UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                  ------------

                                    FORM 10-Q

(Mark One)

|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended June 30, 2000

                           OR

     TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ________________ to ____________________

Commission File Number: 333-50475

                           KMC TELECOM HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

               DELAWARE                              22-3545325
 (State or other jurisdiction of         (I.R.S. Employer Identification No.)
  incorporation or organization)


                            1545 ROUTE 206, SUITE 300
                          BEDMINSTER, NEW JERSEY 07921
          (Address, including zip code, of principal executive offices)

                                 (908) 470-2100
              (Registrant's telephone number, including area code)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [X ] Yes [ ] No

      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

          Class                                         Outstanding
          -----                                         -----------
      Common Stock, par value $0.01                     853,775 shares,
      per share.                                        as of August 10, 2000




<PAGE>
                           KMC TELECOM HOLDINGS, INC.

                                      INDEX

PART I. FINANCIAL INFORMATION                                           PAGE NO.

ITEM 1. Financial Statements

        Unaudited Condensed Consolidated Balance Sheets, December 31, 1999
         and June 30, 2000..................................................   2

        Unaudited Condensed Consolidated Statements of Operations,
         Three Months Ended June 30, 1999 and 2000 and Six Months Ended
         June 30, 1999 and 2000.............................................   3

        Unaudited Condensed Consolidated Statements of Cash Flows, Six Months
         Ended June 30, 1999 and 2000.......................................   4

        Notes to Unaudited Condensed Consolidated Financial Statements......   5

ITEM 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations..........................................  13

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..........  19

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings...................................................  20

ITEM 2. Changes in Securities and Use of Proceeds...........................  20

ITEM 3. Defaults Upon Senior Securities.....................................  21

ITEM 4. Submission of Matters to a Vote of Security Holders.................  21

ITEM 5. Other Information...................................................  22

ITEM 6. Exhibits and Reports on Form 8-K....................................  22

SIGNATURES..................................................................  24





<PAGE>
                         PART I - FINANCIAL INFORMATION
                           KMC TELECOM HOLDINGS, INC.
                 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                         December 31,   June 30,
                                                             1999         2000
                                                         -----------   ---------
<S>                                                         <C>          <C>
ASSETS
Current assets:
    Cash and cash equivalents........................       $85,966      $60,297
    Restricted investments...........................        37,125       37,125
    Accounts receivable, net of allowance for
      doubtful accounts of $5,551 and $6,401 in 1999
      and 2000, respectively.........................        27,373       36,906
    Prepaid expenses and other current assets........         1,375      171,529
                                                         -----------  ----------
Total current assets.................................       151,839      305,857
Long term restricted investments.....................        51,446       40,623
Networks, property and equipment, net................       639,324      785,874
Intangible assets, net...............................         3,602        4,045
Deferred financing costs, net........................        38,816       44,486
Other assets.........................................         1,013        1,242
                                                         -----------  ----------
                                                           $886,040   $1,182,127
                                                         ===========  ==========
LIABILITIES, REDEEMABLE AND NONREDEEMABLE EQUITY (DEFICIENCY)
Current liabilities:
    Accounts payable.................................      $167,490     $235,870
    Accrued expenses.................................        37,047       58,511
    Deferred revenue.................................         4,309       14,465
                                                         -----------  ----------
Total current liabilities............................       208,846      308,846
Notes payable........................................       235,000      575,190
Senior discount notes payable........................       301,137      320,013
Senior notes payable.................................       275,000      275,000
                                                         -----------  ----------
Total liabilities....................................     1,019,983    1,479,049
Commitments and contingencies
Redeemable equity:
    Senior  redeemable,  exchangeable,  PIK preferred
     stock, par value $.01 per share; authorized:
     630 shares in 1999 and 2000; shares issued and outstanding:
        Series E, 65 shares in 1999 and 69 shares in 2000
         ($69,815 liquidation preference) ...........        50,770       56,217
        Series F, 44 shares in 1999 and 48 shares in 2000
         ($47,447 liquidation preference)............        41,370       45,936
    Redeemable cumulative convertible preferred
      stock, par value $.01 per share; 499 shares
      authorized; shares issued and outstanding:
        Series A, 124 shares in 1999 and 2000 ($12,380
         liquidation preference).....................        71,349       96,792
        Series C, 175 shares in 1999 and 2000 ($17,500
         liquidation preference).....................        40,301       63,826
    Redeemable cumulative convertible Series G
      preferred stock, 540 shares subscribed ........             -      182,500
    Less: Redeemable cumulative convertible Series G
      preferred stock subscription receivable........             -     (182,500)
    Redeemable common stock, 224 shares issued and
      outstanding....................................        33,755       41,752
    Redeemable common stock warrants.................        12,925       15,262
                                                         ----------- ------------
Total redeemable equity..............................       250,470      319,785
                                                         ----------- ------------
Nonredeemable equity (deficiency):
    Common stock, par value $.01 per share; 3,000 shares
      authorized, 629 shares and 630 shares issued and
      outstanding in 1999 and 2000, respectively.....             6            6
    Additional paid-in capital.......................             -        1,561
    Unearned compensation............................        (9,163)     (30,638)
    Accumulated deficit..............................      (375,256)    (587,636)
                                                         ----------- ------------
Total nonredeemable equity (deficiency)..............      (384,413)    (616,707)
                                                         ----------- ------------
                                                           $886,040   $1,182,127
                                                         =========== ============
</TABLE>
                             See accompanying notes.
<PAGE>





                           KMC TELECOM HOLDINGS, INC.

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                             THREE MONTHS
                                                 ENDED             SIX MONTHS ENDED
                                               JUNE 30,               JUNE 30,
                                           ------------------  -----------------------

                                            1999      2000         1999        2000
                                           --------  --------  ----------   ----------
 <S>                                       <C>       <C>          <C>         <C>
   Revenue...............................  $15,634   $38,925      $26,712     $68,076
   Operating expenses:
    Network operating costs:
      Non-cash stock compensation........    1,307       655        1,616       1,853
      Other network operating costs......   17,533    36,483       32,560      65,290
    Selling, general and administrative:
      Non-cash stock compensation.........  15,025     8,709       18,585      20,819
      Other selling, general and
       administrative costs..............   21,586    39,724       38,219      79,050
    Depreciation and amortization........    6,113    17,381       11,636      31,118
                                           --------  --------  ----------- -----------
     Total operating expenses............   61,564   102,952      102,616     198,130
                                           --------  --------  ----------- -----------
   Loss from operations..................  (45,930)  (64,027)    (75,904)    (130,054)
   Other expense.........................   (4,297)        -      (4,297)           -

   Interest income.......................    2,113     2,539        3,055       4,508
   Interest expense......................  (15,687)  (31,236)     (26,014)    (58,400)
                                           --------- --------  ----------- -----------
   Net loss before cumulative effect of
     change in accounting principle......  (63,801)  (92,724)    (103,160)   (183,946)
   Cumulative effect of change in
     accounting principle................        -         -            -      (1,705)
                                          ---------  --------  ----------- -----------
   Net loss..............................  (63,801)  (92,724)    (103,160)   (185,651)

   Dividends and accretion on redeemable
     preferred stock.....................   (31,971)  (25,454)    (43,415)    (58,981)
                                          ---------  --------  ----------- -----------
   Net loss applicable to common
     shareholders........................ $(95,772) $(118,178)  $(146,575)  $(244,632)
                                          =========  ========= =========== ===========
   Net loss per common share before
     cumulative effect of change in
     accounting principle................  $(112.32) $(138.42)   $(172.31)   $(284.60)

   Cumulative effect of change in
     accounting principle................         -         -           -       (2.00)
                                           --------  --------  ----------- -----------
   Net loss per common share.............  $(112.32) $(138.42)   $(172.31)   $(286.60)
                                           ========= =========  =========== ===========

   Weighted average number of common
     shares outstanding..................   852,676   853,765     850,632     853,553
                                           ========  ========   =========== ===========

   Pro forma  amounts assuming the change
     in accounting  principle was applied
     retroactively:
   Net loss applicable to common
     shareholders........................  $(96,211)$(118,178)  $(147,195)  $(242,927)
                                           ========  ========  =========== ===========
   Net loss per common share.............  $(112.83) $(138.42)   $(173.04)   $(284.60)
                                           ========  ========  =========== ===========
</TABLE>

                             See accompanying notes.

                                       3
<PAGE>






                           KMC TELECOM HOLDINGS, INC.

