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 September 30, 1996
                                       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.
                        (Commission File Number 1-11052)
                          ICG HOLDINGS (CANADA), INC.
                        (Commission File Number 33-96540)
                               ICG HOLDINGS, INC.
           (Exact name of Registrants as Specified in their Charters)

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Delaware                           84-1342022
Canada                             Not Applicable
Colorado                           84-1158866
(State or other jurisdiction of    (I.R.S. employer identification
incorporation)                     number)
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9605 East Maroon Circle            Not applicable
Englewood, Colorado 80112

1710-1177 West Hastings Street     c/o ICG Communications, Inc.
Vancouver, BC V6E 2L3              9605 East Maroon Circle
                                   P.O. Box 6742
                                   Englewood, Colorado 80155-6742

9605 East Maroon Circle            Not applicable
Englewood, Colorado 80112
(Address of principal executive    (Address of U.S. agent for
offices)                           service)
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Registrants' telephone numbers, including area codes:
(303)572-5960; (800) 650-5960; and (303) 572-5960

Securities registered pursuant to Section 12(b) of the Act:
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       Title of Each Class          Name of Exchange on Which
                                    Registered
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Common Stock, $.01 par value        American Stock Exchange
(30,953,330  shares outstanding
on December 10, 1996)
Class A Common Shares, no par       Vancouver Stock Exchange
value
(31,795,270 shares outstanding on
December 10, 1996)
Not Applicable                      Not Applicable
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<PAGE>







Securities registered pursuant to Section 12(g) of the Act:
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                        Title of Each Class
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                           Not Applicable
                           Not Applicable
                           Not Applicable
---------------------------------------------------------------------

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. [X] Yes [ ] 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. [ ]

On December 10, 1996,  the aggregate  market value of ICG  Communications,  Inc.
Common Stock held by  non-affiliates  (using the $19.88  American Stock Exchange
closing price on December 10, 1996) was approximately $615,352,200.

On December 10, 1996, the aggregate market value of ICG Holdings (Canada),  Inc.
Class A Common Shares held by non-affiliates (using the US$21.32 Vancouver Stock
Exchange  closing  price on November  6, 1996,  the last day on which a sale was
reported) was approximately $17,713,296.

ICG Holdings  (Canada),  Inc. owns all of the issued and  outstanding  shares of
Common Stock of ICG Holdings, Inc.
<PAGE>


                                 
                         TABLE OF CONTENTS


PART I  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      5
    ITEM 1. BUSINESS  . . . . . . . . . . . . . . . . . . . . . .      5
         Overview  . . . . . . . . . . . . . . . . . . . . . . . .     5
         Telecom Services  . . . . . . . . . . . . . . . . . . . .     6
             Strategy . . . . . . . . . . . . . . . . . . . . . .      6
             Telecom Services Networks  . . . . . . . . . . . . .      7
             Recent Agreements . . . . . . . . . . . . . . . . . .     8
             Services . . . . . . . . . . . . . . . . . . . . . .     12
             Industry . . . . . . . . . . . . . . . . . . . . . .     13
         Network Services . . . . . . . . . . . . . . . . . . . .     14
         Satellite Services  . . . . . . . . . . . . . . . . . . .    15
         Customers and Marketing  . . . . . . . . . . . . . . . .     16
         Competition . . . . . . . . . . . . . . . . . . . . . . .    17
         Regulation  . . . . . . . . . . . . . . . . . . . . . . .    19
         Employees . . . . . . . . . . . . . . . . . . . . . . . .    25
    ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . .    25
    ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS  . . . . . . . .     25
    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .     25
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     27
    ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . .     27
    ITEM 6. SELECTED FINANCIAL DATA  . . . . . . . . . . . . . . .    29
    ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS . . . . . . . . .     31
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . .     50
    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . .    50
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    51
    ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT . . .     51
         Executive Officers of ICG . . . . . . . . . . . . . . . .    52
         Directors of ICG  . . . . . . . . . . . . . . . . . . . .    53
         Directors and Executive Officers of Holdings-Canada and      
         Holdings . . . . . . . . . . . . . . . . . . . . . . . .     54 
    ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . .     56
         Director Compensation  . . . . . . . . . . . . . . . . .     56
         Compensation Committee Interlocks and Insider                56
         Participation . . . . . . . . . . . . . . . . . . . . . .    56
         Executive Compensation . . . . . . . . . . . . . . . . .     56
             Summary Compensation Table . . . . . . . . . . . . .     56
             Aggregated Option Exercises in Last Fiscal Year End      
             Option Values . . . . . . . . . . . . . . . . . . . .    58
             Option/SAR Grants in Last Fiscal Year  . . . . . . .     58
             Executive Employment Contracts  . . . . . . . . . . .    58
    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT . . . . . . . . . . . . . . . . . . . .   60
    ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . .   63
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     64
                                       3
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    ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
             ON FORM 8-K . . . . . . . . . . . . . . . . . . . . .    64
         Financial Statements . . . . . . . . . . . . . . . . . .     64
         Reports on Form 8-K . . . . . . . . . . . . . . . . . . .    71
         Exhibits  . . . . . . . . . . . . . . . . . . . . . . . .    71
         Financial Statement Schedule  . . . . . . . . . . . . . .    71
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . .   F-1
FINANCIAL STATEMENT SCHEDULE . . . . . . . . . . . . . . . . . . .   S-1

                                       4

<PAGE>



                                     PART I


       Unless the context otherwise requires,  the term "Company" or "ICG" means
the combined  business  operations of ICG  Communications,  Inc. ("ICG") and its
subsidiaries,  including ICG Holdings (Canada), Inc. ("Holdings-Canada") and ICG
Holdings, Inc. ("Holdings"); the terms "fiscal" and "fiscal year" refer to ICG's
fiscal year ending September 30; and all dollar amounts are in U.S. dollars. The
Company has elected to change its fiscal year end to December 31 from  September
30, effective for the 1997 fiscal year. All statistical  information reported in
this Annual Report is as of September 30, 1996, unless otherwise noted. Industry
figures  were  obtained  from reports  published  by the Federal  Communications
Commission ("FCC"),  the U.S. Department of Commerce,  Connecticut  Research (an
industry research  organization)  and other industry sources,  which the Company
has not independently verified.


ITEM 1. BUSINESS

Overview

      The Company is one of the largest providers of competitive local telephone
services  in the  United  States,  based on  estimates  of the  industry's  1995
revenue.  Competitive local exchange carriers ("CLECs"),  formerly known as CAPs
(competitive access providers),  seek to provide an alternative to the incumbent
local  exchange  carriers  ("ILECs")  for a  full  range  of  telecommunications
services in the newly  opened  regulatory  environment.  As a CLEC,  the Company
operates  networks and has acquired  fiber optic  facilities  in three  regional
clusters covering major metropolitan statistical areas in California,  Colorado,
and the Ohio Valley, with an aggregate population of approximately 33.6 million,
and in three markets in the Southeast  region,  with an aggregate  population of
approximately  2.9 million.  The Company  also  provides a wide range of network
systems   integration   services  and  maritime  and   international   satellite
transmission  services.  As a leading participant in a rapidly growing industry,
the Company has experienced  significant  growth, with total revenues increasing
from $29.5 million for fiscal 1993 to $169.1 million for fiscal 1996.

      In August  1996,  IntelCom  Group Inc.  ("IntelCom"),  a Canadian  federal
corporation,  received  final approval for its  reincorporation  into the United
States, pursuant to which its shareholders exchanged approximately 98 percent of
their common shares on a one-for-one  basis for shares of Common Stock of ICG, a
Delaware  corporation.  IntelCom then changed its name to ICG Holdings (Canada),
Inc., and its wholly owned subsidiary, IntelCom Group (U.S.A.), Inc., a Colorado
corporation,  changed its name to ICG Holdings, Inc. Shareholders who elected to
continue to hold common shares of Holdings-Canada  ("Class A Common Shares") are
entitled  to  exchange  such  shares  at any time  into ICG  Common  Stock.  The
reincorporation  was designed to maintain the Company's  results of  operations,
existing net operating  losses and asset values of the Company  without  causing
any material  United States or Canadian  federal income tax  consequences to the
Company.

      The federal  Telecommunications Act of 1996 (the "Telecommunications Act")
and several  pro-competitive  regulatory  initiatives have substantially changed
the telecommunications regulatory environment in the United States. Due to these
regulatory  changes,  the Company is now 
                                       5
<PAGE>

permitted to offer all interstate and intrastate  telephone services,  including
local dial tone.  The Company began  offering  these  services in Orange County,
California  in September  1996,  and intends to begin  offering  local dial tone
services in additional markets in the near future. In order to take advantage of
the switched  services  market,  the Company  installed 14 high capacity digital
switches,  two of which are being  relocated,  and is installing  two additional
digital  switches,  enabling  the Company to offer these  services in all of its
markets.  ICG will continue to integrate advanced switching  capabilities in its
networks and plans to install an  additional  13 switches by the end of 1997. To
facilitate the expansion of its switched  services  strategy,  in September 1996
the  Company  entered  into a seven year,  $1.0  billion  agreement  with Lucent
Technologies,  Inc.  ("Lucent")  for a full range of switching  systems,  fiber,
network  electronics,  software  and  services.  See  "Recent  Agreements-Lucent
Agreement."

Telecom Services

      The Company  operates  networks in the following  markets within its three
regional clusters: California (Sacramento, San Diego and the Los Angeles and San
Francisco metropolitan areas); Colorado (Denver,  Colorado Springs and Boulder);
and the Ohio Valley (Akron,  Cleveland,  Columbus,  Dayton and Louisville).  The
Company also  operates  networks in  Birmingham,  Charlotte  and  Nashville.  In
addition,  the Company is  developing  networks in the Los Angeles  metropolitan
area through its agreement  with Southern  California  Edison  Company  ("SCE"),
which the Company  entered into in March 1996,  one  additional  city in the San
Francisco metropolitan area, and in Cincinnati and Greensboro/Winston-Salem. The
Company's operating networks have grown from approximately 168 fiber route miles
at the end of  fiscal  1993 to  approximately  2,143  fiber  route  miles  as of
September 30, 1996. Telecom Services revenue has increased from $4.8 million for
fiscal 1993 to $87.7 million for fiscal 1996.

      Strategy

      The Company's objective is to become the dominant  alternative to the ILEC
in the markets it serves.  In  furtherance  of this  objective,  the Company has
developed  strategies  to capitalize  on its  established  customer base of long
distance  carriers  and to develop its markets  within  regional  clusters.  Key
elements of this strategy are:

      Aggressively Pursue Local and Statewide  Telephone Service.  The Company's
focus is to provide a wide range of telephone services.  With the passage of the
Telecommunications  Act,  competitive  opportunities  for new entrants  into the
local  telephone  services  market have  increased.  At the same time,  previous
restrictions on the ability of the Regional Bell Operating  Companies  ("RBOCs")
and GTE  Corporation  ("GTE"),  the  largest  ILECs,  to provide  long  distance
services have been  eliminated,  enabling the RBOCs and GTE to take advantage of
new  competitive  opportunities  and to  provide  a  wider  range  of  services,
including long distance  telephone  service.  It is likely that competition from
ILECs in the long distance  market will increase and as a result,  the Company's
long distance  carrier  customers are seeking ways to (i) increase their ability
to provide  local  telephone  services as a complement to existing long distance
service  offerings,  and (ii) reduce  their  reliance on the ILEC  networks.  By
offering an array of  telecommunications  products,  including  local  telephone
services and enhanced  services,  the Company will be providing a high  quality,
lower cost alternative to the ILEC. The Company initiated the provision of local
telephone  services in its Southern  California  markets in September  1996, and
will expand 
                                       6
<PAGE>

the provision of these  services to its other  markets in the near future.  As a
result,  the  Company  expects  local  telephone  services to become its primary
business.

      Market  Services to Carriers and End-Users.  The Company has  historically
marketed its services  primarily to long distance carriers and resellers and its
"first to market" advantage has enabled it to establish  relationships with such
carriers. As competition in the provision of local telephone services increases,
these  carriers are  attempting to expand their service  offerings by developing
and delivering local telephone  services and new enhanced products and services,
which the Company is able to provide its  carrier  customers  for resale by such
carriers.  This enables the Company to meet the  expanding  focus of its carrier
customers.  In  addition,  the Company is  expanding  its  marketing  efforts to
include  large  end-user  business  customers.  Management  believes  a targeted
end-user focus can accelerate its  penetration of the local services  market and
better leverage the Company's network investment.

      Concentrate Markets in Regional Clusters. The Company has concentrated its
networks in regional  clusters serving major  metropolitan  areas in California,
Colorado and the Ohio Valley.  The Company believes that by focusing on regional
clusters it will be able to more  effectively  service its customers'  needs and
efficiently  market,  operate  and  control its  networks.  The Company  also is
evaluating  the  expansion  of its  existing  clusters  and the  addition of new
regional  clusters in which it may seek to acquire  and/or build  facilities  to
provide local telephone services as well as access services.

      Expand  Alliances  with  Utilities.  The Company has  established,  and is
actively pursuing,  strategic alliances with utility companies to take advantage
of their existing fiber optic infrastructures. This approach affords the Company
the opportunity to license or lease fiber optic  facilities on a long-term basis
in a more timely, cost effective manner rather than constructing facilities.  In
addition,  utilities  possess  conduit  and other  facilities  that may ease the
installation of fiber to extend the existing network in a given market. Finally,
the Company may take advantage of the utilities' name  recognition to market the
Company's products and services to the utilities' customer base.

      Telecom Services Networks

      The  Company's  networks  are  composed of fiber optic  cables,  switching
facilities, advanced electronics,  transmission equipment and related wiring and
equipment.  The Company typically designs a ring architecture with a view toward
making the network accessible to the largest  concentration of telecommunication
intensive businesses in a given market.

      The Company's  networks are  configured in redundant  synchronous  optical
network ("SONET") rings that offer the advantage of uninterrupted service in the
event of a fiber cut or equipment failure. Additionally, much of the electronics
used by the Company in its networks have  redundant  components to limit outages
and increase network reliability.  The Company generally markets its services at
prices  below  those  charged by the ILEC.  Management  believes  these  factors
combine to create a more reliable and cost effective alternative to copper-based
networks which are still used, to some extent, by ILECs.
                                       7
<PAGE>

      The Company's networks are constructed to access long distance carriers as
well as areas  of  significant  end-user  telecommunications  traffic  in a cost
efficient manner. The construction period of a new network varies depending upon
the scope of the  activities,  such as the number of backbone  route miles to be
installed,  the initial  number of  buildings  targeted  for  connection  to the
network   backbone  and  the  general   deployment  of  the  network   backbone.
Construction is planned to allow revenue-generating operations to commence prior
to the completion of the entire network backbone.  When constructing and relying
principally on its own facilities, the Company has experienced a period of 12 to
18 months  from  initial  design of a network  to  revenue  generation  for such
network.  Based upon its  experience  (since the first  quarter of fiscal  1993)
with,  and strategy of, using leased  telephone  company  facilities  to provide
initial customer service,  the Company has experienced revenue generation within
nine months  after  commencing  network  design.  After  installing  the initial
network  backbone,  extensions to additional  buildings and  expansions to other
regions of a metropolitan area are evaluated,  based on detailed  assessments of
market  potential.  The  Company  is  currently  expanding  all of its  existing
networks to reduce its reliance on the ILECs and  evaluating  development of new
networks both inside and outside its existing regional clusters.

      The Company's network monitoring center in Denver operates and manages all
of the Company's  networks  from one central  location.  Centralized  electronic
monitoring  and control of the  Company's  networks  allows the Company to avoid
duplication  of  this  function  in  each  city,  thereby  reducing  costs.  The
monitoring  capabilities are supplemented  through a contract with an AT&T Corp.
("AT&T")  switch  control  center  in  Phoenix  for  surveillance  of all of the
Company's central office switches.

      Switched services involve the transmission of voice, video or data to long
distance carrier-specified or end-user-specified  termination sites (by manually
or electronically  dialing a telephone number). By contrast,  the special access
services provided by the Company and other CLECs involve a fixed  communications
link or "pipe," usually between a specific end-user and a specific long distance
carrier's  point of  presence  ("POP").  With a switch  and  interconnection  to
various  carriers'  networks,  it is  possible  for the Company to direct a long
distance carrier's traffic to any end-user regardless of whether the end-user is
connected  to the  Company's  owned or leased  network,  to the local  telephone
company or to other CLEC networks.  In addition,  a switch gives the Company the
technological  capability to provide the full range of local telephone services,
including local dial tone. The Company began providing local telephone  services
to business  customers in the Orange County,  California area in September 1996.
The Company anticipates extending such services over the next 12 months in other
markets in the Los Angeles  metropolitan  area, San Diego, the San Francisco Bay
area and Sacramento,  as well as in the Company's  other markets  throughout the
U.S. The Company has regulatory authority to provide local telephone services in
California,  Colorado, Ohio, Tennessee, Alabama and Texas, and is in the process
of  obtaining  such  authority  in other  jurisdictions.  See  "Regulation-State
Regulation."


      Recent Agreements

      Cascade Agreement. In December 1996, the Company entered into an agreement
with Cascade Communications, Inc. ("Cascade") for the purchase of data switching
components that will enable the Company to provide  Internet  service  providers
and data customers with  high-speed  data  connectivity  options.  The agreement
includes  the  purchase  of  high-speed   Frame  Relay   Multiservice 
                                       8
<PAGE>

and ATM  (asynchronous  transfer  mode)  switching  products  from  Cascade.  In
addition,  the Company will utilize  turnkey  services from Cascade for planning
and deploying the initial product launch, including program management,  network
design, onsite operations support and training.  The Company expects to complete
a data communications  platform in targeted California markets in December 1996,
and plans to deploy similar  networks in its Ohio and Colorado  markets in early
1997. 

      Lucent   Agreement.   In  September  1996,  the  Company  entered  into  a
seven-year,   $1.0   billion   equipment   purchase   agreement   for   advanced
telecommunications  products and services  with Lucent.  Lucent will provide the
Company with a full range of systems,  software and services  which will be used
by the  Company  to build  and  expand  the  Company's  advanced  communications
networks,  including  5ESS(R)-2000  switching systems,  SONET equipment,  access
equipment,  power plants,  application software systems,  Advanced  Intelligence
Network ("AIN") platforms,  data networking products and fiber cable. Lucent has
also agreed to provide engineering,  installation, on-site technical support and
other professional services.  Under the agreement with Lucent, ICG has agreed to
purchase  certain  minimum levels of equipment and services  during each year of
the agreement and if it does not meet a minimum level in any given year,  Lucent
may discontinue certain discounts,  allowances and incentives otherwise provided
to ICG for the year in which the  minimum  level was not met. In  addition,  the
agreement  may be  terminated  by either the  Company or Lucent  upon sixty days
prior written notice.

      AT&T  Agreement.  In March  1996,  the  Company  entered  into a  national
contract  with AT&T under which the Company  may  provide  special and  switched
services,  private line,  local  calling,  intraLATA  toll and  residential  and
business  telecommunications  services  to AT&T on a  non-exclusive  basis.  The
Company and AT&T have executed agreements in six metropolitan  statistical areas
("MSAs")  and have  identified  six other MSAs in which the  Company may provide
special access  services,  and are in discussions  with respect to 17 additional
MSAs in which the Company may provide services.  Under the contract, the Company
will work with AT&T to provide  special and switched  services in the  Company's
other markets and new markets which the Company may enter.

      The  contract is for an initial  five-year  term and may be renewed for an
additional  three-year term, unless sooner terminated or notice of nonrenewal is
provided by either the Company or AT&T. The Company believes that this agreement
is  indicative  of a trend by long distance  carriers to shift  origination  and
termination  of long distance  traffic away from ILEC networks to the facilities
of CLECs.  The  contract  does not prevent AT&T from using other CLECs in any of
the markets in which the Company will provide services to AT&T.

     Network Expansion.  The Company has recently expanded its network footprint
through several strategic  initiatives in its regional  clusters,  including the
following:

      SCE. In March 1996,  the Company and SCE entered into a 25-year  agreement
under which the Company  will lease 1,258 miles of fiber optic cable in Southern
California (of which 1,209 miles are currently operational),  and may install up
to 500  additional  miles of fiber  optic  cable.  This  network,  which will be
maintained and operated by the Company, stretches from Los Angeles to San Diego.
SCE may cancel the agreement,  in whole or in part, during the three-year period
commencing  November  26, 1996 upon 18 months  notice  with  respect to the dark
fibers and upon 
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<PAGE>

36 months notice with respect to SCE's rights of way or other  facilities if SCE
determines that the dark fibers or SCE's rights of way or other facilities being
used by the  Company  are  necessary  to  conduct  its  utility  operations.  In
addition,  the agreement may be terminated by either the Company or SCE upon the
occurrence of certain  specified  events,  and both the Company and SCE have the
right,  under certain  circumstances,  to either  discontinue  or relocate their
respective facilities. 

      LADWP. In September 1996, the Company entered into a 30-year agreement and
two  indefeasible  rights  of  use  ("IRU")  agreements  with  the  Los  Angeles
Department of Water and Power  ("LADWP")  for 105 miles of fiber optic  capacity
throughout downtown Los Angeles,  Century City, West Los Angeles,  Mid-Wilshire,
and Sherman Oaks.

      San Diego.  In February  1996,  the Company  entered  into an agreement to
acquire a 60% interest in Linkatel California, L.P. (now known as ICG Telecom of
San Diego,  L.P.),  which  operates a 50-mile  fiber optic  network and plans to
construct an additional 110 miles of fiber in  metropolitan  San Diego, of which
approximately  nine miles are  completed.  This  acquisition,  combined with the
Company's existing  California  networks and the facilities under agreement with
SCE,  provides  the Company  with a network  presence in all major  metropolitan
areas of California.

      Alameda.  In September 1996, the Company entered into a ten-year agreement
with a five-year  renewal,  and three ten-year IRU  agreements  with the City of
Alameda Bureau of Electricity  ("Alameda"),  each with five-year renewals. Under
the terms of the agreements, the Company will have access to approximately seven
miles of fiber optic cable throughout the city of Alameda, California.

      AEP.  In July 1996,  the Company  entered  into a 20-year  agreement  with
Columbus  Southern Power Company and Ohio Power Company,  affiliates of American
Electric  Power  (collectively,  "AEP"),  under  which the  Company and AEP will
jointly build a 45-mile fiber optic cable route in metropolitan  Columbus,  Ohio
and a 138-mile fiber optic cable route from Columbus, Ohio to Canton, Ohio.

      WorldCom.  In February 1996, the Company entered into a 20-year  agreement
with WorldCom Inc.  ("WorldCom")  under which the Company will pay approximately
$8.8 million for the right to use fiber along a 330-mile  fiber optic network in
Ohio.  The network is being  constructed  by WorldCom  in  conjunction  with the
Company and will  provide a direct  fiber link  between the  Company's  existing
networks in Akron,  Cleveland,  Columbus  and Dayton and its new  network  under
development in Cincinnati.  The Company  expects first  connectivity to begin in
December 1996.

     Following  the initial  20-year  term,  the agreement may be renewed by the
Company  for two  consecutive  terms of ten years  each upon  written  notice to
WorldCom  as  provided  in the  agreement.  After  payment by the Company of the
amounts due under the agreement  (other than the annual  maintenance  fee),  the
Company has the right to terminate  the  agreement  upon 180 days prior  written
notice  to  WorldCom.  Southern.  In March  1996,  the  Company  entered  into a
long-term  agreement with a subsidiary of The Southern Company and Alabama Power
Company ("Southern") for the right to
                                       10
<PAGE>

      

use 22 miles of existing fiber and 122 miles of additional facilities,  of which
approximately 98 miles are completed,  to reach the three major business centers
in Birmingham. 
                                       
    Following the initial  20-year term,  the agreement may be extended by the
Company  for an  additional  10-year  term upon  written  notice to  Southern as
provided in the  agreement.  The agreement  may be terminated by mutual  written
agreement  of the  parties,  or by  either  Southern  or the  Company  upon  the
occurrence of certain events of default specified in the agreement.

      CPS. In November 1995, the Company  entered into a 25-year  agreement with
City Public Service of San Antonio  ("CPS") to license half of the capacity on a
300-mile fiber optic network in greater San Antonio, 60 miles of which currently
exist.  CPS will  construct  the  remaining  240 miles in  conjunction  with the
Company  and  will  license   facilities  to  the  Company  on  an  interim  and
non-exclusive  basis. Upon completion in approximately two years, the network is
expected to serve  approximately  120 buildings.  Following the initial  25-year
term, the agreement may be extended for subsequent five-year periods.

      During  construction,  the  Company  will be able to provide  services  to
completed  segments of the  network.  CPS has the right to reclaim any or all of
the fibers licensed to the Company that, in CPS's sole discretion, are needed by
it in  connection  with  its  electric  or gas  utility  operations  at any time
following  the fifth  anniversary  of the date the network is complete and ready
for service. In such case, the Company will be entitled to an equitable pro rata
refund, without interest, of the respective license fee.

      The legal ability of CPS, as a  municipally-owned  utility,  to enter into
this contract with the Company has been challenged by SBC  Communications,  Inc.
("SBC")  before the San Antonio  City  Council as being  violative of a May 1995
Texas  state law.  The Company has filed a petition  with the FCC  requesting  a
declaratory ruling that the  Telecommunications Act preempts the Texas state law
to the extent that it precludes  implementation of the agreement between CPS and
the Company,  and has also filed a declaratory ruling request with a Texas state
court.  Both of these  actions are  pending.  The Company has also filed a civil
suit against SBC, and the  Company's  appeal of a dismissal of that suit is also
pending.

      Interconnection   Agreements.   To  date,   the   Company   has   executed
interconnection  agreements  with Pacific Bell for  California,  Ameritech Corp.
("Ameritech") for Ohio, SBC for Texas and Oklahoma,  and a partial agreement has
been signed with GTE for  California.  The Company's  interconnection  agreement
with Pacific Bell was entered into in March 1996,  and an amended  agreement was
entered into in October  1996.  The  Company's  interconnection  agreement  with
Ameritech  was entered  into in June 1996,  and allows for the  agreement  to be
expanded  without  further  negotiations  to include  Illinois,  Indiana,  Ohio,
Michigan  and  Wisconsin,  the other five states in the  Ameritech  region.  The
Company's  interconnection agreement with SBC was entered into in November 1996,
and allows for the  agreement to be expanded  without  further  negotiations  to
include Arkansas, Kansas, Missouri, Oklahoma and Texas, the other five states in
the SBC region.  The Company's  agreement  with GTE for California is partial in
that it provides the Company with rights to  interconnect  with GTE's network in
California  on favorable  terms and  conditions,  but does not yet address other
issues such as access to unbundled network elements or number  portability.  The
Company  is   currently   negotiating   with  GTE  to  revise   the   California
interconnection  agreement to address these matters, as well as to enter into an
agreement with
                                       11
<PAGE>

GTE to  cover  interconnection  in  Texas,  Alabama,  North  Carolina,  Indiana,
Kentucky,   Ohio,  Florida  and  Tennessee.  The  Company  has  also  reached  a
preliminary   agreement   on  an   interconnection   agreement   with   US  West
Communications,  Inc.  ("US West").  With  respect to  unresolved  matters,  the
Company sought arbitration by the Colorado Public Utility  Commission  (Colorado
"PUC"). The Colorado PUC conducted  arbitration  hearings and issued a ruling on
November  13,  1996,  which  decision is  generally  favorable  to the  Company.
Interconnection  negotiations  also have been initiated  recently with BellSouth
for Alabama, North Carolina, Tennessee,  Mississippi,  Kentucky and Florida, and
with Cincinnati Bell Telephone Company. 

      Services

      The Company's  competitive  local exchange  services include private line,
special access,  and interstate and intrastate  switched services and local dial
tone.  Private line services are generally  used to connect the separate  office
buildings  of a single  business.  Special  access  services are used to connect
end-user customers to a long distance telephone carrier's facilities, to connect
long distance  carrier's  facilities to the local  telephone  company's  central
offices,  and to connect different  facilities of the same long distance carrier
or  facilities  of  different  long  distance  carriers.  The  Company  requires
interconnection  with the local telephone  company's  central office in order to
offer this second alternative.  As part of its "carrier's carrier" strategy, the
Company targets the transport  between long distance company  facilities and the
local telephone company central offices, and, for high volume customers, between
the long distance company and the end-user customer's office.

      The Company's  interstate and  intrastate  switched  services  include the
transport and switching of calls between the long distance carrier's  facilities
and  either  the local  telephone  company  central  offices  or  end-users.  By
performing  the switching  services and most of the  transport,  the Company can
reduce local access costs, which constitute the major operating expense for long
distance  carriers.  As the  Company  provides  a greater  portion  of the local
segment of a call, the Company  expects to experience  improved  margins on what
has initially been a negative or low margin revenue stream.

      By offering switched services to its long distance carrier customers,  the
Company may be designated by a long  distance  carrier to deliver  incoming long
distance traffic to the Company's markets  regardless of whether the terminating
end-user is connected to the Company's  owned or leased  network or to the ILEC.
The  Company  intends  to expand  the  switched  services  it offers to its long
distance  carrier  customers  to include a broad range of higher  profit  margin
enhanced  services,   such  as  enhanced  routing,   directory   assistance  and
information services including  800/888/900 numbers,  calling cards and personal
number service, as permitted by applicable  regulations.  Long distance carriers
would  purchase  these  enhanced  services  from the Company and then market and
resell them, at a markup,  to  end-users.  By offering such services to its long
distance carrier  customers,  the Company would enable long distance carriers to
sell a  broader  range of  services  to their  long  distance  customers  and to
generate incremental revenue that previously could only be earned by ILECs.

      Zycom. The Company owns a 70% interest in Zycom Corporation ("Zycom"),  an
Alberta,  Canada  corporation,  whose  shares  are traded on the  Alberta  Stock
Exchange.  Zycom  operates an 
                                       12
<PAGE>

800/888/900  number service  bureau and a switched  network in the United States
supplying  information  providers and commercial  accounts with audio,  text and
customer support services. 

      SS7. In August 1996, the Company  acquired the Signaling  System 7 ("SS7")
business  of Pace  Network  Services,  Inc.,  a  division  of  Pace  Alternative
Communications,  Inc. The acquisition, which represents approximately 25% of the
SS7 operations of switch-based long distance carriers in the United States, will
enable the  Company to  strengthen  its sales and  marketing  efforts in the SS7
area.  The Company has also developed a nationwide SS7 service with Southern New
England  Telephone,  the nation's tenth largest local exchange  carrier.  SS7 is
used by local exchange companies, long distance carriers,  wireless carriers and
others to signal between network elements, creating faster call set-up resulting
in a more efficient use of network resources. SS7 is now the standard method for
telecommunications  signaling worldwide. SS7 is also the enabling technology for
AIN platforms,  a set of services and signaling options that carriers can use to
create new services or customer options.

      Industry

      Until 1984,  AT&T  monopolized  telephone  services in the United  States.
Effective in 1984, AT&T was required to divest its local telephone  systems (the
"Divestiture"),  which led to the present  structure  of the  telecommunications
industry. As part of the Divestiture, AT&T's former local telephone systems were
organized  into seven RBOCs while AT&T retained its long  distance  services and
equipment manufacturing operations. The separation of the RBOCs from AT&T's long
distance  services  created  two  distinct   telecommunications  markets:  local
exchange and long distance. The Divestiture,  as implemented by the FCC, decreed
direct, open competition in the long distance segment,  but effectively retained
regulated monopolies for local exchange services provided within  geographically
defined local access transport areas ("LATAs"). The Telecommunications Act ended
the consent decree which implemented the Divestiture,  facilitating  competition
for local exchange services and permitting the RBOCs to enter the interLATA long
distance  market  upon  satisfaction  of  certain   conditions  and  receipt  of
regulatory approvals.

      A long distance  telephone call consists of three segments.  Starting with
the originating  customer,  the call travels along a local exchange network to a
long distance  carrier's  POP. At the POP, the call is combined with other calls
and sent along a long distance  network to a POP on the  terminating  customer's
local  network.  The call is then  sent  from  this POP  along a local  exchange
network to the terminating  customer.  Long distance carriers  generally provide
only the connection  between the two local  networks,  and pay access charges to
the ILECs or to CLECs for originating and terminating calls.

      Several  factors have begun to promote  competition  in the local exchange
market,  including:  (i)  customer  demand  for an  alternative  to  the  ILECs'
monopoly,  partly stimulated by the development of competitive activities in the
long distance telephone market; (ii) technological  advances in the transmission
of data and video  offering  greater  capacity and  reliability  levels than the
ILECs' copper wire-based,  twisted-pair networks were able to accommodate; (iii)
the development of fiber optics and digital electronic technology,  which reduce
network construction costs while increasing  transmission  speeds,  capacity and
reliability; (iv) the significant access charges that long distance carriers pay
for access to the local telephone  networks;  and (v) the passage of legislation
opening the local market to competition and many  regulatory  initiatives to
                                       13
<PAGE>

the same end.  Numerous new entrants to the  telecommunications  services market
now offer  customers  diverse  service  options.  In the past,  ILECs  generally
reacted by resisting  interconnection  with their networks by new competitors or
service providers.  However, the  Telecommunications Act mandates that the ILECs
allow these new market entrants to access and utilize the ILECs' local telephone
networks to provide competing  services.  The  Telecommunications  Act imposes a
variety of new duties on ILECs in order to promote competition in local exchange
and access  services,  including the duty to permit  competitors to interconnect
their  facilities at any  technically  feasible  point within their  networks on
nondiscriminatory terms and conditions and at prices based on cost, and the duty
to provide  nondiscriminatory  access to unbundled network  elements.  ILECs are
also required to negotiate in good faith with  competitive  carriers  requesting
these  arrangements.  On August 8,  1996,  the FCC  adopted  national  rules and
guidelines implementing these new statutory  requirements.  On October 15, 1996,
the U.S.  Court of  Appeals  for the Eighth  Circuit  stayed  implementation  of
certain of the FCC's rules, to be in effect until the Court issues a decision on
the merits of the rules. The FCC rules not specifically stayed by the Court have
gone into effect. See "Regulation." 

      Competitors  in  the  local  exchange  market,  originally  designated  as
"competitive  access  providers"  by the  FCC,  were  first  established  in the
mid-1980s.  In New  York  City,  Chicago  and  Washington,  D.C.,  newly  formed
companies  installed  fiber  optic  cable  connecting  long  distance  telephone
carriers'  POPs  within a  metropolitan  area  and,  in some  cases,  connecting
end-users  (primarily  large  businesses  and  government  entities)  with  long
distance  carrier POPs. The greater  capacity and economies of scale inherent in
fiber optic cable enabled the CAPs to offer  customers less expensive and higher
quality special access and private line services than the ILECs.

      Signals  carried  over digital  fiber optic  networks are superior in many
respects to older analog signals carried over copper wire,  which continue to be
used in varying  degrees by the ILECs.  In addition to offering  faster and more
accurate  transmission  of voice and data  communications,  digital  fiber optic
networks   generally  require  less  maintenance  than  comparable  copper  wire
facilities,  thereby decreasing operating costs.  Furthermore,  the transmission
capacity of digital fiber optic cable is determined by the electronic  equipment
used on the network.  This allows network capacity to be increased with a change
in electronics, not the actual fiber network, as would be the case with a copper
wire  architecture.  Lastly,  digital  fiber optic cable is largely  immune from
electromagnetic  and radio  interference,  resulting  in  enhanced  transmission
quality.

      FCC decisions,  the  Telecommunications Act and many state legislative and
regulatory   initiatives  have  substantially  changed  the   telecommunications
regulatory  environment in the United States.  Due to these regulatory  changes,
CLECs are now legally able to offer all interstate  switched services as well as
all intrastate services,  including local dial tone,  effectively opening up the
local telephone  market to full  competition.  Because of these changes in state
and federal  regulations,  CLECs have expanded  their  services  from  providing
competitive access services such as private line and special access to providing
all local  exchange  services  to become  true  competitors  to the  ILECs.  See
"Regulation."

Network Services

      Through the Company's wholly owned subsidiary,  Fiber Optic  Technologies,
Inc. ("FOTI"), the Company supplies information technology services and selected
networking 
                                       14
<PAGE>

products, focusing on network design, installation,  maintenance and support for
a variety of end-users,  including Fortune 1000 firms and other large businesses
and telecommunications  companies.  Revenue from Network Services has grown from
$21.0 million for fiscal 1993 to $60.1 million for fiscal 1996. 

      The  Company  provides  network   infrastructures,   systems  and  support
services,  including the design,  engineering and installation of local and wide
area networks  ("LANs/WANs") for its customers.  These networks (within end-user
offices, buildings or campuses) may include fiber optic,  twisted-pair,  coaxial
and other  network  technologies.  The Company  specializes  in turnkey  network
installations   including   cabling  and  electronics   that  address   specific
environments.  The Company also provides  professional network support services.
These  services  include  network  move,  add and change  services  and on-going
maintenance  and  support  services.  Network  Services  revenue is  expected to
constitute a smaller portion of the Company's future revenue as Telecom Services
revenue increases.

      The Company offers these network  integration and support services through
offices located within four major regional support  organizations.  The regional
headquarters are located in Dallas, Denver, Portland (Oregon) and San Francisco.

Satellite Services

      The Company's  Satellite  Services  operations provide satellite voice and
data services to major cruise lines, the commercial  shipping industry,  yachts,
the U.S.  Navy and  offshore  oil  platforms.  The Company  also owns a teleport
facility which provides  international voice and data services. In addition, the
Company provides  private data networks  operating on VSATs (very small aperture
terminals) through its wholly owned subsidiary,  Nova-Net  Communications,  Inc.
("Nova-Net"). Revenue for the Satellite Services operations (adjusted to reflect
the sale of certain teleport assets) was $11.4 million for fiscal 1995 and $18.8
million for fiscal 1996.

