KMC TELECOM HOLDINGS, INC.

                           CERTIFICATE OF THE POWERS,
                   DESIGNATIONS, PREFERENCES AND RIGHTS OF THE
                  SERIES G-1 VOTING CONVERTIBLE PREFERRED STOCK
              AND SERIES G-2 NON-VOTING CONVERTIBLE PREFERRED STOCK
                          EACH PAR VALUE $.01 PER SHARE

                        Pursuant to Sections 141 and 151
             of the General Corporation Law of the State of Delaware

          As contemplated  by Section 141 of the General  Corporation Law of the
State of Delaware (the "DGCL"), the following resolution was duly adopted by the
Board of Directors of KMC Telecom  Holdings,  Inc., a Delaware  corporation (the
"Corporation"), by unanimous written consent, dated July 5, 2000:

          WHEREAS,  the Board of Directors  of the  Corporation  is  authorized,
within the  limitations  and  restrictions  stated in the Amended  and  Restated
Certificate of  Incorporation  of the  Corporation,  to provide by resolution or
resolutions  for the issuance of shares of preferred  stock,  par value $.01 per
share, of the Corporation,  in one or more series with such voting powers,  full
or limited,  or without voting powers,  and such  designations,  preferences and
relative,  participating,  optional or other special rights, and qualifications,
limitations or  restrictions  as shall be stated and expressed in the resolution
or  resolutions  providing  for the  issuance  thereof  adopted  by the Board of
Directors,  and as are not stated and  expressed  in the  Amended  and  Restated
Certificate of Incorporation,  or any amendment thereto,  including (but without
limiting the  generality  of the  foregoing)  such  provisions as may be desired
concerning  voting,  redemption,  dividends,  dissolution or the distribution of
assets and such other  subjects  or  matters  as may be fixed by  resolution  or
resolutions of the Board of Directors under the DGCL;

          WHEREAS,  the Board of Directors of the  Corporation,  pursuant to its
authority under Section 151 of the DGCL,  desires to authorize and fix the terms
of its Series G-1 Voting  Convertible  Preferred Stock and Series G-2 Non-Voting
Convertible Preferred Stock, each par value $.01 per Share;

          NOW, THEREFORE, BE IT RESOLVED:

          1. DESIGNATION AND NUMBER OF SHARES.

          (a) There shall be hereby established a series of preferred stock, par
value $.01 per share,  designated  as "Series G-1 Voting  Convertible  Preferred
Stock" (such series being  hereinafter  referred to as the "Series G-1 Preferred
Stock").  The authorized number of shares of Series G-1 Preferred Stock shall be
1,250,000.



<PAGE>


          (b) There shall be hereby established a series of preferred stock, par
value $.01 per share, designated as "Series G-2 Non-Voting Convertible Preferred
Stock" (such series hereinafter  referred to as the "Series G-2 Preferred Stock"
and,  together  with the Series G-1  Preferred  Stock,  the  "Series G Preferred
Stock").  The authorized number of shares of Series G-2 Preferred Stock shall be
1,250,000.

          (c) Except as otherwise  expressly  provided in Section 6 hereof,  the
Series G-1 Preferred Stock and the Series G-2 Preferred Stock shall be identical
in all respects.  The  liquidation  preference  of the Series G Preferred  Stock
shall be $337.9697  per share (as  equitably  adjusted for stock  splits,  stock
combinations and similar transactions, the "Liquidation Preference").

          2. RANK. The Series G Preferred Stock shall,  with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Corporation, rank:

          (i) senior to (A) all common stock,  par value $.01 per share,  of the
Corporation  (the  "Common  Stock"),  (B) each other  class of Capital  Stock or
series  of  Preferred  Stock of the  Corporation  the  terms of which  expressly
provide  that such class or series  will rank  junior  to, and do not  expressly
provide that it will rank senior to or on a parity with,  the Series G Preferred
Stock as to  dividend  distributions  and  distributions  upon the  liquidation,
winding-up and  dissolution  of the  Corporation,  and (C) the Junior  Preferred
Stock (all securities described in this clause (i) are collectively  referred to
as "Junior Securities");

          (ii) on a parity  with (A) any  class of  Capital  Stock or  series of
Preferred Stock of the  Corporation  the terms of which  expressly  provide that
such class or series will rank on a parity with the Series G Preferred  Stock as
to dividend distributions and distributions upon the liquidation, winding-up and
dissolution  of  the  Corporation  and  (B)  the  Parity  Preferred  Stock  (all
securities described in this clause (ii) are collectively referred to as "Parity
Securities"); and

          (iii) junior to (A) each class of Capital Stock or series of Preferred
Stock of the Corporation the terms of which expressly provide that such class or
series  will  rank  senior  to the  Series  G  Preferred  Stock  as to  dividend
distributions and distributions upon liquidation, winding-up, and dissolution of
the Corporation and (B) the Senior  Preferred Stock (all securities  referred to
in this clause (iii) are collectively referred to as "Senior Securities").

The Series G Preferred Stock will be subject to the  authorization  and issuance
of additional  classes and series of Senior  Securities  and Parity  Securities;
PROVIDED  that,  except  for (A) the  issuance  and sale of  shares  of Series G
Preferred Stock pursuant to the Purchase  Agreement,  (B) the issuance of shares
of Series F Preferred Stock to pay dividends on the Series F Preferred Stock and
(C) the issuance of shares of Series E Preferred  Stock to pay  dividends on the
Series E Preferred Stock or upon conversion of the Series F Preferred Stock, the
Corporation  shall not  authorize,  create or issue,  or increase the authorized
amount of, any class or series of Senior Securities or Parity Securities (or any
security  convertible into any Senior Security or Parity  Security)  without the
approval  of the  holders  of at least  two-thirds  of the  shares  of  Series G
Preferred  Stock then  outstanding,  voting or  consenting,  as the case may be,
separately as a single class.  The Series G Preferred  Stock  (together with all
other Parity Securities) shall rank senior to all Junior Securities with respect


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<PAGE>


to any  redemption  or repurchase  by the  Corporation  of shares of its Capital
Stock.  Notwithstanding the foregoing, without the approval of the holders of at
least  two-thirds  of the shares of Series G Preferred  Stock then  outstanding,
voting  or  consenting,  as the case may be,  separately  as a single  class the
Corporation  shall  not  make  any  repurchases  of  Junior  Securities  by  the
Corporation  pursuant  to the  exercise of a right of first offer as provided in
Section 3 of the  Shareholders  Agreement.  Notwithstanding  the foregoing,  the
Corporation  may, at any time and from time to time,  on or prior to February 4,
2001  redeem  all or any  portion  of the  shares  of Series F  Preferred  Stock
outstanding  pursuant to the  provisions of Article VI(B) of the  Certificate of
Designations of the Series F Preferred Stock.

