EXHIBIT 10.2

                                                                       EXECUTION


                       AMENDMENT NO. 3 AND LIMITED WAIVER
                                       TO
                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT


          AMENDMENT  NO. 3 AND LIMITED  WAIVER TO AMENDED AND RESTATED  LOAN AND
SECURITY  AGREEMENT  ("AMENDMENT"),  dated as of February 23, 2001, is among KMC
TELECOM INC., a Delaware  corporation  ("KMC"), KMC TELECOM II, INC., a Delaware
corporation  ("KMC II"),  KMC TELECOM III,  INC., a Delaware  corporation  ("KMC
III"),  KMC TELECOM OF VIRGINIA,  INC., a Virginia  public service company ("KMC
VIRGINIA"),  KMC TELECOM  LEASING I LLC, a Delaware  limited  liability  company
("LEASING I"), KMC TELECOM LEASING II LLC, a Delaware limited  liability company
("LEASING  II"),  KMC  TELECOM  LEASING  III LLC, a Delaware  limited  liability
company  ("LEASING  III"),  KMC  TELECOM.COM,   INC.,  a  Delaware   corporation
("TELECOM.COM");  KMC III SERVICES  LLC, a Delaware  limited  liability  company
("SERVICES"; KMC, KMC II, KMC III, KMC Virginia, Leasing I , Leasing II, Leasing
III,  Telecom.com  and  Services  being  hereinafter  collectively  referred  to
hereinafter  as the  "BORROWERS"),  the  "Lenders"  party  hereto,  FIRST  UNION
NATIONAL  BANK,  as  administrative  agent for the Lenders (the "AGENT") and CIT
LENDING SERVICES CORPORATION (f/k/a NEWCOURT COMMERCIAL FINANCE CORPORATION), as
collateral  agent for the Lenders (the  "COLLATERAL  AGENT";  the Agent together
with the Collateral Agent being referred to as the "AGENTS").


          WHEREAS, the Borrowers, the Agents and the Lenders are parties to that
certain  Amended and Restated Loan and Security  Agreement  dated as of February
15, 2000,  as amended by Amendment  No. 1 thereto dated as of March 28, 2000 and
Amendment  No. 2 thereto  dated as of July 28,  2000 (as so  amended,  the "LOAN
AGREEMENT";  undefined  capitalized  terms used herein  shall have the  meanings
assigned  thereto in the Loan  Agreement),  pursuant to which the  Lenders  have
agreed  to make  certain  "Loans"  and  other  financial  accommodations  to the
Borrowers; and


          WHEREAS,  the Borrowers have requested that the Agents and the Lenders
amend the Loan  Agreement and waive certain  provisions of the Loan Agreement in
the manner set forth herein,  and the Agents and the Lenders have agreed to such
request.


          NOW, THEREFORE,  in consideration of the premises set forth above, and
for other good and valuable consideration,  the receipt and sufficiency of which
are hereby  acknowledged,  the  Borrowers,  the Agents and the Lenders  agree as
follows:

          1.  AMENDMENTS TO THE LOAN  AGREEMENT.  Effective as of the date first
above written and subject to the  satisfaction  of the  conditions  set forth in
SECTION 4 below, the Loan Agreement shall be and hereby is amended as follows:

          1.1 SECTION 1.02 is hereby  amended by adding the following  after the
definition  of  "APPLICABLE  MARGIN" and before the  definition  of  "ASSIGNMENT
AGREEMENT":


                                       1
<PAGE>

                  "'APPROVED  VENDOR PROGRAM' shall mean the Borrowers'  program
            to purchase Telecommunications Equipment manufactured or produced by
            Lucent from Approved  Vendors for use and  installation in cities to
            be  financed  under  this  Agreement  and  in  accordance  with  the
            Milestone Plan; PROVIDED, that such program,  including the Approved
            Vendors participating therein, shall have been approved by Lucent.


                  'APPROVED   VENDORS'   shall  mean  vendors  and   value-added
            resellers participating in the Approved Vendor Program."