      MTN.  In January  1995,  the  Company and an  unaffiliated  entity  formed
Maritime Telecommunications Network, Inc.("MTN") which purchased the assets of a
business  providing digital wireless  communications  through  satellites to the
maritime cruise industry, U.S. Navy vessels and offshore oil platforms utilizing
experimental  radio  frequency  licenses  issued by the FCC. These licenses were
issued to the  predecessors  of MTN in 1991, were renewed by the FCC in 1993 and
renewed  again in  January  1995.  The  experimental  licenses  are valid  until
February  1,  1997,  and MTN may  apply to the FCC for a  further  renewal.  MTN
provides  private  communications  networks  to various  cruise  lines  allowing
passengers  to make calls  from  their  cabins to  anywhere  in the  world.  MTN
additionally   provides  its  communications   services  to  the  U.S.  Navy  in
conjunction  with a major  long  distance  provider,  which  serves  as the long
distance carrier,  while MTN provides the communications  equipment and network.
The Company believes that the radio frequencies  employed under its experimental
licenses  enable  it to  provide  a  higher  quality  maritime  service  than is
available  through the radio frequencies  currently  allocated to other maritime
service  providers.  In April 1996,  the FCC issued a waiver which allows MTN to
apply for a permanent FCC license to utilize the same  frequencies  as are being
used under the  experimental  license  enabling MTN to continue to provide these
services. The Company has applied for a permanent license under the terms of the
FCC's waiver grant, and the application is pending. See "-Regulation."
                                       15
<PAGE>


      MCN. In March 1996, the Company acquired a 90% equity interest in Maritime
Cellular  Tele-Network,  Inc. ("MCN"), a Florida-based  provider of cellular and
satellite  communications  for commercial ships,  private vessels and land-based
mobile  units.  This  acquisition  expands the  Company's  business  from C-band
satellite  services for cruise ships and naval vessels to cover land-based units
and smaller ships.

      Nova-Net.  In May 1994,  the Company  acquired  Nova-Net,  which  provides
private data networks  operating on VSATs specializing in data collection and in
monitoring  and control of customer  production and  transmission  facilities in
various  industries,  including  oil and gas,  electric and water  utilities and
environmental  monitoring  industries.  Nova-Net  designs,  builds  and  manages
private data  networks  that enable a variety of companies to transmit  critical
sensor and flow  readings  to key  monitoring  points from  multiple  locations.
Nova-Net  manages  networks  through its network  control  center in  Englewood,
Colorado.

      Teleport.  The  teleport in Holmdel,  New Jersey,  acquired as part of the
Company's  acquisition  of  MTN,  is  located  20  miles  south  of  Newark  and
specializes in international digital voice and data communications services with
full fiber interconnection to the local telephone company facilities in New York
City.  Teleport services are also provided to the maritime  industry,  including
support of the  Company's  cruise  ship,  U.S.  Navy and  offshore  oil platform
telephone  and data  services  business.  In addition,  the Company  markets the
resale of services from the four teleports it sold in the first quarter of 1996.

Customers And Marketing

      The Company's  primary  marketing  strategy for its Telecom Services is to
offer high quality and low cost diverse alternative  communications pathways and
services to customers at competitive  rates.  The Company's  service  agreements
with long distance carriers also provide additional  marketing  opportunities as
the long distance  carriers  typically offer their customers the Company's local
telecommunications  services with their long distance service. Telecom Services'
revenue   from  major  long   distance   carriers  and   resellers   constituted
approximately  69% of the  Company's  Telecom  Services  revenue in fiscal  1996
compared to 82% in fiscal 1995.  The balance of the Company's  Telecom  Services
revenue  was  derived  from  end-users.  The Company  anticipates  revenue  from
end-users  will continue to increase in the future as it continues to expand its
local telephone  service  offerings.  Telecom service  agreements with end-users
typically  provide  for  terms of one to five  years,  fixed  prices  and  early
termination penalties.

      The Company's  Telecom  Services  include  special access and private line
services,  which are  point-to-point  high-speed  connections  between  end-user
locations  and long  distance  carrier  networks  and/or  between  two  end-user
locations.  The Company  packages its special  access and private line  services
specifically to meet the needs of long distance  carriers,  which remarket these
services to end-users,  and to large end-user  customers that typically  acquire
access networks directly from access providers.  In addition, the Company offers
wholesale  switched  services  (offering  access to  interstate,  intrastate and
intraLATA  toll)  providing  long  distance  carriers  with  an  alternative  to
purchasing  access  directly from ILECs.  These services  feature  discounts and
simplified pricing structures,  making the services a cost-effective alternative
for long distance carriers.
                                       16
<PAGE>

      The Company is in the process of  developing  a full range of  competitive
local  telephone  services,  which the Company began  offering in Orange County,
California in September 1996 and intends to begin offering in additional markets
in the near  future.  The  Company's  plan is to market  its  telecommunications
products  directly to end-users.  The Company will also market these services to
long  distance  carriers  that will  brand  the  Company's  products,  providing
customers with a complete package of communications services under the carrier's
own brand identity.  The Company also offers enhanced services,  which include a
pay-per-call service bureau for customers that distribute news and entertainment
programming.

      The Company markets its network systems integration  products and services
through a direct sales force located in the Rocky Mountains,  Pacific Northwest,
Texas and  California  regions.  The  Company  also has  entered  into  reseller
agreements with manufacturers of network integration products and services.

      The  Company  has  begun  offering  satellite  private  line  transmission
services  from its  teleport to  business  customers  that can benefit  from the
Company's  international  and  domestic  transmission  capabilities.   With  its
acquisitions   of  MTN  and  MCN,  the  Company  also  markets  voice  and  data
communications  to the maritime  industry,  including  cruise  ships,  U.S. Navy
vessels,  commercial vessels,  private yachts, offshore oil platforms and mobile
land-based units.

Competition

      The Company operates in an increasingly  competitive environment dominated
by the ILECs,  such as the RBOCs and GTE, which are among the Company's  current
competitors.   Also  included  among  the  Company's  current   competitors  are
independent ILECs, other CLECs,  network systems integration services providers,
microwave  and  satellite  service  providers,   teleport  operators,   wireless
telecommunications  providers  and private  networks  built by large  end-users.
Potential  competitors (using similar or different  technologies)  include cable
television companies, utilities, local telephone companies outside their current
local  service  areas,  as well as  local  access  operations  of long  distance
carriers.  Consolidation of  telecommunications  companies,  including  recently
announced  proposed  mergers between certain of the RBOCs,  and the formation of
strategic  alliances  within  the  telecommunications  industry,  as well as the
development of new technologies,  could give rise to significant new competitors
to the Company. One of the purposes of the  Telecommunications Act is to promote
competition, in particular in the local telephone market. Since enactment of the
Telecommunications  Act,  several  telecommunications  companies  have indicated
their  intention  to  enter  many  areas  of  the  telecommunications  industry,
including  areas and  markets in which the Company  participates  and expects to
participate.  This may  result in the  presence  of more  participants  than can
ultimately be successful  in a given market,  subjecting  the Company to further
competition.

      Telecom   Services.   The  bases  of  competition  in  competitive   local
telecommunications   services  are  generally   price,   service,   reliability,
transmission  speed and  capacity.  The Company  believes  that its expertise in
developing and operating highly reliable,  advanced digital networks which offer
substantial  transmission  capacity at competitive prices enables the Company to
compete effectively against the ILECs and other CLECs.
                                       17
<PAGE>

      In every market in which the Company  operates  telecom service  networks,
the ILECs  (which  are the  historical  monopoly  providers  of local  telephone
services)   are  the   primary   competitors.   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 favored the ILECs over the Company.  In certain  markets  where the Company
operates,  other CLECs also operate or have announced plans to enter the market.
Some of those CLECs are affiliated with major long distance  companies.  Current
competitors  also  include  network  systems  integration   services  providers,
wireless  telecommunications  providers  and  private  networks  built  by large
end-users. Additional competition may emerge from cable television operators and
electric utilities.  Many of the Company's actual and potential competitors have
greater financial, technical and marketing resources than the Company.

      The  Company's  networks  compete most directly with the RBOCs and GTE. In
general,  the  provision  of  interstate  access  services by the RBOCs and GTE,
including the rates charged for such services,  is regulated by the FCC, and the
provision of intrastate  access and local services,  including the rates charged
for such services, is regulated by the individual state regulatory  commissions.
See "-Regulation." In the past, FCC policies have constrained the ability of the
RBOCs and GTE to decrease their prices for interstate access services,  based on
their status as dominant  carriers.  Although FCC regulatory  approval for price
reductions  (beyond  certain  parameters)  still must be  obtained,  the FCC has
allowed all recently  proposed  access  reductions  to become  effective and has
granted the RBOCs  flexibility in pricing their interstate  access services on a
central office by central office basis. In addition, the FCC has granted waivers
of its access charge  pricing rules to the RBOCs to allow them to further reduce
certain  access  prices.  The FCC also has  announced its intention to conduct a
comprehensive  reform of its access charge pricing rules, as well as a reform of
existing subsidies that promote universal service.  Under the Telecommunications
Act, the FCC is required to complete the universal service reform proceeding and
to adopt new rules by May 8, 1997.  The FCC  previously  had announced  that the
access  charge  reform  proceeding  would  proceed on the same  schedule  as the
universal  service  proceeding;  more  recently,  however,  the  FCC  staff  has
indicated  that the access charge reform  proceeding  may be delayed.  The FCC's
access charge reform proceeding is likely to eventually result in a reduction in
access  rates  charged by the RBOCs and GTE.  The  lowering of access  rates and
increased  pricing  flexibility  for the RBOCs and GTE may adversely  affect the
Company's ability to compete for certain services. If the RBOCs and GTE continue
to lower  access  rates,  there  would be downward  pressure on certain  special
access and switched access rates charged by CLECs,  which pressure may adversely
affect  the  Company's  profitability.   See  "-Regulation."  In  addition,  the
Telecommunications  Act and its  implementation by the states and the FCC allows
the RBOCs and GTE to provide a broader  range of services and likely will enable
the RBOCs and GTE to more  effectively  compete against long distance  carriers,
which are the Company's primary customers for telecom services.

      The Company does not believe that it currently  competes directly with any
cable  television  company,  except  against  CLECs owned or controlled by cable
television  companies.  In the past,  cable company  controlled  CLECs possessed
certain  advantages  over other  CLECs in the  provision  of  telecommunications
competitive access services,  resulting from cable television companies' ability
to access  rights of way and poles,  conduit  and ducts owned or  controlled  by
utilities or 
                                       18
<PAGE>

ILECs, and from a preferential  rate for use of those facilities by
cable owned or  controlled  CLECs that was required  under old federal law. With
the enactment of the Telecommunications Act, all providers of telecommunications
services have equal rights of access to rights of way, poles,  conduit and ducts
owned or controlled by electric utilities and ILECs. Certain  constraints,  such
as the  availability of space on poles,  may,  however,  prohibit such rights of
access. In addition,  the  Telecommunications Act provides that over a five-year
period,  the FCC is to adopt and implement new regulations that will require all
telecom service  providers to be charged the same rate for use of such rights of
way, poles, conduit and ducts. On August 8, 1996, in the Second Report and Order
in the FCC's CC Docket No. 96-98  ("Second  Report and Order"),  the FCC adopted
certain rules of general applicability concerning  non-discriminatory  access to
poles,  ducts,  conduit  and  rights  of way  owned or  controlled  by ILECs and
utilities,  and also adopted expedited dispute resolution procedures.  The rules
adopted  by the FCC on August 8, 1996 in the  Second  Report and Order have been
appealed to the federal court of appeals. See "-Regulation."

      Network Services.  The bases of competition in the network services market
are primarily technological capability and experience,  value-added services and
price. In this market, the Company competes with a variety of small local system
integrators as well as, in certain markets, with AT&T and other large companies.
     
     Satellite Services. In the delivery of domestic and international satellite
services,  the  Company  competes  with  other  full  service  teleports  in the
northeast  region of the United States.  The bases of competition  are primarily
reliability,  price and transmission  quality.  Most of the Company's  satellite
competitors  focus  on  the  domestic  video  market.  Competition  is  expected
principally from a number of domestic and foreign  telecommunications  carriers,
many of which have substantially  greater financial and other resources than the
Company. In the maritime  telecommunications market, MTN competes primarily with
COMSAT Corporation ("COMSAT") in providing similar telecommunications  services.
COMSAT has FCC licenses that are similar to MTN's,  it owns its own  satellites
and it is the sole U.S. point of control for access to Intelsat satellites.

Regulation

      The Company's services are subject to significant federal, state and local
regulation.  The Company operates in an industry that is undergoing  substantial
change as a result of the passage of the Telecommunications Act.

      The  Telecommunications  Act opens the local and long distance  markets to
additional competition and changes the division of oversight between federal and
state regulators.  Under previous law, state regulators had authority over those
services that  originated and  terminated  within the state  ("intrastate")  and
federal  regulators had  jurisdiction  over services that originated  within one
state  and  terminated  in  another  state  ("interstate").  State  and  federal
regulators  now  share   responsibility   for  implementing  and  enforcing  the
provisions  of the  Telecommunications  Act. In exchange  for  unbundling  their
network  elements and allowing  competitors to interconnect at cost-based  rates
and on nondiscriminatory terms and conditions, the RBOCs are now allowed to seek
authority to provide long distance services.
                                       19
<PAGE>

      In order to be granted  authority to provide long distance services in its
service  territory,  the  RBOC  must be able to  demonstrate  it is  subject  to
facilities-based  local  competition.  In addition,  the RBOC must comply with a
14-point   "checklist"  of  regulatory   requirements   which  would  result  in
competitors having co-carrier status in the RBOC's service territory. Co-carrier
status,  as it has become  known in state  regulatory  proceedings,  effectively
treats CLECs and other  competitors  as peers of the ILECs insofar as it relates
to the interconnections of networks and the origination and termination of local
telecommunication  traffic.  The states continue to have  jurisdiction  (for the
most part in conjunction with the FCC) over co-carrier issues under the new law,
in particular in reviewing and approving interconnection agreements.

      The   Telecommunications   Act   generally   requires   ILECs  to  provide
interconnection  and  nondiscriminatory  access  to  the  LEC  network  on  more
favorable  terms  than  have  been  available  in the  past.  However,  such new
agreements  are  subject  to  negotiations  with  each ILEC  which  may  involve
considerable  delays and may not necessarily be obtained on terms and conditions
that are acceptable to the Company. In such instances,  the Company may petition
the proper state regulatory agency to arbitrate disputed issues. Ultimately, the
terms of an arbitrated agreement are subject to review by the FCC or the federal
courts.  There can be no  assurance  that the Company  will be able to negotiate
acceptable  new   interconnection   agreements  or  that,  if  state  regulatory
authorities  impose terms and  conditions  on the parties in  arbitration,  such
terms will be acceptable to the Company.

      To date, the Company has sent requests for negotiations of interconnection
agreements,  as provided by the  Telecommunications  Act, to the local operating
affiliates  of the  RBOCs  and GTE in each of the  areas  in which  the  Company
operates,  as well as to Cincinnati Bell Telephone  Company, a major independent
ILEC. Interconnection agreements were signed with Pacific Bell in March 1996 for
California, Ameritech in June 1996 for Ohio, SBC Communications in November 1996
for Texas and  Oklahoma,  and a partial  agreement  with GTE in August  1996 for
California.  Negotiations  are underway with GTE for  California,  Ohio,  Texas,
Alabama, Tennessee,  Indiana, Kentucky, Oklahoma and North Carolina,  Cincinnati
Bell  for  Ohio,  and  BellSouth  for  Tennessee,   North   Carolina,   Alabama,
Mississippi,  Kentucky and Florida. The Company has conducted  negotiations with
US West for Colorado,  and has reached  agreement on certain issues  involved in
the negotiations. Pursuant to the Telecommunications Act, the Company petitioned
the  Colorado  PUC to  arbitrate  certain  disputed  issues.  The  Colorado  PUC
conducted arbitration hearings and issued a decision that generally is favorable
to the Company.

      On August 8,  1996,  in two  separate  decisions  in its CC Docket  96-98,
referred to as the "First  Report and Order" and the "Second  Report and Order,"
the FCC adopted rules and policies implementing the local competition provisions
of the  Telecommunications  Act. The FCC, among other things,  adopted  national
guidelines with respect to the unbundling of ILECs' network elements,  resale of
ILEC services,  the pricing of interconnection  services and unbundled elements,
and other local competition issues.

      In the First  Report  and  Order,  the FCC  identified  a minimum  of five
technically  feasible  points  of  interconnection  at which  ILECs  must  allow
interconnection;  identified a minimum set of network  elements  that ILECs must
provide on an unbundled  basis by January 1, 1997;  and required that prices for
interconnection and access to unbundled network elements be based on an estimate
of the economic cost of the element, which the FCC defined as Total Element Long
                                       20
<PAGE>

Run  Incremental  Cost  ("TELRIC"),  or the  long run  incremental  costs of the
element or interconnection, plus a reasonable share of forward looking joint and
common costs. The FCC also established  "default" and "proxy" price ceilings and
ranges   which  state   regulatory   commissions   may  use  to  set  rates  for
interconnection and unbundled network elements until the state has completed the
necessary  cost  studies  to adopt  permanent  rates  under the  TELRIC  pricing
standard.  In the Second Report and Order,  rules were adopted concerning access
to rights of way, dialing parity, and non-discriminatory access. 

      Both of the  Orders  adopted  by the  FCC on  August  8,  1996  have  been
challenged in federal  courts of appeals by the RBOCs,  GTE,  other  independent
ILECs, long distance carriers, and state regulatory commissions.  Petitions also
have been filed with the FCC requesting that the FCC reconsider  various aspects
of the  interconnection  rules. The requests for court review of the FCC's First
Report and Order have been  consolidated  into one proceeding  that was heard by
the U.S.  Court of  Appeals  for the  Eighth  Circuit  in St.  Louis,  Missouri.
Requests  also were filed by  certain  ILECs and state  commissions  to stay the
effective  date of the FCC's rules adopted in the First Report and Order pending
the issuance by the Court of a decision on the merits.  On October 15, 1996, the
Court  issued a stay of certain of the FCC's rules  adopted in the First  Report
and Order,  including  implementation  of the  pricing  provisions  of the FCC's
rules,  which define the  methodology by which the ILECs must develop prices for
their  unbundled  elements  and  provide  the  basis for the  FCC's  interim  or
"default" and "proxy" price ceilings and ranges. The Court also stayed the FCC's
"most   favored   nation"   rules  which   implement   Section   252(i)  of  the
Telecommunications  Act and require ILECs to make available any interconnection,
service or network element in an approved interconnection agreement to any other
requesting  carrier  on the same  terms and  conditions  and at the same  price,
thereby  enabling  new  entrants  to "pick and choose"  elements of  established
interconnection  agreements.  Oral  argument on the merits of the FCC's rules is
scheduled for January  1997,  and the Court is not expected to render a decision
until March or April 1997. The Court's stay, however,  does not affect the FCC's
other interconnection rules as adopted on August 8, 1996, nor does it affect the
statutory  requirements of the  Telecommunications  Act, including the statutory
requirement  that  ILECs  conduct   negotiations,   enter  into  interconnection
agreements with competitive  carriers,  and unbundle their network  elements.  A
separate appeal of the FCC's Second Report and Order also is pending.

      Federal Regulation.  The Company generally operates as a regulated carrier
with fewer  regulatory  obligations than the ILECs. The Company must comply with
the  requirements of the  Telecommunications  Act, such as offering service on a
non-discriminatory  basis at just  and  reasonable  rates.  The FCC  treats  the
Company as a non-dominant  carrier. The FCC has established  different levels of
regulation for dominant and non-dominant  carriers. Of domestic common carriers,
only GTE and the RBOCs are classified as dominant  carriers for the provision of
access services, and all other providers of domestic common carrier services are
classified  as  non-dominant.   Under  the  FCC's   streamlined   regulation  of
non-dominant  carriers,  the Company  must file tariffs with the FCC for certain
interstate  services  on an  ongoing  basis.  The  FCC  has,  however,  recently
eliminated  the  requirement  that  non-dominant  long  distance  carriers  file
tariffs. Based on this proposal and previous FCC decisions, the Company believes
that the FCC also will eliminate  tariff filing  requirements  for  non-dominant
local exchange carriers such as the Company. The Company is not subject to price
cap or rate of return  regulation,  nor is it  currently  required to obtain FCC
authorization  for the  installation  or  operation  of its fiber optic  network
facilities  used for services in the United States.  The Company may install and
operate non-radio  facilities for the 
                                       21
<PAGE>

transmission of interstate  communications without prior FCC authorization.  The
Company's use of digital  microwave radio frequencies in connection with certain
of its  telecommunications  services is subject to FCC radio frequency licensing
regulation.   See  "Federal   Regulation  of  Microwave   and  Satellite   Radio
Frequencies" below. In addition, the FCC may have the authority, which it is not
presently   exercising,   to  impose   restrictions  on  foreign   ownership  of
communication service providers not utilizing radio facilities. The FCC requires
non-dominant  carriers  to obtain FCC  authorization  to  provide  international
services and the FCC has imposed reporting  requirements with respect to foreign
affiliations between U.S. international and foreign telecommunication  carriers,
as well as reports of certain  investments by other foreign entities.  Depending
on the particular foreign affiliate and its "home" market, the FCC may limit the
size of the foreign  affiliate's  investment in the U.S.  carrier or subject the
U.S. carrier to increased regulation on one or more international routes.

      Effective in early 1994,  FCC  decisions  announced in September  1992 and
August  1993,  as  modified  by  subsequent   FCC  and  court   decisions   (the
"Interconnection  Decisions"),  restructured the interstate  competitive  access
services  market and  introduced new levels of competition in special access and
switched access elements. The FCC ordered the RBOCs and all but one of the local
telephone companies having in excess of $100 million in gross annual revenue for
regulated services, to provide expanded interconnection and collocation in local
telephone  company  central  offices and serving wire centers to any CLEC,  long
distance carrier or end-user seeking such  interconnection  for the provision of
interstate access services,  and required,  subject to few exceptions,  ILECs to
offer  interconnection  in their central offices at cost-based  rates. The FCC's
Interconnection   Decisions  also  required  ILECs  to  provide  central  office
transmission  equipment  dedicated  to  interconnectors'  use  and to  terminate
interconnectors'   circuits   ("collocation").   The  Interconnection  Decisions
permitted,  in some cases, the Company to install transmission equipment in ILEC
central  offices  and  connect  its  network  directly  to the  local  telephone
companies'  network.  As noted above,  the  Telecommunications  Act now requires
ILECs to provide  interconnection and nondiscriminatory  access to ILEC networks
at more favorable terms than had previously  been available to competitors.  The
Telecommunications  Act requires most ILECs to provide physical collocation,  at
the option of the requesting carrier,  of the requesting  carrier's equipment in
the ILEC's premises,  except where the ILEC can demonstrate space limitations or
other technical impediments to collocation. In addition, the FCC re-adopted some
of its  interconnection  rules in its August 1996  decision.  Consequently,  the
Company can reach most business  customers in its  metropolitan  service  areas,
either on its own  networks or through  collocation  and  thereby  significantly
expand its customer base.

      In conjunction with the Interconnection  Decisions, the FCC provided ILECs
with a degree of increased  pricing  flexibility for special access and switched
services selectively on a specific central office by central office basis. Under
this pricing scheme, once a collocation tariff is in effect and a competitor has
taken service under the tariff,  the ILEC is allowed within  specified ranges to
charge  different  rates for access  services in different  zones.  This pricing
flexibility  has resulted in certain ILECs lowering their prices in high density
zones,  the  probable  arena  of  competition  with  the  Company.  The  Company
anticipates  that if  additional  lowering of ILEC access  rates in high density
zones is  achieved,  and to the  extent  that the FCC  provides  the ILECs  with
increased flexibility to lower their rates as the number of interconnections and
competitors increase,  the Company's ability to compete for certain services may
be adversely affected.
                                       22
<PAGE>

      In a  concurrent  proceeding  on switched  transport  rate  structure  and
pricing,  the FCC adopted interim pricing rules that restructure local telephone
company switched transport rates in order to facilitate competition for switched
services.  Additionally,  as noted above, the FCC has announced its intention to
conduct  a  comprehensive  reform  of  its  access  charge  pricing  rules.  See
"-Competition."

      State Regulation.  In general,  state regulatory  agencies have regulatory
jurisdiction  over the Company when Company  facilities and services are used to
provide intrastate  services.  Under the  Telecommunications  Act, states cannot
effectively prohibit any entity from providing  telecommunications services, but
the states  continue to have general  authority  to set  criteria for  reviewing
applications to provide intrastate  services  (including local services).  State
regulators  will  continue to set the  requirements  for  providers of local and
intrastate  services,  including quality of services  criteria.  However,  state
regulators  can no  longer  allow (or  require)  restrictions  on the  resale of
telecommunication services. State regulators also can regulate the rates charged
by CLECs for intrastate and local services. In addition to the provisions of the
Telecommunications Act that open all telecommunications  markets to competition,
many  states,  including  Arizona,   California,   Colorado,  Florida,  Georgia,
Illinois, Maryland, Massachusetts, Michigan, New York, North Carolina, Tennessee
and Washington, have adopted, and many other states are considering, legislative
and/or regulatory  initiatives  addressing  implementation of competition in the
local exchange market. The Company's provision of local dial tone and intrastate
switched and  dedicated  services are  classified  as  intrastate  and therefore
subject  to state  regulation.  The  Company  expects  that it will  offer  more
intrastate  services  as its  business  and  product  lines  expand.  To provide
intrastate service (particularly local dial tone service), the Company generally
must obtain a Certificate of Public  Convenience and Necessity ("CPCN") from the
state regulatory agency prior to offering service.  In most states,  the Company
also is required to file tariffs setting forth the terms,  conditions and prices
for  services  that are  classified  as  intrastate,  and to update or amend its
tariffs as rates  change or new  products  are added.  The  Company  may also be
subject to various reporting and record-keeping requirements.

      The Company  currently holds CPCNs (or their  equivalents) from the states
of Alabama, California,  Colorado, Ohio, Tennessee, North Carolina, Kentucky and
Texas.  The Company has authority  from: (i) Alabama to provide local  telephone
services as well as intrastate  interLATA and intraLATA long distance  services;
(ii) California to provide local telephone services and intrastate interLATA and
intraLATA long distance services; (iii) Ohio to provide local telephone services
in Ameritech  service  areas in the state;  and (iv)  Tennessee to provide local
telephone services and intrastate long distance  services.  The Company has been
granted  operating  authority by the Colorado PUC to provide  competitive  local
services.  The Company also has two grants of authority from the Texas PUC which
authorize  the  Company to provide  CLEC  services,  including  facilities-based
services,  within the San Antonio  exchange  area and within the other  exchange
areas of Southwestern Bell Telephone Company,  GTE Southwest,  Central Telephone
Company of Texas, and United Telephone  Company of Texas. The Company also holds
CPCNs to  provide  intrastate  long  distance  services  in North  Carolina  and
Kentucky,  and  applications  are pending before the applicable state commission
for  CPCNs to  provide  local  telecommunications  services  in North  Carolina,
Indiana and Kentucky, as well as to expand the Company's local telephone service
areas in Ohio.
                                       23
<PAGE>

      Local Government  Authorizations.  Under the Telecommunications Act, local
authorities  retain  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 (which generally have terms of 10 to 20
years) and to pay license or  franchise  fees,  based on a  percentage  of gross
revenue,  in order to provide  telecommunication  services.  In certain  states,
however,  including  California and Colorado,  such fees cannot be imposed under
state law.  There is no assurance  that  certain  cities that do not impose fees
will not seek to impose fees,  nor is there any  assurance  that,  following the
expiration of existing franchises,  fees will remain at their current levels. In
many markets, the ILECs have been excused from paying such franchise fees or pay
fees that are materially lower than those required to be paid by the Company for
access to public rights of way. However, under the Telecommunications Act, while
municipalities  may  still  regulate  use of their  streets  and  rights of way,
municipalities  may  not  prohibit  or  effectively  prohibit  any  entity  from
providing any telecommunication  services. In addition,  the  Telecommunications
Act  requires  that  local  governmental  authorities  treat  telecommunications
carriers in a non-discriminatory and competitively neutral manner. If any of the
Company's  existing  franchise or license  agreements were  terminated  prior to
their expiration dates or not renewed,  and the Company was forced to remove its
fiber from the streets or abandon its network in place,  such termination  could
have a material adverse effect on the Company.

      Federal Regulation of Microwave and Satellite Radio  Frequencies.  The FCC
continues to regulate  radio  frequency use by both private and common  carriers
under the  Telecommunications  Act.  Unlike common  carriers,  private  carriers
contract with select  customers to provide  services  tailored to the customer's
specific needs. The FCC does not currently regulate private carriers (other than
their use of radio  frequencies)  and has preempted  the states from  regulating
private carriers insofar as they provide interstate services. The Company offers
certain services as a private carrier.

      The Company is required to obtain  authorization  from the FCC for its use
of radio  frequencies to provide  satellite and wireless  services.  The Company
holds a number of  satellite  earth  station  licenses  in  connection  with its
operation of satellite-based private carrier networks. The Company also provides
maritime  communications  services  pursuant  to an  experimental  license  that
currently is due to expire February 1, 1997, with an opportunity for renewal. In
April 1996, the FCC issued a waiver to the Company which will allow it to obtain
a permanent  license to provide these services using the same radio  frequencies
currently being used under the experimental license. The Company has applied for
a  permanent  license  under  the terms of the FCC's  waiver  decision,  and the
application is pending.

      The  Telecommunications  Act  limits  ownership  or  control  of an entity
holding  a  common   carrier  radio  license  by  non-U.S.   citizens,   foreign
corporations   and   foreign   governments.   Because  of  these   restrictions,
historically  the Company and its  subsidiaries  have not been  eligible to hold
common carrier radio licenses used to provide  telephone and wireless  services.
Therefore,  third  parties  hold  certain  common  carrier  licenses and provide
service to the Company over the licensed facilities for resale by the Company to
the Company's customers. The Telecommunications Act permits the FCC to determine
on a case-by-case  basis that the public  interest will be served by waiving the
foreign  ownership  restrictions.  The Company intends to apply to the FCC for a
                                       24
<PAGE>

waiver of the  foreign  ownership  restrictions  that remain  applicable  to the
Company.  If  a  waiver  is  granted,  or  if  currently   applicable  ownership
restrictions  are relaxed or removed,  the common carrier radio licenses will be
transferred to the Company upon receipt of FCC approval.

Employees

      On September 30, 1996, the Company  employed a total of 1,323  individuals
on a full time basis.  There are 55 employees in the  Company's  Oregon  network
systems   integration  service  office  who  are  represented  by  a  collective
bargaining  agreement  which expires on December 31, 1997. The Company  believes
that its relations with its employees are good.

ITEM 2. PROPERTIES

      The  Company's  physical  properties  include  owned and leased  space for
offices, storage and equipment rooms and collocation sites. Additional space may
be purchased or leased by the Company as networks are expanded. The Company owns
a 30,000  square-foot  building  located in the Denver  metropolitan  area. This
facility  serves  as  the  Company's  corporate  headquarters  as  well  as  its
nationwide  network  monitoring  and control  facility for its Telecom  Services
business. The Company currently also leases approximately 116,000 square feet of
office space for operations located in the Denver metropolitan area. As a result
of its recent and anticipated  future growth,  the Company has acquired property
for its new  headquarters  and has commenced  construction of an office building
that the Company  anticipates  will  accommodate  all of the Company's  Colorado
operations.

ITEM 3.  LEGAL AND ADMINISTRATIVE PROCEEDINGS

      The  shareholder  litigation,  initially  filed by Marc  Manoff on May 17,
1995, Isabell Sperber,  on behalf of the Isabell Sperber  Individual  Retirement
Account on June 1, 1995, Lyon Investment Partnership on July 17, 1995 and Forest
S. Williams on July 24, 1995 naming Holdings-Canada and William W. Becker, Larry
L. Becker, John R. Evans and William J. Maxwell as defendants, alleging that the
defendants  violated  the  Securities  Exchange  Act of 1934 with respect to the
content and timing of its disclosures concerning the suspension and debarment of
FOTI, have been settled for an amount equivalent to a reasonable estimate of the
cost of litigation. The settlement has been approved by the Court and is subject
to approval by the plaintiff class.

      ICG and its subsidiaries are not parties to any material  litigation.  The
continuing  participation by ICG and its subsidiaries in regulatory  proceedings
before the FCC and state  regulatory  agencies  concerning  the  adoption of new
regulations is unlikely to result in a material  adverse effect on the financial
condition and results of operations of the Company.


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

      ICG has not had any matters  submitted to a vote of its  security  holders
since ICG was formed in April 1996.
                                       25
<PAGE>

      The   following   sets  forth  the   matters   submitted   to  a  vote  of
Holdings-Canada's  security  holders at  Holdings-Canada's  Annual  and  Special
Meeting of Shareholders held in Toronto,  Ontario,  Canada on Tuesday,  July 30,
1996:

1.   Elected Jay E. Ricks as Director,  whose term expires at the annual meeting
     in 1999.  (Vote taken by a show of hands,  and therefore final count is not
     available).

     The following Directors' terms of office continued after the meeting:

                                        Term expires at
              Name                      annual meeting in

              William J. Laggett        1998
              William W. Becker         1997
              J. Shelby Bryan           1997
              Harry R. Herbst           1998
              Gregory C.K. Smith        1997
              Leontis Teryazos          1998

2.   Reappointed KPMG, Chartered Accountants,  as Holdings-Canada's  independent
     auditors  in  Canada  and  KPMG  Peat  Marwick  LLP  as   Holdings-Canada's
     independent  auditors in the United States. (Vote taken by a show of hands,
     and therefore final count is not available).

3.   Approved a special  resolution to change the name of IntelCom Group Inc. to
     "ICG  Communications,  Inc." (Vote taken by a show of hands,  and therefore
     final count is not available).

4.   Approved a special resolution  adopting the Plan of Arrangement and Support
     Agreement,  including a special  resolution  to further  change the name of
     IntelCom Group Inc. to "ICG Holdings (Canada),  Inc." (15,021,910 shares in
     favor; 31,830 against; 4,438,891 abstained).

      Holdings is a wholly owned  subsidiary of  Holdings-Canada.  The following
matter was  approved by the sole  shareholder  of  Holdings  by written  consent
effective September 3, 1996:

1.   Elected the following  Directors:  J. Shelby Bryan, John D. Field, James D.
     Grenfell, William J. Maxwell and Mark S. Helwege.
                                       26
<PAGE>






                                     PART II

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

      ICG  Common  Stock,  $.01 par  value  per  share,  has been  listed on the
American  Stock  Exchange  ("AMEX") since August 5, 1996 under the symbol "ICG."
Prior to that time,  Holdings-Canada's Common Shares had been listed on the AMEX
under the symbol  "ITR" from January 14, 1993  through  February  28, 1996,  and
under the symbol "ICG" thereafter through August 2, 1996. Holdings-Canada Common
Shares  ceased  trading  on the AMEX at the close of  trading on August 2, 1996.
Holdings-Canada Class A Common Shares are listed on the Vancouver Stock Exchange
("VSE") under the new symbol "IHC.A."

      The following table sets forth, for the fiscal periods indicated, the high
and low sale prices of the Common Shares as reported on the AMEX through  August
2, 1996,  and the VSE through  the date  indicated  below,  and the high and low
sales  prices of the Common  Stock as  reported  on the AMEX from August 5, 1996
through the date indicated  below.  The table also sets forth the average of the
monetary exchange rates on the last day of each such fiscal period.


<TABLE>
<CAPTION>

                           American Stock    Vancouver Stock
                            Exchange (1)       Exchange (1)     Exchange
                           ---------------  -------------------
                                                                Rate
                           High     Low      High       Low     (C$/$)
                          ------  -------  --------  --------- --------
<S>                      <C>       <C>     <C>        <C>        <C>
Fiscal Year Ended
September 30, 1995
  First Quarter          $17.88    $12.38  C$  33.50  C$  18.50  1.38
  Second Quarter          14.13      9.38      19.75      17.38  1.40
  Third Quarter           13.25      6.63      18.00      18.00  1.36
  Fourth Quarter          14.00      8.00         -          -   1.34

Fiscal Year Ended
September 30, 1996
  First Quarter          $12.75    $ 8.63  C$     -     C$  -    1.36
  Second Quarter          17.88     10.25         -          -   1.37
  Third Quarter           27.38     17.13     17.50      17.50   1.36
  Fourth Quarter          25.88     19.13         -          -   1.36

Fiscal Period Ended
December 31, 1996 (2)
Through December 10,    
1996                     $22.25    $17.63  C$ 28.35   C$ 28.35   1.36          
----------

<FN>

(1)   Effective  at the close of trading  on August 2,  1996,  Holdings-Canada's
      Common  Shares ceased  trading on the AMEX and the Common Stock  commenced
      trading on the AMEX on August 5, 1996.  The Common  Stock is not traded on
      the VSE. The Class A Common  Shares  trade on the VSE and all  information
      reported  on the above  table  from  August 5, 1996 to the date  indicated
      above with respect to the VSE relates only to the Class A Common Shares.

(2)   The  Company has elected to change its fiscal year end to December 31 from
      September 30, effective for the 1997 fiscal year.
</FN>
</TABLE>


      On December 10, 1996, the last reported sale price for the Common Stock on
the AMEX was $19.88 per share.  On  December  10,  1996,  there were  30,953,330
shares of Common Stock outstanding and 121 holders of record.
                                       27
<PAGE>

   The Company has never declared or paid dividends on the Common Stock and does
not intend to pay cash dividends on the Common Stock in the foreseeable  future.
ICG intends to retain future  earnings,  if any, to finance the  development and
expansion  of its  business.  In addition,  the payment of any  dividends on the
Common Stock is  effectively  prohibited  by the  restrictions  contained in the
Company's  indentures  and  in  the  First  Amended  and  Restated  Articles  of
Incorporation  of Holdings,  which  prohibits  Holdings from making any material
payment  to the  Company.  Certain  of the  Company's  debt  facilities  contain
covenants which also may restrict the Company's ability to pay cash dividends.

