<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                    FORM 10-K


 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                                       OR
                                        
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                         For the transition period from
                      October 1, 1996 to December 31, 1996
                        (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)

----------------------------------------------------------- --------------------
Delaware                                      84-1342022
Canada                                        Not Applicable
Colorado                                      84-1158866
(State or other jurisdiction                  (I.R.S. employer 
of incorporation)                             identification number)
                                                          
--------------------------------------------------------------------------------
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 service)
offices)       
--------------------------------------------------------------------------------
Registrants' telephone numbers, including area codes: (800) 650-5960 or
(303) 572-5960

Securities registered pursuant to Section 12(b) of the Act:
--------------------------------------------------------------------------------
Title of Each Class                        Name of Exchange on Which Registered
--------------------------------------------------------------------------------
Common  Stock,  $.01  par  value              American  Stock  Exchange
(31,299,392  shares outstanding
on February 18, 1997) 
Class A Common Shares, no par value           Vancouver Stock  Exchange 
(31,795,270  shares  outstanding  on 
February  18,  1997) 
Not Applicable                                Not Applicable
                                                           
--------------------------------------------------------------------------------


<PAGE>
Securities registered pursuant to Section 12(g) of the Act:
--------------------------------------------------------------------------------
                               Title of Each Class
--------------------------------------------------------------------------------
                                 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.    Yes  X     No

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

On February 18, 1997,  the aggregate  market value of ICG  Communications,  Inc.
Common Stock held by  non-affiliates  (using the $14.75  American Stock Exchange
closing price on February 18, 1997) was approximately $461,666,032.

On February 18, 1997, 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 $14,005,001.

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


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                                TABLE OF CONTENTS


PART I  . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .        5
       ITEM 1. BUSINESS  . . . . . . . . . . . . . . . . . . . . . . .        5
               Overview  . . . . . . . . . . . . . . . . . . . . . . .        5
               Telecom Services  . . . . . . . . . . . . . . . . . . .        6
                      Strategy   . . . . . . . . . . . . . . . . . . .        6
                      Telecom Services Networks  . . . . . . . . . . .        7
                      Recent Developments  . . . . . . . . . . . . . .        8
                      Services . . . . . . . . . . . . . . . . . . . .       10
                      Industry . . . . . . . . . . . . . . . . . . . .       12
               Network Services  . . . . . . . . . . . . . . . . . . .       13
               Satellite Services  . . . . . . . . . . . . . . . . . .       13
               Customers And Marketing   . . . . . . . . . . . . . . .       14
               Competition . . . . . . . . . . . . . . . . . . . . . .       15
               Regulation  . . . . . . . . . . . . . . . . . . . . . .       17
               Employees . . . . . . . . . . . . . . . . . . . . . . .       20
       ITEM 2. PROPERTIES  . . . . . . . . . . . . . . . . . . . . . .       21
       ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS  . . . . . . . . .       21
       ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . .       21
                    
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        22
       ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . .       22
       ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . .       24
       ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . .       27
       ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . .       45
       ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURES  . . . . . . . . .       45
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       46
      
      ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT  . . . .       46
               Executive Officers of ICG . . . . . . . . . . . . . . .       47
               Directors of ICG  . . . . . . . . . . . . . . . . . . .       48
               Directors and Executive Officers of Holdings-Canada 
               and Holdings  . . . . . . . . . . . . . . . . . . . . .       49
      ITEM 11. EXECUTIVE COMPENSATION  . . . . . . . . . . . . . . . .       51
               Director Compensation   . . . . . . . . . . . . . . . .       51
               Compensation Committee Interlocks and Insider 
               Participation . . . . . . . . . . . . . . . . . . . . .       51
               Executive Compensation  . . . . . . . . . . . . . . . .       51
                    Summary Compensation Table   . . . . . . . . . . .       52
                    Aggregated Option Exercises in Last Fiscal 
                    Year End Option Values . . . . . . . . . . . . . .       53
                    Option/SAR Grants in Last Fiscal Year  . . . . . .       53
               Executive Employment Contracts  . . . . . . . . . . . .       53
                                       3
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      ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
               MANAGEMENT  . . . . . . . . . . . . . . . . . . . . . .       55
      ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  . . . .       58
                    
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      60
      ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORT ON  
               FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . .      60
               Financial Statements . . . . . . . . . . . . . . . . . .      60
               Report on Form 8-K   . . . . . . . . . . . . . . . . . .      68
               Exhibits   . . . . . . . . . . . . . . . . . . . . . . .      68
               Financial Statement Schedule . . . . . . . . . . . . . .      68
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  January 1, 1997.  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
1996 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 in three regional  clusters  covering major
metropolitan statistical areas in California, Colorado, and the Ohio Valley, and
in three markets in the Southeast. The Company is expanding its geographic focus
to include  Texas and Oklahoma  (and may also expand to Arkansas and  Louisiana)
through  its  recently  announced  joint  venture  with  Central  and South West
Corporation  ("CSW") that will develop and market  telecommunications  services,
including local exchange telephone service,  in these markets.  The Company also
provides a wide range of network systems  integration  services and maritime and
international  satellite  transmission services. As a leading participant in the
rapidly growing competitive local  telecommunications  industry, the Company has
experienced significant growth, with total revenue increasing from $29.5 million
for fiscal 1993 to $190.7  million for the 12-month  period  ended  December 31,
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.
                                       5
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         The  Federal  Telecommunications  Act of 1996 (the  "Telecommunications
Act")  and   several   pro-competitive   state   regulatory   initiatives   have
substantially  changed  the  telecommunications  regulatory  environment  in the
United States. Due to these regulatory changes,  the Company is now permitted to
offer all interstate and intrastate  telephone  services,  including  local dial
tone,  and is  developing  a full set of  complementary  services,  such as long
distance and data transmission  services. The Company began offering competitive
local dial tone services in Orange  County,  California in September  1996,  and
intends to begin offering local dial tone services in most of its markets during
the first half of 1997.  The  Company  has 14 high  capacity  digital  telephony
switches (and one additional switch located in Phoenix which will be operational
through April 1997, after which it will be relocated) and 10 data communications
switches in operation to support its services,  and plans to install  additional
telephony and data switches as demand  warrants.  To facilitate the expansion of
its services,  the Company has entered into agreements with Lucent Technologies,
Inc.  ("Lucent")  and  Northern  Telecom,  Inc.  ("Nortel"),  and has  reached a
non-binding   agreement  in  principle   with   Cascade   Communications,   Inc.
("Cascade"),  to purchase a full range of switching systems,  fiber optic cable,
network  electronics,  software  and  services.  See  "-Telecom  Services-Recent
Developments."

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,  Cincinnati,  Cleveland,  Columbus,  Dayton  and
Louisville).  The Company also operates  networks in  Birmingham,  Charlotte and
Nashville. The Company will continue to expand its network through construction,
leased facilities and strategic joint ventures,  such as the recently  announced
joint  venture with CSW that will  initially  serve  Austin and Corpus  Christi,
Texas  and  Tulsa,  Oklahoma  with  local  telephone,  long  distance  and  data
transmission services. The joint venture may also develop business opportunities
in other  cities in Texas,  Oklahoma,  Arkansas  and  Louisiana.  The  Company's
operating  networks have grown from  approximately  168 fiber route miles at the
end of fiscal 1993 to  approximately  2,385 fiber route miles as of December 31,
1996.  Telecom  Services revenue has increased from $4.8 million for fiscal 1993
to $109.0 million for the 12-month period ended December 31, 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  leverage  its  extensive  network   footprint,   its
considerable expertise in the provision of switched telecommunications services,
and its established  customer base of long distance carriers.  In addition,  the
Company has begun to aggressively  market its broad range of  telecommunications
services to business end users. Key elements of this strategy are:

         Expand  Service  Offerings.  The  Company's  focus is to provide a wide
range of local, long distance and data  communications  services to business and
carrier  customers within the Company's service areas, with an emphasis on local
dial tone  services.  The  Company  believes  that  customers  are  increasingly
demanding  a  broad,  full  service  approach  to  providing
                                       6
<PAGE>


telecommunications  services.  By offering a wide array of services,  management
believes the Company will be able to capture high volume business  accounts.  To
this end, the Company plans to complement  its core  competitive  local exchange
services with  competitive  local toll,  long  distance and data  communications
services tailored to the needs of its customers.

         Market Services to End Users and Carriers. 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 and  resellers.  As  competition  in the  provision of local  telephone
services increases,  these carriers and resellers 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.  In  addition,  the Company is  expanding  its sales and
marketing efforts to include end user business customers.  Management believes a
targeted end user strategy can accelerate its  penetration of the local services
market and better leverage the Company's network investment.  In support of this
entrance into the end user market,  the Company is  substantially  expanding its
distribution  channels through a significant  increase in its direct sales force
and marketing personnel.

         Concentrate Markets in Regional Clusters.  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. As a
result,  the Company has concentrated its networks in regional  clusters serving
major  metropolitan  areas in  California,  Colorado  and the Ohio  Valley.  The
Company also  operates  networks in the Southeast in  Birmingham,  Charlotte and
Nashville.  The Company is currently  expanding its network footprint to include
Texas  and  Oklahoma  (and  may  also  expand  to  Arkansas  and  Louisiana)  in
partnership with CSW.

         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 and customer  relationships.  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 than by
constructing  facilities.  In  addition,  utilities  possess  conduit  and other
facilities  that enable the Company to more easily install  additional  fiber to
extend existing networks in a given market.  Finally,  management  expects these
strategic alliances to combine the Company's expertise in providing high quality
telecommunications  services with the utility's  name  recognition  and customer
relationships  in  marketing  telecommunications  products  and  services to the
utility's 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 
                                       7
<PAGE>

equipment   failure,   resulting  in  limited  outages  and  increased   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.
        
         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  infrastructure.
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 of using ILEC  facilities to provide initial
customer  service and the Company's new  agreements to use  utilities'  existing
fiber, 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 a Lucent switch
control center in Phoenix for surveillance of substantially all of the Company's
central office switches.

         Switched  services  involve the  transmission  of voice or data to long
distance carrier-specified or end user-specified termination sites. 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. In addition,
a switch  gives the Company  the  technological  capability  to provide the full
range of local  telephone  services.  The Company began offering 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  to  the  remainder  of  its  existing  markets.  See  "-Regulation-State
Regulation."

         Recent Developments

         CSW Agreement.  In January 1997, the Company  announced a joint venture
with CSW which will develop and market telecommunications  services in Texas and
Oklahoma (and may also expand to Arkansas and  Louisiana).  The new company will
be based in Austin,  Texas and will
                                       8
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initially serve Austin and Corpus Christi,  Texas and Tulsa, Oklahoma with local
telephone, long distance and data transmission services.  ChoiceCom also expects
to develop business opportunities in other cities in Texas,  Oklahoma,  Arkansas
and Louisiana.

         Lucent  Agreement.  In  September  1996,  the Company  entered  into an
equipment  purchase  agreement  with  Lucent  for  advanced   telecommunications
products  and  services.  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 optic  cable.  Lucent has also agreed to provide
engineering,  installation,  onsite  technical  support  and other  professional
services.  Under the agreement,  if the Company does not meet a minimum purchase
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
either the Company or Lucent upon sixty days prior written notice.

         Cascade Agreement.  The Company has reached a non-binding  agreement in
principle with Cascade for the purchase of data switching  components  that will
enable the Company to provide high-speed data connectivity to its customers. The
Company  expects to execute the agreement  shortly.  The agreement also provides
for purchase of high-speed  frame relay and  asynchronous  transfer mode ("ATM")
switching products. In addition,  the Company will utilize turnkey services from
Cascade for product  planning  and  deployment,  including  program  management,
network  design,  onsite  operations  support and  training.  The Company  began
offering  its data  communications  services in selected  California  markets in
December  1996 and plans to deploy  similar  networks in its  Colorado  and Ohio
markets in the first half of 1997.

         Nortel  Agreement.  In  December  1996,  the  Company  entered  into an
equipment and software  licensing  agreement with Nortel under which Nortel will
provide the Company with telecommunications equipment and software.

        Network Expansion. The Company continues to expand its network footprint
through several strategic  initiatives with utility companies and others.  These
include  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 in Los Angeles,  including  Century City, West Los
Angeles,  Mid-Wilshire  and Sherman Oaks; a 15-year  agreement  with the City of
Burbank, California to lease fiber optic capacity on an 11.5 mile network; and 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 which the Company will have access to approximately seven miles
of fiber optic cable.

         Interconnection  Agreements.  The Company has executed  interconnection
agreements  with Pacific Bell in California,  Ameritech Corp.  ("Ameritech")  in
Ohio and SBC  Communications,  Inc.  ("SBC") in Oklahoma and Texas,  and interim
agreements  have been signed  with GTE in  California  and in Alabama,  Florida,
Indiana, Kentucky, North Carolina, Ohio, Oklahoma, and Texas. An interconnection
agreement also has been signed with  BellSouth  which 
                                       9
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covers  Alabama,  Florida,  Georgia,  Kentucky,  Louisiana,  Mississippi,  North
Carolina and Tennessee. The Company's  interconnection  agreement with Ameritech
allows for the agreement to be expanded without further  negotiations to include
Ameritech's  properties  in  Illinois,  Indiana,  Michigan  and  Wisconsin.  The
Company's  interconnection  agreement  with SBC allows for the  agreement  to be
expanded  without further  negotiations to include SBC's properties in Arkansas,
Kansas and  Missouri.  The Company  also has  negotiated  with  Cincinnati  Bell
Telephone Company, but has been unable to reach an agreement to date. On January
28, 1997,  the Company  filed  arbitration  petitions  with the relevant  public
utility  commissions in Indiana,  Kentucky and Ohio.  After  participating in an
arbitration  hearing before the Colorado Public Utilities  Commission  (Colorado
"PUC"), the Company executed an agreement with U S WEST Communications, Inc. ("U
S WEST") on December 17, 1996,  which agreement was approved by the Colorado PUC
on January 15, 1997.  U S WEST has filed an appeal of the PUC's  approval of the
arbitrated  agreement  with the  Federal  District  Court in  Denver,  Colorado.
Certain of the Company's interconnection agreements do not contain "most favored
nation" pricing  clauses.  The Company  believes it is entitled to "most favored
nation" pricing provisions under federal law, but this issue is being litigated.
If this  litigation is finally  judicially  resolved  adversely to the Company's
position,  the  Company  will be subject to the risk that other CLECs may obtain
more favorable pricing terms from ILECs.

         Services

         The Company's competitive local exchange services include private line,
special access,  interstate and intrastate switched access services,  local dial
tone, long distance and data services.  Private line services are generally used
to connect the separate locations of a single business.  Special access services
are generally  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. As
part of its initial  "carrier's  carrier"  strategy,  the Company  targeted  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 has begun to
market its services directly to end user business customers.

         The  Company's  interstate  and  intrastate  switched  access  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,  the Company can reduce the long distance
carriers' local access costs, which constitute their major operating expense. As
the Company  provides a greater  portion of the local segment of a call over its
own facilities,  the Company expects to experience  improved margins on what has
initially been a negative or low margin revenue stream.

         Competitive  local dial tone services  consist of basic local  exchange
lines and trunks for business, related line features (such as voice mail, Direct
Inward Dialing (DID),  hunting and custom calling features),  local calling, and
intraLATA,  also  called  local  toll,  calling.  The  Company  plans make these
services available in second quarter of 1997. The Company believes that having a
full complement of  communications  services,  including local and long distance
                                       10
<PAGE>

services,  will  strengthen its overall market  position and help the Company to
better penetrate the local exchange marketplace.  The Company is also developing
long distance  services,  including  calling and debit cards,  to complement its
local exchange services family of products.

         The Company  expects to begin  offering long  distance  services in the
first half of 1997.  The target  customers  for such  services are the Company's
existing and end user customers. The Company's existing switches will facilitate
its entry into this  business  and reduce its cost of  obtaining  long  distance
transmission  capacity.  However,  the  Company  will rely on other  carriers to
provide transmission and termination services. Therefore, the Company expects to
enter into resale agreements, which typically provide for resale on a per minute
basis,  with long distance carriers to fulfill such needs. To reduce its cost of
services,  the Company may lease point-to-point  circuits on a monthly or longer
term fixed cost basis where it anticipates high traffic volume.
         
          In order to expand into providing long distance  services, the Company
has begun to select new  equipment  and  software and  integrate  these into its
networks, hire and train qualified personnel,  enhance its billing,  back-office
and information systems to accommodate long distance services and the acceptance
of potential  customers.  The Company  expects to generate low or negative gross
margins and  substantial  start-up  expenses  as it rolls out its long  distance
service  offerings.  The  Company  does not expect  long  distance  services  to
generate a material portion of its revenues over the near term.

