##### Table of Contents



UNITED STATES
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, 2002

OR



|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|---- |  | ----------------------------------------------------------------------------------------

(Commission File Number 1-11965)

ICG COMMUNICATIONS, INC.

(Exact names of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation or organization) |  | 84-1342022
(IRS Employer Identification Number)

161 Inverness Drive West
Englewood, Colorado 80112
(Address of principal executive offices)

Registrants telephone numbers,
including area codes: (888) 424-1144 or (303) 414-5000

Securities registered pursuant to
Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.01 par value (8,000,000 shares outstanding as of March 14, 2003)

(Title of class)


Warrants to purchase Common Stock
(800,000 warrants outstanding as of March 14, 2003)

(Title of class)


Indicate by check mark whether the registrants: (1) have 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
registrants were required to file such reports), and (2) have 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 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. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [  ]  No[X]

As of March 14, 2003 the aggregate market value of ICG Communications, Inc.
Common Stock held by non-affiliates (using the closing price of $3.40 on March
14, 2003) was approximately $19,615,804. This amount does not include
approximately 2,230,646 shares held by the affiliates described in Part III,
Item 12, Certain Beneficial Owners.





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##### Table of Contents



Indicate by check whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by
a court. Yes [X]  No [  ]





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TABLE OF CONTENTS



|                                                   |                                                                                                                    |                                                            |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------- |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. BUSINESS                                                                                                  
|                                                   |                                                                                                                    | BUSINESS OVERVIEW                                         
|                                                   |                                                                                                                    | REORGANIZATION AND EMERGENCE FROM BANKRUPTCY              
|                                                   |                                                                                                                    | BUSINESS AND STRATEGY                                     
|                                                   |                                                                                                                    | Product Offerings                                         
|                                                   |                                                                                                                    | Dial-Up Services (ISP Business)                           
|                                                   |                                                                                                                    | Point-to-Point Broadband                                  
|                                                   |                                                                                                                    | Corporate Services                                        
|                                                   |                                                                                                                    | SALES, CUSTOMER CARE, MARKETING AND CUSTOMER CONCENTRATION
|                                                   |                                                                                                                    | NETWORK AND FACILITIES                                    
|                                                   |                                                                                                                    | COMPETITION                                               
|                                                   |                                                                                                                    | REGULATORY ACTIVITY                                       
|                                                   |                                                                                                                    | EMPLOYEES                                                 
|                                                   | ITEM 2. PROPERTIES                                                                                                
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                                         
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       
|PART II                                           
|                                                   | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                     
|                                                   | ITEM 6. SELECTED FINANCIAL DATA                                                                                   
|                                                   | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                      RESULTS OF OPERATIONS
|                                                   |                                                                                                                    | BUSINESS OVERVIEW                                         
|                                                   |                                                                                                                    | REORGANIZATION AND EMERGENCE FROM BANKRUPTCY              
|                                                   |                                                                                                                    | CRITICAL ACCOUNTING POLICIES                              
|                                                   |                                                                                                                    | LIQUIDITY AND CAPITAL RESOURCES                           
|                                                   |                                                                                                                    | RESULTS OF OPERATIONS                                     
|                                                   |                                                                                                                    | NEW ACCOUNTING STANDARDS                                  
|                                                   | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                               
|                                                   | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                               
|                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                      
|PART III                                          
|                                                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                                           
|                                                   | ITEM 11. EXECUTIVE COMPENSATION                                                                                   
|                                                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS           
|                                                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                           
|                                                   | ITEM 14. CONTROLS AND PROCEDURES                                                                                  
|PART IV                                           
|                                                   | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON FORM 8-K                                            
|SIGNATURES                                        
|CERTIFICATIONS                                    
|                                                   |                                                                                                                    | FINANCIAL STATEMENTS                                      
|                                                   |                                                                                                                    | FINANCIAL STATEMENT SCHEDULES                             
|EX-10.8 Directors' Stock Option Plan              
|EX-21.1 Subsidiaries of the Registrant            
|EX-99.1 Certification Pursuant to 18 USC Sec. 1350
|EX-99.2 Certification Pursuant to 18 USC Sec. 1350



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##### Table of Contents



Table of Contents

|         |  |          |  |                                                                      
|-------- |  | -------- |  | ---------------------------------------------------------------------
|PART I   |  |          |  |                                                                      
|         |  | ITEM 1.  |  | BUSINESS                                                             
|         |  |          |  | Business Overview                                                    
|         |  |          |  | Reorganization and Emergence from Bankruptcy                         
|         |  |          |  | Business and Strategy                                                
|         |  |          |  | Product Offerings                                                    
|         |  |          |  | Dial-Up Services (ISP Business)                                      
|         |  |          |  | Point-to-Point Broadband                                             
|         |  |          |  | Corporate Services                                                   
|         |  |          |  | Sales, Customer Care, Marketing and Customer Concentration           
|         |  |          |  | Network and Facilities                                               
|         |  |          |  | Competition                                                          
|         |  |          |  | Regulatory Activity                                                  
|         |  |          |  | Employees                                                            
|         |  | ITEM 2.  |  | PROPERTIES                                                           
|         |  | ITEM 3.  |  | LEGAL PROCEEDINGS                                                    
|         |  | ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                  
|PART II  |  |          |  |                                                                      
|         |  | ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|         |  | ITEM 6.  |  | SELECTED FINANCIAL DATA                                              
|         |  | ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND      
|         |  |          |  | RESULTS OF OPERATIONS                                                
|         |  |          |  | Business Overview                                                    
|         |  |          |  | Reorganization and Emergence from Bankruptcy                         
|         |  |          |  | Critical Accounting Policies                                         
|         |  |          |  | Liquidity and Capital Resources                                      
|         |  |          |  | Results of Operations                                                
|         |  |          |  | Quarterly and Periodic Results                                       
|         |  |          |  | New Accounting Standards                                             
|         |  | ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK           
|         |  | ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                          
|         |  | ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND      
|         |  |          |  | FINANCIAL DISCLOSURE                                                 
|PART III |  |          |  |                                                                      
|         |  | ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                       
|         |  | ITEM 11. |  | EXECUTIVE COMPENSATION                                               
|         |  | ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND   
|         |  |          |  | RELATED STOCKHOLDER MATTERS                                          
|         |  | ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                       
|         |  | ITEM 14. |  | CONTROLS AND PROCEDURES                                              
|PART IV  |  |          |  |                                                                      
|         |  | ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON FORM 8 K        
|         |  |          |  | SIGNATURES                                                           
|         |  |          |  | CERTIFICATIONS                                                       
|         |  |          |  | FINANCIAL STATEMENTS                                                 
|         |  |          |  | FINANCIAL STATEMENT
SCHEDULES                                        
|         |  |          |  | EX-10.8
Directors' Stock Option Plan                                 
|         |  |          |  | EX-21.1 Subsidiaries
of the Registrant                               
|         |  |          |  | EX-99.1
Certification Pursuant to 18 USC Sec. 1350                   
|         |  |          |  | EX-99.2
Certification Pursuant to 18 USC Sec. 1350                   





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##### Table of Contents






PART I

Unless the context otherwise requires, the term Company, ICG or
Registrant means the combined business operations of ICG Communications, Inc.
and its subsidiaries. All dollar amounts are in U.S. dollars.

The Business section and other
parts of this Annual Report contain forward-looking
statements intended to qualify as safe harbors from liability as established
by the Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statements include words such as intends, anticipates, expects,
estimates, plans, believes and other similar words. Additionally,
statements that describe the Companys future plans, objectives or goals also
are forward-looking statements. All forward-looking statements are subject to
certain risks and uncertainties that could cause actual results or outcomes to
differ materially from those currently anticipated. These risks and
uncertainties, which are described in more detail in Part II Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations, of this Annual Report, include, but are not limited to the
following:



| |  |  | Customer concentration and the Companys ability to retain its major customers on profitable terms;                                             
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Companys ability to collect reciprocal compensation;                                                                                       
|
| |  |  | The Companys ability to sustain positive operating income and EBITDA;                                                                          
|
| |  |  | The Companys ability to successfully maintain commercial relationships with its critical suppliers;                                            
|
| |  |  | The Companys ability to manage expansion of its service offerings and its network and infrastructure;                                          
|
| |  |  | The Secured Notes and Senior Subordinated Term Loan contain certain
covenants that restrict the Companys financial and operational
flexibility;
|
| |  |  | Changes in, or the Companys inability to comply with, existing government regulations;                                                         
|
| |  |  | The performance of the Companys network;                                                                                                       
|
| |  |  | The rapid change of technology within the telecommunications industry;                                                                          
|
| |  |  | The Companys ability to access capital markets in a timely manner,
at reasonable costs and on satisfactory terms and conditions;               
|
| |  |  | The Reorganized Company is largely controlled by two parties;                                                                                   
|
| |  |  | Potential for business combinations; and                                                                                                        
|
| |  |  | General economic conditions and the related impact on demand for the Companys services.                                                        




ITEM 1. BUSINESS




BUSINESS OVERVIEW

Services and Customers

ICG is a facilities-based, nationwide communications provider focused on
providing data and voice services to Internet Service Providers
(ISPs),
telecommunication carriers and corporate customers. Headquartered in
Englewood, Colorado, ICG is a competitive local exchange carrier (CLEC)
certified in most states, having interconnection agreements with every major
local exchange carrier. ICGs facilities support three primary product
offerings:



| |  |  | Dial-Up Services: The Company provides primary rate interface (PRI)
ports (one and two way) and managed modem remote access services (RAS)
to many of the largest national ISPs and other telecommunications
carriers, as well as to numerous regional ISPs and other communication
service companies. Most of these services are provided through the
Companys owned switch facilities. Currently, ICGs network footprint
has the capability to provide Dial-Up service to over 75% of the nations
population. Before any reciprocal compensation revenues earned from
these services, revenue from Dial-Up services
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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| |  |  | accounted for 44% of the Companys total 2002 revenue. Associated
reciprocal compensation revenue accounted for an additional 14% of the
Companys total 2002 revenue. As of December 2002, the Company had
approximately 806,000 ISP customer ports in service.                                                                                                                                                                                                                                                                                                                                                      
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Point-to-Point Broadband Service: The Company provides dedicated
bandwidth to connect (i) inter-exchange carriers (IXCs) to local
markets, large corporations and other carrier facilities, and (ii) large
corporations to their inter-exchange carriers and other corporate
locations. Such dedicated bandwidth sales are focused in areas where ICG
maintains local fiber and buildings on its own network or in close
proximity thereto. Point-to-Point Broadband service also includes
switched access and SS7 services. Point-to-Point Broadband service
accounted for 25% of the Companys total 2002 revenue.
|
| |  |  | Corporate Services: The Company offers Internet access, data and voice
services to corporate customers, with an emphasis on Dedicated Internet
Access (DIA) and Internet Protocol (IP) Telephony services. ICG is
well positioned to expand this service with its metropolitan and regional
fiber, switching asset base and nation-wide data network infrastructure.
Corporate Services accounted for 17% of the Companys total 2002 revenue.
As of December 2002, Corporate Services customers purchased
approximately 97,000 access lines.                                                                    

Network

To provide its service offerings, ICG combines approximately 5,700 route miles
of metropolitan and regional fiber network infrastructure and its 47 voice and
data switches with its nationwide fiber optic backbone, data points of presence
(POP), 24 asynchronous transfer mode (ATM)
switches, and numerous private and public Internet peering arrangements. The Companys data network is supported
by an OC-48 capacity nationwide fiber optic backbone currently operating at
OC-12 capacity. The design of the physical network permits the Company to offer
flexible, high-speed telecommunications services to its customers.

The regional network infrastructure consists of fiber and associated advanced
electronics and transmission equipment. The Companys network includes a
centrally controlled, logical IP switch (i.e., Soft Switch), and is generally
configured in redundant synchronous optical network (SONET) rings to make the
network accessible to the largest concentration of telecommunications intensive
business customers within a given market. This network architecture also offers
the advantage of uninterrupted service in the event of a fiber cut or equipment
failure, thereby resulting in limited outages and increased network reliability
in a cost efficient manner.




REORGANIZATION AND EMERGENCE FROM BANKRUPTCY

During the second half of 2000, a series of financial and operational events
negatively impacted ICG and its subsidiaries. These events reduced the
Companys revenue and cash flow expectations for the remainder of 2000 and
2001, which in turn jeopardized the Companys ability to comply with its
existing senior secured credit facility (the Senior Facility). As a result of
these and other events, on November 14, 2000, ICG and most of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code) in the United States District Court for
the District of Delaware (the Bankruptcy Court). The filings were made in
order to facilitate the restructuring of the Companys debt, trade liabilities
and other obligations.

On December 19, 2001, the Company filed a proposed Plan of Reorganization and a
Disclosure Statement in the Bankruptcy Court. The Company subsequently filed a
First Amended Plan and Disclosure Statement on March 1, 2002. On March 26,
2002, the Company filed a Second Amended Plan and Disclosure Statement, which
were amended on April 3, 2002. The original Plan of Reorganization, the
Disclosure Statement, the First Amended Plan and Disclosure Statement, and the
Second Amended Plan and Disclosure Statement are collectively referred to
herein as the Original Plan. On April 3, 2002, the Company submitted the
Original Plan to the Companys creditors for approval. On May 16, 2002, the
Companys balloting agent filed an affidavit indicating that all classes of
creditors entitled to vote had overwhelmingly accepted the Original Plan. On
May 21, 2002, the Bankruptcy Court entered an order confirming the Original
Plan.





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##### Table of Contents



The Original Plan was formulated on the basis of extensive negotiations
conducted among the Company and its primary constituencies. As part of the
Original Plan, the Company received commitment letters for new financing
totaling $65 million (the Original Exit Financing). The Original Exit
Financing was to be funded predominantly by Cerberus Capital Management, L.P.
(Cerberus). Although the Bankruptcy Court confirmed the Original Plan, the
closing of the Original Exit Financing transactions did not occur and the
Original Plan did not become effective as a result of disagreements between the
Company and Cerberus.

After consulting with the Companys official committee of unsecured creditors
and the Companys senior secured lenders, the Company engaged in settlement
discussions with Cerberus. As a result of those negotiations, on July 25,
2002, the Company entered into an agreement with Cerberus that was embodied in
a proposed modification to the Original Plan. The Original Plan, as modified,
is referred to herein as the Modified Plan.

The Company determined that the changes to the Original Plan, as reflected in
the Modified Plan, required a re-solicitation of votes from certain classes of
creditors. Thus, on July 26, 2002, the Company filed the Modified Plan and a
Supplement to the Disclosure Statement in the Bankruptcy Court. On August 23,
2002, the Company submitted the Modified Plan to the Companys creditors for
approval. On October 7, 2002, the Companys balloting agent filed an affidavit
indicating that all classes of creditors entitled to vote had again
overwhelmingly accepted the Modified Plan. On October 9, 2002, the Bankruptcy
Court entered an order confirming the Modified Plan. On October 10, 2002 (the
Effective Date), the Companys Modified Plan became effective and the Company
emerged from Chapter 11 bankruptcy protection.

Pursuant to the Modified Plan, on October 10, 2002, the Company received new
financing consisting of a $25 million senior subordinated term loan (the
Senior Subordinated Term Loan). The Companys senior secured credit facility
(the Senior Facility) balance was then cancelled and replaced with new notes
(the Secured Notes). Proceeds from the Senior Subordinated Term Loan were
utilized to pay down the balance of the Secured Notes to $59 million.




BUSINESS AND STRATEGY

ICG is focused on providing a set of services that combine its core
competencies, market reach and customer and vendor relationships with the
ability to leverage its existing network infrastructure. The Companys product
offerings include Dial-Up services, Point-to-Point Broadband and Corporate
Services, with an emphasis on future growth from DIA and IP Telephony services.
The Company expanded its Corporate Services product line in 2002 with the
addition of a bursting capability for DIA T3 services. ICG is deploying a
new IP Telephony product that provides business grade voice and Internet access
services over a single T1. The service, known as VoicePipe, is targeted
primarily to Corporate Services customers. The service is feature rich and
controlled by a web-portal, enabling customers to have control and flexibility
over their personal communications without making an investment in a Private
Branch Exchange System (PBX). VoicePipe was introduced in Colorado in
February 2003 and will be expanded to ICGs core markets during the upcoming
year. Also, in 2002 the Company introduced additional billing options for its
RAS product offerings. These options, in addition to the flat-rate port option
(iRAS), enable ISPs to be billed by the hour in a metered fashion (mRAS) or
per subscriber (sRAS) for their usage.




Product Offerings




Dial-Up Services (ISP Business)

The Companys Dial-Up services are supported by its nationwide fiber optic
backbone that connects to numerous public and private peering sites with major
ISPs and IXCs. The network, in combination with certain leased long-haul
assets, carries data traffic associated with the Companys ISP business. The
design of the physical network permits the Company to offer flexible,
high-speed services to its customers.

The Company targets a variety of data access and transport services to ISP and
corporate customers. It is not economically feasible for many ISPs to build and
maintain their own networks, and consequently they prefer to outsource network
facilities management in order to focus internal resources on their core ISP
business. To this end,





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##### Table of Contents



ICG offers PRI and RAS to ISPs to manage their Internet access requirements,
ranging from connection to facilities management responsibilities.

Dial-Up service competes with broadband services such as cable and DSL for
end-users. While Dial-Up subscribers are projected to decline in coming years,
the ports required to support end-user customers are anticipated to decline at
a slower rate because, as end-users spend more time on-line, their ISPs (ICGs
customers) require more ports to support their customer base. In addition,
there has been, and is expected to continue to be, consolidation among regional
ISPs into larger national ISPs that require a nationwide network such as ICGs.
Further, there has been consolidation among the providers of Internet
infrastructure, leaving ICG with fewer competitors.

ICGs Dial-Up customers include some of the largest national and regional ISPs.
As of December 2002, the Company had approximately 806,000 ISP customer ports
providing PRI and RAS. At an industry average of ten end-users per port, ICG
estimates that its systems are serving approximately 10% of all Dial-Up
Internet subscribers in the United States.

The value proposition offered by ICG to ISP customers is:



| |  |  | Outsource network management: ICGs services provide turnkey
network services to the ISP, allowing the ISP to focus on core
activities such as marketing, customer acquisition and retention.                                                                                                                                                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Time-to-market advantage: ICGs nationwide network provides a
growing ISP with a national presence in major U.S. markets, enabling
the ISP to quickly expand its geographical customer reach.                                                                                                                                                                                                               
|
| |  |  | Expanding nationwide network: ICGs growing nationwide network
provides the largest ISPs with extensive coverage. Currently, ICGs
network footprint has the capability to provide Dial-Up services to
over 75% of the nations population.                                                                                                                                                                 
|
| |  |  | Enhanced dial-up experience: The data network upgrade to v.92
dial-up modem specification and v.44 data compression standard provides
ISP subscribers with simultaneous use of the phone line for data and
voice, faster log-on rates as well as faster data download rates. These
enhanced services provide ICGs ISP customers with an increased value
proposition for their subscribers.                 
|
| |  |  | Improved capital utilization: ISPs can utilize their capital to
focus on their core business and eliminate substantial selling, general
and administrative costs associated with engineering, installing and
managing their own networks. As a result of the current industry
competition and the capital required to provide quality networks,
economies of scale are essential for cost effective pricing.
|
| |  |  | Billing Flexibility: ICG offers a variety of billing options
including monthly port, hourly and per-subscriber usage.                                                                                                                                                                                                                                                                                       

ICG provides the following Dial-Up services:

PRI

PRI utilizes ICGs network to route ISP end-user calls from the public switched
network to the ISP-owned modem banks. The end-user dials up the ISP and the
call is sent through the public network and routed to the ICG switch, which
then routes the call to the ISP-owned modem banks or RAS equipment. The RAS
equipment is typically collocated at an ICG central office facility. If the ISP
is not collocated, a private line connection is required between the ISPs POP
and the ICG central office.

PRI is billed at a fixed monthly rate per port. The Companys direct costs are
primarily related to leased DS3 lines that connect the public network to the
ICG switch or for leased T1 lines between the ICG switch and an ISP POP that is
not collocated with ICGs facilities.





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##### Table of Contents



RAS

RAS adds network management services as it connects, sends and routes
customer data traffic. This service has the capability to route data directly
over ICGs network to the Internet, allowing the ISP to outsource its
infrastructure and create a national footprint with minimal investment in fixed
assets. The Company estimates that approximately 65% of ISP traffic can bypass
the ISP.

iRAS is billed at a fixed monthly rate per port, typically under multi-year
contracts. In January 2002, the Company began offering mRAS, which is a RAS
product billed on a metered basis by the hour, based on usage. The Companys
costs to provide this service are mainly related to the connection charges to
the public network, either for a leased DS3 for on-switch traffic or for a
leased PRI for off-switch traffic. Costs also include network backbone and
backhaul costs to transfer traffic to the ICG hub closest to the ISP POP. In
November 2002, the Company began offering sRAS, which is a RAS product charged
based on the number of ISP subscribers accessing the ICG network during a
monthly billing cycle.




Point-to-Point Broadband

The Company provides the following Point-to-Point Broadband services to a
customer base that is comprised primarily of IXCs and large businesses:

Special Access

ICG provides special access services to long distance companies, inter-exchange
carriers, ISPs and large end-user business customers. Special access involves
providing a dedicated facility used to connect: (i) end-user customers to a
long distance carriers facilities; (ii) a long distance carriers facilities
to the local telephone companys central offices; or (iii) different facilities
of the same carrier or one carrier to another within the same local calling
area. Special access is offered at DS1, DS3, OC-3, OC-12, OC-48 and OC-192
capacities (with availability depending upon location). Special access
services are a high-margin business that accounted for approximately
90% of
Point-to-Point Broadband revenue in 2002.

ICGs value proposition for the Special Access service is:



| |  |  | Network coverage: ICG offers local private line services in 22
different markets located in California, Colorado, Texas, Ohio,
Georgia, Tennessee, Kentucky, Alabama, and North Carolina. In addition,
ICG offers intercity private line services between multiple city pairs
in the states of California, Ohio, Kentucky, and Colorado.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Quality of Service: ICGs network and monitoring systems provide
customers with levels of service that consistently exceed industry
standards. This allows customers to focus on their core business needs
without concern for their private line service reliability.                                                                  
|
| |  |  | Customer Service: ICG focuses on creating flexible solutions that
fit individual customer needs, building personalized relationships with
customers and offering simple, competitive pricing.                                                                                                                                           

Switched Access

Interstate and intrastate switched access services include transport and
switching of calls between two carriers or a carrier and an end-user. By using
ICG to switch (terminate or originate) a call, the long distance carrier may
reduce their local access costs, which are a major operating expense.
Additionally, carriers who use ICGs Switched Access can benefit from
maintaining a single connection to the local switched network, instead of
multiple connections with the local ILECs.





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##### Table of Contents



SS7

SS7 services are used to connect long distance (including wireless) and local
exchange carriers networks, and the SS7 signals between network elements to
provide faster call set-up and more efficient use of network resources.
Customers enjoy a highly secure and reliable network with ICGs advanced SS7
network and monitoring system.




Corporate Services

After the passage of the Federal Telecommunications Act of 1996 (the
Telecommunications Act), ICG positioned itself as a CLEC and targeted the
small to medium-sized business market. The Company currently targets the medium
to large-sized business market, which it believes represents the most favorable
revenue opportunity to leverage its local network infrastructure. While the
demand for voice services by businesses has been relatively stable, the demand
for data services in commercial applications is expected to increase
significantly over the next several years as this customer segment addresses
its growing need for data connections, greater bandwidth and the need to
outsource network and information technology (IT) infrastructure. ICG is
positioning itself to take advantage of these industry trends. The Company has
the ability to leverage its established CLEC customer base and existing voice
and data networks to expand its Corporate Services business. The Company
continues to add new services and provides excellent network performance.
Growth in the Corporate Services business is anticipated to come primarily from
sales of DIA, voice and Internet converged services and enhanced voice
services.

ICG provides the following Corporate Services:

Voice

Competitive local dial tone service consists of basic local exchange lines and
trunks with business-related voice line features (e.g. voicemail), local
calling, and local toll calling. Under the Companys business strategy, sales
of voice services will concentrate on customers with a minimum of 12 lines in
areas where the Company has switch capacity. The Company has focused on
providing voice services in the following five operating regions in the United
States: California, Colorado, Ohio, Texas and parts of the Southeast. ICG
believes it provides a more responsive service delivery alternative to existing
providers, as well as excellent customer service with the network reliability
customers expect in their voice applications.

In recent years, the Company has reduced the types of service and regions in
which it would offer voice services in order to focus on core services. As a
result, affected customers have been transitioned to other providers. The
Company had approximately 230,000 primarily business customer voice lines in
service at year-end 2000, which was reduced to approximately 97,000 by year-end
2002.

DIA

DIA provides dedicated bandwidth from a customers premises directly to the
Internet at T1 and T3 speeds using ICGs numerous Internet peering
arrangements. In order to meet corporate customer needs for Internet
connectivity, the Company introduced DIA service in late 2001. The Company
plans to emphasize this product in the future, offering full T1 and full or
fractional T3 connections. The Company began offering its DIA services in a
limited number of markets in 2001 and by the end of 2002 had expanded its
footprint to 25 markets. ICG is well positioned to penetrate this market by
leveraging its existing investment in metropolitan fiber and nationwide
backbone capacity.

Customers of ICGs DIA service benefit from a Tier I provider with high levels
of customer service and network reliability at a competitive price. ICG stands
behind its service with an industry-leading Service Level Agreement that
proactively provides invoice credits in the event of a network outage.

Voice and Internet Converged Services

ICG began field trials of a new service called VoicePipe in October 2002.
VoicePipe combines customers voice and data communications and aggregates
them onto a dedicated T1-to-T3 line. Precedence is given to voice
communications and bandwidth available for data, which fluctuates automatically
to give customers the most





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efficient usage. The customers communications travel to ICGs facilities and
then onto the appropriate networks. Voice calls never touch the public
Internet. VoicePipe is currently available in certain areas of Colorado,
including the metropolitan areas of Denver, Boulder, Colorado Springs, Fort
Collins and Pueblo. ICG is in the process of expanding the availability of this
service to California, Texas, the Ohio Valley and the Southeast, beginning with
markets where the Company currently offers voice services.

VoicePipe provides businesses with a lower total cost of ownership solution,
brings greater mobility to the workforce, and reduces the number of
communication vendors required to provide local, long-distance and Internet
access. The web-based call management features allow end users to personalize
their communication needs and reduce the expense associated with moves, adds
and changes. VoicePipe works with either analog or IP phones.

The value proposition for VoicePipe begins with both its feature-rich
applications and the Companys own managed nationwide data and voice networks
that consistently deliver industry standard reliability. ICG proactively
monitors its network and provides above average response times when incidents
do occur. The launch of VoicePipe targets small to medium size businesses.




SALES, CUSTOMER CARE, MARKETING AND CUSTOMER CONCENTRATION

Sales

Direct Sales

The Companys sales organization includes both regional and national direct
sales teams as well as third party sales partners. The Company currently has
approximately 130 full-time sales positions approved, 21 of which are national
and 109 are regional.

ICGs regional sales organization focuses primarily on retail opportunities in
medium to large enterprise customers. The responsibilities of the regional
sales organization include both new sales activities and the ongoing management
of existing customers.

The Companys national sales organization focuses on national opportunities in
the carrier and ISP market segments. National account managers
responsibilities include customer acquisition and revenue generation,
relationship management and contract negotiation. This organization is
responsible for the overall account relationship on a national basis.

Other Sales Channels

The direct sales force is complemented by alternative sales channels developed
to distribute the Companys increasing number of products and services
available. These channels include third party sales partners. The Company
currently has distribution arrangements with a number of national, regional and
local agents and agency firms, whose representatives market a broad range of
the Companys services. These alternate distribution channels include
approximately 175 third party sales partners in markets throughout the United
States. The Company expects to increase this distribution channel in the
coming months.

Customer Care

ICG believes that the strength of its
business is dependent upon solid relationships with its customers. Therefore, ICG has implemented a Strength of
Relationship initiative designed to move the business culture of ICG beyond
the realm of mere customer satisfaction into a culture of customer loyalty. In
order to measure its progress in this initiative, the Company has developed a
mechanism to measure its relationships with key customers, which is based on the customers
perception of ICGs performance. In addition, the Companys Network Operations
Center (NOC) provides 24 x 7 surveillance and monitoring of the network to
maintain the Companys network reliability and performance.





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Marketing

In 2002, the Company restructured its marketing department to provide greater
focus on product performance and to better align with the sales, provisioning
and finance departments to achieve the Companys strategic initiatives.
Paramount to the reorganization of the marketing department was the division of
the department into specific teams dedicated to managing and marketing ICGs
product offerings. Additionally, a field-marketing group was created to
support the sales regions and a pricing team was established to place emphasis
on competitive pricing and cross-product bundling. The individual teams provide
the Company with critical knowledge about each product offering set and are
accountable for revenue. In 2002, the Company did relatively little
advertising, which was limited to participation in trade show events and
gaining exposure through local business journals. ICG did, however, undertake
a campaign with Business 2.0 online and various print media outlets. The focus
of the campaign was to build awareness of the Company among corporate and IT
decision-makers.

Customer Concentration

A significant amount of the Companys revenue is derived from long-term
contracts with certain large customers. In 2002, three customers represented
more than 5% of ICGs total revenue: Qwest Communications Corporation (together
with its affiliated entities, Qwest); a large national ISP; and UUNET (a
subsidiary of WorldCom, Inc., together with it affiliated entities,
WorldCom). Revenue from Qwest accounted for 30% of total revenue for the
year ended December 31, 2002. Revenue from the top three and ten customers in
2002 accounted for 43% and 65%, respectively, of ICGs total revenue.

WorldCom filed for bankruptcy protection on July 21, 2002. Since that time,
ICG has continued to provide service to WorldCom. Under the Bankruptcy Code,
customers who file for bankruptcy protection may choose to affirm or reject their pre-petition contracts with the
Company. If they choose to reject those contracts, the Companys recourse is
to pursue an unsecured claim in the customers bankruptcy proceeding for
damages associated with rejection of the contract. The ultimate amount and
nature of recovery on such claims is highly uncertain and specific to each
proceeding. WorldCom and its subsidiaries accounted for approximately 11% of the Companys
total revenue for 2002. ICG and one of Worldcoms subsidiaries, MCI Worldcom
Network Services, Inc., have reached agreement with regard to the assumption of MCI Worldcom Network Services, Inc.s pre-petition contract. The
assumption is subject to approval by Worldcoms bankruptcy court. If approved,
the assumption will result in a total reduction in contractual revenue of
approximately $8.9 million over the combined fiscal years 2003 and 2004.

In addition, several of ICGs customers have approached ICG about the
possibility of settling or restructuring future rates and/or levels of service
provided under their service contracts. If the Company agrees to settle or
restructure the future provisions of any significant customer contracts, ICGs
results of operations and financial condition could be materially affected. At
this time, the Company cannot predict the outcome of such negotiations.




NETWORK AND FACILITIES

Regional Network Assets

ICGs regional network assets include 47 voice and data switches in 29 markets.
The Company has approximately 5,700 miles of leased or owned regional and
metropolitan fiber comprising 172,574 local fiber strand miles. The majority
of the Companys local fiber networks are built in SONET rings that encircle a
metropolitan area. This ring architecture is intended to be accessible to the
largest concentration of telecommunications intensive business customers within
a given market and provides fiber redundancy to ensure uninterrupted service.
ICG connects 5,171 buildings to its network through on-net (i.e., connected to
the ICG network via ICG-owned fiber) and hybrid (i.e., connected to the ICG
network via third-party fiber) applications, of which 909 buildings are
connected on-net. In addition, the network is constructed to provide access to
inter-exchange carriers as well as end-user telecommunications traffic in a
cost efficient manner.





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Nationwide Network Architecture

ICGs nationwide data backbone includes OC-12 long-haul capacity connecting 29
markets. The data backbone interfaces with a centrally controlled Soft Switch,
24 ATM switches and numerous POPs containing high performance routers. The
Company has Internet peering arrangements at seven public sites: MAE East ATM,
MAE West (Santa Clara, CA), MAE West ATM, MAE Dallas ATM, PacBell (San Jose,
CA), Sprint NAP (Newark, NJ), and Ameritech (Chicago, IL). In addition, the
Company has numerous peering arrangements with private companies such as IXCs
and major ISPs, some with multiple locations. The Company also owns and leases
dedicated lines throughout the United States. The Company is currently in the
process of consolidating numerous data POPs as part of its cost reduction
efforts.

The majority of the Companys long-haul capacity is obtained through 20 year
indefeasible right of use (IRU) agreements with Qwest. The Company currently
has OC-12 capacity in service connecting: San Jose, Los Angeles, Denver,
Dallas, Atlanta, Washington D.C., Newark, Chicago, and Seattle. The Company has
the option to upgrade the current OC-12 routes to OC-48 capacity at additional
cost.




COMPETITION

The Company participates in several sectors of the telecommunications service
industry, all of which are highly competitive. In addition, numerous
competitors, including major telecommunications carriers, have rapidly expanded
their network capabilities in order to service the ISP industry.

The Companys competitors in the dial-up Internet access market possess
significant network infrastructure enabling them to provide ISPs with capacity
and access to the Internet. The Companys primary competitors in this revenue
category include Level 3, WorldCom, Sprint and the incumbent local exchange
carriers (ILECs). Genuity, previously a strong competitor, has been acquired
by Level 3. While the Company believes that its network and products will
enable it to compete in this industry sector, some of the Companys competitors
have greater market presence, brand recognition, financial, technical and
personnel resources than the Company. There can be no assurance that the
Company will be able to compete effectively with these companies.

In the Corporate Services and Point-to-Point Broadband sectors, the Company
competes in an environment dominated by the ILECs. The ILECs have long-standing
relationships with their customers and provide those customers with various
transmission and switching services. The ILECs also have the potential to
subsidize access and switched services with revenue from a variety of
businesses and historically have benefited from certain state and federal
regulations that have provided the ILECs with advantages over the Company.
Among the Companys current competitors in this sector are other CLECs,
wireless service providers and private networks built by large end-users. In
addition, competitors in this industry sector include IXCs such as AT&T and WorldCom. Potential competitors have also arisen by using different
technologies, including cable television companies, utilities, ISPs, ILECs
outside their current local service areas, and the local access operations of
long distance carriers. Many of the Companys actual and potential competitors
have greater financial, technical and marketing resources than the Company.

The Company is aware that consolidation of telecommunications companies,
including mergers between certain of the ILECs, between long distance companies
and cable television companies, between long distance companies and CLECs, and
the formation of strategic alliances within the telecommunications industry, as
well as the development of new technologies, could give rise to increased
competition. One of the primary purposes of the Telecommunications Act is to
promote competition, particularly in the local telephone market. Since its
enactment, several telecommunications companies have indicated their intention
to aggressively expand into many segments of the telecommunications industry,
including segments in which the Company participates or expects to participate.
This may result in more participants than can ultimately be successful in a
given segment.

While strong competition currently exists in all sectors of the industry, the
Company believes that the demand for voice and data services by business
customers provides expanded opportunities for providers such as the Company.
There can be no assurance, however, that sufficient demand will exist for the
Companys network services in its selected markets,





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that market prices will not dramatically decline or that the Company will be
successful in executing its business strategy in time to meet new competitors,
or at all.




REGULATORY ACTIVITY

Each of the services within ICGs current offerings (Dial-Up, Point-to-Point
Broadband and Corporate Services) is subject to some form of regulatory
oversight from state and/or federal regulatory authorities.

With respect to the Dial-Up services category, the managed modem services are
unregulated. However, the PRI component, which is a material offering with
respect to the Companys Dial-Up services, incurs traditional regulatory
oversight such as restrictions on price discrimination, various service quality
standards and associated reciprocal compensation revenue.

The Companys Point-to-Point Broadband service offerings are significantly
structured according to the application and collection of interstate and
intrastate access charges for telecommunications traffic that originates and
terminates on the Companys network. In most cases, both state and federal
regulatory authorities regulate the applicable access charges.

Corporate Services, which includes the provisioning of facilities used to carry
traditional voice traffic, incurs the greatest amount of regulatory oversight.
Accordingly, in its offerings related to this specific service category, the
Company encounters regulatory frameworks relating to reciprocal compensation,
resale, interconnection, unbundled network elements (UNE), number portability
and dialing parity, among others.

General Operational and Intercarrier Compensation Issues

The Telecommunications Act generally requires ILECs to provide interconnection
and nondiscriminatory access to their local telecommunications networks and
other essential facilities. Such access and interconnections are typically
facilitated through written agreements between the parties, which are more
commonly known as interconnection agreements. Interconnection agreements are
negotiated and enforced on a state-by-state basis. The negotiations involving
each agreement are highly complex and can be contentious. Where the parties
cannot reach agreement, the Company must petition the applicable state
regulatory agency to arbitrate the disputed issues. Rulings of that particular
agency are subject to judicial review by the appropriate state court and, with
respect to certain issues, a federal district court.

The Company has executed interconnection agreements with every regional bell
operating company (RBOC) and smaller mid-size ILECs (i.e. Alltel,
Citizens/Frontier, Centurytel and TDS) and less complex traffic terminating
agreements with a number of independent rural telecommunications carriers. Due
to ICGs growth in 2002, the number of interconnection
agreements has grown significantly. Key issues that ICG
faces during negotiations include, but are not limited to: (i) virtual-nxx
network deployment that affects the routing and rating of calls where the
terminating party may not physically be in the local calling area of the
originating party; (ii) Voice over Internet Protocol (VoIP) issues, including
whether VoIP traffic should have the same intercarrier compensation as switched
access traffic; and (iii) various other financially impactive terms.

Reciprocal compensation historically has been an important source of revenue
for the Company. In general, reciprocal compensation is the reimbursement of
costs incurred by a carrier that terminates local telecommunications traffic
originated on the network of another carrier. The Company maintains that
reciprocal compensation is an appropriate regulatory mechanism, regardless of
whether the telecommunications traffic is routed to a conventional end user or
an ISP, and, thus, is also entitled to receive reciprocal compensation for the
transport and termination of Internet bound calls originating on other
carriers telecommunications networks. The Companys position has been
affirmed by a number of state utility commissions as a result of the
arbitration of certain terms and conditions articulated in various RBOC
interconnection agreements. While the Company did in fact prevail in a number
of arbitrations, in the interest of gaining certainty with respect to the
collection of reciprocal compensation, the Company has negotiated voluntary
settlement agreements with certain RBOCs that provide for the payment of
reciprocal compensation for both traditional voice, as well as Internet bound
traffic. The majority of these reciprocal compensation settlement agreements
have expired and in such cases, the parties current interconnection agreements
now govern reciprocal compensation issues.





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The Companys reciprocal
compensation settlement agreement with SBC, however, remains in effect until May 31, 2004.

In April 2001, the Federal Communications Commission (FCC), in response to an
opinion by the U.S. Court of Appeals for the District of Columbia Circuit (the
D.C. Circuit Court), issued an order (the April
2001 Order) regarding
reciprocal compensation for Internet bound traffic. Assuming that the April
2001 Order is not overturned on appeal, reciprocal compensation for the
termination of ISP traffic will end after a 36-month transition period, which
will be approximately June 2004. Additionally, the April 2001 Order places
limits on the volume of reciprocal compensation eligible traffic, the recovery
of reciprocal compensation in new markets entered after April 2001, as well as
limits on the applicable rate. An appeal of the April 2001 Order was filed in
February 2002 in the D.C. Circuit Court and a decision is expected soon.

The Company believes that the April 2001 Order will not have a material effect
on interconnection agreements that explicitly require the payment of reciprocal
compensation or where payment is required through voluntary settlements. Both
the Company and the carrier, however, are bound by the April 2001 Order as it
relates to the exchange of reciprocal compensation for Internet bound traffic
for interconnection agreements that expire prior to the end of the FCCs 36
month transition period. Thus, while the April 2001 Order will have no
material effect on the ability of the Company to collect reciprocal
compensation from RBOCs subject to interconnection agreements containing
specific reciprocal compensation provisions, the Company will be limited in its
ability to collect reciprocal compensation as to other RBOCs.

Historically, the Company has threatened legal action in order to compel
the RBOCs to pay reciprocal compensation invoices in a timely manner. In
response, a concerted effort was made beginning in 2001 to generate accurate
invoices, which were supported by clear and concise data. Moreover, the
Company established a cross-functional team to track payments and disputes in
order to minimize large past-due balances. By the end of 2002, the dollar
amount of reciprocal compensation disputes lessened considerably and payments
became more consistent. However, the RBOCs continue to dispute a certain
amount of all invoices and the Company continues to allocate resources to
resolve these disputes.

