PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT

          PREFERRED STOCK REGISTRATION  RIGHTS AGREEMENT,  dated as of April 30,
1999  (this  "AGREEMENT"),  between  KMC  TELECOM  HOLDINGS,  INC.,  a  Delaware
corporation (the "COMPANY"),  and FIRST UNION INVESTORS,  INC., a North Carolina
corporation ("FIRST UNION").

          WHEREAS,  pursuant to the terms of a Securities  Purchase Agreement of
even date  herewith  (the  "PURCHASE  AGREEMENT")  between the Company and First
Union,  the  Company  has  agreed to issue  and sell to First  Union a unit (the
"SERIES E UNIT"),  consisting of 35,000 shares of the Company's  Series E Senior
Redeemable,  Exchangeable,  PIK Preferred Stock (the "SERIES E PREFERRED STOCK")
and 94,513 warrants (each, a "WARRANT" and collectively,  the "WARRANTS"),  each
Warrant  initially  entitling the holder thereof to purchase  0.471756 shares of
Common Stock (as defined  below) of the Company at an exercise price of $.01 per
Common Share (as defined below);

          WHEREAS, the Company and First Union wish to set forth their agreement
with respect to certain rights and  obligations  regarding the  registration  of
shares of the Preferred Stock.

          In  consideration  of  the  foregoing  and of  the  mutual  agreements
contained  herein and in the Purchase  Agreement,  the Company and the Purchaser
hereby agree as follows:

          1. DEFINITIONS.

          As used in this  Agreement,  the following  capitalized  defined terms
shall have the following meanings:

          "Affiliate"  means, with respect to any Person,  (i) each Person that,
directly or indirectly,  owns or controls, whether beneficially or as a trustee,
guardian or other  fiduciary,  25% or more of the capital stock having  ordinary
voting power in the election of directors of such Person,  (ii) each Person that
controls,  is controlled  by or is under common  control with such Person or any
Affiliate of such Person, or (iii) each of such Person's  executive officers and
directors. For the purpose of this definition,  "control" of a Person shall mean
the  possession,  directly  or  indirectly,  of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.

          "Board of Directors"  means the board of directors of the Company from
time to time.

          "Commission"   means  the  United  States   Securities   and  Exchange
Commission.

          "Common  Stock" means the common stock,  par value $.01 per share,  of
the Company.


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          "Company" has the meaning specified in the recitals to this Agreement.

          "Demand Holder" has the meaning specified in Section 2.1.

          "Demand Registrations" has the meaning specified in Section 2.1.

          "Exchange Act" means the Securities  Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.

          "Fully  Diluted  Basis"  means at any date as of which  the  number of
shares of Common Stock is to be determined,  on a basis  including all shares of
Common  Stock  outstanding  at such date and the maximum  shares of Common Stock
issuable  in  respect of Common  Stock  Equivalents  (giving  effect to the then
current respective  conversion prices) and other rights to purchase (directly or
indirectly) shares of Common Stock or Common Stock  Equivalents,  outstanding on
such date, to the extent such rights to convert, exchange or exercise thereunder
are  presently  exercisable.  For  purposes of this  definition,  "Common  Stock
Equivalents"  means any security or obligation which is by its terms convertible
into shares of Common  Stock and any option,  warrant or other  subscription  or
purchase right with respect to Common Stock.

          "NASD" means the National Association of Securities Dealers, Inc.

          "NASDAQ"  means  the  National   Association  of  Securities   Dealers
Automated Quotations System.

          "Person"  means  any  individual,   corporation,   partnership,  joint
venture,   association,   joint  stock  company,  trust,  fund,   unincorporated
association  or   organization  or  government  or  other  agency  or  political
subdivision thereof.

          "Purchase Agreement" has the meaning specified in the recitals.

          "Registrable  Securities" means the shares of Series E Preferred Stock
issued and sold to First Union under the Purchase Agreement.