   The Company has not made any sales of unregistered securities during 1996.
                                       28
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

      The  selected  historical  financial  data  for  each  fiscal  year in the
five-year  period  ended  September  30, 1996 has been  derived from the audited
Consolidated  Financial  Statements of the Company.  The  information  set forth
below should be read in conjunction  with the 1994,  1995 and 1996  Consolidated
Financial  Statements of the Company and the notes thereto included elsewhere in
this  Annual  Report.  The  Company's   development  and  expansion  activities,
including  acquisitions,  during the years  shown  below  materially  affect the
comparability  of  this  data  from  one  year  to  another.  See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>


                                     Years Ended September 30,
                            -------------------------------------------
Statement   of   Operations  1992     1993     1994    1995     1996
Data:
                            --------  ------  ------- -------  -------
                              (in thousands, except per share amounts)

<S>                         <C>       <C>      <C>     <C>      <C>
Revenue:
   Telecom services         $1,061     4,803   14,854   32,330   87,681                            
   Network services          4,955    21,006   36,019   58,778   60,116
   Satellite services (1)    1,468     3,520    8,121   20,502   21,297
   Other                       126       147      118       -         -
                            --------  -------  ------- -------  -------
      Total revenue          7,610    29,476   59,112  111,610  169,094

  Operating costs            5,423    18,961   38,165   78,846  135,253
  Selling, general and       
   administrative expenses   3,921    10,702   28,015   62,954   76,725
  Depreciation and           
   amortization              1,602     3,473    8,198   16,624   30,368
                            --------  -------  -------  ------- -------
    Total operating costs   
    and expenses            10,946    33,136   74,378  158,424  242,346
                            --------  -------  ------- -------  -------
  Operating loss            (3,336)   (3,660) (15,266) (46,814) (73,252)
  Interest expense            (525)   (2,523)  (8,481) (24,368) (85,714)
  Other income (expense),
      net                       33        22     (121)  (5,466) (26,819)
                            --------  -------  ------- -------  -------

  Loss before income taxes
   and cumulative            
   effect of change in
   accounting               (3,828)   (6,161) (23,868) (76,648)(185,785)
  Income tax benefit           174     1,552       -       -      5,131
  Cumulative effect of       
   change in accounting (2)       -         -       -       -    (3,453)
                            --------  -------  ------- -------  -------

  Net loss                 $(3,654)  (4,609)  (23,868) (76,648)(184,107)
                            ========  =======  =======  =======  =======

  Loss per share            $ (0.42)   (0.39)    (1.56)  (3.25)   (6.83)
                            ========  =======  =======  =======  =======
  Weighted average number
   of shares outstanding(3)   8,737   11,671    15,342  23,604   26,955
                            ========  =======  =======  =======  =======
Other Data:

  EBITDA (4)                $(1,734)    (187)   (7,068)(30,190) (42,884)
  Capital expenditures (5)  $12,599   20,685    54,921  88,495  175,148
                                      29
</TABLE>
<PAGE>

<TABLE>
<CAPTION>


                                         At September 30,
                            -----------------------------------------
Balance Sheet Data:          1992     1993    1994     1995     1996
                            -------  ------- -------  -------  -------
                                         (in thousands)

<S>                         <C>      <C>     <C>      <C>      <C>

Working capital (deficit)   $ (392)   7,990   (8,563) 249,089  446,164
Total assets                54,417   95,196  201,991  583,553  939,351
Notes payable and current
 portion of long-              
 term debt and capital
 lease obligations             991    7,657   23,118   27,310    8,282
Long-term debt and capital                             
 lease obligations,          
 less current portion       15,565   37,116  104,461  405,535  739,827
Redeemable preferred stock  
 of Holdings                      -        -       -   14,986  153,318
Stockholders' equity        
 (deficit)                  21,826   34,753   39,782   82,535  (19,588)

<FN>

(1)   Prior to  January  1995,  revenue  from  Satellite  Services  was from the
      Company's  satellite  (voice and data)  operations and after January 1995,
      revenue from Satellite  Services was from the Company's  satellite  (voice
      and data) and maritime communication operations.

(2)   Effective  January 1, 1996,  the Company  changed its method of accounting
      for long-term telecom services  contracts to recognize revenue as services
      are  provided.  See  "Management's  Discussion  and  Analysis of Financial
      Condition  and Results of  Operations  -  Accounting  Matters - Accounting
      Changes." As required by generally  accepted  accounting  principles,  the
      Company has  reflected  the effects of the change in accounting as if such
      change had been adopted as of October 1, 1995.  The Company's  results for
      the year  ended  September  30,  1996  reflect  a charge  of $3.5  million
      relating  to the  cumulative  effect of this  change in  accounting  as of
      October 1, 1995.  The effect of this change in accounting  for fiscal year
      1996 was not significant.  If the new revenue  recognition method had been
      applied  retroactively,  telecom  services revenue would have decreased by
      $0.3 million, $2.0 million, $0.5 million and $0.7 million for fiscal 1992,
      1993, 1994 and 1995, respectively.

(3)   Weighted average number of shares outstanding for fiscal years 1992, 1993,
      1994  and  1995  represents  Holdings-Canada  common  shares  outstanding.
      Weighted  average number of shares  outstanding for fiscal 1996 represents
      Holdings-Canada  common shares  outstanding for the period October 1, 1995
      through   August  2,  1996,   and   represents   ICG   Common   Stock  and
      Holdings-Canada Class A common shares (owned by third parties) outstanding
      for the period August 5, 1996 through September 30, 1996.

(4)   EBITDA  consists of operating  loss plus  depreciation  and  amortization.
      EBITDA  is  provided  because  it  is  a  measure  commonly  used  in  the
      telecommunications   industry.   EBITDA  is   presented   to   enhance  an
      understanding  of the Company's  operating  results and is not intended to
      represent cash flow or results of operations in accordance  with generally
      accepted  accounting  principles  for  the  periods  indicated.   See  the
      Company's  Consolidated  Financial  Statements contained elsewhere in this
      Annual Report.

(5)   Capital  expenditures  include  assets  acquired  under capital leases and
      through the issuance of debt or warrants.

</FN>
</TABLE>

                                       30
<PAGE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
          
      The following discussion includes certain forward-looking statements which
are affected by important factors  including,  but not limited to, dependence on
increased  traffic on the Company's  facilities,  increased  Satellite  Services
revenue  from the cruise ship and U.S.  Navy  telephone  services  business  and
actions of  competitors  and  regulatory  authorities  that could  cause  actual
results to differ materially from the forward-looking statements.

Company Overview

      The Company  provides  Telecom  Services,  Network  Services and Satellite
Services. Telecom Services consist of the Company's CLEC operations. The Company
is one of the largest providers of competitive  local telephone  services in the
United  States,  based on  estimates  of the  industry's  1995  revenue.  CLECs,
formerly  known as CAPs,  seek to provide an  alternative to the ILEC for a full
range of telecommunications services in the newly opened regulatory environment.
As a CLEC, the Company operates networks and has acquired fiber optic facilities
in three regional clusters  covering major MSAs in California,  Colorado and the
Ohio Valley, with an aggregate  population of approximately 33.6 million, and in
three  markets  in  the  Southeast  region,  with  an  aggregate  population  of
approximately  2.9 million.  Network Services consist of information  technology
services,  network  design  and  installation,   and  network  systems  support.
Satellite Services consist of maritime and international  satellite transmission
services.  As a leading  participant in a rapidly growing industry,  the Company
has experienced  significant  growth,  with total revenues increasing from $59.1
million for fiscal 1994, to $111.6 million for fiscal 1995 to $169.1 million for
fiscal  1996.  The  Company's   rapid  growth  is  the  result  of  the  initial
installation,  acquisition and subsequent expansion of its fiber optic networks,
the  acquisition  and growth of its network  systems  integration  business  and
growth in Satellite Services.

     The Company's  operating  networks have grown from 323 fiber route miles at
the end of fiscal 1994 to 2,143  fiber  route  miles at the end of fiscal  1996.
Telecom  Services  revenue has  increased  from $14.9 million for fiscal 1994 to
$87.7 million for fiscal 1996. The Company has experienced declining access unit
prices and  increasing  price  competition  which have been more than  offset by
increasing  network  usage.  The  Company  expects  to  continue  to  experience
declining access unit prices for the foreseeable future.

      The Company expects to continue to experience  negative  operating margins
from the  provision of switched  access  services  while its networks are in the
development  and  construction  phases,  during which the Company relies on ILEC
networks to carry a significant portion of its customers' switched traffic.  The
Company  expects to realize  improved  operating  margins from  switched  access
services on a given network when (i) increased  volumes of traffic and build-out
enables such traffic to be carried on the Company's own network  instead of ILEC
networks,  and (ii) higher margin enhanced services are provided to customers on
the Company's network.  However, the Company's switched access services strategy
has not yet been  profitable  and may not become  profitable due to, among other
factors,  lack of  customer  demand,  competition  from other  CLECs and pricing
pressure from the ILECs.
                                       31
<PAGE>

      The Company  believes that the provisions of the  Telecommunications  Act,
including the opening of the local telephone services market to competition, the
unbundling of ILEC services and the  implementation  of local  telephone  number
portability, will facilitate the Company's plan to provide a full array of local
telephone services.  In order to fully implement its strategy,  the Company must
make significant capital  expenditures to provide additional switching capacity,
network  infrastructure  and  electronic  components.  The  Company  has limited
experience  providing  such  services  and  there can be no  assurance  that the
Company will be successful.

      The  continued  development,  construction  and expansion of the Company's
business  requires  significant  capital,  a large  portion of which is expended
before any revenue is  generated.  The Company has  experienced,  and expects to
continue to  experience,  negative  cash flow and  significant  losses  while it
expands its  operations to provide local  telephone  services and  establishes a
sufficient  revenue-generating customer base. There can be no assurance that the
Company will be able to establish such a customer base.  When  constructing  and
relying principally on its own facilities,  the Company has experienced a period
of up to 18 months from initial  design of a network to revenue  generation  for
that network.  However, using leased ILEC facilities to provide initial customer
service and the Company's new agreements to use utilities'  existing fiber,  the
Company has  experienced  initial  revenue  generation  within nine months after
commencing network design.

      Growth in Satellite  Services  revenue has resulted  principally  from the
acquisition of Nova-Net  Communications,  Inc. in May 1994, the acquisition of a
64% interest in MTN in January 1995 and the acquisition of a 90% interest in MCN
in March 1996. In May 1992,  the Company  acquired a 51% interest in Fiber Optic
Technologies,  Inc.,  which accounts for most of the Company's  Network Services
revenue,  and the remaining 49% in January 1996. As a result of the  significant
lag  time  between   commencement  of  network  development  and  generation  of
appreciable  related  Telecom  Services  revenue,  the majority of the Company's
revenue  prior to fiscal 1996 had been derived from Network  Services.  However,
the Company's  Network Services revenue (as well as Satellite  Services revenue)
will   continue  to  represent  a   diminishing   percentage  of  the  Company's
consolidated revenue as the Company continues to emphasize its Telecom Services.

                                       32
<PAGE>


Results of Operations

      The following  table  provides a breakdown of revenue and operating  costs
for Telecom Services,  Network Services and Satellite Services and certain other
financial  data for the Company for the fiscal years  indicated.  The table also
shows certain  revenue,  expenses,  operating loss and EBITDA as a percentage of
the Company's total revenue.
<TABLE>
                          
<CAPTION>                               
                                 1994           1995          1996
                                 ----           ----          ----
                               $      %       $       %    $         %              
                              ---------      ----------     ----------               
                                           (in thousands)
<S>                           <C>     <C>    <C>      <C>  <C>       <C>                                      
Revenue:
     Telecom services (1)     14,854    25   32,330    29   87,681    52
     Network services         36,019    61   58,778    53   60,116    36
     Satellite services        8,121    17   20,502    18   21,297    12
     Other                       118     *        -     -        -     -                      
                              ------   ---   ------   ---  -------    ---
Total revenue                 59,112   100  111,610   100  169,094   100
Operating costs               
     Telecom services          7,050         21,825         78,705
     Network services         26,334         45,928         46,256
     Satellite services        4,697         11,093         10,292
     Other                        84              -              -
                              ------   ---   ------   ---  -------   ---
Total operating costs         38,165    65   78,846    71  135,253    80
Selling, general and
 administrative               28,015    47   62,954    56   76,725    45
Depreciation and 
 amortization                  8,198    14   16,624    15   30,368    18                              
Operating loss               (15,266)  (26) (46,814)  (42) (73,252)  (43)
EBITDA (2)                    (7,068)  (12) (30,190)  (27) (42,884)  (25)

Supplemental Pro Forma
Data (1):
     Telecom services revenue 14,395    25   31,617    29   87,681    52
     Total revenue            58,653   100  110,897   100  169,094   100
     Operating loss          (15,725)  (27) (47,527)  (43) (73,252)  (43)
     EBITDA (2):              (7,527)  (13) (30,903)  (28) (42,884)  (25)
----------
* Less than 0.5%
<FN>

(1)  During 1996,  the Company  changed its method of  accounting  for long-term
     telecom services  contracts to recognize  revenue as services are provided.
     See  "-Accounting  Matters-Accounting  Changes."  As required by  generally
     accepted  accounting  principles,  the Company has reflected the effects of
     the change in  accounting  as if such change had been adopted as of October
     1, 1995, and is presenting the pro forma effects on prior periods  assuming
     the change had been applied retroactively. See "Selected Financial Data."

(2)  See note 4 under "Selected Financial Data" for the definition of EBITDA.

</FN>
</TABLE>

                                       33
<PAGE>


Fiscal 1996 Compared to Fiscal 1995

           The  following  information  reflects the results of  operations  for
fiscal 1996  compared to the pro forma  results of  operations  for fiscal 1995,
assuming the change in  accounting  for  long-term  telecom  services  contracts
described  in   "-Accounting   Matters-Accounting   Changes"  had  been  applied
retroactively.

      Revenue.  Revenue for fiscal 1996 increased  $58.2  million,  or 52%, from
fiscal 1995. The increase in total revenue reflects  continued growth in Telecom
Services,  Network Services and Satellite Services,  offset slightly by the loss
in revenue resulting from the sale of four of the Company's  teleports.  Telecom
Services  revenue  increased 177% to $87.7 million due to an increase in network
usage for both special and switched access services, offset in part by a decline
in average unit prices.  Switched  services revenue  increased from $7.2 million
(22% of Telecom  Services  revenue)  for fiscal 1995,  to $51.6  million (59% of
Telecom  Services  revenue) for fiscal 1996, of which $14.9  million  relates to
revenue from Zycom compared to $1.4 million in fiscal 1995. $10.6 million of the
increase in Zycom revenue  relates to changes in reporting  Zycom revenue due to
the Company having entered into  long-term  contracts with its major  customers.
Network  usage as reflected in voice grade  equivalents  ("VGEs")  increased 47%
from 430,535 VGEs on September  30, 1995, to 630,697 VGEs on September 30, 1996.
On September 30, 1996, the Company had 2,067 buildings connected to its networks
compared to 1,375  buildings  connected on September 30, 1995.  Consistent  with
expectations, Network Services revenue growth has been moderate, increasing from
$58.8 million to $60.1  million,  while the Company  continues to reposition its
systems  and  operations  to better  manage its bottom  line  growth.  Satellite
Services revenue  increased 4% to $21.3 million for fiscal 1996 primarily due to
increased  maritime  minutes  of use from  cruise  ships  offset  in part by the
decrease resulting from the sale of four of the Company's  teleports.  Satellite
Services  revenue for fiscal 1995 and 1996,  on a pro forma basis to reflect the
sale of teleports, was $11.4 million and $18.9 million, respectively.  Satellite
Services revenue decreased $0.4 million from the third quarter of fiscal 1996 to
the fourth  quarter of fiscal 1996. The decrease in revenue was primarily due to
three navy  vessels  being in "dry dock" which  resulted in  significantly  less
revenue from navy vessels.

      Operating  costs.  Total  operating  costs for fiscal 1996 increased $56.4
million,  or 72%, from fiscal 1995.  Telecom Services  operating costs increased
from $21.8 million, or 69% of Telecom Services revenue for fiscal 1995, to $78.7
million,  or 90% of Telecom Services  revenue for fiscal 1996.  Telecom Services
operating  costs consist of payments to ILECs for the use of network  facilities
to support off-net and switched access services,  network operating costs, right
of way fees and other costs.  Network  operating  costs,  which were  previously
classified as selling,  general and administrative  expenses, have been included
in  operating  costs  beginning  in fiscal 1996 in order to conform with current
industry  practice.  Such expenses amounted to $2.1 million and $13.7 million in
fiscal 1995 and fiscal 1996,  respectively.  All prior year information has been
restated to conform  with this year's  presentation.  The  increase in operating
costs in absolute  dollars is  attributable  to the increase in switched  access
services and the expansion in off-net special service offerings. The increase in
operating  costs  as a  percentage  of total  revenue  is due  primarily  to the
increase in switched  services  revenue,  which  generates  lower  margins  than
special access services due to the costs  associated with reselling ILEC network
facilities.  The Company  expects that the Telecom  Services  ratio of operating
costs to revenue  will  continue to  increase  until the  Company  carries  more
traffic  on its own  facilities  rather  than the ILEC  facilities,  provides  a
                                       34
<PAGE>

greater volume of higher margin  enhanced  services,  including  local telephone
services, and obtains the right to use unbundled ILEC facilities on satisfactory
terms,  any or all of which may not  occur.  Network  Services  operating  costs
increased 1% to $46.3 million and decreased as a percentage of Network  Services
revenue  from 78% for  fiscal  1995 to 77% for  fiscal  1996.  Network  Services
operating  costs  includes the cost of equipment  sold,  direct hourly labor and
other indirect project costs.  Satellite  Services  operating costs decreased to
$10.3  million for fiscal 1996,  from $11.1  million for fiscal 1995.  Satellite
Services  operating  costs as a percentage  of revenue also  declined to 48% for
fiscal  1996,  compared to 54% for fiscal 1995.  The  decrease  both in absolute
dollars and as a percentage of revenue is attributable to the decline in revenue
resulting from the sale of four of the Company's teleports,  partially offset by
an  increase  in higher  margin  maritime  services  revenue  at MTN.  Satellite
Services  operating  costs  consists  of MTN and MCN space  segment  transponder
costs,  VSAT  network  costs  and  costs of VSAT  equipment  sold and  satellite
transponder  lease costs (for the prior  period and for the three  months  ended
December 31, 1995).  Revenue from teleport operations  historically have yielded
lower gross margins than maritime services revenue.  Gross margins for Satellite
Services has improved,  and should continue to improve,  as a result of the sale
of the teleports.  The  expectation  described in the foregoing  forward-looking
statement is dependent upon, among other things,  increased  Satellite  Services
revenue  from the cruise  ship,  U.S.  Navy and  commercial  shipping  telephone
services business,  the absence of increased  competition in this market and the
absence of new technology  which  potentially  could render the Company's leased
satellite facilities obsolete.

      Selling,  general and  administrative  ("SG&A") expense.  SG&A expense for
fiscal 1996  increased  $13.8  million,  or 17%,  compared to fiscal 1995.  This
increase was  principally  due to the continued rapid expansion of the Company's
Telecom  Services  networks and related  significant  additions to the Company's
management  information  systems,  marketing  and sales staff  dedicated  to the
expansion of the networks and  implementation of the Company's switched services
strategy and development of local telephone services.  A portion of the increase
was also attributable to approximately  $1.8 million of legal,  accounting,  and
SEC filing fees incurred in the reincorporation of the Company as a new publicly
traded U.S. corporation, ICG Communications, Inc. and approximately $1.3 million
of consulting  fees related to various  process  improvement  initiatives.  SG&A
expense as a percentage  of total  revenue was 45% for fiscal 1996,  compared to
57% for fiscal 1995.  There is typically a period of higher  administrative  and
marketing  expense  prior to the  generation of  appreciable  revenue from newly
acquired or developed  networks.  Network operating costs, which were previously
classified as selling,  general and administrative  expenses, have been included
in  operating  costs  beginning  in fiscal 1996 in order to conform with current
industry  practice.  Such expenses amounted to $2.1 million and $13.7 million in
fiscal 1995 and 1996, respectively. All prior year information has been restated
to conform  with the  current  year's  presentation.  The Company  expects  SG&A
expense  for  Telecom  Services  to  increase  over the near term as a result of
hiring new staff to facilitate the  development and marketing of local telephone
services.   SG&A  expense  for  Network  Services  increased  due  to  increased
engineering,  marketing  and sales  staff to support  growth in  network  system
installations.  Satellite  Services SG&A expense increased  primarily due to the
growth of MTN and MCN.

      Depreciation and  amortization.  Depreciation  and amortization  increased
$13.7 million, or 83%, for fiscal 1996 compared to fiscal 1995.  Depreciation of
fixed  assets  increased  by  approximately  $7.0  million  as a  result  of the
shortening   of  estimated   depreciable   lives   discussed   in   "-Accounting
Matters-Accounting  Changes," and an increase in depreciable fixed assets due to
                                       35
<PAGE>

the  continued  expansion  of  competitive  exchange  networks.  The increase in
depreciation  expense was offset  slightly  due to the  decrease in  depreciable
assets resulting from the sale of four of the Company's  teleports.  The Company
reports high levels of  depreciation  relative to revenue during the early years
of operation of a new network  because the full cost of a network is depreciated
using the straight line method  despite the low rate of capacity  utilization in
the early stages of network operation.

      Interest expense.  Interest expense increased by $61.3 million, from $24.4
million for fiscal 1995 to $85.7 million for fiscal 1996,  which  included $66.5
million of non-cash  interest.  This increase was attributable to an increase in
long-term  debt,  primarily  the 13 1/2%  Senior  Discount  Notes  (the "13 1/2%
Notes")  issued in August  1995 and the 12 1/2% Senior  Discount  Notes (the "12
1/2%  Notes")  issued  in April  1996,  and an  increase  in  capitalized  lease
obligations to finance Telecom Services and Satellite Services equipment and the
expansion of the  Company's  competitive  exchange  networks.  Also  included in
interest  expense is a charge of  approximately  $11.5  million for the payments
made to holders of the 13 1/2% Notes with respect to consents to  amendments  to
the  indenture  governing  the 13 1/2% Notes in order to permit the 1996 Private
Offering (as defined herein) in April 1996.

      Interest income. Interest income increased $15.1 million from fiscal 1995.
The  increase is  attributable  to the increase in cash from the proceeds of the
issuance of 13 1/2% Notes in August 1995 and 12 1/2% Notes in April 1996.

      Share of losses in joint venture.  Share of losses in the Phoenix  network
joint venture, in which the Company holds a 50% equity interest,  increased $1.1
million,  or 145%,  from  fiscal  1995 to $1.8  million  for fiscal  1996 due to
increased losses resulting from the continued  expansion and  implementation  of
switched  services.  The  Company  intends to sell its  interest  in the Phoenix
network  and,  accordingly,  share of losses in joint  venture  will  cease upon
completion of such sale.

     Provision for  impairment  of goodwill,  investment  and notes  receivable.
Provision for impairment of goodwill,  investment and notes receivable increased
$2.9 million from fiscal 1995 to $9.9 million for fiscal 1996.  The current year
amount  includes  valuation  allowances for the amounts  receivable for advances
made to the Phoenix network joint venture included in long-term notes receivable
($5.8 million),  the investment in the Melbourne  network ($2.7 million) and the
note receivable from NovaComm, Inc. ($1.3 million). The allowances were a result
of management's  estimate of the realizable  value of the assets as of September
30, 1996.

      Other,  net.  Other,  net increased $8.4 million for fiscal 1996 from $0.8
million  for fiscal  1995 due  primarily  to the loss on the sale of four of the
Company's  teleports  and certain other  satellite  assets ($1.1  million),  the
write-off  of  certain  assets  ($2.5  million),  settlement  costs  of  certain
litigation  ($1.2  million) and the write-off of deferred  financing  costs upon
conversion or settlement of debt ($2.7 million).

      Minority  interest  in share of losses,  net of  accretion  and  preferred
dividends on subsidiary  preferred stock.  Minority interest in share of losses,
net of accretion and preferred dividends on subsidiary preferred stock increased
$24.2 million,  from $1.1 million for fiscal 1995 to approximately $25.3 million
for fiscal 1996.  The increase is due to the  accretion of the Unit Warrants (as
defined herein) ($14.4  million) and issue costs ($1.1 million)  associated with
the 
                                       36
<PAGE>

issuance of the 12%  redeemable  Preferred  Stock of Holdings  (the  "Redeemable
Preferred  Stock"),  accretion  of  issue  costs  associated  with  the 14  1/4%
Exchangeable   Preferred  Stock  (the  "Exchangeable   Preferred  Stock")  ($0.2
million),  accrual of the preferred  stock dividend on the Redeemable  Preferred
Stock ($2.1 million) and the Exchangeable Preferred Stock ($9.1 million) and the
excess  redemption  price  over the  stated  value of the  convertible  Series B
Preferred   Stock   of   Holdings-Canada   ("Convertible   Preferred   Stock  of
Holdings-Canada")  ($1.0 million),  partially offset by the minority interest in
losses of subsidiaries.

     Income tax  benefit.  Income tax benefit for fiscal 1996 was $5.1  million.
The income tax benefit is due to an  adjustment to the deferred tax liability as
a result of the change in  estimated  depreciable  lives.  

     Cumulative  effect of change  in  accounting  for  revenue  from  long-term
telecom  services  contracts.  The  increase in  cumulative  effect of change in
accounting for revenue from long-term  telecom services  contracts is due to the
change in accounting as described in "-Accounting  Matters-Accounting  Changes."

Fiscal 1995  Compared  to Fiscal 1994

     The following  information  reflects the results of  operations  for fiscal
1995 compared to the pro forma results of operations  for fiscal 1994,  assuming
the change in accounting for long-term telecom services  contracts  described in
"-Accounting Matters-Accounting Changes" had been applied retroactively.

      Revenue.  Revenue for fiscal 1995 increased  $52.2  million,  or 89%, from
fiscal 1994,  reflecting continued growth in Telecom Services,  Network Services
and Satellite  Services  operations.  Telecom Services revenue increased 120% to
$31.6 million.  The increase in Telecom Services revenue reflects an increase in
network usage,  which was partially  offset by a decline in average unit prices,
and the  acquisition  in  April  1994 of  networks  in the Los  Angeles  and San
Francisco  metropolitan  areas,  which were included for the full year in fiscal
1995.  Network  usage as  reflected in VGEs  increased  92% from 224,072 VGEs on
September 30, 1994 to 430,535 VGEs on September 30, 1995. On September 30, 1995,
the  Company  had 1,375  buildings  connected  to its  networks  compared to 776
buildings  connected on September 30, 1994.  Network Services revenue  increased
63% to $58.8  million  primarily  from the  acquisition  of  DataCom  Integrated
Systems  Corporation  ("DISC"),  which was  included for the full year in fiscal
1995 and which  subsequently  merged into Network Services,  as well as from new
network  system  installations.  The  increase in network  system  installations
resulted from  additional  projects  from existing  customers and an increase in
general  demand for local area  networks  due to increased  business  networking
requirements.  Satellite  Services  revenue  increased 152% to $20.5 million for
fiscal 1995, which resulted  principally from the acquisitions of Nova-Net,  MTN
and  teleports  located in the  metropolitan  Atlanta  and New York areas  which
generated $3.9 million, $7.5 million and $4.4 million in revenue,  respectively,
for fiscal 1995.  Satellite  Services  revenue for fiscal  1995,  as adjusted to
reflect the sale of four of the Company's teleports was $11.4 million.

      Operating  costs.  Total  operating  costs for fiscal 1995 increased $40.7
million,  or 107%, from fiscal 1994.  Telecom Services operating costs increased
from $7.1 million,  or 49% of Telecom Services revenue
                                       37
<PAGE>

for fiscal 1994, to $21.8 million, or 69% of Telecom Services revenue for fiscal
1995.  Telecom Services operating costs increased in absolute terms as well as a
percentage  of revenue due to an expansion  in off-net  service  offerings,  for
which the Company leases network facilities from local telephone companies,  and
the implementation of switched services, which generated negative margins due to
the costs associated with reselling ILEC network  facilities.  Network operating
costs, which were previously classified as SG&A, have been included in operating
costs  beginning  in  fiscal  1996 in order to  conform  with  current  industry
practice. Such expenses amounted to $2.6 million and $2.1 million in fiscal 1994
and 1995, respectively.  All prior year information has been restated to conform
with the 1996  presentation.  Network Services  operating costs increased 74% to
$45.9 million primarily due to an increased volume of Network Services business.
Network Services  operating costs as a percentage of revenue  increased from 73%
for fiscal 1994 to 78% for fiscal 1995 due to rapid  expansion and the inclusion
in Network Services operating costs of project managers and operations personnel
directly  associated  with network systems  projects in fiscal 1995,  which were
treated as SG&A costs in 1994. Network Services operating costs include the cost
of  equipment  sold,  direct  hourly  labor and other  indirect  project  costs.
Satellite  Services  operating  costs  increased  to  $11.1  million,  or 54% of
Satellite  Services  revenue,  for fiscal  1995,  from $4.7  million,  or 58% of
Satellite Services revenue, for fiscal 1994. This increase in absolute terms was
attributable to an increased volume of Satellite Services business primarily due
to the acquisition of Nova-Net and MTN, and increased usage of leased  satellite
transponders.  The  decrease in operating  costs as a  percentage  of revenue is
attributable  to the higher margins  associated  with MTN,  which  represented a
larger portion of Satellite Services revenue in fiscal 1995, as opposed to video
and data transmission services.

      Selling,  general and administrative expense. SG&A expense for fiscal 1995
increased  $34.9 million,  or 125%,  compared to fiscal 1994.  This increase was
principally  due to the continued  rapid  expansion of the  Company's  networks,
including  the  acquisition  of networks  in the Los  Angeles and San  Francisco
metropolitan  areas  during  the  third  quarter  of  fiscal  1994  and  related
significant additions to the Company's management information systems, marketing
and sales staffs  dedicated to the expansion of the networks and  implementation
of the Company's  switched  services  strategy.  SG&A expense as a percentage of
total revenue was 57% for fiscal 1995 compared to 48% for fiscal 1994.  There is
typically a period of higher  administrative  and marketing expense prior to the
generation of  appreciable  revenue from newly  acquired or developed  networks.
Network  operating  costs,  which were previously  classified as SG&A, have been
included in  operating  costs  beginning in fiscal 1996 in order to conform with
industry  practice.  Such expenses  amounted to $2.6 million and $2.1 million in
fiscal 1994 and 1995, respectively. All prior year information has been restated
to conform with the fiscal 1996 presentation.  SG&A expense for Network Services
increased  due to increased  engineering,  marketing  and sales staff to support
increased  growth in network  systems  installations.  Satellite  Services  SG&A
increased due to the  acquisitions of teleports in metropolitan  Atlanta and New
York, the acquisition of the Company's VSAT operations  during the third quarter
of fiscal 1994,  and the  acquisition of MTN during the second quarter of fiscal
1995.

      Depreciation and  amortization.  Depreciation  and amortization  increased
$8.4 million,  or 103%,  for fiscal 1995 compared to fiscal 1994.  This increase
resulted from an increased investment in depreciable fixed assets as a result of
the  acquisition  of new  networks and the  expansion  of existing  networks and
Satellite Services facilities.
                                       38
<PAGE>

      Interest  expense.  Interest  expense  increased $15.9 million,  from $8.5
million for fiscal 1994 to $24.4 million for fiscal 1995,  which  included $15.1
million of non-cash  interest.  This increase was attributable to an increase in
capitalized lease obligations to finance Telecom Services and Satellite Services
equipment and an increase in long-term debt,  primarily the 13 1/2% Notes issued
in the fourth  quarter of fiscal 1995 to finance the  expansion of the Company's
networks.

     Interest income.  Interest income increased $2.4 million,  or approximately
133%,  from fiscal 1994.  The increase is  attributable  to the increase in cash
from the proceeds of the issuance of the 13 1/2% Notes in August 1995.

     Provision for impairment of goodwill,  investment and notes receivable. The
$7.0  million  provision  for  impairment  of  goodwill,  investment  and  notes
receivable  for  fiscal  1995 is a result of a $5.0  million  write-down  in the
goodwill  associated  with  the  acquisition  of  Nova-Net  and a  $2.0  million
allowance for an  investment.  The  write-downs  and allowance  were a result of
management's  estimate of the realizable value of the assets as of September 30,
1995.

      Share of losses of joint venture. The Company has a 50% equity interest in
a joint  venture  operating  the Phoenix  network.  Using the equity  accounting
method,  the Company's  share of losses in the Phoenix network joint venture was
approximately  $0.7 million for fiscal 1995. The Company began recording  losses
from the joint venture in the second quarter of fiscal 1994. The loss from joint
venture  recorded in fiscal 1994 includes $0.4 million for losses incurred prior
to fiscal 1994.

Quarterly Results

      The  following  table  presents  selected  unaudited  quarterly  operating
results  for fiscal  1995 and 1996.  The  Company  believes  that all  necessary
adjustments have been included in the amounts stated below to present fairly the
quarterly  results  when read in  conjunction  with the  Company's  Consolidated
Financial Statements and related notes included elsewhere in this Annual Report.
Results of operations for any particular quarter are not necessarily  indicative
of results of operations for a full year or predictive of future periods.  ICG's
development and expansion activities, including acquisitions, during the periods
shown below materially  affect the comparability of this data from one period to
another.

                                       39
<PAGE>

<TABLE>
<CAPTION>




                               Fiscal 1995                        Fiscal 1996
                     ----------------------------------  -----------------------------------
                    1st     2nd     3rd    4th       1st    2nd     3rd         4th
                    ------  ------- ------ -------  ------- ------- -------     -------
                          (in thousands, except Statistical Data)
  
<S>                <C>      <C>     <C>    <C>      <C>     <C>     <C>         <C>
Statement of
 Operations Data:
Revenue:
 Telecom services   $ 5,795   7,039   9,173  10,323  13,513   17,635    24,371   32,162
 Network services    15,293  13,496  14,061  15,928  15,718   13,973    14,679   15,746
 Satellites           
 services             3,546   5,387   5,825   5,744   6,168    4,336     5,596    5,197
                     ------  ------ -------  ------ --------  ------  -------- --------
Total revenue        24,634  25,922   29,059  31,995  35,399  35,944   44,646    53,105

Operating loss      (6,664) (10,625) (12,443)(17,082)(15,258)(15,823) (20,262)  (21,909)
EBITDA              (3,333)  (6,849)  (7,846)(12,162)(10,339) (8,381) (11,207)  (12,957)
Net loss before
 cumulative effect 
 of change
 in accounting      (9,533) (13,508)(15,916) (37,691) (31,189)(26,939)(64,721)  (57,805)  
Cumulative effect
 of change in                                                
 accounting (1)           -       -       -       -    (3,453)      -       -         -    
Net loss           $(9,533) (13,508)(15,916) (37,691) (34,642)(26,939)(64,721)  (57,805)
                    ======  ======= ======= ========  ======= =======  =======   =======

Supplemental Pro 
 Forma Data (1):

Telecom services
 revenue             5,525    6,669   8,835   10,588    13,513  17,635  24,371   32,162
Total revenue       24,364   25,552  28,721   32,260    35,399  35,944  44,646   53,105
EBITDA              (3,603)  (7,219) (8,184) (11,897)  (10,339) (8,381)(11,207) (12,957)
Net loss            (9,803) (13,878)(16,254) (37,426)  (34,642)(26,939)(64,721) (57,805)

Statistical Data (2):

Telecom services:
  Buildings
   connected:
    On-net            244       251     273      280      304      327     384      478
    Off-net           628       777     978    1,095    1,235    1,401   1,493    1,589
                   ------   ------- -------    ------  ------ --------  -------   ------
       Total          872     1,028   1,251    1,375    1,539    1,728   1,877    2,067
buildings connected
   Customer circuits
   in service
   (VGEs)        259,219    287,167 389,928  430,535  488,403  510,755 551,881  630,697
   Switches
    operational        2          6      12       13       13       13      13       14
   Switched                          
    minutes of use
   (in millions)      10         32      97      144      235      362     475      563
 Fiber route
   miles (3)
   Operational       424        466     579      627      637      780     886    2,143
    Under       
     construction      -          -       -        -        -        -       -      869
  Fiber strand
   miles (4)
   Operational    19,049     21,811  25,264   27,150   28,779   36,310  45,098   70,067
    Under      
    construction       -          -       -        -        -        -       -   40,533
  Wireless          
   miles(5)          606        606     606      568      545      582     483      491
Satellite services:
   VSATs             682        694     687      626      633      658     659      835
   C-Band                                                         
    installations (6)  -         17      25       28       33       36      48       48 
   L-Band              
    installations (7)  -          -       -        -        -        3      53      109
   Maritime
    minutes of use      
    (in thousands)(8)  -        251     207      210      435      407     505      515 
 -----------
<FN>

(1)   Effective  January 1, 1996,  the Company  changed its method of accounting
      for long-term telecom services  contracts to recognize revenue as services
      are provided. See "-Accounting Matters-Accounting Changes." As required by
      generally accepted  accounting  principles,  the Company has reflected the
      effects of the change in  accounting as if such change had been adopted as
      of October  1,  1995,  and is  presenting  the pro forma  effects on prior
      periods assuming the change had been applied retroactively.

(2)   Amounts  presented are for three-month  periods ended, or as of, the end of
      the period presented.
                                       40
<PAGE>

(3)   Fiber  route  miles  refers to the number of miles of fiber  optic  cable,
      including  leased fiber.  As of September 30, 1996,  the Company had 2,143
      fiber route miles, of which 165 fiber route miles were leased. Fiber route
      miles under  construction  represents  fiber under  construction and fiber
      which is expected to be operational within six months.