Switched access is also both a relevant revenue source and expense for the
Company. In general, switched access is the reimbursement of costs incurred by
a carrier that terminates toll telecommunications traffic originated on the
network of another carrier. Switched access associated with intrastate toll
traffic is governed by the Companys intrastate tariffs filed with respective
state utility commissions. Likewise, switched access associated with interstate
toll traffic may be governed by interstate switched access tariffs filed with
the FCC. However, due to an FCC order issued in 2001, carriers were required to
withdraw their interstate tariffs if their switched access rates exceeded rates
established by the FCC. Because the Companys switched access rates exceeded
the rates established by the FCC, it withdrew its interstate access tariff in
August 2001.

Federal Regulation

As a result of a previous order adopted by the FCC, carriers were classified
for regulatory purposes as either dominant (i.e., generally RBOCs) or
non-dominant (i.e., generally CLECs). With respect to most issues, the Company
qualifies as a facilities-based CLEC. Consequently, the Company benefits from a
reduced regulatory compliance burden as compared to the RBOCs. Nevertheless,
the Company must still comply with the certain requirements of the
Telecommunications Act, such as offering service on a non-discriminatory basis
and at reasonable rates. Further, the Company, being classified as a
non-dominant carrier, was required as of August 1, 2001 to cancel all tariffs
for whatever interstate services that it was providing at that time. The
Company complied with that order and subsequent requirements to cancel tariffs
for international services.

The FCCs non-dominant carrier rules have had no effect on the Companys
intra-state tariffs or other functionally equivalent rate filings. The Company
is not subject to rate-of-return regulation in any jurisdiction, nor is it
currently required to obtain FCC authorization for the installation, operation
or maintenance of its fiber optic network facilities, which are used to provide
various services throughout the United States.

The FCC recently conducted a triennial review of its rules pertaining to
unbundled network elements (UNEs) via the Fourth Notice of Proposed Rule
Making. On February 20, 2003, the FCC rendered an oral decision concerning its
UNE





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rules. To date, the FCC has not issued a written order regarding this
decision. Based on the FCCs oral decision, however, the Company anticipates
that the FCCs written order will reserve numerous UNE issues for individual
state public utility commissions. A significant UNE issue that was addressed
in the FCCs oral decision is a phase-out of Unbundled Network Element Platform
(UNE-P). Subject to various conditions, the FCC provided a three year
timeline to phase-out the ILECs obligation to provide CLECs with UNE-P.
Although it is expected that the FCCs written order will be challenged in
various jurisdictions and impacted by state public utility commission actions,
the Company anticipates the FCCs order will negatively impact a carriers
ability to purchase UNE-P in the future. The Company does not currently
utilize UNE-P. Although the complete impact of the FCCs UNE decision will not
be fully understood until the FCCs written order is issued, the Company does
not anticipate the FCCs UNE order to materially impact the Companys
operations.

The FCC is also considering a petition filed by AT&T, which seeks a declaratory
ruling that AT&Ts Phone-to-Phone IP Telephony Services are exempt from access
charges. Because the Company considers this proceeding material to the
development of the nascent VoIP market, it is participating as a commenter. It
is uncertain when the FCC will rule on this issue.

State Regulation

In general, state public utility commissions have regulatory jurisdiction over
the Company with respect to local and other intrastate telecommunications
services. To provide intrastate service (particularly local dial tone
service), the Company generally must obtain a Certificate of Public Convenience
and Necessity from the state regulatory agency prior to offering service.
Additionally, most states require the Company to file tariffs, which articulate
the terms and conditions for services that are classified as regulated
intrastate services. In some states, the Company may also be subject to
various reporting and record-keeping requirements.

Under the Telecommunications Act, state commissions continue to set regulatory
requirements, including service quality standards and guidelines, for
certificated providers of local and intrastate long distance services.
Importantly, state regulatory authorities specify permissible terms and
conditions (i.e., price) for interconnection with the RBOCs telecommunications
networks. Moreover, these same authorities regulate the provision of unbundled
network elements by the RBOCs and enforce performance measurements and other
material standards related to local competition and interconnection. In certain
states, the utility commission has the authority to scrutinize the rates
charged by CLECs for intrastate long distance and local services.

Local Government Authorizations

Under the Telecommunications Act, municipalities typically obtain jurisdiction
under applicable state law to control the Companys access to municipally owned
or controlled rights of way and to require the Company to obtain street opening
and construction permits to install and expand its fiber-optic network. In
addition, many municipalities require the Company to obtain licenses or
franchises and to pay license or franchise fees, often based on a percentage of
gross revenue or a certain amount per linear foot, in order to provide
telecommunications services. However, in certain states, including California,
Ohio and Colorado, current law limits the amount of such fees to be paid to
local jurisdictions to actual costs incurred by the municipality for
maintaining the public rights of way. There is no assurance that certain cities
that currently do not impose fees will not seek to impose fees in the future
nor is there any assurance that, following the expiration of existing
franchises, the municipality will be obligated to renew a previous agreement or
that previously agreed upon fees will remain at their current levels.

The Telecommunications Act requires that local governmental authorities treat
telecommunications carriers in a non-discriminatory and competitively neutral
manner. The Act also mandates that any compensation received in exchange for
access to the public rights of way be just and reasonable. Where a particular
municipality has required unreasonable rights of way access fees, the Company
historically has taken an aggressive position, up to and including litigation.
However, due to many court rulings across the country in favor of carriers, the
Company has been able to lessen its aggressive position and has instead worked
to establish non-adversarial relationships with these municipalities.
Nevertheless, if any of the Companys existing franchise or license agreements
are terminated prior to their expiration dates or are not renewed, and
consequently the Company is forced to remove its facilities from the public
rights of way,





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such termination could have a material adverse effect on the Company.




EMPLOYEES

As of December 31, 2002, the Company employed 1,146 full-time employees. None
of the Companys employees are represented by a union. The Company believes
that it generally offers compensation packages comparable to those
of its competitors similar in size and capital structure. The Company
believes that the successful implementation of its business strategy will
depend upon its continued ability to attract and retain qualified employees.
The Company, however, does not expect to add significant new employees to the
organization in the near future. In February 2003, the Company approved a
bonus plan for the fiscal year 2003. Payment of bonuses under the plan will be
contingent on, among other things, the Companys financial performance for
2003.




ITEM 2. PROPERTIES

The Companys real estate portfolio includes numerous properties for
administrative, warehouse, equipment, collocation and POP sites.

As of December 31, 2002, the
Company had approximately 382,000 square feet of leased office,
warehouse, and equipment space in the state of Colorado, including its
corporate headquarters building, and approximately 709,000 square feet of space
leased in other areas of the United States. Since November 2000, the Company
has reduced its real estate portfolio by approximately 226 sites by rejecting
leases through the bankruptcy process and through lease expirations. The
Company continues to evaluate its real estate needs, and its portfolio of
leased locations will be carefully reviewed for optimum use and cost savings
opportunities.

The Company leases its approximately
240,000 square feet corporate headquarters building,
which is located in Englewood, Colorado. The lease expires in January 2023.
The Company sold a 30,000 square foot office building located in Englewood,
Colorado in November 2002 for approximately $1,250,000. At the time of the
sale, the property had a principal amount owing on its mortgage of
approximately $929,000.

In December 1999, a subsidiary of ICG acquired an 8.36 acre parcel of vacant
land located adjacent to the Corporate Headquarters for approximately $3.3
million. The Company had planned to use this land in connection with the
expansion of its Corporate Headquarters. However, as a result of the Companys
restructuring, expansion plans with respect to this site were abandoned and the
property is currently listed for sale.




ITEM 3. LEGAL PROCEEDINGS

On November 14, 2000, the Company and most of its subsidiaries filed voluntary
petitions for protection under the Bankruptcy Code in the Delaware Bankruptcy
Court (Joint Case Number 00-4238 (PJW)). The bankruptcy petition was filed in
order to preserve cash and give the Company the opportunity to restructure its
debt. The Companys Modified Plan was confirmed and became effective on October
10, 2002. The Bankruptcy Court continues to retain exclusive jurisdiction over
all matters arising out of and related to the Companys bankruptcy case,
including, but not limited to, the resolution and disposition of pre-petition
and administrative claims. The Company expects that these claims will be
resolved not later than 2004, and that the Bankruptcy Court will enter a final
decree shortly thereafter closing the Chapter 11 case.

During the third and fourth quarters of 2000, the Company and certain former
officers were served with fourteen lawsuits filed by various shareholders in
the United States District Court for the District of Colorado (the Colorado
District Court). In October 2001, the Colorado District Court consolidated
the various actions and appointed lead plaintiffs counsel. In February 2002,
lead plaintiffs counsel filed a consolidated amended complaint.
The amended complaint
does not name the Company as a defendant. The amended complaint alleges violations of
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and seeks
class action certification under Rule 23 of the Federal Rules of Civil
Procedure. The amended complaint seeks unspecified compensatory damages. Under
section 510(b) of the Bankruptcy Code, all pre-petition securities claims
against ICG were mandatorily subordinated and discharged upon the confirmation
of the





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Modified Plan. Holders of pre-petition equity securities claims did not receive
any recovery from the Company under the Modified Plan.

The Company is a party to certain other litigation that has arisen in the
ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material impact on the Companys
financial condition or results of operations. The Company is not involved in
any administrative or judicial proceedings relative to an environmental matter.




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

No matters were submitted to a vote of security holders during the quarter
ended December 31, 2002.





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PART II




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

The term Predecessor Company refers to the Company until its emergence from
bankruptcy on October 10, 2002 (the Effective
Date). The term Reorganized Company refers to the
Company after its emergence from bankruptcy.

The Predecessor Companys common stock was quoted on the NASDAQ National Market
(NASDAQ) from March 25, 1997 until November 18, 2000, under the symbol
ICGX. The NASDAQ halted trading of the Predecessor Companys common stock on
November 14, 2000, and delisted the stock on November 18, 2000. Between
November 19, 2000, and October 10, 2002, the Predecessor Companys common stock
was traded on the Over-the-Counter Market. Pursuant to the Modified Plan, all
outstanding shares of the Predecessor Companys common stock were cancelled on
October 10, 2002.

In accordance with the Modified Plan,
on the Effective Date a pool of 8,000,000 shares of the Reorganized Companys common stock
was established for distribution to the Predecessor Companys unsecured
creditors on a pro rata basis in exchange for their claims as described in the
Modified Plan. The issuance of the Companys common stock was not subject to
registration under the Securities Act of 1933, as amended, pursuant to Section
1145 of the Bankruptcy Code and in accordance with the terms of the Modified
Plan. On January 10, 2003, 5,893,250 shares of the Reorganized Companys
common stock were distributed. The distribution of the remaining shares will
be completed after the final reconciliation of pre-petition bankruptcy claims
filed against the Predecessor Company. The Reorganized Companys common stock
trades on the Over-the-Counter Market under the symbol ICGC.

In accordance with the Modified Plan, on the Effective Date, warrants to
purchase 800,000 shares of the Reorganized Companys common stock were
established for distribution to certain of the Predecessor Companys unsecured
creditors on a pro rata basis in exchange for their claims, as described in the
Modified Plan. The issuance of the warrants was not subject to registration
under the Securities Act of 1933, as amended, pursuant to Section 1145 of the
Bankruptcy Code and in accordance with the terms of the Modified Plan. On
January 10, 2003, warrants to purchase 548,166 shares of the Reorganized
Companys common stock were distributed. The distribution of the remaining
warrants will be completed after the reconciliation of pre-petition bankruptcy
claims filed against the Predecessor Company. The strike price of the warrants
is $9.12, which represented the Reorganized Companys equity value per share on
the Effective Date. The warrants may be exercised from the date of issuance
until the later of (i) October 10, 2007, or (ii) the date that a registration
statement covering the underlying common stock of the warrants becomes
effective.

As of February 10, 2003, there were 182 holders of record of the Companys
common stock. The Company has never paid or declared any dividends, nor does
it anticipate paying any dividends in the foreseeable future.




ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for the years ended December 31, 1998, 1999, 2000,
2001 and 2002 has been derived from the audited consolidated financial
statements of the Company. The information set forth below should be read in
conjunction with the Companys audited consolidated financial statements and
the notes thereto included elsewhere in this Annual Report, as well as Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations.





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##### Table of Contents



|                                                                              |  |                                                  |          |         |  |         |          |      |  |      |            |   |  |  |          |   |  |          |           |           |  |             |        |  
|----------------------------------------------------------------------------- |  | ------------------------------------------------ | -------- | ------- |  | ------- | -------- | ---- |  | ---- | ---------- | - |  |  | -------- | - |  | -------- | --------- | --------- |  | ----------- | ------ | -
|                                                                              |  |                                                  |          |         |  |         |          |      |  |      |            |   |  |  |          |   |  |          |           |           |  | Reorganized
|                                                                              |  | Predecessor Company                              |          | Company
|                                                                              |  |                                                  |          |        
|                                                                              |  |                                                  |          |         |  |         |          |      |  |      |            |   |  |  |          |   |  | Jan. 1 - |           | Oct. 12 -
|                                                                              |  | Years Ended December 31,                         |          | Oct. 11 |  | Dec. 31
|                                                                              |  |                                                  |          |         |  |        
|                                                                              |  | 1998                                             |          | 1999    |  | 2000    |          | 2001 |  | 2002
|                                                                              |  |                                                  |          |         |  |         |          |      |  |     
|                                                                              |  | (in thousands of dollars, except per share data)
|Revenue                                                                       |  |                                                  | 303,317  |         |  |         | 479,226  |      |  |      | 598,283    |   |  |  | 499,996  |   |  |          | 333,167   |           |  |             | 86,937 |  
|Income (loss) from
continuing
operations                                      |  |                                                  | (338,691 | )       |  |         | (466,462 | )    |  |      | (2,490,496 | ) |  |  | (112,665 | ) |  |          | 4,367,334 |           |  |             | (1,476 | )
|Income (loss) per
common share from
continuing
operations - basic
and diluted |  |                                                  | (7.49    | )       |  |         | (9.90    | )    |  |      | (49.63     | ) |  |  | (2.14    | ) |  |          | 79.94     |           |  |             | (0.18  | )

|                                                    |  |                           |           |         |  |      |           |      |  |      |           |  |  |  |           |  |  |             |         | 
|--------------------------------------------------- |  | ------------------------- | --------- | ------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- |  |  | ----------- | ------- | 
|                                                    |  |                           |           |         |  |      |           |      |  |      |           |  |  |  |           |  |  | Reorganized
|                                                    |  | Predecessor Company       |           | Company
|                                                    |  |                           |           |        
|                                                    |  | As of December 31,       
|                                                    |  |                          
|                                                    |  | 1998                      |           | 1999    |  | 2000 |           | 2001 |  | 2002
|                                                    |  |                           |           |         |  |      |           |      |  |     
|                                                    |  | (in thousands of dollars)
|Total assets                                        |  |                           | 1,589,647 |         |  |      | 2,020,621 |      |  |      | 980,452   |  |  |  | 755,165   |  |  |             | 377,458 | 
|Long-term liabilities and capital lease obligations |  |                           | 1,666,836 |         |  |      | 1,978,135 |      |  |      | 34,167    |  |  |  | 51,796    |  |  |             | 200,193 | 
|Liabilities subject to compromise                   |  |                           |          |         |  |      |          |      |  |      | 2,870,130 |  |  |  | 2,729,590 |  |  |             |        | 
|Redeemable preferred securities of subsidiaries     |  |                           | 466,352   |         |  |      | 519,323   |      |  |      | 1,366,660 |  |  |  | 1,326,745 |  |  |             |        | 




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

This section and other parts of
this Annual Report contain forward-looking
statements intended to qualify as safe harbors from liability as established
by the Private Securities Litigation Reform Act of 1995. These forward looking
statements can generally be identified as such because the context of the
statements include words such as intends, anticipates, expects,
estimates, plans, believes and other similar words. Additionally,
statements that describe the Companys future plans, objectives or goals also
are forward-looking statements. All forward-looking statements are subject to
certain risks and uncertainties that could cause actual results or outcomes to
differ materially from those currently anticipated. These risks and
uncertainties are described in detail herein under Liquidity and Capital
Resources.

These forward-looking statements speak only as of the date of this Annual
Report. The Company does not undertake any obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Although the Company believes that
its plans, intentions and expectations reflected in or suggested by the
forward-looking statements made in this Annual Report are reasonable, there is
no assurance that such plans, intentions or expectations will be achieved.

The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and accompanying notes beginning on page F-1 of this Annual Report.
All dollar amounts are in U.S. dollars.





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##### Table of Contents






BUSINESS OVERVIEW

ICG is a facilities-based, nationwide communications provider focused on
providing data and voice services to Internet Service Providers
(ISPs),
telecommunication carriers and corporate customers. Headquartered in
Englewood, Colorado, ICG is a competitive local exchange carrier (CLEC)
certified in most of the United States, having interconnection agreements with
every major local exchange carrier. ICGs facilities support three primary
product offerings:



| |  |  | Dial-Up Services: The Company provides primary rate interface (PRI)
ports (one and two way) and managed modem remote access services (RAS)
to many of the largest national ISPs and other telecommunications
carriers, as well as to numerous regional ISPs and other communication
service companies. Most of these services are provided through the
Companys owned switch facilities. Currently, ICGs network footprint
has the capability to provide Dial-Up service to over 75% of the nations
population. Before any reciprocal compensation revenues earned from
these services, revenue from Dial-Up services accounted for 44% of the
Companys total 2002 revenue. Associated reciprocal compensation revenue
accounted for an additional 14% of the Companys total 2002 revenue. As
of December 2002, the Company had approximately 806,000 ISP customer
ports in service.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Point-to-Point Broadband Service: The Company provides dedicated
bandwidth to connect (i) inter-exchange carriers to local markets, large
corporations and other carrier facilities and (ii) large corporations to
their inter-exchange carrier sites and other corporate locations. Such
dedicated bandwidth sales are focused in areas where ICG maintains local
fiber and buildings on its own network or in close proximity thereto.
Point-to-Point Broadband service also includes switched access and SS7
services. Point-to-Point Broadband service accounted for 25% of the
Companys total 2002 revenue.                                                                                                                                                                                                                                                                            
|
| |  |  | Corporate Services: The Company offers Internet access, data and voice
services to corporate customers, with an emphasis on Dedicated Internet
Access (DIA) and Internet Protocol (IP) Telephony services. ICG is
well positioned to expand this service with its metropolitan and regional
fiber and switching asset base and nation-wide data network
infrastructure. Corporate Services accounted for 17% of the Companys
total 2002 revenue. As of December 2002, Corporate Services customers
accounted for approximately 97,000 access lines.                                                                                                                                                                                                                                                                                                                                    

To provide its service offerings, ICG combines its approximately 5,700 route
miles of metropolitan and regional fiber network infrastructure and its 47
voice and data switches with its nationwide fiber optic backbone, data points
of presence, 24 asynchronous transfer mode (ATM) switches, and numerous private and
public Internet peering arrangements. The design of the physical network
permits the Company to offer flexible, high-speed telecommunications services
to its customers.

The regional network infrastructure consists of fiber optic
cables and associated advanced electronics and transmission equipment. The
Companys network includes a centrally controlled, logical IP
switch (i.e., Soft Switch), and is generally configured in redundant synchronous optical
network (SONET) rings to make the network accessible to the largest concentration of
telecommunications intensive business customers within a given market. This
network architecture also offers the advantage of uninterrupted service in the
event of a fiber cut or equipment failure, thereby resulting in limited outages
and increased network reliability in a cost efficient manner.




REORGANIZATION AND EMERGENCE FROM BANKRUPTCY

On November 14, 2000, (the Petition Date), ICG and its operating subsidiaries
filed voluntary petitions for protection under Chapter 11 of the United States
Bankruptcy Code (the Bankruptcy Code) in the United States District Court for
the District of Delaware (the Bankruptcy Court).

On December 19, 2001, the Company filed a proposed Plan of Reorganization and a
Disclosure Statement in the Bankruptcy Court. The Company subsequently filed a
First Amended Plan and Disclosure Statement on March 1, 2002. On March 26,
2002, the Company filed a Second Amended Plan and Disclosure Statement, which
were amended on April 3, 2002. The original Plan of Reorganization, the
Disclosure Statement, the First Amended Plan





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##### Table of Contents



and Disclosure Statement, and the Second Amended Plan and Disclosure Statement
are collectively referred to herein as the Original Plan. On April 3, 2002,
the Company submitted the Original Plan to the Companys creditors for
approval. On May 16, 2002, the Companys balloting agent filed an affidavit
indicating that all classes of creditors entitled to vote had overwhelmingly
accepted the Original Plan. On May 21, 2002, the Bankruptcy Court entered an
order confirming the Original Plan.

The Original Plan was formulated on the basis of extensive negotiations
conducted among the Company and its primary constituencies. As part of the
Original Plan, the Company received commitment letters for new financing
totaling $65 million (the Original Exit Financing). The Original Exit
Financing was to be funded predominantly by Cerberus Capital Management, L.P.
(Cerberus). Although the Bankruptcy Court confirmed the Original Plan, the
closing of the Original Exit Financing transactions did not occur and the
Original Plan did not become effective as a result of disagreements between the
Company and Cerberus.

After consulting with the Companys official committee of unsecured creditors
and the Companys senior secured lenders, the Company engaged in settlement
discussions with Cerberus. As a result of those negotiations, on July 25,
2002, the Company entered into an agreement with Cerberus that was embodied in
a proposed modification to the Original Plan. The Original Plan, as modified,
is referred to herein as the Modified Plan.

The Company determined that the changes to the Original Plan, as reflected in
the Modified Plan, required a re-solicitation of votes from certain classes of
creditors. Thus, on July 26, 2002, the Company filed the Modified Plan and a
Supplement to the Disclosure Statement in the Bankruptcy Court. On August 23,
2002, the Company submitted the Modified Plan to the Companys creditors for
approval. On October 7, 2002, the Companys balloting agent filed an affidavit
indicating that all classes of creditors entitled to vote had again
overwhelmingly accepted the Modified Plan. On October 9, 2002, the Bankruptcy
Court entered an order confirming the Modified Plan. On October 10, 2002 (the
Effective Date), the Companys Modified Plan became effective and the Company
emerged from Chapter 11 bankruptcy protection.

Pursuant to the Modified Plan, on October 10, 2002, the Company received new
financing consisting of a $25 million senior subordinated term loan (the
Senior Subordinated Term Loan). The Companys senior secured credit facility
(the Senior Facility) balance was then cancelled and replaced with new notes
(the Secured Notes). Proceeds from the Senior Subordinated Tern Loan were
utilized to pay down the balance of the Secured Notes to $59 million.




CRITICAL ACCOUNTING POLICIES

Managements Discussion and Analysis of Financial Condition and Results of
Operations addresses the Companys consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments,
including those related to revenue recognition, uncollectible accounts
receivable, long-lived assets, operating costs and accruals, litigation and
contingencies. Management bases its estimates and judgments on historical
experience, current economic and industry conditions and on various other
factors that are believed to be reasonable under the circumstances. Such
information forms the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
Actual results, however, may differ from these estimates under different
assumptions or conditions. Management believes the following critical
accounting policies address the more significant judgments and estimates used
in the preparation of its consolidated financial statements.





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##### Table of Contents



Financial Reporting by Entities in Reorganization under the Bankruptcy Code and
Fresh Start Reporting

Between November 14, 2000, and October 10, 2002, ICG operated as a
debtor-in-possession under the supervision of the Bankruptcy Court. ICGs
financial statements for reporting periods within that timeframe were prepared
in accordance with the provisions of Statement of Position 90-7 (SOP 90-7),
Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.

For financial reporting purposes, close of business on October 11, 2002,
represents the date of emergence from bankruptcy. As used herein, the
following terms refer to the Company and its operations:

|                      |  |                                                               
|--------------------- |  | --------------------------------------------------------------
|Predecessor Company |  | The Company, pre-emergence from bankruptcy                    
|Reorganized Company |  | The Company, post-emergence from bankruptcy                   
|2002 Predecessor    |  | The Companys operations, January 1, 2002 - October 11, 2002  
|2002 Reorganized    |  | The Companys operations, October 12, 2002 - December 31, 2002

The implementation of the Modified Plan resulted in, among other things,
Restated Articles of Incorporation and By-laws, a new capital structure, the
satisfaction or disposition of various types of claims against the Predecessor
Company, the assumption or rejection of certain lease agreements and executory
contracts, and the establishment of a new board of directors following the
Effective Date.

In connection with the emergence from bankruptcy, the Company adopted Fresh
Start reporting (Fresh Start) in accordance with the requirements of SOP
90-7. The application of SOP 90-7 resulted in the creation of a new reporting
entity. Under Fresh Start reporting, the reorganization value of ICG was
allocated to its assets and liabilities on a basis substantially consistent
with purchase accounting in accordance with Statement of Financial Accounting
Standards (SFAS) SFAS No. 141, Business Combinations.

Under Fresh Start reporting, the reorganization value of ICG, which represents
the fair value of all of ICGs assets (net of liabilities), was allocated to
the Companys assets and liabilities, other than deferred income taxes, based
on their relative fair values. Deferred taxes were determined in accordance
with SFAS No. 109, Accounting for Income Taxes. The application of SOP 90-7
created a new reporting entity having no retained earnings or accumulated
deficit.

The Company engaged an independent financial advisor to assist in the
determination of the reorganization value or fair value of ICG. The
assumptions underlying the valuation were described in the Modified Plan. The
independent financial advisor estimated ICGs reorganization value range at
$250 million to $325 million. The Company used a reorganization value of $284
million, which consists of equity and funded debt of $83 million and $201
million, respectively, for Fresh Start reporting as of October 11, 2002. The
Fresh Start adjustments, primarily related to the adjustment of ICGs assets
and liabilities to fair market values, had a significant effect on the
Reorganized Companys subsequent statements of operations.

ICG recorded approximately $4.4 billion of net reorganization income in the
Predecessor Companys statement of operations for 2002, which includes the gain
on the restructuring of equity and the discharge of obligations subject to
compromise for less than recorded amounts, as well as adjustments to reduce the
historical carrying values of the Companys assets and liabilities to fair
market value.

The effects of the reorganization and Fresh Start reporting on ICGs balance
sheet as of October 11, 2002, were as follows (in thousands of dollars):





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##### Table of Contents



|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|---------------------------------------------------- | ------------------------------------------ |  | ------------- | ------- | ------------- |  | ------------- | ------ | --------- |  | ------------- | ------- | ------------- |  | ----------- | ------ | - |  | ------- | ------ | 
|                                                     |                                            |  |               |         |               |  | Settlement of |        |           |  |               |         |               |  |             |        |   |  |        
|                                                     |                                            |  | Predecessor   |         | Claims, Debt  |  |               |        |           |  |               |         |               |  | Reorganized
|                                                     |                                            |  | Company       |         | Discharge and |  |               |        |           |  |               |         |               |  | Company    
|                                                     |                                            |  | Balance Sheet |         | Equity        |  |               |        |           |  | Fresh Start   |         | Balance Sheet
|                                                     |                                            |  | (Pre-         |         | Restructuring |  | New Funding   |        | Reporting |  | (Post-       
|                                                     |                                            |  | Confirmation) |         | (a)           |  | (b)           |        | (c)       |  | Confirmation)
|                                                     |                                            |  |               |         |               |  |               |        |           |  |              
|Assets                                               |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Current assets:                                      |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|                                                     | Cash and cash equivalents                  |  |               | 109,720 |               |  |               | (6,678 | )         |  |               | (47,968 | )             |  |             |        |   |  |         | 55,074 | 
|                                                     | Restricted cash, current                   |  |               |        |               |  |               |        |           |  |               | 15,778  |               |  |             |        |   |  |         | 15,778 | 
|                                                     | Receivables, net                           |  |               | 28,944  |               |  |               | 459    |           |  |               |         |               |  |             |        |   |  |         | 29,403 | 
|                                                     | Prepaid expenses and deposits              |  |               | 10,740  |               |  |               | (3,526 | )         |  |               | 100     |               |  |             |        |   |  |         | 7,314  | 
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Total current assets                                 |                                            |  | 149,404       |         |               |  | (9,745        | )      |           |  | (32,090       | )       |               |  |            |        |   |  | 107,569 |       
|Property and equipment                               |                                            |  | 622,659       |         |               |  |               |        |           |  |               |         |               |  | (392,205    | )      |   |  | 230,454 |       
|Accumulated depreciation                             |                                            |  | (125,541      | )       |               |  |               |        |           |  |               |         |               |  | 125,541     |        |   |  |        |       
|Restricted cash, non-current                         |                                            |  | 6,956         |         |               |  |               |        |           |  | 28,902        |         |               |  |             |        |   |  | 35,858  |       
|Other assets, net                                    |                                            |  | 12,444        |         |               |  |               |        |           |  | (321          | )       |               |  |             |        |   |  | 12,123  |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Total Assets                                         |                                            |  | 665,922       |         |               |  | (9,745        | )      |           |  | (3,509        | )       |               |  | (266,664    | )      |   |  | 386,004 |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Liabilities                                          |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Current liabilities:                                 |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|                                                     | Accounts payable                           |  |               | 10,294  |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         | 10,294 | 
|                                                     | Accrued liabilities                        |  |               | 43,392  |               |  |               | (832   | )         |  |               |         |               |  |             | (2,442 | ) |  |         | 40,118 | 
|                                                     | Restructuring accruals                     |  |               | 1,953   |               |  |               | 18,459 |           |  |               |         |               |  |             |        |   |  |         | 20,412 | 
|                                                     | Deferred revenue                           |  |               | 7,272   |               |  |               |        |           |  |               |         |               |  |             | 5,700  |   |  |         | 12,972 | 
|                                                     | Current portion of debt and
capital leases |  |               |        |               |  |               | 14,143 |           |  |               | 1,864   |               |  |             |        |   |  |         | 16,007 | 
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Total current liabilities                            |                                            |  | 62,911        |         |               |  | 31,770        |        |           |  | 1,864         |         |               |  | 3,258       |        |   |  | 99,803  |       
|Long-term liabilities:                               |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|                                                     | Secured Notes                              |  |               |        |               |  |               |        |           |  |               | 57,521  |               |  |             |        |   |  |         | 57,521 | 
|                                                     | Capital lease obligations                  |  |               | 51,154  |               |  |               | 38,873 |           |  |               |         |               |  |             |        |   |  |         | 90,027 | 
|                                                     | Senior Subordinated Term Loan              |  |               |        |               |  |               |        |           |  |               | 19,711  |               |  |             |        |   |  |         | 19,711 | 
|                                                     | Other debt                                 |  |               | 650     |               |  |               | 17,828 |           |  |               |         |               |  |             |        |   |  |         | 18,478 | 
|                                                     | Deferred revenue                           |  |               | 348     |               |  |               |        |           |  |               |         |               |  |             | 17,527 |   |  |         | 17,875 | 
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Total long-term liabilities                          |                                            |  | 52,152        |         |               |  | 56,701        |        |           |  | 77,232        |         |               |  | 17,527      |        |   |  | 203,612 |       
|Liabilities subject to
compromise                    |                                            |  | 2,722,779     |         |               |  | (2,492,726    | )      |           |  | (84,574       | )       |               |  | (145,479    | )      |   |  |        |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Total liabilities                                    |                                            |  | 2,837,842     |         |               |  | (2,404,255    | )      |           |  | (5,478        | )       |               |  | (124,694    | )      |   |  | 303,415 |       
|Redeemable preferred stock                           |                                            |  | 1,289,788     |         |               |  | (1,289,788    | )      |           |  |               |         |               |  |             |        |   |  |        |       
|Stockholders
deficit  Predecessor Company          |                                            |  | (3,461,708    | )       |               |  | 3,606,998     |        |           |  | (3,320        | )       |               |  | (141,970    | )      |   |  |        |       
|Stockholders
equity  Reorganized Company           |                                            |  |              |         |               |  | 77,300        |        |           |  | 5,289         |         |               |  |             |        |   |  | 82,589  |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|Total liabilities and
stockholders equity
(deficit) |                                            |  | 665,922       |         |               |  | (9,745        | )      |           |  | (3,509        | )       |               |  | (266,664    | )      |   |  | 386,004 |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 



|(a) |  | Includes adjustments to record: (i) settlement of post-petition
administrative claims and pre-petition priority claims (i.e., tax
authorities); (ii) affirmation of certain executory contracts (i.e.,
capital leases); (iii) discharge of pre-petition unsecured debt for common
stock in the Reorganized Company; and (iv) cancellation of the Predecessor
Companys preferred stock, common stock and warrants.                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes adjustments to record: (i) proceeds of $25 million from the
Senior Subordinated Term Loan, net of $5 million debt discount
attributable to the value of the warrants issued; (ii) refinancing of the
Predecessor Companys Senior Facility with the Reorganized Companys
Secured Notes whereby all proceeds from the Senior Subordinated Term Loan
were used to immediately pay down the balance of the Secured Notes; (iii)
write-off of the $2.5 million unamortized deferred financing costs related
to obtaining the Senior Facility and the





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|    |  | capitalization of $2.2 million of financing costs related to obtaining the
Secured Notes and the Senior
Subordinated Term Loan; and (iv) reclassification of $45 million to
restricted cash, which represents 75% of the principal balance of the
Secured Notes, in accordance with the loan agreement.                                                                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Includes adjustments to record (i) deferred revenue reclassification of
$23 million and fair value write-down adjustment of $122 million; (ii)
adjustment to reduce the net fair value of property and equipment by $267
million; and (iii) adjustment to reduce the accrued sales tax by $2
million as a result of the reduced property and equipment values of leased
equipment.

Revenue Recognition and Accounts Receivable

Revenue for dedicated transport, data, Internet and the majority of switched
services, exclusive of switched access, is generally billed in advance on a
fixed rate basis and recognized over the period the services are provided.
Switched access revenue and inter-carrier compensation, including reciprocal
compensation and carrier access, is generally billed on a transactional basis
determined by customer usage. The transactional elements of switched access
services and inter-carrier compensation are billed in arrears and estimates are
used to recognize revenue in the period provided. Fees billed in connection
with customer installations and other up front charges are deferred and
recognized as revenue ratably over the estimated average contract life.

In the past, the Company entered into indefeasible rights-of-use agreements
(IRUs), pursuant to which the Company continues to lease its metropolitan
fiber and other infrastructure to other telecommunications services providers.
If the requirements for sales-type lease accounting were met, the Company
recognized revenue in the period that facilities became available for use by
the customer. If the requirements for sales-type lease accounting were not
met, as was generally the case, the Company has recognized revenue ratably over
the term of the agreement. Revenue earned on the portion of IRUs attributable
to the provision of maintenance services has been recognized ratably over the
term of the agreement. Revenue from IRU agreements in 2000, 2001, 2002
Predecessor and 2002 Reorganized, totaled $14 million, $9 million, $7 million
and $1 million, respectively.

The Company records reciprocal compensation and carrier access revenue in
accordance with regulatory authority approval and pursuant to interconnection
agreements with incumbent local exchange carriers (ILECs) and interexchange
carriers (IXCs) for the origination, transport and/or termination of traffic
originated by ILEC and IXC customers, including Internet traffic. The Company
recognizes revenue as the service is provided, except in those cases where the
revenue is under dispute and collection is uncertain.

On October 1, 2000, the Company adopted Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition in Financial Statements, which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the Securities and Exchange Commission. Effective January 1, 2000,
installation revenue is deferred and recognized ratably as revenue over the
estimated average contract life. Prior to the adoption of SAB No. 101, the
Company recognized installation revenue as services were performed. As required
by generally accepted accounting principles, the Company reflected the effects
of the change in accounting principle as if such change had been adopted as of
January 1, 2000, and included in the results of operations for the year ended
December 31, 2000, a charge of $7 million relating to the cumulative effect of
this change in accounting principle. In addition, the change in accounting
principle resulted in an increase in revenue for the year ended December 31,
2000, of $1 million.

The Company recognizes revenue at the amount expected to be realized, which
includes billing and service adjustments. Valuation allowances for
uncollectible accounts receivable are established through a charge to selling,
general and administrative expenses. The Company assesses the adequacy of this
reserve periodically, evaluating general factors such as the length of time
individual receivables are past due, historical collection experience, the
economic and competitive environment, and changes in the credit worthiness of
customers. The Company also assesses the ability of specific customers to meet
their financial obligations and establishes specific valuation allowances based
on the amount the Company expects to collect from these customers, as
considered necessary. If circumstances relating to specific customers change
or economic conditions improve or worsen such that past





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##### Table of Contents



collection experience
and assessment of the economic environment are no longer relevant, the estimate
of the recoverability of the Companys trade receivables may change.

The Company had, as of December 31, 2002, total accounts receivable outstanding
of $36 million and an allowance for uncollectible accounts receivable of $9
million.

Operating Costs and Accrued Liabilities

The Company leases certain network facilities, primarily circuits, from ILECs
and CLECs to augment its owned infrastructure for which it is generally billed
a fixed monthly fee. The Company also uses the facilities of other carriers
for which it is billed on a usage basis. The Company issued a significant
number of disconnect orders to ILECs and CLECs for leased circuits throughout
2001 as a result of the Companys optimization of its network and associated
operating cost structure, as well as the curtailment of the Companys
expansions plans. In addition, many of these providers changed the Companys
billing account numbers (BANs) in an attempt to segregate the Companys pre-
and post-Chapter 11 petition billing activity. Disconnected services were
frequently not reflected on a timely basis by these facilities providers on the
Companys invoices, resulting in inaccurate invoices and disputes, and the
assignment of new BANs by these facilities providers frequently resulted in
incorrect balances being carried forward on invoices. The Company disputes
invoices for usage billings when the call record detail is not adequate to
support such charges. As a result of these and other types of billing
disputes, the Company is in settlement negotiations with certain providers.

In determining the amount of such operating expenses and related accrued
liabilities to reflect in its financial statements, the Company considers the
adequacy of documentation of disconnect notices, compliance with prevailing
contractual requirements for submitting such disconnect notices and disputes to
the provider of the facilities, and compliance with its interconnection
agreements with these carriers. Significant judgment is required in estimating
the ultimate outcome of the dispute resolution process, as well as any other
amounts that may be incurred to conclude the negotiations or settle any
litigation.

Property and Equipment

The Companys property and equipment includes property and equipment in
service, under construction or development, and held for sale.

Property and equipment in service is stated at historical cost, reduced by
provisions to recognize impairment in value. Costs associated directly with
network construction, service installations and development of business support
systems, including employee related costs, and interest expense incurred during
the construction period, are capitalized. Depreciation is calculated on a
straight-line basis over the assets estimated useful lives, which are
determined based on historical usage with consideration given to technological
changes, trends in the industry and other economic factors that could impact
the network architecture and asset utilization. Assets held for sale are
stated at the estimated proceeds from the sale, less costs to sell.

Equipment held under capital leases is stated at the lower of the fair value of
the asset or the net present value of the minimum lease payments at the
inception of the lease. Amortization of equipment held under capital leases is
included in depreciation and amortization expense, and is calculated on a
straight-line basis over the estimated useful lives of the assets, or the
related lease term, whichever is shorter.

The Company provides for the impairment of long-lived assets pursuant to SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which requires that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized when the assets carrying value
exceeds the estimated undiscounted future cash flows from the asset, excluding
interest. Measurement of the impairment loss is then based on the estimated
fair value of the asset. Considerable judgment is required to project such
future cash flows and, if required, estimate the fair value of the impaired
long-lived assets.





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##### Table of Contents



The Company recorded approximately $1.7 billion, $28 million and $0.6 million
of provision for impairment of long-lived assets in 2000, 2001 and 2002
Predecessor, respectively. Pursuant to the adoption of Fresh Start, the
Company wrote down the value of its property and equipment by $392 million, and
the balance of the accumulated
depreciation by $126 million. The total Fresh Start value of the long-lived
assets was generally allocated on a pro rata basis to the individual asset
categories based on asset appraisals obtained in November 2001 and March 2002.
The new property and equipment values are being depreciated over the remaining
useful lives of the assets.




LIQUIDITY AND CAPITAL RESOURCES

Reorganized Capital Structure

Pursuant to the Modified Plan, all outstanding shares of the Predecessor
Companys preferred and common stock, as well as all other outstanding equity
securities, including warrants and options, were cancelled on October 10, 2002.

In accordance with the Modified Plan, a total of 8,000,000 shares of the
Reorganized Companys common stock was established for distribution to the
Predecessor Companys unsecured creditors on a pro rata basis, as described in
the Modified Plan. On January 10, 2003, 5,893,250 shares of the Reorganized
Companys common stock were distributed. The distribution of the remaining
shares will be completed after the final reconciliation of pre-petition
bankruptcy claims filed against the Predecessor Company.

In accordance with the Modified Plan, warrants to purchase 800,000 shares of
the Reorganized Companys common stock were established for distribution to
certain of the Predecessor Companys unsecured creditors on a pro rata basis,
as described in the Modified Plan. On January 10, 2003, warrants to purchase
548,166 shares of the Reorganized Companys common stock were distributed. The
distribution of the remaining warrants will be completed after the final
reconciliation of pre-petition bankruptcy claims filed against the Predecessor
Company. The strike price of the warrants is $9.12, which represented the
Reorganized Companys equity value per share on the Effective Date. The
warrants may be exercised from the date of issuance until the later of (i)
October 10, 2007, or (ii) the date that a registration statement covering the
underlying common stock of the warrants becomes effective.

