EXHIBIT 4.2







                           KMC TELECOM HOLDINGS, INC.,
                                   as Issuer,



                           KMC TELECOM FINANCING, INC.
                                  as Guarantor,


                                       and


                            THE CHASE MANHATTAN BANK,
                                   as Trustee




                                    Indenture

                            Dated as of May 24, 1999





                          13 1/2% Senior Notes due 2009






<PAGE>

                              CROSS-REFERENCE TABLE



TIA SECTIONS                                       INDENTURE SECTIONS

ss. 310(a)(1).....................................          7.10
       (a)(5).....................................          7.10
       (b)........................................          7.03; 7.08
ss. 311...........................................          7.03
ss. 313(a)........................................          7.06
       (c)........................................          7.05; 7.06
ss. 314(a)........................................          4.17
       (b)........................................          10.01
       (c)(1).....................................          1.01
       (d)........................................          10.01
       (e)........................................          1.01
ss. 315(a)........................................          7.02
       (b)........................................          7.05; 10.02
ss. 316(a)........................................          6.06

Note: The Cross-Reference Table shall not for any purpose be deemed to be a
      part of the Indenture.


<PAGE>



                                      iii



                                TABLE OF CONTENTS
                                                                            Page

   RECITALS OF THE COMPANY...................................................1

ARTICLE ONE   DEFINITIONS AND INCORPORATION BY REFERENCE
   SECTION 1.01.  Definitions................................................1
   SECTION 1.02.  Incorporation by Reference of Trust Indenture Act.........25
   SECTION 1.03.  Rules of Construction.....................................26

ARTICLE TWO  THE NOTES
   SECTION 2.01.  Form and Dating...........................................26
   SECTION 2.02.  Restrictive Legends.......................................28
   SECTION 2.03.  Execution, Authentication and Denominations...............30
   SECTION 2.04.  Registrar and Paying Agent................................31
   SECTION 2.05.  Paying Agent to Hold Money in Trust.......................32
   SECTION 2.06.  Transfer and Exchange.....................................32
   SECTION 2.07.  Book-Entry Provisions for Global Notes....................33
   SECTION 2.08.  Special Transfer Provisions...............................35
   SECTION 2.09.  Replacement Notes.........................................38
   SECTION 2.10.  Outstanding Notes.........................................38
   SECTION 2.11.  Temporary Notes...........................................39
   SECTION 2.12.  Cancellation..............................................39
   SECTION 2.13.  CUSIP Numbers.............................................39
   SECTION 2.14.  Defaulted Interest........................................40
   SECTION 2.15.  Issuance of Additional Notes..............................40

ARTICLE THREE  REDEMPTION
   SECTION 3.01.  Right of Redemption.......................................40
   SECTION 3.02.  Notices to Trustee........................................41
   SECTION 3.03.  Selection of Notes to Be Redeemed.........................41
   SECTION 3.04.  Notice of Redemption......................................41
   SECTION 3.05.  Effect of Notice of Redemption............................43
   SECTION 3.06.  Deposit of Redemption Price...............................43
   SECTION 3.07.  Payment of Notes Called for Redemption....................43
   SECTION 3.08.  Notes Redeemed in Part....................................43

<PAGE>
                                       iv
                                                                            Page

ARTICLE FOUR  COVENANTS
   SECTION 4.01.  Payment of Notes..........................................44
   SECTION 4.02.  Maintenance of Office or Agency...........................44
   SECTION 4.03.  Limitation on Indebtedness................................45
   SECTION 4.04.  Limitation on Restricted Payments.........................48
   SECTION 4.05.  Limitation on Dividend and Other Payment Restrictions
                  Affecting Restricted Subsidiaries.........................52
   SECTION 4.06.  Limitation on the Issuance and Sale of Capital Stock of
                  Restricted Subsidiaries...................................53
   SECTION 4.07.  Limitation on Issuances of Guarantees by Restricted
                  Subsidiaries..............................................54
   SECTION 4.08.  Limitation on Transactions with Shareholders and Affiliates55
   SECTION 4.09.  Limitation on Liens.......................................56
   SECTION 4.10.  Limitation on Sale-Leaseback Transactions.................57
   SECTION 4.11.  Limitation on Asset Sales.................................57
   SECTION 4.12.  Repurchase of Notes upon a Change of Control..............59
   SECTION 4.13.  Existence.................................................59
   SECTION 4.14.  Payment of Taxes and Other Claims.........................59
   SECTION 4.15.  Maintenance of Properties and Insurance...................59
   SECTION 4.16.  Notice of Defaults........................................60
   SECTION 4.17.  Compliance Certificates...................................60
   SECTION 4.18.  Commission Reports and Reports to Holders.................60
   SECTION 4.19.  Waiver of Stay, Extension or Usury Laws...................61
   SECTION 4.20   Limitation on Incurrence of Liability by Guarantor .......61

ARTICLE FIVE  SUCCESSOR CORPORATION
   SECTION 5.01.  When Company May Merge, Etc...............................61
   SECTION 5.02.  Successor Substituted.....................................62

ARTICLE SIX  DEFAULT AND REMEDIES
   SECTION 6.01.  Events of Default.........................................63
   SECTION 6.02.  Acceleration..............................................64
   SECTION 6.03.  Other Remedies............................................65
   SECTION 6.04.  Waiver of Past Defaults...................................65
   SECTION 6.05.  Control by Majority.......................................65
   SECTION 6.06.  Limitation on Suits.......................................66
   SECTION 6.07.  Rights of Holders to Receive Payment......................66
   SECTION 6.08.  Collection Suit by Trustee................................66
   SECTION 6.09.  Trustee May File Proofs of Claim..........................67
   SECTION 6.10.  Priorities................................................67
   SECTION 6.11.  Undertaking for Costs.....................................68
   SECTION 6.12.  Restoration of Rights and Remedies........................68
   SECTION 6.13.  Rights and Remedies Cumulative............................68
   SECTION 6.14.  Delay or Omission Not Waiver..............................68

<PAGE>
                                       v
                                                                            Page
ARTICLE SEVEN  TRUSTEE
   SECTION 7.01.  General...................................................69
   SECTION 7.02.  Certain Rights of Trustee.................................69
   SECTION 7.03.  Individual Rights of Trustee..............................70
   SECTION 7.04.  Trustee's Disclaimer......................................70
   SECTION 7.05.  Notice of Default.........................................71
   SECTION 7.06.  Reports by Trustee to Holders.............................71
   SECTION 7.07.  Compensation and Indemnity................................71
   SECTION 7.08.  Replacement of Trustee....................................72
   SECTION 7.09.  Successor Trustee by Merger, Etc..........................73
   SECTION 7.10.  Eligibility...............................................73
   SECTION 7.11.  Money Held in Trust.......................................73
   SECTION 7.12.  Withholding Taxes.........................................73

ARTICLE EIGHT  DISCHARGE OF INDENTURE
   SECTION 8.01. Termination of the Company's Obligations...................74
   SECTION 8.02.  Defeasance and Discharge of Indenture.....................75
   SECTION 8.03.  Defeasance of Certain Obligations.........................76
   SECTION 8.04.  Application of Trust Money................................77
   SECTION 8.05.  Repayment to Company......................................77
   SECTION 8.06.  Reinstatement.............................................77
   SECTION 8.07.  Defeasance and Certain Other Events of Default............78

ARTICLE NINE    AMENDMENTS, SUPPLEMENTS AND WAIVERS
   SECTION 9.01.  Without Consent of Holders................................78
   SECTION 9.02.  With Consent of Holders...................................79
   SECTION 9.03.  Revocation and Effect of Consent..........................80
   SECTION 9.04.  Notation on or Exchange of Notes..........................81
   SECTION 9.05.  Trustee to Sign Amendments, Etc...........................81
   SECTION 9.06.  Conformity with Trust Indenture Act.......................81

ARTICLE TEN     SECURITY
   SECTION 10.01.  Security.................................................81

<PAGE>
                                       vi
                                                                            Page
ARTICLE ELEVEN  GUARANTEE
   SECTION 11.01.  Guarantee................................................81
   SECTION 11.02.  Obligations Unconditional................................81
   SECTION 11.03.  Notice to Trustee........................................81
   SECTION 11.03.  This Article Not to Prevent Events of Default............81
   SECTION 11.03.  Net Worth Limitation.....................................81

ARTICLE TWELVE  MISCELLANEOUS
   SECTION 12.01.  Trust Indenture Act of 1939..............................83
   SECTION 12.02.  Notices..................................................83
   SECTION 12.03.  Certificate and Opinion As to Conditions Precedent.......85
   SECTION 12.04.  Statements Required in Certificate or Opinion............85
   SECTION 12.05.  Rules by Trustee, Paying Agent or Registrar..............85
   SECTION 12.06.  Payment Date Other Than a Business Day...................85
   SECTION 12.07.  Governing Law; Submission to Jurisdiction; Agent for
                   Service..................................................86
   SECTION 12.08.  No Adverse Interpretation of Other Agreements............86
   SECTION 12.09.  No Recourse Against Others...............................86
   SECTION 12.10.  Successors...............................................86
   SECTION 12.11.  Duplicate Originals......................................86
   SECTION 12.12.  Separability.............................................86
   SECTION 12.13.  Table of Contents, Headings, Etc.........................87

   EXHIBIT A      Form of Note.............................................A-1
   EXHIBIT B      Form of Certificate......................................B-1
   EXHIBIT C      Form of Certificate to Be Delivered in Connection with
                  Transfers Pursuant to Regulation S.......................C-1
   EXHIBIT D      Form of Certificate to Be Delivered in Connection with
                  Transfers to Non-QIB Accredited Investors................D-1


<PAGE>


            INDENTURE,  dated as of May 24,  1999,  among KMC TELECOM  HOLDINGS,
INC., a Delaware corporation,  as issuer (the "COMPANY"), KMC TELECOM FINANCING,
INC., as guarantor (the  "GUARANTOR"),  and THE CHASE MANHATTAN BANK, as trustee
(the "TRUSTEE").

                             RECITALS OF THE COMPANY

            The Company has duly  authorized  the execution and delivery of this
Indenture to provide for the issuance  from time to time of 13 1/2% Senior Notes
due 2009 as well as the Exchange Notes  (collectively,  the "NOTES") issuable as
provided in this Indenture.  Pursuant to the terms of a Purchase Agreement dated
as of May 19,  1999 (the  "PURCHASE  AGREEMENT")  between the Company and Morgan
Stanley & Co. Incorporated,  Credit Suisse First Boston Corporation, First Union
Capital Markets Corp., CIBC World Markets Corp.,  BancBoston  Robertson Stephens
Inc.  and  Wasserstein  Perella  Securities,  Inc.  (collectively,  the "INITIAL
PURCHASERS"),  the Company has agreed to issue and sell  $275,000,000  aggregate
principal  amount of the Notes.  All things  necessary to make this  Indenture a
valid agreement of the Company and the Guarantor,  in accordance with its terms,
have been done, and the Company has done all things necessary to make the Notes,
when  executed by the Company and  authenticated  and  delivered  by the Trustee
hereunder and duly issued by the Company,  the valid  obligations of the Company
as hereinafter provided. The Guarantor has done all things necessary to make the
Note Guarantee (as defined herein), when executed by the Guarantor and the Notes
are  authenticated by and delivered by the Trustee,  the valid obligation of the
Guarantor as  hereinafter  provided.  The Notes will be secured  pursuant to the
terms of a Pledge  Agreement  (as  defined  herein)  by  Pledged  Securities  as
provided by Article Eleven of this Indenture.

            This Indenture  will,  upon the  effectiveness  of the  registration
statement provided for under the Registration  Rights Agreement,  be subject to,
and governed by, the provisions of the Trust  Indenture Act of 1939, as amended,
that are required to be a part of and to govern  indentures  qualified under the
Trust Indenture Act of 1939, as amended.

            For and in  consideration  of the  premises  and the purchase of the
Notes by the Holders  thereof,  it is mutually  covenanted  and agreed,  for the
equal and proportionate benefit of all Holders, as follows.


<PAGE>
                                       2




                                   ARTICLE ONE
                  DEFINITIONS AND INCORPORATION BY REFERENCE

            SECTION 1.01.  DEFINITIONS.

             "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 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.

<PAGE>
                                       3

             "Adjusted  Consolidated  Net Income"  means,  for any  period,  the
aggregate  net income (or loss) of the Company 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 Company
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 (iv) (C) of
paragraph  (a) of Section  4.04 hereof  (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 Company or any of its Restricted Subsidiaries or all or
substantially  all of the property and assets of such Person are acquired by the
Company  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  or  the  termination  of  discontinued
operations;  (v) except for  purposes of  calculating  the amount of  Restricted
Payments  that may be made  pursuant  to  clause  (iv) (C) of  paragraph  (a) of
Section 4.04 hereof,  any amount paid or accrued as dividends on Preferred Stock
of the  Company or any  Restricted  Subsidiary  owned by Persons  other than the
Company 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 Closing Date; and (viii) at the irrevocable election of the
Company 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 under Section 4.04 hereof,  such
entity shall be treated as an Unrestricted  Subsidiary  until such  discontinued
operations have actually been disposed of.

             "Adjusted  Consolidated Net Tangible Assets" means the total amount
of  assets of the  Company  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  Company  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  Company  and its  Restricted  Subsidiaries,
prepared in conformity  with GAAP,  and filed with the Commission or provided to
the Trustee pursuant to Section 4.18 hereof.

             "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.

             "Agent" means any Registrar, Paying Agent, authenticating agent
or co-Registrar.

             "Agent Members" has the meaning provided in Section 2.07(a).

             "Asset  Acquisition"  means (i) an investment by the Company 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 Company or any of its Restricted Subsidiaries or (ii) an acquisition by
the Company or any of its Restricted  Subsidiaries of the property and assets of
any Person  other than the Company or any of its  Restricted  Subsidiaries  that
constitute substantially all of a division or line of business of such Person.

<PAGE>
                                       4

             "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  Company or any of its
Restricted  Subsidiaries  to any  Person  other  than the  Company 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 Company 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  Company  or  any  of  its
Restricted  Subsidiaries  outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by Article
Five  hereof;  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 property or assets of the kind described in clause (B)
of paragraph (b) of Section 4.11 hereof,  (c) a disposition of cash or Temporary
Cash Investments,  (d) any Restricted  Payment that is permitted to be made, and
is made,  under Section 4.04 hereof,  (e) sales or other  dispositions of assets
with a fair market  value (as  certified  in an  Officers'  Certificate)  not in
excess of $500,000 (provided that any series of related sales or dispositions in
excess of $500,000 shall be considered "Asset Sales"), (f) 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
Company or any of its Restricted  Subsidiaries  otherwise  permitted  under this
Indenture  and the  indenture  for the Senior  Discount  Notes,  including  such
pledges securing  Indebtedness under the Senior Secured Credit Facility or under
the Lucent Facility, and (i) the exercise of warrants to acquire Common Stock of
the Company and the exercise of warrants to acquire Common Stock of KMC Telecom,
Inc. by Newcourt Finance.

             "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 Company or
the  Guarantor  as  required by the  context or any  committee  of such Board of
Directors duly authorized to act under this Indenture.

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

             "Business Day" means any day except a Saturday, Sunday or other day
on  which  commercial  banks  in The  City of New  York,  or in the  city of the
Corporate Trust Office of the Trustee, are authorized by law to close.

<PAGE>
                                       5


             "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,  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.

             "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.

             "Certificated Notes" has the meaning provided in Section 2.01.

             "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 35% of the  total  voting  power of the  Voting  Stock of the
Company  on a fully  diluted  basis  and such  ownership  represents  a  greater
percentage  of the total voting  power of the Voting Stock of the Company,  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  Company'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
previously  so  approved)  cease for any reason to  constitute a majority of the
members of the Board of Directors then in office.

             "Closing  Date"  means the date on which  the Notes are  originally
issued under this Indenture.

             "Commission" means the Securities and Exchange Commission,  as from
time to time  constituted,  created  under the  Exchange  Act or, if at any time
after the  execution  of this  instrument  such  Commission  is not existing and
performing the duties now assigned to it under the TIA, then the body performing
such duties at such time.

<PAGE>
                                       6

             "Common  Stock"  means,  with  respect to any  Person,  any and all
shares,  interests,  participations  or other equivalents  (however  designated,
whether  voting or  non-voting)  of such  Person's  common  stock,  whether  now
outstanding  or issued  after  the date of this  Indenture,  including,  without
limitation, all series and classes of such common stock.

             "Company"  means the party named as such in the first  paragraph of
this  Indenture  until  a  successor  replaces  it  pursuant  to the  applicable
provisions of this Indenture and thereafter means the successor.

             "Company Order" means a written request or order signed in the name
of the Company (i) by its Chairman of the Board, its Vice Chairman of the Board,
its  President  or a Vice  President  and (ii) by its Chief  Financial  Officer,
Treasurer,  an Assistant Treasurer,  its Secretary or an Assistant Secretary and
delivered to the Trustee; PROVIDED,  HOWEVER, that such written request or order
may be signed by any two of the officers or directors listed in clause (i) above
in lieu of being  signed by one of such  officers  or  directors  listed in such
clause (i) and one of the officers listed in clause (ii) above.

             "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 Company
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 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  Company  or any of its  Restricted
Subsidiaries.

<PAGE>
                                       7

             "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
Company 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  Company 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 Senior Secured  Credit  Facility and the offerings of the
Series E Preferred  Stock,  the Series F Preferred  Stock,  the Senior  Discount
Notes and the Notes,  all as determined on a consolidated  basis (without taking
into account Unrestricted Subsidiaries) in conformity with GAAP.


<PAGE>
                                       8

             "Consolidated  Leverage Ratio" means, on any Transaction  Date, the
ratio  of (i) the  aggregate  amount  of  Indebtedness  of the  Company  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 Company have
been filed with the  Commission  or provided to the Trustee  pursuant to Section
4.18 hereof (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"): (1) 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; (2) the Incurrence, repayment or retirement of any other Indebtedness by
the  Company  and its  Restricted  Subsidiaries  since the first day of the Four
Quarter Period as if such  Indebtedness  was incurred,  repaid or retired at the
beginning of the Four Quarter Period; (3) in the case of Acquired  Indebtedness,
the related acquisition, as if such acquisition occurred at the beginning of the
Four Quarter  Period;  (4) any acquisition or disposition by the Company and its
Restricted  Subsidiaries of any company 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 Company  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 Trustee 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 Company  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 (5) the occurrence of any
of the events described in clauses (1) - (4) above by any Person that has become
a  Restricted  Subsidiary  or has been  merged  with or into the  Company or any
Restricted  Subsidiary during such Reference  Period;  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  (taking into
account any Interest Rate Agreements  applicable to such  Indebtedness)  and (B)
which was not  outstanding  during the period for which the computation is being
made but which bears, at the option of the Company,  a fixed or floating rate of
interest shall be computed by applying, at the option of the Company, either the
fixed or floating rate,  and (y) in making such  computation,  the  Consolidated
Interest  Expense of the Company  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.

             "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 Company 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 Company or any of its 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).

<PAGE>
                                       9

             "Corporate  Trust  Office" means the office of the Trustee at which
the corporate  trust business of the Trustee shall,  at any particular  time, be
principally  administered,  which  office  is,  at the  date of this  Indenture,
located at 450 West 33rd Street, 15th Floor, New York, NY 10001-2697, Attention:
Capital Markets Fiduciary Services.

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

             "Default"  means any event  that is, or after  notice or passage of
time or both would be, an Event of Default.

             "Depository" shall mean The Depository Trust Company, its nominees,
and their respective successors.

             "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 Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such  class or  series  of  Capital  Stock at any  time  prior to the  Stated
Maturity  of the Notes 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 Stated  Maturity of the Notes;  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  Stated  Maturity  of  the  Notes  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
Sections  4.11 and 4.12 hereof 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  Company's  repurchase  of such  Notes  as are
required to be repurchased pursuant to Sections 4.11 and 4.12 hereof.

             "Equity  Offering" means any public or private sale of Common Stock
or Preferred Stock of the Company  (excluding  Disqualified  Stock),  other than
public  offerings with respect to the Company's  Common Stock registered on Form
S-8.

             "Event of Default" has the meaning provided in Section 6.01.


<PAGE>
                                       10


             "Excess Proceeds" has the meaning provided in Section 4.11.

             "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

             "Exchange  Notes" means any notes of the Company  containing  terms
identical to the Notes (except that such Exchange  Notes (i) shall be registered
under the  Securities  Act, (ii) will not provide for an increase in the rate of
interest (other than with respect to overdue amounts) and (iii) will not contain
terms with respect to transfer  restrictions)  that are issued and exchanged for
the Notes pursuant to the Registration Rights Agreement and this Indenture.

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

             "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 (ix) of paragraph  (b) of Section 4.03 hereof,  (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 Company exceeds $10 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 Trustee.

             "GAAP" means generally accepted accounting principles in the United
States of  America  as in  effect as of the  Closing  Date,  including,  without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American  Institute of Certified Public  Accountants and
statements and pronouncements of the Financial  Accounting Standards Board or in
such other statements by such other entity as approved by a significant  segment
of the accounting profession.  All ratios and computations contained or referred
to in this  Indenture  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
Indenture  shall be made without  giving effect to (i) the  amortization  of any
expenses  incurred in connection  with the Lucent  Facility,  the Senior Secured
Credit  Facility and the offerings of the Notes,  the Senior  Discount Notes and
the Company's Series C, Series D, Series E and 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.

             "Global Notes" has the meaning provided in Section 2.01.


<PAGE>
                                       11


             "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.

             "Guaranteed Indebtedness" has the meaning provided in Section
4.07.

             "Guarantor" means KMC Telecom Financing, Inc. and its successors
and assigns.

             "Guarantor  Order"  means a written  request or order signed in the
name of the Guarantor (i) by its Chairman of the Board, the Vice Chairman of the
Board,  its  President  or a Vice  President  and  (ii) by its  Chief  Financial
Officer,  Treasurer,  an  Assistant  Treasurer,  its  Secretary  or an Assistant
Secretary and  delivered to the Trustee;  PROVIDED,  HOWEVER,  that such written
request or order may be signed by any two of the officers or directors listed in
clause (i) above in lieu of being  signed by one of such  officers or  directors
listed in such clause (i) and one of the officers listed in clause (ii) above.

             "Holder" or "Noteholder" means the registered holder of any
Note.

             "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.


<PAGE>
                                       12

             "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 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.

             "Indenture"  means this  Indenture as originally  executed or as it
may be  amended  or  supplemented  from  time to time by one or more  indentures
supplemental  to  this  Indenture   entered  into  pursuant  to  the  applicable
provisions of this Indenture.

             "Initial Purchasers" has the meaning specified in the first
paragraph of the recitals to this Indenture.

             "Institutional  Accredited Investor" shall mean an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1),  (2), (3)
or (7) under the Securities Act.

             "Interest Payment Date" means each semiannual interest payment date
on May 15 and November 15 of each year, commencing November 15, 1999.

             "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.

<PAGE>
                                       13

             "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 Company 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  Company  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 4.06 hereof;  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  4.04  hereof,  (i)  "Investment"  shall
include the fair  market  value of the assets  (net of  liabilities  (other than
liabilities  to the  Company  or any of  its  Restricted  Subsidiaries))  of any
Restricted  Subsidiary at the time that such Restricted Subsidiary is designated
an  Unrestricted  Subsidiary,  (ii) the fair market  value of the assets (net of
liabilities  (other than  liabilities  to the  Company 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 Baa1 or higher by Moody's or the equivalent
of such rating by such rating  organization,  or, if no rating of 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 Company 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.


<PAGE>
                                       14


             "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 Facility" means the vendor financing  facility among Lucent
Technologies  Inc.,  KMC Telecom  III,  Inc.  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,  as the same may be
amended,  restated,  modified,  renewed,  refunded,  replaced, or refinanced, in
whole  or in part,  from  time to time  (and  whether  or not with the  original
administrative  agent and  lenders  or other  administrative  agent or agents or
other lenders and whether  provided  under the original  Lucent  Facility or any
other credit agreement or indenture).

             "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.

             "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 Company 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 Company 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
Company  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

<PAGE>
                                       15

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 Company 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.

             "Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S.

             "Note Amount" has the meaning provided in Section 4.11 hereof.

             "Note Guarantee" means the Guarantee of the Notes by the
Guarantor as provided for in this Indenture.

             "Notes" means any of the notes,  as defined in the first  paragraph
of the  recitals  hereof,  that  are  authenticated  and  delivered  under  this
Indenture.  For all purposes of this  Indenture,  the term "Notes" shall include
any  Exchange  Notes to be issued and  exchanged  for any Notes  pursuant to the
Registration  Rights  Agreement  and this  Indenture  and,  for purposes of this
Indenture,  all Notes and  Exchange  Notes shall vote  together as one series of
Notes under this Indenture.

             "Note Register" has the meaning provided in Section 2.04.

             "Offer to Purchase" means an offer to purchase Notes by the Company
from the  Holders  commenced  by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly  tendered  will be accepted for payment on a pro rata basis;  (ii)
the purchase  price and the Payment Date;  (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the  purchase  price,  any Note  accepted for payment
pursuant  to the Offer to Purchase  shall cease to accrue  interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note,  together with the
form  entitled  "Option of the Holder to Elect  Purchase" on the reverse side of
the Note completed,  to the Paying Agent at the address  specified in the notice
prior to the close of business on the Business  Day  immediately  preceding  the
Payment Date;  (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  principal
amount of Notes  delivered  for  purchase  and a  statement  that such Holder is
withdrawing  his election to have such Notes  purchased;  and (vii) that Holders

<PAGE>
                                       16


whose Notes are being  purchased  only in part will be issued new Notes equal in
principal amount to the unpurchased  portion of the Notes surrendered;  PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral  multiple  thereof.  On the Payment  Date,  the Company
shall:  (i) accept for  payment on a pro rata basis  Notes 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 Notes or portions  thereof so
accepted; and (iii) deliver, or cause to be delivered,  to the Trustee all Notes
or  portions  thereof  so  accepted  together  with  an  Officers'   Certificate
specifying  the Notes or portions  thereof  accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase  price (or, if the Notes are  represented  by
one or more  permanent  global Notes  registered  in the name of The  Depository
Trust Company or its nominee, by such other method as required thereby), and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased  portion of the Note  surrendered;  PROVIDED
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or an integral  multiple  thereof.  The Company will publicly announce
the  results of an Offer to Purchase  as soon as  practicable  after the Payment
Date.  The Trustee  shall act as the Paying Agent for an Offer to Purchase.  The
Company  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  Company  is  required  to
repurchase Notes pursuant to an Offer to Purchase.

             "Officer" means, with respect to the Company or the Guarantor,  (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 Company or the Guarantor, as the case may be.

             "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.  Each Officers'  Certificate (other than certificates provided pursuant
to TIA Section  314(a)(4)) shall include the statements  provided for in Section
12.04.

             "Offshore Global Note" has the meaning provided in Section 2.01.

             "Offshore Certificated Notes" has the meaning provided in
Section 2.01.

             "Opinion  of  Counsel"  means a  written  opinion  signed  by legal
counsel who may be an  employee  of or counsel to the Company or the  Guarantor.
Each such Opinion of Counsel  shall include the  statements  provided for in TIA
Section 314(e).

             "Paying  Agent" has the meaning  provided in Section  2.04,  except
that,  for the  purposes  of Article  Eight,  the Paying  Agent shall not be the
Company or a Subsidiary of the Company or an Affiliate of any of them.  The term
"Paying Agent" includes any additional Paying Agent.


<PAGE>
                                       17

             "Payment  Date"  means  the  date of  purchase,  which  shall  be a
Business Day no earlier than 30 days nor later than 60 days from the date notice
is mailed pursuant to an Offer to Purchase.