         The Company expects to begin offering data transmission services, which
include  frame relay and ATM,  in most of its  markets in 1997,  and has already
been doing so in  California  since  December  1996.  The Company has  initially
targeted  Internet Service  Providers  ("ISPs") with its frame relay services in
the belief that these firms require  increasing  amounts of local frame relay to
connect businesses to ISP's services. The Company also intends to offer its data
transmission  services  to its  existing  and  potential  customers,  which have
substantial data communications  requirements.  In providing these services, the
Company  will be  dependent  upon  vendors for  assistance  in the  planning and
deployment of its initial data product  offerings,  as well as ongoing  training
and support.  Additionally,  the Company must select new  equipment and software
and  integrate  these into its  networks,  hire and train  qualified  personnel,
enhance its billing,  back-office  and information  systems to accommodate  data
transmission services and customer acceptance of such services. The Company does
not expect its data transmission  business to generate a material portion of its
revenues  over the near term and as a new  entrant in the  business,  expects to
generate low or negative gross margins and substantial start-up costs.

         The Company's Signaling System 7 ("SS7") services provide signaling
connections between long distance and local exchange carriers,  and between long
distance carriers' networks.  SS7, known as look-ahead routing, 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. The Company has deployed signal transfer
points ("STPs") throughout its networks to efficiently route SS7 data across the
United States. 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.  Carriers purchase connections into the 
                                       11
<PAGE>

Company's SS7 network,  and also purchase  connections to other carriers  (local
and long distance) on a monthly recurring basis.

         In August 1996,  the Company  acquired the SS7 business of Pace Network
Services, Inc., a division of Pace Alternative Communications,  Inc. The Company
has also developed a nationwide SS7 service with Southern New England  Telephone
("SNET"),  one of the nation's ten largest local exchange carriers.  The Company
believes  that,  together  with  SNET,  it is  one of  the  largest  independent
suppliers of SS7  services.  The  Company's  STPs are  integrated  with two SNET
"gateway" STPs in Connecticut.

         Zycom. The Company owns a 70% interest in Zycom  Corporation  ("Zycom")
which operates an 800/900  number  service  bureau and a switch  platform in the
United  States  supplying  information  providers and  commercial  accounts with
audiotext and customer support services.

         Industry

         The Company operates primarily in the local telephone service market as
a CLEC.  The Company also plans to compete in the long distance  market,  and in
the frame relay and ATM data  communications  markets, to provide "full service"
to its end user and  carrier  customers.  The Company  believes it can  maximize
revenue and profit  opportunities by leveraging its extensive network facilities
in providing multiple communications services to its customers.

         Local   telephone   service   competition  was  made  possible  by  the
Telecommunications  Act and by regulatory  initiatives at the state level. Prior
to passage of the Telecommunications  Act, firms like the Company were generally
confined to  providing  special  access  services.  These firms,  including  the
Company,   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.

         The  Telecommunications  Act,  subsequent  FCC decisions 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  communications
services,  including local dial tone and all interstate and intrastate  switched
services, effectively opening up the local telephone market to full competition.
Because of these 
                                       12
<PAGE>

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   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 was $60.4  million for the 12-month  period ended
December 31, 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 regions.  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 transmission  services to major cruise lines,  commercial shipping vessels,
yachts,  the U.S.  Navy and  offshore  oil  platforms.  The Company  also owns a
teleport  facility  which  provides  international  voice and data  transmission
services. Revenue for the Satellite Services operations (adjusted to reflect the
sale of certain  teleport  assets)  was $11.4  million for fiscal 1995 and $21.3
million for the 12-month period ended December 31, 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
an  experimental  radio  frequency  license  and a grant  of  Special  Temporary
Authority  ("STA")  issued  by the  FCC.  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  license enable it to provide a higher quality  maritime
                                       13
<PAGE>
service than is available through the radio frequencies  currently  allocated to
other maritime service providers.

         In April  1996,  the FCC  issued a waiver  allowing  MTN to apply for a
permanent  FCC license to utilize the same  frequencies  as are being used under
the experimental license. The Company's application is pending. Additionally, in
January 1997, the FCC granted an STA which enables MTN to conduct  operations as
proposed  in the  pending  application  for a  permanent  license,  for up to an
initial  six-month  period  while the  FCC's  review  of the  permanent  license
applications is pending.  Although the Company expects that the FCC will issue a
permanent license,  there can be no assurance that the Company will be granted a
permanent  license,  that the experimental  license currently being used will be
renewed  for a  future  term or that  any  license  granted  by the FCC will not
require substantial payments from the Company. See "-Regulation."

         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  Communications,
Inc.  ("Nova-Net"),  which provides  private data networks  utilizing  VSATs and
specializes  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 24 hours a day, seven
days a week 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  strategies for Telecom Services are to
offer  a broad  range  of  local  and  long  distance  communications  services,
including data communications, to business customers and the Company's wholesale
(primarily long distance carrier) customers,  at cost-effective rates. Wholesale
customers  typically  re-market the Company's  services to the  wholesaler's end
user,  under the  wholesaler's  brand name. The Company  markets its services in
regional clusters,  which it believes is the most effective and efficient way to
penetrate its markets.
                                       14
<PAGE>
         The Company markets its products  through direct sales to end users and
wholesale  accounts,  and through some direct  mail.  The Company is launching a
print advertising campaign in the first quarter of 1997 and may intensify direct
mail activities.  Telecom Services revenue from major long distance carriers and
resellers  constituted  approximately  78%, 71% and 69% of the Company's Telecom
Services  revenue in fiscal 1995,  fiscal 1996 and the three-month  period ended
December 31, 1996,  respectively.  The balance of the Company's Telecom Services
revenue was derived  from end users.  The Company  anticipates  revenue from end
users will increase in the future as it continues to expand its local  telephone
service  offerings and grows its sales and  marketing  teams to focus on the end
user  segment of the  market.  Telecom  service  agreements  with its  customers
typically  provide  for  terms of one to five  years,  fixed  prices  and  early
termination penalties.

         The Company  has  telecommunications  sales  offices  in:  Irvine,  Los
Angeles,  Oakland,  Sacramento  and San Diego,  California;  Denver and Colorado
Springs, Colorado;  Cleveland,  Columbus and Dayton, Ohio; Birmingham,  Alabama;
Louisville,  Kentucky; Charlotte, North Carolina; and Nashville,  Tennessee. The
Company  anticipates  opening additional sales offices in California,  Ohio, and
Texas in 1997. The Company's marketing staff is located in Denver, Colorado.

         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 offers satellite  private line  transmission  services from
its  teleport  to  business  customers  that  can  benefit  from  the  Company's
international and domestic transmission  capabilities.  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, and the local access operations of long distance  carriers.
Consolidation of telecommunications companies, including pending 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  increased  competition.  One of the primary  purposes of the
Telecommunications  Act is to  promote  competition,  particularly  in the local
telephone  market.  Since  enactment  of  the  Telecommunications  Act,  several
telecommunications  companies have  indicated  their  intention to  aggressively
expand  their  ability  to  address  many  segments  of  the  telecommunications
industry,
                                       15
<PAGE>

including segments in which the Company participates and expects to participate.
For example,  AT&T and MCI are entering the local markets, as competitors of the
Company.  This may result in more participants than can ultimately be successful
in a given market.

         Telecom  Services.  The  bases  of  competition  in  competitive  local
telecommunications   services  are  generally   price,   service,   reliability,
transmission speed and availability.  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.

         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.  This pricing  flexibility  resulted in
certain RBOCs lowering their prices in high density zones, the probable arena of
competition  with the Company.  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 commenced a rule making proceeding in December 1996
that proposes to undertake a  comprehensive  reform of its access charge pricing
rules,  and a separate  rule making  proceeding  is  considering a reform of the
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'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 
                                       16
<PAGE>

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.

         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 local
and regional system integrators.

         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.

         The   Telecommunications   Act  generally  requires  ILECs  to  provide
interconnection  and  nondiscriminatory  access  to the  ILEC  networks  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.
                                       17
<PAGE>

         On August 8, 1996,  in two separate  decisions in its FCC 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.

         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 will be decided
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 was
heard on January  17,  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 
                                       18
<PAGE>

for services in the United States. The Company may install and operate non-radio
facilities for the 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.

         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
telecommunications  services.  State  regulators  also can  regulate  the  rates
charged by CLECs for intrastate and local services.  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,  Florida,  Kentucky,  North Carolina,
Ohio,  Tennessee  and Texas.  The Company  has  authority  to provide  local and
intrastate long distance services in Alabama,  California,  Colorado,  Kentucky,
Ohio,  Tennessee and Texas. The Company also has authority in Florida to provide
intrastate long distance services and alternative  access services.  The Company
also holds a CPCN to provide intrastate long distance services in North Carolina
and applications are pending before the applicable state commission for CPCNs to
provide local telecommunications services in North Carolina and to provide local
and long  distance  services in Indiana and  Oklahoma,  as well as to expand the
Company's local telephone service areas in Ohio.

         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 
                                       19
<PAGE>
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 telecommunications 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 are
terminated prior to their  expiration  dates or not renewed,  and the Company is
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 and a grant
of a STA. In April 1996,  the FCC issued a waiver to the Company which may allow
it to obtain a permanent  FCC license to provide these  services  using the same
radio  frequencies  currently  being used under the  experimental  license.  The
Company has filed an application for a permanent  license under the terms of the
FCC's waiver  decision,  and the application is pending.  The STA was granted on
January 30, 1997 and enables the Company to conduct operations  pursuant to such
application during the FCC's review.

         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
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 January 31, 1997, the Company employed a total of 1,483  individuals
on a full  time  basis.  There  are  112  employees  of  one  of  the  Company's
subsidiaries who are subject to collective bargaining agreements which expire on
December 31, 1997 and May 31, 1998. The Company believes that its relations with
its employees are good.
                                       20
<PAGE>

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

         SBC has alleged  before the San Antonio city council that the Company's
arrangement  to license cable being built by City Public  Service of San Antonio
("CPS") in greater San Antonio violates state law and has sought to have the San
Antonio city council repudiate the Company's contract with CPS. The assertion of
SBC is that CPS would,  through its license  arrangement  with the  Company,  be
providing  telecommunications  services in  contravention of Texas state law. In
December  1995,  the San Antonio  city council  imposed a moratorium  on network
construction  which expired in March 1996.  The Company  believes it has a valid
contract  with CPS and filed suit  against SBC in December  1995 in the District
Court for the Western  District of Texas, San Antonio  Division  seeking,  among
other things,  damages for tortious interference and a declaratory judgment that
the contract  with CPS is legal and  binding.  SBC's motion to dismiss that suit
was granted by the Court and ICG's appeal of that decision is pending before the
U.S.  Court of Appeals for the Fifth  Circuit.  In June 1996,  ICG filed suit in
State  Court in San Antonio  seeking a  declaration  that the  contract is valid
under state law. In addition, in May 1996, the Company filed a petition with the
FCC seeking preemption of Texas state law under the Telecommunications Act. That
petition currently is pending before the FCC.

         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

         None.
                                       21
<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
                        Exchange (1)          Exchange (1)          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

Three Months
Ended December
31, 1996 (2)        $22.25  $ 14.00     C$ 28.35 C$  28.35         1.37

Fiscal Year
Ended December
31, 1997(2)
  Through February
  18, 1997          $18.13   $14.50     C$     -  C$      -        1.35
 ----------------
<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  January 1, 1997.  
</FN>
</TABLE>

                                       22
<PAGE>

     On February 18, 1997,  the last reported sale price for the Common Stock on
the AMEX was $14.75 per share.  On  February  18,  1997,  there were  31,299,392
shares of Common Stock outstanding and 101 holders of record.

     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 fiscal
1996 or the three months ended December 31, 1996.
                                       23
<PAGE>


ITEM 6.   SELECTED FINANCIAL DATA

         The  selected  historical  financial  data for each  fiscal year in the
five-year  period  ended  September  30,  1996 and for the  three  months  ended
December  31,  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 Consolidated  Financial  Statements of the Company and the
notes  thereto  included  elsewhere  in  this  Transition  Report.   Results  of
operations  for the three  months ended  December  31, 1996 are not  necessarily
indicative  of results of  operations  for a full year or  predictive  of future
periods.  The  Company's   development  and  expansion   activities,   including
acquisitions, during the periods shown below materially affect the comparability
of this data from one  period  to  another.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
                                                                                                                 
                                                                                                                  Three Months
                                                           Years Ended September 30,                             Ended December
                                    ------------------------------------------------------------------------           31,
Statement of Operations Data:          1992           1993           1994           1995           1996               1996
                                    -----------    -----------    -----------     ----------    ------------    -----------------
                                                      (in thousands, except per share amounts)
<S>                                 <C>               <C>          <C>             <C>            <C>             <C> 
  Revenue:
   Telecom services                 $   1,061          4,803        14,854          32,330         87,681          34,787
   Network services                     4,955         21,006        36,019          58,778         60,116          15,981
   Satellite services (1)               1,468          3,520         8,121          20,502         21,297           6,188
   Other                                  126            147           118               -              -               -
                                    -----------    -----------    -----------     ----------    ------------    -----------------
         Total revenue                  7,610         29,476        59,112         111,610        169,094          56,956

  Operating costs                       5,423         18,961        38,165          78,846        135,253          49,929
  Selling, general and
     administrative expenses            3,921         10,702        28,015          62,954         76,725          24,253
  Depreciation and amortization         1,602          3,473         8,198          16,624         30,368           9,825
                                    -----------    -----------    -----------     ----------     ------------    -----------------
                                                             
      Total operating costs
           and expenses                10,946         33,136        74,378         158,424        242,346          84,007
                                    -----------    -----------    -----------     ----------    ------------    -----------------

  Operating loss                       (3,336)        (3,660)      (15,266)        (46,814)       (73,252)        (27,051)
  Interest expense                       (525)        (2,523)       (8,481)        (24,368)       (85,714)        (24,454)
  Minority interests, including
    preferred stock dividends              21           (302)          435          (1,123)       (25,306)         (4,988)
  Other income (expense), net              12            324          (556)         (4,343)        (1,513)          6,670
                                    -----------    -----------    -----------     ----------    ------------    -----------------

  Loss before income taxes and
     cumulative effect of change
     in accounting                     (3,828)        (6,161)      (23,868)        (76,648)      (185,785)        (49,823)
  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)        (49,823)
                                    ===========    ===========    ===========     ==========    ============    =================

  Loss per share                     $  (0.42)         (0.39)        (1.56)          (3.25)         (6.83)          (1.56)         
                                    ===========    ===========    ===========     ==========    ============    =================
  Weighted average number of
     shares outstanding (3)             8,737         11,671        15,342          23,604         26,955           31,840
                                    ===========    ===========    ===========     ==========    ============    =================

Other Data:
  EBITDA (4)                         $ (1,734)          (187)       (7,068)        (30,190)       (42,884)         (17,226)
  Capital expenditures (5)           $ 12,599         20,685        54,921          88,495        175,148           78,238
</TABLE>
                                                                           24
<PAGE>
 
                                                                                
<TABLE>
<CAPTION>
                                                                                                                                   
                                                                                                                       
                                                                                                                      At
                                                                    At September 30,                               December 
                                            --------------------------------------------------------------------       31,
Balance Sheet Data:                            1992          1993          1994           1995          1996          1996
                                            -----------    ---------    -----------    -----------   -----------    ------------
                                                                           (in thousands)
<S>                                          <C>            <C>           <C>           <C>           <C>            <C>
Working capital (deficit)                    $  (392)        7,990         (8,563)      249,089       446,164        361,601
Total assets                                  54,417        95,196        201,991       583,553       939,351        944,133
Notes payable and current portion of
  long-term debt and capital lease               991         7,657         23,118        27,310         8,282         25,500
  obligations
Long-term debt and capital lease                                                        
  obligations, less current portion           15,565        37,116        104,461       405,535       739,827        761,504
Redeemable preferred stock of Holdings             -             -              -        14,986       153,318        159,120
Stockholders' equity (deficit)                21,826        34,753         39,782        82,535       (19,588)       (66,080)
<FN>

(1)      Revenue  from  Satellite  Services is generated  through the  Company's
         satellite  (voice and data)  operations  and, after January 1995,  also
         includes revenue from maritime communications  operations.  The Company
         completed  the sale of four of its  teleports in March,  1996,  and has
         reported  results of operations from these assets through  December 31,
         1995.

(2)      During fiscal 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  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.  Weighted  average  number  of  shares  outstanding  for the
         three-month  period ended December 31, 1996 represents ICG Common Stock
         and  Holdings-Canada  Class A common  shares  (owned by third  parties)
         outstanding for the period October 1, 1996 through December 31, 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 Transition Report.
                                       25
<PAGE>

(5)      Capital expenditures include assets acquired under capital  leases and
         through the issuance of debt or warrants.
</FN>
</TABLE>
                                       26
<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,  the  successful
implementation of the Company's local dial tone and long distance strategies and
actions of  competitors  and  regulatory  authorities  that could  cause  actual
results to differ materially from the  forward-looking  statements.  The results
for the  three  months  ended  December  31,  1995 have  been  derived  from the
Company's unaudited Consolidated Financial Statements included herein.

