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                              WARRANT AGREEMENT

                                    among

                           KMC TELECOM HOLDINGS, INC.

                                     and

                          THE CHASE MANHATTAN BANK,
                                as Warrant Agent

                                     and

                    NEWCOURT COMMERCIAL FINANCE CORPORATION.

                                     and

                            LUCENT TECHNOLOGIES INC.

                                     and

                          ANY ADDITIONAL PURCHASERS




                          Dated as of February 4, 1999



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<PAGE>

                                WARRANT AGREEMENT

            WARRANT AGREEMENT,  dated as of February 4, 1999 (this "Agreement"),
among KMC TELECOM HOLDINGS,  INC., a Delaware  corporation (the "COMPANY"),  and
Newcourt Commercial Finance Corporation,  a Delaware  corporation  ("NEWCOURT"),
Lucent Technologies Inc. ("LUCENT") and any other Person (as defined herein) who
becomes a party to this Agreement  after the date hereof in accordance  with the
provisions of Section 2.5 hereof (each an  "ADDITIONAL  PURCHASER"  and together
with Newcourt and Lucent,  the  "Purchasers")  and The Chase  Manhattan Bank, as
warrant agent (the "WARRANT AGENT").

                             W I T N E S S E T H:

            WHEREAS,  in  connection  with the sale of shares  of its  preferred
stock from time to time, the Company intends to issue and sell warrants (each, a
"WARRANT" and  collectively,  the "WARRANTS") to be issued under this Agreement,
each Warrant initially  entitling the holder thereof to purchase 0.471756 shares
of Common Stock (as defined  below) of the Company at an exercise  price of $.01
per Common Share (as defined below);

            WHEREAS, pursuant to the terms of a Securities Purchase Agreement of
even date herewith (the "PURCHASE AGREEMENT"),  among the Company,  Newcourt and
Lucent,  the  Company  has agreed to issue and sell to (a)  Newcourt a unit (the
"SERIES E & F UNIT"),  consisting  of 25,000  shares of the  Company's  Series E
Senior,  Redeemable,  Exchangeable  PIK Preferred Stock (the "SERIES E PREFERRED
STOCK"),   10,000  shares  of  the  Company's   Series  F  Senior,   Redeemable,
Exchangeable  PIK  Preferred  Stock (the "SERIES F PREFERRED  STOCK") and 38,636
Warrants and (b) Lucent a unit (the "SERIES F UNIT" and together with the Series
E Unit,  the "UNITS"),  consisting  of 30,000  shares of the Company's  Series F
Preferred Stock and 13,636 Warrants;

            WHEREAS,  the Series E Preferred Stock, the Series F Preferred Stock
and the  Warrants,  as the  case  may be,  included  in the  Units  will  become
separately  transferable  on the  Business  Day  after  the date the  Units  are
initially issued (the "SEPARATION DATE"); or

            WHEREAS,  as described in Section 2.4 of this Agreement,  holders of
Series E Preferred Stock and holders of Series F Preferred Stock are entitled to
receive 227,273 Warrants, unless certain conditions are satisfied;

            WHEREAS,  in addition to the 38,636  Warrants that will be issued as
part of the Series E & F Unit,  the 13,636  Warrants that will be issued as part
of the Series F Unit and the  Warrants  that may be issued to the holders of the
Series E  Preferred  Stock  and the  holders  of the  Series F  Preferred  Stock
pursuant to Section 2.4 hereof,  the Company may,  from time to time,  issue and
sell additional Warrants pursuant to this Agreement in connection with the offer
and sale to Additional  Purchasers of additional units,  consisting of shares of
Series E Preferred Stock and Warrants or Series F Preferred Stock and Warrants;


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<PAGE>

            WHEREAS,  the Company  desires to engage the Warrant Agent to act on
the  Company's  behalf,  and the Warrant  Agent  desires to act on behalf of the
Company, in connection with the issuance of the Warrant Certificates (as defined
below) and the other matters as provided herein, including,  without limitation,
for the purpose of defining  the terms and  provisions  of the  Warrants and the
respective  rights and  obligations  thereunder  of the  Company  and the record
holders  thereof  (together with the holders of shares of Common Stock (or other
securities) received upon exercise thereof, the "HOLDERS").

            NOW, THEREFORE,  in consideration of the foregoing and of the mutual
agreements  contained  herein and in the  Purchase  Agreement  (and any purchase
agreement to be entered into between the Company and any  Additional  Purchasers
in connection  with any future sale of units by the Company),  the Company,  the
Purchasers and the Warrant Agent hereby agree as follows:


                                    ARTICLE I

                               CERTAIN DEFINITIONS

            "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.

            "Additional  Purchaser" means any Person who becomes a party to this
Agreement in accordance with the provisions of Section 2.5 hereof, in connection
with the  purchase  by such  Person from the Company of Warrants to be issued by
the Company pursuant to this Agreement.

            "Auditors" means, at any time, the independent auditors of the
Company at such time.

            "Board" means the board of directors of the Company from time to
time.

            "Business  Day" means a day other than a Saturday or Sunday on which
commercial banks in The City of New York are open for business.

            "Certificate  for  Surrender"  means the form on the reverse side of
the Warrant Certificate substantially in the form included in Exhibit A hereto.

            "Closing Date" means February 4, 1999.


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<PAGE>

            "Commission" means the United States Securities and Exchange
Commission.

            "Common Shares" means the shares of the Common Stock of the
Company.

            "Common Stock" means the common stock, par value $0.01 per share,
of the Company.

            "Company" has the meaning specified in the preamble to this
Agreement.

            "Cut-off Time" means the earliest point in time at which the Company
has  issued  and  outstanding  shares of Series E  Preferred  Stock and Series F
Preferred  Stock having an aggregate  liquidation  preference  of $100  million,
excluding  any shares of Series E Preferred  Stock or Series F  Preferred  Stock
issued to pay dividends thereon.

            "Current Market Value" has the meaning specified in Section
4.1(f) hereof.

            "Eligible  Shares" means (i) all shares of Series E Preferred  Stock
and Series F Preferred  Stock  purchased  from the Company  prior to the Cut-off
Time and (ii)  includes  any  shares of Series E  Preferred  Stock  issued  upon
conversion  of any shares of Series F Preferred  Stock  described in clause (i),
and (iii) excludes any shares of Series E Preferred  Stock or Series F Preferred
Stock issued to pay dividends thereon.

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

            "Exercise Price" has the meaning specified in Section 3.1 hereof.

            "Expiration Date" means February 1, 2009.

            "Financial Expert" means one of the Persons listed in Appendix A
hereto.

            "Holders" has the meaning specified in the recitals to this
Agreement.

            "Independent  Financial  Expert" means a Financial  Expert that does
not (and whose directors,  executive officers and 5% stockholders do not) have a
direct or indirect  financial interest in the Company or any of its subsidiaries
or Affiliates, which has not been for at least five years and, at the time it is
called upon to give independent financial advice to the Company is not (and none
of  its  directors,  executive  officers  or 5%  stockholders  is)  a  promoter,
director,  or officer of the Company or any of its  subsidiaries  or Affiliates.
The  Independent  Financial  Expert may be  compensated  and  indemnified by the
Company for opinions or services it provides as an Independent Financial Expert.


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<PAGE>

            "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) of Regulation D under the Securities Act.

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

            "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.

            "Opinion  of  Counsel"  means a  written  opinion  signed  by  legal
counsel,  who may be an employee  of or counsel to the Company or an  applicable
Holder.

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

            "Private Placement Legend" means the legend set forth on the Warrant
Certificates in the form set forth in Section 2.2 hereof.

            "Purchase Agreement" has the meaning specified in the recitals to
this Agreement.

            "Purchasers" has the meaning specified in the recitals to this
Agreement.

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

            "Right" has the meaning specified in Section 4.1(c) hereof.

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

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

            "Separation Date" has the meaning specified in the recitals to
this Agreement.

            "Series E Preferred Stock" has the meaning specified in the
recitals to this Agreement.

            "Series E & F Unit" has the meaning specified in the recitals to
this Agreement


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<PAGE>

            "Series F Preferred Stock" has the meaning specified in the
recitals to this Agreement.

            "Series F Unit" has the meaning specified in the recitals to this
Agreement

            "Spread" means, with respect to any Warrant, the last reported trade
price of the Common  Shares  issuable upon exercise of such Warrant at the close
of business on any Business Day on the principal exchange or quotation system on
which the Company's  Common Shares are listed,  less the Exercise  Price of such
Warrant, as adjusted as provided herein.

            "Transfer Agent" means Chase Mellon  Shareholder  Services,  L.L.C.,
the transfer  agent for the Series E Preferred  Stock and the Series F Preferred
Stock,  and its successors and assigns,  or as appointed by the Company which in
no event shall be the Company or an Affiliate of the Company.

            "Springing Notice" has the meaning specified in Section 2.4 of
this Agreement.

            "Springing Warrants" has the meaning specified in Section 2.4 of
this Agreement.

            "Springing Warrant Date" has the meaning specified in Section 2.4
of this Agreement.

            "Subscription  Form"  means  the  form  on the  reverse  side of the
Warrant Certificate substantially in the form included in Exhibit A hereto.

            "Underlying  Securities"  shall  mean the  Common  Shares  (or other
securities) issuable upon exercise of the Warrants.

            "Units" has the meaning specified in the recitals to this
Agreement.

            "Value Report" has the meaning specified in Section 4.1(k) hereof.

            "Warrants" has the meaning specified in the recitals to this
Agreement, including the Springing Warrants.

            "Warrant Agent" has the meaning specified in the preamble to this
Agreement.

            "Warrant Certificates" has the meaning specified in Section 2.1
hereof.

            "Warrant   Registration   Rights   Agreement"   means  the   Warrant
Registration  Rights Agreement,  of even date herewith,  between the Company and
the Purchasers.


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<PAGE>

            "Warrant   Registration   Statement"  means  a  shelf   registration
statement on the appropriate form which will be filed by the Company pursuant to
the Warrant Registration Rights Agreement.


                                   ARTICLE II

                           ORIGINAL ISSUE OF WARRANTS

            SECTION 2.1. FORM OF WARRANT CERTIFICATES. Certificates representing
the Warrants (the "WARRANT  CERTIFICATES")  shall be  substantially  in the form
attached  hereto as Exhibit  A,  shall be dated the date on which  such  Warrant
Certificates  are  countersigned  by the  Warrant  Agent  and  shall  have  such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped,  printed,  lithographed or engraved thereon as the Company
may deem  appropriate  and as are not  inconsistent  with the provisions of this
Agreement,  or as may be  required  to  comply  with any law or with any rule or
regulation  pursuant  thereto or with any rule or regulation  of any  securities
exchange on which the Warrants may be listed, or to conform to usage.

            Warrants shall be issued initially in registered form  substantially
in the form set forth in Exhibit A.

            The  definitive  Warrant  Certificates  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 Warrants may be listed,  all as determined by the officers
executing  such Warrant  Certificates,  as evidenced by their  execution of such
Warrant Certificates.

            SECTION 2.2.  RESTRICTIVE LEGENDS.  The Warrant Certificates
shall bear the following legend on the face thereof:

     THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE 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 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"),  (2) AGREES THAT
     IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) (TAKING INTO
     ACCOUNT  THE  PROVISIONS  OF RULE  144(d)  UNDER  THE  SECURITIES  ACT,  IF
     APPLICABLE) RESELL OR OTHERWISE  TRANSFER THE WARRANTS  REPRESENTED BY THIS


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<PAGE>

     CERTIFICATE EXCEPT (A) TO KMC TELECOM HOLDINGS, INC. (THE "COMPANY") OR ANY
     SUBSIDIARY  THEREOF,  (B) TO A QUALIFIED  INSTITUTIONAL BUYER IN COMPLIANCE
     WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
     INVESTOR  THAT,  PRIOR TO SUCH  TRANSFER,  FURNISHES TO THE WARRANT AGENT A
     SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
     THE   RESTRICTIONS  ON  TRANSFER  OF  THE  WARRANTS   REPRESENTED  BY  THIS
     CERTIFICATE  (THE FORM OF WHICH  LETTER CAN BE  OBTAINED  FROM THE  WARRANT
     AGENT),  AND, AN OPINION OF COUNSEL  REASONABLY  ACCEPTABLE  TO THE COMPANY
     THAT SUCH TRANSFER IS IN COMPLIANCE  WITH THE SECURITIES  ACT, (D) PURSUANT
     TO  THE  EXEMPTION  FROM  REGISTRATION  PROVIDED  BY  RULE  144  UNDER  THE
     SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO AN EFFECTIVE  REGISTRATION
     STATEMENT  UNDER THE  SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
     EACH  PERSON  TO WHOM THE  WARRANTS  REPRESENTED  BY THIS  CERTIFICATE  ARE
     TRANSFERRED  A  NOTICE  SUBSTANTIALLY  TO THE  EFFECT  OF THIS  LEGEND.  IN
     CONNECTION   WITH  ANY  TRANSFER  OF  THE  WARRANTS   REPRESENTED  BY  THIS
     CERTIFICATE 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 WARRANT AGENT.  IF THE
     PROPOSED  TRANSFEREE IS AN INSTITUTIONAL  ACCREDITED  INVESTOR,  THE HOLDER
     MUST, PRIOR TO SUCH TRANSFER,  FURNISH TO EACH OF THE WARRANT AGENT AND 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 IN A  TRANSACTION  NOT SUBJECT TO, THE
     REGISTRATION  REQUIREMENTS  OF THE  SECURITIES  ACT. THE WARRANT  AGREEMENT
     CONTAINS A PROVISION  REQUIRING THE WARRANT AGENT TO REFUSE TO REGISTER ANY
     TRANSFER OF THE WARRANTS  REPRESENTED  BY THIS  CERTIFICATE IN VIOLATION OF
     THE FOREGOING RESTRICTIONS.