          3. DIVIDENDS.

          (a)  When,  as and  if  declared  by the  Board  of  Directors  of the
Corporation and solely out of funds available  therefor,  the Corporation  shall
pay dividends in cash on each  outstanding  share of Series G Preferred Stock as
provided in this paragraph 3. From and after the Issue Date of each  outstanding
share of Series G Preferred  Stock,  dividends  shall  accrue on such share on a
quarterly basis at a rate equal to 7.0% per annum of the Liquidation Preference.
Commencing on the first  Dividend  Payment Date following the Issue Date of each
share of Series G  Preferred  Stock,  dividends  shall be payable  quarterly  in
arrears on the applicable  Dividend Payment Date or the next succeeding Business
Day,  if the  applicable  Dividend  Payment  Date  is not a  Business  Day.  All
dividends shall be cumulative,  whether or not earned or declared,  such that if
any dividend (or portion  thereof)  payable on any Dividend  Payment Date is not
declared and paid in cash in full on such Dividend  Payment Date,  the amount of
such dividend  payable that is not paid on such date shall  increase at the rate
of 7.0% per annum  (compounded  quarterly on each  subsequent  Dividend  Payment
Date) from such  Dividend  Payment  Date until paid in full.  In  addition,  the
holders of each outstanding  share of Series G Preferred Stock shall be entitled
to  participate  in dividends (if any) paid in respect of Common Stock  (whether
payable in cash, securities or other property) on an as-if-converted  basis. All
dividends on the Series G Preferred  Stock shall be payable to holders of record
as they appear on the stock books of the  Corporation on the  applicable  record
dates,  which  shall be not less  than ten (10) nor more  than  sixty  (60) days
preceding the related  Dividend  Payment Date or other dividend  record date, as
shall be fixed by the Board of Directors of the Corporation.

          (b) All  accumulated  and unpaid  dividends  on the Series G Preferred
Stock shall be paid by the  Corporation  upon the  occurrence  of a  Realization
Event,  without  reference to any regular  Dividend  Payment Date, to holders of
record on such date. The Corporation shall send by first class,  postage prepaid
mail a notice of the Realization  Event to all holders of outstanding  shares of
Series  G  Preferred  Stock.  In the  case of a  Realization  Event  which  is a
Qualified Public Offering,  the Corporation may, in lieu of paying cash, pay all
accumulated and unpaid dividends by issuing to each holder of shares of Series G
Preferred Stock,  upon the closing of such initial public offering,  a number of
shares of Common  Stock  equal to the  quotient  obtained  by  dividing  (x) the
aggregate  accumulated and unpaid  dividends on the shares of Series G Preferred
Stock held by such holder by (y) the price at which  shares of Common  Stock are
sold in such offering (before  deduction of underwriting  discounts and expenses
of sale).


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<PAGE>



          (c) All  dividends  paid with  respect to shares of Series G Preferred
Stock  pursuant to Section 3(a) shall be paid pro rata and in like manner to all
of the holders entitled thereto.

          (d) No  dividends or  distributions  shall be paid with respect to any
Junior Securities prior to the payment in full in cash by the Corporation of all
accumulated and unpaid  dividends on shares of Series G Preferred Stock pursuant
to Section 3(a). No dividends or distributions shall be paid with respect to any
shares of Parity  Securities  unless like dividends or distributions are paid on
shares as Series G Preferred Stock,  except that the Corporation may declare and
pay regularly  scheduled dividends on the Series F Preferred Stock in additional
shares of Series F Preferred  Stock  without the  payment of like  dividends  or
distributions on the Series G Preferred Stock.

          (e) Except as otherwise provided in Section 3(b) above, nothing herein
contained shall in any way or under any  circumstances be construed or deemed to
require the Board of Directors of the Corporation to declare, or the Corporation
to pay or set apart  for  payment,  any  dividends  on  shares  of the  Series G
Preferred  Stock at any  time,  nor to  permit  the  Board of  Directors  of the
Corporation to declare, or the Corporation to pay or set apart for payment,  any
dividends on shares of the Series G Preferred  Stock prior to the payment of any
dividends accrued on any Senior Securities.

          (f)  Whenever  the  provisions  hereof  require  that  the  amount  of
dividends  with respect to the Series G Preferred  Stock be determined  for less
than a full quarterly  period ending on a Dividend  Payment Date  (including but
not limited to the first  Dividend  Payment Date following the Issue Date of any
share of Series G  Preferred  Stock),  the amount of  dividends  for such period
shall be equal to 7.0% of the  Liquidation  Preference  thereon  multiplied by a
fraction,  the numerator or which is the number of days from (and including) the
most recent Dividend  Payment Date to (but excluding) the last day of the period
in respect of which such  determination  is being made,  and the  denominator of
which is 365.

          4. LIQUIDATION PREFERENCE.

          (a)  In  the  event  of  any  voluntary  or  involuntary  liquidation,
dissolution  or  winding-up  of the affairs of the  Corporation,  the holders of
shares of Series G Preferred Stock and Parity  Securities then outstanding shall
be  entitled  to be paid for each share held  thereby,  out of the assets of the
Corporation legally available for distribution to its stockholders, an amount in
cash equal to the Liquidation Preference thereof (as specified in the applicable
Certificate of Designations) plus an amount in cash equal to all accumulated and
unpaid dividends thereon (calculated  pursuant to paragraph 3(a), in the case of
the Series G  Preferred  Stock) as  accrued  to the date fixed for  liquidation,
dissolution or winding-up  (including an amount equal to a prorated dividend for
the period from the most recent Dividend  Payment Date through and including the
date fixed for liquidation, dissolution or winding-up), before any payment shall
be made or any assets distributed to the holders of any Junior  Securities,  but
after all  liquidation  payments  have been made to the  holders  of all  Senior
Securities.  Except as provided in the preceding  sentence and the last sentence
of this  Section  4(a),  holders of shares of Series G  Preferred  Stock and all
Parity  Securities shall not be entitled to any distribution in the event of any
liquidation, dissolution or winding-up of the affairs of the Corporation. If the


                                       4
<PAGE>


assets  of the  Corporation  are not  sufficient  to pay in full  the  foregoing
liquidation  payments  payable to the holders of outstanding  shares of Series G
Preferred  Stock and all Parity  Securities,  then the  holders of all shares of
Series G  Preferred  Stock and all Parity  Securities  shall  share  equally and
ratably in such  distribution  of assets of the Corporation in proportion to the
full liquidation  preference and accumulated and accrued but unpaid dividends to
which each such holder is entitled. If all of the foregoing liquidation payments
with respect to any share of Series G Preferred Stock have been made, such share
may not be converted  into Common Stock  pursuant to Section 5. In addition,  in
the event of any voluntary or involuntary liquidation, dissolution or winding-up
of the affairs of the  Corporation  (other than in connection with a Sale of the
Corporation  which has been  approved  pursuant to Section  6(e) hereof or which
does not require any such  approval),  holders of Series G Preferred  Stock will
participate on an as-if-converted  basis, in distributions payable in respect of
Common Stock and other Junior Securities.

          (b)  For  the  purposes  of  this  Section  4,  the  voluntary   sale,
conveyance,  exchange or transfer (for cash,  securities  or other  property) of
voting control of the Corporation or of all or substantially all of the property
or assets of the Corporation or the  consolidation  or merger of the Corporation
with or into one or more other  corporations  in which the  shareholders  of the
Corporation  immediately  prior to such transaction do not own a majority of the
outstanding  shares of Capital Stock of the surviving  corporation  shall not be
deemed to be a liquidation, dissolution or winding-up, voluntary or involuntary,
of the affairs of the Corporation  (regardless of whether such sale, conveyance,
exchange  or  transfer  is in  connection  with a  liquidation,  dissolution  or
winding-up of the affairs of the Corporation).

          5. CONVERSION.

          (a)  CONVERSION  PRICE.  Each share of Series G Preferred  Stock to be
converted  into shares of Common  Stock under this  Section 5 shall be converted
into a number of shares of Common Stock equal to the  Liquidation  Preference of
such share DIVIDED by the Conversion Price then in effect.  The conversion price
for each share of Series G Preferred  Stock shall  initially  be  $337.9697  and
shall be subject to adjustment to the nearest  fourth  decimal place as provided
in this Section 5 (as adjusted  from time to time in  accordance  with the terms
hereof, the "Conversion Price").