Company Overview

         The Company provides Telecom  Services,  Network Services and Satellite
Services.  Telecom Services consist  primarily 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.  Network  Services  consist  of  information  technology  services  and
selected  networking  products,   focusing  on  network  design,   installation,
maintenance   and   support.   Satellite   Services   consist  of  maritime  and
international  satellite transmission services and provide private data networks
utilizing  VSATs. As a leading  participant in the rapidly  growing  competitive
local  telecommunications  industry,  the  Company has  experienced  significant
growth,  with total  revenues  increasing  from $59.1 million for fiscal 1994 to
$190.7  million for the 12-month  period ended  December 31, 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, prior to fiscal 1996,  growth in
Satellite Services.

         Prior to fiscal 1996,  the majority of the  Company's  revenue had been
derived from Network Services.  However,  the Company's Network Services revenue
(as well as Satellite  Service revenue) will continue to represent a diminishing
percentage of the  Company's  consolidated  revenue as the Company  continues to
emphasize its Telecom Services. In March 1996, the Company completed the sale of
four of its  teleports  which  were used in the  Company's  Satellite  Services
operations.

         The Company's  operating networks have grown from 323 fiber route miles
at the end of fiscal  1994 to 2,385 fiber  route  miles at  December  31,  1996.
Telecom  Services  revenue has  increased  from $14.9 million for fiscal 1994 to
$109.0 million for the 12-month  period ended December 31, 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 and  increasing  price
competition 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
                                       27
<PAGE>

switched  services on a given network when (i) increased  volumes of traffic are
attained and  build-out  enables such traffic to be carried on the Company's own
network instead of ILEC facilities, and (ii) higher margin enhanced services are
provided  to  customers  on the  Company's  network.  In  addition,  the Company
believes that the  unbundling of ILEC services and the  implementation  of local
telephone number portability,  which are mandated by the Telecommunications Act,
will reduce the Company's  costs of providing  switched  services and facilitate
the marketing of such services.  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
downward pricing pressure from the ILECs.
   
      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,  long  distance  and  data  communications  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 must also make significant investments and expenditures
to develop, train and manage its marketing and sales personnel.  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 a wide range of  telecommunications  services
and establishes a sufficient  revenue-generating  customer base. There can be no
assurance  that the Company  will be able to establish or retain 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.
                                       28
<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 periods  indicated.  The table also shows
certain  revenue,  expenses,  operating  loss and EBITDA as a percentage  of the
Company's total revenue.
<TABLE>
<CAPTION>
                                                              Three Months
                      Years Ended September 30,            Ended December 31,               
                   --------------------------------  --------------------------
                    1994         1995          1996         1995        1996                          
                   ---------   ---------     --------   ----------- ------------
                      $    %      $    %      $    %      $     %      $     %     
                   ----  -----  ----- ---    --- ----  -----  -----  -----  ----     
                                      (Dollars in thousands)
<S>                <C>     <C> <C>     <C> <C>    <C>  <C>     <C>   <C>    <C> 
Revenue:
  Telecom 
  services(1)       14,854  25  32,330  29  87,681  52   13,513  38  34,787  61                   
  Network services  36,019  61  58,778  53  60,116  36   15,718  45  15,981  28
  Satellite services 8,121  14  20,502  18  21,297  12    6,168  17   6,188  11
  Other                118   *       -   -       -   -        -   -       -   -       
                   -------  --  ------  --  ------  --   ------  --  ------  --
Total revenue       59,112 100 111,610 100 169,094 100   35,399 100  56,956 100

Operating costs:     
  Telecom services   7,050      21,825      78,705       11,882      34,463
  Network services  26,334      45,928      46,256       11,998      12,287
  Satellite services 4,697      11,093      10,292        3,230       3,179
  Other                 84           -           -            -           -
                    ------  --  ------  --  ------  --   ------  --  ------  --
Total operating 
  costs             38,165  65  78,846  71 135,253  80   27,110  77  49,929  88
Selling,general
  and adminis-
  trative           28,015  47  62,954  56  76,725  45   18,628  53  24,253  43
Depreciation and
  amortization       8,198  14  16,624  15  30,368  18    4,919  14   9,825  17
                    ------  --  ------  --  ------  --   ------  --  ------  --
Operating loss     (15,266)(26)(48,814)(42)(73,252)(43) (15,258)(43)(27,051)(47)
EBITDA (2)          (7,068)(12)(30,190)(27)(42,884)(25) (10,339)(29)(17,226)(30)
                  
----------
*Less than 0.5%
<FN>

(1)  During fiscal 1996, the Company change its method of accounting for long-
     term telecom services contracts to recognize revenue as services are
     provided.  See "-Accounting Changes."  The effect of this change in 
     accounting for the periods presented was not significant.

(2)  See note 4 under "Selected Financial Data" for the definition of EBITDA.
</FN>
</TABLE>
                                       29
<PAGE>
Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995
         Revenue. Revenue for the three months ended December 31, 1996 increased
$21.6  million,  or 61%,  from the three  months ended  December  31, 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  during the second
quarter of fiscal 1996. Telecom Services revenue increased 157% to $34.8 million
due to an  increase  in  network  usage for both  special  and  switched  access
services, offset in part by a decline in average unit pricing. Switched services
revenue  increased from $6.0 million (44% of Telecom  Services  revenue) for the
three months ended December 31, 1995, to $23.9 million (69% of Telecom  Services
revenue)  for the three months  ended  December 31, 1996,  of which $7.5 million
relates to revenue  from Zycom  compared to $0.9  million  for the three  months
ended  December  31, 1995.  Approximately  $6.5 million of the increase in Zycom
revenue for the three  months  ended  December  31, 1996 as compared to the same
period in 1995  relates to changes in the  classification  of certain  operating
costs as a result of the Company  entering  into  long-term  contracts  with its
major customers.  Network usage as reflected in voice grade equivalents ("VGEs")
increased  53% from 488,403 VGEs on December 31, 1995 to 748,528 on December 31,
1996.  On December 31, 1996,  the Company had 2,069  buildings  connected to its
networks compared to 1,539 buildings connected on December 31, 1995.  Consistent
with expectations, Network Services revenue growth has been moderate, increasing
from $15.7 million to $16.0 million for the three months ended December 31, 1995
and 1996,  respectively,  while the Company  continues to reposition its systems
and operations to improve operating results. Satellite Services revenue remained
relatively  stable between the  three-month  periods ended December 31, 1995 and
1996 as a result of the offsetting  effects of increased maritime minutes of use
from cruise  ships and no revenue in the three  months  ended  December 31, 1996
from the four  teleports sold in March 1996. On a pro forma basis to reflect the
sale of the teleports,  the Company's  Satellite  Services revenue for the three
months  ended  December  31, 1995 and 1996 was $3.7  million  and $6.2  million,
respectively.

         Operating  costs.  Total  operating  costs for the three  months  ended
December 31, 1996 increased $22.8 million, or 84%, from the same period in 1995.
Telecom  Services  operating  costs  increased  from $11.9  million,  or 88%, of
Telecom  Services revenue for the three months ended December 31, 1995, to $34.5
million, or 99%, of Telecom Services revenue for the three months ended December
31, 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.  The increase in
operating costs in absolute  dollars is attributable to the increase in switched
access  services  and the  addition of  engineering  personnel  dedicated to the
development of local  exchange  services.  The increase in operating  costs as a
percentage  of revenue is due  primarily  to the  increase  in  switched  access
services  revenue,  which generates  negative  margins as a result of the higher
costs  associated  with utilizing ILEC network  facilities and the investment in
the development of local exchange  services without the benefit of corresponding
revenue in the same period.  The Company expects that the Telecom Services ratio
of  operating  costs to revenue  will  continue  to  increase  until the Company
provides a greater volume of higher margin services, principally local telephone
services,  carries  more  traffic  on its own  facilities  rather  than the ILEC
facilities,   and  obtains  the  right  to  use  unbundled  ILEC  facilities  on
satisfactory  terms,  any  or all of  which  may  not  occur.  Network  Services
operating  costs  
                                     30
<PAGE>

increased 2% to $12.3  million for the three months ended  December 31, 1996 and
increased as a percentage  of Network  Services  revenue from 76% to 77% for the
three month  periods  ended  December 31, 1995 and 1996,  respectively.  Network
Services operating costs include the cost of equipment sold, direct hourly labor
and other indirect project costs.  Satellite  Services operating costs decreased
2% to $3.2  million for the three months  ended  December  31,  1996.  Satellite
Services operating costs as a percentage of revenue declined to 51% of Satellite
Services  revenue  during the three  months ended  December  31, 1996,  from 52%
during the three months ended  December 31, 1995.  The decrease in percentage of
revenue as well as absolute  dollars is  attributable  to the decline in revenue
resulting from the sale of four of the Company's teleports in March 1996, offset
by an increase in higher margin maritime  services  revenue at MTN. Revenue from
teleport operations  historically have yielded lower gross margins than maritime
services  revenue.  Satellite  Services  operating  costs  consist  primarily of
satellite transponder lease costs and costs of equipment sold.

         Selling,  general  and  administrative  expense.  Selling,  general and
administrative  ("SG&A")  expense for the three months  ended  December 31, 1996
increased $5.6 million,  or 30%, compared to the three months ended December 31,
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, customer service,  marketing and sales
staffs dedicated to the expansion of the Company's  networks and  implementation
of the Company's expanded services strategy,  primarily the development of local
telephone  services.  SG&A expense as a percentage  of total revenue was 43% for
the three months ended December 31, 1996, compared to 53% for the same period in
1995. There is typically a period of higher administrative and marketing expense
prior to the generation of appreciable revenue from new products and services or
newly developed  markets.  SG&A expense for Network  Services  decreased both in
absolute dollars and as a percentage of Network Services revenue due to the cost
control  efforts  by the  Company's  management  and due to  approximately  $0.7
million in non-recurring charges, primarily legal accruals,  recorded during the
three months ended December 31, 1995.  Satellite Services SG&A expense decreased
in absolute  dollars and as a percentage  of Satellite  Services  revenue due to
cost control  efforts by the  Company's  management.  Other  corporate  expenses
increased from $4.0 million, or 11% of total revenue, for the three months ended
December 31, 1995 to $5.7 million, or 10% of total revenue, for the three months
ended December 31, 1996. This increase is primarily attributable to the addition
of employees,  principally  human  resources and regulatory  personnel,  for the
purpose of managing the Company's  growth and its expansion  into new markets as
allowed  under the  Telecommunications  Act.  The Company  expects  SG&A expense
(principally for Telecom Services) to increase in absolute dollars over the near
term to  facilitate  the  development  and  marketing of local  services and the
commencement   of  marketing   services   (including   long  distance  and  data
transmission services) to business end user customers.

         Depreciation  and amortization  expense.  Depreciation and amortization
expense increased $4.9 million, or 100%, for the three months ended December 31,
1996,  as  compared  to the same period in 1995.  Depreciation  of fixed  assets
increased  by  approximately  $2.3  million  as a result  of the  shortening  of
estimated  depreciable  lives during fiscal 1996,  as discussed in  "-Accounting
Changes,"  and an  increase in  depreciable  fixed  assets due to the  continued
expansion of the Company's  networks.  The increase in depreciation  expense was
offset  slightly due to the decrease
                                       31
<PAGE>
in depreciable assets resulting from the sale of four of the Company's teleports
in March 1996. The Company reports high levels of depreciation  expense 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 $9.3 million,  from
$15.2 million for the three months ended  December 31, 1995 to $24.5 million for
the three  months  ended  December 31, 1996,  which  included  $22.7  million of
non-cash  interest.  This increase was  attributable to an increase in long-term
debt,  primarily 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 equipment used in the expansion of the Company's networks.

         Interest income.  Interest income increased $2.2 million from the three
months  ended  December  31,  1995 to $6.0  million for the three  months  ended
December 31, 1996. The increase is  attributable  to the interest  earned on the
proceeds  from the  issuance  of the 12 1/2% Notes and the 14 1/4%  Exchangeable
Preferred Stock ("14 1/4% Preferred Stock") in April 1996.

         Share of  losses in joint  venture.  Effective  October  1,  1996,  the
Company sold its 50% interest in the Phoenix network joint venture. As a result,
no share of losses in joint  venture was recorded  during the three months ended
December 31,  1996,  as compared to the $0.2  million  recorded  during the same
period in 1995.  Future results will include the Company's  share of losses from
the joint venture with CSW.

         Other,  net.  Other,  net fluctuated $1.7 million from $1.0 million net
expense in the three months  ended  December 31, 1995 to $0.7 million net income
in the three months  ended  December 31,  1996.  Other  expense  recorded in the
three-month  period ended December 31, 1995 represents the write-off of deferred
financing costs on a credit facility that was fully paid in December 1995. Other
income recorded in the  three-month  period ended December 31, 1996 is primarily
attributable to the $0.8 million gain recognized in conjunction with the sale of
the Company's 50% interest in the Phoenix network joint venture.

     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
$1.8 million,  from $3.2 million for the three months ended December 31, 1995 to
$5.0 million for the three months ended  December 31, 1996.  The increase is due
primarily to the issuance of the 14 1/4% Preferred Stock in April 1996. Minority
interest  in share of  losses,  net of  accretion  and  preferred  dividends  on
subsidiary  preferred  stock  recorded  during the  current  three-month  period
consists of the  accretion of issue costs ($0.1  million) and the accrual of the
preferred  stock dividend ($5.7 million)  associated  with the 14 1/4% Preferred
Stock, offset by minority interest in losses of subsidiaries of $0.8 million.

         Cumulative  effect of change in accounting  for revenue from  long-term
telecom services  contracts.  The cumulative  effect of change in accounting for
revenue from long-term  telecom  services  contracts  recorded  during the three
months ended  December 31, 1995 is due to the change in accounting  principle as
described  in  "-Accounting  Changes." As the change in  accounting was
                                       32
<PAGE>
applied  retroactively  as of October 1, 1995, no similar  amounts were recorded
during the three months ended December 31, 1996.

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 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.  Approximately $10.6
million  of  the   increase  in  Zycom   revenue   relates  to  changes  in  the
classification  of certain  operating costs as a result of the Company  entering
into long-term contracts with its major customers. Network usage as reflected in
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 improve operating results.
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."

         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.  The increase in
operating costs in absolute  dollars is attributable to the increase in switched
access services and the expansion in off-net  special access service  offerings.
The  increase  in  operating  costs  as a  percentage  of total  revenue  is due
primarily to the increase in switched access services  revenue,  which generates
negative  margins as a result of the higher costs associated with utilizing ILEC
network  facilities  and the  investment in the  development  of local  exchange
services  without the benefit of corresponding  revenue in the same period.  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 greater volume of higher
margin services,  principally local telephone services, and obtains the right to
use unbundled ILEC facilities on satisfactory terms, any or all of which may not
occur. 
                                       33
<PAGE>

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.  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.
      
        Selling,  general and administrative  expense.  SG&A expense for fiscal
1996 increased $13.8 million, or 22%, 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
Company's  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  incorporation  of a new U.S.  publicly  traded
holding company,  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.  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  Changes,"
and an increase in  depreciable  fixed assets due to the continued  expansion of
the Company's 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.

         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% Notes issued in April 1996,
and an increase in  capitalized  lease  obligations  to finance the  purchase of
Telecom  Services and Satellite  Services  equipment.  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 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 the 13 1/2% Notes in August  1995 and the 12 1/2% Notes and 14
1/4% Preferred Stock in April 1996.

         Share of  losses  in joint  venture.  Share of  losses  in the  Phoenix
network  joint  venture,  in  which  the  Company  held a 50%  equity  interest,
increased  $1.1  million,  or 145%,  from fiscal 1995
                                       34
<PAGE>
to $1.8  million  for fiscal 1996 due to  increased  losses  resulting  from the
continued  expansion and  implementation of switched access services.  Effective
October 1, 1996,  the Company  sold its  interest in the Phoenix  network  joint
venture.

         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 NovoComm, 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 $8.3 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 issuance of the 12% redeemable  preferred stock of Holdings (the "Redeemable
Preferred  Stock"),  accretion  of  issue  costs  associated  with  the 14  1/4%
Preferred Stock ($0.3  million),  accrual of the preferred stock dividend on the
Redeemable  Preferred Stock ($2.1 million) and the 14 1/4% 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 Changes."
                                       35
<PAGE>

Fiscal 1995 Compared to Fiscal 1994

     The following  information reflects the pro forma 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 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 226
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 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  access  services,  which generated  negative  margins due to the costs
associated with reselling ILEC network  facilities.  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.  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.
                                       36
<PAGE>
         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  Company's  networks and
implementation of the Company's switched access 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
newly developed networks or markets. 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.

