CERTIFICATE OF VOTING POWERS, DESIGNATIONS, PREFERENCES
              AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL
                     RIGHTS AND QUALIFICATIONS, LIMITATIONS
                         AND RESTRICTIONS THEREOF OF THE
          SERIES E SENIOR REDEEMABLE, EXCHANGEABLE, P1K PREFERRED STOCK
                          OF KMC TELECOM HOLDINGS, INC.


                         Pursuant to Section 151 of the
                General Corporation Law of the State of Delaware

                   As  contemplated  by  Sections  141  and  242 of the  General
Corporation Law of the State of Delaware (the "DGCL"),  the following resolution
was duly  adopted by the Board of  Directors  of KMC Telecom  Holdings,  Inc., a
Delaware  corporatin (the  "Corporation"),  by unanimous written consent,  dated
April 30, 1999:

                   WHEREAS,  pursuant to authority  conferred  upon the Board of
Directors by the Certificate of Incorporation,  as amended,  of said Corporation
(the "Certificate of Incorporation"), said Board of Directors, at a meeting duly
called and held on  February 1, 1999,  adopted a  resolution  providing  for the
issuance  of  175,000   authorized   shares  of  Series  E  Senior   Redeemable,
Exchangeable,  P1K  Preferred  Stock (the  "Series E  Preferred  Stock"),  which
resolution is as follows:

                  WHEREAS,  the Board of  Directors  is  authorized,  within the
limitations  and  restrictions  stated in the Certificate of  Incorporation,  as
amended,  to fix by resolution or resolutions  the designation of each series of
preferred  stock  and  the  powers,   designations,   preferences  and  relative
participating,  optional  or  other  rights,  if  any,  or  the  qualifications,
limitations or restrictions thereof, including,  without limiting the generality
of  the  foregoing,  such  provisions  as  may  be  desired  concerning  voting,
redemption,  dividends, dissolution or the distribution of assets, conversion or
exchange,  and such other  subjects or matters as may be fixed by  resolution or
resolutions  of the Board of  Directors  under the  General  Corporation  Law of
Delaware; and

                  WHEREAS, it is the desire of the Board of Directors,  pursuant
to its  authority as  aforesaid,  to authorize  and fix the terms of a series of
preferred stock and the number of shares constituting such series;

                  NOW,  THEREFORE,   BE  IT  RESOLVED,   that  there  is  hereby
authorized  such series of preferred  stock on the terms and with the provisions
herein set forth:

I.       CERTAIN DEFINITIONS.

                  As used herein,  the following  terms shall have the following
meanings  (with terms defined in the singular  having  comparable  meanings when
used in the plural and vice versa), unless the context otherwise requires:


<PAGE>

                  "Acquired   Indebtedness"   means  Indebtedness  of  a  Person
                  existing  at  the  time  such  Person   becomes  a  Restricted
                  Subsidiary or assumed in connection with an Asset  Acquisition
                  by the Corporation or a Restricted Subsidiary and not Incurred
                  in  connection  with,  or  in  anticipation  of,  such  Person
                  becoming a Restricted  Subsidiary  or such Asset  Acquisition;
                  PROVIDED that  Indebtedness  of such Person which is redeemed,
                  defeased,  retired  or  otherwise  repaid  at the  time  of or
                  immediately  upon  consummation  of the  transactions by which
                  such  Person   becomes  a   Restricted   Subsidiary   or  upon
                  consummation of such Asset  Acquisition  shall not be Acquired
                  Indebtedness.

                  "Adjusted  Consolidated Net Income" means, for any period, the
                  aggregate  net  income  (or loss) of the  Corporation  and its
                  Restricted   Subsidiaries   for  such  period   determined  in
                  conformity with GAAP;  PROVIDED that the following items shall
                  be  excluded in  computing  Adjusted  Consolidated  Net Income
                  (without  duplication):  (i) the net  income  (or loss) of any
                  Person  that  is  not  a  Restricted   Subsidiary  (or  is  an
                  Unrestricted  Subsidiary),  except to the extent of the amount
                  of  dividends  or  other  distributions  actually  paid to the
                  Corporation  or any of its  Restricted  Subsidiaries  by  such
                  Person or an Unrestricted  Subsidiary during such period; (ii)
                  solely  for  the  purposes  of   calculating   the  amount  of
                  Restricted  Payments  that  may be  made  pursuant  to  clause
                  (iii)(B) of the first  paragraph of Section XI(B) (and in such
                  case, except to the extent  includable  pursuant to clause (i)
                  above),  the net income (or loss) of any Person  accrued prior
                  to the date it becomes a  Restricted  Subsidiary  or is merged
                  into  or  consolidated  with  the  Corporation  or  any of its
                  Restricted  Subsidiaries  or all or  substantially  all of the
                  property  and  assets  of  such  Person  are  acquired  by the
                  Corporation or any of its Restricted  Subsidiaries;  (iii) the
                  net income of any Restricted Subsidiary to the extent that the
                  declaration  or payment of dividends or similar  distributions
                  by such Restricted Subsidiary of such net income is not at the
                  time permitted by the operation of the terms of its charter or
                  any agreement,  instrument,  judgment, decree, order, statute,
                  rule or governmental  regulation applicable to such Restricted
                  Subsidiary  (except to the extent  such  restriction  has been
                  legally  waived);  (iv) any gains or losses  (on an  after-tax
                  basis)  attributable  to Asset Sales  including  for  purposes
                  hereof the items  referred to in clauses  (b),  (c) and (e) of
                  the definition of

                  "Asset Sale" or the  termination of  discontinued  operations;
                  (v)  except  for  purposes  of   calculating   the  amount  of
                  Restricted  Payments  that  may be  made  pursuant  to  clause
                  (iii)(B) of the first  paragraph of Section XI(B),  any amount
                  paid or accrued as dividends on Preferred Stock (including the
                  Series E Preferred Stock) of the Corporation or any Restricted
                  Subsidiary owned by Persons other than the Corporation and any
                  of its Restricted  Subsidiaries;  (vi) all extraordinary gains
                  and  extraordinary  losses;  (vii) the cumulative  effect of a
                  change in accounting  principles  since the High Yield Closing
                  Date;   and  (viii)  at  the   irrevocable   election  of  the
                  Corporation  for each  occurrence,  any net  after-tax  income
                  (loss)  from  discontinued   operations;   PROVIDED  that  for
                  purposes of any subsequent Investment in the entity conducting
                  such discontinued  operations  pursuant to Section XI(B), such
                  entity shall be treated as an  Unrestricted  Subsidiary  until
                  such discontinued operations have actually been disposed of.


                                       2
<PAGE>

                  "Adjusted  Consolidated  Net Tangible  Assets" means the total
                  amount  of  assets  of  the  Corporation  and  its  Restricted
                  Subsidiaries (less applicable  depreciation,  amortization and
                  other valuation reserves), except to the extent resulting from
                  write-ups of capital assets (excluding write-ups in connection
                  with  accounting for  acquisitions  in conformity  with GAAP),
                  after deducting  therefrom (i) all current  liabilities of the
                  Corporation   and  its  Restricted   Subsidiaries   (excluding
                  intercompany  items)  and  (ii)  all  goodwill,  trade  names,
                  trademarks, patents, unamortized debt discount and expense and
                  other like  intangibles,  all as set forth on the most  recent
                  quarterly  or  annual   consolidated   balance  sheet  of  the
                  Corporation  and  its  Restricted  Subsidiaries,  prepared  in
                  conformity with GAAP.

                  "Affiliate"  means, as applied to any Person, any other Person
                  directly or indirectly  controlling,  controlled  by, or under
                  direct or indirect  common  control  with,  such  Person.  For
                  purposes  of  this  definition,   "control"  (including,  with
                  correlative meanings, the terms "controlling," "controlled by"
                  and "under common  control  with"),  as applied to any Person,
                  means the possession,  directly or indirectly, of the power to
                  direct or cause the direction of the  management  and policies
                  of such  Person,  whether  through  the  ownership  of  voting
                  securities, by contract or otherwise.

                  "Asset Acquisition" means (i) an investment by the Corporation
                  or any of its  Restricted  Subsidiaries  in any  other  Person
                  pursuant  to which  such  Person  shall  become  a  Restricted
                  Subsidiary  or shall be merged into or  consolidated  with the
                  Corporation or any of its Restricted  Subsidiaries  or (ii) an
                  acquisition  by the  Corporation  or  any  of  its  Restricted
                  Subsidiaries  of the  property  and assets of any Person other
                  than the  Corporation  or any of its  Restricted  Subsidiaries
                  that  constitute  substantially  all of a division  or line of
                  business of such Person.

                  "Asset  Sale" means any sale,  transfer  or other  disposition
                  (including by way of merger,  consolidation or  sale-leaseback
                  transaction)  in  one  transaction  or  a  series  of  related
                  transactions  by the  Corporation  or  any  of its  Restricted
                  Subsidiaries  to any Person other than the  Corporation or any
                  of  its  Restricted  Subsidiaries  of  (i)  all  or any of the
                  Capital  Stock  of  any  Restricted  Subsidiary,  (ii)  all or
                  substantially  all of the  property and assets of an operating
                  unit or business of the  Corporation  or any of its Restricted
                  Subsidiaries  or (iii) any other  property  and assets  (other
                  than the Capital Stock or other  Investment in an Unrestricted
                  Subsidiary)  of the  Corporation  or  any  of  its  Restricted
                  Subsidiaries  outside the  ordinary  course of business of the
                  Corporation or such  Restricted  Subsidiary and, in each case,
                  that is not governed by Section IX; PROVIDED that "Asset Sale"
                  shall  not  include  (a)  sales  or  other   dispositions   of
                  inventory,  receivables and other current assets, (b) sales or
                  other  dispositions of assets for consideration at least equal
                  to the fair market value of the assets sold or disposed of, to
                  the extent that the  consideration  received would  constitute


                                       3
<PAGE>

                  property or assets of the kind  described in clause  (i)(B) of
                  Section  XI(F),  (c) a disposition  of cash or Temporary  Cash
                  Investments,  (d) any Restricted  Payment that is permitted to
                  be made, and is made, in accordance  with Section  XI(B),  (e)
                  sales or other dispositions of assets with a fair market value
                  (as certified in an Officers' Certificate) not in excess of $2
                  million   (PROVIDED  that  any  series  of  related  sales  or
                  dispositions  in  excess  of $2  million  shall be  considered
                  "Asset  Sales"),  (t) the  lease,  assignment  of a  lease  or
                  sub-lease  of any real or personal  property  in the  ordinary
                  course of business, (g) foreclosures on assets, (h) pledges of
                  assets or stock by the  Corporation  or any of its  Restricted
                  Subsidiaries  otherwise  permitted  under this  Certificate of
                  Designations,  including  such pledges  securing  Indebtedness
                  under the Newcourt Facility or under the Lucent Facility,  (i)
                  the issuance of the Warrants to Newcourt Finance and Lucent by
                  the  Corporation  and  (j) the  exercise  of the  Warrants  by
                  Newcourt  Finance and Lucent and the  exercise of common stock
                  warrants by Newcourt  Finance in respect of KMC  Telecom,  (k)
                  the issuance of the Preferred Stock Warrants to First Union by
                  the  Corporation,  and (l) the exercise of the Preferred Stock
                  Warrants by First Union.

                  "Average  Life"  means,  at any  date  of  determination  with
                  respect  to  any  debt  security,  the  quotient  obtained  by
                  dividing  (i) the sum of the  products  of (a) the  number  of
                  years  from  such date of  determination  to the dates of each
                  successive  scheduled  principal payment of such debt security
                  and (b) the amount of such  principal  payment by (ii) the sum
                  of all such principal payments.

                  "Board  of  Directors"  means the  Board of  Directors  of the
                  Corporation.

                  "Board Resolution" means a copy of a resolution,  certified by
                  the  Secretary or Assistant  Secretary of the  Corporation  as
                  required by the context to have been duly adopted by the Board
                  of Directors and to be in full force and effect on the date of
                  such certification, and delivered to the Transfer Agent.

                  "Business  Day" means a day other than a  Saturday,  Sunday or
                  other  day on which  commercial  banks  in New  York  City are
                  authorized or required by law to close.

                  "Capital Stock" means, with respect to any Person, any and all
                  shares,   interests,   participations   or  other  equivalents
                  (however  designated,  whether voting or non-voting) in equity
                  of such  Person,  whether  outstanding  on the Closing Date or
                  issued thereafter,  including,  without limitation, all Common
                  Stock,  Preferred  Stock  (including  the  Series E  Preferred
                  Stock),  partnership  or  membership  interests  and any other
                  right to  receive a share of the  profits  and  losses  of, or
                  distributions of assets of, the issuing Person.

                  "Capitalized Lease" means, as applied to any Person, any lease
                  of any property (whether real, personal or mixed) of which the
                  discounted  present  value of the rental  obligations  of such
                  Person as lessee,  in conformity  with GAAP, is required to be
                  capitalized on the balance sheet of such Person.



                                       4
<PAGE>

                  "Capitalized  Lease  Obligations"  means  the  amount  of  the
                  liability in respect of a Capitalized Lease that would at such
                  time  be  required  to  be  capitalized  and  reflected  as  a
                  liability on a balance sheet prepared in accordance with GAAP.

                  "Change  of  Control"  means  such time as (i) a  "person"  or
                  "group"  (within the meaning of Sections 13(d) and 14(d)(2) of
                  the Exchange Act) becomes the ultimate  "beneficial owner" (as
                  defined in Rule 13d-3 under the Exchange Act) of more than 50%
                  of  the  total  voting  power  of  the  Voting  Stock  of  the
                  Corporation  on a  fully  diluted  basis  and  such  ownership
                  represents a greater  percentage  of the total voting power of
                  the Voting Stock of the Corporation, on a fully diluted basis,
                  than is held by the  Existing  Stockholders  on such date;  or
                  (ii)  individuals who on the Closing Date constitute the Board
                  of Directors  (together with any new directors  whose election
                  by the Board of Directors or whose  nomination by the Board of
                  Directors for election by the  Corporation's  stockholders was
                  approved  by a vote of at least a majority  of the  members of
                  the Board of Directors  then in office who either were members
                  of the  Board  of  Directors  on the  Closing  Date  or  whose
                  election  or   nomination   for  election  was  so  previously
                  approved) cease for any reason to constitute a majority of the
                  members of the Board of Directors then in office.

                  "Closing Date" means February 4, 1999.

                  "Commission" means the Securities and Exchange  Commission and
                  any successor agency having similar powers.

                  "Common  Stock"  means the  Common  Stock,  par value $.01 per
                  share,  of the Corporation and any other class of common stock
                  hereafter authorized by the Corporation from time to time.

                  "Consolidated   EBITDA"  means,   for  any  period,   Adjusted
                  Consolidated  Net Income for such period  plus,  to the extent
                  such  amount  was  deducted  in   calculating   such  Adjusted
                  Consolidated Net Income,  (i) Consolidated  Interest  Expense,
                  (ii) income taxes (other than income taxes (either positive or
                  negative)  attributable  to  extraordinary  and  non-recurring
                  gains  or  losses  or  sales of  assets),  (iii)  depreciation
                  expense,  (iv) amortization expense and (v) all other non-cash
                  items reducing  Adjusted  Consolidated  Net Income (other than
                  items that will require cash payments and for which an accrual
                  or reserve is, or is required by GAAP to be,  made),  less all
                  non-cash  items  increasing  (or,  in  the  case  of  a  loss,
                  decreasing) Adjusted Consolidated Net Income, determined, with
                  respect to clauses  (ii),  (iii) and (iv),  on a  consolidated
                  basis for the Corporation  and its Restricted  Subsidiaries in
                  conformity  with  GAAP;   PROVIDED  that,  if  any  Restricted
                  Subsidiary  is  not  a  Wholly  Owned  Restricted  Subsidiary,
                  Consolidated  EBITDA  shall  be  reduced  (to the  extent  not


                                       5
<PAGE>

                  otherwise  reduced in accordance with GAAP) by an amount equal
                  to (A) the  amount of the  Adjusted  Consolidated  Net  Income
                  attributable to such Restricted  Subsidiary  multiplied by (B)
                  the  percentage  ownership  interest  in the  income  of  such
                  Restricted Subsidiary not owned on the last day of such period
                  by the Corporation or any of its Restricted Subsidiaries.

