COLLATERAL PLEDGE AND SECURITY AGREEMENT


          This   COLLATERAL   PLEDGE  AND  SECURITY   AGREEMENT   (this  "Pledge
Agreement")  is  made  and  entered  into  as of May  24,  1999  by KMC  Telecom
Financing,  Inc., a Delaware  corporation (the "Pledgor"),  having its principal
office at 1545 Route 206, Suite 300,  Bedminster,  New Jersey 07921, in favor of
THE CHASE  MANHATTAN BANK, a New York banking  corporation,  having an office at
450 West 33rd Street, 15th Floor, New York, New York 10001-2697, in its capacity
as trustee (the  "Trustee")  for the  registered  holders from time to time (the
"Holders") of the Notes (as defined  herein),  issued by KMC (as defined  below)
under the Indenture referred to below. Capitalized terms used and not defined in
this  Pledge  Agreement  have  the  meanings  set  forth or  referred  to in the
Indenture.

                               W I T N E S S E T H

          WHEREAS,  KMC TELECOM HOLDINGS,  INC., a Delaware corporation ("KMC"),
and the Trustee have entered  into that certain  indenture  dated as of the date
hereof (as amended,  restated,  supplemented or otherwise  modified from time to
time,  the  "Indenture"),  pursuant  to which KMC is issuing on the date  hereof
$275,000,000 in aggregate principal amount of 13 1/2% Senior Notes due 2009 (the
"Notes");

          WHEREAS, the Pledgor is a wholly owned subsidiary of KMC;

          WHEREAS,  KMC has  agreed,  pursuant  to the  Indenture,  to cause the
Pledgor  to  (i)  purchase  or  cause  the  purchase  of  the  Pledged  Security
Entitlements  (as  defined  herein) in an amount  that will be  sufficient  upon
receipt of  scheduled  interest  and  principal  payments in respect  thereof to
provide for the payment of the first six scheduled  interest payments due on the
Notes  (including  any  additional  interest that may be payable if the Exchange
Offer is not  consummated and the Shelf  Registration  Statement is not declared
effective in a timely manner as provided in the  Indenture)  and (ii) place such
Pledged  Security  Entitlements  (or cause  them to be  placed)  in the  Pledged
Account (as defined herein), in each case held by the Trustee for the benefit of
Holders of the Notes;  provided that the Pledged  Security  Entitlements  may be
purchased by Morgan Stanley & Co.  Incorporated  ("Morgan Stanley") on behalf of
the Pledgor;

          WHEREAS,  the Pledgor is the beneficial owner of (i) the United States
Treasury securities and/or security  entitlements  identified by CUSIP number in
Schedule I hereto and (ii)  $18,929,583.74  delivered to the Trustee on the date
hereof for deposit into the Pledged  Account (as defined  herein) and to be used

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                                       2

by the Trustee on the date hereof for the purchase of the United States Treasury
securities and/or security  entitlements  identified by CUSIP number in Schedule
II hereto (collectively, the "Pledged Security Entitlements");

          WHEREAS,  the  Pledgor  has  opened  a  trust  account  (the  "Pledged
Account")  with The Chase  Manhattan Bank at its office at 450 West 33rd Street,
15th Floor, New York, New York  10001-2697,  Account No. C 28947, in the name of
"The Chase  Manhattan  Bank, as Trustee for the benefit of the holders of the 13
1/2%  Senior  Notes Due 2009 of KMC Telecom  Holdings,  Inc.  Collateral  Pledge
Account";

          WHEREAS, to secure the obligations of KMC under the Indenture
and the Notes to pay in full each of the first six scheduled  interest  payments
on the Notes and to secure  repayment  of the  principal,  premium  (if any) and
interest on the Notes in the event that the Notes  become due and payable  prior
to such time as the first six  scheduled  interest  payments  thereon shall have
been paid in full (collectively, the "Obligations"), KMC has agreed to cause the
Pledgor (i) to pledge to the Trustee for its benefit and the ratable  benefit of
the  Holders of the Notes,  a security  interest in the  Collateral  (as defined
herein) and (ii) to execute and deliver this Pledge Agreement in order to secure
the payment and performance by KMC of all of the Obligations;

          WHEREAS,  it is a condition  precedent to the initial  purchase of the
Notes by the initial  Holders  thereof  that the Pledgor  shall have granted the
security interest and made the pledge contemplated by this Pledge Agreement;

          WHEREAS,  the Pledgor  will  derive  substantial  direct and  indirect
benefits from the transactions contemplated by the Indenture; and

          WHEREAS,  unless otherwise  defined herein or in the Indenture,  terms
used in Articles 8 or 9 of the Uniform Commercial Code as in effect in the State
of New York ("UCC") are used herein as therein defined.

                                    AGREEMENT

          NOW,  THEREFORE,  in  consideration  of  the  mutual  promises  herein
contained,  and in order to induce the initial  Holders of the Notes to purchase
the Notes,  the Pledgor  hereby agrees with the Trustee,  for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes, as follows:

          SECTION 1. Pledge and Grant of Security  Interest.  The Pledgor hereby
pledges  to the  Trustee  for its  benefit  and for the  ratable  benefit of the
Holders of the Notes,  and hereby  grants to the Trustee for its benefit and for
the ratable benefit of the Holders of the Notes, a continuing  security interest

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                                       3

in and to all of the following,  whether now owned or hereafter  acquired by the
Pledgor,  wherever  located and whether now or hereafter  existing  (hereinafter
collectively  referred  to  as  the  "Collateral"),   whether  characterized  as
investment property, general intangibles or otherwise:

                  (a) the  Pledged  Security  Entitlements  and  all  dividends,
         interest,  cash,  instruments  and  other  property  from  time to time
         received,  receivable  or otherwise  distributed  or  distributable  in
         respect  of or in  exchange  for  any or all of such  Pledged  Security
         Entitlements;

                  (b) the Pledged Account, all securities, security entitlements
         and other  financial  assets  from time to time  carried in the Pledged
         Account,  any and all securities accounts in which the Pledged Security
         Entitlements   are  carried,   and  all  dividends,   interest,   cash,
         instruments  and other property from time to time received,  receivable
         or otherwise  distributed or distributable in respect of or in exchange
         for any or all of  such  securities,  security  entitlements  or  other
         financial assets;

                  (c)  all  securities,   securities   entitlements   and  other
         financial assets acquired by the Pledgor pursuant to Article Ten of the
         Indenture; and

                  (d) all  proceeds of any and all of the  foregoing  Collateral
         (including,  without  limitation,  proceeds that constitute property of
         the types described in clauses (a), (b) and (c) of this Section 1) and,
         to the extent not otherwise included, all cash.

