SECURITIES  PURCHASE AGREEMENT (this "Agreement") dated as of February
4, 1999 among KMC Telecom Holdings, Inc., a Delaware corporation (the "Issuer"),
and Newcourt Commercial Finance Corporation, a Delaware corporation ("Newcourt")
and Lucent Technologies Inc., a Delaware corporation ("Lucent" and together with
Newcourt, the "Purchasers" and each individually, a "Purchaser").

          The parties hereto agree as follows:


                                    ARTICLE I

                                   DEFINITIONS

          SECTION 1.01.  DEFINITIONS.  The following terms, as used herein, have
the following meanings:

          "Certificates  of  Designations"  means,  collectively,  the  Series E
Certificate of Designations and the Series F Certificate of Designations.

          "Charter" means the Amended and Restated  Certificate of Incorporation
of the Issuer, as amended as of the Closing Date.

          "Closing" has the meaning set forth in Section 2.02.

          "Closing Date" has the meaning set forth in Section 2.02.

          "Common  Stock" means the Common Stock,  par value $.01 per share,  of
the Issuer.

          "Environmental Laws" shall mean any applicable law concerning releases
into any part of the natural  environment,  or protection of natural  resources,
the  environment and public and employee  health and safety  including,  without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. ss. 9601 ET Seq.), the Hazardous Materials Transportation Act (49
U.S.C.  ss. 1801 ET Seq), the Resource  Conservation and Recovery Act (42 U.S.C.
ss. 6901 ET Seq), the Clean Water Act (33 U.S.C. ss. 1251 ET seq), the Clean Air
Act (33 U.S.C. ss. 7401 ET Seq), the Toxic Substances Control Act (15 U.S.C. ss.
7401 ET Seq), and the  Occupational  Safety and Health Act (29 U.S.C. ss. 651 ET
seq.),  as such laws have been and may be amended or  supplemented  through  the
Closing  Date,  and  the  regulations  promulgated  pursuant  thereto,  and  any
applicable  state or local statutes,  and the regulations  promulgated  pursuant
thereto.

          "Exchange Act" means the  Securities  Exchange Act of 1934, as amended
from time to time, or any successor statute.

          "GAAP" means generally  accepted  accounting  principles in the United
States of  America  as in  effect as of the  Closing  Date,  including,  without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American  Institute of Certified Public  Accountants and
statements and pronouncements of the Financial  Accounting Standards Board or in
such other statements by such other entity as approved by a significant  segment
of the accounting profession.

          "Lien"  means any lien,  claim,  charge,  pledge,  mortgage,  security
interest or other encumbrance.

          "Loan and Security  Agreement" means the Loan and Security  Agreement,



<PAGE>

dated as of February 4, 1999,  among KMC Telecom III, Inc., KMC Telecom  Leasing
III LLC,  certain  lenders  from time to time  parties  thereto,  Lucent and the
Collateral Agent (as defined therein).

          "Material  Adverse  Effect" means a material  adverse  effect,  or any
event,  occurrence,  state of circumstances or facts or development  involving a
prospective  material  adverse  effect,  on the  business,  operations,  assets,
condition (financial or otherwise),  results of operations,  properties, assets,
value or prospects of the Issuer and its Subsidiaries taken as a whole.

          "Person"   means   an   individual,   general   partnership,   limited
partnership, corporation, limited liability company, trust, joint stock company,
association, joint venture or any other entity or organization, whether or not a
legal entity,  including a government or political  subdivision  or an agency or
instrumentality thereof.

          "Preferred  Stock" means,  collectively,  the Series E Preferred Stock
and the Series F Preferred Stock.

          "Regulation D" means Regulation D under the Securities Act.

          "Securities" means, collectively,  the Series E & F Unit, the Series F
Unit and the shares of Preferred  Stock and the Warrants  comprising such units,
to be issued and sold by the Issuer and purchased by the Purchasers as set forth
in Section 2.01.

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

          "Series  E  Certificate  of  Designations"  means the  Certificate  of
Designations  in  substantially  the form of  Exhibit A hereto  relating  to the
Series E Preferred Stock to be filed with the Secretary of State of Delaware.

          "Series  E  Preferred  Stock"  means  the  Issuer's  Series  E  Senior
Redeemable, Exchangeable, PIK Preferred Stock having the rights, preferences and
privileges set forth in the Series E Certificate of Designations.

          "Series E & F Unit" has the meaning set forth in Section 2.01.

          "Series  F  Certificate  of  Designations"  means the  Certificate  of
Designations  in  substantially  the form of  Exhibit B hereto  relating  to the
Series F Preferred Stock to be filed with the Secretary of State of Delaware.

          "Series  F  Preferred  Stock"  means  the  Issuer's  Series  F  Senior
Redeemable, Exchangeable, PIK Preferred Stock having the rights, preferences and
privileges set forth in the Series F Certificate of Designations.

          "Series F Unit" has the meaning set forth in Section 2.01.

          "Springing  Warrants"  means the Warrants which may be issued pursuant
to Section 2.4 of the Warrant Agreement.

          "Subsidiary"  means,  with  respect to any  Person,  any  corporation,
association or other  business  entity of which more than fifty percent (50%) of
the total voting power of shares of capital stock  entitled  (without  regard to
the  occurrence  of any  contingency)  to vote  in the  election  of  directors,
managers or trustees thereof, or at least a majority of the ownership interests,
and the power to direct the policies,  management and affairs thereof, is at the
time owned or controlled,  directly or indirectly, by such Person or one or more
of the other Subsidiaries of such Person or a combination thereof.

                                       2
<PAGE>

          "Taxes"  shall  mean  all  taxes,  charges,   fees,  levies  or  other
assessments,  including,  without  limitation,  all net income,  gross receipts,
capital,  sales, use, ad valorem,  value added,  transfer,  franchise,  profits,
inventory,  capital stock, license,  withholding,  payroll,  employment,  social
security,  unemployment,  excise,  severance,  stamp,  occupation,  property and
estimated  taxes,  customs,  duties,  fees,  assessments and charges of any kind
whatsoever,  together with any interest and any penalties,  fines,  additions to
tax or additional amounts imposed by any public or governmental taxing authority
(domestic or foreign) and shall include any  transferee  liability in respect of
Taxes.

          "Tax  Returns"   shall  mean  all  returns,   declarations,   reports,
estimates, information returns and statements required to be filed in respect of
any Taxes.

          "Warrants" means the warrants to purchase shares of Common Stock to be
issued  pursuant to the Warrant  Agreement;  each warrant  entitling  the holder
thereof to purchase 0.471756 shares of Common Stock.

          "Warrant  Agreement"  means  the  warrant  agreement,  dated  the date
hereof, between the Issuer and The Chase Manhattan Bank, as warrant agent.

          "Warrant Registration Rights Agreement" means the warrant registration
rights agreement, dated the date hereof, between the Issuer and the Purchasers.


                                   ARTICLE II

                         PURCHASE AND SALE OF SECURITIES

          SECTION  2.01.  COMMITMENT  TO PURCHASE.  (a) Subject to the terms and
conditions  hereinafter  stated,  upon  the  basis  of the  representations  and
warranties of the Purchasers  herein  contained,  the Issuer agrees to issue and
sell to Newcourt and, upon the basis of the  representations  and  warranties of
the Issuer  herein  contained,  Newcourt  agrees to purchase from the Issuer the
Series E & F Unit, which consists of (i) an aggregate of 25,000 shares of Series
E  Preferred  Stock,  (ii) 10,000  shares of Series F Preferred  Stock and (iii)
38,636  Warrants (the "Series E & F Unit"),  on the date hereof for an aggregate
purchase price of $35,000,000.