                  "Consolidated  Interest  Expense" means,  for any period,  the
                  aggregate amount (without  duplication) of interest in respect
                  of Indebtedness (including,  without limitation,  amortization
                  of  original  issue  discount  on  any  Indebtedness  and  the
                  interest   portion  of  any   deferred   payment   obligation,
                  calculated in accordance with the effective interest method of
                  accounting;  all  commissions,  discounts  and other  fees and
                  charges  owed with  respect to letters of credit and  bankers'
                  acceptance  financing;  the net costs associated with Interest
                  Rate  Agreements;  and  Indebtedness  that  is  Guaranteed  or
                  secured  by  the   Corporation   or  any  of  its   Restricted
                  Subsidiaries) and the interest  component of Capitalized Lease
                  Obligations  paid,  accrued or  scheduled  to be paid or to be
                  accrued by the  Corporation  and its  Restricted  Subsidiaries
                  during such period; EXCLUDING, HOWEVER, (i) any amount of such
                  interest  of any  Restricted  Subsidiary  if the net income of
                  such  Restricted  Subsidiary is excluded in the calculation of
                  Adjusted  Consolidated  Net Income pursuant to clause (iii) of
                  the definition thereof (but only in the same proportion as the
                  net income of such Restricted  Subsidiary is excluded from the
                  calculation of Adjusted  Consolidated  Net Income  pursuant to
                  clause (iii) of the definition thereof) and (ii) any premiums,
                  fees and expenses (and any  amortization  thereof)  payable in
                  connection with the Lucent Facility, the Newcourt Facility and
                  the  offering  of the Series E Preferred  Stock,  the Series F
                  Preferred  Stock  and  the  Senior  Discount  Notes,   all  as
                  determined  on  a  consolidated  basis  (without  taking  into
                  account Unrestricted Subsidiaries) in conformity with GAAP.

                  "Consolidated  Leverage Ratio" means, on any Transaction Date,
                  the ratio of (i) the aggregate  amount of  Indebtedness of the
                  Corporation and its Restricted  Subsidiaries on a consolidated
                  basis  outstanding  on  such  Transaction  Date  to  (ii)  the
                  aggregate  amount  of  Consolidated  EBITDA  for the then most
                  recent four fiscal quarters for which financial  statements of
                  the Corporation have been provided to the Transfer Agent (such
                  four fiscal quarter  period being the "Four Quarter  Period");
                  PROVIDED that, in making the foregoing calculation,  PRO FORMA
                  effect shall be given to the following events which occur from
                  the  beginning  of  the  Four  Quarter   Period   through  the
                  Transaction Date (the "Reference Period"):  (i) the Incurrence
                  of the  Indebtedness  with respect to which the computation is
                  being  made and (if  applicable)  the  application  of the net
                  proceeds therefrom, including to refinance other Indebtedness,
                  as if such  Indebtedness was incurred,  and the application of
                  such proceeds  occurred,  at the beginning of the Four Quarter
                  Period;  (ii) the  Incurrence,  repayment or retirement of any
                  other  Indebtedness  by the  Corporation  and  its  Restricted
                  Subsidiaries since the first day of the Four Quarter Period as
                  if such  Indebtedness  was incurred,  repaid or retired at the


                                       6
<PAGE>

                  beginning  of the Four  Quarter  Period;  (iii) in the case of
                  Acquired  Indebtedness,  the related  acquisition,  as if such
                  acquisition  occurred  at the  beginning  of the Four  Quarter
                  Period; (iv) any acquisition or disposition by the Corporation
                  and its  Restricted  Subsidiaries  of any  corporation  or any
                  business or any assets out of the ordinary course of business,
                  whether by merger, stock purchase or sale or asset purchase or
                  sale or any related  repayment of  Indebtedness,  in each case
                  since the first day of the Four Quarter Period,  assuming such
                  acquisition or disposition  had been  consummated on the first
                  day of the Four  Quarter  Period  and after  giving  PRO FORMA
                  effect to net cost  savings  that the  Corporation  reasonably
                  believes  in good faith  could have been  achieved  during the
                  Four  Quarter  Period  as a  result  of  such  acquisition  or
                  disposition  (PROVIDED  that both (A) such cost  savings  were
                  identified   and   quantified  in  an  Officers'   Certificate
                  delivered   to  the   Transfer   Agent  at  the  time  of  the
                  consummation  of the  acquisition or disposition  and (B) with
                  respect to each acquisition or disposition  completed prior to
                  the 90th day  preceding  such date of  determination,  actions
                  were commenced or initiated by the Corporation  within 90 days
                  of such acquisition or disposition to effect such cost savings
                  identified in such Officers'  Certificate  and with respect to
                  any  other   acquisition   or   disposition,   such  Officers'
                  Certificate  sets forth the specific  steps to be taken within
                  the  90  days  after  such   acquisition   or  disposition  to
                  accomplish such cost savings);  and PROVIDED  FURTHER that (x)
                  in making such computation,  the Consolidated Interest Expense
                  attributable to interest on any Indebtedness computed on a PRO
                  FORMA basis and (A) bearing a floating  interest rate shall be
                  computed  as if the rate in effect on the date of  computation
                  had been the  applicable  rate for the  entire  period and (B)
                  which was not  outstanding  during  the  period  for which the
                  computation  is being made but which  bears,  at the option of
                  the Corporation, a fixed or floating rate of interest shall be
                  computed by applying, at the option of the Corporation, either
                  the  fixed  or   floating   rate,   and  (y)  in  making  such
                  computation,   the   Consolidated   Interest  Expense  of  the
                  Corporation attributable to interest on any Indebtedness under
                  a  revolving  credit  facility  computed  on a PRO FORMA basis
                  shall be  computed  based  upon the PRO  FORMA  average  daily
                  balance of such Indebtedness during the applicable period; and
                  (v) the  occurrence of any of the events  described in clauses
                  (i)-(iv)  above by any  Person  that has  become a  Restricted
                  Subsidiary or has been merged with or into the  Corporation or
                  any Restricted Subsidiary during such Reference Period.

                  "Consolidated  Net Worth" means, at any date of determination,
                  stockholders'  equity  as  set  forth  on  the  most  recently
                  available  quarterly or annual  consolidated  balance sheet of
                  the Corporation and its Restricted  Subsidiaries  (which shall
                  be as of a date  not  more  than 90 days  prior to the date of
                  such  computation,  and  which  shall  not take  into  account
                  Unrestricted  Subsidiaries),  less any amounts attributable to
                  Disqualified Stock or any equity security  convertible into or
                  exchangeable for Indebtedness,  the cost of treasury stock and
                  the principal  amount of any promissory  notes receivable from
                  the sale of the Capital Stock of the Corporation or any of its


                                       7
<PAGE>

                  Restricted  Subsidiaries,   each  item  to  be  determined  in
                  conformity   with  GAAP  (excluding  the  effects  of  foreign
                  currency  exchange   adjustments  under  Financial  Accounting
                  Standards  Board Statement of Financial  Accounting  Standards
                  No. 52).

                  "Corporation"  means KMC Telecom  Holdings,  Inc.,  a Delaware
                  corporation.

                  "Currency  Agreement"  means any  foreign  exchange  contract,
                  currency  swap   agreement  or  other  similar   agreement  or
                  arrangement.

                  "Disqualified  Stock"  means any  class or  series of  Capital
                  Stock of any  Person  that by its  terms or  otherwise  is (i)
                  required  to be  redeemed  prior to the  Mandatory  Redemption
                  Date,  (ii)  redeemable  at the  option of the  holder of such
                  class or  series  of  Capital  Stock at any time  prior to the
                  Mandatory   Redemption  Date  or  (iii)  convertible  into  or
                  exchangeable  for Capital  Stock  referred to in clause (i) or
                  (ii) above or Indebtedness  having a scheduled  maturity prior
                  to the Mandatory  Redemption  Date;  PROVIDED that any Capital
                  Stock that  would not  constitute  Disqualified  Stock but for
                  provisions thereof giving holders thereof the right to require
                  such Person to repurchase or redeem such Capital Stock (or the
                  security for which such Capital Stock is  convertible  into or
                  exchangeable  for) upon the  occurrence  of an "asset sale" or
                  "change  of  control"   occurring   prior  to  the   Mandatory
                  Redemption Date shall not constitute Disqualified Stock if the
                  "asset sale" or "change of control"  provisions  applicable to
                  such  Capital  Stock (or the  security  for which such Capital
                  Stock is  convertible  into or  exchangeable  for) are no more
                  favorable  to the  holders  of  such  Capital  Stock  (or  the
                  security for which such Capital Stock is  convertible  into or
                  exchangeable  for) than the  provisions  contained  in Section
                  XI(F) and Article  VIII below and such  Capital  Stock (or the
                  security for which such Capital Stock is  convertible  into or
                  exchangeable for) specifically  provides that such Person will
                  not  repurchase  or redeem  any such  stock  pursuant  to such
                  provision prior to the Corporation's repurchase of such Series
                  E Preferred  Stock as are required to be repurchased  pursuant
                  to Section XI(F) and Article VIII below.

                  "Dividend Payment Date" means any Redemption Date, January 15,
                  April 15,  July 15 and  October 15 and any other date on which
                  dividends  are payable or may be paid,  as  determined  by the
                  Board of Directors.

                  "Dividend  Record Date" means,  with respect to each  Dividend
                  Payment Date, the close of business on the date set forth next
                  to such Dividend Payment Date below:

                   DIVIDEND PAYMENT DATE              DIVIDEND RECORD DATE

                  January 15                              January 1
                  April 15                                April 1
                  July 15                                 July 1
                  October 15                              October 1


                                       8
<PAGE>

or such other record date as may be  designated  by the Board of Directors  with
respect to dividends  payable on such other  Dividend  Payment  Date;  PROVIDED,
HOWEVER,  that  such  record  date may not be more than 60 days or less than ten
days prior to such Dividend Payment Date. If any scheduled  Dividend Record Date
is not a Business Day, then such Dividend  Record Date shall be the Business Day
immediately preceding such scheduled Dividend Record Date.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
                  as amended.

                  "Existing Stockholders" means Harold N. Kamine, his Affiliates
                  and Nassau.

                  "First  Union"  means First  Union  Investors,  Inc.,  a North
                  Carolina corporation.

                  "fair  market  value" means the price that would be paid in an
                  arm's-length  transaction  between  an  informed  and  willing
                  seller under no compulsion to sell and an informed and willing
                  buyer under no  compulsion to buy, as determined in good faith
                  by the  Board  of  Directors,  whose  determination  shall  be
                  conclusive if evidenced by a Board  Resolution;  PROVIDED that
                  for  purposes  of  clause  (vii) of the  second  paragraph  of
                  Section  XI(A),  (x) the fair  market  value  of any  security
                  registered  under the Exchange Act shall be the average of the
                  closing  prices,  regular  way,  of such  security  for the 20
                  consecutive  trading days  immediately  preceding  the sale of
                  Capital Stock and (y) in the event the  aggregate  fair market
                  value  of  any  other  property   (other  than  cash  or  cash
                  equivalents) received by the Corporation exceeds $100 million,
                  the fair market value of such property  shall be determined by
                  a  nationally   recognized   investment   banking  firm  or  a
                  nationally  recognized  firm having  expertise in the specific
                  area which is the subject of such  determination and set forth
                  in their  written  opinion  which  shall be  delivered  to the
                  Transfer Agent.

                  "GAAP" means generally accepted  accounting  principles in the
                  United  States of  America  as in effect as of the High  Yield
                  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.  All ratios and computations contained
                  or referred to in this  Certificate of  Designations  shall be
                  computed  in  conformity  with GAAP  applied  on a  consistent
                  basis,   except  that   calculations   made  for  purposes  of
                  determining  compliance  with the terms of the  covenants  and
                  with other  provisions  of this  Certificate  of  Designations
                  shall be made without giving effect to (i) the amortization of
                  any expenses  incurred in connection with the Lucent Facility,
                  the Newcourt  Facility,  the  offering of the Senior  Discount
                  Notes, the Series E Preferred Stock and the Series F Preferred
                  Stock and (ii) except as otherwise provided,  the amortization
                  of any amounts required or permitted by Accounting  Principles
                  Board Opinion Nos. 16 and 17.



                                       9
<PAGE>

                  "Guarantee" means any obligation,  contingent or otherwise, of
                  any   Person   directly   or   indirectly   guaranteeing   any
                  Indebtedness  of any other  Person and,  without  limiting the
                  generality  of  the  foregoing,  any  obligation,   direct  or
                  indirect,  contingent  or  otherwise,  of such  Person  (i) to
                  purchase or pay (or advance or supply  funds for the  purchase
                  or payment of such  Indebtedness of such other Person (whether
                  arising  by  virtue  of   partnership   arrangements,   or  by
                  agreements to keep-well, to purchase assets, goods, securities
                  or services  (unless such  purchase  arrangements  are on arm'
                  s-length terms and are entered into in the ordinary  course of
                  business), to take-or-pay,  or to maintain financial statement
                  conditions  or otherwise) or (ii) entered into for purposes of
                  assuring in any other manner the obligee of such  Indebtedness
                  of the payment thereof or to protect such obligee against loss
                  in respect  thereof (in whole or in part);  PROVIDED  that the
                  term   "Guarantee  "  shall  not  include   endorsements   for
                  collection or deposit in the ordinary course of business.  The
                  term "Guarantee" used as a verb has a corresponding meaning.

                  "High Yield Closing Date" means January 29, 1998.

                  "Holder"  means a  registered  holder  of  shares  of Series E
                  Preferred Stock.

                  "Incur"  means,  with respect to any  Indebtedness,  to incur,
                  create,  issue,  assume,  Guarantee or otherwise become liable
                  for or with respect to, or become responsible for, the payment
                  of, contingently or otherwise, such Indebtedness, including an
                  "Incurrence" of Acquired  Indebtedness;  PROVIDED that neither
                  the accrual of interest nor the  accretion  of original  issue
                  discount shall be considered an Incurrence of Indebtedness.

                  "Indebtedness"  means,  with respect to any Person at any date
                  of determination (without  duplication),  (i) all indebtedness
                  of such Person for borrowed  money,  (ii) all  obligations  of
                  such Person  evidenced  by bonds,  debentures,  notes or other
                  similar  instruments,  (iii) all obligations of such Person in
                  respect  of  letters  of credit or other  similar  instruments
                  (including reimbursement obligations with respect thereto, but
                  excluding  trade letters of credit),  (iv) all  obligations of
                  such Person to pay the deferred and unpaid  purchase  price of
                  property or services,  which  purchase  price is due more than
                  six months after the date of placing such  property in service
                  or taking delivery and title thereto or the completion of such
                  services,   except   Trade   Payables   and  accrued   current
                  liabilities  arising in the ordinary  course of business,  (v)
                  all  Capitalized  Lease  Obligations of such Person,  (vi) all
                  Indebtedness  referred to in clauses (i) through (v) hereof of
                  other  Persons  secured by a Lien on any asset of such Person,
                  whether or not such  Indebtedness  is assumed by such  Person;
                  PROVIDED  that the  amount of such  Indebtedness  shall be the
                  lesser of (A) the fair market value of such asset at such date
                  of  determination  and (B) the  amount  of such  Indebtedness,
                  (vii) all  Indebtedness  of other  Persons  Guaranteed by such
                  Person to the extent such  Indebtedness  is Guaranteed by such


                                       10
<PAGE>

                  Person and (viii) to the extent not otherwise included in this
                  definition, obligations under Currency Agreements and Interest
                  Rate  Agreements.  The amount of Indebtedness of any Person at
                  any date shall be the outstanding balance at such date (or, in
                  the case of a revolving credit or other similar facility,  the
                  total   amount   of   funds   outstanding   on  the   date  of
                  determination) of all  unconditional  obligations as described
                  above and, with respect to contingent obligations, the maximum
                  liability upon the occurrence of the  contingency  giving rise
                  to the obligation of the types described  above,  PROVIDED (A)
                  that the amount  outstanding  at any time of any  Indebtedness
                  issued with  original  issue  discount is the  original  issue
                  price of such  Indebtedness,  (B) that money  borrowed and set
                  aside at the time of the  Incurrence  of any  Indebtedness  in
                  order  to  prefund  the  payment  of  the   interest  on  such
                  Indebtedness  shall not be deemed to be "Indebtedness" and (C)
                  that Indebtedness shall not include any liability for federal,
                  state, local or other taxes.

                  "Interest Rate  Agreement"  means any interest rate protection
                  agreement,  interest  rate  future  agreement,  interest  rate
                  option agreement,  interest rate swap agreement, interest rate
                  cap agreement,  interest rate collar agreement,  interest rate
                  hedge  agreement,  option or future  contract or other similar
                  agreement or arrangement.

