Document:

AMENDMENT NO. 4

                                       TO

                           LOAN AND SECURITY AGREEMENT

            AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT  ("AMENDMENT")  dated
as of December  31,  1999,  is among KMC TELECOM  INC.,  a Delaware  corporation
("KMC"), KMC TELECOM II, INC., a Delaware corporation ("KMC II"), KMC TELECOM OF
VIRGINIA, INC., a Virginia public service company ("KMC VIRGINIA"),  KMC TELECOM
LEASING I LLC, a Delaware limited  liability  company ("LEASING I"), KMC TELECOM
LEASING II LLC, a Delaware limited liability company ("LEASING II"; KMC, KMC II,
KMC Virginia,  Leasing I and Leasing II being hereinafter  collectively referred
to hereinafter as the "BORROWERS"), the financial institutions from time to time
parties thereto (the  "LENDERS"),  FIRST UNION NATIONAL BANK, as  administrative
agent for the Lenders (the "AGENT") and NEWCOURT  COMMERCIAL FINANCE CORPORATION
(f/k/a AT&T  COMMERCIAL  FINANCE  CORPORATION),  an  affiliate of The CIT Group,
Inc., as collateral  agent for the Lenders (the  "COLLATERAL  AGENT";  the Agent
together with the Collateral Agent being referred to as the "AGENTS").

            WHEREAS,  the  Borrowers,  the Agents and the Lenders are parties to
that  certain  Loan and  Security  Agreement  (the "LOAN  AGREEMENT";  undefined
capitalized  terms used herein shall have the meanings  assigned  thereto in the
Loan  Agreement)  dated as of December  22, 1998,  as amended by Amendment  No.1
thereto  dated as of March 3, 1999,  Amendment  No. 2 thereto dated as of August
13, 1999,  and Waiver and  Amendment No. 3 thereto dated as of October 29, 1999,
pursuant to which the  Lenders  have  agreed to make  certain  "Loans" and other
financial accommodations to the Borrowers; and

            WHEREAS,  the  Borrowers  have  requested  that the  Agents  and the
Lenders amend the Loan Agreement in the manner set forth herein,  and the Agents
and the Lenders have agreed to such request;

            NOW,  THEREFORE,  in  consideration of the premises set forth above,
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby acknowledged,  the Borrowers,  the Agents and the Lenders agree
as follows:

            1. AMENDMENT TO THE LOAN  AGREEMENT.  Effective as of the date first
above  written and subject to the  execution  of this  Amendment  by the parties
hereto, the Loan Agreement shall be and hereby is amended as follows:

            1.1 SECTION  7.01(b) is hereby amended to add the following  proviso
thereto: ---------------

            "PROVIDED,  HOWEVER,  that as of the last day of each fiscal quarter
occurring on or after December 31, 1999, the Borrowers shall on a combined basis
have revenues at least equal to the amount set forth below for such date:

<PAGE>

FISCAL QUARTER ENDING                     MINIMUM REVENUES

December 31, 1999                         $18,000,000
March 31, 2000                            $23,821,000
June 30, 2000                             $31,338,000
September 30, 2000                        $37,803,000
December 31, 2000                         $44,482,000
March 31, 2001                            $54,678,000"

            1.2  SECTION  7.01(c)(i)  is hereby  amended to delete  the  proviso
thereto and to substitute the following proviso therefor:

            "PROVIDED,  HOWEVER,  that as of the last day of each fiscal quarter
occurring on or after December 31, 1999 through and including December 31, 2000,
the  Borrowers  shall not permit the EBITDA  losses for all the  Borrowers  on a
combined basis for the two fiscal  quarters then ending to exceed the amount set
forth below for such date:

FISCAL QUARTER ENDING                     EBITDA LOSSES

December 31, 1999                         ($50,400,000)
March 31, 2000                            ($38,700,000)
June 30, 2000                             ($25,001,000)
September 30, 2000                        ($13,823,000)
December 31, 2000                         ($4,157,000)"

            1.3  SECTION  7.01(c)(ii)  shall  be  deleted  in its  entirety  and
replaced with the following new SECTION 7.01(c)(ii):

            "As of the last day of the fiscal quarter ending March 31, 2001, the
Borrowers  shall not permit EBITDA for all the Borrowers on a combined basis for
the two fiscal quarters then ending to be less than $1,688,000."

            2. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date above written,  if, and only if, the Agents have received duly executed
originals of this Amendment from the  Borrowers,  the Requisite  Lenders and the
Agents on or prior to January __, 2000.

            3.  REPRESENTATIONS  AND WARRANTIES OF THE BORROWERS.  The Borrowers
hereby represent and warrant as follows:

            (a)  This  Amendment  and the Loan  Agreement,  as  amended  hereby,
constitute  legal,  valid  and  binding  obligations  of the  Borrowers  and are
enforceable against the Borrowers in accordance with their terms.

            (b) Upon the  effectiveness of this Amendment,  the Borrowers hereby
reaffirm all representations  and warranties made in the Loan Agreement,  and to
the extent the same are not amended hereby,  agree that all such representations
and warranties shall be deemed to have been remade as of the date of delivery of

                                       2
<PAGE>

this  Amendment,  unless  and to the  extent  that any such  representation  and
warranty  is stated to relate  solely to an  earlier  date,  in which  case such
representation and warranty shall be true and correct as of such earlier date.

            (c)  As of  the  date  hereof,  and  after  giving  effect  to  this
Amendment,  each  Borrower  shall  be in  compliance  with  all  the  terms  and
provisions set forth in the Loan Agreement, as amended hereby, on its part to be
observed or  performed,  and no Event of Default or Default  shall have occurred
and be continuing.

            4. REFERENCE TO AND EFFECT ON THE LOAN AGREEMENT.

            (a) Upon the  effectiveness  of  Section 1 hereof,  on and after the
date  hereof,  each  reference in the Loan  Agreement to "this Loan  Agreement,"
"hereunder,"  "hereof,"  "herein"  or words of like  import  shall mean and be a
reference to the Loan  Agreement as amended  hereby,  and each  reference to the
Loan Agreement in any other document,  instrument or agreement shall mean and be
a reference to the Loan Agreement as modified hereby.

            (b) The Loan Agreement,  as amended hereby, and all other documents,
instruments and agreements  executed and/or  delivered in connection  therewith,
shall remain in full force and effect, and are hereby ratified and confirmed.

            (c) Except as expressly provided herein, the execution, delivery and
effectiveness  of this  Amendment  shall not  operate  as a waiver of any right,
power or remedy of the Agents or the  Lenders,  nor  constitute  a waiver of any
provision  of  the  Loan  Agreement  or any  other  documents,  instruments  and
agreements executed and/or delivered in connection therewith.

            5. GOVERNING LAW. THIS AMENDMENT  SHALL BE GOVERNED BY AND CONSTRUED
IN  ACCORDANCE  WITH THE OTHER  REMAINING  TERMS OF THE LOAN  AGREEMENT  AND THE
INTERNAL  LAWS (AS OPPOSED TO CONFLICT  OF LAW  PROVISIONS)  OF THE STATE OF NEW
YORK.

            6.  PARAGRAPH  HEADINGS.  The paragraph  headings  contained in this
Amendment  are and shall be  without  substance,  meaning or content of any kind
whatsoever and are not a part of the agreement among the parties thereto.

            7.  COUNTERPARTS.  This  Amendment  may be  executed  in one or more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

                                       3
<PAGE>

            IN WITNESS WHEREOF,  this Amendment has been duly executed as of the
day and year first above written.

THE BORROWERS:                     KMC TELECOM INC.

                                   KMC TELECOM II, INC.

                                   KMC TELECOM OF VIRGINIA, INC.

                                   In each case:

                                   By:  /s/
                                      -----------------------
                                   Name: James D. Grenfell
                                   Title:      CFO

                                   KMC TELECOM LEASING I LLC
                                   By:  KMC TELECOM INC., as its Sole Member

                                   By:  /s/
                                      -----------------------
                                   Name:  James D. Grenfell
                                   Title:      CFO

                                   KMC TELECOM LEASING I LLC
                                   By:  KMC TELECOM II, INC., as its Sole Member

                                   By:  /s/
                                      -----------------------
                                   Name: James D. Grenfell
                                   Title:      CFO

                                       4
<PAGE>

                                   FIRST UNION NATIONAL BANK, as the
                                   Agent and as a Lender

                                   By:  /s/
                                      -------------------------
                                   Name: Elizabeth Elmore
                                   Title: Senior Vice President

                                   NEWCOURT  COMMERCIAL FINANCE  CORPORATION
                                   (f/k/a    AT&T     COMMERCIAL     FINANCE
                                   CORPORATION),  an  affiliate  of The  CIT
                                   Group,  Inc., as the Collateral Agent and
                                   as a Lender

                                   By:  /s/
                                      -------------------------
                                   Name: Michael Monahan
                                   Title: Vice President

                                   CANADIAN IMPERIAL BANK OF
                                   COMMERCE, as a Lender

                                   By:  /s/
                                      -------------------------
                                   Name: Tefta Chilaga
                                   Title: Executive Director, CIBC World
                                              Markets Corp. As Agent

                                   GENERAL ELECTRIC CAPITAL
                                   CORPORATION, as a Lender

                                   By:  /s/
                                      -------------------------
                                   Name: Mark F. Mylon
                                   Title: Manager-Operations

                                   BANKBOSTON, N.A., as a Lender

                                   By:  /s/
                                      --------------------------
                                   Name: Michael A. Ashton
                                   Title: Vice President

                                       5
<PAGE>

                                   CREDIT SUISSE FIRST BOSTON, as a
                                   Lender

                                   By:  /s/
                                      --------------------------
                                   Name: Jeffery Ulmer
                                   Title: Vice President

                                   By:  /s/
                                      --------------------------
                                   Name: Douglas E. Maher
                                   Title: Vice President

                                   DRESDNER BANK AG NEW YORK AND
                                   GRAND CAYMAN BRANCHES, as a Lender

                                   By:  /s/
                                      --------------------------
                                   Name: John P. Fleseler
                                   Title: Senior Vice President

                                   By:  /s/
                                      --------------------------
                                   Name: Constance Loosemore
                                   Title: Assistant Vice President

                                   MORGAN STANLEY SENIOR FUNDING,
                                   INC., as a Lender

                                   By:  /s/
                                      --------------------------
                                   Name: T. Morgan Edwards II
                                   Title: Vice President

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

                                   MORGAN STANLEY DEAN WITTER
                                   PRIME INCOME TRUST, as a Lender

                                   By:  /s/
                                      --------------------------
                                   Name: Shelia Finnely
                                   Title: Senior Vice President

                                       6
<PAGE>

                                   UNION BANK OF CALIFORNIA, N.A., as a
                                   Lender

                                   By:  /s/
                                      --------------------------
                                   Name: Keith M. Wilson
                                   Title: Vice President

                                   KEYPORT LIFE INSURANCE COMPANY,
                                   as a Lender

                                   By:  /s/
                                      --------------------------
                                   Name: Brian W. Good
                                   Title: Vice President & Portfolio Manager

                                   STEIN ROE FLOATING RATE LIMITED
                                   LIABILITY COMPANY, as a Lender

                                   By:  /s/
                                      --------------------------
                                   Name: Brian W. Good
                                   Title: Vice President
                                          Stein Roe & Farnham Incorporated,
                                          Advisor to the Stein Roe Floating Rate
                                          Limited Liability Company

                                       7
<PAGE>

                            REAFFIRMATION OF GUARANTY

            Reference  is hereby made to (i) that certain  Guaranty  dated as of
December 22, 1998 (as amended, restated, supplemented or otherwise modified from
time to  time,  the  "GUARANTY")  by KMC  Telecom  Holdings,  Inc.,  a  Delaware
corporation  (the  "GUARANTOR"),   in  favor  of  Newcourt   Commercial  Finance
Corporation  (formerly  known  as  AT&T  Commercial  Finance  Corporation),   an
affiliate of The CIT Group, Inc., as collateral agent for the ratable benefit of
the "Lenders" (defined below) (in such capacity,  the "COLLATERAL AGENT"),  (ii)
that  certain  Loan and  Security  Agreement  dated as of December  22, 1998 (as
amended,  restated,  supplemented  or otherwise  modified from time to time, the
"LOAN AGREEMENT") among KMC Telecom,  Inc., KMC Telecom II, Inc., KMC Telecom of
Virginia,  Inc., KMC Telecom  Leasing I LLC, KMC Telecom Leasing II LLC (each of
the foregoing being referred to collectively as the "BORROWERS"),  the financial
institutions  from time to time  parties  thereto (the  "Lenders"),  First Union
National Bank, as  administrative  agent for the Lenders (the "Agent"),  and the
Collateral  Agent,  and (iii) that certain  Amendment No. 4 to Loan and Security
Agreement dated as of December 31, 1999 (the  "AMENDMENT")  among the Borrowers,
the Lenders, the Agent and the Collateral Agent.

            The  Guarantor,   by  its  signature  below,   without  in  any  way
establishing a course of dealing,  hereby (i)  acknowledges  and consents to the
execution and delivery of the Amendment by the parties thereto, (ii) agrees that
the Amendment  shall not limit or diminish the  obligations  of the Guarantor to
guarantee all of the  "Obligations" of each Borrower under and as defined in the
Loan Agreement and such other amounts as are more specifically  described in the
Guaranty,  (iii) reaffirms all of its obligations  under the Guaranty,  and (iv)
agrees that the Guaranty remains in full force and effect and is hereby ratified
and confirmed.

            IN WITNESS WHEREOF,  this instrument has been executed and delivered
as of this 31st day of December, 1999.

                                     KMC TELECOM HOLDINGS, INC.

                                     By:  /s/
                                        --------------------------

                                     Name:   James D. Grenfell
                                     Title:  CFO, Executive Vice President and
                                             Secretary

                                       8------------------------------------------------------------------------------

               AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

                        DATED AS OF FEBRUARY 15, 2000

                                    AMONG

                              KMC TELECOM INC.,
                            KMC TELECOM II, INC.,
                            KMC TELECOM III, INC.,
                        KMC TELECOM OF VIRGINIA, INC.,
                          KMC TELECOM LEASING I LLC,
                         KMC TELECOM LEASING II LLC,
                         KMC TELECOM LEASING III LLC,
                            KMC TELECOM.COM, INC.
                                     AND
                             KMC III SERVICES LLC
                                AS BORROWERS,

                   THE FINANCIAL INSTITUTIONS FROM TIME TO
                             TIME PARTIES HERETO,
                                 AS LENDERS,

                                     AND

                          FIRST UNION NATIONAL BANK

                   AS ADMINISTRATIVE AGENT FOR THE LENDERS

                                     AND

                   NEWCOURT COMMERCIAL FINANCE CORPORATION,
                     AN AFFILIATE OF THE CIT GROUP, INC.,
                     AS COLLATERAL AGENT FOR THE LENDERS

<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE

ARTICLE I
   AMENDMENT AND RESTATEMENT; DEFINITIONS.....................................2

   SECTION 1.01.  Amendment and Restatement...................................2
   SECTION 1.02.  Definitions.................................................2
   SECTION 1.03.  Accounting Terms...........................................23
   SECTION 1.04.  Others Defined in New York Uniform Commercial Code.........23
ARTICLE II
   LOANS AND LETTERS OF CREDIT...............................................23

   SECTION 2.01.  Agreement to Lend..........................................24
   SECTION 2.02.  Loans......................................................24
   SECTION 2.03.  Procedure for Loan Request and Borrowing Commitment........25
   SECTION 2.04.  The Notes..................................................27
   SECTION 2.05.  Interest on Loans..........................................28
   SECTION 2.06.  Conversion or Continuation.................................29
   SECTION 2.07.  Special Provisions Governing LIBOR Loans...................30
   SECTION 2.08.  Payments...................................................32
   SECTION 2.09.  Optional and Mandatory Prepayment of Loans; Optional
                  and Mandatory Reduction of Revolving Loan Commitment
                  Amount.....................................................33
   SECTION 2.10.  Letters of Credit..........................................35
   SECTION 2.11.  Fees.......................................................40
   SECTION 2.12.  Manner of Payment; Special Tax Considerations..............41
   SECTION 2.13.  Maximum Lawful Interest Rate...............................46
   SECTION 2.14.  Funding Issues.............................................46
   SECTION 2.15.  Joint and Several Liability; Contribution..................47
ARTICLE III
   REPRESENTATIONS AND WARRANTIES............................................48

   SECTION 3.01.  Organization; Powers.......................................48
   SECTION 3.02.  Corporate Authorization....................................48
   SECTION 3.03.  Financial Statements.......................................49
   SECTION 3.04.  No Material Adverse Change.................................49
   SECTION 3.05.  Litigation.................................................49
   SECTION 3.06.  Tax Returns................................................49
   SECTION 3.07.  No Defaults................................................49
   SECTION 3.08.  Properties.................................................49
   SECTION 3.09.  Licenses, Material Agreements, Intellectual Property.......49
   SECTION 3.10.  Compliance With Laws.......................................50
   SECTION 3.11.  ERISA......................................................50
   SECTION 3.12.  Investment Company Act; Public Utility Holding
                  Company Act................................................51
   SECTION 3.13.  Federal Reserve Regulations................................51

                                       i
<PAGE>

   SECTION 3.14.  Collateral.................................................51
   SECTION 3.15.  Chief Place of Business....................................52
   SECTION 3.16.  Other Corporate Names......................................52
   SECTION 3.17.  Insurance..................................................52
   SECTION 3.18.  Milestone Plan.............................................52
   SECTION 3.19.  Capitalization and Subsidiaries............................52
   SECTION 3.20.  Real Property, Leases and Easements........................52
   SECTION 3.21.  Solvency...................................................53
   SECTION 3.22.  Brokers, etc...............................................53
   SECTION 3.23.  No Material Misstatements..................................53
   SECTION 3.24.  Year 2000 Problems.........................................53
ARTICLE IV
   CONDITIONS FOR LOANS......................................................53

   SECTION 4.01.  Conditions Precedent to Initial Loan on or after the
                  Closing Date...............................................54
   SECTION 4.02.  Conditions Precedent to All Loans..........................58
ARTICLE V
   AFFIRMATIVE COVENANTS.....................................................60

   SECTION 5.01.  Corporate and Franchise Existence..........................60
   SECTION 5.02.  Compliance with Laws, Etc..................................60
   SECTION 5.03.  Maintenance of Properties..................................60
   SECTION 5.04.  Insurance..................................................60
   SECTION 5.05.  Obligations and Taxes......................................65
   SECTION 5.06.  Financial Statements, Reports, etc.........................66
   SECTION 5.07.  Litigation and Other Notices...............................68
   SECTION 5.08.  Mortgages; Landlord Consents; Licenses and Other
                  Agreements.................................................68
   SECTION 5.09.  ERISA......................................................69
   SECTION 5.10.  Access to Premises and Records.............................69
   SECTION 5.11.  Design and Construction....................................69
   SECTION 5.12.  Environmental Notices......................................69
   SECTION 5.13.  Amendment of Organizational Documents......................69
   SECTION 5.14.  Third Party Agreements and Delivery and Acceptance
                  Certificates...............................................70
   SECTION 5.15.  Accounts Payable...........................................70
   SECTION 5.16.  Intellectual Property. Such Borrower shall enter into
                  Intellectual Property Documents, in form and substance
                  satisfactory to the Collateral Agent, with respect to
                  all of the Intellectual Property owned by such Borrower....70
   SECTION 5.17.  Fiscal Year................................................70
   SECTION 5.18.  Required Contribution. The Borrowers shall obtain the
                  Required Contribution on or prior to August 31, 2000.......70
   SECTION 5.19.  Subsidiary Guarantees and Pledges..........................70
   SECTION 5.20.  Accounting; Maintenance of Records.........................71
   SECTION 5.21.  Further Assurances.........................................71
ARTICLE VI
   NEGATIVE COVENANTS........................................................71
                                       ii
<PAGE>

   SECTION 6.01.  Liens, etc.................................................71
   SECTION 6.02.  Use of Proceeds............................................72
   SECTION 6.03.  Sale of Assets, Consolidation, Merger, etc.................72
   SECTION 6.04.  Dividends and Distributions; Sale of Equity Interests......72
   SECTION 6.05.  Management Fees and Permitted Corporate Overhead...........73
   SECTION 6.06.  Guarantees; Third Party Sales and Leases...................73
   SECTION 6.07.  Investments................................................73
   SECTION 6.08.  Subsidiaries; Permitted Acquisitions.......................74
   SECTION 6.09.  Permitted Activities.......................................75
   SECTION 6.10.  Disposition of Licenses, etc...............................75
   SECTION 6.11.  Transactions with Affiliates...............................75
   SECTION 6.12.  ERISA......................................................75
   SECTION 6.13.  Indebtedness...............................................76
   SECTION 6.14.  Prepayment and Debt Documents..............................76
   SECTION 6.15.  Sale and Leaseback Transactions............................77
   SECTION 6.16.  Margin Regulation..........................................77
   SECTION 6.17.  Management and Tax Sharing Agreements......................77
ARTICLE VII
   FINANCIAL COVENANTS.......................................................77

   SECTION 7.01.  Financial Covenants Prior to Achieving Positive EBITDA.....77
   SECTION 7.02.  Financial Covenants After Achieving Positive EBITDA........78
ARTICLE VIII
   COLLATERAL SECURITY.......................................................80
   SECTION 8.01.  Collateral Security........................................80
   SECTION 8.02.  Preservation of Collateral and Perfection of Security
                  Interests Therein..........................................81
   SECTION 8.03.  Appointment of the Collateral Agent as the
                  Borrowers'Attorney-in-Fact.................................81
   SECTION 8.04.  Collection of Accounts and Restricted Account
                  Arrangements...............................................81
   SECTION 8.05.  Cure Rights................................................82
ARTICLE IX
   EVENTS OF DEFAULT; REMEDIES...............................................82

   SECTION 9.01.  Events of Default..........................................82
   SECTION 9.02.  Termination of Commitment; Acceleration....................85
   SECTION 9.03.  Waivers....................................................85
   SECTION 9.04.  Rights and Remedies Generally..............................86
   SECTION 9.05.  Entry Upon Premises and Access to Information..............86
   SECTION 9.06.  Sale or Other Disposition of Collateral by the Agent.......86
   SECTION 9.07.  Governmental Approvals.....................................87
   SECTION 9.08.  Appointment of Receiver or Trustee.........................88
   SECTION 9.09.  Right of Setoff............................................88
ARTICLE X
   THE AGENT AND THE COLLATERAL AGENT........................................89
                                      iii
<PAGE>

   SECTION 10.01.  Appointment of Agent......................................89
   SECTION 10.02.  Agent's Reliance, Etc.....................................90
   SECTION 10.03.  FUNB and Affiliates.......................................90
   SECTION 10.04.  Lender Credit Decision....................................90
   SECTION 10.05.  Indemnification...........................................91
   SECTION 10.06.  Successor Agent...........................................91
   SECTION 10.07.  Payments; Non-Funding Lenders; Information; Actions
                   in Concert................................................92
   SECTION 10.08.  Collateral Matters........................................93
   SECTION 10.09.  Agency for Perfection.....................................94
   SECTION 10.10.  Concerning the Collateral and the Related Loan
                   Documents and the Collateral Agent........................94
ARTICLE XI
   MISCELLANEOUS.............................................................94

   SECTION 11.01.  Notices; Action on Notices, etc...........................95
   SECTION 11.02.  No Waivers; Amendments....................................95
   SECTION 11.03.  Governing Law and Jurisdiction............................96
   SECTION 11.04.  Expenses..................................................96
   SECTION 11.05.  Equitable Relief..........................................97
   SECTION 11.06.  Indemnification; Limitation of Liability; Lucent
                   Relationships.............................................97
   SECTION 11.07.  Survival of Representations and Warranties, etc...........98
   SECTION 11.08.  Successors and Assigns; Assignments; Participations.......98
   SECTION 11.09.  Severability.............................................101
   SECTION 11.10.  Cover Page, Table of Contents and Section Headings.......101
   SECTION 11.11.  Counterparts.............................................101
   SECTION 11.12.  Application of Payments..................................101
   SECTION 11.13.  Marshalling; Payments Set Aside..........................101
   SECTION 11.14.  SERVICE OF PROCESS.......................................102
   SECTION 11.15.  WAIVER OF JURY TRIAL, ETC................................102
   SECTION 11.16.  Confidentiality..........................................102
   SECTION 11.17.  Entire Agreement, etc....................................103
   SECTION 11.18.  No Strict Construction...................................103
                                       iv
<PAGE>

                                   EXHIBITS

EXHIBIT A               Milestone Plan

EXHIBIT B               Form of Collateral Assignment of Leases

EXHIBIT C               Form of Collateral Assignment of Licenses

EXHIBIT D               Form of Landlord Waiver

EXHIBIT E-1             Form of Revolving Loan Note

EXHIBIT E-2             Form of Term A Loan Note

EXHIBIT E-3             Form of Term B Loan Note

EXHIBIT F               Form of Periodic Reporting Certificate

EXHIBIT G               Form of Guaranty

EXHIBIT H-1             Form of Notice of Borrowing

EXHIBIT H-2             Form of Notice of Continuation/Conversion

EXHIBIT I               Financials

EXHIBIT J-1             Form of Secretary's Certificate of Borrower

EXHIBIT J-2             Form of Secretary's Certificate of KMC Holdings

EXHIBIT K-1             Form of Opinion of Borrowers' Special Counsel

EXHIBIT K-2             Form of Opinion of Borrowers' Regulatory Counsel

EXHIBIT K-3             Form of Opinion of Borrowers' Local Counsel

EXHIBIT L               Form of Pledge Agreement

EXHIBIT M               Form of Loss Payable Endorsement

EXHIBIT N               Form of Restricted Account Agreement

EXHIBIT O               Form of Assignment Agreement

EXHIBIT P               Form of Accession Agreement

EXHIBIT Q               Form of Contribution Agreement

EXHIBIT R               Form of Delivery and Acceptance Certificate
                                       v

<PAGE>

EXHIBIT S               Form of Trademark Security Agreement

EXHIBIT T               Form of General Reaffirmation and Modification
Agreement

EXHIBIT U               Form of Guaranty and Security Agreement

                                       vi
<PAGE>

                                  SCHEDULES

SCHEDULE 1.01(a)  Applicable Margin

SCHEDULE 3.02     Consents

SCHEDULE 3.05     Litigation

SCHEDULE 3.09(a)  Governmental Authorizations and Approvals

SCHEDULE 3.09(b)  Material Agreements

SCHEDULE 3.09(c)  Intellectual Property

SCHEDULE 3.10     Environmental Matters

SCHEDULE 3.11     Plans

SCHEDULE 3.14     Filing Offices

SCHEDULE 3.16     Corporate and Fictitious Names

SCHEDULE 3.17     Insurance

SCHEDULE 3.19     Capitalization and Subsidiaries

SCHEDULE 3.20     Real Property, Leased Real Property and Easements

SCHEDULE 6.11     Transactions With Affiliates

SCHEDULE 8.04     Collection Accounts

                                   ANNEXES

ANNEX A.....-     Commitment Amounts

ANNEX B.....-     Financial Covenant Information

ANNEX C.....-     Revolving Loan Commitment Reductions and Term Loan
                  Amortizations

                                      vii

<PAGE>

            AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("AGREEMENT") dated
as of February 15, 2000 among KMC TELECOM INC., a Delaware  corporation ("KMC"),
KMC TELECOM II, INC., a Delaware  corporation ("KMC II"), KMC TELECOM III, INC.,
a Delaware  corporation  ("KMC III"), KMC TELECOM OF VIRGINIA,  INC., a Virginia
public service company ("KMC  VIRGINIA"),  KMC TELECOM LEASING I LLC, a Delaware
limited  liability company ("LEASING I"), KMC TELECOM LEASING II LLC, a Delaware
limited  liability  company  ("LEASING  II"),  KMC  TELECOM  LEASING  III LLC, a
Delaware limited  liability  company  ("LEASING III"), KMC TELECOM.COM,  INC., a
Delaware corporation  ("TELECOM.COM"),  KMC III Services LLC, a Delaware limited
liability  company  ("SERVICES"),  the  Additional  Borrowers  from time to time
parties hereto (KMC,  KMC II, KMC Virginia,  Leasing I, Leasing II, Leasing III,
Telecom.com,  Services and any Additional Borrowers being collectively  referred
to hereinafter as the "BORROWERS"  and sometimes  individually as a "BORROWER"),
the  financial  institutions  signatory  hereto from time to time, as "Lenders",
FIRST UNION  NATIONAL  BANK,  as  administrative  agent for the Lenders (in such
capacity,  the "AGENT") and NEWCOURT  COMMERCIAL FINANCE  CORPORATION,  formerly
known as AT&T Commercial Finance  Corporation and an affiliate of The CIT Group,
Inc., as collateral  agent for the Lenders (in such  capacity,  the  "COLLATERAL
AGENT").