          1.2 Clause (a) of SECTION  2.02 is hereby  deleted in its entirety and
the following new clause (a) is substituted  therefor  (solely for  convenience,
added language is italicized):


            "(a)  The  proceeds  of the  Revolving  Loans  shall  be used by the
            Borrowers   to  purchase   Telecommunications   Equipment,   to  pay
            transaction   costs  incurred  in  connection  with  the  execution,
            delivery  and  performance  of the  Loan  Documents,  for  financing
            Permitted  Acquisitions  and for working  capital and other  general
            corporate purposes,  all as specified in the Notice of Borrowing and
            in accordance with the Milestone Plan;  provided,  however,  that at
            any time  that the  Total  Leverage  Ratio  is  greater  than 6:1 as
            determined  by  reference  to  the  financial  statements  delivered
            pursuant to SECTION  5.06,  proceeds of Revolving  Loans may be used
            only to pay  transaction  costs  incurred  in  connection  with  the
            execution   and  delivery  of  the  Loan   Documents,   to  purchase
            Telecommunications Equipment, and to finance Permitted Acquisitions.
            Subject to the  provisions of SECTION  2.02(D),  the proceeds of the
            Term B  Loans  shall  be  used  by  the  Borrowers  to (i)  purchase
            Telecommunications   Equipment   pursuant  to  the  Lucent  Purchase
            Agreement, (II) TO PURCHASE AND INSTALL TELECOMMUNICATIONS EQUIPMENT
            THROUGH  THE  APPROVED  VENDOR  PROGRAM AND (III) to  refinance  the
            obligations  of KMC III , Leasing III and Services  under the Lucent
            Loan Agreement.  Loans with respect to Telecommunications  Equipment
            purchases  may not be made to  finance  (i)  soft  costs  (including
            installation,  delivery and engineering  costs) in excess of fifteen
            percent (15%) of the invoiced price for the related Switch Equipment
            or  (ii)  any  support  or  installation  costs  associated  with an
            operational  system that would not be capitalized in accordance with
            GAAP."

          1.3 Clause (d) of SECTION  2.02 is hereby  deleted in its entirety and
the following new clause (d) is substituted  therefor  (solely for  convenience,
added language is italicized):


            "(d) The  proceeds of any Term B Loan  consisting  of a Cash Advance
            shall be used  exclusively  to finance  or  reimburse  invoices  for
            Telecommunications  Equipment purchased from Lucent OR FROM APPROVED
            VENDORS UNDER THE APPROVED  VENDOR PROGRAM by KMC, KMC II or KMC III
            during the period commencing on the date that is twelve months prior
            to the Closing Date and ending on the Term B Loan Termination  Date;
            provided,  that (i) the maximum  principal amount of any Term B Loan
            consisting of a Cash Advance shall not exceed $100,000,000, (ii) the
            principal  amount of all Term B Loans consisting of Cash Advances to


                                       2
<PAGE>

            reimburse invoices for  Telecommunications  Equipment purchased from
            Lucent  during the twelve  month  period  prior to the Closing  Date
            ("Pre-Closing  Invoices")  shall  not  exceed  $241,000,000  in  the
            aggregate  and (iii) the  Borrowers  may not use the proceeds of any
            Term B Loan  consisting  of a Cash Advance to reimburse  Pre-Closing
            Invoices after the second anniversary of the Closing Date.

          1.4 Clause (a) of SECTION  2.03 is hereby  deleted in its entirety and
the following new clause (a) is substituted  therefor  (solely for  convenience,
added language is italicized):