          SECTION 2. Security for Obligations; Limitation of Liability. (a) This
Pledge  Agreement  and  the  grant  of a  security  interest  in the  Collateral
hereunder  secures  the prompt and  complete  payment and  performance  when due
(whether  at stated  maturity,  by  acceleration  or  otherwise)  of (i) all the
Obligations,  whether  for  principal,  interest,  fees  or  otherwise,  now  or
hereafter  existing,  under  the  Notes  or the  Indenture  and  (ii) all of the
Pledgor's  obligations  under this Agreement (all such  Obligations and all such
obligations  of the Pledgor  being  collectively,  the  "Secured  Obligations").
Without  limiting the generality of the foregoing,  this Agreement and the grant
of a security  interest in the Collateral  hereunder  secures the payment of all
amounts that constitute part of the Secured Obligations and would be owed by KMC
to the Trustee or the Holders  under the Notes or the Indenture but for the fact
that  they  are  unenforceable  or  not  allowable  due to  the  existence  of a
bankruptcy, reorganization or similar proceeding involving KMC.

          (b) The Pledgor, and by its acceptance of this Agreement,  the Trustee
and each Holder,  hereby  confirms  that it is the intention of all such Persons
that this Pledge Agreement and the Secured Obligations  hereunder not constitute
a  fraudulent  transfer  or  conveyance  for  purposes  of  Bankruptcy  Law  (as
hereinafter  defined),  the  Uniform  Fraudulent  Conveyance  Act,  the  Uniform

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                                       4


Fraudulent  Transfer  Act or any  similar  foreign,  federal or state law to the
extent  applicable to this Agreement and the Secured  Obligations of the Pledgor
hereunder.  To effectuate the foregoing intention,  the Trustee, the Holders and
the Pledgor hereby irrevocably agree that the Secured Obligations of the Pledgor
under this Pledge  Agreement at any time shall be limited to the maximum  amount
as will  result in the  Secured  Obligations  of the  Pledgor  under this Pledge
Agreement not  constituting a fraudulent  transfer or  conveyance.  For purposes
hereof,  "Bankruptcy  Law" means any proceeding  instituted by or against KMC or
any of its  subsidiaries  seeking to adjudicate  it a bankrupt or insolvent,  or
seeking  liquidation,  winding  up,  reorganization,   arrangement,  adjustment,
protection,  relief, or composition of it or its debts under any law relating to
bankruptcy,  insolvency or reorganization  or relief of debtors,  or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar  official for it or for any substantial  part of its property,  or Title
11, U.S.  Code, or any similar  foreign,  federal or state law for the relief of
debtors.

          SECTION 3.  Maintaining the Pledged  Account.  Until such time as this
Pledge  Agreement  shall  terminate in accordance with the provisions of Section
15.9 hereof:

                    (a) The Pledgor will maintain separately the Pledged Account
          with The Chase Manhattan Bank.

                    (b) It shall be a term and condition of the Pledged Account,
          notwithstanding  any term or  condition  to the  contrary in any other
          agreement  relating to the Pledged  Account,  and except as  otherwise
          provided  by the  provisions  of Section 5 and Section  15.9,  that no
          amount  shall  be  paid  or  released  to or for the  account  of,  or
          withdrawn  by or for the account  of, the Pledgor or any other  Person
          from the Pledged Account.

          The Pledged Account shall be subject to such applicable laws, and such
applicable  regulations of the Board of Governors of the Federal  Reserve System
and of any other appropriate  banking or governmental  authority,  as may now or
hereafter be in effect.

          SECTION 4.  Delivery  of  Collateral.  (a) All cash,  certificates  or
instruments  representing or evidencing the Pledged Security Entitlements or the
Pledged  Account  shall be  delivered to and held by or on behalf of the Trustee
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed  instruments of transfer or assignment in blank,
all in form and substance  satisfactory  to the Trustee.  The Trustee shall have
the right,  at any time in its discretion and without notice to the Pledgor,  to
transfer to or to register in the name of the Trustee or any of its nominees any
or all of the Collateral.

          (b) With respect to any Collateral that  constitutes a security and is
not  represented  or evidenced by a certificate  or an  instrument,  the Pledgor
shall  cause the  issuer  thereof  either  (i) to  register  the  Trustee as the

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registered  owner of such  security or (ii) to agree in writing with the Pledgor
and the Trustee that such issuer will comply with  instructions  with respect to
such security  originated by the Trustee without further consent of the Pledgor,
such agreement to be in form and substance satisfactory to the Trustee.

          (c)  With  respect  to any  Collateral  that  constitutes  a  security
entitlement, the Pledgor shall cause the securities intermediary with respect to
such security  entitlement  either (i) to identify in its records the Trustee as
having such security entitlement against such securities intermediary or (ii) to
agree  in  writing  with  the  Pledgor  and the  Trustee  that  such  securities
intermediary  will  comply  with  entitlement  orders  (that  is,  notifications
communicated to such securities intermediary directing transfer or redemption of
the financial asset to which the Pledgor has a security entitlement)  originated
by the Trustee without  further consent of the Pledgor,  such agreement to be in
form and substance satisfactory to the Trustee.

          (d) With  respect to any  Collateral  that  constitutes  a  securities
account,  the Pledgor  will comply with  subsection  (c) of this  Section 4 with
respect to all security entitlements carried in such securities account.

          (e) Prior to or  concurrently  with the execution and delivery  hereof
and prior to the transfer to the Trustee of the Pledged  Security  Entitlements,
as provided in subsections  (a) through (c) of this Section 4, the Trustee shall
establish the Pledged Account on its books as a separate account segregated from
all  other  custodial  or  collateral  accounts  at its  office at 450 West 33rd
Street,  New York, New York  10001-2697,  Attention:  Capital Markets  Fiduciary
Services or at such other  offices in the City of New York as the Trustee  shall
maintain as its principal  corporate trust office.  Upon transfer of the Pledged
Security  Entitlements  to the  Trustee,  as  confirmed  to the  Trustee  by the
Securities  Intermediary,  the  Trustee  shall  make  appropriate  book  entries
indicating that the Pledged Security  Entitlements have been credited to and are
held in the Pledged  Account.  Subject to the other terms and conditions of this
Pledge  Agreement,  all funds or other property held by the Trustee  pursuant to
this Pledge  Agreement  shall be held in the Pledged  Account subject (except as
expressly  provided  in  Sections  5(a),  (b) and (c)  hereof) to the  exclusive
dominion  and  control of the  Trustee  and  exclusively  for the benefit of the
Trustee and for the ratable  benefit of the Holders of the Notes and  segregated
from all other funds or other property otherwise held by the Trustee.