                                   RECITALS

     A. The  Borrowers  (other  than  KMC  III,  Leasing  III,  Telecom.com  and
Services),  the Lenders,  the Agent and the Collateral  Agent,  are parties to a
certain Loan and Security  Agreement  dated as of December 22, 1998,  as amended
pursuant to that certain Amendment No. 1 thereto dated as of March 3, 1999, that
certain Amendment No. 2 thereto dated as of August 13, 1999, that certain Waiver
and  Amendment  No. 3 thereto  dated as of October 29,  1999,  and that  certain
Amendment  No. 4 thereto  dated as of December  31, 1999 (such Loan and Security
Agreement,  as  so  amended  being  hereinafter  referred  to as  the  "EXISTING
AGREEMENT"),  pursuant to which the Lenders have provided loans to the Borrowers
other than KMC III, Leasing III, Telecom.com and Services (the "EXISTING LOANS")
and issued  letters of credit for the  account of the  Borrowers  other than KMC
III,  Leasing III,  Telecom.com  and Services and for which the Borrowers  other
than KMC III,  Leasing III,  Telecom.com  and Services have  incurred  Letter of
Credit Obligations (the "EXISTING LETTER OF CREDIT OBLIGATIONS").

     B. The  Borrowers,  the Lenders,  the Agent and the  Collateral  Agent have
agreed to amend the  Existing  Agreement  in certain  respects,  to, among other
things,  increase  the  Commitment  Amount to  $700,000,000  and to add KMC III,
Leasing  III,  Telecom.com  and  Services  as  Borrowers  and to  refinance  the
obligations of KMC III,  Leasing III and Services under that certain Amended and
Restated  Loan and  Security  Agreement  dated as of December 30, 1999 among KMC
III, Leasing III, Services, the financial institutions from time to time parties
thereto as lenders,  Lucent  Technologies  Inc.,  as Agent for said  lenders and
State Street Bank and Trust  Company as  Collateral  Agent for said Lenders (the
"Lucent  Loan  Agreement")  and have  agreed to  execute  this  Agreement  as an
amendment and  restatement  of the Existing  Agreement,  in order to incorporate
such amendments and the Existing Agreement into a single document.

                                       1
<PAGE>

     C. It is the intent of the parties  hereto that the  execution and delivery
of this Agreement not effectuate a refinancing or novation of the Existing Loans
and Existing  Letter of Credit  Obligations,  but rather a  modification  to the
terms  governing  the  repayment  of the Existing  Loans and Existing  Letter of
Credit  Obligations,   which  Existing  Loans  and  Existing  Letter  of  Credit
Obligations  remain  outstanding as of the date hereof and remain secured by the
Collateral.

                                  ARTICLE I
                    AMENDMENT AND RESTATEMENT; DEFINITIONS

         SECTION 1.01. AMENDMENT AND RESTATEMENT.  The Borrowers, the Agent, the
Collateral Agent and the Lenders hereby agree that, effective upon the execution
and delivery of this Agreement by each such party:  (a) the terms and provisions
of the  Existing  Agreement  shall be and hereby  are  amended,  superseded  and
restated in their entirety by the terms and provisions of this Agreement, except
that any grant of  security  by any  Borrower  pursuant  to SECTION  8.01 of the
Existing  Agreement  shall remain  effective as of the date any such grant first
became  effective,  and (b) the  Existing  Loans  shall  constitute  the initial
outstanding   Loans  under  this  Agreement,   the  Existing  Letter  of  Credit
Obligations   shall  constitute  the  initial   outstanding   Letter  of  Credit
Obligations under this Agreement,  and the Existing Loans and Existing Letter of
Credit  Obligations shall be payable solely in accordance with the terms of this
Agreement,  the  Notes  and any Loan  Documents  delivered  pursuant  hereto  or
modified in  accordance  with the General  Reaffirmation.  No party hereto shall
have any obligations under the Existing Agreement, except to the extent that any
obligations  thereunder  may be  restated  in this  Agreement  or the other Loan
Documents.  The Borrowers, the Agent, the Collateral Agent and the Lenders agree
that the  execution  and  delivery  of this  Agreement  shall not  effectuate  a
novation or  refinancing  of the Existing  Loans and  Existing  Letter of Credit
Obligations,  but rather a  substitution  of certain of the terms  governing the
payment and  performance  of the Existing  Loans and  Existing  Letter of Credit
Obligations.

         SECTION 1.02.  DEFINITIONS.  As used in this  Agreement,  the following
words and terms shall have the meanings specified below:

         "ACCESS LINES" shall mean the total number of installed  business lines
that provide service to a business  customer of a Borrower  including  "resale",
"on-net" and "unbundled network element"; PROVIDED, that resale shall constitute
no more than twenty-five percent (25%) of the total Access Lines.

         "ACCOUNTS"  shall mean all present and future rights of any Borrower to
payment  for  goods  sold or  leased  or for  services  rendered  which  are not
evidenced by  instruments  or chattel  paper,  and whether or not they have been
earned by performance.

         "ADDITIONAL  BORROWER" shall mean any Subsidiary of KMC Holdings,  KMC,
KMC II, KMC III, KMC Virginia,  Leasing I, Leasing II, Leasing III,  Telecom.com
or Services that enters into an accession agreement substantially in the form of
EXHIBIT P hereto,  is acceptable to the Requisite  Lenders,  and the outstanding
Equity  Interests  of  which  are  pledged  to the  Agent  pursuant  to a pledge
agreement substantially in the form of EXHIBIT L attached hereto.

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<PAGE>

         "ADDITIONAL PURCHASE AGREEMENT" shall mean a purchase agreement between
any   Borrower   and  an   Additional   Vendor   relating  to  the  purchase  of
Telecommunications  Equipment on terms and conditions reasonably satisfactory to
the Agents, if such purchase agreement contemplates Telecommunications Equipment
purchases  in  excess  of  $5,000,000  in any  one  year or  $15,000,000  in the
aggregate,  otherwise on the terms and conditions reasonably satisfactory to the
Collateral Agent.

         "ADDITIONAL VENDOR" shall mean a vendor of Telecommunications Equipment
other than Lucent,  which Additional Vendor shall be reasonably  satisfactory to
the Agents if the Additional Purchase Agreement the Additional Vendor is a party
to contemplates  Telecommunications  Equipment purchases in excess of $5,000,000
in any one year or  $15,000,000  in the  aggregate,  otherwise  on the terms and
conditions reasonably satisfactory to the Collateral Agent.

         "AFFILIATE"  shall mean any Person  other than any Lender  directly  or
indirectly controlling,  controlled by or under common control with any Borrower
and any officer or shareholder of such Person or any Borrower, which shareholder
beneficially  owns at least ten percent  (10%) of the Equity  Interests  of such
Person  or  any  Borrower.  For  the  purposes  of  this  definition,  "control"
(including, with correlative meanings, the terms "controlling," "controlled by",
and "under common control with"), as used with respect to any Person,  means the
possession,  directly  or  indirectly,  of the  power to  direct  or  cause  the
direction  of the  management  or policies of such Person,  whether  through the
ownership of voting securities,  by agreement or otherwise;  PROVIDED,  HOWEVER,
that  beneficial  ownership of at least 10% of the Equity  Interests of a Person
shall be deemed to constitute control; and provided,  further,  that in no event
shall any of the  Agents or the  Lenders  be  deemed to be an  Affiliate  of any
Borrower or of KMC Holdings.

         "AGED EQUIPMENT" shall mean Telecommunications Equipment, which has
been in commercial operation for more than twelve months.

         "AGENTS" shall mean collectively,  the Agent, the Collateral Agent, the
Documentation Agent and the Syndication Agent.

         "APPLICABLE MARGIN" shall mean  with  respect  to (i) each Loan bearing
interest based upon the Base Rate, the margin  determined in accordance with the
criteria  set forth on  SCHEDULE  1.01(A)  hereto,  and (ii)  each Loan  bearing
interest based upon the LIBO Rate, the margin  determined in accordance with the
criteria set forth on SCHEDULE 1.01(A) hereto, which margins shall be calculated
based upon the financial  statements provided pursuant to SECTION 5.06, with any
readjustments  being  effective five Business Days following the Agent's receipt
thereof; provided,  however, that in the event that the Required Contribution is
obtained  on or prior to August  31,  2000,  each such  margin  shall be reduced
effective  as of five (5)  Business  Days  after  receipt  by  Borrowers  of the
Required Contribution by twenty-five (25) basis points.

         "ASSIGNMENT  AGREEMENT" shall mean an assignment agreement entered into
in connection with an assignment pursuant to SECTION 11.08 hereof  substantially
in the form of EXHIBIT O hereof.

                                       3
<PAGE>

         "BASE LIBO RATE" shall mean,  during any Interest  Period,  the rate of
interest  per annum  (rounded  upward to the nearest  whole  multiple of 1/16 of
1.0%,  if such  rate is not  such a  multiple)  equal  to the  rate of  interest
notified  to the Agent by the  Reference  Bank at which  Dollar  deposits in the
approximate  amount of the Loans to be made or continued as, or converted  into,
LIBOR Loans for such  Interest  Period and having a maturity  comparable to such
Interest  Period would be offered by the London  lending office of the Reference
Bank in the London interbank  market at  approximately  11:00 a.m. (London time)
two (2) Business Days prior to the commencement of such Interest Period.

         "BASE  RATE" shall mean the higher of (i) a rate per annum equal to the
corporate  base  rate,  prime  rate or base  rate of  interest,  as  applicable,
announced by the  Reference  Bank from time to time,  changing  when and as such
rate changes,  it being understood that such rate of interest is not necessarily
the lowest or best rate charged by the Reference Bank to its customers, and (ii)
the sum of the Federal Funds  Effective Rate plus one-half  percent  (0.50%) per
annum.

         "BASE RATE  LOAN"  shall mean a Loan,  or portion  thereof,  during any
period in which it bears interest at a rate based upon the Base Rate.

         "BASE RATE  REVOLVING  LOAN"  shall mean a  Revolving  Loan  during any
period for which it is a Base Rate Loan.

         "BASE  RATE TERM A LOAN"  shall  mean any  portion  of the Term A Loans
during any period for which such portion is a Base Rate Loan.

         "BASE  RATE TERM B LOAN"  shall  mean any  portion  of the Term B Loans
during any period for which such portion is a Base Rate Loan.

         "BASE RATE TERM LOAN" shall mean a Base Rate Term A Loan or a Base Rate
Term B Loan.

         "BENEFIT PLAN" shall mean a defined  benefit plan as defined in Section
3(35)  of ERISA  (other  than a  Multiemployer  Plan) in  respect  of which  any
Borrower or any ERISA Affiliate is, or within the immediately  preceding six (6)
years was, an "employer" as defined in Section 3(5) of ERISA.

         "BORROWER"  shall  mean  any of KMC,  KMC II,  KMC III,  KMC  Virginia,
Leasing I, Leasing II,  Leasing III,  Telecom.com,  Services and any  Additional
Borrower.

         "BORROWING  BASE"  shall  mean at any  time  the  sum of the  following
amounts: (i) the aggregate cost of  Telecommunications  Equipment financed under
this  Agreement,  minus any reserves  established by the  Collateral  Agent with
respect  to Aged  Equipment,  (ii) the cash  portion  of the  purchase  price of
Permitted Acquisitions,  plus fees and expenses in connection with the Permitted
Acquisitions;  provided,  however,  that  such  fees  and  expenses  may only be
included in the Borrowing Base with respect to any Permitted  Acquisition if the
appraisal  required by clause (8) of SECTION 6.08 with respect to such Permitted
Acquisition indicates that the fair market value of the assets being acquired in

                                       4
<PAGE>

such Permitted  Acquisition  equals or exceeds the sum of the purchase price for
such assets and such fees and expenses,  and (iii) transaction costs incurred in
connection with the execution, delivery and performance of the Loan Documents.

         "BUSINESS"  shall mean with respect to (i) each of KMC, KMC II, KMC III
and KMC Virginia,  the business of  constructing,  operating and maintaining the
Systems owned by them and all operations  related thereto or in support thereof,
(ii) each of Leasing I,  Leasing II and Leasing  III the  business of owning and
leasing  Switch  Equipment,  (iii)  Services,  the business of owning  software,
installation and other soft costs related to the Systems and providing  services
for the Systems, and (iv) Telecom.com,  the business of developing and providing
intranet services.

         "BUSINESS  DAY" shall mean (a) any day not a Saturday,  Sunday or legal
holiday  in the  State of New York or New  Jersey,  on which  banks are open for
business  in New  York  and New  Jersey  and (b) with  respect  to all  notices,
determinations,  fundings and payments in connection with the LIBO Rate or LIBOR
Loans,  any day that is a Business  Day pursuant to CLAUSE (A) above and that is
also a day on which  trading is carried  on by and  between  banks in the London
interbank market.

         "CAPITALIZATION"   shall  mean  funded  equity  capitalization  of  KMC
Holdings.

         "CAPITALIZED   LEASE   OBLIGATIONS"  shall  mean  Debt  represented  by
obligations  under a lease that is  required  to be  capitalized  for  financial
reporting purposes in accordance with GAAP, and the amount of such Debt shall be
the capitalized amount of such obligations determined in accordance with GAAP.

         "CASH  ADVANCE"  shall  mean  any  Term B Loan  which  is not a  Credit
Advance.

         "CHANGE OF  CONTROL"  shall mean (A)  Harold N.  Kamine  ceases to have
senior  management  responsibilities  with  respect  to  the  Borrowers  or  KMC
Holdings,  (B) KMC Holdings no longer beneficially owns, directly or indirectly,
all of the  outstanding  Equity  Interests of each  Borrower,  (C) a "person" or
"group"  (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes  the  ultimate  "beneficial  owner" (as  defined in Rule 13d-3 under the
Exchange  Act) of more than 35% of the total voting power of the Voting Stock of
KMC Holdings on a fully  diluted basis and such  ownership  represents a greater
percentage of the total voting power of the Voting Stock of KMC  Holdings,  on a
fully diluted basis, than is held by the Existing  Stockholders on such date, or
(D)  individuals  who on the  Closing  Date  constitute  the Board of  Directors
(together  with any new  directors  whose  election by the Board of Directors or
whose  nomination  by the  Board of  Directors  for  election  by KMC  Holdings'
stockholders was approved by a vote of at least a majority of the members of the
Board of  Directors  then in office  who  either  were  members  of the Board of
Directors on the Closing Date or whose  election or nomination  for election was
previously  so  approved)  cease for any reason to  constitute a majority of the
members of the Board of Directors then in office.

         "CLEC" shall mean a competitive local exchange carrier.

                                       5
<PAGE>

         "CLOSING  DATE" shall mean the date on which this Agreement is executed
and delivered by the parties hereto.

         "COLLATERAL"  shall mean,  all property  and  interests in property now
owned  or  hereafter  acquired  by any  Borrower  in or upon  which  a  security
interest,  lien or mortgage is granted to the Collateral  Agent by any Borrower,
whether under this Agreement or the other Loan Documents.

         "COLLATERAL  ASSIGNMENT OF LEASES" shall mean the Collateral Assignment
of Leases in the form of  EXHIBIT B  attached  hereto,  which was  executed  and
delivered pursuant to the Existing Agreement,  together with the addenda thereto
to be executed and delivered by KMC III,  Leasing III,  Telecom.com and Services
pursuant to SECTION 4.01 hereof.

         "COLLATERAL   ASSIGNMENT  OF  LICENSES"   shall  mean  the   Collateral
Assignment  of  Licenses  in the form of  EXHIBIT C attached  hereto,  which was
executed and  delivered  pursuant to the Existing  Agreement,  together with the
addenda  thereto  to  be  executed  and  delivered  by  KMC  III,  Leasing  III,
Telecom.com and Services pursuant to SECTION 4.01 hereof.

         "COLLECTION  ACCOUNTS" AND  "COLLECTION  AGENT" shall have the meanings
given to such terms in SECTION 8.04 hereof.

         "COMMITMENT"  shall mean  Lenders'  commitment  to lend as set forth in
SECTION 2.01 hereof.

         "COMMITMENT  AMOUNT" shall mean (a) as to any Lender,  the aggregate of
such Lender's  Revolving Loan Commitment  Amount,  Term Loan A Commitment Amount
and Term Loan B Commitment  Amount as set forth  opposite  such Lender's name on
ANNEX A to this Agreement or in the most recent Assignment Agreement executed by
such Lender and (b) as to all Lenders,  the aggregate of all Lenders'  Revolving
Loan  Commitment  Amounts,  Term  Loan A  Commitment  Amounts  and  Term  Loan B
Commitment  Amounts,  which aggregate  commitment shall be Seven Hundred Million
Dollars  ($700,000,000) on the Closing Date, as such amount may be adjusted from
time to time in accordance with this Agreement

         "COMMON  STOCK"  shall  mean with  respect  to any  Person,  all Equity
Interests of such Person that are generally entitled to (i) vote in the election
of directors of such Person or (ii) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners, managers
or others that will control the management and policies of such Person.

         "CONSOLIDATED" or "Consolidated" refers, with respect to any Person, to
the consolidation of the accounts of such Person and its  Subsidiaries,  if any,
in accordance  with GAAP;  PROVIDED,  that with respect to KMC Holdings,  unless
otherwise   indicated,   its   Subsidiaries   shall  not  include  any  Excluded
Subsidiaries.

         "CONSOLIDATED  DEBT"  shall  mean,  with  respect to KMC  Holdings on a
consolidated  basis,  at any  date,  the sum of the  following  determined  on a
consolidated  basis,  without  duplication,  in  accordance  with GAAP:  (a) all
liabilities, obligations and indebtedness for borrowed money, including, but not
limited to, obligations evidenced by bonds, debentures, notes or other similar

                                       6
<PAGE>

instruments  of any Borrower or KMC  Holdings,  (b) all  obligations  to pay the
deferred  purchase price of property or services of any Borrower or KMC Holdings
(exclusive of rent for real property  under leases that would not be capitalized
in accordance with GAAP),  including,  but not limited to, all obligations under
noncompetition agreements,  except trade payables arising in the ordinary course
of business not more than ninety (90) days past due, (c) all  obligations of any
Borrower or KMC  Holdings  as lessee  under  capital  leases  (exclusive  of the
interest component thereof),  (d) all Debt of any other Person secured by a Lien
on any asset of any such Borrower or KMC Holdings,  (e) all guaranty obligations
of any Borrower or KMC Holdings,  (f) all obligations,  contingent or otherwise,
of any  Borrower  or KMC  Holdings  relative  to the face  amount of  letters of
credit, whether or not drawn, and banker's acceptances issued for the account of
any  Borrower  or KMC  Holdings,  (g) all  obligations  to  redeem,  repurchase,
exchange,  defease or  otherwise  make  payments in respect of capital  stock or
other  securities of any Borrower or KMC Holdings at any time prior to the third
annual  anniversary of the Term Loan  Termination  Date, and (h) all termination
payments which would be due and payable by any Borrower or KMC Holdings pursuant
to any hedging agreement. "Consolidated Debt" shall not include any intercompany
Debt between the Borrowers or between any Borrower and KMC Holdings.

         "CONTAMINANT"  shall mean any  pollutant,  hazardous  substance,  toxic
substance,  hazardous  waste,  special  waste,  petroleum or  petroleum  derived
substance or waste, or any constituent of any such substance or waste.

         "CONTRIBUTED CAPITAL" shall mean, with respect to the Borrowers, at any
date of determination,  all contributed  capital to such Borrowers including all
funded equity and all Qualified Intercompany Loans.

         "CONTRIBUTION  AGREEMENT" shall mean the  Contribution  Agreement among
the  Borrowers  (other than KMC III,  Leasing  III,  Telecom.com  and  Services)
substantially  in the form of EXHIBIT Q, which was  executed  and  delivered  in
connection with the Existing Agreement,  as amended to add KMC III, Leasing III,
Telecom.com   and   Services  as  parties   thereto   pursuant  to  the  General
Reaffirmation.

         "COUNSEL" shall mean Sidley & Austin or such successor counsel selected
by the Collateral Agent.

         "CREDIT  ADVANCE"  shall mean a Term B Loan made to  refinance  a trade
payable  owing  by any of the  Borrowers  to  Lucent  under  a  Lucent  Purchase
Agreement.

         "CREDIT  SUPPORT"  shall have the meaning given to such term in SECTION
2.10.

         "DEBT" shall mean,  with respect to any Person,  (i)  indebtedness  for
borrowed money, (ii) obligations evidenced by bonds, debentures,  notes or other
similar  instruments,  (iii)  obligations which have been incurred in connection
with the  acquisition of property or services  (including,  without  limitation,
obligations  to pay the  deferred  purchase  price  of  property  or  services),
excluding trade payables and accrued expenses incurred in the ordinary course of
business, (iv) obligations as lessee under leases which shall have been or

                                       7
<PAGE>

should be, in accordance with GAAP, recorded as capital or operating leases, (v)
all Guarantees of such Person,  including  without  limitation,  all debt of any
other  Person  secured  by  a  Lien  on  property  of  such  Person,   (vi)  all
reimbursement  obligations,  contingent or otherwise, with respect to letters of
credit or banker's acceptances issued for the account of any Borrower, and (vii)
all  indebtedness,  obligations or other  liabilities in respect of any Interest
Rate Agreement,  PROVIDED that Debt shall not include any liability for Federal,
state, local or other taxes, and PROVIDED,  FURTHER, that the amount outstanding
at any time of any Debt issued with  original  issue  discount is the  principal
amount of such Debt less the remaining unamortized portion of the original issue
discount of such Debt at such time as determined in  conformity  with GAAP,  and
that with respect to any  high-yield  Debt, the amount thereof shall not include
fees incurred in raising such Debt or overfunded amounts set aside solely to pay
interest.  Notwithstanding any other provision of the foregoing definition,  any
trade  payable  arising  from the purchase of goods or materials or for services
obtained in the ordinary  course of business shall not be deemed to be "Debt" of
any Borrower for purposes of this  definition.  Furthermore,  guarantees  of (or
obligations  with  respect  to  letters  of credit  supporting)  Debt  otherwise
included in the determination of such amount shall not be included.

         "DEFAULT"  shall  mean any event  which but for the  passage of time or
giving of notice would constitute an Event of Default.

         "DOCUMENTATION AGENT" shall mean General Electric Capital Corporation.

         "DOLLARS"  or "$"  shall  mean  lawful  money of the  United  States of
America.

         "EASEMENTS"  shall have the meaning  given to such term in SECTION 3.20
hereof.

         "EBITDA"  shall mean,  with respect to any Person,  for any period,  an
amount equal to (i) Net Income PLUS (ii) the sum of the following, to the extent
deducted in determining Net Income: (A) income and franchise taxes, (B) interest
expense, (C) amortization,  depreciation and other non-cash charges, MINUS (iii)
the sum of interest income plus extraordinary gains, as determined in accordance
with GAAP as calculated at the end of such period.

         "ELIGIBLE  FRONTING ASSIGNEE" shall mean (a) Lucent or any Affiliate of
Lucent, (b) any commercial bank or financial  institution  (including any credit
corporation)  that either (i) has total assets in excess of  $1,000,000,000  and
either (x) has a combined capital and surplus and undivided profits in excess of
$250,000,000  or (y) has  long-term  indebtedness  rated  "BBB+"  or  better  by
Standard  & Poor's  Ratings  Service  or "Baa1" or better by  Moody's  Investors
Services,  Inc., or (ii) has an Affiliate that satisfies the criteria  described
in the  foregoing  clause (i), or (c) any fund that is regularly  engaged in the
making,  purchasing or investing in loans or securities that is controlled by an
institution  described  in  clause  (b)  above,  and in each  case,  Lucent,  as
assignor,  and such  Person  described  in  clause  (a),  (b) or (c)  above,  as
assignee, complies with the provisions of SECTION 11.08(C) below.

         "ENVIRONMENTAL  LAWS"  shall mean all  federal,  state and local  laws,
rules, regulations,  ordinances, programs, permits, guidance, orders and consent
decrees or other binding determination of any Governmental Authority relating to

                                       8
<PAGE>

protection of the environment, the handling, disposal or Release of Contaminants
and occupational  safety and health.  Such laws and regulations  include but are
not limited to the Resource Conservation and Recovery Act, 33 U.S.C. ss. 6901 ET
SEQ., as amended;  the Comprehensive  Environmental  Response,  Compensation and
Liability  Act, 42 U.S.C.  ss. 9601 ET SEQ.,  as amended;  the Toxic  Substances
Control  Act, 15 U.S.C.  ss. 2601 ET SEQ.,  as amended;  the Clean Water Act, 33
U.S.C.  ss. 1251 ET SEQ., as amended;  the Clean Air Act, 42 U.S.C.  ss. 7401 ET
SEQ., as amended; state and federal environmental lien and environmental cleanup
programs; the Occupational Safety and Health Act, 29 U.S.C. ss. 651 ET SEQ.; and
U.S.  Department of Transportation  regulations related to the transportation of
hazardous materials, each as from time to time hereafter in effect.