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            SIX MONTHS ENDED
                                                                JUNE 30,
                                                         -----------------------
                                                            1999        2000
                                                         ----------- -----------

<S>                                                       <C>         <C>
OPERATING ACTIVITIES
Net loss.............................................     $(103,160)  $(185,651)
Adjustments to reconcile net loss to net cash used in
  operating activities:
    Depreciation and amortization....................        11,636      31,118
    Non-cash interest expense........................        22,834      17,150
    Non-cash stock option compensation expense.......        20,201      22,672
    Changes in assets and liabilities:
      Accounts receivable............................       (11,950)     (9,533)
      Prepaid expenses and other current assets......          (228)     (1,818)
      Other assets...................................           653      10,525
      Accounts payable...............................         6,888     (60,696)
      Accrued expenses...............................         4,999      16,972
      Deferred revenue...............................         2,922      10,156
                                                         ----------- -----------
Net cash used in operating activities................       (45,205)   (149,105)
                                                         ----------- -----------

INVESTING ACTIVITIES
Construction of networks and purchases of equipment..       (83,725)   (210,720)
Acquisitions of franchises, authorizations and                 (230)       (751)
  related assets.....................................
Purchases of investments, net........................       (36,080)          -
                                                         ----------- -----------
Net cash used in investing activities................      (120,035)   (211,471)
                                                         ----------- -----------

FINANCING ACTIVITIES
Proceeds from issuance of preferred stock and related        91,235           -
  warrants, net of issuance costs....................
Proceeds from exercise of stock options..............           333           -
Proceeds from issuance of senior notes, net of
  issuance costs and purchase of portfolio of
  restricted investments.............................       159,942           -
Proceeds from credit facilities, net of issuance costs       80,541     334,907
                                                         ----------- -----------
Net cash provided by financing activities............       332,051     334,907
                                                         ----------- -----------

Net increase (decrease) in cash and cash equivalents.       166,811     (25,669)
Cash and cash equivalents, beginning of period.......        21,181      85,966
                                                         ----------- -----------

Cash and cash equivalents, end of period.............      $187,992     $60,297
                                                         =========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of             $3,180     $35,779
  amounts capitalized................................    =========== ===========


                             See accompanying notes.


</TABLE>


                                       4
<PAGE>





                           KMC TELECOM HOLDINGS, INC.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2000

1. BASIS OF PRESENTATION AND ORGANIZATION

     KMC Telecom  Holdings,  Inc. and its  subsidiaries,  KMC Telecom Inc.,  KMC
Telecom II, Inc.,  KMC Telecom III,  Inc.,  KMC Telecom IV, Inc., KMC Telecom IV
Holdings, Inc., KMC Telecom of Virginia, Inc., KMC Telecom IV of Virginia, Inc.,
KMC Telecom V, Inc., KMC Telecom V of Virginia,  Inc., KMC Telecom VI, Inc., KMC
Telecom  VI  of  Virginia,   Inc.,  KMC  Telecom  Financial  Services  LLC,  KMC
Telecom.com,  Inc. and KMC Telecom Financing, Inc., are collectively referred to
herein as the Company.  All significant  intercompany  accounts and transactions
have been eliminated in consolidation.

     The  Company  is a  facilities-based  competitive  local  exchange  carrier
("CLEC")  providing  telecommunications  and  data  services  to its  customers;
principally  business,  government  and  institutional  end-users,  as  well  as
Internet  service  providers,  long  distance  companies  and  wireless  service
providers, primarily in the Southeastern and Midwestern United States.

     The  unaudited  condensed   consolidated  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial  reporting.  Accordingly,  they do not include certain information and
note disclosures required by generally accepted accounting principles for annual
financial  reporting  and  should  be read in  conjunction  with  the  financial
statements  and notes  thereto of KMC Telecom  Holdings,  Inc. as of and for the
year ended December 31, 1999.

     The unaudited  interim financial  statements  reflect all adjustments which
management  considers  necessary  for a  fair  presentation  of the  results  of
operations for these periods.  The results of operations for the interim periods
are not necessarily indicative of the results for the full year.

     The balance  sheet of KMC Telecom  Holdings,  Inc. at December 31, 1999 was
derived from the audited consolidated balance sheet at that date.

     Certain  reclassifications  have been made to the 1999 unaudited  condensed
consolidated financial statements to conform with the 2000 presentation.

2. ACCOUNTING CHANGE

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  Revenue  Recognition  in  Financial
Statements.  SAB 101 provides additional guidance in applying generally accepted
accounting  principles to revenue recognition in financial  statements.  Through
December 31, 1999, the Company recognized  installation  revenue upon completion
of  the  installation.  Effective  January  1,  2000,  in  accordance  with  the
provisions of SAB 101, the Company is recognizing  installation revenue over the
average  contract  period.  The  cumulative  effect of this change in accounting
principle  resulted in a charge of approximately $1.7 million which was recorded
in the quarter ended March 31, 2000. For the six months ended June 30, 2000, the
net effect of adopting this change in accounting principle was a deferral of the
recognition  of $322,000 of revenue, which  increased net loss for the period by
$0.38 per  share.  Revenue  for the six  months  ended  June 30,  2000  includes
$543,000 of revenues that, prior to the accounting  change,  had been recognized
through December 31, 1999.


                                       5
<PAGE>


3. NETWORKS, PROPERTY AND EQUIPMENT

     Networks and equipment are comprised of the following:

                                                     DECEMBER 31,    JUNE 30,
                                                         1999          2000
                                                     ------------  -----------
                                                           (IN THOUSANDS)

Fiber optic systems...............................    $164,985      $227,314
Telecommunications equipment......................     421,718       470,846
Furniture and fixtures............................      21,397        25,399
Leasehold improvements............................       1,811         1,866
Construction-in-progress..........................      66,380       128,226
                                                     ------------  -----------
                                                       676,291       853,651
Less accumulated depreciation.....................     (36,967)      (67,777)
                                                     ------------  -----------
                                                      $639,324      $785,874
                                                     ============  ===========

     Costs capitalized  during the development of the Company's networks include
amounts  incurred  related to network  engineering,  design and construction and
capitalized  interest.  Capitalized  interest related to the construction of the
networks  for the six  months  ended  June 30,  1999 and 2000  amounted  to $1.3
million and $5.9 million, respectively.

4. INTANGIBLE ASSETS

     Intangible assets are comprised of the following:

                                                     DECEMBER 31,    JUNE 30,
                                                         1999          2000
                                                     ------------  -----------
                                                           (IN THOUSANDS)

Franchise costs...................................      $2,015       $2,472
Authorizations and rights-of-way..................       2,052        2,355
Building access agreements........................         637          624
Other.............................................         401          402
                                                       ----------  -----------
                                                         5,105        5,853
Less accumulated amortization.....................      (1,503)      (1,808)
                                                       ----------  -----------
                                                        $3,602       $4,045
                                                       ==========  ===========


                                       6
<PAGE>

5. ACCRUED EXPENSES

     Accrued expenses are comprised of the following:

                                                     DECEMBER 31,   JUNE 30,
                                                         1999         2000
                                                     ------------- ------------
                                                          (IN THOUSANDS)

Accrued compensation................................   $11,423      $17,020
Accrued costs related to financing activities.......     7,316       10,156
Accrued interest payable............................     8,544       10,741
Accrued telecommunications costs....................     3,794        5,361
Other accrued expenses..............................     5,970       15,233
                                                     ============= ============
                                                       $37,047      $58,511
                                                     ============= ============


6. SENIOR SECURED CREDIT FACILITIES

TELECOM IV SENIOR SECURED TERM LOAN

     During the quarter ended June 30, 2000, KMC Telecom, IV, Inc., closed a new
senior secured term loan (the "Telecom IV Loan") from Lucent  Technologies  Inc.
The Telecom IV Loan is initially capped at $35 million until certain  conditions
are met that allow for  additional  borrowings  up to a ceiling of $50  million.
Proceeds  from the  Telecom IV Loan can be used to  purchase  or install  Lucent
products  and will be used to  purchase  equipment  for  future  expansion.  The
Telecom IV Loan will mature on October 1, 2007 and requires quarterly  principal
payments  beginning  on  January  1, 2003 of 2.5% of the  outstanding  principal
balance,  with the  percentage  increasing  to 5% on January  1, 2005,  6.25% on
October 1, 2005,  7.5% on October 1, 2006,  with the  balance  due on October 1,
2007. As of June 30, 2000,  the  outstanding  loan balance on this term loan was
approximately $35 million.

     Borrowings  under the Telecom IV Loan will bear  interest  payable,  at the
Company's option, at either (a) the Applicable Base Rate Margin (which generally
ranges  from  2.25%  to  3.50%  based  on the  Company's  total  debt  to  total
contributed  capital ratio) plus the greater of (i) the  administrative  agent's
prime rate or (ii) the  overnight  federal  funds rate plus .5% or (b) the LIBOR
Rate plus the  Applicable  Margin  (which  generally  ranges from 3.25% to 4.50%
based on the Company's debt to contributed capital ratio). "Applicable Base Rate
Margin" interest is payable  quarterly while  "Applicable LIBOR Margin" interest
is payable at the end of each  applicable  interest  period,  or at least  every
three months.  The Company was being charged a weighted average interest rate of
11.31% at June 30, 2000. There are no financial  covenants on the loan. However,
there are  affirmative  and  negative  covenants  that,  generally,  are no more
restrictive  to the Company than the  Company's  other debt  agreements.  If any
event  of  default  were to  occur,  the  interest  rate  will  increase  by two
percentage points.

AMENDED SENIOR SECURED CREDIT FACILITY

     During the quarter ended March 31, 2000, KMC Telecom, Inc., KMC Telecom II,
Inc., KMC Telecom of Virginia, Inc. and KMC Telecom III, Inc. (collectively, the
"Borrowers"),  amended, restated and combined the Senior Secured Credit Facility
and the Lucent  Facility,  in a single  facility by entering into a $700 million
Loan and Security  Agreement (the "Amended Senior Secured Credit Facility") with
a group of lenders led by Newcourt  Commercial Finance  Corporation,  GE Capital


                                       7
<PAGE>

Corporation,  Canadian Imperial Bank of Commerce,  First Union National Bank and
Lucent Technologies Inc. (collectively, the "Lenders").