          (b) Subject to the terms and conditions  hereinafter  stated, upon the
basis of the  representations and warranties of the Purchasers herein contained,
the  Issuer  agrees  to issue  and sell to  Lucent  and,  upon the  basis of the
representations and warranties of the Issuer herein contained,  Lucent agrees to
purchase from the Issuer the Series F Unit,  which  consists of (i) an aggregate
of 30,000  shares of Series F  Preferred  Stock and (ii)  13,636  Warrants  (the
"Series  F  Unit"),  on the  date  hereof  for an  aggregate  purchase  price of
$30,000,000.

          SECTION 2.02. THE CLOSING. (a) Subject to the fulfillment or waiver of
the  conditions  set forth in  Article V hereof,  the  purchase  and sale of the
Securities,  as set forth in Section 2.01 (the  "Closing"),  shall take place at
the  offices of  Shearman & Sterling at 10:00 a.m. on the date hereof or on such
other date and at such other  location  as the Issuer and the  Purchasers  shall
agree.  The date and time of the Closing are  referred to herein as the "Closing
Date."



                                       3
<PAGE>

          (b) At the Closing,  each  Purchaser  shall deliver to the Issuer,  by
wire transfer (of immediately  available funds) to an account  designated by the
Issuer in writing  delivered to each  Purchaser,  the  respective  consideration
referred to in Section 2.01.

          (c) At the Closing, the Issuer shall deliver to (i) Newcourt,  against
payment  of  the  consideration  set  forth  in  Section  2.01(a),  certificates
evidencing  the Series E & F Unit  (including  the shares of Series E  Preferred
Stock, the shares of Series F Preferred Stock and Warrants referred to therein),
registered  in the name of  Newcourt  and (ii)  Lucent,  against  payment of the
consideration set forth in Section 2.01(b), certificates evidencing the Series F
Unit (including the shares of Series F Preferred Stock and Warrants  referred to
therein), registered in the name of Lucent.

          (d) At the  Closing,  the Issuer  shall  execute and  deliver  Warrant
Certificates  (as defined in the Warrant  Agreement)  representing the Springing
Warrants  to the  Warrant  Agent as  provided  in Section  2.4(a) of the Warrant
Agreement.

          SECTION 2.03.  USE OF PROCEEDS.  The proceeds from the issuance of the
Series  E & F  Unit  and  the  Series  F  Unit  will  be  used  to  make  equity
contributions  or  "Qualified  Intercompany  Loans" (as  defined in the Loan and
Security  Agreement)  to KMC  Telecom  III,  Inc.  and to pay fees and  expenses
relating to the transactions contemplated by this Agreement.

          SECTION 2.04. ALLOCATION OF CONSIDERATION. (a) The Issuer and Newcourt
hereby  agree that for income tax purposes  (but not for any other  purpose) the
allocation of the  consideration  described in Section  2.01(a) for the Series E
Preferred  Stock,  the Series F Preferred Stock and the Warrants  comprising the
Series E & F Unit shall be as follows: $22,909,265 of the consideration shall be
allocated to the Series E Preferred Stock, $9,721,235 of the consideration shall
be  allocated  to  the  Series  F  Preferred   Stock,   and  $2,369,500  of  the
consideration shall be allocated to the Warrants.

          (b) The Issuer and Lucent  hereby  agree that for income tax  purposes
the allocation of the consideration  described in Section 2.01(b) for the Series
F  Preferred  Stock and the  Warrants  comprising  the Series F Unit shall be as
follows:  $29,163,706  of the  consideration  shall be allocated to the Series F
Preferred  Stock and  $836,294 of the  consideration  shall be  allocated to the
Warrants.

          (c) In light of the highly  conditional  nature of the purchase rights
provided for in the  Springing  Warrants,  the parties agree that for income tax
purposes only,  none of the  consideration  for the Series E & F Unit or for the
Series F Unit will be allocated to the Springing Warrants.


                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE ISSUER

          The Issuer  represents and warrants to each Purchaser as follows as of
the Closing Date:

          SECTION  3.01.  ORGANIZATION,  STANDING,  ETC.  (a)  The  Issuer  is a
corporation duly  incorporated,  validly existing and in good standing under the
laws of the  State  of  Delaware  and  has all  requisite  corporate  power  and
authority  under such laws to own or lease and  operate  its  properties  and to


                                       4
<PAGE>

carry on its business as now conducted. The Issuer is duly qualified or licensed
to do business as a foreign corporation in good standing in each jurisdiction in
which the  nature  of the  business  transacted  by it or the  character  of the
properties  owned or leased by it  requires  it to so  qualify  or be  licensed,
except  where the failure to so qualify or be  licensed  or be in good  standing
would not have a Material  Adverse Effect.  The copies of the Issuer's  Charter,
bylaws and other  organizational  documents  and  instruments  (in each case, as
amended and/or restated  through the date hereof),  heretofore made available to
the Purchasers, are true, complete and correct copies thereof.

          (b) Each Subsidiary of the Issuer is duly organized,  validly existing
and in good standing under the laws of the  jurisdiction  of its formation,  has
all corporate or other power and authority to own its properties and conduct its
business as now conducted and is duly qualified or licensed to transact business
as a foreign  company in good standing in each  jurisdiction in which the nature
of the business  transacted  by it or the character of the  properties  owned or
leased by it requires it to so qualify or be  licensed,  except (i) as disclosed
on SCHEDULE 3.01 hereto,  or (ii) where the failure to so qualify or be licensed
or be in good  standing  would  not  have a  Material  Adverse  Effect.  All the
outstanding  shares of capital stock of each corporate  Subsidiary of the Issuer
have  been  duly   authorized   and  validly  issued  and  are  fully  paid  and
nonassessable  and,  except as  disclosed  on  SCHEDULE  3.01  hereto  are owned
directly  or  indirectly  by the Issuer  free and clear of all  liens,  security
interests, charges and encumbrances. The Issuer does not own any interest in any
other company or entity other than the  Subsidiaries set forth on SCHEDULE 3.01.
Except as set forth on SCHEDULE 3.01 hereto,  there are no outstanding  options,
warrants,  rights, agreements or commitments to any third party to subscribe for
or purchase any equity  security of any Subsidiary or to cause any Subsidiary to
issue any such equity security.

          SECTION  3.02.  CAPITALIZATION.  (a) The Issuer's  authorized  capital
stock  consists  of  3,000,000  shares of Common  Stock  and  748,800  shares of
preferred stock. Of the 748,800 authorized shares of preferred stock (i) 123,800
shares have been designated as Series A Cumulative  Convertible  Preferred Stock
(the "Series A Preferred  Stock") all of which are currently  outstanding,  (ii)
350,000 shares have been designated as Series C Cumulative Convertible Preferred
Stock (the "Series C Preferred  Stock") of which  175,000  shares are  currently
outstanding,  (iii) 25,000  shares have been  designated  as Series D Cumulative
Convertible  Preferred Stock (the "Series D Preferred  Stock") of which none are
currently  outstanding,  (iv) 175,000  shares have been  designated  as Series E
Preferred   Stock,  of  which  25,000  shares  will  be  outstanding   upon  the
consummation of the purchase of the Series E & F Unit pursuant to this Agreement
and 55,000 shares have been reserved for issuance upon  conversion of the Series
F  Preferred  Stock  and (v)  55,000  shares  have been  designated  as Series F
Preferred Stock, of which 40,000 shares will be outstanding upon consummation of
the  purchase  of the Series F Unit and the Series E & F Unit  pursuant  to this
Agreement.  Of the  3,000,000  authorized  shares of Common  Stock:  (i) 837,876
shares are issued and  outstanding,  (ii) 600,000  shares have been reserved for
issuance upon conversion of the Series A Preferred  Stock,  (iii) 333,333 shares
have been reserved for issuance upon conversion of the Series C Preferred Stock,
(iv) 10,000  shares have been  reserved for issuance  upon exercise of a warrant
held by General  Electric  Capital  Corporation,  (v)  100,385  shares have been
reserved for issuance  upon exercise of warrants  issued in connection  with the
Issuer's offering of its 12 1/2% Senior Discount Notes, (vi) 131,877 shares have
been  reserved for  issuance  upon  exercise of the  Warrants and the  Springing
Warrants,  (vii)  262,750  shares have been  reserved for  issuance  pursuant to
options  granted under the 1998 Stock Purchase and Option Plan for Key Employees
of KMC Telecom  Holdings,  Inc. and  Affiliates and (viii) no shares are held in