(4)   Fiber strand  miles  refers to the number of fiber route miles,  including
      leased fiber, along a telecommunications  path multiplied by the number of
      fiber strands  along that path. As of September 30, 1996,  the Company had
      70,067 fiber strand miles,  of which 2,465 fiber strand miles were leased.
      Fiber strand miles under construction  represents fiber under construction
      and fiber which is expected to be operational within six months.

(5)   Wireless  miles  represents  the total  distance of the digital  microwave
      paths  between  Company  transmitters  which  are  used  in the  Company's
      networks.

(6)   C-Band  installations  service cruise ships, navy vessels and offshore oil
      platform installations.

(7)   L-Band  installations  service smaller  maritime  installations,  and both
      mobile and fixed land-based units.

(8)   Reflects  minutes of use for  C-Band  installations  on cruise  ships and,
      since the three months ended June 30, 1996,  also includes  minutes of use
      for L-Band installations.  Maritime minutes of use had previously included
      C-Band  installations  on  navy  vessels.   However,  due  to  changes  in
      agreements  with  certain  of the  navy  vessels,  the  revenue  has  been
      negotiated at a fixed monthly rate and does not bear a direct relationship
      to the minutes of use.
</FN>
</TABLE>


      The Company's  consolidated  revenue has increased every quarter since the
 first fiscal quarter of 1992, primarily due to the installation and acquisition
 of new  networks,  the expansion of existing  networks and  increased  services
 provided  over existing  networks.  From the third quarter of fiscal 1993 until
 the sale of four  teleports in the second quarter of 1996,  Satellite  Services
 also contributed to the quarterly revenue growth.

      Operating and net losses have generally  increased  immediately  preceding
 and during  periods of  relatively  rapid  network  acquisition  and  expansion
 activity.  The increased quarterly losses from the first quarter of fiscal 1995
 through the fourth quarter of fiscal 1996 resulted  primarily from increases in
 personnel and other SG&A expenses to support the  acquisition  and expansion of
 Telecom  Services  networks,  the  implementation  of  the  Company's  switched
 services strategy and development of local telephone services.

      Individual  operating  units may  experience  variability  in  quarter  to
 quarter  revenue  due to (i) the timing and size of contract  orders,  (ii) the
 timing of price  changes  and  associated  impact on volume and (iii)  customer
 usage patterns.

 Net Operating Loss Carryforwards

     As of September 30, 1996, the Company had net operating loss  carryforwards
("NOLs")  of  approximately  $135.5  million,  which  expire in varying  amounts
through 2010.  However,  due to the provisions of Section 382,  Section 1502 and
certain other provisions of the Internal Revenue
                                       41
<PAGE>

Code (the "Code"),  the utilization of a portion of the NOLs will be limited. In
addition,  the Company is also subject to certain  state income tax laws,  which
may also limit the utilization of NOLs.

     Section 382 of the Code provides annual restrictions on the use of NOLs, as
well as other tax attributes,  following  significant  changes in ownership of a
corporation's stock, as defined in the Code. Investors are cautioned that future
events beyond the control of the Company could reduce or eliminate the Company's
ability to utilize the tax benefits of its NOLs.  Future ownership changes under
Section  382 will  require a new  Section 382  computation  which could  further
restrict the use of the NOLs. In addition,  the Section 382 limitation  could be
reduced to zero if the  Company  fails to satisfy  the  continuity  of  business
enterprise requirement for the two-year period following an ownership change.
 
Liquidity and Capital Resources

      The Company's total assets have increased from $202.0 million at September
 30, 1994 to $939.4 million at September 30, 1996. The Company's growth has been
 funded through a combination  of equity,  debt and lease  financing  including,
 most  recently,  the 1996 Private  Offering in April 1996.  As of September 30,
 1996,  the Company  had  current  assets of $506.3  million,  including  $457.9
 million of cash and short-term investments,  which exceeded current liabilities
 of $60.2 million,  providing  working  capital of $446.1  million.  The Company
 invests  any  excess  funds in  short-term,  interest-bearing  investment-grade
 securities  until  such  funds  are used to fund the  capital  investments  and
 operating needs of the Company's business.

 Cash Used By Operating Activities

      The Company's  operating  activities used $7.5 million,  $43.0 million and
 $47.4  million  in  fiscal  1994,  1995 and  1996,  respectively.  Cash used by
 operations  is  primarily  due to net  losses,  which are  partially  offset by
 non-cash expenses, such as depreciation,  deferred interest expense,  preferred
 dividends on subsidiary preferred stock and changes in working capital items.

      The  Company  expects to  continue  to  generate  negative  cash flow from
 operating  activities  while  it  emphasizes   development,   construction  and
 expansion  of  its  Telecom  Services  business.   Consequently,  it  does  not
 anticipate  that cash provided by operations  will be sufficient to fund future
 expansion  of existing  networks or the  construction  and  acquisition  of new
 networks in the near term.

 Cash Used By Investing Activities

      Cash used by investing  activities  was $51.5  million,  $71.3 million and
 $131.2  million (net of $21.6 million  received in connection  with the sale of
 certain satellite equipment, including four teleports) in fiscal 1994, 1995 and
 1996,  respectively.  Cash used by investing  activities includes cash expended
 for the  acquisition of property,  equipment and other assets of $43.2 million,
 $49.8 million and $120.1 million for fiscal 1994, 1995 and 1996,  respectively.
 The Company will  continue to use cash in fiscal 1997 for the  construction  of
 new  networks  and the  expansion of existing  networks.  The Company  acquired
 assets  under  capital  leases and through the  issuance of debt or warrants of
 $11.7 million,  $38.7 million and $55.0 million in fiscal 1994,  1995 and 1996,
                                       41
<PAGE>

 respectively.  The majority of assets acquired under capital leases and through
 the issuance of debt during  fiscal 1995 was for the purchase and  installation
 of 12 of the Company's 14 high capacity  digital  switches to provide  switched
 services in Birmingham,  Charlotte,  Cleveland,  Columbus, Irvine, Los Angeles,
 Louisville,  Melbourne,  Nashville,  Oakland,  Phoenix and  Sacramento.  Assets
 purchased  during the year  ended  September  30,  1996  under  capital  leases
 primarily consisted of fiber optic networks included in the SCE agreement.

      In January 1994, the Company  committed to provide  financing to its joint
 venture in Phoenix,  of which $6.9 million and $11.7  million had been provided
 through September 30, 1995 and 1996.

      The  acquisition  in January 1995 of a 64%  interest in MTN,  $4.4 million
 notes receivable from MTN and consulting and non-compete  agreements  valued at
 an aggregate of  approximately  $0.3  million,  required  cash payments of $9.0
 million, the surrender and cancellation of a $0.6 million note and the issuance
 of approximately  $5.1 million in  Holdings-Canada  common shares.  The Company
 also  agreed to fund $2.7  million  in MTN  working  capital  requirements.  In
 addition,  the  Company  has agreed  that if MTN has not  completed  an initial
 public  offering of its common stock by January 3, 1998,  the Company  will, at
 the option of the minority shareholders,  buy the minority shares of MTN at the
 then fair market value.

      The Company owns  approximately  70% of the issued and outstanding  common
 stock of Zycom Corporation  (Alberta,  Canada),  Zycom Corporation  (Texas) and
 Zycom  Network  Services,  Inc.  (collectively,  "Zycom").  In March 1995,  the
 Company acquired a 56% equity interest in Zycom for approximately $3.2 million,
 consisting  of $0.6  million in cash,  the  conversion  of a $2.0  million note
 receivable  to equity of Zycom and the  assumption  of $0.6 million in debt. In
 July 1995, the Company purchased an additional 2% of Zycom common stock held by
 Zycom's former  president and chief executive  officer for  approximately  $0.2
 million.  In March 1996,  the Company  acquired an additional  approximate  12%
 equity  interest in Zycom by  converting  a $3.2  million  receivable  due from
 Zycom.

     In March 1996, the Company completed the sale of four teleports and certain
other satellite equipment for approximately $21.6 million in cash.

     In November 1995, the Company entered into a 25-year  agreement with CPS, a
municipally owned electric and gas utility, to license half of the capacity on a
300-mile fiber optic network (60 miles of which currently  exist) in greater San
Antonio.  Pursuant to this  agreement  the Company has provided a $12.0  million
irrevocable   letter  of  credit  to  finance  the  Company's   portion  of  the
construction  costs. The letter of credit is secured by cash collateral of $13.3
million.

     On January  3, 1996,  the  Company  acquired  the  remaining  49%  minority
interest in Fiber Optic  Technologies,  Inc.,  resulting in it becoming a wholly
owned subsidiary. Consideration for the acquisition was $2.0 million in cash and
66,236   Holdings-Canada  common  shares  valued  at  $0.8  million,  for  total
consideration of $2.8 million.
                                       42
<PAGE>

     In February  1996,  the  Company  invested  $4.0  million and in April 1996
invested  $6.0  million to  acquire a 60%  interest  in, and become the  general
partner of, ICG Telecom of San Diego.

     In February  1996,  the Company  entered  into a long-term  agreement  with
WorldCom  under which the Company  will pay  approximately  $8.8 million for the
right to use fiber along a 330-mile fiber optic network in Ohio. An aggregate of
approximately  $2.7 million has been paid by the Company  through  September 30,
1996.

     In March 1996,  the Company and SCE  jointly  filed an  agreement  with the
California  PUC under which the Company will license  1,258 miles of fiber optic
cable in Southern  California.  An aggregate of  approximately  $3.9 million has
been paid by the Company through September 30, 1996.

     In March 1996, the Company entered into a long-term agreement with Southern
for the right to use 22 miles of  existing  fiber  and 122  miles of  additional
rights of way and  facilities  to reach  the three  major  business  centers  in
Birmingham,  for which the Company paid Southern  $2.9 million. 

     In August  1996,  the Company  acquired  the SS7  business of Pace  Network
Systems, Inc. for $1.8 million.

 Cash Provided By Financing Activities

     Financing  activities  provided  $49.4  million,  $377.8 million and $360.2
million in fiscal 1994,  1995 and 1996,  respectively.  The funds to finance the
Company's  business   acquisitions,   capital   expenditures,   working  capital
requirements  and  operating  losses were  obtained  through  public and private
offerings of  Holdings-Canada  common shares, the 12 1/2% Notes and Exchangeable
Preferred  Stock,  units  (the  "Units")  consisting  of the 13 1/2%  Notes  and
warrants (the "Unit Warrants"),  the Redeemable  Preferred Stock, 8% Convertible
Subordinated   Notes  and  7%  Convertible   Subordinated  Notes  (together  the
"Convertible   Subordinated   Notes")  and  Convertible   Preferred   Shares  of
Holdings-Canada,  capital lease  financings and various working capital sources,
including  credit  facilities.  Such  funds  were  obtained  from the  following
sources:
     I.   On April 30, 1996,  Holdings  completed a private  placement of the 12
          1/2% Notes and 150,000 shares of the Exchangeable Preferred Stock (the
          "1996 Private  Offering") for aggregate net proceeds of  approximately
          $433.0 million.  The net proceeds of the 1996 Private Offering,  along
          with the balance of the net proceeds from the private placement of the
          Units in August 1995 (the "1995 Private  Offering"),  will improve the
          Company's operating and financial  flexibility over the near term. The
          Company believes its liquidity  improved because (a) the 12 1/2% Notes
          do not  require  the  payment  of cash  interest  until  2001  and (b)
          Holdings has the option to pay dividends on the Exchangeable Preferred
          Stock in additional shares of Exchangeable Preferred Stock through May
          1,  2001,  and the  Exchangeable  Preferred  Stock is not  mandatorily
          redeemable  until 2007.  Approximately  $35.3  million of the proceeds
          from the 1996  Private  Offering  were used to redeem  the  Redeemable
          Preferred  Stock issued in connection  with the 1995 Private  Offering
          ($30.0 million), pay accrued preferred dividends ($2.6 million) and to
          repurchase 916,666 of 
                                       44
<PAGE>

          redeemable warrants (the "Redeemable  Warrants") ($2.7 million) issued
          in  connection  with  the  Redeemable  Preferred  Stock.  The  Company
          recognized a charge of  approximately  $12.3 million for the excess of
          the  redemption  price  of the  Redeemable  Preferred  Stock  over the
          carrying  amount  at April  30,  1996,  and  recognized  a  charge  of
          approximately  $11.5 million for the payments made to noteholders with
          respect to consents to  amendments  to the 13 1/2% Notes  indenture to
          permit the 1996 Private Offering.  During the fourth quarter of fiscal
          1996,  the 12 1/2%  Notes and the  Exchangeable  Preferred  Stock were
          exchanged  for  12  1/2%  Notes  and   Exchangeable   Preferred  Stock
          registered  under the Securities Act of 1933 (the  "Securities  Act").
          The 1996 Private  Offering  consisted of: 

          A.   The 12  1/2%  Notes:  The 12  1/2%  Notes  are  unsecured  senior
               obligations of Holdings  (guaranteed by ICG and  Holdings-Canada)
               that mature on May 1, 2006.  Interest  will accrue at 12 1/2% per
               annum  beginning  May 1,  2001,  and is  payable  each  May 1 and
               November  1,  commencing   November  1,  2001. 

          B.   Exchangeable  Preferred  Stock:  Dividends  on  the  Exchangeable
               Preferred Stock are cumulative at a rate of 14 1/4% per annum and
               are  payable  quarterly  each  February  1,  May 1,  August 1 and
               November 1, commencing August 1, 1996. The Exchangeable Preferred
               Stock has a  liquidation  preference  of $1,000 per  share,  plus
               accrued and unpaid  dividends,  and is mandatorily  redeemable in
               2007. The Exchangeable  Preferred Stock is  exchangeable,  at the
               option of  Holdings,  into 14 1/4% Senior  Subordinated  Exchange
               Debentures  of ICG due 2007,  at any time after the  exchange  is
               permitted under certain indenture restrictions. 

     II.  In the fourth quarter of fiscal 1995,  the Company  completed the 1995
          Private  Offering,  consisting  of the 13  1/2%  Notes  and  the  Unit
          Warrants,  and sold the Redeemable  Preferred Stock and the Redeemable
          Warrants to improve its operating and financial  flexibility  over the
          near term. The Company believes its liquidity  improved because the 13
          1/2% Notes do not require the payment of cash interest  until 2001 and
          do not require payment of principal until maturity in 2005. In January
          1996,  the 13 1/2% Notes were  exchanged for 13 1/2% Notes  registered
          under the Securities Act. The 1995 Private  Offering  consisted of:

          A.   1995  Private  Offering:  In  August  1995,  Holdings-Canada  and
               Holdings  issued  and sold the Units for net  proceeds  of $286.4
               million.  The 13 1/2% Notes are unsecured  senior  obligations of
               Holdings (guaranteed by ICG and  Holdings-Canada)  that mature on
               September  15,  2005.  Interest  is  payable  each  March  15 and
               September  15  commencing  March 15,  2001.  

          B.   Preferred Stock Placement: Simultaneously with the closing of the
               Unit Offering,  Holdings issued the Redeemable Preferred Stock to
               Princes Gate  Investors,  L.P., an affiliate of Morgan  Stanley &
               Co.  Incorporated  ("Morgan  Stanley"),   and  related  investors
               (collectively,  "PGI"), together with 916,666 Redeemable Warrants
               and warrants to purchase 1,833,334  Holdings-Canada common shares
               (the "PGI  Warrants")  (the  "Preferred  Stock  Placement").  The
               Redeemable  Preferred  Stock  accrued  dividends  quarterly at an
               annual rate of 12% per annum.  On April 30, 1996,  the Redeemable
               Preferred Stock and the Redeemable  Warrants were redeemed with a
               portion of the proceeds from the 1996 Private  Offering.  In June
               1996,  1,333,334
                                       45
<PAGE>

               PGI warrants were exercised  through a cashless exercise in which
               909,190 Holdings-Canada common shares were issued.

     III. As an interim financing  arrangement,  in July 1995,  Holdings-Canada,
          Holdings  and certain  subsidiaries  of Holdings  entered  into a Note
          Purchase  Agreement  with Morgan Stanley Group Inc.  ("Morgan  Stanley
          Group") and PGI for up to $35.0  million of Senior  Secured  Notes and
          issued warrants to Morgan Stanley to purchase 800,000  Holdings-Canada
          common shares and warrants to PGI to purchase 600,000  Holdings-Canada
          common  shares.  Proceeds  from  the  1995  Private  Offering  and the
          Preferred  Stock  Placement were used to repay  principal and interest
          (approximately  $6.0 million) on all Senior Secured Notes purchased by
          Morgan Stanley Group. In connection  with such repayment,  warrants to
          purchase  280,000  Holdings-Canada  common  shares  issued  to  Morgan
          Stanley  Group were  returned  and  canceled.  In June  1996,  520,000
          warrants were exercised  through a cashless  exercise in which 362,461
          Holdings-Canada  common  shares were issued. 

     IV.  Public  Offering of  Holdings-Canada  Common  Shares: In October 1994,
          Holdings-Canada and an unaffiliated  shareholder completed the sale of
          6,900,000 Holdings-Canada common shares at a price of $14.00 per share
          in a public offering, of which 5,716,853 Holdings-Canada common shares
          were sold by Holdings-Canada  for net proceeds of approximately  $74.3
          million.  The Company  used $6.9  million of such  proceeds to repay a
          note  issued in April  1994 in  connection  with its  purchase  of the
          telecom network assets of Mtel Digital Services,  Inc. in Los Angeles.

     V.   Convertible  Subordinated  Long-Term Debt  Financing:  Holdings-Canada
          issued  and sold  $18.0  million  principal  amount of 8%  Convertible
          Subordinated Notes in September 1993. As of September 30, 1996, all of
          the 8% Convertible  Subordinated  Notes and approximately $3.2 million
          of the  interest  on  such  notes  had  been  converted  to  1,358,968
          Holdings-Canada  common shares.  An additional $47.8 million principal
          amount of 7%  Convertible  Subordinated  Notes were issued and sold in
          October 1993.  Interest on these notes was payable in cash or in kind,
          at the option of  Holdings-Canada.  Holdings-Canada has paid the first
          five interest  installments of interest by issuing additional interest
          notes (the "Interest Notes"). During fiscal 1996, the Company notified
          the holders of the 7% Convertible  Subordinated Notes of its intent to
          redeem the 7%  Convertible  Subordinated  Notes.  As of September  30,
          1996,  $47.8  million  of the 7%  Convertible  Subordinated  Notes and
          approximately  $7.9 million of the interest on such notes and interest
          on the Interest Notes had been converted to 3,123,116  Holdings-Canada
          common  shares.  In  addition,  $88,967  in  interest  was paid to the
          trustee to pay in full the interest associated with the remaining $0.5
          million of Interest Notes which are in the process of being converted.

     VI.  Private  Equity  Financing:  In February  1994,  William W. Becker,  a
          director of ICG and Holdings-Canada, purchased 600,000 Holdings-Canada
          common  shares for $3.8  million  pursuant to an  outstanding  warrant
          obtained  in  February  1992.  In May and June  1995,  Holdings-Canada
          raised $4.0 million in a private placement of 595,000  Holdings-Canada
          common  shares and $16.0  million  ($15.2  million  net  proceeds)  in
          private  placements of Convertible  Preferred Shares. A portion of the
          proceeds from the Unit Offering and the Preferred  Stock Placement has
          been used to  repurchase  $10.0 million of the  Convertible  Preferred
          Shares and the  remaining  $6.0 million of the  Convertible  Preferred
          Shares have
                                       46
<PAGE>

          been converted to 783,657 Holdings-Canada common shares.

     VII. Lease Financing:  During fiscal 1995, the Company used lease financing
          of $24.5 million for the acquisition of 12 digital switches. A capital
          lease agreement with AT&T Capital  Corporation  provided $18.2 million
          for the  acquisition of 9 digital  switches from Lucent  Technologies,
          Inc.  (formerly AT&T Network  Systems)  bearing  interest at 7.6%. The
          Company may  purchase  these  switches in 2001 for 30% of the original
          price.  Additional  capital lease obligations for three other switches
          totaled $6.3 million,  bearing interest at rates ranging from 11.8% to
          13.0%.

          In March 1996, the Company entered into a 25-year  agreement with
          SCE under which the Company  will  license  1,258 miles of fiber optic
          cable in Southern California. The agreement also allows the Company to
          utilize  SCE's  facilities  to install up to 500  additional  miles of
          fiber optic cable. Under the terms of the agreement,  the Company will
          pay SCE an annual fee for ten years, certain fixed quarterly payments,
          including  a  quarterly  payment  equal  to a  percentage  of  network
          revenue, and certain other installation and fiber connection fees. The
          aggregate  fixed  payments  remaining  under  this  25-year  agreement
          (consisting of the annual fee and fixed  quarterly  payments)  totaled
          approximately  $149.7  million at  September  30,  1996. 

     VIII.Working Capital Sources:  FOTI and its subsidiaries had a $4.0 million
          working  capital line of credit (the "FOTI Line of Credit") which bore
          interest  at the prime rate plus 5.0% per annum and was due on demand.
          At September 30, 1995, the outstanding  borrowings under the FOTI Line
          of Credit totaled  approximately  $3.7 million.  In December 1995, the
          Company  refinanced  the FOTI Line of  Credit as part of a  short-term
          facility with Norwest Bank Colorado, N.A. ("Norwest") (see IX. below).
          Also, FOTI has a $4.5 million working capital line of credit, of which
          $1.4 million was outstanding as of September 30, 1996, with a supplier
          that  provides  goods and  services  that are used in  network  system
          integration installations.

     IX.  Short-Term  Credit  Facility:  In December 1995,  Holdings  obtained a
          short-term  credit  facility with Norwest to refinance  certain of the
          Company's  debt.  The credit  facility  provided for $17.5  million in
          short-term  financing  with  interest  at 2.5% above the Money  Market
          Account yield.  The Company paid off this debt and accrued interest in
          March 1996.

 Capital Expenditures

      The  Company  expects to  continue  to  generate  negative  cash flow from
 operating  activities  while  it  emphasizes   development,   construction  and
 expansion  of its  business  and until the  Company  establishes  a  sufficient
 revenue-generating customer base. The Company's capital expenditures were $54.9
 million,  $88.5 million and $175.1  million  (including  assets  acquired under
 capital leases and through the issuance of debt) in fiscal 1994, 1995 and 1996,
 respectively.  The Company anticipates that the expansion of existing networks,
 construction of new networks and further  development of the Company's products
 and services will require capital  expenditures of approximately $300.0 million
 through  the  end  of  1997  and  continued  significant  capital  expenditures
 thereafter.  To facilitate the expansion of its switched services strategy, the
 Company
                                       47
<PAGE>

     entered into a seven-year,  $1.0 billion equipment  purchase agreement with
Lucent in September 1996 for a full range of switching systems,  fiber,  network
electronics,  software and services.  Actual capital expenditures will depend on
numerous  factors  beyond the  Company's  control or ability to  predict.  These
factors include the nature of future  expansion and  acquisition  opportunities,
economic conditions,  competition,  regulatory developments and the availability
of capital. 

 General

     The  Company's  operations  have  required  and will  continue  to  require
significant capital  expenditures for development,  construction,  expansion and
acquisitions.  Significant amounts of capital are required to be invested before
revenue is generated, which results in initial negative cash flow.

     In view of the  anticipated  negative cash flow from operating  activities,
the continuing development of the Company's products and services, the expansion
of  existing  networks  and  the  construction,  leasing  and  licensing  of new
networks, the Company will require additional amounts of cash in the future from
outside sources. Management believes that the Company's cash on hand and amounts
expected to be available  through  vendor  financing  arrangements  will provide
sufficient  funds  necessary  for the  Company  to expand its  Telecom  Services
business as currently  planned and to fund its operating  deficits  through 1997
and early 1998. Additional sources of cash may include public and private equity
and debt  financings,  sales of non-strategic  assets,  capital leases and other
financing  arrangements.  The Company may require  additional  amounts of equity
capital  in the near  term.  In the past,  the  Company  has been able to secure
sufficient amounts of financing to meet its capital expenditure needs. There can
be no assurance that  additional  financing will be available to the Company or,
if available, that it can be obtained on terms acceptable to the Company.

Accounting Matters

Accounting Changes

      During 1996,  the Company  changed its method of accounting  for long-term
telecom services contracts. Under the new method, the Company recognizes revenue
as services are provided and  continues  to charge  direct  selling  expenses to
operations  as incurred.  The Company had  previously  recognized  revenue in an
amount equal to the noncancelable portion of the contract, which is a minimum of
one year on a three-year  or longer  contract,  at the inception of the contract
and upon  activation  of  service  to the  customer,  to the  extent  of  direct
installation  and selling  expense  incurred in obtaining  customers  during the
period in which such revenue was  recognized.  Revenue  recognized  in excess of
normal monthly  billings  during the year was limited to an amount which did not
exceed such  installation  and selling expense.  The remaining  revenue from the
contract had been recognized ratably over the remaining noncancelable portion of
the  contract.  The Company  believes  the new method is  preferable  because it
provides a better matching of revenue and related operating expenses and is more
consistent with accounting practices within the telecommunications industry.
                                       48
<PAGE>

      As required by generally accepted accounting  principles,  the Company has
reflected  the  effects of the change in  accounting  as if such change had been
adopted  as of  October  1,  1995.  The  Company's  results  for the year  ended
September 30, 1996 include a charge of $3.5 million  ($0.13 per share)  relating
to the cumulative effect of this change in accounting as of October 1, 1995. The
effect of this change in accounting was not  significant for fiscal 1996. If the
new revenue recognition method had been applied retroactively,  Telecom Services
revenue  would have  decreased  by $0.5 million and $0.7 million for fiscal 1994
and 1995, respectively.  See the Company's Consolidated Financial Statements and
the related notes thereto contained elsewhere in this Annual Report.

      In addition, the Company has shortened the estimated depreciable lives for
substantially  all of its fixed assets.  These  estimates were changed to better
reflect the estimated  periods  during which these assets will remain in service
and result in useful lives which are more consistent with industry practice. The
changes in estimates of depreciable lives have been made on a prospective basis,
beginning  January 1,  1996.  This  change in  estimate  increased  depreciation
expense during fiscal year 1996 by approximately $7.0 million ($0.26 per share).
The change  would have had an  estimated  annual  effect of  approximately  $9.0
million  had the  change  been in  effect  for the  entire  year.  Deferred  tax
liability  has  been  adjusted  for the  effect  of  this  change  in  estimated
depreciable lives, which resulted in an income tax benefit of $5.3 million.

New Accounting Standards

      Statement of Financial  Accounting  Standards No. 121,  Accounting for the
Impairment  of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of
("SFAS  121"),  was issued in March 1995 by the Financial  Accounting  Standards
Board. It 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  amount  of an asset  may not be
recoverable. SFAS 121 is required to be adopted for fiscal years beginning after
December  15,  1995 and was  adopted by the  Company as of October 1, 1996.  The
adoption  of SFAS  121 did not have a  significant  effect  on the  consolidated
financial statements of the Company.

      Statement  of  Financial  Accounting  Standards  No. 123,  Accounting  for
Stock-Based  Compensation  ("SFAS 123"), was issued by the Financial  Accounting
Standards Board in October 1995. SFAS 123 establishes  financial  accounting and
reporting  standards  for  stock-based  employee  compensation  plans as well as
transactions  in which an entity issues its equity  instruments to acquire goods
or services from non-employees. This statement defines a fair value based method
of accounting  for employee  stock options or similar  equity  instruments,  and
encourages  all  entities to adopt this method of  accounting  for all  employee
stock  compensation  plans.  However,  it also  allows an entity to  continue to
measure compensation cost for those plans using the intrinsic value based method
of  accounting  prescribed  by  Accounting  Principles  Board  Opinion  No.  25,
Accounting for Stock Issued to Employees  ("Opinion 25").  Entities  electing to
remain with the accounting  method  prescribed in Opinion 25 must make pro forma
disclosures of net income and, if presented,  earnings per share, as if the fair
value based method of accounting defined by SFAS 123 had been applied.  SFAS 123
is applicable to fiscal years  beginning  after  December 15, 1995.  The Company
currently accounts for its stock-based  compensation using the accounting method
prescribed by Opinion 25 and does not currently  expect to adopt the  accounting
method prescribed by SFAS 123.  However,  the Company will include the pro forma
disclosures
                                       49
<PAGE>

required by SFAS 123 for periods  beginning  subsequent  to September  30, 1996.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The  consolidated  financial  statements of the Company appear on page
F-1 of this Annual  Report.  The financial  statement  schedule  required  under
Regulation S-X is filed  pursuant to Item 14 of this Annual Report,  and appears
on page S-1 of this Annual Report.

          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.
                                       50
<PAGE>

                              PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     ICG's corporate charter provides that Directors serve staggered  three-year
terms. The Directors of ICG will hold office until the designated annual meeting
of  stockholders  and until their  successors have been elected and qualified or
until their death, resignation or removal.

     There are  currently  four  committees  of the Board of  Directors  of ICG:
Executive Committee,  Audit Committee,  Compensation  Committee and Stock Option
Committee.  The Executive  Committee provides Board oversight for the operations
of the Company between Board meetings.  The Audit Committee reviews the services
provided by the Company's  independent  auditors,  consults with the independent
auditors  on audits and  proposed  audits of the  Company  and  reviews  certain
filings with the  Securities  and Exchange  Commission and the need for internal
auditing  procedures  and the adequacy of internal  controls.  The  Compensation
Committee determines  compensation for most executives and reviews transactions,
if any, with  affiliates.  The Stock Option  Committee  determines  stock option
awards.

     The officers of ICG are elected by the Board of  Directors  and hold office
until  their   successors  are  chosen  and  qualified  or  until  their  death,
resignation or removal.

      Set  forth  below are the  names,  ages and  positions  of  Directors  and
executive officers of ICG.

Name                    Age    Position
---------------------------------------------------------------------
William J. Laggett       66    Chairman of the Board of Directors
(3)(4)(5)(6)(7)
J. Shelby Bryan          50    President, Chief Executive Officer
(3)(4)(5)(6)                   and Director
Douglas I. Falk          46    Executive Vice President - Satellite
                               and President of ICG Satellite
                               Services, Inc.
James D. Grenfell        44    Executive Vice President, Chief
                               Financial Officer and Treasurer
Mark S. Helwege          45    Executive Vice President - Network
                               and President of FOTI
Marc E. Maassen          45    Executive Vice President - Strategic
                               Planning
William J. Maxwell       54    Executive Vice President - Telecom
                               and President of ICG Telecom Group,Inc.
William W. Becker        67    Director
(2)(5)(7)(8)
Harry R. Herbst          45    Director
(1)(4)(7)
Stan McLelland           51    Director
(2)(5)(7)
Jay E. Ricks (1)(5)(6)   63    Director
Leontis Teryazos         53    Director
(2)(7)


(1)    Term expires at annual meeting of stockholders in 1997.

(2)    Term expires at annual meeting of stockholders in 1998.

(3)    Term expires at annual meeting of stockholders in 1999.

(4)    Member of Audit Committee.

(5)    Member of Compensation Committee.
                                       51
<PAGE>

(6)    Member of Executive Committee.

(7)    Member of Stock Option Committee.

(8)    Mr. Becker has submitted his resignation from the Board of Directors
       of ICG effective January 15, 1997.

Executive Officers of  ICG

     William J. Laggett has been  Chairman of the Board of Directors  since June
1995 and a Director  since January 1995. Mr. Laggett was the President of Centel
Cellular  Company from 1988 until his retirement in 1993. From 1970 to 1988, Mr.
Laggett  held  a  variety  of  management  positions  with  Centel  Corporation,
including Group Vice President-Products  Group,  President-Centel  Services, and
Senior Vice President-Centel  Corporation.  Prior to joining Centel, Mr. Laggett
worked for New York Telephone Company.

     J. Shelby Bryan was  appointed  President,  Chief  Executive  Officer and a
Director in May 1995. He has 17 years of  experience  in the  telecommunications
industry,   primarily  in  the  cellular   business.   He  co-founded   Millicom
International Cellular S.A. ("Millicom"), a publicly owned corporation providing
international  cellular  service,  served as its President  and Chief  Executive
Officer from 1985 to 1994 and has served as a Director through the present.

     Douglas I. Falk has been  President of ICG Satellite  Services,  Inc. since
August 1996 and Executive  Vice President - Satellite of ICG since October 1996.
Prior to joining the Company, Mr. Falk held several positions in the cruise line
industry,  including President of Norwegian Cruise Line, Senior Vice President -
Marketing  and Sales with Holland  America  Lines/Westours  and  Executive  Vice
President of Royal Viking Line.  Prior to his work in the cruise line  industry,
Mr. Falk held  executive  positions  with MTI  Vacations,  Brown and  Williamson
Tobacco,  Pepsico  International,  Glendenning  Associates  and The  Procter and
Gamble Company.

     James D. Grenfell  joined the Company as Executive  Vice  President,  Chief
Financial  Officer and  Treasurer in November  1995.  Previously,  Mr.  Grenfell
served as Director of Financial  Planning  for  BellSouth  Corporation  and Vice
President  and Assistant  Treasurer of BellSouth  Capital  Funding.  A Chartered
Financial  Analyst,  Mr.  Grenfell  has  been  a  telephone  industry  financial
executive for over 15 years.  He was with BellSouth  from 1985 through  November
1996,  serving  previously as Finance  Manager of Mergers and  Acquisitions.  He
handled BellSouth's financing strategies, including capital market financings as
well as public debt and banking relationships.  Prior to BellSouth, Mr. Grenfell
spent two years as a Project  Manager  with Utility  Financial  Services and six
years with GTE of the South,  a subsidiary of GTE  Corporation,  including  four
years as Assistant Treasurer.

     Mark S.  Helwege  has been  Executive  Vice  President - Network of ICG and
President of Fiber Optic Technologies,  Inc. since August 1996. Prior to joining
the  Company,  Mr.  Helwege  was  Director  of  Service  Marketing  Support  for
Technology Service Solutions. From 1986 to 1995, Mr. Helwege held various senior
management  roles,  including Vice  President of Sales,  and President and Chief
Executive  Officer  with  Intelogic  Trace.  Mr.  Helwege  also has held various
management  positions with the Computer  Services  Division of General Electric,
General Datacomm Industries and Western Union Telegraph Company.

     Marc E.  Maassen has been  Executive  Vice  President - Strategic  Planning
since  August 1996.  Prior to this  position,  Mr.  Maassen was  Executive  Vice
President - Network of ICG  beginning in October 
                                       52
<PAGE>

1995, and President of Fiber Optic Technologies, Inc. in April 1995. Mr. Maassen
joined the Company in 1991 as Vice  President of Sales and  Marketing.  Prior to
joining the  Company,  Mr.  Maassen held senior  sales  management  positions at
TelWatch,  Inc., an integrated network management software company.  Mr. Maassen
previously  worked for First  Interstate  as  Director  of Telecom  and for AT&T
Information  Systems as an  Account  Executive  and US West as a Major  Accounts
Manager. 

     William J. Maxwell has been Executive Vice President - Telecom of ICG since
October 1995,  and President of ICG Telecom  Group,  Inc.  since  December 1992.
Prior to joining the Company,  Mr. Maxwell was the senior marketing executive of
WilTel Inc., a full service  telecommunications  company.  Mr. Maxwell,  who has
over 25 years of general  management  and financial  experience,  also served as
President and Chief Executive Officer of MidAmerican  Communications Corporation
in Omaha, Nebraska from November 1987 to June 1991.

Directors of ICG

     William W. Becker has been a Director since 1986 and was Chairman and Chief
Executive  Officer from 1986 to 1995 and President from 1987 to 1995. Mr. Becker
founded the Becker Group of Companies (the "Becker  Group"),  which controls and
manages a number of companies in industries  varying from  communications to oil
and gas.

     Harry R. Herbst has been a Director  since  October  1995 and has been Vice
President  and  Treasurer of Gulf Canada  Resources  Ltd.  since  January  1995.
Previously,  Mr. Herbst was Vice President of Taxation for Torch Energy Advisors
Inc. from 1991 to 1994, and tax manager for Apache Corp.  from 1987 to 1990. Mr.
Herbst is a certified public accountant, formerly with Coopers & Lybrand.

     Stan McLelland has been a Director since October 1996 and is Executive Vice
President  and General  Counsel of Valero  Energy  Corporation  in San  Antonio,
Texas.  McLelland  also served on the Board of Directors  of Valero  Natural Gas
Partners,  L.P., a publicly  owned  limited  partnership  traded on the New York
Stock Exchange,  from 1987 to 1994. Mr. McLelland was previously associated with
the law firm of Baker & Botts in Houston and in the  private  practice of law in
Austin specializing in oil and gas litigation.

     Jay E. Ricks has been a Director since March 1993. Mr. Ricks is Chairman of
Douglas Communications Corp. ("DCC"), a privately held cable television company.
Mr.  Ricks  is  a  director  of  Data  Transmission   Network   Corporation,   a
publicly-owned  data  distribution  company  and a director  of the  licensee of
KBTX-TV  in Bryan,  Texas,  and  KWTX-TV  in Waco,  Texas.  Mr.  Ricks is also a
director and  shareholder  of  SkyConnect,  Inc. Mr.  Ricks  specialized  in the
communications  law  practice  with  the  Washington,  D.C.  law firm of Hogan &
Hartson from 1962 until 1990.

     Leontis  Teryazos  has been a Director  since June 1995.  Mr.  Teryazos,  a
Canadian  resident,  has headed Letmic  Management Inc., a financial  consulting
firm, since 1993, and Letmic  Management  Reg'd., a real estate  development and
management company, since 1985.
                                       53
<PAGE>


Directors and Executive Officers of Holdings-Canada and Holdings

      The  Directors  and  executive  officers  of each of  Holdings-Canada  and
Holdings are set forth below. Biographical information regarding each individual
is set forth above  (except as to Mr.  Gregory C.K.  Smith,  whose  biographical
information appears below).