     The Amended Senior Secured Credit Facility includes a $175 million reducing
revolver  facility (the  "Revolver"),  a $75 million term loan (the "Term Loan")
and a $450 million  term loan  facility  (the  "Lucent Term Loan").  At June 30,
2000,  the  outstanding  loan  balances on the  Revolver,  the Term Loan and the
Lucent  Term Loan,  were  approximately  $164  million,  $75  million,  and $301
million, respectively.

     The Revolver  will mature on April 1, 2007.  Proceeds from the Revolver can
be used to finance the  purchase of certain  equipment,  transaction  costs and,
upon attainment of certain financial  conditions,  for working capital and other
general corporate  purposes.  The aggregate  commitment of the Lenders under the
Revolver will be reduced on each quarterly payment date beginning April 1, 2003.
The initial quarterly commitment reduction is 5.0%, reducing to 3.75% on July 1,
2003, then increasing to 6.25% on July 1, 2004, and further  increasing to 7.50%
on July 1, 2006.  Commencing  with the fiscal year ending December 31, 2001, the
aggregate Revolver  commitment will be further reduced by an amount equal to 50%
of excess  operating cash flows (as defined in the Amended Senior Secured Credit
Facility)  for the  prior  fiscal  year  until  the  Borrowers  achieve  certain
financial  conditions.  The Borrowers  must pay an annual  commitment fee on the
unused portion of the Revolver ranging from .75% to 1.25%.

     The Term Loan is payable in twenty  consecutive  quarterly  installments of
$188,000  beginning on April 1, 2002 and two final installments of $35.6 million
each on April 1, 2007 and July 1, 2007.  Proceeds from the Term Loan can be used
to finance the purchase of certain equipment, transaction costs, working capital
and other general corporate purposes.

     The Lucent Term Loan  provides  for an aggregate  commitment  of up to $450
million.  Proceeds  from the  Lucent  Term Loan can be used to  purchase  Lucent
products or to reimburse the Borrowers for Lucent products previously  purchased
with cash or other  sources of  liquidity.  The Lucent  Term Loan will mature on
July 1, 2007 and requires quarterly principal payments beginning on July 1, 2003
of 5%. The principal payment decreases to 3.75% per quarter beginning on October
1, 2003, increases to 6.25% on October 1, 2004 and further increases to 7.50% on
October 1, 2006.  An annual  commitment  fee of 1.50% is payable  for any unused
portion of the Lucent Term Loan.

     Borrowings  under the Amended  Senior  Secured  Credit  Facility  will bear
interest payable,  at the Borrowers'  option, at either (a) the "Applicable Base
Rate Margin"  (which  generally  ranges from 2.00% to 3.25%) plus the greater of
(i) the  administrative  agent's prime rate or (ii) the overnight  federal funds
rate plus .5% or (b) the "Applicable  LIBOR Margin" (which generally ranges from
3.00% to 4.25%) plus LIBOR, as defined.  "Applicable  Base Rate Margin" interest
is payable  quarterly while "Applicable LIBOR Margin" interest is payable at the
end of each  applicable  interest  period or at least  every three  months.  The
Borrowers were being charged a weighted  average interest rate of 10.76% at June
30,  2000.  If a  payment  default  were to  occur,  the  interest  rate will be
increased  by four  percentage  points.  If any other  event of default  were to
occur, the interest rate will be increased by two percentage points.

     KMC Holdings has  unconditionally  guaranteed  the repayment of the Amended
Senior Secured Credit Facility when such repayment is due,  whether at maturity,
upon acceleration,  or otherwise. KMC Holdings has pledged the shares of each of
the  Borrowers  to the  Lenders  to  collateralize  its  obligations  under  the
guaranty.  In addition,  the Borrowers  have each pledged all of their assets to
the Lenders.



                                       8
<PAGE>

     The Amended Senior Secured Credit Facility contains a number of affirmative
and negative  covenants,  including a covenant requiring the Borrowers to obtain
cash capital  contributions  from KMC Holdings of at least $185 million prior to
April 1,  2001.  KMC  Holdings  has  agreed to  contribute  $150  million of the
proceeds  of its  Series G  private  equity  financing  (see  Note  13)  towards
fulfilling  this  requirement,  and the Lenders have  amended  this  covenant by
extending   the  due  date  on  the   remaining  $35  million  of  cash  capital
contributions  to  August  31,  2001.  KMC  Holdings  anticipates  raising  this
additional  capital through private or public sales of securities in the capital
markets.  Because the entire $185 million cash capital contribution was not made
by July 31, 2000,  the  applicable  interest rate  associated  with the facility
increases by 100 basis points  until the $185  million  amount is fully  funded.
Additional affirmative and negative covenants include,  among others,  covenants
restricting  the  ability  of the  Borrowers  to  consolidate  or merge with any
person,  sell or lease  assets not in the ordinary  course of business,  sell or
enter into long term leases of dark fiber,  redeem stock,  pay dividends or make
any other payments (including payments of principal or interest on loans) to KMC
Holdings,  create  subsidiaries,  transfer  any  permits or  licenses,  or incur
additional  indebtedness or act as guarantor for the debt of any person, subject
to certain conditions.

     The  Borrowers  are  required to comply with  certain  financial  tests and
maintain certain  financial  ratios,  including,  among others, a ratio of total
debt to contributed capital, certain minimum revenues, maximum EBITDA losses and
minimum EBITDA, maximum capital expenditures and minimum access lines, a maximum
total  leverage  ratio, a minimum debt service  coverage  ratio, a minimum fixed
charge coverage ratio and a maximum  consolidated  leverage ratio. The covenants
become more restrictive upon the earlier of (i) June 30, 2002 and (ii) after the
Borrowers achieve positive EBITDA on a combined basis for two consecutive fiscal
quarters and a total leverage ratio (as defined) equal to or less than 9 to 1.

     Failure to satisfy any of the financial  covenants will constitute an event
of default under the Amended  Senior  Secured  Credit  Facility  permitting  the
Lenders,  after notice, to terminate the commitment and/or accelerate payment of
outstanding indebtedness thereunder.  The Amended Senior Secured Credit Facility
also includes other customary events of default, including,  without limitation,
a cross-default to other material indebtedness, material undischarged judgments,
bankruptcy,  loss  of a  material  franchise  or  material  license,  breach  of
representations and warranties, a material adverse change, and the occurrence of
a change of control.

7. SERVICE REVENUES

     The Company  provides  on-net  switched and dedicated  services and resells
switched  services  previously  purchased  from  the  incumbent  local  exchange
carrier.   On-net  services  include  both  services   provided  through  direct
connections  to our own  networks  and  services  provided by means of unbundled
network elements leased from the incumbent local exchange carrier.

     The Company's service revenues consist of the following:

                                THREE MONTHS ENDED       SIX MONTHS ENDED
                                     JUNE 30,                JUNE 30,
                                  1999        2000        1999       2000
                               ----------------------  ---------------------
                                  (IN THOUSANDS)          (IN THOUSANDS)

On-net......................     $9,595     $36,149    $14,721     $61,890
Resale......................      6,039       2,776     11,991       6,186
                               ----------  ----------  ---------  ----------
Total.......................    $15,634     $38,925    $26,712     $68,076
                               ==========  ==========  =========  ==========

                                       9
<PAGE>

8. COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

     As of June 30, 2000, the Company has  outstanding  commitments  aggregating
approximately $59 million related to purchases of  telecommunications  equipment
and fiber optic cable and its  obligations  under its  agreements  with  certain
suppliers.

REDEMPTION RIGHTS

     Pursuant to a stockholders agreement, certain of the Company's stockholders
and  warrant  holders  have  "put  rights"  entitling  them to have the  Company
repurchase  their  preferred  and common  shares  and  redeemable  common  stock
warrants for the fair value of such securities if no Liquidity Event (defined as
(i) an initial public offering with gross proceeds of at least $40 million, (ii)
the sale of substantially all of the stock or assets of the Company or (iii) the
merger or consolidation of the Company with one or more other  corporations) has
taken  place by the later of (x) October 22, 2003 or (y) 90 days after the final
maturity date of the Senior  Discount Notes.  The  restrictive  covenants of the
Senior Discount Notes limit the Company's ability to repurchase such securities.
All of the  securities  subject to such "put rights" are presented as redeemable
equity in the accompanying balance sheets.

     The  redeemable  preferred  stock,  redeemable  common stock and redeemable
common stock  warrants,  which are subject to the  stockholders  agreement,  are
being  accreted up to their fair market  values from their  respective  issuance
dates to their earliest  potential  redemption  date (October 22, 2003). At June
30,  2000,  the  aggregate   redemption  value  of  the  redeemable  equity  was
approximately  $415 million,  reflecting per share redemption  amounts of $1,454
for the Series A Preferred Stock, $711 for the Series C Preferred Stock and $300
for the redeemable common stock and redeemable common stock warrants.