         "EQUITY  AFFILIATE"  shall mean,  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.

         "EQUITY  INTEREST" shall mean, with respect to any Person,  any and all
shares or other equivalents  (however  designated) of capital stock,  membership
units,  partnership interests or any other participation right or other interest
in the nature of an equity  interest in such  Person or any  option,  warrant or
other security convertible into any of the foregoing.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.

         "ERISA  AFFILIATE" shall mean (i) any corporation  which is a member of
the same controlled group of corporations  (within the meaning of Section 414(b)
of the IRC) as any  Borrower,  (ii) any  partnership  or other trade or business
(whether  or not  incorporated)  under  common  control  (within  the meaning of
Section  414(c) of the IRC) with any  Borrower  and (iii) any member of the same
affiliated  service group  (within the meaning of Section  414(m) of the IRC) as
any Borrower,  any corporation  described in CLAUSE (i) above or any partnership
or trade or business described in CLAUSE (ii) above.

         "EUROCURRENCY LIABILITIES" shall have the meaning assigned to that term
in Regulation D of the Federal Reserve Board, as in effect from time to time.

         "EVENT OF DEFAULT" shall have the meaning given to such term in ARTICLE
IX hereof.

         "EVENT OF LOSS" shall mean, with respect to any item of Collateral, the
actual or constructive  loss of such item of Collateral or the use thereof,  due
to theft, destruction, damage beyond repair or damage from any reason whatsoever
which  is not  reimbursable  by  insurance,  to an  extent  which  makes  repair
uneconomical,  or rendition  thereof unfit for normal use, or the  condemnation,
confiscation or seizure of, or requisition of title to or use of,

                                       9
<PAGE>

such item of  Collateral  by any  Governmental  Authority  or any other  Person,
acting under or deemed to be acting under color of any Governmental Authority.

         "EXCESS  OPERATING  CASH FLOW" shall mean for any fiscal  quarter,  Net
Income  of the  Borrowers  plus  non-cash  interest  expense,  depreciation  and
amortization  and any other  non-cash items of the  Borrowers,  minus  scheduled
principal  payments of the  Borrowers  to Lenders,  lease  payments  and capital
expenditures  of the Borrowers,  plus or minus changes in working capital of the
Borrowers, as appropriate.

         "EXCHANGE  ACT"  shall mean the  Securities  Exchange  Act of 1934,  as
amended from time to time.

         "EXCLUDED  LETTERS OF CREDIT"  shall have the meaning  ascribed to such
term in SECTION 6.13(viii).

         "EXCLUDED  SUBSIDIARY"  shall mean (a) any  Subsidiary  of KMC Holdings
which is neither a Borrower  under this Agreement nor a Person which directly or
indirectly beneficially owns Equity Interests in any Borrower, PROVIDED that (i)
at the time such other  Subsidiary was created or acquired,  no Default or Event
of Default shall have  occurred and be continuing  before or after giving effect
to the creation or  acquisition of such  Subsidiary,  and (ii) no portion of the
Required Contributions, the proceeds of KMC's 12 1/2 % Senior Discount Notes due
2008,  the proceeds of KMC's 13 1/2 % Senior Notes due 2009, the proceeds of the
Equity  Interests of KMC Holdings  issued on or prior to the Closing Date or the
Revolving  Loan  Commitment  Amount shall have been or shall be used to fund the
acquisition  or  operations  of such  Subsidiary,  and KMC Holdings has external
sources of funding (other than the Required Contributions and the Revolving Loan
Commitment Amount) to finance the acquisition and operations of such Subsidiary,
(b) KMC Telecom  Financing,  Inc.,  a Delaware  corporation,  (c) KMC  Financial
Services LLC, a Delaware limited liability company,  or (d) any other Subsidiary
of KMC  Holdings  which KMC  Holdings or any  Borrower  requests  the Lenders to
designate as such, and which designation is agreed to by the Required Lenders.

         "EXISTING  STOCKHOLDERS"  shall  mean  Harold  N.  Kamine,  his  Equity
Affiliates,  Nassau  Capital  Partners  L.P.,  NAS  Partners  I L.L.C.  or their
respective successors, and their Equity Affiliates.

         "FCC" shall mean the Federal Communications Commission or any successor
commission or agency of the United States of America  having  jurisdiction  over
any Borrower or any System.

         "FEDERAL  FUNDS  EFFECTIVE   RATE"  shall  mean,  for  any  period,   a
fluctuating interest rate per annum equal for each day during such period to (a)
the weighted average of the rates on overnight  federal funds  transactions with
members of the Federal  Reserve  System  arranged by federal funds  brokers,  as
published  for such day (or if such day is not a Business Day, for the preceding
Business Day) by the Federal  Reserve Bank of New York in the Composite  Closing
Quotations  for  U.S.  Government  Securities;  or (b) if  such  rate  is not so
published for any day which is a Business Day, the average of the  quotations at
approximately 10:30 a.m. (New York time) for such day on such transactions

                                       10
<PAGE>

received by the  Reference  Bank from three  federal funds brokers of recognized
standing selected by it.

         "FEDERAL  RESERVE  BOARD"  shall  mean the  Board of  Governors  of the
Federal Reserve System or any successor thereto.

         "FEE  LETTERS"  shall  mean (i) that  certain  letter  agreement  dated
September 25, 1998 among the  Borrowers,  KMC Holdings,  the  Collateral  Agent,
Capital Syndications  Corporation ("CSC"),  General Electric Capital Corporation
("GECC"),  GECC Capital Market Groups,  Inc.  ("GECG"),  the Agent,  First Union
Capital  Markets,  a Division  of Wheat  First  Securities,  Inc.  ("FUCM")  and
Canadian Imperial Bank of Commerce ("CIBC"),  (ii) that certain letter agreement
dated  September  25, 1998 among the  Borrowers,  KMC Holdings,  the  Collateral
Agent,  CSC, GECC, GECG, the Agent and FUCM, (iii) that certain letter agreement
dated December 22, 1998 among the Borrowers, KMC Holdings, the Collateral Agent,
CSC,  GECC,  GECG,  the  Agent,  FUCM and  CIBC,  and (iv) that  certain  letter
agreement dated February 14, 2000 between the Borrowers and Lucent.

         "FINANCIALS" shall have the meaning given to such term in SECTION 3.03.

         "FIXED CHARGES" shall mean with respect to any period for the Borrowers
on a combined basis, the sum of the following  amounts  calculated at the end of
such period with respect to such period  without  duplication  and in accordance
with GAAP:

         (i) the product of two  multiplied by scheduled  principal and interest
payments with respect to Debt for the six month period then ending, (ii) capital
expenditures  for the four quarter period then ending,  (iii) the product of two
multiplied by income tax payments for the six month period then ending, and (iv)
the product of two multiplied by cash dividend payments for the six month period
then ending.

         "FIXED CHARGE COVERAGE  RATIO" shall have the meaning  assigned to such
term in SECTION 7.02(c).

         "FRONTING  COMMITMENT"  shall  mean  a  portion  of  the  Term  B  Loan
Commitment Amount that is assigned by Lucent pursuant to an Assignment Agreement
designating  the  assigned  portion  of the Term B Loan  Commitment  Amount as a
"Fronting Commitment".

         "FUNB"  shall mean  First  Union  National  Bank,  a  national  banking
association.

         "GENERAL  REAFFIRMATION"  shall  mean  the  General  Reaffirmation  and
Modification Agreement in the form of EXHIBIT T hereto.

         "GOVERNMENTAL  APPROVAL" shall mean, with respect to any Borrower,  any
license,  permit,  franchise or certificate of public  convenience and necessity
issued to any Borrower by the FCC, any PUC or any other  Governmental  Authority
in connection with any System.

                                       11
<PAGE>

         "GOVERNMENTAL  AUTHORITY"  shall  mean  any  federal,  state  or  local
governmental  authority or other  political  subdivision  thereof and any entity
exercising  executive,  legislative,   judicial,  regulatory  or  administrative
functions of or pertaining to government.

         "GUARANTEE" shall mean any obligation,  contingent or otherwise, of any
Person guaranteeing any indebtedness of any other Person (the "Primary Obligor")
in any manner,  whether directly or indirectly,  and including any obligation of
such Person,  direct or  indirect,  (i) to purchase or pay (or advance or supply
funds for the  purchase or payment of) such  indebtedness  or to purchase (or to
advance or supply  funds for the  purchase  of) any  security for the payment of
such  indebtedness;  (ii) to purchase  property,  securities or services for the
purpose  of  assuring  the owner of such  indebtedness  of the  payment  of such
indebtedness;  or (iii) to maintain  working  capital,  equity  capital or other
financial statement condition of the Primary Obligor so as to enable the Primary
Obligor to pay such indebtedness.

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

         "INDENTURES"  shall mean (i) that certain Indenture dated as of January
29, 1998  between  KMC  Holdings,  as Issuer and The Chase  Manhattan  Bank,  as
Trustee,  relating to KMC  Holdings' 12 1/2 percent  Senior  Discount  Notes due
2008,  together with the First Supplemental  Indenture relating thereto dated as
of May 24, 1999 and (ii) that certain Indenture dated as of May 24, 1999 between
KMC Holdings,  as Issuer and The Chase Manhattan  Bank, as Trustee,  relating to
KMC Holdings' 13 1/2 percent Senior Notes due 2009.

         "INTELLECTUAL PROPERTY DOCUMENTS" shall mean (i) the Trademark Security
Agreement,  in the form of EXHIBIT S attached hereto,  executed by the Borrowers
(other than KMC III,  Leasing  III,  Telecom.com  and  Services) in favor of the
Collateral  Agent for the  benefit of the Agents and the  Lenders,  as  amended,
restated or otherwise  modified from time to time and (ii) any other  trademark,
patent or copyright  security agreement executed pursuant to SECTION 5.16 by any
Borrower.

         "INTEREST  EXPENSE"  shall  mean for any  period,  the  total  interest
expense (including, without limitation, interest expense attributable to capital
leases) determined on a combined basis, without  duplication,  for the Borrowers
in accordance with GAAP.

         "INTEREST  PERIOD"  shall mean,  with  respect to each LIBOR Loan,  the
interest  period  applicable  to such LIBOR Loan as set forth in the  applicable
Notice of Borrowing or Notice of Conversion or Continuation.

         "INTEREST RATE AGREEMENT" shall mean for any Person,  any interest rate
swap agreement,  interest rate cap agreement,  interest rate collar agreement or
other similar agreement  designed to protect the party indicated therein against
fluctuations in interest rates.

         "INVESTMENT"  shall  mean,  as  applied  to any  Person,  any direct or
indirect  purchase or other  acquisition by that Person of  securities,  or of a
beneficial  interest  in  securities,  of any other  Person,  and any  direct or
indirect loan, advance (other than deposits with financial institutions

                                       12
<PAGE>

available for  withdrawal on demand,  prepaid  expenses,  advances to employees,
officers and directors and similar items,  each made or incurred in the ordinary
course of business), or capital contribution by that Person to any other Person,
including all Debt of such other Person to that Person,  but excluding  accounts
owed by that other Person in the ordinary course of business.  Investments shall
exclude (i)  extensions  of trade  credit on  commercially  reasonable  terms in
accordance  with normal trade practices and (ii) the repurchase of securities of
any Person by such Person.  The amount of any Investment  shall be determined in
conformity with GAAP.

         "IRC" shall mean the  Internal  Revenue  Code of 1986,  as amended from
time to time,  and the rules and  regulations  promulgated  thereunder,  and any
successor statutes or rules and regulations.

         "IRS" shall mean the Internal Revenue Service or any successor agency.

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

         "KMC HOLDINGS  GUARANTY" shall mean that certain unlimited  guaranty of
KMC Holdings in the form of EXHIBIT G hereto and  executed and  delivered by KMC
Holdings in connection  with the Existing  Agreement,  as amended by the General
Reaffirmation.

         "KMC TELECOM.COM" shall mean KMC Telecom.com, a Delaware corporation.

         "LENDING  OFFICE"  shall mean,  with respect to a Lender or Agent,  any
office, branch, subsidiary or affiliate of such Lender or the Agent.

         "LETTER OF CREDIT" shall mean a letter of credit issued or caused to be
issued for the account of a Borrower or with respect to which Credit  Support is
provided, in any case pursuant to SECTION 2.10.

         "LETTER OF CREDIT OBLIGATIONS" shall mean without duplication,  the sum
of the  aggregate  maximum  undrawn  face amount of all  outstanding  Letters of
Credit and  unpaid  reimbursement  obligations  with  respect to all  Letters of
Credit.

         "LIBO RATE" shall mean,  for any Interest  Period with respect to LIBOR
Loans  comprising  part of the same  borrowing,  the rate of interest  per annum
equal to the per annum rate of interest displayed on the Dow Jones Market Screen
Page 3750, as being the  one-month,  two-month,  three-month  or  six-month,  as
applicable, reserve adjusted "London Interbank Offered Rate", provided, however,
that if such rate is not displayed or  published,  then the rate of interest per
annum  (rounded  upward to the nearest  whole  multiple of 1/16 of 1.0%, if such
rate is not such a multiple) determined by the Agent as follows:

          LIBO Rate =        BASE LIBO RATE
                      -------------------------------
                      1.00 - LIBOR Reserve Percentage

                                       13
<PAGE>

         "LIBOR INTEREST PAYMENT DATE" shall mean, with respect to a LIBOR Loan,
the last day of each  Interest  Period  applicable  to such Loan,  and,  if such
Interest  Period has a duration  of more than  three  months,  on each day which
occurs during such Interest Period every three months from the first day of such
Interest Period.

         "LIBOR  INTEREST  RATE  DETERMINATION  DATE"  shall  mean  each date of
calculating  the LIBO Rate for purposes of  determining  the interest  rate with
respect to an Interest Period.  The LIBOR Interest Rate  Determination  Date for
any LIBOR Loan shall be the  second  Business  Day prior to the first day of the
related Interest Period for such LIBOR Loan.

         "LIBOR LOAN" shall mean a Loan, or portion  thereof,  during any period
in which it bears interest at a rate based upon the LIBO Rate.

         "LIBOR  RESERVE  PERCENTAGE"  shall  mean for any day for any  Interest
Period the maximum reserve percentage (expressed as a decimal, rounded upward to
the next  1/100th of 1.0%) in effect on such day (whether or not  applicable  to
any Lender) for United States domestic banks under regulations  issued from time
to time by the  Federal  Reserve  Board  for  determining  the  maximum  reserve
requirement  (including any emergency,  supplemental  or other marginal  reserve
requirement) with respect to Eurocurrency  Liabilities  having a term comparable
to such Interest Period.

         "LIBOR  REVOLVING  LOAN" shall mean a Revolving  Loan during any period
for which it is a LIBOR Loan.

         "LIBOR TERM A LOAN"  shall mean any portion of the Term A Loans  during
any period for which such portion is a LIBOR Loan.

         "LIBOR TERM B LOAN"  shall mean any portion of the Term B Loans  during
any period for which such portion is a LIBOR Loan.

         "LIBOR  TERM  LOAN"  shall  mean a LIBOR  Term A Loan or a LIBOR Term B
Loan.

         "LIEN"  shall mean any  mortgage,  pledge,  deed of trust,  assignment,
lien, charge, encumbrance or security interest of any kind, or the interest of a
vendor or lessor under any conditional  sale  agreement,  capital lease or other
title retention  agreement,  but excluding  easements,  rights of way or similar
encumbrances  on real property which are in the ordinary course and which do not
materially  affect  the  value,  use and  insurability  of  title  of such  real
property.

         "LOAN" shall mean a Revolving Loan or a Term Loan.

         "LOAN  DOCUMENTS"  shall mean this Agreement,  the Existing  Agreement,
each  "Loan  Document"  under and as  defined  in the  Existing  Agreement,  the
Collateral  Assignment of Leases,  the  Collateral  Assignment of Licenses,  the
Mortgages,  the Notes, the Pledge  Agreements,  the KMC Holdings  Guaranty,  the
Intellectual  Property  Documents,   the  Fee  Letters,  all  other  agreements,
instruments and documents, including, without limitation, security agreements,
loan agreements,  notes, guarantees,  mortgages,  deeds of trust,  subordination
agreements,  pledges,  powers of  attorney,  consents,  assignments,  contracts,
notices,  leases,  financing  statements,  Interest Rate Agreements  between any

                                       14
<PAGE>

Borrower  and the Agent,  the  Collateral  Agent,  or the  Lenders and all other
written matter whether heretofore, now, or hereafter executed by or on behalf of
any  Borrower  or  any  other  Person  in  connection   with  the   transactions
contemplated  hereby and  delivered to the Agent,  the  Collateral  Agent or the
Lenders,  together  with all  agreements  and  documents  referred to therein or
contemplated  thereby;  PROVIDED,   HOWEVER,  that  the  documents  executed  in
connection  with the  purchase by Newcourt  Communications  Finance  Corporation
(formerly known as AT&T Credit Corporation) or any Lender of Equity Interests in
KMC or KMC Holdings shall not constitute Loan Documents.

         "LUCENT" shall mean Lucent Technologies Inc.

         "LUCENT LOAN  AGREEMENT"  shall have the meaning  given to such term in
Recital B.

         "LUCENT  PURCHASE  AGREEMENT"  shall  mean  an  agreement  between  any
Borrower and Lucent for the purchase of Telecommunications  Equipment,  on terms
and conditions satisfactory to the Agents.

         "MANAGEMENT  AGREEMENT"  shall mean that certain  Management  Agreement
dated as of December 18, 1998 among KMC  Holdings,  the  Borrowers,  KMC Telecom
Financing,  Inc., a Delaware  corporation,  and KMC Financial  Services,  LLC, a
Delaware  limited  liability  company,  as amended by Amendment  Nos. 1, 2 and 3
thereto.

         "MATERIAL  ADVERSE  EFFECT" shall mean,  with respect to any Person,  a
material adverse effect upon the condition (financial or otherwise),  operations
or  properties  of such  Person,  or upon the  ability of such Person to perform
under the Loan Documents.

         "MAXIMUM  RATE"  shall have the  meaning  given to such term in SECTION
2.13 hereof.

         "MILESTONE PLAN" shall mean the 39-city Milestone Plan of the Borrowers
attached as EXHIBIT A hereto, as such Milestone Plan may be amended from time to
time with the prior written consent of the Requisite Lenders.

         "MORTGAGES"  shall  mean  mortgages  or  deeds of trust in favor of the
Collateral  Agent,  with respect to any  Borrower's  (i) owned Real Property and
(ii) other interests in those items of real property and Easements, as specified
by the Collateral Agent, which mortgages and deeds of trust shall be in form and
substance satisfactory to the Collateral Agent.

         "MULTIEMPLOYER  PLAN" shall mean a  "multiemployer  plan" as defined in
Section  4001(a)(3) of ERISA which is, or within the  immediately  preceding six
(6) years was, contributed to by any Borrower or an ERISA Affiliate.

         "NET INCOME" shall mean, with respect to any Person for any period, the
net income (loss) of such Person determined in accordance with GAAP.

                                       15
<PAGE>

         "NOTE" shall mean any Revolving  Loan Note, any Term A Loan Note or any
Term B Loan Note.

         "NOTICE OF BORROWING" shall mean a notice  substantially in the form of
EXHIBIT H-1 attached hereto.

         "NOTICE OF  CONVERSION/CONTINUATION"  shall have the  meaning  given to
such term in SECTION 2.06(b).

         "OBLIGATIONS"  shall mean all the  obligations  of any  Borrower now or
hereafter  existing under this Agreement or any other Loan Document to which any
Borrower  is  a  party,  whether  for  principal,   interest,   fees,  expenses,
reimbursement,  indemnification or otherwise. Obligations shall include, without
limitation,   all  interest,   charges,  expenses,  fees,  attorneys'  fees  and
disbursements,  and paralegals'  fees which accrue after the commencement of any
case  or  proceeding  in  bankruptcy   after  the  insolvency  of,  or  for  the
reorganization of any Borrower,  whether or not allowed in such proceeding,  and
Obligations  shall not include any  reimbursement  obligations  with  respect to
Excluded Letters of Credit.

         "PAYMENT  ACCOUNT"  shall  mean the  Agent's  account  at  First  Union
National  Bank,  ABA No.  053000219,  Account #  5000000016905,  KMC  reference:
Payment Account.

         "PAYMENT  DATE"  shall mean the first day of January,  April,  July and
October in each calendar  year,  but if any such date is not a Business Day, the
next succeeding Business Day, commencing April 3, 2000.

         "PBGC" shall mean the Pension Benefit Guaranty  Corporation referred to
and defined in ERISA.

         "PERIODIC  REPORTING  CERTIFICATE"  shall  mean  a  periodic  reporting
certificate in the form of EXHIBIT F attached hereto.

         "PERMITTED  ACQUISITION"  shall have the  meaning  set forth in SECTION
6.08 hereof.

         "PERMITTED  LIENS"  shall have the  meaning  set forth in SECTION  6.01
hereof.

         "PERSON"  shall mean any  natural  person,  corporation,  division of a
corporation,  business trust, joint venture, association,  company, partnership,
unincorporated organization or other legal entity, or a government or any agency
or political subdivision thereof.

         "PLAN" shall mean any employee  benefit plan as defined in Section 3(3)
of ERISA (other than a  Multiemployer  Plan) in respect of which any Borrower or
any ERISA Affiliate is, or within the  immediately  preceding six (6) years was,
an "employer" as defined in Section 3(5) of ERISA.

         "PLEDGE  AGREEMENT" shall mean a pledge agreement  substantially in the
form of the pledge  agreements  executed and delivered  pursuant to the Existing
Agreement, copies of which are attached as EXHIBIT L hereto.

                                       16
<PAGE>

         "PREPAYMENT  PREMIUM" shall mean (A) for the Revolving  Loans, (i) with
respect to the period  commencing  on the Closing Date and ending on February 1,
2001, one and one-half  percent (1.5%) of the amount prepaid,  (ii) with respect
to the period  commencing  thereafter  and ending on February 1, 2002,  one-half
percent (0.5%) of the amount prepaid,  and (iii) at all times  thereafter,  zero
percent  (0%),  and (B) for the  Term A Loans  and the  Term B  Loans,  (i) with
respect to the period  commencing  on the Closing Date and ending on February 1,
2001, two percent (2.0%) of the amount prepaid,  (ii) with respect to the period
commencing  thereafter and ending on February 1, 2002, one percent (1.0%) of the
amount prepaid, and (iii) at all times thereafter, zero percent (0%).

         "PRINCIPAL  PAYMENTS"  shall mean, for any period,  total required Debt
amortization (including, without limitation, the principal payments attributable
to capital leases) determined on a combined basis, without duplication,  for the
Borrowers in accordance with GAAP.

         "PRO RATA SHARE" shall mean with respect to all matters relating to any
Lender (a) with respect to the  Revolving  Loans and the Letters of Credit,  the
percentage  obtained  by dividing  (1) at any time on or prior to the  Revolving
Credit Commitment Termination Date, the Revolving Loan Commitment Amount of such
Lender by the aggregate Revolving Loan Commitment Amount of all Lenders, and (2)
at any  time  after  the  Revolving  Credit  Commitment  Termination  Date,  the
aggregate  outstanding  principal balance of the sum of the Revolving Loans held
by that Lender plus the Letters of Credit Obligations incurred by such Lender by
the sum of the aggregate  outstanding  principal  balance of the Revolving Loans
held by all Lenders plus the aggregate Letter of Credit Obligations  incurred by
all the Lenders,  (b) with respect to the Term A Loans, the percentage  obtained
by dividing the aggregate outstanding principal balance of the Term A Loans held
by that Lender,  by the aggregate  outstanding  principal  balance of the Term A
Loans  held by all  Lenders,  and (c) with  respect  to the  Term B  Loans,  the
percentage  obtained by dividing  (1) at any time on or prior to the Term B Loan
Commitment Termination Date, the Term B Loan Commitment Amount of that Lender by
the Term B Loan Commitment Amount of all Lenders,  and (2) at any time after the
Term B Loan Commitment  Termination  Date, the aggregate  outstanding  principal
balance of the Term B Loans held by that Lender,  by the  aggregate  outstanding
principal balance of the Term B Loans held by all Lenders.

         "PUC" shall mean any state  Governmental  Authority  having  utility or
telecommunications regulatory authority over any Borrower or any System.

         "PURCHASE  DEBT" shall have the  meaning  given to such term in SECTION
6.13(iv).

         "QUALIFIED  INTERCOMPANY LOAN" shall mean a loan to a Borrower from KMC
Holdings,  which loan is expressly  subordinated to the Obligations on terms and
conditions satisfactory to the Agents, has a maturity date occurring on or after
the third annual  anniversary of the Term Loan Termination Date, and requires no
cash payment of principal or interest  prior to the  scheduled  maturity date of
such loan.

         "REAL  PROPERTY"  shall have the meaning  given to such term in SECTION
3.20 hereof.

         "REFERENCE BANK" shall mean First Union National Bank.

                                       17
<PAGE>

         "REGISTER"  shall  have  the  meaning  given  to such  term in  SECTION
11.08(C)(iii).

         "RELEASE" shall mean any release,  spill, emission,  leaking,  pumping,
injection, deposit, disposal,  discharge,  dispersal, leaching or migration into
the  environment  or into or out of any  property,  including  the  movement  of
Contaminants  through  or in  the  air,  soil,  surface  water,  groundwater  or
property.

         "REMEDIAL  ACTION" shall mean actions required to (1) clean up, remove,
treat or in any other way address  Contaminants in the environment;  (2) prevent
the Release or threat of Release or prevent or minimize  the further  Release of
Contaminants  so they do not migrate or endanger or threaten to endanger  public
health or welfare or the  environment;  or (3) perform  preremedial  studies and
investigations and postremedial monitoring and care.

         "REPORTABLE  EVENT"  shall  mean any  reportable  event as  defined  in
Section  4043 of ERISA  unless the  reporting  requirement  with respect to such
reportable event has been waived by the PBGC or other  appropriate  Governmental
Authority.

         "REQUIRED  CONTRIBUTION"  shall mean cash capital  contributions to the
Borrowers  from KMC  Holdings in such amount as is  necessary  to fully fund the
Milestone Plan, but in any event at least $185,000,000.

         "REQUISITE  LENDERS"  shall  mean  (1)  as  long  as one  Lender  holds
thirty-three  and  one-third  percent  (33  1/3%)  or  more  of the  Term B Loan
Commitment Amounts,  Lenders who collectively hold at least seventy five percent
(75%) of the sum of the  following  amounts:  (i) the Aggregate  Revolving  Loan
Commitment Amounts until such commitments  expire or terminate,  and thereafter,
the aggregate  outstanding  balance of the Revolving  Loans;  (ii) the aggregate
outstanding  balance of the Term A Loans;  and (iii) the  aggregate  Term B Loan
Commitment Amounts until such commitments  expire,  terminate or are fully drawn
upon, and thereafter, the aggregate outstanding balance of the Term B Loans; and
(2) thereafter,  Lenders who hold at least sixty-six and two-thirds  percent (66
2/3%) of the sum of the amounts listed above.