                                       5
<PAGE>

treasury.  No other  shares of capital  stock have been issued or  reserved  for
issuance for any purpose.  All of the outstanding shares of capital stock of the
Issuer  have  been duly  authorized  and  validly  issued,  are  fully  paid and
nonassessable,  free of  preemptive  rights  and have been  offered  and  issued
without  violation of the Securities Act or any preemptive rights of any person.
SCHEDULE 3.02 hereto accurately sets forth, as of the date hereof, the number of
issued and  outstanding  shares of Common Stock held by each person known by the
Issuer to own  beneficially  or of record  any  shares of the  Issuer's  capital
stock.

          (b) Except as  disclosed  on SCHEDULE  3.02  hereto:  (i) there are no
issued or outstanding  securities that are convertible  into or exchangeable for
shares of the Issuer's capital stock ("Convertible Securities");  (ii) there are
no issued or  outstanding  subscriptions,  options,  warrants or other rights to
purchase  or  acquire  any  shares  of the  capital  stock of the  Issuer or any
Convertible  Securities  ("Option  Rights")  other than the Warrants;  (iii) the
Issuer is not a party to any agreement or understanding  pursuant to which it is
obligated  to  purchase  or  redeem  any  shares  of its  capital  stock  or any
Convertible  Securities or Option Rights,  other than pursuant to the redemption
provisions in respect of the Preferred  Stock set forth in the  Certificates  of
Designations, and is not otherwise under any obligation to repurchase, redeem or
otherwise acquire any shares of its capital stock or any Convertible  Securities
or  Option  Rights;  (iv)  the  Issuer  is  not a  party  to  any  agreement  or
understanding  pursuant to which it is  obligated  to register any shares of its
capital  stock  or  other  securities  under  the  Securities  Act or any  state
securities  law;  and (v) the Issuer is not,  and to the best  knowledge  of the
Issuer,  no securities  holder of the Issuer is a party to any voting agreement,
voting trust,  irrevocable proxy or other agreement  affecting the voting rights
of any shares of the Issuer's  capital stock or any agreement  providing for any
call or put option, right of first refusal or offer or other right to acquire or
dispose  of any  shares  of  the  Issuer's  capital  stock  or  any  Convertible
Securities or Option Rights.  Except as described in Section 3.02(a) or Schedule
3.02,  no  shares  of  Common  Stock  are  issuable  upon  the  exercise  of any
outstanding  Convertible  Securities  or  Option  Rights  of the  Issuer  and no
additional  shares of Common Stock will become  issuable  upon  exercise of such
Convertible  Securities  or Option  Rights on  account  of the  issuance  of the
warrants.

          SECTION  3.03.   AUTHORIZATION;   NON-CONTRAVENTION.   The  execution,
delivery and performance by the Issuer of this Agreement,  the Warrant Agreement
and the Warrant Registration Rights Agreement,  the issuance,  sale and delivery
by the Issuer of the Securities and the execution of Springing  Warrants and the
amendments  to the  Charter  effected  by the  filing  of  the  Certificates  of
Designations are within the Issuer's corporate powers, have been duly authorized
by all  necessary  corporate  action,  require no action by or in respect of, or
filing with, any governmental body, agency or official (other than the filing of
the Certificates of Designations with the Secretary of State of Delaware) and do
not (i) contravene or constitute a default under any provision of applicable law
or regulation,  judgment, injunction, order or decree binding upon or applicable
to the Issuer,  (ii)  contravene  or  constitute a default  under the Charter or
bylaws or (iii)  require  any  consent,  approval  or other  action by any other
Person (other than the holders of the Series A Cumulative  Convertible Preferred
Stock and the Series C  Cumulative  Convertible  Preferred  Stock which  consent
shall be obtained  prior to the Closing  Date) or  constitute a default under or
contravene any material agreement,  judgment, injunction, order, decree or other
instrument binding upon the Issuer or any of its Subsidiaries.

          SECTION 3.04.  BINDING EFFECT.  This Agreement,  the Warrant Agreement
and the  Warrant  Registration  Rights  Agreement  have  been  duly  authorized,


                                       6
<PAGE>

executed and delivered by the Issuer and  constitute  valid and legally  binding
obligations  of the Issuer,  enforceable  in  accordance  with their  respective
terms,  except  as  enforceability  may be  limited  by  applicable  bankruptcy,
insolvency,   reorganization,   moratorium   and  similar  laws   affecting  the
enforcement of creditors'  rights generally and by general  principles of equity
(whether  enforcement  is sought by proceedings in equity or at law). The Issuer
has duly  authorized  the issuance,  sale and delivery of the  Securities to the
Purchasers  and,  when  issued  and  delivered  by the Issuer  pursuant  to this
Agreement  against  payment of the  consideration  set forth  herein,  and, with
respect to the Warrants,  countersigned  by the Warrant Agent (as defined in the
Warrant  Agreement),  and with respect to the Preferred Stock,  authenticated by
the  Transfer  Agent  (as  defined  in the  Certificate  of  Designations),  the
Securities will be validly issued,  fully paid and non-assessable free and clear
of all Liens and without violation of any preemptive rights. The Issuer has duly
authorized  the issuance and delivery of the  Springing  Warrants in  accordance
with the terms and conditions set forth in Section 2.4 of the Warrant Agreement,
and, when  countersigned by the Warrant Agent and delivered pursuant Section 2.4
of the Warrant Agreement,  the Springing Warrants will be validly issued,  fully
paid and non-assessable free and clear of all Liens and without violation of any
preemptive  rights. All of the shares of Common Stock to be issued upon exercise
of the Warrants and the Springing Warrants have been duly and validly authorized
and reserved for issuance upon such exercise and, when issued and delivered upon
exercise of the Warrants and the Springing Warrants in accordance with the terms
of the  Warrant  Agreement,  will be duly and  validly  issued,  fully  paid and
non-assessable  free  and  clear  of all  Liens  and  without  violation  of any
preemptive  rights.  All of the shares of Series E Preferred  Stock to be issued
upon  conversion  of the Series F  Preferred  Stock  have been duly and  validly
authorized and reserved for issuance upon such  conversion,  and when issued and
delivered  upon such  conversion  in  accordance  with the terms of the Series F
Certificate  of  Designation  will be duly and  validly  issued,  fully paid and
nonassessable.