            SECTION 2.3.  EXECUTION  AND DELIVERY OF WARRANT  CERTIFICATES.  (a)
Warrant Certificates evidencing Warrants to be issued under the Agreement,  each
Warrant to purchase  initially  0.471756 Common Shares,  may be executed,  on or
after the date of this  Agreement,  by the Company and  delivered to the Warrant
Agent for  countersignature,  and the Warrant Agent shall thereupon  countersign
and  deliver  such  Warrant  Certificates  upon  the  order  and at the  written
direction of the Company  signed by its Chairman of the Board,  Vice Chairman of
the Board, President,  Chief Operating Officer, Chief Financial Officer or Chief
Executive Officer to the purchasers thereof on the date of issuance. The Warrant
Agent is hereby  authorized to countersign and deliver  Warrant  Certificates as
required by this  Section  2.3,  Section  2.4,  Section  2.5 or by Section  3.3,
Article VI or Article VIII hereof.


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            The Warrant  Certificates shall be executed on behalf of the Company
by its  Chairman  of the Board,  Vice  Chairman of the Board,  President,  Chief
Operating  Officer,  Chief Financial  Officer or Chief Executive  Officer either
manually or by facsimile  signature  printed thereon.  The Warrant  Certificates
shall be countersigned by manual signature of the Warrant Agent and shall not be
valid for any purpose unless so  countersigned.  In case any officer or director
of the Company  whose  signature  shall have been placed upon any of the Warrant
Certificates  shall cease to be such  officer or director of the Company  before
countersignature  by the Warrant  Agent and the issuance  and delivery  thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant Agent
and issued and  delivered  with the same force and effect as though  such person
had not ceased to be such officer or director of the Company.

            (b) On the  Closing  Date,  38,636  Warrants  shall be issued by the
Company and  registered in the name of Newcourt in connection  with the issuance
and sale to  Newcourt  of the  Series E & F Unit and  13,636  Warrants  shall be
issued by the Company and  registered in the name of Lucent in  connection  with
the issuance and sale to Lucent of the Series F Unit.

            Section  2.4.  SPRINGING  WARRANTS.  (a) In addition to the Warrants
described  in Section  2.3(b),  on the Closing  Date the Company  shall  execute
Warrant  Certificates  representing  227,273 Warrants,  registered in blank form
(the  "Springing  Warrants")  and shall deliver such  Springing  Warrants to the
Warrant Agent together with a written order  directing the Warrant Agent to hold
such Springing Warrants until either:

            (i)  the  Warrant  Agent  has  received  the  Springing  Notice,  as
            described below, accompanied by a certificate of the Transfer Agent,
            certifying  as to the amount of shares of Series F  Preferred  Stock
            that are  outstanding  as of such  date,  upon  receipt of which the
            Warrant  Agent  shall be  authorized  to  promptly  countersign  and
            deliver the Springing  Warrants to the holders of Eligible Shares in
            accordance with Section 2.4(c) below; or

            (ii) the Warrant Agent has received written notice from the Company,
            signed  by  the  President  or a  Vice  President  of  the  Company,
            certifying that the Company has redeemed all  outstanding  shares of
            Series F Preferred  Stock prior to the  Springing  Warrant  Date and
            accompanied by a certificate of the Transfer Agent,  certifying that
            no shares of Series F  Preferred  Stock are  outstanding  as of such
            date,  upon  receipt of which the  Warrant  Agent  shall  return the
            Warrant  Certificates  representing  the  Springing  Warrants to the
            Company for cancellation.

          (b) If the  Company  fails to redeem all shares of Series F  Preferred
Stock prior to the date (the  "Springing  Warrant Date") which is the earlier of
(i) the date that is sixty  days after the date on which the  Company  closes an
underwritten  primary  offering  of at least $200  million  of its Common  Stock
pursuant to an effective registration statement under the Securities Act or (ii)
February  4, 2001,  then the  holders of  Eligible  Shares  shall be entitled to


                                       8
<PAGE>

receive the Springing Warrants. Each holder of Eligible Shares shall be entitled
to  receive a number of  Springing  Warrants  equal to 227,273  multiplied  by a
fraction,  the numerator of which shall be the aggregate liquidation  preference
of such  holder's  Eligible  Shares and the  denominator  of which  shall be the
aggregate liquidation preference of all outstanding Eligible Shares. On or after
the  Springing  Warrant Date, a holder or holders of at least 10% or more of the
aggregate  outstanding Eligible Shares may deliver a notice to the Warrant Agent
in the form set forth in Exhibit C hereto (the "Springing Notice"),  accompanied
by a certificate of the Transfer Agent, certifying as to the number of shares of
Series F Preferred Stock that are outstanding as of such date.

            (c) Upon receipt of the Springing  Notice and the certificate of the
Transfer  Agent,  the Warrant  Agent shall be  authorized  and the Warrant Agent
shall, in coordination  with the Transfer Agent for the Series E Preferred Stock
and the Series F Preferred  Stock,  countersign  and deliver to each  registered
holder of Eligible Shares,  at such holder's address as set forth on the records
of the Transfer  Agent,  the number of Springing  Warrants  which such holder is
entitled to receive pursuant to Section 2.4(b).

            (d) The  Company  may from  time to time,  with the  consent  of the
holders of a majority  of the  shares of Series E  Preferred  Stock and Series F
Preferred  Stock then  outstanding,  execute and  deliver to the  Warrant  Agent
additional  Springing Warrants together with specific  instructions,  reasonably
acceptable to the Warrant Agent, with respect to the countersignature,  issuance
and delivery of such Springing  Warrants.  If the Company  executes and delivers
any  additional  Springing  Warrants to the Warrant  Agent,  references  in this
Section 2.4 to "227,273"  shall be deemed to be references to such larger number
as the Company specifies in writing to the Warrant Agent.

            SECTION 2.5. ADDITIONAL WARRANTS. From time to time, the Company may
issue and sell additional Warrants under this Agreement, together with shares of
Series E Preferred Stock or Series F Preferred Stock, to Additional  Purchasers;
PROVIDED THAT, any such Additional Purchaser shall agree to all of the terms and
conditions  of, and assume all of the rights and  obligations  of a  "Purchaser"
under, this Agreement and the Warrant Registration Rights Agreement, such action
to be evidenced by such  Additional  Purchaser  executing and  delivering to the
Company  and the  Warrant  Agent a  counterpart  to the  signature  page of this
Agreement  (in  the  form  attached   hereto  as  Exhibit  D)  and  the  Warrant
Registration  Rights Agreement (in the form set forth therein).  Other than such
Additional  Purchaser,  the Company and the Warrant  Agent with  respect to this
Agreement,  and the Company and such  Additional  Purchaser  with respect to the
Warrant  Registration  Rights  Agreement,  no  other  party  need  execute  such
counterparts  in order for them to be  effective.  The Company shall execute and
deliver Warrant  Certificates,  representing the amount of Warrants to be issued
pursuant to this Section 2.5, to the Warrant Agent for countersignature, and the
Warrant Agent shall thereupon  countersign and deliver such Warrant Certificates
upon the  order  and at the  written  direction  of the  Company  signed  by the
officers of the Company set forth in Section 2.03.


                                       9
<PAGE>

                                   ARTICLE III

                     EXERCISE PRICE AND EXERCISE OF WARRANTS

            SECTION 3.1.  EXERCISE PRICE. Each Warrant  Certificate  shall, when
countersigned  by the  Warrant  Agent,  initially  entitle  the Holder  thereof,
subject to the  provisions of this  Agreement,  to purchase the number of Common
Shares indicated  thereon at a purchase price (the "EXERCISE PRICE") of $.01 per
Common  Share,  subject to  adjustment  as provided in Section 4.1 and Article V
hereof.

            SECTION  3.2.  EXERCISE;  RESTRICTIONS  ON  EXERCISE.  At  any  time
beginning one year after the Closing Date and on or before the Expiration  Date,
any  outstanding  Warrants  may be  exercised on any Business Day by the Holders
thereof;  PROVIDED,  that the Warrant Registration  Statement is, at the time of
exercise,  effective  and  available  for the  exercise  of the  Warrants or the
exercise of such Warrants is exempt from the  registration  requirements  of the
Securities  Act. Any Warrants not exercised by 5:00 p.m., New York City time, on
the Expiration  Date shall expire and all rights of the Holders of such Warrants
shall terminate. Additionally, pursuant to Section 4.1(j)(ii) hereof and subject
to the conditions set forth therein, the Warrants shall expire and all rights of
the Holders of such Warrants shall  terminate in the event the Company merges or
consolidates  with or sells all or substantially  all of its property and assets
to a Person  (other  than an  Affiliate  of the  Company)  if the  consideration
payable  to  holders  of Common  Stock in  exchange  for their  Common  Stock in
connection with such merger, consolidation or sale consists solely of cash or in
the event of the dissolution, liquidation or winding up of the Company.

            SECTION 3.3. METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE. In order
to exercise all or any of the Warrants represented by a Warrant Certificate, the
Holder  thereof  must  surrender  for exercise  the Warrant  Certificate  to the
Warrant  Agent at its corporate  trust office  address set forth in Section 11.5
hereof,  with the  Subscription  Form set forth on the  reverse  of the  Warrant
Certificate  duly executed,  together with payment in full of the Exercise Price
then in  effect  for each  Common  Share  (or other  securities)  issuable  upon
exercise of the Warrants as to which a Warrant is exercised; such payment may be
made  by  wire  transfer,  in  cash or by  certified  or  official  bank or bank
cashier's  check  payable to the order of the  Company  and shall be made to the
Warrant  Agent at its corporate  trust office  address set forth in Section 11.5
hereof  prior to the close of business on the date the  Warrant  Certificate  is
surrendered to the Warrant Agent for exercise. Notwithstanding the foregoing, if
the Common Shares (or other  securities)  issuable upon exercise of the Warrants
are  registered  under  the  Exchange  Act,  the  Exercise  Price may be paid by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the  aggregate  Exercise  Price of the Warrants  being  exercised.  All
payments received upon exercise of Warrants shall be delivered to the Company by
the Warrant Agent as instructed in writing by the Company.  If less than all the
Warrants  represented by a Warrant  Certificate are exercised or surrendered (in


                                       10
<PAGE>

connection  with  a  cashless  exercise),  such  Warrant  Certificate  shall  be
surrendered  and a new Warrant  Certificate of the same tenor and for the number
of Warrants  which were not  exercised or  surrendered  shall be executed by the
Company  and  delivered  to the  Warrant  Agent  and  the  Warrant  Agent  shall
countersign the new Warrant Certificate, registered in such name or names as may
be  directed  in  writing  by the  Holder,  and shall  deliver  the new  Warrant
Certificate  to the Person or Persons  entitled  to receive  the same.  Upon the
exercise of any Warrants  following  the surrender of a Warrant  Certificate  in
conformity with the foregoing  provisions,  the Warrant Agent shall instruct the
Company to transfer  promptly  to the Holder or,  upon the written  order of the
Holder of such  Warrant  Certificate,  appropriate  evidence of ownership of any
Common Shares or other security or property to which it is entitled,  registered
or  otherwise  placed in such name or names as may be directed in writing by the
Holder,  and to deliver  such  evidence  of  ownership  to the Person or Persons
entitled  to receive  the same and  fractional  shares,  if any, or an amount in
cash,  in lieu of any  fractional  shares,  as  provided  in Section 4.5 hereof;
PROVIDED that the Holder of such Warrant shall be responsible for the payment of
any  transfer  taxes  required as the result of any change in  ownership of such
Warrants or the issuance of such Common  Shares other than to the Holder of such
Warrants  and any such  transfer  shall  comply with  applicable  law.  Upon the
exercise of a Warrant or Warrants,  the Warrant Agent is hereby  authorized  and
directed to  requisition  from any transfer  agent of the Common Shares (and all
such transfer  agents are hereby  authorized  to comply with all such  requests)
certificates  (bearing  the  legend  set  forth  in  Section  11.10  hereof,  if
applicable, unless a registration statement relating to such Common Shares filed
with the  Commission  shall  then be in effect  or the  Company  and the  Holder
exercising such Warrant or Warrants otherwise agree) for the necessary number of
Common Shares to which said Holder may be entitled.  The Company shall enter, or
shall cause any transfer  agent of the Common  Shares to enter,  the name of the
Person  entitled to receive the Common Shares upon exercise of the Warrants into
the  Company's  register  of  shareholders  within 14 days of such  exercise.  A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of the surrender for exercise,  as provided  above,  of the
Warrant  Certificate  representing such Warrant together with payment in full of
the  Exercise  Price  (or  surrender  of  sufficient  Warrant   Certificates  in
connection with a cashless exercise) and, for all purposes under this Agreement,
the Person entitled to receive any Common Shares  deliverable upon such exercise
shall,  as between  such Person and the  Company,  be deemed to be the Holder of
such Common  Shares of record as of the close of business on such date and shall
be entitled to receive,  and the Warrant Agent shall deliver to such Person, any
Common Shares to which such Person would have been entitled had such Person been
the registered holder on such date.


                                   ARTICLE IV

                                   ADJUSTMENTS

            SECTION 4.1.  ADJUSTMENTS.  The Exercise Price and the number of
Common Shares issuable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:

            (a)  DIVISIONS;  CONSOLIDATIONS;   RECLASSIFICATIONS.  In  case  the
Company shall, on or before the Expiration  Date, (i) issue any Common Shares in
payment of a dividend or other  distribution  with respect to its Common  Stock,
(ii) subdivide its issued and outstanding  Common Shares,  (iii) consolidate its


                                       11
<PAGE>

issued and  outstanding  Common Shares into a smaller number of shares,  or (iv)
reclassify  or convert  the Common  Shares  (other  than a  reclassification  in
connection with a merger, consolidation or other business combination which will
be governed by Section  4.1(j)),  then the number of Common  Shares  purchasable
upon  exercise  of each  Warrant  immediately  prior to the record date for such
issue or distribution or the effective date of such subdivision,  consolidation,
reclassification  or  conversion  shall be  adjusted  so that the Holder of each
Warrant  shall  thereafter  be entitled to receive the kind and number of Common
Shares which such Holder would have been entitled to receive after the happening
of any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto. An
adjustment  made  pursuant  to  this  Section  4.1(a)  shall  become   effective
immediately  after the effective  date of such event  retroactive  to the record
date, if any, for such event.