         "REQUISITE  REVOLVING  LENDERS"  shall mean (a) Lenders having at least
sixty-six  and  two-thirds  percent (66 2/3%) of the  aggregate  Revolving  Loan
Commitment  Amount of all Lenders,  or (b) if the Revolving Loan  Commitment has
been  terminated,  at least  sixty-six and  two-thirds  percent (66 2/3%) of the
aggregate  outstanding  amount of the sum of all Revolving  Loans plus Letter of
Credit Obligations incurred by all the Lenders.

         "REVOLVING  CREDIT  COMMITMENT  TERMINATION  DATE"  shall mean April 1,
2007.

         "REVOLVING  LENDERS" shall mean, as of any date of  determination on or
prior to the Revolving Credit Commitment Termination Date, Lenders having a

Revolving Loan  Commitment  Amount,  and thereafter  Lenders having  outstanding
Revolving Loans or Letter of Credit Obligations.

         "REVOLVING  LOAN" shall mean any loan made to the Borrower  pursuant to
the provisions of SECTION 2.01(b) below.

                                       18
<PAGE>

         "REVOLVING LOAN  COMMITMENT  AMOUNT" shall mean (a) as to any Revolving
Lender,  the aggregate  commitment of such  Revolving  Lender to make  Revolving
Loans and/or  incur  Letter of Credit  Obligations  as set forth  opposite  such
Revolving  Lender's  name on ANNEX A to this  Agreement  or in the  most  recent
Assignment  Agreement  executed  by  such  Revolving  Lender  and  (b) as to all
Revolving  Lenders,  the aggregate  commitment of all Revolving  Lenders to make
Revolving  Loans  and/or  incur Letter of Credit  Obligations,  which  aggregate
commitment shall be One Hundred Seventy-Five  Million Dollars  ($175,000,000) on
the Closing Date, as such amount may be adjusted from time to time in accordance
with this Agreement.

         "REVOLVING  LOAN NOTE"  shall mean a  promissory  note of the  Borrower
delivered under the Existing  Agreement and substantially in the form of EXHIBIT
E-1 attached hereto.

         "SOLVENT" shall mean, at any time of determination, with respect to any
Person:

         (i) the assets of such Person,  at a fair  valuation,  are in excess of
the  total  amount  of its  debts  (including,  without  limitation,  contingent
liabilities); and

         (ii) the present fair saleable  value of its assets is greater than its
probable  liability  on its  existing  debts as such debts  become  absolute and
matured; and

         (iii)  it is  then  able  and  expects  to be  able  to pay  its  debts
(including, without limitation,  contingent debts and other commitments) as they
mature; and

         (iv) it has capital sufficient to carry on its business as conducted.

For  purposes  of  determining  whether a Person is  Solvent,  the amount of any
contingent  liability  shall be computed as the amount that, in light of all the
facts and  circumstances  existing at such time,  represents the amount that can
reasonably be expected to become an actual or mature liability.

         "SUBSIDIARY"  shall mean, with respect to any Person,  any corporation,
partnership,  joint venture,  association or other business entity,  whether now
existing or hereafter  organized or acquired,  (i) in the case of a corporation,
of which  more  than 50% of the  total  voting  power  of the  Equity  Interests
entitled  (without  regard to the occurrence of any  contingency) to vote in the
election of  directors,  officers or trustees  thereof is held by such Person or
any of its  Subsidiaries;  or (ii) in the case of a partnership,  joint venture,
association or other business  entity,  with respect to which such Person or any
of its  Subsidiaries  has the  power to direct  or cause  the  direction  of the
management  and  policies  of such  entity by  contract  or  otherwise  or if in
accordance  with  GAAP such  entity is  consolidated  with the such  Person  for
financial statement purposes.

         "SUPPORTING  LETTER OF CREDIT"  shall have the meaning given to such in
SECTION 2.10(j).

         "SWITCH  EQUIPMENT"  shall  mean any  Lucent  5-ESS  telecommunications
switch  or  other  telecommunications/data  switch  for  the  provision  of CLEC
telephony service, data transport, internet access and other related services.

                                       19
<PAGE>

         "SYNDICATION AGENT" shall mean Canadian Imperial Bank of Commerce.

         "SYSTEM" shall mean each telephone,  telecommunications  or information
system (including,  without limitation,  any voice, video transmission,  data or
Internet  services) and any related,  ancillary or  complementary  services,  as
described in the Milestone Plan, and all replacements, enhancements or additions
thereto.

         "TAX  SHARING   AGREEMENT"  shall  mean  that  certain  Tax  Allocation
Agreement dated as of December 18, 1998 among KMC Holdings,  the Borrowers,  KMC
Telecom Financing,  Inc., a Delaware  corporation,  and KMC Financial  Services,
LLC, a Delaware limited liability company, as amended by Amendment Nos. 1, 2 and
3 thereto.

         "TAXES"  shall mean any and all license,  documentation,  recording and
registration fees, and all taxes, including,  without limitation,  income (other
than net income taxes, franchise taxes and capital taxes imposed on the Lenders,
the Agent or the Collateral  Agent other than by  withholding),  gross receipts,
sales,  value-added,  use, excise,  personal property (tangible and intangible),
real  estate  and stamp,  documentary,  transfer  or  recording  taxes,  levies,
imposts, deductions, duties, assessments, fees, charges, and withholdings of any
nature  whatsoever,  whether or not  presently in  existence,  together with any
penalties,  fines, additions to tax, or interest thereon,  imposed by any taxing
authority or other Governmental Authority.

         "TELECOMMUNICATIONS  EQUIPMENT"  shall mean fiber optic  cable,  Switch
Equipment, transmission equipment and other ancillary hardware necessary for the
installation  and operation of a switch room or central  office and  co-location
with other  telecommunications  providers  that will  enable a Borrower to offer
CLEC   telephony,   data   transport,   internet   access   and  other   related
state-of-the-art telecommunications services, as well as all software associated
with the network  operating center and back office systems  (including,  without
limitation,  billing systems,  operations systems and support,  customer service
and data services) and other related software and hardware  products integral to
developing and operating viable CLEC telephony, data transport,  internet access
and related state of the art  telecommunications  businesses,  together with all
related  support,   construction  and  installation  costs  associated  with  an
operational system,  provided that such costs are capitalized in accordance with
GAAP.

         "TERM A LENDERS" shall mean those Lenders who have made Term A Loans.

         "TERM A LOAN"  shall mean any loan made to the  Borrowers  pursuant  to
SECTION 2.01(a) of the Existing Agreement and which under the Existing Agreement
was characterized as a "Term Loan".

         "TERM A LOAN COMMITMENT AMOUNT" shall mean (a) as to any Term A Lender,
the  commitment  of such Term A Lender to make a Term A Loan under the  Existing
Agreement,  which  commitment  has been fully drawn upon, as set forth  opposite
such Term A Lender's name on Annex A to this  Agreement and (b) as to all Term A
Lenders,  the  aggregate  commitment  of all Term A Lenders to make Term A Loans
under the Existing Agreement, which commitment has been fully drawn upon.

                                       20
<PAGE>

         "TERM A LOAN NOTE" shall mean a promissory note of a Borrower delivered
under the  Existing  Agreement  and  substantially  in the form of  EXHIBIT  E-2
attached hereto.

         "TERM A LOAN TERMINATION DATE" shall mean July 1, 2007.

         "TERM B LENDERS" shall mean those Lenders having Term B Loan Commitment
Amounts or who have made Term B Loans.

         "TERM B LOAN"  shall mean any loan made to the  Borrowers  pursuant  to
SECTION 2.01(a) below.

         "TERM B LOAN COMMITMENT AMOUNT" shall mean (a) as to any Term B Lender,
the  commitment of such Term B Lender to make Term B Loans as set forth opposite
such Term B Lender's  name on ANNEX A to this  Agreement  or in the most  recent
Assignment  Agreement  executed  by such Term B Lender  and (b) as to all Term B
Lenders,  the  aggregate  commitment of all Term B Lenders to make Term B Loans,
which  aggregate   commitment  shall  be  Four  Hundred  Fifty  Million  Dollars
($450,000,000) on the Closing Date; PROVIDED,  HOWEVER,  that until such time as
both the  Required  Contribution  has been made and the  ratio of Total  Debt to
Contributed  Capital  becomes  equal to or less than 1.0 to 1.0,  the  aggregate
commitment  of all Term B Lenders to make Term B Loans  shall not  exceed  Three
Hundred Fifty Million Dollars  ($350,000,000)  and the commitment of each Term B
Lender shall be proportionately  reduced from the amount set forth opposite such
Term B  Lender's  name on  ANNEX  A to  this  Agreement  or in the  most  recent
Assignment Agreement executed by such Term B Lender.

         "TERM B LOAN COMMITMENT  TERMINATION DATE" shall mean the second annual
anniversary of the Closing Date.

         "TERM  B  LOAN  NOTE"  shall  mean  a  promissory  note  of a  Borrower
substantially in the form of EXHIBIT E-3 attached hereto.

         "TERM B LOAN TERMINATION DATE" shall mean July 1, 2007.

         "TERM LOAN" shall mean a Term A Loan or a Term B Loan.

         "TERMINATION EVENT" shall mean (i) a Reportable Event with respect to a
Benefit Plan;  (ii) the withdrawal of any Borrower or any ERISA Affiliate from a
Benefit  Plan during a plan year in which any  Borrower or such ERISA  Affiliate
was a "substantial  employer" as defined in Section  4001(a)(2) of ERISA;  (iii)
the  imposition of an obligation  on any Borrower or any ERISA  Affiliate  under
Section 4041 of ERISA to provide  affected  parties  written notice of intent to
terminate a Benefit Plan in a distress termination  described in Section 4041(c)
of ERISA; (iv) the institution by the PBGC of proceedings to

terminate a Benefit  Plan;  (v) any event or  condition  which might  constitute
grounds under Section 4042 of ERISA for the  termination  of, or the appointment
of a trustee to  administer,  any Benefit  Plan; or (vi) the partial or complete
withdrawal of any Borrower or any ERISA Affiliate from a Multiemployer Plan.

         "THIRD  PARTY  INTERACTIVES"  shall  mean  all  Persons  with  whom any
Borrower  exchanges  data  electronically  in the  ordinary  course of business,

                                       21
<PAGE>

including  without  limitation,   customers,  suppliers,   third-party  vendors,
subcontractors, processors-converters, shippers and warehousemen.

         "TOTAL DEBT" shall mean,  with respect to the  Borrowers,  at any date,
the sum of the following  determined on a combined basis,  without  duplication:
(a) all liabilities, obligations and indebtedness for borrowed money, including,
but not limited to, obligations evidenced by bonds,  debentures,  notes or other
similar  instruments,  (b) all obligations to pay the deferred purchase price of
property  or services  (exclusive  of any rent for real  property  pursuant to a
lease that would not be capitalized in accordance with GAAP), including, but not
limited to, all  obligations  under  non-competition  agreements,  except  trade
payables  arising in the  ordinary  course of business not more than ninety (90)
days past due, (c) all obligations as lessee under capital leases  (exclusive of
the interest component  thereof),  (d) all Debt of any other Person secured by a
Lien on any  asset  of any  Borrower,  (e)  all  guaranty  obligations,  (f) all
obligations,  contingent or otherwise, relative to the face amount of letters of
credit,  whether or not drawn and banker's acceptances issued for the account of
any Borrower, (g) all obligations to redeem,  repurchase,  exchange,  defease or
otherwise  make payments in respect of capital stock or other  securities at any
time prior to the third annual  anniversary of the Term A Loan Termination Date,
and (h) all termination  payments which would be due and payable by any Borrower
thereof  pursuant to any Interest Rate  Agreement or hedging  agreement.  "Total
Debt" shall not include any  intercompany  Debt between the Borrowers or between
any Borrower and KMC Holdings.

         "TOTAL LEVERAGE RATIO" shall mean the ratio of (i) Total Debt as of the
last day of the most recently ended fiscal  quarter,  to (ii) the product of (A)
two multiplied by (B) EBITDA of the Borrowers on a combined basis,  for the most
recently ended two fiscal quarters.

         "UNUSED LETTER OF CREDIT SUBFACILITY" shall mean an amount equal to the
lesser of (i) $10,000,000 minus the Letter of Credit  Obligations,  and (ii) the
undrawn portion of the Revolving Loan Commitment Amount of all Lenders.

         "VOTING  STOCK"  shall  mean  securities  of any class or  classes of a
corporation,   the  holders  of  which  are   ordinarily,   in  the  absence  of
contingencies,  entitled  to elect a majority  of the  corporate  directors  (or
Persons performing similar functions).

         "YEAR 2000  CORRECTIVE  ACTIONS" shall mean, as to each  Borrower,  all
actions  necessary to eliminate  such  Person's Year 2000  Problems,  including,
without  limitation,  computer code  enhancements  and  revisions,  upgrades and
replacements of Year 2000 Date-Sensitive Systems/Components, and coordination of
such  enhancements,  revisions,  upgrades  and  replacements  with  Third  Party
Interactives.

         "YEAR 2000 CORRECTIVE  PLAN" shall mean, with respect to each Borrower,
a  comprehensive  plan to  eliminate  all of its Year 2000  Problems,  including
without  limitations (i) computer code enhancements or revisions,  (ii) upgrades
or replacements of Year 2000 Date-Sensitive  Systems/Components,  (iii) test and
validation  procedures,  (iv) an  implementation  time line and  budget  and (v)
designation  of  specific  employees  who  will  be  responsible  for  planning,
coordinating and implementing  each phase or subpart of the Year 2000 Corrective
Plan.

                                       22
<PAGE>

         "YEAR  2000  DATE-SENSITIVE  SYSTEM/COMPONENT"  shall  mean,  as to any
Person, any system software, network software,  applications software, database,
computer file, embedded microchip,  firmware or hardware that accepts,  creates,
manipulates, sorts, sequences,  calculates, compares or outputs calendar-related
data accurately;  such systems and components shall include, without limitation,
mainframe computers, file server/client system, computer workstations,  routers,
hubs,  other  network-related  hardware,  and other  computer-related  software,
firmware or hardware and information processing and delivery systems of any kind
and  telecommunications  systems and other communications  processors,  security
systems, alarms, elevators and HVAC systems.

         "YEAR 2000 IMPLEMENTATION TESTING" shall mean, as to each Borrower, (i)
the performance of test and validation procedures regarding Year 2000 Corrective
Actions on a unit basis and a system wide basis,  (ii) the  performance  of test
and validation  procedures  regarding data exchanges  among the Borrowers'  Year
2000  Date-Sensitive  Systems/Components  and data  exchanges  with Third  Party
Interactives,  and (iii) the design and implementation of additional  Corrective
Actions,  the  need  for  which  has been  demonstrated  by test and  validation
procedures.

         "YEAR  2000  PROBLEMS"  shall  mean,  with  respect  to each  Borrower,
limitations  on the  capacity  or  readiness  of any such  Borrower's  Year 2000
Date-Sensitive  Systems/Components  to accurately  accept,  create,  manipulate,
sort,  sequence,  calculate,  compare or output calendar date  information  with
respect to calendar year 1999 or any  subsequent  calendar year  beginning on or
after January 1, 2000 (including  leap year  computations),  including,  without
limitation,   exchanges   of   information   among   Year  2000   Date-Sensitive
Systems/Components  of the  Borrowers  and  exchanges of  information  among the
Borrowers  and  Year  2000  Date-Sensitive  Systems/Components  of  Third  Party
Interactives and functionality of peripheral  interfaces,  firmware and embedded
microchips.

         SECTION 1.03. ACCOUNTING TERMS. Except as otherwise herein specifically
provided,  each  accounting  term used herein shall have the meaning given to it
under generally accepted accounting  principles ("GAAP") applied on a consistent
basis.

         SECTION 1.04.  OTHERS DEFINED IN NEW YORK UNIFORM  COMMERCIAL CODE. All
other  terms   contained  in  this   Agreement  (and  which  are  not  otherwise
specifically  defined  herein)  shall have the meanings  provided by the Uniform
Commercial Code of the State of New York (the "CODE") to the extent the same are
used or defined therein.

                                   ARTICLE II
                         LOANS AND LETTERS OF CREDIT

            SECTION 2.01.  AGREEMENT TO LEND.  (a) Each Term B Lender  severally
agrees, on the terms and conditions  hereinafter set forth, to make on and after
the  Closing  Date  and  until  but not  including  the  Term B Loan  Commitment

                                       23
<PAGE>

Termination  Date, one or more Term B Loans to the Borrowers in an amount not to
exceed the Term B Loan Commitment Amount of such Term B Lender.

            (b)  Each  Revolving  Lender  severally  agrees,  on the  terms  and
conditions  hereinafter  set forth,  to make on and after the  Closing  Date and
until but not including the Revolving Credit Commitment Termination Date, one or
more  Revolving  Loans to the Borrowers in an amount not to exceed when combined
with  Revolving  Loans that were made under the  Existing  Agreement  and remain
outstanding,  the Revolving Loan Commitment Amount of such Revolving Lender less
such Lender's Pro Rata Share of the Letter of Credit Obligations.

            (c) Term A Loans have been made to the  Borrowers  in the  aggregate
amount of  $75,000,000  under the Existing  Agreement and  constitute  the "Term
Loans" as defined in the Existing Agreement. No additional Term A Loans shall be
made to the Borrowers.

            (d) At any time that the Total Leverage Ratio is greater than 6:1 as
determined  by  reference  to the  financial  statements  delivered  pursuant to
SECTION 5.06,  the maximum  amount of Revolving  Loans that may be borrowed from
all Revolving Lenders shall not exceed the Borrowing Base.

            (d) Term Loans  which are repaid or prepaid  may not be  reborrowed.
Revolving Loans which are repaid or prepaid may be reborrowed.

            SECTION 2.02.  LOANS.  (a) The proceeds of the Revolving Loans shall
be  used by the  Borrowers  to  purchase  Telecommunications  Equipment,  to pay
transaction  costs  incurred in  connection  with the  execution,  delivery  and
performance of the Loan Documents,  for financing Permitted Acquisitions and for
working capital and other general  corporate  purposes,  all as specified in the
Notice  of  Borrowing  and in  accordance  with the  Milestone  Plan;  provided,
however,  that at any time that the Total  Leverage Ratio is greater than 6:1 as
determined  by  reference  to the  financial  statements  delivered  pursuant to
SECTION 5.06,  proceeds of Revolving  Loans may be used only to pay  transaction
costs  incurred  in  connection  with the  execution  and  delivery  of the Loan
Documents, to purchase  Telecommunications  Equipment,  and to finance Permitted
Acquisitions.  Subject to the provisions of SECTION 2.02(d), the proceeds of the
Term B Loans shall be used by the  Borrowers to (i) purchase  Telecommunications
Equipment pursuant to the Lucent Purchase Agreement, (ii) to purchase non-Lucent
Telecommunications  Equipment  (such  Term B Loans not to  exceed  an  aggregate
amount of  $45,000,000),  and (iii) to  refinance  the  obligations  of KMC III,
Leasing III and Services under the Lucent Loan Agreement.  Loans with respect to
Telecommunications Equipment purchases may not be made to finance (i) soft costs
(including  installation,  delivery and engineering  costs) in excess of fifteen
percent (15%) of the invoiced price for the related Switch Equipment or (ii) any
support or installation  costs associated with an operational  system that would
not be capitalized in accordance with GAAP.

                                       24
<PAGE>

            (b) Each Base Rate Loan  shall be in a minimum  principal  amount of
$1,000,000 and increments of $250,000 in excess  thereof.  Each LIBOR Loan shall
be in a minimum  principal  amount of $5,000,000 and increments of $1,000,000 in
excess thereof.

            (c) In any calendar month not more than six (6) Revolving  Loans may
be requested, and no more than one Term B Loan may be requested.

            (d) The  proceeds of any Term B Loan  consisting  of a Cash  Advance
shall   be   used   exclusively   to   finance   or   reimburse   invoices   for
Telecommunications  Equipment  purchased  from Lucent by KMC,  KMC II or KMC III
during  the period  commencing  on the date that is twelve  months  prior to the
Closing Date and ending on the Term B Loan Termination Date; provided,  that (i)
the maximum  principal  amount of any Term B Loan  consisting  of a Cash Advance
shall not exceed  $100,000,000,  (ii) the  principal  amount of all Term B Loans
consisting  of  Cash  Advances  to  reimburse  invoices  for  Telecommunications
Equipment  purchased  from Lucent  during the twelve  month  period prior to the
Closing  Date  ("Pre-Closing  Invoices")  shall not exceed  $200,000,000  in the
aggregate  and (iii) the  Borrowers  may not use the proceeds of any Term B Loan
consisting of a Cash Advance to reimburse  Pre-Closing Invoices after the second
anniversary of the Closing Date.

            SECTION 2.03.  PROCEDURE FOR LOAN REQUEST AND BORROWING  COMMITMENT.
(a) A  Borrower  requesting  a Loan  shall  deliver to each of the Agent and the
Collateral Agent a Notice of Borrowing  substantially in the form of EXHIBIT H-1
attached  hereto on or before  11:00  a.m.  (New  York  time) at least  five (5)
Business  Days prior to the date on which such Loan is  requested  to be made if
such Loan is  requested  to be a LIBOR Loan and at least two (2)  Business  Days
prior to the date on which  such  Loan is  requested  to be made if such Loan is
requested  to  be  a  Base  Rate  Loan,  which  notice,  once  given,  shall  be
irrevocable; provided, however, that (i) only the Collateral Agent shall receive
the  attachments  to the Notice of  Borrowing,  as outlined  below,  (ii) if the
requested  Loan is a Term B Loan  consisting  of a Cash  Advance  in  excess  of
$50,000,000,  the Notice of  Borrowing  shall be  delivered  as least  seven (7)
Business Days prior to the date on which such Loan is requested to be made,  and
(iii) the applicable Borrower(s) shall provide to Lucent simultaneously with the
provision  of the Notice of Borrowing  to the Agent and the  Collateral  Agent a
list of the invoices  (including  dollar  amounts) to be financed or  reimbursed
with  the  proceeds  of the  requested  Term B Loan.  In the  case of a Loan the
proceeds  of which  will be used to  purchase  or  reimburse  any  Borrower  for
Telecommunications  Equipment (including any Telecommunications  Equipment being
purchased or  reimbursed  under the Lucent  Purchase  Agreement),  the Notice of
Borrowing  delivered to the Collateral Agent will include a schedule  supporting
one hundred  percent  (100%) of  Telecommunications  Equipment  requested  to be
funded. Such schedule will detail all invoices for equipment, third party labor,
permits,  other  third  party costs and all  capitalized  internal  costs of the
Borrowers  with respect to such  Telecommunications  Equipment  permitted  under
GAAP.  All invoices over $25,000 will be attached to such schedule  delivered to
the  Collateral  Agent who shall  review such  invoices  and verify  that,  when
combined with the above described capitalized internal costs, such invoices will
support  at least  seventy  percent  (70%) of the total  requested  funding.  In
addition, if the  Telecommunications  Equipment is being purchased or reimbursed
under the Lucent Purchase Agreement, a certificate of delivery and acceptance in
the form of EXHIBIT R shall be attached to the Notice of Borrowing  delivered to
the Collateral  Agent.  In the case of a Loan the proceeds of which will be used

                                       25
<PAGE>

to pay or reimburse any Borrower for transaction  costs, the Notice of Borrowing
delivered  to the  Collateral  Agent will include a copy of the invoice from the
provider of the service or other appropriate  supporting  documentation.  In the
case of a Loan, the proceeds of which will be used for working  capital or other
general corporate purposes,  the Notice of Borrowing delivered to the Collateral
Agent will contain a certification that the making of such Loan does not violate
any provision of either Indenture or the terms of the preferred Equity Interests
of KMC  Holdings.  The  Notice of  Borrowing  shall,  with  respect to any Loans
requested,  specify  whether such  requested  Loans are to be Base Rate Loans or
LIBOR Loans,  and if such requested  Loans are to be LIBOR Loans,  the requested
Interest Period for such Loans.

            (b) The  Agent  agrees,  promptly  upon (i)  receipt  of a Notice of
Borrowing and (ii)  acknowledgment  by the  Collateral  Agent that the Borrowers
have delivered and the  Collateral  Agent has reviewed to its  satisfaction  (x)
each of the invoices or  certificates  required to be provided to the Collateral
Agent  pursuant  to  SECTION  2.03(A)  above  and  (y)  each  of the  collateral
documents,  including,  without  limitation,  all third party agreements and the
related consents to collateral  assignments required pursuant to SECTION 5.08 of
the Loan  Agreement,  as  requested  by the  Collateral  Agent,  to notify  each
Revolving  or  Term B  Lender  of the  date  and  amount  of the  Loan  proposed
thereunder and the amount of such Lender's Pro Rata Share therein. So long as no
Event of Default has  occurred and is  continuing  and upon  fulfillment  of the
applicable  conditions  set forth in  ARTICLE  IV,  each such  Lender  severally
agrees,  on or before  12:00 P.M.  (New York time) on the date of each  proposed
Loan, to pay into the Payment Account, an amount equal to such Lender's Pro Rata
Share  of such  Loan in  dollars  and in same  day  funds;  PROVIDED,  that if a
Fronting  Commitment  is assigned by Lucent to an  Eligible  Fronting  Assignee,
then,  until  Notice(s) of Borrowing are provided by the Borrowers to fully draw
upon such  Fronting  Commitment,  (i) Lucent  shall not be  required to make any
additional Term B Loans and (ii) the amount of the Term B Loan to be made by the
assignee of such Fronting  Commitment pursuant to each Notice of Borrowing shall
equal the amount of the Term B Loan that  would have been made by such  assignee
pursuant to such Notice of Borrowing  without  giving effect to such  assignment
plus  either  (A) the  amount  of the Term B Loan that  would  have been made by
Lucent  pursuant  to such  Notice of  Borrowing  without  giving  effect to such
assignment  or, if less, (B) the remaining  amount of such Fronting  Commitment;
PROVIDED FURTHER,  however,  that with respect to Lucent's Pro Rata Share of any
Term B Loan consisting of a Credit Advance,  Lucent, in lieu of making a payment
into the Payment  Account,  shall credit the Borrowers on their applicable trade
payables to Lucent in an amount equal to such Pro Rata Share.  After the Agent's
receipt of such  Lender's Loan  proceeds,  the Agent shall make  available  such
proceeds to the Borrower  requesting the Loan or the Person  entitled to payment
thereof at the bank account(s)  specified in the Notice of Borrowing on the date
specified in such Notice of Borrowing in Dollars in immediately available funds.