          SECTION 3.05. GOVERNMENTAL REGULATION.  Except for the Securities Act,
the Exchange  Act and state  securities  laws,  the Issuer is not subject to any
federal or state or foreign law or regulation  limiting its ability to issue the
Securities or the Springing  Warrants or perform its obligations under the terms
of this  Agreement,  the  Warrant  Agreement,  the Warrant  Registration  Rights
Agreement,  the Securities or the Springing Warrants.  Except as may be required
pursuant to "blue sky laws" or as may be required  under the  Securities  Act or
the  Exchange  Act in  connection  with the  registration  of Warrant  Shares as
contemplated  under the  Warrant  Registration  Rights  Agreement,  no  notices,
reports or other filings are required to be made by the Issuer or any Subsidiary
with, nor are any consents,  registrations,  applications,  approvals,  permits,
licenses  or  authorizations  required  to be  obtained  by  the  Issuer  or any
Subsidiary  from, any public or  governmental  authority or other third party in
connection  with the  execution  and  delivery  of this  Agreement,  the Warrant
Agreement or the Warrant  Registration Rights Agreement,  or the consummation by
the Issuer of the transactions  contemplated  hereby or thereby, or the exercise
by the  Purchasers of their rights  hereunder,  except for any of the foregoing,
the failure of which to make or obtain would not have a Material  Adverse Effect
or adversely affect either of the Purchasers' rights hereunder.

          SECTION  3.06.   SOLICITATION.   Assuming  the   representations   and
warranties  of the  Purchasers  set forth in  Section  4.06  hereof are true and
correct in all material respects,  the offer and sale of the Securities pursuant
to this  Agreement  and the  issuance of the shares of Series E Preferred  Stock
upon  conversion of the Series F Preferred  Stock and the issuance of the shares
of Common  Stock  upon  exercise  of the  Warrants  and the  Springing  Warrants


                                       7
<PAGE>

pursuant  to  the  Warrant  Agreement  will  be  exempt  from  the  registration
requirements of the Securities  Act. No form of general  solicitation or general
advertising  was used by the Issuer or, to the best of its knowledge,  any other
Person acting on its behalf,  in respect of the Securities or in connection with
the offer and sale of the  Securities.  Neither the Issuer nor any Person acting
on behalf of the Issuer has, either directly or indirectly,  sold or offered for
sale to any Person any of the  Securities or any other  similar  security of the
Issuer  except as  contemplated  by this  Agreement.  Neither the Issuer nor any
Person  acting  on its  behalf  has,  in  connection  with the  offering  of the
Securities,  engaged in any action that would require the registration under the
Securities  Act of the  offering  and sale of the  Securities  pursuant  to this
Agreement.

          SECTION  3.07.  AUTHORIZATION  TO DO  BUSINESS.  The  Issuer  and  its
Subsidiaries (i) possess all licenses, certificates,  authorizations,  approvals
and  permits  issued  by  the  appropriate  federal,  state,  local  or  foreign
regulatory  authorities  necessary to conduct their  respective  businesses,  as
presently conducted, excepting any licence, certificate, authorization, approval
or permit, the failure to possess which,  singly or in the aggregate,  could not
reasonably be expected to result in a Material  Adverse Effect and (ii) have not
received any notice of proceedings relating to revocation or modification of any
such license, certificate,  authorization, approval or permit, nor is the Issuer
or any of its  Subsidiaries  in  violation  of, or in  default  under,  any such
license,  authorization,  approval  or permit  or any  decree,  order,  judgment
applicable to the Issuer or its Subsidiaries  the effect of which,  singly or in
the  aggregate,  could  reasonably  be expected to result in a Material  Adverse
Effect.

          SECTION 3.08.  COMPLIANCE  WITH LAWS.  Except as set forth on SCHEDULE
3.08 hereto and except as would not have a Material Adverse Effect, the business
of the  Issuer  and each of the  Subsidiaries  has been and is  presently  being
conducted in compliance  with all applicable  federal,  state,  county and local
ordinances, statutes, rules, regulations and laws (collectively "Laws").

          SECTION 3.09. LITIGATION. Except as set forth on SCHEDULE 3.09 hereto,
there are no pending actions, suits, proceedings, arbitrations or investigations
against  or  affecting  the  Issuer or any of its  Subsidiaries  or any of their
respective properties, assets or operations, or with respect to which the Issuer
or any such  Subsidiary  is  responsible  by way of  indemnity  or  otherwise (a
"Material Claim") that, if there is an adverse decision, could singly, or in the
aggregate,  with all such other actions,  suits,  investigations or proceedings,
have a Material  Adverse  Effect,  and, to the knowledge of the Issuer,  no such
actions, suits, proceedings or investigations are threatened.

          SECTION 3.10. PROPERTIES. Except as described in SCHEDULE 3.10 hereto,
the  Issuer and its  Subsidiaries  have good and  marketable  title to all their
material  property  and  assets,   free  and  clear  of  all  Liens  except  (a)
materialmen's, mechanics', carriers', workmen's, warehousemen's, repairmen's, or
other like Liens  arising in the  ordinary  course of business  with  respect to
moneys  not yet due and  payable;  (b) Liens for  current  Taxes not yet due and
payable or which are being contested in good faith and by proper procedures;  or
(c) Liens or minor imperfections of title that do not materially  interfere with
the use or materially detract from the value of such property.

          SECTION 3.11. TAX MATTERS.  The Issuer and its Subsidiaries have filed
all Tax  Returns  required  to be filed and are not in default in the payment of
any Taxes which were  payable  pursuant to such  returns or any  assessments  in
respect  thereof,  other  than any which the  Issuer or any such  Subsidiary  is
contesting in good faith by proper procedures.



                                       8
<PAGE>

          SECTION  3.12.  PATENTS  AND  TRADEMARKS.  Each of the  Issuer and its
Subsidiaries  has  sufficient  right,   title  and  ownership  of  all  patents,
trademarks, service marks, trade names, copyrights, licenses with respect to the
foregoing,  information,  proprietary rights and processes,  or shall be able to
obtain all such licenses and other authority  necessary or useful for the lawful
conduct of its business as it is contemplated to be conducted, without any known
conflicts  with the rights of  others.  No  stockholder,  officer,  director  or
employee  of the  Issuer or any  Subsidiary  owns any rights  therein  which are
competitive with those to be owned or used by the Company and any  Subsidiaries.
Neither  the  Issuer  nor any  Subsidiary  has  been  sued or  charged  with any
infringement of any patent,  license or permit or has knowledge of any basis for
any such claim.

          SECTION 3.13. LABOR MATTERS. (a) Neither the Issuer nor any Subsidiary
is party to any labor or collective  bargaining agreement and there are no labor
or collective  bargaining agreements which pertain to employees of the Issuer or
any Subsidiary.

          (b) No employees of the Issuer or any  Subsidiary  are  represented by
any labor  organization.  No labor  organization  or group of  employees  of the
Issuer or any Subsidiary has made a demand for recognition or certification, and
there are no representation or certification  proceedings or petitions seeking a
representation  proceeding presently pending or, to the knowledge of the Issuer,
threatened  to be brought or filed,  with the NLRB or any other labor  relations
tribunal or authority.  To the knowledge of the Issuer,  there are no organizing
activities  involving the Issuer or any  Subsidiary  pending with, or threatened
by, any labor organization.

          (c)  There  are  no  strikes,  work  stoppages,  slowdowns,  lockouts,
material  arbitrations  or material  grievances or other material labor disputes
pending or, to the knowledge of the Issuer,  threatened against or involving the
Issuer or any  Subsidiary.  Except as would not result in any  Material  Adverse
Effect,  there are no unfair labor  practice  charges,  grievances or complaints
pending or, to the  knowledge of the Issuer,  threatened  by or on behalf of any
employee or group of employees of the Issuer or any Subsidiary.

          SECTION  3.14.  ENVIRONMENTAL  MATTERS.  (a)  Except  as set  forth in
SCHEDULE  3.14,  (i) each of the  Issuer  and the  Subsidiaries  is in  material
compliance  with all  Environmental  Laws and (ii)  neither  the  Issuer nor any
Subsidiary has received any written communication from a governmental  authority
with respect to such compliance or the failure thereof.