          "Registration  Expenses" means all expenses  incident to the Company's
performance of or compliance with this Agreement,  including without  limitation
all  Commission  and stock  exchange  or NASD  registration  and filing fees and
expenses,  fees and  expenses of  compliance  with  securities  or blue sky laws
(including without  limitation  reasonable fees and disbursements of counsel for
the underwriters in connection with blue sky  qualificaitons  of the Registrable
Securities),  rating agency fees,  printing expenses,  messenger,  telephone and
delivery expenses, the fees and expenses incurred in connection with the listing
of the  securities  to be  registered  on each  securities  exchange or national
market system on which similar securities issued by the Company are then listed,
fees and disbursements of counsel for the Company and all independent  certified
public  accountants  (including the expenses of any annual audit,  special audit
and "cold  comfort"  letters  required by or incident  to such  performance  and
compliance),  securities  laws liability  insurance (if the Company so desires),
the fees and  disbursements of underwriters  (including  without  limitation all
fees and expenses of any  "qualified  independent  underwriter"  required by the
rules of the NASD) customarily paid by issuers or sellers of securities (but not


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<PAGE>

including any underwriting discounts or commissions  attributable to the sale of
Registrable Securities by the sellers of Registrable Securities), the reasonable
fees of counsel  selected  pursuant to Section  2.4(b)  hereof by First Union in
connection with each such registration,  the reasonable fees and expenses of any
special experts  retained by the Company in connection  with such  registration,
fees and expenses of other persons retained by the Company.

          "Registration Notice" has the meaning specified in Section 2.1(a).

          "Registration Statement" means a registration statement filed pursuant
to the Securities Act.

          "Securities  Act" means the United States  Securities  Act of 1933, as
amended.

          "Series E Preferred  Stock" has the meaning  specified in the recitals
to this Agreement.

          "Series E Unit" has the  meaning  specified  in the  recitals  to this
Agreement.

          2. DEMAND REGISTRATION RIGHTS.

          (a) RIGHT TO DEMAND.  At any time and from time to time after  October
__, 1999, First Union (referred to in this Section 2 as the "Demand Holder") may
request the Company to register  its  Registrable  Securities  in the manner set
forth herein by written notice (the  "REGISTRATION  NOTICE") to the Company only
if a disposition  of the  Registrable  Securities may not, in the opinion of the
Demand Holder,  be effected in the public  marketplace  (as opposed to a private
transaction  under the  Securities  Act) at equally  favorable  net terms to the
Demand Holder without  registration  of such shares under the Securities Act. In
the event that the Company  receives a  Registration  Notice,  the Company shall
effect a  registration  under the  Securities  Act of the number of  Registrable
Securities  determined  in  accordance  with  Section  2.1(c) on Form S-1 or any
similar long-form registration ("LONG-FORM REGISTRATIONS") or on Form S-2 or S-3
or  any  similar  short-form   registration   ("SHORT-FORM   REGISTRATIONS")  if
available.  All  registrations  requested  pursuant to this  Section  2.1(a) are
referred to herein as "Demand Registrations".

          (b) NUMBER OF DEMAND  REGISTRATIONS.  First  Union will be entitled to
obtain  up  to  two  (2)  Long-Form   Registrations   and  two  (2)   Short-Form
Registrations.  A  registration  will not count as a Long-Form  Registration  or
Short-Form Registration,  as the case may be, until such Demand Registration has
become  effective  and unless the Demand  Holder is able to register and sell at
least 66 2/3% of the  Registrable  Securities  requested  to be included in such
registration. Demand Registrations will be Short-Form Registrations whenever the
Company is permitted  to use any  applicable  short form.  After the Company has
become  subject to the reporting  requirements  of the Exchange Act, the Company
will use its best efforts to make  Short-Form  Registrations  available  for the
sale of Registrable Securities. The Company shall not be required to pay for any
expenses of any  registration  proceeding  begun pursuant to this Section 2.1(b)
(including  the Company's  internal  costs in  proceeding  on such  request,  as
reasonably  determined by the Company's Board of Directors) if the  registration
request is subsequently withdrawn,  unless the Demand Holder agrees to treat the
withdrawn request as a registration  undertaken pursuant to this Section 2.1(b);
PROVIDED,  that if the  Demand  Holder  withdraws  a  request  as a result  of a


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<PAGE>

material  adverse change in the condition,  business or prospects of the Company
or in the  market  for the  Company's  securities  from that known to the Demand
Holder at the time of its request, the Company, and not the Demand Holder, shall
be required to pay all the expenses  relating to the proposed  registration  and
such request shall not be treated as a registration for purposes of this Section
2.1(b).