          (b) AUTOMATIC CONVERSION. Upon the earlier to occur of (i) a Qualified
Public  Offering or (ii) the election of holders of at least  two-thirds  of the
outstanding  shares of Series G  Preferred  Stock  (made by  delivery of written
notice to the  Corporation),  each outstanding share of Series G Preferred Stock
shall  automatically  convert,  without  any  further  action on the part of the
holder  thereof,  into (x) the  number  of shares  of  Common  Stock  calculated
pursuant to Section  5(a) above,  and (y) the right to receive an amount in cash
equal  to the  accumulated  but  unpaid  dividends  on such  share  of  Series G
Preferred  Stock to and including the date of the closing of a Qualified  Public
Offering or the date for conversion specified in the holders' notice referred to
above (or,  at the option of the  Corporation,  the right to receive  additional
shares of Common Stock in lieu of cash dividends pursuant to Section 3(b) in the
case of a Qualified Public Offering); provided that, in the case of a conversion
pursuant to clause (ii) above,  if the date on which such conversion is effected


                                       5
<PAGE>


is prior to a  Realization  Event,  the  Corporation  may,  in lieu of  making a
payment in cash  equal to the amount of  accumulated  and  unpaid  dividends  on
shares of Series G Preferred  Stock,  deliver a number of shares of Common Stock
equal to the amount of such accumulated but unpaid dividends divided by the Fair
Market Value of one share of Common  Stock.  Shares of Series G Preferred  Stock
shall be deemed to have been converted pursuant to this Section 5(b) on the date
of a  Qualified  Public  Offering,  or in the case of a  conversion  pursuant to
clause  (ii)  above,  on the  date  specified  in the  written  election  notice
delivered by holders of at least two-thirds of the outstanding  shares of Series
G  Preferred  Stock,  which date shall be not more than 60 days nor less than 10
days prior to the date on which such notice is delivered to the Corporation.

          (c) CONVERSION AT THE OPTION OF THE HOLDER.  At any time and from time
to time prior to a Qualified Public Offering,  each holder of Series G Preferred
Stock shall have the right to convert such holder's shares of Series G Preferred
Stock, in whole or in part, into shares of Common Stock pursuant to Section 5(a)
above,  plus the right to receive an amount in cash equal to the accumulated but
unpaid  dividends on the shares of Series G Preferred  Stock so converted to and
including  the  Conversion  Date (as  defined  below);  provided  that,  if such
Conversion Date is prior to a Realization Event, the Corporation may, in lieu of
making a payment  in cash  equal to the  amount of such  accumulated  but unpaid
dividends,  deliver a number of shares of Common  Stock  equal to the  amount of
such  accumulated but unpaid  dividends  divided by the Fair Market Value of one
share of Common  Stock.  Notwithstanding  the  foregoing,  if the  holder of the
Series G Preferred Stock is a bank holding company,  it shall not have the right
to convert the Series G Preferred  Stock, in whole or in part, into Common Stock
if as a result of such  conversion,  the holder would own more than five percent
of the Common Stock, unless such bank holding company has the authority pursuant
to Section 4(k)(H) of the Bank Holding Company Act of 1956, as amended,  to hold
such shares in excess of five  percent.  In order to convert  shares of Series G
Preferred  Stock  pursuant  to this  Section  5(c),  the  holder  thereof  shall
surrender  at the office of the  Corporation  the  certificate  or  certificates
therefor,  duly endorsed to the Corporation in blank, and give written notice to
the  Corporation  that such holder elects to convert such shares and shall state
in writing  therein  the name or names  (with  addresses)  in which such  holder
wishes the certificate or  certificates of Common Stock to be issued.  Shares of
Series G Preferred  Stock shall be deemed to have been  converted on the date of
surrender of such certificate or certificates as provided above (the "Conversion
Date"), and the person or persons entitled to receive the shares of Common Stock
issuable  upon such  conversion  shall be treated for all purposes as the record
holder or holders of such Common Stock on such date. As soon as  practicable  on
or after  the  Conversion  Date,  the  Corporation  shall  issue  and  deliver a
certificate  or  certificates  for the number of shares of Common Stock issuable
upon conversion.

          (d) FRACTIONAL SHARES: PARTIAL CONVERSION.  No fractional shares shall
be issued  upon  conversion  of shares of Series G  Preferred  Stock into Common
Stock. In case the number of shares of Series G Preferred  Stock  represented by
the certificate or certificates  surrendered  pursuant to this Section 5 exceeds
the number of shares  converted,  the Corporation  shall,  upon such conversion,
execute  and deliver to the holder,  at the  expense of the  Corporation,  a new
certificate or certificates for the number of shares of Series G Preferred Stock
represented by the certificate or certificates  surrendered  which are not to be


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<PAGE>


converted.  If any  fractional  share of  Common  Stock  would,  except  for the
provisions of the first  sentence of this Section  5(d), be delivered  upon such
conversion, the Corporation,  in lieu of delivering such fractional share, shall
pay to the holder  surrendering  the Series G Preferred  Stock for conversion an
amount in cash equal to the Fair Market Value of such fractional share.

          (e)  ADJUSTMENT  OF  CONVERSION  PRICE UPON  ISSUANCE OF COMMON STOCK.
Except as  provided  in  Section  5(f) or  Section  5(g),  if and  whenever  the
Corporation  shall hereafter issue or sell, or is, in accordance with subsection
5(e)(1) through 5(e)(6),  deemed to have issued or sold in one transaction or in
a series of related transactions, any shares of Common Stock for a consideration
per share less than the Conversion Price in effect immediately prior to the time
of such issuance or sale, then:

          (i) if the Corporation  receives  aggregate gross proceeds of at least
$10,000,000  from the issuance or sale (or deemed issuance or sale) of any class
or series of securities of the Corporation (including the issuance of additional
shares of Series G Preferred Stock following the Closing Date (as defined in the
Purchase  Agreement) (a  "Significant  Offering")  then,  immediately  upon such
event,  the  Conversion  Price shall be reduced to an amount equal to the lowest
price per share at which any  share of Common  Stock or  securities  convertible
into or  exchangeable  for  shares of Common  Stock has been  issued or sold (or
deemed to be issued or sold) in such  Significant  Offering;  PROVIDED that this
clause (i) shall not apply to any issuance or sale (or deemed  issuance or sale)
of Common Stock or securities  convertible  into or  exchangeable  for shares of
Common Stock after the aggregate cash proceeds to the Corporation  from sales of
additional  Series G Preferred  Stock  pursuant to Section  2.04 of the Purchase
Agreement  (the  "Subsequent  Offerings")  exceeds  $100,000,000;  and  PROVIDED
FURTHER,  that if  pursuant  to this  clause (i) the  Conversion  Price would be
adjusted  below  $165.2297  (as  equitably  adjusted  for  stock  splits,  stock
combinations and similar transactions), the Conversion Price shall be reduced to
(but not  below)  $165.2297  (as  equitably  adjusted  for stock  splits,  stock
combinations  and  similar  transactions)  and shall  remain  subject to further
adjustment pursuant to clause (ii) below; or

          (ii) if (w) the Corporation has not completed a Significant  Offering,
(x) the  Conversion  Price has been reduced to $165.2297 (as equitably  adjusted
for stock  splits,  stock  combinations  and similar  transactions)  pursuant to
clause (i) above,  (y) the  Corporation  has issued shares of Series G Preferred
Stock in Subsequent  Offerings  having an aggregate  purchase  price of at least
$100,000,000  or  (z) if  clause  (i)  above  does  not  otherwise  apply  then,
immediately  upon any issuance or sale (or deemed issuance or sale) of any class
or series of securities  (including the issuance of shares of Series G Preferred
Stock in any Subsequent Offerings after the total aggregate cash proceeds to the
Corporation  from all  such  Subsequent  Offerings  exceeds  $100,000,000),  the
Conversion  Price shall be reduced to the price  determined  by dividing  (I) an
amount equal to the sum of (a) the number of shares of Common Stock  outstanding
immediately  prior to such  issuance  or sale (or  deemed  issuance  or sale) as
determined on a Fully Diluted basis,  multiplied by the Conversion Price then in
effect for the Series G Preferred Stock,  plus (b) the aggregate  consideration,
if any,  received  by the  Corporation  upon such  issuance  or sale (or  deemed
issuance  or  sale),  by (II)  the  total  number  of  shares  of  Common  Stock


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<PAGE>


outstanding immediately after such issuance or sale (or deemed issuance or sale)
determined on a Fully Diluted basis.