9. NET LOSS PER COMMON SHARE

     The  following  table  sets  forth the  computation  of net loss per common
share-basic (in thousands, except share and per share amounts):

<TABLE>
<CAPTION>
                                            -------------------  ----------------------
                                            THREE MONTHS ENDED     SIX MONTHS ENDED
                                                 JUNE 30,              JUNE 30,

                                              1999      2000       1999        2000
                                            ---------  --------  ----------  ----------
<S>                                         <C>        <C>       <C>         <C>
Numerator:
  Net loss before cumulative effect of
    change in accounting principle........  $(63,801)  $(92,724) $(103,160)  $(183,946)
  Cumulative effect of change in
    accounting principle..................         -         -           -      (1,705)
                                            ---------  --------  ----------  ----------
  Net loss................................   (63,801)   (92,724)  (103,160)   (185,651)

  Dividends and accretion on redeemable
    preferred stock.......................   (31,971)   (25,454)   (43,415)    (58,981)
                                            ---------  --------  ----------  ----------
  Numerator for net loss applicable to
    common shareholders...................  $(95,772) $(118,178) $(146,575)  $(244,632)
                                            =========  ========  ==========  ==========
Denominator:
  Denominator for net loss per common
    share - weighted average number of
    common shares outstanding.............   852,676    853,765    850,632     853,553
Net loss per common share before
  cumulative effect of change in
  accounting principle - basic............  $(112.32)  $(138.42)  $(172.31)   $(284.60)
Cumulative effect of change in accounting
  principle...............................         -         -           -       (2.00)
                                            ---------  --------  ----------  ----------
Net loss per common share - basic.........  $(112.32)  $(138.42)  $(172.31)   $(286.60)
                                            =========  ========= ==========  ==========
</TABLE>




                                       10
<PAGE>

     Options and warrants to purchase an aggregate of 483,273 and 655,819 shares
of common stock were outstanding as of June 30, 1999 and 2000, respectively, but
a computation  of diluted net loss per common share has not been  presented,  as
the effect would be anti-dilutive.

10. SIGNIFICANT CONTRACTS

     In  March  2000,   the  Company   entered  into  an  agreement  with  Qwest
Communications  Corporation,  pursuant to which (i) the Company took delivery of
approximately  $134  million  of  internet  infrastructure  equipment  from  the
provider and (ii) the Company agreed to install and maintain this equipment,  in
over 90 cities  throughout  the United States,  principally  to handle  Internet
service  provider traffic on behalf of the provider.  The services  agreement is
for a term of 42 months,  commencing  August 1, 2000 and expiring on January 31,
2004.  The Company  entered into a lease  financing  transaction in June 2000 to
fund the entire cost of this equipment.

     In June  2000,  the  Company  entered  into a second  agreement  with Qwest
Communications  Corporation,  pursuant to which (i) the Company took delivery of
approximately  $168  million  of  internet  infrastructure  equipment  from  the
provider  and (ii) the Company  agreed to install and  maintain  this  equipment
throughout the United States,  principally to handle Internet  service  provider
traffic on behalf of the provider.  The services agreement commences in November
2000 and expires in August 2004.  The Company  expects to enter into a financing
transaction  to fund the cost of this  equipment.  This equipment is recorded in
other current assets and accounts payable in the  accompanying  balance sheet at
June 30, 2000.

11. INTEREST RATE SWAP AGREEMENTS

JUNE 2000 SWAP

     In June 2000, the Company entered into an interest rate swap agreement (the
"June  2000  Swap")  with a  commercial  bank to reduce the impact of changes in
interest  rates on its  outstanding  variable  rate  debt.  The June  2000  Swap
effectively  fixes the  Company's  interest rate on $90 million of its long-term
debt for a period of 5 years. The Company is exposed to credit loss in the event
of  nonperformance  by the other  party to the  interest  rate  swap  agreement.
However, the Company does not anticipate nonperformance by the counterparty.

AMENDED AND RESTATED INTEREST RATE SWAP AGREEMENT

     In April 2000,  the Company  entered into an amended and restated  interest
rate swap  agreement (the "Amended  Swap") with a commercial  bank to reduce the
impact of changes in interest rates on its  outstanding  variable rate debt. The
Amended Swap  effectively  fixes the Company's  interest rate on $325 million of
outstanding  variable rate  borrowings  under the Amended  Senior Secured Credit
Facility  (see Note 6) through  April 2003 after which time the Amended  Swap is
reduced to $225 million  through  January 2004 and then finally  reduced to $100
million  until  termination  of the Amended  Swap in April 2005.  The Company is
exposed to credit loss in the event of  nonperformance by the other party to the
interest  rate  swap  agreement.   However,  the  Company  does  not  anticipate
nonperformance by the counterparty.

12. BELLSOUTH RECIPROCAL COMPENSATION SETTLEMENT

     In May 2000, the Company  reached a resolution of its claims for payment of
certain  reciprocal  compensation  charges,  previously  disputed  by  BellSouth
Corporation.  Under  the  agreement,  BellSouth  made a  one-time  payment  that
resolved all amounts billed through March 31, 2000.



                                       11
<PAGE>

     In  addition,  BellSouth  and  the  Company  agreed  to  future  rates  for
reciprocal  compensation,  setting new contractual terms for payment.  Under the
terms of the agreement,  the rates for reciprocal  compensation will be reduced,
and will  apply to all  local  traffic,  including  ISP-bound  traffic,  thereby
eliminating  the principal  area of dispute  between the parties.  The reduction
will be phased in over a three-year  period  beginning  with a rate of $.002 per
minute of use in year  2000,  $.00175  per minute of use for 2001 and $.0015 per
minute of use for 2002.

13. SERIES G PREFERRED EQUITY

     The Company agreed, as of June 30, 2000, to issue 58,881 and 481,108 shares
of Series G-1 Voting and G-2 Non-Voting Convertible Preferred Stock (the "Series
G Preferred Stock"),  respectively,  to Lucent Technologies,  Dresdner Kleinwort
Benson Private Equity Partners,  CIT Lending  Services,  Nassau Capital Partners
and Harold N. Kamine, its Chairman of the Board, for aggregate gross proceeds of
$182.5 million.  The transaction  closed and the proceeds were received in early
July 2000. The Series G Preferred Stock has a liquidation  preference of $337.97
per share  and an  annual  cumulative  dividend  equal to 7% of the  liquidation
preference.  Payment  of the unpaid  dividends  is  triggered  by (i) an initial
public  offering in which the Company  receives  aggregate  gross proceeds of at
least $80 million or (ii) a merger,  consolidation or sale of substantially  all
assets.

     Each  share of Series G  Preferred  Stock is  convertible  into a number of
shares of common stock equal to the liquidation preference of each share divided
by the  conversion  price then in effect.  Initially,  the  conversion  price is
$337.97. However, this price is adjustable,  subject to certain exceptions, upon
the  occurrence of certain  events  including (i) the issuance or sale of common
stock for a  consideration  per share less than the conversion  price,  (ii) the
issuance of rights or options to acquire common stock or convertible  securities
with an exercise price less than the conversion  price and (iii) the issuance or
sale of other  convertible  securities with a conversion or exchange price lower
than the conversion  price.  The Series G Preferred Stock will be  automatically
converted  into common stock upon (i) a Qualified  Public  Offering,  defined as
sale of common stock pursuant to a  registration  statement in which the Company
receives aggregate gross proceeds of at least $80 million, provided that the per
share price at which such shares are sold in such  offering is not less than the
liquidation  preference  then in effect,  or (ii) the  election of holders of at
least two-thirds of the outstanding shares of Series G Preferred Stock.

     The Series G Preferred  Stock ranks  senior to the common  stock,  Series A
Convertible  Preferred  Stock and Series C  Convertible  Preferred  Stock,  on a
parity with the Series F Senior  Redeemable,  Exchangeable,  PIK Preferred Stock
and junior to the Series E Senior Redeemable, Exchangeable, PIK Preferred Stock.
The Series G-1  shareholders  are  entitled  to vote on all  matters  before the
common holders, as a single class with the common, on an as if converted basis.

     Subject  to  certain  limitations  and  conditions,  at the  request of the
holders of at least  two-thirds of the Series G Preferred Stock, the Company may
be required to redeem the Series G Preferred  Stock upon (i) a change of control
or sale of the Company, or (ii) August 15, 2009.



                                       12
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     THIS FORM 10-Q CONTAINS FORWARD-LOOKING  STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES.  THE COMPANY'S ACTUAL RESULTS MAY DIFFER  SIGNIFICANTLY  FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING  STATEMENTS.  THE FOLLOWING  DISCUSSION
SHOULD  BE  READ  IN  CONJUNCTION  WITH  THE  UNAUDITED  CONDENSED  CONSOLIDATED
FINANCIAL  STATEMENTS,  INCLUDING THE NOTES THERETO,  INCLUDED ELSEWHERE IN THIS
FORM 10-Q.


RESULTS OF OPERATIONS

     As a result of the development  and rapid growth of the Company's  business
during the periods presented, the period-to-period  comparisons of the Company's
results of operations  are not  necessarily  meaningful and should not be relied
upon as an indication of future performance.

                  THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
                        THREE MONTHS ENDED JUNE 30, 1999

     REVENUE. On an as reported basis, revenue increased 149% from $15.6 million
for the three months  ended June 30, 1999 (the "1999  Second  Quarter") to $38.9
million for the three months  ended June 30, 2000 (the "2000  Second  Quarter").
This  increase is primarily  attributable  to the fact that we derived  revenues
from 35 markets during the 2000 Second Quarter compared to 23 markets during the
1999 Second Quarter.  In addition,  each of our systems that generated  revenues
during the 1999 Second  Quarter  generated  increased  revenues  during the 2000
Second Quarter.