          (c)  DEMAND  REGISTRATIONS.  Within  (a) 75  days  after  the  Company
receives a  Registration  Notice  with  respect  to the first  offer for sale of
Shares  pursuant to an  effective  registration  statement  filed by the Company
under the  Securities  Act or (b)  within 45 days after the  Company  receives a
Registration Notice with respect to any other demand  registration,  the Company
shall file with the Commission a registration statement under the Securities Act
for such Demand  Registration.  The Company  shall use its best efforts to cause
the Demand  Registration  to be declared  effective  under the Securities Act as
soon as is practical after filing,  and once effective,  the Company shall cause
such  Demand  Registration  to  remain  effective  for such  time  period  as is
specified in such request,  but for no time period longer than the period ending
on the earlier of (i) the one-year  anniversary  of the  effective  date of such
Demand Registration, (ii) the date on which all Registrable Securities have been
sold pursuant to the Demand Registration or (iii) the date as of which there are
no longer any  Registrable  Securities in  existence.  Each request for a Demand
Registration  shall specify the  approximate  number of  Registrable  Securities
requested to be registered  and the  anticipated  per share price range for such
offering.

          (d) PRIORITY ON DEMAND REGISTRATIONS.  The Company will not include in
any Demand  Registration  any securities  which are not  Registrable  Securities
without the prior written consent of the Demand Holder. If a Demand Registration
is an underwritten  offering and the managing underwriters advise the Company in
writing  that in their  opinion  the number of  Registrable  Securities  and, if
permitted hereunder,  other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be  sold  therein  without  adversely  affecting  the  marketability  of the
offering,  the  Company  will  include  in such  registration,  (i)  first,  the
Registrable  Securities requested to be included in such registration;  and (ii)
second, other securities, if any, requested to be included in such registration,
pro rata among the holders of such other securities,  on the basis of the number
of shares of other  securities  owned by each such  holder and  requested  to be
included therein.

          (e)  RESTRICTIONS  ON DEMAND  REGISTRATIONS.  The Company  will not be
obligated  to  effect  any  Demand  Registration  within  six  months  after the
effective date of a previous Demand Registration.  If at the time of any request
to register  Registrable  Securities pursuant to Section 2.1 hereof, the Company
is  engaged,  or has  fixed  plans to  engage  within 90 days of the time of the
request, in a registered public offering or is engaged in any activity which, in
the good  faith  determination  of the Board of  Directors,  would be  adversely
affected by the requested registration to the material detriment of the Company,
then the  Company may at its option  direct  that such  request be delayed for a
period not in excess of 60 days from the effective date of such offering, or the
date of commencement of such other material  activity,  as the case may be, such
right to delay a  request  to be  exercised  by the  Company  not more than once
within any twelve month period.


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<PAGE>

          (f) SELECTION OF UNDERWRITERS.  In the case of a Demand  Registration,
the  Company  shall have the right to select the  investment  banker or bankers,
underwriters and managers to administer the offering;  PROVIDED,  HOWEVER,  that
such  investment   banker  or  bankers,   underwriters  and  managers  shall  be
satisfactory to the Demand Holder.

          2.2. HOLDBACK AGREEMENTS.

          (a) First Union  agrees not to effect any public sale or  distribution
(including  sales  pursuant  to Rule 144  under  the  Securities  Act) of equity
securities,  including, without limitation, the Common Stock, of the Company, or
any  securities  convertible  into  or  exchangeable  or  exercisable  for  such
securities,  during the seven days prior to and the 180-day period  beginning on
the  effective  date of any  Demand  Registration  for a public  offering  to be
underwritten  on a firm  commitment  basis (except as part of such  underwritten
registration), unless the investment bankers or underwriters managing the public
offering otherwise agree.