          For purposes of this Section 5(e), the following  subsections  5(e)(1)
to 5(e)(6) shall also be applicable:

          (5)(e)(1)  ISSUANCE OF RIGHTS OR OPTIONS.In case at any time hereafter
the Corporation  shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any Options to purchase  Common Stock or any  Convertible
Securities,  whether or not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such  Convertible  Securities  (determined by dividing
(i) the total  amount,  if any,  received or receivable  by the  Corporation  as
consideration  for the  granting of such  Options,  plus the  minimum  aggregate
amount of additional  consideration payable to the Corporation upon the exercise
of all  such  Options,  plus,  in the  case  of such  Options  which  relate  to
Convertible   Securities,   the   minimum   aggregate   amount   of   additional
consideration,  if any,  payable  upon  the  issue  or sale of such  Convertible
Securities  and upon the  conversion  or  exchange  thereof,  by (ii) the  total
maximum  number of shares of Common  Stock  issuable  upon the  exercise of such
Options or upon the  conversion or exchange of all such  Convertible  Securities
issuable  upon the exercise of such Options)  shall be less than the  Conversion
Price in effect  immediately  prior to the time of the granting of such Options,
then the total  maximum  number of shares  of  Common  Stock  issuable  upon the
exercise of such  Options or upon  conversion  or exchange of the total  maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been  issued  for such price per share as of the date of
granting of such  Options or the  issuance of such  Convertible  Securities  and
thereafter  shall be deemed to be outstanding.  Except as otherwise  provided in
subsection 5(e)(3), no adjustment of the Conversion Price shall be made upon the
actual  issue  of such  Common  Stock  or of such  Convertible  Securities  upon
exercise  of such  Options or upon the actual  issue of such  Common  Stock upon
conversion or exchange of such Convertible Securities.

          5(e)(2).   ISSUANCE OF CONVERTIBLE SECURITIES. In case the Corporation
shall  hereafter in any manner issue  (whether  directly or by  assumption  in a
merger or  otherwise)  or sell any  Convertible  Securities,  whether or not the
rights to exchange or convert any such  Convertible  Securities are  immediately
exercisable,  and the price per share for which  Common  Stock is issuable  upon
such  conversion  or  exchange  (determined  by  dividing  (i) the total  amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities,  plus the minimum aggregate amount of additional
consideration,  if any,  payable  to the  Corporation  upon  the  conversion  or
exchange  thereof,  by (ii) the total  maximum  number of shares of Common Stock
issuable  upon the  conversion or exchange of all such  Convertible  Securities)
shall be less than the Conversion Price in effect  immediately prior to the time
of such issue or sale,  then the total maximum  number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall be
deemed to have been  issued for such price per share as of the date of the issue
or sale of such  Convertible  Securities  and  thereafter  shall be deemed to be


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<PAGE>


outstanding,  provided  that (a) except as  otherwise  provided in  subparagraph
5(e)(3),  no  adjustment of the  Conversion  Price shall be made upon the actual
issue of such Common  Stock upon  conversion  or  exchange  of such  Convertible
Securities and (b) if any such issue or sale of such  Convertible  Securities is
made upon  exercise of any Options to purchase any such  Convertible  Securities
for  which  adjustments  of the  Conversion  Price  have  been or are to be made
pursuant to other provisions of this Section 5(e), no further  adjustment of the
Conversion Price shall be made by reason of such issue or sale.

          5(e)(3). CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the happening
of any of the following  events,  namely,  if the purchase price provided for in
any Option referred to in subsection 5(e)(1), the additional  consideration,  if
any,  payable  upon the  conversion  or exchange of any  Convertible  Securities
referred to in  subsection  5(e)(1) or 5(e)(2) or the rate at which  Convertible
Securities  referred to in subsection 5(e)(1) or 5(e)(2) are convertible into or
exchangeable  for Common  Stock  shall  change at any time  (including,  but not
limited to, changes under or by reason of provisions designed to protect against
dilution),  the  Conversion  Price in  effect  at the time of such  event  shall
forthwith be readjusted to the Conversion  Price which would have been in effect
at such  time had such  Options  or  Convertible  Securities  still  outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time  initially  granted,  issued or sold,  but
only if as a result  of such  adjustment  the  Conversion  Price  then in effect
hereunder is thereby  reduced;  and on the termination of any such Option or any
such right to convert or exchange such  Convertible  Securities,  the Conversion
Price then in effect  hereunder  shall  forthwith be increased to the Conversion
Price which would have been in effect at the time of such  termination  had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such termination, never been issued.

          5(e)(4).  CONSIDERATION FOR STOCK. In case any shares of Common Stock,
Options  or  Convertible  Securities  shall  be  issued  or sold for  cash,  the
consideration received therefor shall be deemed to be the amount received by the
Corporation  therefor,  without deduction  therefrom of any expenses incurred or
any  underwriting  commissions or concessions paid or allowed by the Corporation
in  connection  therewith.  In case any  shares  of  Common  Stock,  Options  or
Convertible  Securities  shall be issued or sold for a consideration  other than
cash,  the  amount  of  the  consideration  other  than  cash  received  by  the
Corporation  shall be  deemed  to be the fair  value  of such  consideration  as
determined  in good faith by the Board of  Directors,  without  deduction of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith.  In case any Options shall be issued
in connection  with the issue and sale of other  securities of the  Corporation,
together comprising one integral transaction in which no specific  consideration
is  allocated  to such Options by the parties  thereto,  such  Options  shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.

          5(e)(5).  RECORD DATE. In case the Corporation  shall take a record of
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities  or (ii) to  subscribe  for or  purchase  Common  Stock,  options  or
Convertible Securities,  then such record date shall be deemed to be the date of
the issue or sale of the shares of Common  Stock  deemed to have been  issued or


                                       9
<PAGE>


sold  upon  the  declaration  of such  dividend  or the  making  of  such  other
distribution  or the  date of the  granting  of such  right of  subscription  or
purchase, as the case may be.

          5(e)(6).  TREASURY  SHARES.  The  number of  shares  of  Common  Stock
outstanding  at any given time shall not include  shares owned or held by or for
the account of the Corporation,  and the disposition of any such shares shall be
considered  an issue or sale of Common  Stock for the  purpose  of this  Section
5(e).