Pursuant to the Modified Plan, on October 10, 2002, the Company received new
financing consisting of the $25 million Senior Subordinated Term Loan. The
Companys Senior Facility balance was then cancelled and replaced with the
Secured Notes. Proceeds from the Senior Subordinated Term Loan were utilized
to pay down the balance of the Secured notes to $59 million. The Secured Notes
are secured by substantially all assets of the Company. The principal balance
of the Secured Notes is projected to begin amortizing in August 2003 and will
mature in May 2005. Interest on the Secured Notes accrues at a premium of 3.5%
to 6.0% over LIBOR or, at the Companys option, at a premium of 2.25% to 4.75%
over the banks prime rate. The interest rate premium at any given time is
determined based on the cumulative amount of the principal prepayments made by
the Company. Interest is payable quarterly in arrears. The weighted average
interest rate in effect at December 31, 2002 was 7.8%.

The Senior Subordinated Term Loan is subordinate only to the Secured Notes and
is secured by substantially all assets of the Company. The loan accrues
interest at 14% per annum, which is payable monthly in arrears, and matures on
July 25, 2006. In connection with the Senior Subordinated Term Loan, warrants
to purchase a total of 673,684 shares of the Reorganized Companys common stock
were issued. Of the 673,684 shares, warrants to purchase 200,000 shares have
an exercise price equal to $9.12, and warrants to purchase 473,684 shares have
an exercise price of $0.01. All such warrants expire, if unexercised, on July
25, 2007. The warrants have an estimated fair market value of $5 million,
which has been established as a debt discount with a corresponding increase to
additional paid-in capital of stockholders equity in the Reorganized Companys
balance sheet. The debt discount is amortized to interest expense over the
remaining term of the Senior Subordinated Term Loan.

The Senior Subordinated Term Loan was arranged by Cerberus. Subject to certain
ownership percentage requirements, the Senior Subordinated Term Loan entitles
Cerberus to appoint two directors to the reorganized Companys Board of
Directors. Pursuant to the Modified Plan, W. R. Huff Asset Management Co.
L.L.P. (Huff) is also entitled to appoint two directors. The Companys Chief
Executive Officer, Randall E. Curran, serves as Chairman of the Companys Board





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##### Table of Contents



of Directors. Pursuant to the Companys Restated By-laws, certain corporate
actions require the approval of a supermajority of the Board.

The Secured Notes and the Senior Subordinated Term Loan require the Company to
meet certain financial covenants, including minimum EBITDA requirements and
limitations on capital expenditures. The Secured Notes and the Senior
Subordinated Term Loan covenants also require that the Company maintain a
minimum cash balance equal to 75% of the outstanding principal amount of the
Secured Notes until July 25, 2003, and 50% of the outstanding principal balance
thereafter. Accordingly, on the Effective Date the Company transferred $45
million to a cash collateral account, which is classified as restricted cash in
the Companys balance sheet. The Company expects that $17 million of the
restricted cash balance will become available as a result of scheduled
principal repayments of the Secured Notes and the reduction of the required
minimum cash balance to 50% of the outstanding principal amount of the Secured
Notes in the second half of 2003. Therefore, $17 million of restricted cash
has been classified as current at December 31, 2002.

The Company leases certain office facilities and fiber equipment under various
capital lease arrangements. As of December 31, 2002, the Company had $97
million in capital lease obligations, $6 million of which is due in 2003.
Capital lease obligations include the Companys corporate headquarters
building, land and improvements (collectively, the Company Headquarters).
The balance of the Company Headquarters lease agreement was $51 million at
December 31, 2002. The lease expires in January 2023.

Other debt totaling $26 million consists primarily of notes issued to vendors
and taxing authorities. The notes have interest rates that range from 4% to
10%, and a weighted average interest rate at December 31, 2002, of 7.5%. The
expiration dates of the notes range from 2003 through 2006. Principal and
interest are generally payable monthly. Approximately $9 million of other debt
has yet to be formally documented with a note, but is expected to be in the
near future.

Under the Reorganized Companys articles of incorporation and in accordance
with the Modified Plan, the Company is authorized to issue 10,000,000 shares of
preferred stock at a par value of $0.001 per share; however, none had been
issued as of December 31, 2002.

Funding Requirements

At December 31, 2002, the Company had cash, cash equivalents and restricted
cash totaling $102 million, which is comprised of the following: (i) cash and
cash equivalents of $51 million; (ii) restricted cash  current of $17 million,
which represents the amount the Company expects will be available for current
operations in the second half of 2003; and (iii) restricted cash
 non-current
of $34 million.

The Company expects to pay approximately $17 million in 2003 to certain holders
of pre-petition claims, professional services providers, and other parties for
matters relating to the Companys bankruptcy proceedings.

The Company anticipates that it will need additional financing in 2005 and 2006
in order to refinance the Secured Notes and the Senior Subordinated Term Loan,
respectively, which become due. Such refinancing, however, is contingent upon
market conditions and the Companys results of operations, and is therefore not
assured.





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##### Table of Contents



Capital Commitments

Contractual Cash Commitments

The following table summarizes the Companys contractual cash commitments at
December 31, 2002:

|                                              |  |                           |         |        |  |           |        |           |  |           |         |         |  |  |        |  |  |           |         | 
|--------------------------------------------- |  | ------------------------- | ------- | ------ |  | --------- | ------ | --------- |  | --------- | ------- | ------- |  |  | ------ |  |  | --------- | ------- | 
|                                              |  |                           |         |        |  |           |        |           |  |           |         |         |  |  |        |  |  | More than
|                                              |  |                           |         |        |  | Less than |        | 1-3 years |  | 3-5 years |         | 5 years
|                                              |  |                           |         |        |  | 1 year    |        | (2004-    |  | (2006-    |         | (2008 -
|                                              |  | Total                     |         | (2003) |  | 2005)     |        | 2007)     |  | 2022)    
|                                              |  |                           |         |        |  |           |        |           |  |          
|                                              |  | (in thousands of dollars)
|Long-term debt obligations                    |  |                           | 110,642 |        |  |           | 12,973 |           |  |           | 70,211  |         |  |  | 27,458 |  |  |           |        | 
|Capital lease obligations, excluding interest |  |                           | 96,585  |        |  |           | 5,642  |           |  |           | 13,539  |         |  |  | 1,360  |  |  |           | 76,044  | 
|Operating lease obligations                   |  |                           | 109,941 |        |  |           | 18,971 |           |  |           | 29,065  |         |  |  | 24,182 |  |  |           | 37,723  | 
|Purchase obligations                          |  |                           | 20,391  |        |  |           | 4,326  |           |  |           | 2,279   |         |  |  | 1,578  |  |  |           | 12,208  | 
|                                              |  |                           |         |        |  |           |        |           |  |           |         |         |  |  |        |  |  |           |         | 
|Total                                         |  |                           | 337,559 |        |  |           | 41,912 |           |  |           | 115,094 |         |  |  | 54,578 |  |  |           | 125,975 | 
|                                              |  |                           |         |        |  |           |        |           |  |           |         |         |  |  |        |  |  |           |         | 

Capital Expenditures

Capital expenditures, exclusive of amounts required to maintain network
functionality, will be driven primarily by customer demand for the Companys
services. If customer demand for new services does not meet managements
expectations, capital expenditures will be proportionally reduced. The Company
expects that approximately $13 million will be required in 2003 for capital
expenditures related to network infrastructure upgrades, enhancements to back
office systems and to sustain the current network functionality. The Company
has significant capacity available on its data backbone, metropolitan and
regional fiber networks and in its modem banks. It is the Companys objective
to use this capacity to generate future revenue streams.

Assessment of Risks and Uncertainties

The Company is subject to a number of significant risks. The telecommunications
industry contains many inherent risks, and the Company faces risks specific to
its own operations. These risks include, but are not limited to the following:

Customer concentration and the Companys ability to retain its major customers
on profitable terms

A significant amount of the Companys revenue is derived from long-term
contracts with certain large customers. In 2002, three customers individually
represented more than 5% of ICGs total revenue: Qwest Communications
Corporation (together with its affiliated entities, Qwest), a large national
ISP and UUNET (a subsidiary of WorldCom, Inc., together with its affiliated
entities, WorldCom). Revenue from Qwest accounted for 30% of total revenue
for the year ended December 31, 2002. Revenue from the top three and ten
customers in 2002 accounted for 43% and 65%, respectively, of ICGs total
revenue.

In general, upon the contractual expiration of the Companys agreements with
its customers, there can be no assurance that customers will elect to continue
such agreements; in fact, they may elect to disconnect services. In addition,
certain material customer agreements do not require the customer to maintain
minimum commitments at their current levels. There can be no assurance that
such customers will continue to purchase the same amount of services from ICG.

During 2002, a number of the Companys customers filed for bankruptcy
protection. Under the Bankruptcy Code, customers who file for
bankruptcy protection may choose to affirm or
reject their pre-petition contracts with the Company. If they choose to reject
those contracts, ICGs recourse is to pursue an unsecured claim in the
customers bankruptcy proceeding for damages associated with rejection of the
contract. The ultimate amount and nature of recovery on such claims is highly
uncertain and specific to each proceeding. WorldCom filed for bankruptcy
protection on July 21, 2002.





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##### Table of Contents



Since WorldComs bankruptcy filing, ICG has continued to provide service to
WorldCom. The WorldCom entities accounted for approximately 11% of the
Companys revenue in 2002. ICG and one of Worldcoms subsidiaries, MCI Worldcom
Network Services, Inc., have reached agreement with regard to the assumption of
MCI Worldcom Network Services, Inc.s pre-petition contract. The
assumption is subject to approval by Worldcoms bankruptcy court. If approved,
the assumption will result in a total reduction in contractual revenue of
approximately $8.9 million over the combined fiscal years 2003 and 2004.

As of December 31, 2002, customers who have filed for bankruptcy protection
represented less than 14% of the Companys monthly revenue. This revenue could
be subject to rejection pursuant to the customers bankruptcy proceedings. The
Company is unable at this time to predict the ultimate outcome of such
proceedings. Furthermore, given the depressed state of the national economy
and the telecommunications sector in particular, there can be no assurance that
the Company will not continue to lose significant recurring revenue due to
customer bankruptcies.

In addition, several of ICGs other customers have approached ICG about
possibly settling or restructuring future rates and/or levels of service
provided under their service contracts. If the Company agrees to settle or
restructure the future provisions of any significant customer contracts, ICGs
results of operations and financial condition could be materially affected. At
this time, the Company cannot predict the possible outcome of such
negotiations.

While management continues to evaluate and plan for the expiration of certain
contracts with large customers and the replacement of monthly recurring revenue
from customers currently involved in bankruptcy proceedings, the unexpected
loss of any one or more of these customers, particularly Qwest, could have a
significant impact on the Companys operating results.

The Companys ability to collect reciprocal compensation

Reciprocal compensation rates are negotiated elements of inter-carrier
compensation established pursuant to interconnection agreements between the
parties. The Company has executed interconnection agreements with all
regional bell operating companies (RBOCs) and most other ILECs and, while the initial terms of some of those agreements have expired or
are soon expiring, the Company is in the process of renegotiating and extending
the terms of the interconnection agreements. The interconnection agreements
currently in effect with three of the major RBOCs expire in June 2003, October
2003, and June 2004, respectively.

In most states in which the Company provides services, regulatory bodies have
established lower traffic termination rates than the negotiated rates provided
for in the Companys interconnection agreements. As a result, future
reciprocal compensation rates will likely be lower than the rates under the
expiring interconnection agreements.

Reciprocal compensation revenue is discussed in more detail under Results of
Operations.

The Companys ability to sustain positive operating income and EBITDA

Prior to filing for Bankruptcy, the Company incurred substantial net losses and
negative cash flows from operating activities. Since the second quarter of
2001, however, the Company has experienced positive EBITDA. Additionally,
since the third quarter of 2002, the Company has experienced positive operating
income. Nevertheless, there can be no assurance that the Company will continue
to experience positive EBITDA or operating income. A reconciliation of EBITDA
results to net income (loss) is presented herein under Results of Operations.

The Companys ability to
successfully maintain commercial relationships with its critical suppliers

The Company relies in part on other telecommunications service providers to
provide data communications capacity via leased telecommunications lines. If
its suppliers are unable or unwilling to provide or expand their current levels
of service to the Company in the future, or are unable to provide these
services in a timely manner, ICGs operations could be materially affected.
Although leased telecommunications lines are available from several alternative
suppliers, there can be no assurance that ICG could obtain substitute services
from other providers at reasonable prices or in a timely fashion. ICG is also
subject to risks relating to potential disruptions in its suppliers services,





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and there are no assurance that such interruptions will not occur in the future.
Service interruptions could produce substantial customer dissatisfaction and possibly cause the Company to
fail to meet its minimum network performance commitments, which could adversely
affect the Companys results of operations and financial condition.

The Companys ability to
manage expansion of its service offerings and its network and infrastructure

The Company plans to introduce new communications services, expand service in
its existing markets, and possibly expand service offerings into new markets.
Such projects of a significant nature entail various operational and financial
risks, including the following:



| |  |  | Obtaining any required governmental permits and rights-of-way;                                    
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | Implementing interconnection agreements with ILECs and addressing other regulatory matters;       
|
| |  |  | Designing, acquiring, and installing transmission, switching and data facilities;                 
|
| |  |  | Attracting new customers and selling new services to existing customers;                          
|
| |  |  | Training and managing the Companys employee base; and                                            
|
| |  |  | Accurately predicting and managing the cost and timing of associated capital expenditure programs.

In the event the Company is unable to successfully manage and implement such
projects, the Companys business, results of operations and financial condition
could be adversely affected in a material manner.

The Secured Notes and Senior Subordinated Term Loan contain certain covenants
that restrict the Companys financial and operational flexibility

Under the terms of the Secured Notes and Senior Subordinated Term Loan, the
Company is required to adhere to a number of affirmative, negative and
financial covenants, including among other things, covenants which require it
to maintain a minimum cash balance, maintain a minimum level of EBITDA
performance and limitations on capital expenditures.

In addition, the Secured Notes and the Senior Subordinated Term Loan contain
other restrictive provisions or covenants that limit, and in some circumstances
prohibit, the Companys ability to:



| |  |  | Incur additional debt;                                       
| | - |  | -------------------------------------------------------------
|
| |  |  | Engage in mergers and acquisitions;                          
|
| |  |  | Pay dividends, make investments or other restricted payments;
|
| |  |  | Create liens;                                                
|
| |  |  | Sell assets; and                                             
|
| |  |  | Raise additional capital.                                    

These provisions and covenants may limit the Companys future financial and
operating flexibility. In addition, if the Company is unable to maintain
compliance with the covenants in the Secured Notes and the Senior Subordinated
Term Loan, the lenders may accelerate repayment of amounts owed under these
credit agreements. Furthermore, the Secured Notes and the Senior Subordinated
Term Loan contain cross-default provisions under
which the Company is deemed to be in default under such credit agreements if it
is in default under any of the Companys other material outstanding
obligations.





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Based on certain internal Company projections, the Company would need to
request a modification or waiver with respect to the minimum level of EBITDA
performance by the fourth quarter of 2004 if such projected future operating
results were to ultimately be realized. However, management anticipates that
the Companys business provides sufficient flexibility (i.e. improved sales and
revenue performance, reduced costs, etc.) so as to enable the Company to remain
in compliance with the financial covenants. The Companys financial
projections are based on the good faith assumptions of management, which are
inherently uncertain. Actual results could be materially different (positively
or negatively) from these projections, which in turn could impact the Companys
compliance with the financial covenants. In the event of non-compliance,
absent the Companys ability to obtain a modification or waiver of
non-compliance from the secured lenders, or secure additional capital or
alternative financing, the secured lenders could declare a default requiring
the Company to accelerate repayment.

Changes in, or the Companys inability to comply with, existing government
regulations

Communications services are subject to significant regulation at the federal,
state and local levels. Assumptions inherent in ICGs business plan are
consistent with both existing, as well as recently enacted regulatory changes.
An adverse change to the regulatory environment, however, could negatively
impact the Company in a number of ways, including:



| |  |  | Delays in receiving required regulatory approvals or the imposition
of onerous conditions for these approvals;                                                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Difficulties in completing and obtaining regulatory approval of
interconnection agreements, which provide for the interconnection of
ICGs networks with existing local telephone companies networks;
|
| |  |  | Enactment of new, adverse legislation or regulatory requirements or
changes in the interpretation of existing laws or regulations; and                                                                
|
| |  |  | Enactment of new, adverse legislation that increases the Companys
tax burden or the tax burden of the Companys customers.                                                                           

Many regulatory proceedings regarding issues that are important to the
Companys business are currently underway or are being contemplated by federal
and state authorities. Changes in regulations or future regulations adopted by
federal, state or local regulators, or other legislative or judicial
initiatives relating to the telecommunications industry could cause ICGs
pricing and business models to fluctuate or otherwise have a material adverse
effect on the Company.

The performance of the Companys network

Many of the Companys material service contracts require the Company to meet
certain minimum performance standards. In the event the Company fails to meet
these minimum performance levels, the Company may be required to issue credits
and the customers may, in certain circumstances, have the ability to terminate
their contracts and pursue other civil remedies. Although the Companys
network has been designed in such a manner so as to mitigate the impact of
network outages, there can be no guarantee that such a significant network
failure will not occur. In the event of such a network outage, the Company
could fail to meet these performance standards and its revenue could be
impacted accordingly.

Additionally, while the Company has installed what it believes are adequate
protections to guard against unauthorized use of its network by third parties,
these safeguards are not infallible and it is possible that the integrity of
the network could be compromised to the detriment of the Company and its
customers.

The rapid change of technology within the telecommunications industry

ICG believes its telecommunications infrastructure enables the Company to
provide superior service and reliability to its customers. Nevertheless, the
Company continuously evaluates emerging technologies in light of its planned





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service offerings and the demands of its customer base in order to maintain the
Companys competitive positioning within the industry (i.e. functionality,
operating cost structure, etc.).

Integrating new technologies into the Companys network, if necessary, may
prove difficult and expensive and technological upgrades to the Companys
network may not become available in a timely fashion at a reasonable cost, or
at all. Furthermore, the development and introduction of new technologies by
competitors may reduce the cost of services similar to those the Company
provides and/or could give rise to new competition not currently anticipated.
If the Companys network infrastructure becomes obsolete and the Company is
unable to maintain its competitive positioning, ICGs business, results of
operations and financial condition could be adversely affected in a material
manner.

Moreover, the Company relies on critical vendors to continue to support the
existing technology deployed in the Companys network. While the Companys
vendors are committed to supporting such critical Company infrastructure for
the near term, such support will not necessarily be available indefinitely. In
such circumstances, the Company would either need to develop alternative
methods of support or replace existing technology, neither of which may be
feasible.

The Companys ability to access capital markets in a timely manner, at
reasonable costs and on satisfactory terms and conditions

The terms and conditions of the Secured Notes and the Senior Subordinated Term
Loan require repayments in 2005 and 2006, respectively. Management does not
anticipate that internally generated funds will be sufficient to satisfy these
debt payments. Accordingly, depending upon actual operating results, ICG will
likely need to raise additional funds to refinance the Secured Notes and the
Senior Subordinated Term Loan in 2005 and 2006, respectively.

Further, the Company may need to raise additional funds to take advantage of
unanticipated opportunities, including expansion or acquisitions of
complementary businesses or technologies, develop new products or services, or
respond to unanticipated competitive pressures.

If ICG does not have sufficient funding for its growth or contractual cash
commitments, it may be required to delay or abandon certain development plans
or seek additional capital earlier than anticipated. The Company cannot provide
any assurance that additional financing arrangements will be available to it on
acceptable terms, or at all. Moreover, ICGs outstanding indebtedness may
adversely affect its ability to engage in additional financings. If adequate
funds are not available, ICGs business, results of operations and financial
condition could be adversely affected in a material manner.

The Reorganized Company is largely controlled by two parties

As of March 14, 2003, Huff and Cerberus control approximately 21.6% and 16.3%,
respectively, of the voting securities of the Reorganized Company. See Part
III, Item 12, Certain Beneficial Owners.In addition, pursuant to the
Modified Plan and the Companys Restated By-laws, the Companys Board of
Directors is comprised of five directors, with Huff and Cerberus each having
the right to appoint two directors. Further, a super-majority vote of the
existing Board of Directors is required to appoint an additional director. If
the Company issues additional stock for aggregate consideration of at least
$25,000,000 in cash, assets or stock to anyone other than Huff or Cerberus, the
number of directors may be increased by two members with a majority vote of the
Board.

Additionally, the non-Huff and non-Cerberus shareholders currently do not have
the authority to amend the Restated By-laws as they relate to the control of
the Board of Directors by Huff and Cerberus. The non-Huff and non-Cerberus
shareholders will have the authority to replace one of the Huff nominees only
when Huff beneficially owns less than 5% of the common stock of the Reorganized
Company (before management options). The second
Huff nominee can be replaced if Huff holds less than 1% (before management
options) of the common stock of the Reorganized Company. The non-Huff and
non-Cerberus shareholders will have the authority to replace one of the
Cerberus nominees only when Cerberus beneficially owns less than 5% of the
common stock of the Reorganized Company (before management options) and
Cerberus no longer owns any portion of the Senior Subordinated Term





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##### Table of Contents



Loan. The second Cerberus nominee can be replaced if Cerberus no longer owns any of the
Senior Subordinated Term Loan and holds less than 1% (before management
options) of the common stock of the Reorganized Company.

As a result of the foregoing, it is likely that, for the foreseeable future,
Huff and Cerberus will have the collective ability to control all matters
requiring Board action, including potential financing transactions, mergers and
acquisitions, sales or other dispositions of assets, the nomination of
directors and the overall management and policies of the Company. It is also
possible, however, that in certain circumstances the interests of Huff and
Cerberus may not coincide. Moreover, as certain of the directors are in some
cases also employees or agents of Huff or Cerberus, they may not be considered
independent by some standards.

Potential for business combinations

The Company continuously evaluates the feasibility and possible strategic
benefits of potential business combinations and other transactions that would
extend its geographic markets, expand its services, or enlarge the capacity of
the Companys networks. Notwithstanding the required consent from its secured
lenders under the Senior Notes and the Senior Subordinated Term Loan in order
to consummate such a transaction, any material transaction that the Company
would undertake could result in an increase in the Companys indebtedness or
the issuance of additional common stock or both, or a change of control. There
can be no assurance that the Company will enter into any such transaction or,
if it does, on what terms.

General economic conditions and the related impact on demand for the Companys
services

The national economy, and the telecommunications industry in particular, have
been significantly affected by the current economic slowdown. Many of the
Companys customers have experienced substantial financial difficulty over the
last year, in some cases leading to bankruptcies and liquidations. The
financial difficulties of the Companys customers could have a material impact
if the Company is unable to collect revenue from these customers. In addition,
customers experiencing financial difficulty are less likely to order additional
services, and the Companys business plan is predicated upon increasing both
the number of customers and the services current customers order.

The telecommunications industry is extremely competitive, particularly with
regard to pricing for services and service levels. Many of the Companys
existing and potential competitors have significantly greater resources than
ICG. Competitors may also have more established brand names and larger
customer bases to better promote their services.

Further, the immense capital investments made in the telecommunications
industry have created an oversupply of network infrastructure. Combined with
this oversupply, rapid technological advancements and intense competition have
resulted in significant pricing pressure in each of the Companys main service
areas. While the Company believes that overall its pricing is competitive, it
cannot predict what impact such oversupply of network infrastructure will have
on future operating results. There can be no assurance that sufficient demand
will exist for the Companys services, that prices will not continue to
decline, or that the Company can successfully compete in its selected markets.

Moreover, the financial difficulties experienced by the telecommunications
industry diminish the Companys ability to obtain additional capital and may
adversely affect the willingness of potential customers to move their
telecommunications services to an emerging provider such as ICG.

Off Balance Sheet Financing

The Company has no off balance sheet financing other than long term commitments
for operating leases and rents as shown in the summary of Contractual Cash
Commitments.





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##### Table of Contents



Historical Cash Activities

Net Cash Provided (Used) By Operating Activities

Predecessor Company

The Predecessor Companys operating activities before reorganization items
provided positive cash flow totaling $142 million, $74 million and $29 million
in 2000, 2001 and 2002 Predecessor, respectively.

In 2002 Predecessor, operating activities before reorganization items consisted
of a net loss before reorganization items of $21 million and cash used by
working capital of $24 million, offset by non-cash charges of $74 million. In
2001, operating activities before reorganization items consisted of a net loss
before reorganization items of $99 million, offset by non-cash charges of $136
million and cash provided by working capital of $37 million. In 2000, operating
activities before reorganization items consisted of a net loss before
reorganization items of approximately $2.4 billion, offset by cash provided by
working capital of $212 million and non-cash charges of $2.3 billion, comprised
primarily of approximately $1.7 billion of provision for impairment of
long-lived assets.

Reorganization items used $20 million, $86 million and $31 million of cash in
2000, 2001 and 2002 Predecessor, respectively. Reorganization items represent
primarily reorganization income (expense), net, adjusted for non-cash items
recognized during the bankruptcy process. These non-cash items were comprised
primarily of Fresh Start reporting adjustments in 2002 Predecessor, changes in
liabilities subject to compromise and restructuring accruals, gains related to
contract settlements, and a gain related to the write-off of deferred financing
and offering costs in 2000.

Reorganized Company

The Reorganized Companys operating activities in 2002 provided positive cash
flow totaling $4 million. Operating activities before reorganization items
provided positive cash flow of $8 million, which was offset by a decrease in
restructuring accruals of $4 million. The $8 million of cash provided by
operating activities before reorganization items consisted of depreciation and
amortization of $8 million and other non-cash charges of $3 million, offset by
a net loss of $1 million and cash used by working capital of $2 million.

Net Cash Used By Investing Activities

Predecessor Company

Investing activities used $558 million, $18 million and $78 million in 2000,
2001 and 2002 Predecessor, respectively. Net cash used by investing activities
was primarily comprised of purchases of property and equipment, proceeds from
disposition of property, equipment and other assets, purchases and sales of
short-term investments, and fluctuations in restricted cash and long-term
deposit balances.

Net cash used by investing activities includes cash expended for the
acquisition of property, equipment and other assets of $596 million, $44
million and $37 million in 2000, 2001 and 2002 Predecessor, respectively, which
is net of the change in prepaid expenses, accounts payable and accrued
liabilities related to the acquisition of property and equipment.

Additionally, in accordance with the terms of the Secured Notes, on the
Effective Date the Company transferred $45 million to a cash collateral
account, which is classified as restricted cash in the Companys balance sheet.

The Companys capital expenditures (including assets acquired under capital
leases) were $974 million, $92 million and $41 million in 2000, 2001 and 2002
Predecessor, respectively. In 2000 and 2001, the Company acquired assets under
capital leases and IRU agreements of $231 million and $51 million,
respectively. No assets under capital leases or IRU agreements were acquired
in 2002 Predecessor.





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##### Table of Contents



Reorganized Company

Investing activities in 2002 Reorganized used $8 million, primarily comprised
of purchases of property and equipment, offset by proceeds from decreases in
long-term deposits and restricted cash, and proceeds from the disposition of
property, equipment and other assets. Net cash used by investing activities
includes cash expended for the acquisition of property, equipment and other
assets of $11 million in 2002 Reorganized, which is net of the change in
prepaid expenses, accounts payable and accrued liabilities related to the
acquisition of property and equipment.

The Companys 2002 Reorganized capital expenditures were $10 million. No
assets under capital leases or IRU agreements were acquired in 2002
Reorganized.

Net Cash Provided (Used) By Financing Activities

Predecessor Company

Financing activities provided $528 million in 2000 and used $21 million, $11
million and $1 million in 2001 and 2002 Predecessor, respectively.

Financing activities for 2002 Predecessor include the receipt of new financing
consisting of a $25 million Senior Subordinated Term Loan, which was used to
pay down the Secured Notes to a balance of $59 million. The Company also made
payments of $2 million for long-term debt issuance costs and $9 million for
capital leases.

Due to the Companys ongoing bankruptcy proceedings, the Companys financing
activities in 2001 were minimal. All pre-petition contractual debt and capital
lease payments were suspended pursuant to the Companys bankruptcy proceedings
and subject to revised payment terms on a specific, case-by-case basis. The
Company ceased the accretion of discounts and the accrual of interest on all
unsecured debt subject to compromise as of the Petition Date. The Company
continued to accrue and make interest payments on all fully secured long-term
debt and capital lease obligations. During 2001, the Company made principal
payments on capital leases of $17 million. In addition, the Company made $1
million in preferred stock dividend payments in 2001 as part of a settlement
approved by the Bankruptcy Court.

Net cash provided by financing activities in 2000 includes proceeds from the
Senior Facility, the 8% Series A Convertible Preferred Stock, and the issuance
of common stock in conjunction with the exercise of options and warrants and
the Companys employee stock purchase plan. These cash inflows were offset by
principal payments on long-term debt, capital leases and IRU agreements and
payments of long-term debt issuance costs and preferred dividends.

Reorganized Company

Financing activities used $1 million in 2002 Reorganized, consisting primarily
of principal payments on long-term debt and capital leases.




RESULTS OF OPERATIONS

Due to the adoption of Fresh Start reporting as of October 11, 2002, the
Reorganized Companys post-Fresh Start balance sheet, statement of operations
and statement of cash flows have not been prepared on a consistent basis with,
and are therefore generally not comparable to, those of the Predecessor Company
prior to the application of Fresh Start. In accordance with SOP 90-7, the
Reorganized Companys balance sheet, statement of operations and statement of
cash flows have been presented separately from those of the Predecessor
Company.

The Reorganized Companys revenue (except as noted below), operating costs,
selling, general and administrative expenses, and bad debt expense were not
affected by the adoption of Fresh Start reporting. Therefore, the Predecessor
Companys 2002 amounts have been combined with the Reorganized Companys 2002
amounts for comparison and analysis purposes herein.





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##### Table of Contents



|                                    |                     |                         |                     |          |  |           |  |       |  |                               |     |   |  |      |  |   |  |  |         |  |   |  |     |  |  |  |         |  |  |  |        |  |  |  |         |  |  |  |     | 
|----------------------------------- | ------------------- | ----------------------- | ------------------- | -------- |  | --------- |  | ----- |  | ----------------------------- | --- | - |  | ---- |  | - |  |  | ------- |  | - |  | --- |  |  |  | ------- |  |  |  | ------ |  |  |  | ------- |  |  |  | --- | 
|                                    | Predecessor Company |                         | Reorganized Company
|                                    |                     |                         |                     |         
|                                    |                     | Year Ended December 31, |                     | Jan. 1 - |  | Oct. 12 - |  | Total
|                                    |                     |                         |                     | Oct. 11, |  | Dec. 31,  |  |      
|                                    |                     |                         |                     |          |  |           |  |       |  |                               |     |   |  |      |  |   |  |  |         |  |   |  |     |  |  |  |         |  |  |  |        |  |  |  |         | 
|                                    |                     | 2000                    |                     |          |  |           |  | 2001  |  |                               |     |   |  | 2002 |  |   |  | 
|                                    |                     |                         |                     |          |  |           |  |       |  |                               |    
|                                    |                     | $                       |                     |          |  |           |  | %     |  |                               |     |   |  | $    |  | % |  |  | $       |  | %
|                                    |                     |                         |                     |          |  |           |  |       |  |                               |     |   |  |      |  |   |  |  |         |  |  
|                                    |                     |                         |                     |          |  |           |  |       |  | (dollar amounts in thousands) |     |   |  |      |  |   |  |  |         |  |   |  |     |  |  | 
|Revenue (1)                         |                     |                         | 598,283             |          |  |           |  |       |  |                               | 100 |   |  |      |  |   |  |  | 499,996 |  |   |  | 100 |  |  |  | 333,167 |  |  |  | 86,937 |  |  |  | 420,104 |  |  |  | 100 | 
|Operating costs                     |                     |                         | 440,090             |          |  |           |  |       |  |                               | 74  |   |  |      |  |   |  |  | 351,973 |  |   |  | 70  |  |  |  | 195,351 |  |  |  | 54,873 |  |  |  | 250,224 |  |  |  | 60  | 
|Selling, general
and administrative |                     |                         | 199,508             |          |  |           |  |       |  |                               | 33  |   |  |      |  |   |  |  | 94,155  |  |   |  | 19  |  |  |  | 70,730  |  |  |  | 18,944 |  |  |  | 89,674  |  |  |  | 21  | 
|Bad debt expense                    |                     |                         | 84,457              |          |  |           |  |       |  |                               | 14  |   |  |      |  |   |  |  | 14,236  |  |   |  | 3   |  |  |  | 4,016   |  |  |  | 1,278  |  |  |  | 5,294   |  |  |  | 1   | 
|                                    |                     |                         |                     |          |  |           |  |       |  |                               |     |   |  |      |  |   |  |  |         |  |   |  |     |  |  |  |         |  |  |  |        |  |  |  |         |  |  |  |     | 
|EBITDA (2)                          |                     |                         | (125,772            | )        |  |           |  |       |  |                               | (21 | ) |  |      |  |   |  |  | 39,632  |  |   |  | 8   |  |  |  | 63,070  |  |  |  | 11,842 |  |  |  | 74,912  |  |  |  | 18  | 
|                                    |                     |                         |                     |          |  |           |  |       |  |                               |     |   |  |      |  |   |  |  |         |  |   |  |     |  |  |  |         |  |  |  |        |  |  |  |         |  |  |  |     | 



|(1) |  | Revenue for the Reorganized Company is comparable to the revenue for the
Predecessor Company, except with respect to revenue recognition of certain
deferred revenue. Due to the write down of the deferred revenue balance in
connection with the application of Fresh Start reporting, revenue was
reduced by $1 million per quarter.                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | EBITDA consists of net income (loss) from continuing operations before
interest, income taxes, reorganization income (expense), net, depreciation
and amortization, and other income (expenses), net. EBITDA is presented
to enhance an understanding of the Companys operating results and is not
intended to represent cash flows or results of operations in accordance
with generally accepted accounting principles for the periods indicated.
EBITDA is not a measurement under generally accepted accounting principles
and is not necessarily comparable with similarly titled measures of other
companies. The following table is a reconciliation of the net income
(loss) reported by the Company to EBITDA:

|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  |            |        |  |  |  |  |           |  |             |        |  |  |  |  | 
|--------------------------------------------- | ------ | ------------------- | ------------------------ | -------- | - |  |  | ------- | ------- |  | ------------------------- | ------ |  |  | ------- |  |  |  | ---------- | ------ |  |  |  |  | --------- |  | ----------- | ------ |  |  |  |  | 
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  |            |        |  |  |  |  |           |  | Reorganized |        |  |  | 
|                                              |        | Predecessor Company |                          |          |   |  |  | Company |         |  |                           |       
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |       
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  | Jan. 1 -   |        |  |  |  |  | Oct. 12 - |  |             |        | 
|                                              |        |                     | Years Ended December 31, |          |   |  |  |         | Oct. 11 |  |                           |        |  |  | Dec. 31 |  |  |  |           
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  |           
|                                              |        |                     | 2000                     |          |   |  |  |         | 2001    |  |                           |        |  |  | 2002    |  |  |  |           
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  |           
|                                              |        |                     |                          |          |   |  |  |         |         |  | (in thousands of dollars) |        |  |  |         |  |  |  |            |        |  |  | 
|Net income (loss)                             |        |                     | (2,493,517               | )        |   |  |  |         |         |  | (112,665                  | )      |  |  |         |  |  |  | 4,367,334  |        |  |  |  |  |           |  | (1,476      | )      |  |  |  | 
|Reorganization expense
(income), net          |        |                     | 53,897                   |          |   |  |  |         |         |  | 13,451                    |        |  |  |         |  |  |  | (4,387,967 | )      |  |  |  |  |           |  |            |        |  |  |  | 
|Depreciation and amortization                 |        |                     | 318,771                  |          |   |  |  |         |         |  | 67,768                    |        |  |  |         |  |  |  | 66,127     |        |  |  |  |  |           |  | 8,110       |        |  |  |  | 
|Interest expense                              |        |                     | 233,643                  |          |   |  |  |         |         |  | 32,214                    |        |  |  |         |  |  |  | 17,017     |        |  |  |  |  |           |  | 5,514       |        |  |  |  | 
|Interest income                               |        |                     | (22,370                  | )        |   |  |  |         |         |  |                          |        |  |  |         |  |  |  |           |        |  |  |  |  |           |  | (232        | )      |  |  |  | 
|Provision for impairment of
long-lived assets |        |                     | 1,701,466                |          |   |  |  |         |         |  | 27,943                    |        |  |  |         |  |  |  | (673       | )      |  |  |  |  |           |  |            |        |  |  |  | 
|Other expense (income), net                   |        |                     | 82,338                   |          |   |  |  |         |         |  | 10,921                    |        |  |  |         |  |  |  | 1,172      |        |  |  |  |  |           |  | (74         | )      |  |  |  | 
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  |            |        |  |  |  |  |           |  |             |        |  |  |  | 
|                                              | EBITDA |                     |                          | (125,772 | ) |  |  |         |         |  |                           | 39,632 |  |  |         |  |  |  |            | 63,070 |  |  |  |  |           |  |             | 11,842 |  |  |  |  | 
|                                              |        |                     |                          |          |   |  |  |         |         |  |                           |        |  |  |         |  |  |  |            |        |  |  |  |  |           |  |             |        |  |  |  | 





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##### Table of Contents



YEAR 2002 COMPARED TO YEAR 2001

Revenue

|                         |               |  |                               |         |      |  |  |  |   |  |    |     |   |  |         |         |  |  |    |     | 
|------------------------ | ------------- |  | ----------------------------- | ------- | ---- |  |  |  | - |  | -- | --- | - |  | ------- | ------- |  |  | -- | --- | 
|                         |               |  | Year Ended December 31,      
|                         |               |  |                              
|                         |               |  | 2001                          |         | 2002
|                         |               |  |                               |         |     
|                         |               |  | $                             |         |      |  |  |  | % |  | $  |     | %
|                         |               |  |                               |         |      |  |  |  |   |  |    |     |  
|                         |               |  | (dollar amounts in thousands)
|Dial-Up                  |               |  | 177,917                       |         |      |  |  |  |   |  | 36 |     |   |  | 184,575 |         |  |  | 44 |    
|Point-to-Point Broadband |               |  | 146,808                       |         |      |  |  |  |   |  | 29 |     |   |  | 103,890 |         |  |  | 25 |    
|Corporate Services       |               |  | 111,537                       |         |      |  |  |  |   |  | 22 |     |   |  | 70,402  |         |  |  | 17 |    
|Reciprocal compensation  |               |  | 63,734                        |         |      |  |  |  |   |  | 13 |     |   |  | 61,237  |         |  |  | 14 |    
|                         |               |  |                               |         |      |  |  |  |   |  |    |     |   |  |         |         |  |  |    |    
|                         | Total Revenue |  |                               | 499,996 |      |  |  |  |   |  |    | 100 |   |  |         | 420,104 |  |  |    | 100 | 
|                         |               |  |                               |         |      |  |  |  |   |  |    |     |   |  |         |         |  |  |    |    

Total revenue decreased $80 million, or 16%, for the year ended December 31,
2002, as compared to the year ended December 31, 2001. The decrease was due
primarily to a $43 million decrease in Point-to-Point Broadband revenue, a $41
million decrease in Corporate Services revenue, and a $3 million decrease in
reciprocal compensation revenue, offset by a $7 million increase in Dial-Up
revenue.

The general economic downturn and the severe downturn in the telecommunications
industry have resulted in an oversupply of network infrastructure. In
addition, the slowing economy has resulted in many of the Companys customers
ceasing operations, filing for bankruptcy protection, or looking for
opportunities to cut costs. The effects on the Company include higher levels
of customer disconnections and increased pricing pressure on new and existing
customer contracts. In addition, customers are taking longer to make buying
decisions, thus lengthening the sales cycle.

Dial-Up

Dial-Up revenue is earned by providing PRI ports (one- and two- way) and
managed modem (RAS) services to ISPs and other communication service companies.
Dial-Up revenue is comprised of (i) monthly recurring revenue, which includes
fixed monthly service revenue and service revenue directly attributable to
usage and (ii) non-recurring revenue, which includes installation revenue,
billing adjustments and credits, and other non-recurring items.

Dial-Up revenue increased 4% from $178 million in 2001 to $185 million in 2002.
For 2002 as compared to 2001, monthly recurring revenue increased 1% due to a
20% increase in the average billed line count, offset by a 16% decrease in the
average monthly revenue per line. The average monthly revenue per line
decreased due primarily to contract renegotiations with major customers and a
change in product mix. Dial-Up revenues contribution to total revenue rose
from 36% in 2001 to 44% in 2002.