         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 August 1995.

         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 had 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.  Effective October 1, 1996, the Company sold its interest in the
Phoenix network joint venture.
                                       37
<PAGE>

Quarterly Results

         The following table presents selected  unaudited  operating results for
three-month  quarterly  periods,  beginning  with the  three-month  period ended
December 31, 1994 and through the  three-month  period ended  December 31, 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 Transition  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.
                                       38
<PAGE>
<TABLE>
<CAPTION>
                                                                                                                      
                                                                                                                        Three    
                                   Three Months Ended                               Three Months Ended                  Months   
                    -------------------------------------------------- ----------------------------------------------   Ended
                     Dec. 31,     Mar. 31,     June 30,    Sept. 30,     Dec. 31,   Mar. 31,    June 30,   Sept.30,     Dec. 31,
                       1994         1995         1995         1995        1995        1996        1996       1996        1996
                    ------------ ------------ ------------ ----------- ----------- ------------------------------------------------
                                                                (Dollars in thousands)
<S>                  <C>           <C>          <C>       <C>            <C>        <C>          <C>       <C>        <C>
Statementof

  Operations Data:
Revenue:
    Telecom services $  5,795        7,039        9,173     10,323        13,513      17,635      24,371     32,162     34,787
    Network services   15,293       13,496       14,061     15,928        15,718      13,973      14,679     15,746     15,981
    Satellites          
     services           3,546        5,387        5,825      5,744         6,168       4,336       5,596      5,197      6,188
                    ------------ ------------ ------------ ----------- ----------- ---------------------------------- -------------
       Total revenue   24,634       25,922       29,059     31,995        35,399      35,944      44,646     53,105     56,956

Operating loss         (6,664)     (10,625)     (12,443)   (17,082)      (15,258)    (15,823)    (20,262)   (21,909)   (27,051)
EBITDA                 (3,333)      (6,849)      (7,846)   (12,162)      (10,339)     (8,381)    (11,207)   (12,957)   (17,226)
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)   (49,823)
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)   (49,823)
                    ============ ============ ============ =========== =========== =========== =========== ============ ============

Statistical Data(2):
Telecom services:
  Buildings
    connected:
     On-net               244          251          273        280           304         327         384        478        522
     Off-net              628          777          978      1,095         1,235       1,401       1,493      1,589      1,547(3)
                    ------------ ------------ ------------ ----------- ----------- ---------------------------------- -------------
  Total buildings                 
   connected              872        1,028        1,251      1,375         1,539       1,728       1,877      2,067      2,069
   Customer
     circuits in 
       service
       (VGEs)         259,219      287,167      389,928    430,535       488,403     510,755     551,881    630,697    748,528
  Switches  
     operational            2            6           12         13            13          13          13         14         14(4)
  Switched
     minutes of use 
     (in millions)         10           32           97        144           235         362         475        563        607
  Fiber route miles(5)
    Operational           424          466          579        627           637         780         886      2,143      2,385
    Under construction      -            -            -          -             -           -           -          -        735

  Fiber strand 
    miles (6)
  Operational          19,049       21,811       25,264     27,150        28,779      36,310      45,098     70,067     75,490
  Under 
    construction            -            -            -          -             -           -           -          -     33,747

  Wireless miles (7)      606          606          606        568           545         582         483        491        506

Satellite services:
    VSATs                 682          694          687        626           633         658         659        835        860
    C-Band              
     installations(8)       -           17           25         28            33          36          48         48         54
    L-Band                 
     installations(9)       -            -            -          -             -           3          53        109        204
 -----------
<FN>

(1)      During fiscal 1996,  the Company  changed its method of accounting  for
         long-term  telecom services  contracts to recognize revenue as services
         are provided.  See "-Accounting  Changes." The effect of this change in
         accounting for the periods presented was not significant.

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

(3)      Buildings  connected  off-net  declined from September 30, 1996 to
         December 31, 1996 due to the sale of the Company's 50% interest in the
         Phoenix joint venture.

(4)      The  switch  located  in  Melbourne,  Florida  is in the  process  of 
         being relocated and is not included in the statistical data.

(5)      Fiber route miles  refers to the number of miles of fiber optic  cable,
         including  leased fiber. As of December 31, 1996, the Company had 2,385
         fiber route  miles,  of which 312 fiber  route miles were leased  under
         operating leases. Fiber route miles under construction 
                                       39
<PAGE>
         represents fiber under  construction and fiber which is expected to be
         operational within six months.

(6)      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 December 31, 1996,  the Company
         had 75,490 fiber strand  miles,  of which 5,936 fiber strand miles were
         leased under operating  leases.  Fiber strand miles under  construction
         represents  fiber under  construction and fiber which is expected to be
         operational within six months.

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

(8)      C-Band installations  service cruise ships, U.S. Navy vessels and 
         offshore oil platform installations.

(9)      L-Band installations service smaller maritime installations, and both
         mobile and fixed land-based units.
</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 fiscal 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
quarter ended  December 31, 1996  resulted  from a  combination  of increases in
negative margin switched access services  revenue and 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 access 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 December 31, 1996, the Company had net operating  loss  carryforwards
("NOLs") of  approximately  $171.9  million,  which  expire at various  times in
varying  amounts  through 2011.  However,  due to the provisions of Section 382,
Section 1502 and certain other  provisions of the Internal Revenue Code of 1986,
as  amended  (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 for state income tax purposes.

     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
                                       40
<PAGE>
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 growth has been funded through a combination of equity,  debt
and lease financing.  As of December 31, 1996, the Company had current assets of
$449.2  million,   including  $392.5  million  of  cash,  cash  equivalents  and
short-term  investments,  which exceeded  current  liabilities of $87.6 million,
providing working capital of $361.6 million. The Company invests 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.  The Company's investment objectives are safety,  liquidity and yield,
in that order.

 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,  and $5.6 million and
$8.6  million  for  the  three   months  ended   December  31,  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  the  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,  and  $24.2  million  (net of  $21.1  million  received  in
connection with the aforementioned  sale) and $82.3 million for the three months
ended  December  31,  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,  and $25.8 million and $58.8 million for the three
months ended December 31, 1995 and 1996, respectively. The Company will continue
to use cash in 1997 for the  construction  of new networks and the  expansion of
existing networks. The Company acquired assets under capital leases
                                       41
<PAGE>
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, respectively,  and $0.1 million and
$19.5  million  for  the  three  months  ended   December  31,  1995  and  1996,
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 15 high capacity  digital  switches (one of which is located
in Phoenix and will be  operational  through April 1997,  after which it will be
relocated).  Assets  acquired  during the year ended  September  30,  1996 under
capital  leases  primarily  consisted  of fiber optic  networks  included in the
Company's agreement with Southern California Edison Company ("SCE"). The Company
is required to make capital  lease  payments of $31.6  million,  $15.6  million,
$13.9 million, $14.3 million and $17.4 million during 1997, 1998, 1999, 2000 and
2001, respectively,  and $107.5 million thereafter.  The Company expects to make
investments of approximately $24.2 million in 1997 in its joint venture with CSW
and estimates  making  additional  investments  therein of  approximately  $25.5
million  through 2002. The Company is obligated to purchase all of the shares of
MTN (at fair value) that are owned by the other  shareholder  of MTN, if MTN has
not completed a public offering by January 3, 1998.

 Cash Provided (Used) By Financing Activities

     Financing  activities  provided  $49.4  million,  $377.8 million and $360.2
million in fiscal 1994, 1995 and 1996,  respectively,  and used $8.4 million and
$0.2 million in the three months ended December 31, 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 14
1/4% 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.

     As of December 31, 1996,  an aggregate of  approximately  $92.8 million of
capitalized  lease  obligations  was due  prior  to  December  31,  2001  and an
aggregate  accreted value of approximately  $685.8 million was outstanding under
the 12 1/2% Notes and 13 1/2%  Notes.  The 12 1/2%  Notes  require  payments  of
interest to be made in cash  commencing on November 1, 2001 and mature on May 1,
2006.  The 13  1/2%  Notes  require  payments  of  interest  to be  made in cash
commencing on March 15, 2001 and mature on September 15, 2005. In addition,  the
14  1/4%  Preferred  Stock  requires  payment  of  dividends  to be made in cash
commencing August 1, 2001. As of December 31, 1996, the Company had $6.5 million
of other  indebtedness  that matures prior to December 31, 2001. The Company may
also have additional payment obligations prior to such time, the amount of which
cannot  presently be determined.  See notes 3, 8, 10 and 14 to the  Consolidated
Financial  Statements.  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.
Accordingly,  the  Company  may  have  to  refinance  a  substantial  amount  of
indebtedness  and obtain  substantial  additional funds prior to March 2001. The
Company's  ability to do so will depend on, among other  things,  its  financial
condition  at the  time,  the  restrictions  in  the  instruments  governing  it
indebtedness, and other factors, including market conditions, beyond the control
of the  Company.  There can be no  assurance  that the  Company  will be able to
refinance such indebtedness,  including such capitalized  leases, or obtain such
additional  funds,  and if the Company is unable to effect such  refinancings or
obtain
                                       42
<PAGE>
additional  funds, the Company's ability to make principal and interest payments
on its  indebtedness  or make  payments of cash  dividends  on, or the mandatory
redemption of, the 14 1/4% Preferred Stock, would be adversely affected. 

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 (including
asset acquired under capital leases and through the issuance of debt) were $54.9
million,  $88.5  million  and  $175.1  million  in fiscal  1994,  1995 and 1996,
respectively,  and $25.9  million and $78.2  million for the three  months ended
December  31,  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  $250.0 million and $240.0 million during 1997 and
1998,  respectively,  and continued significant capital expenditures thereafter.
To facilitate the expansion of its switched  services strategy and entrance into
data communications,  the Company has entered into equipment purchase agreements
with various vendors under which the Company must purchase a substantial  amount
of equipment  and other  assets,  including a full range of  switching  systems,
fiber optic cable,  network electronics,  software and services.  Actual capital
expenditures will depend on numerous  factors,  including certain factors beyond
the Company's control.  These factors include the nature of future expansion and
acquisition   opportunities,   economic  conditions,   competition,   regulatory
developments and the availability of equity, debt and lease financing.
 
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, capitalized 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.

     The failure to obtain  sufficient  amounts of financing could result in the
delay or
                                       43
<PAGE>
abandonment  of some or all of the Company's  development  and expansion  plans,
which  could  have a  material  adverse  effect of the  Company's  business.  In
addition,  the  inability  to fund  operating  deficits  with  the  proceeds  of
financings  until  the  Company  establishes  a  sufficient  revenue  generating
customer base could have a material adverse effect on the Company's liquidity.

Accounting Changes

          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  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.

         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 fiscal 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 Transition 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 in fiscal 1996.
                                       44
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated  financial statements of the Company appear on page F-1 of
this  Transition  Report.  The  financial   statement  schedule  required  under
Regulation  S-X is filed  pursuant  to Item 14 of this  Transition  Report,  and
appears on page S-1 of this Transition 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.
                                       45
<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,  reviews certain filings
with the  Securities  and  Exchange  Commission  and various  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.
<TABLE>
<CAPTION>

Name                                Age       Position
---------------------------------- ------ --------------------------------------
<S>                                 <C>    <C>
William J. Laggett(3)(4)(5)(6)(7)   66     Chairman of the Board of Directors
J. Shelby Bryan (3)(4)(5)(6)        50     President, Chief Executive Officer 
                                           and Director
Douglas I. Falk                     47     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                     46     Executive Vice President-Network and
                                           President of FOTI
Marc E. Maassen                     45     Executive Vice President
William J. Maxwell                  54     Executive Vice President-Telecom and
                                           President of ICG Telecom Group, Inc.
Harry R. Herbst (1)(4)(7)           45     Director
Stan McLelland(2)(5)(7)             51     Director
Jay E. Ricks (1)(5)(6)              64     Director
Leontis Teryazos (2)(7)             54     Director

<FN>

(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.
                                       46
<PAGE>

(5)     Member of Compensation Committee.

(6)     Member of Executive Committee.

(7)     Member of Stock Option Committee.
</FN>
</TABLE>

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 it 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.
                                       47
<PAGE>

Marc E. Maassen has been Executive Vice  President  since August 1996.  Prior to
this  position,  Mr.  Maassen  was  Executive  Vice  President  - Network of ICG
beginning in October 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 U S 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

Harry R.  Herbst  has  been a  Director  since  October  1995 and has been  Vice
President of Finance and Strategic  Planning of Gulf Canada Resources Ltd. since
November 1995 and Vice  President and  Treasurer of Gulf Canada  Resources  Ltd.
from January to November  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.
                                       48
<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)
                 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
                 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.
                                       49
<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
                 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, 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.
<TABLE>
<CAPTION>
                                                              Known Failures
Reporting Person          Late Reports      Transactions     to File Required 
                                         Untimely Reported        Forms
------------------------ --------------  ------------------ --------------------
<S>                       <C>                <C>                <C>
William W. Becker (1)     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
----------
<FN>

(1)      Former Director.
</FN>
</TABLE>
                                       50
<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.
On January 1, 1997, all  non-employee  directors of ICG were 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, Stan McLelland, Director, and Jay E. Ricks, Director.

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.
                                       51
<PAGE>
<TABLE>
<CAPTION>

                           Summary Compensation Table
                                                                      
                                                                      
                                   Annual Compensation                Long-term
----------------------    -------  -------------------- ------------Compensation
                                                                     Securities
Name and Principal        Fiscal    Salary      Bonus  Other 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 Chief         1995     30,728          -       -        1,550,000
Executive Officer           1994          -          -       -                -

James D. Grenfell           1996    148,526     46,665 138,435 (4)       50,000
Executive Vice President,   1995          -          -       -                -
CFO and Treasurer           1994          -          -       -                -

Marc E. Maassen             1996    147,092     22,500  25,341 (6)       40,000
Executive Vice President    1995    131,933     60,000   9,291 (3)       15,000
                            1994    105,100     23,375   6,290 (3)            -

William J. Maxwell          1996    222,917    117,160  18,632 (7)       75,000
Executive Vice              1995    205,475     75,000   8,288 (3)       75,000
President-Telecom and       1994    179,850    100,000   9,250 (3)            -
President ICG Telecom Group,
Inc.

John R. Evans(8)            1996     33,205          - 361,311 (9)            -
Former Vice President,      1995    169,850     43,750  12,008 (3)       40,000
Treasurer and CFO           1994    121,600     70,000   9,240 (3)            -

John D. Field (10)          1996    295,000     50,000  27,857(11)       75,000
Former Executive Vice       1995     66,667    110,000   3,000 (3)            -
President and Secretary     1994          -          -       -                -
                                                                               
<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 ICG's contributions to 401(k) Defined Contribution Plan.

(4)  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.

(5)  Consists   of   compensation   earned   as  the   former   Executive   Vice
     President-Network,  President of FOTI and former Vice  President of Mergers
     and Acquisitions of ICG.

(6)  Consists of $16,428 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $8,913.

(7)  Consists  of $9,200 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $9,432.

(8)  Mr.  Evans is the former  Vice  President,  Treasurer  and Chief  Financial
     Officer of Holdings-Canada, whose employment terminated in November 1995.

(9)  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.

(10) Mr. Field is the former  Executive  Vice  President  and  Secretary of ICG,
     Holdings-Canada and Holdings, whose employment terminated in November 1996.

(11) Consists of $15,586 for car  allowance  and ICG's  contributions  to 401(k)
     Defined Contribution Plan in the amount of $12,271.

</FN>
</TABLE>
                                       52
<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 In-the-
        Underlying Unexercised Options        Money Options at Fiscal Year
             at Fiscal Year End                     End(1) (2)
       --------------------------------      -------------------------------
         Number of Shares
          Acquired on     Value     Exercis-  Unexercis-  Exercis-  Unexercis-
Name         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
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
John D.
 Field             -            -          0   28,750            0      316,250

<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
             Individual Grants                                for Option Term
         -----------------------                            -------------------
                           Percent 
                           of Total
             Number of     Options 
             Securities    Granted to   Exercise        
             Underlying    Employees in  Price  Expiration  
Name      Options Granted  Fiscal Year  ($/sh)    Date       5% ($)   10% ($)
---------- --------------- ------------ -------- ---------- --------- --------
<S>          <C>            <C>        <C>      <C>        <C>        <C>
J. Shelby      
 Bryan       450,000        33.9       $10.00   11/13/2005 $2,830,500 $7,173,000
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           -            -            -          -          -
John D. 
 Field        75,000 (1)     5.7        10.00   11/13/2005    471,750  1,195,500
<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.
                                       53
<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.