          (f) EXCEPTIONS TO CONVERSION  PRICE  ADJUSTMENT.  Notwithstanding  the
foregoing,  no adjustment to the Conversion Price shall be made pursuant to this
Section 5 in  connection  with the  grant,  issuance  or sale of  Common  Stock,
Convertible  Securities,  warrants,  options or other rights to subscribe for or
purchase Common Stock or Convertible Securities:  (i) pursuant to employee stock
purchase  or  stock  option  ownership  plans  adopted  by the  Corporation  for
employees,  consultants  and/or directors of the Corporation and its affiliates;
(ii)  pursuant to the terms of any  Convertible  Securities,  (iii)  pursuant to
warrants,  options or other rights to subscribe for or purchase granted,  issued
or sold  pursuant  to clause (i) above;  and (iv)  pursuant  to (A)  warrants to
purchase shares of Common Stock issued to General Electric  Capital  Corporation
on October 31,  1997,  (B)  warrants to purchase  shares of Common  Stock issued
pursuant to the Warrant  Agreement,  dated as of January 29,  1998,  between the
Corporation  and The Chase  Manhattan  Bank, as Warrant  Agent,  (C) warrants to
purchase shares of Common Stock issued pursuant to the Warrant  Agreement (other
than the  warrants to  purchase  Common  Stock  which may be issued  pursuant to
Section  2.4 of such  agreement  when and if such  warrants  are  issued)  dated
February 4, 1999, as amended on April 29, 1999, among the Corporation, The Chase
Manhattan  Bank, as Warrant  Agent,  Newcourt  Commercial  Finance  Corporation,
Lucent  Technologies,  Inc. and any Additional  Purchasers  thereunder,  and (D)
warrants  to  purchase  shares of Common  Stock  issued  pursuant to the Warrant
Agreement, dated as of April 30, 1999 among the Corporation, The Chase Manhattan
Bank,  as Warrant  Agent,  and First Union  Investors,  Inc.;  provided that the
aggregate  number of  shares of Common  Stock  issued or  issuable  pursuant  to
clauses (i) and (iii) above shall not exceed 20% of the Common Stock (on a Fully
Diluted basis) outstanding from time to time.

                  (g)  ADJUSTMENT IN CONNECTION  WITH INITIAL  PUBLIC  OFFERING.
Prior to the completion of a public offering of shares of Common Stock resulting
in aggregate offering proceeds to the Corporation of at least  $80,000,000,  the
Corporation  shall file with the Securities and Exchange  Commission and mail to
prospective purchasers a "red-herring" S-1 registration statement related to the
sale of such shares, which red-herring  registration statement shall set forth a
range of prices per share in which the  Corporation  intends  to sell  shares of
Common Stock registered thereunder. If the midpoint of such range (the "Midrange
Price") is less than the  Conversion  Price (as  adjusted  to give effect to any
stock split,  stock combination or similar  transaction which has occurred prior
to, or is contemplated to occur in connection  with, the  Corporation's  initial
public offering) then in effect for the Series G Preferred Stock, the Conversion
Price shall be reduced  (immediately prior to, but subject to the completion of,
such public  offering)  to the  greater of (i) the  product of (x) the  Midrange
Price multiplied by (y) the applicable Discount Factor (hereinafter defined), or
(ii) $234.7012 (as adjusted to give effect to any stock split, stock combination
or similar  transaction which has occurred prior to, or is contemplated to occur


                                       10
<PAGE>


in connection with, the  Corporation's  initial public  offering).  For purposes
hereof,  the "Discount Factor" shall equal (i) 80% if the Corporation's  initial
public offering is completed at any time on or prior to September 30, 2000, (ii)
70% if the Corporation's  initial public offering is completed at any time after
September  30,  2000 but on or prior to  December  31,  2000,  (iii)  60% if the
Corporation's  initial  public  offering is completed at any time after December
31, 2000 but on or prior to March 31,  2001,  and (iv) 50% if the  Corporation's
initial  public  offering  is  completed  at any  time  after  March  31,  2001.
Notwithstanding  the  foregoing,  the  provisions of this Section 5(g) shall not
apply if the  Corporation has issued and sold shares of Series G Preferred Stock
in the Subsequent  Offerings  resulting in total  aggregate cash proceeds to the
Corporation of at least $100,000,000.

          (h)   SUBDIVISION  OR  COMBINATION  OF  COMMON  STOCK.   In  case  the
Corporation  shall at any time subdivide (by any stock split,  stock dividend or
otherwise)  its  outstanding  shares of Common  Stock  into a greater  number of
shares,  the Conversion  Price in effect  immediately  prior to such subdivision
shall be  proportionately  reduced,  and,  conversely,  in case the  outstanding
shares of Common Stock shall be combined  into a smaller  number of shares,  the
Conversion  Price  in  effect  immediately  prior to such  combination  shall be
proportionately increased.

          (i) REORGANIZATION OR RECLASSIFICATION.  If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that  holders of Common  Stock shall be  entitled  to receive  stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification (but subject to Section 7),
lawful and adequate  provisions  shall be made whereby each holder of a share or
shares of Series G Preferred  Stock shall  thereupon  have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the  shares  of  Common  Stock  immediately   theretofore  receivable  upon  the
conversion of such share or shares of Series G Preferred  Stock,  such shares of
stock,  securities  or assets as may be issued or payable  with respect to or in
exchange  for a number of  outstanding  shares of such Common Stock equal to the
number of shares of such Common Stock  immediately  theretofore  receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions  hereof  (including,
without  limitation,  provisions for adjustments of the Conversion  Price) shall
thereafter  be  applicable,  as nearly as may be, in  relation  to any shares of
stock,  securities or assets  thereafter  deliverable  upon the exercise of such
conversion rights.

          (j) CARRYOVER. Notwithstanding any other provisions of this Section 5,
the  Corporation  shall not be required to make any adjustment to the Conversion
Price unless such  adjustment  would require an increase or decrease of at least
one percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent  adjustment  which,  together with any  adjustment or  adjustments so
carried forward, shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Price.

          (k)  OTHER  EVENTS.   If  the  Corporation  shall  make  any  dividend
(excluding  cash dividends  payable out of accumulated  earnings and profits) or
distribution on the Common Stock or issue any Common Stock,  other capital stock


                                       11
<PAGE>


or other  security of the  Corporation  or any rights or warrants to purchase or
acquire any such security, which transaction does not result in an adjustment to
the Conversion Price pursuant to the foregoing provisions of this Section 5, the
Board of Directors may consider  whether such action is of such a nature that an
adjustment to the Conversion  Price should  equitably be made in respect of such
transaction.  If the Board of Directors of the  Corporation  determines  that an
adjustment to the Conversion  Price should be made, an adjustment  shall be made
effective  as of such  date,  as  determined  by the Board of  Directors  of the
Corporation.  The  determination of the Board of Directors of the Corporation as
to whether such an adjustment to the  Conversion  Price should be made,  and, if
so, as to what adjustment should be made and when, shall be final and binding on
the Corporation and all stockholders of the Corporation.  The Corporation  shall
be entitled to make such  additional  adjustments  in the Conversion  Price,  in
addition to those  required by the  foregoing  provisions  of this Section 5, as
shall be  necessary  in order that any  dividend  or  distribution  in shares of
capital stock of the Corporation,  subdivision,  reclassification or combination
of shares of stock of the Corporation or any recapitalization of the Corporation
shall not be taxable to the holders of the Common Stock.

          (l) NOTICE OF ADJUSTMENT. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
delivery in person,  certified or registered mail, return receipt requested,  or
facsimile  addressed  to each  holder  of shares  of  Series G  Preferred  Stock
affected by such  adjustment at the address of such holder as shown on the books
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment,  setting forth in reasonable  detail the method upon which such
calculation is based.