                  "Investment"   means,   with   respect  to  any  Person,   all
                  investments by such Person in other Persons in the form of any
                  direct or indirect advance,  loan or other extension of credit
                  (including, without limitation, by way of Guarantee or similar
                  arrangement;  but  excluding  advances  to  customers  in  the
                  ordinary course of business that are, in conformity with GAAP,
                  recorded as accounts  receivable  on the balance  sheet of the
                  Corporation or its Restricted  Subsidiaries  and  commissions,
                  travel and similar  advances to officers and employees made in
                  the ordinary  course of business) or capital  contribution  to
                  (by means of any transfer of cash or other  property to others
                  or any payment for property or services for the account or use
                  of others),  or any purchase or  acquisition of Capital Stock,
                  bonds,  notes,  debentures or other similar instruments issued
                  by, such other Person and shall include (i) the designation of
                  a Restricted Subsidiary as an Unrestricted Subsidiary and (ii)
                  the fair  market  value of the  Capital  Stock  (or any  other
                  Investment),  held by the Corporation or any of its Restricted
                  Subsidiaries,  of (or in) any  Person  that has ceased to be a
                  Restricted  Subsidiary,   including,  without  limitation,  by
                  reason of any transaction permitted by clause (iii) of Section
                  XI(D);  PROVIDED that the fair market value of the  Investment
                  remaining  in any Person  that has  ceased to be a  Restricted
                  Subsidiary   shall  not   exceed  the   aggregate   amount  of
                  Investments  previously made in such Person valued at the time
                  such  Investments  were  made less the net  reduction  of such
                  Investments.  For purposes of the definition of  "Unrestricted
                  Subsidiary" and Section XI(B), (i) "Investment"  shall include
                  the fair market value of the assets (net of liabilities (other
                  than  liabilities to the  Corporation or any of its Restricted
                  Subsidiaries))  of any Restricted  Subsidiary at the time that
                  such  Restricted  Subsidiary  is  designated  an  Unrestricted


                                       11
<PAGE>

                  Subsidiary,  (ii) the fair market  value of the assets (net of
                  liabilities  (other than liabilities to the Corporation or any
                  of  its   Restricted   Subsidiaries))   of  any   Unrestricted
                  Subsidiary  at the time that such  Unrestricted  Subsidiary is
                  designated  a  Restricted  Subsidiary  shall be  considered  a
                  reduction in  outstanding  Investments  and (iii) any property
                  transferred  to or from an  Unrestricted  Subsidiary  shall be
                  valued at its fair market value at the time of such transfer.

                  "Investment  Grade  Securities" means (i) securities issued or
                  directly and fully  guaranteed or insured by the United States
                  government or any agency or instrumentality thereof, (ii) debt
                  securities  or  debt  instruments  with a  rating  of BBB + or
                  higher by S&P or Baal or higher by Moody's  or the  equivalent
                  of such rating by such rating  organization,  or, if no rating
                  by S&P or Moody's then exists,  the  equivalent of such rating
                  by any other nationally  recognized  securities rating agency,
                  but excluding any debt securities or instruments  constituting
                  loans or advances among the Corporation and its  Subsidiaries,
                  and (iii)  investment in any fund that invests  exclusively in
                  investments  of the type  described  in  clauses  (i) and (ii)
                  which  fund may  also  hold  cash  pending  investment  and/or
                  distribution.

                  "Junior  Securities"  has the meaning  provided in Article III
                  hereof.

                  "KMC Telecom"  means KMC Telecom Inc, a Delaware  corporation.

                  "KMC  Telecom  II" means KMC  Telecom  II,  Inc.,  a  Delaware
                  corporation.

                  "KMC  Telecom  III" means KMC Telecom  III,  Inc.,  a Delaware
                  corporation.

                  "Lien"  means  any  mortgage,   pledge,   security   interest,
                  encumbrance,  lien or charge of any kind  (including,  without
                  limitation,  any  conditional  sale or other  title  retention
                  agreement or lease in the nature  thereof or any  agreement to
                  give any security interest).

                  "Lucent"   means   Lucent   Technologies   Inc.,   a  Delaware
                  corporation.

                  "Lucent Facility" means the vendor financing  facility between
                  Lucent,  KMC  Telecom  III and KMC  Telecom  Leasing  III LLC,
                  providing for  aggregate  borrowings of up to $600 million and
                  maturing  on the  eighth  anniversary  of the  closing of such
                  credit facility.

                  "Mandatory Redemption Date" means February 1, 2011.

                  "Moody's"  means  Moody's  Investors  Service,  Inc.  and  its
                  successors.

                  "Nassau"  means Nassau  Capital  Partners L.P., NAS Partners I
                  L.L.C. or their respective successors, and their Affiliates.



                                       12
<PAGE>

                  "Net Cash Proceeds"  means (a) with respect to any Asset Sale,
                  the  proceeds  of such  Asset Sale in the form of cash or cash
                  equivalents, including payments in respect of deferred payment
                  obligations (to the extent corresponding to the principal, but
                  not interest,  component  thereof when received in the form of
                  cash  or  cash   equivalents   (except  to  the  extent   such
                  obligations   are  financed  or  sold  with  recourse  to  the
                  Corporation  or any Restricted  Subsidiary)  and proceeds from
                  the  conversion of other  property  received when converted to
                  cash or cash equivalents, net of (i) brokerage commissions and
                  other  commissions,  fees  and  expenses  (including  fees and
                  expenses  of  counsel,  accountants  and  investment  bankers)
                  related  to  such  Asset  Sale  and  any  relocation  expenses
                  incurred as a result  thereof,  (ii)  provisions for all taxes
                  (whether  or not  such  taxes  will  actually  be  paid or are
                  payable) as a result of such Asset Sale without  regard to the
                  consolidated  results of operations of the Corporation and its
                  Restricted Subsidiaries, taken as a whole, (iii) payments made
                  to repay  Indebtedness or any other obligation  outstanding at
                  the time of such  Asset  Sale that  either (A) is secured by a
                  Lien on the  property  or assets sold or (B) is required to be
                  paid as a result of such sale and (iv) appropriate  amounts to
                  be provided by the Corporation or any Restricted Subsidiary as
                  a reserve against any  liabilities  associated with such Asset
                  Sale,  including,   without  limitation,   pension  and  other
                  post-employment  benefit  liabilities,  liabilities related to
                  environmental    matters    and    liabilities    under    any
                  indemnification  obligations  associated with such Asset Sale,
                  all as  determined  in  conformity  with  GAAP,  and (b)  with
                  respect to any issuance or sale of Capital Stock, the proceeds
                  of  such  issuance  or  sale  in the  form  of  cash  or  cash
                  equivalents, including payments in respect of deferred payment
                  obligations (to the extent corresponding to the principal, but
                  not interest,  component thereof) when received in the form of
                  cash  or  cash   equivalents   (except  to  the  extent   such
                  obligations   are  financed  or  sold  with  recourse  to  the
                  Corporation  or any Restricted  Subsidiary)  and proceeds from
                  the  conversion of other  property  received when converted to
                  cash or cash equivalents, net of attorney's fees, accountants'
                  fees,  underwriters' or placement  agents' fees,  discounts or
                  commissions and brokerage,  consultant and other fees incurred
                  in connection with such issuance or sale and net of taxes paid
                  or payable as a result thereof.

                  "Newcourt  Facility"  means  the Loan and  Security  Agreement
                  dated as of December 22, 1998 among KMC  Telecom,  KMC Telecom
                  II, and  Newcourt  Finance and any other  lenders or borrowers
                  from  time  to  time  party  thereto,   collateral  documents,
                  instruments,  and agreements executed in connection  therewith
                  and any amendments,  supplements,  modifications,  extensions,
                  renewals, restatements, refinancings or refundings thereof.

                  "Newcourt   Finance"   means   Newcourt   Commercial   Finance
                  Corporation,   formerly  known  as  AT&T  Commercial   Finance
                  Corporation, a Delaware corporation, and its successors.



                                       13
<PAGE>

                  "Offer  to  Purchase"  means  an offer  to  purchase  Series E
                  Preferred Stock by the Corporation from the Holders  commenced
                  by  mailing a notice  to the  Transfer  Agent and each  Holder
                  stating: (i) the covenant pursuant to which the offer is being
                  made and that all Series E Preferred  Stock  validly  tendered
                  will be accepted  for  payment on a PRO RATA  basis,  together
                  with any other Parity  Securities  subject to similar offer to
                  purchase  provisions;  (ii) the purchase price and the date of
                  purchase  (which  shall be a Business  Day no earlier  than 30
                  days nor  later  than 60 days  from the date  such  notice  is
                  mailed)  (the  "Payment  Date");   (iii)  that  any  Series  E
                  Preferred Stock not tendered will continue to accrue dividends
                  pursuant  to its  terms;  (iv) that,  unless  the  Corporation
                  defaults in the payment of the  purchase  price,  any Series E
                  Preferred Stock accepted for payment  pursuant to the Offer to
                  Purchase  shall  cease to  accrue  dividends  on and after the
                  Payment Date;  (v) that each Holder  electing to have Series E
                  Preferred  Stock  purchased  pursuant to the Offer to Purchase
                  will be required to  surrender  to the  Transfer  Agent at the
                  address specified in the notice prior to the close of business
                  on the Business  Day  immediately  preceding  the payment date
                  such holder's certificate representing such Series E Preferred
                  Stock,  together with the form entitled  "Option of the Holder
                  to  Elect  Purchase"  appearing  on the  reverse  side of such
                  Series E  Preferred  Stock  certificate  completed,  (vi) that
                  Holders  will be entitled to  withdraw  their  election if the
                  Paying Agent receives, not later than the close of business on
                  the third Business Day immediately preceding the Payment Date,
                  a telegram, facsimile transmission or letter setting forth the
                  name of such Holder,  the  liquidation  preference of Series E
                  Preferred  Stock  delivered for purchase and a statement  that
                  such Holder is withdrawing  its election to have such Series E
                  Preferred Stock purchased; and (vii) that Holders whose Series
                  E  Preferred  Stock is being  purchased  only in part  will be
                  issued  new  Series E  Preferred  Stock  equal in  liquidation
                  preference  to  the  unpurchased   portion  of  the  Series  E
                  Preferred  Stock   surrendered.   On  the  Payment  Date,  the
                  Corporation  shall (i) accept for  payment on a PRO RATA basis
                  Series E  Preferred  Stock,  together  with any  other  Parity
                  Securities subject to similar offer to purchase provisions, or
                  portions  thereof  tendered  pursuant to an Offer to Purchase;
                  (ii) deposit with the Paying Agent money sufficient to pay the
                  purchase price of all Series E Preferred Stock,  together with
                  any  other  Parity  Securities  subject  to  similar  offer to
                  purchase  provisions,  or portions  thereof so  accepted;  and
                  (iii) deliver, or cause to be delivered, to the Transfer Agent
                  all Series E Preferred  Stock or portions  thereof so accepted
                  together with an Officers'  Certificate  specifying  shares of
                  the Series E Preferred Stock or portions  thereof accepted for
                  payment by the  Corporation.  The Paying Agent shall  promptly
                  mail to the  Holders of Series E  Preferred  Stock so accepted
                  payment  in an amount  equal to the  purchase  price,  and the
                  Transfer  Agent shall promptly  authenticate  and mail to such
                  Holders  new  shares  of  Series E  Preferred  Stock  equal in
                  liquidation  preference  to  any  unpurchased  portion  of the
                  Series E Preferred Stock  surrendered.  The  Corporation  will
                  publicly  announce the results of an Offer to Purchase as soon
                  as  practicable  after the Payment  Date.  The Transfer  Agent
                  shall act as the Paying  Agent for an Offer to  Purchase.  The


                                       14
<PAGE>

                  Corporation will comply with Rule 14e-1 under the Exchange Act
                  and any other  securities laws and  regulations  thereunder to
                  the extent such laws and regulations  are  applicable,  in the
                  event that the Corporation is required to repurchase  Series E
                  Preferred Stock pursuant to an Offer to Purchase.

                  "Officer"  means  with  respect  to the  Corporation,  (i) the
                  Chairman of the Board,  the Vice  Chairman  of the Board,  the
                  President,  the Chief Executive  Officer,  the Chief Financial
                  Officer or a Vice  president,  and (ii) the  Treasurer  or any
                  Assistant  Treasurer,   or  the  Secretary  or  any  Assistant
                  Secretary of the Corporation.

                  "Officers  Certificate"  means  a  certificate  signed  by one
                  Officer listed in clause (i) of the definition thereof and one
                  Officer  listed  in  clause  (ii) of the  definition  thereof;
                  PROVIDED,  HOWEVER, that any such certificate may be signed by
                  any two of the Officers listed in clause (i) of the definition
                  thereof  in lieu of being  signed  by one  Officer  listed  in
                  clause (i) of the definition thereof and one Officer listed in
                  clause (ii) of the definition thereof.

                  "Parity  Securities" has the meaning  specified in Article III
                  hereof.

                  "Permitted   Investment"   means  (i)  an  Investment  in  the
                  Corporation or a Restricted Subsidiary or a Person which will,
                  upon  the  making  of such  Investment,  become  a  Restricted
                  Subsidiary  or be  merged  or  consolidated  with  or  into or
                  transfer or convey all or substantially all its assets to, the
                  Corporation  or a Restricted  Subsidiary;  PROVIDED  that such
                  person's   primary   business   is   related,   ancillary   or
                  complementary  to the  businesses of the  Corporation  and its
                  Restricted  Subsidiaries on the date of such Investment;  (ii)
                  Temporary Cash  Investments and Investment  Grade  Securities;
                  (iii)  payroll,  travel and similar  advances to cover matters
                  that are expected at the time of such  advances  ultimately to
                  be treated as expenses in accordance  with GAAP and reasonable
                  advances  to  sales   representatives;   (iv)  any  Investment
                  acquired  by  the   Corporation   or  any  of  its  Restricted
                  Subsidiaries  (x) in  exchange  for any  other  Investment  or
                  accounts  receivable  held  by the  Corporation  or  any  such
                  Restricted  Subsidiary in connection  with or as a result of a
                  bankruptcy, workout, reorganization or recapitalization of the
                  issuer of such other Investment or accounts  receivable or (y)
                  as a result of a foreclosure by the  Corporation or any of its
                  Restricted Subsidiaries with respect to any secured Investment
                  or  other  transfer  of  title  with  respect  to any  secured
                  Investment  in  default;   (v)  any  Investment   acquired  in
                  consideration  for the  issuance of Junior  Securities  or the
                  proceeds of the  issuance of Junior  Securities  to the extent
                  such amounts have not been previously  applied to a Restricted
                  Payment pursuant to clause  (iii)(B)(2) of the first paragraph
                  of Section  XI(B) or clause  (ii) of the second  paragraph  of
                  Section   XI(B)  or  used  to  support   the   Incurrence   of
                  Indebtedness  pursuant  to clause  (viii) in  accordance  with
                  Section   XI(A)  and   Investments   acquired   as  a  capital
                  contribution;  (vi)  Guarantees  permitted  by Section  XI(A);
                  (vii) loans or advances to employees of the Corporation or any
                  Restricted  Subsidiary that do not in the aggregate  exceed at


                                       15
<PAGE>

                  any  one  time  outstanding  $5.0  million;   (viii)  Currency
                  Agreements  and  Interest  Rate  Agreements   permitted  under
                  Section  XI(A);   (ix)   Investments   in  prepaid   expenses,
                  negotiable  instruments held for collection and lease, utility
                  and  workers'  compensation,  performance  and  other  similar
                  deposits;   (x)   Investments  in  debt  securities  or  other
                  evidences of Indebtedness that are issued by companies engaged
                  in the  Telecommunications  Business;  PROVIDED that when each
                  Investment  pursuant to this clause (x) is made, the aggregate
                  amount of Investments  outstanding  under this clause (x) does
                  not  exceed  $3.0  million;  (xi)  Strategic  Investments  and
                  Investments  in Permitted  Joint  Ventures in an amount not to
                  exceed  $20.0  million at any one time  outstanding;  (xii) an
                  Investment  in any Person  the  primary  business  of which is
                  related,  ancillary  or  complementary  to the business of the
                  Corporation   and  its   Subsidiaries  on  the  date  of  such
                  Investment  in an amount  not to exceed at any time in respect
                  of all  such  Investments  outstanding  the sum of (x)  $200.0
                  million plus (y) 40% of the Corporation's Consolidated EBITDA,
                  if  positive,   for  the  immediately  preceding  four  fiscal
                  quarters (valued in each case as provided in the definition of
                  "Investments");  (xiii) securities received in connection with
                  Asset Sales to the extent constituting non-cash  consideration
                  permitted  under Section  XI(F);  and (xiv)  Investments in an
                  amount not to exceed $50.0 million at any time outstanding.

                  "Permitted Joint Venture" means any Unrestricted Subsidiary or
                  any  other  Person in which the  Corporation  or a  Restricted
                  Subsidiary owns, directly or indirectly, an ownership interest
                  (other  than  a  Restricted   Subsidiary)  and  whose  primary
                  business  is  related,   ancillary  or  complementary  to  the
                  businesses of the Corporation and its Restricted  Subsidiaries
                  at the time of determination.