         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  
                                       54
<PAGE>
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.  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 January 31, 1997, 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.
                                       55
<PAGE>
<TABLE>
<CAPTION>

                                          Amount/Nature of 
Name and Address of Beneficial Owner     Beneficial Ownership        Percent (1)
-------------------------------------- --------------------- -----------------
<S>                                     <C>                             <C>
Montgomery Asset Management, L.P.       3,148,328                       10.1%
101 California Street
San Francisco, CA 94111

Franklin Advisers, Inc.                  2,436,500 (2)                   7.8%
777 Mariners Island Boulevard
San Mateo, CA 94404     

LGT Asset Management, Inc.              2,055,100 (3)                    6.6%
50 California Street
San Francisco, CA 94111  
 
William W. Becker                       1,837,198 (2)                   5.9%
West Bay Road
Georgetown, Cayman Island

Denver Investment Advisors, LLC         1,784,700                       5.7%
1225 17th Street, 26th Floor
Denver, CO 80202

Ardsley Advisory Partners               1,630,000 (5)                   5.2%
646 Steamboat Road
Greenwich, CT 06836

Morgan Stanley Group Inc.               1,621,651 (6)                    5.2%
1585 Broadway 
New York, NY 10036

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

William J. Laggett                         55,297 (8)                      *
Chairman of the Board of Directors
of ICG

J. Shelby Bryan                         1,665,470 (9)                    5.3%
President, Chief Executive Officer and
Director of ICG, Holdings-Canada and
Holdings

Douglas I. Falk                               475                          *
Executive Vice President-Satellite of ICG, 
Holdings-Canada and Holdings, and President
of ICG Satellite Services

James D. Grenfell                          12,846 (10)                      *
Executive Vice President, Chief Financial
Officer and Treasurer of ICG, Holdings-Canada
and Holdings, and Director of
Holdings

Mark S. Helwege                                 0                          *
Executive Vice President-Network of ICG,
Holdings-Canada and Holdings,   
President of FOTI and
Director of Holdings
                                                       56     
<PAGE>

                                        Amount/Nature of 
Name and Adress of Beneficial Owner    Beneficial Ownership        Percent (1)  
--------------------------------------------------------------------------------

Marc E. Maassen                            33,626 (11)                    *
Executive Vice President of ICG,
Holdings-Canada and Holdings
         
William J. Maxwell                        240,987 (9)                     *
Executive Vice President-Telecom
of ICG, Holdings-Canada, and Holdings,
President of ICG Telecom Group, Inc.
and Director of Holdings

Harry R. Herbst                           30,934 (8)                      *
Director of ICG

Stan McLelland                             9,400(13)                      *
Director of ICG

Jay E. Ricks                              82,180(14)                      *
Director of ICG
                                                       
Leontis Teryazos                          45,000 (8)                      *
Director of ICG

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

John D. Field                             19,750 (15)                     *
Former Executive Vice President and 
Secretary of ICG,
Holdings-Canada and Holdings

All executive officers and Directors as 
a group (11 persons)                   2,176,215 (16)                  7.0%

------------------
*Less than one percent of ICG's outstanding shares of Common Stock.

<FN>

(1)  Based on  31,270,523  issued  and  outstanding  shares of  Common  Stock on
     January 31, 1997,  plus shares of Common Stock which may be acquired by the
     person or group indicated pursuant to any options and warrants exercisable,
     or pursuant to any shares vesting under the Company's 401(k) Plan, within
     60 days.

(2)  Franklin Advisers, Inc. has reported on Schedule 13G that its parent
     holding company, Franklin Resources, Inc. ("FRI"), and Charles B. Johnson  
     and Rupert H. Johnson, Jr., principal shareholders of FRI, benefically own
     the shares of Common Stock reflected in this table.

(3)  LGT Asset Management, Inc. has reported on Schedule 13G that its
     subsidiaries, Chancellor LGT Asset Management, Inc.("CLAMI") and
     Chancellor LGT Trust Company ("CLTC"), beneficially own the shares of
     Common Stock reflected in this table and that CLAMI and CLTC have sole
     power to dispose or direct the disposition of, all of such shares.

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

(5)  Ardsley Advisory Partners ("Ardsley") has reported on Schedule 13G that
     its managing partner, Philip J. Hempleman, beneficially owns the shares
     of Common Stock reflected in this table and that Ardsley and Mr Hempleman 
     may be deemed to have the shares power to dispose or direct the disposition
     of,all of such shares.
                                        57
<PAGE>
(6)  Includes 319,706 shares of Common Stock held by Morgan Stanley Group, Inc.,
     801,945  shares of Common  Stock  held by PG  Investors  Inc.  ("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
     warrants.

(7)  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.

(8)  Represents  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 in Mr. Bryan's spouse's name for
     which Mr. Bryan disclaims beneficial ownership,  970 shares of Common Stock
     held by a 401(k) Plan pursuant to contribution of shares to the Plan by the
     Company and 1,662,500 shares of Common Stock which may be acquired pursuant
     to the exercise of outstanding options.

(10) Includes  346 shares of Common  Stock  held by a 401(k)  Plan  pursuant  to
     contribution  of shares to the Plan by the  Company  and  12,500  shares of
     Common Stock which may be acquired  pursuant to the exercise of outstanding
     stock options.

(11) Includes  2,626  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 outstanding
     stock options.

(12) 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,  4,437  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.

(13) Includes 5,000 shares of Common Stock which may be acquired pursuant to the
     exercise of outstanding stock options.

(14) 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.

(15) Includes  1,000 shares of Common Stock held jointly with Mr. Field's spouse
     and 18,750  shares of Common  Stock which may be  acquired  pursuant to the
     exercise of outstanding stock options.

(16) As a group,  executive  officers and Directors  beneficially  own 2,119,411
     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 Teleport  Transmissions Holdings Inc. ("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 and the three
months ended  December  31,  1996,  the Company paid or accrued $2.4 million and
$0.6 million,  respectively,  to TTH's subsidiaries for common carrier services,
and ICG  received  from  TTH's  subsidiaries  $1.9  million  and  $0.4  million,
respectively,   as  payments  on  the  promissory  notes,  management  services,
equipment leases and technical  support.  In addition,  $1.1 million of the note
balances  were  canceled  in  fiscal  1996  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.  During fiscal 1996 and the three months ended  December
31, 1996, the Company paid $1.3 million and $0.3 million, respectively,  related
to this consulting agreement. William W. Becker is President and Chief Executive
Officer of ICC.

         As part of a resolution and settlement of certain transactions in 1995
between the Company and the Becker Group of Companies (the "Becker Group"), a   
company founded by William W. Becker, a former Director of the Company, the 
Company was assigned a note receivable in the amount of $200,000, which had
previously been advanced to John D. Field, a former executive officer of the
Company, by the Becker Group.  The note receivable is evidenced by a
promissory note from Mr. Field to the Company payable on demand, which bears
interest at a rate of 7% per annum.  Interest is payable annually.    

         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.
                                       59
<PAGE>

                                     PART IV

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

(A)  (1)  Financial  Statements.  The  following  financial statements are
          included in Item 8 of Part II:
                                                                           Page
                                                                           -----
          Independent Auditors' Report                                     F-2
          Consolidated Balance Sheets, September 30, 1995 and 1996, 
               and December 31,1996                                        F-3
          Consolidated Statements of Operations, Years Ended September 
               30, 1994, 1995 and 1996, and the Three Months Ended
               December 31, 1995 (unaudited) and 1996                      F-5
          Consolidated  Statements of Stockholders' Equity (Deficit),
               Years Ended  September 30, 1994, 1995 and 1996, and the
               Three Months Ended December 31, 1996                        F-7
          Consolidated Statements of Cash Flows, Years Ended September
               30,  1994,  1995 and 1996,  and the Three  Months Ended
               December 31, 1995 (unaudited) and 1996                      F-9
          Notes to Consolidated Financial Statements, September 30, 
               1995 and 1996, and December 31, 1996                        F-12

     (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
               SuccessionPlan 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].
                                       60
<PAGE>

             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 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

                                       61
<PAGE>
  
                    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  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.
                                       62
<PAGE>
                    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.]

              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  

                                       63
<PAGE>
                    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 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 
                                       64
<PAGE>

                    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. 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, 1995].

              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].
                                       65
<PAGE>
              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
                    (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/A 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  [Incorporated
                    by reference to Exhibit 10.39 to ICG Communications,  Inc.'s
                    Annual  Report on Form  10-K/A  for the  fiscal  year  ended
                    September 30, 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  [Incorporated by
                    reference  to Exhibit  10.41 to ICG  Communications,  Inc.'s
                    Annual  Report on Form  10-K/A  for the  fiscal  year  ended
                    September 30, 1996.]

              10.42:ICG  Communications,  Inc.,  401(k) Wrap  Around  Deferred
                    Compensation  Plan.  [Incorporated  by  reference to Exhibit
                    10.42 to ICG  Communications,  Inc.'s  Annual Report on Form
                    10-K/A for the fiscal year ended September 30, 1996.]

              10.43:ICG  Communications,  Inc.  1996 Employee  Stock  Purchase
                    Plan.   [Incorporated   by  reference  to  the  Registration
                    Statement on Form S-8 of ICG Communications,  Inc., File No.
                    33-14127, filed on October 14, 1996].
             
              10.44:Consulting Services Agreement, by and between IntelCom Group
                    Inc. and International Communications Consulting, Inc.,
                    effective January 1, 1996. 

              10.45:Confidential  General Release and Convenant Not to Sue, by
                    and  between  ICG  Communications,  Inc.  and John D. Field,
                    dated November 5, 1996.

          (11) Statement re  Computation of per Share  Earnings. 
               Not Applicable
                                       66
<PAGE>
           
          (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 LLP

          (24) Power of Attorney.
               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].

                                       67
<PAGE>
(B)      Report on Form 8-K.  The  following report on Form 8-K was filed by
         the Registrants during the three months ended December 31, 1996:


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


                                       68
<PAGE>



                              FINANCIAL STATEMENTS

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

Consolidated Balance Sheets, September 30, 1995 and 1996,
  and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . .         F-3

Consolidated Statements of Operations, Years Ended September 30,
  1994, 1995 and 1996, and the Three Months Ended December 31, 1995 
  (unaudited) and 1996  . . . . . . . . . . . . . . . . . . . . . .         F-5

Consolidated Statements of Stockholders' Equity (Deficit), Years 
  Ended September 30, 1994, 1995 and 1996, and 
  the Three Months Ended December 31, 1996 . . . . . . . . . . . . .        F-7

Consolidated Statements of Cash Flows, Years Ended September 30,
  1994, 1995 and 1996, and the Three Months Ended December 31, 1995 
  (unaudited) and 1996  . . . . . . . . . . . . . . . . . . . . . . .       F-9

Notes to Consolidated Financial Statements, September 30, 1995
  and 1996, and December 31, 1996 . . . . . . . . . . . . . . . . . .       F-12


                                      F-1
<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
December  31,  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, and the  three-month  period ended
December  31,   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 December 31, 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, and the  three-month  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

As explained in note 2 to the consolidated financial statements, during the year
ended  September  30, 1996,  the Company  changed its method of  accounting  for
long-term telecom services contracts.


                                                          KPMG Peat Marwick LLP


Denver, Colorado
February 21, 1997
                                      F-2
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets
September 30, 1995 and 1996, and December 31, 1996
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                       September 30,                  
                             ----------------- ---------------     December 31,
Assets                           1995               1996                1996
                             ------------   ------------------  ----------------
                                              (in thousands)
<S>                              <C>                <C>                 <C> 
Current assets:
  Cash and cash equivalents      $  269,416         451,082             359,934
  Short-term investments                  -           6,832              32,601
  Receivables:
   Trade, net of allowance of
    $2,217, $2,509 and $2,515 at
    September 30, 1995 and 1996,
    and December 31, 1996,
    respectively                     23,483          34,818              41,131
   Revenue earned, but unbilled
   (note 2)                           7,046           4,062               6,053
   Joint venture and affiliate
   (note 3)                             732               -                   -
   Other (note 7)                     1,430           1,955               1,440
                                  -----------  --------------    ---------------
                                     32,691          40,835              48,624

  Inventory                           2,165           3,206               2,845
  Prepaid expenses and deposits       3,424           4,109               5,019
  Notes receivable, net (note 4)      1,761             263                 200
                                  -----------   --------------   ---------------

       Total current assets         309,457         506,327             449,223
                                 ------------  ---------------   ---------------

Property and equipment 
 (notes 5, 8 and 9)                 228,609         383,435             460,477
Less accumulated depreciation 
 (note 2)                           (26,605)        (47,298)            (56,545)
                                -------------  ---------------   ---------------
       Net property and 
        equipment                   202,004         336,137             403,932
                                -------------  ---------------   ---------------

Investments (note 3)                  5,209           5,169               5,170
Long-term notes receivable,
  net (note 3)                        7,599           6,618                 623
Restricted cash (note 14)                 -          13,333              13,333
Other assets, net of accumulated 
  amortization:
    Goodwill (note 3)                29,199          32,175              31,881
    Deferred financing costs         16,018          22,584              21,963
    Transmission and other licenses  10,792           8,611               8,526
    Other (note 6)                    3,275           8,397               9,482
                                -------------   -------------- -----------------
                                     59,284          71,767              71,852
                                -------------  --------------- -----------------
                                  $ 583,553         939,351             944,133
                                =============  =============== =================
                                                                     (Continued)
</TABLE>
                                      F-3
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
--------------------------------------------------------------
                                        September 30,             
                                ------------------------------
Liabilities and Stockholders'                                    December 31,
Equity (Deficit)                      1995             1996          1996
                               --------------  -------------    --------------
                                              (in thousands)
<S>                                 <C>              <C>               <C>        
Current liabilities:
  Accounts payable                 $ 14,712           19,071            24,813
  Accrued liabilities                18,346           32,810            37,309
  Line-of-credit payable 
   (note 8)                           3,692                -                 -
  Current portion of long-term
    debt (note 8)                    14,454              795               817
  Current portion of capital
    lease obligations (notes 9 
    and 14)                           9,164            7,487            24,683
                                -------------  -------------     -------------

       Total current liabilities     60,368           60,163            87,622

Long-term debt, net of discount, 
  less current portion (note 8)     379,100          668,989           690,358
Capital lease obligations, less 
  current portion (note 9)           26,435           70,838            71,146
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           849,126
                                ------------- --------------- -----------------

Minority interests                    4,040            2,780             1,967

Redeemable preferred stock
  of subsidiary ($30.5 million, 
  $159.1 million and $164.8  
  million liquidation value at
  September 30, 1995 and 1996,
  and December 31, 1996,
  respectively)(notes 8 and 10)      14,986          153,318           159,120
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           278,686
  Additional paid-in capital         26,492           23,874            23,874
  Accumulated deficit              (134,710)        (318,817)         (368,640)
                               --------------  --------------   ---------------

        Total stockholders'
        equity (deficit)             82,535          (19,588)          (66,080)
                               --------------  ---------------  ---------------

Commitments and contingencies
  (notes 3, 7, 8, 9, 10  and 14)  
                                  $ 583,553          939,351           944,133
                               ==============  ==============  ================
</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,
and the Three Months Ended December 31, 1995 (unaudited) and 1996
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Three months ended
                                                                 Years ended September 30,                   December 31,
                                                       ----------------------------------------------------------------------------
                                                             1994           1995            1996        1995            1996
                                                       --------------- -------------- --------------- ------------  ---------------
                                                                                                      (unaudited)
                                                                          (in thousands, except per share data)
 <S>                                                   <C>                 <C>           <C>             <C>          <C>
 Revenue:
       Telecom services (note 2)                       $     14,854         32,330         87,681         13,513       34,787
       Network services (note 17)                            36,019         58,778         60,116         15,718       15,981
       Satellite services (note 13)                           8,121         20,502         21,297          6,168        6,188
       Other                                                    118              -              -              -            -
                                                       --------------- --------------- ------------ --------------- -------------
          Total revenue                                      59,112        111,610        169,094         35,399       56,956
                                                       --------------- -------------- ------------- --------------- -------------
  Operating costs and expenses:
       Operating costs                                       38,165         78,846        135,253         27,110       49,929
       Selling, general and administrative expenses          28,015         62,954         76,725         18,628       24,253
       Depreciation and amortization (note 2)                 8,198         16,624         30,368          4,919        9,825
                                                       --------------- -------------- ------------- ---------------- -------------
          Total operating costs and expenses                 74,378        158,424        242,346         50,657       84,007