Holdings-Canada

      The Directors of Holdings-Canada are:

                William J. Laggett (Chairman)
                William W. Becker 
                J. Shelby Bryan
                Harry  R. Herbst
                Jay E.  Ricks
                Gregory C.K. Smith
                Leontis Teryazos

      The executive officers of Holdings-Canada are:

                J.Shelby Bryan - President and Chief  Executive  Officer 
                Douglas I.Falk - Executive Vice  President - Satellite 
                James D. Grenfell - Executive Vice President, CFO and Treasurer 
                Mark S. Helwege - Executive  Vice  President - Network  
                Marc E. Maassen - Executive Vice President -Strategic Planning
                William J. Maxwell - Executive Vice President - Telecom
--------------

     Gregory C.K. Smith, 38, has been a Director of Holdings-Canada  since April
1994. Mr. Smith, a lawyer, is a partner of Tupper Jonsson & Yeadon in Vancouver,
British Columbia. Mr. Smith was an associate employed by Tupper Jonsson & Yeadon
from June 1986 until he joined the partnership in April 1991.


                                       53
<PAGE>



Holdings

      The Directors of Holdings are:

                J. Shelby Bryan
                James D. Grenfell
                Mark S. Helwege
                William J. Maxwell

      The executive officers of Holdings are:

                J.  Shelby Bryan - President and Chief  Executive Officer
                Douglas I. Falk  - Executive Vice President - Satellite
                James D.Grenfell - Executive Vice President, CFO and Treasurer
                Mark S.Helwege - Executive Vice President - Network
                Marc E. Maassen - Executive Vice President - Strategic Planning
                William J. Maxwell - Executive Vice President - Telecom

     Compliance  With Section 16(a) of the Exchange  Act

      The following table lists the Directors,  officers,  beneficial  owners of
more than 10% of the outstanding  Common Stock (each a "Reporting  Person") that
failed  to file on a timely  basis  reports  required  by  Section  16(a) of the
Exchange  Act during the most recent  fiscal  year or prior  fiscal  years,  the
number of late reports,  the number of transactions  that were not reported on a
timely basis,  and any known  failure to file a required Form by each  Reporting
Person.

                                                          Known
         Reporting Person    Late      Transactions    Failures to
                             Reports     Untimely         File
                                         Reported       Required
                                                          Forms
       -------------------------------------------------------------
       William W. Becker     2 (Form 4)        14             3
                            
       Harry R. Herbst       1 (Form 4)         1            None
                            
       William J. Laggett    1 (Form 4)         1            None
                            
       Marc E. Maassen       1 (Form 4)         1            None
                            
       Jay E.  Ricks         2 (Form 4)         2            None
                            
       Robert Swenarchuk (1) 1 (Form 4)         1            None
                            
      
      (1)  Former Director.
      

                                       54
<PAGE>




ITEM 11.  EXECUTIVE COMPENSATION

Director Compensation

      ICG compensates its  non-employee  directors $250 for telephonic  meetings
and $2,500 for each  directors'  meeting or  committee  meeting  attended,  plus
reimbursement  of expenses.  In addition,  the Chairman of the Board receives an
annual fee of $80,000  payable in quarterly  installments.  In fiscal 1996,  all
non-employee  directors of ICG were granted options to purchase 20,000 shares of
Common Stock under ICG's 1996 Stock Option Plan, and during the stub period from
October 1, 1996 through  December 31, 1996,  all  non-employee  directors of ICG
were granted  options to purchase  5,000 shares of Common Stock under such Plan.
At the  commencement of fiscal 1997, all  non-employee  directors of ICG will be
granted options to purchase 20,000 shares of Common Stock under ICG's 1996 Stock
Option  Plan,  which  will  vest as to 5,000  shares  at the end of each  fiscal
quarter.  All  non-employee  directors are given the option to receive shares of
ICG Common Stock in lieu of their cash fees.

Compensation Committee Interlocks and Insider Participation

      The  Compensation  Committee  presently  consists of J. Shelby Bryan,  the
President and Chief Executive Officer,  William J. Laggett,  the Chairman of the
Board of Directors and William W. Becker and Jay E. Ricks, Directors.

Executive Compensation

      The  following  table  provides  certain  summary  information  concerning
compensation  paid or  accrued by the  Company  and its  subsidiaries,  to or on
behalf of J. Shelby Bryan, the Company's  President and Chief Executive Officer,
and the four other most highly  compensated  executive  officers  for the fiscal
years ended  September 30, 1996,  1995 and 1994, and one additional  officer for
whom  disclosure  would have been required but for the fact that the  individual
was not  serving  as  executive  officer  at  September  30,  1996  (the  "Named
Officers"). The Company has not maintained any long-term incentive plans and the
Company has not granted stock appreciation rights.
                                       55
<PAGE>
<TABLE>
<CAPTION>

                     Summary Compensation Table


                        Annual Compensation                         Long-term
                                                                   Compensation
------------------------------------------------------------------------------
   Name and                                            Other        Securities
   Principal          Fiscal  Salary ($)  Bonus ($)    Annual       Underlying
   Position             Year                           Compensation Options
------------------------------------------------------------------------------

<S>                     <C>   <C>          <C>         <C>          <C>
J. Shelby Bryan         1996  221,196(1)         -      35,491(2)     450,000
President and           1995   30,728            -           -      1,550,000
Chief Executive         1994        -            -           -              -
Officer


John D. Field           1996  295,000       50,000      27,857(3)      75,000
Former                  1995   66,667      110,000       3,000(4)           -
Executive Vice          1994       -             -           -              -
President and                                  
Secretary                                                       

James D. Grenfell       1996  148,526       46,665     138,435(5)      50,000
Executive Vice          1995        -            -           -              -
President, CFO          1994        -            -           -              -
and Treasurer

Marc E. Maassen         1996  147,092       22,500      25,341(7)      40,000
Executive Vice          1995  131,933       60,000       9,291(4)      15,000
President-              1994  105,100       23,375       6,290(4)           -
Strategic
Planning (6)

William J. Maxwell      1996  222,917      117,160      18,632(8)      75,000
Executive Vice          1995  205,475       75,000       8,288(4)      75,000
President-Telecom       1994  179,850      100,000       9,250(4)           -
and President ICG
Telecom Group, Inc.

John R. Evans(9)        1996   33,205            -     361,311(10)          -
Former Vice             1995  169,850       43,750      12,008(4)      40,000
President,Treasurer     1994  121,600       70,000       9,240(4)           -
and CFO
<FN>

(1)  Consists of $221,196  earned  pursuant to the  compensation  formula in Mr.
     Bryan's employment agreement.
(2)  Consists of $25,991 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $9,500.
(3)  Consists of $15,586 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $12,271.
(4)  Consists of ICG's contributions to 401(k) Defined Contribution Plan.
(5)  Consists of relocation expenses in the amount of $117,295, car allowance of
     $11,640 and ICG's contributions to 401(k) Defined  Contribution Plan in the
     amount of $9,500.
(6)  Consists   of   compensation   earned   as  the   former   Executive   Vice
     President-Network,  and  President  of FOTI and former  Vice  President  of
     Mergers and Acquisitions of ICG.
(7)  Consists of $16,428 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $8,913.
(8)  Consists  of $9,200 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $9,432.
(9)  Mr.  Evans is the Former  Vice  President,  Treasurer  and Chief  Financial
     Officer of Holdings-Canada, whose employment terminated in November 1995.
(10) Consists  of $600 for car  allowance,  $8,401  accrued  vacation,  $350,000
     severance  payment and ICG's  contributions to 401(k) Defined  Contribution
     Plan in the amount of $2,310.
</FN>
</TABLE>
                                       56
<PAGE>

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

      The following  table  provides  information  on options  exercised  during
fiscal 1996 by the Named  Officers and the value of such  officers'  unexercised
options at the end of the last fiscal year:
<TABLE>
<CAPTION>


                                                      
                           Number of Securities            Value of Unexercised
                          Underlying Unexercised               In-the-Money
                            Options at Fiscal                Options at Fiscal
                                Year End                      Year End(1)(2)
            Number of    -----------------------          --------------------
             Shares  
          Acquired      Value     Exercis-  Unexercis-  Exercis-   Unexercis-
Name     on Exercise   Realized      able      able       able         able            
--------------------------------------------------------------------------------
<S>         <C>         <C>       <C>            <C>          <C>          <C> 
J.Shelby
Bryan              -   $     -  1,220,000    780,000  $15,936,250  $9,260,625
John D.
Field              -         -          0     28,750            0     316,250
James D.
Grenfell           -         -          0     50,000            0     550,000
Marc E.
Maassen       11,000   246,174     21,000     54,000      176,190     557,460
William J.
Maxwell            -         -    197,000    153,000    2,433,790   1,483,260
John R.
Evans         64,000   200,173          0          0            0           0
                 
<FN>


(1)  Based on the closing price of $21.00 per share of Common Stock on September
     30, 1996, on the American Stock Exchange.
(2)  Options  granted prior to fiscal 1994 contained  exercise  prices stated in
     Canadian dollars; value listed based on an exchange rate of 1.3699.
</FN>
</TABLE>

                      Option/SAR Grants in Last Fiscal Year

The following table provides  information on option grants during fiscal 1996 to
the Named Officers:
<TABLE>

<CAPTION>
                                                       
                                                  Potential Realized
                                                Value at Assumed Annual
                                                 Rates of Stock Price
                                                    Appreciation for
          Indvidual Grants                            Option Term                                      
        ---------------------                   -----------------------
        Number of   Percent of
        Securities  Total Options      
        Underlying  Granted to     Exercise 
        Options     Employee in    Price    Expiration       
Name    Granted     Fiscal Year    ($/sh)   Date          5%($)       10%($)
--------------------------------------------------------------------------------
<S>                 <C>            <C>       <C>          <C>         <C>         
J. Shelby 
Bryan       450,000       33.9      $ 10.00    11/13/2005 $2,830,500  $7,173,000 
John D. 
Field        75,000(1)     5.7        10.00    11/13/2005    471,750   1,195,500
James D. 
Grenfell     50,000        3.8        10.00    11/13/2005    314,500     797,000
Marc E. 
Maassen      40,000        3.0        10.00    11/13/2005    251,600     637,600
William J.
Maxwell     75,000         5.7        10.00    11/13/2005    471,750   1,195,500
John R.
Evans            0           -            -             -          -           -           
<FN>

(1)  46,250 options have been canceled as a result of Mr. Field's resignation on
     November 5, 1996.
</FN>
</TABLE>



Executive Employment Contracts

     The Company has employment agreements with Messrs. J. Shelby Bryan, Douglas
I. Falk,  James D.  Grenfell,  Mark S.  Helwege and William J.  Maxwell,  and an
agreement  with Mr.  John D.  Field,  former  Executive  Vice  President  of the
Company.
                                       57
<PAGE>

      The Company's  employment agreement with Mr. Bryan provides for an initial
term of two years,  which  commenced May 30, 1995 and which may be continued for
one year at the option of Mr. Bryan. As  compensation,  the Company will pay Mr.
Bryan a salary  equal  to the sum of one  percent  of the  monthly  increase  in
Company revenue and three percent of the monthly  increase in EBITDA,  offset in
any month where one component is a negative amount to not less than zero. If Mr.
Bryan's salary  exceeds  $1,500,000 in any fiscal year, the Company may elect to
pay such excess in unregistered  Common Stock. Mr. Bryan is entitled to benefits
as are generally  provided to executive officers of ICG, including options under
stock  option  plans,  a leased  automobile,  private club  membership  fees and
reimbursement  of reasonable  out-of-pocket  expenses  incurred on behalf of the
Company.  The  employment  agreement  may be  terminated  by the Company with or
without  cause or after a  disability  continuing  for a  six-month  consecutive
period,  or by Mr.  Bryan  for  cause,  including  breach  of the  agreement  or
reduction in status or responsibilities, or change of control. If the employment
agreement  is  terminated  for any reason  other than for cause,  the Company is
obligated to pay Mr.  Bryan a lump sum of $2.5 million and to continue  benefits
for a period  equal to the greater of the  remainder of the  employment  term or
eighteen months.  After  termination of the employment  agreement,  Mr. Bryan is
subject to a confidentiality covenant and a one-year non-competition commitment.

      The Company's  employment  agreement with Mr. Falk, dated August 14, 1996,
has an initial one-year term commencing August 26, 1996 and continues from month
to month  thereafter  until either party provides 30 days notice of termination.
The  agreement  provides  for an  annual  base  salary  and an  incentive  bonus
determined by the Board of Directors. Mr. Falk also receives stock options under
the stock option  plans.  If the Company  terminates  the  employment  agreement
without cause or if the Company or Mr. Falk terminates the employment  agreement
upon the occurrence of a major transaction  involving the Company, then Mr. Falk
will  receive  his  salary  and  insurance  benefits  for a period  of 12 months
following  the date of  termination.  Mr.  Falk is subject to a  confidentiality
covenant and to a one-year non-competition  commitment following the termination
of his employment.
                                       58
<PAGE>

      The  Company's  employment  agreement  with Mr.  Grenfell  provides for an
initial  two-year term which commenced  November 1, 1995. Upon completion of the
first 12 months of the initial  term,  the agreement  automatically  renews from
month-to-month  such that 12 months  remain in the term.  The  agreement  may be
terminated  upon 30 days  written  notice from either party or by the Company if
Mr.  Grenfell is unable to perform his duties for 140 days in any 180-day period
due to illness or incapacity. Mr. Grenfell is entitled to such other benefits as
are generally provided to executive  officers of the Company,  including options
under the Company's stock option plans,  use of a company car and  reimbursement
or direct payment of reasonable out-of-pocket expenses incurred on behalf of the
Company. The agreement provides for an annual base salary and an incentive bonus
determined by the Board of Directors.  If the employment agreement is terminated
without cause by the Company or by either party upon the  occurrence of a change
of control  involving the Company,  Mr.  Grenfell will receive a termination fee
equal to his current monthly salary times the number of months  remaining in the
term. Mr. Grenfell is also subject to a ten-year  confidentiality covenant and a
one-year non-competition commitment.

      The Company's employment  agreement with Mr. Helwege,  dated July 8, 1996,
has an initial one-year term commencing August 1, 1996 and renews  automatically
thereafter  until  either  party  provides  30 days notice of  termination.  The
agreement  provides for an annual base salary and an 
                                       59
<PAGE>

incentive bonus determined by the Board of Directors.  Mr. Helwege also receives
stock  options  under the stock  option  plans.  The Company may  terminate  the
employment  agreement  for  any  reason  upon  30 days  notice.  If the  Company
terminates  the  employment  agreement  without  cause or if the  Company or Mr.
Helwege  terminates  the  employment  agreement  upon the  occurrence of a major
transaction  involving the Company, then Mr. Helwege will receive his salary and
insurance  benefits for a period of 12 months following the date of termination.
Mr.  Helwege  is  subject  to a  confidentiality  covenant  and  to  a  one-year
non-competition commitment following the termination of his employment.

      The Company's  employment  agreement with Mr.  Maxwell,  dated December 1,
1992, has an initial  five-year term and thereafter  one-year terms until either
party  provides 30 days notice of  termination  prior to the end of a term.  The
agreement  provides for an annual base salary and an incentive bonus  determined
by the Board of Directors.  Mr.  Maxwell also  receives  stock options under the
stock option plans. If the Company  terminates the employment  agreement without
cause or if the Company or Mr. Maxwell terminates the employment  agreement upon
the occurrence of a major  transaction  involving the Company,  then Mr. Maxwell
shall  receive his salary for the lesser of one year or until the  expiration of
the  current  employment  term.  Mr.  Maxwell is  subject  to a  confidentiality
covenant and to a one-year non-competition  commitment following the termination
of his employment.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

      The  following  table sets forth,  as of December 10, 1996,  the number of
shares of Common Stock of ICG owned by (i) each Named Officer and Director, (ii)
all executive officers and Directors as a group, and (iii) each person who owned
of record,  or was known to own  beneficially,  more than 5% of the  outstanding
shares of Common  Stock.  The persons  named in the table below have sole voting
and investment  power with respect to all of the shares of Common Stock owned by
them, unless otherwise noted.
                                       60
<PAGE>
<TABLE>
<CAPTION>

                                              Amount/Nature
 Name and Address of Beneficial Owner        of Beneficial Ownership  Percent(1)
-----------------------------------------    -----------------------  ----------
<S>                                          <C>                      <C>

William W. Becker                            1,837,198(2)              5.9%                                         
Director                                     
West Bay Road                              
Georgetown, Cayman Island

Montgomery Asset Management, L.P.            1,790,000                 5.8%
600 Montgomery Street
San Francisco, CA 94111

LGT Asset Management, Inc.                   1,687,700                 5.5%
80 California Street
San Francisco, CA 94111

Morgan Stanley Group, Inc.                   1,621,651(3)              5.2%
1585 Broadway                                     
New York, NY 10036

Peter Wightman                               1,592,200(4)              5.1%
19 Vectis Court                                   
Southhampton, U.K. S01 7LY

William J. Laggett                              48,074(5)                 *
Chairman of the Board of Directors of
ICG

J. Shelby Bryan                              1,664,773(6)               5.1%
President, Chief Executive Officer and            
Director of ICG, Holdings-Canada and
Holdings

Douglas I. Falk                                      0                    *
Executive Vice President-Satellite of
ICG, President of ICG Satellite
Services and Director of Holdings

James D. Grenfell                               12,500(5)                 *
Executive Vice President, Chief                   
Financial Officer and
Treasurer of ICG, Holdings-Canada and
Holdings

Mark S. Helwege                                      0                    *
Executive Vice President-Network of
ICG, President of FOTI and Director of
Holdings

Marc E. Maassen                                 32,715(7)                *
Executive Vice President-Strategic
Planning of ICG

William J. Maxwell                             238,754(8)                *
Executive Vice President-Telecom of ICG
and Holdings-Canada, President of ICG
Telecom Group, Inc. and Director of
Holdings
                                       61
<PAGE>

Harry R. Herbst                                 25,369(5)                *
Director of ICG

Stan McLelland                                   5,000(5)                *
Director of ICG

Jay E. Ricks                                    82,180(9)               *
Director of ICG

Leontis Teryazos                                45,000(5)                *
Director of ICG                            

John R. Evans                                        0                   *
Former Vice President, Treasurer and
Chief Financial
Officer of Holdings-Canada

John D. Field                                   20,281(10)               *
Former Executive Vice President and              
Secretary of ICG, Holdings-Canada and
Holdings

All executive officers and Directors as      3,992,094(11)            11.9%
a group (12 persons)
------------------
*Less than one percent of ICG's outstanding shares of Common Stock.
<FN>

(1)   Based on  30,953,330  issued  and  outstanding  shares of Common  Stock on
      December  10,  1996,  plus shares of Common Stock which may be acquired by
      the  person  or group  indicated  pursuant  to any  options  and  warrants
      exercisable within 60 days.

(2)   Includes  1,404,078 shares of Common Stock and options to purchase 433,120
      shares of Common  Stock held  directly by William W. Becker.

(3)   Includes  319,706  shares of Common  Stock held by Morgan  Stanley  Group,
      Inc.,  801,945  shares of Common Stock held by PGI, an affiliate of Morgan
      Stanley  Group,  Inc.,  and  500,000  shares of Common  Stock which may be
      acquired by PGI pursuant to the exercise of outstanding PGI Warrants.

(4)   Includes  1,300,000 shares of Common Stock held by Martin Holdings Ltd. of
      which Peter Wightman is chairman and sole shareholder,  and 292,200 shares
      of  Common  Stock  held by  Hartford  Holdings,  Inc.  Ltd.,  of which Mr.
      Wightman is also chairman and sole shareholder.

(5)   Represents  shares of Common  Stock which may be acquired  pursuant to the
      exercise of outstanding stock options.

(6)   Includes  1,662,500 shares of Common Stock which may be acquired  pursuant
      to the exercise of outstanding options,  2,000 shares of Common Stock held
      in Mr.  Bryan's  spouse's  name for which Mr. Bryan  disclaims  beneficial
      ownership,  and 273 shares of Common Stock held by a 401(k) Plan  pursuant
      to contribution of shares to the Plan by the Company.

(7)   Includes  1,715 shares of Common  Stock held by a 401(k) Plan  pursuant to
      contribution  of shares to the Plan by the  Company  and 31,000  shares of
      Common Stock which may be acquired pursuant to the exercise of
                                       62
<PAGE>
      outstanding stock options.

(8)   Includes  17,000  shares of Common Stock held  jointly with Mr.  Maxwell's
      spouse,  3,800 shares of Common Stock held in Mr. Maxwell's  spouse's name
      for which Mr.  Maxwell  disclaims  beneficial  ownership,  2,204 shares of
      Common Stock held by a 401(k) Plan pursuant to a contribution of shares of
      Common  Stock to the Plan by the  Company,  and  215,750  shares of Common
      Stock which may be acquired  pursuant to the exercise of outstanding stock
      options.

(9)  Includes  2,000  shares of Common  Stock held  directly  by Mr.  Ricks and
      80,180  shares  of Common  Stock  which may be  acquired  pursuant  to the
      exercise of outstanding stock options.

(10)  Includes  1,000  shares of Common  Stock  held  jointly  with Mr.  Field's
      spouse,  531 shares of Common  Stock held by a 401(k)  Plan  pursuant to a
      contribution  of shares to the Plan by the  Company  and 18,750  shares of
      Common Stock which may be acquired pursuant to the exercise of outstanding
      stock options.

(11)  As a group,  executive  officers and Directors  beneficially own 2,558,493
      shares  of  Common  Stock   through  stock  options  which  are  presently
      exercisable or which will become exercisable within 60 days.
</FN>
</TABLE>

ITEM 13.  CERTAIN  RELATIONSHIPS  AND RELATED  TRANSACTIONS

      To facilitate the acquisition of certain  competitive  access networks and
satellite  services  businesses which held common carrier radio licenses subject
to foreign  ownership  restrictions,  the common  carrier  licenses  used by the
Company's teleports and the wireless  competitive access networks are controlled
by TTH, a corporation owned 33% each by U.S. Directors,  William Laggett and Jay
Ricks, and a former Director.  TTH's  subsidiaries have given 15-year promissory
notes to ICG to acquire FCC  licenses.  As a result of the Plan of  Arrangement,
the Company is reviewing the  possibility  of exercising  its option to have the
common carrier licenses  transferred back to the Company.  In the event that the
Company  meets the  requirements  imposed by the FCC,  or  receives  appropriate
waivers,  upon  completion of the transfer of the licenses the promissory  notes
will be canceled and TTH and its subsidiaries will be dissolved. In fiscal 1996,
the  Company  paid or  accrued  $2.4  million to TTH's  subsidiaries  for common
carrier  services,  and ICG  received  from TTH's  subsidiaries  $1.9 million as
payments on the promissory  notes,  management  services,  equipment  leases and
technical support. In addition,  $1.1 million of the note balances were canceled
due to the  sale of the  licenses  in  conjunction  with the sale of four of the
Company's teleports. See "Business-Regulation."

      Holdings-Canada and International  Communications Consulting, Inc. ("ICC")
have  entered into a three-year  consulting  agreement  whereby ICC will provide
various consulting services to the Company through December 1999 in exchange for
approximately  $4.2 million in consulting fees to be paid during the term of the
agreement. William W. Becker is President and Chief Executive Officer of ICC.

      In order to facilitate the  relocation of William J. Maxwell,  the Company
advanced  $200,000 to Mr.  Maxwell in April 1994  pursuant to a promissory  note
payable on demand, which bears interest at a rate of 7% per annum.

      J. Shelby  Bryan also serves as a director of a  subsidiary  of  Millicom,
which was a customer of the Company's  Satellite  Services business from October
1995 through November 1995.
                                       63
<PAGE>



                           PART IV

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

(A)  (1) Financial  Statements.  The following financial statements are included
         in Item 8 of Part II:
                                      
          Independent Auditors' Report                                     F-2
          Consolidated Balance Sheets, September 30, 1995 and 1996         F-3
          Consolidated Statements of Operations,                    
               Years Ended September 30, 1994, 1995 and 1996               F-5
          Consolidated Statements of Stockholders' Equity     
               (Deficit), Years Ended September 30, 1994, 1995 and 1996    F-6
          Consolidated Statements of Cash Flows, Years                   
               Ended September 30, 1994, 1995 and 1996                     F-7
          Notes to Consolidated Financial Statements                       F-10

     (2)  Financial  Statement  Schedule.   The  following  Financial  Statement
          Schedule is submitted herewith:
            
               Independent Auditors' Report                                S-2
               Schedule II: Valuation and Qualifying Accounts              S-3

     (3)  List of Exhibits.

          (2)  Plan of Acquisition, Reorganization,  Arrangement, Liquidation or
               Succession.

          2.1: Plan of  Arrangement  under  Section  192 of the Canada  Business
               Corporations  Act.  [Incorporated  by reference to Exhibit 2.1 to
               Registration  Statement on Form S-4 of ICG  Communications,  Inc.
               (Commission File No. 333-4226)].

          (3)  Corporate Organization

               3.1: Memorandum and Articles of IntelCom  Group Inc., as amended,
                    filed with the Registrar of  Companies,  Province of British
                    Columbia,  Canada  [Incorporated  by  reference  to IntelCom
                    Group Inc.'s  Annual  Report on Form 20-F for the year ended
                    September 30, 1992].

               3.2: Altered Memorandum and Articles of IntelCom  Group Inc., as
                    amended by Special  Resolution passed October 7, 1994, filed
                    with  the  Registrar  of  Companies,   Province  of  British
                    Columbia,  Canada  [Incorporated  by  reference  to IntelCom
                    Group Inc.'s  Annual  Report on Form 10-K for the year ended
                    September 30, 1994].

               3.3: Certificate of Incorporation, as amended, from the Registrar
                    of   Companies,   Province  of  British   Columbia,   Canada
                    [Incorporated  by reference to IntelCom  Group Inc.'s Annual
                    Report
                                       64
<PAGE>

                    on Form 20-F for the year ended September 30, 1992].


               3.4: Certificate  of Change of Name (under the B.C. Act) from the
                    Registrar of Companies, Province of British Columbia, Canada
                    [Incorporated  by reference to IntelCom  Group Inc.'s Annual
                    Report on Form 20-F for the year ended  September  30, 1993,
                    as filed on September 30, 1994].

               3.5: Certificate  of  Continuance  from  Industry  Canada,  dated
                    October 30, 1995.  [Incorporated by reference to Exhibit 3.5
                    to IntelCom  Group Inc.'s Annual Report on Form 10-K for the
                    year ended September 30, 1995].

               3.6: Certificate of  Incorporation  of ICG  Communications,  Inc.
                    dated April 11, 1996.  [Incorporated by reference to Exhibit
                    3.1  to   Registration   Statement   on  Form   S-4  of  ICG
                    Communications, Inc., File No. 333-4226].

               3.7: By-laws  of  ICG  Communications,   Inc.   [Incorporated  by
                    reference to Exhibit 3.2 to  Registration  Statement on Form
                    S-4 of ICG Communications, Inc., File No. 333-4226].

          (4)  Instruments  Defining the Rights of Security  Holders,  Including
               Indentures.

               4.1: Memorandum of Articles  for the  Registrant,  Certificate of
                    Incorporation  and copies of all Amendments  thereto,  filed
                    with the  Registrar of Companies for the Province of British
                    Columbia,  Canada  [Incorporated by reference to Exhibit (i)
                    to  IntelCom  Group  Inc.'s  Form 20-F for the  fiscal  year
                    ending September 30, 1991].

               4.2: Note  Purchase    Agreement   dated   September   16,   1993
                    [Incorporated  by reference to IntelCom  Group Inc.'s Annual
                    Report on Form 20-F for the year ended  September  30, 1993,
                    as filed on September 30, 1994].

               4.3: Note Purchase Agreement dated October 27, 1993 [Incorporated
                    by reference to IntelCom  Group Inc.'s Annual Report on Form
                    20-F for the year  ended  September  30,  1993,  as filed on
                    September 30, 1994].

               4.4: Form of Indenture  between  IntelCom  Group Inc. and Bankers
                    Trust  Company for 7%  Convertible  Subordinated  Redeemable
                    Notes due 1998  [Incorporated by reference to Exhibit 4.3 to
                    Registration  Statement on Form S-1 of IntelCom  Group Inc.,
                    File No. 33-75636].

               4.5: Form of Indenture  between  IntelCom  Group Inc. and Bankers
                    Trust   Company   for   7%   Simple   Interest   Convertible
                    Subordinated  Redeemable  Notes  due 1998  [Incorporated  by
                    reference to Exhibit 4.4 to  Registration  Statement on Form
                    S-1 of IntelCom Group Inc., File No. 33-75636].

               4.6: Note Purchase  Agreement,  dated as of July 14, 1995,  among
                   the  
                                       65
<PAGE>
                    Registrant,  IntelCom Group (U.S.A.),  Inc.,  Morgan Stanley
                    Group Inc., Princes Gate Investors,  L.P., Acorn Partnership
                    I, L.P., PGI Investments  Limited,  PGI Investments Limited,
                    PGI Sweden AB, and Gregor von Opel and Morgan Stanley Group,
                    Inc., as Agent for the Purchasers [Incorporated by reference
                    to Exhibit  4.1 to Form 8-K of IntelCom  Group  Inc.,  dated
                    July 18, 1995].

               4.7: Warrant  Agreement,  dated as of July 14,  1995,  among  the
                    Registrant,  the Committed  Purchasers,  and IntelCom  Group
                    (U.S.A.),  Inc., as Warrant Agent [Incorporated by reference
                    to Exhibit  4.2 to Form 8-K of IntelCom  Group  Inc.,  dated
                    July 18, 1995].

               4.8: First Amended and Restated  Articles of Incorporation of ICG
                    Holdings,  Inc. [Incorporated by reference to Exhibit 3.1 to
                    Registration   Statement  on  Form  S-4  of  IntelCom  Group
                    (U.S.A.), Inc., File No. 333-04569].

               4.9: Articles   of    Continuation   of   IntelCom   Group   Inc.
                    [Incorporated  by reference  to Exhibit 4.1 to  Registration
                    Statement on Form S-4 of ICG Communications,  Inc., File No.
                    333-4226].

           (9)  Voting Trust Agreement.
                None.

           (10) Material Contracts.
                                       
              10.1: Joint Venture  Agreement,  dated September 29, 1992, between
                    IntelCom   Group   Inc.   and   Greenstar   Resources   Ltd.
                    [Incorporated  by reference to Exhibit 16 to IntelCom  Group
                    Inc.'s  Annual  Report on Form  20-F,  as  amended,  for the
                    fiscal year ended September 30, 1992].

              10.2: Employment  Agreement  between  Teleport  Denver,  Inc.  and
                    William J.  Maxwell  [Incorporated  by  reference to Exhibit
                    3.38 to IntelCom Group Inc.'s Annual Report on Form 20-F for
                    the fiscal year ended September 30, 1993].

              10.3: Arrangement  and  Support  Agreement  dated  June  27,  1996
                    between ICG  Communications,  Inc. and  IntelCom  Group Inc.
                    [Incorporated  by reference  to Exhibit 2.1 to  Registration
                    Statement   on  Form   S-4  of  ICG   Communications,   Inc.
                    (Commission File No. 333-4226)].

              10.4: Stock  Purchase   Agreement  and  Accord  and   Satisfaction
                    Agreement  dated June 24, 1993,  between  Joseph T. Buck III
                    and William A. Byrd and TDI  [Incorporated  by  reference to
                    Exhibit 3.28 to IntelCom  Group Inc.'s Annual Report on Form
                    20-F for the fiscal year ended September 30, 1993].

              10.5: Full  Payout Net Lease  dated June 7, 1993  between  Applied
                    Telecommunications  Technologies,  Inc. and Teleport Denver,
                    Inc.  [Incorporated by reference to Exhibit 3.34 to IntelCom
                    Group Inc.'s  Annual Report on Form 20-F for the fiscal year
                    ended September 30, 1993.]
                                       65
<PAGE>

              10.6: Full Payout Net Lease dated June 18,  1993  between  Applied
                    Telecommunications  Technologies,  Inc. and Teleport Denver,
                    Inc.  [Incorporated by reference to Exhibit 3.35 to IntelCom
                    Group Inc.'s  Annual Report on Form 20-F for the fiscal year
                    ended September 30, 1993].
                                       

              10.7: Full Payout Net Lease dated July 16,  1993  between  Applied
                    Telecommunications  Technologies,  Inc. and Teleport Denver,
                    Inc.  [Incorporated by reference to Exhibit 3.36 to IntelCom
                    Group Inc.'s  Annual Report on Form 20-F for the fiscal year
                    ended September 30, 1993].

              10.8: Full  Payout  Net Lease  dated  November  10,  1993  between
                    Applied Telecommunications  Technologies,  Inc. and Teleport
                    Denver,  Inc.  [Incorporated by reference to Exhibit 3.37 to
                    IntelCom  Group  Inc.'s  Annual  Report on Form 20-F for the
                    fiscal year ended September 30, 1993].

              10.9: Stock  Purchase  Agreement  dated August 23,  1993,  between
                    Cliff  Arellano,  Nancy  Arellano and TDI  [Incorporated  by
                    reference  to Exhibit 3.29 to IntelCom  Group Inc.'s  Annual
                    Report on Form 20-F for the fiscal year ended  September 30,
                    1993].

             10.10: Asset Purchase  Agreement dated November 18, 1993,  between
                    Mtel  Digital   Services,   Inc.  and  IntelCom  Group  Inc.
                    [Incorporated by reference to Exhibit 3.30 to IntelCom Group
                    Inc.'s  Annual Report on Form 20-F for the fiscal year ended
                    September 30, 1993].

             10.11: Stock Purchase  Agreement dated November 18, 1993, between
                    IntelCom Group Inc.,  TDI,  Pacific Telecom Inc., PTI Harbor
                    Bay, Inc., Bay Area Teleport,  Inc., and Upsouth Corporation
                    [Incorporated by reference to Exhibit 3.31 to IntelCom Group
                    Inc.'s  Annual Report on Form 20-F for the fiscal year ended
                    September 30, 1993].

             10.12: Agreement  and Plan of Merger  dated May 24,  1994,  by and
                    among IntelCom Group Inc., IntelCom Group (U.S.A.), Inc. and
                    FiberCAP,  Inc.  [Incorporated by reference to Exhibit 10.69
                    to the Registration  Statement on Form S-1,  Amendment No. 4
                    of IntelCom Group Inc., File No. 33-76568,  filed August 26,
                    1994].

             10.13: Note Sale and Purchase  Agreement  dated August 3, 1994, by
                    and between  IntelCom  Group Inc.,  ICG  Wireless  Services,
                    Inc., Noon  Investments  Ltd.,  Melco  Investments  Ltd. and
                    Polera Overseas Inc.  [Incorporated  by reference to Exhibit
                    10.70 to the Registration  Statement on Form S-1,  Amendment
                    No. 4 of  IntelCom  Group  Inc.,  File No.  33-76568,  filed
                    August 26, 1994].

             10.14: Agreement  and Plan of Merger dated July 22, 1994,  by and
                    among IntelCom Group Inc.,  IntelCom Group  (U.S.A.),  Inc.,
                    DataCom  Integrated Systems  Corporation,  Larry DiGioia and
                    Richard Williams [Incorporated by reference to Exhibit 10.71
                    to the Registration  Statement on Form S-1,  Amendment No. 4
                    of IntelCom Group Inc., File No. 33-76568,  filed August 26,
                    1994].

             10.15: Share  Exchange  Agreement,  dated  May 31,  1994,  between
                    IntelCom Group 
                                       66
<PAGE>

                    Inc.   and   Worldwide   Condominium   Developments,    Inc.
                    [Incorporated   by  reference   to  Exhibit   10.71  to  the
                    Registration  Statement  on Form  S-1,  Amendment  No.  7 of
                    IntelCom Group Inc.,  File No.  33-76568,  filed October 17,
                    1994.]

             10.16: Incentive  Stock Option Plan #2  [Incorporated by reference
                    to Exhibit 4.1 to the Registration  Statement on Form S-8 of
                    IntelCom Group Inc., File No.  33-86346,  filed November 14,
                    1994].

             10.17: Form of Stock Option  Agreement for Incentive Stock Option
                    Plan #2  [Incorporated  by  reference  to Exhibit 4.2 to the
                    Registration  Statement on Form S-8 of IntelCom  Group Inc.,
                    File No. 33-86346, filed November 14, 1994].

             10.18: Incentive  Stock Option Plan #3  [Incorporated by reference
                    to Exhibit 4.3 to the Registration  Statement on Form S-8 of
                    IntelCom Group Inc., File No.  33-86346,  filed November 14,
                    1994].

             10.19: Form of Stock Option  Agreement for Incentive  Stock Option
                    Plan #3  [Incorporated  by  reference  to Exhibit 4.4 to the
                    Registration  Statement on Form S-8 of IntelCom  Group Inc.,
                    File No. 33-86346, filed November 14, 1994].

             10.20: 1994 Employee Stock Option Plan  [Incorporated by reference
                    to Exhibit 4.5 to the Registration  Statement on Form S-8 of
                    IntelCom Group Inc., File No.  33-86346,  filed November 14,
                    1994].

             10.21: Form of Stock  Option  Agreement  for 1994  Employee  Stock
                    Option Plan [Incorporated by reference to Exhibit 4.6 to the
                    Registration  Statement on Form S-8 of IntelCom  Group Inc.,
                    File No. 33-86346, filed November 14, 1994].

             10.22: PEDTS  Acquisition  Note 1994-1,  dated April 29, 1994, by
                    Pacific  &  Eastern  Digital  Transmission  Services,   Inc.
                    ("PEDTS") to IntelCom Group (U.S.A.),  Inc. ("ICG"),  in the
                    amount of $2,928,591  [Incorporated  by reference to Exhibit
                    10.27 to IntelCom  Group Inc.'s  Annual  Report on Form 10-K
                    for the fiscal year ended September 30, 1994].