     Although incumbent local exchange carriers have generally withheld payments
of  amounts  due for  reciprocal  compensation  to  competitive  local  exchange
carriers  such as the  Company  for  calls to  Internet  service  providers  and
disputed the  entitlement of competitive  local exchange  carriers to reciprocal
compensation for such calls, we have determined to continue to recognize amounts
due to us for reciprocal  compensation for such calls because we have concluded,
based  upon all of the facts and  circumstances,  including  the  settlement  we
reached with BellSouth  during the 2000 Second Quarter (see Note 12 of the Notes
to Unaudited Condensed  Consolidated  Financial  Statements included in Item 1),
numerous state public service  commission and state and federal court  decisions
upholding   competitive  local  exchange  carriers   entitlement  to  reciprocal
compensation  for such calls,  that  realization  of such amounts is  reasonably
assured.

     As a result of the settlement with BellSouth,  we now recognize  reciprocal
compensation  in all cities where  BellSouth  is the  incumbent  local  exchange
carrier   (including   cities  in  Louisiana  and  South  Carolina)  at  a  rate
significantly lower than our previous agreement with BellSouth. We are currently
in negotiations  with other incumbent local exchange  carriers to reach mutually
acceptable  terms  for  both  uncollected  and  future  reciprocal  compensation
amounts.

     Our management will continue to consider the circumstances surrounding this
dispute periodically in determining whether reserves against unpaid balances are
warranted.  As of June 30, 2000, we have provided  reserves which we believe are
sufficient  to cover any  amounts  which  may not be  collected.  We  recognized
reciprocal  compensation  revenue of $3.9 million, or 10% of our total revenues,
during the 2000 Second Quarter.

     On an as reported basis,  On-net special access,  private line and switched
services  revenue  ("On-net  revenues")  increased 276% from $9.6 million in the
1999 Second Quarter to $36.1 million in the 2000 Second  Quarter,  while revenue
derived from the resale of switched  services ("Resale  revenue")  decreased 53%
from $6.0 million to $2.8 million over the same period.  On-net revenues include


                                       13
<PAGE>

both  services  provided  through  direct  connections  to our own  networks and
services  provided  by means  of  unbundled  network  elements  leased  from the
incumbent  local exchange  carrier.  On-net  revenues  represented  93% of total
revenue in the 2000 Second Quarter, compared to 61% of total revenue in the 1999
Second Quarter.

     NETWORK OPERATING COSTS. Network operating costs,  excluding non-cash stock
compensation  expense,  increased  109% from $17.5  million  for the 1999 Second
Quarter  to  $36.5  million  for the  2000  Second  Quarter.  This  increase  of
approximately  $19.0  million was due primarily to the increase in the number of
markets in which we operated in the 2000 Second  Quarter as compared to the 1999
Second  Quarter.  The detailed  components  of this increase are $7.0 million in
personnel  costs,  $6.1 million in direct costs associated with providing on-net
services,  resale services and leasing unbundled network element services,  $3.8
million in network  support  services,  $800,000  in  telecommunications  costs,
$600,000 in consulting  and  professional  services  costs and $700,000 in other
direct operating costs.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative   expenses,   excluding  non-cash  stock  compensation   expense,
increased 84% from $21.6 million for the 1999 Second Quarter to $39.7 million in
the 2000 Second  Quarter.  This increase of  approximately  $18.1 million is due
primarily  to the  increase in the number of markets in which we operated in the
2000  Second  Quarter as  compared  to the 1999  Second  Quarter.  The  detailed
components of this increase are $10.1 million in personnel  costs,  $1.4 million
in facility  costs,  $800,000 in  telecommunications  costs,  $700,000 in travel
related  costs,  as well  as  increases  in  other  marketing  and  general  and
administrative costs aggregating approximately $5.1 million.

     STOCK OPTION COMPENSATION  EXPENSE.  Stock option  compensation  expense, a
non-cash  charge,  decreased  42% from an aggregate of $16.3 million in the 1999
Second Quarter to an aggregate of $9.4 million for the 2000 Second Quarter. This
decrease is due primarily to a larger  increase in the  estimated  fair value of
the  Company's  common stock in the 1999 Second  Quarter,  compared  with a more
stable  estimated  fair value of the  Company's  common stock in the 2000 Second
Quarter.

     DEPRECIATION  AND  AMORTIZATION.   Depreciation  and  amortization  expense
increased  184% from $6.1 million for the 1999 Second  Quarter to $17.4  million
for the 2000 Second  Quarter.  This  increase is due  primarily to  depreciation
expense  associated with the greater number of networks in commercial  operation
during the 2000 Second Quarter.

     INTEREST  INCOME.  Interest  income  increased 20% from $2.1 million in the
1999 Second Quarter to $2.5 million in the 2000 Second Quarter.  The increase is
due primarily to larger  average  cash,  cash  equivalent  and  restricted  cash
balances  during the 2000 Second  Quarter as compared to the 1999 Second Quarter
as well as receiving interest at a higher average rate.

     INTEREST EXPENSE.  Interest expense increased 99% from $15.7 million in the
1999 Second Quarter to $31.2 million in the 2000 Second Quarter. The increase is
due primarily to the issuance of the Senior Notes in May 1999, higher borrowings
under the Amended Senior Secured Credit Facility and additional accretion on the
Senior Discount Notes. We capitalized  interest related to network  construction
projects of $700,000  during the 1999 Second Quarter and $3.7 million during the
2000 Second Quarter.

     NET LOSS BEFORE  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE.  For
the  reasons  stated  above,  net loss  before  cumulative  effect  of change in
accounting principle increased from $63.8 million for the 1999 Second Quarter to
$92.7 million for the 2000 Second Quarter.




                                       14
<PAGE>

                   SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
                         SIX MONTHS ENDED JUNE 30, 1999

     REVENUE. On an as reported basis, revenue increased 155% from $26.7 million
for the six months ended June 30, 1999 (the "1999 Six Months") to $68.1  million
for the six months ended June 30, 2000 (the "2000 Six Months"). This increase is
primarily  attributable  to the fact that we  derived  revenues  from 35 markets
during the 2000 Six Months compared to 23 markets during the 1999 Six Months. In
addition, each of our systems that generated revenues during the 1999 Six Months
generated increased revenues during the 2000 Six Months.

     On an as reported basis,  On-net special access,  private line and switched
services  revenue ("On-net  revenues")  increased 321% from $14.7 million in the
1999 Six Months to $61.9 million in the 2000 Six Months,  while revenue  derived
from the resale of switched services ("Resale revenue") decreased 48% from $12.0
million to $6.2  million  over the same  period.  On-net  revenues  include both
services  provided  through direct  connections to our own networks and services
provided by means of unbundled  network elements leased from the incumbent local
exchange carrier.  On-net revenues  represented 91% of total revenue in the 2000
Six  Months,  compared  to 55% of  total  revenue  in the 1999  Six  Months.  In
addition, we recognized reciprocal compensation revenue of $10.3 million, or 15%
of our total revenues during the 2000 Six Months.

     NETWORK OPERATING COSTS. Network operating costs,  excluding non-cash stock
compensation expense,  increased 100% from $32.6 million for the 1999 Six Months
to $65.3 million for the 2000 Six Months.  This increase of approximately  $32.7
million was due  primarily  to the increase in the number of markets in which we
operated in the 2000 Six Months as compared to the 1999 Six Months. The detailed
components of this increase are $12.2  million in direct costs  associated  with
providing on-net services, resale services and leasing unbundled network element
services,  $11.5  million in personnel  costs,  $4.7 million in network  support
services,  $1.6 million in consulting  and  professional  services  costs,  $1.5
million in  telecommunications  costs and $1.2 million in other direct operating
costs.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative   expenses,   excluding  non-cash  stock  compensation   expense,
increased  107% from $38.2  million for the 1999 Six Months to $79.0  million in
the 2000 Six  Months.  This  increase  of  approximately  $40.8  million  is due
primarily  to the  increase in the number of markets in which we operated in the
2000 Six Months as compared to the 1999 Six Months.  The detailed  components of
this  increase are $22.0  million in personnel  costs,  $2.3 million in facility
costs, $1.6 million in telecommunications  costs, $1.6 million in travel related
costs,  $1.2  million  in  professional  costs,  as well as  increases  in other
marketing and general and administrative  costs aggregating  approximately $12.1
million.

     STOCK OPTION COMPENSATION  EXPENSE.  Stock option  compensation  expense, a
non-cash charge,  in aggregate  increased 12% from $20.2 million in the 1999 Six
Months to $22.7 million for the 2000 Six Months.  This increase is due primarily
to an increase in the  estimated  fair value of the Company's  Common Stock,  as
well as the  grant of  additional  option  awards  as  compared  to the 1999 Six
Months.

     DEPRECIATION  AND  AMORTIZATION.   Depreciation  and  amortization  expense
increased  167% from $11.6  million for the 1999 Six Months to $31.1 million for
the 2000 Six Months.  This  increase is due  primarily to  depreciation  expense
associated  with the greater number of networks in commercial  operation  during
the 2000 Six Months.

     INTEREST  INCOME.  Interest  income  increased 47% from $3.1 million in the
1999 Six Months to $4.5  million in the 2000 Six  Months.  The  increase  is due
primarily to larger average cash,  cash  equivalent and restricted cash balances
during  the 2000 Six  Months  as  compared  to the  1999 Six  Months  as well as
receiving interest at a higher average rate.



                                       15
<PAGE>

     INTEREST EXPENSE. Interest expense increased 124% from $26.0 million in the
1999 Six Months to $58.4  million in the 2000 Six  Months.  The  increase is due
primarily  to the issuance of the Senior  Notes in May 1999,  higher  borrowings
under the Amended Senior Secured Credit Facility and additional accretion on the
Senior Discount Notes. We capitalized  interest related to network  construction
projects of $1.3 million  during the 1999 Six Months and $5.9 million during the
2000 Six Months.