          6. VOTING RIGHTS.

          (a) The holders of Series G-2  Preferred  Stock,  except as  otherwise
required  under  Delaware law or as set forth below in this Section 6, shall not
be entitled or permitted to vote on any matter required or permitted to be voted
upon by the stockholders of the Corporation.

          (b) So long as the Series G-1  Preferred  Stock is  outstanding,  each
share of Series G-1 Preferred Stock shall entitle the holder thereof to vote, in
person or by proxy, at a special or annual meeting of stockholders or by written
consent, on all matters voted on by holders of Common Stock voting together as a
single class with other  shares  entitled to vote  thereon.  With respect to any
such vote,  each share of Series G-1  Preferred  Stock shall  entitle the holder
thereof to cast a number of votes  equal to the number of votes  entitled  to be
cast by such holder had such holder converted such share of Series G-1 Preferred
Stock into Common Stock prior to such vote (or, if earlier, the record date with
respect to such vote).

          (c) Without the prior consent of the holders of at least two-thirds of
the  shares  of the  Series G  Preferred  Stock  then  outstanding,  voting as a
separate class, the Corporation shall not:

              (i) increase the authorized number of shares of Series G Preferred
     Stock; or


                                       12
<PAGE>


              (ii) issue,  or  authorize  the  issuance  for sale of, any Equity
     Securities  (other  than the sale of  shares of  Series G  Preferred  Stock
     pursuant to the Purchase  Agreement)  that are senior to or pari passu with
     the  Series G  Preferred  Stock upon  liquidation  or  redemption  or as to
     dividends;  except that without such consent the  Corporation may (A) issue
     additional  shares  of Series F  Preferred  Stock to pay  dividends  on the
     Series F  Preferred  Stock  and (B)  issue  additional  shares  of Series E
     Preferred  Stock to pay dividends on the Series E Preferred  Stock and upon
     conversion  of  shares of Series F  Preferred  Stock to Series E  Preferred
     Stock.

          (d) Without the prior consent of the holders of at least two-thirds of
the shares of the  Series G-1  Preferred  Stock  then  outstanding,  voting as a
separate class, the Corporation  shall not, and the Corporation  shall cause its
Subsidiaries  not to,  establish any material new business or materially  change
its primary business.

          (e) Without the prior  consent of the Requisite  Holders,  voting as a
separate class, the Corporation shall not:

              (i) effect a Sale of the  Corporation  unless the  aggregate  Fair
     Market  Value of the  consideration  received  in  respect of each share of
     Series G Preferred  Stock is at least (A) 125% of the Deemed Issuance Price
     or  (B)  if  greater,  the  sum  of the  Liquidation  Preference  plus  all
     accumulated but unpaid dividends thereon; or

              (ii) amend, modify or repeal the powers,  preferences or rights of
     or the  restrictions  provided  for the  benefit of holders of the Series G
     Preferred Stock, or amend the Corporation's Certificate of Incorporation or
     By-laws,  if  such  action  would  affect  the  Series  G  Preferred  Stock
     adversely.

          (f) Notwithstanding the foregoing,  without the consent of each holder
of Series G Preferred Stock affected  thereby,  the Corporation shall not reduce
the Liquidation  Preference of the Series G Preferred Stock or the rate at which
dividends  accumulate thereon,  or modify the dividend cumulation  provisions of
the  Series G  Preferred  Stock or the  times and  prices at which the  Series G
Preferred Stock may be redeemed in a manner that would be adverse to the holders
of Series G Preferred Stock.

          7. OPTIONAL REDEMPTION.

          (a) At any time (i) on or prior to the 30th day after  the  occurrence
of a Change of Control or Sale of the  Corporation in which all shares of Series
G  Preferred  Stock  are not  being  exchanged  for  cash or  freely  marketable
securities of another corporation (or, if earlier,  the 30th day after receiving
notice that a Change of Control or Sale of the Corporation is proposed, together
with a description in reasonable  detail of the material terms and conditions of
such Change of Control or Sale of the  Corporation),  or (ii) on or after August
15, 2009 (unless a Qualified  Public  Offering has occurred prior to such time),
the  Corporation  shall,  at  the  request  (by  written  notice  given  to  the
Corporation)  of the  holders of at least  two-thirds  of the Series G Preferred
Stock redeem all  outstanding  shares of Series G Preferred Stock at a price per
share equal to the Redemption  Price (as defined below) thereof;  PROVIDED that,
in the case of such a request  after  notice of a proposed  Change of Control or


                                       13
<PAGE>


Sale of the Corporation  described in clause (i) above,  the requirement to make
such  redemption  shall not arise  unless  such Change of Control or Sale of the
Corporation actually occurs. Such redemption shall take place on a date fixed by
the  Corporation.  Prior to commencing  any redemption of the Series G Preferred
Stock pursuant to clause (i) above,  the Corporation  shall first consummate any
change of control offer  required to be made to any holder of Series E Preferred
Stock,  Series  F  Preferred  Stock  and any  Indebtedness  (as  defined  in the
certificate of designation of the Series E Preferred Stock) of the Corporation.

          (b) For each share of Series G Preferred  Stock  redeemed  pursuant to
this  Section 7, the  Corporation  shall be obligated on the date fixed for such
redemption (the "Redemption Date"), to pay to the holder thereof (upon surrender
by  such  holder  at the  Corporation's  principal  office  of  the  certificate
representing  such share duly endorsed in blank or accompanied by an appropriate
form of assignment) an amount (the  "Redemption  Price") equal to the greater of
(i) the  Liquidation  Preference of such share of Series G Preferred  Stock plus
all accumulated but unpaid dividends  thereon (whether or not declared) and (ii)
the Fair Market Value of the shares of Common Stock issuable upon  conversion of
such share of Series G Preferred Stock.

          (c) If the  Corporation  holds and sets aside money  sufficient to pay
the Redemption  Price of the Series G Preferred  Stock on the  Redemption  Date,
then on and after the  Redemption  Date:  (i) the  shares of Series G  Preferred
Stock  shall no longer be  convertible  into  shares of Common  Stock;  (ii) the
shares of Series G Preferred Stock will cease to be outstanding and dividends on
the Series G Preferred Stock will cease to be declared and paid,  whether or not
certificates  representing  the Series G Preferred  Stock have been delivered to
the  Corporation;  and (iii) all other  rights of the holder in respect  thereof
shall  terminate  (other  than the right to receive  the  Redemption  Price upon
delivery of such Series G Preferred Stock).

          8. EVENTS OF NONCOMPLIANCE.

          (a) DEFINITION.  An Event of Noncompliance  shall have occurred if (i)
the Corporation has become required to, but has not,  redeemed all of the Series
G  Preferred  Stock  pursuant  to  Section  7, (ii) the  Corporation  has become
required  to,  but has not,  paid all  accrued  dividends  on shares of Series G
Preferred  Stock,  (iii)  the  Corporation  has  taken  any  action  which it is
prohibited from taking under the terms of Section 6(c), (iv) the Corporation has
failed to pay when due any amounts owing in respect of indebtedness for borrowed
money,  and such failure has  continued for a period of 90 days without cure; or
(v) the  Corporation  knowingly and materially  breaches any  representation  or
warranty contained in Section 3.17 of the Purchase Agreement.

          (b) CONSEQUENCES OF NONCOMPLIANCE.