            "(a) A Borrower requesting a Loan shall deliver to each of the Agent
            and the Collateral Agent a Notice of Borrowing  substantially in the
            form of EXHIBIT H-1  attached  hereto on or before  11:00 a.m.  (New
            York  time) at least  five (5)  Business  Days  prior to the date on
            which such Loan is requested to be made if such Loan is requested to
            be a LIBOR Loan and at least two (2) Business Days prior to the date
            on which such Loan is requested to be made if such Loan is requested
            to  be a  Base  Rate  Loan,  which  notice,  once  given,  shall  be
            irrevocable;  provided,  however, that (i) only the Collateral Agent
            shall  receive  the  attachments  to the  Notice  of  Borrowing,  as
            outlined  below,  (ii)  if  the  requested  Loan  is a  Term  B Loan
            consisting of a Cash Advance in excess of $50,000,000, the Notice of
            Borrowing  shall be delivered as least seven (7) Business Days prior
            to the date on which such Loan is  requested  to be made,  (iii) the
            applicable  Borrower(s) shall provide to Lucent  simultaneously with
            the  provision  of the  Notice  of  Borrowing  to the  Agent and the
            Collateral Agent a list of the invoices  (including  dollar amounts)
            to be financed or reimbursed with the proceeds of the requested Term
            B Loan AND (IV) IN THE CASE OF ANY TERM B LOAN THE PROCEEDS OF WHICH
            ARE TO BE USED BY ANY  BORROWER  TO PAY AMOUNTS  OUTSTANDING  TO ANY
            APPROVED VENDOR, THE AGGREGATE AMOUNT OF ALL SUCH TERM B LOANS SHALL
            NOT EXCEED  $28,000,000  AND  LUCENT MAY ELECT TO MAKE SUCH  PAYMENT
            DIRECTLY TO SUCH  APPROVED  VENDOR (OR TO PROVIDE FOR PAYMENT IN ANY
            OTHER MANNER ACCEPTABLE TO LUCENT AND SUCH APPROVED VENDOR).  In the
            case of a Loan the  proceeds  of which will be used to  purchase  or
            reimburse any Borrower for  Telecommunications  Equipment (including
            any Telecommunications Equipment being purchased or reimbursed under
            the Lucent Purchase Agreement), the Notice of Borrowing delivered to
            the Collateral Agent will include a schedule  supporting one hundred
            percent  (100%)  of  Telecommunications  Equipment  requested  to be
            funded. Such schedule will detail all invoices for equipment,  third
            party labor,  permits,  other third party costs and all  capitalized
            internal   costs   of   the   Borrowers   with   respect   to   such
            Telecommunications Equipment permitted under GAAP. All invoices over
            $25,000  will  be  attached  to  such  schedule   delivered  to  the
            Collateral  Agent who shall  review such  invoices  and verify that,
            when combined with the above described  capitalized  internal costs,
            such  invoices  will support at least  seventy  percent (70%) of the
            total requested  funding AND IN THE CASE OF ANY TERM B LOANS, ALL OR
            ANY  PORTION OF THE  PROCEEDS OF WHICH ARE TO BE USED TO PAY AMOUNTS
            OUTSTANDING TO ANY APPROVED  VENDOR,  INVOICES FROM APPROVED VENDORS
            WILL SUPPORT ALL OR SUCH PORTION OF SUCH PROCEEDS.  In addition,  if
            the  Telecommunications  Equipment is being  purchased or reimbursed
            under the Lucent Purchase  Agreement,  a certificate of delivery and


                                       3
<PAGE>

            acceptance  in the form of EXHIBIT R shall be attached to the Notice
            of Borrowing  delivered to the  Collateral  Agent.  In the case of a
            Loan the  proceeds  of which  will be used to pay or  reimburse  any
            Borrower for transaction costs, the Notice of Borrowing delivered to
            the  Collateral  Agent will  include a copy of the invoice  from the
            provider   of  the   service   or   other   appropriate   supporting
            documentation.  In the case of a Loan, the proceeds of which will be
            used for working capital or other general  corporate  purposes,  the
            Notice of Borrowing delivered to the Collateral Agent will contain a
            certification  that the  making of such Loan  does not  violate  any
            provision of either  Indenture or the terms of the preferred  Equity
            Interests  of KMC  Holdings.  The Notice of  Borrowing  shall,  with
            respect to any Loans requested, specify whether such requested Loans
            are to be Base  Rate  Loans or LIBOR  Loans,  and if such  requested
            Loans are to be LIBOR Loans, the requested  Interest Period for such
            Loans."

          2.  LIMITED   WAIVERS  TO  LOAN   AGREEMENT.   On  the  basis  of  the
representations and warranties  contained in this Amendment,  and subject to the
terms and conditions of this Amendment,  the Agents and Requisite Lenders hereby
agree to waive any  Default or Event of Default  which may have  occurred  under
SECTION  9.01(B)  of the Loan  Agreement  solely as a result  of the  Borrowers'
failure  to  deliver  not later  than  January  15,  2001  pursuant  to  SECTION
5.06(F)(II) of the Loan  Agreement,  an annual  operating  budget on a quarterly
basis for the 2001 calendar year in compliance with the Milestone Plan.