          (b)  Except  as set  forth in  SCHEDULE  3.14,  (i) there is no civil,
criminal  or  administrative  action,  claim,  demand,  investigation  or notice
relating to a  violation  of an  Environmental  Law (an  "Environmental  Claim")
pending or, to the knowledge of the Issuer, threatened and (ii) to the knowledge
of the Issuer, there are no past or present actions, activities,  circumstances,
conditions,  events or incidents,  including,  without limitation,  the release,
emission, discharge or disposal of any chemical, pollutant,  contaminant, waste,
toxic substance,  petroleum or petroleum  product,  that would form the basis of
any  Environmental  Claim,  in  either  case  (A)  against  the  Issuer  or  any
Subsidiary,   (B)  against  any  person  or  entity  whose   liability  for  any
Environmental  Claim the Issuer or any  Subsidiary  has or may have  retained or
assumed either  contractually  or by operation of law, or (C) involving any real
or personal  property which the Issuer or any Subsidiary owns, leases or manages
except, in each case, as would not have a Material Adverse Effect.

          SECTION  3.15.  INSURANCE.  The  Issuer and its  Subsidiaries,  in the
reasonable  determination of the Issuer's management,  maintain with financially


                                       9
<PAGE>

sound  and  reputable  insurers  insurance  against  loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or a similar business and similarly situated,  and of such types and in
such amounts as is customarily carried under similar circumstances by such other
corporations.

          SECTION  3.16.  YEAR 2000.  The Issuer has  engaged in a review of the
hardware and software  products used by the Issuer and the Subsidiaries in their
businesses  (collectively,  the "SOFTWARE")  which it believes to be adequate to
identify  any  material  deficiency  in "Year  2000  Capabilities".  "Year  2000
Capabilities"  means the ability of the  Software  (i) to manage and  manipulate
data  involving  dates,  including  single  century  formulas and  multi-century
formulas, and to not generate incorrect values or invalid results involving such
dates, (ii) to provide that all date-related user interface  functionalities and
data fields  include the  indication  of century,  and (iii) to provide that all
date-related data interface  functionalities  include the indication of century.
The Issuer is taking  appropriate  steps to identify exposure to deficiencies in
Year 2000 Capabilities resulting from the Year 2000 Capabilities of its vendors,
and to address them on a timely basis. In addition,  the Issuer believes that it
has adequate  resources to cause its Software to include Year 2000  Capabilities
which  currently may not contain them and that the costs of causing its Software
to  include  Year  2000  Capabilities  will  not be  material  to  the  Issuer's
consolidated financial position, results of operations or cashflows.

          SECTION 3.17. CERTAIN EXISTING AGREEMENTS.  Except as disclosed in any
document  or  report  filed by the  Issuer  with  the  Securities  and  Exchange
Commission  or on  SCHEDULE  3.17  hereto,  as of the date  hereof and as of the
Closing Date: (i) there are and will be no agreements providing for encumbrances
or  restrictions  that  would  be  grandfathered  under  Section  XI(C)  of  the
Certificates  of  Designations,  (ii)  there  is  and  will  be  no  outstanding
Indebtedness  that  would  be  grandfathered   under  Section  XI(A)(a)  of  the
Certificates of Designations, and (iii) there are and will be no agreements with
any  Affiliate  (as  defined  in  the   Certificates  of  Designations)  or  any
stockholder  agreements  (including  registration  rights  agreements or related
purchase  agreements) that would be  grandfathered  pursuant to Section XI(E) of
the Certificates of Designations.

          SECTION 3.18. FINANCIAL  INFORMATION.  (a) The Issuer has furnished to
each Purchaser the audited consolidated financial statements of the Issuer dated
as of  December  31,  1997  and for  the  year  then  ended,  and the  unaudited
consolidated  financial  statements for the fiscal  quarter ended  September 30,
1998 and for the month of October 1998,  (collectively,  the "FINANCIALS").  The
Financials  have  been  prepared  in  accordance  with GAAP  applied  on a basis
consistent  with that of  preceding  periods and are complete and correct in all
material  respects.  The Financials  fairly represent the Issuer's  consolidated
financial  position  as of the  dates  of the  balance  sheets  included  in the
Financials and its consolidated  results of operations for the periods indicated
therein.  There are no  omissions  from the  Financials  or any  other  facts or
circumstances  not  reflected  in the  Financials  which are or may be  material
according to GAAP.

          (b) Except as and to the extent expressly set forth in the Financials,
or the notes,  schedules or exhibits  thereto,  or as disclosed in the documents
filed by the Issuer  with the  Securities  and  Exchange  Commission,  (i) as of
September  30,  1998 (the  "BALANCE  SHEET  DATE"),  neither  the Issuer nor its
Subsidiaries  had any material  liabilities  or obligations  (whether  absolute,
contingent,  accrued or  otherwise)  that would be  required to be included on a
balance  sheet or in the  notes,  schedules  or  exhibits  thereto  prepared  in


                                       10
<PAGE>

accordance  with GAAP,  (ii) since the Balance  Sheet  Date,  the Issuer and its
Subsidiaries  have not incurred any such  material  liabilities  or  obligations
other than in the normal  course of business and (iii) since  December 31, 1997,
no event has occurred that has resulted in or is reasonably  likely to result in
a Material Adverse Effect.

          SECTION 3.19. DISCLOSURE. The Company has provided the Purchasers with
disclosure  about its and its  Subsidiaries'  business that in the aggregate did
not contain an untrue  statement of a material  fact or omit to state a material
fact necessary to make the statements in such disclosure not misleading.

          SECTION  3.20.  INVESTMENT  COMPANY ACT. The Company is not, and after
giving effect to the offering and sale of the Securities and the  application of
the  proceeds  thereof  will not be,  an  "investment  company"  as such term is
defined in the Investment Company Act of 1940, as amended.

          SECTION 3.21.  BROKERS.  No brokerage or finder's  commissions or fees
are payable in connection with the transactions  contemplated by this Agreement,
and the Issuer shall defend, indemnify and hold each Purchaser harmless from and
against  any  liability,   loss  or  expense  (including,   without  limitation,
reasonable  attorneys  fees) arising in  connection  with any claim for any such
commissions.


                                   ARTICLE IV

                REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

          Each Purchaser,  severally and not jointly, represents and warrants to
the Issuer as follows:

          SECTION 4.01.  ORGANIZATION.  It is duly  organized and existing under
the laws of its jurisdiction of organization.

          SECTION 4.02. AUTHORITY; NO OTHER ACTION. (a) The execution,  delivery
and performance of this Agreement and the Warrant  Registration Rights Agreement
are within its powers and have been duly authorized on its part by all requisite
corporate action.

          (b) No action by or in respect of, or filing  with,  any  governmental
authority,  agency or official  is  required  for the  execution,  delivery  and
performance  by such  Purchaser of this  Agreement  or the Warrant  Registration
Rights Agreement.

          SECTION 4.03. NO CONFLICT. The execution,  delivery and performance by
it of this  Agreement  and the Warrant  Registration  Rights  Agreement  and the
consummation of the transactions contemplated hereby and thereby do not and will
not (i) violate its charter, bylaws or similar organizational  documents or (ii)
violate any applicable law, rule,  regulation,  judgment,  injunction,  order or
decree,  which  violation would (a) affect the validity of this Agreement or the
Warrant  Registration  Rights  Agreement or (b) individually or in the aggregate
impair the  ability of such  Purchaser  to perform in any  material  respect the
obligations which it has under this Agreement or the Warrant Registration Rights
Agreement.