            (b)  RIGHTS;  OPTIONS;  WARRANTS.  In case the  Company  shall issue
rights, options,  warrants or convertible or exchangeable securities (other than
convertible or exchangeable securities subject to Section 4.1(a)) to all holders
of its Common Shares,  entitling them to subscribe for or purchase Common Shares
at a price per share which is lower (at the record date for such  issuance) than
the then Current  Market Value per Common  Share,  then the Company shall ensure
that at the time of such  issuance,  the same or a like offer or  invitation  is
made to the Holders of the Warrants as if their  Warrants had been  exercised on
the day immediately preceding the record date of such offer or invitation on the
terms (subject to any  adjustment  pursuant to Section 4.1(a) for a prior event)
on which such Warrants could have been exercised on such date;  PROVIDED that if
the Board so resolves, the Company shall not be required to ensure that the same
offer or invitation  is made to the Holders of the  Warrants,  but the number of
Common  Shares  thereafter  purchasable  upon the exercise of each Warrant shall
instead be adjusted and shall be determined by multiplying  the number of Common
Shares theretofore  purchasable upon exercise of each Warrant by a fraction, the
numerator  of  which  shall  be the  sum of (i)  the  number  of  Common  Shares
outstanding immediately prior to the issuance of such rights, options,  warrants
or convertible  or  exchangeable  securities  plus (ii) the number of additional
Common Shares which may be purchased or subscribed for upon  exercise,  exchange
or conversion of such rights,  options,  warrants or convertible or exchangeable
securities  and the  denominator  of which shall be the sum of (x) the number of
Common  Shares  outstanding  immediately  prior to the  issuance of such rights,
options,  warrants or convertible or exchangeable securities plus (y) the number
of shares which the total consideration received by the Company for such rights,
options,  warrants or  convertible or  exchangeable  securities so offered would
purchase at the then Current Market Value per Common Share.  Except as otherwise
provided  above,  such adjustment  shall be made whenever such rights,  options,
warrants or convertible or exchangeable  securities are issued, and shall become
effective retroactively  immediately after the record date for the determination
of  shareholders  entitled  to  receive  such  rights,   options,   warrants  or
convertible or exchangeable securities.

            (c) ISSUANCE OF COMMON SHARES AT LOWER  VALUES.  In case the Company
shall sell and issue any Common Share or Right (as defined below) (excluding (i)
any Right issued in any of the  transactions  described in Section 4.1(a) or (b)
above,  (ii) Common Shares issued pursuant to (x) any Rights  outstanding on the


                                       12
<PAGE>

date of this  Agreement  or any Rights  issued in any  transaction  described in
Section  4.1(a)  or (b) above  and (y) a Right,  if on the date  such  Right was
issued, the exercise, conversion or exchange price per Common Share with respect
thereto was at least equal to the then Current  Market  Value per Common  Share,
(iii)  any  Common  Shares  or  Rights  issued  (A) as  consideration  when  any
corporation or business is acquired,  merged into or becomes part of the Company
or a subsidiary of the Company or (B) in good faith in connection with any other
acquisition of assets, in each case in an arm's-length  transaction  between the
Company and a Person  other than an  Affiliate  of the  Company,  (iv) grants or
exercises of Rights granted to or exercised by employees, directors, consultants
or advisors of the Company or any of its subsidiaries for issuances of shares of
Common  Stock to such Persons and (v)  exercises of Rights by former  employees,
former directors, former consultants or former advisors of the Company or any of
its  subsidiaries  for issuances of shares of Common Stock to such Persons) at a
price per Common Share  (determined  in the case of any such Right,  by dividing
(x) the total  consideration  receivable by the Company in  consideration of the
sale and  issuance of such Right,  plus the total  consideration  payable to the
Company upon exercise,  conversion or exchange thereof,  by (y) the total number
of Common  Shares  covered by such Right) that is lower than the Current  Market
Value per Common  Share in effect  immediately  prior to such sale or  issuance,
then the number of Common  Shares  thereafter  purchasable  upon the exercise of
each Warrant  shall be  determined  by  multiplying  the number of Common Shares
theretofore  purchasable  upon  exercise  of such  Warrant  by a  fraction,  the
numerator of which shall be the number of Common Shares outstanding  immediately
after such sale or issuance and the  denominator of which shall be the number of
Common Shares  outstanding  immediately  prior to such sale or issuance plus the
number of Common Shares which the aggregate  consideration  received (determined
as provided  below) for such sale or  issuance  would  purchase at such  Current
Market Value per Common Share.  For purposes of this Section 4.1(c),  the Common
Shares which the holder of any such Right shall be entitled to subscribe  for or
purchase  shall be deemed to be issued  and  outstanding  as of the date of such
sale and issuance and the  consideration  received by the Company therefor shall
be deemed to be the  consideration  received by the Company for such Right, plus
the  consideration  or  premiums  stated in such Right to be paid for the Common
Shares  covered  thereby.  In case the  Company  shall  sell and issue any Right
together  with one or more  other  securities  as part of a unit at a price  per
unit,  then in determining  the "price per Common Share" and the  "consideration
received by the  Company"  for  purposes of the first  sentence of this  Section
4.1(c),  the Board shall  determine,  in good faith, the fair value of the Right
then being sold as part of such unit. For purposes of this paragraph,  a "RIGHT"
shall mean any right,  option,  warrant or convertible or exchangeable  security
containing  the Right to  subscribe  for or acquire one or more  Common  Shares,
excluding the Warrants. This Section 4.1(c) shall not apply to: (i) the exercise
of Warrants,  or the conversion or exchange of other  securities  convertible or
exchangeable  for Common Shares;  or (ii) Common Shares issued upon the exercise
of Rights or warrants issued to all holders of Common Shares.

            (d)   DISTRIBUTIONS  OF  DEBT,   ASSETS,   SUBSCRIPTION   RIGHTS  OR
CONVERTIBLE  SECURITIES.  In case the Company shall make a  distribution  to all
holders of its Common  Shares of evidences of its  indebtedness,  or assets,  or
other distributions (excluding distributions in connection with the dissolution,
liquidation  or  winding-up  of the  Company  which shall be governed by Section


                                       13
<PAGE>

4.1(j) and  distributions of securities  referred to in Section 4.1(a),  Section
4.1(b) or  Section  4.1(c)),  then,  in each case,  the number of Common  Shares
purchasable  after such record date upon the exercise of each  Warrant  shall be
determined  by  multiplying  the number of Common  Shares  purchasable  upon the
exercise of such  Warrant  immediately  prior to such record date by a fraction,
the  numerator  of which  shall be the  Current  Market  Value per Common  Share
immediately  prior to the record date for such  distribution and the denominator
of which shall be the Current Market Value per Common Share immediately prior to
the record date for such distribution less the then fair value (as determined in
good faith by the Board) of the  evidences of  indebtedness,  or assets or other
distributions so distributed  attributable to one Common Share.  Such adjustment
shall be made whenever any such distribution is made, and shall become effective
on the date of distribution retroactive to the record date for the determination
of shareholders entitled to receive such distribution.

            (e) EXPIRATION OF RIGHTS,  OPTIONS AND CONVERSION  PRIVILEGES.  Upon
the  expiration  of any  rights,  options,  warrants or  conversion  or exchange
privileges  (including,  without  limitation,  any Rights) that have  previously
resulted  in an  adjustment  hereunder,  if any  thereof  shall  not  have  been
exercised,  exchanged or converted,  the Exercise Price and the number of Common
Shares issuable upon the exercise of each Warrant shall,  upon such  expiration,
be readjusted and shall  thereafter,  upon any future exercise,  be such as they
would  have  been  had  they  been  originally  adjusted  (or had  the  original
adjustment  not been  required,  as the  case may be) as if (i) the only  Common
Shares so issued were the Common Shares,  if any,  actually  issued or sold upon
the  exercise,  exchange or  conversion  of such  rights,  options,  warrants or
conversion or exchange rights (including,  without  limitation,  any Rights) and
(ii) such  Common  Shares,  if any,  were  issued or sold for the  consideration
actually received by the Company upon such exercise, exchange or conversion plus
the consideration,  if any, actually received by the Company for issuance,  sale
or grant of all such rights, options,  warrants or conversion or exchange rights
(including, without limitation, any Rights) whether or not exercised.

            (f) CURRENT MARKET VALUE. For the purposes of any computation  under
this  Article IV, the  "CURRENT  MARKET  VALUE" per Common Share or of any other
security  (herein  collectively  referred to as a "security") at any date herein
specified shall be:

            (i) if the security is not  registered  under the Exchange  Act, the
      value of the security (1) most recently determined as of a date within the
      six months preceding such date by an Independent Financial Expert selected
      by the Board in accordance with the criteria for such valuation set out in
      Section  4.1(k),  or (2) if no such  determination  shall  have  been made
      within such six-month  period or if the Company so chooses,  determined as
      of such a date by an Independent Financial Expert selected by the Board in
      accordance with the criteria for such valuation set out in Section 4.1(k),
      or

            (ii) if the  security is  registered  under the  Exchange  Act,  the
      average of the daily market prices of the security for the 20  consecutive
      trading days immediately  preceding such date or, if the security has been
      registered  under the  Exchange Act for less than 20  consecutive  trading
      days before such date, then the average of the daily market prices for all


                                       14
<PAGE>

      of the trading  days before  such date for which daily  market  prices are
      available. The market price for each such trading day shall be: (A) in the
      case  of a  security  listed  or  admitted  to  trading  on  any  national
      securities exchange, the closing sales price, regular way, on such day, or
      if no sale takes  place on such day,  the  average of the  closing bid and
      asked prices on such day on the principal national  securities exchange on
      which such security is listed or admitted,  as determined by the Board, in
      good faith,  (B) in the case of a security  not then listed or admitted to
      trading on any national securities exchange,  the last reported sale price
      on such day,  or if no sale takes  place on such day,  the  average of the
      closing  bid and asked  prices on such day,  as  reported  by a  reputable
      quotation source designated by the Company,  (C) in the case of a security
      not then listed or admitted to trading on any national securities exchange
      and as to which no such  reported  sale price or bid and asked  prices are
      available,  the average of the  reported  high bid and low asked prices on
      such day, as reported by a reputable  quotation service, or a newspaper of
      general  circulation  in the Borough of  Manhattan,  City and State of New
      York  customarily  published  on  each  Business  Day,  designated  by the
      Company,  or, if there shall be no bid and asked  prices on such day,  the
      average of the high bid and low asked prices, as so reported,  on the most
      recent day (not more than 30 days prior to the date in question) for which
      prices have been so reported  and (D) if there are no bid and asked prices
      reported  during the 30 days prior to the date in  question,  the  Current
      Market Value of the security  shall be  determined as if the security were
      not registered under the Exchange Act.

            (g)  CONSIDERATION   RECEIVED.   For  purposes  of  any  computation
respecting  consideration  received  pursuant to this Section 4.1, the following
shall apply:

            (i) in the case of the  issuance  of Common  Shares  for  cash,  the
      consideration  shall be the amount of such cash,  PROVIDED that in no case
      shall  any  deduction  be made  for any  commissions,  discounts  or other
      expenses  incurred  by the Company  for any  underwriting  of the issue or
      otherwise in connection therewith;

            (ii)  in  the  case  of  the   issuance  of  Common   Shares  for  a
      consideration in whole or in part other than cash, the consideration other
      than  cash  shall  be  deemed  to be the  fair  market  value  thereof  as
      determined  in good  faith by the Board  (irrespective  of the  accounting
      treatment thereof),  whose determination shall be conclusive and described
      in reasonable detail in a board resolution which shall be provided as soon
      as practicable thereafter to the Warrant Agent; and

            (iii) in the case of the  issuance of rights,  options,  warrants or
      securities convertible into or exchangeable for Common Shares, (including,
      without  limitation,  any Rights),  the aggregate  consideration  received
      therefor shall be deemed to be the  consideration  received by the Company
      for  the  issuance  of  such  rights,  options,   warrants  or  securities
      convertible  into or exchangeable  for Common Shares,  plus the additional
      minimum  consideration,  if any, to be  received  by the Company  upon the
      exercise,  conversion or exchange thereof (the  consideration in each case
      to be determined in the same manner as provided in clauses (i) and (ii) of
      this Section 4.1(g)).


                                       15
<PAGE>

            (h) DE MINIMIS  ADJUSTMENTS.  No  adjustment in the number of Common
Shares  purchasable  hereunder shall be required  unless such  adjustment  would
require an increase  or  decrease of at least one percent  (1%) in the number of
Common Shares purchasable upon the exercise of each Warrant; PROVIDED,  HOWEVER,
that any adjustments  which by reason of this Section 4.1(h) are not required to
be made  shall be carried  forward  and taken  into  account  in any  subsequent
adjustment.  All calculations  shall be made to the nearest  one-thousandth of a
share.

            (i)  ADJUSTMENT  OF EXERCISE  PRICE.  Whenever  the number of Common
Shares  purchasable  upon the exercise of each  Warrant is  adjusted,  as herein
provided,  the  Exercise  Price per Common Share  payable upon  exercise of such
Warrant  shall be adjusted  (calculated  to the  nearest  $.01) so that it shall
equal the price determined by multiplying such Exercise Price  immediately prior
to such  adjustment  by a fraction the numerator of which shall be the number of
Common Shares purchasable upon the exercise of each Warrant immediately prior to
such  adjustment  and the  denominator  of which  shall be the  number of Common
Shares so purchasable  immediately  thereafter.  Following any adjustment to the
Exercise Price pursuant to this Article IV, the amount  payable,  when adjusted,
together  with the amount paid in connection  with the original  issuance of the
Warrants, shall never be less than the par value per Common Share at the time of
such adjustment.

            If after an  adjustment,  a Holder of a Warrant upon  exercise of it
may receive  shares of two or more  classes in the capital of the  Company,  the
Company shall  determine the  allocation of the adjusted  Exercise Price between
such  classes of shares in a manner that the Board deems fair and  equitable  to
the Holders.  After such  allocation,  the exercise  privilege  and the Exercise
Price of each class of shares shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Shares in this Article IV.

            Such adjustment shall be made successively whenever any event listed
above shall occur.