          3.  LIMITATION  OF WAIVER.  Without  limiting  the  generality  of the
provisions of SECTION 11.02(B) of the Loan Agreement, the waiver set forth above
shall be limited precisely as written and relates solely to noncompliance by the
Borrowers  with the provisions of SECTIONS  5.06(F)(II)  and 9.01(B) of the Loan
Agreement  in the manner and to the extent  described  above and nothing in this
Amendment shall be deemed to:

          (a)  constitute a waiver of compliance by Borrower with respect to (i)
SECTIONS  5.06(f)(ii) and 9.01(B) of the Loan Agreement in any other instance or
(ii) any other term,  provision or condition of the Loan  Agreement or any other
instrument or agreement referred to therein; or

          (b)  prejudice  any right or remedy  that the Agents or any Lender may
now have  (except  to the extent  such  right or remedy was based upon  existing
defaults that will not exist after giving effect to this  Amendment) or may have
in the  future  under or in  connection  with the Loan  Agreement  or any  other
instrument or agreement referred to therein.


          Except as  expressly  set forth  herein,  the  terms,  provisions  and
conditions of the Loan  Agreement and the other Loan  Documents  shall remain in
full  force and  effect  and in all  other  respects  are  hereby  ratified  and
confirmed.

          4. CONDITIONS  PRECEDENT.  This Amendment shall become effective as of
the date above written,  if, and only if, the Agents have received duly executed
originals of (i) this Amendment from the  Borrowers,  the Requisite  Lenders and
the Agents and (ii) a Reaffirmation of Guaranty in the form of Exhibit A annexed
hereto by KMC Holdings, KMC I Services LLC and KMC II Services LLC.



                                       4
<PAGE>

          5.  REPRESENTATIONS  AND  WARRANTIES OF THE  BORROWERS.  The Borrowers
hereby represent and warrant as follows:

          (a)  This  Amendment  and  the  Loan  Agreement,  as  amended  hereby,
constitute  legal,  valid  and  binding  obligations  of the  Borrowers  and are
enforceable against the Borrowers in accordance with their terms.

          (b) Upon the  effectiveness  of this Amendment,  the Borrowers  hereby
reaffirm all representations  and warranties made in the Loan Agreement,  and to
the extent the same are not amended hereby,  agree that all such representations
and warranties shall be deemed to have been remade as of the date of delivery of
this  Amendment,  unless  and to the  extent  that any such  representation  and
warranty  is stated to relate  solely to an  earlier  date,  in which  case such
representation and warranty shall be true and correct as of such earlier date.

          (c) As of the date hereof,  and after giving effect to this Amendment,
each Borrower shall be in compliance with all the terms and provisions set forth
in the  Loan  Agreement,  as  amended  hereby,  on its  part to be  observed  or
performed,  and no Event of  Default  or  Default  shall  have  occurred  and be
continuing.

          6.    REFERENCE    TO   AND    EFFECT    ON   THE   LOAN    AGREEMENT.

          (a) Upon the  effectiveness of SECTION 1 hereof, on and after the date
hereof,  each  reference in the Loan Agreement to "this Loan  Agreement,"  "this
Agreement,"  "hereunder,"  "hereof," "herein" or words of like import shall mean
and be a reference to the Loan Agreement as amended  hereby,  and each reference
to the Loan Agreement in any other document,  instrument or agreement shall mean
and be a reference to the Loan Agreement as modified hereby.

          (b) The Loan Agreement,  as amended hereby,  and all other  documents,
instruments and agreements  executed and/or  delivered in connection  therewith,
shall remain in full force and effect, and are hereby ratified and confirmed.

          (c) Except as expressly provided herein,  the execution,  delivery and
effectiveness  of this  Amendment  shall not  operate  as a waiver of any right,
power or remedy of the Agents or the  Lenders,  nor  constitute  a waiver of any
provision  of  the  Loan  Agreement  or any  other  documents,  instruments  and
agreements executed and/or delivered in connection therewith.

          7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE OTHER REMAINING TERMS OF THE LOAN AGREEMENT AND THE INTERNAL
LAWS (AS OPPOSED TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK.

          8.  PARAGRAPH  HEADINGS.  The  paragraph  headings  contained  in this
Amendment  are and shall be  without  substance,  meaning or content of any kind
whatsoever and are not a part of the agreement among the parties thereto.



                                       5
<PAGE>

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





                                       6
<PAGE>





            IN WITNESS WHEREOF,  this Amendment has been duly executed as of the
day and year first above written.


            THE BORROWERS:


                                    KMC TELECOM INC.

                                    KMC TELECOM II, INC.

                                    KMC TELECOM III, INC.

                                    KMC TELECOM OF VIRGINIA, INC.

                                    KMC TELECOM.COM, INC.