             "Permanent  Regulation S Global Notes" means the  permanent  global
Notes  issued in exchange  for one or more  Temporary  Regulation S Global Notes
upon certification  that the beneficial  interests in such global Note are owned
by either Non-U.S. Persons or U.S. Persons who purchased such interests pursuant
to an  exemption  from,  or in  transactions  not subject  to, the  registration
requirements of the Securities Act.

             "Permitted  Investment" means (i) an Investment in the Company 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 Company
or a Restricted  Subsidiary;  PROVIDED  that such Person's  primary  business is
related,  ancillary or  complementary  to the  businesses of the Company 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 Company
or any of its Restricted  Subsidiaries  (x) in exchange for any other Investment
or accounts receivable held by the Company 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  Company  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 Capital  Stock  (other than  Disqualified
Stock) or the proceeds of the issuance of Capital Stock (other than Disqualified
Stock)  to the  extent  such  amounts  have not  been  previously  applied  to a
Restricted  Payment  pursuant to clause (iv) (C)(2) of paragraph  (a) of Section
4.04 hereof or clause (iii) or (iv) of  paragraph  (b) of Section 4.04 hereof or
used to  support  the  Incurrence  of  Indebtedness  pursuant  to clause  (x) of
paragraph  (b) under Section 4.03 hereof and  Investments  acquired as a capital
contribution;  (vi) Guarantees  permitted by Section 4.03 hereof; (vii) loans or
advances to employees of the Company or any Restricted Subsidiary that do not in
the aggregate exceed at any one time  outstanding $5.0 million;  (viii) Currency
Agreements  and Interest Rate  Agreements  permitted  under Section 4.03 hereof;
(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 Company and its
Subsidiaries  on the date of such  Investments in an amount not to exceed at any
time  outstanding  the sum of (x) $23.0  million  plus (y) 10% of the  Company'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 4.11 hereof;  and
(xiv)  Investments  in an  amount  not  to  exceed  $5.0  million  at  any  time
outstanding.

             "Permitted Joint Venture" means any Unrestricted  Subsidiary or any
other Person in which the Company 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
Company and its Restricted Subsidiaries at the time of determination.

<PAGE>
                                       18

             "Permitted   Liens"  means:  (i)  Liens  for  taxes,   assessments,
governmental  charges  or  claims  that are  being  contested  in good  faith by
appropriate legal proceedings  promptly instituted and diligently  conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in  conformity  with GAAP shall have been made;  (ii)  statutory  and common law
Liens of landlords, carriers,  warehousemen,  mechanics, suppliers,  materialmen
and repairmen, or other similar Liens arising in the ordinary course of business
and with  respect  to  amounts  not yet  delinquent  or that are bonded or being
contested in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision,  if
any, as shall be required in  conformity  with GAAP shall have been made;  (iii)
Liens incurred or deposits made in the ordinary course of business in connection
with  workers'  compensation,  unemployment  insurance and other types of social
security;  (iv) Liens  incurred or deposits  made to secure the  performance  of
tenders, bids, leases, licenses,  statutory or regulatory obligations,  bankers'
acceptances, surety and appeal bonds, trade or government contracts, performance
and return-of-money  bonds and other obligations of a similar nature incurred in
the ordinary  course of business  (exclusive of  obligations  for the payment of
borrowed  money);  (v) easements  (including  reciprocal  easement  agreements),
rights-of-way,  municipal,  building and zoning  ordinances and similar charges,
utility  agreements,  covenants,  reservations,   restrictions,   encroachments,
charges,  encumbrances,  title  defects  or  other  irregularities  that  do not
materially  interfere with the ordinary course of business of the Company or any
of its Restricted  Subsidiaries;  (vi) Liens (including  extensions and renewals
thereof)  upon  real or  personal  property  acquired  after the  Closing  Date;
PROVIDED that (a) such Lien is created  solely for the purpose of securing Trade
Payables  that  the  Company  reasonably  expects  to  pay  within  90  days  or
Indebtedness  Incurred,  in accordance with Section 4.03 hereof,  to finance the
cost  (including  the  cost of  improvements  or  construction)  of the  item of
property or assets  subject  thereto  and such Lien is created  prior to, at the
time of or within six months after the later of the acquisition,  the completion
of construction or the commencement of full operation of such property,  (b) the
principal amount of the Trade Payables or Indebtedness secured by such Lien does
not exceed  100% of such cost and (c) any such Lien shall not extend to or cover
any  property  or assets  other  than such item of  property  or assets  and any
improvements on such item;  (vii) leases or subleases  granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets  under  construction  arising from  progress or partial  payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized  Lease or operating  lease;  (x) Liens  arising from filing  Uniform
Commercial Code financing  statements  regarding leases;  (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such  Person  becomes,  or  becomes a part of, any  Restricted  Subsidiary;
PROVIDED that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted  Subsidiary;  (xiii) Liens
arising from the  rendering of a final  judgment or order against the Company or
any Restricted Subsidiary that does not give rise to an Event of Default;  (xiv)
Liens securing reimbursement  obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products  and  proceeds  thereof;  (xv)  Liens in favor of customs  and  revenue
authorities  arising as a matter of law to secure  payment of customs  duties in
connection  with the  importation of goods;  (xvi) Liens  encumbering  customary
initial  deposits  and  margin  deposits,  and other  Liens  that are within the
general parameters customary in the industry and incurred in the ordinary course
of business,  in each case, securing Indebtedness under Interest Rate Agreements
and  Currency  Agreements  and forward  contracts,  options,  future  contracts,

<PAGE>
                                       19


futures options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted  Subsidiaries from fluctuations in interest
rates,  currencies  or the price of  commodities;  (xvii)  Liens  arising out of
conditional sale, title retention,  consignment or similar  arrangements for the
sale of goods entered into by the Company or any of its Restricted  Subsidiaries
in the ordinary  course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables; and (xix) Liens on cash set aside at the time of the
Incurrence of any  Indebtedness,  or government  securities  purchased with such
cash,  in either  case to the  extent  that such cash or  government  securities
prefund or secure the payment of interest on such  Indebtedness  and are held in
an escrow account or similar arrangements to be applied for such purpose.

             "Person" means an  individual,  a  corporation,  a  partnership,  a
limited  liability  company,  a joint  venture,  an  association,  a  trust,  an
unincorporated  organization  or any other entity or  organization,  including a
government or political subdivision or an agency or instrumentality thereof.

             "Pledge Account" means the account established with the Trustee, or
any  successor  trustee,  pursuant to the terms of the Pledge  Agreement for the
purchase of the Pledged Securities.

             "Pledge   Agreement"  means  the  Collateral  Pledge  and  Security
Agreement  and the  Notification  and  Control  Agreement,  each dated as of the
Closing Date, made in favor of the Trustee,  governing the disbursement of funds
from  the  Pledge  Account,   as  such  agreement  may  be  amended,   restated,
supplemented or otherwise modified from time to time.

             "Pledged  Securities"  means the United States Treasury  securities
and/or security  entitlements  relating thereto to be held in the Pledge Account
and  pledged by the  Guarantor  in favor of the  Trustee  for the benefit of the
Trustee and the Holders of the Notes in accordance with the Pledge Agreement.

             "Preferred  Stock" or "preferred  stock" means, with respect to any
Person,  any and all  shares,  interests,  participations  or other  equivalents
(however designated, whether voting or non-voting) of such Person's preferred or
preference  stock,  whether  now  outstanding  or issued  after the date of this
Indenture,  including,  without  limitation,  all  series  and  classes  of such
preferred or preference stock.

             "principal"  of a debt  security,  including  the Notes,  means the
principal amount due on the Stated Maturity as shown on such debt security.

             "Private  Placement Legend" means the legend initially set forth on
the Notes in the form set forth in Section 2.02(a).

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


<PAGE>
                                       20

             "QIB" means a "qualified institutional buyer" as defined in Rule
144A.

             "Redemption  Date",  when  used  with  respect  to any Note or part
thereof to be redeemed,  means the date fixed for such redemption by or pursuant
to the terms of the Notes and this Indenture.

             "Redemption  Price",  when  used with  respect  to any Note or part
thereof to be  redeemed,  means the price at which  such Note is to be  redeemed
pursuant to the terms of the Notes and this Indenture.

             "Registrar" has the meaning provided in Section 2.04.

             "Registration  Rights  Agreement"  means  the  Registration  Rights
Agreement,  dated  as of May 19,  1999,  between  the  Company  and the  Initial
Purchasers relating to the Notes.

             "Registration  Statement" means any  registration  statement of the
Company  and the  Guarantor  that  covers  any of the  Exchange  Notes,  and all
amendments  and  supplements  to  any  such  Registration  Statement,  including
post-effective  amendments,  in each case  including  the  prospectus  contained
therein,  all  exhibits  thereto  and all  material  incorporated  by  reference
therein.

             "Regular  Record  Date" for the  interest  payable on any  Interest
Payment Date means the May 1 or November 1 (whether or not a Business  Day),  as
the case may be, immediately preceding such Interest Payment Date.

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

             "Responsible Officer", when used with respect to the Trustee, means
any officer of the Trustee with direct  responsibility for the administration of
this  Indenture  and also means,  with respect to a particular  corporate  trust
matter,  any other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.

             "Restricted Payments" has the meaning provided in Section 4.04.

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

             "Rule 144A" means Rule 144A under the Securities Act.

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


<PAGE>
                                       21


             "Senior Discount Notes" means the Company's 12 1/2% Senior Discount
Notes due 2008 issued in the original aggregate  principal amount at maturity of
$460,800,000 under an indenture dated as of January 29, 1998 between the Company
and The Chase Manhattan Bank, as trustee.

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

             "Series E Preferred Stock" means the Company's Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock.

             "Series F Preferred Stock" means the Company's Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock.

             "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.

             "Specified Date" means any Redemption Date, any Payment Date for an
Offer to Purchase  or any date on which the Notes  first  become due and payable
after an Event of Default.

             "S&P" means Standard & Poor's Ratings Services 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 (i)  Investments  that the Board of
Directors  has  determined  in good faith will  enable the Company or any of its
Restricted  Subsidiaries to obtain additional business that it might not be able
to obtain without making such  Investment,  and (ii) 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 Company 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.


<PAGE>
                                       22


             "Strategic  Subordinated  Indebtedness"  means  Indebtedness of the
Company  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 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 Company's  obligations under the 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 Company  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 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.

             "Subsidiary Guarantee" has the meaning provided in Section 4.07
hereof.

             "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

<PAGE>
                                       23

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 Company)
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-1"
(or higher)  according  to Moody's or "A-1" (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.

             "Temporary  Regulation S Global Note" means the Global Note bearing
the Private Placement Legend in bearer form without interest coupons,  that will
be issued in a denomination  equal to the  outstanding  principal  amount of the
Notes sold in  reliance on  Regulation  S and  deposited  with the  Trustee,  as
custodian for the Depository.

             "TIA" or "Trust  Indenture  Act" means the Trust  Indenture  Act of
1939,  as amended (15 U.S.  Code ss.ss.  77aaa-77bbb),  as in effect on the date
this  Indenture  was  executed,  except as provided in Section  9.06;  PROVIDED,
HOWEVER,  that,  in the event the Trust  Indenture  Act of 1939 is amended after
such date,  "TIA" or "Trust  Indenture Act" means, to the extent required by any
such amendment, the Trust Indenture Act of 1939 as so amended.

             "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.


<PAGE>
                                       24


             "Transaction  Date" means,  with respect to the  Incurrence  of any
Indebtedness by the Company 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.

             "Trustee"  means the party named as such in the first  paragraph of
this Indenture  until a successor  replaces it in accordance with the provisions
of Article Seven of this Indenture and thereafter means such successor.

             "United States  Bankruptcy Code" means the Bankruptcy Reform Act of
1978,  as amended  and as  codified in Title 11 of the United  States  Code,  as
amended from time to time hereafter, or any successor federal bankruptcy law.

             "Unrestricted  Subsidiary"  means (i) any Subsidiary of the Company
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 Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital  Stock of, or owns or holds any Lien on any  property of, the Company or
any Restricted Subsidiary; PROVIDED that (A) any Guarantee by the Company 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
Company 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 under Section 4.04 hereof and (C) if
applicable,  the Incurrence of  Indebtedness  and the Investment  referred to in
clause (A) of this  proviso  would be  permitted  under  Sections  4.03 and 4.04
hereof. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted  Subsidiary;  PROVIDED  that (i) no Default or Event of Default shall
have  occurred and be  continuing  at the time of or after giving effect to such
designation and (ii) all Liens and 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  Indenture.  Any  such  designation  by the  Board of
Directors  shall be evidenced to the Trustee by promptly filing with the Trustee
a  Board  Resolution   giving  effect  to  such  designation  and  an  Officers'
Certificate  certifying  that  such  designation  complied  with  the  foregoing
provisions.

<PAGE>
                                       25

             "U.S. Global Note" has the meaning provided in Section 2.01.

             "U.S. Government  Obligations" means securities that are (i) direct
obligations  of the United  States of America  for the payment of which its full
faith and  credit is  pledged  or (ii)  obligations  of a Person  controlled  or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is  unconditionally  guaranteed as a full faith and
credit  obligation by the United States of America,  which,  in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include depository  receipts
issued by a bank or trust  company as  custodian  with  respect to any such U.S.
Government  Obligation or a specific  payment of interest on or principal of any
such U.S.  Government  Obligation  held by such custodian for the account of the
holder of a depository  receipt;  PROVIDED that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such  depository  receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or  principal of the U.S.  Government  Obligation  evidenced by such  depository
receipt.

             "U.S. Person" has the meaning ascribed thereto in Rule 902 under
the Securities Act.

             "U.S. Certificated Notes" has the meaning provided in Section
2.01.

             "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.

             "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.

             SECTION 1.02.  INCORPORATION  BY REFERENCE OF TRUST  INDENTURE Act.
Whenever  this  Indenture  refers to a provision  of the TIA,  the  provision is
incorporated  by reference in and made a part of this  Indenture.  The following
TIA terms used in this Indenture have the following meanings:

             "indenture securities" means the Notes;

             "indenture security holder" means a Holder or a Noteholder;

             "indenture to be qualified" means this Indenture;

<PAGE>
                                       26

             "indenture trustee" or "institutional trustee" means the
      Trustee; and

             "obligor" on the indenture securities means the Company, the
      Guarantor or any other obligor on the Notes.

             All other TIA terms used in this  Indenture that are defined by the
TIA,  defined by TIA  reference  to another  statute or defined by a rule of the
Commission and not otherwise  defined herein have the meanings  assigned to them
therein.

             SECTION 1.03.  RULES OF CONSTRUCTION.  Unless the context
otherwise requires:

             (i)  a term has the meaning assigned to it;

             (ii) an  accounting  term not  otherwise  defined  has the  meaning
      assigned to it in accordance with GAAP;

             (iii)"or" is not exclusive;

             (iv) words in the singular include the plural, and words in the
      plural include the singular;

             (v)  provisions apply to successive events and transactions;

             (vi) "herein,"  "hereof" and other words of similar import refer to
      this  Indenture as a whole and not to any particular  Article,  Section or
      other subdivision; and


<PAGE>

             (vii)all  references  to Sections or Articles  refer to Sections or
      Articles of this Indenture unless otherwise indicated.


                                   ARTICLE TWO
                                    THE NOTES

             SECTION  2.01.  FORM  AND  DATING.  The  Notes  and  the  Trustee's
certificate of authentication  shall be substantially in the form annexed hereto
as  Exhibit  A. The  Notes  may have  such  appropriate  insertions,  omissions,
substitutions  and  other  variations  as are  required  or  permitted  by  this
Indenture and may have letters,  notations,  legends or endorsements required by
law,  stock  exchange  agreements to which the Company is subject or usage.  Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note. The Company shall approve
the form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.

             The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall  constitute,  and are hereby expressly made, a part of
this  Indenture.  Each of the Company,  the  Guarantor  and the Trustee,  by its
execution  and  delivery of this  Indenture,  expressly  agrees to the terms and
provisions of the Notes applicable to it and to be bound thereby.

             Notes  offered  and sold in  reliance  on Rule 144A shall be issued
initially in the form of one or more permanent  global Notes in registered form,
substantially  in the form set forth in  Exhibit  A (the  "U.S.  GLOBAL  Note"),
deposited on behalf of the purchasers of the Notes represented  thereby with the
Trustee,  as  custodian  for the  Depository,  duly  executed by the Company and
authenticated by the Trustee as hereinafter  provided.  The aggregate  principal
amount of a U.S.  Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee,  as custodian for the Depository
or its nominee, as hereinafter provided.

             Notes  offered  and sold in  offshore  transactions  in reliance on
Regulation  S shall be  issued  initially  in the form of one or more  temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the  "TEMPORARY  REGULATION  S  GLOBAL  NOTE"),  deposited  on  behalf  of  the
purchasers of the Notes represented  thereby with the Trustee,  as custodian for
the Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter  provided.  At any time  following  July 2, 1999 upon receipt by the
Trustee and the Company of a certificate  substantially in the form of Exhibit B
hereto,  one or more permanent global Notes in registered form  substantially in
the form set forth in Exhibit A (the  "PERMANENT  REGULATION S GLOBAL NOTE" and,

<PAGE>
                                       27


together  with the  Temporary  Regulation S Global Note,  the  "OFFSHORE  GLOBAL
NOTE")  duly  executed  by the  Company  and  authenticated  by the  Trustee  as
hereinafter  provided shall be deposited with the Trustee,  as custodian for the
Depository, which shall reflect on its books and records the date and a decrease
in the principal amount of the Temporary  Regulation S Global Notes in an amount
equal to the  principal  amount  of the  beneficial  interest  in the  Temporary
Regulation S Global Notes  transferred.  The  aggregate  principal  amount of an
Offshore  Global  Note  may  from  time to time be  increased  or  decreased  by
adjustments made in the records of the Trustee,  as custodian for the Depository
or its nominee, as herein provided.

             Notes which are issued to Institutional  Accredited Investors which
are not  QIBs  (excluding  Non-U.S.  Persons)  shall  be  issued  in the form of
permanent  certificated  Notes in registered form in substantially  the form set
forth in Exhibit A (the "U.S.  CERTIFICATED  NOTES").  Notes issued  pursuant to
Section 2.07 in exchange for  interests in the Offshore  Global Note shall be in
the form of certificated  Notes in registered form substantially in the form set
forth in Exhibit A (the "OFFSHORE CERTIFICATED NOTES"). Notes issued pursuant to
Section 2.07 in exchange for  interests in the U.S.  Global Note shall be in the
form of the U.S. Certificated Note.

             The Offshore Certificated Notes and the U.S. Certificated Notes are
sometimes  collectively referred to herein as the "CERTIFICATED NOTES". The U.S.
Global  Notes and  Offshore  Global  Notes  are  sometimes  collectively  herein
referred to as the "GLOBAL NOTES".

             The  definitive  Notes  shall be typed,  printed,  lithographed  or
engraved or produced by any  combination  of these methods or may be produced in
any other manner permitted by the rules of any securities  exchange on which the
Notes may be listed,  all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.

             SECTION 2.02.  RESTRICTIVE  LEGENDS.  (a) NOTE LEGENDS.  Unless and
until a Note is  exchanged  for an  Exchange  Note or  otherwise  disposed of in
connection with an effective Registration Statement pursuant to the Registration
Rights  Agreement,  (i) each U.S.  Global Note and each U.S.  Certificated  Note
shall  bear the  legend,  set  forth  below on the face  thereof  and (ii)  each
Offshore  Certificated  Note and each  Temporary  Regulation S Global Note shall
bear the legend set forth below on the face thereof until at least 41 days after
the Closing  Date and  receipt by the  Company and the Trustee of a  certificate
substantially in the form of Exhibit B hereto.

      THIS NOTE HAS NOT BEEN REGISTERED  UNDER THE U.S.  SECURITIES ACT OF 1933,
      AS  AMENDED  (THE  "SECURITIES  ACT"),  OR ANY STATE  SECURITIES  LAWS AND
      ACCORDINGLY,  MAY NOT BE OFFERED,  SOLD, PLEDGED OR OTHERWISE  TRANSFERRED
      WITHIN THE UNITED  STATES OR TO, OR FOR THE  ACCOUNT OR BENEFIT  OF,  U.S.
      PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.  BY ITS ACQUISITION
      HEREOF,   THE  HOLDER  (1)   REPRESENTS   THAT  (A)  IT  IS  A  "QUALIFIED
      INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
      (B) IT IS AN  INSTITUTIONAL  "ACCREDITED  INVESTOR"  (AS  DEFINED  IN RULE
      501(a)(1),  (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES  ACT) (AN
      "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
      ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 903
      OF  REGULATION  S UNDER THE  SECURITIES  ACT; (2) AGREES THAT IT WILL NOT,
      WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) AS IN EFFECT ON THE DATE

<PAGE>
                                       28


      OF SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO KMC
      TELECOM HOLDINGS,  INC. OR ANY SUBSIDIARY  THEREOF,  (B) INSIDE THE UNITED
      STATES TO A QUALIFIED  INSTITUTIONAL  BUYER IN  COMPLIANCE  WITH RULE 144A
      UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
      ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE
      A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
      TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN
      BE OBTAINED  FROM THE TRUSTEE)  AND, IF SUCH  TRANSFER IS IN RESPECT OF AN
      AGGREGATE  PRINCIPAL AMOUNT OF NOTES OF LESS THAN $500,000,  AN OPINION OF
      COUNSEL ACCEPTABLE TO KMC TELECOM HOLDINGS,  INC. THAT SUCH TRANSFER IS IN
      COMPLIANCE  WITH THE  SECURITIES  ACT, (D) OUTSIDE THE UNITED STATES IN AN
      OFFSHORE  TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
      ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION  PROVIDED BY RULE 144
      UNDER THE  SECURITIES  ACT (IF  AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
      REGISTRATION  STATEMENT  UNDER THE  SECURITIES  ACT AND (3) AGREES THAT IT
      WILL  DELIVER  TO EACH  PERSON TO WHOM THIS NOTE IS  TRANSFERRED  A NOTICE
      SUBSTANTIALLY  TO THE  EFFECT  OF THIS  LEGEND.  IN  CONNECTION  WITH  ANY
      TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER
      MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO
      THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
      THE PROPOSED  TRANSFEREE  IS AN  INSTITUTIONAL  ACCREDITED  INVESTOR,  THE
      HOLDER MUST,  PRIOR TO SUCH TRANSFER,  FURNISH THE TRUSTEE AND KMC TELECOM
      HOLDINGS, INC. SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
      SUCH PERSONS MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
      MADE PURSUANT TO AN EXEMPTION  FROM,  OR IN A TRANSACTION  NOT SUBJECT TO,
      THE REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,  THE
      TERMS "OFFSHORE  TRANSACTION",  "UNITED STATES" AND "U.S. PERSON" HAVE THE
      MEANINGS  GIVEN TO THEM BY  REGULATION  S UNDER THE  SECURITIES  ACT.  THE
      INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
      ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.


<PAGE>
                                       29
             (b)  GLOBAL  NOTE  LEGEND.  Each  Global  Note,  whether  or not an
Exchange Note, shall also bear the following legend on the face thereof:

      UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN  AUTHORIZED  REPRESENTATIVE  OF
      THE DEPOSITORY  TRUST COMPANY TO KMC TELECOM  HOLDINGS,  INC. OR ITS AGENT
      FOR REGISTRATION OF TRANSFER,  EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
      REGISTERED  IN THE  NAME  OF  CEDE & CO.  OR TO SUCH  OTHER  ENTITY  AS IS
      REQUESTED BY AN AUTHORIZED  REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
      OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
      NAME AS IS REQUESTED BY AN  AUTHORIZED  REPRESENTATIVE  OF THE  DEPOSITORY
      TRUST  COMPANY  (AND ANY  PAYMENT  HEREON IS MADE TO CEDE & CO. OR TO SUCH
      OTHER  ENTITY  AS IS  REQUESTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
      DEPOSITORY  TRUST COMPANY),  ANY TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR
      VALUE OR  OTHERWISE BY OR TO ANY PERSON IS WRONGFUL  SINCE THE  REGISTERED
      OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

      TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,  BUT
      NOT IN PART,  TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR  THEREOF OR SUCH
      SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
      LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
      SECTION 2.08 OF THE INDENTURE.

             SECTION 2.03. EXECUTION, AUTHENTICATION AND DENOMINATIONS.  Subject
to Article Four, the aggregate  principal  amount of Notes  (including  Exchange
Notes)  which  may be  authenticated  and  delivered  under  this  Indenture  is
unlimited.  The Notes  shall be  executed by two  Officers  of the  Company,  by
facsimile or manual signature, in the name and on behalf of the Company.

             If an Officer  whose  signature  is on a Note no longer  holds that
office at the time the Trustee or authenticating  agent  authenticates the Note,
the Note shall be valid nevertheless.

<PAGE>
                                       30

             A Note shall not be valid until the Trustee or authenticating agent
manually  signs the  certificate  of  authentication  on the Note. The signature
shall be  conclusive  evidence that the Note has been  authenticated  under this
Indenture.

             At any time and  from  time to time  after  the  execution  of this
Indenture,  the Trustee or an  authenticating  agent  shall,  upon  receipt of a
Company Order,  authenticate for original issue Notes in the aggregate principal
amount  specified  in such Company  Order;  PROVIDED  that the Trustee  shall be
entitled to receive an  Officers'  Certificate  and an Opinion of Counsel of the
Company if it so reasonably  requests in connection with such  authentication of
Notes. Such Company Order shall specify the amount of Notes to be authenticated,
the date on which  the issue of Notes is to be  authenticated  and in case of an
issuance of Notes pursuant to Section 2.15,  shall certify that such issuance is
in compliance with Article Four.

             The  Trustee  may  appoint  an   authenticating   agent  reasonably
acceptable to the Company to authenticate  Notes. Unless limited by the terms of
such appointment,  an authenticating  agent may authenticate  Notes whenever the
Trustee may do so. Each  reference in this  Indenture to  authentication  by the
Trustee includes  authentication by such authenticating agent. An authenticating
agent has the same rights as an Agent to deal with the  Company or an  Affiliate
of the Company.

             The Notes shall be issuable only in registered form without coupons
and only in  denominations  of  $1,000  in  principal  amount  and any  integral
multiple of $1,000 in excess thereof.

             SECTION  2.04.  REGISTRAR  AND  PAYING  AGENT.  The  Company  shall
maintain an office or agency where Notes may be presented  for  registration  of
transfer or for exchange (the "REGISTRAR"),  an office or agency where Notes may
be  presented  for payment  (the  "PAYING  AGENT") and an office or agency where
notices  and  demands  to or upon the  Company  in respect of the Notes and this
Indenture may be served, which shall be in the Borough of Manhattan, The City of
New York.  The Company shall cause the Registrar to keep a register of the Notes
and of their transfer and exchange (the "NOTE  REGISTER").  The Company may have
one or more co-Registrars and one or more additional Paying Agents.

<PAGE>
                                       31

             The Company shall enter into an appropriate  agency  agreement with
any Agent not a party to this  Indenture.  The  agreement  shall  implement  the
provisions of this Indenture  that relate to such Agent.  The Company shall give
prompt  written  notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent.  If the Company fails to maintain a
Registrar,  Paying Agent  and/or  agent for service of notices and demands,  the
Trustee  shall act as such  Registrar,  Paying Agent and/or agent for service of
notices and demands for so long as such failure shall continue.  The Company may
remove any Agent upon  written  notice to such Agent and the  Trustee;  PROVIDED
that no such  removal  shall become  effective  until (i) the  acceptance  of an
appointment  by a successor  Agent to such Agent as evidenced by an  appropriate
agency  agreement  entered  into by the  Company  and such  successor  Agent and
delivered  to the Trustee or (ii)  notification  to the Trustee that the Trustee
shall  serve  as such  Agent  until  the  appointment  of a  successor  Agent in
accordance with clause (i) of this proviso.  The Company,  any Subsidiary of the
Company,  or any Affiliate of any of them may act as Paying Agent,  Registrar or
co-Registrar, and/or agent for service of notice and demands; PROVIDED, HOWEVER,
that neither the Company, a Subsidiary of the Company nor an Affiliate of any of
them shall act as Paying Agent in connection with the defeasance of the Notes or
the discharge of this Indenture under Article Eight.