            (j)  CONSOLIDATION,  MERGER,  ETC. (i) Subject to the  provisions of
Subsection (ii) below of this Section 4.1(j),  in case of the  consolidation  of
the Company  with,  or merger of the Company with or into, or of the sale of all
or substantially all of the properties and assets of the Company to, any Person,
and in connection therewith consideration is payable to holders of Common Shares
(or other  securities  or property  purchasable  upon  exercise of  Warrants) in
exchange therefor, the Warrants shall remain subject to the terms and conditions
set forth in this  Agreement and each Warrant shall,  after such  consolidation,
merger or sale, entitle the Holder to receive upon exercise the number of shares
in the capital or other  securities or property  (including cash) of or from the
Person  resulting from such  consolidation  or surviving such merger or to which
such sale  shall be made or of the  parent of such  Person,  as the case may be,
that would have been distributable or payable on account of the Common Shares if
such  Holder's  Warrants had been  exercised  immediately  prior to such merger,
consolidation or sale (or, if applicable,  the record date therefor); and in any
such case the  provisions  of this  Agreement  with  respect  to the  rights and
interests thereafter of the Holders of Warrants shall be appropriately  adjusted


                                       16
<PAGE>

by the Board in good faith so as to be  applicable,  as nearly as may reasonably
be, to any shares,  other securities or any property  thereafter  deliverable on
the exercise of the Warrants.

            (ii)  Notwithstanding  the  foregoing,  (x) if the Company merges or
      consolidates  with, or sells all or substantially  all of its property and
      assets to,  another  Person  (other than an  Affiliate of the Company) and
      consideration is payable to holders of Common Shares in exchange for their
      Common Shares in connection with such merger,  consolidation or sale which
      consists  solely  of  cash,  or  (y)  in the  event  of  the  dissolution,
      liquidation  or winding up of the  Company,  then the  Holders of Warrants
      shall be entitled to receive distributions on the date of such event on an
      equal basis with holders of Common  Shares (or other  securities  issuable
      upon  exercise of the  Warrants)  as if the  Warrants  had been  exercised
      immediately  prior to such event, less the Exercise Price. Upon receipt of
      such payment, if any, the rights of a Holder shall terminate and cease and
      such  Holder's  Warrants  shall  expire.  In  case  of  any  such  merger,
      consolidation or sale of assets, the surviving or acquiring Person and, in
      the event of any  dissolution,  liquidation  or winding up of the Company,
      the Company  shall deposit  promptly with the Warrant Agent the funds,  if
      any,  necessary to pay the Holders of the Warrants.  After receipt of such
      deposit from such Person or the Company and after  receipt of  surrendered
      Warrant Certificates, the Warrant Agent shall make payment by delivering a
      check in such amount as is appropriate  (or, in the case of  consideration
      other  than cash,  such other  consideration  as is  appropriate)  to such
      Person  or  Persons  as it may  be  directed  in  writing  by  the  Holder
      surrendering such Warrants.

            (k) If required  pursuant to Section  4.1(f)(i),  the Current Market
Value shall be deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent  Financial Expert, which shall be
selected by the Board in its sole  discretion,  and retained on customary  terms
and  conditions,  using  one or more  valuation  methods  that  the  Independent
Financial  Expert,  in its best  professional  judgment,  determines  to be most
appropriate.  The Company  shall use its  reasonable  best  efforts to cause the
Independent  Financial  Expert to  deliver  to the  Company,  with a copy to the
Warrant Agent,  within 45 days of the appointment of the  Independent  Financial
Expert,  a value  report  (the "VALUE  REPORT")  stating the value of the Common
Shares and other securities or property of the Company,  if any, being valued as
of the  Valuation  Date and  containing  a brief  statement as to the nature and
scope of the examination or investigation  upon which the determination of value
was made.  The Warrant Agent shall have no duty with respect to the Value Report
of any Independent Financial Expert, except to keep it on file and available for
inspection  by the  Holders.  The  determination  as to Current  Market Value in
accordance with the provisions of this Section 4.1(k) shall be conclusive on all
Persons.  The Independent  Financial Expert shall consult with management of the
Company in order to allow  management to comment on the proposed  value prior to
delivery to the Company of any Value Report.


                                       17
<PAGE>

            (l)  WHEN  NO  ADJUSTMENT  REQUIRED.   Without  limiting  any  other
exception  contained in this Section 4.1, and in addition thereto, no adjustment
need be made for:

            (i)   (A)  grants to,  exercises of Rights by, or issuances of
                  equity securities to employees, directors, consultants or
                  advisors of the Company or any of its subsidiaries and (B)
                  exercises of Rights by, or issuances of equity securities
                  in connection with Rights previously issued to former
                  employees, former directors, former consultants or former
                  advisors of KMC Telecom, Inc. (to the extent that all such
                  securities do not have an aggregate value in excess of 15%
                  of the equity value of the Company on a fully diluted
                  basis, as determined in good faith by the Board);

            (ii)  grants of options,  warrants or other  agreements or rights to
                  purchase  capital  stock of the Company  entered into prior to
                  the date of the  issuance of the  Warrants or any  issuance of
                  capital stock pursuant thereto or in connection therewith;

            (iii) rights to purchase  Common  Shares  pursuant to a Company plan
                  for the reinvestment of dividends or interest;

            (iv)  future  options,  warrants or other rights with an exercise or
                  conversion  price at least equal to the fair  market  value of
                  the related shares on the date of grant, as determined in good
                  faith by the Company's Board of Directors;

            (v)   a change in the par value of the Common  Shares  (including  a
                  change from par value to no par value or vice versa);

            (vi)  bona fide  public  offerings  or  private  placements  through
                  investment banks of national standing;

            (vii) the issuance of Warrants pursuant to Section 2.4 hereof; and

            (viii) the issuance of Warrants to pursuant to Section 2.5 hereof.

            To  the  extent  the  Warrants  become  convertible  into  cash,  no
adjustment need be made  thereafter as to the cash.  Interest will not accrue on
the cash.

          SECTION  4.2.  NOTICE OF  ADJUSTMENT.  Whenever  the  number of Common
Shares  purchasable  upon the exercise of each Warrant or the Exercise  Price is
adjusted, as herein provided, the Company shall cause, so far as it is able, the
Warrant Agent  promptly to mail,  at the expense of the Company,  to each Holder
notice of such  adjustment or adjustments and shall deliver to the Warrant Agent
a  certificate  of the  Auditors  setting  forth the  number  of  Common  Shares
purchasable  upon the exercise of each Warrant and the Exercise Price after such
adjustment,  setting  forth  a  brief  statement  of the  facts  requiring  such
adjustment and setting forth the  computation by which such adjustment was made.
Such  certificate  shall  be  conclusive  evidence  of the  correctness  of such
adjustment  except in the case of manifest  error.  The  Warrant  Agent shall be
entitled  to  rely  on  such   certificate   and  shall  be  under  no  duty  or
responsibility with respect to any such certificate, except to exhibit the same,
from  time  to  time,  to any  Holder  desiring  an  inspection  thereof  during
reasonable business hours upon reasonable notice. The Warrant Agent shall not at
any time be under any duty or responsibility to any Holders to determine whether
any facts exist which may require any  adjustment  of the Exercise  Price or the
number of Common  Shares  purchasable  on exercise of the Warrants or any of the
other  adjustments  set forth in Section  4.1, or with  respect to the nature or
extent of any such  adjustment when made, or with respect to the method employed
in making such  adjustment,  or the validity or value (or the kind or amount) of
any Common  Shares which may be  purchasable  on exercise of the  Warrants.  The
Warrant  Agent shall not be  responsible  for any failure of the Company to make
any cash  payment or to issue,  transfer or deliver  any Common  Shares or share
certificates upon the exercise of any Warrant.

            SECTION 4.3.  STATEMENT ON WARRANTS.  Irrespective of any adjustment
in the  Exercise  Price or the  number  or kind of shares  purchasable  upon the
exercise of the Warrants, Warrants theretofore or thereafter issued may continue
to  express  the same  price and  number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.

            SECTION 4.4. NOTICE OF  CONSOLIDATION,  MERGER,  ETC. In case at any
time after the date  hereof  and prior to 5:00 p.m.  (New York City time) on the
Expiration  Date,  there shall be any (i)  consolidation or merger involving the
Company or sale,  transfer or other  disposition of all or substantially  all of
the  Company's  property,  assets  or  business  (except  (A) a merger  or other
reorganization  in which the  Company  shall be the  surviving  corporation  and
holders of Common Shares receive no consideration in respect of their shares and
(B) a merger of the Company into a wholly owned  subsidiary of the Company,  the
principal purpose of which, in the good faith  determination of the Board, is to


                                       18
<PAGE>

change the state of incorporation of the Company) or (ii) any other  transaction
contemplated by Section 4.1(j)(ii) above then, in any one or more of such cases,
the  Company  shall  cause to be mailed to the  Warrant  Agent and shall use its
reasonable  best  efforts  to cause  the  Warrant  Agent to mail,  at  Company's
expense, to each Holder of a Warrant, at the earliest  practicable time (and, in
any event,  not less than 20 days  before any date set for  definitive  action),
notice of the date on which such reorganization,  sale,  consolidation,  merger,
dissolution,  liquidation  or winding up shall take  place,  as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent  such  effect may be known at the date of such  notice) on
the  Exercise  Price and the kind and  amount  of the  Common  Shares  and other
securities,  money and other property deliverable upon exercise of the Warrants.
Such notice shall also specify the date as of which the holders of record of the
Common  Shares or other  securities  or property  issuable  upon exercise of the
Warrants  shall be entitled to exchange  their shares for  securities,  money or
other  property  deliverable  upon  such  reorganization,  sale,  consolidation,
merger, dissolution, liquidation or winding up, as the case may be.


                                       19
<PAGE>

            SECTION 4.5. FRACTIONAL INTERESTS. If more than one Warrant shall be
presented  for exercise in full at the same time by the same Holder,  the number
of full Common Shares which shall be issuable  upon such exercise  thereof shall
be computed on the basis of the aggregate number of Common Shares purchasable on
exercise of the  Warrants  so  presented.  The Company  shall not be required to
issue fractional Common Shares upon the exercise of Warrants. If any fraction of
a Common Share would, except for the provisions of this Section 4.5, be issuable
on the exercise of any Warrant (or specified portion  thereof),  the Company may
pay an amount in cash  calculated  by it to be equal to the then Current  Market
Value per Common Share multiplied by such fraction computed to the nearest whole
cent.

            SECTION 4.6. WHEN  ISSUANCE OR PAYMENT MAY BE DEFERRED.  In any case
in which this Article IV shall require that an adjustment in the Exercise  Price
be made  effective  as of a record date for a specified  event,  the Company may
elect to defer until the  occurrence  of such event (i) issuing to the Holder of
any Warrant  exercised after such record date the Common Shares and other shares
in the capital of the Company,  if any,  issuable  upon such  exercise  over and
above the Common Shares and other shares in the capital of the Company,  if any,
issuable  upon such  exercise  and (ii) paying such Holder any amount in cash in
lieu of a fractional share; PROVIDED, HOWEVER, that the Company shall deliver to
such Holder a due bill or other appropriate  instrument evidencing such Holder's
right to receive such additional  Common Shares,  other shares and cash upon the
occurrence of the event requiring such adjustment.

            SECTION 4.7.  INITIAL PUBLIC OFFERING.  Notwithstanding  anything to
the  contrary  herein  contained,  if the  Company  conducts  an initial  public
offering of equity securities (other than nonconvertible  preferred shares), the
Company will give the Holders the  opportunity to convert (i) such Warrants into
warrants to purchase such equity securities (other than nonconvertible preferred
shares) and (ii) any Common Shares or other securities that have been previously
received  by the  Holders  upon  the  exercise  of  Warrants  into  such  equity
securities  (other  than  nonconvertible   preferred  shares).  Such  conversion
opportunity will be on terms and conditions determined to be fair and reasonable
by the Board.


                                    ARTICLE V

                           DECREASE IN EXERCISE PRICE

            The Board, in its sole discretion, shall have the right at any time,
or from time to time,  to decrease  the Exercise  Price of the  Warrants  and/or
increase the number of shares issuable upon the exercise of the Warrants.


                                       20
<PAGE>

                                   ARTICLE VI

                               LOSS OR MUTILATION

            Upon  receipt  by the  Company  and the  Warrant  Agent of  evidence
satisfactory  to them of the  ownership  and the  loss,  theft,  destruction  or
mutilation of any Warrant  Certificate and of indemnity or bond  satisfactory to
them and (in the case of mutilation)  upon surrender and  cancellation  thereof,
then,  in the  absence of notice to the  Company or the  Warrant  Agent that the
Warrants  represented  thereby have been acquired by a bona fide purchaser,  the
Company shall execute and the Warrant Agent shall countersign and deliver to the
registered  Holder  of  the  lost,   stolen,   destroyed  or  mutilated  Warrant
Certificate,  in exchange for or in lieu thereof,  a new Warrant  Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant  Certificate  under this Article VI, the Company may require the
payment of a sum sufficient to cover any tax or other  governmental  charge that
may be imposed in relation  thereto and other  expenses  (including the fees and
expenses  of the  Warrant  Agent) in  connection  therewith.  Every new  Warrant
Certificate  executed and  delivered  pursuant to this Article VI in lieu of any
lost,  stolen or destroyed  Warrant  Certificate  shall constitute a contractual
obligation of the Company whether or not the allegedly lost, stolen or destroyed
Warrant  Certificates  shall be at any time  enforceable  by anyone and shall be
entitled to the benefits of this Agreement equally and proportionately  with any
and all other Warrant  Certificates duly executed and delivered  hereunder.  The
provisions of this Article VI are  exclusive  and shall  preclude (to the extent
lawful)  all  other  rights or  remedies  with  respect  to the  replacement  of
mutilated, lost, stolen, or destroyed Warrant Certificates.