                                    In each case:


                                    By: /S/ CONSTANCE LOOSEMORE
                                       -------------------------------------
                                    Name:  Constance Loosemore
                                    Title: Vice President
                                           Assistant Treasurer

                                    KMC TELECOM LEASING I LLC
                                    By:  KMC TELECOM INC., as its Sole Member


                                    By: /S/ CONSTANCE LOOSEMORE
                                       -------------------------------------
                                    Name:  Constance Loosemore
                                    Title: Vice President
                                           Assistant Treasurer


                                    KMC TELECOM LEASING II LLC
                                    By: KMC TELECOM II, INC., as its Sole Member


                                    By: /S/ CONSTANCE LOOSEMORE
                                       -------------------------------------
                                    Name: Constance Loosemore
                                    Title: Vice President
                                           Assistant Treasurer



                                       S-1
<PAGE>

                                    KMC TELECOM LEASING III LLC

                                    KMC III SERVICES LLC

                                    In each case:

                                    By: KMC TELECOM III, INC., as its Sole
                                        Member


                                    By:
                                       ------------------------------------
                                    Name:
                                    Title:  CFO


                                    FIRST UNION NATIONAL BANK, as the Agent
                                    and as a Lender


                                    By: /S/ G.C. ULLRICH
                                       -------------------------------------
                                    Name:  G.C. Ullrich
                                    Title: Senior Vice President


                                    CIT  LENDING  SERVICES   CORPORATION
                                    (f/k/a NEWCOURT COMMERCIAL FINANCE
                                    CORPORATION), as the Collateral Agent and
                                    as a Lender


                                    By: /S/ MICHAEL V. MONAHAN
                                       -------------------------------------
                                    Name:  Michael V. Monahan
                                    Title: Vice President


                                    CANADIAN IMPERIAL BANK OF COMMERCE,
                                    as a Lender


                                    By:
                                       -------------------------------------
                                    Name:
                                    Title:


                                       S-2
<PAGE>

                                    GENERAL ELECTRIC CAPITAL CORPORATION,
                                    as a Lender


                                    By: /S/ BRIAN P. WARD
                                       -------------------------------------
                                    Name:  Brian P. Ward
                                    Title: Manager - Operations


                                    LUCENT TECHNOLOGIES INC., as a Lender


                                    By: /S/ DINA FEDE
                                       -------------------------------------
                                    Name:  Dina Fede
                                    Title: Director-NA Customer Finance


                                    CREDIT SUISSE FIRST BOSTON, as a Lender


                                    By:
                                       -------------------------------------
                                    Name:
                                    Title:


                                    DRESDNER BANK AG NEW YORK AND GRAND
                                    CAYMAN BRANCHES, as a Lender


                                    By: /S/ BRIAN SCHNEIDER
                                       -------------------------------------
                                    Name:  Brian Schneider
                                    Title: Assistant Vice President

                                    By: /S/ MICHAEL S. GREENBERG
                                       -------------------------------------
                                    Name:  Michael S. Greenberg
                                    Title: Assistant Vice President




                                       S-3
<PAGE>




                                    MORGAN STANLEY SENIOR FUNDING, INC.,
                                    as a Lender


                                    By:
                                       -------------------------------------
                                    Name:
                                    Title:


                                    By:
                                       -------------------------------------
                                    Name:
                                    Title:


                                    MORGAN STANLEY DEAN WITTER PRIME INCOME
                                    TRUST, as a Lender

                                    By:
                                       -------------------------------------
                                    Name:
                                    Title:


                                    UNION BANK OF CALIFORNIA, N.A., as a Lender


                                    By:
                                       -------------------------------------
                                    Name:
                                    Title:


                                    Stein Roe & Farnham Incorporated As Agent
                                    for KEYPORT LIFE INSURANCE COMPANY,
                                    as a Lender


                                    By: /S/ JAMES R. FELLOWS
                                       -------------------------------------
                                    Name:  James R. Fellows
                                    Title: Sr.Vice President & Portfolio Manager





                                       S-4
<PAGE>


                                    STEIN ROE FLOATING RATE LIMITED
                                    LIABILITY COMPANY, as a Lender

                                    By: /S/ JAMES R. FELLOWS
                                       -------------------------------------
                                    Name:  James R. Fellows
                                    Title: Senior Vice President


                                    IBM CREDIT CORPORATION, as a Lender


                                   By: /S/ THOMAS S. CURCIO
                                       -------------------------------------
                                   Name:  Thomas S. Curcio
                                   Title: Manager of Credit,
                                          Commercial & Specialty Financing


                                       S-5