             The Company  initially  appoints the Trustee as  Registrar,  Paying
Agent,  authenticating agent and agent for service of notice and demands. If, at
any time, the Trustee is not the Registrar,  the Registrar  shall make available
to the Trustee on or before each  Interest  Payment Date and at such other times
as the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Note Register.

             SECTION 2.05.  PAYING AGENT TO HOLD MONEY IN TRUST.  Not later than
12:00 p.m.  New York City time on each due date of the  principal,  premium,  if
any, or interest on any Notes,  the Company  shall deposit with the Paying Agent
money in immediately available funds sufficient to pay such principal,  premium,
if any, or  interest so becoming  due.  The Company  shall  require  each Paying
Agent, if any, other than the Trustee to agree in writing that such Paying Agent
shall hold in trust for the benefit of the Holders or the Trustee all money held
by the Paying  Agent for the  payment  of  principal  of,  premium,  if any,  or
interest on the Notes  (whether such money has been paid to it by the Company or
any other  obligor on the  Notes),  and that such Paying  Agent  shall  promptly
notify the Trustee of any  default by the  Company (or any other  obligor on the
Notes) in making any such payment.  The Company at any time may require a Paying
Agent to pay all  money  held by it to the  Trustee  and  account  for any funds
disbursed, and the Trustee may at any time during the continuance of any payment
default,  upon written  request to a Paying Agent,  require such Paying Agent to
pay all money held by it to the Trustee and to account for any funds  disbursed.
Upon doing so, the Paying Agent shall have no further liability for the money so
paid over to the Trustee. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying  Agent,  it will,  on or before each due
date of any principal of, premium,  if any, or interest on the Notes,  segregate
and hold in a separate  trust fund for the benefit of the Holders a sum of money
sufficient to pay such principal,  premium,  if any, or interest so becoming due
until such sum of money shall be paid to such Holders or  otherwise  disposed of
as  provided  in this  Indenture,  and will  promptly  notify the Trustee of its
action or failure to act as required by this Section 2.05.

             SECTION 2.06. TRANSFER AND EXCHANGE. The Notes are issuable only in
registered  form.  A Holder may  transfer a Note by written  application  to the
Registrar  stating the name of the proposed  transferee and otherwise  complying
with the terms of this Indenture.  No such transfer shall be effected until, and
such transferee shall succeed to the rights of a Holder only upon,  registration
of the transfer by the Registrar in the Note Register. Prior to the registration
of any transfer by a Holder as provided herein,  the Company,  the Trustee,  and
any agent of the Company or the Trustee shall treat the Person in whose name the
Note is registered as the owner thereof for all purposes whether or not the Note
shall be overdue, and neither the Company, the Trustee, nor any such agent shall
be affected by notice to the contrary.  Furthermore, any Holder of a Global Note
shall,  by  acceptance of such Global Note,  agree that  transfers of beneficial

<PAGE>
                                       32


interests in such Global Note may be effected  only through a book-entry  system
maintained by the Depository (or its agent),  and that ownership of a beneficial
interest  in the Note shall be required to be  reflected  in a book entry.  When
Notes are  presented  to the  Registrar  or a  co-Registrar  with a  request  to
register the transfer or to exchange them for an equal principal amount of Notes
of other authorized  denominations  (including on exchange of Notes for Exchange
Notes),  the  Registrar  shall  register  the  transfer or make the  exchange as
requested if its  requirements for such  transactions are met;  PROVIDED that no
exchanges of Notes for Exchange Notes shall occur until a Registration Statement
shall have been declared effective by the Commission and that any Notes that are
exchanged  for  Exchange  Notes shall be  cancelled  by the  Trustee.  To permit
registrations   of  transfers  and  exchanges  in  accordance  with  the  terms,
conditions and  restrictions  hereof,  the Company shall execute and the Trustee
shall authenticate Notes at the Registrar's  request. No service charge shall be
made to any Holder for any registration of transfer or exchange or redemption of
the Notes,  but the Company may require payment of a sum sufficient to cover any
transfer tax or similar  governmental  charge  payable in  connection  therewith
(other than any such transfer taxes or other similar governmental charge payable
upon transfers,  exchanges or redemptions pursuant to Sections 2.11, 3.08, 4.11,
4.12 or 9.04 hereof).

             The  Registrar  shall not be required  (i) to issue,  register  the
transfer of or exchange  any Note  during a period  beginning  at the opening of
business  15 days  before the day of the  mailing of a notice of  redemption  of
Notes selected for  redemption  under Section 3.03 or Section 3.08 and ending at
the  close of  business  on the day of such  mailing,  or (ii) to  register  the
transfer of or exchange any Note so selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.

             SECTION 2.07. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTES. (a) Each U.S.
Global Note and Offshore  Global Note  initially  shall (i) be registered in the
name of the Depository for such Global Notes or the nominee of such  Depository,
(ii) be delivered to the Trustee as custodian for such Depository and (iii) bear
legends as set forth in Section 2.02.


<PAGE>
                                       33


             Members of, or participants  in, the Depository  ("AGENT  MEMBERS")
shall have no rights under this  Indenture  with respect to any Global Note held
on their behalf by the Depository, or the Trustee as its custodian, or under any
Global Note, and the  Depository may be treated by the Company,  the Trustee and
any agent of the  Company or the  Trustee as the  absolute  owner of such Global
Note for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein
shall  prevent  the  Company,  the  Trustee  or any agent of the  Company or the
Trustee,  from  giving  effect  to any  written  certification,  proxy  or other
authorization  furnished by the Depository or impair,  as between the Depository
and its Agent  Members,  the  operation of  customary  practices  governing  the
exercise of the rights of a beneficial owner of any Note.

             (b)  Transfers  of a Global Note shall be limited to  transfers  of
such Global Note in whole, but not in part, to the Depository, its successors or
their respective  nominees.  Interests of beneficial owners in a Global Note may
be  transferred in accordance  with the  applicable  rules and procedures of the
Depository  and the provisions of Section 2.08. In addition,  U.S.  Certificated
Notes or Offshore  Certificated  Notes shall be  transferred  to all  beneficial
owners in exchange for their  beneficial  interests in a U.S.  Global Note or an
Offshore Global Note,  respectively,  if (i) the Depository notifies the Company
that it is unwilling  or unable to continue as  Depository  for the U.S.  Global
Notes  or the  Offshore  Global  Notes,  as the  case  may be,  and a  successor
depositary is not appointed by the Company within 90 days of such notice or (ii)
an Event of  Default  has  occurred  and is  continuing  and the  Registrar  has
received a request to the foregoing effect from the Depository or the Trustee.

             (c) Any  beneficial  interest  in one of the  Global  Notes that is
transferred  to a Person who takes  delivery  in the form of an  interest in the
other Global Note will,  upon  transfer,  cease to be an interest in such Global
Note and become an interest  in the other  Global  Note and,  accordingly,  will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to  beneficial  interests in such other Global Note for as long as it
remains such an interest.

             (d) In  connection  with any transfer  pursuant to paragraph (b) of
this Section 2.07 of a portion of the beneficial interests in a U.S. Global Note
or  Offshore  Global  Note to  beneficial  owners who are  required to hold U.S.
Certificated  Notes,  the  Registrar  shall reflect on its books and records the
date and a decrease in the principal amount of such U.S. Global Note or Offshore
Global  Note in an  amount  equal  to the  principal  amount  of the  beneficial
interest in such U.S. Global Note or Offshore Global Note to be transferred, and
the Company shall execute,  and the Trustee shall authenticate and deliver,  one
or more U.S.  Certificated Notes or Offshore Certificated Notes, as the case may
be, of like tenor and amount.


<PAGE>
                                       34

             (e) In connection with the transfer of all the U.S. Global Notes or
Offshore  Global Notes to  beneficial  owners  pursuant to paragraph (b) of this
Section 2.07, the U.S.  Global Notes or Offshore  Global Notes,  as the case may
be, shall be deemed to be surrendered to the Trustee for  cancellation,  and the
Company shall execute,  and the Trustee shall authenticate and deliver,  to each
beneficial  owner  identified by the  Depository in exchange for its  beneficial
interest in the U.S.  Global Notes or Offshore Global Notes, as the case may be,
an equal  aggregate  principal  amount of U.S.  Certificated  Notes or  Offshore
Certificated Notes, as the case may be, of authorized denominations.

             (f)  Any  U.S.  Certificated  Note  delivered  in  exchange  for an
interest in a U.S.  Global Note  pursuant to  paragraph  (b), (d) or (e) of this
Section 2.07 shall, except as otherwise provided by paragraphs (d) and (f)(i)(x)
of  Section  2.08  hereof,  bear  the  legend  regarding  transfer  restrictions
applicable to the U.S. Certificated Note set forth in Section 2.02.

             (g) Any  Offshore  Certificated  Note  delivered in exchange for an
interest in an Offshore  Global Note  pursuant to  paragraph  (b), (d) or (e) of
this Section  2.07 shall,  except as otherwise  provided by  paragraphs  (d) and
(f)(i)(x)  of  Section  2.08  hereof,   bear  the  legend   regarding   transfer
restrictions  applicable to the Offshore  Certificated Note set forth in Section
2.02 hereof.

             (h) The  registered  holder of a Global Note may grant  proxies and
otherwise  authorize  any Person,  including  Agent Members and Persons that may
hold  interests  through  Agent  Members,  to take any action  which a Holder is
entitled to take under this Indenture or the Notes.

             (i) QIBs that are  beneficial  owners of interests in a Global Note
may receive Certificated Notes (which shall bear the Private Placement Legend if
required by Section 2.02) in accordance  with the procedures of the  Depository.
In  connection  with  the  execution,   authentication   and  delivery  of  such
Certificated  Notes,  the  Registrar  shall  reflect on its books and  records a
decrease  in the  principal  amount of the  relevant  Global  Note  equal to the
principal  amount of such  Certificated  Notes and the Company shall execute and
the Trustee shall authenticate and deliver one or more Certificated Notes having
an equal aggregate principal amount.

             SECTION 2.08. SPECIAL TRANSFER PROVISIONS.  Unless and until a Note
is exchanged for an Exchange Note in connection  with an effective  Registration
Statement  pursuant  to  the  Registration   Rights  Agreement,   the  following
provisions shall apply:

<PAGE>
                                       35

             (a) TRANSFERS TO QIBS.  The following  provisions  shall apply with
respect to the registration of any proposed transfer of a U.S. Certificated Note
or an interest in a U.S. Global Note to a QIB (excluding Non-U.S. Persons):

             (i) If the Note to be transferred consists of (x) U.S. Certificated
      Notes, the Registrar shall register the transfer if such transfer is being
      made by a proposed  transferor who has checked the box provided for on the
      form of  Note  stating,  or has  otherwise  advised  the  Company  and the
      Registrar in writing,  that the sale has been made in compliance  with the
      provisions of Rule 144A to a transferee  who has signed the  certification
      provided for on the form of Note  stating,  or has  otherwise  advised the
      Company and the Registrar in writing,  that it is purchasing  the Note for
      its own  account or an account  with  respect to which it  exercises  sole
      investment discretion and that it and any such account is a QIB within the
      meaning  of Rule  144A,  and is aware that the sale to it is being made in
      reliance  on  Rule  144A  and  acknowledges  that  it  has  received  such
      information  regarding  the Company as it has  requested  pursuant to Rule
      144A or has  determined  not to request  such  information  and that it is
      aware that the transferor is relying upon its foregoing representations in
      order to claim the exemption  from  registration  provided by Rule 144A or
      (y) an interest in a U.S.  Global Note,  the transfer of such interest may
      be  effected  only  through  the  book  entry  system  maintained  by  the
      Depository.

             (ii) If the proposed transferee is an Agent Member, and the Note to
      be transferred  consists of U.S.  Certificated  Notes, upon receipt by the
      Registrar  of the  documents  referred  to in clause (i) and  instructions
      given in accordance with the Depository's and the Registrar's  procedures,
      the  Registrar  shall  reflect  on its books and  records  the date and an
      increase  in the  principal  amount of such U.S.  Global Note in an amount
      equal  to the  principal  amount  of the  U.S.  Certificated  Notes  to be
      transferred,  and the  Trustee  shall  cancel  the  Certificated  Notes so
      transferred.

             (b)  TRANSFERS OF INTERESTS IN OFFSHORE GLOBAL NOTES OR OFFSHORE
CERTIFICATED NOTES TO U.S. PERSONS.  The following provisions shall apply
with respect to any transfer of interests in Offshore Global Notes or
Offshore Certificated Notes to U.S. Persons:

             (i) prior to the  removal  of the  Private  Placement  Legend  from
      Offshore Global Notes or Offshore  Certificated  Notes pursuant to Section
      2.02, the Registrar shall refuse to register such transfer; and

             (ii) after such removal,  the Registrar shall register the transfer
      of any such Note without requiring any additional certification.


<PAGE>
                                       36

             (c)  TRANSFERS  TO  NON-U.S.  PERSONS  AT ANY TIME.  The  following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:

             (i) The  Registrar  shall  register  any  proposed  transfer to any
      Non-U.S.  Person if the Note to be transferred is a U.S. Certificated Note
      or an interest in a U.S.  Global Note only upon  receipt of a  certificate
      substantially   in  the  form  of  Exhibit  C  hereto  from  the  proposed
      transferor.

             (ii) (a) If the proposed  transferor  is an Agent Member  holding a
      beneficial  interest in a U.S.  Global Note, upon receipt by the Registrar
      of (x) the  documents  required by paragraph (i) and (y)  instructions  in
      accordance  with the  Depository's  and the  Registrar's  procedures,  the
      Registrar  shall  reflect on its books and records the date and a decrease
      in the principal amount of such U.S. Global Note in an amount equal to the
      principal amount of the beneficial  interest in the U.S. Global Note to be
      transferred,  and (b) if the proposed  transferee is an Agent Member, upon
      receipt by the  Registrar of  instructions  given in  accordance  with the
      Depository's and the Registrar's  procedures,  the Registrar shall reflect
      on its books and records the date and an increase in the principal  amount
      of such Offshore Global Note in an amount equal to the principal amount of
      the U.S.  Certificated Notes or the U.S. Global Notes, as the case may be,
      to be transferred,  and the Trustee shall cancel the Certificated Note, if
      any, so transferred or decrease the amount of the U.S. Global Notes.

             (d) PRIVATE  PLACEMENT  LEGEND.  Upon the registration of transfer,
exchange or replacement of Notes not bearing the Private Placement  Legend,  the
Registrar  shall  deliver Notes that do not bear the Private  Placement  Legend.
Upon the registration of transfer,  exchange or replacement of Notes bearing the
Private Placement  Legend,  the Registrar shall deliver only Notes that bear the
Private  Placement  Legend unless either (i) the Private  Placement Legend is no
longer  required by Section 2.02 or (ii) there is delivered to the  Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that  neither  such legend nor the related  restrictions  on transfer are
required in order to maintain  compliance  with the provisions of the Securities
Act.

             (e)  GENERAL.  By its  acceptance  of any Note  bearing the Private
Placement  Legend,  each Holder of such a Note  acknowledges the restrictions on
transfer of such Note set forth in this  Indenture and in the Private  Placement
Legend and  agrees  that it will  transfer  such Note only as  provided  in this
Indenture.  The Registrar  shall not register a transfer of any Note unless such
transfer  complies with the  restrictions  on transfer of such Note set forth in
this  Indenture.  In connection  with any transfer of Notes to an  Institutional

<PAGE>
                                       37


Accredited  Investor,  each  Holder  agrees  by its  acceptance  of the Notes to
furnish the  Registrar or the Company  such  certifications,  legal  opinions or
other information as either of them may reasonably  require to confirm that such
transfer is being made  pursuant to an  exemption  from,  or a  transaction  not
subject to, the registration  requirements of the Securities Act;  PROVIDED that
the  Registrar   shall  not  be  required  to  determine  (but  may  rely  on  a
determination  made by the Company with respect to) the  sufficiency of any such
certifications, legal opinions or other information.

             (f) TRANSFERS TO NON-QIB INSTITUTIONAL  ACCREDITED  INVESTORS.  The
following  provisions  shall  apply  with  respect  to the  registration  of any
proposed  transfer of a Note to any Institutional  Accredited  Investor which is
not a QIB (excluding Non-U.S. Persons):

             (i) The Registrar shall register the transfer of any Note,  whether
      or not such Note bears the Private  Placement Legend, if (x) the requested
      transfer  is after the time period  referred  to in Rule 144(k)  under the
      Securities  Act as in effect  with  respect  to such  transfer  or (y) the
      proposed  transferee  has  delivered to the  Registrar  (A) a  certificate
      substantially  in the form of  Exhibit D hereto  and (B) if the  aggregate
      principal  amount of the Notes being  transferred is less than $500,000 at
      the time of such transfer, an Opinion of Counsel acceptable to the Company
      that such transfer is in compliance with the Securities Act.

             (ii) If the  proposed  transferor  is an  Agent  Member  holding  a
      beneficial  interest in a U.S.  Global Note, upon receipt by the Registrar
      and the Company of (x) the  documents,  if any,  required by paragraph (i)
      and (y)  instructions  given in accordance with the  Depository's  and the
      Registrar's  procedures,  the  Registrar  shall  reflect  on its books and
      records  the date and a  decrease  in the  principal  amount  of such U.S.
      Global Note in an amount equal to the principal  amount of the  beneficial
      interest in the U.S. Global Note to be transferred,  and the Company shall
      execute,  and the Trustee shall authenticate and deliver, one or more U.S.
      Certificated Notes of like tenor and amount.

             The  Registrar  shall  retain,  in  accordance  with its  customary
procedures,  copies of all  letters,  notices and other  written  communications
received  pursuant to Section 2.07 or this Section 2.08.  The Company shall have
the right to  inspect  and make  copies of all such  letters,  notices  or other
written  communications  at any  reasonable  time upon the giving of  reasonable
written notice to the Registrar.


<PAGE>
                                       38

             SECTION 2.09. REPLACEMENT NOTES. If a mutilated Note is surrendered
to the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully  taken, the Company shall issue and the Trustee shall  authenticate a
replacement  Note of like tenor and  principal  amount and  bearing a number not
contemporaneously  outstanding;  PROVIDED  that the  requirements  of the second
paragraph of Section 2.10 are met. If required by the Trustee or the Company, an
indemnity  bond must be furnished that is sufficient in the judgment of both the
Trustee and the Company to protect  the  Company,  the Trustee or any Agent from
any loss that any of them may  suffer if a Note is  replaced.  The  Company  may
charge such Holder for its expenses and the expenses of the Trustee in replacing
a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has
become or is about to become due and payable,  the Company in its discretion may
pay such Note instead of issuing a new Note in replacement thereof.

             Every  replacement Note is an additional  obligation of the Company
and shall be entitled to the benefits of this Indenture.

             SECTION 2.10.  OUTSTANDING NOTES. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those cancelled
by it,  those  delivered  to it for  cancellation  and those  described  in this
Section 2.10 as not outstanding.

             If a Note is  replaced  pursuant to Section  2.09,  it ceases to be
outstanding  unless  and  until  the  Trustee  and  the  Company  receive  proof
reasonably  satisfactory  to them that the replaced  Note is held by a protected
purchaser.

             If the Paying  Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date or a redemption date money sufficient to pay
all principal,  premium,  if any, and interest payable on that date with respect
to the Notes (or portions  thereof) to be redeemed or payable on that date, then
on and after that date such Notes cease to be  outstanding  and interest on them
shall cease to accrue.

             A Note does not cease to be outstanding  because the Company or one
of its  Affiliates  holds such Note;  PROVIDED,  HOWEVER,  that, in  determining
whether the Holders of the requisite  principal amount of the outstanding  Notes
have given any request,  demand,  authorization,  direction,  notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other  obligor  shall be  disregarded
and deemed not to be  outstanding,  except  that,  in  determining  whether  the
Trustee  shall  be  protected  in  relying  upon  any  such   request,   demand,
authorization,  direction,  notice,  consent  or  waiver,  only  Notes  which  a
Responsible Officer of the Trustee knows to be so owned shall be so disregarded.
Notes so owned  which  have  been  pledged  in good  faith  may be  regarded  as
outstanding if the pledgee  establishes to the  satisfaction  of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Company or any other  obligor upon the Notes or any Affiliate of the Company
or of such other obligor.

<PAGE>
                                       39

             SECTION 2.11. TEMPORARY NOTES. Until definitive Notes are ready for
delivery,  the Company may prepare and the Trustee shall authenticate  temporary
Notes.  Temporary Notes shall be  substantially  in the form of definitive Notes
but  may  have  insertions,   substitutions,   omissions  and  other  variations
determined to be appropriate by the Officers  executing the temporary  Notes, as
evidenced by their  execution of such temporary  Notes.  If temporary  Notes are
issued,  the  Company  will  cause  definitive  Notes  to  be  prepared  without
unreasonable  delay.  After the preparation of definitive  Notes,  the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the  office  or  agency  of the  Company  designated  for such  purpose
pursuant to Section  4.02,  without  charge to the Holder.  Upon  surrender  for
cancellation  of any one or more  temporary  Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations.  Until so exchanged, the
temporary  Notes shall be entitled to the same benefits  under this Indenture as
definitive Notes.

             SECTION 2.12. CANCELLATION.  The Company at any time may deliver to
the Trustee for cancellation any Notes  previously  authenticated  and delivered
hereunder which the Company may have acquired in any manner whatsoever,  and may
deliver to the  Trustee  for  cancellation  any Notes  previously  authenticated
hereunder  which the  Company  has not issued and sold.  The  Registrar  and the
Paying  Agent shall  forward to the Trustee  any Notes  surrendered  to them for
registration  of  transfer,  exchange,  purchase or payment.  The Trustee  shall
cancel all Notes surrendered for registration of transfer,  exchange,  purchase,
payment or cancellation  and shall dispose of them in accordance with its normal
procedure. The Company shall not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.

             SECTION 2.13.  CUSIP NUMBERS.  The Company in issuing the Notes may
use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall
use CUSIP numbers or CINS numbers,  as the case may be, in notices of redemption
or exchange as a  convenience  to Holders;  PROVIDED  that any such notice shall
state  that no  representation  is made as to the  correctness  of such  numbers
either as printed on the Notes or as  contained in any notice of  redemption  or
exchange  and that  reliance  may be  placed  only on the  other  identification
numbers printed on the Notes.

             SECTION  2.14.  DEFAULTED  INTEREST.  If the Company  defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in  immediately  available  funds  sufficient  to pay, the defaulted
interest, plus (to the extent lawful) interest on the defaulted interest, to the
Persons who are Holders on a subsequent  special  record date. A special  record
date,  as used in this Section 2.14 with respect to the payment of any defaulted
interest,  shall mean the 15th day  immediately  preceding the date fixed by the
Company  for the  payment of  defaulted  interest,  whether or not such day is a
Business Day. At least 15 days before the  subsequent  special  record date, the
Company  shall mail to each  Holder and to the  Trustee a notice that states the
subsequent  special  record  date,  the payment date and the amount of defaulted
interest to be paid.



<PAGE>
                                       40

             SECTION  2.15.  ISSUANCE OF  ADDITIONAL  NOTES.  The  Company  may,
subject to Article Four of this  Indenture,  issue  additional  Notes under this
Indenture.  The  Notes  issued  on the  Closing  Date and any  additional  Notes
subsequently  issued shall be treated as a single  class for all purposes  under
this Indenture.

                                  ARTICLE THREE
                                   REDEMPTION

             SECTION 3.01. RIGHT OF REDEMPTION. (a) The Notes may be redeemed at
the election of the Company,  in whole or in part,  at any time and from time to
time on or after  May 15,  2004,  upon not less  than 30 nor more  than 60 days'
prior notice  mailed by  first-class  mail to each  Holder's  last address as it
appears in the Note Register,  at the following  Redemption Prices (expressed as
percentages of principal amount),  plus accrued and unpaid interest,  if any, to
the  Redemption  Date (subject to the right of Holders of record on the relevant
Regular  Record  Date  that is on or prior  to the  Redemption  Date to  receive
interest due on an Interest  Payment Date that is on or prior to the  Redemption
Date)  if  redeemed  during  the  12-month  period  commencing  on May 15 of the
applicable year set forth below:

                                                REDEMPTION
                  YEAR                             PRICE
                  ----                             -----

                  2004                             106.750%
                  2005                             104.500%
                  2006                             102.250%
                  2007 and thereafter              100.000%

            (b) In  addition,  at any time or from time to time,  on or prior to
May 15, 2002, the Company may, at its option,  redeem up to 35% of the aggregate
principal  amount of the Notes with  proceeds  of one or more  public or private
Equity Offerings,  at a Redemption Price (expressed as a percentage of principal
amount) of 113.500%,  plus accrued and unpaid  interest to the  Redemption  Date
(subject to the right of Holders of record on the relevant  Regular  Record Date
that is on or  prior  to the  Redemption  Date  to  receive  interest  due on an
Interest Payment Date that is on or prior to the Redemption Date); PROVIDED that
at least 65% of the  aggregate  principal  amount of the Notes issued on May 24,
1999  remains  outstanding  after  each such  redemption  and notice of any such
redemption is mailed within 60 days after the applicable  Equity Offering and in
accordance with the requirements of Section 3.04.

            SECTION 3.02.  NOTICES TO TRUSTEE.  If the Company  elects to redeem
Notes  pursuant to Section  3.01,  it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed.

<PAGE>
                                       41


            The Company shall give each notice provided for in this Section 3.02
in an Officers'  Certificate at least 60 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).

            SECTION 3.03. SELECTION OF NOTES TO BE REDEEMED. If less than all of
the Notes are to be redeemed at any time,  the Trustee shall select the Notes to
be  redeemed in  compliance  with the  requirements  of the  principal  national
securities  exchange,  if any, on which the Notes are listed or if the Notes are
not listed on a national securities exchange,  by lot or by such other method as
the  Trustee  in its sole  discretion  shall  deem to be fair  and  appropriate;
PROVIDED  that no Notes of $1,000 in principal  amount or less shall be redeemed
in part.

            The Trustee shall make the selection from the Notes  outstanding and
not  previously  called  for  redemption.  Notes in  denominations  of $1,000 in
principal  amount may only be  redeemed  in whole.  The  Trustee  may select for
redemption  portions  (equal  to  $1,000 in  principal  amount  or any  integral
multiple  thereof)  of Notes  that  have  denominations  larger  than  $1,000 in
principal  amount.  Provisions of this  Indenture that apply to Notes called for
redemption  also apply to portions of Notes called for  redemption.  The Trustee
shall notify the Company and the  Registrar  promptly in writing of the Notes or
portions of Notes to be called for redemption.

            SECTION 3.04.  NOTICE OF REDEMPTION.  With respect to any redemption
of Notes  pursuant to Section  3.01,  at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by first
class mail to each Holder whose Notes are to be redeemed.