                                   ARTICLE VII

                          RESERVATION AND AUTHORIZATION
                                OF COMMON SHARES

            The  Company  shall at all times  reserve  and keep  available  such
number of its authorized but unissued Common Shares deliverable upon exercise of
the  Warrants  as will be  sufficient  to  permit  the  exercise  in full of all
outstanding  Warrants and will cause  appropriate  evidence of ownership of such
Common Shares to be delivered to the Warrant Agent upon its request for delivery
thereof  upon the exercise of Warrants.  The Company  covenants  that all Common
Shares of the Company that may be issued upon the exercise of the Warrants will,
upon issuance, be duly authorized, validly issued, fully paid and not subject to
any  calls for funds and free from  pre-emptive  rights  and all  taxes,  liens,
charges and security interests with respect to the issue thereof.


                                       21
<PAGE>

                                  ARTICLE VIII

               WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER

            SECTION 8.1. TRANSFER AND EXCHANGE.  The Warrant  Certificates shall
be issued in registered  form only. The Warrant Agent shall keep at its office a
register for the registration of Warrant Certificates and transfers or exchanges
of  Warrant  Certificates  as  herein  provided  and other  appropriate  data as
determined by the Warrant Agent.  The Company shall,  upon reasonable  notice to
the Warrant  Agent,  have  access to such  register  during the Warrant  Agent's
regular business hours. All Warrant Certificates issued upon any registration of
transfer or exchange of Warrant  Certificates  shall be the valid obligations of
the Company, evidencing the same obligations,  and entitled to the same benefits
under  this  Agreement,  as  the  Warrant  Certificates   surrendered  for  such
registration of transfer or exchange.

            The  Warrants  (other  than any issued  pursuant  to Section  2.4 or
Section 2.5 hereof)  shall  initially  be issued as part of the  issuance of the
Units.  Prior to the  Separation  Date,  such Warrants may not be transferred or
exchanged  separately  from,  but may be  transferred or exchanged only together
with, the Series E Preferred Stock or the Series F Preferred  Stock, as the case
may be, issued as part of the respective  Unit. Any Warrants  issued pursuant to
Section  2.5  hereof  that are  initially  issued as part of a unit shall not be
transferred or exchanged  separately from the other  securities  comprising such
unit until the date of separation as described in such unit.

            A Holder may transfer its Warrants  only by written  application  to
the Warrant  Agent  stating the name of the proposed  transferee  and  otherwise
complying with the terms of this  Agreement.  No such transfer shall be effected
until,  and such  transferee  shall succeed to the rights of a Holder only upon,
final  acceptance and  registration  of the transfer by the Warrant Agent in the
register.  Prior to the  registration of any transfer of Warrants by a Holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company or
the Warrant Agent may treat the Person in whose name the Warrants are registered
as the owner thereof for all purposes and as the Person entitled to exercise the
rights represented  thereby,  any notice to the contrary  notwithstanding.  When
Warrant  Certificates  are  presented  to the  Warrant  Agent  with a request to
register  the  transfer or to exchange  them for an equal  amount of Warrants of
other authorized  denominations,  the Warrant Agent shall register such transfer
or make such exchange as requested if its requirements for such transactions are
met. To permit  registrations  of transfers  and  exchanges,  the Company  shall
execute Warrant  Certificates at the Warrant Agent's request.  No service charge
shall be made for any registration of transfer or exchange of Warrants,  but the
Company  may  require  payment  of a sum  sufficient  to cover  any tax or other
governmental  charge that may be imposed in connection with any  registration of
transfer of Warrants.


                                       22
<PAGE>

            SECTION 8.2.  Intentionally Omitted.

            SECTION 8.3.  SPECIAL TRANSFER PROVISIONS.  The following
provisions shall apply:

            (a)  TRANSFERS TO QIBS.  The following  provisions  shall apply with
respect to the  registration of any proposed  transfer of Warrants to a QIB: the
Warrant Agent shall only register the transfer if such transfer is being made by
a  proposed  transferor  who has  checked  the box  provided  for on the form of
Warrant  Certificate  stating,  or has  otherwise  advised  the  Company and the
Warrant  Agent 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  Warrant  Certificate  stating,  or has  otherwise
advised the Company and the Warrant Agent in writing,  that it is purchasing the
Warrants  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.

            (b) TRANSFERS TO ANY OTHER PERSON.  The  following  provision  shall
apply with respect to the  registration of any proposed  transfer of Warrants to
any Person not specified in paragraph  (a) above  (including  any  Institutional
Accredited Investor which is not a QIB).

            (i) The  Warrant  Agent  shall  register  any  proposed  transfer of
      Warrants to any such Person only if (x) the  transferor  has  delivered to
      the Warrant Agent and the Company a certificate  substantially in the form
      of Exhibit  B-1 hereto  and, if required  by  paragraph  (d)  thereof,  an
      Opinion of Counsel to the effect set forth  therein  and (y) the  proposed
      transferee   has  delivered  to  the  Warrant  Agent  and  the  Company  a
      certificate substantially in the form of Exhibit B-2 hereto.

            (c) PRIVATE  PLACEMENT  LEGEND.  Upon the  registration of transfer,
exchange  or  replacement  of  Warrant  Certificates  not  bearing  the  Private
Placement Legend,  the Warrant Agent shall deliver Warrant  Certificates that do
not bear the  Private  Placement  Legend.  Upon the  registration  of  transfer,
exchange or replacement of Warrant  Certificates  bearing the Private  Placement
Legend, the Warrant Agent shall deliver only Warrant  Certificates that bear the
Private  Placement  Legend  unless there is  delivered  to the Warrant  Agent an
Opinion of Counsel reasonably  satisfactory to the Company,  its Counsel and the
Warrant   Agent  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.

            (d) GENERAL.  (i) By its acceptance of any Warrants represented by a
Warrant  Certificate  bearing the Private Placement Legend,  each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this  Agreement  and in the  Private  Placement  Legend and agrees  that it will
transfer  such Warrants  only as provided in this  Agreement.  The Warrant Agent
shall not register a transfer of any Warrants unless such transfer complies with
the  restrictions on transfer of such Warrants set forth in this  Agreement.  In


                                       23
<PAGE>

connection  with any transfer of Warrants,  each Holder agrees by its acceptance
of Warrants to furnish the  Warrant  Agent 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
or any applicable laws of any state or foreign  jurisdiction;  PROVIDED that the
Warrant  Agent  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.

                  (ii) The Warrant  Agent shall retain,  in accordance  with its
customary  procedure,   copies  of  all  letters,   notices  and  other  written
communications  received pursuant to Section 8.2 hereof or this Section 8.3. 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 Warrant Agent.

            SECTION  8.4.  SURRENDER  OF  WARRANT   CERTIFICATES.   Any  Warrant
Certificate  surrendered for  registration of transfer,  exchange or exercise of
the Warrants  represented  thereby  shall,  if  surrendered  to the Company,  be
delivered to the Warrant Agent, and all Warrant  Certificates  surrendered or so
delivered to the Warrant Agent shall be promptly  cancelled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
VIII in case of an exchange,  Article III hereof in case of the exercise of less
than all the Warrants  represented  thereby or Article VI in case of a mutilated
Warrant  Certificate,  no Warrant  Certificate shall be issued hereunder in lieu
thereof.  The Warrant  Agent shall  deliver to the Company  from time to time or
otherwise  dispose of such  cancelled  Warrant  Certificates  as the Company may
direct in writing.


                                   ARTICLE IX

                                 WARRANT HOLDERS

            SECTION 9.1.  WARRANT HOLDER DEEMED NOT A  SHAREHOLDER.  The Company
and the Warrant Agent may deem and treat the registered Holder(s) of the Warrant
Certificates as the absolute owner(s) thereof  (notwithstanding  any notation of
ownership  or other  writing  thereon  made by  anyone),  for the purpose of any
exercise  thereof  and for all other  purposes,  and neither the Company nor the
Warrant  Agent nor any agent  thereof  shall be  affected  by any  notice to the
contrary. Accordingly, the Company and/or the Warrant Agent shall not, except as
ordered by a court of  competent  jurisdiction  as  required by law, be bound to
recognize  any  equitable  or other claim to or interest in the  Warrants on the
part of any Person other than such  registered  Holder,  whether or not it shall
have  express  or other  notice  thereof.  Prior to the  valid  exercise  of the
Warrants, no Holder of a Warrant Certificate,  as such, shall be entitled to any
rights of a shareholder of the Company, including, without limitation, the right
to vote or to consent to any action of the shareholders, to receive dividends or
other  distributions,  to exercise any preemptive right or to receive any notice
of meetings of shareholders and, except as otherwise provided in this Agreement,


                                       24
<PAGE>

shall not be entitled to receive any notice of any proceedings of the Company.

            SECTION 9.2.  RIGHT OF ACTION.  All rights of action with respect to
this Agreement are vested in the Holders of the Warrants,  and any Holder of any
Warrant,  without the  consent of the Warrant  Agent or the Holders of any other
Warrant,  may, on such  Holder's  own behalf and for such  Holder's own benefit,
enforce,  and may institute and maintain any suit, action or proceeding  against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to  exercise  such  Warrants in the manner  provided in the Warrant  Certificate
representing such Warrants and in this Agreement.


                                    ARTICLE X

                                THE WARRANT AGENT

            SECTION  10.1.  DUTIES AND  LIABILITIES.  The Warrant  Agent  hereby
accepts the agency  established by this Agreement and agrees to perform the same
upon the terms and conditions  herein set forth, by all of which the Company and
the  Holders of  Warrants,  by their  acceptance  thereof,  shall be bound.  The
Warrant Agent shall not, by countersigning  Warrant Certificates or by any other
act  hereunder,  be deemed to make any  representations  as to the  validity  or
authorization  of the  Warrants  or the Warrant  Certificates  (except as to its
countersignature  thereon) or of any Common  Shares  issued upon exercise of any
Warrant,  or as to the accuracy of the  computation of the Exercise Price or the
number or kind or  amount of Common  Shares  deliverable  upon  exercise  of any
Warrant or the  correctness  of the  representations  of the Company made in the
certificates  that the Warrant  Agent  receives.  The Warrant Agent shall not be
accountable  for the use or  application  by the Company of the  proceeds of the
exercise of any Warrant.  The Warrant Agent shall not have any duty to calculate
or determine any  adjustments  with respect to either the Exercise  Price or the
kind and amount of Common  Shares  receivable  by Holders  upon the  exercise of
Warrants  required from time to time and the Warrant Agent shall have no duty or
responsibility  in determining the accuracy or correctness of such  calculation.
The Warrant  Agent shall not be (a) liable for any recital or  statement of fact
contained  herein  or in the  Warrant  Certificates  or for  any  action  taken,
suffered  or  omitted  by it in  good  faith  in the  belief  that  any  Warrant
Certificate  or any other  documents or any  signatures  are genuine or properly
authorized, (b) responsible for any failure on the part of the Company to comply
with any of its covenants and obligations  contained in this Agreement or in the
Warrant  Certificates  or (c) liable for any act or omission in connection  with
this  Agreement  except  for its own  gross  negligence,  bad  faith or  willful
misconduct.  The Warrant Agent is hereby authorized to accept  instructions with
respect to the  performance  of its duties  hereunder  from the  Chairman of the
Board, the Vice Chairman of the Board, the President,  Chief Executive  Officer,
the Chief Operating Officer, the Chief Financial Officer, or any other executive
officer of the Company and to apply to any such officer for instructions  (which
instructions  will be promptly given in writing when  requested) and the Warrant
Agent shall not be liable for any action  taken or suffered to be taken by it in
good faith in accordance with the  instructions  of any such officer;  PROVIDED,
HOWEVER, that, in its discretion, the Warrant Agent may, in lieu thereof, accept


                                       25
<PAGE>

other evidence of such or may require such further or additional  evidence as it
may deem reasonable.  The Warrant Agent shall not be liable for any action taken
with  respect  to any  matter in the  event it  requests  instructions  from the
Company  as to that  matter  and does not  receive  such  instructions  within a
reasonable period of time after the request therefor.

            The Warrant  Agent may execute  and  exercise  any of the rights and
powers hereby vested in it or perform any duty hereunder  either itself or by or
through its attorneys,  agents or employees,  and the Warrant Agent shall not be
answerable or  accountable  for any act,  default,  neglect or misconduct of any
such  attorneys,  agents or employees;  PROVIDED that  reasonable  care has been
exercised with respect to the retention of any such attorney, agent or employee.
The Warrant Agent shall not be under any obligation or duty to institute, appear
in or defend any action,  suit or legal  proceeding  in respect  hereof,  unless
first  indemnified  to its  reasonable  satisfaction.  The  Warrant  Agent shall
promptly  notify the  Company  in  writing of any claim made or action,  suit or
proceeding  instituted  against it  arising  out of or in  connection  with this
Agreement.

            The Company will perform, execute,  acknowledge and deliver or cause
to be  delivered  all such  further  acts,  instruments  and  assurances  as are
consistent  with this Agreement and as may reasonably be required by the Warrant
Agent in order to  enable it to carry  out or  perform  its  duties  under  this
Agreement.

            The  Warrant  Agent  shall  act  solely  as  agent  of  the  Company
hereunder.  The  Warrant  Agent  shall not be liable  except for the  failure to
perform  such  duties as are  specifically  set  forth  herein,  and no  implied
covenants or obligations  shall be read into this Agreement  against the Warrant
Agent,  whose duties and obligations  shall be determined  solely by the express
provisions hereof.

            SECTION 10.2. RIGHT TO CONSULT COUNSEL. The Warrant Agent may at any
time consult with legal counsel (who may be legal counsel for the Company),  and
the  written  opinion  or  advice  of such  counsel  shall be full and  complete
authorization  and  protection  to the Warrant Agent and the Warrant Agent shall
incur no  liability  or  responsibility  to the Company or to any Holder for any
action  taken,  suffered or omitted by it in good faith in  accordance  with the
opinion or advice of such counsel.