          Operating loss                                    (15,266)       (46,814)       (73,252)       (15,258)     (27,051)
  Other income (expense):
       Interest expense                                      (8,481)       (24,368)       (85,714)       (15,215)     (24,454)
       Interest income                                        1,788          4,162         19,300          3,750        5,962
       Share of losses of joint venture and investment       (1,481)          (741)        (1,814)          (228)           -
       Provision for impairment of goodwill,
         investment and notes receivable (notes 3                                          
         and 4)                                                   -         (7,000)        (9,917)             -            -
       Other, net (note 3)                                     (863)          (764)        (9,082)        (1,023)         708
                                                       -------------- --------------- -------------- --------------- -------------
                                                             (9,037)       (28,711)       (87,227)       (12,716)     (17,784)
                                                       --------------- -------------- -------------- --------------- -------------
  Loss before minority interest, income taxes and
        cumulative effect of change in accounting           (24,303)       (75,525)       (160,479)      (27,974)     (44,835)
  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)       (3,215)      (4,988)
                                                       --------------- -------------- --------------- -------------- -------------
  Loss before income taxes and cumulative effect
  of change in accounting                                   (23,868)       (76,648)       (185,785)      (31,189)     (49,823)
  Income tax benefit (note 15)                                    -              -           5,131             -            -
                                                       --------------  -------------- --------------- -------------- -------------
  Loss before cumulative effect of change in accounting     (23,868)       (76,648)       (180,654)      (31,189)     (49,823)
      Cumulative effect of change in accounting for
         revenue from long-term telecom services
         contracts (note 2)                                       -              -          (3,453)       (3,453)           -
                                                       --------------- -------------- -------------- -------------- -------------
          Net loss                                     $    (23,868)       (76,648)       (184,107)      (34,642)     (49,823)
                                                       =============== ============== ============== ============== =============
                                                                                                                   (Continued)
</TABLE>
                                                                      
                                                                           F-5
<PAGE>
  ICG COMMUNICATIONS, INC.
  AND SUBSIDIARIES

  Consolidated Statements of Operations, Continued
<TABLE>
<CAPTION>

  -------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Three months ended
                                                                 Years ended September 30,                  December 31,
                                                       --------------------------------------------------------------------------
                                                            1994           1995            1996          1995           1996
                                                       --------------- -------------- -----------  ------------------ ------------
                                                                                                      (unaudited)
                                                                         (in thousands, except per share data)
  <S>                                                  <C>               <C>          <C>             <C>              <C>         
  Loss per share (note 2):
       Loss before cumulative effect of change in      
        accounting                                     $       (1.56)        (3.25)     (6.70)           (1.24)          (1.56)
                                                         
       Cumulative effect of change in accounting                   -             -      (0.13)           (0.14)              -
                                                                   -                  
                                                       --------------  ------------  -----------    ------------    -------------  
       Loss per share                                  $       (1.56)        (3.25)     (6.83)           (1.38)          (1.56)
                                                       ==============  ============ ============    ==============  =============
       Weighted average number of shares outstanding          15,342        23,604     26,955           25,139          31,840
                                                       ==============  ============ ============   ==============  ==============
  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          13,513          34,787
  Total revenue                                              58,653        110,897    169,094          35,399          56,956
  Operating loss                                            (15,725)       (47,527)   (73,252)        (15,258)        (27,051)
  Net loss                                                  (24,327)       (77,361)  (180,654)        (31,189)        (49,823)
  Loss per share
                                                              (1.59)         (3.28)     (6.70)          (1.24)          (1.56)

                                                                                
                                            See accompanying notes to consolidated financial statements.
                                                                               F-6 

<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended  September  30, 1994,  1995 and 1996,  and the Three Months
Ended December 31, 1996

</TABLE>
<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 (note 11)                            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     123            1,398                -                -            1,398
  assets
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
</TABLE>
                                                                           F-7  

<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
(Deficit), Continued
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Total
                                                                                     Additional                    stockholders'
                                                            Common stock              paid-in        Accumulated    equity
                                                       Shares           Amount        capital          deficit     (deficit)
                                                   -------------    -------------    -------------    ------------- ---------------
                                                                                            (in thousands)

<S>                                                   <C>        <C>                   <C>            <C>               <C>        
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 (note 11)                             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)
Shares issued for cash-exercise of options 
  and warrants                                           132            2,084                -                -            2,084
Shares issued in connection with business
  combination (note 3)                                    18              350                -                -              350
Shares issued as contribution to 401(k)
  plan (note 16)                                          19              480                -                -              480
Shares issued upon conversion of
  subordinated notes (note 8)                             23              417                -                -              417
            Net loss                                       -                -                -          (49,823)         (49,823)
                                                  -------------    -------------    -------------    -------------    -------------
          Balances at December 31, 1996               31,895      $   278,686           23,874         (368,640)         (66,080)
                                                  =============    =============    =============    =============    =============

</TABLE>

                  See accompanying notes to consolidated financial statements.

                                                            F-8
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended September 30, 1994, 1995 and 1996,
and the Three Months Ended December 31, 1995 (unaudited) and 1996
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Three months ended
                                                             Years ended September 30,                      December 31,
                                                    ---------------------------------------------   -----------------------------
                                                        1994           1995             1996            1995           1996
                                                    ------------- ----------------  -------------   -------------  --------------
                                                                                                    (unaudited)
                                                                                   (in thousands)
<S>                                                   <C>               <C>            <C>             <C>            <C>          
Cash flows from operating activities:
      Net loss                                    
      Adjustments to reconcile net loss to net
      cash used by operating activities:              $ (23,868)         (76,648)      (184,107)        (34,642)       (49,823)
          Cumulative effect of change in accounting           -                -          3,453           3,453              -
          Share of losses of joint venture and          
           investment                                     1,481              741          1,814             228              -
          Minority interest in share of (losses),
           net of accretion and non-cash preferred
           dividends on subsidiary preferred stock         (435)             656         24,279           2,188          4,988
          Depreciation and amortization                   8,198           16,624         30,368           4,919          9,825
          Compensation expense related to issuance
           of common stock options                          911              158             53              14              -
          Interest expense deferred and included
           in long-term debt and non-cash                 4,885           14,068         63,951          12,004         22,087
           interest expense
          Amortization of deferred financing costs
           included in interest expense                     615              989          2,573             527            612
          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             405            480
          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               -              -
          Gain on sale of interest in joint venture           -                -              -               -           (776)
      Decrease (increase) in operating assets,
        excluding the effects of business acquisitions,
        dispositions and non-cash transactions:
          Accounts receivable                           (13,208)          (6,092)       (13,293)         (3,742)        (7,789)
          Inventory                                         (84)            (447)        (1,200)           (272)           361
          Prepaid expenses and deposits                     317           (2,482)        (2,975)           (459)          (910)
      Increase 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           9,749         12,306
                                                   --------------  -------------   -------------  --------------  -------------
             Net cash used by operating activities    $  (7,532)         (43,039)       (47,361)         (5,628)        (8,639)
                                                   -------------- --------------   -------------  --------------   -------------
                                                                                                                    (Continued)
</TABLE>
                                                                        F-9
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                                                                                          Three months ended
                                                                Years ended September 30,                    December 31,
                                                        -------------------------------------------   ---------------------------
                                                            1994            1995           1996           1995           1996
                                                        -------------  ---------------  -----------  ---------------   ----------
                                                                                                      (unaudited)
                                                                                                       (in thousands)
<S>                                                     <C>              <C>            <C>          <C>              <C>      
Cash flows from investing activities:
    Notes receivable                                    $   (5,249)           348            348        (1,263)            133
    Advances to affiliates                                       -         (2,184)          (109)          (15)              -
    Investment in and advances to joint venture             (1,185)        (5,452)        (4,308)            -              (1)
    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)      (25,768)        (58,759)
    Purchase of short-term investments                           -              -         (6,832)       (4,979)        (25,769)
    Restricted cash                                              -              -        (13,333)      (13,333)              -
    Proceeds from the sale of certain Satellite
     Services assets                                             -              -         21,593        21,146               -
    Proceeds from sale of interest in joint venture              -              -              -             -           2,057
    Other investments                                            -         (6,061)             -             -               -
                                                        -------------  -------------   ------------  --------------  ------------
          Net cash used by investing activities            (51,452)       (71,342)      (131,200)      (24,212)        (82,339)
                                                        -------------  -------------   ------------  --------------  ------------
Cash flows from financing activities:
    Issuance of common shares for cash                           -         84,498              -             -               -
    Issuance of preferred shares of subsidiary for cash          -         16,000              -             -               -
    Issuance of redeemable preferred stock of subsidiary         -         28,800        144,000             -               -
    Offering costs related to common and
       preferred stock offerings                                 -         (5,565)             -             -               -
    Redemption of preferred shares                               -         (3,800)        (5,570)       (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           101           2,084
    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)       (2,991)         (1,975)
    Proceeds from issuance of short-term debt                    -              -         17,500        17,500               -
    Principal payments on short-term debt                        -              -        (21,192)       (3,692)              -
    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)      (13,761)           (279)
    Deferred debt issuance costs                            (2,633)       (13,641)       (11,915)            -               -
                                                           ----------  -------------   ------------  --------------  ------------
          Net cash provided (used) by financing activities  49,428        377,772        360,227        (8,413)           (170)
                                                           ----------  -------------   ------------  --------------  ------------
          Net (decrease) increase in cash and cash
          equivalents                                       (9,556)       263,391        181,666       (38,253)        (91,148)
Cash and cash equivalents, beginning of period              15,581          6,025        269,416       269,416         451,082
                                                        -------------  -------------   -----------   -------------   ------------
Cash and cash equivalents, end of period                $    6,025        269,416        451,082       231,163         359,934
                                                        =============  =============   ============  ==============  ============
                                                                                                                    (Continued)
</TABLE>
                                                                      F-10
<PAGE>

ICG COMMUNICATIONS, INC.        
COMMUNICATIONS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
                                                                                                            Three months ended
                                                                  Years ended September 30,                    December 31,
                                                        -------------------------------------------   ----------------------------
                                                             1994           1995            1996           1995           1996
                                                        -------------   ------------   ------------   ------------   -------------
                                                                                                       (unaudited)
                                                                                     (in thousands)
<S>                                                     <C>                 <C>           <C>             <C>           <C>         
Supplemental disclosure of cash flow information:
    Cash paid for interest                              $    2,981           9,311        19,190          2,684         1,755
                                                        =============   ============   ============   ============   =============
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              -           350
                                                        =============   ============   ============   ============   =============
       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 (note 14)   $   11,714          38,670        55,030             84        19,479
                                                        =============   ============   ============   ============   =============
       Liability related to business combination        $    8,746              -             -              -             -
                                                        =============   ============   ============   ============   =============
       Reclassification of investment in joint
          venture to long-term notes receivable         $        -           6,882             -              -            -
                                                        =============   ============   ============   ============   =============
       Conversion of notes receivable related to
          business combinations                         $        -           6,330             -              -            -
                                                        =============   ============   ============   ============   =============

</TABLE>

                 See accompanying notes to consolidated financial statements.
                                                                     F-11
<PAGE>


ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to  Consolidated  Financial  Statements  
September  30,  1995 and 1996, and December 31, 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  had
         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 consists of the Company's competitive local
         exchange  carrier  ("CLEC")  operations.   CLECs  seek  to  provide  an
         alternative  to the incumbent  local exchange  telephone  company for a
         full  range  of  telecommunications  services.  The  Company's  Telecom
         Services  customers are primarily long distance carriers and resellers,
         as well as business 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-12
<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 December 31, 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 has elected to change its fiscal year end to December
               31 from September 30,  effective  January 1, 1997.  References to
               fiscal 1996 relate to the year ended September 30, 1996.

               Unaudited  consolidated  statements of operations  and cash flows
               for the three months ended  December 31, 1995 have been  included
               in  the  accompanying   consolidated   financial  statements  for
               comparative purposes.

         (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,
                                      F-13
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(2)       Summary of Significant Accounting Policies (continued)

               commercial paper, certificates of deposit, government obligations
               and corporate  bonds, all of which are considered to be available
               for  sale.  The  Company's  investment   objectives  are  safety,
               liquidity and yield, in that order.  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  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.
                                      F-14
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(2)       Summary of Significant Accounting Policies (continued)

               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 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, 1996    January 1, 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, 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.
                                      F-15
<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 revenue 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-16
<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 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 and
               the three months ended December 31, 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 and for
               the three-month period ended December 31, 1996.

                                      F-17
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(2)       Summary of Significant Accounting Policies (continued)

               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.

         (l)   Stock-Based Compensation

               The  Company   accounts   for  its   stock-based   employee   and
               non-employee  director  compensation  plans  using the  intrinsic
               value based method  prescribed  by  Accounting  Principles  Board
               Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and
               related  Interpretations ("APB 25"). The Company has provided pro
               forma  disclosures  of net loss and loss per share as if the fair
               value based method of accounting  for these plans,  as prescribed
               by  Statement  of  Financial   Accounting   Standards   No.  123,
               Accounting for Stock-Based  Compensation  ("SFAS 123"),  had been
               applied.  Pro forma  disclosures  include the effects of employee
               and  non-employee  director  stock options  granted during fiscal
               1996 and the three months ended December 31, 1996.

         (m)   Impairment of Long-Lived Assets

               Effective  October  1,  1996 the  Company  adopted  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") which  requires that  long-lived  assets
               and certain  identifiable  intangibles held and used by an entity
               be  reviewed  for  impairment   whenever  events  or  changes  in
               circumstances  indicate  that the carrying  value of an asset may
               not  be  recoverable.  An  impairment  loss  is  recognized  when
               estimated undiscounted future cash flows expected to be generated
               by the asset is less than its carrying value.  Measurement of the
               impairment loss is based on the fair value of the asset, which is
               generally  determined  using  valuation  techniques  such  as the
               discounted  present  value of expected  future  cash  flows.  The
               adoption of SFAS 121 had no effect on the consolidated  financial
               statements of the Company.

         (n)   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
                                      F-18
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(2)      Summary of Significant Accounting Policies (continued)

               million, $2.1 million, and $13.7 million in fiscal 1994, 1995 and
               1996,  respectively,  and $2.4  million and $5.8  million for the
               three months ended December 31, 1995 and 1996, respectively.  All
               prior financial information has been restated to conform with the
               current presentation.

               Certain  other prior  period  amounts have been  reclassified  to
               conform with the current period'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.

               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. The
                                      F-19
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(3)      Business Combinations and Investments (continued)

               Company paid cash  consideration  of $1.6 million as of September
               30, 1996 and an additional $1.0 million in January 1997, based on
               the operating  results of the underlying  business since the date
               of acquisition.

               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                    10,647
                  Current liabilities                                   (775)
                  Long-term liabilities                               (6,314)
                  Minority interest                                   (1,422)
                                                          ===================
                                                                    $ 16,241
                                                          ===================

         (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 fiscal  year 1994,  and (iv) the
               Company's  commitment to provide 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.
                                      F-20
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(3)      Business Combinations and Investments (continued)

               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-21
<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    ("DataCom").    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.  Based on the performance of that
               business  since the  acquisition  date, the Company issued to the
               previous  owners of DataCom  17,908  shares of ICG  Common  Stock
               valued at  approximately  $0.4  million  during the three  months
               ended December 31, 1996.

               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
                                      F-22
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

 (3)     Business Combinations and Investments (continued)

               interest  at  7.5%  per  annum,   for  total   consideration   of
               approximately $7.6 million. The note was paid during 1995.

               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                  19,531
                  Current liabilities                               (5,588)
                                                        ===================
                                                                 $  42,069
                                                        ===================
                                      F-23
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

 (3)     Business Combinations and Investments (continued)

         (d)   Investments in Joint Venture and Affiliate

               In January  1997,  the  Company  announced a joint  venture  with
               Central and Southwest  Corporation ("CSW") which will develop and
               market telecommunications services in Texas and Oklahoma (and may
               expand to Arkansas  and  Louisiana).  Each party has a 50% equity
               interest  and is required  to make  additional  pro rata  capital
               contributions as prescribed in the joint venture  agreement.  The
               Company  estimates its  contributions to be  approximately  $24.2
               million in 1997, with aggregate  contributions  of  approximately
               $49.7 million over the next five years. The joint venture will be
               accounted for using the equity method of accounting.

               In  September  1992,  the Company  entered  into a joint  venture
               agreement   with   Greenstar    Technologies    Inc.   (now   GST
               Telecommunications,  Inc.  ("GST")) in which each party had a 50%
               equity interest.  The purpose of the joint venture was to design,
               construct and operate a competitive access network in Phoenix. In
               return for its 50% interest,  the Company was required to provide
               equity or debt  financing.  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. Effective October 1, 1996, the Company
               sold its  interest  in the  joint  venture  to GST.  The  Company
               received  approximately  $2.1 million in cash,  representing $1.3
               million of  consideration  for its 50%  interest and $0.8 million
               for  equipment  and  amounts  advanced to the joint  venture.  In
               addition, the Company received equipment with a net book value of
               $2.4 million and assumed liabilities of $0.3 million. The Company
               may receive and  additional  $2.0  million  based upon the future
               performance of the business. The $0.8 million gain on sale of the
               investment is included in other income for the three-month period
               ended December 31, 1996.