          (b)  The  Company  agrees  (i)  not  to  effect  any  public  sale  or
distribution of its equity securities, including, without limitation, the Common
Stock,  or any securities  convertible  into or  exchangeable or exercisable for
such  securities,  during the seven days prior to and during the 180-day  period
beginning on the effective date of any underwritten Demand Registration  (except
as part of such underwritten registration), unless the underwriters managing the
registered  public  offering  otherwise  agree,  and (ii) to use best efforts to
cause  each  holder  of at least 5% (on a Fully  Diluted  Basis)  of its  equity
securities,  including,  without  limitation,  Common Stock,  or any  securities
convertible into or exchangeable or exercisable for such  securities,  purchased
from the Company at any time after the date of this  Agreement  (other than in a
registered  public offering or  distribution)  to agree not to effect any public
sale or distribution  (including sales pursuant to Rule 144 under the Securities
Act)  of any  such  securities  during  such  period  (except  as  part  of such
underwritten registration), unless the underwriters managing the public offering
or distribution otherwise agree.

          2.3. REGISTRATION PROCEDURES.  Whenever First Union has requested that
any Registrable Securities be registered pursuant to this Agreement, the Company
will  use its best  efforts  to  effect  the  registration  and the sale of such
Registrable  Securities in accordance  with the intended  method of  disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:

          (a) prepare and file with the Commission a registration statement with
respect to such  Registrable  Securities  and use its best efforts to cause such
registration  statement  to become  effective  (provided  that  before  filing a
registration  statement or prospectus or any amendments or supplements  thereto,
the Company  will  furnish to the counsel  selected by First Union copies of all
such documents proposed to be filed);

          (b) subject to Section 2.3 (e) , prepare and file with the  Commission
such  amendments  and  supplements  to  such  registration   statement  and  the
prospectus  used in  connection  therewith  as may be  necessary  to  keep  such
registration  statement  effective  for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities  covered by such registration  statement during such period in


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<PAGE>

accordance  with the intended  methods of disposition by the sellers thereof set
forth in such registration statement;

          (c) furnish to First Union such number of copies of such  registration
statement,  each amendment and supplement  thereto,  the prospectus  included in
such  registration  statement  (including each preliminary  prospectus) and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities;

          (d) use its best  efforts  to  register  or qualify  such  Registrable
Securities under such other securities or blue sky laws of such jurisdictions of
the United States of America as First Union  reasonably  requests and do any and
all other acts and things  which may be  reasonably  necessary  or  advisable to
enable First Union to consummate the  disposition in such  jurisdictions  of the
Registrable  Securities  (provided  that the Company will not be required to (i)
qualify  generally  to do  business  in any  jurisdiction  where  it  would  not
otherwise be required to qualify but for this subsection, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of process
(i.e.,  service  of  process  which is not  limited  solely  to  securities  law
violations) in any such jurisdiction);

          (e) notify First Union, at any time when a prospectus relating thereto
is required to be delivered  under the  Securities  Act, of the happening of any
event  as a  result  of  which  the  prospectus  included  in such  registration
statement  contains  an untrue  statement  of a material  fact or omits any fact
necessary to make the statements therein not misleading,  and, at the request of
any such seller,  the Company will promptly prepare a supplement or amendment to
such  prospectus  so that,  as  thereafter  delivered to the  purchasers of such
Registrable Securities,  such prospectus will not contain an untrue statement of
a  material  fact or omit to state  any fact  necessary  to make the  statements
therein not misleading;  PROVIDED,  that upon not less than five days, notice to
First  Union,  the Company may defer the filing of an  amendment  or withdraw an
amendment or may defer the effectiveness of an amendment or the preparation of a
supplement  if the  Board of  Directors  determines,  in good  faith,  that such
amendment or  supplement,  or the  disclosure of any  information  in connection
therewith,  would  have a  material  adverse  affect  upon  the  Company  or its
subsidiaries;  and PROVIDED,  FURTHER, that the Company may not defer the filing
of any such amendment or supplement for more than 30 days;

          (f) use its best efforts to cause all such  Registrable  Securities to
be listed on each securities  exchange on which similar securities issued by the
Company are then  listed and, if not so listed,  to be listed on the NASDAQ and,
if listed on the NASDAQ,  use its best efforts to secure designation of all such
Registrable  Securities  covered by such  registration  statement as a "national
market system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, to secure NASDAQ  authorization  for such  Registrable  Securities
and, without  limiting the generality of the foregoing,  to arrange for at least
two  market  makers  to  register  as such  with  respect  to  such  Registrable
Securities with the NASD;