                  "Person"  means  any  individual,  partnership,   corporation,
                  business  trust,   joint  stock  company,   limited  liability
                  company,  trust,  unincorporated  association,  joint venture,
                  governmental authority or other entity of whatever nature.

                  "Preferred  Stock"  means  any  and  all  shares,   interests,
                  participations  or  other  equivalents  of  the  Corporation's
                  preferred stock, including any such security with any priority
                  over  Common   Stock  with   respect  to   dividends  or  upon
                  liquidation or similar events.

                  "Preferred  Stock  Warrants"  means any  warrants  that may be
                  issued under the Preferred Stock Warrant Agreement.

                  "Preferred   Stock  Warrant   Agreement"   means  the  Warrant
                  Agreement,  dated as of April 30, 1999, among the Corporation,
                  First Union and The Chase Manhattan Bank as warrant agent.



                                       16
<PAGE>

                  "Public Equity Offering" means an underwritten  primary public
                  offering  of Common  Stock of the  Corporation  pursuant to an
                  effective registration statement under the Securities Act.

                  "Purchase  Agreement" means the Securities  Purchase Agreement
                  dated as of February 4, 1999 among the  Corporation,  Newcourt
                  Finance and Lucent.

                  "Redemption  Date",  when used with  respect  to any  Series E
                  Preferred Stock to be redeemed,  means the date fixed for such
                  redemption by or pursuant to the terms of this  Certificate of
                  Designations.

                  "Redemption  Price" means, with respect to any share of Series
                  E Preferred  Stock,  the price at which such share of Series E
                  Preferred  Stock is to be  redeemed  pursuant  to the terms of
                  this Certificate of Designations.

                  "Regulated  Holder"  has the  meaning  provided in Article VII
                  (B)(i).

                  "Restricted   Subsidiary"   means   any   Subsidiary   of  the
                  Corporation other than an Unrestricted Subsidiary.

                  "Securities  Act" means the Securities Act of 1933, as amended
                  from time to time, or any successor statute.

                  "Senior  Discount Note Indenture" means the Indenture dated as
                  of January 29,  1998  between  the  Corporation  and The Chase
                  Manhattan Bank, relating to the Senior Discount Notes, as such
                  Indenture  may be amended,  supplemented,  extended,  renewed,
                  replaced or otherwise modified from time to time.

                  "Senior  Discount  Notes"  means the 12 1/2 % Senior  Discount
                  Notes due 2008  issued  by the  Corporation  under the  Senior
                  Discount Note Indenture.

                  "Senior  Securities"  has the meaning  provided in Article III
                  hereof.

                  "Shareholders   Agreement"  means  the  Amended  and  Restated
                  Stockholders  Agreement  among  KMC  Telecom  Holdings,  Inc.,
                  Nassau Capital Partners L.P., NAS Partners I L.L.C., Harold N.
                  Kamine, KMC Telecommunications  L.P., AT&T Credit Corporation,
                  General  Electric Capital  Corporation,  Corestates Bank, N.A.
                  and Corestates  Holdings,  Inc., dated as of October 31, 1997,
                  as amended by Amendment No.1,  dated as of January 7, 1998, to
                  the Amended and Restated Stockholders  Agreement,  dated as of
                  October  31,  1997,  Amendment  No. 2, dated as of January 26,
                  1998,  to the Amended  and  Restated  Stockholders  Agreement,
                  dated as of October  31,  1997,  Amendment  No. 3, dated as of
                  February  25, 1998,  to the Amended and Restated  Stockholders
                  Agreement,  dated as of October  31,  1997,  Amendment  No. 4,
                  dated as of  February 4, 1999,  to the  Amended  and  Restated
                  Stockholders   Agreement,   dated  as  of  October  31,  1997,


                                       17
<PAGE>

                  Amendment  No. 5, dated as of April 30,  1999,  to the Amended
                  and Restated Stockholders  Agreement,  dated as of October 31,
                  1997.

                  "Significant Subsidiary" means, any Subsidiary that would be a
                  "significant   subsidiary"   as   defined   in  17  CFR   Part
                  210.1-01(w),  promulgated  pursuant to the Securities  Act, as
                  such regulation is in effect on the date hereof.

                  "S&P" means Standard & Poor's Ratings Services,  a Division of
                  McGraw Hill, Inc., and its successors.

                  "Stated Maturity" means (i) with respect to any debt security,
                  the date  specified in such debt security as the fixed date on
                  which the final installment of principal of such debt security
                  is due and  payable  and (ii) with  respect  to any  scheduled
                  installment  of principal of or interest on any debt security,
                  the date  specified in such debt security as the fixed date on
                  which such installment is due and payable.

                  "Strategic  Investments"  means (a) Investments that the Board
                  of  Directors  has  determined  in good faith will  enable the
                  Corporation  or any of its Restricted  Subsidiaries  to obtain
                  additional  business  that it  might  not be  able  to  obtain
                  without making such Investment and (b) Investments in entities
                  the  principal  function of which is to perform  research  and
                  development  with respect to products and services that may be
                  used or useful in the  Telecommunications  Business;  PROVIDED
                  that the Corporation or one of its Restricted  Subsidiaries is
                  entitled or otherwise  reasonably expected to obtain rights to
                  such products or services as a result of such Investment.

                  "Strategic  Subordinated  Indebtedness"  means Indebtedness of
                  the  Corporation  Incurred  to finance  the  acquisition  of a
                  Person engaged in the Telecommunications  Business that by its
                  terms, or by the terms of any agreement or instrument pursuant
                  to which such  Indebtedness is  outstanding,  (i) is expressly
                  made  subordinate  in right of payment to the Senior  Discount
                  Notes and (ii) provides that no payment of principal,  premium
                  or interest  on, or any other  payment  with  respect to, such
                  Indebtedness  may be made prior to the  payment in full of all
                  of the Corporation's  obligations under the Series E Preferred
                  Stock  and the  Senior  Discount  Notes;  PROVIDED  that  such
                  Indebtedness  may  provide  for and be repaid at any time from
                  the  proceeds  of  the  sale  of  Capital  Stock  (other  than
                  Disqualified Stock) of the Corporation after the Incurrence of
                  such Indebtedness.

                  "Subsidiary"  means,  with  respect  to any  Person,  (i)  any
                  corporation, association, or other business entity (other than
                  a  partnership)  of which  more than 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  is at the time of
                  determination owned or controlled,  directly or indirectly, by


                                       18
<PAGE>

                  such Person or one or more of the other  Subsidiaries  of such
                  Person  or a  combination  thereof  and (ii) any  partnership,
                  joint venture,  limited liability company or similar entity of
                  which (x) more than 50% of the capital accounts,  distribution
                  rights,  total  equity  and  voting  interests  or  general or
                  limited  partnership  interests,  as applicable,  are owned or
                  controlled,  directly or indirectly,  by such Person or one or
                  more of the other Subsidiaries of such Person or a combination
                  thereof whether in the form of membership, general, special or
                  limited  partnership  or otherwise  and (y) such Person or any
                  Wholly Owned Restricted Subsidiary of such Person is a general
                  partner or otherwise controls such entity.

                  "Telecommunications Business" means the development, ownership
                  or operation of one or more telephone,  telecommunications  or
                  information   systems   or   the   provision   of   telephony,
                  telecommunications or information services (including, without
                  limitation,  any voice, video  transmission,  data or Internet
                  services)   and  any  related,   ancillary  or   complementary
                  business.

                  "Temporary Cash  Investment"  means any of the following:  (i)
                  direct  obligations  of the  United  States of  America or any
                  agency  thereof  or  obligations  fully  and   unconditionally
                  guaranteed  by the  United  States of America or any agency or
                  instrumentality   thereof,   (ii)   time   deposit   accounts,
                  certificates  of deposit,  eurodollar  time deposits and money
                  market  deposits  maturing within 180 days or less of the date
                  of acquisition thereof issued by a bank or trust company which
                  is organized  under the laws of the United  States of America,
                  any state  thereof or any foreign  country  recognized  by the
                  United States of America,  and which bank or trust company has
                  capital,  surplus and undivided profits  aggregating in excess
                  of $50 million (or the foreign  currency  equivalent  thereof)
                  and has  outstanding  debt which is rated "A" (or such similar
                  equivalent  rating)  or  higher  by at  least  one  nationally
                  recognized statistical rating organization (as defined in Rule
                  436  under  the  Securities  Act)  or any  money  market  fund
                  sponsored  by  a  registered  broker  dealer  or  mutual  fund
                  distributor,  (iii) repurchase  obligations with a term of not
                  more  than 30 days  for  underlying  securities  of the  types
                  described  in clauses (i) and (ii) above  entered  into with a
                  bank  meeting  the  qualifications  described  in clause  (ii)
                  above, (iv) commercial  paper,  maturing not more than 90 days
                  after the date of acquisition,  issued by a corporation (other
                  than  an  Affiliate  of  the  Corporation)  organized  and  in
                  existence under the laws of the United States of America,  any
                  state thereof or any foreign country  recognized by the United
                  States  of  America  with a rating at the time as of which any
                  investment  therein is made of "P-i"(or  higher)  according to
                  Moody's or "A-i"(or  higher)  according to S&P, (v) securities
                  with  maturities  of six  months  or  less  from  the  date of
                  acquisition issued or fully and unconditionally  guaranteed by
                  any state,  commonwealth  or territory of the United States of
                  America,  or by any political  subdivision or taxing authority
                  thereof,  and rated at least "A" by S&P or  Moody's,  and (vi)
                  investment  funds  investing 95% of their assets in securities
                  of the type described in clauses (i)-(v) above.


                                       19
<PAGE>

                  "Trade  Payables"  means,  with  respect  to any  Person,  any
                  accounts  payable  or  any  other   indebtedness  or  monetary
                  obligation to trade creditors  created,  assumed or Guaranteed
                  by  such  Person  or any of its  Subsidiaries  arising  in the
                  ordinary course of business in connection with the acquisition
                  of goods or services.

                  "Transaction  Date" means,  with respect to the  Incurrence of
                  any  Indebtedness  by the Corporation or any of its Restricted
                  Subsidiaries,  the date such  Indebtedness  is to be  Incurred
                  and,  with respect to any  Restricted  Payment,  the date such
                  Restricted Payment is to be made.

                  "Transfer  Agent"  means Chase  Mellon  Shareholder  Services,
                  L.L.C.

                  "Unrestricted  Subsidiary"  means  (i) any  Subsidiary  of the
                  Corporation  that  at  the  time  of  determination  shall  be
                  designated  an   Unrestricted   Subsidiary  by  the  Board  of
                  Directors  in  the  manner  provided   below;   and  (ii)  any
                  Subsidiary  of  an  Unrestricted  Subsidiary.   The  Board  of
                  Directors may designate any Restricted  Subsidiary  (including
                  any  newly   acquired  or  newly  formed   Subsidiary  of  the
                  Corporation)  to be an  Unrestricted  Subsidiary  unless  such
                  Subsidiary  owns any  Capital  Stock  of, or owns or holds any
                  Lien on any property  of, the  Corporation  or any  Restricted
                  Subsidiary; PROVIDED that (A) any Guarantee by the Corporation
                  or  any  Restricted  Subsidiary  of  any  Indebtedness  of the
                  Subsidiary being so designated shall be deemed an "Incurrence"
                  of such Indebtedness and an "Investment" by the Corporation or
                  such  Restricted  Subsidiary  (or both, if  applicable) at the
                  time of such designation;  (B) either (I) the Subsidiary to be
                  so  designated  has total  assets of $1,000 or less or (II) if
                  such   Subsidiary  has  assets   greater  than  $1,000,   such
                  designation  would be  permitted  in  accordance  with Section
                  XI(B);  and (C) if applicable,  the Incurrence of Indebtedness
                  and the  Investment  referred to in clause (A) of this proviso
                  would be  permitted  in  accordance  with  Section  XI(A)  and
                  Section  XI(B).  The  Board of  Directors  may  designate  any
                  Unrestricted   Subsidiary  to  be  a  Restricted   Subsidiary;
                  PROVIDED that all Indebtedness of such Unrestricted Subsidiary
                  outstanding  immediately  after  such  designation  would,  if
                  Incurred at such time, have been permitted to be Incurred (and
                  shall be deemed to have been  Incurred)  for all  purposes  of
                  this Certificate of Designations.  Any such designation by the
                  Board of Directors shall be evidenced to the Transfer Agent by
                  promptly  filing with the  Transfer  Agent a copy of the Board
                  Resolution  giving effect to such designation and an Officers'
                  Certificate certifying that such designation complied with the
                  foregoing provisions.

                  "Voting  Stock"  means,  with  respect to any Person,  Capital
                  Stock of any class or kind ordinarily having the power to vote
                  for the  election  of  directors,  managers  or  other  voting
                  members of the governing body of such Person.



                                       20
<PAGE>

                  "Warrant  Agreement"  means the warrant  agreement,  dated the
                  Closing Date, among the Corporation,  Newcourt Finance, Lucent
                  and any  Additional  Purchaser (as described  therein) and The
                  Chase Manhattan Bank, as warrant agent.

                  "Warrants"  means any  warrants  that may be issued  under the
                  Warrant Agreement.

                  "Wholly  Owned" means,  with respect to any  Subsidiary of any
                  Person,  the  ownership  of 95 % or  more  of the  outstanding
                  Capital Stock of such  Subsidiary  (other than any  director's
                  qualifying shares or Investments by foreign nationals mandated
                  by applicable  law) by such Person or one or more Wholly Owned
                  Subsidiaries of such Person.

II.      DESIGNATION.

                  The series of Preferred  Stock  authorized  hereunder shall be
designated  as the  "Series E Senior  Redeemable,  Exchangeable,  P1K  Preferred
Stock" and is referred  to herein as the "Series E Preferred  Stock." The number
of shares constituting such series shall be 575,000. The par value of the Series
E  Preferred  Stock shall be $.01 per share of Series E  Preferred  Stock.  Each
share of Series E Preferred Stock  purchased from the  Corporation  shall have a
liquidation  preference of $1,000.  The Corporation may from time to time in its
discretion issue fractional shares of Series E Preferred Stock.

III.     RANKING.

                  The Series E Preferred  Stock shall,  with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the  Corporation,  rank (i) senior to (A) all classes of Common  Stock of the
Corporation,  (B) each other class of Capital Stock or series of Preferred Stock
the  terms of  which  expressly  provide  that it ranks  junior  to,  and do not
expressly  provide  that it ranks  senior  to or on a parity  with the  Series E
Preferred  Stock  as  to  dividend  distributions  and  distributions  upon  the
liquidation,   winding-up   and   dissolution  of  the   Corporation,   (C)  the
Corporation's  Series  A  Cumulative   Convertible  Preferred  Stock,  Series  C
Cumulative  Convertible  Preferred  Stock,  and Series D Cumulative  Convertible
Preferred  Stock (all  securities  described  in this  clause  (i)  collectively
referred  to as  "Junior  Securities");  (ii) on a parity  with (A) any class of
Capital Stock or series of Preferred Stock the terms of which expressly  provide
that such  class or series  will rank on a parity  with the  Series E  Preferred
Stock as to  dividend  distributions  and  distributions  upon the  liquidation,
winding-up  and   dissolution  of  the  Corporation  and  (B)  Series  F  Senior
Redeemable,  Exchangeable, PIK Preferred Stock (all securities described in this
clause (ii) collectively referred to as "Parity  Securities");  and (iii) junior
to each class of Capital  Stock or series of Preferred  Stock the terms of which
expressly  provide  that such class or series  will rank  senior to the Series E
Preferred Stock as to dividend distributions and distributions upon liquidation,
winding-up,  and  dissolution or the  Corporation.  The Series E Preferred Stock
will be  subject  to the  issuance  of series of Junior  Securities  and  Parity
Securities, PROVIDED that the Corporation may not authorize, create or issue, or
increase the authorized  amount of, any new class of Parity Securities or Senior
Securities (or any class of any security  convertible  into shares of any Parity


                                       21
<PAGE>

Security or Senior  Security)  without the approval of the Holders of at least a
majority of the shares of Series E Preferred Stock then  outstanding,  voting or
consenting,  as the case may be, separately as one class,  except that,  without
the approval of Holders of the Series E Preferred  Stock,  the  Corporation  may
issue shares of Senior Securities (or any class of any security convertible into
shares of any Senior  Security)  in exchange  for, or the  proceeds of which are
used to redeem or repurchase, (1) all (but not less than all) shares of Series E
Preferred  Stock and  Series F  Preferred  Stock  then  outstanding,  or (2) the
Indebtedness of the  Corporation.  The Series E Preferred Stock and the Series F
Preferred  Stock  (together  with any other Parity  Securities)  shall also with
respect to any redemption or repurchase by the Corporation of its Capital Stock,
rank  senior to the Junior  Securities,  except as  provided in Section 3 of the
Shareholders Agreement.