             10.23: PEDTS  Acquisition  Note 1994-2,  dated April 29, 1994,  by
                    PEDTS to ICG, in the amount of $1,230,475  [Incorporated  by
                    reference to Exhibit  10.28 to IntelCom  Group Inc.'s Annual
                    Report on Form 10-K for the fiscal year ended  September 30,
                    1994].

             10.24: PEDTS  Acquisition  Note 1994-3,  dated April 29, 1994, by
                    PEDTS to ICG,  in the amount of  $932,239  [Incorporated  by
                    reference to Exhibit  10.29 to IntelCom  Group Inc.'s Annual
                    Report on Form 10-K for the fiscal year ended  September 30,
                    1994].

             10.25: TTC  Acquisition  Note, dated November 3, 1994, by Teleport
                    Transmission  Holdings,  Inc.  to  ICG,  in  the  amount  of
                    $125,242.33  [Incorporated  by reference to Exhibit 10.30 to
                    IntelCom  Group  Inc.'s  Annual  Report on Form 10-K for the
                    fiscal year ended September 30, 1994].

             10.26: Agreement and Assignment,  dated July 24, 1995, by Teleport
                    Transmission Holdings,  Inc., IntelCom Group (U.S.A.), Inc.,
                    William W. Becker,  Michael L. Glaser,  William J.  Laggett,
                    Jay E. 
                                       67
<PAGE>

                    Ricks and Gary Bryson. [Incorporated by reference to Exhibit
                    10.26 to IntelCom  Group Inc.'s  Annual  Report on Form 10-K
                    for the fiscal year ended September 30, 1996].

             10.27: Employment  Agreement,  dated as of May 30,  1995,  between
                    IntelCom  Group Inc.  and J. Shelby Bryan  [Incorporated  by
                    reference  to  Exhibit  10.5 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].

             10.28: Stock Option Agreement,  dated as of May 30, 1995,  between
                    IntelCom  Group Inc.  and J. Shelby Bryan  [Incorporated  by
                    reference  to  Exhibit  10.6 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].

             10.29: Indemnification  Agreement,  dated  as  of  May  30,  1995,
                    between   IntelCom   Group   Inc.   and  J.   Shelby   Bryan
                    [Incorporated  by  reference  to Exhibit 10.7 to Form 8-K of
                    IntelCom Group Inc., as filed on August 2, 1995].

             10.30: Letter  Agreement,  dated July 12, 1995,  between  IntelCom
                    Group Inc. and Larry L. Becker [Incorporated by reference to
                    Exhibit 10.8 to Form 8-K of IntelCom Group Inc., as filed on
                    August 2, 1995].

             10.31: Agreement  and General  Release,  made  effective  July 12,
                    1995,  between  IntelCom  Group  Inc.  and  Larry L.  Becker
                    [Incorporated  by  reference  to Exhibit 10.9 to Form 8-K of
                    IntelCom Group Inc., as filed on August 2, 1995].

             10.32: Subscription and Exchange  Agreement,  dated as of July 14,
                    1995,  among IntelCom Group Inc.,  IntelCom Group  (U.S.A.),
                    Inc.,  Princes Gate Investors,  L.P.,  Acorn  Partnership I,
                    L.P., PGI Investments Limited, PGI Sweden AB, and Gregor von
                    Opel  [Incorporated by reference to Exhibit 10.4 to Form 8-K
                    of IntelCom Group Inc., as filed on August 2, 1995].

             10.33: Security  Agreement,  dated July 18,  1995,  from  IntelCom
                    Group  (U.S.A.),  Inc.  as issuer,  and the  Grantors  named
                    therein, as grantors, to MS Group, as agent [Incorporated by
                    reference  to  Exhibit  10.1 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].

             10.34: Pledge Agreement, dated July 18, 1995, from IntelCom Group
                    Inc., as a pledgor,  to MS Group, as agent  [Incorporated by
                    reference  to  Exhibit  10.2 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].

             10.35: Subsidiary Guarantee, dated July 18, 1995, from the persons
                    set forth on the signature pages thereof, as guarantors,  in
                    favor  of the  purchasers  to the  Note  Purchase  Agreement
                    referred to therein, and MS Group, as agent [Incorporated by
                    reference  to  Exhibit  10.3 to Form 8-K of  IntelCom  Group
                    Inc., as filed on August 2, 1995].

             10.36: Placement  Agreement,  dated as of  August 3,  1995,  among
                    IntelCom Group Inc., IntelCom Group (U.S.A.),  Inc., certain
                    subsidiaries  of IntelCom  Group  (U.S.A.),  Inc. and Morgan
                    Stanley & Co.  Incorporated  [Incorporated  by  reference to
                    Exhibit 10.1 to Form 8-K of IntelCom Group Inc., as filed on
                    August 9, 1995.]

             10.37: Form of Exchange Agent  Agreement  between  IntelCom Group
                                       68
<PAGE>
                    
                    (U.S.A.),  Inc. and Norwest Banks [Incorporated by reference
                    to Exhibit  10.11 to  Registration  Statement on Form S-4 of
                    IntelCom Group (U.S.A.), Inc., File No. 33-96540].

             10.38: Employment  Agreement between IntelCom Group Inc. and James
                    D.  Grenfell,  dated  November  1,  1995.  [Incorporated  by
                    reference to Exhibit  10.38 to IntelCom  Group Inc.'s Annual
                    Report on Form 10-K for the fiscal year ended  September 30,
                    1995].

             10.39: Employment Agreement between Fiber Optic Technologies, Inc.
                    and Mark S. Helwege, dated July 8, 1996.

             10.40: Purchase and Sale Agreement, dated as of October 19, 1995,
                    by and among ICG Wireless  Services,  Inc.,  IntelCom  Group
                    (U.S.A.),   Inc.,   UpSouth   Corporation   and  Vyvx,  Inc.
                    [Incorporated  by  reference  to Exhibit  10.40 to  IntelCom
                    Group Inc.'s  Annual Report on Form 10-K for the fiscal year
                    ended September 30, 1995].
             
             10.41: Employment  Agreement between ICG Satellite Services,  Inc.
                    and Douglas I. Falk, dated August 14, 1996.
             
             10.42: ICG  Communications,  Inc.,  401(k) Wrap  Around  Deferred
                    Compensation Plan.
    
             10.43: ICG Communications, Inc. 1996 Employee Stock Purchase Plan.
                    [Incorporated by reference to the Registration  Statement on
                    Form S- of ICG  Communications,  Inc.,  File  No.  33-14127,
                    filed on October 14, 1996]. 

          (11) Statement re  Computation of per Share Earnings.  
               Not Applicable
              
          (12) Statement re  Computation of Ratios.  
               Not Applicable
          
          (13) Annual Report to Security Holders.
               Not Applicable

          (18) Letter re Change in Accounting Principles. Letter dated March 22,
               1996 from KPMG Peat Marwick LLP to the Company  [Incorporated  by
               reference to Exhibit 18 to IntelCom Group Inc.'s Quarterly Report
               on Form 10-Q/A for the quarter ended December 31, 1995].

          (21) Subsidiaries of Registrant.
          
          (22) Published  Report  re  Matters  Submitted  to  Vote  of  Security
               Holders.
               Not Applicable
          
          (23) Consent

                23.1: Consent of KPMG Peat  Marwick

          (24) Power of Attorney.
                                       69
<PAGE>
              
                Not Applicable

          (27) Financial Data Schedule.


          (99) Additional Exhibits.

              99.1: Report   by   the   FCC   on   Preliminary   Statistics   of
                    Communications  Common  Carriers (1993 Edition) (pp.  39-40)
                    [Incorporated   by   reference   to  Exhibit   99.8  to  the
                    Registration  Statement  on Form  S-1,  Amendment  No.  4 of
                    IntelCom  Group Inc.,  File No.  33-76568,  filed August 26,
                    1994].
                    
              99.2: In re Expanded  Interconnection with Local Telephone Company
                    Facilities  (Phases  I & II)  (FCC  1992)  [Incorporated  by
                    reference  to Exhibit 3.46 to IntelCom  Group Inc.'s  Annual
                    Report on Form 20-F for the fiscal year ended  September 30,
                    1993].

              99.3: In   re   Teleport   Transmission   Holdings,   (FCC   1993)
                    [Incorporated by reference to Exhibit 3.49 to IntelCom Group
                    Inc.'s  Annual Report on Form 20-F for the fiscal year ended
                    September 30, 1993].

(B)  Reports on Form 8-K.  The  following  reports on Form 8-K were filed by the
     Registrants  during the fourth  quarter of the fiscal year ended  September
     30, 1996:

      ICG Communications, Inc.:    Current   Report   on  Form   8-K
                                   dated August 2, 1996. 
                                   Current Report on Form 8-K dated 
                                   October 25, 1996.

      ICG Holdings (Canada), Inc.: Current   Report   on  Form   8-K
                                   dated August 2, 1996.


(C)  Exhibits.  The  exhibits  required  by this  Item  are  listed  under  Item
     14(A)(3).

(D)  Financial Statement Schedule.  The financial statement schedule required by
     this Item is listed under Item 14(A)(2).

                                       70
<PAGE>



                              FINANCIAL STATEMENTS


                                                                    PAGE


Independent Auditors' Report . . . . . . . . . . . . . . . . . .     F-2

Consolidated Balance Sheets, September 30, 1995 and 1996 . . . .     F-3

Consolidated Statements of Operations, Years Ended September 30,     
1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . .    F-5

Consolidated Statements of Stockholders' Equity (Deficit), Years
Ended September 30, 1994, 1995 and 1996   . . . . . . . . . . .      F-6 

Consolidated Statements of Cash Flows, Years Ended September 30,     
1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . .    F-7

Notes to Consolidated Financial Statements, September 30, 1995       
and 1996 . . . . . . . . . . . . . . . . . . . . .. . . . . . . .    F-10





                                       

<PAGE>

                          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 September 30, 1995 and 1996, and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash flows for each of the years in the  three-year  period ended  September
30, 1996. 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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of ICG Communications,
Inc.  and  subsidiaries  as of September  30, 1995 and 1996,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period  ended  September  30,  1996,  in  conformity  with  generally   accepted
accounting principles.

As explained in note 2 to the consolidated  financial statements,  during fiscal
1996,  the  Company  changed  its method of  accounting  for  long-term  telecom
services contracts.



                                  KPMG Peat Marwick LLP


Denver, Colorado
November 18, 1996

                                      F-2
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES


Consolidated Balance Sheets
September 30, 1995 and 1996
----------------------------------------------------------------------------
<TABLE>
<CAPTION>

Assets                                          1995           1996
------
                                             -------------  --------------
                                                  (in thousands)

<S>                                          <C>              <C> 
Current assets:
  Cash and cash equivalents                  $   269,416      451,082
  Short-term investments                               -        6,832
  Receivables:
    Trade, net of allowance of $2,217
     and $2,509 at September 30, 1995                                  
     and 1996, respectively                       23,483       34,818 
    Revenue earned, but unbilled (note 2)          7,046        4,062
    Joint venture and affiliate (note 3)             732            -
    Other (note 7)                                 1,430        1,955
                                               -------------  --------------
                                                  32,691       40,835

  Inventory                                        2,165        3,206
  Prepaid expenses and deposits                    3,424        4,109
  Notes receivable, net (note 4)                   1,761          263
                                               -------------  --------------
         Total current assets                    309,457      506,327
                                               -------------  --------------
Property and equipment (notes 5, 8 and 9)        228,609      383,435
  Less accumulated depreciation (note 2)         (26,605)     (47,298)
                                               -------------  --------------
        Net property and equipment               202,004      336,137
                                               -------------  --------------

Investments (note 3)                               5,209        5,169
Long-term notes receivable, net (note 3)           7,599        6,618      
Restricted cash (note 14)                              -       13,333
Other assets, net of accumulated
  amortization (notes 3 and 6):
  Goodwill                                        29,199       32,175
  Deferred financing costs                        16,018       22,584
  Transmission and other licenses                 10,792        8,611
  Other                                            3,275        8,397
                                             -------------  --------------
                                                  59,284       71,767
                                             -------------  --------------
                                               $ 583,553      939,351
                                             =============  ==============
                                                        (Continued)
</TABLE>
                                      F-3
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES


Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>


Liabilities and Stockholders' Equity (Deficit)     1995         1996
                                               ------------- ------------
                                                      (in thousands)
<S>                                            <C>            <C>
Current liabilities:                                        
  Accounts payable                             $   14,712        17,722
  Accrued liabilities                              18,346        34,159
  Line-of-credit payable (note 8)                   3,692             -
  Current portion of long-term debt (note 8)       14,454           795
  Current portion of capital lease obligations      9,164         7,487              
    (note 9)                                    ------------- ------------

      Total current liabilities                    60,368        60,163

Long-term debt, net of discount, less current     379,100       668,989
  portion (note 8)
Capital lease obligations, less current            26,435        70,838
  portion (note 9)
Deferred income taxes (note 15)                     5,702             -
Share of losses of joint venture in excess of
  investment (note 3)                               1,037         2,851
                                               ------------- ------------
      Total liabilities                           472,642       802,841
                                               ------------- ------------
Minority interests                                  4,040         2,780

Redeemable preferred stock of subsidiary
  ($30.5 million and $159.1 million
  liquidation value at September 30, 1995 and      
  1996, respectively) (notes 8 and 10)             14,986       153,318
Convertible Series B Preferred Stock of             
  subsidiary (note 11)                              9,350             -

Stockholders' equity (deficit):
   Common stock (notes 1, 2 and 12)               190,753       275,355
   Additional paid-in capital                      26,492        23,874
   Accumulated deficit                           (134,710)     (318,817)
                                               ------------- ------------
      Total stockholders' equity (deficit)         82,535       (19,588)
                                               ------------- ------------

Commitments and contingencies (notes 3, 7, 8,
   9, 10, 11, 14 and 15)                       $  583,553       939,351
                                               ============= ============
</TABLE>

    See accompanying notes to consolidated financial statements.
                                      F-4
<PAGE>


ICG COMMUNICATIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
Years Ended September 30, 1994, 1995 and 1996
-------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                             1994      1995      1996
                                          -------------------------------
                                            (in thousands, except per
                                                   share data)
<S>                                       <C>        <C>        <C>   
Revenue:
     Telecom services (note 2)            $  14,854   32,330     87,681
     Network services (note 17)              36,019   58,778     60,116
     Satellite services                       8,121   20,502     21,297
     Other                                      118        -          -
                                          ------------------------------
     Total revenue                           59,112  111,610    169,094
                                          ------------------------------
Operating costs and expenses:
     Operating costs                         38,165   78,846    135,253
     Selling, general and administrative     
      expenses                               28,015   62,954     76,725
     Depreciation and amortization                  
      (note 2)                                8,198   16,624     30,368
                                          ---------- --------- ----------
     Total operating costs and expenses      74,378  158,424    242,346

     Operating loss                         (15,266) (46,814)   (73,252)
Other income (expense):
     Interest expense                        (8,481) (24,368)   (85,714)
     Interest income                          1,788    4,162     19,300
     Share of losses of joint venture and    
       investment                            (1,481)    (741)    (1,814)
     Provision for impairment of 
       goodwill, investment and notes                
       receivable (notes 3 and 4)                 -   (7,000)    (9,917)
     Other, net                                (863)    (764)    (9,082)
                                          ---------- ---------- --------
                                             (9,037) (28,711)   (87,227)
                                          ---------- ---------- --------
Loss before minority interest, income
  taxes and cumulative effect of change 
  accounting                                (24,303) (75,525)  (160,479)
Minority interest in share of losses, net
  of accretion and preferred dividends on
  subsidiary preferred stock
  (notes 10 and 11)                             435   (1,123)   (25,306)
                                          --------- --------- ----------
Loss before income taxes and cumulative
  effect of change in accounting            (23,868) (76,648)  (185,785)
    Income tax benefit (note 15)                  -        -      5,131
                                          --------- --------- ----------
Loss before cumulative effect of change     (23,868) (76,648)  (180,654)
  in accounting
    Cumulative effect of change in
     accounting for revenue from
     long-term telecom services contracts   
     (note 2)                                     -        -     (3,453)
                                          ---------  --------  ----------
     Net loss                             $ (23,868)  (76,648) (184,107)
                                          ========== ========= =========
Loss per share (note 2):
     Loss before cumulative effect of     
       change in accounting               $   (1.56)    (3.25)    (6.70)
     Cumulative effect of change in               -        -      (0.13)
       accounting                         ----------- ---------  ---------               
          Loss per share                  $   (1.56)    (3.25)    (6.83)
                                          ========== ========= ===========
     Weighted average number of shares  
       outstanding                           15,342    23,604    26,955
                                          ==========  ========= ===========

Pro forma amounts before cumulative
     effects of change in accounting
     assuming the new method of
     accounting for revenue from long-term
     telecom services contracts is
     applied retroactively:
Telecom services revenue                  $  14,395    31,617    87,681
Total revenue                                58,653   110,897   169,094
Operating loss                              (15,725)  (47,527)  (73,252)
Net loss                                    (24,327)  (77,361) (180,654)
Loss per share
                                              (1.59)   (3.28)     (6.70)

</TABLE>

    See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended  September 30, 1994, 1995 and  1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                      Additional                  Total
                                                     Common stock      Paid-in   Accumulated    Stockholders'
                                                  Shares    Amount     capital    deficit      equity (deficit)
                                                 --------  --------    --------  ----------  -----------------
                                                                         (in thousands)

<S>                                               <C>      <C>          <C>    <C>                 <C>
Balances at October 1, 1993                       13,868   $ 56,201        200  (21,648)            34,753  
  Private placement offering costs                    -         (89)         -        -                (89)
  Shares issued for cash-exercise of                                          
    options and warrants (note 12)                   737      4,539          -        -              4,539
  Shares issued as repayment of debt        
    and related accrued interest (note 8)            110        883          -        -                883
  Shares issued in connection with              
    business combination (note 3)                  1,485     23,537          -        -             23,537
  Shares issued in exchange for notes       
    receivable (note 3)                              256      3,050          -        -              3,050
  Shares issued as contribution to           
    401(k) plan (note 16)                             20        257          -        -                257
  Warrants issued in connection with         
    acquisition of equipment                           -          -        982        -                982
  Issuance of bonus and penalty shares   
   (note 12)                                         197          -          -        -                  -
  Acquisition of minority interest of       
    ICG Holdings, Inc. (note 7)                      374      7,228        107  (12,449)            (5,114)
  Change in foreign currency               
    translation adjustment                             -          -          -      (59)               (59)
  Compensation expense related to            
    issuance of common stock options                   -          -        911        -                911
  Net loss                                             -          -          -  (23,868)           (23,868)
                                                --------   --------    --------   --------           --------
Balances at September 30, 1994                    17,047     95,606       2,200 (58,024)            39,782
  Shares issued for cash (note 12):
    Public offering and private placements         6,312     84,498           -       -             84,498
    Public offering and private                     
    placement costs                                    -     (6,162)          -       -             (6,162)
  Exercise of options and warrants                   338      1,471           -       -              1,471
  Shares issued as repayment of debt                
    and related accrued interest (note 8)            683      9,482           -       -              9,482
  Shares issued in connection with                  
    business combinations (note 3)                   130      1,737           -        -             1,737
  Conversion of ICG Holdings-Canada,                 
    Inc. preferred shares (notes 11 and 12)          302      2,000           -        -             2,000
  Shares issued as contribution to                
    401(k) plan (note 16)                             38        490           -        -               490
  Warrants issued in connection with                                    
    Offerings (notes 8, 10 and 12)                     -          -      24,134        -            24,134
  Change in foreign currency                 
    translation adjustment                             -          -           -      (38)              (38)
  Compensation expense related to            
    issuance of common stock options                   -          -         158        -               158
  Shares issued in exchange for                     
    investments and other assets                     123      1,398           -        -             1,398
  Shares issued as payment of trade          
    payables                                          18        233           -        -               233
  Net loss                                             -          -           -  (76,648)          (76,648)
                                                  --------  --------    -------- --------           --------
Balances at September 30, 1995                    24,991    190,753      26,492 (134,710)           82,535
  Shares issued for cash-exercise of      
    options and warrants                           1,522      1,894           -        -             1,894
  Shares issued as repayment of debt               
    and related accrued interest (note 8)            130        687           -        -               687
  Shares issued in connection with                                 
    business combinations (note 3)                    67        749           -        -               749
  Conversion of ICG Holdings-Canada,               
    Inc. preferred shares (notes 11 and 12)          496      3,780           -        -             3,780
  Shares issued as contribution to           
    401(k) plan (note 16)                             87      1,156           -        -             1,156
  Shares issued upon conversion of       
    subordinated notes (note 8)                    4,413     76,336           -        -            76,336
  Repurchase of warrants                               -         -       (2,671)       -            (2,671)
  Compensation expense related to                      
    issuance of common stock options                   -         -           53        -                53
  Net loss                                             -         -            - (184,107)         (184,107)
                                                --------  --------     --------  --------           --------
Balances at September 30, 1996                    31,703   275,355       23,874 (318,817)          (19,588)
                                                        
                                                ========   ========     ======== ========           ========
</TABLE>
See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>



ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended September 30, 1994, 1995 and 1996
<TABLE>
<CAPTION>

                                         1994      1995      1996
                                      ------- ---------- ------------
                                               (in thousands)

<S>                                    <C>         <C>       <C> 
Cash flows from operating activities:
  Net loss                            $(23,868)    (76,648)  (184,107)
 Adjustments to reconcile net loss
  to net cash used by operating
  activities:
      Cumulative effect of change in          
        accounting                            -         -       3,453
      Share of losses of joint            
        venture and investment           1,481         741      1,814
      Minority interest in share of
       (losses), net of accretion
        and non-cash preferred            
        dividends on subsidiary                  
        preferred stock                   (435)        656     24,279
      Depreciation and amortization      8,198      16,624     30,368
      Compensation expense related to
        issuance of common stock options   911         158         53
      Interest expense deferred and
        included in long-term debt and                               
        non-cash interest expense        4,885      14,068     63,951
      Amortization of deferred
        financing costs included in                      
        interest expense                   615         989      2,573
      Write-off of deferred finance
        costs upon conversion or                     
        repayment of debt                    -           -      2,650
      Contribution to 401(k) plan
        through issuance of common shares  257         490      1,156
      Deferred income tax benefit            -          -      (5,329)
      Provisions for impairment of
       goodwill, investment and                   
       notes receivable                      -       7,000      9,917
      Loss on sale of certain                
      Satellite Services assets              -           -      1,124
  Decrease (increase) in operating
      assets, excluding the effects of
      business acquisitions, dispositions    
      and non-cash transactions:    
      Accounts receivable              (13,208)     (6,092)   (13,293)
      Inventory                            (84)       (447)    (1,200)
      Prepaid expenses and deposits        317      (2,482)    (2,975)
  Increase  (decrease)  in  operating  
     liabilities, excluding the effects of
     business acquisitions, dispositions and
     non-cash transactions:
      Accounts payable and accrued       
      liabilities                       13,399       1,904     18,205
                                       ---------  --------- ----------
          Net cash used by operating  $ (7,532)    (43,039)   (47,361)
            activities                                                                    
                                       ---------- --------- ----------
 
</TABLE>
                                                        (Continued)

                                      F-7
<PAGE>



ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
Years Ended September 30, 1994, 1995 and 1996
_________________________________________________________________________
<TABLE>
<CAPTION>


                                        1994        1995       1996
                                      ----------  ---------  ----------
                                               (in thousands)

<S>                                   <C>         <C>        <C>
Cash flows from investing activities:
  Notes receivable                    $ (5,249)        348        348
  Advances to affiliates                     -      (2,184)      (109)
  Investment in and advances to        
    joint venture                       (1,185)     (5,452)    (4,308)
  Payments for business                
    acquisitions, net of cash acquired  (1,811)     (8,168)     (8,441)
  Acquisition of property, equipment
    and other assets, net of 
    dispositions                       (43,207)    (49,825)   (120,118)
  Purchase of short-term investments         -           -      (6,832)
  Restricted cash                            -           -     (13,333)
  Proceeds from the sale of certain       
  Satellite Services assets                  -           -      21,593
  Other investments                          -      (6,061)        -
                                      ----------  ---------   ---------
      Net cash used by investing       
        activities                     (51,452)    (71,342)   (131,200)
                                      ----------  ---------   ---------

Cash flows from financing activities:
  Issuance of common shares for cash         -      84,498         -
  Issuance of preferred shares of           
  subsidiary for cash                        -      16,000    144,000
  Issuance of redeemable preferred      
  stock of subsidiary                        -      28,800         -
  Offering costs related to common
  and preferred stock offerings              -      (5,565)        -                                      
  Redemption of preferred shares             -      (3,800)   (5,570)
  Repurchase of redeemable preferred
  stock of subsidiary and payment                      
  of accrued dividend                        -           -   (32,629)
  Repurchase of redeemable warrants          -           -    (2,671)
  Proceeds from exercise of stock         
  options and warrants                   4,539       1,471     1,894
  Proceeds from advances from            
  related parties                        3,334           -         -
  Payments on advances from related     
  parties                               (7,744)          -         -
  Principal payments on capital lease   
  obligations                           (1,264)     (6,271)  (12,304)
  Proceeds from issuance of               
  short-term debt                            -           -    17,500
  Principal payments on short-term 
  debt                                       -           -   (21,192)
  Proceeds from issuance of             
  long-term debt                        57,340     305,613   300,034
  Principal payments on long-term debt  (4,144)    (29,333)  (16,920)
  Deferred debt issuance costs          (2,633)    (13,641)  (11,915)
                                       ----------  --------- --------
      Net cash provided by financing     
      activities                        49,428     377,772    360,227
                                      ----------  ---------   --------
      Net increase (decrease) in cash
     and cash equivalents               (9,556)    263,391    181,666
        
Cash and cash equivalents, beginning    
  of year                               15,581       6,025    269,416
                                      ----------  ---------   --------
Cash and cash equivalents, end                 
  of year                                6,025     269,416    451,082
                                      ==========  =========  =========
Supplemental disclosure of cash 
  flow information:
  Cash paid for interest              $  2,625        9,338     19,035                                        
                                      ==========  =========   =========
</TABLE>

                                                        (Continued)

                                      F-8
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
Years Ended September 30, 1994, 1995 and 1996
----------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                        1994       1995        1996
                                     ---------  ----------  ----------
                                           (in thousands)

<S>                                 <C>            <C>          <C>
Supplemental schedule of non-cash
financing and investing activities:
    Common shares issued in
     connection with business 
     combinations, repayment of         
     debt or conversion of
     liabilities to equity           $  31,647      11,452       77,772
                                     =========  ==========  ===========
    Common shares issued in exchange
     for notes receivable,         
     investments and other assets    $  3,050        1,398            -   
                                     =========  ==========  ===========
    Assets acquired under capital
     leases and through                              
     the issuance of debt or         
     warrants                        $ 11,714       38,670       55,030
                                     =========  ==========  ===========
    Liability related to business    
     combination                     $  8,746            -            -
                                     =========  ==========  ===========
    Reclassification of investment
     in joint venture to long-term   $      -        6,882            -
     notes receivable                =========  ==========  ===========
    
    Conversion of notes receivable
     related to business             $               6,330            -
     combinations                    =========  ==========  ===========

</TABLE>
   
                See accompanying notes to consolidated financial statements.

                                      F-9
<PAGE>



ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements 
September 30, 1995 and 1996
------------------------------------------------------------------------------

(1)   Organization and Nature of Business

      ICG Communications, Inc. ("ICG"), a Delaware corporation, was incorporated
      on April 11,  1996,  for the purpose of becoming  the new  publicly-traded
      U.S. parent company of ICG Holdings (Canada), Inc. ("Holdings-Canada"),  a
      Canadian federal corporation  (formerly known as IntelCom Group Inc.), ICG
      Holdings,  Inc.  ("Holdings"),  a Colorado corporation  (formerly known as
      IntelCom Group (U.S.A.),  Inc.), and its subsidiaries  (collectively,  the
      "Company").  Pursuant to a Plan of Arrangement (the "Arrangement"),  which
      was approved by Holdings-Canada  shareholders on July 30, 1996, and by the
      Ontario  Court  of  Justice  on  August  2,  1996,  each   shareholder  of
      Holdings-Canada  exchanged their common shares on a one-for-one  basis for
      either  (i)  shares of $.01 par  value  common  stock of ICG (the  "Common
      Stock"),  or (ii)  Class A common  shares of  Holdings-Canada  (which  are
      exchangeable at any time on a one-for-one  basis into shares of ICG Common
      Stock). On August 2, 1996, 28,795,132,  or approximately 98%, of the total
      issued and outstanding common shares of Holdings-Canada were exchanged for
      an equal  number  of shares of Common  Stock of ICG.  In  accordance  with
      generally accepted  accounting  principles,  the Arrangement was accounted
      for  in  a  manner  similar  to a  pooling  of  interests  since  ICG  and
      Holdings-Canada  have  common  shareholders,  and  the  number  of  shares
      outstanding and the weighted average number of shares outstanding  reflect
      the equivalent shares outstanding for the combined companies.

      The Company's principal business activity is telecommunications  services,
      including  Telecom  Services,  Network  Services and  Satellite  Services.
      Telecom  Services  consist of the  Company's  competitive  local  exchange
      carrier ("CLEC") operations.  CLECs,  formerly known as competitive access
      providers ("CAPs"),  seek to provide an alternative to the incumbent local
      exchange telephone company ("ILEC") for a full range of telecommunications
      services in the newly opened regulatory environment. The Company's Telecom
      Services customers are primarily long distance carriers and resellers,  as
      well  as  end-users.  Network  Services  supplies  information  technology
      services and selected  networking  products,  focusing on network  design,
      installation,   maintenance  and  support  for  a  variety  of  end-users,
      including   Fortune   1000   firms  and   other   large   businesses   and
      telecommunications companies. Satellite Services provides satellite, voice
      and data  services to major  cruise ship lines,  the  commercial  shipping
      industry, yachts, the U.S. Navy and offshore oil platforms.

                                      F-10
<PAGE>






ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued  
------------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies

     (a) Basis of Presentation

         The accompanying  consolidated  financial statements have been prepared
         in accordance  with  accounting  principles  generally  accepted in the
         United  States,  and  include  the  accounts  of the  Company,  and its
         majority and wholly owned subsidiaries.  Financial information prior to
         the  completion of the  Arrangement  on August 2, 1996,  represents the
         financial  position and results of  operations of  Holdings-Canada  and
         Holdings, which are considered predecessor entities to ICG.

         In addition, the accompanying consolidated financial statements include
         the accounts of Teleport  Transmission  Holdings,  Inc. ("TTH"),  which
         holds certain transmission licenses acquired in connection with certain
         of the  Company's  business  combinations  in 1994. As of September 30,
         1996, TTH is owned one-third each by two U.S.  directors and one former
         director.  TTH's financial  statements have been  consolidated with the
         financial  statements  of the  Company  due  to  common  ownership  and
         control.

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

     (b) Change in Fiscal Year End

         The Company's  fiscal year  currently ends on September 30. The Company
         has elected to change its fiscal year end to December 31 from September
         30, effective for the 1997 fiscal year.

     (c) Cash Equivalents and Short-term Investments

         The Company  considers  all highly  liquid  investments  with  original
         maturities of three months or less to be cash equivalents.  The Company
         invests primarily in high grade short-term investments which consist of
         money market  instruments,  commercial paper,  certificates of deposit,
         government  obligations and corporate bonds.  The Company's  investment
         objectives are safety, liquidity and yield, in that order.


                                      F-11
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued 
------------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

         The Company carries all cash equivalents and short-term  investments at
         cost, which approximates fair value.

     (d) Inventory

         Inventory,  consisting of satellite  systems equipment and equipment to
         be utilized in the installation of fiber optic  communications  systems
         and networks for customers, is recorded at the lower of cost or market,
         using the first-in, first-out method of accounting for cost.

     (e) Investments

         Investments  in joint  ventures  are  accounted  for using  the  equity
         method,  under which the  Company's  share of earnings or losses of the
         joint  ventures are reflected in operations  and dividends are credited
         against the investment  when received.  Losses  recognized in excess of
         the  Company's  investment  due to  additional  investment or financing
         requirements,  or  guarantees,  are  recorded  as a  liability  in  the
         accompanying  consolidated  financial  statements.   Other  investments
         representing  an  interest  of 20% or more,  but  less  than  50%,  are
         accounted for using the equity  method of  accounting.  Investments  of
         less  than 20% are  accounted  for using the cost  method,  unless  the
         Company  exercises   significant  influence  and/or  control  over  the
         operations of the investee company,  in which case the equity method is
         used.

     (f) Property and Equipment

         Property and equipment are stated at cost.  Costs of  construction  are
         capitalized,   including   interest  costs  related  to   construction.
         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.  Depreciation is provided using
         the straight-line  method over the estimated useful lives of the assets
         owned and the  related  lease term for  equipment  held  under  capital
         leases.

         Effective   January  1,  1996,  the  Company  shortened  the  estimated
         depreciable  lives for  substantially  all of its fixed  assets.  These
         estimates were changed to better  reflect the estimated  periods during
         which these  assets  will remain in service and result in useful  lives
         which are more  consistent  with  industry  practice.  The  changes  in
         estimates  of  depreciable  lives  were  made on a  prospective  basis,
         beginning January
                                      F-12
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(2)   Summary of Significant Accounting Policies (continued)

         1, 1996. The effect of this change was to increase depreciation expense
         and net loss for the year ended  September 30, 1996,  by  approximately
         $7.0 million ($0.26 per share).

         Estimated  useful lives of major  categories  of property and equipment
         before and after January 1, 1996 are as follows:

                                            Before          After
                                          January 1,       January 1,
                                           1996             1996
                                        --------------  --------------
         Office furniture and equipment  5 to 7 years   3 to 7 years
         Buildings and improvements        31.5 years     31.5 years       
         Machinery and equipment        7 to 15 years   3 to 8 years
         Switch equipment                    15 years       10 years
         Fiber optic transmission system     30 years       20 years
      

     (g) Other Assets

         Amounts related to the  acquisition of transmission  and other licenses
         are recorded at cost.  Amortization is provided using the straight-line
         method over 20 years.  Goodwill  results  from the  application  of the
         purchase method of accounting for business  combinations.  Amortization
         is provided using the straight-line method over a maximum of 20 years.

         Rights of way, minutes of use, and non-compete  agreements are recorded
         at cost, and amortized using the straight-line method over the terms of
         the agreements, currently ranging from 2 to 12 years.

         Amortization  of deferred  financing costs is provided over the life of
         the related financing agreement, the maximum term of which is 10 years.

         The Company  periodically  evaluates  the carrying  value of intangible
         assets  using  a  discounted  cash  flow  methodology  and  provides  a
         provision for impairment,  if necessary,  in the year the impairment is
         identified.



                                      F-13
<PAGE>



ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued 
------------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

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

     (i) Revenue Recognition

         During fiscal 1996,  the Company  changed its method of accounting  for
         long-term telecom services contracts. Under the new method, the Company
         recognizes  revenue as services are  provided  and  continues to charge
         direct  selling  expenses to  operations  as incurred.  The Company had
         previously  recognized revenue in an amount equal to the non-cancelable
         portion of the contract, which is a minimum of one year on a three-year
         or  longer  contract,  at  the  inception  of  the  contract  and  upon
         activation  of  service  to  the  customer  to  the  extent  of  direct
         installation  and  selling  expenses  incurred in  obtaining  customers
         during  the  period  in which  such  revenue  was  recognized.  Revenue
         recognized  in excess of normal  monthly  billings  during the year was
         limited to an amount which did not exceed such installation and selling
         expense.  The remaining  revenue from the contract had been  recognized
         ratably over the remaining  non-cancelable portion of the contract. The
         Company  believes  the new method is  preferable  because it provides a
         better matching of revenue and related  operating  expenses and is more
         consistent  with  accounting  practices  within the  telecommunications
         industry.

         As required by generally accepted  accounting  principles,  the Company
         has reflected the effects of the change in accounting as if such change
         had been adopted as of October 1, 1995, and has presented the pro forma
         effects  on  prior  periods   assuming  the  change  had  been  applied
         retroactively.  The Company's  results for fiscal 1996 reflect a charge
         of approximately $3.5 million relating to the cumulative effect of this
         change in accounting  as of October 1, 1995.  The effect of this change
         in accounting for fiscal 1996 was not significant.


                                      F-14
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

         Revenue from Satellite Services is recognized as services are rendered.
         Revenue from Network Services contracts for the design and installation
         of fiber optic communication systems and networks,  which are generally
         short-term in duration, is recognized primarily using the percentage of
         completion method of accounting.  Maintenance  revenue is recognized as
         services are provided.

         Uncollectible  trade  receivables are accounted for using the allowance
         method.

     (j) Income Taxes

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

     (k) Loss Per Share

         Loss per share is  calculated  by dividing the net loss by the weighted
         average number of shares outstanding. Weighted average number of shares
         outstanding  for  fiscal  years  1994 and 1995  represents  outstanding
         Holdings-Canada  common  shares.  Weighted  average  number  of  shares
         outstanding  for fiscal  1996  represents  outstanding  Holdings-Canada
         common  shares for the period  October 1, 1995 through  August 2, 1996,
         and  outstanding  ICG Common Stock and  Holdings-Canada  Class A common
         shares  (owned by third  parties) for the period August 5, 1996 through
         September 30, 1996.

         Common  stock   equivalents,   which  include  options,   warrants  and
         convertible subordinated notes and preferred stock, are not included in
         the loss per share calculation as their effect is anti-dilutive.