     NET LOSS BEFORE  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE.  For
the  reasons  stated  above,  net loss  before  cumulative  effect  of change in
accounting  principle  increased  from $103.2 million for the 1999 Six Months to
$183.9 million for the 2000 Six Months.

LIQUIDITY AND CAPITAL RESOURCES

     We have  incurred  significant  operating and net losses as a result of the
development  and  operation  of our  networks.  We expect  that such losses will
continue as we emphasize  the  development,  construction  and  expansion of our
networks and build our customer  base.  As a result,  there will not be any cash
provided by operations in the near future and we will need to fund the expansion
of our networks.  We have financed our operating losses and capital expenditures
with  equity  invested  by our  founders,  preferred  stock  placements,  credit
facility borrowings and the 12 1/2% Senior Discount Notes and the 13 1/2% Senior
Notes.

     During the first  quarter of 2000,  we amended,  restated  and combined our
prior Senior Secured Credit  Facility and our prior Lucent  Facility in a single
$700.0  million  facility  (See  Note  6 of the  Notes  to  Unaudited  Condensed
Consolidated  Financial  Statements).  Under the Amended  Senior  Secured Credit
Facility, our subsidiaries which own our 35 existing networks and the 2 networks
which are to be completed during 2000 are permitted to borrow up to an aggregate
of $700.0  million,  subject to certain  conditions,  for the  purchase of fiber
optic cable, switches and other  telecommunications  equipment and, once certain
financial  conditions are met, for working  capital and other general  corporate
purposes.

     During the quarter ended June 30, 2000, KMC Telecom, IV, Inc., closed a new
senior secured term loan (the "Telecom IV Senior Secured Term Loan") from Lucent
Technologies  Inc.  Proceeds  from this loan can be used to  purchase or install
Lucent  products.  The loan is initially  capped at $35.0  million until certain
conditions are met that allow for additional borrowings up to a ceiling of $50.0
million. This loan will be used to purchase equipment for future expansion.

     We agreed,  as of June 30,  2000,  to issue  58,881 and  481,108  shares of
Series G-1 Voting and G-2 Non-Voting  Convertible Preferred Stock (the "Series G
Preferred  Stock"),  respectively,  to Lucent  Technologies,  Dresdner Kleinwort
Benson Private Equity Partners,  CIT Lending  Services,  Nassau Capital Partners
and Harold N. Kamine, our Chairman of the Board, for aggregate gross proceeds of
$182.5 million.  The transaction  closed and the proceeds were received in early
July 2000.  The  proceeds  are  expected to be used to further fund our existing
business plan of building and operating  robust fiber optic  networks in 37 U.S.
cities and to advance our deployment of a nationwide data footprint.  The Series
G  Preferred  Stock has a  liquidation  preference  of $337.97  per share and an
annual cumulative dividend equal to 7% of the liquidation preference. Payment of
the unpaid dividends is triggered by (i) an initial public offering in which the
Company  receives  aggregate  gross  proceeds  of at least $80 million or (ii) a
merger, consolidation or sale of substantially all assets.

     Each  share of Series G  Preferred  Stock is  convertible  into a number of
shares of common stock equal to the liquidation preference of each share divided
by the  conversion  price then in effect.  Initially,  the  conversion  price is
$337.97. However, this price is adjustable,  subject to certain exceptions, upon
the  occurrence of certain  events  including (i) the issuance or sale of common



                                       16
<PAGE>

stock for a  consideration  per share less than the conversion  price,  (ii) the
issuance of rights or options to acquire common stock or convertible  securities
with an exercise price less than the conversion  price and (iii) the issuance or
sale of other  convertible  securities with a conversion or exchange price lower
than the conversion  price.  The Series G Preferred Stock will be  automatically
converted  into common stock upon (i) a Qualified  Public  Offering,  defined as
sale of common stock pursuant to a  registration  statement in which the Company
receives  gross  proceeds of at least $80 million,  provided  that the per share
price at  which  such  shares  are sold in such  offering  is not less  than the
liquidation  preference  then in effect,  or (ii) the  election of holders of at
least two-thirds of the outstanding shares of Series G Preferred Stock.

     The Series G Preferred  Stock ranks  senior to the common  stock,  Series A
Convertible  Preferred  Stock and Series C  Convertible  Preferred  Stock,  on a
parity with the Series F Senior  Redeemable,  Exchangeable,  PIK Preferred Stock
and junior to the Series E Senior Redeemable, Exchangeable, PIK Preferred Stock.
The Series G-1  shareholders  are  entitled  to vote on all  matters  before the
common holders, as a single class with the common, on an as if converted basis.

     Subject to certain limitations and conditions, at the request of holders of
at least  two-thirds  of the Series G, the Company may be required to redeem the
Series G Preferred Stock upon (i) a change of control or sale of the Company, or
(ii) August 15, 2009.

     At August 10, 2000, we had $561.4 million and $34.8 million of indebtedness
outstanding  under the Amended Senior Secured Credit Facility and the Telecom IV
Senior  Secured  Term Loan,  respectively.  Subject to  certain  conditions,  we
currently have an additional  $138.6 million and $200,000 in borrowing  capacity
available  under these  facilities,  respectively.  The Amended  Senior  Secured
Credit Facility contains a number of affirmative and negative covenants,  one of
which  requires  us  to  make  additional  cash  capital  contributions  to  our
subsidiaries which are the borrowers  thereunder of at least $35.0 million prior
to August 31, 2001 (See Note 6 of the Notes to Unaudited Condensed  Consolidated
Financial  Statements).  The original  covenant  required $185.0 million in cash
capital  contributions  by April 1, 2001.  However,  as we agreed to  contribute
$150.0  million of the proceeds of our Series G private  equity  financing  (see
Note 13) toward  fulfilling  this  requirement,  the Lenders  have  amended this
covenant  by  extending  the due date on the  remaining  $35.0  million  of cash
capital  contributions to August 31, 2001. We anticipate raising this additional
capital  through  private or public sales of securities in the capital  markets.
Because the entire $185.0 million cash capital contribution was not made by July
31, 2000, the applicable interest rate associated with the facility increases by
100 basis points until the remaining $35.0 million amount is contributed.

     Net cash  provided  by  financing  activities  from  borrowings  was $334.9
million and our net cash used in operating and investing  activities  was $360.6
million for the 2000 Six Months.

     We made  capital  expenditures  of $170.7  million  in the 1999 Six  Months
versus $177.4  million for the 2000 Six Months.  Continued  significant  capital
expenditures  are  expected  to  be  made  during  the  remainder  of  2000  and
thereafter.  The  majority  of these  expenditures  are  expected to be made for
network  construction  and the  purchase of switches  and related  equipment  to
facilitate  the  offering  of our  services.  We  expect  to  continue  to incur
operating  losses  while we expand our  business  and build our  customer  base.
Actual  capital  expenditures  and  operating  losses  will  depend on  numerous
factors,  including the nature of future expansion and acquisition opportunities
and factors  beyond our control,  including  economic  conditions,  competition,
regulatory developments and the availability of capital.

In addition to the capital expenditures above, we took delivery of approximately
$134.4 million and $168.3 million of internet infrastructure  equipment in March
and June 2000,  respectively,  in association with entering into agreements with
Qwest  Communications  Corporation  (See  Note  10 of  the  Notes  to  Unaudited
Condensed Consolidated Financial Statements).  We entered into a lease financing
transaction in the 2000 Second Quarter to fund the cost of the $134.4 million


                                       17
<PAGE>


of  equipment  purchased  in  March  and we  expect  to enter  into a  financing
transaction  to fund the $168.3  million of equipment.  However,  we can give no
assurance that we will be able to obtain such financing.

     At June 30, 2000, we had outstanding commitments aggregating  approximately
$59.0   million   related   to  the   purchase   of  fiber   optic   cable   and
telecommunications  equipment  under our agreements  with certain  suppliers and
service providers.

     We believe that our cash and borrowings  available under the Amended Senior
Secured Credit  Facility will be sufficient to meet our liquidity  needs through
the  completion of our  remaining 2 networks  currently  planned for  completion
during 2000, as well as operating  losses and capital  expenditure  requirements
for all of our 37 markets and other  existing  commitments  at least through the
end of the second quarter of 2001.

     However, in the event that our plans change, the assumptions upon which our
plans are based prove  inaccurate,  we expand or accelerate our business plan or
we determine to  consummate  acquisitions,  the  foregoing  sources of funds may
prove insufficient to complete all such networks, and we may be required to seek
additional  financing  sooner than we currently  expect.  Additional  sources of
financing  may  include  public  or  private  equity or debt  financings  by the
Company, leases and other financing arrangements.

     We can give no assurance that additional  financing will be available to us
or, if  available,  that it can be obtained on a timely basis and on  acceptable
terms. Failure to obtain such financing could result in the delay or abandonment
of some or all of our development and expansion  plans and  expenditures,  which
would have a material  adverse effect on our business,  financial  condition and
results of  operations.  Such a failure  could  also  limit our  ability to make
principal and interest payments on our  indebtedness,  and meet our dividend and
redemption obligations with respect to our preferred stock.