          (g) provide a transfer  agent and registrar  for all such  Registrable
Securities not later than the effective date of such registration statement;

          (h)  enter  into such  customary  agreements  (including  underwriting
agreements in customary  form) and take all such other actions as First Union or
the underwriters,  if any, reasonably request in order to expedite or facilitate


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<PAGE>

the disposition of such Registrable Securities  (including,  without limitation,
effecting a stock split or a combination of shares);

          (i)  make  available,   subject  to  any  confidentiality   agreements
reasonably  requested  by  the  Company,  for  inspection  by  First  Union  any
underwriter  participating  in any  disposition  pursuant  to such  registration
statement and any attorney, accountant or other agent retained by First Union or
underwriter,  all financial and other records, pertinent corporate documents and
properties  of  the  Company,  and  cause  the  Company's  officers,  directors,
employees  and  independent  accountants  to supply all  information  reasonably
requested by any First Union, such underwriter, attorney, accountant or agent in
connection with such registration statement;

          (j) otherwise use its best efforts to comply with all applicable rules
and  regulations  of the  Commission,  and, if required,  make  available to its
security  holders,  as soon as  reasonably  practicable,  an earnings  statement
covering the period of at least twelve  months  beginning  with the first day of
the  Company's  first full  calendar  quarter  after the  effective  date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;

          (k) in the event of the  issuance  of any stop  order  suspending  the
effectiveness  of a  registration  statement,  or of  any  order  suspending  or
preventing the use of any related  prospectus or suspending the qualification of
any equity securities, including, without limitation, the Common stock, included
in such registration  statement for sale in any  jurisdiction,  the Company will
use its reasonable best efforts promptly to obtain the withdrawal of such order;

          (1) use its best efforts to cause such Registrable  Securities covered
by such  registration  statement to be registered with or approved by such other
governmental  agencies or  authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities; and

          (m) obtain a "cold  comfort"  letter  from the  Company's  independent
public  accountants  in  customary  form and  covering  such matters of the type
customarily  covered  by  "cold  comfort"  letters  as  First  Union  reasonably
requests; and

          It shall be a condition  precedent to the obligation of the Company to
take any action  pursuant to this Agreement in respect of the  securities  which
are to be  registered  at the  request of First  Union that  First  Union  shall
furnish to the Company such  information  regarding the securities held by First
Union and the  intended  method of  disposition  thereof  as the  Company  shall
reasonably request in connection with such registration.

          2.4. REGISTRATION EXPENSES.

          (a) Except as  otherwise  expressly  provided in this  Agreement,  all
Registration Expenses will be borne by the Company.

          (b) Except as  otherwise  expressly  provided  in this  Agreement,  in
connection with each Demand Registration, the Company will reimburse First Union
for the reasonable fees and disbursements of one counsel chosen by First Union.


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<PAGE>

          2.5. INDEMNIFICATION.

          (a) The Company  agrees to indemnify  and hold  harmless,  to the full
extent permitted by law, First Union, its officers and directors and each Person
who controls First Union (within the meaning of the Securities  Act) against all
losses, claims,  damages,  liabilities and expenses arising out of or based upon
any untrue or  alleged  untrue  statement  of  material  fact  contained  in any
registration  statement,  prospectus or preliminary  prospectus or any amendment
thereof or supplement  thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the  statements  therein
not  misleading,  and shall  reimburse  First Union,  such director,  officer or
controlling person for any legal or other expenses  reasonably incurred by First
Union,  such  director,  officer or  controlling  person in connection  with the
investigation  or defense of such loss,  claim,  damage,  liability  or expense,
except insofar as the same are contained in any information furnished in writing
to the Company by First  Union  expressly  for use  therein or by First  Union's
failure to deliver a copy of the  registration  statement or  prospectus  or any
amendments or  supplements  thereto after the Company has furnished  First Union
with a  sufficient  number  of  copies  of  the  same.  In  connection  with  an
underwritten  offering,  the Company will  indemnify  such  underwriters,  their
officers and directors and each Person who controls  such  underwriters  (within
the meaning of the  securities  Act) to the same  extent as provided  above with
respect to the indemnification of First Union.