            The notice shall identify the Notes to be redeemed and shall state:

            (i)   the Redemption Date;

            (ii)  the Redemption Price;

            (iii) the name and address of the Paying Agent;

            (iv) that Notes called for  redemption  must be  surrendered  to the
      Paying Agent in order to collect the Redemption Price;

<PAGE>
                                       42

            (v) that,  unless the  Company  defaults  in making  the  redemption
      payment,  interest on Notes (or portions  thereof)  called for  redemption
      ceases to accrue on and after the  Redemption  Date and the only remaining
      right of the Holders is to receive  payment of the  Redemption  Price plus
      accrued interest to the Redemption Date upon surrender of the Notes to the
      Paying Agent;

            (vi) that, if any Note is being redeemed in part, the portion of the
      principal  amount  (equal to $1,000 in  principal  amount or any  integral
      multiple  thereof) of such Note to be redeemed and that,  on and after the
      Redemption  Date,  upon  surrender  of such  Note,  a new Note or Notes in
      principal amount equal to the unredeemed portion thereof will be reissued;
      and

            (vii)  that,  if any Note  contains a CUSIP  number as  provided  in
      Section 2.13, no representation is being made as to the correctness of the
      CUSIP number  either as printed on the Notes or as contained in the notice
      of redemption.

            At the  Company's  request  (which  request  may be  revoked  by the
Company at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee at least 60 days (or such
shorter  period as shall be  satisfactory  to the  Trustee)  before a Redemption
Date,  the Trustee  shall give the notice of  redemption  in the name and at the
expense of the  Company.  If,  however,  the  Company  gives such  notice to the
Holders,  the Company  shall  concurrently  deliver to the Trustee an  Officers'
Certificate stating that such notice has been given.

            SECTION  3.05.  EFFECT  OF  NOTICE  OF  REDEMPTION.  Once  notice of
redemption is mailed,  Notes called for redemption become due and payable on the
Redemption Date and at the Redemption  Price. Upon surrender of any Notes to the
Paying Agent,  such Notes shall be paid at the  Redemption  Price,  plus accrued
interest, if any, to the Redemption Date.

            Notice  of  redemption  shall be  deemed  to be given  when  mailed,
whether or not the Holder  receives  the notice.  In any event,  failure to give
such  notice,  or any  defect  therein,  shall not affect  the  validity  of the
proceedings  for the redemption of Notes held by Holders to whom such notice was
properly given.

<PAGE>
                                       43

            SECTION  3.06.  DEPOSIT  OF  REDEMPTION  PRICE.  On or  prior to any
Redemption  Date,  the Company  shall  deposit with the Paying Agent (or, if the
Company,  one of its Subsidiaries or any of their Affiliates is acting as Paying
Agent,  shall  segregate  and hold in trust as provided  in Section  2.05) money
sufficient to pay the Redemption  Price of and accrued  interest on all Notes to
be  redeemed  on that date  other  than  Notes or  portions  thereof  called for
redemption  on that date that have been  delivered by the Company to the Trustee
for cancellation.

            SECTION 3.07.  PAYMENT OF NOTES CALLED FOR REDEMPTION.  If notice of
redemption has been given in the manner provided above,  the Notes or portion of
Notes  specified  in such notice to be redeemed  shall become due and payable on
the  Redemption  Date at the  Redemption  Price stated  therein,  together  with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the  Redemption  Price and
accrued  interest to the  Redemption  Date, in which case the  principal,  until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes),  such Notes shall cease to accrue  interest.  Upon surrender of any Note
for  redemption in accordance  with a notice of  redemption,  such Note shall be
paid and redeemed by the Company at the Redemption Price,  together with accrued
interest, if any, to the Redemption Date; PROVIDED that installments of interest
whose Stated  Maturity is on or prior to the Redemption Date shall be payable to
the Holders  registered as such at the close of business on the relevant Regular
Record Date.

            SECTION 3.08.  NOTES  REDEEMED IN PART.  Upon  surrender of any Note
that is  redeemed  in part,  the Company  shall  execute  and the Trustee  shall
authenticate  and deliver to the Holder a new Note equal in principal  amount to
the unredeemed portion of such surrendered Note.


                                  ARTICLE FOUR
                                    COVENANTS

            SECTION 4.01.  PAYMENT OF NOTES. The Company shall pay the principal
of,  premium,  if any,  and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal,  premium,
if any, or interest  shall be considered  paid on the date due if the Trustee or
Paying  Agent  (other than the Company,  a  Subsidiary  of the  Company,  or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the  installment.  If the Company or any Subsidiary of the Company or any
Affiliate of any of them,  acts as Paying Agent,  an  installment  of principal,
premium,  if any, or interest  shall be  considered  paid on the due date if the
entity  acting as Paying Agent  complies with the last sentence of Section 2.05.
As provided in Section 6.09,  upon any  bankruptcy or  reorganization  procedure
relative  to the  Company,  the  Trustee  shall  serve as the  Paying  Agent and
conversion agent, if any, for the Notes.

            The Company  shall pay interest on overdue  principal,  premium,  if
any, and interest on overdue installments of interest,  to the extent lawful, at
the rate per annum specified in the Notes.

<PAGE>
                                       44

            SECTION  4.02.  MAINTENANCE  OF OFFICE OR AGENCY.  The Company  will
maintain in the Borough of Manhattan,  the City of New York, an office or agency
where Notes may be surrendered  for  registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company or
the Guarantor in respect of the Notes, the Note Guarantee and this Indenture may
be served.  The Company  will give prompt  written  notice to the Trustee of the
location,  and any change in the location,  of such office or agency.  If at any
time the Company  shall fail to maintain any such  required  office or agency or
shall fail to furnish the Trustee with the address thereof,  such presentations,
surrenders,  notices  and  demands  may be made or served at the  address of the
Trustee set forth in Section 12.02 hereof.

            The Company may also from time to time  designate  one or more other
offices or agencies  (in or outside the City of New York) where the Notes may be
presented or surrendered  for any or all such purposes and may from time to time
rescind such designations; PROVIDED that no such designation or rescission shall
in any manner  relieve  the Company of its  obligation  to maintain an office or
agency in the Borough of Manhattan,  the City of New York for such purposes. The
Company will give prompt written  notice to the Trustee of any such  designation
or  rescission  and of any change in the  location  of any such other  office or
agency.

            The Company hereby  initially  designates the Corporate Trust Office
of the Trustee,  located in the Borough of  Manhattan,  the City of New York, as
such office of the Company in accordance with Section 2.04.

            SECTION 4.03. LIMITATION ON INDEBTEDNESS.  (a) The Company will not,
and  will  not  permit  any  of  its  Restricted   Subsidiaries  to,  Incur  any
Indebtedness  (other  than the Notes and  Indebtedness  existing  on the Closing
Date);  PROVIDED that the Company 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.

            (b)  Notwithstanding  the foregoing,  the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:

            (i)  Indebtedness  of the  Company  or its  Restricted  Subsidiaries
      outstanding  at any time in an  aggregate  principal  amount not to exceed
      $100.0  million  of  unsubordinated  Indebtedness  and  $100.0  million of
      subordinated   Indebtedness,   less  any   amount  of  such   Indebtedness
      permanently  repaid  as  provided  under  Section  4.11  hereof  (and  any
      Guarantees thereof by the Company or its Restricted Subsidiaries);

            (ii) the  Incurrence by the Company of  Indebtedness  represented by
      the Notes;

            (iii) Indebtedness in existence on the Closing Date;

<PAGE>
                                       45


            (iv)  Indebtedness  of the Company to a  Restricted  Subsidiary  and
      Indebtedness  of  a  Restricted  Subsidiary  to  the  Company  or  another
      Restricted Subsidiary; PROVIDED that such Indebtedness is made pursuant to
      an  intercompany  note  (which,  in the case of  Indebtedness  owed to the
      Company,  shall be unsubordinated) 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 Company or
      another  Restricted   Subsidiary)  shall  be  deemed,  in  each  case,  to
      constitute an Incurrence of such Indebtedness not permitted by this clause
      (iv);

            (v)  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 clauses (i), (iv), (vi), (viii) or
      (xi) of this paragraph (b)) 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 Indebtedness the proceeds of
      which are used to refinance or refund Indebtedness that is subordinated in
      right of payment to the Notes  shall only be  permitted  under this clause
      (v) if (A)  such new  Indebtedness,  by its  terms or by the  terms of any
      agreement or instrument  pursuant to which such new Indebtedness is issued
      or remains outstanding,  is expressly made subordinate in right of payment
      to the Notes at least to the extent that the Indebtedness to be refinanced
      is subordinated to the Notes and (B) such new Indebtedness,  determined as
      of the date of Incurrence of such new Indebtedness,  does not mature 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;
      and PROVIDED  FURTHER that in no event may  Indebtedness of the Company be
      refinanced  by  means of any  Indebtedness  of any  Restricted  Subsidiary
      pursuant to this clause (v);

            (vi)  Indebtedness  (A) in respect of  performance,  surety,  appeal
      bonds  and  completion  guarantees  provided  in the  ordinary  course  of
      business,  (B) under  Currency  Agreements  and Interest Rate  Agreements;
      PROVIDED  that such  agreements  (1) are  designed  solely to protect  the
      Company or its Restricted  Subsidiaries  against  fluctuations  in foreign
      currency  exchange  rates or interest  rates and (2) 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)

<PAGE>
                                       46


      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
      Company 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  Company  or  any  Restricted   Subsidiary  in
      connection with such disposition;

            (vii)  Indebtedness  of the Company,  to the extent the net proceeds
      thereof are promptly (A) used to purchase the Notes or the Senior Discount
      Notes  tendered  in an Offer to  Purchase  made as a result of a Change in
      Control or (B) deposited to defease the Notes or the Senior Discount Notes
      as described below under Article Eight hereof;

            (viii)  Guarantees  of the Notes and the Senior  Discount  Notes and
      Guarantees of  Indebtedness  of the Company by any  Restricted  Subsidiary
      provided the  Guarantee of such  Indebtedness  is permitted by and made in
      accordance  with Section  4.07 hereof and any  Guarantee by the Company of
      Indebtedness or other obligations of any of its Restricted Subsidiaries so
      long as the incurrence of such  Indebtedness  Incurred by such  Restricted
      Subsidiary is permitted under the terms of this Section 4.03;

            (ix)  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 Company or a Restricted
      Subsidiary after the Closing Date;

            (x)  Indebtedness  of the  Company  not to  exceed,  at any one time
      outstanding,  two times the sum of (A) the Net Cash  Proceeds  received by
      the  Company  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 Company,  to the extent such Net Cash Proceeds have not
      been used  pursuant to clause  (iv)(C)(2) of paragraph (a) or clause (iii)
      or (iv) of  paragraph  (b) of  Section  4.04  hereof 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

<PAGE>
                                       47


      equivalents)  received by the Company 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 Company,  to the extent such sale of Capital Stock
      has not been used  pursuant to clause  (iii) or (iv) of  paragraph  (b) of
      Section  4.04  hereof to make a  Restricted  Payment;  PROVIDED  that such
      Indebtedness Incurred pursuant to this clause (x) does not mature prior to
      the Stated  Maturity of the Notes and has an Average  Life longer than the
      Notes;

            (xi)  Indebtedness  Incurred by the Company 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;

            (xii)  Indebtedness  of Persons  that are acquired by the Company or
      any of its Restricted  Subsidiaries or merged into a Restricted Subsidiary
      in  accordance  with  the  terms of this  Indenture;  PROVIDED  that  such
      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 Company  would be  permitted  to incur at least
      $1.00 of additional  Indebtedness  pursuant to the  Consolidated  Leverage
      Ratio  test set forth in  paragraph  (a) of this  Section  4.03 or (y) the
      Consolidated  Leverage Ratio is lower (if greater than zero) or higher (if
      less than zero) than immediately prior to such acquisition; and

            (xiii)      Strategic Subordinated Indebtedness.

            (c)  For  purposes  of   determining   any   particular   amount  of
Indebtedness under this Section 4.03, (1) Guarantees,  Liens or obligations with
respect to letters of credit supporting  Indebtedness  otherwise included in the
determination of such particular  amount shall not be included and (2) any Liens
granted  pursuant to the equal and ratable  provisions  referred to in the first
paragraph of Section 4.09 shall not be treated as Indebtedness.  For purposes of
determining  compliance  with this  Section  4.03,  in the event that an item of
Indebtedness  meets the  criteria of more than one of the types of  Indebtedness
described in clauses (i) through (xiii) of paragraph (b) above, the Company,  in
its sole discretion,  shall classify, and may from time to time reclassify, such
item of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.

            (d)  Notwithstanding  any other  provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or any Restricted Subsidiary may
Incur  pursuant to this  Section  4.03 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.

<PAGE>
                                       48

            SECTION 4.04.  LIMITATION ON RESTRICTED PAYMENTS.   (a)  The
Company will not, and will 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 Capital  Stock (other than (x)  dividends or  distributions
      payable  solely in shares of its Capital  Stock  (other than  Disqualified
      Stock) or in options,  warrants or other rights to acquire  shares of such
      Capital Stock and (y) pro rata dividends or  distributions on Common Stock
      of Restricted  Subsidiaries held by minority stockholders) held by Persons
      other than the Company or any of its Restricted Subsidiaries,

            (ii)  purchase,  redeem,  retire or otherwise  acquire for value any
      shares of Capital Stock of (A) the Company or an  Unrestricted  Subsidiary
      (including  options,  warrants or other  rights to acquire  such shares of
      Capital  Stock) 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  Capital  Stock)  held by any
      Affiliate   of  the  Company   (other  than  a   Wholly-Owned   Restricted
      Subsidiary),

            (iii) make any voluntary or optional principal payment, or voluntary
      or optional redemption,  repurchase,  defeasance,  or other acquisition or
      retirement for value,  of Indebtedness of the Company that is subordinated
      in right of payment to the Notes  (other  than the  purchase,  redemption,
      repurchase  or  other  acquisition  of  such   subordinated   Indebtedness
      purchased  in  anticipation  of  satisfying  a  sinking  fund  obligation,
      principal  installment  or final  maturity,  in each case due  within  six
      months of the date of acquisition) or

            (iv) make any Investment,  other than a Permitted Investment, in any
      Person  (such  payments  or any other  actions  described  in clauses  (i)
      through (iv) above being  collectively  "Restricted  Payments") if, at the
      time of, and after giving effect to, the proposed Restricted Payment:  (A)
      a Default or Event of Default shall have occurred and be  continuing,  (B)
      the Company could not Incur at least $1.00 of Indebtedness under paragraph
      (a) of Section 4.03 hereof or (C) 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 Income is a
      loss,  minus  100% of the amount of such loss)  (determined  by  excluding
      income  resulting  from transfers of assets by the Company or a Restricted

<PAGE>
                                       49


      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 filed with the Commission or
      provided to the Trustee  pursuant to Section  4.18 hereof 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
      Company  after the Closing Date from the  issuance  and sale  permitted by
      this Indenture of its Capital Stock (other than  Disqualified  Stock) to a
      Person who is not a Subsidiary  of the  Company,  including an issuance or
      sale permitted by this Indenture of  Indebtedness  of the Company for cash
      subsequent to the Closing Date upon the  conversion  of such  Indebtedness
      into Capital Stock (other than Disqualified Stock) of the Company, or from
      the  issuance  to a Person who is not a  Subsidiary  of the Company of any
      options,  warrants or other rights to acquire Capital Stock of the Company
      (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  Stated  Maturity  of the
      Notes),  and the Net Cash Proceeds from any capital  contributions  to the
      Company after the Closing Date from Persons other than Subsidiaries of the
      Company,  in each case excluding such Net Cash Proceeds to the extent used
      to Incur  Indebtedness  pursuant  to  clause  (x) of  paragraph  (b) under
      Section 4.03 hereof 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
      Company 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 Company or any  Restricted
      Subsidiary in such Person or Unrestricted Subsidiary.

            (b) 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 (a);

            (ii) the redemption,  repurchase, defeasance or other acquisition or
      retirement  for value of  Indebtedness  that is  subordinated  in right of
      payment to the Notes  including  premium,  if any,  and accrued and unpaid
      interest,  with the proceeds of, or in exchange for, Indebtedness Incurred
      under clause (i) or (v) of paragraph (b) of Section 4.03 hereof;

<PAGE>
                                       50

            (iii) the  repurchase,  redemption or other  acquisition  of Capital
      Stock of the Company or an Unrestricted  Subsidiary (or options,  warrants
      or other rights to acquire such Capital  Stock) in exchange for, or out of
      the proceeds of a substantially  concurrent offering of, shares of Capital
      Stock (other than Disqualified Stock) of the Company (or options, warrants
      or other rights to acquire such Capital Stock);

            (iv)  the  making  of  any  principal  payment  or  the  repurchase,
      redemption,  retirement,  defeasance  or other  acquisition  for  value of
      Indebtedness  of the Company which is  subordinated in right of payment to
      the Notes in exchange  for,  or out of the  proceeds  of, a  substantially
      concurrent   offering  of,   shares  of  the  Capital  Stock  (other  than
      Disqualified  Stock) of the Company (or options,  warrants or other rights
      to acquire such Capital Stock);

            (v) 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 the  provisions of this Indenture
      applicable   to  mergers,   consolidations   and   transfers   of  all  or
      substantially all of the property and assets of the Company;

            (vi) the  declaration or payment of dividends on the Common Stock of
      the Company  following a Public Equity  Offering of Common Stock, of up to
      6% per annum of the Net Cash  Proceeds  received  by the  Company  in such
      Public Equity Offering;

            (vii) the repurchase,  retirement or other acquisition or retirement
      for  value of  Capital  Stock (or  options,  warrants  or other  rights to
      acquire such Capital  Stock) of the Company that is not  registered  under
      the Exchange Act and is held by any current or former  employee,  director
      or consultant (or their estates or the  beneficiaries  of such estates) of
      the Company or any Subsidiary, not to exceed (A) in any calendar year $2.0
      million or (B) $5.0 million in the aggregate;

            (viii) repurchases of Capital Stock deemed to occur upon exercise of
      stock options if such Capital  Stock  represents a portion of the exercise
      price of such options;

<PAGE>
                                       51

            (ix) repurchases of fractional shares of Capital Stock in connection
      with the  exercise  of warrants to acquire  Common  Stock of the  Company,
      PROVIDED that such  repurchase is in compliance  with Section 4.08 hereof;
      and

            (x) other  Restricted  Payments in an aggregate amount not to exceed
      $2.0 million;

PROVIDED  that,  except in the case of clauses  (i),  (ii),  (iii) and (iv),  no
Default or Event of Default  shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.

            (c) Each  Restricted  Payment  permitted  pursuant to the  preceding
paragraph (b) (other than the Restricted  Payment  referred to in clause (ii) or
(viii)  thereof,  an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause  (iii) or (iv)  thereof and an  Investment  referred to in
clause (vi)  thereof),  and the Net Cash  Proceeds  from any issuance of Capital
Stock  referred to in clauses (iii) and (iv),  shall be included in  calculating
whether the  conditions of clause  (iv)(C) of paragraph (a) of this Section 4.04
have been met with respect to any subsequent  Restricted Payments.  In the event
the  proceeds of an  issuance  of Capital  Stock of the Company are used for the
redemption,  repurchase or other  acquisition of the Notes, or Indebtedness that
is PARI PASSU with the Notes,  then the Net Cash Proceeds of such issuance shall
be included in clause  (iv)(C) of paragraph (a) of this Section 4.04 only to the
extent  such  proceeds  are not used for such  redemption,  repurchase  or other
acquisition of Indebtedness.

            (d) 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 Company 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).

            SECTION 4.05.  LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. (a) The Company will not, and will 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 Company or any other Restricted  Subsidiary,
(ii)  pay  any  Indebtedness  owed  to  the  Company  or  any  other  Restricted
Subsidiary,  (iii) make loans or advances to the Company or any other Restricted
Subsidiary  or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.

            (b) The foregoing  provisions shall not restrict any encumbrances or
restrictions:

<PAGE>
                                       52

            (i)  existing  on the  Closing  Date in the  Senior  Secured  Credit
      Facility,  the Lucent  Facility,  this  Indenture,  the  indenture for the
      Senior  Discount  Notes 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, 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  Company 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  paragraph  (a) of this  Section
      4.05, (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  Company  or  any  Restricted
      Subsidiary  not  otherwise  prohibited by this  Indenture,  (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  Company  or any  Restricted
      Subsidiary  in any  manner  material  to  the  Company  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  Company  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 Company;

<PAGE>
                                       53

            (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 Senior Secured Credit 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  Notes  than is
      customary in comparable  financings (as determined by the Company) and (C)
      the Company  determines that any such  encumbrance or restriction will not
      materially  affect the  Company's  ability to make  principal  or interest
      payments on the Notes;

            (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  paragraph  (a) of this  Section 4.05 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
      Company,  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.

            (c) Nothing contained in this Section 4.05 shall prevent the Company
      or any Restricted  Subsidiary  from (1) creating,  incurring,  assuming or
      suffering to exist any Liens otherwise permitted in Section 4.09 hereof or
      (2) restricting the sale or other disposition of property or assets of the
      Company or any of its Restricted  Subsidiaries that secure Indebtedness of
      the Company or any of its Restricted Subsidiaries.

            SECTION  4.06.  LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK
OF RESTRICTED  SUBSIDIARIES.  The Company will not sell, and will 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 Company 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,

<PAGE>
                                       54

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 under Section 4.04 hereof if made on the date of such
issuance or sale; or (iv) issuances or sales of Common Stock (including options,
warrants or other  rights to purchase  shares of Common  Stock) of a  Restricted
Subsidiary,  PROVIDED that the Company or any Restricted  Subsidiary  applies an
amount equal to the Net Cash Proceeds  thereof in  accordance  with Section 4.11
hereof.

            SECTION  4.07.  LIMITATION  ON ISSUANCES OF GUARANTEES BY RESTRICTED
SUBSIDIARIES.  (a) The  Company  will  not  permit  any  Restricted  Subsidiary,
directly or indirectly,  to Guarantee any  Indebtedness  of the Company which is
PARI PASSU  with or  subordinate  in right of payment to the Notes  ("GUARANTEED
INDEBTEDNESS"),  unless (i) such Restricted Subsidiary  simultaneously  executes
and  delivers  a  supplemental  indenture  to  this  Indenture  providing  for a
Guarantee  (a  "SUBSIDIARY  GUARANTEE")  of  payment  of the Notes and the other
obligations  of the Company under this Indenture by such  Restricted  Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of any rights of reimbursement, indemnity
or subrogation  or any other rights against the Company or any other  Restricted
Subsidiary as a result of any payment by such  Restricted  Subsidiary  under its
Subsidiary  Guarantee;  provided that this paragraph (a) shall not be applicable
to any Guarantee of any Restricted  Subsidiary (x) that existed at the time such
Person became a Restricted  Subsidiary and was not Incurred in connection  with,
or in contemplation  of, such Person becoming a Restricted  Subsidiary or (y) of
the Indebtedness Incurred under the Senior Secured Credit Facility.

            (b) If the  Guaranteed  Indebtedness  is (A) PARI  PASSU in right of
payment with the Notes, then the Guarantee of such Guaranteed Indebtedness shall
be PARI PASSU in right of  payment  with,  or  subordinated  to, the  Subsidiary
Guarantee  or (B)  subordinated  in  right of  payment  to the  Notes,  then the
Guarantee of such  Guaranteed  Indebtedness  shall be  subordinated  in right of
payment to the  Subsidiary  Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Notes.

            (c)  Notwithstanding  the foregoing,  any Subsidiary  Guarantee by a
Restricted  Subsidiary  may provide by its terms that it shall be  automatically
and  unconditionally  released  and  discharged  upon (i) any sale,  exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted  Subsidiary's  Capital Stock in, or all or substantially all
the assets of, such Restricted  Subsidiary (which sale,  exchange or transfer is
not  prohibited  by this  Indenture)  or (ii) the  release or  discharge  of the
Guarantee which resulted in the creation of such Subsidiary Guarantee,  except a
discharge or release by or as a result of payment under such Guarantee.


<PAGE>
                                       55

            SECTION  4.08.  LIMITATION ON  TRANSACTIONS  WITH  SHAREHOLDERS  AND
AFFILIATES.  (a) The  Company  will  not,  and will 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  Company or any  Restricted  Subsidiary,  except upon fair and
reasonable terms no less favorable to the Company 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 such a holder or an Affiliate.

            (b) 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  Company  or a
      Restricted  Subsidiary  delivers  to the  Trustee 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 Company or such
      Restricted Subsidiary from a financial point of view;

            (ii) any  transaction  solely  between  the  Company  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 Company or its Restricted Subsidiaries;

            (iv) any payments or other transactions  pursuant to any tax-sharing
      agreement  between the Company and any other Person with which the Company
      files a  consolidated  tax return or with  which the  Company 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 Company 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);


<PAGE>
                                       56


            (vii)  any  Permitted   Investments  and  Restricted   Payments  not
      prohibited by Section 4.04 hereof; or

            (viii) the issuance of any Capital  Stock  (other than  Disqualified
      Stock) of the Company.

Notwithstanding the foregoing, any transaction or series of related transactions
covered by  paragraph  (a) of this  Section 4.08 and not covered by clauses (ii)
through (vii) of this  paragraph (b) 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) of this Section 4.08.

            SECTION  4.09.  LIMITATION  ON LIENS.  (a) The Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties  of any character  (including,
without limitation, licenses), or any shares of Capital Stock or Indebtedness of
any Restricted  Subsidiary,  without making  effective  provision for all of the
Notes and all other  amounts due under this  Indenture  to be  directly  secured
equally and ratably  with (or, if the  obligation  or liability to be secured by
such  Lien is  subordinated  in right of  payment  to the  Notes,  prior to) the
obligation or liability secured by such Lien.

            (b)  The foregoing limitation does not apply to:

            (i)   Liens existing on the Closing Date or required on the
      Closing Date to be provided in the future;

            (ii) Liens  securing  obligations  under the Senior  Secured  Credit
      Facility (including Liens pursuant to after-acquired clauses);

            (iii) Liens  granted after the Closing Date on any assets or Capital
      Stock of the Company or its  Restricted  Subsidiaries  created in favor of
      the Holders;

            (iv) Liens with  respect  to the assets of a  Restricted  Subsidiary
      granted by such  Restricted  Subsidiary  to the  Company  or a  Restricted
      Subsidiary  to secure  Indebtedness  owing to the  Company  or such  other
      Restricted Subsidiary;

            (v) Liens  securing  Indebtedness  which is  Incurred  to  refinance
      secured Indebtedness which is permitted to be Incurred under clause (v) of
      paragraph  (b) of Section  4.03  hereof;  PROVIDED  that such Liens do not
      extend to or cover any property or assets of the Company or any Restricted
      Subsidiary  other than the property or assets  securing  the  Indebtedness
      being refinanced;

<PAGE>
                                       57

            (vi)  Liens on any  property  or assets of a  Restricted  Subsidiary
      securing  Indebtedness  of  such  Restricted  Subsidiary  permitted  under
      Section 4.03 hereof; or

            (vii)       Permitted Liens.

            SECTION 4.10. LIMITATION ON SALE-LEASEBACK TRANSACTIONS. The Company
will not,  and will not  permit any  Restricted  Subsidiary  to,  enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or  hereafter  acquired,  whereby the Company or a  Restricted  Subsidiary
sells or transfers such assets or properties and then or thereafter  leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such  Restricted  Subsidiary,  as the case may be, intends to use
for  substantially the same purpose or purposes as the assets or properties sold
or transferred.

            The  foregoing  restriction  does not  apply  to any  sale-leaseback
transaction if:

            (i)   the lease is for a period, including renewal rights, of not
      in excess of three years;

            (ii) the lease secures or relates to industrial revenue or pollution
      control bonds;

            (iii)  the  transaction  is  solely  between  the  Company  and  any
      Wholly-Owned   Restricted   Subsidiary  or  solely  between   Wholly-Owned
      Restricted Subsidiaries; or

            (iv) the Company or such Restricted Subsidiary, within twelve months
      after the sale or  transfer  of any  assets or  properties  is  completed,
      applies an amount not less than the net proceeds  received  from such sale
      in  accordance  with clause (A) or (B) of  paragraph  (b) of Section  4.11
      hereof.