              (i) If any Event of  Noncompliance of the type described in clause
     (i),  (ii),  (iii) or (iv) of Section 8(a) has occurred and is  continuing,
     the per annum rate of accrual of dividends  pursuant to Section 3(a) on the
     Series G Preferred Stock shall increase  immediately by an increment of 100
     basis  points.  Thereafter,  until  such time as no Event of  Noncompliance
     exists, the per annum rate of accrual of dividends pursuant to Section 3(a)
     shall increase automatically at the end of each succeeding 90-day period by
     an additional  increment of 100 basis points (but in no event shall the per



                                       14
<PAGE>


     annum rate of accrual of  dividends  pursuant to Section  3(a) exceed 15%).
     Upon the cure of any such  Event of  Noncompliance,  the per annum  rate of
     accrual of dividends  pursuant to Section 3(a) shall immediately be reduced
     to the rate set forth in Section 3(a),  subject to further  increase  under
     this  clause  (i)  upon  the   occurrence  of  any   subsequent   Event  of
     Noncompliance  of the type described in clause (i), (ii),  (iii) or (iv) of
     Section 8(a).

              (ii) If any Event of Noncompliance of the type described in clause
     (v) of Section 8(a) has occurred and is  continuing,  the per annum rate of
     accrual of  dividends  pursuant  to Section  3(a) on the Series G Preferred
     Stock shall increase  immediately by an increment of 100 basis points. Upon
     the cure of any such Event of Noncompliance,  the per annum rate of accrual
     of dividends  pursuant to Section 3(a) shall  immediately be reduced to the
     rate set forth in Section  3(a),  subject to  further  increase  under this
     clause (ii) upon the occurrence of any subsequent Event of Noncompliance of
     the type described in clause (v) of Section 8(a).

              (iii) If an Event of Noncompliance of the type described in clause
     (iv) of Section 8(a) has occurred and is continuing,  the number of persons
     on the Corporation's Board of Directors shall be increased by two directors
     who shall be designated by holders of a majority of the outstanding  shares
     of Series G-1 Preferred  Stock.  Immediately upon the cure of such Event of
     Noncompliance, the number of directors constituting the Corporation's Board
     of  Directors  shall  be  reduced  by two  directors  and the  two  persons
     designated by the holders of a majority of the outstanding shares of Series
     G-1  Preferred  Stock  shall  automatically  be  removed  from the Board of
     Directors.

          9. OPTIONAL  CONVERSION  OF SHARES OF SERIES G-2 PREFERRED  STOCK INTO
SHARES OF SERIES  G-1  PREFERRED  STOCK.  The  holders  of shares of Series  G-2
Preferred  Stock may convert  all or any  portion of their  shares of Series G-2
Preferred  Stock into shares of Series G-1  Preferred  Stock at any time or from
time by surrendering  certificates  representing  such shares to the Corporation
and the Corporation shall promptly issue certificates representing a like number
of shares of Series G-1 Preferred Stock in exchange  therefor,  provided that no
such  holder may  convert  shares of Series G-2  Preferred  Stock into shares of
Series G-1 Preferred Stock to the extent such conversion  would be prohibited by
any law,  judgment,  decree,  agreement or organizational  document binding upon
such shares of Series G-2 Preferred Stock or the holder thereof.

          10.  REISSUANCE  OF  SERIES G  PREFERRED  STOCK.  Shares  of  Series G
Preferred  Stock that have been issued and  reacquired in any manner,  including
shares  purchased or redeemed or exchanged or converted,  shall (upon compliance
with any  applicable  provisions  of the laws of  Delaware)  have the  status of
authorized and unissued shares of preferred stock  undesignated as to series and
may be redesignated and reissued as part of any series of preferred stock (other
than Series G Preferred Stock).

          11 BUSINESS DAY. If any payment or conversion shall be required by the
terms  hereof to be made on a day that is not a Business  Day,  such  payment or
conversion shall be made on the immediately succeeding Business Day.


                                       15
<PAGE>


          12  DEFINITIONS.  As used  in this  Certificate  of  Designation,  the
following  terms shall have the  following  meanings  (with terms defined in the
singular  having  comparable  meanings  when used in the plural and vice versa),
unless the context otherwise requires:

          "Board  of  Directors"  shall  mean  the  Board  of  Directors  of the
Corporation.

          "Business Day" means any day except a Saturday, a Sunday, or other day
on which  commercial banks in the State of New York or New Jersey are authorized
or required by law or executive order to close.

          "Capital Stock" means, with respect to any Person, any and all shares,
interests,  participations,  rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock (but excluding
any debt  security that is  exchangeable  for or  convertible  into such capital
stock).

          "Change  of  Control"  means  such  time as (i) a "person  or  "group"
(within  the  meaning of  Sections  13(d) and  14(d)(2)  of the  Securities  and
Exchange Act of 1934, as amended)  becomes the ultimate  "beneficial  owner" (as
defined in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended)
of  more  than  50%  of the  total  voting  power  of the  voting  stock  of the
Corporation on a fully diluted basis.

          "Common  Stock"  shall have the  meaning  ascribed  to it in Section 2
hereof.

          "Convertible  Securities"  shall mean any  evidences of  indebtedness,
shares or securities convertible into or exchangeable for Common Stock.

          "Corporation"  shall  mean KMC  Telecom  Holdings,  Inc.,  a  Delaware
corporation.

          "Deemed  Issuance  Price" shall be the lowest price per share at which
shares  of  Series  G  Preferred  Stock  are  issued  pursuant  to the  Purchase
Agreement.

          "Dividend  Payment  Date" means March 31,  June 30,  September  30 and
December 31 of each year.

          "Dividend  Period" means the Initial Dividend Period and,  thereafter,
each Quarterly Dividend Period.

          "Event of  Noncompliance"  shall have the meaning set forth in Section
8.

          "Equity  Securities" means (i) any capital stock or other ownership or
equity  interest,  participation  or securities  (whether  voting or non-voting,
whether preferred,  common or otherwise,  and including any stock  appreciation,
contingent interest or similar right) and (ii) any option, warrant,  security or
other  right  directly  or  indirectly   convertible   into  or  exercisable  or
exchangeable  for, or otherwise to acquire  directly or  indirectly,  any stock,
interest, participation or security described in clause (i) above.

          "Fair  Market  Value" of any  property  as of a  particular  date (the
"Determination Date") shall mean: (i) if the property is a security, the average
of the last 30 "daily sales prices" of such  security on the principal  national
securities  exchange on which such security is listed or admitted for trading on
the last 30 Business Days prior to the  Determination  Date, or if not listed or


                                       16
<PAGE>


traded on any such exchange,  then the Fair Market Value shall be the average of
the last 30 "daily sales prices" of such security on the Nasdaq  National Market
on the last 30 Business Days prior to the  Determination  Date (the "daily sales
price" shall be the closing price for bona fide transactions of such security at
the end of each day);  or (ii) if such  security is not so listed or admitted to
unlisted  trading  privileges  or if no such sale is made on at least 25 of such
days,  then the Fair Market Value shall be the price  (determined on a per share
basis,  if  applicable)  that would be paid for the entire  common equity of the
Corporation in an orderly sale transaction between a willing buyer and a willing
seller,  without taking into account the lack of liquidity of the  Corporation's
securities, using customary valuation techniques and assuming full disclosure of
all relevant information, as reasonably determined by an investment banking firm
of recognized national standing selected in good faith by the Board of Directors
or a duly  appointed  committee of the Board of Directors  (which  determination
shall be reasonably  described in the written notice delivered to the holders of
the Series G  Preferred  Stock) or (iii) if the  property  in  question is not a
security,  then the Fair Market Value of the  property in question  shall be the
fair value  thereof  determined  jointly by the  Corporation  and the  Requisite
Holders.  If such  parties  are unable to reach  agreement  within a  reasonable
period of time, such fair value shall be determined by an independent  appraiser
experienced  in  valuing  the  type of  property  in  question  selected  by the
Corporation  and approved by the Requisite  Holders (which approval shall not be
unreasonably  withheld or delayed).  The Company shall pay the fees and expenses
of any  investment  banking firm and/or  appraiser  retained to  determine  Fair
Market Value hereunder.  The  determination of such appraiser and/or  investment
banking firm shall be final and binding on all Persons.