          (b) In connection with any registration statement in which First Union
is  participating,  First  Union  will  furnish to the  Company in writing  such
information as the Company  reasonably  requests for use in connection  with any
such  registration  statement or prospectus and, to the full extent permitted by
law, will  indemnify  and hold harmless the Company,  its directors and officers
and each Person who controls the Company  (within the meaning of the  Securities
Act) against any losses,  claims,  damages,  liabilities and expenses  resulting
from any untrue or alleged  untrue  statement of material fact  contained in the
registration  statement,  prospectus or preliminary  prospectus or any amendment
thereof or supplement  thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the  statements  therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any  information so furnished in writing by First Union;  PROVIDED,
that the  obligation to indemnify  will be limited to the net amount of proceeds
received by First Union from the sale of Registrable Securities pursuant to such
registration statement.

          (c) Any Person  entitled to  indemnification  hereunder  will (i) give
prompt  written  notice to the  indemnifying  party of any claim with respect to
which it seeks  indemnification  and (ii)  unless  in such  indemnified  party's
reasonable  judgment  a  conflict  of  interest  between  such  indemnified  and
indemnifying  parties  may  exist  with  respect  to  such  claim,  permit  such
indemnifying  party to assume the defense of such claim with counsel  reasonably
satisfactory  to  the  indemnified  party.  If  such  defense  is  assumed,  the
indemnifying  party will not be subject to any liability for any settlement made
by the  indemnified  party  without its consent  (but such  consent  will not be
unreasonably  withheld). An indemnifying party who is not entitled to, or elects
not to,  assume the defense of a claim will not be obligated to pay the fees and
expenses  of  more  than  one  counsel  for  all  parties  indemnified  by  such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any  indemnified  party  a  conflict  of  interest  may  exist  between  such


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<PAGE>

indemnified party and any other of such indemnified parties with respect to such
claim.

          (d) The  indemnification  provided for under this Agreement will be in
addition to any liability the indemnifying  party may otherwise have and without
prejudice to any other right or remedy the indemnified party may otherwise have,
which will remain in full force and effect  regardless  of any  omission to give
notice  (except  to  the  extent  such  omission  effects  the  ability  of  the
indemnifying  party to defend  such  claim) or any  investigation  made by or on
behalf of the indemnified party or any officer,  director or controlling  Person
of such  indemnified  party and will  survive the  transfer of  securities.  The
Company also agrees to make such provisions,  as are reasonably requested by any
indemnified  party,  for  contribution  to such party in the event the Company's
indemnification is unavailable for any reason.

          2.6.  PARTICIPATION  IN  UNDERWRITTEN  REGISTRATIONS.  No  Person  may
participate in any  registration  hereunder  which is  underwritten  unless such
Person (a) agrees to sell such Person's  securities on the basis provided in any
underwriting  arrangements  approved by the Person or Persons entitled hereunder
to approve such  arrangements  and (b)  completes  and  executes  all  customary
questionnaires,  powers of attorney,  indemnities,  underwriting  agreements and
other  documents  reasonably  required  under  the  terms  of such  underwriting
arrangements;  PROVIDED,  that First  Union  shall not be  required  to make any
representations  or  warranties  to the Company or the  underwriters  other than
representations and warranties  regarding First Union and First Union's intended
method of distribution.

          3. MISCELLANEOUS.

          3.1. NOTICES. All notices or other communication required or permitted
hereunder shall be in writing and shall be delivered  personally,  telecopied or
sent by certified,  registered or express mail, postage prepaid. Any such notice
shall be  deemed  given  when so  delivered  personally,  telecopied  or sent by
certified, registered or express mail or, if mailed, five days after the date of
deposit in the United States mail, as follows:

          (a) if to the Company:

                     KMC Telecom Holdings, Inc.
                     1545 Route 206
                     Bedminster, New Jersey  07921
                     Attn: James D. Grenfell
                     Chief Financial Officer
                     Telecopier No:  (908) 719-8775