            SECTION 4.11.  LIMITATION ON ASSET SALES.  (a) The Company will not,
and will not permit any  Restricted  Subsidiary  to,  consummate any Asset Sale,
unless  (i)  the  consideration  received  by the  Company  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 Section 4.11, the following
are deemed to be cash: (x) the principal  amount or accreted value (whichever is
larger) of Indebtedness of the Company or any Restricted Subsidiary with respect
to which the Company 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  Company  or any  Restricted  Subsidiary  from  the
transferee  that  are  promptly  converted  by the  Company  or such  Restricted
Subsidiary into cash.


<PAGE>
                                       58

            (b) In the  event  and to the  extent  that  the Net  Cash  Proceeds
received by the Company 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 Company and its  Subsidiaries has
been filed with the  Commission  or provided to the Trustee  pursuant to Section
4.18  hereof),  then the Company  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  unsubordinated
Indebtedness of the Company, or any Restricted Subsidiary providing a Subsidiary
Guarantee  pursuant  to  Section  4.07  hereof  or  Indebtedness  of  any  other
Restricted Subsidiary,  in each case owing to a Person other than the Company 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
Company 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 (c) of this Section 4.11.  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."

            (c) 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  4.11 totals at least $5  million,  the Company  must
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 Indebtedness with similar provisions requiring
the  Company to make an offer to purchase  such  Indebtedness,  in an  aggregate
principal amount of the Notes and such PARI PASSU Indebtedness equal to (A) with
respect to the  Notes,  the  product of such  Excess  Proceeds  multiplied  by a
fraction,  the  numerator of which is the  outstanding  principal  amount of the
Notes  and the  denominator  of  which is the sum of the  outstanding  principal
amount of the Notes and such PARI PASSU  Indebtedness  (the product  hereinafter
referred  to as the  "NOTE  AMOUNT"),  and (B) with  respect  to the PARI  PASSU
Indebtedness,  the  excess of the Excess  Proceeds  over the Note  Amount,  at a

<PAGE>
                                       59

purchase  price equal to 100% of the principal  amount or accreted value of such
PARI PASSU  Indebtedness,  as the case may be, on the  relevant  Payment Date or
such  other  date  set  forth in the  documentation  governing  the  PARI  PASSU
Indebtedness,  plus, in each case, accrued interest (if any) to the Payment Date
or such  other  date set forth in the  documentation  governing  the PARI  PASSU
Indebtedness.  If the aggregate purchase price of the Notes tendered pursuant to
the Offer to Purchase  is less than the Excess  Proceeds,  the amount  remaining
will be available for use by the Company for general  corporate  purposes.  Upon
the  consummation  of any Offer to Purchase in accordance with the terms of this
Indenture,  the  amount of Net Cash  Proceeds  from Asset  Sales  subject to any
future Offer to Purchase shall be deemed to be zero.

            SECTION  4.12.  REPURCHASE  OF NOTES UPON A CHANGE OF  CONTROL.  The
Company must commence,  within 30 days of the occurrence of a Change of Control,
and  consummate  an Offer to  Purchase  for all  Notes  then  outstanding,  at a
purchase  price  equal  to 101% of the  principal  amount  of the  Notes  on the
relevant  Payment  Date,  PLUS accrued  interest  (if any) to the Payment  Date;
PROVIDED,  HOWEVER,  that notwithstanding the occurrence of a Change of Control,
the  Company  shall not be  obligated  to  purchase  the Notes  pursuant to this
Section 4.12 in the event that it has  irrevocably  committed to, within 90 days
of such Change of  Control,  redeem all the Notes in  accordance  with the terms
hereof.

            SECTION 4.13.  EXISTENCE.  Subject to Articles Four and Five of this
Indenture,  the  Company  will do or cause to be done all  things  necessary  to
preserve and keep in full force and effect its  existence  and the  existence of
each  of  its  Restricted   Subsidiaries   in  accordance  with  the  respective
organizational  documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter,  partnership  certificate,  agreement,  statute or
otherwise),  material  licenses  and  franchises  of the  Company  and each such
Subsidiary; PROVIDED that the Company shall not be required to preserve any such
right, license or franchise,  or the existence of any Restricted Subsidiary,  if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.

            SECTION 4.14.  PAYMENT OF TAXES AND OTHER  CLAIMS.  The Company will
pay or discharge and shall cause each of its  Subsidiaries  to pay or discharge,
or cause to be paid or discharged,  before the same shall become  delinquent (i)
all material taxes,  assessments and governmental charges levied or imposed upon
(a) the  Company or any such  Subsidiary,  (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies

<PAGE>
                                       60

that, if unpaid,  might by law become a Lien upon the property of the Company or
any such  Subsidiary;  PROVIDED that the Company shall not be required to pay or
discharge, or cause to be paid or discharged,  any such tax, assessment,  charge
or claim the amount,  applicability  or validity of which is being  contested in
good faith by appropriate  proceedings,  for which  adequate  reserves have been
established,  and where the failure to effect such payment is not adverse in any
material respect to the Holders.

            SECTION 4.15.  MAINTENANCE OF PROPERTIES AND INSURANCE.  The Company
will cause all  properties  used or useful in the conduct of its business or the
business of any of its  Restricted  Subsidiaries,  to be maintained  and kept in
good  condition,  repair  and  working  order and  supplied  with all  necessary
equipment  and  will  cause  to  be  made  all  necessary   repairs,   renewals,
replacements,  betterments and improvements  thereof,  all as in the judgment of
the Company  may be  necessary  so that the  business  carried on in  connection
therewith may be properly and  advantageously  conducted at all times;  PROVIDED
that  nothing  in this  Section  4.15  shall  prevent  the  Company  or any such
Subsidiary from  discontinuing the use,  operation or maintenance of any of such
properties or disposing of any of them, if such  discontinuance  or disposal is,
in the judgment of the Company,  desirable in the conduct of the business of the
Company or such Subsidiary.

            The Company will provide or cause to be provided, for itself and its
Restricted  Subsidiaries,   insurance  (including  appropriate   self-insurance)
against loss or damage of the kinds customarily  insured against by corporations
similarly  situated and owning like properties,  with reputable insurers or with
the government of the United States of America,  or an agency or instrumentality
thereof, in such amounts,  with such deductibles and by such methods as shall be
customary  for  corporations  similarly  situated  in the  industry in which the
Company or such  Restricted  Subsidiary,  as the case may be, is then conducting
business.

            SECTION  4.16.  NOTICE OF  DEFAULTS.  In the event that the  Company
becomes aware of any Default or Event of Default, the Company, promptly after it
becomes aware thereof, will give written notice thereof to the Trustee.

            SECTION  4.17.  COMPLIANCE  CERTIFICATES.  Both of the two principal
accounting officers of the Company and the Guarantor shall certify, on or before
a date not more than 90 days after the end of each fiscal  year of the  Company,
that a review  has been  conducted  of the  activities  of the  Company  and its
Restricted  Subsidiaries or the Guarantor, as the case may be, and the Company's
and  its  Restricted  Subsidiaries'  or the  Guarantor's,  as the  case  may be,
performance  under this  Indenture and that the Company and the  Guarantor  have
fulfilled  all  obligations  thereunder,  or, if there has been a default in the
fulfillment of any such obligation,  specifying each such default and the nature
and status thereof.  The Company shall also notify the Trustee of any default or
defaults in the performance of any covenants or agreements under this Indenture.
The Company and the  Guarantor  shall also comply with the other  provisions  of
Section 314(a) of the TIA.

<PAGE>
                                       61


            SECTION  4.18.  COMMISSION  REPORTS AND  REPORTS TO HOLDERS.  At all
times  from and  after the  earlier  of (i) the date of the  commencement  of an
Exchange  Offer or the  effectiveness  of a Shelf  Registration  Statement  (the
"Registration")  and (ii) the date that is six months after the Closing Date, in
either  case,  whether or not the Company is then  required to file reports with
the  Commission,  the Company 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.  The Company shall supply the Trustee, within
15 days of filing with the  Commission,  and each Holder or shall  supply to the
Trustee for forwarding to each such Holder,  without cost to such Holder, copies
of such reports and other  information.  In addition,  at all times prior to the
earlier of the date of the  Registration  and the date that is six months  after
the Closing Date, the Company shall, at its cost,  deliver to each Holder of the
Notes quarterly and annual reports substantially equivalent to those which would
be required by the Exchange Act (or, in lieu thereof, the Registration Statement
on Form S-1, S-3 or S-4 filed or to be filed with the  Commission  in connection
with the Exchange Offer or the Shelf  Registration  Statement,  if such Form and
any amendments thereof contains  comparable  information).  In addition,  at all
times  prior  to  the  Registration,  upon  the  request  of any  Holder  or any
prospective  purchaser of the Notes  designated  by a Holder,  the Company shall
supply to such Holder or such  prospective  purchaser the  information  required
under Rule 144A under the Securities Act.

            SECTION 4.19.  WAIVER OF STAY,  EXTENSION OR USURY LAWS. The Company
covenants  (to the extent  that it may  lawfully  do so) that it will not at any
time  insist  upon,  or plead,  or in any  manner  whatsoever  claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated  herein,
wherever enacted,  now or at any time hereafter in force, or that may affect the
covenants or the performance of this  Indenture;  and (to the extent that it may
lawfully do so) the Company hereby  expressly waives all benefit or advantage of
any such  law and  covenants  that it will  not  hinder,  delay  or  impede  the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.

            SECTION  4.20.  LIMITATION  ON  INCURRENCE  OF  LIABILITIES  BY  THE
GUARANTOR. The Guarantor has been formed for the limited purpose of pledging the
Pledged  Securities to secure the Notes pursuant to the Pledge  Agreement and to
Guarantee  the  Notes  and  the  Senior  Discount  Notes.  Other  than as may be
necessary in connection with the purposes  described in the preceding  sentence,
until such time as the  Guarantee  terminates  pursuant to Section 11.01 hereof,

<PAGE>
                                       62

the Guarantor  shall not engage in any business  activities  and shall not Incur
any material  obligations (other than obligations with respect to its Guarantees
of the Notes and the  Senior  Discount  Notes) and 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 Guarantor.

                                  ARTICLE FIVE
                              SUCCESSOR CORPORATION

            SECTION  5.01.  WHEN COMPANY MAY MERGE,  ETC. The Company  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
Company unless:



<PAGE>



            (i) the Company shall be the  continuing  Person,  or the Person (if
      other than the  Company)  formed by such  consolidation  or into which the
      Company is merged or that  acquired or leased such  property and assets of
      the Company shall be a corporation  organized and validly  existing  under
      the laws of the United States of America or any  jurisdiction  thereof and
      shall  expressly  assume,  by  a  supplemental  indenture,   executed  and
      delivered to the Trustee,  all of the obligations of the Company on all of
      the Notes and under this Indenture;

            (ii) immediately after giving effect to such transaction, no Default
      or Event of Default shall have occurred and be continuing;

            (iii)  immediately  after giving effect to such transaction on a PRO
      FORMA basis,

                  (A) the Company or any Person  becoming the successor  obligor
            of the  Notes,  as the case may be,  shall have a  Consolidated  Net
            Worth  equal to or greater  than the  Consolidated  Net Worth of the
            Company immediately prior to such transaction; or

                  (B) the Company or any Person  becoming the successor  obligor
            of the Notes, 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 Company immediately prior to such transaction;
            PROVIDED  that this clause (iii) shall not apply to a  consolidation
            or merger with or into a Wholly-Owned  Restricted  Subsidiary with a
            positive net worth;

<PAGE>
                                       63


      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 Company) shall be issued or distributed to the
      stockholders of the Company; and

            (iv) the Company  delivers to the Trustee an  Officers'  Certificate
      (attaching the arithmetic  computations  to  demonstrate  compliance  with
      clause (iii) of this Section 5.01) and an Opinion of Counsel, in each case
      stating that such consolidation,  merger or transfer and such supplemental
      indenture  complies with this provision and that all conditions  precedent
      provided for herein relating to such transaction have been complied with;

PROVIDED,  HOWEVER, that clause (iii) of this Section 5.01 does not apply if, in
the good faith  determination  of the Board of Directors  of the Company,  whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such  transaction is part of a plan to change the state of  incorporation of the
Company; and PROVIDED FURTHER that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.

            SECTION  5.02.  SUCCESSOR  SUBSTITUTED.  Upon any  consolidation  or
merger,  or any  sale,  conveyance,  transfer  or  other  disposition  of all or
substantially  all of the property and assets of the Company in accordance  with
Section  5.01  of  this   Indenture,   the  successor   Person  formed  by  such
consolidation  or into  which  the  Company  is merged  or to which  such  sale,
conveyance,  transfer  or other  disposition  is made shall  succeed  to, and be
substituted  for, and may exercise  every right and power of, the Company  under
this Indenture  with the same effect as if such successor  Person had been named
as the Company herein.


                                   ARTICLE SIX
                              DEFAULT AND REMEDIES

            SECTION 6.01.  EVENTS OF DEFAULT.  An "EVENT OF DEFAULT" shall
occur with respect to the Notes if:

            (a) a default occurs in the payment of the principal of (or premium,
      if any,  on) any Note when the same  becomes due and payable at  maturity,
      upon acceleration, redemption or otherwise;

            (b) a default occurs in the payment of interest on any Note when the
      same becomes due and payable,  and such default  continues for a period of
      30 days;

<PAGE>
                                       64


            (c) the Company or the Guarantor  defaults in the  performance of or
      breaches any other  covenant or agreement of the Company or the  Guarantor
      in this  Indenture or under the Notes  (other than a default  specified in
      clause  (a) or (b) of this  Section  6.01)  and  such  default  or  breach
      continues for a period of 30 consecutive  days after written notice to the
      Company by the Trustee or to the Company and the Trustee by the Holders of
      25% or more in aggregate principal amount of the Notes;

            (d) the Company  shall have failed to make or consummate an Offer to
      Purchase in accordance with Section 4.11 hereof;

            (e) the Company  shall have failed to make or consummate an Offer to
      Purchase in accordance with the provisions of Section 4.12 hereof;

            (f) there occurs with respect to any issue or issues of Indebtedness
      of the  Company  or  any  Significant  Subsidiary  having  an  outstanding
      principal  amount at maturity of $5 million or more in the  aggregate  for
      all such issues of all such Persons,  whether such Indebtedness now exists
      or shall hereafter be created, (I) an event of default that has caused the
      holder thereof to declare such Indebtedness to be due and payable prior to
      its Stated Maturity and such  Indebtedness has not been discharged in full
      or such  acceleration has not been rescinded or annulled within 30 days of
      such  acceleration  and/or (II) the failure to make a principal payment at
      the final (but not any interim) fixed maturity and such defaulted  payment
      shall  not have  been  made,  waived  or  extended  within 30 days of such
      payment default;

            (g) any final  judgment or order (not covered by insurance)  for the
      payment of money in excess of $5 million in the  aggregate  (treating  any
      deductibles,  self-insurance  or  retention  as not so  covered)  shall be
      rendered  against the Company or any Significant  Subsidiary and shall not
      be paid or  discharged,  and there  shall be any period of 30  consecutive
      days  following  entry of the final  judgment  or order  that  causes  the
      aggregate  amount for all such final  judgments or orders  outstanding and
      not paid or  discharged  against  the  Company  or any of its  Significant
      Subsidiaries  to exceed $5 million  during which a stay of  enforcement of
      such final judgment or order,  by reason of a pending appeal or otherwise,
      shall not be in effect;

<PAGE>
                                       65

            (h) a court having  jurisdiction  in the premises enters a decree or
      order for (A) relief in  respect  of the  Company,  the  Guarantor  or any
      Significant  Subsidiary  in  an  involuntary  case  under  any  applicable
      bankruptcy,  insolvency  or other  similar law now or hereafter in effect,
      (B) appointment of a receiver,  liquidator,  assignee, custodian, trustee,
      sequestrator  or similar  official of the  Company,  the  Guarantor or any
      Significant Subsidiary or for all or substantially all of the property and
      assets of the Company, the Guarantor or any Significant  Subsidiary or (C)
      the winding up or liquidation of the affairs of the Company, the Guarantor
      or any  Significant  Subsidiary  and,  in each case,  such decree or order
      shall remain unstayed and in effect for a period of 30 consecutive days;

            (i) the Company,  the Guarantor or any  Significant  Subsidiary  (A)
      commences a voluntary case under any applicable bankruptcy,  insolvency or
      other similar law now or hereafter in effect,  or consents to the entry of
      an order  for  relief in an  involuntary  case  under  any such  law,  (B)
      consents  to  the  appointment  of or  taking  possession  by a  receiver,
      liquidator, assignee, custodian, trustee, sequestrator or similar official
      of the Company, the Guarantor or any Significant  Subsidiary or for all or
      substantially all of the property and assets of the Company, the Guarantor
      or any  Significant  Subsidiary or (C) effects any general  assignment for
      the benefit of creditors; or

            (j) prior to the payment in full of the first six interest  payments
      on the Notes,  the Note Guarantee ceases to be in full force and effect or
      is declared null and void, or the Guarantor denies that it has any further
      liability under the Note Guarantee,  or gives notice to such effect (other
      than by reason of the termination of this Indenture).



<PAGE>



            SECTION 6.02.  ACCELERATION.  If an Event of Default  (other than an
Event of Default specified in clause (h) or (i) of Section 6.01 that occurs with
respect to the Company or the  Guarantor)  occurs and is  continuing  under this
Indenture,  the  Trustee or the Holders of at least 25% in  aggregate  principal
amount of the Notes then  outstanding,  by written notice to the Company (and to
the Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall,  declare the principal of,  premium,  if any, and
accrued  interest  on the  Notes  to be  immediately  due  and  payable.  Upon a
declaration of  acceleration,  such principal of,  premium,  if any, and accrued
interest shall be immediately due and payable.  In the event of a declaration of
acceleration because an Event of Default set forth in clause (f) of Section 6.01
has  occurred and is  continuing,  such  declaration  of  acceleration  shall be
automatically  rescinded  and annulled if the event of default  triggering  such
Event of  Default  pursuant  to  clause  (f) shall be  remedied  or cured by the
Company or the relevant  Significant  Subsidiary or waived by the holders of the
relevant  Indebtedness within 60 days after the declaration of acceleration with

<PAGE>
                                       66

respect  thereto.  If an Event of  Default  specified  in  clause  (h) or (i) of
Section  6.01  occurs  with  respect  to  the  Company,  the  Guarantor  or  any
Significant Subsidiary,  the principal of, premium, if any, and accrued interest
on the Notes then outstanding shall IPSO FACTO become and be immediately due and
payable  without any  declaration or other act on the part of the Trustee or any
Holder.

            SECTION 6.03.  OTHER REMEDIES.  If an Event of Default occurs and is
continuing,  the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of,  premium,  if any, or interest
on the Notes or to enforce the  performance  of any provision of the Notes,  the
Note Guarantee, the Pledge Agreement or this Indenture.

            The Trustee may  maintain a  proceeding  even if it does not possess
any of the Notes or does not produce any of them in the proceeding.

            SECTION 6.04.  WAIVER OF PAST DEFAULTS.  Subject to Section 9.02, at
any time after such a  declaration  of  acceleration,  but before a judgment  or
decree for the payment of the money due has been  obtained by the  Trustee,  the
Holders of at least a majority in aggregate  principal amount of the outstanding
Notes by written  notice to the  Company  and to the  Trustee may waive all past
Defaults  and  rescind  and  annul  a  declaration  of   acceleration   and  its
consequences  (except a Default in the payment of, premium,  if any, or interest
on any Note as  specified  in clause  (a) or (b) of  Section  6.01 (but not as a
result of such  acceleration)  or in respect of a covenant or  provision of this
Indenture  which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected) if (i) all existing Events of Default,  other
than the  nonpayment of the principal of,  premium,  if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission  would not conflict with any judgment or
decree of a court of competent jurisdiction.  Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been  cured,  for every  purpose of this  Indenture;  but no such waiver
shall extend to any  subsequent  or other  Default or Event of Default or impair
any right consequent thereto.

            SECTION  6.05.  CONTROL  BY  MAJORITY.  The  Holders  of at  least a
majority in aggregate  principal amount of the outstanding  Notes may direct the
time,  method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee.  However,
the Trustee may refuse to follow any direction  that  conflicts with law or this
Indenture,  that may  involve the  Trustee in  personal  liability,  or that the
Trustee  determines  in good  faith may be unduly  prejudicial  to the rights of
Holders of Notes not  joining in the giving of such  direction  and may take any
other action it deems proper that is not  inconsistent  with any such  direction
received from Holders of Notes.

            SECTION 6.06.  LIMITATION ON SUITS.  A Holder may not pursue any
remedy  with respect to this Indenture or the Notes unless:

<PAGE>
                                       67


            (i)   the Holder gives to the Trustee written notice of a
      continuing Event of Default;

            (ii) the Holders of at least 25% in  aggregate  principal  amount of
      outstanding  Notes  make a written  request  to the  Trustee to pursue the
      remedy;

            (iii)  such   Holder  or  Holders   offer  the   Trustee   indemnity
      satisfactory to the Trustee against any costs,  liability or expense to be
      incurred in compliance with such request;

            (iv) the Trustee  does not comply  with the  request  within 60 days
      after receipt of the request and the offer of indemnity; and

            (v)  during  such  60-day  period,  the  Holders  of a  majority  in
      aggregate  principal  amount  of the  outstanding  Notes  do not  give the
      Trustee a direction that is inconsistent with the request.

            For  purposes of Section  6.05 of this  Indenture  and this  Section
6.06,   the  Trustee  shall  comply  with  TIA  Section  316(a)  in  making  any
determination of whether the Holders of the required aggregate  principal amount
of  outstanding  Notes have concurred in any request or direction of the Trustee
to pursue any remedy  available  to the Trustee or the Holders  with  respect to
this Indenture or the Notes or otherwise under the law.

            A Holder  may not use this  Indenture  to  prejudice  the  rights of
another Holder or to obtain a preference or priority over such other Holder.

            SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.  Notwithstanding
any other  provision  of this  Indenture,  the right of any  Holder of a Note to
receive payment of principal of,  premium,  if any, or interest on such Holder's
Note on or after the  respective  due dates  expressed on such Note, or to bring
suit for the enforcement of any such payment on or after such respective  dates,
shall not be impaired or affected without the consent of such Holder.

            SECTION 6.08.  COLLECTION SUIT BY TRUSTEE. If an Event of Default in
payment of  principal,  premium or  interest  specified  in clause (a) or (b) of
Section 6.01 occurs and is continuing,  the Trustee may recover  judgment in its
own name and as trustee of an express  trust  against  the  Company or any other
obligor of the Notes for the whole  amount of  principal,  premium,  if any, and
accrued interest remaining unpaid,  together with interest on overdue principal,

<PAGE>
                                       68

premium,  if any,  and, to the extent that  payment of such  interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes,  and such further amount as shall be sufficient to cover the costs
and expenses of  collection,  including the reasonable  compensation,  expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof.

            SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such  proofs of claim  and other  papers or  documents  as may be  necessary  or
advisable  in order to have the claims of the Trustee  (including  any claim for
the  reasonable  compensation,  expenses,  disbursements  and  advances  of  the
Trustee,  its agents and counsel,  and any other  amounts due the Trustee  under
Section 7.07) and the Holders  allowed in any judicial  proceedings  relative to
the Company (or any other  obligor of the Notes),  its creditors or its property
and  shall be  entitled  and  empowered  to  collect  and  receive  any  monies,
securities or other property  payable or deliverable upon conversion or exchange
of the  Notes  or upon any such  claims  and to  distribute  the  same,  and any
custodian,  receiver,  assignee,  trustee,  liquidator,  sequestrator  or  other
similar  official in any such judicial  proceeding is hereby  authorized by each
Holder to make such  payments to the Trustee  and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders,  to pay to
the  Trustee  any amount due to it for the  reasonable  compensation,  expenses,
disbursements and advances of the Trustee,  its agent and counsel, and any other
amounts due the Trustee under Section 7.07.  Nothing herein  contained  shall be
deemed to empower the Trustee to  authorize or consent to, or accept or adopt on
behalf of any Holder,  any plan of  reorganization,  arrangement,  adjustment or
composition  affecting  the Notes or the  rights of any  Holder  thereof,  or to
authorize  the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

            SECTION 6.10.  PRIORITIES.  If the Trustee collects any money
pursuant to this Article Six, it shall pay out the money in the following
order:

            FIRST:  to the Trustee for all amounts due under Section 7.07;

            SECOND: to Holders for amounts then due and unpaid for principal of,
      premium,  if any, and interest on the Notes in respect of which or for the
      benefit  of  which  such  money  has  been  collected,   ratably,  without
      preference  or  priority  of any kind,  according  to the  amounts due and
      payable  on such  Notes for  principal,  premium,  if any,  and  interest,
      respectively; and

            THIRD:  to the Company or any other obligors of the Notes, as
      their interests may appear, or as a court of competent jurisdiction may
      direct.

            The Trustee,  upon prior  written  notice to the Company,  may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.

<PAGE>
                                       69

            SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy  under this  Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee,  a court may require any party
litigant in such suit to file an  undertaking  to pay the costs of the suit, and
the court may assess reasonable  costs,  including  reasonable  attorneys' fees,
against any party  litigant in the suit having due regard to the merits and good
faith of the claims or defenses  made by the party  litigant.  This Section 6.11
does not apply to a suit by the Trustee,  a suit by a Holder pursuant to Section
6.07 of this  Indenture,  or a suit by  Holders  of more  than 10% in  principal
amount of the outstanding Notes.

            SECTION 6.12.  RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or
any Holder has  instituted  any  proceeding to enforce any right or remedy under
this Indenture and such  proceeding has been  discontinued  or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case,  subject to any  determination in such  proceeding,  the
Company, the Guarantor,  the Trustee and the Holders shall be restored severally
and respectively to their former  positions  hereunder and thereafter all rights
and  remedies of the  Company,  the Trustee  and the Holders  shall  continue as
though no such proceeding had been instituted.

            SECTION 6.13.  RIGHTS AND REMEDIES  CUMULATIVE.  Except as otherwise
provided with respect to the  replacement  or payment of  mutilated,  destroyed,
lost or  wrongfully  taken  Notes in  Section  2.09,  no right or remedy  herein
conferred  upon or  reserved  to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent  permitted by law, be cumulative and in addition to every other right and
remedy  given  hereunder  or now or  hereafter  existing  at law or in equity or
otherwise.  The  assertion or employment  of any right or remedy  hereunder,  or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

            SECTION 6.14. DELAY OR OMISSION NOT WAIVER.  No delay or omission of
the Trustee or of any Holder to exercise any right or remedy  accruing  upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an  acquiescence  therein.  Every  right and remedy
given by this  Article  Six or by law to the  Trustee or to the  Holders  may be
exercised  from time to time,  and as often as may be deemed  expedient,  by the
Trustee or by the Holders, as the case may be.


<PAGE>
                                       70

                                  ARTICLE SEVEN
                                     TRUSTEE

            SECTION  7.01.  GENERAL.  The  duties  and  responsibilities  of the
Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding
the  foregoing,  no provision  of this  Indenture  shall  require the Trustee to
expend or risk its own funds or otherwise  incur any financial  liability in the
performance  of any of its duties  hereunder,  or in the  exercise of any of its
rights or  powers,  if it shall  have  reasonable  grounds  for  believing  that
repayment of such funds or adequate  indemnity against such risk or liability is
not  reasonably  assured to it.  Whether or not therein  expressly  so provided,
every  provision  of this  Indenture  relating to the conduct or  affecting  the
liability  of or  affording  protection  to the Trustee  shall be subject to the
provisions of this Article Seven.