                                       22
<PAGE>

IV.      DIVIDENDS.

                  (A) Holders of Series E  Preferred  Stock shall be entitled to
receive,  when,  as and if  declared  by the  Board of  Directors,  out of funds
legally available therefor,  dividends on the Series E Preferred Stock at a rate
per  annum  equal to 14.5% of the  liquidation  preference  per  share,  payable
quarterly. All dividends will be cumulative,  whether or not earned or declared,
accruing on a daily basis,  whether or not there are  profits,  surplus or other
funds  legally  available  for the payment of such  dividends,  from the date of
issuance  of the  Series E  Preferred  Stock and will be  payable  quarterly  in
arrears on each  Dividend  Payment  Date,  commencing  on April 15, 1999. On and
before January 15, 2004, the  Corporation may pay dividends,  at its option,  in
cash or in additional fully paid and nonassessable  shares of Series E Preferred
Stock having an  aggregate  liquidation  preference  equal to the amount of such
dividends rounded to the nearest $1.00.  After January 15, 2004,  dividends must
be paid in cash, unless the Corporation's debt securities  prohibit such payment
or there are no funds legally available therefor, in which case dividends may be
paid in  additional  fully paid and  nonassessable  shares of Series E Preferred
Stock having an  aggregate  liquidation  preference  equal to the amount to such
dividends  rounded to the nearest  $1.00.  If any dividend (or portion  thereof)
payable on any  Dividend  Payment  Date is not  declared or paid in full on such
Dividend Payment Date, the amount of accrued and unpaid dividends will accrue at
the dividend rate on the Series E Preferred Stock, compounding quarterly,  until
declared and paid in full.

                  (B) No full  dividends  may be  declared  or paid or funds set
apart for the  payment  of  dividends  on any Parity  Securities  for any period
unless full cumulative dividends shall have been or  contemporaneously  shall be
declared and paid in full on the Series E Preferred Stock. If full dividends are
not so paid,  the Series E Preferred  Stock shall share  dividends pro rata with
the Parity Securities. No dividends may be paid or set apart for such payment on
Junior Securities (except dividends on Junior Securities in additional shares of
Junior  Securities)  and  no  Junior  Securities  or  Parity  Securities  may be
repurchased,  redeemed  or  otherwise  retired  nor may  funds be set  apart for
payment with respect  thereto if full  cumulative  dividends shall not have been
paid on the Series E Preferred Stock.

                  (C) Each dividend  paid on the Series E Preferred  Stock shall
be payable to Holders of record as their names shall  appear in the stock ledger
of the  Corporation on the Dividend  Record Date for such dividend,  except that
dividends in arrears for any past Dividend Payment Date may be declared and paid
at any time without  reference to such regular  Dividend Payment Date to Holders
of record on a later dividend record date determined by the Board of Directors.

V.       LIQUIDATION PREFERENCE.

                  (A) Upon any voluntary or involuntary liquidation, dissolution
or winding-up of the  Corporation,  holders of Series E Preferred  Stock will be
entitled  to be  paid,  out  of the  assets  of the  Corporation  available  for
distribution,  $1,000  per share,  plus an amount in cash  equal to accrued  and
unpaid  dividends  thereon to the date  fixed for  liquidation,  dissolution  or
winding-up (including an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding-up),  before any distribution is made on any Junior Securities. If, upon


                                       23
<PAGE>

any  voluntary or  involuntary  liquidation,  dissolution  or  winding-up of the
Corporation,  the amounts  payable with respect to the Series E Preferred  Stock
and all other Parity  Securities are not paid in full, the holders of the Series
E Preferred  Stock and the Parity  Securities  will share equally and ratably in
any  distribution  of  assets  of the  Corporation  in  proportion  to the  full
liquidation  preference  and  accrued  and  unpaid  dividends  to which  each is
entitled.  After payment of the full amount of the  liquidation  preferences and
accrued and unpaid dividends to which they are entitled, the holders of Series E
Preferred  Stock  will  not be  entitled  to any  further  participation  in any
distribution of assets of the Corporation.

                  (B) For the purposes of this Article V only, neither the sale,
lease,  conveyance,  exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the property or assets of
the Corporation nor the  consolidation or merger of the Corporation with or into
one or more  corporations  shall be deemed to be a  liquidation,  dissolution or
winding-up of the Corporation.

VI.      REDEMPTION.

                  (A) MANDATORY  REDEMPTION.  The Series E Preferred Stock shall
be subject to mandatory  redemption  (subject to the legal availability of funds
therefor and any  contractual  or other  restrictions  with respect  thereto) in
whole on the Mandatory  Redemption Date at a Redemption Price,  payable in cash,
equal to the  liquidation  preference  thereof on the  Redemption  Date plus all
accrued and unpaid dividends thereon to the Redemption Date.

                  (B) OPTIONAL  REDEMPTION.  The Series E Preferred Stock may be
redeemed at any time on or after April 15, 2004, at the Corporation's option, in
whole or in part,  at the  Redemption  Prices  (expressed as a percentage of the
liquidation  preference thereof on the Redemption Date) set forth below, plus an
amount  in cash  equal  to all  accrued  and  unpaid  dividends  thereon  to the
Redemption Date, if redeemed during the period beginning April 15 of each of the
years set forth below:

                  YEAR                              PERCENTAGE

                  2004                               110.000%
                  2005                               106.667%
                  2006                               103.333%
                  2007 and thereafter                100.000%

                  In addition,  at any time or from time to time, on or prior to
April 15, 2002, the  Corporation  may, at its option,  redeem shares of Series E
Preferred  Stock with the  proceeds  of one or more  sales of the  Corporation's
Capital  Stock at a  Redemption  Price,  payable  in cash,  equal to 110% of the
liquidation  preference  thereof on the Redemption  Date, plus an amount in cash
equal to all  accrued  and  unpaid  dividends  thereon to the  Redemption  Date,
provided that as of the date of any such  redemption,  the cumulative  aggregate
liquidation  preference  of all  shares of  Series E  Preferred  Stock  redeemed
pursuant to this  provision on or prior to such date shall not exceed 35% of the
aggregate liquidation preference of shares of Series E Preferred Stock issued on
or prior to such date whether or not still outstanding on such date.



                                       24
<PAGE>

                  No optional  redemption may be authorized or made unless prior
thereto full unpaid cumulative dividends shall have been paid or a sum set apart
for such payment on the Series E Preferred Stock.

                  (C) PROCEDURE FOR REDEMPTION. (i) Not more than sixty (60) and
not less than thirty (30) days prior to the Redemption Date, written notice (the
"Redemption  Notice") shall be given by the  Corporation by first-class  mail to
each Holder at such Holder's  address as the same appears on the stock ledger of
the Corporation;  PROVIDED, HOWEVER, that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the redemption
of any  shares  of Series E  Preferred  Stock to be  redeemed,  except as to the
Holders to whom the  Corporation  has failed to give such notice or except as to
the Holders whose notice was defective. The Redemption Notice shall state:

                  (a)      the Redemption Price;

                  (b)      the Redemption Date;

                  (c) that the Holder is to surrender to the Corporation, at the
place  or  places  designated  in  such  Redemption   Notice,  its  certificates
representing the shares of Series E Preferred Stock to be redeemed; and

                  (d) the  name of any  bank or  trust  company  performing  the
duties referred to in Section VI(C)(iv) below.

                  (ii) On or before the Redemption Date, each Holder of Series E
Preferred  Stock to be redeemed shall  surrender the certificate or certificates
representing such shares of Series E Preferred Stock to the Corporation,  in the
manner  and  at  the  place  designated  in the  Redemption  Notice,  and on the
Redemption  Date the full  Redemption  Price for such shares shall be payable in
cash to the Holder whose name appears in the stock ledger of the  Corporation as
the  owner  thereof,  and each  surrendered  certificate  shall be  returned  to
authorized but unissued shares of Preferred Stock of the Corporation.

                  (iii) Unless the  Corporation  defaults in the payment in full
of the applicable  Redemption  Price,  dividends on the Series E Preferred Stock
called for  redemption  shall cease to accrue on the  Redemption  Date,  and the
Holders of such  shares  shall cease to have any  further  rights  with  respect
thereto on the Redemption  Date,  other than the right to receive the Redemption
Price.

                  (iv) If a  Redemption  Notice shall have been duly given or if
the  Corporation  shall  have  given to the bank or  trust  company  hereinafter
referred to irrevocable authorization promptly to give such notice, and if on or
before the  Redemption  Date  specified  therein  the funds  necessary  for such
redemption  shall  have  been  irrevocably  and  indefeasibly  deposited  by the


                                       25
<PAGE>

Corporation with such bank or trust company in trust for the PRO RATA benefit of
the  Holders of the  Series E  Preferred  Stock  called  for  redemption,  then,
notwithstanding  that any certificate for shares so called for redemption  shall
not have  been  surrendered  for  cancellation,  from and after the time of such
deposit,  all shares so called,  or to be so called pursuant to such irrevocable
authorization,  for redemption  shall be deemed no longer to be outstanding  and
all rights with  respect to such shares  shall  forthwith  cease and  terminate,
excepting  only the right of the  Holders  thereof to receive  from such bank or
trust company at any time after the time of such deposit the funds so deposited,
without  interest.  Any  interest  accrued  on such  funds  shall be paid to the
Corporation from time to time. Any funds so set aside or deposited,  as the case
may be, and unclaimed at the end of three years from such Redemption Date shall,
to the extent permitted by law, be released or repaid to the Corporation,  after
which  repayment the Holders of the shares to be redeemed shall look only to the
Corporation for payment thereof.

                  (v) In the event of partial  redemptions of Series E Preferred
Stock,  the shares to be  redeemed  will be  determined  PRO RATA or by lot,  as
determined  by the  Corporation,  except  that the  Corporation  may redeem such
shares  held by any holder of fewer than 100 shares  without  regard to such PRO
RATA redemption  requirement.  If any Series E Preferred Stock is to be redeemed
in part,  the  Redemption  Notice that relates to such Series E Preferred  Stock
shall state the portion of the liquidation preference to be redeemed. New shares
of Series E Preferred Stock having an aggregate liquidation  preference equal to
the  unredeemed  portion shall be issued in the name of the Holder  thereof upon
cancellation of the original Series E Preferred Stock.

                  (vi)  Notwithstanding  anything  herein  to  the  contrary,  a
Redemption  Notice will be revocable  if (i) it states that it is revocable  and
provides that a notice of revocation  may be given not less than five days prior
to the Redemption Date by the Corporation in accordance with Article XVII hereof
and (ii) the Board of Directors determines that the availability of funds to pay
the  Redemption  Price is subject to the closing of a financing and, at the time
such Redemption Notice is given, such closing is subject to uncertainty.

VII.     VOTING RIGHTS.

                  (A) The  Holders  of Series E  Preferred  Stock  shall have no
voting rights except as set forth below and as otherwise provided by law.

                  (B)(i) If and whenever (1) dividends on the Series E Preferred
Stock are in arrears and remain  unpaid with respect to four  quarterly  periods
(whether  or not  consecutive),  (2) the  Corporation  fails  to  discharge  any
redemption obligation with respect to the Series E Preferred Stock, (3) a breach
or violation by the  Corporation of the  provisions of Article X occurs,  or the
Corporation  fails to exchange  Exchange  Debentures  for the Series E Preferred
Stock tendered for exchange on the exchange date, whether or not the Corporation
satisfies the conditions to permit such exchange,  (4) the Corporation  fails to
make a Change of Control Offer or cash payment with respect  thereto if required
by the  provisions of Article VIII or (5) a breach or violation of any provision
of Article IX or  Article  XI occurs  and is not  remedied  within 30 days after
notice thereof to the  Corporation by Holders of 25 % or more of the liquidation
preference  of the Series E Preferred  Stock then  outstanding  (each such event
referred to as a "Voting Rights Triggering Event"), then the number of directors


                                       26
<PAGE>

then  constituting the Board of Directors of the Corporation  shall be increased
by one director and the Holders of a majority of the then outstanding  shares of
Series E Preferred Stock,  voting as a single class,  shall be entitled to elect
one additional director at any annual meeting of shareholders or special meeting
held in place  thereof,  or at a  special  meeting  of the  Holders  of Series E
Preferred Stock called as hereinafter  provided. In the event that any Holder is
a "bank  holding  company"  or a direct or indirect  subsidiary  thereof for the
purposes of the Bank Holding Company Act of 1956, as amended and the regulations
promulgated  thereunder  (collectively,  the "BHC Act"), neither such Holder nor
any  subsequent  holder of the Series E  Preferred  Stock  (each,  a  "Regulated
Holder")  shall be entitled to exercise any voting rights  hereunder,  unless in
the  reasonable  judgment of such  Regulated  Holder,  as evidenced by a written
notice to the  Corporation  from such  Regulated  Holder and if requested by the
Corporation  an  opinion  of  counsel  to  such  Regulated   Holder   reasonably
satisfactory  to the  Corporation,  such exercise would not violate the BHC Act.
Upon notice of any Voting Rights Triggering Event under this Article VII (B)(i),
such Regulated  Holder shall promptly advise the Corporation in writing and each
other  Regulated  Holder of whether it is entitled to exercise its voting rights
hereunder.

                  (ii)  Whenever a Voting  Rights  Triggering  Event  shall have
occurred,  voting  rights  of the  Holders  of Series E  Preferred  Stock may be
exercised  initially  either at a special  meeting  of the  Holders  of Series E
Preferred  Stock called as  hereinafter  provided,  or at any annual  meeting of
shareholders held for the purpose of electing directors,  and thereafter at each
such  annual  meeting  or by the  written  consent  of the  Holders  of Series E
Preferred  Stock,  voting as a single  class,  pursuant to the Delaware  General
Corporation Law. The term of office of any such elected director shall expire at
the next  annual  meeting  of  shareholders  held for the  purpose  of  electing
directors,  subject to a new  election  of a director by the Holders of Series E
Preferred  Stock,  voting as a single class, at each successive  annual meeting,
but such voting rights and the term of office of any such elected director shall
expire at such time as (A) all  dividends  accrued on Series E  Preferred  Stock
shall have been paid in full and (B) each failure, breach or default referred to
in paragraph VII(B) (i)(A)(2), (3), (4) and (5) above is remedied.

                  (iii) At any time after a Voting Rights Triggering Event shall
have  occurred  and such voting  rights  shall not already  have been  initially
exercised, a proper officer of the Corporation may, and upon the written request
of any Holder of Series E Preferred  Stock  (addressed  to the  Secretary at the
principal  office  of the  Corporation)  shall,  call a special  meeting  of the
Holders of Series E Preferred Stock for the election of a director to be elected
by them,  voting as a single class, as herein provided,  such call to be made by
notice  similar to that  provided  in the  Bylaws  for a special  meeting of the
shareholders or as required by law.

                  (iv) Such meeting  shall be held at the  earliest  practicable
date upon the notice  required for annual  meetings of shareholders at the place
for holding annual meetings of shareholders of the Corporation or, if none, at a
place designated by the Secretary of the Corporation.  If such meeting shall not
be called  by a proper  officer  of the  Corporation  within  30 days  after the
personal  service of such written request upon the Secretary of the Corporation,
or within 30 days after mailing the same within the United States, by registered
mail,  addressed to the Secretary of the  Corporation  at its  principal  office
(such  mailing to be  evidenced  by the  registry  receipt  issued by the postal


                                       27
<PAGE>

authorities),  then the  holders  of  record  of 10% of the  shares  of Series E
Preferred Stock then outstanding,  may designate in writing a Holder of Series E
Preferred Stock to call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated  upon the notice required for
annual  meetings  of  shareholders  and  shall be held at the  same  place as is
elsewhere  provided in this  paragraph  VII(B)(iv)  or at such other place as is
selected by such person so  designated.  Any Holder of Series E Preferred  Stock
that would be  entitled  to vote at any such  meeting  shall have  access to the
stock  books  of the  Corporation  for the  purpose  of  causing  a  meeting  of
shareholders  to be  called  pursuant  to  the  provisions  of  this  paragraph.
Notwithstanding  the  provisions  of this  paragraph,  however,  no such special
meeting shall be called during a period within 90 days immediately preceding the
date fixed for the next annual meeting of shareholders.