            (c) Unless the Agent has received written notice from a Lender prior
to the date of any proposed Loan that such Lender will not make available to the
Agent  such  Lender's  Pro Rata Share of such  Loan,  the Agent may,  but is not
obligated  to,  assume that such Lender has made its Pro Rata Share of such Loan
available to the Agent on the date of such Loan in accordance with PARAGRAPH (b)
above, and the Lenders may, in reliance upon such assumption,  make available to
the Borrower on such date a corresponding amount. If such Pro Rata Share is not,

                                       26
<PAGE>

in fact, paid to Agent by such Lender when due (other than in the case of Lucent
with  respect  to its Pro  Rata  Share of a Term B Loan  consisting  of a Credit
Advance),  the Agent will be entitled to recover such amount on demand from such
Lender or the Borrower which received the proceeds of such Loan without set-off,
counterclaim or deduction of any kind, together with interest thereon,  for each
day from the date such amount is made  available to such Borrower until the date
such amount is repaid to the Agent either by such  Borrower or such Lender,  at,
(1) in the case of such Borrower, the interest rate applicable to such Loan, and
(2) in the case of such Lender,  the Federal Funds  Effective  Rate.  Nothing in
this SECTION  2.03(c) or elsewhere in this Agreement or the other Loan Documents
shall be deemed to require  Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its Commitment hereunder or to
prejudice  any rights that the  Borrower may have against any Lender as a result
of any default by such Lender  hereunder.  Without limiting the foregoing,  with
respect to any Lender which for any reason  fails to make timely  payment to the
Agent of its Pro Rata Share of any Loan  (other  than in the case of Lucent with
respect to its Pro Rata Share of a Term B Loan consisting of a Credit  Advance),
the Agent, in addition to other rights and remedies which it may have,  shall be
entitled to withhold or set off from any payments due to such Lender  hereunder,
an amount equal to the Pro Rata Share  required to have been paid by such Lender
plus interest as described  above, and to withhold from such Lender any right of
consent  provided  to such  Lender by ARTICLE V or VI of this  Agreement  and to
bring an action or suit against such Lender in a court of competent jurisdiction
to recover such Pro Rata Share thereof and any related interest thereon. If such
Lender shall repay to the Agent such corresponding amount, such amount so repaid
shall  constitute  such  Lender's  applicable  Pro Rata  Share of such  Loan for
purposes of this  Agreement.  If both such Lender and such  Borrower  shall have
repaid  the  corresponding  amount,  the  Agent  shall  promptly  return to such
Borrower its corresponding amount.

            (d) The Borrowers  commit to the Lenders to request  Revolving Loans
to be made during calendar year 2001 in an aggregate amount equal to the undrawn
portion of the Revolving Loan Commitment Amount.

            SECTION 2.04. THE NOTES. Each Borrower has executed and delivered to
each  Revolving  Lender  a  Revolving  Loan  Note  and to  each  Term  A  Lender
(characterized  as a "Term Lender"  under the Existing  Agreement) a Term A Loan
Note  (characterized  as a "Term Loan Note"  under the  Existing  Agreement)  to
evidence the  Commitment  of that  Lender.  Each  Revolving  Loan Note is in the
principal  amount of the  Revolving  Loan  Commitment  Amount of the  applicable
Lender, dated the "Initial Funding Date" (as defined in the Existing Agreement),
shall  mature  on  the  Revolving  Credit  Commitment  Termination  Date  and is
substantially  in the  form of  EXHIBIT  E-1.  Each  Term A Loan  Note is in the
principal  amount of the Term A Loan  Commitment  Amount  (characterized  as the
"Term Loan  Commitment  Amount" under the Existing  Agreement) of the applicable
Term A Lender,  dated the  "Initial  Funding  Date" (as defined in the  Existing
Agreement),  shall mature on the Term A Loan Termination Date  (characterized as
the  "Term  Loan  Termination  Date"  under  the  Existing   Agreement)  and  is
substantially  in the form of EXHIBIT  E-2.  Each  Borrower  shall  execute  and
deliver  to  each  Term B  Lender  a Term B Note  to  evidence  the  Term B Loan
Commitment  Amount of that  Lender.  Each Term B Note shall be in the  principal
amount of the Term B Loan  Commitment  Amount,  dated the  Closing  Date,  shall
mature on the Term B Loan Commitment Termination Date and shall be substantially
in the form of EXHIBIT E-3. The Notes  payable to a Lender shall  represent  the

                                       27
<PAGE>

obligation of such Borrower to pay the amount of each  Lender's  Revolving  Loan
Commitment  Amount,  Term A Loan  Commitment  Amount  or Term B Loan  Commitment
Amount or, if less,  the  applicable  Lender's  Pro Rata Share of the  aggregate
unpaid  principal  amount of all  Loans to such  Borrower  and  Letter of Credit
Obligations incurred by such Lender together with interest thereon as prescribed
in SECTION  2.05.  The  aggregate  principal  amount of all the Notes  shall not
exceed  the  aggregate  Commitments  of all the  Lenders.  The  Agent is  hereby
authorized  by such  Borrower to record in the  Register  the date and amount of
each  Revolving  Loan,  Term A Loan or Term B Loan  made  to such  Borrower,  as
applicable,  and to record  therein the date and amount of each  payment on each
Loan made to such Borrower,  and such recordations shall be conclusive  evidence
against  such  Borrower of the amounts  owing to the Lenders with respect to the
Loans in the absence of manifest error;  PROVIDED,  HOWEVER, that the failure of
the Agent to register any such  information  on such  schedule  shall not in any
manner  affect the  obligation  of such Borrower to repay the Loans made to such
Borrower in accordance with the terms of this Agreement.

            SECTION  2.05.  INTEREST  ON  LOANS.  (a)  GENERAL.  Subject  to the
provisions of SECTIONS 2.05(b),  2.06 and 2.07, each Loan shall bear interest at
the  rate per  annum  equal to (i) the Base  Rate  plus the  Applicable  Margin,
computed on the basis of a 365 or 366 day year,  as  applicable,  and the actual
number  of days  elapsed , or (ii) the LIBO  Rate  plus the  Applicable  Margin,
computed on the basis of a 360 day year,  and the actual number of days elapsed,
as selected by the  Borrowers  in the  Notices of  Borrowing  and the Notices of
Continuation/Conversion.

            (b) DEFAULT INTEREST.  Subject to the third sentence of this Section
2.05(b),  if any Borrower  shall  default in the payment of the  principal of or
interest on any Loan or any other amount  becoming due hereunder on its due date
and such  default  shall  continue  uncured for three days,  then the  Borrowers
shall, on demand, from the Agent, thereafter pay interest on all Loans at a rate
that is four  percent  (4.00%) per annum  above the rates of interest  otherwise
payable  on all the  Loans  from the date such  payment  is due to the date such
payment  default is either cured or waived in writing by the Requisite  Lenders.
Subject to the next  sentence,  if any other Event of Default shall occur and be
continuing  and  shall  be  declared  by the  Agent  upon the  direction  of the
Requisite Lenders, then the Borrowers shall, on demand,  thereafter pay interest
on all the Loans at a rate that is two percent (2.00%) per annum above the rates
of interest  otherwise  payable on the Loans from the date of the  occurrence of
such  Event of Default  until the date such  Event of Default  has been cured or
waived  in  writing  by the  Requisite  Lenders;  PROVIDED,  that if an Event of
Default  described  in the first  sentence of this CLAUSE (b) shall occur at any
time that an Event of Default described in this second sentence has occurred and
is continuing, then the rate of interest described in the first sentence of this
CLAUSE  (b) shall  apply.  In the event  that the  Borrowers  fail to obtain the
Required  Contribution  on or  prior to  August  31,  2000,  then  beginning  on
September 1, 2000 and  continuing  until such time as the Required  Contribution
has been  obtained,  all of the margins set forth on SCHEDULE  1.01(a)  shall be
automatically  increased by 100 basis points, and if any Event of Default occurs
while such increased margins are in effect,  and the interest rates on the Loans
would be subject to  increase by four  percent  (4.00%) per annum or two percent
(2.00%) per annum,  as described  above,  then the  interest  rates on the Loans

                                       28
<PAGE>

shall instead be increased by three  percent  (3.00%) per annum rather than four
percent  (4.00%) per annum or by one percent  (1.00%) per annum  rather than two
percent  (2.00%) per annum,  as applicable.  After the occurrence and during the
continuance  of any Event of  Default,  the  Borrowers  shall be  subject to the
limitations on borrowings of,  conversions into and continuations as LIBOR Loans
set forth in SECTION 2.07(g).

            SECTION  2.06.  CONVERSION  OR  CONTINUATION.  (a)  Subject  to  the
provisions of SECTION 2.07,  each Borrower  shall have the option (i) to convert
(A) all or any part of its outstanding  Term Loans or (B) all or any part of its
outstanding  Revolving  Loans,  in a minimum  amount of $5,000,000  and integral
multiples of $1,000,000 in excess of that amount,  from a Term Loan or Revolving
Loans that are Base Rate Loans to LIBOR Term Loans or LIBOR Revolving  Loans, as
the case may be;  (ii) to convert  (A) all or any part of its  outstanding  Term
Loan or (B) all or any part of its outstanding  Revolving Loans from LIBOR Loans
to Base Rate Loans on the expiration of the Interest Period applicable  thereto;
and  (iii)  upon  the  expiration  of  any  Interest  Period  applicable  to its
outstanding LIBOR Term Loan or any outstanding LIBOR Revolving Loan, to continue
(A)  all of  such  LIBOR  Term  Loan or (B)  all or any  portion  of such  LIBOR
Revolving  Loan equal to  $5,000,000  and integral  multiples of  $1,000,000  in
excess  of that  amount  as a  LIBOR  Term  Loan or  LIBOR  Revolving  Loan,  as
applicable;  PROVIDED, HOWEVER, that no outstanding Loans may be converted into,
or  continued  as, LIBOR Loans when any Default or Event of Default has occurred
and is continuing. Any conversion or continuation made with respect to less than
the entire  outstanding  balance of a Borrower's  Revolving  Loans or Term Loans
must be applied pro rata to such  Borrower's  Revolving  Loans or Term Loans, as
applicable,  according to the  outstanding  principal  balance of such Revolving
Loans or Term Loans.

            (b)  Whenever a Borrower  elects to convert or continue  Loans under
this SECTION  2.06,  such Borrower  shall deliver to the Agent a written  notice
substantially  in the form of that attached  hereto as EXHIBIT H-2 (a "NOTICE OF
CONVERSION/ CONTINUATION"), signed by an authorized officer of such Borrower (i)
no later than 10:00 a.m. (New York time) two (2) Business Days in advance of the
requested conversion date, in the case of a conversion into Base Rate Loans, and
(ii) no later than 10:00 a.m (New York time) three (3) Business  Days in advance
of the requested  conversion or  continuation  date, in the case of a conversion
into, or  continuation  of, LIBOR Loans.  The Notice of  Conversion/Continuation
shall specify (1) the conversion or continuation date (which shall be a Business
Day), (2) the amount and type of the Loans to be converted or continued, (3) the
nature of the  requested  conversion or  continuation,  and (4) in the case of a
conversion into, or continuation of, LIBOR Loans, the requested Interest Period.
Promptly after receipt of a Notice of  Conversion/Continuation  pursuant to this
SECTION  2.06(b),  the Agent  shall  notify the  Revolving  Lenders,  the Term A
Lenders or the Term B Lenders,  as applicable,  by telecopy,  telephone or other
similar form of transmission,  of the requested  conversion or continuation.  In
the   event   that  a   Borrower   should   fail  to   provide   a   Notice   of
Conversion/Continuation  with respect to any LIBOR Loans as provided above, such
Loans shall,  on the last day of the Interest Period with respect to such Loans,
convert to Base Rate Loans.

            (c) Any  Notice of  Conversion/Continuation  for  conversion  to, or
continuation  of, Loans made pursuant to this SECTION 2.06 shall be  irrevocable
and the applicable  Borrower shall be bound to convert or continue in accordance
therewith.

                                       29
<PAGE>

            SECTION   2.07.   SPECIAL   PROVISIONS    GOVERNING   LIBOR   LOANS.
Notwithstanding   any  other  provisions  to  the  contrary  contained  in  this
Agreement,  the following provisions shall govern with respect to LIBOR Loans as
to the matters covered:

            (a) AMOUNT OF LIBOR LOANS.  Each  continuation  of or  conversion to
LIBOR Term Loans,  and each election of,  continuation of or conversion to LIBOR
Revolving  Loans,  shall be in a minimum  amount of  $5,000,000  and in integral
multiples of $1,000,000 in excess of that amount.

            (b)  DETERMINATION OF INTEREST PERIOD. By giving notice as set forth
in SECTION  2.06(b),  a Borrower  shall  have the  option,  subject to the other
provisions of this SECTION 2.07, to specify whether the Interest Period for such
LIBOR Loan shall be a one, two, three or six month period.  The determination of
Interest Periods shall be subject to the following provisions:

            (i) In the case of immediately  successive  Interest  Periods,  each
      successive  Interest  Period  shall  commence  on  the  day on  which  the
      preceding Interest Period expires.

            (ii) If any Interest Period would otherwise expire on a day which is
     not a Business Day, the Interest  Period shall be extended to expire on the
     next  succeeding  Business  Day;  PROVIDED,   HOWEVER,  that  if  the  next
     succeeding  Business Day occurs in the following  calendar month, then such
     Interest Period shall expire on the immediately preceding Business Day.

            (iii) A  Borrower  may not select an  Interest  Period for any LIBOR
      Loan,  which Interest  Period expires later than the maturity date of such
      Loan.

            (iv) A Borrower  may not select an Interest  Period with  respect to
      any  portion  of such  Borrower's  Term  Loans  which  extends  beyond  an
      installment  payment date for such Term Loans unless,  after giving effect
      to such selection,  the portion of such Term Loans not subject to Interest
      Periods ending after such installment  payment date is equal to or greater
      than the principal due on such installment payment date.

            (v) A Borrower may not select an Interest Period with respect to any
      portion of such  Borrower's  Revolving Loans which extends beyond any date
      on which the Revolving Loan Commitment Amounts are scheduled to be reduced
      unless,  after  giving  effect  to  such  selection,  the  portion  of the
      Revolving Loans not subject to Interest Periods ending after any such date
      is equal to or greater than any amount of the Revolving  Loans required to
      be prepaid as a result of any such reduction.

            (vi)  There  shall be no more than  eight (8)  Interest  Periods  in
      effect at any one time with respect to all the Loans and no more than four
      (4) Interest  Periods in effect at any one time with respect to the Term B
      Loans.

            (c)  DETERMINATION  OF INTEREST RATE. As soon as  practicable  after
10:00 a.m. (New York time) on the LIBOR  Interest Rate  Determination  Date, the

                                       30
<PAGE>

Agent shall  determine  (which  determination  shall,  absent manifest error, be
presumptively  correct)  the  interest  rate for the  LIBOR  Loans  for which an
interest rate is then being  determined  and shall  promptly give notice thereof
(in writing or by telephone confirmed in writing) to the applicable Borrower. In
the event that on any LIBOR  Interest  Rate  Determination  Date the Agent shall
have  determined  (which   determination   shall,   absent  manifest  error,  be
presumptively correct and binding upon all parties) that:

            (i)  adequate  and fair  means do not  exist  for  ascertaining  the
      applicable  interest  rates by reference to which the LIBO Rate then being
      determined is to be fixed; or

            (ii) the LIBO  Rate  plus the  Applicable  Margin  for any  Interest
      Period for such Loans will not  adequately  reflect the cost to any Lender
      of making, funding or maintaining its LIBOR Loan for such Interest Period,
      the Agent  shall  forthwith  so notify  the  applicable  Borrower  and the
      Lender, whereupon:

            (A)   each  LIBOR  Loan will  automatically,  on the last day of the
                  then existing  Interest Period  therefor,  convert into a Base
                  Rate Loan; and

            (B)   the  obligation  of the Lenders to make,  or to convert  Loans
                  into,  LIBOR  Loans shall be  suspended  until the Agent shall
                  notify  the  applicable  Borrower  and the  Lenders  that  the
                  circumstances causing such suspension no longer exist.

            (d)  ILLEGALITY.   Notwithstanding   any  other  provision  of  this
Agreement,  if any Lender shall notify the Agent that the introduction of or any
change in or in the  interpretation  of any law or regulation makes it unlawful,
or any central bank or other Governmental Authority asserts that it is unlawful,
for any Lender to perform its  obligations  hereunder  to make LIBOR Loans or to
fund or maintain  LIBOR Loans  hereunder,  (i) the  obligation of the Lenders to
make,  or to convert  Loans into or to continue  Loans as,  LIBOR Loans shall be
suspended  until the Agent shall notify the  Borrowers  and the Lenders that the
circumstances  causing such  suspension  no longer exist and (ii) the  Borrowers
shall on the termination of the Interest Period then applicable  thereto,  or on
such  earlier  date  required  by law,  prepay  in full  all  LIBOR  Loans  then
outstanding  together with accrued interest  thereon,  or convert all such LIBOR
Loans into Base Rate Loans in accordance with SECTION 2.06.

            (e) COMPENSATION.  In addition to such amounts as are required to be
paid by the  Borrowers  pursuant to the other  Sections of this  ARTICLE II, the
Borrowers  agree  to  compensate  any  Lender  for  all  losses,   expenses  and
liabilities,  including,  without  limitation,  any loss or expense  incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such  Lender to fund or  maintain  such  Lender's  LIBOR  Loans  (including  the
Applicable  Margin  component  thereof) to the Borrowers,  which such Lender may
sustain  (i) if for any reason a funding of any LIBOR  Loans does not occur on a
date   specified   therefor   in  a   Notice   of   Borrowing   or   Notice   of
Conversion/Continuation, or a successive Interest Period does not commence after
notice  therefor  is given  pursuant  to SECTION  2.06 as a result of any act or
omission of any Borrower,  (ii) if any voluntary or mandatory  prepayment of any

                                       31
<PAGE>

LIBOR Loans occurs for any reason on a date which is not the last  scheduled day
of an Interest  Period,  (iii) as a  consequence  of any required  conversion of
LIBOR  Loans to Base Rate  Loans as a result of any of the events  indicated  in
SECTION 2.07(d),  or (iv) as a consequence of any other failure by a Borrower to
repay LIBOR Loans when required by the terms of this Agreement.

            (f) BOOKING OF LIBOR LOANS.  The Lenders may make, carry or transfer
LIBOR  Loans at,  to, or for the  account  of,  any of their  respective  branch
offices or the office of any of their respective affiliates.

            (g) LIBOR LOANS AFTER EVENT OF DEFAULT. Unless the Requisite Lenders
shall otherwise agree, after the occurrence of and during the continuance of any
Event of Default,  the Borrowers may not borrow  Revolving Loans or Term B Loans
as LIBOR Loans or elect to have any Loans  continued  as, or converted to, LIBOR
Loans after the expiration of any Interest Period then in effect for such Loans.

            SECTION  2.08.  PAYMENTS.  (a)  Interest on each LIBOR Loan shall be
payable in arrears on each LIBOR  Interest  Payment Date and, if such LIBOR Loan
is paid in full other than on such LIBOR  Interest  Payment  date, on such other
date. Interest on each Base Rate Loan will be payable in arrears on each Payment
Date and,  if such Base Rate  Loan is paid in full  other  than on such  Payment
Date, on such other date.

            (b)  Subject  to the  provisions  of  SECTIONS  2.09 and  9.02,  the
outstanding principal balance of the Term A Loans made to the Borrowers shall be
payable  in  twenty-two  consecutive  quarterly  installments  beginning  on the
fourteenth  Payment Date (i.e.  the Payment Date occurring on April 1, 2002) and
continuing on each Payment Date thereafter through and including the Term A Loan
Termination  Date in the  amounts  set forth on ANNEX C hereto.  Subject  to the
provisions of SECTIONS 2.09 and 9.02, the outstanding  principal  balance of the
Term B Loans made to the  Borrowers  shall be payable in  seventeen  consecutive
quarterly  installments  beginning  on the  nineteenth  Payment  Date (i.e.  the
Payment  Date  occurring  on July 1, 2003) and  continuing  on each Payment Date
thereafter through and including the Term B Loan Termination Date in the amounts
set forth on ANNEX C hereto.  Subject to the  provisions  of  SECTIONS  2.09 and
9.02,  the  outstanding  principal  balance of the  Revolving  Loans made to the
Borrowers shall be payable on the Revolving Credit Commitment Termination Date.

            (c) Payments made with respect to the Loans by each  Borrower  shall
be applied by the Agent first to unpaid and accrued  fees and  interest and then
to the  outstanding  unpaid  principal  balance  of the Loans of such  Borrower;
provided,  however,  that upon the occurrence  and during the  continuance of an
Event of Default,  all payments and prepayments  with respect to the Obligations
and all proceeds of Collateral  shall be applied in the  following  order by the
Agent; provided,  further, that the order of priority set forth in the following
clauses may be altered upon direction from the Requisite Lenders to the Agent:

            (1) first,  to pay  Obligations  in respect of any expenses then due
            and  payable by the  Borrowers  to the  Agents,  the  Lenders or any
            Person which is not a Lender that has issued a Letter of Credit;

                                       32
<PAGE>

            (2) second,  to pay Obligations in respect of any  reimbursement  or
            indemnities  then due and payable to the Agents,  the Lenders or any
            Person  which is not a Lender  that has  issued a Letter  of  Credit
            (excluding any reimbursement obligations with respect to any Letters
            of Credit);

            (3) third,  to pay  Obligations in respect of any fees due and owing
            to the Agent or the Collateral Agent;

            (4) fourth,  to pay Obligations in respect of the commitment fee and
            any other fees and commissions then due and owing to the Agents, the
            Lenders or any Person which is not a Lender that has issued a Letter
            of Credit;

            (5) fifth,  to pay  Obligations in respect of any accrued and unpaid
            interest due in respect of Loans and Letter of Credit Obligations;

            (6) sixth, to pay termination  payments due and payable  pursuant to
            any Interest Rate Agreement or hedging  agreement that constitutes a
            Loan Document;

            (7) to  the  ratable  payment  or  prepayment  of  principal  of any
            outstanding  Loans and  reimbursement  obligations  with  respect to
            Letters of Credit;

            (8) to provide  required cash  collateral,  if required  pursuant to
            SECTION 2.10(j); and

            (9) to the ratable payment of all other Obligations.

            SECTION 2.09. OPTIONAL AND MANDATORY  PREPAYMENT OF LOANS;  OPTIONAL
AND MANDATORY  REDUCTION OF REVOLVING LOAN COMMITMENT  AMOUNT. (a) Provided that
no Event of Default has occurred and is continuing, the Borrowers shall have the
right upon the provision of sixty (60) days' prior written  notice to the Agent,
which notice, once given, shall be irrevocable, on any Payment Date with respect
to any Base  Rate  Term  Loans  and on the last day of the  applicable  Interest
Period with respect to any LIBOR Term Loans, to prepay the outstanding principal
of the Base Rate Term  Loans in a minimum  principal  amount of  $1,000,000  and
increments of $250,000 in excess thereof,  or the  outstanding  principal of the
LIBOR Term Loans in a minimum  principal  amount of $5,000,000 and increments of
$1,000,000  in excess  thereof,  together  in each case  with  accrued  interest
thereon and the aggregate  Prepayment Premium applicable thereto.  The amount of
principal so prepaid shall be applied to the remaining principal payments of the
type of Loans  prepaid  (i.e.  Base Rate Term Loans or LIBOR Term  Loans) in the
inverse order of maturity.

            (b) Upon the occurrence of any Event of Loss in excess of $1,000,000
with respect to any item of Collateral that is not repaired or replaced,  or any
Events of Loss which,  in the aggregate,  exceed  $5,000,000 with respect to any
item or items of  Collateral  that are not  repaired or replaced  (in each case,
other than an item of Collateral no longer used or useful in the Business)  such
that after such repair or replacement it has a value at least equal to its value
prior to the  occurrence of such Event of Loss, the Borrower which suffered such

                                       33
<PAGE>

Event of Loss shall make a principal  prepayment within thirty (30) days of such
Event  of Loss in an  amount  equal  to the  replacement  value  of the  item of
Collateral  which  suffered such Event of Loss,  together with accrued  interest
thereon (but without the Prepayment  Premium) with such principal  payment to be
applied,  PRO RATA, to outstanding  principal balance of the Revolving Loans and
the Term Loans.

            (c) In the event that any Borrower  finances any  Telecommunications
Equipment  (exclusive  of soft costs that exceed  fifteen  percent  (15%) of the
invoiced  price of the related  Telecommunications  Equipment)  with a financing
source  other than a Loan  pursuant  to this  Agreement,  then  thirty (30) days
following  such  financing  the  Revolving  Loan  Commitment  Amounts of all the
Revolving  Lenders shall be reduced by the actual or imputed principal amount of
any such  financing,  and any prepayments of the Revolving Loans required by the
provisions of CLAUSE (h) below shall be accompanied by any applicable Prepayment
Premium thereon.

            (d) The  Borrowers  shall  prepay the  Revolving  Loans and the Term
Loans on a pro  rata  basis in a  principal  amount  equal to (i) all of the net
proceeds of any sales of assets of any Borrower other than sales in the ordinary
course of  business,  which  proceeds are not  reinvested  within 270 days after
receipt thereof in replacement assets,  plus the applicable  Prepayment Premium,
and (ii) the proceeds of insurance policies paid to any Borrower and not applied
within 270 days after any such payment to replacing, rebuilding or restoring the
Collateral  which was the subject of  insurance  loss,  without  any  Prepayment
Premium,  in each  case,  within  five  (5) days  after  the  expiration  of the
applicable 270 day period.

            (e) On the first Payment Date of each year,  commencing in 2002, the
Revolving  Loan  Commitment  Amounts of all the  Lenders  shall be reduced by an
amount  equal to fifty  percent  (50%) of  Excess  Operating  Cash  Flow for the
preceding  fiscal year until the Borrowers  have achieved and  maintained for at
least two consecutive fiscal quarters,  a Total Leverage Ratio of less than 5:1,
as  determined by reference to the financial  statements  delivered  pursuant to
SECTION 5.06.

            (f)  Provided   that  no  Event  of  Default  has  occurred  and  is
continuing,  commencing January 1, 2002, the Borrowers shall have the right upon
the provision of thirty days' prior written  notice to the Agent,  which notice,
once given,  shall be irrevocable,  on any Payment Date, to reduce the Revolving
Loan  Commitment  Amount of all the Lenders.  Each such reduction  shall be in a
minimum  principal  amount of  $1,000,000  and  increments of $250,000 in excess
thereof.  Any  Revolving  Loans  that must be prepaid  in  connection  with such
reduction in the Revolving Loan Commitment  Amount pursuant to CLAUSE (h) below,
shall be accompanied by any applicable Prepayment Premium thereon.