            SECTION  10.3.  COMPENSATION;  INDEMNIFICATION.  The Company  agrees
promptly  to pay the  Warrant  Agent from time to time and in any case within 30
days of receipt of an invoice,  compensation  for its services  hereunder as the
Company and the Warrant  Agent may agree from time to time,  and to reimburse it
upon  its  request  (which  shall  be   accompanied  by  reasonable   supporting
documentation)  for reasonable fees or expenses and reasonable  counsel fees and
expenses  incurred in connection with the execution and  administration  of this
Agreement,  and  further  agrees  to  indemnify  the  Warrant  Agent and save it
harmless against any losses,  liabilities or reasonable  expenses arising out of
or in connection  with the  acceptance  and  administration  of this  Agreement,


                                       26
<PAGE>

including,   without   limitation,   the   reasonable   costs  and  expenses  of
investigating or defending any claim of such liability,  except that the Company
shall have no liability hereunder to the extent that any such loss, liability or
expense  results  from the Warrant  Agent's own gross  negligence,  bad faith or
willful misconduct. The obligations of the Company under this Section 10.3 shall
survive the exercise and the expiration of the Warrants, the termination of this
Agreement  and the  resignation  or removal of the  Warrant  Agent in respect of
services or expenses incurred in connection with the Warrants or this Agreement.

            SECTION 10.4. NO RESTRICTIONS ON ACTIONS.  Nothing in this Agreement
shall be deemed to prevent  the  Warrant  Agent and any  shareholder,  director,
officer or employee of the Warrant Agent from buying,  selling or dealing in any
of the  Warrants or other  securities  of the  Company or  becoming  pecuniarily
interested  in  transactions  in  which  the  Company  may  be  interested,   or
contracting  with or lending  money to the Company or otherwise  acting as fully
and freely as though it were not the Warrant Agent under this Agreement. Nothing
herein shall  preclude the Warrant  Agent from acting in any other  capacity for
the Company or for any other legal entity.

            SECTION 10.5.  DISCHARGE OR REMOVAL;  REPLACEMENT WARRANT AGENT. The
Warrant  Agent may resign from its position as such and be  discharged  from all
further duties and liabilities  hereunder  (except liability arising as a result
of the Warrant Agent's own gross negligence,  bad faith or willful  misconduct),
after giving one month's prior written notice to the Company. The Company may at
any time remove the Warrant Agent upon one month's written notice specifying the
date  when such  discharge  shall  take  effect,  and the  Warrant  Agent  shall
thereupon in like manner be discharged  from all further duties and  liabilities
hereunder, except as aforesaid. The Warrant Agent shall mail to each Holder of a
Warrant,  at the  Company's  expense,  a copy of said notice of  resignation  or
notice of  removal,  as the case may be.  Upon such  resignation  or removal the
Company shall appoint in writing a new warrant agent.  If the Company shall fail
to make such  appointment  within a period of 30 days after it has been notified
in writing of such  resignation  by the  resigning  Warrant  Agent or after such
removal,  then the  resigning  or  removed  Warrant  Agent or the  Holder of any
Warrant may apply to any court of competent  jurisdiction for the appointment of
a new warrant agent.  After 30 days from receipt of, or giving,  notice,  as the
case may be, and pending  appointment  of a successor  to the  original  Warrant
Agent, either by the Company or by such a court, the duties of the Warrant Agent
shall be carried out by the Company. Any new warrant agent, whether appointed by
the Company or by such a court,  shall be a bank or trust company doing business
under the laws of the United States or any state  thereof,  in good standing and
having a combined capital and surplus of not less than $25,000,000. The combined
capital  and  surplus of any such new  warrant  agent  shall be deemed to be the
combined  capital and surplus as set forth in the most recent  annual  report of
its condition published by such warrant agent prior to its appointment, PROVIDED
that such  reports are  published  at least  annually  pursuant to law or to the
requirements  of a federal or state  supervising or examining  authority.  After
acceptance in writing of such  appointment by the new warrant agent, it shall be
vested with the same powers,  rights,  duties and  responsibilities as if it had
been  originally  named  herein  as  the  Warrant  Agent,  without  any  further
assurance, conveyance, act or deed; however, the original Warrant Agent shall in
all events  deliver and  transfer to the  successor  Warrant  Agent all property
(including, without limitation,  documents and recorded information), if any, at
the time held  hereunder by the original  Warrant Agent and if for any reason it
shall be necessary  or  expedient to execute and deliver any further  assurance,


                                       27
<PAGE>

conveyance,  act or deed,  the same shall be done at the  expense of the Company
and shall be legally and validly  executed  and  delivered  by the  resigning or
removed  Warrant  Agent.   Not  later  than  the  effective  date  of  any  such
appointment, the Company shall file notice thereof with the resigning or removed
Warrant  Agent and shall use its  reasonable  best efforts to forthwith  cause a
copy of such notice to be mailed by the  successor  Warrant Agent to each Holder
of a Warrant.  Failure to give any notice  provided  for in this  Section  10.5,
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the  appointment of a new warrant agent,  as
the case may be. No  Warrant  Agent  hereunder  shall be liable  for any acts or
omissions of any successor Warrant Agent.

            SECTION 10.6.  SUCCESSOR  WARRANT AGENT.  Any corporation into which
the Warrant Agent or any new warrant  agent may be merged or  converted,  or any
corporation  resulting from any  consolidation to which the Warrant Agent or any
new  warrant  agent  shall be a party or any  corporation  succeeding  to all or
substantially all the corporate agency business of the Warrant Agent, shall be a
successor  Warrant Agent under this Agreement  without any further act, PROVIDED
that such  corporation  would be eligible  for  appointment  as successor to the
Warrant Agent under the  provisions of Section 10.5 hereof.  Any such  successor
Warrant Agent shall  promptly cause notice of its succession as Warrant Agent to
be mailed to each Holder of a Warrant.


                                   ARTICLE XI

                                  MISCELLANEOUS

            SECTION 11.1.  MONIES  DEPOSITED WITH THE WARRANT AGENT. The Warrant
Agent shall not be required to pay interest on any monies deposited  pursuant to
the provisions of this  Agreement  except such as it shall agree in writing with
the Company to pay thereon.  Any monies,  securities or other  property which at
any time shall be  deposited  by the  Company or on its behalf  with the Warrant
Agent pursuant to this Agreement shall be and are hereby  assigned,  transferred
and set over to the  Warrant  Agent in trust  for the  purpose  for  which  such
monies, securities or other property shall have been deposited; but such monies,
securities or other property need not be segregated from other funds, securities
or other property except to the extent  required by law. Any monies,  securities
or other property  deposited with the Warrant Agent for payment or  distribution
to the Holders  that remains  unclaimed  for one year after the date the monies,
securities  or other  property  was  deposited  with the Warrant  Agent shall be
delivered to the Company upon its request therefor.

            SECTION 11.2.  PAYMENT OF TAXES.  Subject to Article VI hereof,  all
Common Shares  issuable upon the exercise of Warrants  shall be validly  issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other  governmental  charges that may be imposed under the laws of the


                                       28
<PAGE>

United  States of  America  or any  political  subdivision  or taxing  authority
thereof or therein in respect of the issue or delivery  thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required,  however, to pay any tax or other charge imposed in connection with
any  transfer  involved  in the  issue  of any  certificate  for  Common  Shares
(including  other  securities  or  property  issuable  upon the  exercise of the
Warrants)  or payment  of cash to any Person  other than the Holder of a Warrant
Certificate  surrendered  upon the  exercise  of a  Warrant  and in case of such
transfer or payment,  the Warrant Agent and the Company shall not be required to
issue any share  certificate  or pay any cash  until such tax or charge has been
paid or it has  been  established  to the  Warrant  Agent's  and  the  Company's
satisfaction that no such tax or charge is due.

            SECTION  11.3.  NO  MERGER,  CONSOLIDATION  OR SALE OF ASSETS OF THE
COMPANY. Except as otherwise provided herein, the Company will not merge into or
consolidate with any other Person,  or sell or otherwise  transfer its property,
assets and business  substantially as an entirety to a successor of the Company,
unless the Person resulting from such merger or consolidation, or such successor
of the Company,  shall expressly assume, by supplemental  agreement satisfactory
in form to the Warrant  Agent and executed and  delivered to the Warrant  Agent,
the due and punctual  performance  and observance of each and every covenant and
condition of this  Agreement  or  contained in the Warrants to be performed  and
observed by the Company.

            SECTION  11.4.  REPORTS TO  HOLDERS.  Whether or not the  Company is
required to file reports with the  Commission,  the Company  shall file with the
Commission  all reports and other  information it would be required to file with
the  Commission  by Section  13(a) or 15(d)  under the  Exchange  Act if it were
subject  thereto.  The Company shall supply the Warrant Agent and each Holder or
shall supply to the Warrant Agent for  forwarding  to each such Holder,  without
cost to such Holder, copies of such reports and other information.  In addition,
at all times, upon the request of any Holder or any prospective purchaser of the
Warrants 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 11.5. NOTICES;  PAYMENT. (a) Except as otherwise provided in
Section  11.5(b)  hereof,  any  notice,  demand or delivery  authorized  by this
Agreement  shall be  sufficiently  given or made when  mailed,  if sent by first
class  mail,  postage  prepaid,  addressed  to any  Holder of a Warrant  at such
Holder's last known address appearing on the register of the Company  maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:

            To the Company:

            KMC Telecom Holdings, Inc.
            1545 Route 206, Suite 300
            Bedminster, NJ  07921
            Attention:  Chief Financial Officer


                                       29
<PAGE>

            To the Warrant Agent:

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

or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery.  Any notice that is mailed in the manner herein
provided  shall be  conclusively  presumed to have been duly given when  mailed,
whether or not the Holder receives the notice.

            (b) Payment of the Exercise Price should be made in accordance  with
the  provisions  of this  Agreement at the office of the Warrant Agent set forth
above.

            (c) Any notice  required  to be given by the  Company to the Holders
shall be made by mailing to the Holders at their last known addresses  appearing
on the register  maintained by the Warrant Agent. The Company hereby irrevocably
authorizes the Warrant Agent, in the name and at the expense of the Company,  to
mail any such notice upon receipt  thereof from the Company.  Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given when mailed, whether or not the Holder receives the notice.

            SECTION 11.6.  BINDING EFFECT.  This Agreement shall be binding upon
and  inure to the  benefit  of the  Company  and the  Warrant  Agent  and  their
respective  successors  and  assigns,  and the Holders  from time to time of the
Warrants.  Nothing in this Agreement is intended or shall be construed to confer
upon any Person,  other than the Company,  the Warrant  Agent and the Holders of
the Warrants, any right, remedy or claim under or by reason of this Agreement or
any part hereof.

            SECTION 11.7.  COUNTERPARTS.  This Agreement may be executed
manually or by facsimile in any number of counterparts, each of which shall
be deemed an original, but all of which together constitute one and the same
instrument.

            SECTION 11.8. AMENDMENTS. The Warrant Agent may, without the consent
or  concurrence  of the Holders of the Warrants,  by  supplemental  agreement or
otherwise,  join with the Company in making any changes or  corrections  in this
Agreement  that  (a) are  required  to cure  any  ambiguity  or to  correct  any
defective or inconsistent  provision or clerical omission or mistake or manifest
error herein contained or (b) add to the covenants and agreements of the Company
in this Agreement further covenants and agreements of the Company  thereafter to
be observed,  or surrender any rights or power reserved to or conferred upon the
Company  in this  Agreement;  PROVIDED  that in  either  case  such  changes  or
corrections  do not and will not adversely  affect,  alter or change the rights,
privileges or immunities  of the Holders of Warrants.  Upon the Warrant  Agent's
request, the Company shall promptly provide an Officer's Certificate and Opinion


                                       30
<PAGE>

of Counsel  which  provide  that all  conditions  precedent  to  adoption  of an
amendment have been satisfied.

            SECTION 11.9.  HEADINGS.  The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

            SECTION  11.10.  COMMON SHARES  LEGEND.  Unless and until the Common
Shares  issuable  upon the  exercise of the Warrants  are  registered  under the
Securities  Act,  or unless  otherwise  agreed  by the  Company  and the  Holder
thereof, such Common Shares will bear a legend to the following effect:

      THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE HAVE 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  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"),  (2) AGREES THAT
      IT WILL NOT,  WITHIN THE TIME PERIOD  REFERRED  TO IN RULE 144(k)  (TAKING
      INTO ACCOUNT THE  PROVISIONS OF RULE 144(d) UNDER THE  SECURITIES  ACT, IF
      APPLICABLE),  AS IN  EFFECT  WITH  RESPECT  TO SUCH  TRANSFER,  RESELL  OR
      OTHERWISE  TRANSFER  THE COMMON  SHARES  REPRESENTED  BY THIS  CERTIFICATE
      EXCEPT (A) TO KMC TELECOM HOLDINGS, INC. (THE "COMPANY") OR ANY SUBSIDIARY
      THEREOF,  (B) TO A QUALIFIED  INSTITUTIONAL  BUYER IN COMPLIANCE WITH RULE
      144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR
      THAT,  PRIOR  TO  SUCH  TRANSFER,  FURNISHES  TO THE  TRANSFER  AGENT  AND
      REGISTRAR  A  SIGNED  LETTER  CONTAINING   CERTAIN   REPRESENTATIONS   AND
      AGREEMENTS  RELATING TO THE  RESTRICTIONS ON TRANSFER OF THE COMMON SHARES
      REPRESENTED BY THIS  CERTIFICATE (THE FORM OF WHICH LETTER CAN BE OBTAINED
      FROM  THE  TRANSFER  AGENT  AND  REGISTRAR)  AND  AN  OPINION  OF  COUNSEL
      REASONABLY  ACCEPTABLE  TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE
      WITH THE SECURITIES  ACT, (D) PURSUANT TO THE EXEMPTION FROM  REGISTRATION
      PROVIDED  BY RULE 144  UNDER  THE  SECURITIES  ACT (IF  AVAILABLE)  OR (E)
      PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE SECURITIES ACT


                                       31
<PAGE>

      AND (3)  AGREES  THAT IT WILL  DELIVER  TO EACH  PERSON TO WHOM THE COMMON
      SHARES   REPRESENTED  BY  THIS   CERTIFICATE   ARE  TRANSFERRED  A  NOTICE
      SUBSTANTIALLY  TO THE  EFFECT  OF THIS  LEGEND.  IN  CONNECTION  WITH  ANY
      TRANSFER OF THE COMMON SHARES  REPRESENTED BY THIS CERTIFICATE  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 TRANSFER  AGENT AND REGISTRAR.  IF THE
      PROPOSED TRANSFEREE IS AN INSTITUTIONAL  ACCREDITED  INVESTOR,  THE HOLDER
      MUST,  PRIOR TO SUCH  TRANSFER,  FURNISH TO EACH OF THE TRANSFER AGENT AND
      REGISTRAR  AND 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 IN A TRANSACTION
      NOT SUBJECT TO, THE  REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT. THE
      WARRANT  AGREEMENT  CONTAINS A PROVISION  REQUIRING THE TRANSFER AGENT AND
      REGISTRAR TO REFUSE TO REGISTER ANY TRANSFER OF THE SHARES OF COMMON STOCK
      REPRESENTED   BY  THIS   CERTIFICATE   IN  VIOLATION   OF  THE   FOREGOING
      RESTRICTIONS.