          (f) All Collateral  shall be retained in the Pledged  Account  pending
disbursement pursuant to the terms hereof.

                  (g)  Concurrently  with the  execution  and  delivery  of this
Pledge Agreement,  the Trustee is delivering to the Pledgor and Morgan Stanley &
Co.   Incorporated,   on  behalf  of  itself  and  Credit  Suisse  First  Boston
Corporation,  First Union  Capital  Markets  Corp.,  CIBC World  Markets  Corp.,
BancBoston Robertson Stephens Inc. and Wasserstein Perella Securities, Inc. (the

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                                       6


"Initial Purchasers"),  a duly executed Control Agreement ("Control Agreement"),
in the form of Annex A hereto,  of an officer  of the  Trustee,  confirming  the
Trustee's  establishment  and separate  maintenance of the Pledged Account,  its
receipt and holding of the Pledged  Security  Entitlements  and the crediting of
the Pledged Security Entitlements to the Pledged Account, all in accordance with
this Pledge Agreement.

          (h) Within  ten days of the  execution  and  delivery  of this  Pledge
Agreement,  the Pledgor  shall deliver to the Trustee  acknowledgment  copies or
stamped receipt copies of proper financing  statements,  duly filed on or before
the Closing Date under the UCC, covering the Collateral described in this Pledge
Agreement.

          (i)  Promptly  following  the  execution  and  delivery of this Pledge
Agreement,  the Trustee shall apply the cash on deposit in the Pledged  Account,
to the extent such cash is sufficient  therefore,  to the purchase of the United
States Treasury  securities and/or security  entitlements  listed on Schedule II
hereto.

          SECTION 5.  Disbursements.  (a) Three  Business  Days prior to the due
date of any of the first six  scheduled  interest  payments  on the  Notes,  the
Pledgor  may,  pursuant  to  written  instructions  given by the  Pledgor to the
Trustee (an  "Issuer  Order"),  direct the  Trustee to release  from the Pledged
Account and pay to the Holders of the Notes  proceeds  sufficient to provide for
payment  in full of such  interest  then due on the  Notes.  Upon  receipt of an
Issuer Order, the Trustee will release funds in an amount  sufficient to provide
for the  payment of the  interest  on the Notes in  accordance  with such Issuer
Order and the payment  provisions  of the  Indenture to the Holders of the Notes
from (and to the extent of) proceeds of the Pledged Security Entitlements in the
Pledged Account.  Nothing in this Section 5 shall affect the Trustee's rights to
apply  the  Collateral  to  the  payments  of  amounts  due on  the  Notes  upon
acceleration thereof.

          (b) If KMC  makes any  interest  payment  or  portion  of an  interest
payment for which the  Collateral  is security from a source of funds other than
the Pledged Account ("Pledgor Funds"), the Pledgor may, after payment in full of
such interest payment, direct the Trustee pursuant to an Issuer Order to release
to the  Pledgor  or to  another  party  at the  direction  of the  Pledgor  (the
"Pledgor's  Designee")  proceeds from the Pledged Account in an amount less than
or equal to the amount of Pledgor Funds applied to such interest  payment.  Upon
receipt  by the  Trustee of such  Issuer  Order and  provided  the  Trustee  has
received such interest payment, the Trustee shall pay over to the Pledgor or the
Pledgor's  Designee,  as the case may be, the requested  amount from proceeds in
the Pledged Account as soon as practicable.

          (c) At least three  Business Days prior to the due date of each of the
first six scheduled  interest  payments on the Notes, the Pledgor shall give the

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Trustee  notice (by Issuer  Order) as to whether such  interest  payment will be
made  pursuant  to  Section  5(a) or 5(b)  above and the  respective  amounts of
interest that will be paid from the Pledged Account and from Pledgor Funds.  Any
Pledgor Funds to be used to make any interest  payment shall be delivered to the
Trustee,  in  immediately  available  funds,  prior to 10:00 a.m. (New York City
time) on such interest  payment date. If no such notice is given or such Pledgor
Funds have not been so delivered,  the Trustee will act pursuant to Section 5(a)
above as if it had received an Issuer Order pursuant  thereto for the payment in
full of the interest then due from the Pledged Account.

          (d) The Trustee  shall  liquidate  Collateral  in the Pledged  Account
(pursuant  to  written  instructions  from  the  Pledgor)  in  order to make any
scheduled payment of interest pursuant to the Notes, unless there are sufficient
funds in the Pledged Account on such interest payment date.

          (e) Nothing contained in this Pledge Agreement shall (i) afford KMC or
the Pledgor  any right to issue  entitlement  orders with  respect to any of the
Pledged  Security  Entitlements  or any  securities  account  in which  any such
security  entitlement may be carried, or otherwise afford the Pledgor control of
any Pledged  Security  Entitlement  or (ii) otherwise give rise to any rights of
KMC or the Pledgor  with  respect to the Pledged  Security  Entitlements  or any
securities account in which any such security entitlement may be carried,  other
than the Pledgor's rights under this Pledge Agreement as the beneficial owner of
Collateral  pledged to and subject to the exclusive dominion and control (except
as  expressly  provided in  Sections  5(a) and (b) hereof) of the Trustee in its
capacity  as  such  (and  not  as  a  securities   intermediary).   The  Pledgor
acknowledges,  confirms  and agrees,  in such  capacity,  that the Trustee is an
entitlement  holder of the Pledged Security  Entitlements  solely as Trustee for
the itself and Holders of the Notes and not as a securities intermediary.

          SECTION  6.   Representations  and  Warranties.   The  Pledgor  hereby
represents and warrants that:

                    (a) The  execution  and  delivery by the Pledgor of, and the
          performance  by the  Pledgor of its  obligations  under,  this  Pledge
          Agreement  will not  contravene any provision of applicable law or the
          Certificate of Incorporation of the Pledgor or any material  agreement
          or other  material  instrument  binding upon the Pledgor or any of its
          subsidiaries  or any  judgment,  order or decree  of any  governmental
          body,  agency or court having  jurisdiction over the Pledgor or any of
          its subsidiaries,  or result in the creation or imposition of any Lien
          on any  assets  of the  Pledgor,  except  for the  security  interests
          granted under this Pledge Agreement.

                  (b)  No  consent  of  any  other   Person  and  no   approval,
         authorization,   order  of,  action  by  or  qualification   with,  any

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         governmental authority, regulatory body, agency or other third party is
         required (i) for the execution,  delivery or performance by the Pledgor
         of its obligations under this Pledge  Agreement,  (ii) for the grant by
         the Pledgor of the security  interest  created  hereby or (iii) for the
         pledge  by the  Pledgor  of the  Collateral  pursuant  to  this  Pledge
         Agreement, except for any such consents,  approvals,  authorizations or
         orders  required to be obtained  by the  Trustee (or the  Holders)  for
         reasons  other  than  the  consummation  of this  transaction,  for the
         exercise  by the  Trustee of the  rights  provided  for in this  Pledge
         Agreement.