               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
                                      F-24
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statement, Continued
----------------------------------------------------------------------------

 (3)     Business Combinations and Investments (continued)

               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:

                                                 September 30,           
                                              --------------------- December 31,
                                                1995       1996        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          200
         Other                                    11           63            -
                                              ---------   -----------   --------
                                              $1,761          263          200
                                              =========   ===========  =========

          The NovoComm,  Inc. note receivable at September 30, 1996 and December
          31,  1996 is net of a valuation  allowance  of $1.3  million  based on
          management's uncertainty as to collection.
                                      F-25
<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,
          is comprised of the following:

                                                September 30,       
                                         -------------------------- December 31,
                                            1995             1996       1996
                                         -------------- ----------- ------------
                                                       (in thousands) 
           Land                            $  1,519          -               -
           Buildings and improvements         3,676      2,684           2,684
           Furniture, fixtures and
             office equipment                13,666     25,143          29,214
           Machinery and equipment           25,195     21,057          21,398
           Fiber optic equipment             39,104     77,354          89,874
           Satellite equipment               15,044     18,024          20,195
           Switch equipment                  20,302     53,413          58,571
           Fiber optic transmission system   74,251    111,172         120,548
           Building/site preparation              -          -              21
           Construction in progress (see
             note 14)                        35,852     74,588         117,972
                                        ------------  ------------  ------------
                                            228,609    383,435         460,477
           Less accumulated depreciation    (26,605)   (47,298)        (56,545)
                                        ------------  ------------  ------------
                                        $   202,004    336,137         403,932
                                        ============  ============ =============

         Property  and  equipment  includes   approximately  $118.0  million  of
         equipment  which has not been placed in service at December  31,  1996,
         and accordingly is not being  depreciated.  The majority of this amount
         is related to new network construction (see note 14).
                                      F-26
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

 (5)     Property and Equipment (continued)


         Certain of the above assets have been pledged as security for long-term
         debt and capital lease  obligations at December 31, 1996. The following
         is a summary of property and equipment owned under capital leases:

                                          September 30,            
                                 -------------------------------   December 31,
                                        1995            1996           1996
                                 ----------------  -------------  --------------
                                                  (in thousands)

          Machinery and equipment    $  10,349           7,882           8,043
          Fiber optic equipment            663             395             377
          Switch equipment              17,529          26,509          25,733
          Construction in progress      13,935          52,645          71,842
                                  --------------  ---------------  -------------
                                        42,476          87,431         105,995
          Less accumulated 
           depreciation                 (2,117)         (4,362)         (5,171)
                                  ==============  ===============  =============
                                     $  40,359          83,069         100,824
                                  ==============  ===============  =============
                                      F-27
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(6)      Other Assets

         Other assets are comprised of the following:

                                          September 30,            December 31,
                                   ----------------------------  ---------------
                                       1995           1996              1996
                                   ------------  --------------  ---------------
                                               (in thousands)

          Deposits                      811              3,514            3,579
          PACE customer base              -              1,580            2,581
          Rights of way               1,091              1,707            1,739
          Minutes of use agreement        -              1,421            1,421
          Non-compete agreements        602                602              902
          Risk premium                2,004                  -                -
          Other                         552                800              807
                                    -----------    ------------  ---------------
                                      5,060              9,624           11,029
          Less accumulated 
           amortization              (1,785)            (1,227)          (1,547)
                                    ===========    ============  ===============
                   Other            $ 3,275              8,397            9,482
                                    ===========    ============= ===============

(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
         and for the  three-month  period ended  December 31, 1996,  the Company
         paid $1.3  million  and $0.3  million,  respectively,  related  to this
         consulting  agreement.  William W.  Becker,  a  stockholder  and former
         director of the Company,  is President and Chief  Executive  Officer of
         ICC.

         At September 30, 1995 and 1996, and December 31, 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
                                      F-28
 <PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(7)      Related Party Transactions (continued)

         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   common  shares  of
         Holdings-Canada.  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.

                                      F-29
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

         Long-term debt is summarized as follows:
                                  
                                              September 30,      December 31,
                                       ------------------------ ----------------
                                           1995       1996           1996
                                       ----------- ------------- --------------
                                                (in thousands)

       12 1/2% Senior discount notes, 
          net of discount (a)            $      -     315,626          325,530
       13 1/2% Senior discount notes,   
          net of discount (b)             299,934     343,772          355,955
       Convertible subordinated
          notes (c)                        74,434         491               65
       Credit facility (d)                 13,515           -                -
       Note payable with interest at 
          the 90-day commercial paper
          rate plus 4.75% (10.09% at 
          December 31, 1996), due 2001,
          secured by certain telecommuni-
          cations equipment                     -       5,888             5,815
       Note payable with interest at 11%, 
          due monthly through fiscal 1999,
          secured by equipment              3,493       2,803             2,625
       Mortgage payable with interest at
          8.5%, due monthly through 2009,
          secured by building               1,242       1,194             1,177
       Notes payable to sellers of FOTI
          and FOTDS (e)                       600           -                 -
       Other                                  336          10                 8
                                         --------- -------------- --------------
                                         $393,554     669,784           691,175
       Less current portion               (14,454)       (795)             (817)
                                        ---------- -------------- --------------
                                         $379,100     668,989           690,358
                                        ========== ============== ==============

         (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
               "14 1/4%  Preferred  Stock") for gross proceeds of $300.0 million
               and $150.0  million,  respectively.  Net  proceeds  from the 1996
               Private  Offering,  after issuance 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
                                      F-30
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

               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.

               The 12 1/2%  Notes  were  originally  recorded  at  approximately
               $300.0  million.  The  discount on the 12 1/2% Notes and the debt
               issuance  costs are being  accreted over ten years until maturity
               at May 1, 2006.  The  accretion of the discount and debt issuance
               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 58,430
               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  issuance  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.
                                      F-31
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

               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 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 (c)).

               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 (c)).
               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.
                                      F-32
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

               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, 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 December 31, 1996, approximately $47.8 million of
               the 7% Notes and  approximately  $8.9 million of interest paid in
               7% Notes were converted into 3,146,283 shares of Holdings-Canada.
               As of December 31, 1996,  approximately  $0.1 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,
                                      F-33
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

               1996, approximately $1.1 million of deferred financing costs were
               written off upon conversion of the 7% Notes.

         (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.  The 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-34
<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 December 31,
         1996 are as follows (in thousands):

         Due within:
             One year                     $      817
             Two years                         1,774
             Three years                       1,680
             Four years                        1,287
             Five years                          938
             Thereafter (a)                1,137,794
                                         ------------
                                           1,144,290
              Less unaccreted 
               discount on the 12 1/2%
               Notes and 13 1/2% Notes      (453,115)
                                        -------------
                                           $ 691,175
                                        =============

          (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,  and  December  31,  1996.
         Capital lease obligations increased in fiscal 1996 primarily due to the
         Company's agreement with Southern
                                      F-35
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(9)      Capital Lease Obligations (continued)

          California  Edison  Company to license  fiber  optic cable in Southern
          California (see note 14(a)).

          The  future  required  payments  under  the  Company's  capital  lease
          obligations  subsequent  to  December  31,  1996  are as  follows  (in
          thousands):

          Due within:
              One year                             $ 31,552
              Two years                              15,644
              Three years                            13,914
              Four years                             14,340
              Five years                             17,352
              Thereafter                            107,532
                                                  -----------
              Total minimum lease payments          200,334
                Less amounts representing 
                interest                           (104,505)
                                                  -----------
              Present value of net 
                minimum lease payments               95,829
              Less current portion                  (24,683)
                                                  -----------
                                                  $  71,146
                                                  ===========

(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(c))
         for net  proceeds of $28.8  million,  after  payment of $1.2 million in
         issuance  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 was
         included  in  additional  paid-in  capital  of the  Company.  The value
         assigned to the warrants, representing a discount on the Redeemable
                                      F-36
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(10)     Redeemable Preferred Stock of Subsidiary (continued)

         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.

         14 1/4% Exchangeable Preferred Stock

         The 14 1/4%  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 14 1/4% Preferred Stock. The Company may exchange
         the 14 1/4% Preferred Stock into 14 1/4% Senior  Subordinated  Exchange
         Debentures  at any time  after the  exchange  is  permitted  by certain
         indenture  restrictions.  The 14 1/4%  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,  and the three months ended  December 31,
         1996, is  approximately  $1.3 million,  $27.0 million and $5.8 million,
         respectively,  associated  with the Redeemable  Preferred Stock (fiscal
         1995 and fiscal 1996) and the 14 1/4% Preferred  Stock (fiscal 1996 and
         the three months ended  December 31, 1996),  including the accretion of
         warrants  issued in connection  with the  Redeemable  Preferred  Stock,
         accretion  of  issuance  costs  and a 12% and 14 1/4%  preferred  stock
         dividend  accrual  on the  Redeemable  Preferred  Stock and the 14 1/4%
         Preferred Stock, respectively.  These costs are partially offset by the
         minority interest share of losses in subsidiaries of approximately $0.6
         million,  $2.7 million and $0.8  million for the years ended  September
         30,  1995 and 1996,  and the three  months  ended  December  31,  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  issuance  costs  of
         approximately $0.9 million, were approximately $15.1
                                      F-37
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(11)     Convertible Preferred Stock of Subsidiary (continued)

         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").

         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 the 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
         remained outstanding at September 30, 1996.
                                      F-38
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(12)     Stockholders' Equity (Deficit)

         Common Stock

         Common stock outstanding at December 31, 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 December 31, 1996:

                                               Shares owned     Shares owned by
                                                  by ICG         third parties
                                               -------------   -----------------
        ICG Common Stock, $.01 par value,
          100,000,000 shares authorized;  0,
          29,888,376 and 31,087,825 shares
          issued and outstanding at September
          30, 1995 and 1996, and December 31, 
          1996, respectively
                                                          -         31,087,825
        Holdings-Canada Class A common shares,
          no par  value, 100,000,000 shares
          authorized; 24,990,839, 31,672,103 and
          31,795,270 shares issued and outstanding
          at September 30, 1995 and 1996, and
          December 31, 1996, respectively:
          Class A common shares, exchangeable on a
              one-for-one basis for ICG Common Stock
              at any time                                  -           807,054
          Class A common shares owned by ICG      30,988,216                 -
                                                                --------------  
     Total shares outstanding                                       31,894,879
                                                                 ==============
                                      F-39
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

         (a)   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 issuance 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
               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.

         (b)   Stock Options and Employee Stock Purchase Plan

               In fiscal  years  1991,  1992 and 1993,  the  Company's  Board of
               Directors    approved    incentive   stock   option   plans   and
               replenishments  to those plans which  provide for the granting of
               options to directors,  officers, employees and consultants of the
               Company  to  purchase  285,000,  742,400  and  1,692,700  shares,
               respectively, of the Company's Common Stock, with exercise prices
               between  80% and 100% of the fair value of the shares at the date
               of grant.  A total of 1,849,600  options have been granted  under
               these plans with exercise prices ranging from approximately $2.92
               to $14.03.  Compensation  expense has been  recorded  for options
               granted at an exercise  price below the fair market  value of the
               Company's  Common  Stock at the date of  grant,  pursuant  to the
               provisions  of APB 25. The options  granted under these plans are
               subject to various  vesting  requirements  and expire in five and
               ten years from the date of grant.

               In fiscal years 1994,  1995 and 1996,  and the three months ended
               December  31, 1996,  the  Company's  Board of Directors  approved
               incentive and non-qualified stock option plans and replenishments
               to those  plans  which  provide  for the  granting  of options to
               certain  directors,  officers and employees to purchase 2,536,000
               shares of the  Company's  Common Stock under the 1994 plan and an
               aggregate of 2,700,000 shares of the Company's Common Stock under
               the 1995 and 1996 plans.  A total of 4,177,381  options have been
               granted under these plans at exercise prices ranging
                                      F-40
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

               from  $7.94 to  $26.25,  none of which were less than 100% of the
               fair market value of the shares underlying options on the date of
               grant,  and,  accordingly,  date of grant,  and  accordingly,  no
               compensation  expense has been  recorded for these  options under
               APB 25. The  options  granted  under  these  plans are subject to
               various  vesting  requirements  and  expire in five and ten years
               from the date of grant.

               In October  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  shares of the  Company's  Common Stock at a 15%
               discount to fair market value.  Stock  purchases  will occur four
               times a year on February 1, May 1, August 1 and  November 1, with
               the price per share equaling the lower of 85% of the market price
               at the  beginning or end of the offering  period.  The Company is
               authorized  to issue a total of 1,000,000  shares of Common Stock
               to  participants  in the plan. No shares of the Company's  Common
               Stock had been sold to  employees  under this plan as of December
               31, 1996. On February 1, 1997,  the Company sold 22,330 shares of
               the Company's Common Stock to employees under this plan.

               The Company recorded  compensation expense in connection with its
               stock-based employee and non-employee director compensation plans
               of $0.9 million,  $0.2 million, $0.1 million and $0.2 million for
               fiscal  years 1994,  1995 and 1996,  and the three  months  ended
               December 31, 1996, respectively,  pursuant to the intrinsic value
               based  method  of  APB  25.  Had  compensation  expense  for  the
               Company's plans been determined based on the fair market value of
               the  options at the grant  dates for  awards  under  those  plans
               consistent  with the  provisions  of SFAS 123, the  Company's pro
               forma net loss and loss per share  would  have been as  presented
               below. Pro forma disclosures  include the effects of employee and
               non-employee  director  stock options  granted during fiscal 1996
               and the three months ended December 31, 1996.
                                      F-41
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

                                    Year ended              Three months ended
                                 September 30, 1996          December 31, 1996
                              -------------------------   --------------------- 
                                   (in thousands, except per share amounts)
         Net loss:
         ----------
         As reported                 $ (184,107)                  (49,823)
         Pro forma                     (186,831)                  (50,819)

         Loss per share:
         --------------- 
         As reported                 $    (6.83)                    (1.56)
         Pro forma                        (6.93)                    (1.60)


               The fair value of each option grant was  estimated on the date of
               grant  using  the  Black-Scholes  option-pricing  model  with the
               following  weighted  average   assumptions  for  the  year  ended
               September 30, 1996 and the three months ended  December 31, 1996:
               an expected  option life of three years for  directors,  officers
               and other executives, and two years for other employees, for both
               periods;  expected  volatility  of  50%  for  both  periods;  and
               risk-free   interest  rates  ranging  from  5.03%  to  6.57%  for
               directors,  officers and other  executives and 5.22% to 6.10% for
               other employees,  for both periods.  Risk-free interest rates, as
               were currently available on the grant date, were assigned to each
               granted  option based on the  zero-coupon  rate of U.S.  Treasury
               bills to be held for the same period as the assumed  option life.
               Since the Company does not  anticipate  issuing any  dividends on
               its Common Stock,  the dividend yield was assumed to be zero. The
               weighted  average fair market value of options granted during the
               year ended September 30, 1996 and the three months ended December
               31,   1996  was   approximately   $5.28  and  $9.42  per  option,
               respectively.

               As options outstanding at December 31, 1996 will continue to vest
               in subsequent  periods and additional  options are expected to be
               awarded under existing and new plans, the above pro forma results
               of  applying  a  fair  value  based  method  of  accounting   for
               stock-based  compensation  for the year ended  September 30, 1996
               and the three months ended December 31, 1996 are not  necessarily
               indicative  of the  effects  on net loss  and  loss per  share in
               future periods.
                                      F-42
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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


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

          The following table summarizes the status of the Company's stock-based
          compensation  plans as of and for the fiscal years ended September 30,
          1994, 1995 and 1996, and as of and for the three months ended December
          31, 1996:

                                        Shares        Weighted
                                      underlying      average          Options
                                        options     exercise price   exercisable
                                     ------------- ---------------- ------------
                                    (in thousands)                (in thousands)

Outstanding at October 1, 1993              865
Granted                                     516        $ 12.23
Exercised                                   (62)          3.34
                                     -------------

Outstanding at September 30, 1994         1,319           6.81              769
Granted                                   2,520           9.73
Exercised                                  (264)          3.32
Canceled                                   (201)         13.25
                                      -------------

Outstanding at September 30, 1995         3,374           9.08              940
Granted                                   1,322          11.78
Exercised                                  (248)          7.55
Canceled                                   (243)         11.12
                                      -------------

Outstanding at September 30, 1996         4,205           9.77            2,264
Granted                                     335          18.59
Exercised                                   (31)          8.95
Canceled                                    (56)         12.65
                                      --------------

Outstanding at December 31, 1996          4,453          10.34            2,969
                                      ==============
                                      F-43
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

               The  following  table   summarizes   information   about  options
               outstanding at December 31, 1996:
<TABLE>
<CAPTION>


            Options outstanding                    Options exercisable
        ----------------------------      -----------------------------------
                            Weighted
                            average       Weighted                    Weighted
Range of                   remaining       average                     average
exercise        Number     contractual    exercise      Number         exercise
 prices       outstanding    life          price       exercisable      price
----------- -------------- ------------- -----------  ------------   -----------
           (in thousands)   (in years)                (in thousands)
<S>            <C>           <C>         <C>             <C>           <C>
$2.92- 6.74      353         5.93        $ 3.23            353         $  3.23
  7.94         1,550         8.41          7.94          1,550            7.94
 8.50-10.00    1,027         8.81          9.76            377            9.36
10.88-19.13    1,430         8.24         14.35            687           12.80
19.25-26.25       93         9.65         22.09              2           21.00
            ----------                                ------------
               4,453                                     2,969
            ==========                                ============
</TABLE>
         (c)   Warrants

               During the years ended September 30, 1994, 1995 and 1996, and the
               three months ended  December 31, 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,
                                      F-44
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

                       $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.  During the three-month  period ended
                       December 31, 1996, 1,231 of the $7.38 warrants, 4,456 of
                       the $7.88 warrants and 2,215 of the $11.80 warrants
                       were canceled.Total warrants outstanding held by the debt
                       holder and affiliates were 95,031 at December 31, 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.   During  the   three-month   period  ended
                       December 31, 1996,  100,000 of the 200,000  warrants were
                       exercised for proceeds of $1.8  million.  At December 31,
                       1996, 100,000 warrants remained outstanding.