            (g) The Revolving Loan Commitment Amount of all the Lenders shall be
reduced on each  Payment  Date  beginning  April 1, 2003 as set forth on ANNEX C
hereto.  In addition,  in the event that at any time more than  fifteen  percent
(15.0%) of the average  outstanding  principal balance of Revolving Loans during
the immediately  preceding 90-day period is repaid and is not reborrowed  within
120 days after such repayment,  then on such date, the Revolving Loan Commitment
Amount of all the  Lenders  shall be reduced by an amount  equal to such  amount
that was not reborrowed.  Any Revolving Loans that must be prepaid in connection

                                       34
<PAGE>

with such reduction in the Revolving Loan Commitment  Amount pursuant to SECTION
2.09(h) below, shall be accompanied by any applicable Prepayment Premium.

            (h) On each  date  that the  Revolving  Loan  Commitment  Amount  is
reduced,  the Borrowers  shall prepay first,  the Revolving  Loans,  and second,
provide  to the Agent  cash  collateral  with  respect  to the  Letter of Credit
Obligations  in such  amounts  such  that the sum of the  outstanding  principal
balance of the Revolving  Loans plus the Letter of Credit  Obligations  does not
exceed the Revolving Loan Commitment  Amount of all the Revolving  Lenders after
giving effect to the reduction thereof effective on such date, together with any
applicable  Prepayment  Premium  thereon.  Any reduction in the  Revolving  Loan
Commitment Amount of all the Lenders shall be allocated to each Revolving Lender
based on its Pro Rata Share.  All  prepayments of principal  shall be applied to
the  remaining  principal  payments of the type of Loans  prepaid in the inverse
order of  maturity.  The  Letter of Credit  Obligations  shall be  reduced  on a
dollar-for-dollar basis by the cash collateral.

            (i) All mandatory  prepayments of the Term Loans shall be applied to
the remaining  principal  installments of the Term Loans in the inverse order of
maturity.

            SECTION 2.10. LETTERS OF CREDIT.

            (a) AGREEMENT TO CAUSE ISSUANCE. Subject to the terms and conditions
of this Agreement,  and in reliance upon the  representations  and warranties of
the Borrowers  herein set forth, the Agent agrees to (1) cause Letters of Credit
to be issued by Lenders who are willing to do so or (2) provide  credit  support
or  enhancement  or  otherwise   confirm   payment  (any  such  credit  support,
enhancement or payment  confirmation  being referred to as "CREDIT  SUPPORT") to
banks other than Lenders,  which banks are acceptable to the Agent,  which issue
Letters of Credit for the  respective  accounts of the  Borrowers in  accordance
with this SECTION 2.10 from time to time during the term of this Agreement.

            (b) AMOUNTS;  OUTSIDE  EXPIRATION DATE. The Agent shall not have any
obligation  to cause any Letter of Credit to be issued by a Lender or to provide
Credit Support for any Letter of Credit at any time if: (1) the maximum  undrawn
face amount of the Letter of Credit is greater than the Unused  Letter of Credit
Subfacility;  or (2) such  Letter of Credit  has an  expiration  date later than
thirty (30) days prior to the Revolving Credit  Commitment  Termination Date, or
more than one (1) year from the date of issuance.

            (c)  OTHER   CONDITIONS.   In  addition  to  being  subject  to  the
satisfaction of the applicable conditions precedent contained in ARTICLE IV, the
obligation  of the Agent to cause any  Letter of Credit to be issued by a Lender
or to  provide  Credit  Support  for any  Letter  of Credit  is  subject  to the
following conditions precedent having been satisfied in a manner satisfactory to
the Agent:

            (1) the  applicable  Borrower  shall have  delivered to the proposed
      issuer of such Letter of Credit,  at such times and in such manner as such
      proposed  issuer  may  prescribe,  an  application  in form and  substance
      satisfactory  to such  proposed  issuer for the  issuance of the Letter of
      Credit and such other  documents as may be required  pursuant to the terms

                                       35
<PAGE>

      thereof,  and the form and terms of the proposed Letter of Credit shall be
      satisfactory to the Agent and such proposed issuer; and

            (2) as of the date of issuance, no order of any court, arbitrator or
      Governmental  Authority  shall  purport by its terms to enjoin or restrain
      money center banks  generally  from issuing  letters of credit of the type
      and in the amount of the proposed  Letter of Credit,  and no law,  rule or
      regulation  applicable  to money center banks  generally and no request or
      directive  (whether or not having the force of law) from any  Governmental
      Authority  with  jurisdiction  over money  center  banks  generally  shall
      prohibit,  or request  that the  proposed  issuer of such Letter of Credit
      refrain from, the issuance of letters of credit  generally or the issuance
      of such Letters of Credit.

            (d) ISSUANCE OF LETTERS OF CREDIT.

            (1) REQUEST FOR LETTER OF CREDIT. The applicable Borrower shall give
      the Agent five (5) Business  Days' prior written  notice,  containing  the
      original  signature of an  authorized  officer of such  Borrower,  of such
      Borrower's request for the issuance of a Letter of Credit or the provision
      of Credit Support for a Letter of Credit. Such notice shall be irrevocable
      and shall  specify the original  face amount of the Letter of Credit,  the
      effective  date (which  date shall be a Business  Day) of issuance of such
      proposed Letter of Credit, whether such Letter of Credit may be drawn in a
      single or in  partial  draws,  the date on which such  proposed  Letter of
      Credit is to expire (which date shall be a Business  Day), the purpose for
      which such Letter of Credit is to be issued,  and the  beneficiary of such
      Letter of Credit. The applicable  Borrower shall attach to such notice the
      form of the proposed Letter of Credit.

            (2)  RESPONSIBILITIES  OF  THE  AGENT;  ISSUANCE.  The  Agent  shall
      determine,  as of the Business Day  immediately  preceding  the  requested
      effective date of issuance of the Letter of Credit set forth in the notice
      from the applicable Borrower pursuant to SECTION 2.10(d)(1), the amount of
      the  applicable  Unused Letter of Credit  Subfacility.  If (A) the undrawn
      face  amount of the  proposed  Letter of  Credit is not  greater  than the
      applicable  Unused  Letter  of Credit  Subfacility,  and (B) the Agent has
      received a  certificate  from such  Borrower  stating that the  applicable
      conditions  set forth in ARTICLE IV have been  satisfied,  the Agent shall
      cause such Letter of Credit to be issued on such proposed  effective  date
      of issuance.

            (3) NOTICE OF ISSUANCE.  The Agent shall  promptly  give each Lender
      written notice of the issuance of each Letter of Credit.

            (4) NO  EXTENSIONS  OR  AMENDMENT.  No  Letter  of  Credit  shall be
      extended or amended unless the  requirements  of this SECTION  2.10(d) are
      met as though a new Letter of Credit were being requested and issued.

            (e)  PAYMENTS PURSUANT TO LETTERS OF CREDIT.

                                       36
<PAGE>

            (1) PAYMENT OF LETTER OF CREDIT OBLIGATIONS.  The Borrowers agree to
      reimburse  the issuer  for any draw  under any  Letter of Credit,  and the
      Agent,  for the account of the Lenders,  upon any payment  pursuant to any
      Credit  Support,  immediately  upon  demand,  and to pay the issuer of the
      Letter of Credit the  amount of all other  Obligations  and other  amounts
      payable to such issuer  under or in  connection  with any Letter of Credit
      immediately when due, irrespective of any claim, set-off, defense or other
      right  which a Borrower  may have at any time  against  such issuer or any
      other Person.

            (2) REVOLVING  LOANS TO SATISFY  REIMBURSEMENT  OBLIGATIONS.  In the
      event  that the  issuer of any  Letter of Credit  honors a draw under such
      Letter of Credit, or the Agent shall have made any payment pursuant to any
      Credit Support, and the Borrowers shall not have repaid such amount to the
      issuer of such Letter of Credit or the Agent,  as applicable,  pursuant to
      SECTION  2.10(e)(1),  the  Agent  shall,  upon  receiving  notice  of such
      failure,  notify each Revolving Lender of such failure, and each Revolving
      Lender  shall  unconditionally  pay to the Agent,  for the account of such
      issuer or the Agent, as applicable,  as and when provided hereinbelow,  an
      amount  equal to such  Revolving  Lender's Pro Rata Share of the amount of
      such  payment in Dollars  and in same day funds.  If the Agent so notifies
      the Revolving  Lenders prior to 12:00 p.m. (New York time) on any Business
      Day, each Revolving Lender shall make available to the Agent the amount of
      such payment, as provided in the immediately  preceding sentence,  on such
      Business  Day.  Such  amounts paid by the  Revolving  Lenders to the Agent
      shall  constitute  Revolving  Loans  which  shall be  deemed  to have been
      requested by the applicable Borrower pursuant to SECTION 2.03.

            (f)  PARTICIPATIONS.

            (1) PURCHASE OF  PARTICIPATIONS.  Immediately  upon  issuance of any
      Letter of Credit in accordance with SECTION 2.10(d), each Revolving Lender
      shall be deemed to have  irrevocably  and  unconditionally  purchased  and
      received  without  recourse  or  warranty,   an  undivided   interest  and
      participation  in such Letter of Credit (if issued by a Revolving  Lender)
      or the  Credit  Support  provided  through  the  Agent to such  issuer  in
      connection  with the  issuance  of such Letter of Credit,  as  applicable,
      equal to such Revolving Lender's Pro Rata Share of the face amount of such
      Letter of Credit or the amount of such Credit Support (including,  without
      limitation, all obligations of the Borrowers with respect thereto, and any
      security therefor or guaranty pertaining thereto).

            (2) SHARING OF REIMBURSEMENT OBLIGATION PAYMENTS. Whenever the Agent
      receives a payment from a Borrower on account of reimbursement obligations
      in respect  of a Letter of Credit or Credit  Support as to which the Agent
      has previously received for the account of the issuer thereof payment from
      a Revolving  Lender pursuant to this SECTION  2.10(f)(2),  the Agent shall
      promptly pay to such Lender such Revolving Lender's Pro Rata Share of such
      payment from such Borrower in Dollars.  Each such payment shall be made by
      the Agent on the  Business  Day on which the  Agent  receives  immediately
      available funds paid to such Person pursuant to the immediately  preceding
      sentence, if received prior to 11:00 a.m. (New York time) on such Business
      Day and otherwise on the next succeeding Business Day.

                                       37
<PAGE>

            (3)  DOCUMENTATION.  Upon the request of any Revolving  Lender,  the
      Agent  shall  furnish  to such  Revolving  Lender  copies of any Letter of
      Credit,   reimbursement   agreement  executed  in  connection   therewith,
      application for any Letter of Credit and Credit Support  provided  through
      the Agent in  connection  with the  issuance of any Letter of Credit,  and
      such other  documentation as may reasonably be requested by such Revolving
      Lender.

            (4)  OBLIGATIONS  IRREVOCABLE.  The  obligations  of each  Revolving
      Lender to make  payments to the Agent with respect to any Letter of Credit
      or with  respect to any Credit  Support  provided  through  the Agent with
      respect to a Letter of Credit,  and the  obligations  of the  Borrowers to
      make  payments  to the Agent,  for the account of the  Revolving  Lenders,
      shall be  irrevocable,  not  subject  to any  qualification  or  exception
      whatsoever  and shall be made in accordance  with the terms and conditions
      of  this  Agreement  (assuming,  in the  case  of the  obligations  of the
      Revolving  Lenders  to make such  payments,  that the  Agent has  provided
      Credit  Support for such Letter of Credit in accordance  with the terms of
      SECTION  2.10(d)),  including,  without  limitation,  any of the following
      circumstances:

            (i) any lack of validity or  enforceability of this Agreement or any
      of the other Loan Documents;

            (ii) the  existence  of any claim,  set-off,  defense or other right
      which a Borrower  may have at any time  against a  beneficiary  named in a
      Letter of Credit or any  transferee of any Letter of Credit (or any Person
      for whom any such transferee may be acting),  any Lender,  the Agent,  the
      Collateral  Agent,  the  issuer  of such  Letter of  Credit,  or any other
      Person,  whether in connection with this Agreement,  any Letter of Credit,
      the  transactions   contemplated  herein  or  any  unrelated  transactions
      (including  any  underlying  transactions  between a Borrower or any other
      Person and the beneficiary named in any Letter of Credit);

            (iii) any draft,  certificate or any other document  presented under
      the  Letter  of  Credit  proving  to be  forged,  fraudulent,  invalid  or
      insufficient  in any  respect or any  statement  therein  being  untrue or
      inaccurate in any respect;

            (iv) the surrender or impairment of any security for the performance
      or observance of any of the terms of any of the Loan Documents; or

            (v) the occurrence of any Default or Event of Default.

            (g) RECOVERY OR  AVOIDANCE OF PAYMENTS.  In the event any payment by
or on behalf of a Borrower  received  by the Agent  with  respect to a Letter of
Credit or Credit Support provided for any Letter of Credit (or any guaranty by a
Borrower  or  reimbursement  obligation  of a  Borrower  relating  thereto)  and
distributed by the Agent to the Revolving Lenders on account of their respective
participations  therein, is thereafter set aside,  avoided or recovered from the
Agent in connection with any receivership, liquidation or bankruptcy proceeding,

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<PAGE>

the Revolving  Lenders shall,  upon demand by the Agent,  pay to the Agent their
respective  Pro Rata  Shares of such  amount  set aside,  avoided or  recovered,
together  with  interest  at the rate  required to be paid by the Agent upon the
amount required to be repaid by it.

            (h) COMPENSATION FOR LETTERS OF CREDIT.

        The  Borrowers  agree to pay the fees set  forth in  SECTION  2.11  with
      respect to any Letters of Credit.

            (i)  INDEMNIFICATION; EXONERATION.

            (1)  INDEMNIFICATION.  In addition to amounts  payable as  elsewhere
      provided in this  SECTION  2.10,  the  Borrowers  hereby agree to protect,
      indemnify,  pay and save  the  Lenders  and the  Agent  harmless  from and
      against any and all claims, demands, liabilities,  damages, losses, costs,
      charges and  expenses  (including  reasonable  attorneys'  fees) which any
      Lender or the Agent may incur or be subject to as a consequence, direct or
      indirect,  of the issuance of any Letter of Credit or the provision of any
      Credit Support in connection  therewith.  The agreements contained in this
      SECTION 2.10(i)(1) shall survive the payment in full of the Obligations.

            (2) ASSUMPTION OF RISK BY THE BORROWERS. As among the Borrowers, the
      Lenders  and the Agent,  each  Borrower  assumes all risks of the acts and
      omissions of, or misuse of any of the Letters of Credit by, the respective
      beneficiaries  of  such  Letters  of  Credit.  In  furtherance  and not in
      limitation  of the  foregoing,  the  Lenders  and the  Agent  shall not be
      responsible   for:  (A)  the  form,   validity,   sufficiency,   accuracy,
      genuineness  or legal  effect of any  document  submitted by any Person in
      connection with the  application  for and issuance of and  presentation of
      drafts  with  respect to any of the  Letters of Credit,  even if it should
      prove  to be in any or all  respects  invalid,  insufficient,  inaccurate,
      fraudulent or forged;  (B) the validity or  sufficiency  of any instrument
      transferring  or assigning or  purporting to transfer or assign any Letter
      of Credit or the rights or benefits  thereunder  or proceeds  thereof,  in
      whole or in part,  which may prove to be  invalid or  ineffective  for any
      reason;  (C) the  failure  of the  beneficiary  of any Letter of Credit to
      comply duly with conditions  required in order to draw upon such Letter of
      Credit; (D) errors, omissions,  interruptions or delays in transmission or
      delivery of any messages, by mail, cable,  telegraph,  telex or otherwise,
      whether  or not  they  be in  cipher;  (E)  errors  in  interpretation  of
      technical terms; (F) any loss or delay in the transmission or otherwise of
      any document  required in order make a drawing  under any Letter of Credit
      or of the proceeds thereof;  (G) the  misapplication by the beneficiary of
      any Letter of Credit of the  proceeds of any drawing  under such Letter of
      Credit; or (H) any consequences  arising from causes beyond the control of
      the  Lenders  or the  Agent,  including,  without  limitation,  any act or
      omission,  whether rightful or wrongful,  of any present or future de jure
      or de facto  Governmental  Authority.  None of the foregoing shall affect,
      impair or prevent  the vesting of any rights or powers of the Agent or any
      Lender under this SECTION 2.10(i).

            (3)   EXONERATION.   In  furtherance  and  extension,   and  not  in
      limitation,  of the specific  provisions set forth above, any action taken
      or omitted by the Agent or any Lender under or in  connection  with any of

                                       39
<PAGE>

      the Letters of Credit or any related certificates,  if taken or omitted in
      good  faith,  shall not put the Agent or any  Lender  under any  resulting
      liability  to  any  Borrower  or  relieve  any  Borrower  of  any  of  its
      obligations hereunder to any such Person.

            (j)   SUPPORTING   LETTER   OF   CREDIT;   CASH   COLLATERAL.    If,
notwithstanding  the  provisions  of  SECTION  2.10(b),  any Letter of Credit is
outstanding  upon the termination of this Agreement,  then upon such termination
the Borrowers shall cause the  termination of such Letter of Credit.  If, at the
Agent's  election,  any such  Letter of  Credit  remains  outstanding,  then the
Borrowers shall deposit with the Agent, for the ratable benefit of the Agent and
the Revolving  Lenders,  with respect to each Letter of Credit then outstanding,
as the Agent shall specify, either (A) a standby letter of credit (a "SUPPORTING
LETTER OF CREDIT") in form and substance  satisfactory to the Required Revolving
Lenders, issued by an issuer satisfactory to the Agent in an amount equal to the
greatest amount for which such Letter of Credit may be drawn,  plus any fees and
expenses associated with such Letter of Credit, under which Supporting Letter of
Credit the Agent is entitled to draw amounts  necessary  to reimburse  the Agent
and the  Revolving  Lenders  for  payments  made by the Agent and the  Revolving
Lenders under such Letter of Credit or under any Credit Support provided through
the Agent with respect  thereto and any fees and expenses  associated  with such
Letter of Credit,  or (B) cash in amounts  necessary to reimburse  the Agent and
the Revolving  Lenders for payments  made by the Agent or the Revolving  Lenders
under such  Letter of Credit or under any Credit  Support  provided  through the
Agent with  respect  thereto,  and any fees and  expenses  associated  with such
Letter of Credit.  Such Supporting  Letter of Credit or deposit of cash shall be
held by the  Agent,  for the  ratable  benefit  of the Agent  and the  Revolving
Lenders,  as security  for,  and to provide  for the  payment of, the  aggregate
undrawn face amount of such Letters of Credit remaining outstanding.

            SECTION 2.11.  FEES.  (a) The Borrowers  shall pay and the Borrowers
shall be  jointly  and  severally  liable to the Agent  for the  account  of the
Revolving Lenders for payment of a nonutilization  fee calculated on a per annum
basis and equal to the percentage  corresponding to the criteria set forth below
of the average  drawn portion of the Revolving  Loan  Commitment  Amount for the
quarterly  period  preceding a Payment Date,  which fee shall be payable on each
Payment Date following such last day of a quarter  beginning on the Payment Date
following  the "Initial  Funding  Date" (as defined in the  Existing  Agreement)
until and including the Payment Date following the Revolving  Credit  Commitment
Termination Date:

      Average Drawn Portion
      of Revolving Loan Commitment
      Amount for the Quarterly Period
      Preceding a Payment Date               Percentage
      -------------------------------        -----------

      Less than or equal to
      $58,333,333                            1.25%

      Greater than $58,333,333 and
      less than or equal to                  1.00%
      $116,666,666

                                       40
<PAGE>

      Greater than $116,66,666 and
      less than or equal to                  0.75%
      $175,000,000

In the event that at any time the Borrowers fail to comply with the requirements
of  SECTION  2.03(d)  for  any  calendar  year,  each  of  the  above  described
nonutilization  fees shall be  increased by 100 basis points for the entire such
calender year with payment of such increment in the nonutilization fee being due
and payable not later than the last Business Day of such calendar year.

            (b) The Borrowers  shall pay and the Borrowers  shall be jointly and
severally  liable to the Agent for the account of the Term B Lenders for payment
of a  commitment  fee  calculated  on a per  annum  basis  and  equal to one and
one-half  percent  (1.50%) of the average of the unused  Term B Loan  Commitment
Amount for the quarterly  period  preceding a Payment  Date,  which fee shall be
payable on each Payment Date following  such last day of a quarter  beginning on
the Payment Date following the Closing Date until and including the Payment Date
following the Term B Loan Commitment Termination Date.

            (c) The Borrowers  shall pay the Agent and the Collateral  Agent and
shall be jointly and  severally  liable to the Agent and the  Collateral  Agent,
respectively,  for  payment  of an annual  administration  fee and a  collateral
monitoring fee at the times and in the amounts set forth in the Fee Letters.

            (d) The  Borrowers  shall on the Closing  Date pay the Agent for the
ratable benefit of the Revolving Lenders and the Term A Lenders an amendment fee
of $1,250,000 and any fee then due under the fee letter dated as of February 14,
2000 between the Borrowers and Lucent.

            (e) The Borrowers  shall pay and the Borrowers  shall be jointly and
severally  liable to the Agent (i) for the account of the Revolving  Lenders for
payment in arrears on each  Payment  Date of a fee equal to equal to the product
of the Applicable Margin in effect with respect to LIBOR Loans for the preceding
calendar  quarter on an annualized  basis,  multiplied by the average  Letter of
Credit Obligations  outstanding  during such calendar quarter,  and (ii) for the
account of any Person which issues any Letter of Credit,  for payment in arrears
on each  Payment  Date of a fee equal to (A) the product of  one-eighth  percent
(0.125%)  per annum  multiplied  by the average face amount of Letters of Credit
issued by such Person and outstanding during the preceding calendar quarter, and
(B) if such  Person is not a Lender,  any  additional  fees as may be charged by
such Person in  connection  with the issuance or  maintenance  of such Letter of
Credit.

            (f) All fees once paid shall be nonrefundable.

            SECTION 2.12. MANNER OF PAYMENT; SPECIAL TAX CONSIDERATIONS. (a) All
payments  by the  Borrowers  hereunder  and under the Notes shall be made to the
Agent by wire transfer or other electronic payment method to the Payment Account
or to such bank  account  as the Agent may  designate,  for the  account  of the
Lenders in Dollars in immediately  available funds by 11:00 a.m., New York time,
on the  date on which  such  payment  shall  be due.  The  Agent  will  promptly
thereafter  cause to be  distributed  like  funds  relating  to the  payment  of
principal or interest or other fees ratably (other than amounts payable pursuant
to  SECTION  2.14) to each  Lender in  accordance  with  SECTION  10.07  hereof.

                                       41
<PAGE>

Interest in respect of any Loan hereunder shall accrue from the day such Loan is
made up to and including the day prior to the date on which such Loan is paid in
full.  Payments  received  after 12:00 p.m.  shall not be given credit until the
next  Business  Day, and the  Borrowers  shall be liable for  interest,  if any,
accruing on such payment until the next Business Day.

            (b) (1) Any and all  payments by each  Borrower  hereunder  shall be
made free and  clear of and  without  deduction  for any and all  Taxes.  If any
Borrower  shall be required by law to deduct any Taxes from or in respect of any
sum payable  hereunder or under the other Loan Documents to any Lender or Agent,
(A) the sum payable  shall be increased as may be necessary so that after making
all required  deductions  (including  deductions  applicable to additional  sums
payable under this SECTION  2.12) such Lender or Agent  receives an amount equal
to the sum it would have  received had no such  deductions  been made,  (B) such
Borrower  shall make such  deductions,  and (C) such Borrower shall pay the full
amount  deducted  to the  relevant  taxation  authority  or other  authority  in
accordance  with  applicable  law. If a withholding  tax of the United States of
America or any other  Governmental  Authority shall be or become  applicable (y)
after the date of this  Agreement,  to the payments by any Borrower  made to the
Lending  Office  or any other  office  that a Lender  may  claim as its  Lending
Office,  or (z) after  such  Lender's  selection  and  designation  of any other
Lending Office, to such payments made to such other Lending Office,  such Lender
shall use  reasonable  efforts  to make,  fund and  maintain  its Loans  through
another  Lending Office of such Lender in another  jurisdiction so as to reduce,
but not increase, the applicable Borrower's liability hereunder,  if the making,
funding or  maintenance  of such Loans through such other Lending Office of such
Lender does not, in the judgment of such Lender,  otherwise materially adversely
affect  such Loans,  such  Lender's  obligations  under its  Commitment  or such
Lender.  Notwithstanding anything to the contrary hereunder, if a Person becomes
a Lender under this  Agreement  pursuant to SECTION 11.08 hereof,  the Borrowers
shall in no event be required to increase any payment  pursuant to paragraph (b)
of this  SECTION  2.12 by an amount that would exceed the amount of any increase
that would be required to be made under  paragraph  (b) of this  SECTION 2.12 to
the assigning Lender.

            (2) The Borrowers  will jointly and severally  indemnify each Lender
and the Agents and hold them  harmless for the full amount of Taxes  (including,
without limitation,  any Taxes imposed by any Governmental  Authority on amounts
payable under this SECTION 2.12 or any other documentary  taxes,  assessments or
charges  made by any  Governmental  Authority  by  reason of the  execution  and
delivery of this  Agreement or any other Loan  Document)  paid by such Lender or
the Agent (as the case may be) and any liability (including penalties, interest,
and expenses)  arising therefrom or with respect thereto.  This  indemnification
shall be made  within  thirty  (30) days after the date such Lender or the Agent
(as the case may be) makes written  demand  therefor.  A  certificate  as to any
additional  amount  payable to any Lender or the Agent under this  SECTION  2.12
submitted to the Borrowers and the Agent (if a Lender is so  submitting) by such
Lender or the Agent shall show in reasonable  detail the amount  payable and the
calculations  used to determine  such amount.  With respect to such deduction or
withholding  for or on account  of any Taxes and to confirm  that all such Taxes
have been  paid to the  appropriate  Governmental  Authorities,  the  applicable
Borrower  shall promptly (and in any event not later than thirty (30) days after

                                       42
<PAGE>

receipt)  furnish to each Lender and the Agent such  certificates,  receipts and
other documents as may be required (in the judgment of such Lender or the Agent)
to establish any tax credit to which such Lender or the Agent may be entitled.

            (3) Within  thirty  (30) days after the date of any payment of Taxes
on amounts payable hereunder by any Borrower,  such Borrower will furnish to the
Agent, at its address  referred to in SECTION 11.01, the original or a certified
copy of a receipt evidencing payment thereof.

            (4) Without  prejudice to the survival of any other agreement of any
Borrower hereunder, the agreements and obligations of such Borrower contained in
this  SECTION 2.12 shall  survive the payment in full of principal  and interest
hereunder and the termination of this Agreement.