          SECTION  4.04.   BINDING  EFFECT.   This  Agreement  and  the  Warrant
Registration Rights Agreement have been duly authorized,  executed and delivered
by  it  and,   except  as  limited   by   applicable   bankruptcy,   insolvency,


                                       11
<PAGE>

reorganization,  moratorium  and  similar  laws  affecting  the  enforcement  of
creditors'  rights  generally  and by  general  principles  of  equity  (whether
enforcement is sought by proceedings in equity or at law),  constitute valid and
binding  agreements  of such  Purchaser  enforceable  in  accordance  with their
respective terms.

          SECTION  4.05.  NO  DEFAULTS.  It is not in  violation of its charter,
bylaws or similar organizational  documents or in default under any provision of
applicable law or regulation or of any agreement,  judgment,  injunction, order,
decree or other instrument binding upon it, which violation or default (i) would
affect  the  validity  of this  Agreement  or the  Warrant  Registration  Rights
Agreement or (ii) would (individually or in the aggregate) impair the ability of
such Purchaser to perform in any material  respect the obligations  which it has
under this Agreement or the Warrant Registration Rights Agreement.

          SECTION  4.06.  PRIVATE  PLACEMENT.  (a) It  understands  that (i) the
offering and sale of the  Securities is intended to be exempt from  registration
under the Securities Act pursuant to Section 4(2) of the Securities Act and (ii)
there is no existing  public or other market for any of the Securities and there
can be no assurance  that it will be able to sell or dispose of such  Securities
purchased by it pursuant to this Agreement.

          (b)  It is an  "Accredited  Investor"  as  such  term  is  defined  in
Regulation D.

          (c) It has  sufficient  knowledge  and  experience  in  financial  and
business  matters so as to be capable of evaluating  the merits and risks of its
investment in the  Securities and it is capable of bearing the economic risks of
such investment, including a complete loss of its investment in the Securities.

          (d) It has had access to the  management and records of the Issuer and
has been  furnished  with all the  information  that it has  requested  from the
Issuer for determining whether to purchase the Securities and has been given the
opportunity  to ask  questions of, and receive  answers from,  management of the
Issuer  regarding  its  business  and  affairs  and  concerning  the  terms  and
conditions of the Securities and other related matters.

          (e) It understands  that the Securities and the shares of Common Stock
issuable  upon  exercise  of  the  Warrants  are  characterized  as  "restricted
securities"  under  the  federal  securities  laws  inasmuch  as they are  being
acquired  from the Issuer in a transaction  not involving a public  offering and
that under such laws and applicable  regulations  such  securities may be resold
without   registration   under  the  Securities  Act  only  in  certain  limited
circumstances.  In this  connection,  it represents that it is familiar with SEC
Rules  144 and  144A,  as  presently  in  effect,  and  understands  the  resale
limitations imposed thereby and by the Securities Act.

          (f) In addition to the  restrictions on transfer imposed by federal or
state securities  laws,  Lucent hereby covenants and agrees with the Issuer that
it will not transfer,  sell,  assign or pledge all or any part of the Securities
purchased  by it  hereunder  until the earlier of (i) one year after the date of
any future  issuance  and sale by the  Issuer of any high yield debt  securities
yielding gross proceeds to the Issuer of at least  $50,000,000 or (ii) August 4,
2000. Notwithstanding the foregoing, the Series F Preferred Stock may be held by
an Affiliate (as defined in the "Certificate of Designations") of Lucent that is
under its control.




                                       12
<PAGE>

                                    ARTICLE V

                         CONDITIONS PRECEDENT TO CLOSING

          SECTION  5.01.   CONDITIONS  TO  THE  PURCHASERS'   OBLIGATIONS.   The
obligation  of each  Purchaser to purchase the  Securities to be purchased by it
hereunder is subject to the  satisfaction,  on or prior to the Closing  Date, of
the following conditions:

               (a) each of the  representations  and  warranties  of the  Issuer
          contained herein shall be true and correct in all material respects on
          and as of such  Closing  Date and each of the  Purchasers  shall  have
          received a certificate  attesting thereto signed by the President or a
          Vice President of the Issuer;

               (b) there shall not have  occurred and there shall not  otherwise
          exist any condition,  event or development  having,  or likely to have
          (in the reasonable  judgment of the  Purchasers),  a Material  Adverse
          Effect;

               (c) the Purchasers shall have received an opinion from Shearman &
          Sterling,  special counsel to the Issuer,  and an opinion from Kelley,
          Drye & Warren LLP, counsel to the Issuer, each dated the Closing Date,
          in form reasonably satisfactory to the Purchasers;

               (d) the  Secretary or an Assistant  Secretary of the Issuer shall
          have  delivered to the  Purchasers  at the Closing Date a  Certificate
          dated as of the Closing Date certifying:  (i) that attached thereto is
          a true and  complete  copy of the bylaws of the Issuer as in effect on
          the date of such  certification;  (ii) that attached thereto is a true
          and complete copy of all resolutions adopted by the Board of Directors
          of the Issuer  authorizing the execution,  delivery and performance of
          this  Agreement,  the Warrant  Agreement and the Warrant  Registration
          Rights Agreement,  the issuance,  sale and delivery of the Securities,
          and that all such resolutions are in full force and effect and are all
          the   resolutions   adopted  in  connection   with  the   transactions
          contemplated by this Agreement,  the Warrant Agreement and the Warrant
          Registration  Rights Agreement;  (iii) that attached thereto is a true
          and  complete  copy of the  Charter  as in  effect on the date of such
          certification;  and (iv) to the incumbency  and specimen  signature of
          certain officers of the Issuer;

               (e) all corporate and other proceedings to be taken by the Issuer
          in connection  with the  transactions  contemplated by this Agreement,
          the Warrant  Agreement and the Warrant  Registration  Rights Agreement
          and all documents  reflecting or evidencing such proceedings  shall be
          reasonably satisfactory in scope, form and substance to the Purchasers
          and their legal  counsel,  and the  Purchasers and their legal counsel
          shall have  received all such duly executed  counterpart  originals or
          certified or other copies of such  documents and  instruments  as they
          may reasonably request.

               (f) Newcourt shall have received duly executed and  authenticated
          certificates  representing the Series E & F Unit being purchased by it
          pursuant hereto;

               (g) Lucent shall have received  duly  executed and  authenticated
          certificates  representing  the  Series F Unit being  purchased  by it
          pursuant hereto;



                                       13
<PAGE>

               (h) the  Certificates of Designations  shall have been duly filed
          with the Secretary of State of Delaware and shall be in full force and
          effect; and

               (i) the  Issuer  shall have paid to the  Purchasers  all fees and
          expense  reimbursements  required  to be so  paid on or  prior  to the
          Closing  Date  pursuant  to the  terms  of this  Agreement  or the fee
          letters being executed and delivered  concurrently  with the execution
          and delivery of this Agreement.

          SECTION 5.02. CONDITIONS TO ISSUER'S  OBLIGATIONS.  The obligations of
the Issuer to issue and sell the Securities to the  Purchasers  pursuant to this
Agreement are subject to the  satisfaction,  at or prior to the Closing Date, of
the following conditions:

               (a)  the   representations   and  warranties  of  each  Purchaser
          contained herein shall be true and correct in all material respects on
          and as of the Closing Date; and

               (b) the  Issuer  shall  have  simultaneously  received  from each
          Purchaser by wire  transfer  (of  immediately  available  funds) to an
          account  designated  by  the  Issuer  in  writing  delivered  to  each
          Purchaser, the consideration referred to in Section 2.01.