Point-to-Point Broadband

Point-to-Point Broadband revenue is generated from service provided to IXCs and
end-user business customers. This service provides dedicated bandwidth and
offers DS1 to OC-192 capacity to connect: (i) long-haul carriers to local
markets, large companies and other long-haul carrier facilities; and (ii) large
companies to their long distance carrier facilities and other facilities.

Point-to-Point Broadband revenue decreased 29% from $147 million in 2001 to
$104 million in 2002. The decrease in Point-to-Point Broadband revenue was
comprised of decreases in special access, switched access and SS7 revenues of
28%, 54% and 55%, respectively. Special access revenue decreased primarily due
to churn related to IXC customers reducing network capacity and a loss of
end-users as a result of the economic downturn. Special access, switched
access and SS7 revenue represented 90%, 6% and 4%, respectively of total
Point-to-Point Broadband revenue in 2002.
Switched access and SS7 revenues decreased primarily due to the loss of
customers. Point-to-Point Broadband revenues contribution to total revenue
declined from 30% in 2001 to 25% in 2002.





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##### Table of Contents



Corporate Services

Corporate Services revenue includes: (i) local enhanced telephony (Voice);
(ii) dedicated internet access (DIA) provided to businesses over ICGs major
metropolitan fiber optic networks or lines leased from the ILECs; and (iii)
other business services. Other business services include carrier access
billing service (CABS), which is generated from the origination & termination
of switched access traffic, as well as long distance revenue in 2001.

Corporate Services revenue decreased 37% from $112 million in 2001 to $70
million in 2002. Recurring voice revenue decreased $32 million, or 43%, due
primarily to a 40% decrease in the average billed line count, which was
primarily due to customer churn, and a 4% decrease in the average monthly
revenue per line. Corporate Services revenue was also impacted by a $5
million, or 95%, decrease in long-distance revenue as a result of the Companys
transition out of the long-distance business in the fourth quarter of 2001.
Corporate Services revenues contribution to total revenue declined from 22% in
2001 to 17% in 2002.

Reciprocal compensation

Reciprocal compensation revenue is primarily earned pursuant to interconnection
agreements with ILECs for the transport and termination of calls originated by
ILEC customers, including Internet bound calls.

Reciprocal compensation revenue decreased 4% from $64 million in 2001 to $61
million in 2002. Reciprocal compensations contribution to total revenue
increased from 13% in 2001 to 14% in 2002. Reciprocal compensation revenue
includes $4 million and $13 million from customer settlements in 2001 and 2002,
respectively. Excluding these settlements, reciprocal compensation revenue
would have decreased 19% primarily due to contractual and regulated rate
reductions. The Company anticipates that reciprocal compensation revenue will
continue to decline in the future based on future negotiated and regulated rate
reductions and the expiration of agreements currently in effect between ICG and
the major ILECs.

Operating costs

Total operating costs decreased 29% from $352 million in 2001 to $250 million
in 2002. As a percentage of revenue, operating costs also decreased from 70%
in 2001 to 60% in 2002. Operating costs consist primarily of payments to
ILECs, other CLECs, and long distance carriers for the use of network
facilities to support local, special, switched access services, and long
distance services as well as internal network operating costs, right of way
fees and other operating costs. Internal network operating costs include the
cost of engineering and operations personnel dedicated to the operations and
maintenance of the network. In 2002, the Company continued to reduce excess
network capacity and reconfigure its network for better performance. In
addition, the Company reduced headcount in 2002 by 16%.

Selling, general and administrative expenses (SG&A)

SG&A expenses decreased 5% from $94 million in 2001 to $90 million in 2002.
SG&A expenses represented 19% and 21% of revenue in 2001 and 2002,
respectively. SG&A expenses decreased primarily due to reduced headcount,
lower facilities costs achieved in connection with the Companys consolidation
of its locations during the bankruptcy reorganization, and reduced real estate
and personal property taxes achieved as a result of write downs in the value of
the Companys property and equipment.

Bad debt expense

Bad debt expense decreased 63% from $14 million in 2001 to $5 million in 2002
due to improved collections and customer settlements.





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##### Table of Contents



Depreciation and amortization

Predecessor Company:Depreciation and amortization expense was $68 million and
$66 million for 2001 and 2002 Predecessor, respectively. Pursuant to the
adoption of Fresh Start in October 2002, the Company wrote down the book value
of its property and equipment by $392 million, and the $126 million balance of
the accumulated depreciation to zero. The total Fresh Start value of the
long-lived assets was allocated pro rata to the individual asset categories
based on recent asset appraisals. The new property and equipment values are
being depreciated over the remaining useful lives of the assets.

Reorganized Company:Depreciation and amortization expense for 2002 Reorganized
was $8 million. The average remaining useful life of the Companys property
and equipment in service at December 31, 2002, is approximately 6 years.

Provision for impairment of long-lived assets

Predecessor Company:Impairment charges of $28 million and $0.6 million were
recorded in 2001 and 2002 Predecessor, respectively, to reduce assets
classified as held for sale to their fair value.

Reorganized Company:The Company performed an analysis pursuant to the
requirements of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, as of December 31, 2002, to determine if a provision for
impairment of its long-lived assets was required. The analysis compared the
Companys estimate of future undiscounted cash flows that will be generated by
the existing long-lived assets to their net book value of $231 million. The
analysis indicated that no provision for impairment was required.

Other, net operating costs and expenses

Other, net operating costs and expenses decreased from $12 million in 2001 to
$0.7 million in 2002 Predecessor. Other, net operating costs and expenses
consist primarily of the loss on disposal of long-lived assets.

Interest expense

Predecessor Company:Interest expense was $32 million and $17 million for 2001
and 2002 Predecessor, respectively. Interest expense for 2001 includes $12
million relating to the Companys Debtor-in-Possession Revolving Credit
Agreement (the DIP Financing) with Chase Manhattan Bank, which originated on
December 4, 2000. On November 7, 2001, the Company terminated the DIP
Financing without ever having drawn any amounts under this agreement.

Contractual interest that was not recorded due to the bankruptcy proceedings
totaled $249 million and $198 million in 2001 and 2002 Predecessor,
respectively.

Reorganized Company:The Company incurred $6 million in interest expense after
the bankruptcy reorganization. Interest expense was incurred primarily on the
Secured Notes, the Senior Subordinated Term Loan, other debt and capital
leases.

Interest income

Predecessor Company:Interest income of $7 million and $2 million in 2001 and
2002 Predecessor, respectively, was considered earned as a result of the
bankruptcy filing, and was therefore classified as a reorganization item in
accordance with the requirements of SOP 90-7. The decrease in total income is
attributable to the decrease in cash, cash equivalents and short-term
investments resulting from the use of the Companys cash balances in connection
with its reorganization through the bankruptcy proceedings, and from generally
lower interest rates and yields on its invested cash.

Reorganized Company:Interest income of $0.2 million earned after the
bankruptcy reorganization is included in Interest Income in the consolidated
statement of operations.





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##### Table of Contents



Reorganization income (expense), net

The Company recorded net reorganization expense of $13 million and net
reorganization income of approximately $4.4 billion for 2001 and 2002
Predecessor, respectively. Reorganization items consist of income and
expenses associated with the bankruptcy proceedings that are not directly
attributable to the ongoing operations of the Company.

In 2002 Predecessor, reorganization items consisted primarily of approximately
$4.5 billion of gain on debt discharge and equity restructuring, $142 million
for Fresh Start adjustments, $118 million related to the final settlement of
pre-petition bankruptcy claims, contract termination expenses of $22 million
and legal and professional fees of $11 million.

In 2001, reorganization costs included a gain from settlements with major
customers of $39 million and interest income earned as a result of the
bankruptcy filing of $7 million, offset by severance and employee retention
costs of $13 million, loss on equipment returned to vendors of $10 million,
legal and professional fees of $17 million, switch site closure costs of $5
million, line cost termination expenses of $9 million and other expenses of $5
million.

YEAR 2001 COMPARED TO YEAR 2000

A series of financial and operational events negatively impacted ICG during the
second half of 2000. These events reduced the Companys expected revenue and
cash flow generation resulting ultimately in the Companys filing for
protection under Chapter 11 of the Bankruptcy Code. The Company, upon filing,
immediately discontinued it expansion plans, ceasing the construction of
facilities and the installation of leased facilities to support the expansion.

Initiatives were put in place to conserve cash and focus on predictable
profitable operations. The headcount was reduced from 3,160 as of September
30, 2000, to 1,476 at March 31, 2001, and further to 1,368 by December 31,
2001. Operating costs, including line costs expenses, were reduced to $85
million for the quarter ended June 30, 2001, from $136 million for the quarter
ended December 31, 2000.

The Company met with key customers and vendors. A customer retention campaign
designed to enhance customer relationships was initiated. Sales efforts were
focused on selling services that could be provided with nominal incremental
cost, utilizing existing infrastructure to reduce the deployment of capital.

Revenue

|                         |               |  |                               |         |   |  |    |     |         |         |    |     |  | 
|------------------------ | ------------- |  | ----------------------------- | ------- | - |  | -- | --- | ------- | ------- | -- | --- |  | 
|                         |               |  | Year Ended December 31,      
|                         |               |  |                              
|                         |               |  | 2000                          | 2001   
|                         |               |  |                               |         |  
|                         |               |  | $                             |         | % |  | $  |     | %      
|                         |               |  |                               |         |   |  |    |     |        
|                         |               |  | (dollar amounts in thousands)
|Dial-Up                  |               |  | 154,343                       |         |   |  | 26 |     | 177,917 |         | 36 |    
|Point-to-Point Broadband |               |  | 166,789                       |         |   |  | 28 |     | 146,808 |         | 29 |    
|Corporate Services       |               |  | 138,088                       |         |   |  | 23 |     | 111,537 |         | 22 |    
|Reciprocal compensation  |               |  | 139,063                       |         |   |  | 23 |     | 63,734  |         | 13 |    
|                         |               |  |                               |         |   |  |    |     |         |         |    |    
|                         | Total Revenue |  |                               | 598,283 |   |  |    | 100 |         | 499,996 |    | 100 | 
|                         |               |  |                               |         |   |  |    |     |         |         |    |    

Total revenue decreased 16% to $500 million in 2001 compared to 2000. Dial-Up
revenues increased significantly to account for 36% of the revenue generated in
2001. The contribution of reciprocal compensation as a percent of total
revenue decreased from 23% in 2000 to 13% in 2001.

Dial-Up revenue increased 15% to $178 million in 2001 from $154 million in
2000. The increase was primarily attributable to a 2% increase in the average
number of customer access ports and a significant reduction in service
credits issued to customers in 2001, offset by a reduction in the average
revenue per port due to product mix and price reductions. The Company issued
$30 million of service credit to customers in the third and fourth quarters of
2000. Service levels significantly improved in early 2001.





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##### Table of Contents



Point-to-Point Broadband revenue, which includes switched access and SS7
revenues, decreased 12% to $147 million in 2001 from $167 million in 2000. The
decrease was due primarily to a reduction of $12 million in switched access
revenues due to reduced customer demand and a reduction of $12 million of
revenue recognized in 2000 on a fiber optic lease agreement with a major
interexchange carrier that did not recur in 2001. Special access, switched
access and SS7 revenue represented 83%, 9% and 8%, respectively of total
Point-to-Point Broadband revenue in 2001.

Corporate Services revenue decreased 19% to $112 million in 2001 from $138
million in 2000. The decrease was primarily attributable to a 21% decrease in
the average number of access lines, many of which were resale lines that
generated a higher than average revenue per line but low margins, and a
reduction in revenue due to the transitioning of long distance services to
another carrier in late 2001.

Reciprocal compensation revenue declined 54% from $139 million in 2000 to $64
million in 2001. Reciprocal compensation revenue is primarily earned under
interconnection agreements with ILECs for terminating local traffic but also
includes revenue from transport and termination of other traffic for the ILECs.
Reciprocal compensation is charged based on a rate per minute of use (MOUs).
Reciprocal compensation MOUs decreased 9% in 2001 from 2000 as the number of
ports and access lines decreased, and the average rate per MOU declined 52%.
In 2000, the Company negotiated new interconnection agreements with several
ILECs. These agreements assured the recognition and receipt of compensation
for terminating ISP traffic but at rates lower than the Company had
historically received. The Company anticipates that due to changes in the
regulatory environment, reciprocal compensation revenue earned after 2003 will
be significantly reduced.

Operating costs

Total operating costs decreased 20% from $440 million in 2000 to $352 million
in 2001. Operating costs decreased as a percentage of revenue from 74% in 2000
to 70% in 2001. Operating costs consist primarily of payments to ILECs, other
CLECs and long distance carriers for the use of network facilities to support
Dial-Up, Voice, Point-to-Point Broadband, Switched access and long distance
services as well as internal network operating costs, right of way fees and
other operating costs. Internal network operating costs include the cost of
engineering and operations personnel dedicated to the operations and
maintenance of the network. Operating costs decreased as a percentage of

revenue primarily due to termination of circuits that were not generating
revenue.

Selling, general and administrative expenses (SG&A)

Total SG&A expenses decreased from $200 million in 2000 to $94 million in 2001,
a 53% decrease. SG&A expenses as a percentage of revenue decreased from 33% in
2000 to 19% in 2001. The decrease in SG&A was attributable to decreases in
salaries and benefits, travel and entertainment, marketing, professional fees
as well as other expenses as a result of the Companys restructuring process
which commenced in the second half of 2000. These reductions included reducing
the full-time employee count from 2,054 at December 31, 2000, to 1,368 at
December 31, 2001, with the majority of the headcount reductions taking place
in the first quarter of 2001.

Bad debt expense

Bad debt expense decreased 83% from $85 million in 2000 to $14 million in 2001.
The Company recorded a provision for uncollectible accounts in 2000 of $29
million and $53 million in the third and fourth quarters of 2000, respectively.
Of those amounts, $6 million and $13 million related to reciprocal
compensation for the third and fourth quarters of 2000, respectively. This
increase in the provision in 2000 was attributable to (i) customers in the ISP
and Internet space that were unable to pay for service, (ii) the resolution of
billing disputes, (iii) customers that stopped or deferred payments for
services as the Company entered bankruptcy and (iv) reduction in the resources
that the Company could afford to expend to enforce the payment of reciprocal
compensation under the interconnection agreements. The decrease in the
provision for uncollectible accounts in 2001 was attributable to significant
improvement in the collection of current billings and past due accounts as well an improvement in
customers reactions to ICGs reorganization and satisfactory settlements of
account balances with major customers.





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##### Table of Contents



Depreciation and amortization

Depreciation and amortization decreased 79% from $319 million in 2000 to $68
million in 2001. The decrease was primarily due to the approximately $1.7
billion impairment charge to reduce tangible and intangible assets to their
fair value as of December 31, 2000. The net book value of the tangible assets
in service became the new cost basis for depreciation as of December 31, 2000.

Provision for impairment of long-lived assets

The Company recorded approximately $1.7 billion and $28 million of provision
for impairment of long-lived assets in 2000 and 2001, respectively.

The Companys impairment analysis as of December 31, 2000, indicated that there
was a shortfall of undiscounted cash flows before interest compared to the
carrying value of the Companys long-lived tangible and intangible assets, and
that impairment had occurred. For purposes of calculating the amount of the
impairment the Company segregated its long-lived assets into three categories:
intangible assets, consisting primarily of goodwill, tangible assets to be
disposed of, and tangible assets to be utilized in ongoing operations.

As a result of the analysis of shortfalls of cash flows to carrying values of
assets, all intangibles, consisting primarily of goodwill relating to the
Companys acquisitions under the purchase method of accounting, were written
off as of December 31, 2000, resulting in an impairment charge of $80 million.

The Company determined that certain assets that would not be utilized under its
business plan would be held for sale. These assets were comprised primarily of
(i) assets under construction, for which the incremental capital required to
place the asset in service was not available; and (ii) assets already in
service that were not deemed necessary in the business plan. An impairment of
$124 million was reflected in the financial statements for 2000 to reduce these
assets to their fair value, which was based on existing appraisals or purchase
offers, less cost to sell. Additional impairment charges of $28 million and
$0.6 million were recorded in 2001 and 2002 Predecessor, respectively, to
reduce assets classified as held for sale to their fair value.

The fair value of tangible assets to be utilized in ongoing operations was
determined to be $550 million at December 31, 2000. This value was derived
based on the following valuation techniques: (i) discounted cash flows; (ii)
asset appraisal; and (iii) current market capitalization.

In order to reduce tangible assets to be used in ongoing operations to the fair
value of $550 million, the Company recorded an impairment charge as of December
31, 2000, of approximately $1.5 billion. No adjustment was made to recorded
depreciation during the year ended December 31, 2000.

The book value of the impaired assets at December 31, 2000, became the new cost
basis of the assets. Subsequent depreciation of the new cost basis was
calculated based on the remaining estimated useful life of the assets.

Other, net operating costs and expenses

Other, net operating costs and expenses increased from $4 million in 2000 to
$12 million in 2001. Other, net operating costs and expenses consist primarily
of the loss on disposal of long-lived assets.

Interest expense

Interest expense decreased from $234 million in 2000 to $32 million in 2001.
The decrease in interest expense was a result of the Companys bankruptcy
filing. Interest was not accrued or paid and discounts were not accreted on
all Prepetition debt subject to compromise. Contractual interest that was not
recorded due to the bankruptcy proceedings
totaled $30 million for the period from the Petition Date through December 31,
2000, and $249 million in 2001. Included in interest expense for 2000 was $176
million of noncash interest. Additionally, interest expense was net of
interest capitalized related to construction in progress of $7 million and $1
million during 2000 and 2001, respectively.





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##### Table of Contents



The Company continued to accrue
and make payments on all fully collateralized long-term debt and capital lease
obligations not subject to compromise.

Interest income

Interest income decreased from $24 million in 2000 to $7 million in 2001.
Interest income earned as a result of the bankruptcy filing of $1 million and
$7 million in 2000 and 2001, respectively, was classified as reorganization
expenses in accordance with the requirements of SOP 90-7. The decrease in
total income was attributable to the decrease in cash, cash equivalents and
short-term investments resulting from the use of the Companys cash balances in
connection with its reorganization under the bankruptcy proceedings and from
generally lower interest rates and yields on its invested cash.

Other expense, net

Other expense, net decreased from $15 million of expense in 2000 to $1.0
million of income in 2001. Other expense, net in 2001 consisted primarily of a
net gain on the sale of investments. The 2000 amount related primarily to the
loss on an investment, partially offset by a gain on a litigation settlement.

Reorganization expense, net

Reorganization expenses associated with the Companys reorganization of $14
million and $54 million in 2001 and 2000, respectively, consist of costs
associated with the bankruptcy proceedings that are not directly attributable
to the on-going operations of the Company. In 2001, reorganization items costs
included a gain on settlement with major customers of $39 million and interest
income earned as a result of the bankruptcy filing of $7 million, offset by
severance and employee retention costs of $13 million, loss on equipment
returned to vendors of $10 million, legal and professional fees of $17 million,
switch site closure costs of $5 million, line cost termination expenses of $9
million and other expenses of $5 million. In 2000, these costs included $37
million for the write-off of deferred financing and offering costs, $10 million
for severance and employee retention costs, $6 million in professional fees, $2
million in lease cancellation charges, offset by $1 million of interest income
earned as a result of the bankruptcy filing.

Accretion and preferred dividends on preferred securities of subsidiaries

Accretion of costs and preferred dividends on preferred securities of
subsidiaries decreased from $60 million in 2000 to $0 in 2001. The decrease
was due to the bankruptcy proceedings. The accretion of the preferred
dividends and amortization of offering costs on all preferred securities ceased
as of the Petition Date. The Company fully accreted the discount and fully
wrote-off the offering costs totaling $10 million associated with the preferred
stock subsequent to the Petition Date. Such amounts are included in
reorganization expenses in the accompanying consolidated statement of
operations. Accretion and preferred dividends on preferred securities of
subsidiaries recorded through the Petition Date for the year ended December 31,
2000, consist of the accretion of issuance costs, discount and preferred
security dividend accruals for the 6 3/4% Preferred Securities, the 14%
Preferred Stock and the 14 1/4% Preferred Stock.

Net income from discontinued operations

Net income from discontinued operations was $4 million in 2000, which consisted
of adjustments to the gain on the disposal of a subsidiary in 1999.

Cumulative effect of change in accounting principle

Cumulative effect of change in accounting principle for revenue from
installation services of $7 million for 2000 was due to the change in
accounting as a result of the adoption of SAB 101 on October 1, 2000, applied
retroactively from January 1, 2000.





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##### Table of Contents



Accretion and dividends of 8% Series A Convertible Preferred Stock to
liquidation value and related dividends

Accretion and dividends of 8% Series A Convertible Preferred Stock to
liquidation value and related dividends was comprised of the dividends and the
accretion to liquidation value of the 8% Series A Convertible Preferred Stock
of $158 million during 2000. The decrease was due to the bankruptcy
proceedings. Recording of the accretion and related dividends ceased as of the
Petition Date.

Charge for beneficial conversion feature of 8% Series A Convertible Preferred
Stock

Charge for beneficial conversion of 8% Series A Convertible Preferred Stock
during 2000 related to the charge to additional paid-in capital of $159 million
of the proceeds of the 8% Series A Convertible Preferred Stock which was the
intrinsic value of the beneficial conversion feature of the convertible
preferred securities. The beneficial conversion feature was recognized
immediately as a return to the preferred shareholders during 2000 as the 8%
Series A Convertible Preferred Stock was immediately convertible into shares of
ICG common stock.

QUARTERLY AND PERIODIC RESULTS

Due to the adoption of Fresh Start reporting as of October 11, 2002, the
Reorganized Companys post-Fresh Start balance sheet, statement of operations
and statement of cash flows have not been prepared on a consistent basis with,
and are therefore generally not comparable to, those of the Predecessor Company
prior to the application of Fresh Start. In accordance with SOP 90-7, the
Reorganized Companys balance sheet, statement of operations and statement of
cash flows have been presented separately from those of the Predecessor
Company.

The following table presents selected unaudited operating results of the
Predecessor Company for three-month quarterly periods during the year ended
December 31, 2001, the nine months ended September 30, 2002, and the period
from October 1 through October 11, 2002, and selected unaudited operating
results of the Reorganized Company for the period from October 12 through
December 31, 2002. The Company believes that all necessary adjustments have
been included in the amounts stated below to present fairly the quarterly and
periodic results when read in conjunction with the Companys consolidated
financial statements and related footnotes included elsewhere in this Annual
Report. Results of operations for any particular quarter or period are not
necessarily indicative of results of operations for a full year or predictive
of future periods. The table also presents selected statistical data as of
the end of each fiscal quarter during the years ended December 31, 2001 and
2002.





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##### Table of Contents



|                                                |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |    | 
|----------------------------------------------- | ------- |  | ------- | -- | ------- |  | ------------------ | -- | --------- |  | ------------------------------------------------------------------------ | -- | ------------------ |  | ------------------- | -- |  | ------- | ------- | -- |  | ------- | ------- | -- |  |  | ------- | -- | ----------- |  | --------- | --- |  |  | ------- | -- | 
|                                                |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    | Reorganized
|                                                |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  | Predecessor Company |    |  |         |         |    |  |         |         |    |  |  |         |    | Company    
|                                                |         |  |         |    |        
|                                                |         |  |         |    |         |  | 2001               |    | 2002      |  |                                                                         
|                                                |         |  |         |    |        
|                                                |         |  |         |    |         |  | Three Months Ended |    |           |  |                                                                          |    | Three Months Ended |  |                     |    | 
|                                                |         |  |         |    |         |  | Oct. 1 -           |    | Oct. 12 -
|                                                |         |  | Mar. 31 |    | June 30 |  | Sept. 30           |    | Dec. 31   |  | Mar. 31                                                                  |    | June 30            |  | Sept. 30            |    |  | Oct. 11 |         |    |  | Dec. 31 |        
|                                                |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |        
|                                                |         |  |         |    |         |  |                    |    |           |  | (in thousands of dollars, except per share amounts and statistical data) |    |                    |  |                    
|Statement of
Operations Data:                   |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|Revenue                                         |         |  | 136,397 |    |         |  | 121,252            |    |           |  | 124,071                                                                  |    |                    |  | 118,276             |    |  |         | 112,171 |    |  |         | 102,780 |    |  |  | 105,914 |    |             |  | 12,302    |     |  |  | 86,937  |   
|Operating income (loss)                         |         |  | (22,921 | )  |         |  | (13,787            | )  |           |  | (4,561                                                                   | )  |                    |  | (26,759             | )  |  |         | (2,429  | )  |  |         | (7,938  | )  |  |  | 5,831   |    |             |  | 1,489     |     |  |  | 3,741   |   
|Income (loss) from
continuing operations        |         |  | (53,357 | )  |         |  | (33,321            | )  |           |  | 25,764                                                                   |    |                    |  | (51,751             | )  |  |         | (31,284 | )  |  |         | (18,035 | )  |  |  | (5,016  | )  |             |  | 4,421,669 |     |  |  | (1,476  | ) 
|Net income (loss)                               |         |  | (53,357 | )  |         |  | (33,321            | )  |           |  | 25,764                                                                   |    |                    |  | (51,751             | )  |  |         | (31,284 | )  |  |         | (18,035 | )  |  |  | (5,016  | )  |             |  | 4,421,669 |     |  |  | (1,476  | ) 
|Net income (loss) per
share  basic and
diluted |         |  | (1.02   | )  |         |  | (0.64              | )  |           |  | 0.48                                                                     |    |                    |  | (0.96               | )  |  |         | (0.58   | )  |  |         | (0.33   | )  |  |  | (0.09   | )  |             |  | 80.04     |     |  |  | (0.18   | ) 
|Other Data:                                     |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|EBITDA (1)                                      |         |  | (6,861  | )  |         |  | 9,969              |    |           |  | 15,648                                                                   |    |                    |  | 20,876              |    |  |         | 17,191  |    |  |         | 17,908  |    |  |  | 26,733  |    |             |  | 1,238     |     |  |  | 11,842  |   
|Statistical Data (2):                           |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|Full time employees                             |         |  | 1,476   |    |         |  | 1,422              |    |           |  | 1,389                                                                    |    |                    |  | 1,368               |    |  |         | 1,342   |    |  |         | 1,138   |    |  |  | 1,147   |    |             |  | n/a       |     |  |  | 1,146   |   
|Telecom services:                               |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|Access lines in
service, in thousands
(3)       |         |  | 778     |    |         |  | 719                |    |           |  | 789                                                                      |    |                    |  | 742                 |    |  |         | 807     |    |  |         | 834     |    |  |  | 870     |    |             |  | n/a       |     |  |  | 903     |   
|Buildings connected:                            |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|On-net                                          |         |  | 925     |    |         |  | 881                |    |           |  | 902                                                                      |    |                    |  | 901                 |    |  |         | 911     |    |  |         | 912     |    |  |  | 909     |    |             |  | n/a       |     |  |  | 909     |   
|Hybrid (4)                                      |         |  | 8,151   |    |         |  | 7,264              |    |           |  | 6,315                                                                    |    |                    |  | 5,727               |    |  |         | 5,189   |    |  |         | 4,748   |    |  |  | 4,413   |    |             |  | n/a       |     |  |  | 4,262   |   
|                                                |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|Total buildings
connected                       |         |  | 9,076   |    |         |  | 8,145              |    |           |  | 7,217                                                                    |    |                    |  | 6,628               |    |  |         | 6,100   |    |  |         | 5,660   |    |  |  | 5,322   |    |             |  | n/a       |     |  |  | 5,171   |   
|Operational switches:                           |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|                                                | Circuit |  |         | 44 |         |  |                    | 44 |           |  |                                                                          | 43 |                    |  |                     | 43 |  |         |         | 47 |  |         |         | 46 |  |  |         | 46 |             |  |           | n/a |  |  |         | 47 | 
|                                                | ATM     |  |         | 26 |         |  |                    | 27 |           |  |                                                                          | 26 |                    |  |                     | 27 |  |         |         | 25 |  |         |         | 26 |  |  |         | 26 |             |  |           | n/a |  |  |         | 24 | 
|                                                |         |  |         |    |         |  |                    |    |           |  |                                                                          |    |                    |  |                     |    |  |         |         |    |  |         |         |    |  |  |         |    |             |  |           |     |  |  |         |   
|Total operational
switches                      |         |  | 70      |    |         |  | 71                 |    |           |  | 69                                                                       |    |                    |  | 70                  |    |  |         | 72      |    |  |         | 72      |    |  |  | 72      |    |             |  | n/a       |     |  |  | 71      |   
|Operational regional
fiber route miles (5):     |         |  | 5,577   |    |         |  | 5,577              |    |           |  | 5,542                                                                    |    |                    |  | 5,542               |    |  |         | 5,542   |    |  |         | 5,542   |    |  |  | 5,704   |    |             |  | n/a       |     |  |  | 5,726   |   
|Operational regional
fiber strand miles
(6):    |         |  | 166,498 |    |         |  | 166,498            |    |           |  | 165,847                                                                  |    |                    |  | 165,847             |    |  |         | 165,847 |    |  |         | 165,927 |    |  |  | 166,228 |    |             |  | n/a       |     |  |  | 172,574 |   
|Collocations with ILECs                         |         |  | 160     |    |         |  | 160                |    |           |  | 148                                                                      |    |                    |  | 161                 |    |  |         | 160     |    |  |         | 158     |    |  |  | 158     |    |             |  | n/a       |     |  |  | 162     |   



|(1) |  | EBITDA, which is a commonly used term in the telecommunications industry,
consists of net income (loss) from continuing operations before interest,
income taxes, reorganization income (expense), net, depreciation and
amortization, and other income (expenses), net. EBITDA is presented to
enhance an understanding of the Companys operating results and is not
intended to represent cash flows or results of operations in accordance
with generally accepted accounting principles for the periods indicated.
EBITDA is not a measurement under generally accepted accounting principles
and is not necessarily comparable with similarly titled measures of other
companies. The following table is a reconciliation of the net income
(loss) reported by the Company to EBITDA:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents



|                                     |  |                           |         |         |  |                    |         |           |  |         |         |                    |  |                     |         |         |  |         |         |   |  |  |         |   |  |  |        |                     |  |  |            |   |  |  |        |  
|------------------------------------ |  | ------------------------- | ------- | ------- |  | ------------------ | ------- | --------- |  | ------- | ------- | ------------------ |  | ------------------- | ------- | ------- |  | ------- | ------- | - |  |  | ------- | - |  |  | ------ | ------------------- |  |  | ---------- | - |  |  | ------ | -
|                                     |  |                           |         |         |  |                    |         |           |  |         |         |                    |  | Predecessor Company |         |         |  |         |         |   |  |  |         |   |  |  |        | Reorganized Company
|                                     |  |                           |         |        
|                                     |  | 2001                      |         | 2002   
|                                     |  |                           |         |        
|                                     |  |                           |         |         |  | Three Months Ended |         |           |  |         |         | Three Months Ended |  |                     |         |        
|                                     |  |                           |         |         |  | Oct. 1 -           |         | Oct. 12 -
|                                     |  | Mar. 31                   |         | June 30 |  | Sept. 30           |         | Dec. 31   |  | Mar. 31 |         | June 30            |  | Sept. 30            |         | Oct. 11 |  | Dec. 31
|                                     |  |                           |         |         |  |                    |         |           |  |         |         |                    |  |                     |         |         |  |        
|                                     |  | (in thousands of dollars)
|Net income (loss)                    |  |                           | (53,357 | )       |  |                    | (33,321 | )         |  |         | 25,764  |                    |  |                     | (51,751 | )       |  |         | (31,284 | ) |  |  | (18,035 | ) |  |  | (5,016 | )                   |  |  | 4,421,669  |   |  |  | (1,476 | )
|Reorganization
expense (income),
net |  |                           | 17,686  |         |  |                    | 9,819   |           |  |         | (30,697 | )                  |  |                     | 16,643  |         |  |         | 23,291  |   |  |  | 5,441   |   |  |  | 5,673  |                     |  |  | (4,422,372 | ) |  |  |       |  
|Depreciation and
amortization        |  |                           | 15,989  |         |  |                    | 16,194  |           |  |         | 18,301  |                    |  |                     | 17,284  |         |  |         | 19,626  |   |  |  | 25,311  |   |  |  | 21,442 |                     |  |  | (252       | ) |  |  | 8,110  |  
|Interest expense                     |  |                           | 12,718  |         |  |                    | 11,081  |           |  |         | 277     |                    |  |                     | 8,138   |         |  |         | 5,704   |   |  |  | 4,599   |   |  |  | 5,087  |                     |  |  | 1,687      |   |  |  | 5,514  |  
|Interest income                      |  |                           |        |         |  |                    |        |           |  |         |        |                    |  |                     |        |         |  |         |        |   |  |  |        |   |  |  |       |                     |  |  |           |   |  |  | (232   | )
|Other expense
(income), net          |  |                           | 103     |         |  |                    | 6,196   |           |  |         | 2,003   |                    |  |                     | 30,562  |         |  |         | (146    | ) |  |  | 592     |   |  |  | (453   | )                   |  |  | 506        |   |  |  | (74    | )
|                                     |  |                           |         |         |  |                    |         |           |  |         |         |                    |  |                     |         |         |  |         |         |   |  |  |         |   |  |  |        |                     |  |  |            |   |  |  |        |  
|EBITDA                               |  |                           | (6,861  | )       |  |                    | 9,969   |           |  |         | 15,648  |                    |  |                     | 20,876  |         |  |         | 17,191  |   |  |  | 17,908  |   |  |  | 26,733 |                     |  |  | 1,238      |   |  |  | 11,842 |  
|                                     |  |                           |         |         |  |                    |         |           |  |         |         |                    |  |                     |         |         |  |         |         |   |  |  |         |   |  |  |        |                     |  |  |            |   |  |  |        |  



|(2) |  | Amounts presented are for three-month periods ended, or as of the end of
the period presented.                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Access lines in service include only provisioned lines generating
revenue.                                                                                                                                                                                                                                   
|   
|(4) |  | Hybrid buildings connected represent buildings connected to the Companys
network via another carriers facilities.                                                                                                                                                                                          
|   
|(5) |  | Regional fiber route miles refers to the number of miles of fiber optic
cable, including leased fiber. As of December 31, 2002, the Company had
5,726 regional fiber route miles, 3,723 of which were leased.                                                                                                
|   
|(6) |  | Regional fiber strand miles refers to the number of regional fiber route
miles, including leased fiber, along a telecommunications path multiplied
by the number of fiber strands along that path. As of December 31, 2002,
the Company had 172,574 regional fiber strand miles, 44,158 of which were
leased.




NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement deals with the costs of closing facilities and
removing assets. SFAS No. 143 requires entities to record the fair value of a
legal liability for an asset retirement obligation in the period it is
incurred. This cost is initially capitalized and amortized over the remaining
life of the underlying asset. Once the obligation is ultimately settled, any
difference between the final cost and the recorded liability is recognized as a
gain or loss on disposition. SFAS No. 143 is effective starting in 2003.
Adoption of this pronouncement as of December 31, 2002, would not have a
material impact on current or future financial results.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, not at the date of an
entitys commitment to an exit plan, as was required under Issue 94-3.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. This
Statement also establishes that fair value is the objective for initial
measurement of the liability. The provisions of this Statement are effective
for exit or disposal activities that are initiated after December 31, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 148





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##### Table of Contents



provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, Statement 148 amends the disclosure requirements of Statement 123 to
require more prominent and more frequent disclosures in financial statements
about the effects of stock-based compensation, including requiring that this
information be included in interim as well as annual financial statements. The
Company has no plans to change to the fair value based method of accounting for
stock-based employee compensation, and is therefore not affected by the
transition provisions of SFAS No. 148. The Company adopted the disclosure
provisions of SFAS No. 148 effective December 31, 2002.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risks arising from changes in interest rates.
As of the Effective Date, the Companys primary interest rate exposure results
from changes in LIBOR or the prime rate, which are used to determine the
interest rate applicable to the Secured Notes outstanding principal balance.
The weighted average interest rate applicable to the Secured Notes outstanding
principal balance at December 31, 2002, was 7.8%. A hypothetical change in
annual interest rate of 1% per annum applied to the Secured Notes outstanding
principal balance on December 31, 2002, would result in additional interest
expense of $0.6 million.

The Company does not, in the normal course of business, use derivative
financial instruments for trading or speculative purposes.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and financial statement schedules
required under this Item begin on page F-1 of this Annual Report. The selected
quarterly financial data required under this Item is included under Item 7,
Managements Discussion and Analysis of Financial Condition and Results of
Operations.




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

None.





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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

DIRECTORS AND OFFICERS OF ICG COMMUNICATIONS, INC.

Set forth below are the names and certain information about the directors of
the Company as of March 14, 2003:

|                                                                                       |  |     |                |          |  |                                                                                                                     |  |  |                          | 
|-------------------------------------------------------------------------------------- |  | --- | -------------- | -------- |  | ------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------ | 
|Name                                                                                   |  | Age |                | Position |  | Director Since                                                                                                     
|                                                                                       |  |     |                |          |  |                                                                                                                    
|Randall E. Curran
William J. Connors
Timothy Price
John A. Scarpati
Joseph R. Thornton |  |     | 48
32
49
51
41 |          |  | Chairman of the Board; Director (1)
Director (2) (3) (4)
Director (2) (3) (5)
Director (4) (6)
Director (2) (3) (4) |  |  | 2002
2002
2002
2002
2002 | 





---

|(1) |  | Term expires at 2003 Annual Meeting of Shareholders                
|--- |  | -------------------------------------------------------------------
|   
|(2) |  | Member of Audit Committee                                          
|   
|(3) |  | Member of Compensation Committee                                   
|   
|(4) |  | Term expires at 2005 Annual Meeting of Shareholders                
|   
|(5) |  | Term expires at 2004 Annual Meeting of Shareholders                
|   
|(6) |  | Chairman of the Audit Committee; Chairman of Compensation Committee

Randall E. Curran has been Chief Executive Officer since September 2000. Prior
thereto, Mr. Curran was Chairman, President and Chief Executive Officer of
Thermadyne Holdings Corporation (Thermadyne). From 1995 to 2000, Mr. Curran
also held several other executive positions at Thermadyne including Chief
Operating Officer and Chief Financial Officer. Prior to joining Thermadyne, Mr.
Curran held various finance positions with Cooper Industries, Inc.,
McGraw-Edison Co., and Arthur Andersen & Co.

William J. Connors is a Portfolio Manager for W. R. Huff Asset Management Co.,
L.L.C. and the Chief Investment Officer of WRH Partners Global Securities, LP.

Mr. Connors has worked with the Huff group since 1992. Mr. Connors received
his undergraduate degree in Applied Mathematics from Drew University and his
MBA from Columbia University. Mr. Connors is a Chartered Financial Analyst.

Timothy Price is a managing member of Communications Advisory Group, L.L.C.
Mr. Price is former President and COO of MCI Communications. Prior to that
position, Mr. Price served as President (Business Markets), where he led the
introduction of NetworkMCI Business and Proof Positive from MCI. Prior to this
role, Mr. Price served as Senior Vice President (Sales) and held senior
positions in MCIs paging and cellular telephony business. Prior to joining
MCI, Mr. Price served as Vice President (Marketing) for Warner Amex Cable. In
addition, Mr. Price has served on the Boards of Directors of both MCI and
Worldcom, SHL Systemhouse, the National Alliance of Business, the Woodruff
Foundation and the Corporate 100 of the John F. Kennedy Center for the
Performing Arts. Mr. Price currently serves on the Boards of Directors of
Anchor Glass Container Corporation, a manufacturer of glass containers, and
also serves on the Advisory Board of C&T Access Ventures.

John A. Scarpati served as Chief Administrative Officer of Global Crossing Ltd.
from December 1999 to October 2000. Mr. Scarpati previously served as Vice President
and Chief Financial Officer at AT&T Business Services Group, and as Senior Vice
President and Chief Financial Officer at Teleport Communications Group. Mr.
Scarpati also has served as Vice President (Manager of Acquisitions) at Merrill
Lynch & Co., Inc. Global Crossing filed a petition under the federal
bankruptcy laws in January 2002.

Joseph R. Thornton is counsel to W.R. Huff Asset Management Co., L.L.C., and
has worked with the firm for more than ten years. Mr. Thornton received a BA
degree (Economics), and a JD and MBA degrees from the University of
North Carolina at Chapel Hill. Mr. Thornton has served on the Boards of
Directors of e.spire Communications and Uniflex, Inc. and as an observer to the
Board of Price Communications. Mr. Thornton is a Chartered Financial Analyst.





---



##### Table of Contents



EXECUTIVE OFFICERS OF ICG COMMUNICATIONS, INC.