                  (c) The  Pledgor is the  beneficial  owner of the  Collateral,
         free and  clear of any Lien or  claims of any  Person  (except  for the
         security  interests  created by this Pledge  Agreement).  No  financing
         statement or instrument  similar in effect  covering all or any part of
         the  Pledgor's  interest in the  Collateral is on file in any public or
         recording office, other than the financing statements filed pursuant to
         this Pledge Agreement. The Pledgor has no trade names.

                  (d) This Pledge  Agreement has been duly  authorized,  validly
         executed  and  delivered  by the  Pledgor and  constitutes  a valid and
         binding  agreement of the Pledgor,  enforceable  against the Pledgor in
         accordance with its terms, except as (i) the enforceability  hereof may
         be   limited  by   bankruptcy,   insolvency,   fraudulent   conveyance,
         preference, reorganization, moratorium or similar laws now or hereafter
         in effect  relating  to or  affecting  creditors'  rights  or  remedies
         generally,  (ii) the availability of equitable  remedies may be limited
         by equitable principles of general applicability, (iii) the exculpation
         provisions  and rights to  indemnification  hereunder may be limited by
         U.S. federal and state securities laws and public policy considerations
         and (iv) the waiver of rights and defenses  contained in Section 12(d),
         Section  15.11 and Section  15.15  hereof may be limited by  applicable
         law.

                  (e) Upon the  transfer to the Trustee of the Pledged  Security
         Entitlements,  in accordance with Section 3 above, the pledge and grant
         of a  security  interest  in the  Collateral  pursuant  to this  Pledge
         Agreement  for the  benefit of the Trustee and the Holders of the Notes
         will constitute a valid and perfected  first-priority security interest
         in such  Collateral,  securing the payment of the Secured  Obligations,
         enforceable  as such  against all  creditors  of the  Pledgor  (and any
         Persons purporting to purchase any of the Collateral from the Pledgor).

                  (f) There are no legal or governmental proceedings pending or,
         to the best of the Pledgor's knowledge, threatened to which the Pledgor
         or any of its subsidiaries is a party or to which any of the properties
         of the Pledgor or any such subsidiary is subject that would  materially
         adversely  affect the power or ability  of the  Pledgor to perform  its
         obligations   under  this  Pledge   Agreement  or  to  consummate   the
         transactions contemplated hereby.

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                                       9


                    (g) The pledge of the  Collateral  pursuant  to this  Pledge
          Agreement  is  not  prohibited  by  law  or  governmental   regulation
          (including, without limitation, Regulations G, T, U and X of the Board
          of Governors of the Federal Reserve System) applicable to the Pledgor.

                    (h) No Event of Default (as defined below) exists.

          SECTION 7. Further  Assurances.  (a) The Pledgor agrees that from time
to time, at the expense of the Pledgor,  the Pledgor will  promptly  execute and
deliver all further instruments and documents, and take all further action, that
may be  necessary  or  desirable  or  required  by law,  or that the Trustee may
reasonably  request,  in order to perfect and protect the first  priority of any
pledge or security  interest  granted or  purported  to be granted  hereby or to
enable the Trustee to exercise  and  enforce its rights and  remedies  hereunder
with  respect  to  any  Collateral.  Without  limiting  the  generality  of  the
foregoing,  the Pledgor  will:  (i) if any  Collateral  shall be  evidenced by a
promissory note or other instrument, deliver and pledge to the Trustee hereunder
such  note  or  instrument  duly  indorsed  and  accompanied  by  duly  executed
instruments of transfer or assignment, all in form and substance satisfactory to
the  Trustee;   and  (ii)  execute  and  file  such  financing  or  continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as the Trustee may reasonably request, in order to
perfect and preserve the pledge,  assignment  and security  interest  granted or
purported to be granted hereby.

          (b) The  Pledgor  hereby  authorizes  the  Trustee to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral  without the signature of the Pledgor where permitted
by law. A  photocopy  or other  reproduction  of this  Pledge  Agreement  or any
financing  statement  covering  the  Collateral  or any  part  thereof  shall be
sufficient as a financing statement where permitted by law.

          (c)  The  Pledgor  will  furnish  to the  Trustee  from  time  to time
statements and schedules  further  identifying and describing the Collateral and
such  other  reports  in  connection  with the  Collateral  as the  Trustee  may
reasonably request, all in reasonable detail.

          (d) The Pledgor will  promptly pay all  reasonable  costs  incurred in
connection  with any of the  foregoing  within 45 days of  receipt of an invoice
therefor.

          SECTION 8.  Covenants.  (a) The Pledgor  covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this Pledge
Agreement  until the earlier of payment in full in cash of (x) each of the first
six  scheduled  interest  payments  due on the  Notes  under  the  terms  of the
Indenture or (y) all obligations due and owing under the Indenture and the Notes
in the event such obligations become due and payable prior to the payment of the
first six scheduled interest payments on the Notes:


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                                       10


                  (i) that (A) it will not  (and  will not  purport  to) sell or
         otherwise  dispose of, or grant any option or warrant  with respect to,
         any of the Collateral or its beneficial  interest  therein,  and (B) it
         will not create or permit to exist any Lien or other  adverse  interest
         in or with respect to its beneficial  interest in any of the Collateral
         (except  for  the  security   interests   granted   under  this  Pledge
         Agreement); and

                  (ii)  that it  will  not  (A)  enter  into  any  agreement  or
         understanding  that  restricts  or  inhibits or purports to restrict or
         inhibit the Trustee's rights or remedies hereunder,  including, without
         limitation,  the  Trustee's  right to sell or otherwise  dispose of the
         Collateral or (B) fail to pay or discharge any tax,  assessment or levy
         of any nature with respect to its beneficial interest in the Collateral
         not later than five days prior to the date of any  proposed  sale under
         any  judgment,  writ or  warrant  of  attachment  with  respect to such
         beneficial interest.