                                       18
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risks  relating to our operations  result  primarily from changes in
interest rates. A substantial portion of our long-term debt bears interest at `a
fixed rate.  However,  the fair market value of the fixed rate debt is sensitive
to changes in interest  rates.  We are subject to the risk that market  interest
rates will decline and the  interest  expense due under the fixed rate debt will
exceed the amounts due based on current  market rates.  We have entered into two
interest  rate swap  agreements  with  commercial  banks to reduce the impact of
changes in interest  rates on a portion of our  outstanding  variable rate debt.
The  agreements  effectively  fix the  interest  rate on $415.0  million  of our
outstanding  variable rate  borrowings  under the Amended  Senior Secured Credit
Facility due 2007. A $325 million  interest  rate swap  agreement  terminates in
April 2004 and the $90 million  interest rate swap agreement  terminates in June
2005. For other  information  regarding the swap agreements,  see Note 11 of the
Notes to Unaudited Condensed Consolidated Financial Statements contained in Item
1.

     The following table provides  information  about our significant  financial
instruments that are sensitive to changes in interest rates (in millions):

<TABLE>
<CAPTION>

                          Fair Value on
                             June 30,              Future Principal Payments
                              2000    2000    2001   2002    2003    2004   Thereafter  Total
<S>                         <C>        <C>     <C>    <C>     <C>     <C>    <C>        <C>
Long-Term Debt:
  Fixed Rate:

   Senior Discount
    Notes, Interest
    payable at 12 1/2%,
    Maturing 2008.......    $ 205.9    $-      $-     $-      $-      $-     $320.0     $320.0

   Senior Notes,
    Interest payable at
    13 1/2%, Maturing
    2009................      266.0     -       -      -       -       -      275.0      275.0


  Variable rate:
   Amended Senior Secured
    Credit Facility,
    interest variable
    (10.76% at June 30,
    2000)(a)............      540.4     -       -      .6    47.6    86.3     405.9      540.4

   Telecom IV Senior
    Secured Term Loan,
    interest variable
    (11.31% at June 30,
    2000)(a)............       34.8     -       -      -      3.5     3.5      27.8       34.8
                           -------------------------------------------------------------------
Interest rate swaps:
  Variable rate for
   fixed rate............      (3.6)    -       -      -       -       -         -          -
                           -------------------------------------------------------------------
    Total...............   $1,043.5    $-      $-     $.6   $51.1   $89.8  $1,028.7   $1,170.2


--------------------------------
(a) Pay  interest  rate is based on a variable  rate,  which at our  option,  is determined  by
    either a base rate or LIBOR,  plus,  in each  case,  a  specified margin.

</TABLE>



                                       19
<PAGE>

                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.

         Not Applicable.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

         (a)   Not Applicable.

         (b)   Not Applicable.

         (c)   On June 30, 2000, we agreed to issue an aggregate of  58,881.0180
shares of Series  G-1 Voting  Convertible  Preferred  Stock,  par value $.01 per
share  ("Series  G-1  Preferred  Stock") and  481,108.2176  shares of Series G-2
Non-Voting  Convertible  Preferred  Stock, par value $.01 per share ("Series G-2
Preferred Stock"), for aggregate gross proceeds of $182.5 million. We paid a fee
of $2 million to Dresdner  Kleinwort  Benson  Private Equity LLC and a fee of $1
million to Nassau  Capital  Partners IV, L.P. in  connection  with the offering.
Nassau Capital Partners IV, L.P. acquired  29,177.5006  shares of the Series G-2
Preferred  Stock. NAS Partners I L.L.C.  acquired  410.9507 shares of the Series
G-2 Preferred  Stock.  Dresdner  Kleinwort  Benson  Private  Equity  Partners LP
acquired  44,086.7924  shares of the Series G-1 Preferred  Stock and 89,061.2382
shares of the Series G-2 Preferred  Stock.  75 Wall Street  Associates  acquired
14,794.2256 shares of the Series G-1 Preferred Stock.  Harold N. Kamine acquired
7,397.1128  shares of the Series  G-2  Preferred  Stock.  CIT  Lending  Services
Corporation  acquired  59,176.9025  shares of the  Series G-2  Preferred  Stock.
Lucent  Technologies  Inc.  acquired  295,884.5127  shares  of  the  Series  G-2
Preferred Stock.

         The sale of the Series G-1 and Series G-2  Preferred  Stock was made in
reliance on the exemption from registration provided by Rule 506 of Regulation D
and Section 4(2) of the Securities  Act, on the basis that the  transaction  did
not involve a public  offering.  The offer and sale was made only to  accredited
investors.  In the Securities Purchase Agreement  applicable to the transaction,
each investor made representations as to their investment intent. The Securities
Purchase  Agreement  places  substantial   restrictions  upon  transfer  of  the
securities and the  certificates  representing the securities have been legended
to that effect.

         Each share of Series G-1 and Series G-2 Preferred  Stock is convertible
into a number of shares of common stock equal to the  liquidation  preference of
each share  divided by the  conversion  price  then in  effect.  Initially,  the
conversion  price is $337.9697.  Subject to certain  exceptions set forth in the
Certificate of the Powers,  Designations,  Preferences  and Rights of the Series
G-1 Preferred  Stock and Series G-2 Preferred  Stock,  the  conversion  price is
adjustable  upon the occurrence of certain events  including (i) the issuance or
sale of common  stock for a  consideration  per share  less than the  conversion
price,  (ii) the  issuance  of rights or  options  to  acquire  common  stock or
convertible securities with an exercise price less than the conversion price and
(iii) the issuance or sale of other convertible  securities with a conversion or
exchange  price  lower than the  conversion  price.  There will be an  automatic
conversion upon (i) a Qualified Public  Offering,  defined as the sale of common
stock  pursuant to a  registration  statement in which the  Registrant  receives
aggregate  gross  proceeds of at least $80 million,  provided that the per share
price at  which  such  shares  are sold in such  offering  is not less  than the
liquidation  preference  then in effect,  or (ii) the  election of holders of at
least  two-thirds of the outstanding  shares of Series G Preferred Stock. At any
time prior to a Qualified Public  Offering,  each holder of Series G-1 or Series
G-2  Preferred  Stock has the right to convert  its shares into shares of common
stock,  plus the right to receive an amount in cash equal to the accumulated but
unpaid dividends on the shares so converted, subject to certain exceptions.


                                       20
<PAGE>

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         Not Applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         (a)(i)  Written  consents  of the  holders  of the  Company's  Series A
Cumulative  Convertible Preferred Stock, voting as a class, dated as of June 29,
2000,  were  executed  by such  holders  in lieu of a  Special  Meeting  of such
holders.

         (a)(ii)  Written  consents  of the  holders of the  Company's  Series C
Cumulative  Convertible Preferred Stock, voting as a class, dated as of June 29,
2000,  were  executed  by such  holders  in lieu of a  Special  Meeting  of such
holders.

         (a)(iii)  Written  consents  of the holders of the  Company's  Series E
Senior Redeemable,  Exchangeable,  PIK Preferred Stock, voting as a class, dated
as of June 30, 2000,  were executed by such holders in lieu of a Special Meeting
of such holders.

         (a)(iv)  Written  consents  of the  holders of the  Company's  Series F
Senior Redeemable,  Exchangeable,  PIK Preferred Stock, voting as a class, dated
as of June 30, 2000,  were executed by such holders in lieu of a Special Meeting
of such holders.

         (b)      Not Applicable.

         (c)(i) The holders of the  Company's  Series A  Cumulative  Convertible
Preferred  Stock,  by unanimous  written  consent,  approved the  Certificate of
Amendment to the Certificate of Powers, Designations,  Preferences and Rights of
the  Series  A  Cumulative  Convertible  Preferred  Stock,  as  required  by the
Certificate of Designations  governing the rights of the holders of the Series A
Cumulative Convertible Preferred Stock.

         (c)(ii) The holders of the  Company's  Series C Cumulative  Convertible
Preferred  Stock, by written  consent,  approved the Certificate of Amendment to
the Certificate of Powers, Designations,  Preferences and Rights of the Series C
Cumulative  Convertible  Preferred  Stock,  as  required by the  Certificate  of
Designations  governing  the rights of the  holders  of the Series C  Cumulative
Convertible  Preferred  Stock.  Out of the 175,000 shares of Series C Cumulative
Convertible Preferred Stock issued and outstanding,  consents were obtained from
the holders of 125,000 shares.

         (c)(iii)  The  holders  of the  Company's  Series E Senior  Redeemable,
Exchangeable,  PIK Preferred Stock, by written consent, approved the Certificate
of Amendment to the Certificate of Voting Powers, Designations,  Preferences and
Relative  Participating,  Optional or Other Special  Rights and  Qualifications,
Limitations  and  Restrictions  Thereof  of  the  Series  E  Senior  Redeemable,
Exchangeable,   PIK  Preferred   Stock,   as  required  by  the  Certificate  of
Designations  governing  the  rights  of the  holders  of the  Series  E  Senior
Redeemable,  Exchangeable,  PIK Preferred  Stock. Out of the 67,379.64 shares of
Series E  Senior  Redeemable,  Exchangeable,  PIK  Preferred  Stock  issued  and
outstanding, consents were obtained from the holders of 57,784.82 shares.

