentation as Lessor or Assignee may reasonably
request to acknowledge the assignment. Lessor shall be relieved of its future
obligations under the Lease as a result of such assignment if Lessor assigns to
Assignee ownership of the Equipment and Assignee assumes Lessor's future
obligations hereunder.

WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT ASSIGN, SUBLEASE, 
TRANSFER, PLEDGE, MORTGAGE OR OTHERWISE ENCUMBER (COLLECTIVELY, A "TRANSFER") 
THE SYSTEM OR ANY LEASE HEREUNDER LESSOR AGREES TO CONSENT TO AN ASSIGNMENT BY 
LESSEE TO A WHOLLY OWNED SUBSIDIARY OF LESSEE OR TO AN AFFILIATE WHOLLY OWNED 
BY THE PARENT OF LESSEE OR ANY OF ITS RIGHTS THEREIN OR PERMIT ANY LEVY, LIEN OR
ENCUMBRANCE THEREON. ANY ATTEMPTED NON-CONSENSUAL TRANSFER BY LESSEE SHALL BE 
VOID AB INITIO. NO TRANSFER SHALL RELIEVE LESSEE OF ANY OF ITS OBLIGATIONS UNDER
THE LEASE UNLESS LESSOR RELEASES LESSEE FROM SUCH OBLIGATIONS IN WRITING.

        20. MISCELLANEOUS: (a) Any failure of Lessor to require strict 
performance by Lessee or any waiver by Lessor of any provision of the Lease 
shall not be construed as a consent to or waiver of any other breach of the same
or of any other provision. (b) No obligations of the Lessor hereunder shall 
survive the expiration or other termination of the Lease. (c) All of the 
Lessee's indemnities, waiver, assumptions of liability and duties contained in 
the Lease and all Lessor's disclaimers shall continue in full force and effect 
and survive the expiration or other termination of the Lease. (d) The Lessee
agrees to execute and deliver, upon demand, any and all other documents
necessary to evidence the intent of the Lease, or to protect Lessor's interest
in the System, including any UCC financing statements or any waivers of
interest or liens, and to this end, Lessee appoints Lessor as its attorney-in-
fact to execute and deliver all such financing statement and to collect
insurance proceeds. Lessee agrees to pay the costs of filing and recording such
documentation. (e) Lessee shall deliver to Lessor such additional financial
information as Lessor may reasonably request. (f) The Lease shall be governed 
by the laws of the State of Tennessee, except to the extent the internal laws of
the state where the Equipment is located govern the perfection of security
interests in equipment therein. (g) If any provision shall be held to be invalid
or unenforceable, the validity and enforceability of the remaining provisions
shall not in any way be affected or impaired. (h) In the event Lessee fails to
pay or perform any obligations under the Lease, Lessor may, at its option, pay
or perform said obligation, and any payment made or expense incurred by Lessor
in connection therewith shall be due and payable by Lessee upon demand by Lessor
with interest thereon accruing at the maximum rate permitted by law until paid.
(i) No lease charge, late charge fee or interest, if applicable, is intended to
exceed the maximum amount permitted to be charged or collected by applicable
law. If one or more of such charges exceed such maximum, then such charges will
be reduced to the legally permitted maximum charge and any excess charge will

                                       8

<PAGE>
 
be used to reduce the Lease Amount or refunded. (j) Time is of the essence in
the Lease and in each of the Lease provisions. (k) Lessee shall pay Lessor on
demand all costs and expenses, including reasonable attorney's and collection
fees incurred by Lessor in enforcing the terms and conditions of the Lease or in
protecting Lessor's rights and interest in the Lease or the System.

        21. NOTICES. Notices, demands and other communications to be effective 
shall be transmitted in writing by telex, telecopy, or other facsimile 
transmission and confirmed by a similar mailed writing, by hand delivery, by 
first class, Registered or Certified Mail, return receipt requested, or an 
overnight courier service, addressed to Lessor at 220 Athens Way, Nashville, 
Tennessee 37228-1399 (Attention: Director Operations and Administration) or to 
Lessee as the case may be, at the billing address set forth on the applicable 
Schedule or at such other address as the parties may hereinafter substitute by 
written notice. Notice shall be effective four (4) days after the date it was 
mailed (if mailed) or upon receipt whichever is earlier.