            SECTION 7.02.  CERTAIN RIGHTS OF TRUSTEE.  Subject to TIA
Sections 315(a) through (d):

            (i) the  Trustee  may  rely and  shall be  protected  in  acting  or
      refraining  from  acting  upon  any  resolution,  certificate,  statement,
      instrument,  opinion, report, notice, request, direction,  consent, order,
      bond,  debenture,  note,  other evidence of indebtedness or other paper or
      document believed by it to be genuine and to have been signed or presented
      by the proper person.  The Trustee need not investigate any fact or matter
      stated in the document and may in good faith  conclusively  rely as to the
      truth of the statements and the correctness of the opinions therein;

            (ii) before the Trustee acts or refrains from acting, it may require
      an Officers' Certificate of the Company or the Guarantor,  as the case may
      be, or an Opinion of Counsel,  which shall conform to the requirements set
      forth in Section  12.04  hereof.  The Trustee  shall not be liable for any
      action  it  takes  or omits  to take in good  faith  in  reliance  on such
      certificate,  opinion and/or an accountants' certificate if required under
      the TIA;

            (iii) the Trustee may act through its attorneys and agents and shall
      not be responsible for the misconduct or negligence of any agent appointed
      with due care;

<PAGE>
                                       73

            (iv) the Trustee shall be under no obligation to exercise any of the
      rights  or  powers  vested  in it by  this  Indenture  at the  request  or
      direction of any of the Holders, unless such Holders shall have offered to
      the Trustee  security or indemnity  reasonably  satisfactory to it against
      the  costs,  expenses  and  liabilities  that might be  incurred  by it in
      compliance with such request or direction;

            (v) the Trustee shall not be liable for any action it takes or omits
      to take in good  faith that it  believes  to be  authorized  or within its
      rights or powers or for any action it takes or omits to take in accordance
      with the direction of the Holders of a majority in principal amount of the
      Outstanding Notes relating to the time, method and place of conducting any
      proceeding  for any remedy  available to the Trustee,  or  exercising  any
      trust or power conferred upon the Trustee, under this Indenture;  PROVIDED
      that the Trustee's  conduct does not  constitute  gross  negligence or bad
      faith;

            (vi) whenever in the  administration  of this  Indenture the Trustee
      shall deem it desirable  that a making be proved or  established  prior to
      taking,  suffering or omitting any action  hereunder,  the Trustee (unless
      other evidence be herein  specifically  prescribed) may, in the absence of
      bad faith on its part, rely upon an Officer's Certificate;

            (vii) the Trustee shall not be bound to make any investigation  into
      the facts or matters  stated in any  resolution,  certificate,  statement,
      instrument,  opinion, report, notice, request, direction,  consent, order,
      bond,  debenture,  note,  other evidence of indebtedness or other paper or
      document,  but the  Trustee,  in its  discretion,  may make  such  further
      inquiry  or  investigation  into such  facts or matters as it may see fit,
      and,  if the  Trustee  shall  determine  to make such  further  inquiry or
      investigation,  it shall be  entitled  to examine  the books,  records and
      premises of the Company personally or by agent or attorney;

            (viii)  The  Trustee  shall not be  charged  with  knowledge  of any
      Default or Event of Default, of the identity of any Restricted  Subsidiary
      or of the  existence of any Change of Control or Asset Sale unless  either
      (i) a Responsible Officer shall have actual knowledge thereof, or (ii) the
      Trustee shall have received written notice thereof from the Company or any
      Holder of the Notes; and

            (ix) The Trustee may consult with counsel and the written  advice of
      such  counsel  or any  Opinion  of  Counsel  shall  be full  and  complete
      authorization  and protection in respect of any action taken,  suffered or
      omitted by it hereunder in good faith and in reliance thereon.

<PAGE>
                                       72

            SECTION  7.03.  INDIVIDUAL  RIGHTS OF TRUSTEE.  The Trustee,  in its
individual or any other  capacity,  may become the owner or pledgee of Notes and
may  otherwise  deal  with  the  Company,  the  Guarantor  or  their  respective
Affiliates  with the same rights it would have if it were not the  Trustee.  Any
Agent may do the same with like rights.  However,  the Trustee is subject to TIA
Sections 310(b) and 311.

            SECTION  7.04.  TRUSTEE'S  DISCLAIMER.  The  Trustee  (i)  makes  no
representation  as to the  validity or adequacy  of this  Indenture,  the Pledge
Agreement,  the Note Guarantee or the Notes,  (ii) shall not be accountable  for
the Company's use or  application of the proceeds from the Notes and (iii) shall
not be responsible  for any statement in the Notes other than its certificate of
authentication.

            SECTION  7.05.  NOTICE OF  DEFAULT.  If any  Default or any Event of
Default  occurs  and is  continuing  and if such  Default or Event of Default is
known to a  Responsible  Officer of the Trustee,  the Trustee shall mail to each
Holder in the manner and to the extent  provided in TIA Section 313(c) notice of
the  Default or Event of Default  within 90 days  after it occurs,  unless  such
Default or Event of Default has been cured;  PROVIDED,  HOWEVER, that, except in
the case of a default in the payment of the  principal of,  premium,  if any, or
interest on any Note, the Trustee shall be protected in withholding  such notice
if and so long as the board of  directors,  the  executive  committee or a trust
committee of directors and/or Responsible  Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders.
If an Event of Default has occurred and is continuing, the Trustee shall use the
same degree of care and skill in its exercise of the rights and powers  invested
in it under  this  Indenture  as a  prudent  person  would  exercise  under  the
circumstances in the conduct of such person's own affairs.

            SECTION  7.06.  REPORTS BY TRUSTEE TO HOLDERS.  Within 60 days after
each May 15,  beginning with May 15, 2000, the Trustee shall mail to each Holder
as provided in TIA Section  313(c) a brief report that complies with TIA Section
313(a) dated as of such May 15, if required by TIA Section 313(a).

            SECTION  7.07.  COMPENSATION  AND  INDEMNITY.  The  Company  and the
Guarantor  jointly and  severally  covenant and agree to pay to the Trustee such
compensation  as  shall  be  agreed  upon  in  writing  for  its  services.  The
compensation of the Trustee shall not be limited by any law on compensation of a
trustee of an express trust. The Company and the Guarantor jointly and severally
covenant  and agree to reimburse  the Trustee  upon  request for all  reasonable
out-of-pocket  expenses  and  advances  incurred  or made by the  Trustee.  Such
expenses shall include the reasonable compensation and expenses of the Trustee's
agents and counsel.


<PAGE>
                                       71

            The Company and the  Guarantor  jointly and  severally  covenant and
agree to indemnify  the Trustee for, and hold it harmless  against,  any loss or
liability or expense incurred by it without  negligence or bad faith on its part
in connection  with the acceptance or  administration  of this Indenture and its
duties under this  Indenture and the Notes,  including the costs and expenses of
defending  itself  against  any claim or  liability  and of  complying  with any
process served upon it or any of its officers in connection with the exercise or
performance of any of its powers or duties under this Indenture and the Notes.

            To secure the Company's and the Guarantor's  payment  obligations in
this Section 7.07, the Trustee shall have a lien prior to the Notes on all money
or property held or collected by the Trustee, in its capacity as Trustee, except
money or  property  held in trust to pay  principal  of,  premium,  if any,  and
interest on particular Notes.

            If the  Trustee  incurs  expenses  or  renders  services  after  the
occurrence  of an Event of  Default  specified  in clause  (h) or (i) of Section
6.01,  the expenses and the  compensation  for the services  will be intended to
constitute  expenses  of  administration  under  Title 11 of the  United  States
Bankruptcy  Code or any  applicable  federal  or  state  law for the  relief  of
debtors.

            The provisions of this Section 7.07 shall survive the resignation or
removal  of the  Trustee  and  the  defeasance  or  other  termination  of  this
Indenture.

            SECTION 7.08.  REPLACEMENT  OF TRUSTEE.  A resignation or removal of
the Trustee and appointment of a successor  Trustee shall become  effective only
upon the  successor  Trustee's  acceptance  of  appointment  as provided in this
Section 7.08.

            The  Trustee may resign at any time by so  notifying  the Company in
writing  at least 30 days  prior to the date of the  proposed  resignation.  The
Holders of a majority in principal  amount of the  outstanding  Notes may remove
the Trustee by so  notifying  the Trustee in writing and may appoint a successor
Trustee with the consent of the Company.  The Company may at any time remove the
Trustee,  by  Company  Order  given at  least  30 days  prior to the date of the
proposed  removal;  PROVIDED,  that at such date no Event of Default  shall have
occurred and be continuing.


<PAGE>
                                       75


            If the Trustee resigns or is removed,  or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.  Within one year after the successor Trustee takes office,  the Holders
of a  majority  in  principal  amount of the  outstanding  Notes  may  appoint a
successor Trustee to replace the successor Trustee appointed by the Company.  If
the successor  Trustee does not deliver its written  acceptance  required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed,  the retiring Trustee, the Company or the Holders
of a majority in  principal  amount of the  outstanding  Notes may  petition any
court of competent jurisdiction for the appointment of a successor Trustee.

            A  successor  Trustee  shall  deliver  a written  acceptance  of its
appointment to the retiring  Trustee and to the Company.  Immediately  after the
delivery of such  written  acceptance,  subject to the lien  provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the  successor  Trustee,  (ii) the  resignation  or removal  of the  retiring
Trustee shall become  effective  and (iii) the successor  Trustee shall have all
the rights,  powers and duties of the Trustee under this Indenture.  A successor
Trustee shall mail notice of its succession to each Holder.

            If the Trustee is no longer  eligible under Section 7.10, any Holder
who satisfies the  requirements  of TIA Section 310(b) may petition any court of
competent  jurisdiction  for the removal of the Trustee and the appointment of a
successor Trustee.

            The Company shall give notice of any  resignation and any removal of
the Trustee and each  appointment  of a successor  Trustee to all Holders.  Each
notice shall  include the name of the  successor  Trustee and the address of its
Corporate Trust Office.

            Notwithstanding  replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.

            SECTION  7.09.  SUCCESSOR  TRUSTEE BY MERGER,  ETC.  If the  Trustee
consolidates  with,  merges or converts into, or transfers all or  substantially
all of its corporate trust business to, another  corporation or national banking
association,  the  resulting,  surviving or transferee  corporation  or national
banking  association without any further act shall be the successor Trustee with
the same  effect  as if the  successor  Trustee  had been  named as the  Trustee
herein.

            SECTION  7.10.  ELIGIBILITY.  This  Indenture  shall  always  have a
Trustee who satisfies the requirements of TIA Sections  310(a)(1) and 310(a)(5).
The Trustee shall have a combined  capital and surplus of at least  $100,000,000
as set forth in its most recent published annual report of condition.

            SECTION 7.11.  MONEY HELD IN TRUST.  The Trustee shall not be liable
for  interest  on any money  received by it except as the Trustee may agree with
the  Company  in  writing.  Money  held in  trust  by the  Trustee  need  not be
segregated  from other funds except to the extent required by law and except for
money held in trust under Article Eight of this Indenture.


<PAGE>
                                       76

            SECTION  7.12.  WITHHOLDING  TAXES.  The  Trustee,  as agent for the
Company,  shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding taxes
applicable  thereto  as  required  by law.  The  Trustee  agrees  to act as such
withholding agent and, in connection  therewith,  whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes,  to  withhold  such  amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the Holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due, and that, as promptly as possible after the payment  thereof,  it will
deliver to each Holder of a Note appropriate  documentation  showing the payment
thereof,  together with such additional documentary evidence as such Holders may
reasonably request from time to time.


                                  ARTICLE EIGHT
                             DISCHARGE OF INDENTURE

            SECTION 8.01.  TERMINATION OF THE COMPANY'S  OBLIGATIONS.  Except as
otherwise  provided  in  this  Section  8.01,  the  Company  may  terminate  its
obligations under the Notes and this Indenture if:

            (i) all Notes  previously  authenticated  and delivered  (other than
      destroyed,  lost or stolen Notes that have been replaced or Notes that are
      paid  pursuant  to  Section  4.01 or  Notes  for  whose  payment  money or
      securities have  theretofore  been held in trust and thereafter  repaid to
      the  Company,  as provided  in Section  8.05) have been  delivered  to the
      Trustee for  cancellation  and the Company has paid all sums payable by it
      hereunder; or

            (ii) (A) all the Notes mature  within one year or all of them are to
      be called for redemption within one year under  arrangements  satisfactory
      to the  Trustee  for  giving  the notice of  redemption,  (B) the  Company
      deposits in trust with the Trustee during such one-year period,  under the
      terms of an irrevocable trust agreement in form and substance satisfactory
      to the  Trustee,  as trust funds solely for the benefit of the Holders for
      that  purpose,  money or U.S.  Government  Obligations  sufficient  to pay
      principal,  premium,  if,  any,  and  interest on the Notes to maturity or
      redemption,  as the case may be, and to pay all other  sums  payable by it
      hereunder,  (C) no Default or Event of Default  with  respect to the Notes
      shall have occurred and be  continuing  on the date of such  deposit,  (D)

<PAGE>
                                       77


      such deposit will not result in a breach or violation  of, or constitute a
      default  under,  this  Indenture or any other  agreement or  instrument to
      which the Company is a party or by which it is bound,  (E) if at such time
      the Notes are listed on a national securities exchange, the Notes will not
      be delisted as a result of such  deposit,  defeasance or discharge and (F)
      the Company has delivered to the Trustee an Officers'  Certificate  and an
      Opinion of Counsel,  in each case  stating that all  conditions  precedent
      provided for herein  relating to the  satisfaction  and  discharge of this
      Indenture have been complied with.

            With respect to the foregoing clause (i), the Company's  obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's  obligations in Sections 2.02,  2.03,  2.04,  2.05,  2.06, 2.07, 2.08,
2.09,  2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding.  Thereafter,  only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive.  After any such irrevocable deposit,
the Trustee  upon  request  shall  acknowledge  in writing the  discharge of the
Company's  obligations,  as the case may be, under the Notes and this  Indenture
except for those surviving obligations specified above.

            SECTION 8.02.  DEFEASANCE  AND  DISCHARGE OF INDENTURE.  The Company
will be deemed to have paid and will be discharged  from any and all obligations
in respect of the Notes on the 123rd day after the  deposit  referred  to below,
and the provisions of this Indenture will no longer be in effect with respect to
the Notes if,

            (A) the Company has  deposited  or caused to be  deposited  with the
      Trustee, in trust, money and/or U.S.  Government  Obligations that through
      the payment of interest  and  principal in respect  thereof in  accordance
      with their terms will, in the opinion of a nationally  recognized  firm of
      independent  public  accountants  expressed  in  a  written  certification
      thereof delivered to the Trustee, provide money in an amount sufficient to
      pay the principal of, premium,  if any, and accrued  interest on the Notes
      on the Stated  Maturity of such payments in  accordance  with the terms of
      this Indenture and the Notes;

            (B) the Company  shall have  delivered to the Trustee (i) either (x)
      an Opinion of Counsel to the effect  that the Holders  will not  recognize
      income,  gain or loss for federal  income tax  purposes as a result of the
      Company's  exercise  of its  option  under this  Section  8.02 and will be
      subject to federal  income tax on the same  amount and in the same  manner
      and at the  same  times  as would  have  been  the  case if such  deposit,
      defeasance  and discharge had not occurred,  which Opinion of Counsel must
      be based  upon (and  accompanied  by a copy of) a ruling  of the  Internal
      Revenue Service to the same effect,  unless there has been a change in the
      applicable  federal  income  tax law  after the  Closing  Date such that a
      ruling is no  longer  required  or (y) a ruling  directed  to the  Trustee
      received  from the  Internal  Revenue  Service  to the same  effect as the

<PAGE>
                                       78

      Opinion  of Counsel  described  in clause (x) above and (ii) an Opinion of
      Counsel to the effect that the creation of the  defeasance  trust does not
      violate  the  Investment  Company Act of 1940 and after the passage of 123
      days  following  the  deposit,  the trust  fund will not be subject to the
      effect of Section 547 of the United States  Bankruptcy  Code or Section 15
      of the New York Debtor and Creditor Law;

            (C)  immediately  after giving effect to such deposit on a PRO FORMA
      basis,  no Event of  Default,  or event that after the giving of notice or
      lapse  of time or both  could  become  an  Event of  Default,  shall  have
      occurred  and be  continuing  on the date of such  deposit  or during  the
      period  ending on the 123rd day after the date of such  deposit,  and such
      deposit  shall not result in a breach or  violation  of, or  constitute  a
      default under,  any other  agreement or instrument to which the Company or
      any of its  Subsidiaries  is a party or by which the Company or any of its
      Subsidiaries is bound;

            (D) if at such time the Notes are  listed on a  national  securities
      exchange,  the Company  shall have  delivered to the Trustee an Opinion of
      Counsel to the effect  that the Notes will not be  delisted as a result of
      such deposit, defeasance and discharge; and

            (E) the Company  shall have  delivered  to the Trustee an  Officers'
      Certificate  and an  Opinion of  Counsel,  in each case  stating  that all
      conditions   precedent   provided  for  herein   relating  to   defeasance
      contemplated by this Section 8.02 have been complied with;

            PROVIDED that if simultaneously with the deposit of the money and/or
U.S. Government  Obligations referred to in (A) above, the Company has caused an
irrevocable,  transferable, standby letter of credit to be issued by a bank with
capital  and  surplus   exceeding  the  principal   amount  of  the  Notes  then
outstanding,  expiring not earlier than 180 days from its issuance,  in favor of
the Trustee which permits the Trustee to draw an amount equal to the  principal,
premium,  if any, and accrued  interest on the Notes  through the expiry date of
the  letter  of  credit,  then  the  Company  will be  deemed  to have  paid and
discharged  any and all  obligations  in respect of the Notes on the date of the
deposit and issuance of the letter of credit.

            Notwithstanding  the  foregoing,  prior  to the  end of the  123-day
period referred to in clause (B)(ii) of this Section 8.02, none of the Company's
obligations  under this Indenture shall be discharged.  Subsequent to the end of
such 123-day period with respect to this Section 8.02, the Company's obligations
in Sections 2.02,  2.03,  2.04,  2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02,
4.17,  7.07,  7.08,  8.05 and 8.06 shall  survive  until the Notes are no longer
outstanding.  Thereafter,  only the Company's obligations in Sections 7.07, 8.05
and 8.06 shall survive.  If and when a ruling from the Internal  Revenue Service
or an Opinion of Counsel  referred to in clause  (B)(i) of this Section 8.02 may
be  provided  specifically  without  regard to, and not in  reliance  upon,  the
continuance of the Company's  obligations under Section 4.01, then the Company's
obligations  under such Section 4.01 shall cease upon delivery to the Trustee of
such  ruling or Opinion  of Counsel  and  compliance  with the other  conditions
precedent  provided for herein  relating to the defeasance  contemplated by this
Section 8.02.

<PAGE>
                                       79

            After  the 123 day  period  referred  to in clause  (B)(ii)  of this
Section 8.02,  the Trustee upon Company Order shall  acknowledge  in writing the
discharge of the Company's obligations under the Notes and this Indenture except
for those surviving obligations in the immediately preceding paragraph.

            SECTION  8.03.  DEFEASANCE OF CERTAIN  OBLIGATIONS.  The Company may
omit to comply with any term,  provision or condition  set forth in clause (iii)
of Section 5.01 and Sections 4.03 through  4.18,  and clause (c) of Section 6.01
with respect to clause (iii) of Section  5.01 and  Sections  4.03 through  4.16,
Section  4.18,  and clauses (c),  (d), (e), (f) and (g) of Section 6.01 shall be
deemed not to be Events of Default, upon:

            (a) the  deposit,  in trust,  with the Trustee  (or another  trustee
      satisfying the  requirements  of Section 7.10 hereof) of money and/or U.S.
      Government Obligations that, through the payment of interest and principal
      in respect thereof in accordance with their terms,  will in the opinion of
      a nationally  recognized firm of independent public accountants  expressed
      in a written certification thereof delivered to the Trustee, provide money
      in an amount  sufficient  to pay the principal  of,  premium,  if any, and
      accrued  interest on the Notes on the Stated  Maturity of such payments in
      accordance with the terms of this Indenture and the Notes;

            (b) the  satisfaction of the provisions  described in clauses B(ii),
      (C) and
      (D) of Section 8.02 hereof;

            (c)  delivery by the Company to the Trustee of an Opinion of Counsel
      to the effect that,  the Holders will not recognize  income,  gain or loss
      for federal income tax purposes as a result of such deposit and defeasance
      and will be subject to  federal  income tax on the same  amount and in the
      same  manner  and at the same  times as would  have  been the case if such
      deposit and defeasance had not occurred; and

            (d) the Company  shall have  delivered  to the Trustee an  Officers'
      Certificate  and an  Opinion of  Counsel,  in each case  stating  that all
      conditions  precedent  provided  for  herein  relating  to the  defeasance
      contemplated by this Section 8.03 have been complied with.

            SECTION 8.04.  APPLICATION OF TRUST MONEY.  Subject to Section 8.06,
the  Trustee  or  Paying  Agent  shall  hold in trust  money or U.S.  Government
Obligations  deposited  with it pursuant to Section  8.01,  8.02 or 8.03, as the
case may be,  and shall  apply  the  deposited  money  and the  money  from U.S.
Government  Obligations  in accordance  with the Notes and this Indenture to the
payment of principal of,  premium,  if any, and interest on the Notes;  but such
money need not be segregated  from other funds except to the extent  required by
law.

<PAGE>
                                       80

            SECTION 8.05. REPAYMENT TO COMPANY.  Subject to Sections 7.07, 8.01,
8.02 and 8.03,  the  Trustee  and the Paying  Agent  shall  promptly  pay to the
Company upon request set forth in an Officers'  Certificate any excess money, as
determined by a nationally  recognized  firm of independent  public  accountants
expressed in a written  certification thereof delivered to the Trustee, and held
by them at any time and  thereupon  shall be relieved  from all  liability  with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of  principal,  premium,  if
any, or interest that remains unclaimed for two years; PROVIDED that the Trustee
or such Paying Agent  before being  required to make any payment may cause to be
published  at  the  expense  of the  Company  once  in a  newspaper  of  general
circulation  in the City of New  York or mail to each  Holder  entitled  to such
money at such Holder's  address (as set forth in the Note Register)  notice that
such money remains  unclaimed  and that after a date  specified  therein  (which
shall be at least 30 days  from the date of such  publication  or  mailing)  any
unclaimed  balance of such money then  remaining  will be repaid to the Company.
After  payment to the Company,  Holders  entitled to such money must look to the
Company for payment as general  creditors  unless an applicable  law  designates
another  Person,  and all  liability  of the Trustee and such Paying  Agent with
respect to such money shall cease.

            SECTION  8.06.  REINSTATEMENT.  If the  Trustee  or Paying  Agent is
unable to apply any money or U.S.  Government  Obligations  in  accordance  with
Section  8.01,  8.02 or  8.03,  as the  case  may be,  by  reason  of any  legal
proceeding  or by reason of any order or judgment  of any court or  governmental
authority enjoining,  restraining or otherwise prohibiting such application, the
Company's  obligations  under this  Indenture and the Notes and the  Guarantor's
obligations  under the Note Guarantee  shall be revived and reinstated as though
no deposit had occurred  pursuant to Section 8.01, 8.02 or 8.03, as the case may
be,  until such time as the Trustee or Paying  Agent is  permitted  to apply all
such money or U.S. Government  Obligations in accordance with Section 8.01, 8.02
or 8.03, as the case may be;  PROVIDED that, if the Company has made any payment
of  principal  of,  premium,  if any, or  interest  on any Notes  because of the
reinstatement of its obligations,  the Company shall be subrogated to the rights
of the  Holders  of such Notes to receive  such  payment  from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.

            SECTION 8.07. DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the
event the Company exercises its option to omit compliance with certain covenants
and  provisions of this  Indenture with respect to the Notes pursuant to Section
8.03 and such Notes are declared due and payable because of the occurrence of an
Event of  Default  that  remains  applicable,  the amount of money  and/or  U.S.
Government  Obligations  on deposit with the Trustee will be  sufficient  to pay
amounts due on such Notes at the time of their Stated Maturity. If, in the event
the Company  exercises its option to omit compliance with certain  covenants and

<PAGE>
                                       81


provisions of this  Indenture with respect to the Notes pursuant to Section 8.03
and such Notes are  declared  due and payable  because of the  occurrence  of an
Event of  Default  that  remains  applicable,  the amount of money  and/or  U.S.
Government  Obligations  on  deposit  with the  Trustee is  insufficient  to pay
amounts  due on the Notes at the time of the  acceleration  resulting  from such
Event of Default  pursuant to Section  6.02,  the Company will remain liable for
such payments.


                                  ARTICLE NINE
                       AMENDMENTS, SUPPLEMENTS AND WAIVERS

            SECTION 9.01.  WITHOUT  CONSENT OF HOLDERS.  Each of the Company and
the Guarantor (so long as it has any obligations hereunder),  when authorized by
resolutions  of their  respective  Board of Directors  (as  evidenced by a Board
Resolution),  and the Trustee may amend or supplement this Indenture  (including
the Note  Guarantee)  or the Notes  without  notice to, or the  consent  of, any
Holder:

            (i) to cure any ambiguity, defect or inconsistency in this Indenture
      or the Notes;  PROVIDED  that,  in the good faith  opinion of the Board of
      Directors of the Company evidenced by a Board Resolution,  such amendments
      or supplements do not adversely affect the interests of the Holders in any
      material respect;

            (ii) to comply with Section 4.07 or Article Five;

            (iii)  to  comply  with  any   requirements  of  the  Commission  in
      connection with the qualification of this Indenture under the TIA;

            (iv) to  evidence  and  provide for the  acceptance  of  appointment
      hereunder by a successor Trustee; or

            (v) to make any change that,  in the good faith opinion of the Board
      of Directors  of the Company  evidenced  by a Board  Resolution,  does not
      materially and adversely affect the rights of any Holder.

            SECTION 9.02. WITH CONSENT OF HOLDERS.  Subject to Sections 6.04 and
6.07 and  without  prior  notice to the  Holders,  each of the  Company  and the
Guarantor  (so long as it has any  obligations  hereunder),  when  authorized by
their  respective Board of Directors (as evidenced by a Board  Resolution),  and
the Trustee may amend this  Indenture  (including  the Note  Guarantee)  and the
Notes with the  written  consent of the  Holders of not less than a majority  in

<PAGE>
                                       82


aggregate  principal amount of the Notes then outstanding,  and the Holders of a
majority in principal  amount of the Notes then outstanding by written notice to
the Trustee may waive future  compliance  by the Company  with any  provision of
this Indenture or the Notes.

            Notwithstanding  the  provisions of this Section  9.02,  without the
consent of each Holder  affected  thereby,  an amendment or waiver,  including a
waiver pursuant to Section 6.04, may not:

            (i)   change the Stated Maturity of the principal of, or any
      installment of interest on, any Note;

            (ii) reduce the principal amount of, or premium, if any, or interest
      on, any Note;

            (iii)  change the place or currency of payment of  principal  of, or
      premium, if any, or interest on, any Note;

            (iv) impair the right to institute  suit for the  enforcement of any
      payment on or after the Stated  Maturity (or, in the case of a redemption,
      on or after the Redemption Date) of any Note;

            (v) reduce the  above-stated  percentage  of  outstanding  Notes the
      consent of whose Holders is necessary to modify or amend this Indenture;

            (vi) waive a default in the payment of  principal  of,  premium,  if
      any, or interest on the Notes;

            (vii)  reduce  the  percentage  or  aggregate  principal  amount  of
      outstanding  Notes the consent of whose Holders is necessary for waiver of
      compliance  with  certain  provisions  of this  Indenture or for waiver of
      certain defaults; or

            (viii) release the Guarantor from any of its  obligations  under the
      Note  Guarantee or this  Indenture  otherwise  than strictly in accordance
      with the terms of this Indenture.