The current executive officers of the Company are as follows:

|                     |  |     |    |          |  |                                                                   
|-------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Randall E. Curran    |  |     | 48 |          |  | Chief Executive Officer                                           
|Richard E. Fish, Jr. |  |     | 37 |          |  | Executive Vice President and Chief Financial Officer              
|Michael D. Kallet    |  |     | 49 |          |  | Executive Vice President  Operations and Chief Technology Officer
|Bernard L. Zuroff    |  |     | 47 |          |  | Executive Vice President, General Counsel and Secretary           

Randall E. Curran. Biographical information concerning Mr. Curran appears under
the heading Directors of ICG Communications, Inc., above.

Richard E. Fish, Jr. has been Executive Vice President and Chief Financial
Officer since December 2000. Prior to this position, Mr. Fish was Senior Vice
President of Finance since September 1999. Before joining the Company, Mr. Fish
was Director-Access Management with AT&T Corporation from 1998
to 1999. AT&T acquired Teleport Communications Group, Inc. in 1998 where Mr. Fish was
Director-Operations since 1995.

Michael D. Kallet has been Executive Vice President  Operations and Chief
Technology Officer since June 1999. Mr. Kallet was also General Manager and
Chief Operations Officer of ICG NetAhead, Inc., a former subsidiary of the
Company, since February 1999. Prior thereto, he was Senior Vice President of
Products and Services since December 1995. Prior to joining the
Company, Mr. Kallet held several positions in the technology industry, including positions at IBM,
Computer Support Corporation, Walker Interactive and Software Publishing
Corporation (Harvard Graphics).

Bernard L. Zuroff has been Executive Vice President, General Counsel and
Secretary since October 2000. Prior to this position, Mr. Zuroff was Assistant
General Counsel and Corporate Attorney since July 1996. Before joining the
Company, he had eleven years of experience as an attorney with Gorsuch Kirgis,
L.L.C., the Resolution Trust Company and Infotel, Inc.

There are no family relationships between any current director or officer or
any other current director or officer. See Item 13, Certain Relationships and
Related Transactions,below, regarding Huffs and Cerberus right to nominate
directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Companys
directors and executive officers to file with the Securities Exchange
Commission reports regarding their ownership and changes in ownership of our
stock. ICG believes that during 2002 its directors and executive officers
complied with all Section 16(a) filing requirements. Further,
ICG is not aware of any beneficial owner subject to the Section 16(a)
filing requirements who failed to comply with such requirements.





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##### Table of Contents






ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE OFFICER COMPENSATION

The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries for the fiscal
years ended December 31, 2002, 2001 and 2000, respectively. Included are the
Companys Chief Executive Officer during the fiscal year ended December 31,
2002 together with other qualifying executive officers (the Named Officers).

|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   |              |        |              |        |           |        |   |       |        |        |    |  |  |  | 
|-------------------- | ------------------------- | ----------------------------------------- | ---- | ---------- | ---- | --------- | ------- | ------- | ------- | ------- | ------- | ------------------- | ------- | ---------- | - | ------------ | ------ | ------------ | ------ | --------- | ------ | - | ----- | ------ | ------ | -- |  |  |  | 
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   |              |        |              |        | Long-term |        |   |       |        |        |    |  | 
|                     |                           |                                           |      |            |      |           |         |         |         |         |         | Annual Compensation |         |            |   |              |        | Compensation |        |           |        |   |       |        |        |   
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |           
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   | Other Annual |        | Securities   |        | All Other |        |   |       |       
|Name and Principal   |                           | Fiscal                                    |      |            |      |           |         |         |         |         |         | Compensation        |         | Underlying |   | Compensation |        |              |        |          
|Position             |                           | Year                                      |      | Salary ($) |      | Bonus ($) |         | ($)1    |         | Options |         | ($)                 |         |            |   |             
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   |             
|Randall E. Curran    |                           |                                           | 2002 |            |      |           | 861,923 |         |         |         | 700,000 | 2                   |         |            |  |              |        |              |       |           |        |   | 6,000 | 3     
|                     | Chief Executive Officer   |                                           |      | 2001       |      |           |         | 900,000 |         |         |         | 900,000             | 4       |            |   | 391,734      | 5      |              |        |          |        |   |       |       |       
|                     |                           |                                           | 2000 |            |      |           | 225,000 |         |         |         |        |                     |         |            |  |              |        |              |       |           |        |   |      |       
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   |              |        |              |        |           |        |   |       |        |        |    |  |  |  | 
|Richard E. Fish, Jr. |                           |                                           | 2002 |            |      |           | 287,616 |         |         |         |        |                     |         |            |  |              |        |              | 43,714 |           |        |   | 6,000 | 3     
|                     | Executive Vice President  |                                           |      | 2001       |      |           |         | 258,462 |         |         |         | 241,000             | 6       |            |   |             |        |              |        |          |        |   |       | 5,100  | 3     
|                     |  Chief Financial Officer |                                           |      | 2000       |      |           |         | 168,654 |         |         |         | 80,630              | 7       |            |   |             |        |              |        | 60,000    | 8      |   |       | 13,563 | 9     
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   |              |        |              |        |           |        |   |       |        |        |    |  |  |  | 
|Michael D. Kallet    |                           |                                           | 2002 |            |      |           | 380,577 |         |         |         | 500,238 | 2                   |         |            |  |              |        |              | 83,785 |           |        |   | 6,000 | 3     
|                     |                           | Executive Vice President                  |      |            | 2001 |           |         |         | 350,000 |         |         |                     | 466,000 | 10         |   |              |       |              |        |           |       |   |       |        | 5,322  | 11
|                     |                           |  Operations and Chief
Technology Officer |      |            | 2000 |           |         |         | 283,924 | 12      |         |                     | 207,020 | 13         |   |              | 59,197 | 14           |        |           | 88,905 | 8 |       |        | 46,963 | 15
|                     |                           |                                           |      |            |      |           |         |         |         |         |         |                     |         |            |   |              |        |              |        |           |        |   |       |        |        |    |  |  |  | 
|Bernard L. Zuroff    |                           |                                           | 2002 |            |      |           | 247,539 |         |         |         |        |                     |         |            |  |              |        |              | 36,428 |           |        |   | 7,937 | 16    
|                     | Executive Vice President  |                                           |      | 2001       |      |           |         | 210,769 |         |         |         | 118,000             | 17      |            |   |             |        |              |        |          |        |   |       | 5,100  | 3     
|                     |  General Counsel         |                                           |      | 2000       |      |           |         | 140,000 |         |         |         | 51,837              | 18      |            |   |             |        |              |        | 33,300    | 8      |   |       | 9,478  | 3     



---

|1. |  | For such persons for whom no amount is disclosed in this column below,
such amounts were less than 10% of the combined amount of the persons
salary and bonus. However, in the Companys Forms 10-K for fiscal years
ended December 31, 2000 and 2001, respectively, all amounts for
perquisites and other personal benefits were included in this column,
regardless of amount. Further, amounts for 401(k) contributions which
were previously included in this column are now reflected in the column
All Other Compensation.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The amounts shown in this column for Mr. Curran and Mr. Kallet represent
bonuses earned pursuant to the terms of their respective employment
agreements for the Companys successful emergence from bankruptcy.                                                                                                                                                                                                                                                                                                                    
|  
|3. |  | Consists of Company contributions to 401(k) plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|4. |  | Incentive bonus earned in 2001 but paid in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|5. |  | Includes $6,111 for car allowance; $383,887 for taxable relocation
expenses and $1,736 of non-taxable relocation expenses.                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|6. |  | Includes $160,000 for retention bonus and $81,000 for incentive bonus
earned in 2001 but paid in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|7. |  | Includes $40,630 incentive bonus and $40,000 retention bonus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|8. |  | Such options were with respect to the Predecessor Companys stock and
were cancelled as part of the Modified Plan.                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|9. |  | Includes Company contributions to 401(k) plan and 401(k) Wraparound
Deferred Compensation Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                    





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##### Table of Contents





|10. |  | Includes $340,000 for retention bonus and $126,000 for incentive bonus
earned in 2001 but paid in 2002.                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|11. |  | Includes $3,712 in Company contributions to 401(k) plan and $1,610 in
executive life insurance premiums.                                                                                                                                                          
|   
|12. |  | Includes $283,462 in annual salary and $462 of retroactive salary that
was paid in 2000.                                                                                                                                                                          
|   
|13. |  | Includes $122,020 incentive bonus and $85,000 retention bonus.                                                                                                                                                                                                    
|   
|14. |  | Taxable relocation expenses.                                                                                                                                                                                                                                      
|   
|15. |  | Includes $16,871 for Company contributions to 401(k) plan and 401(k)
Wraparound Deferred Compensation Plan, $1,610 for executive life insurance
payments and $28,482 for distribution of amounts under the Companys
401(k) Wraparound Deferred Compensation Plan.
|   
|16. |  | Includes $1,780 for executive life insurance premium and $6,157 Company
contributions to 401(k) plan.                                                                                                                                                             
|   
|17. |  | Includes $52,000 for retention bonus and $66,000 for incentive bonus
earned in 2001 but which was paid in 2002.                                                                                                                                                   
|   
|18. |  | Consists of $38,837 incentive bonus and $13,000 retention bonus.                                                                                                                                                                                                  

Option/SAR Grants in Last Fiscal Year

The Company granted no stock appreciation rights during fiscal year 2002 to the
Named Officers or to other employees. Options granted to the Named Officers
prior to the Companys filing for bankruptcy were cancelled as part of the
Modified Plan.

|                            |                          |                           |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 
|--------------------------- | ------------------------ | ------------------------- | ------ | ----------------- |  | ------------ | ------ | --------------- |  | ------ | ---- | ------- |  | ----------- | ------- |  |  |  | ------- | ----------------------------- |  |  | --------- |  |  | 
|                            |                          |                           |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         | Potential realizable value at
|                            |                          |                           |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         | assumed annual rates of      
|                            |                          |                           |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         | stock price appreciation for 
|                            |                          |                           |        | Individual Grants |  |              |        |                 |  |        |      |         |  | option term
|                            |                          |                           |        |                   |  |              |        |                 |  |        |      |         |  |            
|                            |                          |                           |        |                   |  |              |        | Percent of      |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           | 
|                            |                          |                           |        | Number of         |  | Options/SARs |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  | 
|                            |                          |                           |        | securities        |  | total        |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  | 
|                            |                          |                           |        | underlying        |  | options/SARs |        | Exercise or     |  |        |      |         |  |             |         |  |  |  |         |                              
|                            |                          |                           |        | granted to        |  | employees in |        | base price      |  |        |      |         |  |             |         |  |  |  |         |                              
|Name and Principal Position |                          | granted (#)               |        | fiscal year       |  | ($/Sh)       |        | Expiration date |  | 5% ($) |      | 10% ($)
|                            |                          |                           |        |                   |  |              |        |                 |  |        |      |        
|Randall E. Curran           |                          |                           |       |                   |  |              |       |                 |  |        |     |         |  |             |        |  |  |  |        |                               |  |  |          | 
|                            | Chief Executive Officer  |                           |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  | 
|                           
|Richard E. Fish, Jr.        |                          |                           | 43,714 |                   |  |              | 5.691  |                 |  |        | 9.12 |         |  |             | 10-9-12 |  |  |  | 250,722 |                               |  |  | 635,379   | 
|                            | Executive Vice President |                           |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  | 
|                            |                          |  Chief Financial Officer |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 
|                           
|Michael D. Kallet           |                          |                           | 83,785 |                   |  |              | 10.908 |                 |  |        | 9.12 |         |  |             | 10-9-12 |  |  |  | 480,550 |                               |  |  | 1,217,809 | 
|                            |                          | Executive Vice President  |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 
|                            |                          |  Operations and Chief    |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 
|                            |                          | Technology Officer        |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 
|                           
|Bernard L. Zuroff           |                          |                           | 36,428 |                   |  |              | 4.742  |                 |  |        | 9.12 |         |  |             | 10-9-12 |  |  |  | 208,933 |                               |  |  | 529,478   | 
|                            |                          | Executive Vice President  |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 
|                            |                          |  General Counsel         |        |                   |  |              |        |                 |  |        |      |         |  |             |         |  |  |  |         |                               |  |  |           |  |  | 



Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option
Values

No options were exercised by the Named Officers during the year ended December
31, 2002. The Company does not have any stock appreciation rights.





---



##### Table of Contents



DIRECTOR COMPENSATION

The Company compensates its non-employee directors $1,000 for attendance at
in-person meetings of the Board of Directors and an annual fee of $26,000.
Further, in February 2003 the Board approved a resolution authorizing
the Company to pay a yearly fee of $25,000 to the chairman of both
the Audit and Compensation Committees. Non-employee directors are also eligible to
receive grants of options under the ICG Communications, Inc. Directors Stock
Option Plan.

EXECUTIVE EMPLOYMENT AGREEMENTS

The Company and its subsidiaries have employment agreements with Randall E.
Curran, Richard E. Fish, Jr., Michael D. Kallet, Bernard L. Zuroff, Robert
Athey, Brian Cato, Darlinda Coe, John V. Colgan, Gayle Landis, and James F.
Smith.

Mr. Currans employment agreement, as amended, provides for a month-to-month
term at an annual base salary of $900,000, which may be increased from time to
time in accordance with normal business practices of the Company. Subject to
the Company achieving certain financial targets established by the Companys
Board, the agreement also provides for performance bonuses in an amount to
twelve months base salary at the rate then in effect based upon performance
targets to be established at the discretion of the Companys Board or the
Compensation Committee thereof. In addition, Mr. Curran is entitled to
benefits as are generally provided to the Companys senior executives including
reimbursement of reasonable out-of-pocket expenses incurred on behalf of the
Company. If the agreement is terminated by the Company for any reason other
than Mr. Currans death, disability, or for cause, or is terminated by Mr.
Curran for good reason (as defined therein), Mr. Curran will receive a lump sum
severance in an amount equal to fifteen months base salary at the rate then in
effect. If Mr. Currans employment is terminated in the case of death, his
estate will receive an amount equal to twelve months base salary.

The Companys employment agreements with Richard E. Fish, Jr., Michael D.
Kallet, Bernard L. Zuroff, Robert Athey, Brian Cato, Darlinda Coe, John V.
Colgan, Gayle Landis, and James F. Smith provide for base salaries and such
other benefits as are generally provided to senior executives, including
reimbursement of reasonable out-of-pocket expenses incurred on behalf of the
Company. These employment agreements may be terminated by the Company with or
without cause or by the employee upon the occurrence of a constructive
dismissal (as defined therein). If an agreement is terminated by the Company
for any reason other than the employees death, disability or for cause, or if
there is a constructive dismissal, the employee will receive an amount equal to
twelve months salary at the rate then in effect. Fifty percent will be paid in
a lump sum within 15 days of termination and the remaining fifty percent is
payable in twelve installments commencing 30 days after termination. If the
employee obtains new employment within such twelve-month period, the severance
is subject to mitigation on a dollar for dollar basis. If the employees
employment is terminated in the case of death, his/her estate will receive an
amount equal to three months base salary. Messrs. Kallet,
Zuroff, Athey, Cato, Colgan, Smith and Ms. Coe, and Ms. Landis are subject to a ten-year
confidentiality covenant and a one-year non-interference commitment following
termination of employment.





---



##### Table of Contents






ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2002,1 with
respect to compensation plans under which equity securities of the Company are
authorized for issuance.

|                                                           |  |                         |         |                      |  |                         |      |                       |  |                         |        | 
|---------------------------------------------------------- |  | ----------------------- | ------- | -------------------- |  | ----------------------- | ---- | --------------------- |  | ----------------------- | ------ | 
|                                                           |  |                         |         |                      |  |                         |      |                       |  | Number of securities   
|                                                           |  |                         |         |                      |  |                         |      |                       |  | remaining available for
|                                                           |  | Number of securities    |         |                      |  |                         |      | future issuance under
|                                                           |  | to be issued upon       |         | Weighted-average     |  | equity compensation    
|                                                           |  | exercise of outstanding |         | exercise price of    |  | plans (excluding       
|                                                           |  | options, warrants and   |         | outstanding options, |  | securities reflected in
|Plan Category                                              |  | rights                  |         | warrants and rights  |  | column (a))            
|Equity compensation plans approved by securities holders2  |  |                         | 701,677 |                      |  | $                       | 9.12 |                       |  |                         | 66,460 | 
|Equity compensation
plans not approved
by security holders |  |                         |        |                      |  |                         |     |                       |  |                         |       | 
|                                                           |  |                         |         |                      |  |                         |      |                       |  |                         |        | 
|Total                                                      |  |                         | 701,677 |                      |  | $                       | 9.12 |                       |  |                         | 66,460 | 



|1. |  | On February 10, 2003, the Company adopted the ICG Communications, Inc.
Director Stock Option Plan (the Directors Plan) and granted options to
non-employee directors with respect to 40,000 shares of common stock at
$9.12 per share. Pursuant to the Directors Plan, a total of 120,000
shares of stock may be issued.                                                           
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Consists of the ICG Communications, Inc. Year 2002 Stock Option Plan (and
grants thereunder), which was approved as part of the Companys Modified
Plan. On February 28, 2003, the Company granted 40,000 options at $3.25
per share to its Chief Executive Officer, Randall E. Curran. Such grant
is not reflected on the table, which contains information as of December
31, 2002.

Certain Beneficial Owners

To the best of the Companys knowledge, based on filings with the Securities
and Exchange Commission, the following are the only persons who own
beneficially five percent or more of the Companys voting securities
outstanding, as of March 14, 2003.

|                                                                                                                         |  |          |         |          |  |            |      |          |  |          |         |          |  |            |      |           |  |  |         |            |  |  |      |   |  |            |           |  |  |  |      |  
|------------------------------------------------------------------------------------------------------------------------ |  | -------- | ------- | -------- |  | ---------- | ---- | -------- |  | -------- | ------- | -------- |  | ---------- | ---- | --------- |  |  | ------- | ---------- |  |  | ---- | - |  | ---------- | --------- |  |  |  | ---- | -
|                                                                                                                         |  |          |         |          |  |            |      |          |  |          |         |          |  | Percent of |      |           |  |  |         | Percent of |  |  |      |   |  | Percent of
|Name and Address                                                                                                         |  |          |         |          |  | Percent of |      | Sub Note |  | Sub Note |         | Nominal  |  | Nominal    |      |           |  |  |         | Beneficial
|of                                                                                                                       |  | Warrants |         | Warrants |  | Warrants   |      | Warrants |  | Warrants |         | Warrants |  | Common     |      | Ownership
|Beneficial Owner                                                                                                         |  | (1)      |         | (1)      |  | (2)        |      | (2)      |  | (3)      |         | (3)      |  | Stock      |      | (4)      
|                                                                                                                         |  |          |         |          |  |            |      |          |  |          |         |          |  |            |      |          
|William
R. Huff(5)
     c/o Huff Asset Management Co., L.L.C
     67 Park Place
     Morristown, NJ 07690                |  |          | 290,272 |          |  |            | 36.5 | %        |  |          |        |          |  |            |     |           |  |  |        |            |  |  |     |   |  |            | 1,502,827 |  |  |  | 21.6 | %
|                                                                                                                         |  |          |         |          |  |            |      |          |  |          |         |          |  |            |      |           |  |  |         |            |  |  |      |   |  |            |           |  |  |  |      |  
|Stephen
Feinberg(6)
     c/o Cerberus Capital Management, L.P.
     450 Park Avenue - 28th Floor
     New York, NY 10022 |  |          | 81,490  |          |  |            | 10.2 | %        |  |          | 180,000 |          |  |            | 90.0 | %         |  |  | 426,316 |            |  |  | 90.0 | % |  |            | 727,819   |  |  |  | 16.3 | %



---

|1. |  | Pursuant to the Second Amended Joint Plan of Reorganization of ICG
Communications, Inc. and its Affiliated Debtors and Debtors in Possession
(the Modified Plan), which became effective on October 10, 2002, the
Company issued 800,000 warrants to purchase shares of common stock of
Reorganized ICG, par value $0.01 per share (the Shares) at a conversion price of $9.12 to holders of
allowed general unsecured claims against ICG Communications, Inc. and
ICG Holdings, Inc.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### Table of Contents



|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | In connection with the Exit Financing, provided in the form of
subordinated notes of $25,000,000, the Company issued 200,000 warrants to
purchase Shares at a conversion price of $9.12.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|3. |  | In connection with the Exit Financing, provided in the form of
subordinated notes of $25,000,000, the Company issued 473,684 warrants to
purchase Shares at a conversion price of $0.01.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|4. |  | Based on 8,000,000 outstanding shares on March 14, 2003, plus shares that
may be acquired by the person pursuant to any options or warrants
exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|5. |  | As of January 28, 2003, pursuant to the Modified Plan, certain separately
managed accounts of Huff, have been issued,
in the aggregate, approximately 1,107,067 shares and warrants to purchase
an aggregate of approximately 172,170 additional shares (subject to
adjustments in certain circumstances). Based on Form 13D filed by Huff on
February 7, 2002, it is anticipated that Huff will be issued, in the
aggregate, approximately 395,760 shares, and warrants to purchase an
aggregate of approximately 118,102 additional shares (subject to
adjustments in certain circumstances).                                                        
|  
|6. |  | Pursuant to the Modified Plan, Cerberus, Cerberus International, Ltd. and
Cerberus Institutional Partners, L.P., are to be issued, in the aggregate,
approximately 727,819 shares and warrants to purchase an aggregate of
approximately 81,490 additional shares (subject to adjustments in certain
circumstances). Although the Modified Plan became effective on October
10, 2002, the shares and warrants to be issued pursuant to the Modified
Plan have not yet been issued by the Company. In addition, Madeleine
L.L.C. is the holder of warrants to purchase an aggregate of
606,316 Shares (subject to adjustments in certain circumstances).





---



##### Table of Contents



Ownership of Management

The following table sets forth, as of March 14, 2003, the number of shares of
ICG securities owned by all Named Officers, directors and nominees of
ICG individually and as a group. The persons named in the table below have sole
voting and investment power with respect to all of the shares of ICG voting
securities owned by them, unless otherwise noted.

|                                                        |                                                                    |           |               |               |  |  |  |      |   |  |  |  | 
|------------------------------------------------------- | ------------------------------------------------------------------ | --------- | ------------- | ------------- |  |  |  | ---- | - |  |  |  | 
|                                                        |                                                                    |           | Amount/Nature |               |  |  |  |      |   |  | 
|                                                        |                                                                    |           | of Beneficial |               |  |  |  |      |   |  | 
|Name of Beneficial Owner                                |                                                                    | Ownership |               | Percentage(1) |  |  |  |     
|                                                        |                                                                    |           |               |               |  |  |  |     
|                                                       
|Randall E. Curran                                       |                                                                    |           |               |               |  |  |  |     
|                                                        | Chief Executive Officer                                            |           |               |              |  |  |  |     |  
|                                                       
|Richard D. Fish, Jr.                                    |                                                                    |           |               |               |  |  |  |     
|                                                        | Executive Vice President, Chief Financial Officer                  |           |               |              |  |  |  |     |  
|                                                       
|Michael D. Kallet                                       |                                                                    |           |               |               |  |  |  |     
|                                                        | Executive Vice President  Operations and Chief Technology Officer |           |               |              |  |  |  |     |  
|                                                       
|Bernard L. Zuroff                                       |                                                                    |           |               |               |  |  |  |     
|                                                        | Executive Vice President, General Counsel & Secretary              |           |               |              |  |  |  |     |  
|                                                       
|William J. Connors                                      |                                                                    |           |               |               |  |  |  |     
|                                                        | Director                                                           |           |               | 10,000(2)     |  |  |  | .125 | %
|                                                       
|Timothy F. Price                                        |                                                                    |           |               |               |  |  |  |     
|                                                        | Director                                                           |           |               | 10,000(2)     |  |  |  | .125 | %
|                                                       
|John A. Scarpati                                        |                                                                    |           |               |               |  |  |  |     
|                                                        | Director                                                           |           |               | 10,000(2)     |  |  |  | .125 | %
|                                                       
|Joseph R. Thornton                                      |                                                                    |           |               |               |  |  |  |     
|                                                        | Director                                                           |           |               | 10,000(2)     |  |  |  | .125 | %
|                                                       
|All Named Officers and directors as a group (8 persons) |                                                                    |           |               |               |  |  |  |     



---

|1. |  | Based on 8,000,000 outstanding shares on March 14, 2003, plus shares that
may be acquired by the person pursuant to any options or warrants
exercisable within 60 days. Stock options granted to Messrs. Curran,
Fish, Kallet and Zuroff have not yet vested and consequently none of the
Named Officers beneficially own any voting securities.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Reflects shares that may be acquired pursuant to the exercise of
outstanding options granted under the ICG Communications, Inc. Directors
Stock Option Plan.                                                                                                                                                                                   




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than their employment agreements, the Named Officers have not entered
into, and do not anticipate entering into, any contractual or other
transactions with the Company. See Executive Employment Agreements.

Pursuant to the Modified Plan, Cerberus arranged a $25 million senior
subordinated secured term loan for Reorganized ICG (the Senior Subordinated
Term Loan), the proceeds of which were distributed pro rata
to holders of the Companys prepetition Secured Notes. The lenders of the
Senior Subordinated Term Loan received two





---



##### Table of Contents



separate sets of warrants to purchase a
total of 673,684 additional New Common Shares. See Certain Beneficial
Owners.

As part of the Modified Plan, the Restated By-laws of the Company provide that
under certain conditions that are currently satisfied, W.R. Huff Asset
Management Co., L.L.C. (Huff) and Cerberus each have the right to appoint up to two individuals to the Companys Board of Directors. Further, Cerberus has
the option to appoint one non-voting,
non-participating observer to the Companys Board of Directors. Accordingly,
Cerberus appointed Timothy Price and John A. Scarpati as members of the Board
of Directors of the Company and Seth Plattus as the non-voting observer. Huff
appointed William J. Connors and Joseph R. Thornton as members of the Board of
Directors. Mr. Connors and Mr. Thornton are both currently
employed by Huff.

Furthermore, in connection with the approval of the Modified Plan by the United
States Bankruptcy Court, Huff and the Company executed a letter agreement,
dated as of July 25, 2002, pursuant to which, among
other things, Huff, as investment manager on behalf of certain accounts, shall
cause one or more of the individuals who were appointed by Huff pursuant to the
provisions in the Restated By-laws of the Company referred to above, to resign
from the Companys Board of Directors upon the reduction of such accounts
ownership of shares to certain specified percentages.




ITEM 14. CONTROLS AND PROCEDURES

The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and procedures
within 90 days of the filing date of this Annual Report. Based on this
evaluation, the officers have concluded that the Companys disclosure controls
and procedures are effective in gathering, analyzing and disclosing on a timely
basis material information required to be included in the Companys periodic
filings under the Securities Exchange Act of 1934. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date of this
evaluation.





---



##### Table of Contents






PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON FORM 8-K



|(A) |  | (1)     FINANCIAL STATEMENTS
|--- |  | ----------------------------



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | The consolidated financial statements required under this Item are
listed on page F-1 of this Annual Report.



| |  | (2)     FINANCIAL STATEMENT SCHEDULE
| |  | ------------------------------------



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The financial statement schedules required under this Item are
listed on page F-1 of this Annual Report.



| |  | (3)     LIST OF EXHIBITS
| |  | ------------------------



| |  | 2.            Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
| |  | -----------------------------------------------------------------------------------------

| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                              
| |  |  | --- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 2.1 |  |  | Joint Plan of Reorganization of ICG Communications,
Inc. and Its Affiliated Debtors and Debtors in
Possession [Incorporated by reference to Exhibit 2.2
to ICG Communications, Inc.s Current Report on Form
8-K filed effective December 20, 2001].                                                                                         
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                              
| |  |  | 2.2 |  |  | Disclosure Statement with Respect to Joint Plan of
Reorganization of ICG Communications, Inc. and Its
Affiliated Debtors and Debtors in Possession
[Incorporated by reference to Exhibit 2.3 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective December 20, 2001].                                                    
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                              
| |  |  | 2.3 |  |  | Findings of Fact, Conclusions of Law, and Order
Confirming Second Amended Joint Plan of
Reorganization of ICG Communications, Inc. and its
Affiliated Debtors and Debtors in Possession dated
May 21, 2002. [Incorporated by reference to Exhibit
2.1 to ICG Communications, Inc.s Current Report on
Form 8-K filed effective June 4, 2002.]
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                              
| |  |  | 2.4 |  |  | Second Amended Joint Plan of Reorganization of ICG
Communications, Inc. and its Affiliated Debtors and
Debtors in Possession dated April 3, 2002.
[Incorporated by reference to Exhibit 2.2 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective June 4, 2002.]                                                          
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                              
| |  |  | 2.5 |  |  | Disclosure Statement with Respect to Second Amended
Joint Plan of Reorganization of ICG Communications,
Inc. and its Affiliated Debtors and Debtors in
Possession dated April 3, 2002. [Incorporated by
reference to Exhibit 2.3 to ICG Communications,
Inc.s Current Report on Form 8-K filed effective
June 4, 2002.]                     
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                              
| |  |  | 2.6 |  |  | Modification to the Second Amended Joint Plan of
Reorganization of ICG Communications, Inc. and its
Affiliated Debtors and Debtors in Possession dated
July 26, 2002. [Incorporated by reference to Exhibit
2.7 to ICG Communications, Inc.s Current Report on
Form 8-K filed effective August 9, 2002.]                                    





---



##### Table of Contents



| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | --- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 2.7 |  |  | Supplemental Disclosure With Respect to Second
Amended Joint Plan of Reorganization of ICG
Communications, Inc. Regarding Modification of ICG
Communications, Inc. and its Affiliated Debtors and
Debtors in Possession dated July 26, 2002.
[Incorporated by reference to Exhibit 2.8 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective August 9, 2002.]
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | 2.8 |  |  | Supplemental Disclosure with Respect to Second
Amended Joint Plan of Reorganization of ICG
Communications, Inc. and its Affiliated Debtors and
Debtors in Possession dated August 23, 2002.
[Incorporated by reference to Exhibit 2.8 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective October 17, 2002].                                               
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | 2.9 |  |  | Findings of Fact, Conclusions of Law, and Order
Confirming Second Amended Joint Plan of
Reorganization of ICG Communications, Inc. and its
Affiliated Debtors and Debtors in Possession, as
Modified, dated October 9, 2002. [Incorporated by
reference to Exhibit 2.9 to ICG Communications,
Inc.s Current Report on Form 8-K filed effective
October 9, 2002].               



| | 
| | 

|3. |  |  | Corporate
Organization
|-- |  |  | ----------------------
|   |  |  |                       
|   |  |  | 3.1                   
|   |  |  |                       
|   |  |  | 3.2                   



| | 
| | 

|4. |  |  | Instruments
Defining the Rights of Security Holders, Including
Indentures
|-- |  |  | -------------------------------------------------------------------------
|   |  |  |                                                                          
|   |  |  | 4.1                                                                      
|   |  |  |                                                                          
|   |  |  | 4.2                                                                      
|   |  |  |                                                                          
|   |  |  | 4.3                                                                      
|   |  |  |                                                                          
|   |  |  | 4.4                                                                      
|   |  |  |                                                                          





---



##### Table of Contents



| |  |  |     |  |  |                                                                                                                                                                                                                                   
| |  |  | --- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 4.5 |  |  | Registration Rights Agreement dated as of October
10, 2002, between ICG Communications and the Initial
Holders. [Incorporated by reference to Exhibit 4.5
to ICG Communications, Inc.s Form 8-A filed
effective January 2, 2003].

|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. |  | Material Contracts
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.1               |  | Employment Agreement, dated as of February 26, 2001,
by and between ICG Communications, Inc. and Michael
D. Kallet. [Incorporated by reference to Exhibit
10.77 to ICG Communications, Inc.s Annual Report on
Form 10-K for the fiscal year ended December 31,
2000.]                                                                                                                                                              
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.2               |  | Fourth Amendment to Lease, dated as of June 28,
2001, between Trinet Realty Investors V, Inc. as
landlord and ICG Holdings, Inc. as tenant.
[Incorporated by reference to Exhibit 10.81 to ICG
Communications, Inc.s Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.]                                                                                                                                      
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.3               |  | Agreement Regarding Option and Exercise of Option
dated as of June 28, 2001, by Trinet Realty
Investors V, Inc. and ICG Corporate Headquarters,
L.L.C. [Incorporated by reference to Exhibit 10.82
to ICG Communications, Inc.s Annual Report on Form
10-K for the fiscal year ended December 31, 2000.]                                                                                                                           
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.4               |  | Amended and Restated Employment Agreement, dated
June 21, 2001, by and between ICG Communications,
Inc., ICG Holdings, Inc., ICG Services, Inc., ICG
Equipment, Inc., and ICG Telecom, Inc., and Randall
Curran. [Incorporated by reference to Exhibit 10.84
to ICG Communications, Inc.s Quarterly Report on
Form 10-Q for the quarterly period ended March 31,
2001].                                                            
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.5               |  | Senior Financing Agreement by and among ICG
Communications, Inc. and its affiliated debtor
subsidiaries identified therein, Royal Bank of
Canada, as Administrative Agent and as
collateral agent, and Wachovia Bank, National
Association, as documentation agent, dated as of
July 25, 2002. [Incorporated by reference to Exhibit
10.85 to ICG Communications, Inc.s Current Report
on Form 8-K filed effective August 9, 2002.]
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.6               |  | Note and Warrant Purchase Agreement by and among ICG
Communications, Inc., Madeleine L.L.C. and Morgan
Stanley & Co., Incorporated, dated as of July 25,
2002. [Incorporated by reference to Exhibit 10.86 to
ICG Communications, Inc.s Current Report on Form
8-K filed effective August 9, 2002.]                                                                                                                                
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.7               |  | Escrow Agreement by and among ICG Communications,
Inc., Madeleine L.L.C. and Morgan Stanley & Co.,
Incorporated, dated as of July 25, 2002.
[Incorporated by reference to Exhibit 10.87 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective August 9, 2002.]                                                                                                                                                   
|    |  |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |  | 10.8               |  | Directors Stock Option Plan dated February 10, 2003.                                                                                                                                                                                                                                                                                                                                                                               



|21. |  | Subsidiaries of the Registrant.
|--- |  | -------------------------------
|    |  |                                
|    |  | 21.1                           





---



##### Table of Contents



| | 
| | 

|99. |  |  | Additional Exhibits
|--- |  |  | -------------------
|    |  |  |                    
|    |  |  | 99.1               
|    |  |  |                    
|    |  |  | 99.2               



|(B) |  |  | REPORTS ON FORM 8-K                                                                                                                                                                                                                                                            
|--- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  |  | The following reports on Form 8-K were filed by the registrant during the
three months ended December 31, 2002:                                                                                                                                                                
|   
|    |  |  | Current Report on Form 8-K filed effective October 17, 2002, announcing
that the Bankruptcy Court confirmed the Companys Modified Plan on
October 9, 2002, and that the Modified Plan became effective and the
Company emerged from bankruptcy protection on October 10, 2002.



|(C) |  |  | EXHIBITS
|--- |  |  | --------



| |  |  | The exhibits required by this item are listed under Item 15(A)(3).
| |  |  | ------------------------------------------------------------------



|(D) |  |  | FINANCIAL STATEMENT SCHEDULE
|--- |  |  | ----------------------------



| |  |  | The financial statement schedules required under this Item are listed on
page F-1 of this Annual Report.
| |  |  | --------------------------------------------------------------------------------------------------------





---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 26, 2003.

|      |  |                |  |                                                                                                                                 
|----- |  | -------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|      |  |                |  | ICG COMMUNICATIONS, INC.                                                                                                        
|      |  |                |  |                                                                                                                                 
|Date: |  | March 26, 2003 |  | /s/ Richard E. Fish, Jr.
Richard E. Fish, Jr.
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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

|                                             |  |                                                                                     |  |               
|-------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Title                                                                               |  | Date          
|                                             |  |                                                                                     |  |               
|/s/ RANDALL E. CURRANRandall E. Curran       |  | Chief Executive Officer and Chairman of the Board of
Directors                      |  | March 26, 2003
|                                            
|/s/ RICHARD E. FISH, JR.Richard E. Fish, Jr. |  | Executive Vice President and  Chief Financial Officer
(Principal Financial Officer) |  | March 26, 2003
|                                            
|/s/ JOHN V. COLGANJohn V. Colgan             |  | Senior Vice President, Finance and Controller (Principal
Accounting Officer)        |  | March 26, 2003
|                                            
|/s/ WILLIAM J. CONNORSWilliam J. Connors     |  | Director                                                                            |  | March 26, 2003
|                                            
|/s/ TIMOTHY PRICETimothy Price               |  | Director                                                                            |  | March 26, 2003
|                                            
|/s/ JOHN A. SCARPATIJohn A. Scarpati         |  | Director                                                                            |  | March 26, 2003
|                                            
|/s/ JOSEPH R. THORNTONJoseph R. Thornton     |  | Director                                                                            |  | March 26, 2003





---



##### Table of Contents






CERTIFICATIONS

I, Randall E. Curran, certify that:



|1) |  | I have reviewed this Annual Report on Form 10-K of ICG Communications, Inc.;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this Annual Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this Annual Report;
|  
|3) |  | Based on my knowledge, the financial statements, and other financial information included
in this Annual Report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this Annual Report;                   
|  
|4) |  | The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this Annual
Report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90
days prior to the filing date of this Annual Report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5) |  | The registrants other certifying officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and
report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrants internal controls; and                                                                                                                                        



|6) |  | The registrants other certifying officers and I have indicated in this Annual Report
whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                |  |                                                                
|----- |  | -------------- |  | ---------------------------------------------------------------
|Date: |  | March 26, 2003 |  | /s/ Randall E. Curran
Randall E. Curran
Chief Executive Officer





---



##### Table of Contents



CERTIFICATIONS (continued)

I, Richard E. Fish, certify that:



|1) |  | I have reviewed this Annual Report on Form 10-K of ICG Communications, Inc.;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual Report;
|  
|3) |  | Based on my knowledge, the financial statements, and other financial information included in this Annual Report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;                   
|  
|4) |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this Annual Report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures
as of a date within 90 days prior to the filing date of this Annual Report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this Annual Report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                        



|5) |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal controls which
could adversely affect the registrants ability to record, process, summarize and
report financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal controls; and                                                                                                                                        



|6) |  | The registrants other certifying officers and I have indicated in this Annual Report whether there were
significant changes in internal controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                |  |                                                                                                                                 
|----- |  | -------------- |  | --------------------------------------------------------------------------------------------------------------------------------
|Date: |  | March 26, 2003 |  | /s/ Richard E. Fish, Jr.
Richard E. Fish, Jr.
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)





---



##### Table of Contents






FINANCIAL STATEMENTS

|                                                
|------------------------------------------------
|Independent
Auditors Report                    
|Consolidated
Balance Sheets                     
|Consolidated
Statements of Operations           
|Consolidated
Statements of Stockholders Deficit
|Consolidated
Statements of Cash Flows           
|Notes
to Consolidated Financial Statements      




FINANCIAL STATEMENT SCHEDULES

|                                                        
|--------------------------------------------------------
|Schedule I
- Independent Auditors Report on Schedule II
|                                                        
|Schedule II
- Valuation and Qualifying Accounts         





---



##### Table of Contents



Independent
Auditors Report

The Board of Directors and Stockholders

ICG Communications, Inc.:

We have audited the accompanying consolidated balance sheets of ICG
Communications, Inc. and subsidiaries as of December 31, 2001
(Predecessor Company) and 2002 (Reorganized Company), and the
related consolidated statements of operations, stockholders equity (deficit)
and cash flows for the years ended December 31, 2000 and 2001, the period
January 1, 2002 to October 11, 2002 (Predecessor Company) and the period October 12, 2002 to December
31, 2002 (Reorganized Company). These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ICG
Communications, Inc. and subsidiaries as of December 31, 2001 and 2002, and the
results of their operations and their cash flows for the years ended December
31, 2000 and 2001, the period January 1, 2002 to October 11, 2002 and the
period October 12, 2002 to December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Notes 1, 2 and 4 to the consolidated financial statements, on
October 10, 2002, the Company emerged from bankruptcy. The financial
statements of the reorganized Company reflect assets at reorganization value
and liabilities at fair value under fresh-start reporting as of October 11,
2002. As a result, the financial statements of the reorganized Company are
presented on a different basis than those prior to the reorganization and,
therefore, are not comparable in all respects.

As discussed in Note 4 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 145
effective October 11, 2002.