            (5) Without  limiting the  obligations  of the Borrowers  under this
SECTION 2.12, each Lender that is not created or organized under the laws of the
United States of America or a political subdivision thereof shall deliver to the
Borrowers  and the Agent on or before the effective  date hereof,  or, if later,
the date on which such Lender becomes a Lender pursuant to SECTION 11.08 hereof,
a true and  accurate  certificate  executed in  duplicate  by a duly  authorized
officer of such Lender,  in a form  satisfactory to the Borrowers and the Agent,
to the  effect  that (A) such  Lender  is  capable  under the  provisions  of an
applicable  tax treaty  concluded by the United States of America (in which case
the  certificate  shall be accompanied by two original,  executed copies of Form
1001 of the IRS or any  successor  form)  or under  Section  1442 of the IRC (in
which case the certificate shall be accompanied by two original, executed copies
of Form 4224 of the IRS or any successor form) of receiving payments of interest
hereunder exempt from or at a reduced  deduction or withholding of United States
federal  income tax or (B) if such Lender is not a "bank"  within the meaning of
Section 881(c)(3)(A) of the IRC and intends to claim exemption from U.S. federal
withholding  tax under Section  871(h) or Section 881(c) of the IRC with respect
to payments of "portfolio interest", (i) that such Lender is not a "bank" within
the meaning of Section 881(c) of the IRC, is not a ten percent (10%) shareholder
(within the meaning of Section  871(h)(3)(B)  of the IRC) of any Borrower and is
not a controlled foreign corporation related to any Borrower (within the meaning
of  Section  864(d)(4)  of the  IRC),  (ii)  that such  Lender  claims  complete
exemption  from U.S.  federal  withholding  tax on  payments  of interest by the
Borrowers  under this Agreement and the other Loan Documents and (iii) that such
Lender has received in replacement of any Note held by or assigned to it, a "QFL
Note" (as defined  below) in  accordance  with this SECTION  2.12(b).  Each such
Lender  further  agrees to deliver to the  Borrowers  and the Agent from time to
time a true and accurate  certificate executed in duplicate by a duly authorized
officer of such Lender substantially in a form satisfactory to the Borrowers and
the Agent,  before or  promptly  upon the  occurrence  of any event  requiring a
change  in  the  most  recent  certificate  previously  delivered  by it to  the
Borrowers  and the Agent  pursuant to this  SECTION  2.12(b)(5).  Further,  each
Lender which delivers a certificate  accompanied by Form 1001 of the IRS (or any
successor form or forms  required  under the IRC or the  applicable  regulations
promulgated thereunder) covenants and agrees to deliver to the Borrowers and the
Agent  within  fifteen  (15) days  prior to January  1,  1999,  and every  third
anniversary of such date thereafter, on which this Agreement is still in effect,
another such certificate and two accurate and complete original signed copies of
Form  1001  (or  any  successor  form or  forms  required  under  the IRC or the
applicable regulations promulgated thereunder),  and each Lender that delivers a
certificate  accompanied by Form 4224 of the IRS (or any successor form or forms

                                       43
<PAGE>

required under the IRC or the  applicable  regulations  promulgated  thereunder)
covenants and agrees to deliver to the  Borrowers  and the Agent within  fifteen
(15) days prior to the beginning of each subsequent  taxable year of such Lender
during which this Agreement is still in effect, another such certificate and two
accurate and complete  original signed copies of IRS Form 4224 (or any successor
form or forms required under the IRC or the applicable  regulations  promulgated
thereunder). Each such certificate shall certify as to one of the following:

            (a) that such  Lender is capable of  receiving  payments of interest
      hereunder  exempt from or at a reduced  deduction or withholding of United
      States of America federal income tax;

            (b) that  such  Lender  is not  capable  of  receiving  payments  of
      interest hereunder exempt from or at a reduced deduction or withholding of
      United States of America  federal  income tax as specified  therein but is
      capable of recovering the full amount of any such deduction or withholding
      from a source other than the Borrowers and will not seek any such recovery
      from the Borrowers; or

            (c) that,  as a result of the  adoption of or any change in any law,
      treaty,  rule,  regulation,  guideline or  determination of a Governmental
      Authority or any change in the interpretation or application  thereof by a
      Governmental  Authority  after the date such Lender became a party hereto,
      such Lender is not  capable of  receiving  payments of interest  hereunder
      without  deduction  or  withholding  of United  States of America  federal
      income tax as specified  therein and that it is not capable of  recovering
      the full amount of the same from a source other than the Borrowers.

            Each Lender shall  promptly  furnish to the  Borrowers and the Agent
such additional  documents as may be reasonably required by the Borrowers or the
Agent to establish any exemption  from or reduction of any Taxes  required to be
deducted or withheld  and which may be obtained  without  undue  expense to such
Lender

            (6) For a  period  with  respect  to which a Lender  has  failed  to
provide the Agent and the Borrowers with the appropriate  form described in this
SECTION  2.12(b)(5)  (other  than  if such  failure  is due to a  change  in law
occurring  subsequent to the date on which a form  originally was required to be
provided),  such  Lender  shall not be entitled  to  indemnification  under this
SECTION  2.12 with  respect to Taxes  imposed by the United  States by reason of
such failure;  PROVIDED,  HOWEVER,  that should a Lender become subject to Taxes
because of its failure to deliver a form required hereunder, the Borrowers shall
take such steps as such Lender shall reasonably request to assist such Lender to
recover such Taxes.

            (7) Any Lender  that is not a "bank"  within the  meaning of Section
881(c)(3)(A)  of the IRC and satisfies the  applicable  requirements  of SECTION
2.12(b)(5)  (a  "Qualified  Foreign  Lender")  shall upon receipt of the written
request of the Agent or the Borrowers  and may, upon its own written  request to
the Agent,  exchange any Note held by or assigned to it for a qualified  foreign
lender Note (a "QFL  Note").  A QFL Note shall be in the form of the  applicable

                                       44
<PAGE>

Note attached as Exhibit E-1, E-2 or E-3 but shall contain the following legend:
"This Note is a QFL Note, and as such,  ownership of the obligation  represented
by such QFL Note may be transferred  only in accordance with Section 2.12 of the
Loan and Security Agreement." Any QFL Note issued in replacement of any existing
Note pursuant to this Section shall be (i) dated the date of such existing Note,
(ii) issued in the name of the Borrowers and (iii) issued in the same  principal
amount as such  existing  Note.  Any Note  replaced  pursuant to this Section is
sometimes referred to herein as a "Replaced Note".

            (8) The Borrowers  agree that,  upon the request of or delivery of a
request to a Qualified  Foreign Lender pursuant to paragraph (7) of this SECTION
2.12(b),  they shall execute and deliver a QFL Note to the Agent in  replacement
of the Replaced Note  surrendered in connection with such request  conforming to
the  requirements  of  this  paragraph.  Each  Qualified  Foreign  Lender  shall
surrender its Note in  connection  with any  replacement,  of a QFL Note and the
existing Note to be replaced by such QFL Note in accordance with this paragraph,
the Agent shall  forward the QFL Note to the Lender  which has  surrendered  its
Note for replacement by such QFL Note and shall forward the surrendered  Note to
the Borrowers marked  "canceled".  Once issued, QFL Notes (i) shall be deemed to
and shall be "Notes" for all purposes under the Loan Documents,  (ii) may not be
exchanged  for Notes  which are not QFL Notes,  notwithstanding  anything to the
contrary in the Loan  Documents  and (iii) shall at all times  thereafter be QFL
Notes,  including,  without  limitation,  following  any transfer or  assignment
thereof.

            (9) Notwithstanding  anything to the contrary in the Loan Documents,
the QFL Notes are registered  obligations as to both principal and interest with
the Borrowers and transfer of the  obligations  underlying  such QFL Note may be
effected  only  by  surrender  of the  QFL  Note  to the  Borrowers  and  either
reissuance  by the  Borrowers of such QFL Note to the  transferee or issuance by
the  Borrowers  of a new QFL  Note to the  transferee.  A QFL  Note  shall  only
evidence a Lender's or an  assignee's  right,  title and  interest in and to the
related  obligation,  and in no event is a QFL  Note to be  considered  a bearer
instrument  or  obligation.  This  SECTION  2.12 shall be  construed so that the
obligations  underlying the QFL Notes are at all times maintained in "registered
form" within the meaning of Sections 871(h)(2) and 881(c)(3) of the IRC.

            (c)(1) If a Borrower pays any  additional  amount under this SECTION
2.12 and, as a result,  any Lender,  together with the Agent,  subsequently,  in
their sole discretion and based on their own interpretation of any relevant laws
(but  acting in good faith)  receive or are  granted a final and  non-appealable
credit  against  or  deduction  from or in  respect  of any tax  payable by such
Lender,  or obtain any other final and  non-appealable  relief in respect of any
tax, which in the opinion of such Lender and the Agent, acting in good faith, is
both reasonably  identifiable  and  quantifiable  by them without  requiring any
Lender, the Agent or their professional  advisers to expend a material amount of
time or incur a  material  cost in so  identifying  or  quantifying  (any of the
foregoing,  to the extent so reasonably  identifiable  and  quantifiable,  being
referred to as a "SAVING"),  such Lender shall,  to the extent that it can do so
without  prejudice  to the  retention  of the Saving,  reimburse  such  Borrower
promptly after such  identification and  quantification  with the amount of such
Saving;  PROVIDED,  HOWEVER,  that any such Saving shall be reduced by any costs
incurred by such Lender or the Agent in obtaining such Saving.

                                       45
<PAGE>

            (2)  Nothing in this  SECTION  2.12(c)  shall  require any Lender to
disclose to any Person any  information  regarding its tax affairs or to arrange
its tax and other affairs in any particular manner.

            SECTION 2.13.  MAXIMUM  LAWFUL  INTEREST RATE.  Notwithstanding  any
provision  contained herein, the total liability of the Borrowers for payment of
interest  pursuant  hereto and the Notes,  including  any other charges or other
amounts, to the extent such charges and other amounts are deemed to be interest,
shall not exceed the  maximum  amount of such  interest  permitted  by law to be
charged,  collected, or received from the Borrowers (the "MAXIMUM RATE"). If any
payments  by any  Borrower  for the  account of any Lender  include  interest in
excess of the Maximum Rate, such Lender shall apply such excess to the reduction
of the unpaid principal  amount owing by such Borrower,  or if none is due, such
excess shall be returned to such Borrower.

            SECTION 2.14. FUNDING ISSUES. (a) INCREASED COSTS. If, due to either
(i) the  introduction  after the date  hereof of, or any  change  after the date
hereof in or in the interpretation of, any applicable law, rule or regulation by
any Governmental  Authority,  central bank or comparable agency charged with the
interpretation or administration  thereof or (ii) compliance by any Lender after
the date hereof with any final request or final directive  issued after the date
hereof  (whether  or not  having  the  force  of law) by any  such  Governmental
Authority,  central bank or  comparable  agency,  and, as a result of any of the
events  set forth in the above  clauses  (i) and  (ii),  (x) there  shall be any
increase in the cost to such Lender in  maintaining  its  Commitment  under this
Agreement or funding or  maintaining  its Pro Rata Share of the Loans under this
Agreement,  or (y) any Lender is subjected to any charge or  withholding  on its
obligations  hereunder,  or changes in the basis of  taxation of payments to any
Lender in connection  with any of the foregoing  (except for changes in the rate
of tax on overall net income of any Lender)  (collectively,  "INCREASED COSTS"),
then the Borrowers  shall,  from time to time, pay, to the Agent for the benefit
of such Lender  within 15 days after such Lender shall have  provided  notice to
the Agent (and the Agent shall have  provided  notice to the  Borrowers) of such
Increased  Cost,  an  amount  sufficient  to  compensate  such  Lender  for such
Increased Cost, as provided  herein.  A certificate  setting forth in reasonable
detail the  computation of the amount of such Increased Cost (which  increase in
cost shall be determined by such Lender's reasonable allocation of the aggregate
of such cost increases resulting from such event), submitted to the Borrowers by
such Lender,  shall be conclusive and binding for all purposes,  absent manifest
error.

            (b)  INCREASED  CAPITAL.  If any Lender  which is subject to minimum
capital  requirements  determines  that  compliance  by such  Lender,  with  any
guideline  or request  from any  central  bank or other  Governmental  Authority
(whether or not having the force of law)  affects or would  affect the amount of
capital required or expected to be maintained by such Lender, or any corporation
controlling such Lender,  and such Lender reasonably  determines that the amount
of such capital is increased by or based upon any  commitment to lend  hereunder
or making or maintaining  Loans,  its commitment to participate (as provided for
in  SECTION  2.10(f))  in any Letter of Credit or any  Credit  Support  provided
through the Agent in  connection  with the issuance of any Letter of Credit,  or
other commitments of this type, then, upon demand by such Person,  the Borrowers
agree to, within five (5) days of such demand, pay to such Person,  from time to
time as specified by such Person,  additional  amounts  sufficient to compensate

                                       46
<PAGE>

such Person in the light of such  circumstances,  to the extent that such Person
reasonably  determines such increase in capital to be allocable to such Person's
commitment or  maintenance  of Loans  hereunder or such  Person's  commitment to
participate in any Letter of Credit or Credit  Support.  A certificate as to the
amount of such  increased  cost,  submitted to the  Borrowers by the  applicable
Person shall,  absent manifest error, be conclusive and binding on the Borrowers
for all purposes.

            (c)  REPLACEMENT  OF  LENDER.  If any  Borrower,  as a result of the
requirements of either SECTION 2.14(a) or SECTION 2.14(b),  shall be required to
pay any particular Lender (an "AFFECTED LENDER") the additional amounts referred
to in such Section,  which costs are not imposed by the other Lenders,  and such
additional amounts are material,  then such Borrower shall be entitled to either
prepay such Affected Lender without any Prepayment Premium but with any payments
required by SECTION 2.07(e), or find a replacement Lender, reasonably acceptable
to the  Agents  (the  Agents'  consent  to  such  replacement  Lender  not to be
unreasonably  withheld), to replace the Affected Lender. The Affected Lender and
the replacement Lender shall execute an Assignment Agreement with respect to all
of the Affected Lender's  Commitments and all Loans owing to the Affected Lender
and comply with the other  provisions of SECTION  11.08(c).  Upon the payment by
the replacement Lender to the Affected Lender of the then outstanding  principal
amount of Loans owing to the Affected  Lender,  together  with accrued  interest
thereon,  and  the  payment  by the  Borrower  to  the  Affected  Lender  of any
compensation  required with respect to LIBOR Loans pursuant to SECTION  2.07(e),
the replacement  Lender shall succeed to all of the Affected Lender's rights and
obligations under this Agreement and the other Loan Documents.

            SECTION  2.15.  JOINT  AND  SEVERAL  LIABILITY;   CONTRIBUTION.  (a)
Notwithstanding  anything to the  contrary in this  Agreement  or the other Loan
Documents,  all payment and performance Obligations arising under this Agreement
and the other Loan  Documents  shall be joint and  several  obligations  of each
Borrower secured by all the Borrowers' Collateral.  The Agent and the Collateral
Agent may apply any portion of any  Borrower's  Collateral to satisfy any of the
Obligations of any other Borrower.

            (b) CONTRIBUTION AND INDEMNIFICATION  BETWEEN THE BORROWERS.  To the
extent that any Borrower  shall,  as a result of the  operation of SECTION 2.15,
pay any Obligation of any other Borrower under the Loan Documents  (such payment
being referred to as an  "ACCOMMODATION  PAYMENT"),  then such Borrower shall be
entitled to  contribution  and  indemnification  from, and be reimbursed by such
other Borrower, as set forth in the Contribution Agreement. Each Borrower agrees
that any extension,  forbearance  or amendment,  or any  acceptance,  release or
substitution of security,  or any impairment or suspension of Lender's  remedies
or rights  against any other  Borrower or the  cessation of the liability of any
other Borrower for any reason other than full and  indefeasible  satisfaction of
all Obligations shall not in any way affect the liability of such Borrower. Each
Borrower has provided itself of the means of remaining informed of the financial
condition of each other Borrower,  and waives any right to require any Lender or
any of the Agents to keep it informed of the  financial  condition  of any other
Borrower.  The  provisions  of  this  section  shall,  to the  extent  expressly
inconsistent   with  any  provision  in  any  Loan   Document,   supersede  such
inconsistent provision.

                                       47
<PAGE>

                                  ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

            Each Borrower  represents and warrants to the Agent,  the Collateral
Agent and the Lenders that:

            SECTION  3.01.  ORGANIZATION;  POWERS.  (a) Such  Borrower  (i) is a
corporation or limited liability company duly organized, validly existing and in
good standing under the laws of its  jurisdiction  of  organization  and (ii) is
qualified to do business in the  jurisdiction  in which its  principal  place of
business is located and in every other  jurisdiction where such qualification is
necessary;

            (b)  such Borrower has the power and authority to own its
properties, to carry on its business as now conducted; and

            (c) such Borrower has the power and authority to execute and deliver
and perform this  Agreement and the other Loan Documents to which it is a party,
to  borrow  hereunder,  and will  have the  power to  execute  and  deliver  any
Mortgages  and  Collateral  Assignments  of  Leases or other  instruments  to be
delivered by it subsequent to the date hereof.

            SECTION 3.02. CORPORATE AUTHORIZATION.  The execution,  delivery and
performance  of this  Agreement  and the  other  Loan  Documents  to which  such
Borrower is a party, and the Loans hereunder:

            (a) have been duly authorized by such Borrower's  Board of Directors
or managers and, if necessary, such Borrower's stockholders or members;

            (b) (1) do not violate (i) any existing  provision of law applicable
to such  Borrower  and not  immaterial  to its  business,  (ii) such  Borrower's
Certificate or Articles of Incorporation or other organizational  documents,  as
the  case  may  be,  or  (iii)  any  applicable  order  of any  court  or  other
governmental  agency,  and (2) do not  conflict  with,  result in a breach of or
constitute  (with  due  notice  or lapse of time or both) a  default  under  any
indenture,  agreement for borrowed money, bond, note or other similar instrument
or any other  material  agreement to which such  Borrower is a party or by which
such Borrower or any of such Borrower's property is bound;

            (c) do not result in the creation or  imposition  of any Lien of any
nature  whatsoever  upon any property or assets of such Borrower  other than the
Liens granted pursuant to this Loan Agreement or the other Loan Documents;

            (d)  constitute  legal,  valid  and  binding   obligations  of  such
Borrower,  enforceable against such Borrower in accordance with their respective
terms; and

            (e)  do  not,  as of the  date  of  execution  hereof,  require  any
governmental  consent,  filing,  registration or approval except as set forth on
SCHEDULE 3.02.

                                       48
<PAGE>

            SECTION 3.03. FINANCIAL STATEMENTS.  The Borrowers have furnished to
the Agent and the Lenders the audited  consolidated  financial statements of KMC
Holdings dated as of December 31, 1998, and the unaudited consolidated financial
statements  for the fiscal quarter ended  September 30, 1999 , which  statements
are  attached  hereto  as  EXHIBIT  I  (collectively,   the  "Financials").  The
Financials  have  been  prepared  in  accordance  with GAAP  applied  on a basis
consistent  with that of  preceding  periods and are complete and correct in all
material respects.  As of the date of the Financials,  (a) the Financials fairly
represent KMC Holdings'  financial  position and results of operations;  and (b)
there are no omissions from the  Financials or any other facts or  circumstances
not reflected in the Financials which are or may be material according to GAAP.

            SECTION 3.04. NO MATERIAL ADVERSE CHANGE. There has been no material
adverse  change  in  the  condition  (financial  or  otherwise),  operations  or
properties of such Borrower since the date of the Financials.

            SECTION  3.05.  LITIGATION.  Except as set forth on  SCHEDULE  3.05,
there are no actions,  suits or  proceedings at law or in equity or by or before
any  Governmental  Authority now pending or, to the knowledge of such  Borrower,
threatened, against or affecting such Borrower or any property or rights of such
Borrower  as  to  which  there  is  a  reasonable   possibility  of  an  adverse
determination and which, if adversely  determined,  would individually or in the
aggregate  materially  impair  the right of any  Borrower  to carry on  business
substantially  as now being  conducted  or as  presently  contemplated  or would
result in any Material Adverse Effect.

            SECTION 3.06.  TAX RETURNS.  Such Borrower has filed or caused to be
filed all  Federal,  state and local tax returns  which are required to be filed
and has paid or caused to be paid all taxes as shown on such  returns  or on any
assessment  received by it to the extent that such taxes have become due, except
such taxes the amount, applicability or validity of which are being contested in
good faith by  appropriate  proceedings  and with respect to which such Borrower
shall have set aside on its books  adequate  reserves with respect to such taxes
as are required by GAAP.

            SECTION 3.07. NO DEFAULTS.  Such Borrower is not in default (i) with
respect to any judgment,  writ,  injunction,  decree,  rule or regulation of any
Governmental  Authority which is likely to have a Material  Adverse  Effect,  or
(ii) in the  performance,  observance or fulfillment of any of the  obligations,
covenants or  conditions  contained in any material  agreement or  instrument to
which such Borrower is a party or by which any of its assets are bound, which is
likely to have a Material Adverse Effect.

            SECTION  3.08.  PROPERTIES.  Such  Borrower has good and  marketable
title to all its  material  properties  and  assets and all  Collateral  of such
Borrower  is free  and  clear  of all  Liens of any  nature  whatsoever,  except
Permitted Liens.

            SECTION 3.09. LICENSES, MATERIAL AGREEMENTS,  INTELLECTUAL PROPERTY.
(a) Such  Borrower  has  obtained all  material  Governmental  Approvals,  which
Governmental  Approvals are necessary or appropriate  for the  construction  and
operation of the Systems as are  presently  operating,  as  contemplated  in the
Milestone  Plan,  other  than  immaterial   municipal  business  permits.   Such
Governmental  Approvals are correctly  listed on SCHEDULE 3.09(a) and constitute
the only Governmental  Approvals  required in connection with the Systems as are
presently  operating.  All  Governmental  Approvals of such Borrower are in full
force and effect,  are duly issued in the name of, or validly  assigned to, such
Borrower and such Borrower has the power and authority to operate thereunder.

            (b) SCHEDULE  3.09(b)  accurately and completely  lists all material
agreements to which such Borrower is a party, including, without limitation, all
purchase agreements,  construction contracts, right of way or right of occupancy
agreements,  lease agreements,  consulting,  employment,  management and related

                                       49
<PAGE>

agreements.  All of the foregoing  agreements are valid,  subsisting and in full
force and effect and none of such Borrower,  or, to the best of such  Borrower's
knowledge and belief,  any other parties,  are in material  default  thereunder.
Such Borrower has given true and complete  copies of all such  agreements to the
Agent and the Lenders.

            (c) Such  Borrower  owns or possesses  all the patents,  trademarks,
service marks, trade names, copyrights and licenses, and all rights with respect
to the foregoing (the "INTELLECTUAL PROPERTY"), necessary for the conduct of its
business as presently  conducted  without any known  conflict with the rights of
others.  SCHEDULE  3.09(c)  accurately  and  completely  lists all  Intellectual
Property owned or possessed by or licensed to such  Borrower.  Such Borrower has
entered into  Intellectual  Property  Documents with respect to its Intellectual
Property, as requested by the Collateral Agent.

            SECTION 3.10.  COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE
3.10, the operations of such Borrower  comply in all material  respects with all
applicable federal, state or local laws and regulations, including Environmental
Laws. Except as disclosed on SCHEDULE 3.10, to such Borrower's  knowledge,  none
of the operations of such Borrower is subject to any judicial or  administrative
proceeding alleging the violation of any Environmental Laws. Except as disclosed
on SCHEDULE 3.10,  such Borrower  neither knows nor reasonably  should know that
any of the  operations  of such  Borrower  is the  subject  of  federal or state
investigation  evaluating  whether any Remedial Action is needed to respond to a
Release.  Except as disclosed on SCHEDULE 3.10,  such Borrower has not filed any
notice  under any  federal or state law  indicating  past or present  treatment,
storage or  disposal  of a hazardous  waste or  reporting  a Release.  Except as
disclosed on SCHEDULE 3.10,  such Borrower has no contingent  liability of which
such Borrower has knowledge or  reasonably  should have  knowledge in connection
with any Release.

            SECTION 3.11. ERISA. None of such Borrower or any ERISA Affiliate of
such Borrower  maintains or  contributes to any Plan other than a Plan listed on
SCHEDULE 3.11 hereto.  Each Plan which is intended to be qualified under Section
401(a) of the IRC has been  determined by the IRS to be so  qualified,  and each
trust  related to any such Plan has been  determined  to be exempt from  federal
income tax under  Section  501(a) of the IRC.  Except as  disclosed  on SCHEDULE
3.11, none of such Borrower or any ERISA  Affiliate  maintains or contributes to
any  employee  welfare  benefit plan within the meaning of Section 3(1) of ERISA
which provides  benefits to employees after termination of employment other than
as  required  by  Section  601 of  ERISA.  None of such  Borrower  or any  ERISA
Affiliate  has  breached  any of the  responsibilities,  obligations  or  duties
imposed on it by ERISA or regulations promulgated thereunder with respect to any

                                       50
<PAGE>

Plan  which  breach  could  result in a  Material  Adverse  Effect.  No Plan has
incurred any accumulated  funding deficiency (as defined in Section 302(a)(2) of
ERISA and Section 412(a) of the IRC), whether waived or not waived. None of such
Borrower or any ERISA  Affiliate  nor any  fiduciary  of any Plan which is not a
Multiemployer  Plan (i) has  engaged  in a  nonexempt  "prohibited  transaction"
described  in Section 406 of ERISA or Section  4975 of the IRC or (ii) has taken
or failed to take any action which would  constitute  or result in a Termination
Event.  None of such Borrower or any ERISA  Affiliate has incurred any liability
to the PBGC  which  remains  outstanding  and which  could  result in a Material
Adverse  Effect,  other than the payment of  premiums,  and there are no premium
payments  which have become due which are unpaid.  Schedule B to the most recent
annual  report  filed  with the IRS with  respect to each Plan is  complete  and
accurate.  Since the date of each such  Schedule  B,  there has been no  adverse
change in the funding status or financial condition of the Plan relating to such
Schedule B. None of such Borrower or any ERISA  Affiliate has (i) failed to make
a  required  contribution  or  payment  to a  Multiemployer  Plan or (ii) made a
complete  or  partial  withdrawal  under  Sections  4203 or 4205 of ERISA from a
Multiemployer  Plan.  None of such Borrower or any ERISA Affiliate has failed to
make a required  installment or any other required  payment under Section 412 of
the IRC on or before the due date for such installment or other payment. None of
such Borrower or any ERISA  Affiliate is required to provide  security to a Plan
under Section  401(a)(29) of the IRC due to a Plan  amendment that results in an
increase in current liability for the plan year.

            SECTION 3.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
Act.  Such Borrower is not an  "investment  company" as that term is defined in,
and is not otherwise subject to regulation under, the Investment  Company Act of
1940.  Such Borrower is not a "holding  company" as that term is defined in, and
is not otherwise subject to regulation under, the Public Utility Holding Company
Act of 1935.