        22. COUNTERPARTS: The Lease, including the Delivery and Acceptance 
Certificate and any Schedules and riders thereto, may be executed by one or 
more of the parties on any number of separate counterparts (which may be 
originals or copies sent by facsimile transmission) each of which counterparts 
shall be an original, but all of which taken together shall be deemed to 
constitute one and the same instrument.

        23. ENTIRE AGREEMENT:  This Agreement and its Schedules and other 
documents executed and delivered in connection herewith, together with each 
Lease hereunder, constitute the entire agreement between Lessor and Lessee with 
respect to the subject matter hereof and supersede the Commitment Letter (except
as referenced herein), all previous negotiations, proposals, commitments, 
writings, and understandings of any representation or warranty concerning the 
System and, unless such representation or warranty is specifically included in 
the Lease, it shall not be enforceable by Lessee against Lessor.

        24. BINDING NATURE: This Agreement and each Lease shall be binding upon
and inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.

        25. CONDITIONS TO EFFECTIVE DATE: This Agreement shall not become
effective until Lessor has received evidence satisfactory to it that the terms
and conditions set forth above have been met or accomplished by Lessee,
including but not limited to: payment of the Commitment Fee and other Fees and
Expenses of Lessor as set forth in the Commitment Letter, Lease documentation
satisfactory to Lessor and its counsel, Lessee's officers' certificates,
evidence of good standing, insurance certificates, opinions of counsel as to
matters set forth in Sections 11 and 12 above, and evidence of filing and
recordation of financing statements and other security documents reasonably
required by Lessor.

                         END OF MASTER LEASE AGREEMENT

                                       9



<PAGE>
 
                                                                    Exhibit 21.1



                        Subsidiaries
                        ------------

                                                        Jurisdiction of
Subsidiary                                               Incorporation
- ----------                                              ---------------

Primus Telecommunications, Inc.                         Delaware

Primus Telecommunications International, Inc.           Delaware

Primus Telecommunications, Ltd.                         United Kingdom

Primus Telecommunications de Mexico, S.A. de C.V.       Mexico

Primus Telecommunications Pty., Ltd.                    Australia

Axicorp Pty., Ltd.                                      Australia

3362426 Canada Inc.                                     Canada
  d/b/a Primus Telecommunications Canada

Primus Telecommunications Netherlands B.V.              Netherlands

Primus Telecommunications SA                            France

Primus Telecommunications Deutschland GmbH              Germany

PremierSource International L.L.C.                      Delaware

Primus Telecommunications K.K.                          Japan

Primus Japan K.K.                                       Japan







<TABLE> <S> <C>


<PAGE>
 
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET OF
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED AT DECEMBER 31, 1997 AND THE
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               DEC-31-1997
<CASH>                                         115,232
<SECURITIES>                                    22,774
<RECEIVABLES>                                   63,216
<ALLOWANCES>                                     5,044
<INVENTORY>                                          0
<CURRENT-ASSETS>                               201,330
<PP&E>                                          64,572
<DEPRECIATION>                                   5,331
<TOTAL-ASSETS>                                 358,013
<CURRENT-LIABILITIES>                           85,335
<BONDS>                                        230,152
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           197
<OTHER-SE>                                      42,329
<TOTAL-LIABILITY-AND-EQUITY>                   358,013
<SALES>                                              0
<TOTAL-REVENUES>                               280,197
<CGS>                                                0
<TOTAL-COSTS>                                  252,731
<OTHER-EXPENSES>                                63,624
<LOSS-PROVISION>                                 6,185
<INTEREST-EXPENSE>                              12,914
<INCOME-PRETAX>                                (36,158)
<INCOME-TAX>                                        81
<INCOME-CONTINUING>                            (36,239)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (36,239)
<EPS-PRIMARY>                                    (1.99)
<EPS-DILUTED>                                    (1.99)
        


</TABLE>