/s/ KPMG LLP

Denver, Colorado

February 28, 2003





---



##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIESConsolidated Balance Sheets

|                                                                                                                                     |                                                                                                               |                      |         |                |         |             |         |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------- | -------------------- | ------- | -------------- | ------- | ----------- | ------- | ------ | ------- | 
|                                                                                                                                     |                                                                                                               |                      |         | Predecessor    |         | Reorganized
|                                                                                                                                     |                                                                                                               |                      |         | Company        |         | Company    
|                                                                                                                                     |                                                                                                               |                      |         |                |         |            
|                                                                                                                                     |                                                                                                               |                      |         | December 31,  
|                                                                                                                                     |                                                                                                               |                      |         |               
|                                                                                                                                     |                                                                                                               |                      |         | 2001           |         | 2002       
|                                                                                                                                     |                                                                                                               |                      |         |                |         |            
|                                                                                                                                     |                                                                                                               |                      |         | (in thousands)
|Assets                                                                                                                               |                                                                                                               |                      |         |                |         |             |         |       
|Current assets:                                                                                                                      |                                                                                                               |                      |         |                |         |             |         |       
|                                                                                                                                     | Cash and cash equivalents                                                                                     |                      | $       | 146,587        |         |             | $       | 50,729 |        
|                                                                                                                                     | Restricted cash, current (note 7)                                                                             |                      |         |               |         |             |         | 16,645 |        
|                                                                                                                                     | Trade receivables, net of allowance of $44 million and $9 million at
December 31, 2001 and 2002, respectively |                      |         | 42,365         |         |             |         | 26,667 |        
|                                                                                                                                     | Other receivables, net of allowance of $4 million at December 31,
2002                                        |                      |         | 559            |         |             |         | 1,946  |        
|                                                                                                                                     | Prepaid expenses and deposits                                                                                 |                      |         | 13,559         |         |             |         | 5,656  |        
|                                                                                                                                     |                                                                                                               |                      |         |                |         |             |         |       
|                                                                                                                                     |                                                                                                               | Total current assets |         |                | 203,070 |             |         |        | 101,643 | 
|Property and equipment, net (note 5)                                                                                                 |                                                                                                               |                      | 531,187 |                |         |             | 231,238 |       
|Restricted cash, non-current (note 7)                                                                                                |                                                                                                               |                      | 7,299   |                |         |             | 34,393  |       
|Deposits                                                                                                                             |                                                                                                               |                      | 10,459  |                |         |             | 7,076   |       
|Deferred financing costs, net of accumulated amortization of $2
million and $0.3 million at December 31, 2001 and 2002, respectively |                                                                                                               |                      | 3,050   |                |         |             | 3,096   |       
|Other assets                                                                                                                         |                                                                                                               |                      | 100     |                |         |             | 12      |       
|                                                                                                                                     |                                                                                                               |                      |         |                |         |             |         |       
|Total Assets                                                                                                                         |                                                                                                               | $                    | 755,165 |                |         | $           | 377,458 |       
|                                                                                                                                     |                                                                                                               |                      |         |                |         |             |         |       

(continued)

See accompanying notes to consolidated financial statements.





---



##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)

|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |        |        | 
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------- | -------------- | ------ | ----------- | ------- | ------ | ------ | 
|                                                                   |                                                                                                                                                 |                           |            | Predecessor    |        | Reorganized
|                                                                   |                                                                                                                                                 |                           |            | Company        |        | Company    
|                                                                   |                                                                                                                                                 |                           |            |                |        |            
|                                                                   |                                                                                                                                                 |                           |            | December 31,  
|                                                                   |                                                                                                                                                 |                           |            |               
|                                                                   |                                                                                                                                                 |                           |            | 2001           |        | 2002       
|                                                                   |                                                                                                                                                 |                           |            |                |        |            
|                                                                   |                                                                                                                                                 |                           |            | (in thousands)
|Liabilities and stockholders equity (deficit)                     |                                                                                                                                                 |                           |            |                |        |             |         |       
|Current liabilities:                                               |                                                                                                                                                 |                           |            |                |        |             |         |       
|                                                                   | Accounts payable                                                                                                                                |                           | $          | 8,871          |        |             | $       | 8,921  |       
|                                                                   | Accrued liabilities                                                                                                                             |                           |            | 73,853         |        |             |         | 38,905 |       
|                                                                   | Restructuring accruals (note 11)                                                                                                                |                           |            |               |        |             |         | 16,734 |       
|                                                                   | Secured Notes and other long-term debt, current portion (note 7)                                                                                |                           |            |               |        |             |         | 12,973 |       
|                                                                   | Capital lease obligations, current portion (note 8)                                                                                             |                           |            |               |        |             |         | 5,642  |       
|                                                                   | Deferred revenue                                                                                                                                |                           |            | 9,067          |        |             |         | 12,977 |       
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       
|                                                                   |                                                                                                                                                 | Total current liabilities |            |                | 91,791 |             |         |        | 96,152 | 
|Liabilities subject to compromise (note 3)                         |                                                                                                                                                 |                           | 2,729,590  |                |        |             |        |       
|Long-term liabilities:                                             |                                                                                                                                                 |                           |            |                |        |             |         |       
|                                                                   | Secured Notes (note 7)                                                                                                                          |                           |            |               |        |             |         | 55,359 |       
|                                                                   | Capital lease obligations (note 8)                                                                                                              |                           |            | 50,708         |        |             |         | 90,943 |       
|                                                                   | Senior Subordinated Term Loan, net of $5 million debt discount (note 7)                                                                         |                           |            |               |        |             |         | 20,056 |       
|                                                                   | Other debt (note 7)                                                                                                                             |                           |            | 1,088          |        |             |         | 17,310 |       
|                                                                   | Deferred revenue                                                                                                                                |                           |            |               |        |             |         | 16,525 |       
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       
|Total liabilities                                                  |                                                                                                                                                 |                           | 2,873,177  |                |        |             | 296,345 |       
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       
|Predecessor Company preferred stock, at liquidation value (note 9) |                                                                                                                                                 |                           | 1,326,745  |                |        |             |        |       
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       
|Stockholders equity (deficit) (note 10):                          |                                                                                                                                                 |                           |            |                |        |             |         |       
|                                                                   | Reorganized Company preferred stock, $0.001 par value, 10,000,000 shares
authorized; 0 shares issued and outstanding at December 31, 2002       |                           |            |               |        |             |         |       |       
|                                                                   | Reorganized Company common stock, $0.01 par value, 100,000,000 shares
authorized; 8,000,000 shares issued and outstanding at December 31, 2002  |                           |            |               |        |             |         | 80     |       
|                                                                   | Predecessor Company common stock, $0.01 par value, 100,000,000 shares
authorized; 53,706,777 shares issued and outstanding at December 31,
2001 |                           |            | 537            |        |             |         |       |       
|                                                                   | Additional paid-in capital                                                                                                                      |                           |            | 922,040        |        |             |         | 82,509 |       
|                                                                   | Accumulated deficit                                                                                                                             |                           |            | (4,367,334     | )      |             |         | (1,476 | )     
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       
|Total stockholders equity (deficit)                               |                                                                                                                                                 |                           | (3,444,757 | )              |        |             | 81,113  |       
|Commitments and contingencies (note 11)                            |                                                                                                                                                 |                           |            |                |        |             |         |       
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       
|Total liabilities and stockholders equity (deficit)               |                                                                                                                                                 | $                         | 755,165    |                |        | $           | 377,458 |       
|                                                                   |                                                                                                                                                 |                           |            |                |        |             |         |       

See accompanying notes to consolidated financial statements.





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##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIESConsolidated
Statements of Operations



|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |        |             |        |  
|-------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | ----------------------------------------------- | --------- | ------------------------------------- | -------- | -------- | ------- | ------- | ------- | --------- | --------- | -------- | --------- | --------- | ------ | ----------- | ------ | -
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |        | Reorganized
|                                                                           |                                                                                                                        |                                    |                                                 |           | Predecessor Company                   |          | Company 
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |         
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           | Jan. 1 - |           | Oct. 12 -
|                                                                           |                                                                                                                        |                                    |                                                 |           | Years Ended December 31,              |          | Oct. 11  |         | Dec. 31
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |         
|                                                                           |                                                                                                                        |                                    |                                                 |           | 2000                                  |          | 2001     |         | 2002   
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |        
|                                                                           |                                                                                                                        |                                    |                                                 |           | (in thousands, except per share data)
|Revenue                                                                    |                                                                                                                        | $                                  | 598,283                                         |           |                                       | $        | 499,996  |         |         | $       | 333,167   |           |          | $         | 86,937    |       
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Operating costs and expenses:                                              |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           | Operating costs                                                                                                        |                                    |                                                 | 440,090   |                                       |          |          | 351,973 |         |         |           | 195,351   |          |           |           | 54,873 |            
|                                                                           | Selling, general and administrative expenses                                                                           |                                    |                                                 | 199,508   |                                       |          |          | 94,155  |         |         |           | 70,730    |          |           |           | 18,944 |            
|                                                                           | Bad debt expense                                                                                                       |                                    |                                                 | 84,457    |                                       |          |          | 14,236  |         |         |           | 4,016     |          |           |           | 1,278  |            
|                                                                           | Depreciation and amortization                                                                                          |                                    |                                                 | 318,771   |                                       |          |          | 67,768  |         |         |           | 66,127    |          |           |           | 8,110  |            
|                                                                           | Provision for impairment of long-lived assets                                                                          |                                    |                                                 | 1,701,466 |                                       |          |          | 27,943  |         |         |           | 673       |          |           |           |       |            
|                                                                           | Other, net                                                                                                             |                                    |                                                 | 4,108     |                                       |          |          | 11,949  |         |         |           | (683      | )        |           |           | (9     | )          
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           |                                                                                                                        | Total operating costs and expenses |                                                 |           | 2,748,400                             |          |          |         | 568,024 |         |           |           | 336,214  |           |           |        | 83,196      |       
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Operating income (loss)                                                    |                                                                                                                        |                                    | (2,150,117                                      | )         |                                       |          | (68,028  | )       |         |         | (3,047    | )         |          |           | 3,741     |       
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Other income (expense):                                                    |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           | Interest expense (note 3)                                                                                              |                                    |                                                 | (233,643  | )                                     |          |          | (32,214 | )       |         |           | (17,077   | )        |           |           | (5,514 | )          
|                                                                           | Interest income                                                                                                        |                                    |                                                 | 22,370    |                                       |          |          |        |         |         |           |          |          |           |           | 232    |            
|                                                                           | Other income (expense), net                                                                                            |                                    |                                                 | (15,166   | )                                     |          |          | 1,028   |         |         |           | (509      | )        |           |           | 65     |            
|                                                                           | Reorganization income (expense), net (note 3)                                                                          |                                    |                                                 | (53,897   | )                                     |          |          | (13,451 | )       |         |           | 4,387,967 |          |           |           |       |            
|                                                                           | Accretion and preferred dividends on preferred
securities of subsidiaries, net of minority interest
in share of losses |                                    |                                                 | (60,043   | )                                     |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           |                                                                                                                        |                                    | Total other expense, net                        |           |                                       | (340,379 | )        |         |         | (44,637 | )         |           |          | 4,370,381 |           |        |             | (5,217 | )
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Income (loss) from continuing operations                                   |                                                                                                                        |                                    | (2,490,496                                      | )         |                                       |          | (112,665 | )       |         |         | 4,367,334 |           |          |           | (1,476    | )     
|                                                                           | Discontinued operations                                                                                                |                                    |                                                 | 4,342     |                                       |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Income (loss) before cumulative effect of a change in
accounting principle |                                                                                                                        |                                    | (2,486,154                                      | )         |                                       |          | (112,665 | )       |         |         | 4,367,334 |           |          |           | (1,476    | )     
|                                                                           | Cumulative effect of a change in accounting principle
(note 2)                                                         |                                    |                                                 | (7,363    | )                                     |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Net income (loss)                                                          |                                                                                                                        |                                    | (2,493,517                                      | )         |                                       |          | (112,665 | )       |         |         | 4,367,334 |           |          |           | (1,476    | )     
|                                                                           | Accretion of 8% Series A Convertible Preferred Stock
to liquidation value and related dividends                        |                                    |                                                 | (158,249  | )                                     |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           | Charge for beneficial conversion feature of 8%
Series A Convertible Preferred Stock                                    |                                    |                                                 | (159,279  | )                                     |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Net income (loss) attributable to common stockholders                      |                                                                                                                        | $                                  | (2,811,045                                      | )         |                                       | $        | (112,665 | )       |         | $       | 4,367,334 |           |          | $         | (1,476    | )     
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|Net income (loss) per share - basic and diluted:                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           | Income (loss) from continuing operations                                                                               |                                    | $                                               | (49.63    | )                                     |          | $        | (2.14   | )       |         | $         | 79.94     |          |           | $         | (0.18  | )          
|                                                                           | Accretion, dividends and beneficial conversion of 8%
Series A Convertible Preferred Stock                              |                                    |                                                 | (6.33     | )                                     |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           | Income from discontinued operations                                                                                    |                                    |                                                 | 0.09      |                                       |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           | Cumulative effect of change in accounting principle                                                                    |                                    |                                                 | (0.15     | )                                     |          |          |        |         |         |           |          |          |           |           |       |            
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           |                                                                                                                        |                                    | Net income (loss) per share - basic and diluted |           | $                                     | (56.02   | )        |         | $       | (2.14   | )         |           | $        | 79.94     |           |        | $           | (0.18  | )
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       
|                                                                           | Weighted average number of shares outstanding                                                                          |                                    |                                                 | 50,184    |                                       |          |          | 52,748  |         |         |           | 54,633    |          |           |           | 8,000  |            
|                                                                           |                                                                                                                        |                                    |                                                 |           |                                       |          |          |         |         |         |           |           |          |           |           |       

See accompanying notes to consolidated financial statements.





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##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIESConsolidated
Statements of Stockholders Equity (Deficit)

|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            |            |        |   |            |            |        |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------- | ------ | -------------- | - | ------------ | --- | ---------- | - | ----------- | ----- | ------------- | - | ------- | -- | --------- | - | - | ------- | -------- | - | - | ---------- | ---------- | ------ | - | ---------- | ---------- | ------ | -
|                                                    |                                                                                            |          |        | Predecessor    |   | Reorganized  |     |            |   |             |       |               |   |         |    |          
|                                                    |                                                                                            |          |        | Company        |   | Company      |     |            |   |             |       |               |   |        
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   | Total  
|                                                    |                                                                                            |          |        | Common Stock   |   | Common Stock |     | Additional |   |             |       | Stockholders
|                                                    |                                                                                            |          |        |                |   |              |     | Paid-in    |   | Accumulated |       | Equity       
|                                                    |                                                                                            |          |        | Shares         |   | Amount       |     | Shares     |   | Amount      |       | Capital       |   | Deficit |    | (Deficit)
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |          
|                                                    |                                                                                            |          |        | (in thousands)
|Balances at
December 31, 1999
(Predecessor
Company) |                                                                                            |          | 47,761 |                |   | $            | 478 |            |   |             |      |               |   | $       |   |           |   | $ | 599,282 |          |   | $ | (1,443,624 | )          |        | $ | (843,864   | )         
|                                                    | Shares issued
for cash in
connection with
the exercise of
options and
warrants             |          |        | 936            |   |              |     | 9          |   |             |       |              |   |         |    |          |   |   |         | 14,366   |   |   |            |           |        |   |            | 14,375     |       
|                                                    | Shares issued
for cash in
connection with
the employee
stock purchase
plan                 |          |        | 174            |   |              |     | 1          |   |             |       |              |   |         |    |          |   |   |         | 2,728    |   |   |            |           |        |   |            | 2,729      |       
|                                                    | Shares issued as
contribution to
401(k) plan                                               |          |        | 178            |   |              |     | 2          |   |             |       |              |   |         |    |          |   |   |         | 4,296    |   |   |            |           |        |   |            | 4,298      |       
|                                                    | Shares issued in
exchange for
long-term
investment                                         |          |        | 2,996          |   |              |     | 30         |   |             |       |              |   |         |    |          |   |   |         | 21,595   |   |   |            |           |        |   |            | 21,625     |       
|                                                    | Warrants issued
in connection
with 8% Series A
Convertible
Preferred Stock                 |          |        |               |   |              |     |           |   |             |       |              |   |         |    |          |   |   |         | 80,596   |   |   |            |           |        |   |            | 80,596     |       
|                                                    | Value ascribed
to beneficial
conversion
feature of 8%
Series A
Convertible
Preferred Stock |          |        |               |   |              |     |           |   |             |       |              |   |         |    |          |   |   |         | 159,279  |   |   |            | (159,279   | )      |   |            |           |       
|                                                    | Accretion and
dividends of 8%
Series A
Convertible
Preferred Stock                         |          |        |               |   |              |     |           |   |             |       |              |   |         |    |          |   |   |         |         |   |   |            | (158,249   | )      |   |            | (158,249   | )     
|                                                    | Net loss                                                                                   |          |        |               |   |              |     |           |   |             |       |              |   |         |    |          |   |   |         |         |   |   |            | (2,493,517 | )      |   |            | (2,493,517 | )     
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            |            |        |   |            |           
|Balances at
December 31, 2000
(Predecessor
Company) |                                                                                            |          | 52,045 |                |   |              | 520 |            |   |             |      |               |   |         |   |           |   |   | 882,142 |          |   |   | (4,254,669 | )          |        |   | (3,372,007 | )         
|                                                    | Shares issued
upon conversion
of mandatorily
redeemable
preferred
securities of
subsidiary |          |        | 1,662          |   |              |     | 17         |   |             |       |              |   |         |    |          |   |   |         | 39,898   |   |   |            |           |        |   |            | 39,915     |       
|                                                    | Net loss                                                                                   |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            | (112,665   | )      |   |            | (112,665   | )     
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            |            |        |   |            |           
|Balances at
December 31, 2001
(Predecessor
Company) |                                                                                            |          | 53,707 |                |   |              | 537 |            |   |             |      |               |   |         |   |           |   |   | 922,040 |          |   |   | (4,367,334 | )          |        |   | (3,444,757 | )         
|                                                    | Shares issued
upon conversion
of mandatorily
redeemable
preferred
securities of
subsidiary |          |        | 1,538          |   |              |     | 15         |   |             |       |              |   |         |    |          |   |   |         | 36,940   |   |   |            |           |        |   |            | 36,955     |       
|                                                    | Net income                                                                                 |          |        |               |   |              |     |           |   |             |       |              |   |         |    |          |   |   |         |         |   |   |            | 4,367,334  |        |   |            | 4,367,334  |       
|                                                    | Effect of
reorganization
and Fresh Start
reporting                                         |          |        | (55,245        | ) |              |     | (552       | ) |             |       | 8,000         |   |         |    | 80        |   |   |         | (876,471 | ) |   |            |           |        |   |            | (876,943   | )     
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            |            |        |   |            |           
|Balances at October
11, 2002
(Reorganized
Company)  |                                                                                            |          |       |                |   |              |    |            |   |             | 8,000 |               |   |         | 80 |           |   |   | 82,509  |          |   |   |           |            |        |   | 82,589     |           
|                                                    |                                                                                            | Net loss |        |                |  |              |     |            |  |             |       |               |  |         |    |           |  |   |         |          |  |   |            |            | (1,476 | ) |            |            | (1,476 | )
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            |            |        |   |            |           
|Balances at
December 31, 2002
(Reorganized
Company) |                                                                                            |          |       |                |   | $            |    |            |   |             | 8,000 |               |   | $       | 80 |           |   | $ | 82,509  |          |   | $ | (1,476     | )          |        | $ | 81,113     |           
|                                                    |                                                                                            |          |        |                |   |              |     |            |   |             |       |               |   |         |    |           |   |   |         |          |   |   |            |            |        |   |            |           

See accompanying notes to consolidated financial statements.





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##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIESConsolidated
Statements of Cash Flows

|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |           |        |             |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------------ | --------- | -------------------------- | -------- | ------- | ------- | ------- | --------- | ---------- | ---------- | -------- | ------- | --------- | ------ | ----------- | ------ | -
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |           |        | Reorganized
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           | Predecessor Company        |          | Company
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |        
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            | Jan. 1 - |         | Oct. 12 -
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           | Years Ended December 31,   |          | Oct. 11 |         | Dec. 31
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |        
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           | 2000                       |          | 2001    |         | 2002   
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |        
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           | (in thousands
of  dollars)
|Cash flows from operating activities:                                                           |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          
|Net income (loss)                                                                               |                                                    |                                                                                                                        | (2,493,517 | )                                                |           |                            | (112,665 | )       |         |         | 4,367,334 |            |            |          | (1,476  | )        
|Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          
|                                                                                                |                                                    | Cumulative effect of change in accounting principle                                                                    |            |                                                  | 7,363     |                            |          |         |        |         |           |            |           |          |         |           |       |            
|                                                                                                |                                                    | Net income from discontinued operations                                                                                |            |                                                  | (4,342    | )                          |          |         |        |         |           |            |           |          |         |           |       |            
|                                                                                                |                                                    | Accretion and preferred dividends on preferred
securities of subsidiaries, net of minority
interest in share of losses |            |                                                  | 60,043    |                            |          |         |        |         |           |            |           |          |         |           |       |            
|                                                                                                |                                                    | Reorganization expense (income), net                                                                                   |            |                                                  | 53,897    |                            |          |         | 13,451  |         |           |            | (4,387,967 | )        |         |           |       |            
|                                                                                                |                                                    | Depreciation and amortization                                                                                          |            |                                                  | 318,771   |                            |          |         | 67,768  |         |           |            | 66,127     |          |         |           | 8,110  |            
|                                                                                                |                                                    | Provision for impairment of long-lived assets                                                                          |            |                                                  | 1,701,466 |                            |          |         | 27,943  |         |           |            | 673        |          |         |           |       |            
|                                                                                                |                                                    | Net loss (gain) on disposal of long-lived assets                                                                       |            |                                                  | 2,415     |                            |          |         | 9,537   |         |           |            | (683       | )        |         |           | (9     | )          
|                                                                                                |                                                    | Bad debt expense                                                                                                       |            |                                                  | 84,457    |                            |          |         | 14,236  |         |           |            | 4,016      |          |         |           | 1,278  |            
|                                                                                                |                                                    | Interest expense deferred and included in
long-term debt, net of amounts capitalized on
assets under construction      |            |                                                  | 168,779   |                            |          |         | (1,213  | )       |           |            | (342       | )        |         |           | (101   | )          
|                                                                                                |                                                    | Interest expense deferred and included in capital
lease obligations                                                    |            |                                                  | 4,046     |                            |          |         | 6,810   |         |           |            | 3,394      |          |         |           | 1,112  |            
|                                                                                                |                                                    | Amortization of deferred financing costs included
in interest expense                                                  |            |                                                  | 5,276     |                            |          |         | 10,006  |         |           |            | 537        |          |         |           | 270    |            
|                                                                                                |                                                    | Amortization of deferred debt discount included in
interest expense                                                    |            |                                                  |          |                            |          |         |        |         |           |            |           |          |         |           | 345    |            
|                                                                                                |                                                    | Other                                                                                                                  |            |                                                  | 21,345    |                            |          |         | 1,419   |         |           |            | 88         |          |         |           |       |            
|                                                                                                |                                                    | Changes in operating assets and liabilities:                                                                           |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |           |        |            
|                                                                                                |                                                    |                                                                                                                        |            | Receivables                                      |           |                            | (49,619  | )       |         |         | 31,052    |            |            |          | 10,044  |           |        |             | (487   | )
|                                                                                                |                                                    |                                                                                                                        |            | Prepaid expenses and deposits                    |           |                            | (2,392   | )       |         |         | 1,224     |            |            |          | (1,566  | )         |        |             | 649    |  
|                                                                                                |                                                    |                                                                                                                        |            | Accounts payable, accrued and other liabilities  |           |                            | 95,072   |         |         |         | 10,526    |            |            |          | (30,511 | )         |        |             | (752   | )
|                                                                                                |                                                    |                                                                                                                        |            | Deferred revenue                                 |           |                            | 169,237  |         |         |         | (5,773    | )          |            |          | (2,535  | )         |        |             | (1,345 | )
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          
|Net cash provided by operating activities before
reorganization items                           |                                                    |                                                                                                                        | 142,297    |                                                  |           |                            | 74,321   |         |         |         | 28,609    |            |            |          | 7,594   |          
|Reorganization items:                                                                           |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          
|                                                                                                | Reorganization income (expense), net               |                                                                                                                        |            | (53,897                                          | )         |                            |          | (13,451 | )       |         |           | 4,387,967  |            |          |         |          |       
|                                                                                                | Fresh Start reporting adjustments                  |                                                                                                                        |            |                                                 |           |                            |          |        |         |         |           | (4,428,797 | )          |          |         |          |       
|                                                                                                | Gain on negotiated settlements                     |                                                                                                                        |            |                                                 |           |                            |          | (39,179 | )       |         |           | (3,629     | )          |          |         |          |       
|                                                                                                | Change in restructuring accruals                   |                                                                                                                        |            | 8,094                                            |           |                            |          | (6,552  | )       |         |           | 1,798      |            |          |         | (3,678    | )     
|                                                                                                | Change in liabilities subject to compromise        |                                                                                                                        |            | (10,504                                          | )         |                            |          | (36,040 | )       |         |           | 11,203     |            |          |         |          |       
|                                                                                                | Write-off of deferred financing and offering costs |                                                                                                                        |            | 36,493                                           |           |                            |          |        |         |         |           |           |            |          |         |          |       
|                                                                                                | Provision for impairment of assets held for sale   |                                                                                                                        |            |                                                 |           |                            |          | 10,300  |         |         |           |           |            |          |         |          |       
|                                                                                                | Other                                              |                                                                                                                        |            |                                                 |           |                            |          | (1,380  | )       |         |           |           |            |          |         |          |       
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          
|                                                                                                |                                                    | Net cash used by reorganization items                                                                                  |            |                                                  | (19,814   | )                          |          |         | (86,302 | )       |           |            | (31,458    | )        |         |           | (3,678 | )          
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          
|                                                                                                |                                                    |                                                                                                                        |            | Net cash provided (used) by operating activities |           |                            | 122,483  |         |         |         | (11,981   | )          |            |          | (2,849  | )         |        |             | 3,916  |  
|                                                                                                |                                                    |                                                                                                                        |            |                                                  |           |                            |          |         |         |         |           |            |            |          |         |          

(continued)

See accompanying notes to consolidated financial statements.





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##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)

|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |        |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------- | ------------------------- | -------- | ------- | ------- | ------- | ------- | - | ------- | -------- | ------- | --------- | ------ | ----------- | ------ | -
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        | Reorganized
|                                                     |                                                                                                       |                                                  |         | Predecessor Company       |          | Company
|                                                     |                                                                                                       |                                                  |         |                           |          |        
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         | Jan. 1 - |         | Oct. 12 -
|                                                     |                                                                                                       |                                                  |         | Years Ended December 31,  |          | Oct. 11 |         | Dec. 31
|                                                     |                                                                                                       |                                                  |         |                           |          |        
|                                                     |                                                                                                       |                                                  |         | 2000                      |          | 2001    |         | 2002   
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |        
|                                                     |                                                                                                       |                                                  |         | (in thousands
of dollars)
|Cash flows from investing activities:                |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |            
|                                                     | Acquisition of property, equipment and other assets                                                   |                                                  |         | (742,766                  | )        |         |         | (41,463 | )       |   |         | (40,792  | )       |           |        | (10,370     | )     
|                                                     | Change in prepaid expenses, accounts payable and
accrued liabilities for purchase of long-term assets |                                                  |         | 146,325                   |          |         |         | (2,808  | )       |   |         | 3,868    |         |           |        | (162        | )     
|                                                     | Proceeds from disposition of property, equipment and
other assets                                     |                                                  |         | 4,157                     |          |         |         | 4,498   |         |   |         | 3,487    |         |           |        | 585         |       
|                                                     | Proceeds from sale of short-term investments                                                          |                                                  |         | 32,806                    |          |         |         | 20,275  |         |   |         |         |         |           |        |            |       
|                                                     | Purchase of investments                                                                               |                                                  |         | (1,400                    | )        |         |         |        |         |   |         |         |         |           |        |            |       
|                                                     | Decrease in long-term deposits                                                                        |                                                  |         |                          |          |         |         |        |         |   |         | 236      |         |           |        | 1,770       |       
|                                                     | Decrease (increase) in restricted cash                                                                |                                                  |         | 3,259                     |          |         |         | 1,979   |         |   |         | (44,587  | )       |           |        | 599         |       
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |       
|                                                     |                                                                                                       | Net cash used by investing activities            |         |                           | (557,619 | )       |         |         | (17,519 | ) |         |          | (77,788 | )         |        |             | (7,578 | )
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |       
|Cash flows from financing activities:                |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |            
|                                                     | Proceeds from issuance of common stock                                                                |                                                  |         | 17,104                    |          |         |         |        |         |   |         |         |         |           |        |            |       
|                                                     | Proceeds from issuance of preferred stock                                                             |                                                  |         | 720,330                   |          |         |         |        |         |   |         |         |         |           |        |            |       
|                                                     | Proceeds from issuance of long-term debt                                                              |                                                  |         | 95,000                    |          |         |         |        |         |   |         | 25,000   |         |           |        |            |       
|                                                     | Deferred long-term debt issuance costs                                                                |                                                  |         | (7,150                    | )        |         |         | (2,086  | )       |   |         | (2,190   | )       |           |        | (100        | )     
|                                                     | Principal payments on capital lease obligations                                                       |                                                  |         | (20,525                   | )        |         |         | (17,495 | )       |   |         | (8,660   | )       |           |        | (120        | )     
|                                                     | Payments on IRU agreement                                                                             |                                                  |         | (179,497                  | )        |         |         |        |         |   |         |         |         |           |        |            |       
|                                                     | Principal payments on long-term debt                                                                  |                                                  |         | (90,122                   | )        |         |         |        |         |   |         | (25,189  | )       |           |        | (463        | )     
|                                                     | Payment and settlement of preferred dividends                                                         |                                                  |         | (6,696                    | )        |         |         | (1,312  | )       |   |         | 163      |         |           |        |            |       
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |       
|                                                     |                                                                                                       | Net cash provided (used) by financing activities |         |                           | 528,444  |         |         |         | (20,893 | ) |         |          | (10,876 | )         |        |             | (683   | )
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                       |                                                  | 93,308  |                           |          |         | (50,393 | )       |         |   | (91,513 | )        |         |           | (4,345 | )          
|                                                     | Net cash provided by discontinued operations                                                          |                                                  |         | 384                       |          |         |         |        |         |   |         |         |         |           |        |            |       
|                                                     | Cash and cash equivalents, beginning of year                                                          |                                                  |         | 103,288                   |          |         |         | 196,980 |         |   |         | 146,587  |         |           |        | 55,074      |       
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |       
|Cash and cash equivalents, end of year               |                                                                                                       |                                                  | 196,980 |                           |          |         | 146,587 |         |         |   | 55,074  |          |         |           | 50,729 |            
|                                                     |                                                                                                       |                                                  |         |                           |          |         |         |         |         |   |         |          |         |           |        |             |       

(continued)

See accompanying notes to consolidated financial statements.





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##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)

|                                                                        |                                                                                                                                       |                                           |  |                           |         |         |  |         |        |  |  |           |   |           |  |             |   | 
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- |  | ------------------------- | ------- | ------- |  | ------- | ------ |  |  | --------- | - | --------- |  | ----------- | - | 
|                                                                        |                                                                                                                                       |                                           |  |                           |         |         |  |         |        |  |  |           |   |           |  | Reorganized
|                                                                        |                                                                                                                                       |                                           |  | Predecessor Company       |         | Company
|                                                                        |                                                                                                                                       |                                           |  |                           |         |        
|                                                                        |                                                                                                                                       |                                           |  |                           |         |         |  |         |        |  |  | Jan. 1 -  |   | Oct. 12 -
|                                                                        |                                                                                                                                       |                                           |  | Years Ended December 31,  |         | Oct. 11 |  | Dec. 31
|                                                                        |                                                                                                                                       |                                           |  |                           |         |        
|                                                                        |                                                                                                                                       |                                           |  | 2000                      |         | 2001    |  | 2002   
|                                                                        |                                                                                                                                       |                                           |  |                           |         |         |  |        
|                                                                        |                                                                                                                                       |                                           |  | (in thousands
of dollars)
|Supplemental disclosure of cash flows information:                      |                                                                                                                                       |                                           |  |                           |         |         |  |         |        |  |  |           |   |           |  |            
|                                                                        | Cash paid for interest                                                                                                                |                                           |  | 32,626                    |         |         |  | 22,107  |        |  |  | 14,141    |   |           |  | 2,108       |  
|                                                                        | Capitalized interest                                                                                                                  |                                           |  | 7,005                     |         |         |  | 1,213   |        |  |  | 342       |   |           |  | 101         |  
|                                                                        | Cash paid for income taxes                                                                                                            |                                           |  | 378                       |         |         |  |        |        |  |  |          |   |           |  |            |  
|Supplemental disclosure of non-cash investing and
financing activities: |                                                                                                                                       |                                           |  |                           |         |         |  |         |        |  |  |           |   |           |  |            
|                                                                        | Predecessor Company common stock issued in
connection with long-term investment                                                       |                                           |  | 21,625                    |         |         |  |        |        |  |  |          |   |           |  |            |  
|                                                                        | Predecessor Company common stock issued in
connection with conversion of mandatorily
redeemable preferred securities                  |                                           |  |                          |         |         |  | 39,915  |        |  |  |          |   |           |  |            |  
|                                                                        | Predecessor Company common stock cancelled in
connection with consummation of Modified Plan                                           |                                           |  |                          |         |         |  |        |        |  |  | 552       |   |           |  |            |  
|                                                                        | Predecessor Company preferred stock cancelled
in connection with consummation of Modified
Plan                                        |                                           |  |                          |         |         |  |        |        |  |  | 1,289,788 |   |           |  |            |  
|                                                                        | Predecessor Company unsecured long-term debt
discharged in exchange for Reorganized Company
common stock                              |                                           |  |                          |         |         |  |        |        |  |  | 1,968,781 |   |           |  |            |  
|                                                                        | Predecessor Company capital lease obligations
rejected by the Company and discharged in
exchange for Reorganized Company common stock |                                           |  |                          |         |         |  |        |        |  |  | 130,756   |   |           |  |            |  
|                                                                        | Predecessor Company secured long-term debt
refinanced with new secured notes                                                          |                                           |  |                          |         |         |  |        |        |  |  | 84,574    |   |           |  |            |  
|                                                                        | Reorganized Company common stock issued in
exchange for settlement of claims and debt
discharge                                       |                                           |  |                          |         |         |  |        |        |  |  | 80        |   |           |  |            |  
|                                                                        | Capital expenditures:                                                                                                                 |                                           |  |                           |         |         |  |         |        |  |  |           |   |           |  |             |  
|                                                                        |                                                                                                                                       | Assets acquired pursuant to IRU agreement |  |                           | 96,903  |         |  |         |       |  |  |           |  |           |  |             |  | 
|                                                                        |                                                                                                                                       | Assets acquired under capital leases      |  |                           | 133,915 |         |  |         | 50,547 |  |  |           |  |           |  |             |  | 

See accompanying notes to consolidated financial statements.





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##### Table of Contents



ICG COMMUNICATIONS, INC. AND SUBSIDIARIESNotes to
Consolidated Financial Statements

|    |  |                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Organization and Description of Business                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                               
|    |  | ICG Communications, Inc., a Delaware corporation, and its subsidiaries are
collectively referred to as ICG or the Company. The Company provides
voice, data and Internet communication services. Headquartered in
Englewood, Colorado, the Company operates an integrated metropolitan and
nationwide fiber optic infrastructure to offer:



| |  |  | Dial-Up Services, including primary rate interface and remote
access services, on a wholesale basis to national and regional
Internet Service Providers (ISPs).                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Point-to-Point Broadband Services, providing traditional
special access service to long-distance and inter-exchange carriers
and medium to large sized corporate customers, as well as switched
access and SS7 services.
|
| |  |  | Corporate Services, primarily retail voice and data services to
businesses.                                                                                                                                             



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 14, 2000, (the Petition Date), ICG and its operating
subsidiaries filed voluntary petitions for protection under Chapter 11 of
the United States Bankruptcy Code (the Bankruptcy Code) in the United
States District Court for the District of Delaware (the Bankruptcy
Court).



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 19, 2001, the Company filed a proposed Plan of Reorganization
and a Disclosure Statement in the Bankruptcy Court. The Company
subsequently filed a First Amended Plan and Disclosure Statement on March
1, 2002. On March 26, 2002, the Company filed a Second Amended Plan and
Disclosure Statement, which were amended on April 3, 2002. The original
Plan of Reorganization, the Disclosure Statement, the First Amended Plan
and Disclosure Statement, and the Second Amended Plan and Disclosure
Statement are collectively referred to herein as the Original Plan. On
April 3, 2002, the Company submitted the Original Plan to the Companys
creditors for approval. On May 16, 2002, the Companys balloting agent
filed an affidavit indicating that all classes of creditors entitled to
vote had overwhelmingly accepted the Original Plan. On May 21, 2002, the
Bankruptcy Court entered an order (the Original Confirmation Order)
confirming the Original Plan.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Original Plan was formulated on the basis of extensive negotiations
conducted among the Company and its primary constituencies. As part of
the Original Plan, the Company received commitment letters for new
financing totaling $65 million (the Original Exit Financing). The
Original Exit Financing was to be funded predominantly by Cerberus Capital
Management, L.P. (Cerberus). Although the Bankruptcy Court confirmed
the Original Plan, the closing of the Original Exit Financing transactions
did not occur and the Original Plan did not become effective as a result
of disagreements between the Company and Cerberus.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | After consulting with the Companys official committee of unsecured
creditors and the Companys senior secured lenders, the Company engaged in
settlement discussions with Cerberus. As a result of those negotiations,
on July 25, 2002, the Company entered into an agreement with Cerberus that
was embodied in a proposed modification to the Original Plan. The
Original Plan, as modified, is referred to herein as the Modified Plan.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company determined that the changes to the Original Plan, as reflected
in the Modified Plan, required a re-solicitation of votes from certain
classes of creditors. Thus, on July 26, 2002, the Company filed the
proposed Modified Plan and a Supplement to the Disclosure Statement in the
Bankruptcy Court. On August 23, 2002, the Company submitted the Modified
Plan to the Companys creditors for approval. On October 7, 2002, the
Companys balloting agent filed an affidavit indicating that all classes
of creditors entitled to vote had again overwhelmingly accepted the
Modified Plan. On October 9, 2002, the Bankruptcy Court entered an order
confirming the Modified Plan. On October 10, 2002 (the Effective Date),
the Companys Modified Plan became effective and the Company emerged from
Chapter 11 bankruptcy protection.





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##### Table of Contents



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | Between November 14, 2000, and October 10, 2002, ICG operated as a
debtor-in-possession under the supervision of the Bankruptcy Court. ICGs
financial statements for reporting periods within that timeframe were
prepared in accordance with the provisions of Statement of Position 90-7
(SOP 90-7), Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code, as further described in note 3. Effective with its
emergence from bankruptcy, ICG implemented Fresh Start reporting (Fresh
Start), as further described in note 4.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |  | For financial reporting purposes, close of business on October 11, 2002,
represents the date of emergence from bankruptcy. As used in this Annual
Report, the following terms refer to the Company and its operations:                                                                                                                                                                                                                                                                                                                                       

| |                       |  |                                                               
| | --------------------- |  | --------------------------------------------------------------
| | Predecessor Company |  | The Company, pre-emergence from bankruptcy                    
| |                       |  |                                                               
| | Reorganized Company |  | The Company, post-emergence from bankruptcy                   
| |                       |  |                                                               
| | 2002 Predecessor    |  | The Companys operations, January 1, 2002 - October 11, 2002  
| |                       |  |                                                               
| | 2002 Reorganized    |  | The Companys operations, October 12, 2002 - December 31,
2002



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | All significant intercompany accounts and transactions have been
eliminated in consolidation.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Certain prior year amounts have been reclassified to conform to the 2002
presentation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Management bases its estimates and judgments on
historical experience, current economic and industry conditions and on
various other factors that are believed to be reasonable under the
circumstances. Such information forms the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results, however, may differ from
these estimates under different assumptions or conditions.



| |                                       
| | --------------------------------------
| | Comparability of Financial Information



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Due to the adoption of Fresh Start reporting, as further described in note
4, as of October 11, 2002, the Reorganized Companys post-Fresh Start
balance sheet, statement of operations and statement of cash flows have
not been prepared on a consistent basis with the Predecessor Companys
financial statements and are not comparable in certain respects to the
financial statements prior to the application of Fresh Start reporting.
However, the Company believes that operating costs, selling, general and
administrative expenses, and bad debt expense are comparable, as they were
not affected by the adoption of Fresh Start reporting and the creation of
a new reporting entity. Revenue is comparable, except with respect to
revenue recognition of certain deferred revenue. Due to the write down of
deferred revenue in connection with the application of Fresh Start
reporting, revenue was reduced by $1 million per quarter.



| |                 
| | ----------------
| | Cash Equivalents



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.



| |                
| | ---------------
| | Restricted Cash



| |                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restricted cash consists of cash balances held by various financial
institutions as collateral for debt, letters of credit and surety bonds.
These balances will be reclassified to cash and cash equivalents when the
underlying obligation is satisfied, or in accordance with the governing
debt agreement.