          SECTION 9. Power of Attorney. In addition to all of the powers granted
to the  Trustee  pursuant to the  Indenture,  the Pledgor  hereby  appoints  and
constitutes  the Trustee as the Pledgor's  attorney-in-fact  (with full power of
substitution),  with full authority in the place and stead of the Pledgor and in
the  name of the  Pledgor  or  otherwise,  from  time  to time in the  Trustee's
discretion to take any action and to execute any instrument that the Trustee may
deem necessary or advisable to accomplish the purposes of this Pledge Agreement,
including, without limitation:

                  (a) to ask for, demand, collect, sue for, recover, compromise,
         receive and give  acquittance and receipts for moneys due and to become
         due under or in respect of any of the Collateral,

                  (b) to  receive,  indorse  and  collect  any  drafts  or other
         instruments, documents and chattel paper, in connection with clause (a)
         above,

                  (c) to file any  claims or take any  action or  institute  any
         proceedings  that the Trustee may deem  necessary or desirable  for the
         collection of any of the  Collateral or otherwise to enforce the rights
         of the Trustee with respect to any of the Collateral, and

                  (d) to pay or  discharge  taxes or Liens levied or placed upon
         the  Collateral  that the  Pledgor  has failed to pay or  discharge  in
         accordance  herewith,  the legality or validity thereof and the amounts
         necessary to discharge  the same to be determined by the Trustee in its
         sole  reasonable  discretion,  and such payments made by the Trustee to
         become part of the  Obligations of the Pledgor to the Trustee,  due and
         payable immediately upon demand;


<PAGE>
                                       11


provided,  however,  that the Trustee shall have no obligation to perform any of
the  foregoing  actions.  The  Trustee's  authority  under this  Section 9 shall
include,  without limitation,  the authority to endorse and negotiate any checks
or instruments  representing  proceeds of Collateral in the name of the Pledgor,
execute and give  receipt  for any  certificate  of  ownership  or any  document
constituting  Collateral,  transfer  title to any item of  Collateral,  sign the
Pledgor's  name  on  all  financing  statements  (to  the  extent  permitted  by
applicable  law) or any other documents  deemed  necessary or appropriate by the
Trustee to preserve,  protect or perfect the security interest in the Collateral
and to file the same, prepare, file and sign the Pledgor's name on any notice of
Lien,  and to take any other  actions  arising  from or  incident  to the powers
granted to the  Trustee in this  Pledge  Agreement.  This power of  attorney  is
coupled with an interest and is irrevocable by the Pledgor.

          SECTION 10. No Assumption of Duties;  Reasonable  Care. The rights and
powers conferred on the Trustee hereunder are solely to preserve and protect the
security  interest  of the  Trustee  and the  Holders of the Notes in and to the
Collateral  granted hereby and shall not be interpreted to, and shall not impose
any duties on the Trustee in  connection  therewith  other than those  expressly
provided  herein  or  imposed  under  applicable  law.  Except  as  provided  by
applicable  law or by the  Indenture,  the  Trustee  shall  be  deemed  to  have
exercised  reasonable care in the custody and  preservation of the Collateral in
its possession if the Collateral is accorded  treatment  substantially  equal to
that which the Trustee accords similar  property held by the Trustee for its own
account,  it being understood that the Trustee in its capacity as such shall not
have any  responsibility  for (a)  ascertaining or taking action with respect to
calls,  conversions,  exchanges,  maturities  or other  matters  relative to any
Collateral,  whether or not the  Trustee has or is deemed to have  knowledge  of
such matters,  (b) taking any  necessary  steps to preserve  rights  against any
parties with respect to any  Collateral or (c) investing or  reinvesting  any of
the Collateral or any loss on any  investment.  The Trustee shall be entitled to
all the rights,  benefits,  privileges and  immunities  accorded to it under the
Indenture.

          SECTION 11. Indemnity. The Pledgor shall indemnify,  hold harmless and
defend the Trustee and its directors,  officers,  agents and employees, from and
against any and all claims,  actions,  obligations,  liabilities  and  expenses,
including reasonable defense costs, reasonable investigative fees and costs, and
reasonable  legal fees and damages  arising from the  Trustee's  performance  as
Trustee  under this  Pledge  Agreement,  except to the extent  that such  claim,
action,  obligation,  liability or expense is directly  attributable  to the bad
faith,  gross negligence or wilful misconduct of such indemnified  person.  This
indemnification  shall survive the  resignation  or removal of the Trustee under
the Indenture and the termination of this Pledge Agreement.

<PAGE>
                                       12

          SECTION 12.  Remedies  Upon Event of Default.  If any Event of Default
under the Indenture or default  hereunder  (any such Event of Default or default
being referred to in this Pledge  Agreement as an "Event of Default") shall have
occurred and be continuing:

                  (a) The Trustee and the Holders of the Notes may exercise,  in
         addition to all other rights  given by law or by this Pledge  Agreement
         or the  Indenture,  all of the rights and remedies  with respect to the
         Collateral  of a secured  party  under the UCC  (whether or not the UCC
         applies  to the  affected  Collateral)  and  also may (i)  require  the
         Pledgor to, and the Pledgor  hereby  agrees that it will at its expense
         and upon request of the Trustee forthwith,  assemble all or part of the
         Collateral  as directed by the  Trustee  and make it  available  to the
         Trustee at a place to be  designated  by the Trustee that is reasonably
         convenient to both parties and (ii) without  notice except as specified
         below,  sell the  Collateral or any part thereof in one or more parcels
         at any  broker's  board or at public or  private  sale,  in one or more
         sales or lots, at any of the Trustee's offices or elsewhere,  for cash,
         on credit or for  future  delivery,  and upon such  other  terms as the
         Trustee may deem commercially  reasonable.  The Pledgor agrees that, to
         the extent  notice of sale shall be required by law, at least ten days'
         notice to the  Pledgor of the time and place of any public  sale or the
         time  after  which  any  private  sale is to be made  shall  constitute
         reasonable notification. The Trustee shall not be obligated to make any
         sale of Collateral  regardless of notice of sale having been given. The
         Trustee  may  adjourn  any public or private  sale from time to time by
         announcement at the time and place fixed  therefor,  and such sale may,
         without further  notice,  be made at the time and place to which it was
         so  adjourned.  The  purchaser of any or all  Collateral  so sold shall
         thereafter hold the same absolutely,  free from any claim,  encumbrance
         or right of any kind whatsoever created by or through the Pledgor.  Any
         sale  of  the  Collateral   conducted  in  conformity  with  reasonable
         commercial practices of banks, insurance companies,  commercial finance
         companies,  or  other  financial  institutions  disposing  of  property
         similar  to  the  Collateral   shall  be  deemed  to  be   commercially
         reasonable.  The Trustee or any Holder of Notes may, in its own name or
         in the name of a designee or nominee,  buy any of the Collateral at any
         public sale and, if permitted by  applicable  law, at any private sale.
         All expenses  (including  court costs and reasonable  attorneys'  fees,
         expenses and  disbursements) of, or incident to, the enforcement of any
         of the provisions  hereof shall be recoverable from the proceeds of the
         sale or other disposition of the Collateral.