         (c)(iv)  The  holders  of the  Company's  Series F  Senior  Redeemable,
Exchangeable,  PIK Preferred Stock, by written consent, approved the Certificate
of Amendment to the Certificate of Voting Powers, Designations,  Preferences and
Relative  Participating,  Optional or Other Special  Rights and  Qualifications,
Limitations  and  Restrictions  Thereof  of  the  Series  F  Senior  Redeemable,
Exchangeable,   PIK  Preferred   Stock,   as  required  by  the  Certificate  of
Designations  governing  the  rights  of the  holders  of the  Series  F  Senior
Redeemable,  Exchangeable,  PIK Preferred  Stock. Out of the 45,791.96 shares of


                                       21
<PAGE>

Series F  Senior  Redeemable,  Exchangeable,  PIK  Preferred  Stock  issued  and
outstanding, consents were obtained from the holders of 34,343.98 shares.

         (d) Not Applicable.

ITEM 5.  OTHER INFORMATION.

         Not Applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a) Exhibits

         3.1        Certificate  of Amendment to the  Certificate of the Powers,
                    Designations,   Preferences  and  Rights  of  the  Series  A
                    Cumulative  Convertible  Preferred Stock, Par Value $.01 Per
                    Share, dated as of June 29, 2000.

         3.2        Certificate  of Amendment to the  Certificate of the Powers,
                    Designations,   Preferences  and  Rights  of  the  Series  C
                    Cumulative  Convertible  Preferred Stock, Par Value $.01 Per
                    Share, dated as of June 29, 2000.

         3.3        Certificate  of  Amendment  to  the  Certificate  of  Voting
                    Powers,     Designations,     Preferences    and    Relative
                    Participating,   Optional  or  Other   Special   Rights  and
                    Qualifications,  Limitations and Restrictions Thereof of the
                    Series  E Senior  Redeemable,  Exchangeable,  PIK  Preferred
                    Stock, dated as of June 30, 2000.

         3.4        Certificate  of  Amendment  to  the  Certificate  of  Voting
                    Powers,     Designations,     Preferences    and    Relative
                    Participating,   Optional  or  Other   Special   Rights  and
                    Qualifications,  Limitations and Restrictions Thereof of the
                    Series  F Senior  Redeemable,  Exchangeable,  PIK  Preferred
                    Stock, dated as of June 30, 2000.

         3.5        Certificate  of the Powers,  Designations,  Preferences  and
                    Rights of the Series G-1 Voting Convertible  Preferred Stock
                    and Series G-2 Non-Voting  Convertible  Preferred Stock, Par
                    Value $.01 Per Share, dated as of July 5, 2000.

         3.6        Amended and Restated By-Laws of KMC Telecom Holdings,  Inc.,
                    adopted as of April 1, 2000.

         4.1        Amendment No. 8 dated as of April 1, 2000 to the Amended and
                    Restated  Stockholders  Agreement,  dated as of October  31,
                    1997,  among KMC  Telecom  Holdings,  Inc.,  Nassau  Capital
                    Partners  L.P.,  NAS  Partners I L.L.C.,  Harold N.  Kamine,
                    General Electric Capital  Corporation,  First Union National
                    Bank (as successor to  CoreStates  Bank,  N.A.),  CoreStates
                    Holdings,  Inc.,  Dresdner  Kleinwort  Benson Private Equity
                    Partners  LP,  75  Wall  Street   Associates,   LLC,  Lucent
                    Technologies  Inc.  and  CIT  Lending  Services  Corporation
                    (formerly known as Newcourt Commercial Finance Corporation).

         4.2        Amendment No. 9 dated as of June 30, 2000 to the Amended and
                    Restated  Stockholders  Agreement,  dated as of October  31,
                    1997,  among KMC  Telecom  Holdings,  Inc.,  Nassau  Capital
                    Partners  L.P.,  NAS  Partners I L.L.C.,  Harold N.  Kamine,
                    General Electric Capital  Corporation,  First Union National


                                       22
<PAGE>

                    Bank (as successor to  CoreStates  Bank,  N.A.),  CoreStates
                    Holdings,  Inc.,  Dresdner  Kleinwort  Benson Private Equity
                    Partners  LP,  75  Wall  Street   Associates,   LLC,  Lucent
                    Technologies  Inc.  and  CIT  Lending  Services  Corporation
                    (formerly known as Newcourt Commercial Finance Corporation).

         4.3        Securities  Purchase  Agreement  dated as of June  30,  2000
                    among KMC Telecom  Holdings,  Inc.,  Nassau Capital Partners
                    IV, L.P., NAS Partners I L.L.C.,  Dresdner  Kleinwort Benson
                    Private  Equity  Partners  LP,  75 Wall  Street  Associates,
                    Harold N.  Kamine,  CIT  Lending  Services  Corporation  and
                    Lucent Technologies Inc.

         27         Financial Data Schedule.

         (b)        REPORTS ON FORM 8-K

                    (b)(i) A report on Form 8-K was filed by the  Registrant  on
May 1,  2000  pursuant  to Item 5 thereof  reporting  certain  information  with
respect  to a  change  in the  Registrant's  management.  Such  information  was
disclosed  in a Press  Release,  dated May 1, 2000,  filed as an exhibit to such
report.

                    (b)(ii) A report on Form 8-K was filed by the  Registrant on
May 18,  2000  pursuant to Item 5 thereof  reporting  certain  information  with
respect to its resolution of a dispute with BellSouth  Corporation  with respect
to the Registrant's entitlement to reciprocal compensation. Such information was
disclosed in a Press  Release,  dated May 18, 2000,  filed as an exhibit to such
report.

                                       23
<PAGE>



                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


Dated: August 11, 2000


                              KMC TELECOM HOLDINGS, INC.
                                    (Registrant)


                              By: /s/   William F. Lenahan
                                  ------------------------
                              William F. Lenahan
                              Chief Executive Officer
                              (Principal Executive Officer)


                              By: /s/   William H. Stewart
                                  ------------------------
                              William H. Stewart
                              Chief Financial Officer
                              (Principal Financial Officer)



                                       24
<PAGE>



EXHIBIT INDEX

     NO.    DESCRIPTION

     3.1    Certificate   of  Amendment  to  the   Certificate  of  the  Powers,
            Designations,  Preferences  and  Rights of the  Series A  Cumulative
            Convertible  Preferred Stock, Par Value $.01 Per Share,  dated as of
            June 29, 2000.

     3.2    Certificate   of  Amendment  to  the   Certificate  of  the  Powers,
            Designations,  Preferences  and  Rights of the  Series C  Cumulative
            Convertible  Preferred Stock, Par Value $.01 Per Share,  dated as of
            June 29, 2000.

     3.3    Certificate  of  Amendment  to the  Certificate  of  Voting  Powers,
            Designations,  Preferences and Relative  Participating,  Optional or
            Other   Special   Rights   and   Qualifications,   Limitations   and
            Restrictions   Thereof   of  the   Series   E   Senior   Redeemable,
            Exchangeable, PIK Preferred Stock, dated as of June 30, 2000.

     3.4    Certificate  of  Amendment  to the  Certificate  of  Voting  Powers,
            Designations,  Preferences and Relative  Participating,  Optional or
            Other   Special   Rights   and   Qualifications,   Limitations   and
            Restrictions   Thereof   of  the   Series   F   Senior   Redeemable,
            Exchangeable, PIK Preferred Stock, dated as of June 30, 2000.

     3.5    Certificate of the Powers,  Designations,  Preferences and Rights of
            the  Series G-1 Voting  Convertible  Preferred  Stock and Series G-2
            Non-Voting  Convertible  Preferred  Stock, Par Value $.01 Per Share,
            dated as of July 5, 2000.

     3.6    Amended and Restated By-Laws of KMC Telecom Holdings,  Inc., adopted
            as of April 1, 2000.

     4.1    Amendment  No.  8 dated  as of  April  1,  2000 to the  Amended  and
            Restated Stockholders Agreement, dated as of October 31, 1997, among
            KMC Telecom  Holdings,  Inc.,  Nassau  Capital  Partners  L.P.,  NAS
            Partners  I  L.L.C.,  Harold N.  Kamine,  General  Electric  Capital
            Corporation,  First Union  National Bank (as successor to CoreStates
            Bank, N.A.),  CoreStates  Holdings,  Inc., Dresdner Kleinwort Benson
            Private Equity Partners LP, 75 Wall Street  Associates,  LLC, Lucent
            Technologies  Inc. and CIT Lending  Services  Corporation  (formerly
            known as Newcourt Commercial Finance Corporation).

     4.2    Amendment  No.  9 dated  as of June  30,  2000  to the  Amended  and
            Restated Stockholders Agreement, dated as of October 31, 1997, among
            KMC Telecom  Holdings,  Inc.,  Nassau  Capital  Partners  L.P.,  NAS
            Partners  I  L.L.C.,  Harold N.  Kamine,  General  Electric  Capital
            Corporation,  First Union  National Bank (as successor to CoreStates
            Bank, N.A.),  CoreStates  Holdings,  Inc., Dresdner Kleinwort Benson
            Private Equity Partners LP, 75 Wall Street  Associates,  LLC, Lucent
            Technologies  Inc. and CIT Lending  Services  Corporation  (formerly
            known as Newcourt Commercial Finance Corporation).

     4.3    Securities  Purchase  Agreement  dated as of June 30, 2000 among KMC
            Telecom  Holdings,  Inc.,  Nassau  Capital  Partners IV,  L.P.,  NAS
            Partners I L.L.C., Dresdner Kleinwort Benson Private Equity Partners
            LP,  75 Wall  Street  Associates,  Harold  N.  Kamine,  CIT  Lending
            Services Corporation and Lucent Technologies Inc.

     27     Financial Data Schedule.

                                       25