---



##### Table of Contents





| |                       
| | ----------------------
| | Property and equipment



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The Companys property and equipment includes property and equipment in
service, under construction or development, and held for sale.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property and equipment in service is stated at historical cost, reduced by
provisions to recognize impairment in value. Costs associated directly
with network construction, service installations and development of
business support systems, including employee related costs, and interest
expense incurred during the construction period, are capitalized.
Depreciation is calculated on a straight-line basis over the assets
estimated useful lives, which are determined based on historical usage
with consideration given to technological changes, trends in the industry
and other economic factors that could impact the network architecture and
asset utilization. Assets held for sale are stated at the estimated
proceeds from the sale, less cost to sell.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Equipment held under capital leases is stated at the lower of the fair
value of the asset or the net present value of the minimum lease payments
at the inception of the lease. Amortization of equipment held under
capital leases is included in depreciation and amortization expense, and
is calculated on a straight-line basis over the estimated useful lives of
the assets, or the related lease term, whichever is shorter.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company provides for the impairment of long-lived assets pursuant to
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. An impairment loss is recognized when the assets carrying
value exceeds the estimated undiscounted future cash flows from the asset,
excluding interest. Measurement of the impairment loss is then based on
the estimated fair value of the asset. Considerable judgment is required
to project such future cash flows and, if required, estimate the fair
value of the impaired long-lived assets.



| |             
| | ------------
| | Other Assets



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Deferred financing costs are capitalized and amortized to interest expense
over the life of the related financing agreement.



| |                    
| | -------------------
| | Revenue Recognition



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue for dedicated transport, data, Internet and the majority of
switched services, exclusive of switched access, is generally billed in
advance on a fixed rate basis and recognized over the period the services
are provided. Switched access revenue and inter-carrier compensation,
including reciprocal compensation and carrier access, is generally billed
on a transactional basis determined by customer usage. The transactional
elements of switched access services and inter-carrier compensation are
billed in arrears and estimates are used to recognize revenue in the
period provided. Fees billed in connection with customer installations
and other up front charges are deferred and recognized as revenue ratably
over the estimated average contract life.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the past, the Company entered into indefeasible rights-of-use
agreements (IRUs), pursuant to which the Company continues to lease its
metropolitan fiber and other infrastructure to other telecommunications
services providers. If the requirements for sales-type lease accounting
were met, the Company recognized revenue in the period that facilities
became available for use by the customer. If the requirements for
sales-type lease accounting were not met, as was generally the case, the
Company recognized revenue ratably over the term of the agreement.
Revenue earned on the portion of IRUs attributable to the provision of
maintenance services has been recognized ratably over the term of the
agreement. Revenue from IRU agreements in 2000, 2001, 2002 Predecessor
and 2002 Reorganized totaled $14 million, $9 million, $7 million and $1
million, respectively.



| |                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company records reciprocal compensation and carrier access revenue in
accordance with regulatory authority approval and pursuant to
interconnection agreements with incumbent local exchange carriers
(ILECs) and interexchange carriers (IXCs) for the origination,
transport and/or termination of traffic originated by ILEC and





---



##### Table of Contents





| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | IXC customers, including Internet traffic. The Company recognizes revenue
as the service is provided, except in those cases where the revenue is
under dispute and collection is uncertain.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 1, 2000, the Company adopted Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements, which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission.
Effective January 1, 2000, installation revenue is deferred and recognized
as revenue over the estimated average contract life. Prior to the adoption
of SAB No. 101, the Company recognized installation revenue as services
were performed. As required by generally accepted accounting principles,
the Company reflected the effects of the change in accounting principle as
if such change had been adopted as of January 1, 2000, and included in the
results of operations for the year ended December 31, 2000, a charge of $7
million relating to the cumulative effect of this change in accounting
principle. In addition, the change in accounting principle resulted in an
increase in revenue for the year ended December 31, 2000, of $1 million.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company recognizes revenue at the amount expected to be realized,
which includes billing and service adjustments. Valuation allowances for
uncollectible accounts receivable are established through a charge to
selling, general and administrative expenses. The Company assesses the
adequacy of this reserve periodically, evaluating general factors such as
the length of time individual receivables are past due, historical
collection experience, the economic and competitive environment, and
changes in the credit worthiness of customers. The Company also assesses
the ability of specific customers to meet their financial obligations and
establishes specific valuation allowances based on the amount the Company
expects to collect from these customers, as considered necessary. If
circumstances relating to specific customers change or economic conditions
improve or worsen such that past collection experience and assessment of
the economic environment are no longer relevant, the estimate of the
recoverability of the Companys trade receivables may change.



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company had, as of December 31, 2002, total accounts receivable
outstanding of $36 million and an allowance for uncollectible accounts
receivable of $9 million.



| |                                        
| | ---------------------------------------
| | Operating Costs and Accrued Liabilities



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company leases certain network facilities, primarily circuits, from
ILECs and CLECs to augment its owned infrastructure for which it is
generally billed a fixed monthly fee. The Company also uses the
facilities of other carriers for which it is billed on a usage basis. The
Company issued a significant number of disconnect orders to ILECs and
CLECs for leased circuits throughout 2001 as a result of the Companys
optimization of its network and associated operating cost structure, as
well as the curtailment of the Companys expansions plans. In addition,
many of these providers changed the Companys billing account numbers
(BANs) in an attempt to segregate the Companys pre- and post-Chapter 11
petition billing activity. Disconnected services were frequently not
reflected on a timely basis by these facilities providers on the Companys
invoices, resulting in inaccurate invoices and disputes, and the
assignment of new BANs by these facilities providers frequently resulted
in incorrect balances being carried forward on invoices. The Company
disputes invoices for usage billings when the call record detail is not
adequate to support such charges. As a result of these and other types of
billing disputes, the Company is in negotiations with certain providers.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In determining the amount of such operating expenses and related accrued
liabilities to reflect in its financial statements, the Company considers
the adequacy of documentation of disconnect notices, compliance with
prevailing contractual requirements for submitting such disconnect notices
and disputes to the provider of the facilities, and compliance with its
interconnection agreements with these carriers. Significant judgment is
required in estimating the ultimate outcome of the dispute resolution
process, as well as any other amounts that may be incurred to conclude the
negotiations or settle any litigation.



| |             
| | ------------
| | Income Taxes



| |                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company accounts for income taxes under the provisions of SFAS No.
109, Accounting for Income Taxes. Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing





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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.



| |                                   
| | ----------------------------------
| | Bankruptcy Court Preference Claims



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the Bankruptcy Code, a debtors estate can recover so called
preference payments made by an insolvent debtor to creditors outside the
ordinary course of business within 90 days preceding the debtors
bankruptcy petition date. ICG as a debtor has filed numerous preference
claims against its creditors. Conversely, ICG has been notified, and in
some cases sued, by certain former customers now in bankruptcy, who claim
to have made preference payments to ICG. Under the Bankruptcy Code, there
are several defenses that can be raised to contest a preference claim.
The Companys policy for recognizing these transactions is:



| |  |  | Preference claims filed by others against ICG: If a customer
rejects its contract with ICG in connection with the customers
bankruptcy proceedings, ICG reviews the likelihood that (a) the
customer will assert a preference claim in accordance with the
Bankruptcy Code and that (b) the customers preference claim, if
asserted, will prevail in bankruptcy court. The Company records a
liability and a corresponding charge to other expenses if both are
probable and the amount of the contingent liability can be reasonably
estimated.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Preference claims filed by ICG
against others: Many preference claims filed by ICG in the Bankruptcy Court remain
outstanding at December 31, 2002. The Company will record the income
from such claims in other income when realization is assured.                                                                                                                                                                                                                                                                                              



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition, all attorneys fees and other expenses incidental to pursuing
and defending preference claims in bankruptcy court are recorded as
incurred and included in other expenses.



| |                            
| | ---------------------------
| | Net Income (Loss) Per Share



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Net income (loss) per share is determined in accordance with SFAS No. 128,
Earnings Per Share. Under SFAS No. 128, basic income (loss) per share
is computed by dividing income (loss) by the weighted average common
shares outstanding. Diluted income (loss) per share considers potential
common stock instruments in the calculation of weighted average common
shares outstanding. Potential common stock instruments, which include
options, warrants and convertible preferred securities, are not included
in the calculation of weighted average common shares outstanding if their
effect is anti-dilutive.



| |                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Predecessor Companys weighted average common shares outstanding and
potential common stock instruments were used in the calculation of the
Predecessor Companys net income (loss) per share through October 11,
2002. All such common stock and potential common stock instruments were
cancelled in connection with the Companys emergence from bankruptcy.



| |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with the Modified Plan, a total of 8,000,000 shares of the
Reorganized Companys common stock was established for distribution to the
Predecessor Companys unsecured creditors on a pro rata basis, as
described in the Modified Plan. None of these shares had been distributed
as of December 31, 2002, but have been treated as outstanding in
preparation of the accompanying financial statements.



| |                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Reorganized Companys 2002 net loss per share was calculated using the
Reorganized Companys weighted average common shares outstanding. For
purposes of this calculation, all 8,000,000 shares of common stock were
considered issued and outstanding beginning on the Effective Date.



| |                         
| | ------------------------
| | Stock-Based Compensation



| |                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company accounts for its stock-based employee and non-employee
director compensation plans using the intrinsic value based method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations (APB 25).
Stock-based instruments (warrants) issued to third





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##### Table of Contents





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | parties in according with financing arrangements are accounted in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has recorded no compensation expense for the stock options
granted under its stock option plans for the periods presented pursuant to
the intrinsic value based method of APB 25. The following table
illustrates the effect on net loss and loss per share for 2002
Reorganized, if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation in 2002
(in thousands, except per share data):

|                                        |                                                                                                                 |  |   |        |  
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------- |  | - | ------ | -
|Net loss:                               |                                                                                                                 |  |   |       
|                                        | As reported                                                                                                     |  | $ | (1,476 | )
|                                        | Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards |  |   | (244   | )
|                                        |                                                                                                                 |  |   |       
|                                        | Pro forma                                                                                                       |  | $ | (1,720 | )
|                                        |                                                                                                                 |  |   |       
|Net loss per share (basic and diluted): |                                                                                                                 |  |   |       
|                                        | As reported                                                                                                     |  | $ | (0.18  | )
|                                        |                                                                                                                 |  |   |       
|                                        | Pro forma                                                                                                       |  | $ | (0.22  | )
|                                        |                                                                                                                 |  |   |       



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions:

|                        |  |         |     |  
|----------------------- |  | ------- | --- | -
|Option life             |  | 5 years
|Volatility              |  |         | 60  | %
|Risk-free interest rate |  |         | 3.2 | %
|Dividend yield          |  | none   

|    |  |                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) |  | Accounting During Bankruptcy Proceedings                                                                                                                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                            
|    |  | ICGs financial statements during the Companys bankruptcy proceedings
have been prepared in accordance with the provisions of SOP 90-7.                                                                                                                                                                                                                                   
|    |  |                                                                                                                                                                                                                                                                                                                                                                            
|    |  | Reorganization Expense, Net                                                                                                                                                                                                                                                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                            
|    |  | In accordance with SOP 90-7, all costs and expenses incurred in connection
with the Predecessor Companys reorganization from the Petition Date to
the Effective Date have been reflected as reorganization items in the
accompanying consolidated statements of operations. The Predecessor
Company incurred the following reorganization items (in thousands of
dollars):





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##### Table of Contents



|                                                                          |  |                         |        |         |  |      |         |   |  |          |            |  
|------------------------------------------------------------------------- |  | ----------------------- | ------ | ------- |  | ---- | ------- | - |  | -------- | ---------- | -
|                                                                          |  |                         |        |         |  |      |         |   |  | Jan. 1 -
|                                                                          |  | Year ended December 31, |        | Oct. 11
|                                                                          |  |                         |        |        
|Predecessor Company                                                       |  | 2000                    |        | 2001    |  | 2002
|                                                                          |  |                         |        |         |  |     
|Gain on negotiated settlements (note 15)                                  |  |                         |       |         |  |      | (39,179 | ) |  |          | (4,437     | )
|Loss on equipment returned to vendors                                     |  |                         |       |         |  |      | 10,300  |   |  |          |           |  
|Debt and equity restructuring costs (note 9)                              |  |                         | 36,493 |         |  |      | (236    | ) |  |          | 10         |  
|Severance and employee retention costs                                    |  |                         | 9,647  |         |  |      | 13,154  |   |  |          | 3,535      |  
|Legal and professional fees                                               |  |                         | 6,260  |         |  |      | 16,498  |   |  |          | 11,363     |  
|Switch site closure costs                                                 |  |                         |       |         |  |      | 5,187   |   |  |          | 1,735      |  
|Contract termination expenses                                             |  |                         |       |         |  |      | 9,296   |   |  |          | 21,859     |  
|Interest income                                                           |  |                         | (1,412 | )       |  |      | (6,661  | ) |  |          | (1,505     | )
|Net gain on debt discharge, equity
restructuring and settlement of claims |  |                         |       |         |  |      |        |   |  |          | (4,566,532 | )
|Fresh Start reporting                                                     |  |                         |       |         |  |      |        |   |  |          | 141,970    |  
|New funding                                                               |  |                         |       |         |  |      |        |   |  |          | 2,443      |  
|Other                                                                     |  |                         | 2,909  |         |  |      | 5,092   |   |  |          | 1,592      |  
|                                                                          |  |                         |        |         |  |      |         |   |  |          |            |  
|                                                                          |  |                         | 53,897 |         |  |      | 13,451  |   |  |          | (4,387,967 | )
|                                                                          |  |                         |        |         |  |      |         |   |  |          |            |  



| |                                  
| | ---------------------------------
| | Liabilities Subject to Compromise



| |                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys filing for bankruptcy (i) automatically stayed actions by
creditors and other parties in interest to recover any claim that arose
prior to the filing, and (ii) served to accelerate, for purposes of
allowance, all pre-bankruptcy filing liabilities of the Predecessor
Company, whether or not those liabilities were liquidated or contingent on
the Petition Date.
|
| | Pursuant to SOP 90-7, the Company segregated and classified certain
pre-petition obligations as liabilities subject to compromise.
Liabilities subject to compromise were recorded at the allowed claim
amount. The following table sets forth the liabilities of the Predecessor
Company subject to compromise as of December 31, 2001 (in thousands of
dollars):                   

|                                     |                                                     |  |           |         | 
|------------------------------------ | --------------------------------------------------- |  | --------- | ------- | 
|Secured long-term debt:              |                                                     |  |           |        
|                                     | Senior Facility                                     |  |           | 84,574  | 
|                                     | Mortgage loan payable                               |  |           | 929     | 
|                                     |                                                     |  |           |        
|                                     |                                                     |  | 85,503    |        
|Unsecured long-term debt:            |                                                     |  |           |        
|                                     | 9 7/8% Senior discount notes of ICG Services, Inc.  |  |           | 319,564 | 
|                                     | 10% Senior discount notes of ICG Services, Inc.     |  |           | 393,311 | 
|                                     | 11 5/8% Senior discount notes of ICG Holdings, Inc. |  |           | 151,342 | 
|                                     | 12 1/2% Senior discount notes of ICG Holdings, Inc. |  |           | 520,264 | 
|                                     | 13 1/2% Senior discount notes of ICG Holding, Inc.  |  |           | 584,300 | 
|                                     |                                                     |  |           |        
|                                     |                                                     |  | 1,968,781 |        
|Unsecured creditors                  |                                                     |  | 476,243   |        
|Capital lease obligations, secured   |                                                     |  | 166,637   |        
|Capital lease obligations, unsecured |                                                     |  | 18,881    |        
|Priority creditors                   |                                                     |  | 13,545    |        
|                                     |                                                     |  |           |        
|                                     |                                                     |  | 2,729,590 |        
|                                     |                                                     |  |           |        



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 1999 the Company entered into a $200 million senior secured financing
facility (the Senior Facility) consisting of a $75 million term loan, a
$100 million term loan and a $25 million revolving line of credit. As a
result of the Companys bankruptcy filing, all pre-petition contractual
debt payments were suspended and subject to revised payment terms during
the bankruptcy process on a case-by-case basis. During the pendency of the
Bankruptcy Court cases, the Company did not pay any principal due under
the Senior Facility. However, the Company continued to make interest-only
payments on the Senior Facility balance through the
Effective Date.





---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the Modified Plan, on the Effective Date, the
Senior Facility was cancelled and replaced with new notes (the Secured
Notes), as described in more detail in note 7.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | In connection with its bankruptcy filing, the Company stopped accruing or
paying interest on the unsecured long-term debt and the rejected
pre-petition capital lease obligations. Contractual interest not recorded
amounted to $30 million, $249 million and $198 million for 2000, 2001 and
2002 Predecessor, respectively.                                                                                                                                                                                                                                                                                          
|
| | The amortization of deferred financing costs is generally included in
interest expense. All unamortized deferred financing costs as of the
Petition Date were written off in 2000 and included in reorganization
expenses, except the unamortized deferred financing costs incurred in
obtaining the Senior Facility. The unamortized deferred financing costs
relating to the Senior Facility were written off and included in
reorganization expenses in connection with the Companys debt
restructuring and emergence from bankruptcy in October 2002.                                                              
|
| | On December 4, 2000, the Company entered into a Debtor-in-Possession
Revolving Credit Agreement (the DIP Financing) with Chase Manhattan
Bank. The DIP Financing, as amended, provided for up to $200 million in
financing, subject to certain conditions. The Company paid monthly
commitment fees at an annual rate of 1 1/2% on the average daily unused
commitment, which were expensed monthly. On November 7, 2001, the Company
terminated the DIP Financing without ever having drawn any amounts under
this agreement. Unamortized deferred financing costs were written off to
interest expense at that time.
|
| | In connection with the Companys emergence from bankruptcy, all
liabilities subject to compromise were restructured in accordance with the
Modified Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                               



|(4) |  | Emergence from Bankruptcy and Fresh Start Reporting
|--- |  | ---------------------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The implementation of the Modified Plan resulted in, among other things, a
new capital structure (as further described in notes 7 and 10), the
satisfaction or disposition of various types of claims against the
Predecessor Company, the assumption and rejection of certain lease
agreements, and the establishment of a new board of directors following
the Effective Date.                                                                                                                                                                                                                                                                                                                                                                                 
|
| | In connection with the emergence from bankruptcy, the Company adopted
Fresh Start reporting in accordance with the requirements of SOP 90-7.
The application of SOP 90-7 resulted in the creation of a new reporting
entity. Under Fresh Start reporting, the reorganization value of ICG was
allocated to its assets and liabilities on a basis substantially
consistent with purchase accounting in accordance with SFAS No. 141,
Business Combinations.                                                                                                                                                                                                                                                                                                     
|
| | Under Fresh Start reporting, the reorganization value of ICG, which
represents the fair value of all of ICGs assets (net of liabilities), was
allocated to the Companys assets and liabilities, other than deferred
income taxes, based on their relative fair values. Deferred taxes were
determined in accordance with SFAS No. 109, Accounting for Income Taxes.
The application of SOP 90-7 created a new reporting entity having no
retained earnings or accumulated deficit.                                                                                                                                                                                                                                                                           
|
| | The Company engaged an independent financial advisor to assist in the
determination of the reorganization value or fair value of ICG. The
assumptions underlying the valuation were described in the Modified Plan.
The independent financial advisor estimated ICGs reorganization value
range at $250 million to $325 million. The Company used a reorganization
value of $284 million, which consists of equity and funded debt of $83
million and $201 million, respectively, for Fresh Start reporting as of
October 11, 2002. The Fresh Start reporting adjustments, primarily related
to the adjustment of ICGs assets and liabilities to fair market values,
had a significant effect on the Reorganized Companys subsequent
statements of operations.
|
| | ICG recorded approximately $4.4 billion of net reorganization income in
the Predecessor Companys statement of operations for 2002, which includes
the gain on the restructuring of equity and the discharge of obligations
subject to compromise for less than recorded amounts, as well as
adjustments to reduce the historical carrying values of the Companys
assets and liabilities to fair market value. The gain on debt discharge
is not classified as an extraordinary item due to the Companys adoption
of SFAS No. 145, Rescission of FASB Statements
No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections as
of December 31, 2002. SFAS No.                                                                          





---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 145 eliminated the previous requirement
that gains and losses on debt extinguishment be classified as
extraordinary items in the income statement. SFAS No. 145 now requires
that such gains and losses be classified as extraordinary items only if
they are deemed to be unusual and infrequent.



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | The effects of the reorganization and Fresh Start reporting on ICGs
balance sheet as of October 11, 2002, were as follows (in thousands of
dollars):

|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |        | 
|---------------------------------------------------- | ------------------------------------------ |  | ------------- | ------- | ------------- |  | ------------- | ------ | --------- |  | ------------- | ------- | ------------- |  | ----------- | ------ | - |  | ------- | ------ | 
|                                                     |                                            |  |               |         |               |  | Settlement of |        |           |  |               |         |               |  |             |        |   |  |        
|                                                     |                                            |  | Predecessor   |         | Claims, Debt  |  |               |        |           |  |               |         |               |  | Reorganized
|                                                     |                                            |  | Company       |         | Discharge and |  |               |        |           |  |               |         |               |  | Company    
|                                                     |                                            |  | Balance Sheet |         | Equity        |  |               |        |           |  | Fresh Start   |         | Balance Sheet
|                                                     |                                            |  | (Pre-         |         | Restructuring |  | New Funding   |        | Reporting |  | (Post-       
|                                                     |                                            |  | Confirmation) |         | (a)           |  | (b)           |        | (c)       |  | Confirmation)
|                                                     |                                            |  |               |         |               |  |               |        |           |  |              
|Assets                                               |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Current assets:                                      |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|                                                     | Cash and cash equivalents                  |  |               | 109,720 |               |  |               | (6,678 | )         |  |               | (47,968 | )             |  |             |        |   |  |         | 55,074 | 
|                                                     | Restricted cash, current                   |  |               |        |               |  |               |        |           |  |               | 15,778  |               |  |             |        |   |  |         | 15,778 | 
|                                                     | Receivables, net                           |  |               | 28,944  |               |  |               | 459    |           |  |               |         |               |  |             |        |   |  |         | 29,403 | 
|                                                     | Prepaid expenses and deposits              |  |               | 10,740  |               |  |               | (3,526 | )         |  |               | 100     |               |  |             |        |   |  |         | 7,314  | 
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Total current assets                                 |                                            |  | 149,404       |         |               |  | (9,745        | )      |           |  | (32,090       | )       |               |  |            |        |   |  | 107,569 |       
|Property and equipment                               |                                            |  | 622,659       |         |               |  |               |        |           |  |               |         |               |  | (392,205    | )      |   |  | 230,454 |       
|Accumulated depreciation                             |                                            |  | (125,541      | )       |               |  |               |        |           |  |               |         |               |  | 125,541     |        |   |  |        |       
|Restricted cash, non-current                         |                                            |  | 6,956         |         |               |  |               |        |           |  | 28,902        |         |               |  |             |        |   |  | 35,858  |       
|Other assets, net                                    |                                            |  | 12,444        |         |               |  |               |        |           |  | (321          | )       |               |  |             |        |   |  | 12,123  |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Total Assets                                         |                                            |  | 665,922       |         |               |  | (9,745        | )      |           |  | (3,509        | )       |               |  | (266,664    | )      |   |  | 386,004 |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Liabilities                                          |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Current liabilities:                                 |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|                                                     | Accounts payable                           |  |               | 10,294  |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         | 10,294 | 
|                                                     | Accrued liabilities                        |  |               | 43,392  |               |  |               | (832   | )         |  |               |         |               |  |             | (2,442 | ) |  |         | 40,118 | 
|                                                     | Restructuring accruals                     |  |               | 1,953   |               |  |               | 18,459 |           |  |               |         |               |  |             |        |   |  |         | 20,412 | 
|                                                     | Deferred revenue                           |  |               | 7,272   |               |  |               |        |           |  |               |         |               |  |             | 5,700  |   |  |         | 12,972 | 
|                                                     | Current portion of debt and
capital leases |  |               |        |               |  |               | 14,143 |           |  |               | 1,864   |               |  |             |        |   |  |         | 16,007 | 
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Total current liabilities                            |                                            |  | 62,911        |         |               |  | 31,770        |        |           |  | 1,864         |         |               |  | 3,258       |        |   |  | 99,803  |       
|Long-term liabilities:                               |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|                                                     | Secured Notes                              |  |               |        |               |  |               |        |           |  |               | 57,521  |               |  |             |        |   |  |         | 57,521 | 
|                                                     | Capital lease obligations                  |  |               | 51,154  |               |  |               | 38,873 |           |  |               |         |               |  |             |        |   |  |         | 90,027 | 
|                                                     | Senior Subordinated Term Loan              |  |               |        |               |  |               |        |           |  |               | 19,711  |               |  |             |        |   |  |         | 19,711 | 
|                                                     | Other debt                                 |  |               | 650     |               |  |               | 17,828 |           |  |               |         |               |  |             |        |   |  |         | 18,478 | 
|                                                     | Deferred revenue                           |  |               | 348     |               |  |               |        |           |  |               |         |               |  |             | 17,527 |   |  |         | 17,875 | 
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Total long-term liabilities                          |                                            |  | 52,152        |         |               |  | 56,701        |        |           |  | 77,232        |         |               |  | 17,527      |        |   |  | 203,612 |       
|Liabilities subject to
compromise                    |                                            |  | 2,722,779     |         |               |  | (2,492,726    | )      |           |  | (84,574       | )       |               |  | (145,479    | )      |   |  |        |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Total liabilities                                    |                                            |  | 2,837,842     |         |               |  | (2,404,255    | )      |           |  | (5,478        | )       |               |  | (124,694    | )      |   |  | 303,415 |       
|Redeemable preferred stock                           |                                            |  | 1,289,788     |         |               |  | (1,289,788    | )      |           |  |               |         |               |  |             |        |   |  |        |       
|Stockholders deficit 
Predecessor Company          |                                            |  | (3,461,708    | )       |               |  | 3,606,998     |        |           |  | (3,320        | )       |               |  | (141,970    | )      |   |  |        |       
|Stockholders equity 
Reorganized Company           |                                            |  |              |         |               |  | 77,300        |        |           |  | 5,289         |         |               |  |             |        |   |  | 82,589  |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       
|Total liabilities and
stockholders equity
(deficit) |                                            |  | 665,922       |         |               |  | (9,745        | )      |           |  | (3,509        | )       |               |  | (266,664    | )      |   |  | 386,004 |       
|                                                     |                                            |  |               |         |               |  |               |        |           |  |               |         |               |  |             |        |   |  |         |       



|(a) |  | Includes adjustments to record: (i) settlement of post-petition
administrative claims and pre-petition priority claims (i.e., tax
authorities); (ii) affirmation of certain executory contracts (i.e.,
capital leases); (iii) discharge
of pre-petition unsecured debt for common stock in the Reorganized
Company; and (iv) cancellation of the Predecessor Companys preferred
stock, common stock and warrants.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





---



##### Table of Contents



|(b) |  | Includes adjustments to record: (i) proceeds of $25 million
from the Senior Subordinated Term Loan, net of $5 million debt
discount attributable to the value of the warrants issued; (ii)
refinancing of the Predecessor Companys Senior Facility with the
Reorganized Companys Secured Notes whereby all proceeds from the
Senior Subordinated Term Loan were used to immediately pay down the
balance of the Secured Notes; (iii) write-off of the $2.5 million
unamortized deferred financing costs related to obtaining the Senior
Facility and the capitalization of $2.2 million of financing costs
related to obtaining the Secured Notes and the Senior Subordinated
Term Loan; and (iv) reclassification of $45 million to restricted
cash, which represents 75% of the principal balance of the Secured
Notes, in accordance with the loan agreement.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Includes adjustments to record (i) deferred revenue
reclassification of $23 million and fair value write-down adjustment
of $122 million; (ii) adjustment to reduce the net fair value of
property and equipment by $267 million; and (iii) adjustment to
reduce the accrued sales tax by $2 million as a result of the reduced
property and equipment values of leased equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



|(5) |  | Property and Equipment
|--- |  | ----------------------



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Property and equipment, including assets held under capital leases, is
comprised of the following:

|                                         |  |               |  |                |         |              |         |                     |        |   |         |           |  |         |  | 
|---------------------------------------- |  | ------------- |  | -------------- | ------- | ------------ | ------- | ------------------- | ------ | - | ------- | --------- |  | ------- |  | 
|                                         |  |               |  |                |         | Predecessor  |         |                     |        |   |         |           |  |        
|                                         |  |               |  |                |         | Company      |         | Reorganized Company
|                                         |  |               |  |                |         |              |         |                    
|                                         |  |               |  |                |         | December 31,
|                                         |  |               |  |                |         |             
|                                         |  |               |  |                |         | 2001         |         | 2002               
|                                         |  |               |  |                |         |              |         |                    
|                                         |  |               |  |                |         |              |         |                     |        |   |         |           |  | Average
|                                         |  | Depreciable   |  |                |         |              |         |                     |        |   |         | remaining
|                                         |  | lives         |  | (in thousands) |         | useful life 
|                                         |  |               |  |                |         |             
|Land                                     |  | n/a           |  | $              | 1,214   |              |         | $                   |       |   |         | n/a      
|Buildings and Improvements               |  | 31.5 years    |  |                | 50,358  |              |         |                     | 29,370 |   |         | 20 years 
|Furniture, fixtures and office equipment |  | 2 to 7 years  |  |                | 33,593  |              |         |                     |       |   |         | n/a      
|Machinery and equipment                  |  | 3 to 8 years  |  |                | 14,548  |              |         |                     | 3,662  |   |         | 4 years  
|Fiber optic equipment                    |  | 8 years       |  |                | 150,982 |              |         |                     | 51,864 |   |         | 5 years  
|Circuit switch equipment                 |  | 10 years      |  |                | 107,046 |              |         |                     | 73,964 |   |         | 7 years  
|Packet switch equipment                  |  | 3 years       |  |                | 29,087  |              |         |                     | 19,641 |   |         | 2 years  
|Fiber optic network                      |  | 2 to 20 years |  |                | 90,137  |              |         |                     | 47,432 |   |         | 17 years 
|Site improvements                        |  | 7 years       |  |                | 11,245  |              |         |                     | 99     |   |         | 7 years  
|Construction in progress                 |  | n/a           |  |                | 95,415  |              |         |                     | 11,408 |   |         | n/a      
|Assets held for sale                     |  | n/a           |  |                | 8,570   |              |         |                     | 1,749  |   |         | n/a      
|                                         |  |               |  |                |         |              |         |                     |        |   |         |           |  |         |  | 
|                                         |  |               |  |                |         |              | 592,195 |                     |        |   | 239,189 |           |  |         |  | 
|Less accumulated depreciation            |  |               |  |                |         |              | (61,008 | )                   |        |   | (7,951  | )         |  |         |  | 
|                                         |  |               |  |                |         |              |         |                     |        |   |         |           |  |         |  | 
|                                         |  |               |  |                |         | $            | 531,187 |                     |        | $ | 231,238 |           |  |         |  | 
|                                         |  |               |  |                |         |              |         |                     |        |   |         |           |  |         |  | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the adoption of Fresh Start reporting, the Company wrote down
the value of its property and equipment by $392 million, and the balance
of the accumulated depreciation by $126 million. The total Fresh Start
value of property and equipment was generally allocated on a relative
basis to the individual asset categories based on asset appraisals
obtained in November 2001 and March 2002. The new property and equipment
values are being depreciated over the remaining useful lives of the
assets.



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property and equipment includes $11 million of equipment that has not been
placed in service and $2 million of equipment that is being held for sale
at December 31, 2002, that is not being depreciated.



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company leases certain office facilities and fiber equipment under
various capital lease arrangements. Assets recorded under capitalized
lease agreements included in property and equipment consisted of $123
million and
$45 million less accumulated amortization of $3 million and $1 million at
December 31, 2001 and 2002, respectively.





---



##### Table of Contents





|(6) |  | Provision for Impairment of Long-Lived Tangible and Intangible Assets
|--- |  | ---------------------------------------------------------------------



| |                    
| | -------------------
| | Predecessor Company



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company recorded approximately $1.7 billion, $28 million and $0.6
million of provision for impairment of long-lived assets in 2000, 2001 and
2002 Predecessor, respectively.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys impairment analysis as of December 31, 2000, indicated that
there was a shortfall of undiscounted cash flows before interest compared
to the carrying value of the Companys long-lived tangible and intangible
assets, and that an impairment had occurred. For purposes of calculating
the amount of the impairment the Company segregated its long-lived assets
into three categories: intangible assets, consisting primarily of
goodwill, tangible assets to be disposed of, and tangible assets to be
utilized in ongoing operations.



| |                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result of the analysis of shortfalls of cash flows to carrying values
of assets, all intangibles, consisting primarily of goodwill relating to
the Companys acquisitions under the purchase method of accounting, were
written off as of December 31, 2000, resulting in an impairment charge of
$80 million.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company determined that certain assets that would not be utilized
under its business plan would be held for sale. These assets were
comprised primarily of (i) assets under construction, for which the
incremental capital required to place the asset in service was not
available; and (ii) assets already in service that were not deemed
necessary in the business plan. An impairment of $124 million was
reflected in the financial statements for 2000 to reduce these assets to
their fair value, which was based on existing appraisals or purchase
offers, less cost to sell. Additional impairment charges of $28 million
and $0.6 million were recorded in 2001 and 2002 Predecessor, respectively,
to reduce assets classified as held for sale to their fair value.



| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of tangible assets to be utilized in ongoing operations was
determined to be $550 million at December 31, 2000. This value was derived
based on the following valuation techniques: (i) discounted cash flows;
(ii) asset appraisals; and (iii) current market capitalization.



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In order to reduce tangible assets to be used in ongoing operations to the
fair value of $550 million, the Company recorded an impairment charge as
of December 31, 2000, of approximately $1.5 billion. No adjustment was
made to recorded depreciation during the year ended December 31, 2000.



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The book value of the impaired assets at December 31, 2000, became the new
cost basis of the assets. Subsequent depreciation of the new cost basis
was calculated based on the remaining estimated useful life of the assets.
|
| | Reorganized Company                                                                                                                                                                                                          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company performed an analysis pursuant to the requirements of SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, as
of December 31, 2002, to determine if a provision for impairment of its
long-lived assets was required. The analysis compared the Companys
estimate of future undiscounted cash flows that will be generated by the
existing long-lived assets to their net book value of $231 million. The
analysis indicated that no provision for impairment was required.



|(7) |  | Long-term Debt
|--- |  | --------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the Modified Plan, on October 10, 2002, the Company received
new financing consisting of a $25 million Senior Subordinated Term Loan
(the Senior Subordinated Term Loan). The Companys Senior Facility
balance was then cancelled and replaced with the Secured Notes. Proceeds
from the Senior Subordinated Term Loan were utilized to pay down the
balance of the Secured Notes to $59 million. The Secured Notes are
secured by substantially all assets of the Company. The principal balance
of the Secured Notes is projected to begin amortizing in August 2003 and
will mature in May 2005.
|
| | Interest on the Secured Notes accrues at a premium of 3.5% to 6.0% over
LIBOR or, at the Companys option, at a premium of 2.25% to 4.75% over the
banks prime rate. The interest rate premium at any given time is
determined                                                                                                                                                                                                                                                                                                                                                                                   





---



##### Table of Contents





| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | based on the cumulative amount of the principal prepayments
made by the Company. Interest is payable quarterly in arrears. The
weighted average interest rate in effect at December 31, 2002, was 7.8%.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Senior Subordinated Term Loan is subordinate to the Secured Notes and
is secured by substantially all assets of the Company. The loan accrues
interest at 14% per annum, which is payable monthly in arrears, and
matures on July 25, 2006.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the Modified Plan and in conjunction with the new financing
received pursuant to the Senior Subordinated Term Loan, warrants to
purchase 200,000 shares having an exercise price of $9.12, which
represented the Reorganized Companys equity value per share on the
Effective Date, and warrants to purchase 473,684 shares having an exercise
price of $0.01, were granted. Both warrant issuances expire, if
unexercised, on July 25, 2007. The warrants have an estimated fair market
value of $5 million, which has been established as a debt discount with a
corresponding increase to additional paid-in capital of stockholders
equity in the Reorganized Companys balance sheet. The debt discount is
amortized to interest expense over the remaining term of the Senior
Subordinated Term Loan.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Secured Notes and the Senior Subordinated Term Loan require the
Company to meet certain financial covenants, including minimum EBITDA
requirements and limitations on capital expenditures. The Secured Notes
and the Senior Subordinated Term Loan covenants also require that the
Company maintain a minimum cash balance equal to 75% of the outstanding
principal amount of the Secured Notes until July 25, 2003, and 50% of the
outstanding principal balance thereafter. Accordingly, on the Effective
Date the Company transferred $45 million to a cash collateral account,
which is classified as restricted cash in the Companys balance sheet.
The Company expects that $17 million of the restricted cash balance will
become available as a result of scheduled principal repayments of the
Secured Notes and the reduction of the required minimum cash balance to
50% of the outstanding principal amount of the Secured Notes in the second
half of 2003. Therefore, $17 million of restricted cash has been
classified as current as of December 31, 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other debt totaling $26 million consists primarily of notes issued to
vendors and taxing authorities. The notes have interest rates that range
from 4% to 10%, and a weighted average interest rate at December 31, 2002,
of 7.5%. The expiration dates of the notes range from 2003 through 2006.
Principal and interest are generally payable monthly. Approximately $9
million of other debt has yet to be formally documented with a note, but
is expected to be in the near future.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | Contractual debt maturities and interest rates in effect as of December
31, 2002, are as follows (in thousands of dollars):

|                               |  |            |        |                               |        |           |        |              |        |       |        |   |       |   |         |   |        | 
|------------------------------ |  | ---------- | ------ | ----------------------------- | ------ | --------- | ------ | ------------ | ------ | ----- | ------ | - | ----- | - | ------- | - | ------ | 
|                               |  |            |        |                               |        |           |        | Senior       |        |       |        |   |       |   |         |  
|                               |  |            |        |                               |        |           |        | Subordinated |        |       |        |   |       |   |         |  
|                               |  |            |        | Secured Notes                 |        | Term Loan |        | Other debt   |        | Total
|                               |  |            |        |                               |        |           |        |              |        |      
|                               |  |            |        | (dollar amounts in thousands)
|Year:                          |  |            |        |                               |        |           |        |              |        |       |        |   |       |   |         |  
|                               |  | 2003       |        | $                             | 3,790  |           |        | $            |       |       |        | $ | 9,183 |   |         | $ | 12,973 | 
|                               |  | 2004       |        |                               | 8,122  |           |        |              |       |       |        |   | 9,443 |   |         |   | 17,565 | 
|                               |  | 2005       |        |                               | 47,237 |           |        |              |       |       |        |   | 5,409 |   |         |   | 52,646 | 
|                               |  | 2006       |        |                               |       |           |        |              | 25,000 |       |        |   | 2,458 |   |         |   | 27,458 | 
|                               |  | 2007       |        |                               |       |           |        |              |       |       |        |   |      |   |         |   |       | 
|                               |  | Thereafter |        |                               |       |           |        |              |       |       |        |   |      |   |         |   |       | 
|                               |  |            |        |                               |        |           |        |              |        |       |        |   |       |   |         |  
|                               |  | $          | 59,149 |                               |        | $         | 25,000 |              |        | $     | 26,493 |   |       | $ | 110,642 |  
|                               |  |            |        |                               |        |           |        |              |        |       |        |   |       |   |         |  
|Weighted average interest rate |  |            | 7.8    | %                             |        |           | 14.0   | %(a)         |        |       | 7.5    | % |       |   | 9.1     | %
|                               |  |            |        |                               |        |           |        |              |        |       |        |   |       |   |         |  



|(a) |  | Represents the stated interest rate and excludes the
amortization of deferred debt discount included in interest expense
|--- |  | ------------------------------------------------------------------------------------------------------------------------





---



##### Table of Contents





|(8) |  | Lease Arrangements
|--- |  | ------------------
|   
|    |  | Capital leases    



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company leases certain office facilities and fiber equipment under
various capital lease arrangements. Assets recorded under capitalized
lease agreements included in property and equipment consisted of $123
million and $45 million less accumulated amortization of $3 million and $1
million at December 31, 2001 and 2002, respectively.