                                   ARTICLE VI

                                    COVENANTS

          SECTION 6.01. COVENANTS OF THE ISSUER.

          (a)  ANNOUNCEMENTS.  No  party or any  Affiliate  (as  defined  in the
Certificates of Designations), officer or agent of the parties hereto shall make
any  announcement  concerning the transactions  contemplated  hereby without the
other parties' consent,  which consent may be withheld in their sole discretion;
PROVIDED,  HOWEVER, that any party or such Affiliate,  officer or agent may make
any  announcements  required  by  applicable  law so  long  as the  text of such
announcement  shall have been provided to the parties hereto prior to the making
of such announcement.  The parties agree to consult with each other with respect
to announcements concerning the transactions contemplated hereby.

          (b) SECURITIES. The Issuer hereby covenants to each of the Purchasers,
that  from and  after  the date  hereof  and so long as any  Purchaser  owns any
Securities, the Issuer shall:

               (i) EXCHANGE OF CERTIFICATES. Upon surrender by the holder of any
          certificates   representing  Securities  (or  securities  issued  upon
          exchange,  conversion or exercise  thereof) for exchange or reissuance
          at the office of the Issuer,  cause to be issued in exchange  therefor
          new  certificates  in such  denomination  or  denominations  as may be
          requested for the same  aggregate  number of Securities (or securities
          issued upon exchange,  conversion or exercise thereof)  represented by
          the  certificates  so  surrendered  and  registered as such holder may
          request, subject to the provisions thereof.

               (ii) REPLACEMENT OF  CERTIFICATES.  Upon receipt by the Issuer of
          evidence reasonably satisfactory to it of loss, theft,  destruction or
          mutilation of any  certificate  evidencing  any of the  Securities (or


                                       14
<PAGE>

          securities issued upon exchange,  conversion or exercise thereof), and
          (in  case of loss,  theft  or  destruction)  of  indemnity  reasonably
          satisfactory to the Issuer, and upon the surrender and cancellation of
          such certificate,  if mutilated,  the Issuer shall make and deliver in
          lieu  of  such  certificate  a  new  certificate  for  the  number  of
          Securities (or securities issued upon exchange, conversion or exercise
          thereof),  as the  case  may  be,  evidenced  by  such  lost,  stolen,
          destroyed  or  mutilated  certificate  which  remains  outstanding.  A
          Purchaser's  (which term does not include any successors or assigns of
          the  Purchasers)  agreement of indemnity  shall  constitute  indemnity
          satisfactory  to the Issuer for the purposes of this  Section  6.01(b)
          without the need of any further surety or bond.

               (iii) GOVERNMENT AND OTHER APPROVALS.  Promptly  prepare,  submit
          and  file  with  all  public   and   governmental   authorities,   all
          applications,  notices,  registrations,  certificates,  statements and
          such other  information,  documents and instruments as may be required
          pursuant to any federal,  state or local law or rule or  regulation of
          the National Association of Securities Dealers, Inc. or any securities
          exchange,  in connection  with the  consummation  of the  transactions
          contemplated by this Agreement, including the effect of any dividends,
          exchange  or  conversion  rights,  anti-dilution  provisions  or Board
          control   contemplated  by  the  terms  of  the  Securities  or  other
          securities  of the  Issuer  which may be  acquired  by the  Purchasers
          pursuant to this  Agreement.  The Issuer shall use its best efforts to
          obtain any  necessary  consents or  approvals  from any  authority  in
          connection with the consummation of the  transactions  contemplated by
          this  Agreement,  including the effect of any  dividends,  exchange or
          conversion   rights,   anti-dilution   provisions   or  Board  control
          contemplated by the terms of the Securities.

          (c) ACCESS AND CONFIDENTIALITY.  Prior to the Closing Date, the Issuer
shall (and shall cause each of its  Subsidiaries  to) afford the  Purchasers and
their respective  representatives reasonable access during normal business hours
to its properties,  books,  contracts and records and personnel and advisors and
the Issuer shall (and shall cause each of the  Subsidiaries to) furnish promptly
to the  Purchasers  all  information  concerning  its  business  properties  and
personnel as the Purchasers or their respective  representatives  may reasonably
request,  provided  that any  review  will be  conducted  in a way that will not
interfere unreasonably with the conduct of the Issuer's business.

          (d)  REPORTS  TO  HOLDERS.  At all  times,  upon  the  request  of any
Purchaser so long as the Purchaser owns any Securities, the Company shall supply
to such  Purchaser  such  financial and other  information as such Purchaser may
reasonably  determine to be necessary  in order to permit  compliance  with Rule
144A in connection with a resale or a proposed resale of any of the Securities.

          (e)  RESERVATION  OF SERIES E PREFERRED  STOCK.  Issuer  shall use its
reasonable  best  efforts  with one year  after  the  Closing  Date to amend its
Charter to increase the number of authorized  shares of the Company's  preferred
stock and amend the Series E Certificate of Designations in order to provide for
the reservation of, and the Issuer hereby agrees to reverse, a sufficient number
of authorized but unissued  shares of Series E Preferred  Stock (i) to be issued
upon  conversion  of the Series F  Preferred  Stock and (ii) to provide  for the
payment of all  dividends  that may  accrue on the shares of Series E  Preferred
Stock then outstanding in additional shares of Series E Preferred Stock.




                                       15
<PAGE>

                                   ARTICLE VII

                                  MISCELLANEOUS

          SECTION 7.01. NOTICES. All notices,  requests and other communications
to any party  hereunder  shall be in writing  (including  telecopier  or similar
writing) and shall be given to such party by  certified  first class mail at its
address with a return receipt requested, by Federal Express or similar overnight
mail  service  with  signature  required  for  receipt,  or by  telecopy  at the
telecopier  number set forth below or such other address or telecopier number as
such  party may  hereinafter  specify in  writing  for the  purpose to the party
giving such notice.  Each such notice,  request or other  communication shall be
effective  (i) if given by telecopy,  when such telecopy is  transmitted  to the
telecopy  number  specified  in  this  Section  and the  appropriate  electronic
confirmation  is received  and a copy of such notice is sent by  overnight  mail
service  or (ii) if given by mail or  overnight  courier,  72 hours  after  such
communication  is  deposited  in the mails with first class  postage  prepaid or
given to overnight courier service, addressed as aforesaid.

          Issuer:           KMC Telecom Holdings, Inc.
                            1545 Route 206, Suite 300
                            Bedminster NJ 07921
                            Attn:   Michael Sternberg
                                    President, Chief Executive Officer
                            Fax:    (908) 719-8776

          Purchasers:       Newcourt Commercial Finance Corporation
                            c/o Newcourt Capital USA, Inc.
                            2 Gatehall Drive
                            Parsippany, NJ 07054
                            Attn:  Vice President - Credit
                            Fax: (973) 355-7644

                            with a copy to:

                            Newcourt Commercial Finance Corporation
                            c/o Newcourt Capital USA, Inc.
                            1 Gatehall Drive
                            Parsippany, NJ 07054
                            Attn: Vice President - Legal
                            Fax: (973) 355-7645

                            Lucent Technologies Inc.
                            283 King George Rd.
                            Room A1D 27
                            Warren, NJ 07059
                            Attn:
                            Fax:

          SECTION 7.02. NO WAIVERS. No failure or delay on the part of any party
in exercising any right, power or privilege  hereunder shall operate as a waiver
thereof,  nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.