                                      F-15
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(2)  Summary of Significant Accounting Policies (continued)

     (l) New Accounting Standards

         Statement of Financial Accounting Standards No. 121, Accounting for the
         Impairment  of  Long-Lived  Assets  and  for  Long-Lived  Assets  to Be
         Disposed  of ("SFAS  121"),  was issued in March 1995 by the  Financial
         Accounting  Standards  Board.  It 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 amount of an asset may not be  recoverable.  SFAS 121
         is required to be adopted for fiscal years beginning after December 15,
         1995,  and was  adopted by the  Company  as of  October  1,  1996.  The
         adoption  of  SFAS  121  did  not  have  a  significant  effect  on the
         consolidated financial statements of the Company.

         Statement of Financial  Accounting  Standards No. 123,  Accounting  for
         Stock-Based  Compensation  ("SFAS  123"),  was issued by the  Financial
         Accounting  Standards  Board in  October  1995.  SFAS  123  establishes
         financial  accounting and reporting standards for stock-based  employee
         compensation  plans as well as  transactions  in which an entity issues
         its equity instruments to acquire goods or services from non-employees.
         This  statement  defines a fair  value-based  method of accounting  for
         employee  stock options or similar equity  instruments,  and encourages
         all entities to adopt this method of accounting  for all employee stock
         compensation  plans.  However,  it also allows an entity to continue to
         measure   compensation   cost  for  those  plans  using  the  intrinsic
         value-based  method of accounting  prescribed by Accounting  Principles
         Board  Opinion  No.  25,  Accounting  for  Stock  Issued  to  Employees
         ("Opinion 25").  Entities electing to remain with the accounting method
         prescribed in Opinion 25 must make pro forma  disclosures of net income
         and,  if  presented,  earnings  per share,  as if the fair  value-based
         method of accounting defined by SFAS 123 had been applied.  SFAS 123 is
         applicable  to fiscal years  beginning  after  December  15, 1995.  The
         Company currently  accounts for its stock-based  compensation using the
         accounting method prescribed by Opinion 25 and does not expect to adopt
         the accounting method prescribed by SFAS 123; however, the Company will
         include  the pro forma  disclosures  required  by SFAS 123 for  periods
         beginning subsequent to September 30, 1996.

                                      F-16
<PAGE>




ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(2)   Summary of Significant Accounting Policies (continued)

     (m)  Reclassifications

          Beginning  in  fiscal  1996,   network  operating  costs,  which  were
          previously classified as selling, general and administrative expenses,
          have been  reclassified  as  operating  costs to conform  with current
          industry  practice.  Such  expenses  amounted  to $2.6  million,  $2.1
          million,   and  $13.7   million  in  fiscal   1994,   1995  and  1996,
          respectively.  All prior year financial  information has been restated
          to conform  with this year's  presentation.  

          Certain  other prior year  amounts have been  reclassified  to conform
          with the current year's presentation.

(3)  Business Combinations and Investments

     (a) Acquisitions and Investments During the Year Ended September 30, 1996

         In January  1996,  the Company  purchased  the  remaining  49% minority
         interest  of Fiber Optic  Technologies,  Inc.  ("FOTI"),  making FOTI a
         wholly   owned   subsidiary.   Consideration   for  the   purchase  was
         approximately  $2.0  million  in  cash  and  66,236  common  shares  of
         Holdings-Canada   valued  at  approximately  $0.8  million,  for  total
         consideration of approximately $2.8 million.

         In February 1996,  the Company  entered into an agreement with Linkatel
         California,   L.P.  ("Linkatel")  and  its  other  partners,   Linkatel
         Communications,  Inc.  and The  Copley  Press,  Inc.,  under  which the
         Company  acquired a 60% interest in Linkatel for an aggregate  purchase
         price of $10.0  million  in cash and  became  the  general  partner  of
         Linkatel. In April 1996, the partnership was renamed ICG Telecom of San
         Diego, L.P. ("ICG Telecom of San Diego").

         In March 1996, the Company  acquired a 90% equity  interest in Maritime
         Cellular  Tele-Network,  Inc.  ("MCN"),  a  Florida-based  provider  of
         cellular and satellite  communications  for commercial  ships,  private
         vessels,  offshore oil  platforms  and  land-based  mobile  units,  for
         approximately  $0.7 million in cash and  approximately  $0.1 million of
         assumed debt, for total consideration of approximately $0.8 million.


                                      F-17
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(3)   Business Combinations and Investments (continued)

         In August 1996,  the Company  acquired the  Signaling  System 7 ("SS7")
         business of Pace Network Services,  Inc.  ("Pace"),  a division of Pace
         Alternative  Communications,   Inc.  SS7  is  used  by  local  exchange
         companies,  long-distance  carriers,  wireless  carriers  and others to
         signal between network elements,  creating faster call set-up resulting
         in a more efficient use of network  resources.  Consideration  paid for
         the purchase was $1.8  million in cash as of September  30, 1996.  This
         amount  is  subject  to  purchase  price  adjustments  based on  future
         operating results of the underlying business.

         The above  acquisitions  have  been  accounted  for using the  purchase
         method of accounting  and,  accordingly,  the net assets and results of
         operations are included in the consolidated  financial  statements from
         the date of acquisition.  Revenue, net loss and loss per share on a pro
         forma  basis  are  not  significantly   different  from  the  Company's
         historical  results for the periods  presented  herein.  The  aggregate
         purchase price of the 1996 acquisitions,  in which the Company obtained
         a controlling  interest,  was allocated based on fair values as follows
         (in thousands):

                 Current assets              $ 6,563
                 Property and equipment        7,542
                 Other assets, including       
                   goodwill                    9,647
                 Current liabilities            (775)
                 Long-term liabilities        (6,314)
                 Minority interest            (1,422)
                                             ===========
                                             $15,241
                                             ===========

     (b) Acquisitions and Investments During the Year Ended September 30, 1995

         In January 1995, the Company and an unaffiliated entity formed Maritime
         Telecommunications   Network,   Inc.   ("MTN")  to   provide   wireless
         communications through satellites to the maritime cruise industry, U.S.
         Navy  vessels and  offshore  oil  platforms.  The Company  acquired (i)
         approximately  64% of MTN,  (ii)  approximately  $4.4  million in notes
         receivable  from MTN and (iii)  consulting and  non-compete  agreements
         valued at an  aggregate of  approximately  $0.3 million in exchange for
         (i)  approximately  $9.0  million  in  cash,  (ii)  the  surrender  and
         cancellation  of a note to the Company  from the other  entity for $0.6
         million plus  interest,  (iii)  408,347  Holdings-Canada  common shares
         valued at  approximately  $5.1 million (of which 256,303  common shares
         were issued in the fourth quarter of

                                      F-18

<PAGE>

                                     
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

 (3)  Business Combinations and Investments (continued)

         fiscal year 1994) and (iv) the  Company's  commitment  to provide up to
         $2.7 million in additional  convertible working capital advances to MTN
         as required by MTN. The other shareholder of MTN contributed the assets
         of a predecessor  business to MTN. MTN also assumed  approximately $2.1
         million of obligations of such predecessor business. The Company paid a
         $0.5 million  finder's fee  obligation  of the  predecessor  to a third
         party.  The Company has also agreed that the Company will  purchase the
         MTN shares  owned by the other  shareholder  of MTN at fair  value,  as
         defined,  if MTN has not completed a public offering of common stock by
         January 3, 1998.  In March 1995,  the Company  purchased a 56% interest
         and in July  1995,  an  additional  2%  interest  in Zycom  Corporation
         ("Zycom"),  an Alberta,  Canada  corporation whose shares are traded on
         the  Alberta  Stock  Exchange.   Consideration  for  the  purchase  was
         approximately  $0.8 million in cash,  the conversion of $2.0 million in
         notes receivable,  and the assumption of approximately  $0.7 million in
         debt for total  consideration of approximately  $3.5 million.  In March
         1996,  the  Company  acquired  an  additional  approximate  12%  equity
         interest in Zycom by  converting  a $3.2  million  receivable  due from
         Zycom.

         The above  acquisitions were accounted for using the purchase method of
         accounting.  The aggregate purchase price of the 1995 acquisitions,  in
         which the Company obtained a controlling interest,  was allocated based
         on fair values as follows (in thousands):

                               
                    Current assets            $     1,835
                    Property and equipment          9,086
                    Other assets, including        
                      goodwill                     16,986
                    Current liabilities            (2,764)
                    Long-term liabilities          (6,779)
                    Minority interest              (4,850)
                                              -------------
                                              $    13,514
                                              =============

         In November 1994 and January 1995,  the Company  purchased an aggregate
         of  571,428   shares  of   InterAmericas   Communications   Corporation
         ("InterAmCom")  for total cash  consideration  of $2.0  million,  which
         represented an approximate 6% interest. During fiscal 1995, the Company
         recorded  an  allowance  of  $2.0  million  for the  impairment  of the
         investment  based on management's  estimate of the net realizable value
         of the investment.

                                      F-19
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

 (3)  Business Combinations and Investments (continued)

         During fiscal 1995,  the Company  invested  approximately  $5.2 million
         ($3.9   million   in  cash,   $1.1   million   in   common   shares  of
         Holdings-Canada,  and the conversion of  approximately  $0.2 million in
         notes   receivable)  in  StarCom   International   Optics   Corporation
         ("StarCom"),  for which the Company  received a 25% equity  interest in
         each of  Starcom's  wholly  owned  operating  subsidiaries.  The  total
         acquisition  price  is  included  in  investments  in the  accompanying
         consolidated  financial  statements.  The 25% equity  interest has been
         pledged as collateral for StarCom financings.

     (c) Acquisitions During the Year Ended September 30, 1994

         In  August  1994,  the  Company  acquired  DataCom  Integrated  Systems
         Corporation.  The Company issued 141,654  Holdings-Canada common shares
         (14,854 of which were issued in fiscal  1995)  valued at  approximately
         $2.0  million as  consideration  for the  purchase.  In  addition,  the
         Company  may be  required  to make an  additional  payment,  payable in
         Common Stock of the Company, up to a maximum of $3.5 million,  based on
         future performance of that business.

         In July 1994, the Company  completed the acquisition of FiberCap,  Inc.
         Consideration for the purchase was approximately  $0.2 million in cash,
         57,250 common shares of  Holdings-Canada  valued at approximately  $0.8
         million and a note payable of $0.1 million,  for total consideration of
         $1.1 million.

         In April 1994,  the Company  acquired  Mid-American  Cable Inc. for an
         aggregate  price of $1.6 million.  Consideration  for the purchase was
         $0.2  million  in cash and  84,401  common  shares of  Holdings-Canada
         valued at $1.4 million.

         In April 1994,  the  Company  acquired  PTI Harbor  Bay,  Inc./UpSouth
         Corporation ("Bay Area Teleport").  Total  consideration  paid for the
         purchase was  approximately  $0.3 million in cash and 1,183,147 common
         shares of Holdings-Canada  valued at approximately $19.0 million,  for
         total consideration of approximately $19.3 million.

         In April 1994,  the Company  acquired  substantially  all the  business
         assets of Mtel Digital System, Inc. ("Mtel DS").  Consideration for the
         purchase was approximately  $0.7 million in cash and a note payable for
         approximately  $6.9 million,  bearing  interest at 7.5% per annum,  for
         total  consideration of approximately  $7.6 million.  The note was paid
         during 1995.

                                      F-20
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

 (3)  Business Combinations and Investments (continued)

         In connection with the Bay Area Teleport and Mtel DS acquisitions,  the
         Company paid an aggregate  amount of  approximately  $0.5 million to an
         unaffiliated  third party as a finder's  fee,  which is included in the
         cost of the acquisitions. The fee was satisfied through the issuance of
         31,513 common shares of Holdings-Canada.  In February 1994, the Company
         agreed to  acquire  Nova-Net  Communications,  Inc.  ("Nova-Net").  The
         Company assumed  management  control of Nova-Net  effective May 1, 1994
         and completed the  acquisition on November 2, 1994.  Consideration  for
         the purchase was $0.7 million in cash, assumption of approximately $1.4
         million in outstanding debt, after payments subsequent to September 30,
         1994,   and   approximately   $6.6   million   in   common   shares  of
         Holdings-Canada,  for an aggregate price of approximately $8.7 million.
         During fiscal 1995, the Company  recorded a provision for impairment of
         the goodwill  recorded in connection  with the Nova-Net  acquisition of
         $5.0  million,  based on  management's  estimate of the net  realizable
         value of the investment.

         In  October  1993,  the  Company  purchased  all the real and  personal
         property and licenses of an earth station in Steele Valley, California,
         for  consideration of approximately  $0.9 million,  which was satisfied
         through the issuance of 2,253 common shares of  Holdings-Canada  valued
         at approximately $0.1 million and $0.8 million in cash.

         The above  acquisitions were accounted for using the purchase method of
         accounting.  The aggregate  purchase price of the 1994 acquisitions was
         allocated based on fair values as follows (in thousands):

                 Current assets                 $  4,848
                 Property and equipment           23,278
                 Other assets, including          
                   goodwill                       19,181
                 Current liabilities              (5,588)
                                                ============
                                               $  41,719
                                                ============

     (d) Investments in Joint Venture and Affiliate

         In September 1992, the Company entered into a joint venture  agreement
         with Greenstar Technologies Inc . (now GST Telecommunications, Inc.
         ("GST")) in which each party has a 50% equity interest. The purpose of
         the joint venture was to design,

                                      F-21
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

 (3)  Business Combinations and Investments (continued)

         construct  and operate a  competitive  access  network in  Phoenix.  In
         return for its 50%  interest,  the  Company  was  required to commit to
         provide equity or debt  financing on or before January 24, 1994,  which
         commitment  was provided on January 21, 1994. As of September 30, 1996,
         the Company had provided financing of $11.7 million,  including working
         capital  advances,  which is included in long-term notes receivable and
         had   established  a  valuation   allowance  of  $5.8  million  due  to
         uncertainty  of  collection.  Working  capital  advances  totaled  $0.4
         million and were included in Receivables-Joint Venture and Affiliate as
         of September  30, 1995.  The Company began to record losses for its 50%
         interest in the joint venture in the second quarter of fiscal 1994, and
         as of September  30, 1996,  had recorded a total loss of $3.7  million,
         including a loss of $1.5 million for the year ended September 30, 1996.
         The  Company's  equity   contribution  to  the  joint  venture  through
         September 30, 1996, totaled $1.2 million. As of September 30, 1996, the
         Company had entered  into  negotiations  with GST under which GST would
         purchase the Company's interest in the joint venture.  The gain or loss
         on the sale is not expected to be significant.

         Also included in  Receivables-Joint  Venture and Affiliate at September
         30,  1995,  is $0.3  million  due from an  affiliate  of the  Company's
         Mexican  subsidiary.  The  Company is in the  process  of  selling  its
         investment  in Mexico.  The gain or loss on the sale is not expected to
         be significant.

(4)   Notes Receivable

      Notes  receivable due within one year are comprised of the following as of
      September 30:

                                              1995          1996
                                           -----------   -----------
                                                (in thousands)
      Due from Crescomm
         Telecommunications Services,      
         Inc., with interest at                
         approximately 8%                  $   250             -  
      Due from NovoComm, Inc., with         
         interest at 8%                      1,500           200
      Other                                     11            63
                                           -----------  -----------    
                                            $1,761           263       
                                           ===========   ===========

      The  NovoComm,  Inc.  note  receivable  at September  30, 1996 is net of a
      valuation  allowance of $1.3 million based on management's  uncertainty as
      to  collection.  The Company  expects to receive  $0.2  million in partial
      payment prior to December 31, 1996.
                                      F-22
<PAGE>

      ICG COMMUNICATIONS , INC.
      AND SUBSIDIARIES

      Notes to Consolidated Financial Statements, Continued
      ------------------------------------------------------------------------

      (5)  Property and Equipment

           Property and equipment,  including assets owned under capital leases,
           at September 30 is comprised of the following:
                                             1995           1996
                                          ------------  -------------
                                                (in thousands)
           Land                           $     1,519             -
           Buildings and improvements           3,676         2,684
           Furniture, fixtures and             
             office equipment                  13,666        25,143
           Machinery and equipment             25,195        21,057
           Fiber optic equipment               39,104        77,354
           Satellite equipment                 15,044        18,024
           Switch equipment                    20,302        53,413
           Fiber optic transmission            
             system                            74,251       111,172
           Construction in progress            35,852        74,588
                                          ------------  -------------
                                              228,609       383,435
           Less accumulated depreciation      (26,605)      (47,298)
                                          ------------  -------------
                                          $   202,004       336,137           
                                          ============  =============

           Property  and  equipment  includes  approximately  $74.6  million  of
           equipment which has not been placed in service at September 30, 1996,
           and,  accordingly  is not being  depreciated.  The  majority  of this
           amount is related to an agreement  with  Southern  California  Edison
           Company (see note 14(a))  under which the Company is licensing  fiber
           optic cable.

           Certain  of the  above  assets  have been  pledged  as  security  for
           long-term  debt and capital lease  obligations at September 30, 1996.
           The  following  is a summary of property  and  equipment  owned under
           capital leases at September 30:

                                             1995          1996
                                          ------------ -------------
                                               (in thousands)
            Machinery and equipment        $   10,349      7,882        
            Fiber optic equipment                 663        395
            Switch equipment                   17,529     26,509
            Construction in progress           13,935     52,645
                                          ------------ -------------
                                               42,476     87,431
            Less accumulated depreciation      (2,117)    (4,362)
                                          ============ =============
                                          $    40,359     83,069     
                                          ============ =============

                                      F-23
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

 (6)  Other Assets

      Other assets at September 30 are comprised of the following:
                                                1995           1996
                                             -----------   ------------
                                                  (in thousands)
       Goodwill                                $ 32,315        37,262  
       Less accumulated amortization             (3,116)       (5,087)
                                             -----------   ------------
             Goodwill                        $   29,199        32,175 
                                             ===========   ============
      
       Deferred financing costs              $   17,930        24,749
            Less accumulated amortization        (1,912)       (2,165)
                                             -----------    -----------
             Deferred financing costs        $   16,018        22,584     
                                             ===========   ============
       Transmission and other licenses       $   12,480        10,255
       Less accumulated amortization             (1,688)       (1,644)
                                             -----------    -----------
             Transmission and other licenses $   10,792         8,611
                                             ===========   ============
       
       Deposits                              $      811         3,514
       PACE customer base                             -         1,805
       Rights of way                              1,091         1,707
       Minutes of use agreement                       -         1,421
       Non-compete agreement                        602           602
       Risk premium                               2,004             -
       Other                                        552           575
                                             -----------   ------------
                                                  5,060         9,624
       Less accumulated amortization             (1,785)       (1,227)
                                             ===========   ============
               Other                           $  3,275         8,397       
                                             ===========   ============

(7)   Related Party Transactions

      During  fiscal  1996,  Holdings-Canada  and  International  Communications
      Consulting,  Inc. ("ICC") entered into a consulting  agreement whereby ICC
      will provide various  consulting  services to the Company through December
      1999 in exchange for  approximately  $4.2 million in consulting fees to be
      paid during the term of the  agreement.  During  fiscal 1996,  the Company
      paid $1.3 million related to this consulting agreement. William W. Becker,
      a  director  and  stockholder  of the  Company,  is  President  and  Chief
      Executive Officer of ICC.

                                      F-24
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(7)   Related Party Transactions (continued)

      At September 30, 1995 and 1996, receivables from officers and employees in
      the amount of approximately $0.6 million are primarily  comprised of notes
      bearing  interest  at 7% and  are  included  in  Receivables-Other  in the
      accompanying  consolidated  financial  statements.  The  notes  receivable
      relate to relocation expenses of officers.

      Effective  May 31, 1994,  the Company  acquired the  remaining 4% minority
      interest  in  Holdings  from  Worldwide  Condominium  Developments,   Inc.
      ("WWCDI"),  a related  entity.  The 4% interest was  exchanged for (i) the
      transfer of the Company's oil and gas properties (at an estimated value of
      approximately  $0.9 million),  (ii) the surrender and  cancellation of two
      demand promissory notes receivable from William W. Becker,  owner of WWCDI
      (the "Becker  Interests"),  in the total principal amount of approximately
      $4.0 million and (iii) 373,663 of  Holdings-Canada  common shares.  The 4%
      minority interest in Holdings was valued at approximately $12.2 million by
      the  non-related  members  of  the  Company's  Board  of  Directors.   The
      transaction  was approved  unanimously  by  Holdings-Canada's  non-related
      directors, and ratified by Holdings-Canada's non-related shareholders. Due
      to the related  party  nature of the  purchase,  the  investment  has been
      recorded at the historical  basis of WWCDI. As a result,  consideration in
      excess of the historical  basis has been recorded in a manner similar to a
      dividend.

      The Company  recognized  telecommunications  revenue of approximately $1.3
      million for the year ended September 30, 1994 from companies  beneficially
      owned by the Becker  Interests.  No such  revenue was  recognized  for the
      years ended September 30, 1995 or 1996.








                                      F-25
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(8)   Long-term Debt and Short-term Notes Payable

      Long-term debt at September 30 is summarized as follows:
<TABLE>
<CAPTION>
                                                    1995        1996
                                                 ----------  -----------
                                                     (in thousands)
       <S>                                       <C>            <C> 
       12 1/2% Senior discount notes, net of      
         discount (a)                             $      -      315,626         
       13 1/2% Senior discount notes, net of     
         discount (b)                              299,934      343,772
       Convertible subordinated notes (c)           74,434          491
       Credit facility (d)                          13,515            -
       Note payable with interest at the 90-day
         commercial paper rate plus 4.75% 
         (10.11% at September  30, 1996),                 
         due  2001, secured by certain
         telecom equipment                               -        5,888       
       Note payable with interest at 11%, due
         monthly through fiscal 1999,                 
         secured by equipment                        3,493        2,803
       Mortgage payable with interest at 8.5%,
         due monthly   through 2009, secured by      
         building                                    1,242        1,194
       Notes payable to sellers of FOTI and           
         FOTDS (e)                                     600            -
       Other                                     $     336           10
                                                 ----------  -----------
                                                   393,554      669,784
                                                   
       Less current portion                        (14,454)        (795)
                                                 ----------  -----------

                                                 $ 379,100      668,989                                                   
                                                 ==========  ===========
</TABLE>

     (a) 12 1/2% Senior Discount Notes

         On April 30, 1996,  Holdings  completed a private  placement (the "1996
         Private  Offering")  of 12 1/2%  Senior  Discount  Notes  (the "12 1/2%
         Notes") and of 14 1/4% Exchangeable  Preferred Stock (the "Exchangeable
         Preferred  Stock")  for gross  proceeds  of $300.0  million  and $150.0
         million,  respectively.  Net proceeds  from the 1996  Private  Offering
         after issue costs of  approximately  $17.0  million were  approximately
         $433.0 million.

         The  12  1/2%  Notes  are  unsecured  senior  obligations  of  Holdings
         (guaranteed  by ICG and  Holdings-Canada)  that  mature on May 1, 2006,
         with a maturity  value of $550.3  million.  Interest  will accrue at 12
         1/2% per annum  beginning  May 1, 2001,  and is payable  each May 1 and
         November 1  commencing  November  1, 2001.  The 12 1/2% Note  indenture
         contains   certain   covenants   which  provide  for   limitations   on
         indebtedness, dividends, asset sales and certain other transactions.


                                      F-26
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(8)   Long-term Debt and Short-term Notes Payable (continued)

         The 12 1/2% Notes were  originally  recorded  at  approximately  $300.0
         million. The discount on the 12 1/2% Notes and the debt issue costs are
         being  accreted  over ten years  until  maturity  at May 1,  2006.  The
         accretion  of the discount and debt issue costs is included in interest
         expense in the accompanying consolidated financial statements.

         Approximately  $35.3  million  of the  proceeds  from the 1996  Private
         Offering  were used to redeem  the 12%  redeemable  preferred  stock of
         Holdings  (the  "Redeemable  Preferred  Stock")  issued in August  1995
         ($30.0 million),  pay accrued preferred dividends ($2.6 million) and to
         repurchase  916,666  warrants of the Company ($2.7  million)  issued in
         connection with the Redeemable  Preferred Stock. The Company recognized
         a charge to minority interest in share of losses,  net of accretion and
         preferred  dividends on  subsidiary  preferred  stock of  approximately
         $12.3 million for the excess of the redemption  price of the Redeemable
         Preferred  Stock  over the  carrying  amount  at April  30,  1996,  and
         recognized a charge to interest expense of approximately  $11.5 million
         for the  payments  made to  noteholders  with  respect to  consents  to
         amendments to the  indenture  governing the 13 1/2% Notes to permit the
         1996 Private Offering.

     (b) 13 1/2% Senior Discount Notes

         On August 8, 1995,  Holdings  completed a high yield debt offering (the
         "1995  Private  Offering")  through the  issuance of 58,340  units (the
         "Units"),  each Unit consisting of ten $1,000,  13 1/2% Senior Discount
         Notes ("the 13 1/2% Notes") due  September  15,  2005,  and warrants to
         purchase 33 common  shares of  Holdings-Canada  (the "Unit  Warrants"),
         resulting  in net  proceeds of  approximately  $286.0  million,  net of
         approximately $14.0 million in issue costs. The 13 1/2% Notes were sold
         at approximately 51% of the stated maturity of $584.3 million, and will
         mature on September 15, 2005.  Interest  accrues at the rate of 13 1/2%
         per annum  beginning  September  15,  2000 and is  payable in cash each
         March 15 and September 15 commencing March 15, 2001.

         The 13 1/2% Notes were  originally  recorded  at  approximately  $294.0
         million,  which  represents  the $300.0  million in  proceeds  less the
         approximate $6.0 million value assigned to the Unit Warrants,  which is
         included in  additional  paid-in  capital.  The discount on the 13 1/2%
         Notes is being accreted using the interest method over five years until
         September 15, 2000, the date at which the 13 1/2% Notes can first be

                                      F-27
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(8)   Long-term Debt and Short-term Notes Payable (continued)

         redeemed.  The  value  assigned  to  the  Unit  Warrants,  representing
         additional  debt discount,  is also being accreted to the debt over the
         five-year  period.  The accretion of the total  discount is included in
         interest expense in the accompanying consolidated financial statements.

         Holdings may redeem the 13 1/2% Notes on or after  September  15, 2000,
         in  whole  or in  part,  at the  redemption  prices  set  forth  in the
         agreement, plus unpaid interest, if any, at the date of redemption. The
         13 1/2% Notes are  guaranteed on a senior,  unsecured  basis by ICG and
         Holdings-Canada.  The 13 1/2% Note indenture contains certain covenants
         which provide for limitations on indebtedness,  dividends, asset sales,
         and certain other transactions.

         The Unit  Warrants  entitle the holder to purchase  one common share of
         Holdings-Canada  at the  exercise  price of  $12.51  per  share and are
         exercisable  at any time between August 8, 1996 and August 8, 2005 (See
         note 12 (d)).

         In  connection  with the  issuance  of the 13 1/2%  Notes,  the Company
         obtained $6.0 million of interim financing from the placement agent and
         certain private  investors in exchange for the issuance of an aggregate
         of 520,000  Series A Warrants  (See note 12 (d)).  The $6.0 million was
         repaid with a portion of the proceeds  from the 1995 Private  Offering.
         As a result  of the  repayment  of the  interim  financing,  the  value
         assigned to the Series A Warrants totaling  approximately $3.0 million,
         representing debt discount,  was charged to interest expense during the
         year ended September 30, 1995.

     (c) Convertible Subordinated Notes

         Effective September 17, 1993,  Holdings-Canada  issued $18.0 million in
         convertible  subordinated  notes  with  interest  at 8%  ("8%  Notes").
         Interest was payable,  at the option of the Company, in cash or through
         the issuance of additional 8% Notes. The 8% Notes were  subordinated to
         all present and future senior debt.

         The 8% Notes,  excluding  unpaid  interest,  were  convertible,  at the
         option of the holder, at any time into common shares of Holdings-Canada
         at a conversion  price of $15.60 for each common  share.  During fiscal
         1995,   approximately   $1.1   million  of  the  8%  Notes,   including
         approximately $0.1 million of interest paid in 8% Notes, were converted
         to 69,230 common shares of Holdings-Canada. During fiscal 1996,

                                      F-28
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(8)   Long-term Debt and Short-term Notes Payable (continued)

         the  remaining  $17.0  million of the 8% Notes and  approximately  $3.1
         million of  interest  paid in 8% Notes were  converted  into  1,289,738
         shares of Holdings-Canada.

         The Company,  in conjunction with the issuance of the 8% Notes, paid to
         its  placement  agent a  private  placement  fee of $0.9  million.  The
         private  placement fee was included in deferred  financing  costs as of
         September  30,  1995 and was  being  amortized  over the term of the 8%
         Notes.  During the year ended  September 30, 1996,  the remaining  $0.5
         million of deferred financing costs were written off upon conversion of
         the 8% Notes.

         Effective  October 28, 1993,  the Company  issued  approximately  $47.8
         million in  convertible  subordinated  notes with  interest  at 7% ("7%
         Notes").  The 7% Notes  were  due  October  30,  1998,  unless  earlier
         converted  or  redeemed.  Interest  was  payable,  at the option of the
         Company, in cash or through the issuance of additional 7% notes. The 7%
         Notes were subordinated to all present and future senior debt.

         All or any portion of the outstanding  principal amount of any note and
         interest  are  convertible,  at the option of the  holder,  into common
         shares of  Holdings-Canada  at a  conversion  price of $18.00  for each
         common share.

         During fiscal 1996, the Company notified the holders of the 7% Notes of
         its intent to redeem the 7% Notes,  together with accrued interest.  As
         of September 30, 1996,  approximately $47.8 million of the 7% Notes and
         approximately  $7.9 million of interest paid in 7% Notes were converted
         into  3,123,116  shares of  Holdings-Canada.  As of September 30, 1996,
         approximately  $0.5  million  of  interest  paid  in 7%  Notes  remains
         outstanding, which are in the process of being converted.

         The Company  paid to the  placement  agent a private  placement  fee of
         approximately  $2.4 million.  The private  placement  fee,  included in
         deferred  financing  costs, was being amortized over the term of the 7%
         Notes.  During the year ended  September 30, 1996,  approximately  $1.1
         million of deferred financing costs were written off upon conversion of
         the 7% Notes.





                                      F-29
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(8)   Long-term Debt and Short-term Notes Payable (continued)

     (d) Credit Facility

         Effective November 16, 1990, the Company,  through Teleport Denver Ltd.
         ("TDL"),  a  subsidiary  of  Holdings,  entered  into an $18.0  million
         financing  arrangement  with  Communications  Credit Corp.  ("CCC"),  a
         subsidiary of Northern Telecom Finance Corporation,  to provide for the
         acquisition,  construction,  installation,  operation,  maintenance and
         expansion of a fiber optic  transmission  system.  The promissory notes
         accrued  interest at 5.5% over the 90-day high grade  commercial  paper
         rate with a maximum rate of 14.5%.

         In December 1995, the Company  refinanced  this credit facility as part
         of the short-term financing agreement with Norwest Bank Colorado,  N.A.
         ("Norwest"),  described below,  which was repaid in March, 1996. During
         the year ended September 30, 1996,  $1.1 million of deferred  financing
         costs were written off upon payment of the credit facility.

     (e) Notes Payable to Sellers of FOTI and FOTDS

         In  conjunction  with the 1992  acquisitions  of FOTI and  Fiber  Optic
         Technologies  Data Systems,  Inc.  (`FOTDS"),  the Company issued notes
         payable of approximately $2.0 million bearing interest at 7% per annum,
         payable  annually in cash or common  shares of  Holdings-Canada  at the
         option of the Company.  Principal  was payable  through the issuance of
         266,800  common shares of  Holdings-Canada,  at a deemed value of $7.50
         per common  share.  As of September 30, 1995,  186,800  Holdings-Canada
         common  shares had been issued.  On January 3, 1996,  the final payment
         was  satisfied at a discount,  with the Company  issuing  76,027 common
         shares of  Holdings-Canada  pursuant to an  agreement  to purchase  the
         remaining 49% of FOTI (see note 3).








                                      F-30
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(8)   Long-term Debt and Short-term Notes Payable (continued)

      Scheduled principal  maturities of long-term debt as of September 30, 1996
      are as follows (in thousands):

          Year ending September 30:
            1997                                   $     795
            1998                                       6,774
            1999                                       1,282
            2000                                         537
            2001                                          50
            Thereafter (a)                         1,135,548
                                                   ------------
                                                   1,144,986
                Less unaccreted discount on the
                   12 1/2% Notes and 13 1/2% Notes  (475,202)
                                                   ------------
                                                   $ 669,784
                                                   ============

     (a)  Includes $550.3 million of 12 1/2% Notes and $584.3 million of 13 1/2%
          Notes due at maturity.

       Short-term Note Payable and Line-of-Credit

       At  September  30,  1995,  FOTI  maintained a $4.0 million line of credit
       bearing interest at the prime rate plus 5% that was payable on demand. In
       December  1995,  the Company  refinanced  the line of credit as part of a
       short-term facility with Norwest described below.

       In December 1995, Holdings obtained $17.5 million of short-term financing
       with Norwest, with interest at 2.5% above the Money Market Account yield,
       to refinance  certain of the  Company's  debt.  The Company paid off this
       debt and accrued interest in March 1996.

(9)   Capital Lease Obligations

      The Company is  obligated  under  various  capital  lease  agreements  for
      equipment  at  September  30,  1995 and 1996.  Capital  lease  obligations
      increased in fiscal 1996  primarily  due to the Company's  agreement  with
      Southern  California  Edison  Company  to  license  fiber  optic  cable in
      Southern California (see note 14(a)).

                                      F-31
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(9)   Capital Lease Obligations (continued)


      The future required payments under the Company's capital lease obligations
      subsequent to September 30, 1996 are as follows (in thousands):

            Year ending September 30:
              1997                                $  14,571
              1998                                   16,336
              1999                                   14,034
              2000                                   14,252
              2001                                   18,154
              Thereafter                            107,591
                                                  ------------
                  Total minimum lease payments      184,938
              Less amounts representing interest   (106,613)
                                                  ------------
              Present value of net minimum lease     
                  payments                           78,325
              Less current portion                   (7,487)
                                                  ------------
                                                 $   70,838
                                                  ============

(10)  Redeemable Preferred Stock of Subsidiary

      12% Redeemable Preferred Stock

      In August 1995, Holdings-Canada completed a private placement of preferred
      stock  (the  "Private  Placement")  in  connection  with the 1995  Private
      Offering  discussed in note 8. The Private Placement  consisted of 300,000
      shares of Redeemable  Preferred  Stock and warrants to purchase  2,750,000
      common  shares of  Holdings-Canada  (see note  12(d)) for net  proceeds of
      $28.8  million,  after  payment  of  $1.2  million  in  issue  costs.  The
      Redeemable  Preferred Stock accrued dividends  quarterly at an annual rate
      of 12% per annum.

      The Redeemable  Preferred Stock was originally  recorded at  approximately
      $13.7 million, which represents the $28.8 million in net proceeds less the
      approximate  $15.1  million  value  assigned  to the  warrants,  which  is
      included in additional  paid-in-capital of the Company. The value assigned
      to the  warrants,  representing  a discount  on the  Redeemable  Preferred
      Stock,  was accreted  through the time the Redeemable  Preferred Stock was
      redeemed  on April 30, 1996 with a portion of the  proceeds  from the 1996
      Private Offering.


                                      F-32
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(10)  Redeemable Preferred Stock of Subsidiary (continued)

      14 1/4% Exchangeable Preferred Stock

      The  Exchangeable  Preferred Stock consists of 150,000 shares of preferred
      stock that bear a  cumulative  dividend  at the rate of 14 1/4% per annum.
      The  dividend  is payable  quarterly  in arrears  each  February 1, May 1,
      August 1 and  November 1 commencing  August 1, 1996.  Through May 1, 2001,
      the  dividend  is  payable,  at the  option  of the  Company,  in  cash or
      additional  shares  of  Exchangeable  Preferred  Stock.  The  Company  may
      exchange the Exchangeable Preferred Stock into 14 1/4% Senior Subordinated
      Exchange Debentures at any time after the exchange is permitted by certain
      indenture  restrictions.  The  Exchangeable  Preferred Stock is subject to
      mandatory redemption on May 1, 2007.

      Included in minority  interest in share of losses,  net of  accretion  and
      preferred  dividends  on  subsidiary  preferred  stock for the years ended
      September  30,  1995 and 1996 is  approximately  $1.3  million  and  $27.0
      million,  respectively,  associated  with the Redeemable  Preferred  Stock
      (fiscal 1995 and fiscal 1996) and the Exchangeable Preferred Stock (fiscal
      1996 only),  including the accretion of warrants issued in connection with
      the Redeemable Preferred Stock,  accretion of issue costs and a 12% and 14
      1/4% preferred  stock dividend  accrual on the Redeemable  Preferred Stock
      and the  Exchangeable  Preferred  Stock,  respectively.  These  costs  are
      partially offset by the minority  interest share of losses in subsidiaries
      of  approximately  $0.6  million  and $2.7  million  for the  years  ended
      September 30, 1995 and 1996, respectively.

(11)  Convertible Preferred Stock of Subsidiary

      Convertible  Series B  Preferred  Stock,  no par value,  2,000,000  shares
      authorized; 990,000 shares issued and outstanding at September 30, 1995.

      In May and June  1995,  Holdings-Canada  sold an  aggregate  of  1,600,000
      convertible  preferred  shares,  having an aggregate stated value of $16.0
      million.  Net proceeds to the Company,  after issue costs of approximately
      $0.9 million,  were approximately $15.1 million. The convertible preferred
      shares were  convertible  at the holders'  election  into common shares of
      Holdings-Canada  commencing  in July 1995,  at a discount  from the market
      price at the time of  conversion  equal to 18.5% for $6.0  million  of the
      convertible  preferred  shares ("Series A Preferred  Stock") and 17.5% for
      $10.0 million of the  convertible  preferred  shares  ("Series B Preferred
      Stock").