                  (v) At any meeting held for the purpose of electing  directors
at which the  Holders of Series E  Preferred  Stock,  voting as a single  class,
shall have the right to elect a director as  provided  herein,  the  presence in
person or by proxy of the Holders of a majority of the then  outstanding  shares
of Series E Preferred  Stock shall be required and be sufficient to constitute a
quorum of such class for the  election of a director by such class.  At any such
meeting or  adjournment  thereof,  (x) the absence of a quorum of the Holders of
Series E Preferred  Stock shall not prevent the election of directors other than
the  director  to be  elected  by such  Holders  and the  absence of a quorum or
quorums of the holders of Capital Stock  entitled to elect such other  directors
shall not  prevent  the  election  of a director to be elected by the Holders of
Series E Preferred Stock,  voting as a single class, and (y) in the absence of a
quorum of the holders of any class of stock entitled to vote for the election of
directors, a majority of the holders present in person or by proxy of such class
shall have the power to adjourn the meeting for the election of directors  which
the  holders of such class are  entitled  to elect,  from time to time,  without
notice (except as required by law) other than announcement at the meeting, until
a quorum shall be present.

                  (vi) The term of office of the director elected by the Holders
of Series E Preferred  Stock,  pursuant to paragraph  VII(B)(i) in office at any
time when the  aforesaid  voting  rights are  vested in the  Holders of Series E
Preferred Stock,  shall terminate upon the election of his/her  successor by the
Holders of the Series E Preferred Stock at any meeting of  shareholders  for the
purpose of electing  directors.  Upon any  termination  of the aforesaid  voting
rights  in  accordance  with  paragraph  VII(B)(ii),  the term of  office of the
director elected pursuant to paragraph  VII(B)(i) then in office shall thereupon
terminate and upon such  termination  the number of directors  constituting  the
Board of Directors  shall,  without further action,  be reduced by one,  subject
always  to the  increase  of the  number  of  directors  pursuant  to  paragraph
VII(B)(i) in case of the future right of the Holders of Series E Preferred Stock
to elect a director as provided herein.

                  (vii) If the director elected pursuant to paragraph VII(B)(ii)
shall cease to serve as director  before his/her term shall expire,  the Holders
of Series E Preferred  Stock then  outstanding,  voting as a single class,  at a
special meeting called as provided  above,  may elect a successor to hold office
for the unexpired terms of the director whose place shall be vacant.



                                       28
<PAGE>

VIII.    CHANGE OF CONTROL.

                  Upon the  occurrence of a Change of Control,  the  Corporation
shall be  required  (subject  to any  contractual  and other  restrictions  with
respect  thereto and the legal  availability of funds therefor) to make an Offer
to Purchase (the "Change of Control Offer") to each Holder of Series E Preferred
Stock to repurchase  all or any part, at the Holder's  option,  of such Holder's
Series  E  Preferred  Stock  at a cash  purchase  price  equal  to  101%  of the
liquidation  preference thereof, plus an amount in cash equal to all accrued and
unpaid dividends  (including an amount in cash equal to a prorated  dividend for
the period from the immediately  preceding  Dividend Payment Date to the date of
purchase) (the "Change of Control Payment"). The Change of Control Offer must be
made within 30 days following the conclusion of all change of control offers for
the Corporation's debt securities, must remain open for at least 30 and not more
than 60 days and must  comply  with the  requirements  of Rule  14e-1  under the
Exchange Act and any other  securities  laws and  regulations  thereunder to the
extent such laws and regulations are applicable.  Prior to commencing any Change
of Control Offer,  the Corporation  shall first consummate any change of control
offer to  purchase  required to be made to any holder of its  Indebtedness.  The
Corporation  shall make the Change of Control Offer within 30 days following the
consummation  of any  mandatory  offers  to  purchase  and  any  other  required
repayments of the Corporation's Indebtedness resulting from a change of control.

IX.      CONSOLIDATION. MERGER AND SALE OF ASSETS.

                  The  Corporation  shall not  consolidate  with,  merge with or
into,  or  sell,  convey,  transfer,  lease  or  otherwise  dispose  of  all  or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related  transactions) to, any Person
or permit  any  Person to merge  with or into the  Corporation  unless:  (i) the
Corporation  shall be the  continuing  Person,  or the Person (if other than the
Corporation)  formed by such  consolidation  or into  which the  Corporation  is
merged or that  acquired or leased such  property and assets of the  Corporation
shall be a  corporation  organized  and validly  existing  under the laws of the
United States of America or any jurisdiction  thereof and the Series E Preferred
Stock shall be converted  into or exchanged  for and shall become shares of such
successor  company,  having in respect of such  successor  company or  resulting
company substantially the same powers,  preferences and relative  participating,
optional  or  other  special  rights  and  the  qualifications,  limitations  or
restrictions  thereon that the Series E Preferred Stock had immediately prior to
such  transaction in respect of the Corporation;  (ii) immediately  after giving
effect to such  transaction  on a PRO FORMA basis,  (A) the  Corporation  or any
Person  becoming the successor or resulting  company,  as the case may be, shall
have a  Consolidated  Net Worth equal to or greater  than the  Consolidated  Net
Worth  of the  Corporation  immediately  prior  to such  transaction  or (B) the
Corporation or any Person  becoming the successor or resulting  company,  as the
case may be, shall have a  Consolidated  Leverage Ratio no more than the greater
of (I)  6:1  and  (II)  the  Consolidated  Leverage  Ratio  of  the  Corporation
immediately prior to such transaction;  PROVIDED that this clause (ii) shall not
apply  to a  consolidation  or  merger  with or into a Wholly  Owned  Restricted
Subsidiary with a positive net worth; PROVIDED that, in connection with any such
merger or consolidation,  no consideration (other than Capital Stock (other than
Disqualified  Stock) in the surviving Person or the Corporation) shall be issued


                                       29
<PAGE>

or distributed to the stockholders of the Corporation; and (iii) the Corporation
delivers  to  the  Transfer  Agent  an  Officers'  Certificate   (attaching  the
arithmetic  computations to demonstrate compliance with clause (ii)) and Opinion
of Counsel,  in each case  stating that such  consolidation,  merger or transfer
complies with this  provision  and that all  conditions  precedent  provided for
herein relating to such transaction have been complied with; PROVIDED,  HOWEVER,
that clause (ii) above does not apply if, in the good faith determination of the
Board of Directors of the Corporation, whose determination shall be evidenced by
a Board  Resolution,  the principal purpose of such transaction is to change the
state of  incorporation  of the Corporation and any such  transaction  shall not
have as one of its purposes the evasion of the foregoing limitations.

X.       EXCHANGE.

                  (A) The  Corporation  may,  at the sole option of the Board of
Directors (subject to the legal  availability of funds therefor),  exchange all,
but not  less  than  all,  of the  shares  of  Series  E  Preferred  Stock  then
outstanding,  including any shares of Series E Preferred Stock issued as payment
for  dividends,  for a new  series  of  senior  subordinated  debentures  of the
Corporation  (the "Exchange  Debentures")  to be issued pursuant to an indenture
(the  "Indenture")  qualified under the Trust Indenture Act of 1939, as amended,
substantially  in the form  attached as an exhibit to the Purchase  Agreement (a
copy of which  shall be  provided  to any  Holder  upon  written  request to the
Secretary  of the  Corporation),  at any time  following  the date on which such
exchange is  permitted  by the terms of the  then-existing  Indebtedness  of the
Corporation and subject to the conditions contained in paragraph X(B) below. The
Exchange  Debentures will be issued in registered form, without coupons, be duly
executed,  authenticated  as of the date on which the exchange is effective  and
dated the date of  exchange.  In the event of an  exchange,  Holders of Series E
Preferred  shall  be  entitled  to  receive  on the  date of  exchange  Exchange
Debentures  having an aggregate  principal  amount equal to (i) the total of the
liquidation preference for each share of Series E Preferred exchanged, PLUS (ii)
an amount  equal to all  accrued  but  unpaid  dividends  payable  on such share
(including  a prorated  dividend for the period from the  immediately  preceding
Dividend Payment Date to the date of exchange). In the event such exchange would
result in the  issuance of Exchange  Debentures  in a principal  amount which is
less than $1,000 or which is not an integral  multiple of $1,000 (such principal
amount less than $1,000 or the difference  between such principal amount and the
highest integral of $1,000 which is less than such principal amount, as the case
may be, is hereinafter  referred to as the "Fractional  Principal Amount"),  the
Corporation may,  subject to any restrictions in the terms of the  then-existing
Indebtedness of the  Corporation,  at the option of the Board of Directors,  pay
cash to each  Holder  of  Series E  Preferred  in lieu of  Fractional  Principal
Amounts of Exchange Debentures  otherwise issuable upon exchange of the Series E
Preferred Stock. The Person entitled to receive the Exchange Debentures issuable
upon exchange shall be treated for all purposes as the registered holder of such
Exchange  Debentures as of the date of exchange.  The  Corporation  will mail to
each Holder of Series E  Preferred  Stock  written  notice of its  intention  to
exchange no less than 20 nor more than 60 days prior to the date of exchange.

                  (B) As a condition  of the right of the  Corporation  to issue
Exchange Debentures in exchange for the Series E Preferred Stock under paragraph
(A) above, on the date of exchange,  (A) there shall be legally  available funds


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<PAGE>

sufficient  therefor;  (B) a  registration  statement  relating to the  Exchange
Debentures shall have been declared  effective under the Securities Act prior to
such exchange and shall continue to be effective on the date of exchange, or the
Corporation  shall  have  obtained  a written  opinion  of its  outside  counsel
reasonably  acceptable  to  Holders  of a  majority  of the  shares  of Series E
Preferred  Stock that an exemption  from the  registration  requirements  of the
Securities  Act is  available  for such  exchange  and that upon receipt of such
Exchange  Debentures  pursuant to such an exchange made in accordance  with such
exemption,  each holder of an Exchange Debenture that is not an Affiliate of the
Corporation  will not be subject to any  restrictions  imposed by the Securities
Act upon the resale of such  Exchange  Debenture,  and such  exemption is relied
upon by the  Corporation  for such  exchange,  (C) the Indenture and the trustee
thereunder  shall have been qualified  under the Trust Indenture Act of 1939, as
amended;  (D)  immediately  after giving effect to such exchange,  no default or
event  of  default  would  exist  under  any  of  the   Corporation's   existing
Indebtedness;  and (E) the Corporation shall have delivered to the Trustee under
the  Indenture  a  written  opinion  of  counsel,  dated  the date of  exchange,
regarding the  satisfaction  of the conditions set forth in clauses (A), (B) and
(C).

XI. COVENANTS.

                  (A)      LIMITATION ON Indebtedness

                  (a) The Corporation  shall not, and will not permit any of its
Restricted  Subsidiaries  to, Incur any  Indebtedness  (other than  Indebtedness
existing  on  the  Closing  Date);  provided  that  the  Corporation  may  Incur
Indebtedness if, after giving effect to the Incurrence of such  Indebtedness and
the receipt and application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and less than 6:1.

                  Notwithstanding   the  foregoing,   the  Corporation  and  any
Restricted  Subsidiary (except as specified below) may Incur each and all of the
following:  (i) Indebtedness  outstanding at any time in an aggregate  principal
amount not to exceed $400 million; (ii) Indebtedness in existence on the Closing
Date;  (iii)  Indebtedness  of the  Corporation  to a Restricted  Subsidiary and
Indebtedness of a Restricted Subsidiary to the Corporation or another Restricted
Subsidiary;  PROVIDED that such Indebtedness is made pursuant to an intercompany
note and any event which results in any such Restricted Subsidiary ceasing to be
a Restricted  Subsidiary or any subsequent  transfer of such Indebtedness (other
than to the Corporation or another  Restricted  Subsidiary)  shall be deemed, in
each case, to constitute  an  Incurrence of such  Indebtedness  not permitted by
this clause (iii); (iv) Indebtedness issued in exchange for, or the net proceeds
of which are used to refinance or refund,  then outstanding  Indebtedness (other
than  Indebtedness  Incurred  under  clause  (i),  (iii),  (v) or  (ix)  of this
paragraph) and any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus  premiums,  accrued  interest,  fees and expenses);
PROVIDED that such new Indebtedness,  determined as of the date of Incurrence of
such new  Indebtedness,  does  not  mature  or have a  mandatory  redemption  or
repurchase  date  prior  to  the  Stated  Maturity  of  the  Indebtedness  to be
refinanced  or  refunded,  and the Average Life of such new  Indebtedness  is at
least equal to the remaining  Average Life of the  Indebtedness to be refinanced
or refunded;  (v)  Indebtedness  (A) in respect of performance,  surety,  appeal


                                       31
<PAGE>

bonds and completion guarantees provided in the ordinary course of business; (B)
under  Currency  Agreements  and Interest  Rate  Agreements;  PROVIDED that such
agreements (a) are designed  solely to protect the Corporation or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or interest
rates and (b) do not increase the Indebtedness of the obligor outstanding at any
time (except to the extent Incurred under another clause hereof) other than as a
result of fluctuations in foreign  currency  exchange rates or interest rates or
by reason of fees,  indemnities and  compensation  payable  thereunder;  and (C)
arising from agreements  providing for  indemnification,  adjustment of purchase
price or similar  obligations,  or from Guarantees or letters of credit,  surety
bonds or performance bonds securing any obligations of the Corporation or any of
its Restricted  Subsidiaries pursuant to such agreements,  in each case Incurred
in  connection  with the  disposition  of any  business,  assets  or  Restricted
Subsidiary  (other  than  Guarantees  of  Indebtedness  Incurred  by any  Person
acquiring all or any portion of such business,  assets or Restricted  Subsidiary
for the purpose of financing  such  acquisition),  in a principal  amount not to
exceed the gross proceeds actually received by the Corporation or any Restricted
Subsidiary  in  connection  with  such  disposition;  (vi)  Indebtedness  of the
Corporation,  to the extent the net  proceeds  thereof are  promptly (A) used to
purchase the Series E Preferred  Stock and/or Series F Preferred  Stock tendered
in an Offer to Purchase made as a result of a Change in Control or (B) deposited
to  defease  the  Senior  Discount  Notes  or used to  redeem  all the  Series E
Preferred  Stock or Series F Preferred  Stock;  (vii)  Indebtedness  Incurred to
finance  the cost  (including  the  cost of  design,  development,  acquisition,
construction,  installation,  improvement,  transportation  or  integration)  to
acquire equipment, inventory or network assets (including acquisitions by way of
acquisitions of real property,  leasehold  improvements,  Capitalized Leases and
acquisitions  of the  Capital  Stock  of a  Person  that  becomes  a  Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory or
network assets so acquired) by the Corporation or a Restricted  Subsidiary after
the Closing Date;  (viii)  Indebtedness of the Corporation not to exceed, at any
one time outstanding, two times the sum of (A) the Net Cash Proceeds received by
the  Corporation  on or after the Closing Date from the issuance and sale of its
Capital  Stock  (other  than  Disqualified  Stock)  to a  Person  that  is not a
Subsidiary  of the  Corporation,  to the extent such Net Cash  Proceeds have not
been used pursuant to clause  (iii)(B)(2) of the first  paragraph or clause (ii)
of the second  paragraph  of Section  XI(B) or clause (v) of the  definition  of
"Permitted  Investments"  to make a  Restricted  Payment and (B) 80% of the fair
market value of property (other than cash and cash equivalents)  received by the
Corporation  after the Closing  Date from the sale of its Capital  Stock  (other
than  Disqualified  Stock)  to  a  Person  that  is  not  a  Subsidiary  of  the
Corporation, to the extent such sale of Capital Stock has not been used pursuant
to clause (iii) of the second  paragraph  of Section  XI(B) to make a Restricted
Payment;  PROVIDED that such Indebtedness does not mature prior to the Mandatory
Redemption  Date;  (ix)  Indebtedness  Incurred by the Corporation or any of its
Restricted Subsidiaries  constituting  reimbursement obligations with respect to
letters  of  credit  in the  ordinary  course of  business,  including,  without
limitation, letters of credit in respect of workers' compensation claims or self
insurance,  or other Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims; PROVIDED, HOWEVER, that upon the drawing
of  such  letters  of  credit  or the  Incurrence  of  such  Indebtedness,  such
obligations are reimbursed  within 30 days following such drawing or Incurrence;
(x)  Indebtedness  of Persons that are acquired by the Corporation or any of its
Restricted  Subsidiaries  or merged into a Restricted  Subsidiary  in accordance
with  the  terms  of  this  Certificate  of  Designations;  PROVIDED  that  such


                                       32
<PAGE>

Indebtedness is not incurred in contemplation of such acquisition or merger; and
PROVIDED FURTHER that after giving effect to such acquisition or merger,  either
(x) the  Corporation  would be permitted  to incur at least $1.00 of  additional
Indebtedness  pursuant to the Consolidated  Leverage Ratio test set forth in the
first sentence of this covenant or (y) the Consolidated  Leverage Ratio is lower
(if greater than zero) or higher (if less than zero) than  immediately  prior to
such  acquisition;   (xi)  Strategic   Subordinated   Indebtedness;   and  (xii)
Indebtedness under the Lucent Facility.