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following table represents contractual payments under the terms of the
Companys capital lease obligations as of December 31, 2002 (in thousands
of dollars):

|                                            |  |            |         |  |         | 
|------------------------------------------- |  | ---------- | ------- |  | ------- | 
|Year:                                       |  |            |         | 
|                                            |  | 2003       |         |  | 17,216  | 
|                                            |  | 2004       |         |  | 17,235  | 
|                                            |  | 2005       |         |  | 17,182  | 
|                                            |  | 2006       |         |  | 10,397  | 
|                                            |  | 2007       |         |  | 10,584  | 
|                                            |  | Thereafter |         |  | 172,745 | 
|                                            |  |            |         | 
|Total minimum lease payments                |  |            | 245,359 | 
|Less amounts representing interest          |  |            | 148,774 | 
|                                            |  |            |         | 
|Present value of net minimum lease payments |  |            | 96,585  | 
|                                            |  |            |         | 



| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | The weighted average interest rate on capital lease obligations was 13.1%
as of December 31, 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective January 1, 1999, the Company purchased its corporate
headquarters building, land and improvements (collectively, the Company
Headquarters) for $43 million. The Company financed the purchase
primarily through a loan secured by a mortgage on the Company
Headquarters. The seller (Seller) of the Company Headquarters retained
an option to repurchase the Company Headquarters at the original sales
price. In June 2001, the Seller exercised its right to repurchase the
Company Headquarters from the Company for $33 million. In connection with
the repurchase, the Seller agreed to assume from the Company the mortgage
loan payable and other accrued liabilities related to completing the
Company Headquarters. The Company recognized a $7.6 million loss on the
sale in 2001. In addition, the Company agreed to lease the Company
Headquarters back from the Seller under a capital lease agreement
initially valued at $50 million. The balance of the Company Headquarters
capital lease agreement included above, including accreted interest, was
$51 million. The lease expires in January 2023.
|
| | Operating leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company leases office space, warehouse space, switching and transport
sites, points of presence and equipment under non-cancelable operating
leases. Lease expense was $30 million, $24 million, $16 million and $4
million in 2000, 2001, 2002 Predecessor and 2002 Reorganized,
respectively, of which $3 million and $2 million was included in
reorganization expense in 2001 and 2002 Predecessor, respectively.



| |                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Minimum lease payments due each year on or before December 31 under the
Companys current contractual operating leases are as follows (in
thousands of dollars):
|
|





---



##### Table of Contents



|      |  |            |         |  |        | 
|----- |  | ---------- | ------- |  | ------ | 
|Year: |  |            |         | 
|      |  | 2003       |         |  | 18,971 | 
|      |  | 2004       |         |  | 15,161 | 
|      |  | 2005       |         |  | 13,904 | 
|      |  | 2006       |         |  | 13,373 | 
|      |  | 2007       |         |  | 10,809 | 
|      |  | Thereafter |         |  | 37,723 | 
|      |  |            |         | 
|      |  |            | 109,941 | 
|      |  |            |         | 



|(9) |  | Predecessor Company Preferred Stock
|--- |  | -----------------------------------



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Preferred stock at December 31, 2001, consisted of the following (in
thousands of dollars):

|                                                                   |  |  |           | 
|------------------------------------------------------------------ |  |  | --------- | 
|14% Exchangeable preferred stock of a subsidiary                   |  |  | 165,831   | 
|14 1/4% Exchangeable preferred stock of a subsidiary               |  |  | 283,225   | 
|6 3/4% Mandatorily redeemable preferred securities of
subsidiaries |  |  | 92,336    | 
|8% Series A Convertible Preferred Stock                            |  |  | 785,353   | 
|                                                                   |  |  |           | 
|                                                                   |  |  | 1,326,745 | 
|                                                                   |  |  |           | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 10, 2000, ICG sold mandatorily redeemable 8% Series A Convertible
Preferred Stock (the 8% Series A Convertible Preferred Stock) and warrants
to purchase ICG common stock for net proceeds of $708 million. The value
allocated to the warrants was $81 million at the time of the transaction.
Additionally, the Company allocated $159 million of the proceeds from the
issuance of the 8% Series A Convertible Preferred Stock to the intrinsic
value of the embedded beneficial conversion feature of the convertible
preferred securities, which was recorded as a credit to additional paid-in
capital.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to the Petition Date, accretion and preferred dividends on preferred
securities of subsidiaries, net of minority interest in share of losses
was $60 million in 2000. After filing for bankruptcy, the Company was
prohibited by the Bankruptcy Code from declaring or paying any preferred
dividends. Accordingly, the Company wrote off all unamortized offering
costs and fully accreted the discount and dividends associated with the
preferred stock issuances of subsidiaries. Such amounts are included in
reorganization expenses in the accompanying consolidated statement of
operations.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In addition, as of December 31, 2000, the Company wrote off all
unamortized offering costs and fully accreted the discount and dividends
associated with the 8% Series A Convertible Preferred Stock issued by ICG.
These amounts, totaling $158 million, are included in Accretion of 8%
Series A Convertible Preferred Stock to liquidation value and preferred
dividends in the accompanying consolidated statement of operations.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the Modified Plan, all outstanding shares of the Predecessor
Companys preferred stock were cancelled in October 2002.



|(10) |  | Stockholders Equity (Deficit)
|---- |  | ------------------------------



| |                          
| | -------------------------
| | Bankruptcy Reorganization



| |                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of December 31, 2001, the Company had 11,646,000 warrants outstanding.
The exercise price of such warrants ranged from $12.51 to $34.00 per
share. Pursuant to the Modified Plan, however, all outstanding shares of
the Predecessor Companys common stock, as well as all outstanding
warrants, were cancelled on October 10, 2002.



| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with the Modified Plan, a total of 8,000,000 shares of the
Reorganized Companys common stock was established for distribution to the
Predecessor Companys unsecured creditors on a pro rata basis, as
described in the Modified Plan. On January 10, 2003, 5,893,250 shares of
the Reorganized Companys
common stock were





---



##### Table of Contents





| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | distributed. The distribution of the remaining
shares will be completed
after the final reconciliation of pre-petition bankruptcy claims filed
against the Predecessor Company.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with the Modified Plan, warrants to purchase 800,000 shares
of the Reorganized Companys common stock were established for
distribution to certain of the Predecessor Companys unsecured creditors
on a pro rata basis, as described in the Modified Plan. On January 10,
2003, warrants to purchase 548,166 shares of the Reorganized Companys
common stock were distributed. The distribution of the remaining warrants
will be completed after the final reconciliation of pre-petition bankruptcy
claims filed against the Predecessor Company. The strike price of the
warrants is $9.12, which represented the Reorganized Companys equity
value per share on the Effective Date. The warrants may be exercised
from the date of issuance until the later of
(i) October 10, 2007, or (ii) the date that a
registration statement covering the underlying common stock of the
warrants becomes effective.



| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pursuant to the Modified Plan, on October 10, 2002, the Company received
proceeds from the Senior Subordinated Term Loan. Warrants to purchase a
total of 673,684 shares of the Reorganized Companys common stock were
issued in connection with the Senior Subordinated Term Loan, as described
in note 7.



| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under the Reorganized Companys Articles of Incorporation and in
accordance with the Modified Plan, the Company is authorized to issue
10,000,000 shares of preferred stock at a par value of $0.001 per share;
however, none had been issued as of December 31, 2002.
|
| | Stock Options                                                                                                                                                                                                                                                         



| |                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of December 31, 2001, the Company had 5,177,000 options outstanding.
Pursuant to the Companys Plan of Reorganization, all outstanding
Predecessor Company common stock and stock options were cancelled on the
effective date of the Modified Plan.



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In connection with the Modified Plan, the Company established the Year
2002 Stock Option Plan (the Stock Option Plan), effective January 1,
2002. Under the Stock Option Plan, options to purchase 768,137 shares of
the Reorganized Companys common stock are available for grant to
employees.



| |                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of December 31, 2002, options to purchase a total of 701,677 shares had
been granted under the Stock Option Plan at an exercise price of $9.12 per
share. The exercise price represents the Reorganized Companys equity
value per share on the Effective Date. All of the options granted vest
ratably over 3 years from the date of grant and expire 10 years from date
of grant.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | The following table summarizes the status of the Reorganized Companys
Stock Option Plan:

|                                 |           |  |            |         |          |   |          |      | 
|-------------------------------- | --------- |  | ---------- | ------- | -------- | - | -------- | ---- | 
|                                 |           |  |            |         |          |   | Weighted
|                                 |           |  | Shares     |         | average 
|                                 |           |  | underlying |         | exercise
|                                 |           |  | options    |         | price   
|                                 |           |  |            |         |         
|Outstanding at October 10, 2002  |           |  |           |         |          | $ |         |     
|                                 | Granted   |  |            | 701,677 |          |   |          | 9.12 | 
|                                 | Exercised |  |            |        |          |   |          |     | 
|                                 | Cancelled |  |            |        |          |   |          |     | 
|                                 |           |  |            |         |          |   |          |     
|Outstanding at December 31, 2002 |           |  | 701,677    |         |          | $ | 9.12     |     
|                                 |           |  |            |         |          |   |          |     



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 2002, none of the outstanding stock options were
exercisable. The options outstanding at December 31, 2002, have a
weighted average remaining contractual life of 9.8 years.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Effective February 10, 2003 the Company established the Directors Stock
Option Plan. Under the Directors Stock Option Plan, options to purchase
120,000 New Common Shares are available for grant to outside directors. On
February 10, 2003 options to purchase 40,000 shares at a strike price of
$9.12 were granted to the Companys outside directors. All options vest
immediately upon grant and expire 10 years from the date of grant.





---



##### Table of Contents





|(11) |  | Commitments and Contingencies
|---- |  | -----------------------------



| |                                    
| | -----------------------------------
| | Impact of WorldCom, Inc. Bankruptcy



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On July 21, 2002, WorldCom, Inc. and substantially all of its active U.S.
subsidiaries (collectively referred to as WorldCom) filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code. ICG
did not record revenue for the $2 million of services provided to WorldCom
during the period from July 1, 2002, to July 21, 2002, due to the
uncertainty of collecting this amount. In the event WorldCom elects to
affirm one or more of its contracts with the Company through its
bankruptcy proceedings, and is therefore required to cure pre-petition
defaults as provided by the Bankruptcy Code, the Company will record the
revenue accordingly.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Since WorldComs bankruptcy filing, ICG has continued to provide service
to WorldCom. Revenue from WorldCom accounted for approximately 11% of the Companys total
revenue in 2002. Under the Bankruptcy Code, WorldCom can elect to affirm
or reject its pre-petition contracts with ICG. ICG and one of Worldcoms subsidiaries, MCI Worldcom
Network Services, Inc., have reached agreement with regard to the assumption of
MCI Worldcom Network Services, Inc.s pre-petition contract. The
assumption is subject to approval by Worldcoms bankruptcy court. If approved,
the assumption will result in a total reduction in contractual revenue of
approximately $8.9 million over the combined fiscal years 2003
and 2004. In addition,
as of December 31, 2002, the Company had $3.5 million in net trade
receivables due from WorldCom.
|
| | Maintenance Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | The Company is committed to various vendors for hardware, software and
outside plant maintenance as follows (in thousands of dollars):

|      |  |            |        |  |       | 
|----- |  | ---------- | ------ |  | ----- | 
|Year: |  |            |        | 
|      |  | 2003       |        |  | 1,354 | 
|      |  | 2004       |        |  | 1,281 | 
|      |  | 2005       |        |  | 998   | 
|      |  | 2006       |        |  | 830   | 
|      |  | 2007       |        |  | 748   | 
|      |  | Thereafter |        |  | 6,748 | 
|      |  |            |        | 
|      |  |            | 11,959 | 
|      |  |            |        | 



| |           
| | ----------
| | Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2002, SBC Communications, Inc., on behalf of various
subsidiaries (collectively SBC), filed a motion in the Companys
bankruptcy case seeking permission to terminate the services it provides
the Company pursuant to its interconnection agreements. SBC contended that
the Company owed SBC in excess of $24 million related to past billing and,
as a result, should be entitled to terminate services and pursue an
administrative claim for the alleged past due receivable. The Company
filed a response to SBCs motions contending that it did not owe a
significant portion of the alleged past due amount. Additionally, the
Companys response provided that SBC owed the Company more than the
Company owed SBC. On March 29, 2002, the Company and SBC entered into a
settlement agreement regarding wholesale services. On April 30, 2002, the
Bankruptcy Court issued an order approving the terms of the settlement.
Under the terms of the settlement, the Company recorded a net $5 million
of non-recurring reciprocal compensation revenue in the three months ended
March 31, 2002. As no expenses were directly attributable to the revenue,
none were recorded in the three months ended March 31, 2002.



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 10, 2002, the court order became final and non-appealable. Amounts
allegedly owed for retail services have yet to be resolved. The Company
believes that the ultimate resolution of the remaining items relating to
retail services will be immaterial to the Companys operating results.



| |                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of the date of this Annual Report, the Company has not received the
full amount of the settlement contemplated in the settlement agreement and
is in negotiations with SBC regarding the interpretation of certain
provisions of the settlement agreement. The Company has fully reserved
for the settlement amount not yet collected from SBC.
|
| | The Company is a party to certain other litigation that has arisen in the
ordinary course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material impact on the
Companys financial condition or results of operations.                                                                      





---



##### Table of Contents





| |                                    
| | -----------------------------------
| | Other Commitments and Contingencies



| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Several of ICGs other customers have approached ICG about the possibility of
settling or restructuring their service contracts. If the Company agrees
to settle or restructure any significant customer contracts, ICGs results
of operations and financial condition could be materially impacted. At
this time, the Company cannot predict the possible outcome of such
negotiations.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company emerged from bankruptcy on October 10, 2002. However, certain
post-confirmation proceedings continue in the Bankruptcy Court relating to
pre-petition claims filed by creditors, administrative claims and claims
for damages on rejected executory contracts. As of December 31, 2002, the
Reorganized Companys balance sheet includes $17 million in estimated
accrued liabilities for the settlement of such claims.



|(12) |  | Income Taxes
|---- |  | ------------



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | No income tax expense was recognized with respect to the gain resulting
from the cancellation of indebtedness that occurred in connection with the
effectiveness of the Plan as such gain is exempt from income taxation.



| |                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Income tax benefit differs from the amounts computed by applying the U.S.
federal income tax rate to loss before income taxes primarily because the
Company has not recognized the income tax benefit of certain of its net
operating loss carryforwards and other deferred tax assets due to the
uncertainty of realization.

|                                                                                      |  |                          |       |      |  |  |       |         |  |      |  |  |  |          |       |   |  |  |  |           |  |             |       |  
|------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  |  | ----- | ------- |  | ---- |  |  |  | -------- | ----- | - |  |  |  | --------- |  | ----------- | ----- | -
|                                                                                      |  |                          |       |      |  |  |       |         |  |      |  |  |  |          |       |   |  |  |  |           |  | Reorganized
|                                                                                      |  | Predecessor Company      |       |      |  |  |       | Company
|                                                                                      |  |                          |       |      |  |  |       |        
|                                                                                      |  |                          |       |      |  |  |       |         |  |      |  |  |  | Jan. 1 - |       |   |  |  |  | Oct. 12 -
|                                                                                      |  | Years Ended December 31, |       |      |  |  |       | Oct. 11 |  |      |  |  |  | Dec. 31 
|                                                                                      |  |                          |       |      |  |  |       |        
|                                                                                      |  | 2000                     |       | 2001 |  |  |       |         |  | 2002
|                                                                                      |  |                          |       |      |  |  |       |         |  |     
|                                                                                      |  | (in percent)            
|Expected tax provision (benefit)                                                      |  |                          | (35.0 | )    |  |  | (35.0 | )       |  |      |  |  |  |          | 35.0  |   |  |  |  |           |  |             | (35.0 | )
|Change in valuation allowance                                                         |  |                          | 38.3  |      |  |  | 18.2  |         |  |      |  |  |  |          | (1.8  | ) |  |  |  |           |  |             | 39.1  |  
|State tax net of federal benefit                                                      |  |                          | (4.3  | )    |  |  | (4.2  | )       |  |      |  |  |  |          | 4.1   |   |  |  |  |           |  |             | (4.1  | )
|Gain on debt discharge and
equity restructuring and Fresh
Start reporting adjustments |  |                          |       |      |  |  |       |         |  |      |  |  |  |          | (34.0 | ) |  |  |  |           |  |             |       |  
|Reorganization costs                                                                  |  |                          |       |      |  |  | 21.0  |         |  |      |  |  |  |          | 0.5   |   |  |  |  |           |  |             |       |  
|Other                                                                                 |  |                          | 1.0   |      |  |  |       |         |  |      |  |  |  |          | (3.8  | ) |  |  |  |           |  |             |       |  
|                                                                                      |  |                          |       |      |  |  |       |         |  |      |  |  |  |          |       |   |  |  |  |           |  |             |       |  
|Provision for income taxes                                                            |  |                          |      |      |  |  |      |         |  |      |  |  |  |          |      |   |  |  |  |           |  |             |      |  
|                                                                                      |  |                          |       |      |  |  |       |         |  |      |  |  |  |          |       |   |  |  |  |           |  |             |       |  



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2001 and 2002 are as follows (in thousands of dollars):





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##### Table of Contents



|                                 |  |                                                 |                                     |  |                    |         |                    |  |          |   | 
|-------------------------------- |  | ----------------------------------------------- | ----------------------------------- |  | ------------------ | ------- | ------------------ |  | -------- | - | 
|                                 |  |                                                 |                                     |  | PredecessorCompany |         | ReorganizedCompany
|                                 |  |                                                 |                                     |  |                    |         |                   
|                                 |  |                                                 |                                     |  | December 31,      
|                                 |  |                                                 |                                     |  |                   
|                                 |  |                                                 |                                     |  | 2001               |         | 2002              
|                                 |  |                                                 |                                     |  |                    |         |                   
|Deferred income tax liabilities: |  |                                                 |                                     |  |                    |         |                    | 
|                                 |  | Interest expense                                |                                     |  | 40,645             |         |                    |  |         |  
|                                 |  |                                                 |                                     |  |                    |         |                    | 
|                                 |  |                                                 | Net deferred income tax liabilities |  |                    | 40,645  |                    |  |          |  | 
|                                 |  |                                                 |                                     |  |                    |         |                    | 
|Deferred income tax assets:      |  |                                                 |                                     |  |                    |         |                    | 
|                                 |  | Deferred revenue                                |                                     |  | (60,109            | )       |                    |  | (56,903  | )
|                                 |  | Net operating loss carryforwards                |                                     |  | (625,110           | )       |                    |  | (141,166 | )
|                                 |  | Property and equipment                          |                                     |  | (540,157           | )       |                    |  | (505,288 | )
|                                 |  | Unrealized loss on investments                  |                                     |  | (35,994            | )       |                    |  |         |  
|                                 |  | Accrued interest on high yield debt obligations |                                     |  | (192,264           | )       |                    |  |         |  
|                                 |  | Accrued expenses and other                      |                                     |  | (9,584             | )       |                    |  | (2,372   | )
|                                 |  | Allowance for doubtful accounts                 |                                     |  | (88,578            | )       |                    |  | (66,791  | )
|                                 |  |                                                 |                                     |  |                    |         |                    | 
|                                 |  | Less valuation allowance                        |                                     |  | 1,511,151          |         |                    |  | 772,520  |  
|                                 |  |                                                 |                                     |  |                    |         |                    | 
|                                 |  |                                                 | Net deferred income tax assets      |  |                    | (40,645 | )                  |  |          |  | 
|                                 |  |                                                 |                                     |  |                    |         |                    | 
|                                 |  |                                                 | Net deferred income tax liability   |  |                    |        |                    |  |          |  | 
|                                 |  |                                                 |                                     |  |                    |         |                    | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of the effective date of the Modified Plan, the Predecessor Company had
federal NOL carryforwards of approximately $2 billion. These NOL
carryforwards have been reduced as a result of the discharge and
cancellation of various pre-petition liabilities under the Plan. After
the reduction for federal income tax purposes, the Reorganized Company has
available NOL carryforwards of approximately $355 million. Further, as a
result of a statutory ownership change (as defined in Section 382 of the
Internal Revenue Code) that occurred as a result of the effectiveness of
the Plan, the Reorganized Companys ability to utilize its NOL
carryforwards for federal income tax purposes is restricted to
approximately $4 million per year. Expected tax benefit from property and
equipment depreciation for tax year 2003 will be approximately $160
million, the utilization of which could be impacted by a statutory
ownership change, as defined in Section 382 of the Internal Revenue Code
or other Internal Revenue Code provisions. The Reorganized Company is
also subject to certain state income tax laws, which may also limit the
amount and utilization of NOLs at the state level.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Considering the net reversals of future taxable and deductible amounts and
that management is not presently able to determine when the Company will
generate future taxable income, the Company has established a valuation
allowance principally for the portion of its deductible temporary
differences, including state NOLs that may not be available due to
expirations or the limitations described above. If the Company, in future
periods, were to recognize the tax benefits attributable to tax attributes
of the Predecessor Company (such as NOL carryforwards), such benefit would
be applied to reduce certain balance sheet assets in accordance with SFAS
No. 109, Accounting for Income Taxes.



|(13) |  | Employee Benefit Plans
|---- |  | ----------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has established a salary reduction savings plan under Section
401(k) of the Internal Revenue Code that the Company administers for
participating employees. All full-time employees are covered under the
plan after meeting minimum service and age requirements. Through the
second quarter of 2000, the Company made matching contributions of ICG
common stock up to a maximum of 6% of the employees eligible earnings.
Beginning in the third quarter of 2000, the Company matching was made in
cash, up to 3% of the employees eligible earnings. Beginning in the
third quarter of 2002, the Company increased the matching contribution to
a maximum of 4% of the employees eligible earnings.



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Aggregate matching contributions under the Companys employee benefit
plans were $6 million, $2 million, $1.5 million and $0.5 million in 2000,
2001, 2002 Predecessor and 2002 Reorganized, respectively.





---



##### Table of Contents





|(14) |  | Fair Value of Financial Instruments
|---- |  | -----------------------------------



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
|
| | Cash and cash equivalents                                                                                                                                            



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | The carrying amount approximates fair value because of the short
maturities of such instruments.
|
| | Restricted cash                                                                                 



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | The carrying amount approximates fair value because of the short
maturities of such instruments.
|
| | Long-term debt                                                                                  



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of the publicly traded Senior Discount Notes (Predecessor
Company) as of December 31, 2001, was estimated based on quoted market
prices.



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The carrying value of the Secured Debt (Predecessor Company) and Secured
Notes (Reorganized Company) at December 31, 2001 and 2002, respectively,
approximates fair value, as the debt instruments are not publicly traded
and have stated interest rates that float based on LIBOR or the prime
rate.



| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The carrying values of the Senior Subordinated Term Loan and other debt at
December 31, 2002, approximate fair value, as the prevailing market
conditions have not changed significantly since these instruments were
issued in October 2002.
|
| | Redeemable preferred stock (Predecessor Company)                                                                                                                                                                                             



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of the preferred stock, which was issued in a private
placement and was not traded in the open market, was estimated to be zero
as of December 31, 2001. The preferred stock was cancelled in connection
with the Companys bankruptcy reorganization.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | The estimated fair values of the Companys financial instruments are as
follows (in thousands of dollars):





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##### Table of Contents



|                                                     |                               |  |                |           |  |  |  |  |             |  |         |        |  |  |                |  |  |  |        |        |           |  |  |  |  |  |        |        | 
|---------------------------------------------------- | ----------------------------- |  | -------------- | --------- |  |  |  |  | ----------- |  | ------- | ------ |  |  | -------------- |  |  |  | ------ | ------ | --------- |  |  |  |  |  | ------ | ------ | 
|                                                     |                               |  | Predecessor    |           |  |  |  |  | Reorganized
|                                                     |                               |  | Company        |           |  |  |  |  | Company    
|                                                     |                               |  |                |           |  |  |  |  |            
|                                                     |                               |  | December 31,  
|                                                     |                               |  |               
|                                                     |                               |  | 2001           |           |  |  |  |  | 2002       
|                                                     |                               |  |                |           |  |  |  |  |            
|                                                     |                               |  | CarryingAmount |           |  |  |  |  | FairValue   |  |         |        |  |  | CarryingAmount |  |  |  |        |        | FairValue
|                                                     |                               |  |                |           |  |  |  |  |             |  |         |        |  |  |                |  |  |  |        |        |          
|Financial Assets                                     |                               |  |                |           |  |  |  |  |             |  |         |        |  |  |                |  |  |  |        |        |           |  |  |  |  |  |        |       
|Cash and cash equivalents                            |                               |  | 146,587        |           |  |  |  |  |             |  | 146,587 |        |  |  |                |  |  |  | 50,729 |        |           |  |  |  |  |  | 50,729 |       
|Restricted cash                                      |                               |  | 7,299          |           |  |  |  |  |             |  | 7,299   |        |  |  |                |  |  |  | 51,038 |        |           |  |  |  |  |  | 51,038 |       
|Financial Liabilities and Redeemable Preferred Stock |                               |  |                |           |  |  |  |  |             |  |         |        |  |  |                |  |  |  |        |        |           |  |  |  |  |  |        |       
|Predecessor Company:                                 |                               |  |                |           |  |  |  |  |             |  |         |        |  |  |                |  |  |  |        |        |           |  |  |  |  |  |        |       
|                                                     | Secured debt                  |  |                | 85,503    |  |  |  |  |             |  |         | 85,503 |  |  |                |  |  |  |        |       |           |  |  |  |  |  |        |       | 
|                                                     | Senior discount notes         |  |                | 1,968,781 |  |  |  |  |             |  |         | 135    |  |  |                |  |  |  |        |       |           |  |  |  |  |  |        |       | 
|                                                     | Redeemable preferred stock    |  |                | 1,326,745 |  |  |  |  |             |  |         |       |  |  |                |  |  |  |        |       |           |  |  |  |  |  |        |       | 
|Reorganized Company:                                 |                               |  |                |           |  |  |  |  |             |  |         |        |  |  |                |  |  |  |        |        |           |  |  |  |  |  |        |       
|                                                     | Secured Notes                 |  |                |          |  |  |  |  |             |  |         |       |  |  |                |  |  |  |        | 59,149 |           |  |  |  |  |  |        | 59,149 | 
|                                                     | Senior Subordinated Term Loan |  |                |          |  |  |  |  |             |  |         |       |  |  |                |  |  |  |        | 20,056 |           |  |  |  |  |  |        | 20,056 | 
|                                                     | Other debt                    |  |                |          |  |  |  |  |             |  |         |       |  |  |                |  |  |  |        | 26,493 |           |  |  |  |  |  |        | 26,493 | 



|(15) |  | Major Customer
|---- |  | --------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A significant amount of the Companys revenue is derived from long-term
contracts with certain large customers, including one major customer,
Qwest Communications Corporation (together with its affiliated entities,
Qwest). Revenue from Qwest accounted for 18% and 30% of total revenue
for the years ended December 31, 2001 and 2002, respectively. Revenue
from Qwest represented less than 10% of total revenue for the year ended
December 31, 2000. As of December 31, 2002, the Company had $1.5 million
in net trade receivables due from Qwest.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 2001, the Company and Qwest entered into a settlement agreement
(the Qwest Settlement Agreement), which resolved numerous claims and
issues that had been raised by both parties. In accordance with the terms
of the Qwest Settlement Agreement, the Company recorded a gain of $39
million, $37.5 million of which is reflected in reorganization items and
$1.5 million in interest expense in the accompanying consolidated
statement of operations.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A pre-petition agreement to provide Qwest with exclusive service over
designated portions of the Companys local fiber optic networks was not
settled in connection with the Qwest Settlement Agreement. The Company
had deferred revenue balances reflecting future service obligations,
including maintenance, of $149 million and $143 million at December 31,
2001, and October 11, 2002 (Predecessor Company), respectively, related to
this agreement. These amounts were included in liabilities subject to
compromise. In connection with the adoption of Fresh Start reporting, the
Company wrote down the deferred revenue balance to $23 million to reflect
the estimated legal obligation to provide future services. The balance as
of December 31, 2002, was $22 million.





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##### Table of Contents





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Independent
Auditors Report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | The Board of Directors and Stockholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | ICG Communications, Inc.:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Under the date of February 28, 2003, we reported on the consolidated balance
sheets of ICG Communications, Inc. and subsidiaries as of
December 31, 2001 (Predecessor Company) and
2002 (Reorganized Company), and the related consolidated statements of operations, stockholders
equity (deficit) and cash flows for the years ended December 31, 2000 and 2001,
the period January 1, 2002 to October 11, 2002 (Predecessor
Company) and the period October 12, 2002
to December 31, 2002 (Reorganized Company), which are included in the Companys Annual Report on Form
10-K for the year ended December 31, 2002. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement Schedule II: Valuation and Qualifying
Accounts. This financial statement schedule is the responsibility of the
Companys management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
|
| | In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | The audit report on the consolidated financial statements of ICG
Communications, Inc. and subsidiaries referred to above contains an explanatory
paragraph that states that on October 10, 2002, the Company emerged from
bankruptcy. The financial statements of the reorganized Company reflect assets
at reorganization value and liabilities at fair value under fresh-start
reporting as of October 11, 2002. As a result, the financial statements of the
reorganized Company are presented on a different basis than those prior to the
reorganization and, therefore, are not comparable in all respects.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | As discussed in Note 4 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 145
effective October 11, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | /s/ KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | Denver, Colorado                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | February 28, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       





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##### Table of Contents



Schedule II

ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

|                                               |                              |           |            |          |            |          |                           |            |  |        |  |       |            |  |  |         |   |  |  |        | 
|---------------------------------------------- | ---------------------------- | --------- | ---------- | -------- | ---------- | -------- | ------------------------- | ---------- |  | ------ |  | ----- | ---------- |  |  | ------- | - |  |  | ------ | 
|                                               |                              |           |            |          |            |          | Additions                 |            |  |        |  |       |            |  | 
|                                               |                              |           |            |          |            |          |                           |            |  |        |  |       |            |  | 
|                                               |                              |           | Balance at |          | Charged to |          | Charged to                |            |  |        |  |       | Balance at
|                                               |                              |           | beginning  |          | costs and  |          | other                     |            |  |        |  |       | end of    
|Description                                    |                              | of period |            | expenses |            | accounts |                           | Deductions |  | period
|                                               |                              |           |            |          |            |          |                           |            |  |       
|                                               |                              |           |            |          |            |          | (in thousands of dollars) |            |  |        | 
|Allowance for uncollectible trade
receivables: |                              |           |            |          |            |          |                           |            |  |        |  |       |            |  |  |         |   |  |  |       
|                                               | Year ended December 31, 2000 |           |            | 78,682   |            |          |                           | 84,457     |  |        |  |      |            |  |  | (68,854 | ) |  |  | 94,285 | 
|                                               | Year ended December 31, 2001 |           |            | 94,285   |            |          |                           | 14,236     |  |        |  |      |            |  |  | (64,307 | ) |  |  | 44,214 | 
|                                               | Year ended December 31, 2002 |           |            | 44,214   |            |          |                           | 5,294      |  |        |  | 2,567 |            |  |  | (43,058 | ) |  |  | 9,017  | 
|Allowance for uncollectible other
receivables: |                              |           |            |          |            |          |                           |            |  |        |  |       |            |  |  |         |   |  |  |       
|                                               | Year ended December 31, 2000 |           |            |         |            |          |                           |           |  |        |  |      |            |  |  |        |   |  |  |       | 
|                                               | Year ended December 31, 2001 |           |            |         |            |          |                           |           |  |        |  |      |            |  |  |        |   |  |  |       | 
|                                               | Year ended December 31, 2002 |           |            |         |            |          |                           | 2,000      |  |        |  | 2,400 |            |  |  |        |   |  |  | 4,400  | 
|Restructuring accruals:                        |                              |           |            |          |            |          |                           |            |  |        |  |       |            |  |  |         |   |  |  |       
|                                               | Year ended December 31, 2000 |           |            |         |            |          |                           |           |  |        |  |      |            |  |  |        |   |  |  |       | 
|                                               | Year ended December 31, 2001 |           |            |         |            |          |                           |           |  |        |  |      |            |  |  |        |   |  |  |       | 
|                                               | Year ended December 31, 2002 |           |            |         |            |          |                           | 20,412     |  |        |  |      |            |  |  | (3,678  | ) |  |  | 16,734 | 

See accompanying independent auditors report.





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Exhibit Index

| |  |       |  | 
| |  | ----- |  | 
| |  | Ex.No |  | 
| |  |       |  | 

|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|-- |  | ---------------------------------------------------------------------------- | --- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. |  | Plan of Acquisition,
Reorganization, Arrangement, liquidation or Succession.
|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                              | 2.1 |  |  | Joint Plan of Reorganization of ICG Communications,
Inc. and Its Affiliated Debtors and Debtors in
Possession [Incorporated by reference to Exhibit 2.2
to ICG Communications, Inc.s Current Report on Form
8-K filed effective December 20, 2001].                                                                                         
|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                              | 2.2 |  |  | Disclosure Statement with Respect to Joint Plan of
Reorganization of ICG Communications, Inc. and Its
Affiliated Debtors and Debtors in Possession
[Incorporated by reference to Exhibit 2.3 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective December 20, 2001].                                                    
|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                              | 2.3 |  |  | Findings of Fact, Conclusions of Law, and Order
Confirming Second Amended Joint Plan of
Reorganization of ICG Communications, Inc. and its
Affiliated Debtors and Debtors in Possession dated
May 21, 2002. [Incorporated by reference to Exhibit
2.1 to ICG Communications, Inc.s Current Report on
Form 8-K filed effective June 4, 2002.]
|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                              | 2.4 |  |  | Second Amended Joint Plan of Reorganization of ICG
Communications, Inc. and its Affiliated Debtors and
Debtors in Possession dated April 3, 2002.
[Incorporated by reference to Exhibit 2.2 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective June 4, 2002.]                                                          
|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                              | 2.5 |  |  | Disclosure Statement with Respect to Second Amended
Joint Plan of Reorganization of ICG Communications,
Inc. and its Affiliated Debtors and Debtors in
Possession dated April 3, 2002. [Incorporated by
reference to Exhibit 2.3 to ICG Communications,
Inc.s Current Report on Form 8-K filed effective
June 4, 2002.]                     
|   |  |                                                                              |     |  |  |                                                                                                                                                                                                                                                                                                                                              
|   |  |                                                                              | 2.6 |  |  | Modification to the Second Amended Joint Plan of
Reorganization of ICG Communications, Inc. and its
Affiliated Debtors and Debtors in Possession dated
July 26, 2002. [Incorporated by reference to Exhibit
2.7 to ICG Communications, Inc.s Current Report on
Form 8-K filed effective August 9, 2002.]                                    





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##### Table of Contents



| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | --- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 2.7 |  |  | Supplemental Disclosure With Respect to Second
Amended Joint Plan of Reorganization of ICG
Communications, Inc. Regarding Modification of ICG
Communications, Inc. and its Affiliated Debtors and
Debtors in Possession dated July 26, 2002.
[Incorporated by reference to Exhibit 2.8 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective August 9, 2002.]
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | 2.8 |  |  | Supplemental Disclosure with Respect to Second
Amended Joint Plan of Reorganization of ICG
Communications, Inc. and its Affiliated Debtors and
Debtors in Possession dated August 23, 2002.
[Incorporated by reference to Exhibit 2.8 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective October 17, 2002].                                               
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | 2.9 |  |  | Findings of Fact, Conclusions of Law, and Order
Confirming Second Amended Joint Plan of
Reorganization of ICG Communications, Inc. and its
Affiliated Debtors and Debtors in Possession, as
Modified, dated October 9, 2002. [Incorporated by
reference to Exhibit 2.9 to ICG Communications,
Inc.s Current Report on Form 8-K filed effective
October 9, 2002].               
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                 



| |    |                       
| | -- | ----------------------
| | 3. | Corporate Organization

| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                  
| |  |  | --- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 3.1 |  |  | Amended and Restated Certificate of Incorporation of
ICG Communications, Inc. filed with the office of
the Secretary of State of the State of Delaware on
October 10, 2002. [Incorporated by reference to
Exhibit 3.1 to ICG Communications, Inc.s Current
Report on Form 8-K filed effective October 17,
2002].
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                                                  
| |  |  | 3.2 |  |  | Amended and Restated By-laws of ICG Communications,
Inc., effective as of October 10, 2002.
[Incorporated by reference to Exhibit 3.2 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective October 17, 2002].                                                                                



| |    |                                                                          
| | -- | -------------------------------------------------------------------------
| | 4. | Instruments Defining the Rights of Security Holders, Including Indentures

| |  |  |     |  |  |                                                                                                                                                                                                                                                                                       
| |  |  | --- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 4.1 |  |  | Form of Common Stock Certificate of ICG
Communications, Inc. [Incorporated by reference to
Exhibit 4.1 to ICG Communications, Inc.s Form 8-A
filed effective January 2, 2003].                                                                                                       
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                       
| |  |  | 4.2 |  |  | Form of Warrant Certificate of ICG Communications,
Inc. [Incorporated by reference to Exhibit 4.2 to
ICG Communications, Inc.s Form 8-A filed effective
January 2, 2003].                                                                                                            
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                       
| |  |  | 4.3 |  |  | Warrant Agreement dated as of October 10, 2002,
between ICG Communications, Inc. and American Stock
Transfer & Trust Company, as warrant agent.
[Incorporated by reference to Exhibit 4.3 to ICG
Communications, Inc.s Form 8-A filed effective
January 2, 2003].                    
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                       
| |  |  | 4.4 |  |  | Amendment No. 1 to Warrant Agreement dated as of
December 19, 2002, between ICG Communications, Inc.
and American Stock Transfer & Trust Company, as
warrant agent. [Incorporated by reference to Exhibit
4.4 to ICG Communications, Inc.s Form 8-A filed
effective January 2, 2003].
| |  |  |     |  |  |                                                                                                                                                                                                                                                                                       





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| |  |  |     |  |  |                                                                                                                                                                                                                                   
| |  |  | --- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 4.5 |  |  | Registration Rights Agreement dated as of October
10, 2002, between ICG Communications and the Initial
Holders. [Incorporated by reference to Exhibit 4.5
to ICG Communications, Inc.s Form 8-A filed
effective January 2, 2003].



| |     |                   
| | --- | ------------------
| | 10. | Material Contracts

| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.1 |  | Employment Agreement, dated as of February 26, 2001,
by and between ICG Communications, Inc. and Michael
D. Kallet. [Incorporated by reference to Exhibit
10.77 to ICG Communications, Inc.s Annual Report on
Form 10-K for the fiscal year ended December 31,
2000.]                                                                                                                                                              
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.2 |  | Fourth Amendment to Lease, dated as of June 28,
2001, between Trinet Realty Investors V, Inc. as
landlord and ICG Holdings, Inc. as tenant.
[Incorporated by reference to Exhibit 10.81 to ICG
Communications, Inc.s Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.]                                                                                                                                      
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.3 |  | Agreement Regarding Option and Exercise of Option
dated as of June 28, 2001, by Trinet Realty
Investors V, Inc. and ICG Corporate Headquarters,
L.L.C. [Incorporated by reference to Exhibit 10.82
to ICG Communications, Inc.s Annual Report on Form
10-K for the fiscal year ended December 31, 2000.]                                                                                                                           
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.4 |  | Amended and Restated Employment Agreement, dated
June 21, 2001, by and between ICG Communications,
Inc., ICG Holdings, Inc., ICG Services, Inc., ICG
Equipment, Inc., and ICG Telecom, Inc., and Randall
Curran. [Incorporated by reference to Exhibit 10.84
to ICG Communications, Inc.s Quarterly Report on
Form 10-Q for the quarterly period ended March 31,
2001].                                                            
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.5 |  | Senior Financing Agreement by and among ICG
Communications, Inc. and its affiliated debtor
subsidiaries identified therein, Royal Bank of
Canada, as Administrative Agent and as
collateral agent, and Wachovia Bank, National
Association, as documentation agent, dated as of
July 25, 2002. [Incorporated by reference to Exhibit
10.85 to ICG Communications, Inc.s Current Report
on Form 8-K filed effective August 9, 2002.]
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.6 |  | Note and Warrant Purchase Agreement by and among ICG
Communications, Inc., Madeleine L.L.C. and Morgan
Stanley & Co., Incorporated, dated as of July 25,
2002. [Incorporated by reference to Exhibit 10.86 to
ICG Communications, Inc.s Current Report on Form
8-K filed effective August 9, 2002.]                                                                                                                                
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.7 |  | Escrow Agreement by and among ICG Communications,
Inc., Madeleine L.L.C. and Morgan Stanley & Co.,
Incorporated, dated as of July 25, 2002.
[Incorporated by reference to Exhibit 10.87 to ICG
Communications, Inc.s Current Report on Form 8-K
filed effective August 9, 2002.]                                                                                                                                                   
| |  |      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | 10.8 |  | Directors Stock Option Plan dated February 10, 2003.                                                                                                                                                                                                                                                                                                                                                                               



| |     |                               
| | --- | ------------------------------
| | 21. | Subsidiaries of the Registrant

| |  |      |  |                                
| |  | ---- |  | -------------------------------
| |  | 21.1 |  | Subsidiaries of the Registrant.





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| |  |  |  |  |  | 
| |  |  |  |  |  | 



| |     |                    
| | --- | -------------------
| | 99. | Additional
Exhibits

| |  |      |  |                                                                                                                        
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------
| |  |      |  |                                                                                                                        
| |  | 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
| |  |      |  |                                                                                                                        
| |  | 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.