                                      F-33
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------

(11)  Convertible Preferred Stock of Subsidiary (continued)

      In  July  1995,  10,000  shares  of the  Series  B  Preferred  Stock  were
      repurchased  for $0.1  million  in cash.  In August  and  September  1995,
      200,000  shares of the Series A Preferred  Stock were converted to 302,029
      common  shares of  Holdings-Canada  valued at $2.0  million,  and  400,000
      shares of the Series A Preferred Stock were repurchased for  approximately
      $4.2 million in cash. The excess of the  repurchase  price over the stated
      value  of the  Series  A and  Series  B  Preferred  Stock  repurchased  of
      approximately  $0.5 million was treated as a preferred  stock dividend and
      is included in minority interest in share of losses,  net of accretion and
      preferred  dividends on  subsidiary  preferred  stock in the  accompanying
      consolidated financial statements.

      During fiscal 1996, the Company repurchased  approximately $5.6 million of
      Series B Preferred Stock, and  approximately  $3.8 million of the Series B
      Preferred Stock was converted to Holdings-Canada common shares. The excess
      of the repurchase and conversion price over the stated value of the Series
      B Preferred  Stock of  approximately  $1.0  million has been  treated as a
      preferred stock dividend and is included in minority  interest in share of
      losses,  net of accretion  and  preferred  stock  dividends on  subsidiary
      preferred stock in the accompanying  consolidated financial statements. No
      convertible preferred shares remain outstanding as of September 30, 1996.



















                                      F-34
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------

(12)  Stockholders' Equity (Deficit)

      Common Stock

      Common stock  outstanding at September 30, 1996  represents the issued and
      outstanding   Common   Stock  of  ICG  and   Class  A  common   shares  of
      Holdings-Canada  (owned by third  parties) which are  exchangeable  at any
      time, on a one-for-one  basis,  for ICG Common Stock.  The following table
      sets forth the number of shares outstanding for ICG and Holdings-Canada on
      a separate company basis as of September 30, 1996:

                                              Shares          Shares
                                             owned by        owned by
                                                ICG            third
                                                              parties
                                            ------------    ------------
       ICG Common Stock, $.01 par value,
        100,000,000 shares authorized;
        0 and 29,888,376 shares issued
        and outstanding at September 30,           
        1995 and 1996, respectively                  -       29,888,376
       
       Holdings-Canada Class A common
        shares, no par  value, 100,000,000
        shares authorized;   24,990,839 and
        31,672,103 shares issued and
        outstanding at September 30, 1995
        and 1996,  respectively:
           Class A common shares,
             exchangeable on a
             one-for-one basis for ICG Common         
             Stock at any time                        -       1,815,101
           Class A common shares owned
             by ICG                          29,857,002               -
                                                            ------------
       Total shares outstanding                              31,703,477
                                                            ============

     (a) Public Offering
  
         On October 24, 1994, Holdings-Canada completed a public offering of its
         common shares,  whereby  6,900,000 shares,  including  1,183,147 shares
         sold by selling shareholders,  were sold at $14 per share. Net proceeds
         to the Company, net of issue costs of approximately $5.7 million,  were
         approximately $74.3 million.

     (b) Private Placements

         In May and June 1995,  the  Company  privately  placed  595,000  common
         shares of  Holdings-Canada  for $7.50 per share.  Net  proceeds  to the
         Company,   after  issue  costs  of  approximately  $0.4  million,  were
         approximately $4.0 million.  Pursuant to a private placement memorandum
         dated June 1993, for the issue of 1,500,000 common
                                      F-35
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(12)  Stockholders' Equity (Deficit) (continued)

         shares for  approximately  $8.3 million,  the Company  agreed to file a
         registration  statement with the Securities and Exchange  Commission of
         the United States that was to become effective on or before October 11,
         1993. The registration  statement did not become effective on or before
         that  date.  As  a  result,  the  Company  issued,  for  no  additional
         consideration,  an  additional  197,250  shares to the  investors.  The
         issuance  of  these  additional   shares  was  recorded  as  a  capital
         transaction during the year ended September 30, 1994.

     (c) Stock Option Plans

         In  1991,  1992  and 1993 the  Company's  Board of  Directors  approved
         incentive  stock option plans which provide for the granting of options
         to directors,  officers,  employees and  consultants  of the Company to
         purchase  285,000,  446,000 and 546,000  common  shares of the Company,
         respectively, at 80% and 100% of the fair value of the common shares at
         the date of grant.  Compensation  expense has been recorded for options
         granted at an  exercise  price  below the fair  value of the  Company's
         common  shares at the date of grant.  The options  granted  under these
         plans are  subject to  various  vesting  requirements.  During the year
         ended September 30, 1993, the Company's Board of Directors approved the
         replenishment of 549,500 options available to be granted under the 1993
         plan.  As of  September  30,  1996,  362,058  of these  options  remain
         outstanding.

         During the year ended  September 30, 1994, the Company  granted options
         to certain directors, officers and employees to purchase 516,000 common
         shares at exercise  prices ranging from $4.52 to $14.39 per share for a
         period of 10 years. As of September 30, 1996,  308,100 of these options
         remain outstanding.

         During the year ended  September 30, 1995, the Company  granted options
         to certain  directors,  officers and  employees to purchase  1,550,000,
         800,000 and 170,000 common shares at exercise  prices of $7.94,  $13.25
         and $8.50 per share, respectively. As of September 30, 1996, 1,550,000,
         568,000 and 160,000 of these options, respectively, remain outstanding.

         During the year ended  September 30, 1996, the Company  granted options
         to certain  directors,  officers and  employees  to purchase  1,321,843
         common  shares at  exercise  prices  ranging  from $10.00 to $26.25 per
         share for a period of 10 years.  As of September  30,  1996,  1,256,793
         options remain outstanding.
                                      F-36
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(12)  Stockholders' Equity (Deficit) (continued)

         The  following  table  summarizes  stock option  activity for the three
         years ended September 30, 1996:
                                         Outstanding        Price
                                           options          range
                                         -------------  --------------
                                        (in thousands)
          Outstanding, October 1, 1993         865      $2.99 -  7.34
          Granted                              516       4.52 - 14.39
          Exercised                            (62)      2.99 -  5.43
                                         -------------
          Outstanding, September 30,         
            1994                             1,319       2.99 - 14.39
          Granted                            2,520       7.94 - 13.25
          Exercised                           (264)      2.88 -  6.68
          Canceled                            (201)      2.88 - 14.39
                                         -------------
          Outstanding, September 30,         
            1995                             3,374       2.99 - 13.25
          Granted                            1,322      10.00 - 26.25
          Exercised                           (248)      2.90 - 13.25
          Canceled                            (243)      2.94 - 13.25
                                         =============
          Outstanding, September 30,        
            1996                             4,205       2.94 - 26.25
                                         =============

         As of September 30, 1996, there were 4,204,951  options  exercisable at
         prices ranging from $2.94 to $26.25,  expiring at various dates through
         September 30, 2006.















                                      F-37
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
----------------------------------------------------------------------------

(12) Stockholders' Equity (Deficit) (continued)

     (d   Warrants

          During the years ended September 30, 1994, 1995 and 1996 the Company's
          warrant activity was as follows:

          (i) During the year ended  September 30, 1993,  the Company  issued to
              WWCDI  bonus  warrants to purchase  6,680  Holdings-Canada  common
              shares at an exercise  price of $7.50.  At September 30, 1994, all
              of these warrants had been exercised for $50,100.

          (ii)During the year ended  September 30, 1993, the Company issued to a
              debt holder warrants to purchase  17,067,  3,255 and 11,039 common
              shares at exercise prices of $6.56, $7.38 and $7.88, respectively.
              During the year ended  September  30, 1994,  17,067  warrants were
              exercised for proceeds of $111,960.  In addition,  during the year
              ended  September  30,  1994,  the Company  issued to the same debt
              holder  additional  warrants to purchase  1,989,  15,260 and 3,665
              common shares of Holdings-Canada at $21.51,  $20.01 and $11.80 per
              share, exercisable on or before November 10, 1998, March 24, 1999,
              and July 8, 1999, respectively.  An additional 7,725 warrants were
              issued on July 10,  1995 at an  exercise  price of  $14.50,  which
              expire on July 9, 2000.  Also  issued on July 10, 1995 were 60,000
              additional  warrants  to an  affiliate  of the debt  holder  at an
              exercise  price of $14.50,  which  expire on July 9,  2000.  Total
              warrants  outstanding  held by the debt  holder  were  102,933  at
              September 30, 1996.

        (iii) During the year ended  September 30, 1994, the Company issued to
              two  financial  advisors  warrants to purchase  75,000 and 200,000
              common shares of Holdings-Canada.  These warrants have an exercise
              price of $7.94 and $18.00 and are  exercisable  for two- and five-
              year periods,  respectively.  During the years ended September 30,
              1995  and  1996,  74,335  and  665 of  the  75,000  warrants  were
              exercised  for proceeds of $590,035 and $5,278,  respectively.  At
              September  30,  1996,  the 200,000  warrants  remain  outstanding.
              Subsequent to September 30, 1996,  100,000 of the 200,000 warrants
              were exercised for proceeds of $1.8 million.



                                      F-38
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(12)  Stockholders' Equity (Deficit) (continued)

         (iv) Pursuant to a private  placement during the year ended September
              30, 1992, the Company  issued to William W. Becker,  a director of
              the  Company,  warrants  to  purchase  600,000  common  shares  of
              Holdings-Canada at exercise prices of $5.65 and $6.51 on or before
              February  11, 1993 and 1994,  respectively.  During the year ended
              September 30, 1994,  these warrants were exercised for proceeds of
              approximately $3.8 million.

          (v) Pursuant to a private  placement  during the year ended  September
              30, 1992,  the Company issued  warrants to purchase  41,000 common
              shares  of  Holdings-Canada  at an  exercise  price of $5.65 on or
              before July 17, 1993.  During the year ended  September  30, 1994,
              all of these warrants were exercised for proceeds of $216,582.

         (vi) The Company  issued to a  consultant  of the  Company  warrants to
              purchase  10,000 common shares of  Holdings-Canada  at an exercise
              price of $6.40 on or before  May 1,  1994.  During  the year ended
              September 30, 1994, these warrants were exercised for $59,600.

        (vii) Pursuant to a private placement of the Redeemable  Preferred Stock
              and the  interim  financing  arrangement  during  the  year  ended
              September 30, 1995, the Company issued 1,895,000 Series A Warrants
              and  1,375,000  Series B Warrants to  purchase an equal  number of
              common shares of  Holdings-Canada.  The exercise  prices are $7.94
              and $8.73, respectively, and the warrants expire on July 14, 2000.
              None of the warrants had been  exercised as of September 30, 1995.
              During the year ended September 30, 1996, the Company  repurchased
              458,333  each of the Series A and Series B Warrants  for $3.21 and
              $2.52, respectively (see note 8). In addition,  1,853,334 warrants
              were  exercised in June 1996 through a cashless  exercise in which
              1,271,651   Holdings-Canada  common  shares  were  issued.  As  of
              September 30, 1996, 250,000 Series A Warrants and 250,000 Series B
              Warrants remain outstanding.

       (viii) In connection with the 1995 Private Offering, the Company issued
              1,928,190 warrants to purchase an equal number of common shares of
              Holdings-Canada.  The warrants are exercisable beginning August 8,
              1996 at  $12.51  per share and  expire  on August 6,  2005.  As of
              September 30, 1996, all of these warrants remain outstanding.
                                      F-39
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(12)  Stockholders' Equity (Deficit) (continued)

      The following table summarizes  warrant activity for the three years ended
      September 30, 1996:

                                      Outstanding        Price
                                        warrants         range
                                     ---------------  -------------
                                     (in thousands)
          Outstanding, October 1,         
            1993                          689        $5.65 -  7.88
          Granted                         296         7.94 - 21.51
          Exercised                      (675)        5.96 -  7.50
                                     ---------------
          Outstanding,                    
            September 30, 1994            310         7.38 - 21.51
          Granted                       5,266         7.94 - 14.50
          Exercised                       (74)        7.94 -  7.94
                                     ---------------
          Outstanding,                  
            September 30, 1995          5,502         7.38 - 21.51
          Repurchased                    (917)        2.52 -  3.21
          Exercised                    (1,854)        7.94 -  8.73
                                     ---------------
          Outstanding,                  
            September 30, 1996          2,731         7.38 - 21.51
                                     ===============

     The warrants  outstanding  are  exercisable  on the following  basis as of
     September 30, 1996:

                                      Outstanding        Exercise
          Expiration date               warrants          price
          ---------------            ---------------   -------------
                                     (in thousands)
          June 18, 1998                     3            $    7.38
          July 16, 1998                    11                 7.88
          November 10, 1998                 2                21.51
          December 17, 1998               200                18.00
          March 24, 1999                   15                20.01
          July 8, 1999                      4                11.80
          July 9, 2000                     68                14.50
          July 14, 2000                   250                 7.94
          July 14, 2000                   250                 8.73
          August 6, 2005                1,928                12.51
                                     ===============
                                        2,731
                                     ===============
                                      F-40
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(12)  Stockholders' Equity (Deficit) (continued)

     (e) Employee Stock Purchase Plan

         Subsequent to September 30, 1996,  the Company  established an Employee
         Stock Purchase Plan whereby  employees can elect to designate 1% to 30%
         of their annual  salary,  up to a limit of $25,000 per year, to be used
         to purchase ICG Common  Stock at a 15% discount to market.  The Company
         may  issue  a  total  of  1,000,000  shares  of  ICG  Common  Stock  to
         participants in the plan.

(13)  Sale of Teleports

      In December  1995,  the Company  received  approximately  $21.1 million as
      partial  payment for the sale of four of its teleports and certain related
      assets, and entered into a management agreement with the purchaser whereby
      the purchaser assumed control of the teleport operations. Upon approval of
      the  transaction by the Federal  Communications  Commission  ("FCC"),  the
      Company  completed the sale in March 1996 and received an additional  $0.4
      million due to certain  closing  adjustments,  for total proceeds of $21.5
      million.  The Company  recognized a loss of approximately  $1.1 million on
      the sale.  Revenue associated with these operations was approximately $5.9
      million,  $9.1 million and $2.5  million for fiscal years ended  September
      30, 1994, 1995 and 1996, respectively. The Company has reported results of
      operations from these assets through December 31, 1995.

(14)  Commitments and Contingencies

     (a) Network Construction

         In November  1995,  the Company  signed an  agreement  with City Public
         Service of San Antonio ("CPS") to license excess fiber optic facilities
         on a new 300-mile  fiber network  being built by the  municipally-owned
         electric and gas utility to provide for its communications needs in the
         greater metropolitan area. Pursuant to this agreement,  the Company has
         provided a $12.0 million irrevocable letter of credit to secure payment
         of the  Company's  portion  of the  construction  costs.  The letter of
         credit is secured by cash collateral of $13.3 million.

         The legal ability of CPS, as a municipally-owned utility, to enter into
         this   contract   with  the   Company  has  been   challenged   by  SBC
         Communications,  Inc.  ("SBC")  before the San Antonio  City Council as
         being violative of May 1995 Texas state law.
                                      F-50
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(14)   Commitments and Contingencies (continued)

         The Company has filed a petition with the FCC  requesting a declaratory
         ruling that the federal  Telecommunications  Act of 1996  preempts  the
         Texas state law to the extent that it precludes  implementation  of the
         agreement between CPS and the Company, and has also filed a declaratory
         ruling  request  with a Texas state  court.  Both of these  actions are
         pending.  The Company has also filed a civil suit  against SBC, and the
         Company's appeal of a dismissal of that suit is also pending.

         In February  1996,  the Company  entered into a 20-year  agreement with
         WorldCom,   Inc.  ("WorldCom"),   under  which  the  Company  will  pay
         approximately  $8.8 million for the right to use fiber along a 330-mile
         fiber  optic  network  in Ohio.  The  network is being  constructed  by
         WorldCom in conjunction with the Company. An aggregate of approximately
         $2.7 million has been paid by the Company  through  September 30, 1996,
         with the balance due upon the  completion of specified  segments of the
         network.

         In March 1996,  the  Company and  Southern  California  Edison  Company
         ("SCE")  jointly  entered  into a  25-year  agreement  under  which the
         Company  will  lease  1,258  miles of  fiber  optic  cable in  Southern
         California,  and can install up to 500 additional  miles of fiber optic
         cable.  This  network,  which will be  maintained  and  operated by the
         Company,  stretches  from Los Angeles to San Diego.  Under the terms of
         this  agreement,  SCE will be entitled to receive an annual fee for ten
         years, certain fixed quarterly payments,  including a quarterly payment
         equal to a percentage  of certain  network  revenue,  and certain other
         installation  and fiber  connection  fees. The aggregate fixed payments
         remaining under this 25-year  agreement  totaled  approximately  $149.7
         million at September 30, 1996.  The agreement has been accounted for as
         a capital  lease in the  accompanying  consolidated  balance  sheets at
         September 30, 1996.

         In March 1996,  the Company  entered into a long-term  agreement with a
         subsidiary  of The  Southern  Company  ("Southern")  and Alabama  Power
         Company  ("Alabama  Power")  for the right to use 22 miles of  existing
         fiber  and 122  miles of  additional  Alabama  Power  rights of way and
         facilities  to reach the three major  business  centers in  Birmingham.
         Southern will, in conjunction  with the Company,  construct the network
         and provide  maintenance  services with respect to the fiber installed.
         Southern also will provide consulting  services to the Company relating
         to the  build-out  of the network  and  potential  enhancements  to the
         Company's products and services.
                                      F-41
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(14)   Commitments and Contingencies (continued)

         Under the  agreement,  the Company  also is required to pay  Southern a
         quarterly fee based on specified  percentages of the Company's  revenue
         for services  provided  through this network.  The Company's  estimated
         costs to complete the network are approximately $4.0 million, which are
         expected to be incurred  during  fiscal  year 1997.  In July 1996,  the
         Company entered into a 20-year  agreement with subsidiaries of American
         Electric Power ("AEP") to jointly build a 45-mile  network  addition in
         metropolitan Columbus,  plus a 138-mile long-haul link to Canton, Ohio.
         The  Company's   estimated  costs  to  complete  the  construction  are
         approximately  $4.7 million,  which are expected to be incurred  during
         fiscal year 1997.

     (b) Company Headquarters

         The Company has  acquired  property  for its new  headquarters  and has
         commenced  construction  of an office building that the Company expects
         will accommodate all of the Company's  Colorado  operations.  The total
         cost of the project is expected to be approximately  $44.0 million,  of
         which $1.7 million had been  incurred as of  September  30, 1996 and is
         included  in  construction  in  progress.   The  Company  is  currently
         negotiating  financing  arrangements under which the Company will lease
         the office  space under a  long-term  operating  lease,  and expects an
         agreement to be reached in early 1997.

     (c) Purchase Commitments

         In September 1996, the Company entered into a seven-year,  $1.0 billion
         equipment purchase agreement for advanced  telecommunications  products
         and services with Lucent  Technologies,  Inc.  ("Lucent").  Lucent will
         provide the Company with a full range of systems, software and services
         which will be used by the  Company  to build and  expand the  Company's
         advanced  communications  networks,  including  5ESS(R)-2000  switching
         systems, SONET equipment,  access equipment,  power plants, application
         software  systems,   Advanced   Intelligent  Network  platforms,   data
         networking   products  and  fiber  cable.   Lucent  will  also  provide
         engineering,  installation,  on-site technical support and professional
         services.  Under the agreement  with Lucent,  the Company has agreed to
         purchase  certain  minimum levels of equipment and services during each
         year of the  agreement,  and if it does not meet a minimum level in any
         given year, Lucent may discontinue  certain  discounts,  allowances and
         incentives  otherwise provided to the Company for the year in which the
         minimum level was not met. In addition, the agreement may be terminated
         by
                                      F-42
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(14)   Commitments and Contingencies (continued)

         either the Company or Lucent upon sixty days prior written  notice.  In
         September  1996, the Company  entered into a 30-year  agreement and two
         indefeasible  rights of use  ("IRU")  agreements  with the Los  Angeles
         Department  of Water and Power  ("LADWP")  for 105 miles of fiber optic
         capacity  throughout  downtown  Los  Angeles,  Century  City,  West Los
         Angeles,  Mid-Wilshire  and Sherman Oaks. The agreements are subject to
         acceptance  testing and require the Company to pay approximately  $17.5
         million upon inception of the agreements.

         In  addition  to the  above,  the  Company  has  entered  into  certain
         commitments  to purchase  assets with an  aggregate  purchase  price of
         approximately $24.0 million at September 30, 1996.

     (d) Leases

         The Company  leases  office space and  equipment  under  non-cancelable
         operating leases. Lease expense for the years ended September 30, 1994,
         1995 and 1996 was  approximately  $1.3  million,  $2.8 million and $5.1
         million,  respectively.  As of  September  30, 1996,  estimated  future
         minimum  lease  payments  for the  years  ending  September  30 are (in
         thousands):

                          1997             $    6,299
                          1998                  4,678
                          1999                  3,535
                          2000                  2,345
                          2001                  1,435
                          Thereafter            4,909
                                           ============
                                           $   23,201
                                           ============

     (e) Litigation

         Four  putative  class  action  complaints  have been  filed in the U.S.
         District  Court for the  District of Colorado  by  stockholders  of the
         Company  naming  the  Company  and  certain of its  current  and former
         officers and directors as defendants.  The  complaints  allege that the
         defendants  violated the  Securities  Exchange Act of 1934, as amended,
         with respect to the content and timing of certain disclosures.
                                      F-43
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(14) Commitments and Contingencies (continued)

          The Company  reached a settlement  agreement  with the  plaintiffs  in
          September  1996,  and  has  accrued   approximately  $0.8  million  at
          September 30, 1996 for its estimated  settlement costs. The Company is
          a party to certain other  litigation  which has arisen in the ordinary
          course of business.  In the opinion of management  and legal  counsel,
          the ultimate  resolution  of these matters will not have a significant
          effect on the financial condition of the Company.

(15) Income Taxes

     Income tax expense  (benefit) for the year ended  September 30, 1996 was as
     follows (in thousands):

              Current income tax expense         $      198
              Deferred income tax benefit            (5,329)
                                                ============
                  Total                           $  (5,131)
                                                ============

     Current income tax expense for the year ended September 30, 1996 represents
     state income tax relating to  operations  of companies in states  requiring
     separate entity tax returns.  Accordingly,  these entities'  taxable income
     cannot be offset by the  Company's  net operating  loss  carryforwards.  No
     income tax expense or benefit was recorded in fiscal 1994 or 1995.

     Income tax expense  (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.

     During the year ended  September  30, 1996,  the deferred tax liability was
     adjusted for the effects of certain  changes in estimated lives of property
     and  equipment  as  discussed  in  note 2 (f).  As a  result,  the  Company
     recognized an income tax benefit of $5.3 million.






                                      F-44
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(15)  Income Taxes (continued)

      The tax  effect of  temporary  differences  that give rise to  significant
      portions  of the  deferred  tax assets and  deferred  tax  liabilities  at
      September 30 are as follows:

                                                   1995        1996
                                               ------------  ----------
                                                   (in thousands)
          Deferred income tax liabilities:
            Property and equipment:
              Excess purchase price of                       
                tangible assets                 $    8,433      7,617
              Differences in depreciation for
                book and tax purposes                6,502      7,394
                                                ------------  ----------
                  Total gross deferred tax        
                    liabilities                     14,935     15,011
          Deferred income tax asset - net
            operating loss  carryforwards          (37,695)   (54,197)
          Accrued interest on high yield debt
            obligations deductible when paid             -    (26,800)
          Accrued expenses not currently
            deductible for tax purposes                 -      (4,351)
               Less valuation allowance             28,462     70,337
                                               ------------  ----------
                  Net deferred income tax         
                    asset                          (9,233)    (15,011)
                                               ------------  ----------
                  Net deferred income tax     
                    liability                  $    5,702           -
                                               ============  ==========

      As of September 30, 1996, the Company has net operating losses ("NOLs") of
      approximately $135.5 million for U.S. tax purposes which expire in varying
      amounts  through  2010.  However,  due to the  provisions  of Section 382,
      Section 1502 and certain  other  provisions  of the Internal  Revenue Code
      (the "Code"),  the utilization of these NOLs will be limited.  The Company
      is also subject to certain  state  income tax laws,  which will also limit
      the utilization of NOLs.

      The net  deferred tax asset  related to the  Company's  NOL  carryforwards
      represents  the  portion of the NOLs that the  Company  estimates  will be
      utilized to reduce future  taxable  income  resulting from the reversal of
      temporary  differences.  A valuation  allowance  has been provided for the
      remainder of the deferred tax asset  relating to the NOLs,  as  management
      cannot determine when the Company will generate future taxable income.



                                      F-45
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(16)  Employee Benefit Plans

      The Company has established  salary reduction  savings plans under Section
      401(k)  of the  Code  which  the  Company  administers  for  participating
      employees.  All  full-time  employees  are  covered  under the plan  after
      meeting minimum service and age  requirements.  The Company  contributes a
      matching  contribution  of its  Common  Stock (up to 6% of annual  salary)
      which totaled  approximately  $0.3 million,  $0.5 million and $1.2 million
      during the years ended September 30, 1994, 1995 and 1996, respectively.

(17)  Significant Customer

      During the year ended  September 30, 1995,  the Company had revenue from a
      single  customer  which  comprised  11%  of  total  revenue  and  accounts
      receivable which comprised 8% of the total accounts  receivable balance at
      September 30, 1995.  There were no customers  which  accounted for greater
      than 10% of revenue or accounts  receivable  as of, or for the years ended
      September 30, 1994 and 1996.


















                                      F-46
<PAGE>






ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(18)  Summarized Financial Information of ICG Holdings, Inc.

      As  discussed  in note 8(a) and (b),  the 12 1/2%  Notes and 13 1/2% Notes
      issued by Holdings during 1996 and 1995,  respectively,  are guaranteed by
      ICG and  Holdings-Canada.  The separate complete  financial  statements of
      Holdings  have not been  included  herein  because such  disclosure is not
      considered  to be material to the holders of the 12 1/2% Notes and 13 1/2%
      Notes. However, summarized combined financial information for Holdings and
      subsidiaries  and affiliates as of September 30, 1995 and 1996 and for the
      years ended September 30, 1994, 1995 and 1996 is as follows:

            Summarized Consolidated Balance Sheet Information
                                                 September 30,
                                         ---------------------------
                                            1995           1996
                                         ------------  -------------
                                                (in thousands)
                                                         
                                         $   309,208       506,151
       Property and equipment, net           201,983       336,137
       Other non-current assets, net          66,737        94,046
       Current liabilities                    60,036        59,963
       Long-term debt, less current           
        portion                              304,666       668,498
       Due to parent                         238,282         8,595
       Other long-term liabilities            37,214        76,470
       Preferred stock                        14,986       153,318
       Stockholders' deficit                 (77,256)      (30,510)

            Summarized Consolidated and Combined Statement of
                        Operations Information (a)
                                           Years ended
                                           September 30,
                                ------------------------------------
                                    1994         1995        1996
                                -----------  -----------   ---------
                                            (in thousands)
       Total revenue            $  58,995       111,610      169,094
       Total operating costs       
          and expenses             72,509       157,384      238,908     
       Operating loss             (13,514)      (45,774)     (69,814)
       Net loss                   (15,194)      (68,760)    (172,687)

     (a)  The 1994 amounts include FOTI and its subsidiaries which was 51% owned
          by  Holdings-Canada.   Holdings-Canada's  51%  interest  in  FOTI  was
          contributed to Holdings  effective in February 1995 (the remaining 49%
          was purchased in January  1996) and,  accordingly,  FOTI's  operations
          have been  included in the  consolidated  amounts  subsequent  to that
          date.

                                      F-47
<PAGE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued
------------------------------------------------------------------------------

(19)  Condensed Financial Information of ICG Holdings (Canada),Inc.(Stand alone)

      Condensed  financial  information of  Holdings-Canada  as of September 30,
      1995 and 1996 and for the years ended September 30, 1994, 1995 and 1996 is
      as follows:
                   Condensed Balance Sheet Information
                                                 September 30,
                                         ---------------------------
                                            1995           1996
                                         ------------  -------------
                                               (in thousands)
       Current assets                    $       249           177
       Advances to subsidiaries              238,282         8,595
       Property and equipment, net                21             -
       Other non-current assets, net           5,355         2,841
       Current liabilities                       332           200
       Long-term debt, less current           
         portion                              74,434           491
       Other long-term liabilities            77,256        30,963
       Shareholders' equity (deficit)         91,885       (20,041)

               Condensed Statement of Operations Information
                                      
                                      Years ended September 30,
                                 -----------------------------------
                                     1994         1995       1996
                                 -----------  -----------  ---------
                                               (in thousands)
        Total revenue            $       -             -           -
        Total operating costs        
           and expenses              1,024         1,309       3,438
        Operating loss              (1,024)       (1,309)     (3,438)
        Losses from subsidiaries   (15,194)      (68,760)   (172,687)
        Net loss attributable
          to common shareholders   (23,868)      (76,648)   (184,107)

(20) Condensed Financial Information of ICG Communications, Inc. (Parent only)

     The sole  asset of ICG is its  investment  in  Holdings-Canada.  ICG has no
     operations other than those of Holdings-Canada and its subsidiaries.
                                      F-48

<PAGE>





                          FINANCIAL STATEMENT SCHEDULES





ICG Communications, Inc.                                        Page
                                                                -----

Independent Auditors' Report                                     S-2

Schedule II:  Valuation and Qualifying Accounts                  S-3


































                                       S-1


<PAGE>



                          Independent Auditors' Report




The Board of Directors and Stockholders
ICG Communications, Inc.:


Under the date of November 18,  1996,  we reported on the  consolidated  balance
sheets of ICG Communications, Inc. and subsidiaries as of September 30, 1995 and
1996,  and the related  consolidated  statements  of  operations,  stockholders'
equity  (deficit) and cash flows for each of the years in the three-year  period
ended  September 30, 1996,  as contained in the Company's  Annual Report on Form
10-K for fiscal year 1996. In connection  with our audits of the  aforementioned
consolidated  financial  statements,  we have also audited the related financial
statement schedule as listed in the accompanying index. 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,  the related financial  statement  schedule,  when considered in
relation to the basic consolidated financial statements taken as whole, presents
fairly, in all material respects, the information set forth therein.

As explained in note 2 to the consolidated  financial statements,  during fiscal
1996,  the  Company  changed  its method of  accounting  for  long-term  telecom
services contracts.




                                           KPMG Peat Marwick LLP


Denver, Colorado
November 18, 1996








                                       S-2



<PAGE>




ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES                                     Schedule II

Valuation and Qualifying Accounts
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                 (in thousands)




                                                       
                              Balance                         Balance   
                                at      Charged to               at
                              Beginning Costs and Deductions/ End of
                              of Period Expenses  Writeoffs   Period
                             ---------  --------- ----------  --------

<S>                           <C>       <C>       <C>         <C> 
Allowance for uncollectible 
trade receivables:

  Year  ended  September  30,
    1994                      $    111      1,791      (841)      1,061  
                              ---------  --------- ----------  --------
  Year  ended  September  30, 
    1995                      $  1,061      2,360    (1,204)      2,217  
                              ---------  --------- ----------  --------
  Year  ended  September  30,   
    1996                      $  2,217      1,585    (1,293)      2,509  
                              ---------  --------- ----------  --------

Allowance for uncollectible
note receivable:

  Year  ended  September  30,
    1994                      $      -         -           -         -     
                              ---------  --------- ----------  --------
  Year  ended  September  30,               
    1995                      $      -         175         -        175
                              ---------  --------- ----------  --------
  Year  ended  September  30,            
    1996                      $    175       7,100         -      7,275
                              ---------  --------- ----------  --------

Allowance for investment
impairment:

  Year  ended  September  30,                  
    1994                      $      -           -         -          -
                              ---------  --------- ----------  --------

  Year  ended  September  30,           
    1995                      $      -       2,000         -      2,000    
                              ---------  --------- ----------  --------

  Year  ended  September  30, 
    1996                      $  2,000           -         -      2,000
                              ---------  --------- ----------  --------


</TABLE>



            See accompanying independent auditors' report.





                                       S-3
<PAGE>



                                INDEX TO EXHIBITS
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

<PAGE>





                           ANNUAL REPORT ON FORM 10-K
                        for year ended September 30, 1996

      Filed Pursuant to Section 13 of the Securities Exchange Act of 1934






























<PAGE>



                                    EXHIBITS


     10.39: Employment Agreement between Fiber Optic Technologies, Inc. and Mark
            S. Helwege, dated July 8, 1996.

     10.41: Employment  Agreement  between ICG  Satellite  Services,  Inc.  and
            Douglas I. Falk, dated August 14, 1996.

     10.42: ICG  Communications,  Inc. 401(k) Wrap Around Deferred  Compensation
            Plan.
     
     21:    Subsidiaries of the Registrant.

     23.1:  Consent of KPMG Peat Marwick LLP.

     27:    Financial Data Schedule.






<PAGE>


                                  EXHIBIT 10.39

           Employment Agreement between Fiber Optic Technologies, Inc.
                    and Mark S. Helwege, dated July 8, 1996.


<PAGE>

                                  EXHIBIT 10.41

            Employment Agreement between ICG Satellite Services, Inc.
                   and Douglas I. Falk, dated August 14, 1996.


<PAGE>



                                  EXHIBIT 10.42

                   ICG Communications, Inc. 401(k) Wrap Around
                           Deferred Compensation Plan









































                                   EXHIBIT 21

<PAGE>



                                  EXHIBIT 23.1

                        Consent of KPMG Peat Marwick LLP













<PAGE>




                                   EXHIBIT 27


                             Financial Data Schedule


<PAGE>


                                 SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 18, 1996.
                               ICG Communications, Inc.

                               By:  /s/ J. Shelby Bryan
                                    ---------------------
                                    J. Shelby Bryan
                                    President, Chief Executive Officer and
                                    Director

Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed by the following persons in the capacities and on the dates indicated:

        Signature                      Title                   Date
-------------------------  ------------------------------   -------------------
                           Chairman  of the Board of
/s/ William J. Laggett     Directors                        December 18, 1996 
--------------------------                         
William J. Laggett
                           President, Chief Executive
                           Officer and Director (Principal
/s/ J. Shelby Bryan        Executive Officer)               December 18, 1996
-------------------------- 
 J. Shelby Bryan                         
                           Executive  Vice President,   
                           Chief Financial
                           Officer and Treasurer 
/s/ James D. Grenfell      (Principal Financial Officer)     December 18, 1996 
-------------------------- 
James D. Grenfell
                           Vice President and Corporate 
                           Controller (Principal
/s/ Richard Bambach        Accounting Officer)              December 18, 1996
--------------------------               
Richard Bambach             



/s/ William W. Becker      Director                         December 18, 1996
--------------------------
William W. Becker                                                          


/s/ Harry R. Herbst        Director                         December 18, 1996
--------------------------
Harry R. Herbst                                                         


/s/ Stan McLelland         Director                         December 18, 1996
--------------------------
Stan McLelland                                                          


/s/ Jay E. Ricks           Director                         December 18, 1996
--------------------------
Jay E. Ricks                                                          


/s/ Leontis Teryazos       Director                         December 18, 1996
--------------------------
Leontis Teryazos
                                                          

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 18, 1996.

                               ICG Holdings (Canada), Inc.

                               By:  /s/ J. Shelby Bryan
                                    ------------------------ 
                                    J. Shelby Bryan
                                    President, Chief Executive Officer
                                    and Director

Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed by the following persons in the capacities and on the dates indicated:

        Signature                      Title                    Date
-----------------------   -----------------------------  ---------------------

                           
/s/ William J. Laggett     Directors                        December 18, 1996
--------------------------
William J. Laggett
                           President, Chief Executive                      
                           Officer and Director (Principal
/s/ J. Shelby Bryan        Executive Officer)               December 18, 1996 
--------------------------     
J. Shelby Bryan                           
                           Executive Vice President, Chief
                           Financial  Officer and Treasurer 
 /s/ James D. Grenfell     (Principal Financial Officer)    December 18, 1996 
-------------------------- 
James D. Grenfell
                                                      
                           Vice President and Corporate    
                           Controller (Principal
/s/ Richard Bambach        Accounting Officer)               December 18, 1996 
-------------------------- 
Richard Bambach                          

/s/ William W. Becker      Director                         December 18, 1996
--------------------------
William W. Becker
                                                           

/s/ Harry R. Herbst        Director                         December 18, 1996
-------------------------
Harry R. Herbst                                                           


/s/ Jay E. Ricks           Director                         December 18, 1996
--------------------------
Jay E. Ricks
                                                           

/s/ Gregory C.K. Smith     Director                         December 18, 1996
--------------------------         
Gregory C.K. Smith                                


/s/ Leontis Teryazos       Director                         December 18, 1996
--------------------------
Leontis Teryazos                        
                                             

<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 18, 1996.
                               ICG Holdings, Inc.

                               By:  /s/ J. Shelby Bryan
                                   ------------------------
                                    J. Shelby Bryan
                                    Chairman of the Board of Directors,
                                    President and Chief
                                    Executive Officer

Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed by the following persons in the capacities and on the dates indicated:

     Signature                       Title                      Date
--------------------- -------------------------------------   ------------------

                      Chairman of the Board of Directors,
                      President and Chief Executive Officer
/s/ J. Shelby Bryan   (Principal Executive Officer)           December 18, 1996
--------------------- 
J. Shelby Bryan
                       Executive Vice President, Chief
                       Financial Officer, Treasurer and 
/s/James D. Grenfell   Director (Principal Financial Officer) December 18, 1996 
---------------------         
James D. Grenfell                  
                       Vice President and Corporate
                       Controller (Principal                          
/s/ Richard Bambach    Accounting Officer)                     December 18, 1996
---------------------                      
Richard Bambach
                     
                       Executive Vice President-Telecom and
/s/William J. Maxwell  Director                               December 18, 1996 
--------------------- 
William J. Maxwell                       
                       Executive Vice President-Network and
/s/ Mark S. Helwege    Director                               December 18, 1996
---------------------
Mark S. Helwege