                                       9
<PAGE>

          with a copy to:

                     Kelley Drye & Warren, LLP
                     101 Park Avenue
                     New York, New York  10178
                     Attn:  Alan Epstein, Esq.
                     Telecopier No:  (212) 808-7898/7899

          if to First Union:

                     First Union Investors, Inc.
                     1 First Union Center
                     5th Floor
                     301 South College
                     Charlotte, NC  28288
                     Attn:  L. Watts Hamrick, III
                     Telecopier No:  (704) 374-6711

          with a copy to:

                     Kennedy Covington Lobdell & Hickman, LLP
                     Bank of America Corporate Center
                     Suite 4200
                     100 North Tryon Street
                     Charlotte, North Carolina 28202-4006
                     Attn:  Eugene C. Pridgen, Esq.
                     Telecopier No:  (704) 331-7598

          Any party may by notice  given in  accordance  with this  Section  3.1
designate another address or person for receipt of notices hereunder.

          3.2. AMENDMENT AND WAIVER.

          (a) No failure or delay on the part of any party hereto in  exercising
any right,  power or remedy  hereunder  shall operate as a waiver  thereof,  nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right,  power
or remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the parties hereto at law, in equity or
otherwise.

          (b) Any amendment,  supplement or  modification of or to any provision
of this  Agreement,  any  waiver of any  provision  of this  Agreement,  and any
consent to any  departure  by any party from the terms of any  provision of this
Agreement,  shall be  effective,  (i) only if it is made or given in writing and
signed  by the  parties  and  (ii)  only in the  specific  instance  and for the
specific purpose for which made or given.


                                       10
<PAGE>

          3.3. SPECIFIC PERFORMANCE.  The parties hereto intend that each of the
parties have the right to seek damages or specific performance in the event that
any other party  hereto fails to perform  such  party's  obligations  hereunder.
Therefore,  if any party shall institute any action or proceeding to enforce the
provisions  hereof,  any party against whom such action or proceeding is brought
hereby  waives  any claim or defense  therein  that the  plaintiff  party has an
adequate remedy at law.

          3.4.  HEADINGS.  The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

          3.5.  SEVERABILITY.  If any one or more  of the  provisions  contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or  unenforceable  in any respect for any reason,  the  validity,  legality  and
enforceability of any such provision in every other respect and of the remaining
provisions  hereof shall not be in any way impaired,  unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.

          3.6. ENTIRE AGREEMENT.  This Agreement is intended by the parties as a
final  expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject  matter  contained  herein and therein.  There are no  restrictions,
promises, warranties or undertakings,  other than those set forth or referred to
herein  or  therein.   This  Agreement   supersedes  all  prior  agreements  and
understandings between the parties with respect to such subject matter.

          3.7. TERM OF AGREEMENT.  The provisions of this Agreement shall become
effective upon the execution hereof and shall terminate as provided herein.

          3.8.  VARIATIONS IN PRONOUNS.  All pronouns and any variations thereof
refer to the masculine,  feminine or neuter,  singular or plural, as the context
may require.

          3.9.  GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE  APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW THEREOF.

          3.10. FURTHER  ASSURANCES.  Each of the parties shall, and shall cause
their respective Affiliates to, execute such instruments and take such action as
may be reasonably  required or desirable to carry out the provisions  hereof and
the transactions contemplated hereby.

          3.11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the  benefit of the  parties and their  respective  successors,  heirs,
legatees and legal  representatives.  This Agreement is not assignable except in
connection with a transfer of Shares in accordance with this Agreement.

          3.12.  COUNTERPARTS.  This  Agreement  may be  executed in one or more
counterparts,  each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.


                                       11
<PAGE>

          IN WITNESS WHEREOF, the undersigned have executed, or have cause to be
executed, this Agreement on the date first written above.

                                      KMC TELECOM HOLDINGS, INC.

                                      By: /s/ Michael Sternberg
                                         _____________________________________
                                         Name:  Michael A. Sternberg
                                         Title: President

                                      FIRST UNION INVESTORS, INC.

                                      By: /s/ Pearce Landry
                                         ____________________________
                                         Name:   Pearce A. Landry
                                         Title:  Vice President