<PAGE>
                                       83


            It shall not be necessary  for the consent of the Holders under this
Section  9.02  to  approve  the  particular  form  of  any  proposed  amendment,
supplement or waiver,  but it shall be  sufficient if such consent  approves the
substance thereof.

            After an  amendment,  supplement  or waiver  under this Section 9.02
becomes  effective,  the Company  shall mail to the Holders  affected  thereby a
notice briefly describing the amendment,  supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such  notice,  or any defect  therein,  shall not,  however,  in any way
impair or affect the validity of any such supplemental indenture or waiver.

            SECTION 9.03.  REVOCATION AND EFFECT OF CONSENT.  Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing consent
by the  Holder and every  subsequent  Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting  Holder,  even if notation
of the consent is not made on any Note.  However,  any such Holder or subsequent
Holder  may revoke  the  consent  as to its Note or  portion  of its Note.  Such
revocation  shall be  effective  only if the  Trustee  receives  the  notice  of
revocation  before  the  date  the  amendment,   supplement  or  waiver  becomes
effective. An amendment,  supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite  percentage
in principal amount of the outstanding Notes.

            The Company may,  but shall not be  obligated  to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then,  notwithstanding the last
two sentences of the  immediately  preceding  paragraph,  those Persons who were
Holders at such record date (or their duly  designated  proxies)  and only those
Persons shall be entitled to consent to such amendment,  supplement or waiver or
to revoke any consent previously given,  whether or not such Persons continue to
be Holders  after such record date.  No such consent shall be valid or effective
for more than 90 days after such record date.

            After an amendment, supplement or waiver becomes effective, it shall
bind every  Holder  unless it is of the type  described  in any of  clauses  (i)
through  (vii) of Section  9.02.  In case of an  amendment or waiver of the type
described in clauses (i) through (vii) of Section 9.02,  the amendment or waiver
shall bind each Holder who has consented to it and every subsequent  Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.

            SECTION  9.04.  NOTATION ON OR EXCHANGE OF NOTES.  If an  amendment,
supplement  or waiver  changes the terms of a Note,  the Trustee may require the
Holder to  deliver  it to the  Trustee.  The  Trustee  may place an  appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter  authenticated.
Alternatively,  if the  Company or the  Trustee so  determines,  the  Company in
exchange for the Note shall issue and the Trustee shall  authenticate a new Note
that reflects the changed terms.

<PAGE>
                                       84


            SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS,  ETC. The Trustee shall be
entitled to receive,  and shall be fully  protected in relying upon, in addition
to the documents  required by Section 12.03,  an Opinion of Counsel stating that
the execution of any amendment, supplement or waiver authorized pursuant to this
Article  Nine is  authorized  or  permitted  by this  Indenture.  Subject to the
preceding sentence, the Trustee shall sign such amendment,  supplement or waiver
if the same does not  adversely  affect the rights of the  Trustee.  The Trustee
may, but shall not be obligated to,  execute any such  amendment,  supplement or
waiver that affects the  Trustee's own rights,  duties or immunities  under this
Indenture or otherwise.

            SECTION  9.06.   CONFORMITY   WITH  TRUST   INDENTURE   ACT.   Every
supplemental  indenture  executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.

                                   ARTICLE TEN
                                    SECURITY

            SECTION  10.01.  SECURITY.  (a) The  Company  agrees  to  cause  the
Guarantor and the Guarantor agrees to (i) enter into the Pledge Agreement on the
Closing Date and comply with the terms and provisions  thereof and (ii) purchase
the  Pledged  Securities  to be pledged to the  Trustee  for the  benefit of the
Company  and for the  ratable  benefit of the  Holders in such amount as will be
sufficient upon receipt of scheduled  interest and/or principal payments of such
Pledged  Securities  to provide for  payment in full of the first six  scheduled
interest  payments due on the Notes (including any additional  interest that may
be  payable  if the  Exchange  Offer  (as  defined  in the  Registration  Rights
Agreement) is not consummated and the Shelf  Registration  Statement (as defined
in the  Registration  Rights  Agreement)  is not declared  effective in a timely
manner) and to secure repayment of the principal,  premium, if any, and interest
on the Notes in the event that the Notes  become due and  payable  prior to such
time as the first six scheduled  interest  payments thereon shall have been paid
in full. The Pledged Securities shall be pledged by the Guarantor to the Trustee
for the benefit of the Company and for the ratable  benefit of the Holders,  and
shall be held by the Trustee in the Pledge Account pending disposition  pursuant
to the Pledge Agreement.

            (b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in  accordance  with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance  therewith.  The Company and the Guarantor  will do or cause to be
done all such acts and things as may be necessary or reasonably requested by the
Trustee,  or as may be required by the  provisions of the Pledge  Agreement,  to

<PAGE>
                                       85

assure  and  confirm  to the  Trustee  the  security  interest  in  the  Pledged
Securities  contemplated hereby, by the Pledge Agreement or any part thereof, as
from  time to time  constituted,  so as to  render  the same  available  for the
security  and  benefit  of  this  Indenture  and of the  Notes  secured  hereby,
according to the intent and purposes herein and therein  expressed.  The Company
and the Guarantor  shall take,  or shall cause to be taken,  upon request of the
Trustee,  any and all actions reasonably  required to cause the Pledge Agreement
to create and  maintain,  as security for the  obligations  of the Company under
this Indenture and the Notes,  valid and enforceable first priority liens in and
on all the Pledged Securities, in favor of the Trustee, superior to and prior to
the rights of third Persons and subject to no other Liens.

            (c) The  release of any  Pledged  Securities  pursuant to the Pledge
Agreement  will not be deemed to impair the  security  under this  Indenture  in
contravention  of  the  provisions  hereof  if and to  the  extent  the  Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement.  To
the extent  applicable,  the Company and the  Guarantor  shall cause TIA Section
314(d)  relating  to the release of  property  or  securities  from the Lien and
security  interest  created  under the  Pledge  Agreement  and  relating  to the
substitution  therefor of any property or securities to be subjected to the Lien
and security  interest  created under the Pledge  Agreement to be complied with.
Any  certificate  or opinion  required by TIA  Section  314(d) may be made by an
Officer  of the  Company or the  Guarantor,  except in cases  where TIA  Section
314(d)  requires  that such  certificate  or opinion  be made by an  independent
Person, which Person shall be an independent engineer, appraiser or other expert
selected by the Company or the Guarantor.

            (d) The Company or the  Guarantor  shall  cause TIA Section  314(b),
relating to opinions of counsel  regarding the Lien under the Pledge  Agreement,
to be complied with. The Trustee may accept, to the extent permitted by Sections
7.01  and  7.02  as  conclusive   evidence  of  compliance  with  the  foregoing
provisions, the appropriate statements contained in such instruments.

            (e) The Trustee may, in its sole  discretion and without the consent
of the  Holders,  on behalf  of the  Holders,  take all  reasonable  actions  in
accordance  with the Pledge  Agreement  necessary or appropriate in order to (i)
enforce any of the terms of the Pledge  Agreement  and (ii)  collect and receive
any and all  amounts  payable  in respect of the  obligations  of the  Guarantor
thereunder. The Trustee shall have power to institute and to maintain such suits
and  proceedings  as the Trustee may  reasonably  deem  expedient to preserve or

<PAGE>
                                       86


protect its interests and the interests of the Holders in the Pledged Securities
(including  power to institute and maintain suits or proceedings to restrain the
enforcement  of  or  compliance  with  any  legislative  or  other  governmental
enactment,  rule or order that may be  unconstitutional  or otherwise invalid if
the  enforcement of, or compliance  with,  such  enactment,  rule or order would
impair the security interest under the Pledge Agreement or be prejudicial to the
interests of the Holders or of the Trustee).


                                 ARTICLE ELEVEN
                             GUARANTEE OF SECURITIES

            SECTION 11.01. GUARANTEE.  Subject to the provisions of this Article
Eleven, the Guarantor hereby fully,  unconditionally and irrevocably  guarantees
to each Holder and to the Trustee on behalf of itself and the  Holders:  (i) the
due and punctual  payment of the principal of, premium,  if any, on and interest
on each Note,  when and as the same shall  become  due and  payable,  whether at
maturity, by acceleration or otherwise, the due and punctual payment of interest
on the overdue  principal of and interest,  if any, on the Notes,  to the extent
lawful,  and the due and punctual  performance  of all other  obligations of the
Company to the Holders or the Trustee,  all in accordance with the terms of such
Note and this Indenture and (ii) in the case of any extension of time of payment
or renewal of any Notes or any of such other obligations,  that the same will be
promptly paid in full when due or performed in accordance  with the terms of the
extension or renewal,  at Stated  Maturity,  by acceleration  or otherwise.  The
Guarantor hereby waives  diligence,  presentment,  demand of payment,  filing of
claims with a court in the event of merger or  bankruptcy  of the  Company,  any
right to  require a  proceeding  first  against  the  Company,  the  benefit  of
discussion,  protest  or  notice  with  respect  to any  such  Note or the  debt
evidenced thereby and all demands whatsoever,  and covenants that this Guarantee
will not be  discharged  as to any such Note  except by  payment  in full of the
principal  thereof and  interest  thereon  and as  provided in Section  8.01 and
Section  8.02  (subject  to  Section  8.06).  The  maturity  of the  obligations
guaranteed hereby may be accelerated as provided in Article Six for the purposes
of this Article Eleven.  In the event of any declaration of acceleration of such
obligations as provided in Article Six, such obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantor for the purpose
of this Article Eleven. In addition,  without limiting the foregoing provisions,
upon the  effectiveness of an acceleration  under Article Six, the Trustee shall
promptly make a demand for payment on the Notes under the Guarantee provided for

<PAGE>
                                       87

in this Article Eleven.  Notwithstanding  the foregoing but subject to the first
sentence of the next paragraph,  this Guarantee by the Guarantor and any and all
other obligations of the Guarantor under this Indenture and the Pledge Agreement
of any nature whatsoever, shall automatically terminate, and the Guarantor shall
be released from any and all liability  under such documents upon the earlier of
(i) the  payment in full of the first six  scheduled  interest  payments  on the
Notes or (ii) the payment in full of the  principal  of,  premium,  if any,  and
interest on all outstanding Notes.

            If the Trustee or the Holder of any Note is required by any court or
otherwise to return to the Company or the Guarantor, or any custodian, receiver,
liquidator,  trustee,  sequestrator or other similar official acting in relation
to the Company or the  Guarantor,  any amount paid to the Trustee or such Holder
in respect of a Note,  this  Guarantee,  to the extent  theretofore  discharged,
shall be reinstated in full force and effect.  The Guarantor  further agrees, to
the fullest  extent that it may lawfully do so, that,  as between it, on the one
hand,  and the Holders and the Trustee,  on the other hand,  the maturity of the
obligations  guaranteed  hereby may be  accelerated  as  provided in Article Six
hereof for the purposes of this Guarantee,  notwithstanding any stay, injunction
or other prohibition extant under any applicable  bankruptcy law preventing such
acceleration in respect of the obligations guaranteed hereby.

            Until such time as the Notes are fully and finally  paid,  including
all interest,  premium,  principal and liquidated  damages with respect thereto,
the Guarantor hereby  irrevocably  waives any claim or other rights which it may
now or  hereafter  acquire  against the Company  that arise from the  existence,
payment,  performance or enforcement of its obligations under this Guarantee and
this  Indenture,  including,  without  limitation,  any  right  of  subrogation,
reimbursement,   exoneration,   contribution,   indemnification,  any  right  to
participate  in any claim or remedy of the  Holders  against  the Company or any
collateral  which any such  Holder  or the  Trustee  on  behalf  of such  Holder
hereafter acquires, whether or not such claim, remedy or right arises in equity,
or under contract,  statute or common law, including,  without  limitation,  the
right to take or receive from the Company,  directly or  indirectly,  in cash or
other  property  or by set-off or in any other  manner,  payment or  security on
account  of such  claim  or other  rights.  If any  amount  shall be paid to the
Guarantor in violation of the preceding  sentence and the principal of, premium,
if any, and accrued interest on the Notes shall not have been paid in full, such
amount  shall be deemed to have been paid to the  Guarantor  for the benefit of,
and held in trust for the benefit of, the Holders,  and shall  forthwith be paid
to the Trustee for the  benefit of the Holders to be credited  and applied  upon
the  principal  of,  premium,  if any,  and accrued  interest on the Notes.  The
Guarantor  acknowledges  that it will receive direct and indirect  benefits from
the issuance of the Notes  pursuant to this  Indenture  and that the waivers set
forth  in  this  Section  11.01  are  knowingly  made in  contemplation  of such
benefits.

            The  Guarantee set forth in this Section 11.01 shall not be valid or
become  obligatory for any purpose with respect to a Note until the  certificate
of  authentication  on such Note shall  have been  signed by or on behalf of the
Trustee.

            SECTION 11.02. OBLIGATIONS UNCONDITIONAL.  Subject to Section 11.05,
nothing  contained in this Article  Eleven or elsewhere in this  Indenture or in
the Notes is intended to or shall impair, as among the Guarantor and the Holders
of  the  Notes,  the  obligation  of  the  Guarantor,   which  is  absolute  and
unconditional,  upon failure by the Company,  to pay to the Holders of the Notes
the  principal  of,  premium,  if any, and interest on the Notes as and when the
same shall become due and payable in accordance with their terms, or is intended

<PAGE>
                                       88


to or shall affect the relative rights of the Holders of the Notes and creditors
of the Guarantor, nor shall anything herein or therein prevent the Holder of any
Notes or the Trustee on their  behalf from  exercising  all  remedies  otherwise
permitted by applicable law upon default under this Indenture.

            Without  limiting the foregoing,  nothing  contained in this Article
Eleven  will  restrict  the right of the  Trustee or the Holders of the Notes to
take any action to declare  the  Guarantee  to be due and  payable  prior to the
Stated Maturity of the Notes pursuant to Section 6.02 or to pursue any rights or
remedies hereunder.

            SECTION 11.03.  NOTICE TO TRUSTEE.  The Guarantor  shall give prompt
written  notice to the  Trustee of any fact known to the  Guarantor  which would
prohibit  the  making of any  payment  to or by the  Trustee  in  respect of the
Guarantee pursuant to the provisions of this Article Eleven.

            SECTION 11.04.  THIS ARTICLE NOT TO PREVENT  EVENTS OF DEFAULT.  The
failure to make a payment  on  account of  principal  of,  premium,  if any,  or
interest on the Notes by reason of any provision of this Article Eleven will not
be construed as preventing the occurrence of an Event of Default.

            SECTION  11.05.  NET  WORTH  LIMITATION.  Notwithstanding  any other
provision  of  this  Indenture  or  the  Notes,  this  Guarantee  shall  not  be
enforceable against the Guarantor in an amount in excess of the net worth of the
Guarantor at the time that  determination of such net worth is, under applicable
law,  relevant to the  enforceability  of this  Guarantee.  Such net worth shall
include  any claim or future  claim of the  Guarantor  against  the  Company for
reimbursement and any claim against any grantor of a Guarantee for contribution.


                                 ARTICLE TWELVE
                                  MISCELLANEOUS

            SECTION  12.01.   TRUST   INDENTURE  ACT  OF  1939.   Prior  to  the
effectiveness of the Registration  Statement,  this Indenture shall  incorporate
and be governed by the provisions of the TIA that are required to be part of and
to govern  indentures  qualified under the TIA. After the  effectiveness  of the
Registration Statement, this Indenture shall be subject to the provisions of the
TIA that are required to be a part of this  Indenture  and shall,  to the extent
applicable, be governed by such provisions.

<PAGE>
                                       89

            SECTION  12.02.  NOTICES.  Any  notice  or  communication  shall  be
sufficiently  given if in  writing  and  delivered  in person or mailed by first
class mail, commercial courier service or telecopier communication, addressed as
follows:


            IF TO THE COMPANY:

                  KMC Telecom Holdings, Inc.
                  1545 Route 206, Suite 300
                  Bedminster, New Jersey  07921
                  Telecopier Number:  (908) 719-8775
                  Attention: Chief Financial Officer

                        With,  in the  case  of any  notice  given  pursuant  to
                        Article Six, a copy to:

                  Kelley Drye & Warren LLP
                  101 Park Avenue
                  New York, NY  10178
                  Attention: Alan M. Epstein, Esq.

                        and a copy to:

                  Simpson Thacher & Bartlett
                  425 Lexington Avenue
                  New York, NY 10017 - 3954
                  Attention: Arthur D. Robinson, Esq.

            IF TO THE TRUSTEE:

                  The Chase Manhattan Bank
                  450 West 33rd Street, 15th Floor
                  New York, New York  10001-2697
                  Telecopier Number:  (212) 946-8159/8160
                  Attention: Capital Markets Fiduciary Services


<PAGE>
                                       90


                        With a copy to:

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

            The Company, the Guarantor, the Trustee, or the Depository by notice
to the others may  designate  additional or different  addresses for  subsequent
notices or communications.

            Any notice or  communication  mailed to a Holder  shall be mailed to
him at his  address as it appears on the Note  Register  by first class mail and
shall be  sufficiently  given to him if so mailed  within  the time  prescribed.
Copies of any such  communication  or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.

            Failure to mail a notice or  communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Except for
a notice to the Trustee, which is deemed given only when received, and except as
otherwise provided in this Indenture,  if a notice or communication is mailed in
the manner provided in this Section 12.02, it is duly given,  whether or not the
addressee receives it.

            Where this Indenture provides for notice in any manner,  such notice
may be waived in writing by the Person  entitled to receive such notice,  either
before or after the  event,  and such  waiver  shall be the  equivalent  of such
notice.  Waivers of notice by Holders shall be filed with the Trustee,  but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.

            In case by reason of the  suspension  of regular  mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such  notification  as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
<PAGE>
                                       91


            SECTION 12.03.  CERTIFICATE AND OPINION AS TO CONDITIONS  Precedent.
Upon any request or  application  by the Company or the Guarantor to the Trustee
to take any action under this  Indenture,  the Company or the Guarantor,  as the
case may be, shall furnish to the Trustee:

            (i) an Officers'  Certificate  stating  that,  in the opinion of the
      signers, all conditions precedent,  if any, provided for in this Indenture
      relating to the proposed action have been complied with; and

            (ii) an Opinion  of Counsel  stating  that,  in the  opinion of such
      Counsel, all such conditions precedent have been complied with.

            SECTION 12.04.  STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.  Each
certificate  or opinion with respect to compliance  with a condition or covenant
provided for in this Indenture shall include:

            (i) a statement that each person signing such certificate or opinion
      has read such covenant or condition and the  definitions  herein  relating
      thereto;

            (ii) a brief statement as to the nature and scope of the examination
      or  investigation  upon which the  statement or opinion  contained in such
      certificate or opinion is based;

            (iii) a statement  that, in the opinion of each such person,  he has
      made such  examination or  investigation  as is necessary to enable him to
      express  an  informed  opinion  as to  whether  or not  such  covenant  or
      condition has been complied with; and

            (iv) a  statement  as to whether or not, in the opinion of each such
      person,  such  condition or covenant  has been  complied  with;  PROVIDED,
      HOWEVER,  that, with respect to matters of fact, an Opinion of Counsel may
      rely on an Officers' Certificate or certificates of public officials.

            SECTION  12.05.  RULES BY TRUSTEE,  PAYING AGENT OR  REGISTRAR.  The
Trustee may make reasonable rules for action by or at a meeting of Holders.  The
Paying Agent or Registrar may make reasonable rules for its functions.

            SECTION  12.06.  PAYMENT  DATE  OTHER  THAN A  BUSINESS  DAY.  If an
Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date of
maturity of any Note shall not be a Business  Day, then payment of principal of,
premium,  if any, or interest on such Note, as the case may be, need not be made
on such date, but may be made on the next succeeding  Business Day with the same
force and effect as if made on the  Interest  Payment  Date,  Payment  Date,  or

<PAGE>
                                       92


Redemption  Date,  or at the Stated  Maturity  or date of maturity of such Note;
PROVIDED  that no interest  shall  accrue with  respect to such  payment for the
period from and after such Interest Payment Date, Payment Date, Redemption Date,
Stated Maturity or date of maturity, as the case may be.

            SECTION 12.07. GOVERNING LAW; SUBMISSION TO JURISDICTION;  AGENT FOR
SERVICE.  This Indenture  (including the Note  Guarantee) and the Notes shall be
governed  by the laws of the  State of New  York.  Each of the  Company  and the
Guarantor  hereby  appoints  CT  Corporation  System as its agent for service of
process in any suit,  action or proceeding with respect to this Indenture or the
Notes and for actions  brought under the U.S.  federal or state  securities laws
brought in any federal or state  court  located in The City of New York and each
of the Company and the  Guarantor  agrees to submit to the  jurisdiction  of any
such court.

            SECTION 12.08. NO ADVERSE  INTERPRETATION OF OTHER AGREEMENTS.  This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any  Subsidiary of the Company.  Any such  indenture,  loan or
debt agreement may not be used to interpret this Indenture.

            SECTION  12.09.  NO RECOURSE  AGAINST  OTHERS.  No recourse  for the
payment of the principal of,  premium,  if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof,  and no recourse
under or upon any  obligation,  covenant  or  agreement  of the  Company  or the
Guarantor contained in this Indenture, or in any of the Notes, or because of the
creation  of any  Indebtedness  represented  thereby,  shall be had  against any
incorporator  or  against  any  past,  present  or future  stockholder  or other
equityholder,  officer, director,  employee or controlling person of the Company
or the Guarantor or of any successor Person thereof,  either directly or through
the Company or the Guarantor or any successor  Person,  whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise;  it being expressly understood,  each Holder, by accepting
the Notes,  expressly  waives and releases all such liability as a condition of,
and as a consideration for, the execution of this Indenture and the issue of the
Notes.

            SECTION 12.10.  SUCCESSORS.  All agreements of the Company and
the Guarantor in this Indenture and the Notes shall bind its successors.  All
agreements of the Trustee in this Indenture shall bind their respective
successors.

            SECTION 12.11.  DUPLICATE ORIGINALS.  The parties may sign any
number of copies of this Indenture.  Each signed copy shall be an original,
but all of them together represent the same agreement.


<PAGE>
                                       93


            SECTION 12.12. SEPARABILITY. In case any provision in this Indenture
or in the Notes  shall be  invalid,  illegal  or  unenforceable,  the  validity,
legality and enforceability of the remaining  provisions shall not in any way be
affected or impaired thereby.

            SECTION  12.13.  TABLE OF  CONTENTS,  HEADINGS,  ETC.  The  Table of
Contents,  Cross-Reference  Table and  headings of the  Articles and Sections of
this Indenture have been inserted for  convenience of reference only, are not to
be  considered  a part hereof and shall in no way modify or restrict  any of the
terms and provisions hereof.


<PAGE>


                                   SIGNATURES

            IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.


                                            KMC TELECOM HOLDINGS, INC.



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



                                            KMC TELECOM FINANCING, INC.
                                                as Guarantor



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



                                            THE CHASE MANHATTAN BANK,
                                               as Trustee



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


<PAGE>





                                                                       EXHIBIT A


                                 [FACE OF NOTE]

                           KMC TELECOM HOLDINGS, INC.

                          13 1/2% Senior Note Due 2009


                                                         [CUSIP] [CINS] ______


[insert Private Placement Legend, if applicable]

UNLESS THIS GLOBAL NOTE IS  PRESENTED  BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY  TRUST  COMPANY  TO KMC  TELECOM  HOLDINGS,  INC.  OR ITS  AGENT  FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE  NAME OF  CEDE & CO.  OR TO  SUCH  OTHER  ENTITY  AS IS  REQUESTED  BY AN
AUTHORIZED  REPRESENTATIVE  OF  THE  DEPOSITORY  TRUST  COMPANY  OR  SUCH  OTHER
REPRESENTATIVE  OF THE  DEPOSITORY  TRUST  COMPANY  OR  SUCH  OTHER  NAME  AS IS
REQUESTED BY AN AUTHORIZED  REPRESENTATIVE  OF THE DEPOSITORY TRUST COMPANY (AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED  REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER,
PLEDGE  OR OTHER  USE  HEREOF  FOR  VALUE OR  OTHERWISE  BY OR TO ANY  PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART,  TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR  THEREOF OR SUCH  SUCCESSOR'S
NOMINEE  AND  TRANSFERS  OF  PORTIONS  OF THIS  GLOBAL  NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE  RESTRICTIONS SET FORTH IN SECTION 2.08 OF
THE INDENTURE.



<PAGE>

                                      A-2



[THIS NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS
NOTE) IN CUSTODY FOR THE BENEFIT OF THE  BENEFICIAL  OWNERS  HEREOF,  AND IS NOT
TRANSFERABLE TO ANY PERSON UNDER ANY  CIRCUMSTANCES  EXCEPT THAT (I) THE TRUSTEE
MAY MAKE SUCH  NOTATIONS  HEREON AS MAY BE REQUIRED  PURSUANT TO SECTION 2.07 OF
THE  INDENTURE,  (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART
PURSUANT  TO SECTION  2.07(a) OF THE  INDENTURE,  (III) THIS  GLOBAL NOTE MAY BE
DELIVERED  TO THE  TRUSTEE  FOR  CANCELLATION  PURSUANT  TO SECTION  2.12 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR BOOK-ENTRY
DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF KMC TELECOM HOLDINGS, INC.]*


<PAGE>

                                      A-3


                           KMC TELECOM HOLDINGS, INC.

                          13 1/2% Senior Note Due 2009
                                                          [CUSIP][CINS] ______
No. ______                                                             $______


           KMC TELECOM  HOLDINGS,  INC., a Delaware  corporation (the "Company",
which term includes any successor under the Indenture  hereinafter referred to),
for value received, promises to pay to ____________,  or its registered assigns,
the principal sum of ______ ($______) on May 15, 2009.

           Interest  Payment  Dates:  May  15  and  November  15,   commencing
November 15, 1999.

           Regular Record Dates: May 1 and November 1.

           Reference is hereby made to the further  provisions  of this Note set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth hereon.

           Terms used but not otherwise defined herein shall have their meanings
as defined in the  Indenture.  The  provisions of this Note do not purport to be
complete and are subject to, and  qualified in their  entirety by reference  to,
the provisions of the Indenture.


<PAGE>

                                      A-4


           IN WITNESS  WHEREOF,  the  Company  has caused this Note to be signed
manually or by facsimile by its duly authorized officers.


Date:                                    KMC TELECOM HOLDINGS, INC.



                                          By:     ________________________
                                          Name:
                                          Title:


                                          By:     ________________________
                                          Name:
                                          Title:


This  is  one  of  the  13  1/2%  Senior   Notes  due  2009   described  in  the
within-mentioned Indenture.



                                          THE CHASE MANHATTAN BANK,
                                             as Trustee



                                          By: _________________________
                                                  Authorized Officer


<PAGE>

                                      A-5


                             [REVERSE SIDE OF NOTE]

                           KMC TELECOM HOLDINGS, INC.

                          13 1/2% Senior Note Due 2009



1.    PRINCIPAL AND INTEREST.

            The Company will pay the principal of this Note on May 15, 2009.

            The Company promises to pay interest on the principal amount of this
Note on each Interest  Payment  Date, as set forth below,  at the rate per annum
shown above.