                  (b) Notwithstanding any other provision of this Section XI(A),
the  maximum  amount  of  Indebtedness  that  the  Corporation  or a  Restricted
Subsidiary  may Incur  pursuant to this Section  XI(A) shall not be deemed to be
exceeded, with respect to any outstanding  Indebtedness due solely to the result
of fluctuations in the exchange rates of currencies.  Accretion on an instrument
issued  at a  discount  will  not be  deemed  to  constitute  an  Incurrence  of
Indebtedness.

                  (c) For  purposes  of  determining  any  particular  amount of
Indebtedness  pursuant to this Section XI(A),  Guarantees,  Liens or obligations
with respect to letters of credit supporting  Indebtedness otherwise included in
the   determination   of  such  particular   amount  shall  not  be  treated  as
Indebtedness. For purposes of determining compliance with this Section XI(A), in
the event that an item of  Indebtedness  meets the  criteria of more than one of
the types of Indebtedness  described in the above clauses,  the Corporation,  in
its sole  discretion,  shall  classify  such  item of  Indebtedness  and only be
required  to include  the amount  and type of such  Indebtedness  in one of such
clauses.

(B)      LIMITATION ON RESTRICTED PAYMENTS

                  The Corporation shall not, and shall not permit any Restricted
Subsidiary to,  directly or indirectly,  (i) declare or pay any dividend or make
any  distribution  on or with respect to its Junior  Securities  (other than (x)
dividends or  distributions  payable  solely in shares of its Junior  Securities
(other  than  Disqualified  Stock) or in options,  warrants  or other  rights to
acquire  shares  of  such  Junior  Securities  and  (y) pro  rata  dividends  or
distributions  on  Common  Stock of  Restricted  Subsidiaries  held by  minority
stockholders)  held  by  Persons  other  than  the  Corporation  or  any  of its
Restricted Subsidiaries,  (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Junior  Securities of (A) the Corporation or an Unrestricted
Subsidiary  (including options,  warrants or other rights to acquire such shares
of Junior  Securities)  held by any Person or (B) a Restricted  Subsidiary other
than a Wholly Owned Restricted Subsidiary (including options,  warrants or other
rights to acquire such shares of Junior Securities) held by any Affiliate of the
Corporation (other than a Wholly Owned Restricted Subsidiary), or (iii) make any
Investment,  other than a Permitted Investment,  in any Person (such payments or
any  other   actions   described  in  clauses  (i)  through  (iii)  above  being
collectively  "Restricted Payments") if, at the time of, and after giving effect
to, the proposed  Restricted  Payment:  (A) the  Corporation  could not Incur at
least $1.00 of  Indebtedness  under the first paragraph of Section XI(A), or (B)
the aggregate  amount of all Restricted  Payments (the amount,  if other than in
cash,  to  be  determined  in  good  faith  by  the  Board  of  Directors  whose
determination  shall be  conclusive  and evidenced by a Board  Resolution)  made
after the Closing Date shall exceed the sum of (1) 50% of the  aggregate  amount
of the Adjusted  Consolidated  Net Income (or, if the Adjusted  Consolidated Net


                                       33
<PAGE>

Income  is a  loss,  minus  100% of the  amount  of such  loss)  (determined  by
excluding  income  resulting  from  transfers of assets by the  Corporation or a
Restricted  Subsidiary to an  Unrestricted  Subsidiary)  accrued on a cumulative
basis during the period (taken as one accounting  period) beginning on the first
day of the fiscal quarter  immediately  following the Closing Date and ending on
the last day of the last fiscal quarter preceding the Transaction Date for which
reports have been provided to the Transfer  Agent PLUS (2) 100% of the aggregate
Net Cash Proceeds and the actual market value of marketable  securities  (on the
date the calculation  hereunder is made) received by the  Corporation  after the
Closing  Date  from the  issuance  and sale  permitted  by this  Certificate  of
Designations  of its Capital Stock (other than  Disqualified  Stock) to a Person
who is not a  Subsidiary  of the  Corporation,  including  an  issuance  or sale
permitted by this Certificate of Designations of Indebtedness of the Corporation
for cash subsequent to the Closing Date upon the conversion of such Indebtedness
into Capital Stock (other than Disqualified  Stock) of the Corporation,  or from
the  issuance  to a Person who is not a  Subsidiary  of the  Corporation  of any
options,  warrants or other rights to acquire  Capital Stock of the  Corporation
(in each case,  exclusive of any Disqualified Stock or any options,  warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed,  prior to the Mandatory Redemption Date), and the Net Cash Proceeds
from any capital  contributions  to the Corporation  after the Closing Date from
Persons other than Subsidiaries of the Corporation,  in each case excluding such
Net Cash  Proceeds to the extent used to Incur  Indebtedness  pursuant to clause
(viii) of the second  paragraph of Section XI(A) and excluding Net Cash Proceeds
from the  issuance  of  Capital  Stock to the  extent  used to make a  Permitted
Investment in accordance  with clause (v) of such defined term, plus (3) amounts
received  from  Investments  (other than  Permitted  Investments)  in any Person
resulting from payments of interest on  Indebtedness,  dividends,  repayments of
loans or advances, or other transfers of assets, in each case to the Corporation
or any Restricted  Subsidiary or from the Net Cash Proceeds from the sale of any
such  Investment  (except,  in each  case,  to the  extent  any such  payment or
proceeds are included in the calculation of Adjusted  Consolidated  Net Income),
or from redesignations of Unrestricted  Subsidiaries as Restricted  Subsidiaries
(valued in each case as provided in the  definition  of  "Investments"),  not to
exceed,  in  each  case,  the  amount  of  Investments  previously  made  by the
Corporation  or  any  Restricted  Subsidiary  in  such  Person  or  Unrestricted
Subsidiary or (C) dividends on Series E Preferred Stock shall not have been paid
in full as provided in this Certificate of Designations.

                  The  foregoing  provision  shall not be violated by reason of:
(i) the  payment of any  dividend  within 60 days after the date of  declaration
thereof if, at said date of  declaration,  such  payment  would  comply with the
foregoing  paragraph;  (ii) the redemption,  repurchase or other  acquisition of
Junior Securities of the Corporation  including premium, if any, and accrued and
unpaid  dividends,  with the proceeds of, or in exchange for, Junior  Securities
(other  than  Disqualified   Stock)  of  the  Corporation;   (iii)  payments  or
distributions,  to dissenting  stockholders pursuant to applicable law, pursuant
to or in  connection  with a  consolidation,  merger or  transfer of assets that
complies  with Article IX; (iv) the  declaration  or payment of dividends on the
Common  Stock of the  Corporation  following  a Public  Equity  Offering of such
Common  Stock,  of up to 6% per annum of the Net Cash  Proceeds  received by the
Corporation in such Public Equity  Offering;  (v) the repurchase,  retirement or
other  acquisition or retirement for value of any shares of Junior Securities of
the Corporation  that are not registered  under the Exchange Act and are held by


                                       34
<PAGE>

any current or former employee,  director or consultant (or their estates or the
beneficiaries  of such estates) of the  Corporation  or any  Subsidiary,  not to
exceed  (A) in any  calendar  year  $2.0  million  or (B)  $5.0  million  in the
aggregate;  (vi) repurchases of Junior  Securities deemed to occur upon exercise
of stock  options if such  Capital  Stock  represents  a portion of the exercise
price  of such  options;  (vii)  repurchases  of  fractional  shares  of  Junior
Securities  in connection  with the exercise of Warrants in accordance  with the
Warrant  Agreement and Preferred  Stock Warrant  Agreement or other  warrants to
purchase the Corporation's Common Stock; and (viii) other Restricted Payments in
an aggregate amount not to exceed $2.0 million.

                  Each Restricted  Payment  permitted  pursuant to the preceding
paragraph (other than the Restricted Payment referred to in clauses (ii) or (vi)
thereof,  an  exchange  of  Junior  Securities  for  Junior  Securities  and  an
Investment  referred to in clause (iv) thereof) shall be included in calculating
whether the conditions of clause (iii)(B) of the first paragraph of this Section
XI(B) have been met with respect to any subsequent  Restricted Payments.  In the
event the proceeds of an issuance of Capital Stock of the  Corporation  are used
for the redemption,  repurchase or other acquisition of Parity Securities,  then
the Net Cash Proceeds of such issuance  shall be included in clause  (iii)(B) of
the first  paragraph of this Section  XI(B) only to the extent such proceeds are
not used for such redemption, repurchase or other acquisition of securities.

                  Any  Restricted  Payments  made  other  than in cash  shall be
valued at fair market value.  The amount of any Investment  "outstanding" at any
time  shall be deemed to be equal to the amount of such  Investment  on the date
made,  less  the  return  of  capital  to the  Corporation  and  its  Restricted
Subsidiaries with respect to such Investment by distribution,  sale or otherwise
(up to the amount of such Investment on the date made).

(C)      LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
         AFFECTING RESTRICTED SUBSIDIARIES

                  The Corporation shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or become  effective
any  consensual  encumbrance  or  restriction  of any kind on the ability of any
Restricted  Subsidiary  to (i) pay  dividends  or make any  other  distributions
permitted by applicable law on any Capital Stock of such  Restricted  Subsidiary
owned  by the  Corporation  or any  other  Restricted  Subsidiary,  (ii) pay any
Indebtedness owed to the Corporation or any other Restricted  Subsidiary,  (iii)
make loans or advances to the Corporation or any other Restricted  Subsidiary or
(iv)  transfer  any of its  property or assets to the  Corporation  or any other
Restricted Subsidiary.

                  The foregoing  provisions  shall not restrict any encumbrances
or restrictions:

                  (i) existing on the Closing  Date,  in the Newcourt  Facility,
the Lucent Facility, this Certificate of Designations or any other agreements in
effect on the  Closing  Date,  and any  extensions,  refinancings,  renewals  or
replacements of such agreements; PROVIDED that the encumbrances and restrictions
in any such  extensions,  refinancings,  renewals  or  replacements  are no less
favorable in any  material  respect to the Holders  than those  encumbrances  or
restrictions  that are then in effect and that are being  extended,  refinanced,


                                       35
<PAGE>

renewed or replaced;  (ii) existing under or by reason of applicable  law, rule,
regulation or order;  (iii)  existing with respect to any Person or the property
or  assets  of  such  Person  acquired  by the  Corporation  or  any  Restricted
Subsidiary,  existing  at the  time of such  acquisition  and  not  incurred  in
contemplation  thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so  acquired;  (iv) in the case of clause (iv)
of the first  paragraph of this Section XI(C),  (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is a
lease,  license,  conveyance  or  contract  or similar  property  or asset,  (B)
existing by virtue of any  transfer of,  agreement to transfer,  option or right
with  respect to, or Lien on, any property or assets of the  Corporation  or any
Restricted   Subsidiary  not  otherwise   prohibited  by  this   Certificate  of
Designations,  (C) arising or agreed to in the ordinary course of business,  not
relating to any Indebtedness, and that do not, individually or in the aggregate,
detract  from  the  value  of  property  or  assets  of the  Corporation  or any
Restricted  Subsidiary  in  any  manner  material  to  the  Corporation  or  any
Restricted Subsidiary or (D) purchase money obligations for property acquired in
the ordinary course of business that impose restrictions of the nature discussed
in clause  (iv)  above on the  property  so  acquired;  (v) with  respect to the
Corporation or a Restricted Subsidiary and imposed pursuant to an agreement that
has been entered  into for the sale of assets,  including,  without  limitation,
customary  restrictions  on the disposition of all or  substantially  all of the
Capital Stock of, or property and assets of, such  Restricted  Subsidiary or the
Corporation;  (vi) contained in the terms of any  Indebtedness  or any agreement
pursuant  to which  such  Indebtedness  was  issued  (in each  case  other  than
Indebtedness  incurred  under the Newcourt  Facility) if (A) the  encumbrance or
restriction  applies  only in the event of a payment  default or a default  with
respect to a financial covenant contained in such Indebtedness or agreement, (B)
the  encumbrance or restriction is not materially  more  disadvantageous  to the
Holders  of the  Series  E  Preferred  Stock  than is  customary  in  comparable
financings (as determined by the Corporation) and (C) the Corporation determines
that  any  such  encumbrance  or  restriction  will not  materially  affect  the
Corporation's  ability to make dividend and mandatory redemption payments on the
Series E Preferred  Stock;  (vii)  restrictions on cash or other deposits or net
worth imposed by customers under  contracts  entered into in the ordinary course
of business;  (viii) customary  provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; and (ix) any
encumbrances or restrictions of the type referred to in clauses  (i)-(iv) of the
first  paragraph  of this  covenant  imposed by any  amendments,  modifications,
renewals,  restatements,  increases,  supplements,  refundings,  replacements or
refinancings  of the contracts  referred to in clauses (i) through (viii) above;
PROVIDED that such amendments, modifications, restatements, renewals, increases,
supplements,  refundings,  replacements or  refinancings  are, in the good faith
judgment of the Corporation,  not materially more disadvantageous to the Holders
than those contained in the restriction  prior to such amendment,  modification,
restatement,   renewal,   increase,   supplement,   refunding,   replacement  or
refinancing.   Nothing  contained  in  this  Section  XI(C)  shall  prevent  the
Corporation  or any Restricted  Subsidiary  from  restricting  the sale or other
disposition  of property or assets of the  Corporation  or any of its Restricted
Subsidiaries  that  secure  Indebtedness  of  the  Corporation  or  any  of  its
Restricted Subsidiaries.


                                       36
<PAGE>

         (D)      LIMITATION  ON  THE  ISSUANCE  AND  SALE OF  CAPITAL  STOCK OF
                  RESTRICTED SUBSIDIARIES

                  The  Corporation  shall not sell,  and  shall not  permit  any
Restricted Subsidiary,  directly or indirectly,  to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary  (including options,  warrants or other
rights to purchase  shares of such Capital Stock) except (i) to the  Corporation
or a Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to  foreign  nationals  of shares of  Capital  Stock of  foreign
Restricted  Subsidiaries,  to the extent  required by applicable  law; (iii) if,
immediately  after  giving  effect to such  issuance  or sale,  such  Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect to such issuance or sale would have
been  permitted to be made in accordance  with Section XI(B) if made on the date
of such  issuance  or sale;  or (iv)  issuances  or sales of  common  stock of a
Restricted   Subsidiary,   PROVIDED  that  the  Corporation  or  any  Restricted
Subsidiary  applies  an  amount  equal  to the  Net  Cash  Proceeds  thereof  in
accordance with Section XI(F).

         (E)      LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES

                  The Corporation shall not, and shall not permit any Restricted
Subsidiary  to,  directly  or  indirectly,  enter  into,  renew  or  extend  any
transaction  (including,  without  limitation,  the  purchase,  sale,  lease  or
exchange  of property  or assets,  or the  rendering  of any  service)  with any
Affiliate of the Corporation or any Restricted Subsidiary,  except upon fair and
reasonable  terms  no less  favorable  to the  Corporation  or  such  Restricted
Subsidiary than could be obtained,  at the time of such  transaction or, if such
transaction is pursuant to a written agreement,  at the time of the execution of
the agreement providing therefor,  in a comparable arm s-length transaction with
a Person that is not an Affiliate.

                  The foregoing  limitation does not limit,  and shall not apply
to (i) transactions (A) approved by a majority of the  disinterested  members of
the  Board  of  Directors  or (B) for  which  the  Corporation  or a  Restricted
Subsidiary  delivers to the  Transfer  Agent a written  opinion of a  nationally
recognized  investment  banking  firm or a  nationally  recognized  firm  having
expertise  in the  specific  area  which is the  subject  of such  determination
stating  that the  transaction  is fair to the  Corporation  or such  Restricted
Subsidiary from a financial  point of view; (ii) any transaction  solely between
the  Corporation  and  any of its  Restricted  Subsidiaries  or  solely  between
Restricted  Subsidiaries;  (iii) the payment of reasonable and customary regular
fees to, and indemnity provided on behalf of, officers, directors,  employees or
consultants of the Corporation or its Restricted Subsidiaries; (iv) any payments
or  other  transactions  pursuant  to  any  tax-sharing  agreement  between  the
Corporation and any other Person with which the Corporation files a consolidated
tax return or with which the Corporation is part of a consolidated group for tax
purposes; (v) any agreement as in effect as of the Closing Date or any amendment
thereto (so long as any such amendment is not  disadvantageous to the Holders in
any  material  respect);  (vi)  the  existence  of,  or the  performance  by the
Corporation or any of its Restricted  Subsidiaries of its obligations  under the
terms  of,  any  stockholders   agreement  (including  any  registration  rights
agreement or purchase  agreement  related  thereto) to which it is a party as of
the Closing Date and any similar  agreements  which it may enter into thereafter
(so long as any such  amendment  is not  disadvantageous  to the  Holders in any
material respect);  or (vii) any Permitted  Investments and Restricted  Payments
not prohibited by Section XI(B).  Notwithstanding the foregoing, any transaction


                                       37
<PAGE>

or series of related transactions covered by the first paragraph of this Section
XI(E) and not  covered by  clauses  (ii)  through  (vii) of this  paragraph  the
aggregate  amount of which  exceeds $3.0  million in value,  must be approved or
determined to be fair in the manner provided for in clause (i)(A) or (B) above.