            SECTION 11.11. THIRD PARTY BENEFICIARIES. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Warrant  Agent,  on the other hand, and each Holder shall have
the right to  enforce  such  agreements  directly  to the  extent it deems  such
enforcement  necessary  or  advisable  to  protect  its  rights or the rights of
Holders hereunder.  By acquiring Warrants, each Holder agrees to be bound by the
obligations of Holders generally as set forth herein and as such obligations may
be applicable to such Holder.

            SECTION 11.12.  TERMINATION.  Except as otherwise specified
herein, this Agreement shall terminate at 5:00 p.m. (New York City time) on
the Expiration Date.  Notwithstanding the foregoing, this Agreement shall
terminate on any earlier date as of which all Warrants have been exercised.

            SECTION 11.13.  GOVERNING LAW.  This Agreement shall be governed
by the laws of the State of New York.


                                       32
<PAGE>

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

                              KMC TELECOM HOLDINGS, INC.


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



                              THE CHASE MANHATTAN BANK, as Warrant Agent


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



                              LUCENT TECHNOLOGIES INC.


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



                              NEWCOURT COMMERCIAL FINANCE     CORPORATION


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



                                       33
<PAGE>

                                                                       EXHIBIT A

                         FORM OF WARRANT CERTIFICATE

                           KMC TELECOM HOLDINGS, INC.

                                                                 CUSIP No. _____

No. _____

                       WARRANTS TO PURCHASE COMMON SHARES

            This certifies that  ______________,  or its registered  assigns, is
the  owner of  ___________  Warrants,  each of  which  represents  the  right to
purchase  from  KMC  TELECOM  HOLDINGS,   INC.,  a  Delaware   corporation  (the
"Company"),  0.471756 shares of the Common Stock,  par value $0.01 per share, of
the Company (the "COMMON SHARES") at an exercise price (the "EXERCISE Price") of
$0.01 per Common  Share  (subject  to  adjustment  as  provided  in the  Warrant
Agreement hereinafter referred to below), upon surrender hereof at the office of
The Chase  Manhattan  Bank, or to its successor,  as the warrant agent under the
Warrant  Agreement  (any such  warrant  agent being  herein  called the "WARRANT
AGENT"),  with the Subscription  Form on the reverse hereof duly executed,  with
signature  guaranteed as therein  specified and simultaneous  payment in full by
wire transfer,  in cash or by certified or official bank or bank cashier's check
payable  to the order of the  Company.  Notwithstanding  the  foregoing,  if the
Common Shares (or other  securities)  issuable upon exercise of the Warrants are
registered   under  the  Exchange  Act,  the  Exercise  Price  may  be  paid  by
surrendering additional Warrants to the Warrant Agent having an aggregate Spread
equal to the aggregate  Exercise Price of the Warrants being  exercised.  At any
time  beginning one year after the Closing Date and on or before the  Expiration
Date, any  outstanding  Warrants may be exercised on any Business Day;  PROVIDED
that the Warrant Registration  Statement is, at the time of exercise,  effective
and  available  for the exercise of Warrants or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act.

            This Warrant  Certificate  is issued under and in accordance  with a
Warrant Agreement dated as of February 4, 1999 (the "WARRANT AGREEMENT"),  among
The Chase Manhattan  Bank, as Warrant Agent,  the Company,  Newcourt  Commercial
Finance  Corporation,  Lucent Technologies Inc. and any Additional Purchaser (as
described  therein)  and a Warrant  Registration  Rights  Agreement  dated as of
February  4, 1999  (the  "WARRANT  REGISTRATION  RIGHTS  AGREEMENT"),  among the
Company, Newcourt Commercial Finance Corporation,  Lucent Technologies Inc., and
any Additional  Purchaser and is subject to the Certificate of Incorporation and
Bylaws of the Company and to the terms and provisions  contained therein, to all
of which terms and provisions the Holder of this Warrant Certificate consents by
acceptance   hereof.  The  terms  of  the  Warrant  Agreement  and  the  Warrant
Registration  Rights Agreement are hereby  incorporated  herein by reference and
made a part hereof.  Reference is hereby made to the Warrant  Agreement  and the
Warrant  Registration  Rights  Agreement for a full  description  of the rights,


                                       34
<PAGE>

limitations  of rights,  obligations,  duties and  immunities  thereunder of the
Company and the Holders of the Warrants. The summary of the terms of the Warrant
Agreement  and the  Warrant  Registration  Rights  Agreement  contained  in this
Warrant  Certificate  is qualified  in its entirety by express  reference to the
Warrant Agreement and the Warrant Registration Rights Agreement.  All terms used
in this Warrant  Certificate  that are defined in the Warrant  Agreement and the
Warrant  Registration  Rights Agreement shall have the meanings assigned to them
in such agreements.

            Copies of the Warrant Agreement and the Warrant  Registration Rights
Agreement  are on file at the office of the Warrant Agent and may be obtained by
writing to the Warrant Agent at the following address:

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

            If the Company merges or consolidates  with or into, or sells all or
substantially  all of its  property  and  assets  to,  another  Person  and  the
consideration  received by holders of Common Shares consists solely of cash, the
Holders of Warrants  shall be entitled to receive  distributions  on the date of
such event on an equal basis with holders of Common Shares (or other  securities
issuable upon  exercise of the  Warrants) as if the Warrants had been  exercised
immediately prior to such event (less the Exercise Price).  Upon receipt of such
payment,  if any,  the  rights of a Holder  shall  terminate  and cease and such
Holder's Warrants shall expire.

            The number of Common  Shares  purchasable  upon the exercise of each
Warrant  and the price per share are  subject to  adjustment  as provided in the
Warrant Agreement.  Except as stated in the immediately preceding paragraph,  in
the event the Company merges or consolidates with, or sells all or substantially
all of its assets to, another Person, each Warrant will, upon exercise,  entitle
the Holder  thereof to  receive  the number of shares of capital  stock or other
securities  or the  amount  of money and other  property  which the  holder of a
Common  Share (or other  securities  or  property  issuable  upon  exercise of a
Warrant) is entitled to receive upon completion of such merger, consolidation or
sale.

            As to any final  fraction of a share which the same Holder of one or
more Warrant  Certificates would otherwise be entitled to purchase upon exercise
thereof in the same  transaction,  the  Company  may pay the cash value  thereof
determined as provided in the Warrant Agreement.

            Subject to Article VI of the Warrant  Agreement,  all Common  Shares
issuable by the Company upon the exercise of Warrants  shall be validly  issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other  governmental  charges that may be imposed under the laws of the


                                       35
<PAGE>

United  States of  America  or any  political  subdivision  or taxing  authority
thereof or therein in respect of the issue or delivery  thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required,  however, to pay any tax or other charge imposed in connection with
any  transfer  involved  in the  issue  of any  certificate  for  Common  Shares
(including  other  securities  or  property  issuable  upon the  exercise of the
Warrants)  or payment  of cash to any Person  other than the Holder of a Warrant
Certificate  surrendered  upon the  exercise  of a  Warrant  and in case of such
transfer or payment,  the Warrant Agent and the Company shall not be required to
issue any share  certificate  or pay any cash  until such tax or charge has been
paid or it has  been  established  to the  Warrant  Agent's  and  the  Company's
satisfaction that no such tax or charge is due.

            Subject to the  restrictions on and conditions to transfer set forth
in Articles II and VIII of the Warrant Agreement,  this Warrant  Certificate and
all rights hereunder are transferable by the registered  Holder hereof, in whole
or in part,  on the register of the Company  maintained by the Warrant Agent for
such purpose at the Warrant Agent's office in New York, New York, upon surrender
of  this  Warrant  Certificate  duly  endorsed,  or  accompanied  by  a  written
instrument of transfer in form satisfactory to the Company and the Warrant Agent
duly executed,  with signatures  guaranteed as specified in the attached Form of
Assignment,  by the registered  Holder hereof or his attorney duly authorized in
writing  and by  such  other  documentation  required  pursuant  to the  Warrant
Agreement and upon payment of any necessary  transfer tax or other  governmental
charge imposed upon such transfer.  Upon any partial transfer,  the Company will
sign and issue and the Warrant Agent will countersign and deliver to such Holder
a new Warrant  Certificate  or  Certificates  with respect to any portion not so
transferred.  Each taker and Holder of this Warrant  Certificate,  by taking and
holding the same, consents and agrees that prior to the registration of transfer
as  provided  in the Warrant  Agreement,  the Company and the Warrant  Agent may
treat the Person in whose name the Warrants are registered as the absolute owner
hereof  for any  purpose  and as the  Person  entitled  to  exercise  the rights
represented hereby, any notice to the contrary notwithstanding. Accordingly, the
Company  and/or the  Warrant  Agent  shall not,  except as ordered by a court of
competent  jurisdiction  as required by law, be bound to recognize any equitable
or other claim to or interest  in the  Warrants on the part of any Person  other
than such  registered  Holder,  whether  or not it shall  have  express or other
notice thereof.

            This  Warrant  Certificate  may be  exchanged  at the  office of the
Warrant  Agent  maintained  for such  purpose in New York,  New York for Warrant
Certificates  representing  the same  aggregate  number  of  Warrants,  each new
Warrant  Certificate  to represent  such number of Warrants as the Holder hereof
shall designate at the time of such exchange.

            Prior to the valid exercise of the Warrants  represented hereby, the
Holder of this Warrant Certificate, as such, shall not be entitled to any rights
of a shareholder of the Company,  including,  without  limitation,  the right to
vote  or  to  consent  to  any  action  of  the  shareholders,  to  receive  any
distributions,  to exercise  any  pre-emptive  right or to receive any notice of
meetings of shareholders, and shall not be entitled to receive any notice of any
proceedings of the Company except as provided in the Warrant Agreement.


                                       36
<PAGE>

            This  Warrant  Certificate  shall be void and all  rights  evidenced
hereby  shall  cease on  February  1,  2009,  unless  sooner  terminated  by the
liquidation,  dissolution or winding-up of the Company or as otherwise  provided
in the Warrant  Agreement upon the  consolidation or merger of the Company with,
or sale of the  Company  to,  another  Person or unless such date is extended as
provided in the Warrant Agreement.

                 [Balance of page intentionally left blank.]

            This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.



                                    KMC TELECOM HOLDINGS, INC.


                                    By:  _________________________
                                         Name:  Cynthia Worthman
                                         Title: Vice President, Chief Financial
                                                Officer and Secretary


Dated: February __, 1999


Countersigned:

THE CHASE MANHATTAN BANK,
   as Warrant Agent


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


                                       37
<PAGE>


                    FORM OF REVERSE OF WARRANT CERTIFICATE

                              SUBSCRIPTION FORM

                (To be executed only upon exercise of Warrant)

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

            The  undersigned  irrevocably  exercises  ________  of the  Warrants
represented by this Warrant  Certificate and herewith makes payment of $ _______
(such payment being by wire  transfer,  in cash or by certified or official bank
or bank cashier's  check payable to the order or at the direction of KMC Telecom
Holdings,  Inc. or, if the Common  Shares (or other  securities)  issuable  upon
exercise of the Warrants  are  registered  under the Exchange  Act, the exercise
price may be paid by  surrendering  additional  Warrants  to the  Warrant  Agent
having an aggregate Spread equal to the aggregate exercise price of the Warrants
being  exercised)  all at the  exercise  price and on the  terms and  conditions
specified  in this  Warrant  Certificate  and in the Warrant  Agreement  and the
Warrant  Registration  Rights  Agreement  referred to herein and surrenders this
Warrant  Certificate  and all right,  title and interest  therein to and directs
that the  shares of Common  Stock,  par value  $.01 per  share,  of KMC  Telecom
Holdings,  Inc.  (the  "COMMON  SHARES")  deliverable  upon the exercise of such
Warrants be registered or placed in the name and at the address  specified below
and delivered thereto.

                                  CHECK ONE

            |_| Payment  made by wire  transfer,  in cash,  or by  certified  or
                official bank or bank cashier's check.

                                       OR

            |_| The Common Shares (or other  securities)  issuable upon exercise
                of the  Warrants  are  registered  under  the  Exchange  Act and
                payment  is  being  made  by  surrendering  Warrants  having  an
                aggregate  Spread equal to the aggregate  Exercise  Price of the
                Warrants being exercised.


Dated:                        ------------------------------------------
                              (Signature of Owner)

                              ------------------------------------------
                              (Street Address)

                              ------------------------------------------
                              (City)             (State)      (Zip Code)



                              Signature Guaranteed By:


                              -------------------------------------------


Securities and/or check or other property to be issued or delivered to:

Please insert social security or identifying number:

Name:

Street Address:

City, State and Zip Code:


                                       39
<PAGE>

                               FORM OF ASSIGNMENT

            In consideration of monies or other valuable  consideration received
from the  Assignee(s)  named below,  the undersigned  registered  Holder of this
Warrant  Certificate hereby sells,  assigns,  and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by this Warrant  Certificate not being assigned
hereby) all of the right of the undersigned under this Warrant Certificate, with
respect to the number of Warrants set forth below:

Name(s) of Assignee(s):  _____________________________________

Address:  __________________________________________________

No. of Warrants:  ___________________________________________

Please insert social security or other identifying number of assignee(s):

and does hereby irrevocably constitute and appoint  ________________________ the
undersigned's  attorney to make such transfer on the books of __________________
maintained for the purposes, with full power of substitution in the premises.