          SECTION 7.03. SUCCESSORS AND ASSIGNS.  Subject to Section ss. 4.06(f),
each Purchaser may assign its rights hereunder without the consent of the Issuer


                                       16
<PAGE>

to any  transferee  of any  of the  Securities.  Otherwise,  no  party  to  this
Agreement  may assign any of its rights or  obligations  hereunder to any person
except with the prior written consent of the other parties hereto (which consent
may not be  unreasonably  withheld).  This  Agreement  shall be binding upon the
Issuer and each Purchaser and their respective successors and assigns.

          SECTION 7.04.  NEW YORK LAW. This  Agreement  shall be governed by the
laws of the State of New York.

          SECTION  7.05.  COUNTERPARTS;  EFFECTIVENESS.  This  Agreement  may be
executed in any number of  counterparts  each of which shall be an original with
the same  effect as if the  signatures  thereto  and  hereto  were upon the same
instrument.  This Agreement shall become  effective when each party hereto shall
have received a counterpart hereof signed by the other hereto.

          SECTION 7.06. ENTIRE AGREEMENT. This Agreement, the Warrant Agreement,
the Warrant  Registration  Rights Agreement,  the fee letters and the other side
letters  being  executed  and  delivered  concurrently  with the  execution  and
delivery of this Agreement,  and the Certificates of Designations constitute the
entire  agreement  and  understanding  of the  parties  hereto in respect of the
subject  matter  contained  herein and therein,  and there are no  restrictions,
promises,  representations,  warranties, covenants, or undertakings with respect
to the subject matter hereof,  other than those  expressly set forth or referred
to herein or  therein.  This  Agreement  and the  documents  referred  to in the
preceding sentence supersede all prior agreements and understandings between the
parties hereto with respect to the subject matter hereof.

          SECTION 7.07. EXPENSES.  Whether or not the transactions  contemplated
in this Agreement  shall be consummated,  the Issuer shall pay each  Purchaser's
reasonable  out-of-pocket  expenses  on demand  arising in  connection  with the
execution and delivery of this  Agreement,  the Warrant  Agreement,  the Warrant
Registration Rights Agreement and the Certificates of Designation (collectively,
the  "Transaction  Documents")  and the purchase of the  Securities,  including,
without  limitation:  (i) the  reasonable  fees and  expenses  of counsel to the
Purchasers in connection with the preparation and negotiation of the Transaction
Documents and the consummation of the  transactions  contemplated  therein,  and
(ii) costs and expenses,  including  reasonable  attorneys fees and expenses and
the fees and expenses of any other  special or financial  advisors,  incurred in
connection with any bankruptcy or insolvency of the Issuer or in connection with
any workout or  restructuring  of any of the  transactions  contemplated  in the
Transaction  Documents.  The  obligations  of the Issuer under this Section 7.07
shall  survive any  transfer  of any of the  Securities  by a  Purchaser  or any
subsequent holder thereof.

          IN WITNESS WHEREOF,  the parties have caused this Agreement to be duly
executed, as of the day and year first above written.


                                 KMC Telecom Holdings, Inc


                                 By:  /s/ Cynthia Worthman
                                      ------------------------------------------
                                       Name: Cynthia Worthman
                                       Title: Vice President, Chief Financial
                                               Officer





                                       17
<PAGE>

                                 Lucent Technologies Inc.


                                 By:  /s/ Leslie L. Rogers
                                      ------------------------------------------
                                       Name:
                                       Title:



                                 Newcourt Commercial Finance Corporation


                                 By:  /s/ John P. Sirico, III
                                      ------------------------------------------
                                       Name:
                                       Title:






































                                       18
<PAGE>


                          SECURITIES PURCHASE AGREEMENT


                                   dated as of

                                February 4, 1999
                                      among
                            KMC TELECOM HOLDINGS, INC
                                       and
                            LUCENT TECHNOLOGIES INC.
                                       and
                     NEWCOURT COMMERCIAL FINANCE CORPORATION


<PAGE>


                                TABLE OF CONTENTS

                                                                        PAGE
                                    ARTICLE I

                                   DEFINITIONS

          SECTION 1.01. Definitions.......................................1

                                   ARTICLE II

                         PURCHASE AND SALE OF SECURITIES

          SECTION 2.01. Commitment to Purchase............................4
          SECTION 2.02. The Closing.......................................4
          SECTION 2.03. Use of Proceeds...................................5
          SECTION 2.04. Allocation of Consideration.......................5

                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE ISSUER

          SECTION 3.01. Organization, Standing, etc.......................5
          SECTION 3.02. Capitalization....................................6
          SECTION 3.03. Authorization; Non-Contravention..................7
          SECTION 3.04. Binding Effect....................................8
          SECTION 3.05. Governmental Regulation...........................8
          SECTION 3.06. Solicitation......................................9
          SECTION 3.07. Authorization to Do Business......................9
          SECTION 3.08. Compliance with Laws..............................9
          SECTION 3.09. Litigation........................................9
          SECTION 3.10. Properties.......................................10
          SECTION 3.11. Tax Matters......................................10
          SECTION 3.12. Patents and Trademarks...........................10
          SECTION 3.13. Labor Matters....................................10
          SECTION 3.14. Environmental Matters............................11
          SECTION 3.15. Insurance........................................11
          SECTION 3.16. Year 2000........................................11
          SECTION 3.17. Certain Existing Agreements......................11
          SECTION 3.18. Financial Information............................12
          SECTION 3.19. Disclosure.......................................12
          SECTION 3.20. Investment Company Act...........................12
          SECTION 3.21. Brokers..........................................12

                                   ARTICLE IV

                REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

          SECTION 4.01. Organization.....................................13
          SECTION 4.02. Authority; No Other Action.......................13
          SECTION 4.03. No Conflict......................................13
          SECTION 4.04. Binding Effect...................................13
          SECTION 4.05. No Defaults......................................13
          SECTION 4.06. Private Placement................................14



                                       i
<PAGE>

                                    ARTICLE V

                         CONDITIONS PRECEDENT TO CLOSING

          SECTION 5.01. Conditions to the Purchasers' Obligations........14
          SECTION 5.02. Conditions to Issuer's Obligations...............16

                                   ARTICLE VI

                                    COVENANTS

          SECTION 6.01. Covenants of the Issuer..........................16

                                   ARTICLE VII

                                  MISCELLANEOUS

          SECTION 7.01. Notices..........................................18
          SECTION 7.02. No Waivers.......................................19
          SECTION 7.03. Successors and Assigns...........................19
          SECTION 7.04. New York Law.....................................19
          SECTION 7.05. Counterparts; Effectiveness......................19
          SECTION 7.06. Entire Agreement.................................19
          SECTION 7.07. Expenses.........................................19



                                    EXHIBITS


Exhibit A         -        Series E Certificate of Designations
Exhibit B         -        Series F Certificate of Designations
Exhibit C         -        Form of Opinion of Counsel to Issuer



                                   SCHEDULES

Schedule 3.01     -
Schedule 3.02     -
Schedule 3.08     -
Schedule 3.09     -
Schedule 3.10     -
Schedule 3.14     -
Schedule 3.17     -













                                       ii

<PAGE>


                                    EXHIBIT A

                      Series E Certificate of Designations




<PAGE>


                                    EXHIBIT B

                      Series F Certificate of Designations




<PAGE>


                                    EXHIBIT C

                      Form of Opinion of Counsel to Issuer




<PAGE>


                                  SCHEDULE 3.01






<PAGE>

                                  SCHEDULE 3.02






<PAGE>

                                  SCHEDULE 3.08





<PAGE>

                                  SCHEDULE 3.09




<PAGE>


                                  SCHEDULE 3.10




<PAGE>



                                  SCHEDULE 3.14




<PAGE>



                                  SCHEDULE 3.17