            Interest  will be payable  semiannually  in cash (to the  holders of
record  of the  Notes  at the  close  of  business  on the May 1 or  November  1
immediately  preceding the Interest Payment Date) on each Interest Payment Date,
commencing  November  15,  1999.  Interest  will be  computed  on the basis of a
360-day year of twelve 30-day months.

            If an exchange  offer  registered  under the  Securities  Act is not
consummated,  and a shelf  registration  statement under the Securities Act with
respect to resales of the Notes is not declared effective by the Commission,  on
or before the date that is six months after the Closing Date in accordance  with
the terms of the  Registration  Rights  Agreement dated May 19, 1999 between the
Company and Morgan Stanley & Co. Incorporated,  for itself and as representative
of the several Initial Purchasers named on Schedule I to the Purchase Agreement,
dated May 19, 1999,  interest (in addition to the interest  otherwise due on the
Notes) will accrue, at an annual rate of 0.5% per annum of the principal amount,
payable in cash semiannually, in arrears on May 15 and November 15 of each year,
commencing May 15, 2000 until the consummation of a registered exchange offer or
the  effectiveness of a  shelf-registration  statement with respect to resale of
this  Note.  The  Holder  of  this  Note is  entitled  to the  benefits  of such
Registration Rights Agreement.

            The Company shall pay interest on overdue principal and premium,  if
any, and interest on overdue installments of interest,  to the extent lawful, at
a rate per annum that is 13 1/2% per annum.

2.    METHOD OF PAYMENT.

            The  Company  will pay  principal  as  provided  above and  interest
(except  defaulted  interest) on the  principal  amount of the Notes as provided
above  on  each  May 15 and  November  15 to the  Persons  who are  Holders  (as
reflected  in the  Note  Register  at the  close of  business  on such May 1 and
November 1, immediately preceding the Interest Payment Date), in each case, even
if the Note is cancelled on registration of transfer or registration of exchange
after such record date; PROVIDED that, with respect to the payment of principal,
the Company will not make payment to the Holder unless this Note is  surrendered
to a Paying Agent.


<PAGE>
                                       A-6


            The Company  will pay  principal,  premium,  if any, and as provided
above,  interest  in money of the United  States  that at the time of payment is
legal tender for payment of public and private debts.  However,  the Company may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's  registered address (as reflected in
the Note  Register).  If a payment date is a date other than a Business Day at a
place of payment,  payment may be made at that place on the next  succeeding day
that is a Business Day and no interest shall accrue for the intervening period.

3.    PAYING AGENT AND REGISTRAR.

            Initially,  the Trustee will act as Paying Agent and Registrar.  The
Company may change any Paying Agent or Registrar  without  notice.  The Company,
any  Subsidiary  or any  Affiliate  of any of  them  may  act as  Paying  Agent,
Registrar or co-Registrar.

4.    INDENTURE; ISSUANCE OF ADDITIONAL NOTES.

            This Note is one of a duly authorized  issue of Notes of the Company
designated  its 13 1/2% Senior Notes due 2009,  issued and to be issued under an
Indenture dated as of May 24, 1999 (the "Indenture"),  between the Company,  KMC
Telecom Financing,  Inc., as Guarantor, and The Chase Manhattan Bank, as trustee
(the "Trustee").  Capitalized  terms herein are used as defined in the Indenture
unless otherwise  indicated.  The terms of the Notes include those stated in the
Indenture  and  those  made  part of the  Indenture  by  reference  to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust  Indenture Act for a statement of all such terms.
To the extent  permitted by  applicable  law, in the event of any  inconsistency
between the terms of this Note and the terms of the Indenture,  the terms of the
Indenture  shall  control.  The  Company  may,  subject  to  Article  IV of  the
Indenture,  issue additional Notes under the Indenture. The 13 1/2% Senior Notes
due 2009 issued on May 24, 1999 (including  this Note) and any additional  Notes
subsequently  issued under the Indenture  shall be treated as a single class for
all purposes under the Indenture.

5.    REDEMPTION.

            The Notes will be redeemable,  at the Company's  option, in whole or
in part, at any time and from time to time on or after May 15, 2004 and prior to
maturity,  upon not less than 30 nor more than 60 days' prior  notice  mailed by
first-class  mail to each  Holders'  last  address  as it  appears  in the  Note
Register,  at the  following  Redemption  Prices  (expressed as  percentages  of
principal amount),  plus accrued and unpaid interest,  if any, to the Redemption

<PAGE>
                                       A-7


Date (subject to the right of Holders of record on the relevant  Regular  Record
Date that is on or prior to the  Redemption  Date to receive  interest due on an
Interest  Payment Date that is on or prior to the Redemption  Date), if redeemed
during the 12-month period commencing on May 15, of the years set forth below:

                                                 REDEMPTION
                  YEAR                             PRICE
                  ----                             -----
                  2004                            106.750%
                  2005                            104.500%
                  2006                            102.250%
                  2007 and thereafter             100.000%

            In  addition,  at any time or from time to time,  on or prior to May
15,  2002,  the Company  may, at its option,  redeem up to 35% of the  aggregate
principal  amount of the Notes with the net  proceeds  of one or more  public or
private Equity  Offerings,  at a Redemption  Price (expressed as a percentage of
principal  amount)  of  113.500%,  plus  accrued  and  unpaid  interest  to  the
Redemption  Date  (subject  to the right of  Holders  of record on the  relevant
Regular  Record  Date  that is on or prior  to the  Redemption  Date to  receive
interest due on an Interest  Payment Date that is on or prior to the  Redemption
Date); PROVIDED that at least 65% of the aggregate principal amount of the Notes
issued on May 24, 1999 remains outstanding after each such redemption and notice
of any such  redemption  is mailed  within 60 days after the  applicable  Equity
Offering and in accordance with the requirements of Section 3.04.

6.    NOTICE OF REDEMPTION.

            Notice of any  optional  redemption  will be mailed at least 30 days
but not more than 60 days before the Redemption  Date to each Holder of Notes to
be redeemed  at his last  address as it appears in the Note  Register.  Notes in
original denominations larger than $1,000 of principal amount may be redeemed in
part. On and after the Redemption  Date,  interest  ceases to accrue on Notes or
portions of Notes  called for  redemption,  unless the  Company  defaults in the
payment of the Redemption Price.

7. REPURCHASE UPON CHANGE IN CONTROL.

            Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer to purchase described in the Indenture at a purchase price equal to
101% of the principal  amount of the Notes on the relevant  Payment  Date,  plus
accrued and unpaid  interest,  if any, to the date of purchase  (the  "Change of
Control Payment").

<PAGE>

                                      A-8


            A notice of such  Change of  Control  will be mailed  within 30 days
after any  Change of  Control  occurs to each  Holder at his last  address as it
appears in the Note Register. Notes in original denominations larger than $1,000
of principal amount may be sold to the Company in part. On and after the date of
the Change of Control Payment, interest ceases to accrue on Notes or portions of
Notes  surrendered for purchase by the Company,  unless the Company  defaults in
the payment of the Change of Control Payment.

8.    REGISTRATION RIGHTS

            Pursuant to the Registration  Rights Agreement,  the Company will be
obligated, within six months after the issue date of this Note, to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange  this  Note  for  the  Company's  Exchange  Notes  (as  defined  in the
Registration  Rights  Agreement) which have been registered under the Securities
Act,  in like  principal  amount  and having  terms  identical  in all  material
respects  as the  Initial  Notes.  The  Holders of the  Initial  Notes  shall be
entitled  to receive  certain  additional  interest  payments  in the event such
exchange  offer  is not  consummated  and upon  certain  other  conditions,  all
pursuant and in accordance with the terms of the Registration Rights Agreement.

9.    DENOMINATIONS; TRANSFER; EXCHANGE.

            The Notes are in registered form without coupons in denominations of
$1,000 of principal  amount and multiples of $1,000 in excess thereof.  A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder,  among other things, to furnish  appropriate
endorsements  and transfer  documents  and to pay any taxes and fees required by
law or permitted by the Indenture.  The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before a selection  of
Notes to be redeemed is made.

10.   PERSONS DEEMED OWNERS.

            A Holder shall be treated as the owner of a Note for all purposes.

<PAGE>

                                      A-9

11.   UNCLAIMED MONEY.

            If money for the payment of principal,  premium, if any, or interest
remains  unclaimed for two years,  the Trustee and the Paying Agent will pay the
money back to the Company at its request.  After that,  Holders  entitled to the
money must look to the Company for  payment,  unless an  abandoned  property law
designates  another  Person,  and all  liability  of the Trustee and such Paying
Agent with respect to such money shall cease.


12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.

            If  the  Company   deposits  with  the  Trustee  money  and/or  U.S.
Government  Obligations  sufficient  to pay the then  outstanding  principal of,
premium,  if any,  and  accrued  interest  on the  Notes  to  redemption  (a) or
maturity,  the Company  will be  discharged  from the  Indenture  and the Notes,
except in certain  circumstances  for certain  sections  thereof,  and (b) or to
Stated Maturity, the Company will be discharged from certain covenants set forth
in the Indenture.

13.   AMENDMENT; SUPPLEMENT; WAIVER.

            Subject to certain  exceptions,  the  Indenture  or the Notes may be
amended or  supplemented  with the consent of the Holders of at least a majority
in principal amount of the Notes then  outstanding,  and any existing default or
compliance  with any  provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then  outstanding.  Without
notice  to or the  consent  of any  Holder,  the  parties  thereto  may amend or
supplement  the  Indenture  or the  Notes  to,  among  other  things,  cure  any
ambiguity,  defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.

14.   RESTRICTIVE COVENANTS.

            The  Indenture  imposes  certain  limitations  on the ability of the
Company  and  its  Restricted   Subsidiaries,   among  other  things,  to  Incur
Indebtedness,  make  Restricted  Payments,  use the  proceeds  from Asset Sales,
engage in transactions  with Affiliates or, with respect to the Company,  merge,
consolidate or transfer  substantially  all of its assets.  Within 90 days after
the end of the last fiscal  quarter of each year, the Company must report to the
Trustee on compliance with the terms of the Indenture.


<PAGE>
                                       A-10


15.   SUCCESSOR PERSONS.

            When a successor  Person or other entity assumes all the obligations
of its predecessor  under the Notes and the Indenture,  the  predecessor  Person
will be released from those obligations.

16.   DEFAULTS AND REMEDIES.

            The  following  events  constitute  "Events  of  Default"  under the
Indenture:  (a) a default occurs in the payment of principal of (or premium,  if
any,  on) any Note when the same  becomes  due and  payable  at  maturity,  upon
acceleration,  redemption or otherwise;  (b) a default  occurs in the payment of
interest on any Note when the same  becomes due and  payable,  and such  default
continues for a period of 30 days; (c) the Company or the Guarantor  defaults in
the performance of or breaches any other covenant or agreement of the Company or
the  Guarantor  in the  Indenture  or under  the  Notes  (other  than a  default
specified in clause (a) or (b) above) and such default or breach continues for a
period of 30 consecutive days after written notice to the Company by the Trustee
or to the Company  and the  Trustee by the  Holders of 25% or more in  aggregate
principal  amount of the Notes;  (d) the  Company  shall have  failed to make or
consummate  an  Offer  to  Purchase  in  accordance  with  Section  4.11  of the
Indenture;  (e) the Company  shall have failed to make or consummate an Offer to
Purchase in accordance with the provisions of Section 4.12 of the Indenture; (f)
there occurs with respect to any issue or issues of  Indebtedness of the Company
or any Significant Subsidiary having an outstanding principal amount at maturity
of $5 million or more in the  aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such  Indebtedness has not been
discharged  in full or such  acceleration  has not been  rescinded  or  annulled
within 30 days of such acceleration  and/or (II) the failure to make a principal
payment at the final (but not any interim)  fixed  maturity  and such  defaulted
payment  shall not have been  made,  waived or  extended  within 30 days of such
payment default;  (g) any final judgment or order (not covered by insurance) for
the  payment  of money in excess of $5 million in the  aggregate  (treating  any
deductibles,  self-insurance  or retention as not so covered)  shall be rendered
against  the  Company  or any  Significant  Subsidiary  and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following entry
of the final  judgment  or order that causes the  aggregate  amount for all such
final  judgments or orders  outstanding  and not paid or discharged  against the
Company or any of its Significant Subsidiaries to exceed $5 million during which
a stay of enforcement  of such final  judgment or order,  by reason of a pending
appeal or otherwise,  shall not be in effect; (h) a court having jurisdiction in
the premises  enters a decree or order for (A) relief in respect of the Company,
the Guarantor or any  Significant  Subsidiary in an  involuntary  case under any
applicable  bankruptcy,  insolvency  or other  similar law now or  hereafter  in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator  or  similar  official  of  the  Company,   the  Guarantor  or  any
Significant  Subsidiary  or for all or  substantially  all of the  property  and
assets of the Company,  the Guarantor or any  Significant  Subsidiary or (C) the
winding up or  liquidation  of the affairs of the Company,  the Guarantor or any

<PAGE>
                                       A-11


Significant  Subsidiary  and, in each case,  such  decree or order shall  remain
unstayed and in effect for a period of 30 consecutive days; (i) the Company, the
Guarantor or any Significant Subsidiary (A) commences a voluntary case under any
applicable  bankruptcy,  insolvency  or other  similar law now or  hereafter  in
effect,  or consents to the entry of an order for relief in an involuntary  case
under any such law, (B) consents to the appointment of or taking possession by a
receiver,  liquidator,  assignee,  custodian,  trustee,  sequestrator or similar
official of the Company, the Guarantor or any Significant  Subsidiary or for all
or substantially all of the property and assets of the Company, the Guarantor or
any Significant Subsidiary or (C) effects any general assignment for the benefit
of  creditors;  or (j) prior to the  payment  in full of the first six  interest
payments on the Notes,  the Note Guarantee ceases to be in full force and effect
or is declared null and void,  or the  Guarantor  denies that it has any further
liability under the Note  Guarantee,  or gives notice to such effect (other than
by reason of the termination of the Indenture).

            If an Event of Default (other than an Event of Default  specified in
clause  (h) or (i)  above  that  occurs  with  respect  to  the  Company  or the
Guarantor)  occurs and is  continuing  under the  Indenture,  the Trustee or the
Holders  of at least  25% in  aggregate  principal  amount  of the  Notes,  then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the  Holders),  may,  and the Trustee at the request of such Holders
shall,  declare the principal of, premium,  if any, and accrued  interest on the
Notes to be immediately due and payable.

            If an Event of Default,  as defined in the Indenture,  occurs and is
continuing,  the Trustee or the Holders of at least 25% in  aggregate  principal
amount of the Notes then  outstanding  may  declare  all the Notes to be due and
payable. If a bankruptcy or insolvency default with respect to the Company,  the
Guarantor or any Significant Subsidiary occurs and is continuing,  the principal
of, premium, if any, and accrued interest on the Notes automatically  become due
and  payable.  Holders  may not  enforce the  Indenture  or the Notes  except as
provided in the Indenture.  The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes.  Subject to certain  limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.

17.   TRUSTEE DEALINGS WITH COMPANY.

            The Trustee  under the  Indenture,  in its  individual  or any other
capacity,  may make loans to, accept deposits from and perform  services for the
Company  or its  Affiliates  and may  otherwise  deal  with the  Company  or its
Affiliates as if it were not the Trustee.

<PAGE>
                                       A-11


18.   NO RECOURSE AGAINST OTHERS.

            No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director,  employee or controlling person as such,
of the  Company  or the  Guarantor  or of any  successor  Person  shall have any
liability for any obligations of the Company or the Guarantor under the Notes or
the  Indenture  or for any claim  based on, in respect of or by reason of,  such
obligations  or their  creation.  Each  Holder by  accepting  a Note  waives and
releases  all  such   liability.   The  waiver  and  release  are  part  of  the
consideration for the issuance of the Notes.


19.   AUTHENTICATION.

            This Note shall not be valid  until the  Trustee  or  authenticating
agent signs the certificate of authentication on the other side of this Note.

20.   ABBREVIATIONS.

            Customary  abbreviations  may be used in the name of a Holder  or an
assignee,  such as:  TEN COM (= tenants  in  common),  TEN ENT (= tenants by the
entireties),  JT TEN (= joint  tenants  with  right of  survivorship  and not as
tenants in common),  CUST (=  Custodian)  and U/G/M/A (= Uniform Gifts to Minors
Act).

21. CUSIP NUMBERS.

            Pursuant to a recommendation promulgated by the Committee on Uniform
Security  Identification  Procedures,  the Issuer has caused CUSIP numbers to be
printed  on the Notes  and the  Trustee  may use CUSIP  numbers  in  notices  of
redemption  as a convenience  to Holders.  No  representation  is made as to the
accuracy of such  numbers  either as printed on the Notes or as contained in any
notice of redemption.

<PAGE>
                                       A-13

22.   GUARANTEE.

            This  Note is  guaranteed  (the  "Note  Guarantee")  by KMC  Telecom
Financing,   Inc.   (the   "Guarantor"),   as  set   forth  in  the   Indenture.
Notwithstanding  the  foregoing,  the  Note  Guarantee  by the  Guarantor  shall
automatically terminate upon the earlier of (i) the payment in full of the first
six scheduled  interest payments on the Notes or (ii) the payment in full of the
principal of, premium, if any, and interest on all outstanding Notes.

23.   SECURITY.

            The  Holder of this Note is  entitled  to the  benefits  of a Pledge
Agreement,  dated as of May 24,  1999,  between the  Guarantor,  a  wholly-owned
Restricted  Subsidiary  of the Company,  and the Trustee,  pursuant to which the
Guarantor  has  placed  in  the  Pledged  Account  cash  or  Pledged  Securities
sufficient  to  provide  for the  payment  of the first six  scheduled  interest
payments due on the Notes (including any additional interest that may be payable
if the Exchange Offer is not consummated and the Shelf Registration Statement is
not  declared  effective  in a timely  manner)  and to secure  repayment  of the
principal,  premium  (if any) and  interest  on the Notes in the event  that the
Notes  become  due and  payable  prior to such time as the  first six  scheduled
interest payments thereon shall have been paid in full.

      THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

            The  Company  will  furnish to any Holder upon  written  request and
without  charge a copy of the  Indenture.  Requests  may be made to KMC  Telecom
Holdings,  Inc.,  1545 Route 206,  Suite 300,  Bedminster,  New  Jersey,  07921,
Attention: Chief Financial Officer.


<PAGE>

                                      A-14

                            [FORM OF TRANSFER NOTICE]


            FOR  VALUE  RECEIVED  the  undersigned  registered  holder  hereby
sell(s), assign(s) and transfer(s) unto

INSERT TAXPAYER IDENTIFICATION NO.


Please print or typewrite name and address including zip code of assignee

the within Note and all rights  thereunder,  hereby  irrevocably  constituting
and appointing
                                                                        attorney
to  transfer  said  Note  on the  books  of  the  Company  with  full  power  of
substitution in the premises.


                    [THE FOLLOWING PROVISION TO BE INCLUDED
                    ON ALL NOTES OTHER THAN EXCHANGE NOTES,
                      UNLEGENDED OFFSHORE GLOBAL NOTES AND
                     UNLEGENDED OFFSHORE CERTIFICATED NOTES]

      In connection  with any transfer of this Note occurring  prior to the date
which is the earlier of (i) the date of an  effective  Registration  or (ii) the
end of the period  referred  to in Rule 144(k)  under the  Securities  Act,  the
undersigned  confirms that without utilizing any general solicitation or general
advertising that:

                                   [CHECK ONE]

[           ] (a)  this  Note  is  being  transferred  in  compliance  with  the
            exemption  from  registration  under the  Securities Act of 1933, as
            amended, provided by Rule 144A thereunder.

                                       OR

[                 ] (b) this Note is being  transferred other than in accordance
                  with (a) above and documents are being  furnished which comply
                  with the conditions of transfer set forth in this Note and the
                  Indenture.


<PAGE>

                                      A-16

If none of the foregoing boxes is checked,  the Trustee or other Registrar shall
not be obligated to register  this Note in the name of any Person other than the
Holder  hereof  unless  and  until  the  conditions  to  any  such  transfer  of
registration  set forth herein and in Section 2.08 of the  Indenture  shall have
been satisfied.



Date: _________________       __________________________________________________
                              NOTICE:  The signature to this  assignment  must
                              correspond  with  the name as  written  upon the
                              face  of  the  within-mentioned   instrument  in
                              every  particular,  without  alteration  or  any
                              change whatsoever.


TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

      The  undersigned  represents and warrants that it is purchasing  this Note
for its own  account  or an account  with  respect  to which it  exercises  sole
investment  discretion  and  that  it  and  any  such  account  is a  "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended,  and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges  that it has received such information  regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request  such  information  and that it is aware that the  transferor  is
relying upon the undersigned's  foregoing  representations in order to claim the
exemption from registration provided by Rule 144A.


Dated:
                                    NOTICE:  To be  executed  by an  executive
                                    officer.


                                      A-17


                       OPTION OF HOLDER TO ELECT PURCHASE


            If you wish to have this Note  purchased  by the Company  pursuant
to Section 4.11 or Section 4.12 of the Indenture, check the Box:  |_|

            If you wish to have a portion of this Note  purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture,  state the amount (in
principal amount): $___________________.


Date: ____________________


Your Signature:_________________________________________________________________
              (Sign exactly as your name appears on the other side of this Note)

Signature Guarantee:  ______________________________



<PAGE>



                                                                       EXHIBIT B


                               FORM OF CERTIFICATE



The Chase Manhattan Bank                                     __________ __, 19__
450 West 33rd Street, 15th Floor
New York, NY  10001-2697
Attention: Capital Markets Fiduciary Services

                 Re: KMC Telecom Holdings, Inc. (the "Company")
                     13 1/2% Senior Notes Due 2009 (The "Notes")
                     -------------------------------------------

Ladies and Gentlemen:

          This letter relates to U.S.  $_____________  principal amount of Notes
represented  by a Note (the  "Legended  Note")  which  bears a legend  outlining
restrictions  upon transfer of such Legended  Note.  Pursuant to Section 2.02 of
the Indenture (the "Indenture")  dated as of May 24, 1999 relating to the Notes,
we hereby certify that we are (or we will hold such Notes on behalf of) a person
outside the United States to whom the Notes could be  transferred  in accordance
with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933,
as amended.  Accordingly,  you are hereby  requested  to exchange  the  legended
certificate for an unlegended  certificate  representing an identical  principal
amount of Notes, all in the manner provided for in the Indenture.

           You and the  Company  are  entitled  to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any  administrative  or legal  proceedings  or  official  inquiry  with
respect to the matters covered hereby.  Terms used in this  certificate have the
meanings set forth in Regulation S.

                                    Very truly yours,

                                    [Name of Holder]



                                    By:_________________________________________
                                               Authorized Signature


<PAGE>

                                                                       EXHIBIT C



                       Form of Certificate to Be Delivered
                          in Connection with Transfers
                            Pursuant to Regulation S
                            ------------------------



The Chase Manhattan Bank.                                  __________ __, 19__
450 West 33rd Street, 15th Floor
New York, NY  10001-2697
Attention: Capital Markets Fiduciary Services


                 Re: KMC Telecom Holdings, Inc. (the "Company")
                     13 1/2% Senior Notes Due 2009 (The "Notes")
                     -------------------------------------------

Ladies and Gentlemen:

           In  connection  with our proposed sale of U.S.$  aggregate  principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in  accordance  with  Regulation  S under the U.S.  Securities  Act of 1933,  as
amended, and, accordingly, we represent that:

           (1)   the  offer  of the  Notes  was not  made to a  person  in the
United States;

           (2) at the time the buy  order was  originated,  the  transferee  was
     outside  the  United  States  or we and any  person  acting  on our  behalf
     reasonably believed that the transferee was outside the United States;

           (3) no directed  selling  efforts  have been made by us in the United
     States in  contravention  of the requirements of Rule 903(b) or Rule 904(b)
     of Regulation S, as applicable; and

           (4) the  transaction  is not part of a plan or  scheme  to evade  the
     registration requirements of the U.S. Securities Act of 1933.


<PAGE>



                                       C-3


           You and the  Company  are  entitled  to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any  administrative  or legal  proceedings  or  official  inquiry  with
respect to the matters covered hereby.  Terms used in this  certificate have the
meanings set forth in Regulation S.

                                             Very truly yours,

                                             [Name of Transferor]


                                             By:________________________________
                                                      Authorized Signature


<PAGE>



                                                                       EXHIBIT D

                            Form of Certificate to Be
                          Delivered in Connection with
                   Transfers to Non-QIB Accredited Investors
                   -----------------------------------------





The Chase Manhattan Bank.                                  __________ __, 19__
450 West 33rd Street, 15th Floor
New York, NY  10001-2697
Attention:  Capital Markets Fiduciary Services

                 Re: KMC Telecom Holdings, Inc. (the "Company")
                     13 1/2% Senior Notes Due 2009 (The "Notes")
                     -------------------------------------------

Dear Sirs:

           In connection with our proposed  purchase of  $___________  aggregate
principal amount of the Notes, we confirm that:

           1. We understand that any subsequent transfer of the Notes is subject
     to certain  restrictions and conditions set forth in the Indenture dated as
     of May 24, 1999 relating to the Notes (the "Indenture") and the undersigned
     agrees to be bound by, and not to resell,  pledge or otherwise transfer the
     Notes except in compliance  with, such  restrictions and conditions and the
     Securities Act of 1933, as amended (the "Securities Act").

           2. We  understand  that the offer and sale of the Notes have not been
     registered  under the Securities Act, and that the Notes may not be offered
     or sold except as permitted in the following sentence. We agree, on our own
     behalf and on behalf of any accounts for which we are acting as hereinafter
     stated,  that if we should  sell any  Notes,  we will do so only (A) to the
     Company or any subsidiary  thereof,  (B) in accordance with Rule 144A under
     the  Securities  Act  to a  "qualified  institutional  buyer"  (as  defined
     therein), (C) to an institutional  "accredited investor" (as defined below)
     that, prior to such transfer,  furnishes (or has furnished on its behalf by
     a  U.S.   broker-dealer)  to  you  and  to  the  Company  a  signed  letter
     substantially in the form of this letter,  (D) outside the United States in
     accordance  with Rule 904 of  Regulation  S under the  Securities  Act, (E)
     pursuant to the  provisions  of Rule 144 under the  Securities  Act, or (F)
     pursuant to an effective  registration  statement under the Securities Act,
     and we further agree to provide to any person  purchasing  any of the Notes
     from us a notice  advising  such  purchaser  that  resales of the Notes are
     restricted as stated herein.

           3. We understand  that, on any proposed  resale of any Notes, we will
     be required to furnish to you and the Company  such  certifications,  legal
     opinions  and  other  information  as you and the  Company  may  reasonably
     require to confirm  that the  proposed  sale  complies  with the  foregoing
     restrictions.  We further  understand  that the Notes  purchased by us will
     bear a legend to the foregoing effect.

           4. We are an institutional  "accredited investor" (as defined in Rule
     501(a)(1),  (2), (3) or (7) of Regulation D under the  Securities  Act) and
     have such knowledge and experience in financial and business  matters as to
     be capable of  evaluating  the  merits and risks of our  investment  in the
     Notes,  and we and any  accounts  for which we are  acting are each able to
     bear the economic risk of our or its investment.

           5. We are acquiring the Notes  purchased by us for our own account or
     for one or more  accounts  (each of which is an  institutional  "accredited
     investor") as to each of which we exercise sole investment discretion.

           You and the  Company  are  entitled  to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any  administrative  or legal  proceedings  or  official  inquiry  with
respect to the matters covered hereby.

                                        Very truly yours,

                                        [Name of Transferee]


                                        By:_____________________________________
                                                  Authorized Signature



--------
Note: The Table of Contents shall not for any purposes be deemed to be a part
      of the Indenture.
* For Global Notes only