[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES]


                                       40
<PAGE>

            In  connection  with  any  transfer  of  Warrants,  the  undersigned
confirms that without utilizing any general  solicitation or general advertising
that:

[Check One]

|_|      (a)  these  Warrants  are  being  transferred  in  compliance  with the
         exemption from registration  under the U.S.  Securities Act of 1933, as
         amended, provided by Rule 144A thereunder.
                                       OR

|_|      (b) these Warrants are 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 Warrant  Certificate  and the
         Warrant Agreement.

                                       OR

|_|      (c) these  Warrants  are being  transferred  pursuant  to an  effective
         registration  statement  under  the U.S.  Securities  Act of  1933,  as
         amended.

If none of the  foregoing  boxes is  checked,  the  Warrant  Agent  shall not be
obligated  to register  the  Warrants  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 Article VIII of the Warrant Agreement shall
have been satisfied.

Dated:
                                    -------------------------
                                    (Signature of Owner)

                                    -------------------------
                                    (Street Address)

                                    -------------------------
                                    (City)        (State)     (Zip Code)


                                    Signature Guaranteed By:

                                    ---------------------------

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


                                       41
<PAGE>

            The  undersigned  represents  and warrants that it is purchasing the
Warrant(s)  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 U.S.  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 KMC Telecom Holdings,  Inc. 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:________________

                              ----------------------------------------
                              [NOTE:  To be executed by an executive officer]


                                       42
<PAGE>

                                                                     EXHIBIT B-1



                            Form of Certificate to be
                  Delivered by Transferor in Connection with
                      TRANSFERS TO PERSONS OTHER THAN QIBS

                              [Date]

KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ  07921

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

Re:   Warrants (the "Warrants") to Purchase
      Common Shares of KMC Telecom Holdings, Inc. (the "Company")

Ladies and Gentlemen:

            We hereby certify that such transfer is being effected in compliance
with the transfer  restrictions  applicable to the Warrants or interests therein
transferred  pursuant  to  and  in  accordance  with  the  Securities  Act,  and
accordingly we hereby further certify that (check one):

      (a) |_| such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
                                       or

      (b) |_| such  transfer is being  effected  to the Company or a  subsidiary
thereof;

                                       or

      (c)  |_|  such  transfer  is  being  effected  pursuant  to  an  effective
registration statement under the Securities Act;

                                       or

      (d) |_| such transfer is being effected  pursuant to an exemption from the
registration  requirements  of the  Securities  Act other than Rule 144 and Rule
144, and we hereby further certify that such transfer complies with the transfer
restrictions  applicable  to the Warrants or interests  therein  transferred  to
persons other than QIBs and in accordance with the requirements of the exemption
claimed,  which  certification is supported by an Opinion of Counsel provided by
us or the  transferee (a copy of which we have attached to this  certification),
to the effect that such transfer is in compliance  with the Securities Act. Upon
consummation  of the  proposed  transfer  in  accordance  with the  terms of the
Warrant Agreement, the transferred Warrants or interests therein will be subject
to the  restrictions  on transfer  enumerated  in the Private  Placement  Legend
printed  on the  Certificated  Warrant  and in the  Warrant  Agreement  and  the
Securities Act.

                                       Very truly yours,

                                       [Name of Transferor]


                                       By:--------------------------------------
                                            Authorized Signatory


                                       43
<PAGE>

                                                                     EXHIBIT B-2

                            FORM OF CERTIFICATE TO BE
                  DELIVERED BY TRANSFEREES IN CONNECTION WITH
                      TRANSFERS TO PERSONS OTHER THAN QIBS


                                                      [Date]


KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ  07921


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

Re:  Warrants (the "WARRANTS") to Purchase
     Common Shares of
     KMC Telecom Holdings, Inc. (the "COMPANY")


Ladies and Gentlemen:

           In connection  with our proposed  purchase of  ___________  aggregate
number of Warrants, we confirm that:

           1. We understand  that any subsequent  transfer of the Warrants,  any
     interest therein or the Common Shares issuable upon exercise of any Warrant
     (the "WARRANT  SHARES") is subject to certain  restrictions  and conditions
     set forth in the Warrant Agreement dated as of February 4, 1999 relating to
     the Warrants (the "WARRANT  AGREEMENT") and the Warrant Registration Rights
     Agreement  dated  February 4, 1999  relating to the Warrants  (the "WARRANT
     REGISTRATION  RIGHTS AGREEMENT") and the undersigned agrees to be bound by,
     and not to resell,  pledge or  otherwise  transfer  the Warrants or Warrant
     Shares except in compliance with, such  restrictions and conditions and the
     U.S. Securities Act of 1933, as amended (the "SECURITIES ACT").

           2. We  understand  that  the  Warrants  represented  by this  Warrant
     Certificate  and, as of the date this Warrant  Certificate  was  originally


                                       44
<PAGE>

     issued,  the Warrant Shares have not been  registered  under the Securities
     Act,  and  accordingly  may not be  offered,  sold,  pledged  or  otherwise
     transferred except as set forth in the following sentence. We agree that we
     will  not,  within  the  time  period  referred  to in Rule  144(k)  of the
     Securities Act (taking into account the provisions of Rule 144(d) under the
     Securities Act, if applicable) under the Securities Act as in effect on the
     date of the  transfer of this  Warrant,  resell or  otherwise  transfer the
     Warrants  represented by this Warrant Certificate except (a) to KMC Telecom
     Holdings,  Inc. or any subsidiary thereof, (b) to a qualified institutional
     buyer in compliance  with Rule 144A under the Securities  Act, (c) pursuant
     to  the  exemption  from  registration  provided  by  Rule  144  under  the
     Securities Act (if available),  (d) to an institutional accredited investor
     that, prior to such transfer,  furnishes to you, to the Company and, in the
     case of the Warrant Shares, to the transfer agent and registrar therefor, a
     signed letter containing certain representations and agreements relating to
     the  restrictions  on transfer of the Warrants  represented by this Warrant
     Certificate  (the form of which  letter can be  obtained  from the  Warrant
     Agent) and an opinion of counsel  acceptable to KMC Telecom Holdings,  Inc.
     and its counsel that such transfer is in compliance with the Securities Act
     or (f) pursuant to an effective registration statement under the Securities
     Act and, in each case, in accordance with applicable state securities laws.

           3. We understand  that, on any proposed  resale of any Warrants,  any
     interest  therein or Warrant Shares,  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 Warrants 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
     Warrants,  and we and any accounts for which we are acting are each able to
     bear the economic risk of our or its investment for an indefinite period of
     time.

           5. We are acquiring the Warrants  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.


                                       45
<PAGE>

           You, the Company and, if applicable, the transfer agent and registrar
for the Warrant Shares 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


                                       46
<PAGE>

                                                                       EXHIBIT C


                                     [Date]


KMC Telecom Holdings, Inc.
1545 Route 206, Suite 300
Bedminster, NJ  07921


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

Re:  Warrants (the "WARRANTS") to Purchase
     Common Shares of
     KMC Telecom Holdings, Inc. (the "COMPANY")


Ladies and Gentlemen:

           This notice is being provided  pursuant to Section 2.4 of the Warrant
Agreement  dated as of February  4, 1999 (the  "WARRANT  AGREEMENT"),  among The
Chase Manhattan Bank, as Warrant Agent, the Company, Newcourt Commercial Finance
Corporation, Lucent Technologies Inc. and any Additional Purchaser (as described
therein).  Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Warrant Agreement.

           The  undersigned  hereby  certifies  that  (i) [it  is][we  are]  the
holder[s] of at least 10% of the aggregate  outstanding Eligible Shares and that
(ii) as of the date of this  notice,  the Company has failed to redeem all share
of Series F Preferred Stock by the earlier of:

                                   (check one)


                                       47
<PAGE>

     (a)   |_|   the  date  that is sixty  days  after  the date on  which  the
                 Company  closes an  underwritten  primary  offering of at least
                 $200  million  of its Common  Stock  pursuant  to an  effective
                 registration statement under the Securities Act;
                                       or
     (b)   |_|   February 4, 2001

           As a result in accordance  with the  provisions of Section 2.4 of the
Warrant  Agreement,  each holder of Eligible Shares (or their transferees) shall
be  entitled  to  receive  a number  of  Springing  Warrants  equal  to  227,273
multiplied  by a  fraction,  the  numerator  of  which  shall  be the  aggregate
liquidation  preference of such holder's  Eligible Shares and the denominator of
which shall be the aggregate liquidation  preference of all outstanding Eligible
Shares.  The Warrant Agent is hereby  authorized and directed to countersign and
deliver to each registered  holder of Eligible  Shares,  the number of Springing
Warrants each such holder is entitled to receive at such holder's address as set
forth on the records of the Transfer Agent for the Series E Preferred  Stock and
the Series F Preferred Stock.

                               [NAME OF HOLDER OF SERIES [E][F] PREFERRED STOCK

                               By:________________________
                               Name:
                               Title:

                               Number of shares of Series [E][F] preferred
                               Stock:_______



                               [NAME OF HOLDER OF SERIES [E][F] PREFERRED STOCK

                               By:________________________
                               Name:
                               Title:

                               Number of shares of Series [E][F] preferred
                               Stock:_______


                                       48
<PAGE>

                                                                       EXHIBIT D


          IN WITNESS  WHEREOF,  the  undersigned  hereby agrees to the terms and
conditions  of,  and  agrees  to be  bound by the  provisions  of,  the  Warrant
Agreement  dated as of  February  4,  1999,  as if the  undersigned  was a party
thereto as of such date,  and has caused this  signature page thereto to be duly
executed as of the day and year set forth below.

Date:__________________       [   NAME OF  ADDITIONAL OF PURCHASER   ]



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


                         Acknowledged and consented to:


                              THE CHASE MANHATTAN BANK, as Warrant Agent


                              By:----------------------------------------------
                                   Name:  Patricia Kelly
                                   Title:



                              KMC TELECOM HOLDINGS, INC.


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


                                       49
<PAGE>

                                   APPENDIX A

LIST OF FINANCIAL EXPERTS


Alex. Brown & Sons
Bear, Stearns & Co., Inc.
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Lazard Freres & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Lehman Brothers


                                       50
<PAGE>

                                TABLE OF CONTENTS
                                                                            PAGE

ARTICLE I    CERTAIN DEFINITIONS                                             2
ARTICLE II   ORIGINAL ISSUE OF WARRANTS                                      6
     SECTION 2.1.  FORM OF WARRANT CERTIFICATES                              6
     SECTION 2.2.  RESTRICTIVE LEGENDS                                       6
     SECTION 2.3.  EXECUTION AND DELIVERY OF WARRANT CERTIFICATES            7
ARTICLE III   EXERCISE PRICE AND EXERCISE OF WARRANTS                       10
     SECTION 3.1.  EXERCISE PRICE                                           10
     SECTION 3.2.  EXERCISE; RESTRICTIONS ON EXERCISE                       10
     SECTION 3.3.  METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE            10
ARTICLE IV    ADJUSTMENTS                                                   12
     SECTION 4.1.  ADJUSTMENTS                                              12
     SECTION 4.2.  NOTICE OF ADJUSTMENT                                     19
     SECTION 4.3.  STATEMENT ON WARRANTS                                    19
     SECTION 4.4.  NOTICE OF CONSOLIDATION, MERGER, ETC                     19
     SECTION 4.5.  FRACTIONAL INTERESTS                                     20
ARTICLE V     DECREASE IN EXERCISE PRICE                                    21
ARTICLE VI    LOSS OR MUTILATION                                            21
ARTICLE VII   RESERVATION AND AUTHORIZATION OF COMMON SHARES                22
ARTICLE VIII  WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER              22
     SECTION 8.1.  TRANSFER AND EXCHANGE                                    22
     SECTION 8.3.  SPECIAL TRANSFER PROVISIONS                              23
     SECTION 8.4.  SURRENDER OF WARRANT CERTIFICATES                        24
ARTICLE IX    WARRANT HOLDERS                                               25
     SECTION 9.1.  WARRANT HOLDER DEEMED NOT A SHAREHOLDER                  25
     SECTION 9.2.  RIGHT OF ACTION                                          25
ARTICLE X     THE WARRANT AGENT                                             25
     SECTION 10.1.  DUTIES AND LIABILITIES                                  25
     SECTION 10.2.  RIGHT TO CONSULT COUNSEL                                27
     SECTION 10.3.  COMPENSATION; INDEMNIFICATION                           27
     SECTION 10.4.  NO RESTRICTIONS ON ACTIONS                              27
     SECTION 10.5.  DISCHARGE OR REMOVAL; REPLACEMENT WARRANT AGENT         27
     SECTION 10.6.  SUCCESSOR WARRANT AGENT                                 28
ARTICLE XI    MISCELLANEOUS                                                 29
     SECTION 11.1.  MONIES DEPOSITED WITH THE WARRANT AGENT                 29
     SECTION 11.2.  PAYMENT OF TAXES                                        29
     SECTION 11.3.  NO MERGER, CONSOLIDATION OR SALE OF ASSETS OF 
                    THE COMPANY                                             29
     SECTION 11.4.  REPORTS TO HOLDERS                                      30
     SECTION 11.5.  NOTICES; PAYMENT                                        30
     SECTION 11.6.  BINDING EFFECT                                          31
     SECTION 11.7.  COUNTERPARTS                                            31
     SECTION 11.8.  AMENDMENTS                                              31
     SECTION 11.9.  HEADINGS                                                31
     SECTION 11.10. COMMON SHARES LEGEND                                    31
     SECTION 11.11. THIRD PARTY BENEFICIARIES                               33
     SECTION 11.12. TERMINATION                                             33
     SECTION 11.13. GOVERNING LAW                                           33


EXHIBIT A        FORM OF WARRANT CERTIFICATE

EXHIBIT B-1      FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR IN
                 CONNECTION WITH TRANSFERS TO PERSONS OTHER THAN QIBs

EXHIBIT B-2      FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES IN
                 CONNECTION WITH TRANSFERS TO PERSONS OTHER THAN QIBs

EXHIBIT C        FORM OF SPRINGING NOTICE

EXHIBIT D        FORM OF COUNTERPART TO SIGNATURE PAGE

APPENDIX A       LIST OF FINANCIAL EXPERTS