                  (b) All cash  proceeds  received  by the Trustee in respect of
         any sale of, collection from, or other realization upon all or any part
         of the Collateral may, in the discretion of the Trustee, be held by the
         Trustee  as  collateral  for,  and/or  then or at any  time  thereafter
         applied (after payment of any amounts  payable to the Trustee  pursuant
         to  Section  13) in whole  or in part by the  Trustee  for the  ratable

<PAGE>
                                       13

         benefit  of the  Holders of the Notes  against,  all or any part of the
         Secured  Obligations  in such order as the  Trustee  shall  elect.  Any
         surplus of such cash or cash proceeds held by the Trustee and remaining
         after payment in full of all the Secured Obligations shall be paid over
         to the Pledgor or to  whomsoever  may be  lawfully  entitled to receive
         such surplus.

                  (c) The Trustee may,  without  notice to the Pledgor except as
         required by law and at any time or from time to time,  charge,  set-off
         and otherwise apply all or any part of the Secured  Obligations against
         the Pledged Account or any part thereof.

                  (d) The  Pledgor  further  agrees to use its  reasonable  best
         efforts  to do or  cause  to be  done  all  such  other  acts as may be
         necessary  to make  such  sale or  sales of all or any  portion  of the
         Collateral  pursuant  to this  Section  12  valid  and  binding  and in
         compliance with any and all other  applicable  requirements of law. The
         Pledgor further agrees that a breach of any of the covenants  contained
         in this Section 12 will cause irreparable injury to the Trustee and the
         Holders of the Notes,  that the  Trustee  and the  Holders of the Notes
         have no  adequate  remedy at law in respect of such  breach  and,  as a
         consequence,  that each and every covenant contained in this Section 12
         shall be specifically  enforceable against the Pledgor, and the Pledgor
         hereby  waives and agrees not to assert any defenses  against an action
         for specific performance of such covenants except for a defense that no
         Event of Default has occurred and is continuing.

          SECTION  13.  Expenses.  The Pledgor  will,  upon  demand,  pay to the
Trustee  the  amount  of any and all  reasonable  expenses,  including,  without
limitation,  the reasonable  fees,  expenses and  disbursements  of its counsel,
experts  and agents  retained  by the  Trustee,  that the  Trustee  may incur in
connection with (a) the review,  negotiation and  administration  of this Pledge
Agreement,  (b) the custody or preservation of, or the sale of, collection from,
or  other  realization  upon,  any  of  the  Collateral,  (c)  the  exercise  or
enforcement  of any of the rights of the  Trustee  and the  Holders of the Notes
hereunder  or (d) the  failure by the  Pledgor to perform or observe  any of the
provisions hereof.

          SECTION 14. Security Interest Absolute. The obligations of the Pledgor
under this Pledge  Agreement are independent of the Secured  Obligations,  and a
separate action or actions may be brought and prosecuted  against the Pledgor to
enforce  this Pledge  Agreement,  irrespective  of whether any action is brought
against KMC or whether  KMC is joined in any such action or actions.  All rights
of the Trustee and the Holders of the Notes and the security interest hereunder,
and all obligations of the Pledgor hereunder, shall be irrevocable, absolute and
unconditional irrespective of, and the Pledgor hereby irrevocably waives (to the
maximum extent  permitted by applicable law) any defenses it may now have or may
hereafter acquire in any way relating to, any or all of the following:

                  (a) any lack of validity or  enforceability of  the  Indenture
          or Notes or any other agreement or instrument relating thereto;

<PAGE>
                                       14

                  (b) any change in the time,  manner or place of payment of, or
         in any other  term of,  all or any of the  Secured  Obligations  or any
         other  amendment or waiver of or any consent to any departure  from the
         Indenture;

                  (c) any taking,  exchange,  release or  non-perfection  of any
         liens on any  Collateral or any other  collateral for all or any of the
         Secured Obligations;

                  (d) any  manner  of  application  of  Collateral  or any other
         collateral,  or  proceeds  thereof,  to  all  or  any  of  the  Secured
         Obligations,  or  any  manner  of  sale  or  other  disposition  of any
         Collateral  or any  other  collateral  for  all  or any of the  Secured
         Obligations or any other assets of the Pledgor;

                  (e)  any   change,   restructuring   or   termination  of  the
          corporate structure or existence of KMC or the Pledgor;

                  (h)  to the  extent permitted  by  applicable  law,  any other
         circumstance   (including,   without   limitation,   any   statute   of
         limitations) that might otherwise constitute a defense available to, or
         a discharge of, the Pledgor in respect of the Secured Obligations or of
         this Pledge Agreement.

This Pledge  Agreement  shall continue to be effective or be reinstated,  as the
case may be, if at any time any  payment of any of the  Secured  Obligations  is
rescinded  or must  otherwise be returned by the Trustee or any Holder of a Note
upon the  insolvency,  bankruptcy  or  reorganization  of KMC or the  Pledgor or
otherwise, all as though such payment had not been made.

                  SECTION 15.  Miscellaneous Provisions.

                  Section  15.1.  Notices.  Any  notice or  communication  given
hereunder shall be  sufficiently  given if in writing and delivered in person or
mailed  by  first  class  mail,   commercial   courier   service  or  telecopier
communication, addressed as follows:

                  if to the Pledgor:

                           KMC Telecom Financing, Inc.
                           1545 Route 206, Suite 300
                           Bedminster, New Jersey 07921
                           Attention: Chief Financial Officer



<PAGE>
                                       15


                           with a copy to:

                           KMC Telecom Holdings, Inc.
                           1545 Route 206, Suite 300
                           Bedminster, NJ 07921
                           Attention:  Chief Financial Officer

                           and a copy to:

                           Kelley Drye & Warren LLP
                           101 Park Ave.
                           New York, NY 10178
                           Attention:  Brian J. Calvey

                  if to the Trustee:

                           The Chase Manhattan Bank
                           450 West 33rd Street, 15th Floor
                           New York, New York 10001-2697
                           Attention: Capital Markets Fiduciary Services

                           with a copy to:

                           Pryor Cashman Sherman & Flynn, LLP
                           410 Park Avenue
                           New York, New York 10022
                           Attention: Eric M. Hellige

          All  such  notices  and  other  communications   shall,  when  mailed,
delivered or telecopied, respectively, be effective when deposited in the mails,
delivered  or  telecopied,   respectively,  addressed  as  aforesaid;  provided,
however, that notices and other communications to the Trustee shall be effective
only upon receipt by the Trustee.