                (iv)   Pursuant  to a private  placement  during  the year ended
                       September  30,  1992,  the  Company  issued to William W.
                       Becker,  a former  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  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
                                      F-45
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

                    warrants  were  exercised  in June 1996  through a  cashless
                    exercise in which  1,271,651  Holdings-Canada  common shares
                    were  issued.  As of December  31,  1996,  250,000  Series A
                    Warrants and 250,000 Series B Warrants  remain  outstanding.
                    
               (vi) 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 December 31,  1996,  all of
                    these warrants remain outstanding.
                                      F-46
<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 and the three months ended December 31, 1996:

<TABLE>
<CAPTION>
                                            Outstanding            Price
                                              warrants             range
                                           ---------------  --------------------
                                          (in thousands)
          <S>                                <C>              <C>     <C> <C>
          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
          Canceled                               (8)           7.38   -   11.80
          Exercised                            (100)                18.00
                                           ---------------
          Outstanding, December 31, 1996      2,623            7.38   -   21.51
                                           ===============
</TABLE>
                                      F-47
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

          The warrants  outstanding expire on the following dates as of December
          31, 1996:
<TABLE>
<CAPTION>

                                        Outstanding             Exercise
            Expiration date               warrants               price
                                  --------------------    ---------------------
                                               (in thousands)
              <S>                        <C>                    <C>
              June 18, 1998                  2                  $    7.38
              July 16, 1998                  7                       7.88
              November 10, 1998              2                      21.51
              December 17, 1998            100                      18.00
              March 24, 1999                15                      20.01
              July 8, 1999                   1                      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
                                =====================
                                         2,623
                                =====================
</TABLE>
 (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.
                                      F-48
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(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 in violation of a May 1995 Texas state law.

               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  December 31, 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
               primarily  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,
                                      F-49
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(14)     Commitments and Contingencies (continued)

               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  $149.4 million at December 31, 1996. The agreement
               has been  accounted  for as a capital  lease in the  accompanying
               consolidated balance sheets at December 31, 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.

               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 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 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  $9.4  million  had been
               incurred as of December 31, 1996 and is included in  construction
               in  progress.  The  Company is  currently  negotiating  financing
               arrangements under which the Company will lease
                                      F-50
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(14)     Commitments and Contingencies (continued)

               the office  space under a long-term  operating lease, and expects
               an agreement to be reached in the near future.

         (c)   Purchase Commitments

               The  Company  has  entered   into  various   equipment   purchase
               agreements with certain of its vendors.  Under these  agreements,
               if the  Company  does not meet a  minimum  purchase  level in any
               given  year,  the vendor may  discontinue  for that year  certain
               discounts,  allowances and incentives  otherwise  provided to the
               Company. In addition,  the agreements may be terminated by either
               the Company or the vendor upon prior written notice.

               In December  1996,  the Company  entered  into an  equipment  and
               software  licensing  agreement with Northern Telecom,  Inc. under
               which the  Company  has  agreed to  purchase  $100.0  million  of
               telecommunications  equipment  and  software  over the next three
               years.

               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  were  subject to  acceptance  testing and, in January
               1997,  the Company  paid  approximately  $17.5  million  upon the
               inception  of the  agreements.  The amount  paid was  included in
               construction  in progress  and current  portion of capital  lease
               obligations in the  accompanying  consolidated  balance sheets at
               December 31, 1996.

               In addition to the above,  the Company has entered  into  certain
               commitments to purchase  assets with an aggregate  purchase price
               of approximately $34.0 million at December 31, 1996.
                                      F-51
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(14)     Commitments and Contingencies (continued)

         (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,  and the three months
               ended December 31, 1996,  was  approximately  $1.3 million,  $2.8
               million, $5.1 million and $1.3 million,  respectively.  Estimated
               future  minimum  lease  payments  for  the  years  subsequent  to
               December 31, 1996 are (in thousands):

                    Due within:
                       One year             $           5,592
                       Two years                        4,368
                       Three years                      3,049
                       Four years                       2,112
                       Five years                       1,369
                       Thereafter                       4,721
                                          ======================
                                             $         21,211
                                          ======================
          (e)  Litigation

               The Company is a party to certain  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 is
          as follows (in thousands):

                                                               Year ended
                                                          September 30, 1996
                                                    --------------------------
                Current income tax expense                $       198
                Deferred income tax benefit                    (5,329)
                                                    --------------------------
                                Total                       $  (5,131)
                                                    ==========================
                                      F-52
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(15)     Income Taxes (continued)

         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, fiscal 1995 or the three months ended December
         31, 1996.

         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.

         The tax effect of temporary  differences that give rise to significant
         portions of the deferred tax assets and  deferred tax  liabilities  at
         September 30, 1995 and 1996, and December 31, 1996 are as follows:

<TABLE>
<CAPTION>

                                              September 30,        December 31,
                                          ---------------------   --------------
                                           1995       1996           1996
                                          --------- -----------   --------------
                                                     (in thousands)
        <S>                                <C>       <C>        <C> 
        Deferred income tax 
          liabilities:
            Property and equipment, 
            due to excess
            purchase price of 
            tangible assets and
            differences in depreciation
            for book and tax purposes       $ 14,935   15,011      14,106
                                          ----------  ----------  -------------
        Deferred income tax assets:
            Net operating loss 
              carryforwards                  (37,695) (54,197)    (68,740)
            Accrued interest on high
              yield debt obligations
            deductible when paid                   -  (26,800)    (32,873)
            Accrued expenses not currently 
              deductible for tax purposes          -   (4,351)     (2,031)
            Less valuation allowance          28,462   70,337      89,538
                                          ---------- -----------  -------------
            Net deferred income tax 
            asset                             (9,233) (15,011)    (14,106)
                                          ----------- ----------  -------------
            Net deferred income tax 
            liability                       $  5,702        -           -
                                          =========== ==========  =============
</TABLE>
                                      F-53
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

(15)     Income Taxes (continued)

         As of December 31, 1996, the Company has net operating  losses ("NOLs")
         of  approximately  $171.9 million for U.S. tax purposes which expire in
         varying amounts through 2011. 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.

 (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,
         $1.2  million and $0.5  million  during the years ended  September  30,
         1994,  1995 and 1996,  and the three  months  ended  December 31, 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, or for the three months ended
         December 31, 1996.

                                      F-54
<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 December 31, 1996 and for the years ended September 30, 1994,
         1995 and 1996,  and for the three months ended  December 31, 1996 is as
         follows:
<TABLE>
<CAPTION>

                   Summarized Consolidated Balance Sheet Information
                                             September 30,         December 31,
                                      ------------------------------------------
                                           1995         1996           1996
                                        ----------   ---------   ---------------
                                                  (in thousands)
          <S>                           <C>           <C>               <C>  
          Current assets                $ 309,208     506,150           449,059
          Property and equipment, net     201,983     336,137           403,932
          Other non-current assets, net    66,737      94,046            88,183
          Current liabilities              60,036      59,963            87,423
          Long-term debt, less 
            current portion               304,666     668,498           690,293
          Due to parent                   238,282       8,595            11,485
          Other long-term liabilities      37,214      76,469            73,113
          Preferred stock                  14,986     153,318           159,120
          Stockholders' deficit           (77,256)    (30,510)          (80,260)
</TABLE>

               Summarized Consolidated and Combined Statement of Operations
                                  Information (a)
<TABLE>
<CAPTION>

                                                             
                                    Years ended September 30, Three months ended     
                                   --------------------------     December 31,
                                   1994     1995      1996          1996
                                 -------- -------  ---------- ------------------
                                               (in thousands)
           <S>                <C>         <C>        <C>            <C>   
           Total revenue      $   58,995  111,610    169,094         56,956
           Total operating 
             costs and expenses   72,509  157,384    238,908         83,934
           Operating loss        (13,514) (45,774)   (69,814)       (26,978) 
           Net loss              (15,194) (68,760)  (172,687)       (49,750)

</TABLE>
                                      F-55
<PAGE>
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

                    (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.

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

          Condensed  financial   information  for  Holdings-Canada  only  as  of
          September  30, 1995 and 1996,  and December 31, 1996 and for the years
          ended  September  30,  1994,  1995 and 1996 and for three months ended
          December 31, 1996 is as follows:

                                     Condensed Balance Sheet Information
<TABLE>
<CAPTION>
                                      
                                           September 30,           December 31,
                                       --------------------   -------------------
                                         1995          1996            1996
                                       -----------  --------  -------------------
                                                  (in thousands)
          <S>                          <C>          <C>               <C>    
          Current assets               $     249        177               165
          Advances to subsidiaries       238,282      8,595            11,485
          Property and equipment, net         21          -                 -
          Other non-current assets, net    5,355      2,841             2,793
          Current liabilities                332        200               199
          Long-term debt, less current
            portion                       74,434        491                65
          Due to parent                        -        453             1,566
          Share of losses of subsidiary   77,256     30,510            80,260
          Shareholders' equity (deficit)  91,885    (20,041)          (67,647)
</TABLE>

                                  Condensed Statement of Operations Information
<TABLE>
                                    
                                                                    Three
                                   Years ended September 30,     months ended
                                  ----------------------------    December 31,
                                       1994      1995     1996         1996
                                  -----------  -------- ------- ---------------
                                              (in thousands)
         <S>                      <C>          <C>     <C>         <C>
         Total revenue            $       -         -        -           -
         Total operating costs 
          and expenses                1,024      1,309     3,438        73
         Operating loss              (1,024)    (1,309)   (3,438       (73)
         Losses from subsidiaries   (15,194)   (68,760) (172,687)  (49,750)
         Net loss attributable to 
         common shareholders        (23,868)   (76,648) (184,107)  (49,823)

</TABLE>

ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES

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

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

        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-57
<PAGE>
                          FINANCIAL STATEMENT SCHEDULE

                                                                     Page
ICG Communications, Inc.                                             -----

                                                                                
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 February 21,  1997,  we reported on the  consolidated  balance
sheets of ICG Communications, Inc. and subsidiaries as of September 30, 1995 and
1996,  and  December  31,  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, and the  three-month  period
ended December 31, 1996 as contained in the Company's  Transition Report on Form
10-K for the  transition  period from October 1, 1996 to December  31, 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 the year
ended  September  30, 1996,  the Company  changed its method of  accounting  for
long-term telecom services contracts.



 
                                                 KPMG Peat Marwick LLP


Denver, Colorado
February 21, 1997





                                       S-2

<PAGE>

                                   Schedule II
ICG COMMUNICATIONS, INC.
AND SUBSIDIARIES                                                                

Valuation and Qualifying Accounts
-------------------------------------------------------------------------------

                                                 (in thousands)


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

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
                                 --------    ----------   -----------  ---------

  Three months ended December
  31, 1996                       $ 2,509          914           (908)     2,515
                                 --------    -----------  -----------  ---------

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
                                 --------   ------------  ----------- ----------

  Three months ended December
  31, 1996                       $ 7,275            -              -      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
                                 --------   -------------- ---------- ----------

  Three months ended December
  31, 1996                       $ 2,000            -              -      2,000
                                 ---------  -------------- ---------- ----------





                 See accompanying independent auditors' report.

                                       S-3
<PAGE>


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






                     TRANSITION REPORT ON FORM 10-K for the
           transition period from October 1, 1996 to December 31, 1996

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





<PAGE>




                                    EXHIBITS

10.44:        Consulting Services Agreement, by and between IntelCom Group Inc.
              and International Communications Consulting, Inc., effective
              January 1, 1996.  

10.45:        Confidential General Release and Covenant Not to Sue,
              by and between ICG Communications, Inc. and John D. Field, 
              dated November 5, 1996.

21:           Subsidiaries of the Registrant.

23.1:         Consent of KPMG Peat Marwick LLP.

27:           Financial Data Schedule.

<PAGE>
                                  EXHIBIT 10.44

         Consulting Services Agreement, by and between IntelCom Group Inc. and  
International Communications Consulting, Inc., effective January 1, 1996.  


<PAGE>

                                  EXHIBIT 10.45

          Confidential General Release and Covenant Not to Sue, by and
  between ICG Communications, Inc. and John D. Field, dated November 5, 1996.


<PAGE>


                                   EXHIBIT 21

                         Subsidiaries of the Registrant




<PAGE>
                                  



                                  EXHIBIT 23.1

                        Consent of KPMG Peat Marwick LLP





<PAGE>

                
<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 February 19, 1997.
                                          
                                    ICG Communications, Inc.

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

Pusuant 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                           February 19, 1997
------------------------       
William J. Laggett
                           President, Chief Executive 
                           Officer and Director (Principal
/s/J. Shelby Bryan         Executive Officer)                  February 19, 1997
-------------------------                       
J. Shelby Bryan
                           Executive Vice President, Chief
                           Financial Officer and Treasurer 
/s/James D. Grenfell       (Principal Financial Officer)       February 19, 1997
-------------------------
James D. Grenfell
                           Vice President and Corporate 
                           Controller (Principal Accounting
/s/Richard Bambach         Officer)                            February 19, 1997
-------------------------                              
Richard Bambach

/s/Harry R. Herbst         Director                            February 19, 1997
-------------------------
Harry R. Herbst

/s/Stan McLelland          Director                            February 19, 1997
------------------------- 
Stan McLelland

/s/Jay E. Ricks            Director                            February 19, 1997
-------------------------
Jay E. Ricks

/s/Leontis Teryazos        Director                            February 19, 1997
--------------------------
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 February 19, 1997.

                                         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

                         Chairman of the Board of
/s/William J. Laggett    Directors                             February 19, 1997
-----------------------  
William J. Laggett
                         President, Chief Executive Officer 
                         and Director (Principal Executive 
/s/J. Shelby Bryan       Officer)                              February 19, 1997
------------------------ 
J. Shelby Bryan
                         Executive Vice President,  Chief 
                         Financial  Officer and Treasurer 
/s/James D. Grenfell     (Principal Financial Officer)         February 19, 1997
------------------------
James D. Grenfell
                         Vice President and Corporate
                         Controller (Principal Accounting
/s/Richard Bambach       Officer)                              February 19, 1997
------------------------
Richard Bambach

/s/Harry R. Herbst       Director                              February 19, 1997
------------------------
Harry R. Herbst

/s/Jay E. Ricks          Director                              February 19, 1997
------------------------
Jay E. Ricks

/s/Gregory C.K. Smith    Director                              February 19, 1997
------------------------
Gregory C.K. Smith

/s/Leontis Teryazos      Director                              February 19, 1997
------------------------
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 February 19, 1997.
                                   
                                            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 
/s/J. Shelby Bryan      Executive Officer (Principal                            
----------------------  Executive Officer)                     February 19, 1997
J. Shelby Bryan        
                        Executive Vice  President,  Chief 
/s/James D. Grenfell    Financial Officer, Treasurer and  
----------------------- Director (Principal Financial Officer) February 19, 1997
James D. Grenfell
                        Vice President and Corporate 
/s/Richard Bambach      Controller (Principal Accounting 
----------------------- Officer)                               February 19, 1997
Richard Bambach

/s/William J. Maxwell   Executive Vice President-Telecom
----------------------- and Director                           February 19, 1997
William J. Maxwell

/s/Mark S. Helwege      Executive Vice President-Network 
----------------------- and Director                           February 19, 1997
Mark S. Helwege