         (F)      LIMITATION ON ASSET SALES

                  The Corporation shall not, and shall not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless (i) the consideration  received
by the Corporation or such  Restricted  Subsidiary is at least equal to the fair
market  value of the  assets  sold or  disposed  of and (ii) at least 75% of the
consideration  received  consists of cash or  Temporary  Cash  Investments.  For
purposes  of this  covenant,  the  following  are  deemed  to be  cash:  (x) the
principal  amount or accreted value (whichever is larger) of Indebtedness of the
Corporation or any Restricted  Subsidiary  with respect to which the Corporation
or such  Restricted  Subsidiary has either (A) received a written release or (B)
been  released by operation of law, in either case,  from all  liability on such
Indebtedness in connection  with such Asset Sale and (y) securities  received by
the  Corporation  or any  Restricted  Subsidiary  from the  transferee  that are
promptly  converted by the Corporation or such Restricted  Subsidiary into cash.
In the  event  and to the  extent  that the Net Cash  Proceeds  received  by the
Corporation or any of its Restricted  Subsidiaries  from one or more Asset Sales
occurring  on or after the Closing Date in any period of 12  consecutive  months
exceed 10% of Adjusted  Consolidated  Net Tangible Assets  (determined as of the
date  closest  to  the   commencement  of  such  12-month  period  for  which  a
consolidated  balance sheet of the  Corporation  and its  Subsidiaries  has been
provided to the Transfer Agent),  then the Corporation  shall or shall cause the
relevant  Restricted  Subsidiary to (i) within 12 months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible Assets (A)
apply an amount  equal to such  excess Net Cash  Proceeds to  permanently  repay
Indebtedness of the Corporation, repay Indebtedness of any Restricted Subsidiary
or redeem  any  Senior  Securities,  in each case owing to, or held by, a Person
other than the  Corporation or any of its Restricted  Subsidiaries or (B) invest
an equal amount,  or the amount not so applied  pursuant to clause (A) (or enter
into a definitive  agreement  committing to so invest within 12 months after the
date of such agreement),  in property or assets (other than current assets) of a
nature  or type or that are used in a  business  (or in a Person  (other  than a
natural  person) having property and assets of a nature or type, or engaged in a
business)  similar or related to the nature or type of the  property  and assets
of, or the business of, the Corporation and its Restricted Subsidiaries existing
on the date of such  investment  (as  determined  in good  faith by the Board of
Directors  whose  determination  shall be  conclusive  and  evidenced by a Board
Resolution)  and  (ii)  apply  (no  later  than the end of the  12-month  period
referred  to in clause  (i)) such  excess Net Cash  Proceeds  (to the extent not
applied  pursuant to clause (i)) as provided in the following  paragraph of this
Section  XI(F).  The amount of such  excess  Net Cash  Proceeds  required  to be
applied (or to be committed to be applied)  during such  12-month  period as set
forth in clause (i) of the preceding  sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."

                  If, as of the first day of any calendar  month,  the aggregate
amount  of Excess  Proceeds  not  theretofore  subject  to an Offer to  Purchase
pursuant to this Section XI(F) totals at least $5 million,  the Corporation must


                                       38
<PAGE>

commence,  not  later  than  the  fifteenth  Business  Day of  such  month,  and
consummate  an Offer to Purchase  from the  Holders on a pro rata basis,  and an
offer to purchase any  outstanding  Parity  Securities  with similar  provisions
requiring the  Corporation to make an offer to purchase such  securities,  in an
aggregate  liquidation  preference  of Series E Preferred  Stock and such Parity
Securities  equal to (A) with  respect  to the  Series E  Preferred  Stock,  the
product of such Excess Proceeds multiplied by a fraction, the numerator of which
is the  liquidation  preference  of the  outstanding  shares  of  the  Series  E
Preferred  Stock  and the  denominator  of which  is the sum of the  outstanding
liquidation  preference  of  the  Series  E  Preferred  Stock  and  such  Parity
Securities (the product hereinafter referred to as the "Series E Preferred Stock
Amount"),  and (B) with  respect  to the  Parity  Securities,  the excess of the
Excess  Proceeds over the Series E Preferred  Stock Amount,  at a purchase price
equal to 100% of the  liquidation  preference of the Series E Preferred Stock or
such Parity Securities, as the case may be, on the relevant Payment Date or such
other date set forth in the documentation governing the Parity Securities, plus,
in each case,  accrued dividends (if any) to the Payment Date or such other date
set forth in the documentation governing the Parity Securities. If the aggregate
purchase price of the Preferred Stock tendered pursuant to the Offer to Purchase
is less than the Excess Proceeds, the remaining will be available for use by the
Corporation for general corporate  purposes.  Upon the consummation of any Offer
to Purchase in accordance  with the terms of this  Certificate of  Designations,
the amount of Net Cash  Proceeds from Asset Sales subject to any future Offer to
Purchase shall be deemed to be zero.  Prior to commencing any Offer to Purchase,
the Corporation shall first consummate any offer to purchase required to be made
to any Holder of its Indebtedness.

         (G) COMMISSION REPORTS AND REPORTS TO HOLDERS.

                  While the Series E Preferred Stock is outstanding,  whether or
not the  Corporation is then required to file reports with the  Commission,  the
Corporation  shall deliver for filing with the  Commission  all such reports and
other  information  as it would be  required  to file  with  the  Commission  by
Sections 13(a) or 15(d) under the Exchange Act if it were subject  thereto.  All
references  herein to reports  "filed"  with the  Commission  shall be deemed to
refer to the reports then most  recently  delivered  for filing,  whether or not
accepted by the Commission.

XII.     MUTILATED OR MISSING SERIES E PREFERRED STOCK CERTIFICATES.

                  If any of the Series E Preferred Stock  certificates  shall be
mutilated,  lost, stolen or destroyed,  the Corporation shall issue, in exchange
and in  substitution  for  and  upon  cancellation  of the  mutilated  Series  E
Preferred Stock  certificate,  or in lieu of and  substitution  for the Series E
Preferred Stock certificate lost, stolen or destroyed,  a new Series E Preferred
Stock  certificate of like tenor and representing an equivalent amount of shares
of Series E  Preferred  Stock,  but only upon  receipt of evidence of such loss,
theft or destruction of such Series E Preferred Stock certificate and indemnity,
if requested, satisfactory to the Corporation.


                                       39
<PAGE>

XIII.    REISSUANCE:  PREEMPTIVE RIGHTS

                  (i) Shares of Series E  Preferred  Stock that have been issued
and  reacquired in any manner,  including  shares  purchased or redeemed,  shall
(upon  compliance  with any  applicable  provisions  of the laws of the State of
Delaware) have the status of authorized and unissued  shares of Preferred  Stock
undesignated  as to series and may be  redesignated  and reissued as part of any
series of Preferred Stock.

                  (ii) No shares  of Series E  Preferred  Stock  shall  have any
rights of preemption whatsoever as to any securities of the Corporation,  or any
warrants,  rights or options issued or granted with respect thereto,  regardless
of how such  securities or such  warrants,  rights or options may be designated,
issued or granted.

XIV.     BUSINESS DAY.

                  If any  payment or  redemption  shall be required by the terms
hereof  to be  made  on a day  that  is not a  Business  Day,  such  payment  or
redemption  shall  be made on the  immediately  succeeding  Business  Day and no
further dividends shall accrued after the day payment was required.

XV.      HEADINGS OF SUBDIVISIONS.

                  The   headings   of  various   subdivisions   hereof  are  for
convenience of reference only and shall not affect the  interpretation of any of
the provisions hereof.



                                       40
<PAGE>

XVI.     SEVERABILITY OF PROVISIONS.

                  If  any  right,  preference  or  limitation  of the  Series  E
Preferred Stock set forth in this Certificate of Designations (as may be amended
from time to time) is invalid, unlawful or incapable of being enforced by reason
of any  rule  or  law or  public  policy,  all  other  rights,  preferences  and
limitations set forth in this Certificate of Designations, as amended, which can
be given effect without the invalid, unlawful or unenforceable right, preference
or limitation shall, nevertheless remain in full force and effect, and no right,
preference or  limitation  herein set forth shall be deemed  dependent  upon any
other such right, preference or limitation unless so expressed herein.

XVII.    NOTICE

                  All  notices,  requests,  demands,  and  other  communications
hereunder  shall be in  writing  and shall be deemed to have been duly  given if
delivered by hand or when sent by telex or telecopier (with receipt  confirmed),
provided  a copy is also  sent by  express  (overnight,  if  possible)  courier,
addressed (i) in the case of a Holder of the Series E Preferred  Stock,  to such
holder's address of record shown on the records of the Corporation,  and (ii) in
the case of the Corporation,  to the Corporation's  principal  executive offices
(currently  located  on the date of the  adoption  of these  resolutions  at the
following  address:  KMC  Telecom  Holdings,  Inc.,  1545 Route 206,  Suite 300,
Bedminster,  New  Jersey  07921) to the  attention  of the  Corporation's  Chief
Financial Officer.

XVIII.   LIMITATIONS.

                  Except as may  otherwise  be  required  by law,  the shares of
Series E Preferred  Stock shall not have any powers,  preferences  or  relative,
participating,  optional or other special  rights other than those  specifically
set forth in this  Certificate of  Designations  (as may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.

XIX.     TRANSFER AND LEGENDING OF SHARES.

                  No transfer of shares of the Series E Preferred Stock shall be
effective until such transfer is registered on the books of the Corporation. Any
shares of the Series E Preferred  Stock so  transferred  must bear the following
legend:

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  NOR HAS IT BEEN
                  REGISTERED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE.
                  THIS  SECURITY  MAY NOT BE  OFFERED,  SOLD,  PLEDGED OR IN ANY
                  OTHER  MANNER  TRANSFERRED  OR  DISPOSED  OF  UNLESS  (I) SUCH
                  TRANSFER  IS IN  COMPLIANCE  WITH THE  SECURITIES  ACT AND THE
                  APPLICABLE  RULES AND  REGULATIONS  THEREUNDER  AND APPLICABLE
                  STATE  SECURITIES  LAWS OR BLUE SKY LAWS AND (II) PRIOR TO ANY


                                       41
<PAGE>

                  SUCH TRANSFER,  THE  TRANSFEROR OR THE TRANSFEREE  DELIVERS AN
                  OPINION OF COUNSEL (REASONABLY  ACCEPTABLE TO THE CORPORATION)
                  TO THE TRANSFER AGENT AND THE CORPORATION,  THAT SUCH TRANSFER
                  IS IN COMPLIANCE  WITH THE  SECURITIES  ACT AND THE APPLICABLE
                  RULES AND REGULATIONS THEREUNDER.

                  The  Corporation   shall  refuse  to  register  any  attempted
transfer  of shares  of Series E  Preferred  Stock not in  compliance  with this
Article XIX.

                  In the event the shares of Series E Preferred Stock are issued
as part of a unit together with Warrants, the shares of Series E Preferred Stock
and the Warrants shall not be separately  transferable from each other until the
next Business Day after the issuance of such shares of Series E Preferred  Stock
or until such other date as may be specified in a legend to the shares of Series
E Preferred Stock.

XX.      AMENDMENTS AND WAIVERS

                  (A)  Except  as  provided  in  this  Article  XX,  any  right,
preference,  privilege or power of, or restriction  provided for the benefit of,
the Series E Preferred  Stock set forth herein may be amended and the observance
thereof may be waived (either  generally or in a particular  instance and either
retroactively or prospectively) only with the written consent of the Corporation
and the  affirmative  vote or  written  consent  of the  Holders  of at  least a
majority of the shares of Series E Preferred Stock then  outstanding  (excluding
any shares held by Affiliates of the Corporation,  any Existing  Stockholders or
any of their  Affiliates),  and any  amendment  or waiver so  effected  shall be
binding upon the Corporation and all Holders of the Series E Preferred Stock.

                  (B) Notwithstanding the foregoing, if any amendment is made to
the covenants of the Senior  Discount  Note  Indenture,  in accordance  with the
provisions therein, then a conforming amendment may be made to the covenants set
forth in Article XI of this  Certificate  of  Designations  by the  Corporation,
without the  consent of any  Holder,  and any  amendment  so  effected  shall be
binding upon the  Corporation  and all Holders of the Series E Preferred  Stock;
PROVIDED  HOWEVER,  that if in connection  with making any such amendment to the
Senior Discount Note Indenture,  the Corporation has paid  consideration  to the
holders  of the  Senior  Discount  Notes to obtain  their  consent  to make such
amendment,  then the Corporation shall pay each Holder  consideration per $1,000
liquidation  preference of Series E Preferred  Stock equal to the  consideration
per $1,000  principal amount of Senior Discount Notes paid to the holders of the
Senior Discount  Notes.  In connection with any such amendment,  the Corporation
shall deliver to the Transfer Agent an Opinion of Counsel, reasonably acceptable
to it, that such amendment complies with the terms hereof. The Corporation shall
provide  notice  in  accordance  with  Article  XVII  of  this   Certificate  of
Designations  of any  amendment  effected  pursuant to this Section XX(B) to the
Holders of the Series E Preferred Stock.


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<PAGE>

XXI.     INCREASE OF AUTHORIZED AMOUNT OF SHARES.

                  Notwithstanding  any  other  provision  herein,  the  Board of
Directors may, from time to time, in its sole discretion, increase the number of
shares of Preferred  Stock  designated as Series E Preferred Stock under Article
II of this  Certificate of  Designations,  up to the maximum amount of shares of
Preferred Stock  authorized to be issued,  without the consent of the holders of
any shares of its Capital Stock.

XXII.    ISSUANCE OF ADDITIONAL SHARES OF SERIES E PREFERRED STOCK.

                  Except  with  respect  to the  issuance  of shares of Series E
Preferred  Stock  to pay  dividends  on the  Series  E  Preferred  Stock or upon
conversion  of the  Series F  Preferred  Stock,  the  Corporation  may not issue
additional shares of the Series E Preferred Stock to any purchaser unless (A) it
has  obtained the consent of the Holders of a majority of the shares of Series E
Preferred Stock then  outstanding and the holders of a majority of the shares of
Series F Preferred Stock then outstanding or (B)(i) the per share price paid for
such  additional  shares is at least  equal to the per share  price  paid to the
Corporation  for the shares of Series E  Preferred  Stock  issued on the Closing
Date,  (ii) the  Corporation  does not issue to such purchaser more than 1,136.4
Warrants per $1,000,000 of liquidation  preference of Series E Preferred  Stock,
(iii) (a) the Holders of Series E  Preferred  Stock  issued on the Closing  Date
retain their right to receive at least 147.73 Warrants,  pursuant to Section 2.4
of the Warrant  Agreement,  per $100,000 of  liquidation  preference of Series E
Preferred  Stock  issued on the  Closing  Date and (b) the  holders  of Series F
Preferred  Stock  issued on the Closing  Date  retain  their right to receive at
least 147.73  Warrants,  pursuant to Section 2.4 of the Warrant  Agreement,  per
$100,000 of  liquidation  preference  of Series F Preferred  Stock issued on the
Closing Date and (iv) the aggregate amount of shares of Series E Preferred Stock
and Series F  Preferred  Stock  issued  (other than shares of Series E Preferred
Stock and Series F Preferred Stock issued to pay dividends  thereon or shares of
Series E Preferred Stock issued upon conversion of the Series F Preferred Stock)
shall not exceed 150,000 shares.

                  Except  with  respect  to the  issuance  of shares of Series F
Preferred  Stock  to  pay  dividends  on  the  Series  F  Preferred  Stock,  the
Corporation  shall not issue in  excess of 40,000  shares of Series F  Preferred
Stock,  unless it has  obtained  the consent of the Holders of a majority of the
shares of  Series E  Preferred  Stock  then  outstanding  and the  holders  of a
majority of the shares of Series F Preferred Stock then outstanding.


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                  IN WITNESS  WHEREOF,  this Certificate has been signed on this
day of 30th April, 1999.

                                      KMC TELECOM HOLDINGS, INC.


                                             /s/   James D. Grenfell
                                      By: ------------------------------
                                          Name:    James D. Grenfell
                                          Title    Chief Financial Officer

Attested by:



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