          Section  15.2. No Adverse  Interpretation  of Other  Agreements.  This
Pledge Agreement may not be used to interpret  another pledge,  security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge,  security or
debt  agreement  (other than the Indenture) may be used to interpret this Pledge
Agreement.


          Section 15.3.  Severability.  The provisions of this Pledge  Agreement
are severable,  and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any  jurisdiction,  then such invalidity or
unenforceability   shall  affect  in  that  jurisdiction  only  such  clause  or

<PAGE>
                                       16


provision,  or part  thereof,  and shall not in any manner affect such clause or
provision  in any other  jurisdiction  or any other  clause or provision of this
Pledge Agreement in any jurisdiction.

          Section 15.4.  Headings.  The headings in this Pledge  Agreement  have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way  modify or  restrict  any of the terms or  provisions
hereof.

          Section  15.5.  Counterpart  Originals.  This Pledge  Agreement may be
signed in two or more  counterparts,  each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.

          Section  15.6.  Benefits of Pledge  Agreement.  Nothing in this Pledge
Agreement,  express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Holders of the Notes, any benefit
or any legal or equitable right, remedy or claim under this Pledge Agreement.

          Section  15.7.  Amendments,  Waivers and  Consents.  Any  amendment or
waiver  of any  provision  of  this  Pledge  Agreement  and any  consent  to any
departure by the Pledgor from any  provision of this Pledge  Agreement  shall be
effective  only if in  writing,  signed by the Trustee and made or duly given in
compliance with all of the terms and provisions of the Indenture,  and then such
waiver or consent shall be effective  only in the specific  instance and for the
specific  purpose for which  given.  Neither the Trustee nor any Holder of Notes
shall be deemed, by any act, delay,  indulgence,  omission or otherwise, to have
waived any right or remedy  hereunder  or to have  acquiesced  in any Default or
Event of  Default or in any  breach of any of the terms and  conditions  hereof.
Failure  of the  Trustee  or any  Holder  of  Notes  to  exercise,  or  delay in
exercising, any right, power or privilege hereunder shall not preclude any other
or  further  exercise  thereof  or the  exercise  of any other  right,  power or
privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy
hereunder  on any one  occasion  shall not be construed as a bar to any right or
remedy  that the Trustee or such  Holder of Notes  would  otherwise  have on any
future occasion. The rights and remedies herein provided are cumulative,  may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.

          Section 15.8.  Interpretation  of  Agreement.  To the extent a term or
provision of this Pledge Agreement  conflicts with the Indenture,  the Indenture
shall  control  with  respect to the subject  matter of such term or  provision.
Acceptance of or  acquiescence  in a course of  performance  rendered under this
Pledge  Agreement  shall not be relevant to determine the meaning of this Pledge
Agreement  even though the accepting or  acquiescing  party had knowledge of the
nature of the performance and opportunity for objection.

<PAGE>
                                       17

          Section 15.9.  Continuing  Security  Interest;  Termination.  (a) This
Pledge  Agreement  shall  create a  continuing  security  interest in and to the
Collateral and shall, unless otherwise provided in this Pledge Agreement, remain
in full  force and  effect  until  the  payment  in full in cash of the  Secured
Obligations.  This  Pledge  Agreement  shall be binding  upon the  Pledgor,  its
transferees,  successors and assigns, and shall inure,  together with the rights
and  remedies  of the Trustee  hereunder,  to the  benefit of the  Trustee,  the
Holders of the Notes and their respective successors, transferees and assigns.

          (b) So  long  as no  Event  of  Default  shall  have  occurred  and be
continuing,  this Pledge  Agreement  (other  than  Pledgor's  obligations  under
Sections 11 and 13) shall  terminate upon the earlier of (i) the payment in full
in cash of the Secured  Obligations  and (ii) the payment in full in cash of the
first six scheduled  interest  payments on all of the Notes.  At such time,  the
Trustee  shall,  pursuant to an Issuer  Order,  reassign  and  redeliver  to the
Pledgor all of the  Collateral  hereunder  that has not been sold,  disposed of,
retained or applied by the Trustee in  accordance  with the terms of this Pledge
Agreement  and the  Indenture and take all actions that are necessary to release
the security interest created by this Pledge Agreement in and to the Collateral,
including the execution and delivery of all termination  statements necessary to
terminate any  financing or  continuation  statements  filed with respect to the
Collateral.  Such  reassignment  and redelivery  shall be without warranty by or
recourse to the Trustee in its capacity as such, except as to the absence of any
Liens on the Collateral created by or arising through the Trustee,  and shall be
at the expense of the Pledgor.

          Section  15.10.   Survival  of  Representations  and  Covenants.   All
representations,  warranties and covenants of the Pledgor contained herein shall
survive the execution and delivery of this Pledge Agreement, and shall terminate
only upon the termination of this Pledge Agreement.

          Section 15.11.  Waivers. The Pledgor waives presentment and demand for
payment of any of the  Obligations,  protest  and notice of  dishonor or default
with  respect  to any of the  Obligations,  and all other  notices  to which the
Pledgor  might  otherwise be entitled,  except as otherwise  expressly  provided
herein or in the Indenture.

          Section  15.12.  Authority of the Trustee.  (a) The Trustee shall have
and be entitled to exercise all powers hereunder that are  specifically  granted
to the Trustee by the terms hereof,  together with such powers as are reasonably
incident  thereto.  The Trustee may  perform any of its duties  hereunder  or in
connection  with the  Collateral by or through  agents or employees and shall be
entitled to retain  counsel  and to act in  reliance  upon the advice of counsel
concerning  all such  matters.  Except as otherwise  expressly  provided in this
Pledge  Agreement  or the  Indenture,  neither  the  Trustee  nor any  director,
officer,  employee,  attorney  or agent of the  Trustee  shall be  liable to the
Pledgor  for any  action  taken or omitted  to be taken by the  Trustee,  in its

<PAGE>
                                       18


capacity as Trustee,  hereunder,  except for its own bad faith, gross negligence
or  willful  misconduct,  and  the  Trustee  shall  not be  responsible  for the
validity,  effectiveness  or  sufficiency  hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors,  officers,  employees,
attorneys and agents shall be entitled to rely on any communication,  instrument
or  document  believed  by it or them to be genuine and correct and to have been
signed or sent by the proper Person or Persons.

          (b) The Pledgor  acknowledges that the rights and  responsibilities of
the Trustee under this Pledge  Agreement with respect to any action taken by the
Trustee or the  exercise or  non-exercise  by the Trustee of any option,  right,
request,  judgment or other right or remedy  provided for herein or resulting or
arising  out of this  Pledge  Agreement  shall,  as between  the Trustee and the
Holders of the Notes, be governed by the Indenture and by such other  agreements
with respect  thereto as may exist from time to time among them, but, as between
the Trustee and the Pledgor,  the Trustee shall be  conclusively  presumed to be
acting as agent for the Holders of the Notes with full and valid authority so to
act or refrain from acting,  and the Pledgor  shall not be obligated or entitled
to make any inquiry respecting such authority.