          "Fully  Diluted"  shall  mean at any date as of which  the  number  of
shares  of  Common  Stock  is to be  determined,  all  shares  of  Common  Stock
outstanding  at such date and the  maximum  number  of  shares  of Common  Stock
issuable in respect of Convertible  Securities  and warrants,  options and other
rights  to  purchase   (directly  or  indirectly)  shares  of  Common  Stock  or
Convertible  Securities (giving effect to the then current respective conversion
prices) outstanding on such date (to the extent the rights to convert,  exchange
or exercise thereunder are presently exercisable).

          "Initial Dividend Period" means the dividend period commencing on, and
including, the Series G Preferred Stock Issue Date and ending on, and excluding,
the first Dividend Payment Date to occur thereafter.

          "Issue Date" for any share of Series G Preferred Stock means the first
date on  which  such  share  of  Series  G  Preferred  Stock  is  issued  by the
Corporation  regardless of the number of times transfer of such share is made on
the records maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share.

          "Junior Preferred Stock" means,  collectively,  the Series A Preferred
Stock, the Corporation's  Series B Cumulative  Convertible  Preferred Stock, par
value $.01 per share,  the Series C Preferred  Stock, and the Series D Preferred
Stock.

          "Junior Securities" shall have the meaning ascribed to it in Section 2
hereof.

          "Liquidation  Preference"  shall have the  meaning  ascribed  to it in
Section 1 hereof.


                                       17
<PAGE>


          "Option"  shall mean rights,  options,  or warrants to  subscribe  for
purchase or otherwise acquire Convertible Securities or Common Stock.

          "Parity Preferred Stock" means the Series F Preferred Stock.

          "Parity Securities" shall have the meaning ascribed to it in Section 2
hereof.

          "Person" means any individual, firm, corporation, partnership, limited
liability  company,  trust,  incorporated or unincorporated  association,  joint
venture, joint stock company, governmental body or other entity of any kind.

          "Purchase  Agreement" means the Securities Purchase Agreement dated as
of June 30, 2000 among the Corporation,  Nassau Capital Partners L.P.,  Dresdner
Kleinwort Benson Private Equity Partners L.P., Lucent Technologies, Inc. and the
other purchasers named therein.

          "Qualified  Public  Offering" shall mean the sale in a firm commitment
underwritten   public   offering  of  Common  Stock  pursuant  to  an  effective
registration  statement  filed by the  Corporation  under the  Securities Act of
1933, as amended,  in any single transaction or series of related  transactions,
in which (i) the Corporation receives aggregate gross proceeds (before deduction
of underwriting discounts and expenses of sale) of at least $80,000,000 and (ii)
the price per  share at which  Common  Stock is  offered  to the  public in such
offering is not less than the Liquidation  Preference (as adjusted for any stock
split,  stock dividend,  share  combination,  share exchange,  recapitalization,
merger, conversion, consolidation, reorganization or other similar transaction).

          "Quarterly   Dividend   Period"  shall  mean  the  quarterly   periods
commencing  on, and  including,  each  Dividend  Payment Date and ending on, and
excluding,  each next Dividend  Payment Date occurring  immediately  thereafter,
respectively.

          "Realization  Event"  shall  mean  a  Sale  of  the  Corporation  or a
Qualified Public Offering.

          "Requisite  Holders"  means (i) the  holders of at least a majority of
the  outstanding  shares  of Series G  Preferred  Stock if the  Corporation  has
received  aggregate  gross  cash  proceeds  of at  least  $250,000,000  from the
issuance of Series G Preferred Stock pursuant to the Purchase  Agreement or (ii)
the  holders  of at least  two-thirds  of the  outstanding  shares  of  Series G
Preferred  Stock  if the  Corporation  has not  received  aggregate  gross  cash
proceeds of at least  $250,000,000 from the issuance of Series G Preferred Stock
pursuant to the Purchase Agreement.

          "Sale of the Corporation"  means the sale of all or substantially  all
of the Common Stock or assets of the  Corporation to an independent  third party
or the  consolidation  or  merger  of the  Corporation  with  one or more  other
corporations, in any single transaction or series of related transactions.

          "Senior Preferred Stock" means the Series E Preferred Stock.

          "Senior Securities" shall have the meaning ascribed to it in Section 2
hereof.

          "Series A Preferred Stock" means the Corporation's Series A Cumulative
Convertible Preferred Stock, par value, $.0l per share.


                                       18
<PAGE>


          "Series C Preferred Stock" means the Corporation's Series C Cumulative
Convertible Preferred Stock, par value $.01 per share.

          "Series D Preferred Stock" means the Corporation's Series D Cumulative
Convertible Preferred Stock, par value, $.01 per share.

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

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

          "Series G Preferred  Stock"  shall have the meaning  ascribed to it in
Section 1 hereof.

          "Series G-1 Preferred  Stock" shall have the meaning ascribed to it in
Section 1 hereof.

          "Series G-2 Preferred  Stock" shall have the meaning ascribed to it in
Section 1 hereof.

          "Shareholders  Agreement" means the Amended and Restated  Stockholders
Agreement among KMC Telecom  Holdings,  Inc.,  Nassau Capital Partners L.P., NAS
Partners I L.L.C.,  Harold N. Kamine, KMC  Telecommunications  L.P., AT&T Credit
Corporation,  General  Electric Capital  Corporation,  Corestates Bank, N.A. and
Corestates Holdings, Inc., dated as of October 31, 1997, as amended by Amendment
No. 1, dated as of January 7, 1998,  to the  Amended and  Restated  Stockholders
Agreement dated as of October 31, 1997, Amendment No. 2, dated as of January 26,
1998, to the Amended and Restated  Stockholders  Agreement,  dated as of October
31, 1997,  Amendment  No. 3, dated as of February  25, 1998,  to the Amended and
Restated Stockholders Agreement,  dated as of October 31, 1997, Amendment No. 4,
dated as of February 4, 1999, to the Amended and Restated Stockholders Agreement
dated as of October 31, 1997,  Amendment  No. 5, dated as of April 30, 1999,  to
the Amended and Restated  Stockholders  Agreement  dated as of October 31, 1997,
Amendment No. 6 dated as of June 1, 1999 to be Amended and Restated Stockholders
Agreement dated October 31, 1997, Amendment No. 7 dated as of January 1, 2000 to
the Amended and  Restated  Stockholders  Agreement  dated  October 3, 1997,  and
Amendment  No. 8 dated April 1, 2000 to the Amended  and  Restated  Stockholders
Agreement  dated October 31, 1997, and Amendment No. 9 dated as of June 30, 2000
to the Amended and Restated Stockholders Agreement dated October 31, 1997.

                                    * * * * *









                                       19
<PAGE>


          IN WITNESS  WHEREOF,  KMC  TELECOM  HOLDINGS,  INC.  has  caused  this
certificate  to be duly  executed  by its  Executive  Vice  President  and Chief
Financial Officer this 7th day of July, 2000.



                                    KMC TELECOM HOLDINGS. INC.



                                    By: /s/  William Stewart
                                        ----------------------------------------
                                        Name:  William Stewart

                                        Title:  Executive Vice President and CFO