          Section 15.13 Final Expression.  This Pledge Agreement,  together with
the  Indenture  and any other  agreement  executed in  connection  herewith,  is
intended by the parties as a final  expression  of this Pledge  Agreement and is
intended  as a complete  and  exclusive  statement  of the terms and  conditions
thereof.

          Section  15.14.  Rights of Holders  of the  Notes.  No Holder of Notes
shall have any independent  rights  hereunder other than those rights granted to
individual  Holders  of the Notes  pursuant  to Section  6.06 of the  Indenture;
provided that nothing in this  subsection  shall limit any rights granted to the
Trustee under the Notes or the Indenture.

          Section 15.15.  GOVERNING LAW;  SUBMISSION TO JURISDICTION;  WAIVER OF
JURY TRIAL;  WAIVER OF DAMAGES.  (a) THIS PLEDGE  AGREEMENT SHALL BE GOVERNED BY
AND  INTERPRETED  UNDER THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT
TO ANY CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE OTHER THAN GENERAL OBLIGATIONS
LAW ss. 5-1401),  AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP  ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND
THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE  AGREEMENT,  AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,  SHALL BE RESOLVED IN ACCORDANCE
WITH THE LAWS OF THE  STATE OF NEW  YORK.  NOTWITHSTANDING  THE  FOREGOING:  THE
MATTERS  IDENTIFIED IN 31 C.F.R.  PART 357, 61 FED. REG.  43626 (AUG. 23, 1996),
SHALL BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN.

<PAGE>
                                       19

          (b) THE PLEDGOR HAS APPOINTED CT  CORPORATION  SYSTEM AS ITS AGENT FOR
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE
AGREEMENT AND FOR ACTIONS  BROUGHT UNDER U.S.  FEDERAL OR STATE  SECURITIES LAWS
BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES
TO SUBMIT TO THE JURISDICTION OF ANY SUCH COURT.

          (c) THE  PLEDGOR  AGREES THAT THE TRUSTEE  SHALL,  IN ITS  CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES,  HAVE THE RIGHT, TO
THE EXTENT  PERMITTED BY APPLICABLE  LAW, TO PROCEED  AGAINST THE PLEDGOR OR THE
COLLATERAL  IN A COURT IN ANY  LOCATION  REASONABLY  SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM  JURISDICTION  OVER THE PLEDGOR OR THE COLLATERAL,  AS
THE CASE MAY BE) TO ENABLE THE  TRUSTEE TO  REALIZE  ON SUCH  COLLATERAL,  OR TO
ENFORCE A JUDGMENT  OR OTHER COURT ORDER  ENTERED IN FAVOR OF THE  TRUSTEE.  THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
IN ANY  PROCEEDING  BROUGHT BY THE  TRUSTEE TO  REALIZE ON SUCH  PROPERTY  OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS,  SETOFFS  OR  CROSSCLAIMS  WHICH,  IF NOT  ASSERTED  IN ANY  SUCH
PROCEEDING,  COULD NOT OTHERWISE BE BROUGHT OR ASSERTED.  THE PLEDGOR WAIVES ANY
OBJECTION  THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE  THE  TRUSTEE  HAS  COMMENCED  A  PROCEEDING  DESCRIBED  IN THIS  PARAGRAPH
INCLUDING,  WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.

          (d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR (EXCEPT AS
OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE TRUSTEE IN ITS
CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR  (WHETHER ARISING IN
TORT,  CONTRACT OR OTHERWISE)  FOR LOSSES  SUFFERED BY THE PLEDGOR IN CONNECTION
WITH,  ARISING OUT OF, OR IN ANY WAY RELATED TO, THE  TRANSACTIONS  CONTEMPLATED
AND THE RELATIONSHIP  ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION  THEREWITH,  UNLESS IT IS DETERMINED BY A FINAL
AND  NONAPPEALABLE  JUDGMENT  OF A COURT THAT IS BINDING ON THE  TRUSTEE OR SUCH
HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH  HOLDERS OF NOTES,  AS THE CASE MAY
BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

<PAGE>
                                       20


          (e) TO THE EXTENT  PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES THE
POSTING OF ANY BOND OTHERWISE  REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES IN
CONNECTION  WITH ANY JUDICIAL  PROCESS OR  PROCEEDING TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER PERTAINING TO THIS PLEDGE  AGREEMENT OR ANY RELATED  AGREEMENT
OR  DOCUMENT  ENTERED  IN FAVOR OF THE  TRUSTEE  OR ANY  HOLDER OF NOTES,  OR TO
ENFORCE BY SPECIFIC  PERFORMANCE,  TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT
BETWEEN THE  PLEDGOR ON THE ONE HAND AND THE  TRUSTEE  AND/OR THE HOLDERS OF THE
NOTES ON THE OTHER HAND.

             [The remainder of this page intentionally left blank.]

<PAGE>

          IN WITNESS WHEREOF,  the Pledgor and the Trustee have each caused this
Pledge  Agreement to be duly  executed and  delivered as of the date first above
written.


                                            Pledgor:

                                            KMC TELECOM FINANCING, INC.


                                            By:   /s/ James D. Grenfell
                                                  ------------------------
                                            Name:  JAMES D. GRENFELL
                                            Title: EXECUTIVE VICE PRESIDENT,
                                                   CHIEF FINANCIAL OFFICER


                                            Trustee:

                                            THE CHASE MANHATTAN BANK,
                                            as Trustee


                                            By:   /s/ P. Kelly
                                                  ------------------------
                                            Name:
                                            Title:

The foregoing is agreed to this 24th day of May, 1999,


KMC TELECOM HOLDINGS, INC.


By:   /s/ James D. Grenfell
      ------------------------
Name:  JAMES D. GRENFELL
Title: EXECUTIVE VICE PRESIDENT,
       CHIEF FINANCIAL OFFICER


<PAGE>



                                   SCHEDULE I

                               Pledged Securities


Security; Coupon; Maturity            CUSIP No.                 Amount (U.S.$)
--------------------------            ---------                 --------------




<PAGE>

                                   SCHEDULE II

                               Pledged Securities


Security; Coupon; Maturity            CUSIP No.                 Amount (U.S.$)
--------------------------            ---------                 --------------










<PAGE>



         ANNEX A

                                CONTROL AGREEMENT