            SECTION  3.13.  FEDERAL  RESERVE  REGULATIONS.  Such Borrower is not
engaged principally,  or as one of its important activities,  in the business of
extending  credit for the purpose of  purchasing  or carrying  any margin  stock
(within the meaning of  Regulation  U of the Board of  Governors  of the Federal
Reserve System of the United  States),  and no part of the proceeds of the Loans
made to such Borrower will be used to purchase or carry any such margin stock or
to extend  credit to others for the purpose of  purchasing  or carrying any such
margin stock or for any purpose that  violates,  or is  inconsistent  with,  the
provisions of Regulation T, U or X of said Board of Governors.

            SECTION 3.14. COLLATERAL.  The security interests granted by ARTICLE
VIII  hereof,  together  with the  security  interests  granted  pursuant to the
Existing Agreement and accompanying financing statements, when duly filed in the
offices and  jurisdictions  set forth on SCHEDULE 3.14 hereof,  create valid and
perfected  first  priority  Liens  in and to the  Collateral  of such  Borrower,
enforceable against other Persons in all jurisdictions  securing the payment, as
applicable, of the Obligations hereunder. Upon filing such financing statements,
to the extent that the filing of a financing  statement is sufficient to perfect
a security  interest,  no further action is required to perfect the Liens of the
Collateral  Agent in favor of the  Lenders in the  Collateral  of such  Borrower
described in SECTION  8.01.

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<PAGE>

            SECTION 3.15. CHIEF PLACE OF BUSINESS.  As of  the Closing Date, the
chief executive  office and principal place of business address of such Borrower
is 1545  Route 206,  Bedminster,  New  Jersey  07921.  If any change in any such
location  occurs,  such Borrower shall notify the Agent and the Collateral Agent
thereof not later than ten days after the occurrence  thereof. As of the date of
execution  hereof,  the books and records of such Borrower and all chattel paper
and all  records of account are  located at the  principal  place of business or
chief  executive  office of such  Borrower  and if any  change in such  location
occurs,  such Borrower shall notify the Agent and the  Collateral  Agent thereof
not later than ten days after the occurrence thereof.

            SECTION 3.16. OTHER CORPORATE NAMES. Except as set forth on SCHEDULE
3.16,  such  Borrower  has not  used  and  does not now use and will not use any
corporate or fictitious name.

            SECTION 3.17. INSURANCE. SCHEDULE 3.17 contains a description of all
insurance which such Borrower  maintains or has maintained on its behalf. All of
such insurance is in full force and effect.

            SECTION 3.18.  MILESTONE  PLAN. The Milestone Plan  represents  good
faith  projections  of future  financial  performance  of the  Borrowers for the
periods set forth  therein.  Such document has been prepared on the basis of the
assumptions  set forth  therein,  which the Borrowers  believe are reasonable in
light of current and reasonably foreseeable business conditions.

            SECTION 3.19. CAPITALIZATION AND SUBSIDIARIES. The classes of Equity
Interests,  number of authorized  shares,  number of outstanding  shares and par
values or other  designations of the Equity Interests or other equity securities
or  beneficial  interests of such  Borrower are  correctly set forth on SCHEDULE
3.19. All the outstanding  shares of Equity Interests or other equity securities
or beneficial interests of such Borrower are duly and validly issued, fully paid
and  nonassessable,  and none of such  issued  and  outstanding  shares,  equity
securities  or  beneficial  interests  has been  issued in  violation  of, or is
subject  to,  any  preemptive  or  subscription  rights.  Except as set forth on
SCHEDULE 3.19, there are no: (A) outstanding shares of Equity Interests or other
equity securities or beneficial  interests or other securities  convertible into
or  exchangeable  for shares of Equity  Interests or other equity  securities or
other  beneficial  interests  of  such  Borrower,   (B)  outstanding  rights  of
subscription,  warrants,  calls,  options,  contracts or other agreements of any
kind,  issued,  made or granted to or with any Person under which such  Borrower
may be obligated to issue, sell, purchase, retire or redeem or otherwise acquire
or dispose of any  shares of Equity  Interests  or other  equity  securities  or
beneficial interests of such Borrower, or (C) Subsidiaries of such Borrower. KMC
Holdings beneficially owns, directly or indirectly,  all of the Equity Interests
of such Borrower.

            SECTION 3.20.  REAL PROPERTY,  LEASES AND  EASEMENTS.  Such Borrower
leases  or owns the real  property  described  on  SCHEDULE  3.20.  Set forth on
SCHEDULE  3.20  is a list of (i) all  real  property  leased  or  owned  by such
Borrower (the "REAL PROPERTY") and (ii) all easements,  rights of way, rights of
occupancy,  licenses and similar rights with respect to real property granted to

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<PAGE>

such Borrower not otherwise disclosed to the Collateral Agent and the Lenders on
a title report delivered to the Collateral Agent and the Lenders pursuant to the
terms hereof  (together with all easements,  rights of way, rights of occupancy,
licenses  and  similar  rights  with  respect to real  property  granted to such
Borrower which are so disclosed,  collectively, the "EASEMENTS"). Also set forth
on SCHEDULE 3.20 is a street  address of the Real Property  locations  described
above,  including a description of such  properties'  current use. Except as set
forth in SCHEDULE 3.20, such  Borrower's  interests in the Real Property and the
Easements are  sufficient in order for such Borrower to conduct its business and
operations as presently conducted.

            SECTION  3.21.  SOLVENCY.  After giving  effect to any Loans made to
such Borrower hereunder, the disbursement of the proceeds of such Loans pursuant
to such Borrower's  instructions and the execution,  delivery and performance of
each of the Loan Documents and transactions  contemplated thereby, such Borrower
is Solvent and is not contemplating  either the filing of a petition by it under
any state or federal  bankruptcy or insolvency laws or the liquidation of all or
a  substantial  portion  of its  property,  and has no  knowledge  of any Person
contemplating the filing of any such petition against such Borrower.

            SECTION  3.22.  BROKERS,  ETC.  Such Borrower has not dealt with any
broker, finder,  commission agent or other similar Person in connection with the
Loans or the transactions being effected  contemporaneously with this Agreement,
and such Borrower covenants and agrees to indemnify and hold harmless the Agent,
the  Collateral  Agent and the  Lenders  from and  against,  any  broker's  fee,
finder's fee or commission in connection with such transactions.

            SECTION  3.23.  NO  MATERIAL  MISSTATEMENTS.   Neither  any  report,
financial  statement,  exhibit  or  schedule  furnished  by or on behalf of such
Borrower to the Agent, the Collateral Agent or any Lender in connection with the
negotiation of this Agreement and the other Loan Documents or included herein or
therein,  nor any other  information  required to be  furnished  pursuant to the
provisions of ARTICLE V hereof,  contains any material  misstatement  of fact or
omits to state any material fact  necessary to make the  statements  therein not
materially misleading.

            SECTION 3.24.  YEAR 2000  PROBLEMS.  Each Borrower has completed and
implemented a Year 2000 Corrective Plan and Year 2000  Corrective  Actions,  has
completed  Year 2000  Implementation  Testing and has  eliminated  all Year 2000
Problems,  except where the failure to correct the same could not  reasonably be
expected to have a Material Adverse Effect.

                                   ARTICLE IV
                              CONDITIONS FOR LOANS

            The  obligations of each Lender to make Loans  hereunder are subject
to the accuracy,  as of the Closing Date and as of the date of making of each of
the  Loans  after  the  Closing  Date,  of the  representations  and  warranties
contained in ARTICLE III (except that any  representations  or  warranties  that
relate to a  specified  date shall only be  reaffirmed  as of such date) and the

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<PAGE>

other Loan Documents,  to the performance by each Borrower of its obligations to
be  performed  hereunder  on or  before  the  date  of  such  Loan  and  to  the
satisfaction of the following further conditions:

            SECTION 4.01.  CONDITIONS  PRECEDENT TO INITIAL LOAN ON OR AFTER THE
CLOSING  DATE.  In the  case of the  Loans  to be made on the  Closing  Date and
Letters of Credit to be issued or Credit Support for any Letters of Credit to be
incurred on the Closing Date:

            (a) All then applicable legal matters incident to this Agreement and
the other Loan Documents shall be reasonably satisfactory to Counsel.

            (b) The Agent and the Collateral  Agent , as applicable,  shall have
received  payment in full of the fees set forth in the Fee Letters,  and all the
other  documented  out-of-pocket  costs  and  expenses  of  the  Agent  and  the
Collateral  Agent incurred on or prior to the Closing Date,  including,  without
limitation, reasonable attorneys' and paralegals' fees and expenses and the fees
and  expenses  incurred in  connection  with  preparation  of any  environmental
audits;

            (c) (1) The Agent and the  Collateral  Agent shall have received the
following  items,  in each case in form and substance  satisfactory to the Agent
and the Collateral Agent:

               (i)  the Financials;

               (ii) the  Milestone   Plan  showing  in  reasonable   detail  and
                    specifying  any  material  underlying  assumptions,  for the
                    subsequent nine (9) year period, the Borrower's  anticipated
                    revenues and expenses and projected  statements of cash flow
                    and   information   with   respect  to   projected   capital
                    expenditures  and  changes  in  working  capital  over  such
                    period,  and a detailed  Systems  construction  and buildout
                    schedule;

               (iii)certificates  substantially in the form of EXHIBITS J-1, and
                    J-2 hereto,  dated the Closing  Date,  of the  secretary  or
                    assistant  secretary  of each of the  Borrowers  or the sole
                    members of the Borrowers,  as applicable,  and KMC Holdings,
                    certifying  (A) (1) the  names  and true  signatures  of the
                    officers  authorized to sign each Loan Document to which any
                    Borrower or KMC Holdings is a party,  (2) the resolutions of
                    the Board of Directors of each Borrower or KMC Holdings,  as
                    applicable,  approving the transactions  contemplated by the
                    Loan   Documents  to  which  each  is  a  party,   (3)  each
                    Borrower's,  or KMC Holdings' , as applicable,  bylaws,  and
                    (B) only with respect to the  certificate  of KMC  Holdings,
                    (1) true and correct copies of the Indentures,  (2) true and
                    correct  copies  of the  Management  Agreement  and  the Tax
                    Sharing Agreement and (3) evidence satisfactory to the Agent
                    and the  Collateral  Agent that Holdings III has either been
                    dissolved or merged into KMC Holdings;

                                       54
<PAGE>

               (iv) the  written  opinions  of  special,  regulatory  and  local
                    counsel  for the  Borrowers  and  KMC  Holdings,  dated  the
                    Closing Date,  addressed to the Agent,  the Collateral Agent
                    and the Lenders  satisfactory  to (and  containing only such
                    qualifications  and  limitations  as  are  satisfactory  to)
                    Counsel,  which opinions shall be substantially in the forms
                    set  forth  in  EXHIBITS  K-1,  K-2  and  K-3, respectively,
                    attached hereto;

               (v)  certificates of appropriate  public officials dated not more
                    than 30 days  prior to the  Closing  Date,  as to the  legal
                    existence  or  qualification,  and  good  standing  of  each
                    Borrower and KMC Holdings from such Person's jurisdiction of
                    organization  and from the jurisdiction in which such Person
                    has its principal place of business;

               (vi) each Borrower's and KMC Holdings' Certificate or Articles of
                    Incorporation   (or  other   constituent  or  organizational
                    documents,  as the case may be),  in each case,  as amended,
                    modified or  supplemented  on or prior to the Closing  Date,
                    each  certified  to be true,  correct  and  complete  by the
                    Secretary  of State of the  state in which  such  Person  is
                    organized;

               (vii)the General Reaffirmation and Modification  Agreement in the
                    form of EXHIBIT T hereto duly  executed and delivered by the
                    Borrowers and KMC Holdings;

               (viii) the Term B Loan Notes duly  executed and  delivered by the
                    Borrowers;

               (ix) this Agreement duly executed and delivered by the Borrowers;
                    and

               (x)  Addenda to that certain Trademark  Security  Agreement dated
                    as of December 22, 1998 between the Borrowers other than KMC
                    III,  Leasing  III,   Telecom.com  and  Services,   and  the
                    Collateral  Agent,  duly  executed and delivered by KMC III,
                    Leasing III, Telecom.com and Services.

            (2) The Collateral  Agent shall have received the following items in
each case in form and substance satisfactory to the Collateral Agent:

               (i)  Pledge Supplement duly executed by KMC Holdings with respect
                    to the Equity Interests of KMC III and Telecom.com, together
                    with, in each case, for all such Equity  Interests which are
                    certificated,  stock  certificates  and undated stock powers
                    executed in blank in form and substance  satisfactory to the
                    Collateral Agent and for all such Equity Interests which are
                    limited liability company interests, pledge instructions and

                                       55
<PAGE>

                    initial   transaction   statements  in  form  and  substance
                    satisfactory to the Collateral Agent;

               (ii) a Pledge  Agreement duly executed by KMC III with respect to
                    the Equity  Interests of Leasing III and Services,  together
                    with for all such Equity  Interests which are  certificated,
                    stock  certificates  and undated  stock  powers  executed in
                    blank in form and substance  satisfactory  to the Collateral
                    Agent and for all such  Equity  Interests  which are limited
                    liability company interests, pledge instructions and initial
                    transaction statements in form and substance satisfactory to
                    the Collateral Agent;

               (iii)loss  payable  endorsements  substantially  in the  form  of
                    EXHIBIT M attached  hereto with  respect to each  Borrower's
                    insurance policies relating to the Collateral, and insurance
                    certificates  required by SECTION  5.04(g)  from  nationally
                    recognized insurance brokers with respect to each Borrower's
                    insurance policies;

               (iv) with respect to each  Borrower's  then  existing  Collection
                    Accounts, Restricted Account Agreements substantially in the
                    form of such agreements  executed and delivered  pursuant to
                    the  Existing  Agreement,  copies of which are  attached  as
                    EXHIBIT N hereto,  duly executed by the applicable  Borrower
                    and the financial  institutions  maintaining  the Collection
                    Accounts (except to the extent previously delivered pursuant
                    to the Existing Agreement);

               (v)  Addenda  to  the  Collateral  Assignment  of  Licenses  duly
                    executed by KMC III, Leasing III,  Telecom.com and Services,
                    and  an  updated  Schedule  I  thereto  certified  as  being
                    complete  and correct by all the  Borrowers,  together  with
                    consents to  assignment  of licenses and rights from Persons
                    designated  by the  Collateral  Agent duly  executed by such
                    Persons,  including  agreements as to default notices,  cure
                    rights, waiver of lien rights,  conveyance of nondisturbance
                    rights and other terms satisfactory to the Collateral Agent;

               (vi) Addenda to the Collateral Assignment of Leases duly executed
                    by KMC III,  Leasing III,  Telecom.com and Services,  and an
                    updated  Schedule I thereto  certified as being complete and
                    correct by all the  Borrowers,  together  with  consents  to
                    assignment,   duly  executed  by  the  appropriate  Persons,
                    including  agreements  as to default  notices,  cure rights,
                    waiver of lien rights,  conveyance of nondisturbance  rights
                    and other terms  satisfactory  to the Collateral  Agent with
                    respect  to  those  leased   properties   specified  by  the
                    Collateral Agent, together with landlord waivers in the form

                                       56
<PAGE>

                    of EXHIBIT D hereto  executed  by the  appropriate  landlord
                    with  respect to those  leased  properties  specified by the
                    Collateral Agent;

               (vii)Completed   environmental   questionnaires   and   indemnity
                    agreement executed by KMC III, Leasing III,  Telecom.com and
                    Services and Phase I  Environmental  Reports with respect to
                    premises described on Schedule 3.10 (if any); and

               (viii)  Access  Agreements   executed  and  delivered  by  Kamine
                    Development Corp. with respect to KMC III's, Leasing III's ,
                    Telecom.com's  and Services'  premises located at 1545 Route
                    206, Suite 300, Bedminster, New Jersey in form and substance
                    satisfactory to the Collateral Agent.

            (d) The Agents or the Collateral  Agent,  as applicable,  shall have
satisfactorily  completed  their review of any Lucent  Purchase  Agreement,  any
Additional Purchase Agreements, construction and maintenance contracts, right of
way  agreements  and  interconnection  agreements  related to the Systems  being
financed with the Loans made on the Closing Date.

            (e) The Collateral Agent shall have received  evidence  satisfactory
to the Collateral Agent that the Collateral  Agent's  security  interests in the
Collateral have been properly  perfected and constitute first and prior security
interests  subject only to Permitted Liens,  including by (i) filing  Mortgages,
the  Collateral  Assignment of Licenses,  the  Collateral  Assignment of Leases,
leasehold  mortgages  and  UCC-1  financing   statements   (including,   without
limitation,  fixture  filings) in certain  filing and  recording  offices,  (ii)
filing  the  Trademark  Security  Agreement  in the  United  States  Patent  and
Trademark  Office,  (iii)  obtaining  consents to the Collateral  Assignments of
Licenses and the Collateral  Assignments of Leases and (iv) taking possession of
stock  certificates  and other  instruments,  in each case,  as requested by the
Collateral Agent.

            (f) The Collateral Agent shall have received  evidence  satisfactory
to the  Collateral  Agent,  including  the results of searches  conducted in the
mortgage  recording,   UCC,  tax  Lien  and  judgment  filing  records  in  each
appropriate  filing office or jurisdiction,  that there are no Liens against the
Collateral except Permitted Liens.

            (g) The Agent shall have received evidence satisfactory to the Agent
that no Borrower  has any Debt other than as  described in SECTION 6.13 and that
the holders of any such Debt  described in CLAUSES (v) and (vii) of SECTION 6.13
have executed subordination and standstill agreements satisfactory to the Agent.

            (h) The Collateral Agent, as it may require,  shall have obtained or
waived in writing with respect to each real estate and material  equipment lease
and each mortgage of any Borrower  relating to the Systems  being  financed with
the initial Loan made after the Closing  Date (i) the right from the  applicable
lessors  and  mortgagees  to cure all  payment  defaults  under such  leases and

                                       57
<PAGE>

mortgages by making payment  directly to the  applicable  lessors and mortgagees
and (ii) landlord  waivers and consents,  as the  Collateral  Agent may require,
with respect to each leased facility.

            (i)  The  Agents  shall  have  satisfactorily  completed  their  due
diligence  investigation  of the  Borrowers  and the Systems and the  Borrowers'
other assets,  and their respective  officers and directors  including,  without
limitation,  environmental  reviews,  engineering  reviews,  review of  material
agreements of the Borrowers and review of easement matters.

            (j) All right of way  agreements  with  respect to each System under
construction  shall be  sufficient  to allow full  operation  of such System and
shall,  upon request of the  Collateral  Agent,  be assignable to the Collateral
Agent or its designee.

            (k) Lucent  shall have  executed  and  delivered  to the  Collateral
Agent, in form and substance  satisfactory to the Agents, a reaffirmation of the
Consent and  Subordination  Agreement dated December 22, 1998 among Lucent,  the
Borrowers other than KMC III,  Leasing III,  Telecom.com  and Services,  and the
Collateral Agent.

            (l) The obligations of KMC III and Leasing III under the Lucent Loan
Agreement  shall be discharged in full with the proceeds of the Loans to be made
on the Closing Date.

            SECTION 4.02. CONDITIONS PRECEDENT TO ALL LOANS. In the case of each
Loan  hereunder and the  obligation to issue Letters of Credit or provide Credit
Support therefor:

            (a) The representations and warranties of each Borrower set forth in
ARTICLE  III or in any other  Loan  Document  shall be true and  correct  in all
material  respects  on and as of the date of such Loan  with the same  effect as
though such representations and warranties had been made on and as of such date,
except that any  representations  or warranties  that relate to a specified date
shall only be reaffirmed as of such date.

            (b) At the time of each such Loan,  and after giving  effect to such
Loan, each Borrower shall be in compliance with all the terms and provisions set
forth herein on its part to be observed or performed, and no Event of Default or
Default shall have occurred and be continuing.

            (c) At the time of each such Loan and  after  giving  effect to each
such Loan,  there shall have been no material  adverse  change in the  condition
(financial or  otherwise),  operations,  properties or prospects of any Borrower
since the date of the Financials.

            (d) Such  Loan,  when  combined  with Loans  previously  made to the
Borrowers, shall not exceed the Commitment Amount.

            (e) All legal matters  incident to such Loan and the Loan  Documents
shall be satisfactory to Counsel.

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            (f) The Agent shall have received a Notice of Borrowing for the Loan
and acceptance certificate and invoices required by SECTION 2.03.

            (g) The  Collateral  Agent  shall have first  priority  Liens on all
personal and real  property  assets that comprise or relate to each System to be
funded by such Loan, shall have received collateral  assignments of all material
third party agreements relating to such Systems,  consented to by the applicable
third  parties,  as requested by the Collateral  Agent,  and shall have received
evidence  that all  necessary  Governmental  Approvals for such System have been
obtained.

            (h) The  Collateral  Agent shall have  received  copies of such lien
waivers and other  acknowledgments  from Persons  constructing the Systems,  any
subcontractors  or vendors  (including  Lucent or each  Additional  Vendor) with
respect  to  the  construction  of  the  Systems  as the  Collateral  Agent  may
reasonably request.

            (i) All fees and expenses which are due and payable to the Agent and
the  Collateral  Agent on or prior to the date of the advance of such Loan shall
have been paid.

            (j) The Agents or the Collateral  Agent,  as applicable,  shall have
satisfactorily  completed  their review of any Additional  Purchase  Agreements,
construction  and  maintenance  contracts  related to the Systems being financed
with such Loan and the interconnection agreements for each System being financed
with such Loan.

            (k) The  Collateral  Agent shall have  obtained or waived in writing
with respect to each real estate and material  equipment  lease,  each mortgage,
and each material third party  agreement  relating to the Systems being financed
with such Loan (i) the right from the applicable  lessors and mortgagees to cure
all payment defaults under such leases and mortgages by making payments directly
to the applicable  lessors and mortgagees,  as the Collateral Agent may request,
(ii) landlord waivers and consents,  as the Collateral  Agent may require,  with
respect to each leased facility, and (iii) consents to collateral assignment, as
the Collateral Agent may require, with respect to each such material third party
agreement.

            (l) There shall not have occurred in the opinion of the Agents,  any
material  adverse  change in any two of the three  members of  Borrower's or KMC
Holdings'  senior  management  team,  which shall  comprise its Chief  Executive
Officer, Chief Financial Officer and Chief Operating Officer.

            (m) If a Loan is requested to finance Aged Equipment, the Collateral
Agent, if it so elects,  shall have obtained an appraisal of such Aged Equipment
from an appraiser  selected by the Collateral  Agent,  which  appraisal shall be
satisfactory  to the  Collateral  Agent and the cost of which  shall be borne by
such Borrower.

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                                   ARTICLE V
                              AFFIRMATIVE COVENANTS

            Each Borrower  covenants  and agrees that so long as this  Agreement
shall remain in effect,  any  Commitment  hereunder  shall be outstanding or any
Obligations  hereunder  or under any of the other  Loan  Documents  are  unpaid,
unless the Requisite Lenders shall have otherwise given prior written consent:

            SECTION 5.01. CORPORATE AND FRANCHISE EXISTENCE. Such Borrower shall
preserve and maintain its corporate existence, rights, franchises,  licenses and
privileges  in  the  jurisdiction  of  its   organization,   and  in  all  other
jurisdictions  in which such  qualification is necessary in view of its business
and  operations  and property and  preserve,  protect and keep in full force and
effect its material rights and its Governmental Approvals.

            SECTION 5.02.  COMPLIANCE WITH LAWS, ETC. Such Borrower shall comply
in all  material  respects  with  all  laws and  regulations  applicable  to it,
including,  without limitation,  Environmental Laws, regulations  promulgated by
the FCC and any PUC, and other telecommunications laws and regulations,  and all
material contractual obligations applicable to it.

            SECTION 5.03. MAINTENANCE OF PROPERTIES.  Such Borrower shall at all
times maintain in good repair,  working order and condition,  excepting ordinary
wear and tear,  all of its  properties  material to its  operations and make all
appropriate repairs,  replacements and renewals thereof, in each case consistent
with prudent industry  practices and sound business judgment and with respect to
the  maintenance  of machinery  and  equipment,  in compliance  with  applicable
government  regulations,  manufacturers'  warranty  requests  and any  licensing
requirements.

            SECTION 5.04. INSURANCE.

            (a)  COVERAGE.  Without  limiting  any of the other  obligations  or
liabilities of such Borrower under this Agreement, such Borrower shall carry and
maintain,   and  require  each  contractor   retained  in  connection  with  the
construction  of any System to carry and maintain,  each at its own expense,  at
least the  minimum  insurance  coverage  set forth in this  SECTION  5.04.  Such
Borrower  shall also carry and maintain any other  insurance that the Collateral
Agent may reasonably  require from time to time. All insurance  carried pursuant
to this SECTION 5.04 shall be placed with such  insurers  that have an A.M. Best
rating of A:X or better,  or as may be acceptable to the Collateral  Agent. Such
coverage shall be in such form, with terms,  conditions,  limits and deductibles
as shall be acceptable to the Collateral Agent.

            (b) CONSTRUCTION  PERIOD.  During the period from, and including the
commencement of  construction of any System,  to and including the completion of
construction  of any  System,  such  Borrower  shall  maintain in full force and
effect,  pay all premiums  when due in respect of, and comply with all terms and
conditions of the following coverages:

            (i) ALL RISK BUILDER'S  RISK.  Such Borrower shall maintain all risk
      builder's risk insurance  covering  physical loss or damage to such System

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      including,  but not  limited  to, fire and  extended  coverage,  collapse,
      flood,  earth  movement  and  windstorm,   and  comprehensive  boiler  and
      machinery  coverage  (including  electrical   malfunction  and  mechanical
      breakdown).  Such insurance shall cover all property  during  construction
      and testing,  as well as any and all  materials,  equipment  and machinery
      intended for such System during  off-site  storage and inland transit and,
      if necessary,  during ocean and air transit. All transit coverage shall be
      on a "warehouse to warehouse"  basis.  The all risk  builder's risk policy
      shall be written  on a  replacement  cost basis for the full  construction
      cost of such System or in an amount acceptable to the Collateral Agent and
      shall  contain  an  agreed  amount  endorsement  waiving  any  coinsurance
      penalty.  Coverage  shall not exclude  resultant  damage  caused by faulty
      workmanship,  design or  materials  nor  shall it  exclude  machinery  and
      equipment under guarantee or warranty; and

            (ii) DELAY IN START-UP.  As an  extension  of the coverage  required
      under  SUBSECTION  (B)(i) or as a separate  policy,  such  Borrower  shall
      maintain  delay in  start-up  insurance  covering  net  profits  (if any),
      continuing  expenses and debt service  payments  resulting  from delays in
      achieving the completion date for the construction of any System caused by
      (i) physical loss or damage to such System during construction or testing,
      (ii) loss or damage to equipment while in ocean,  air or inland transit or
      (iii) loss or damage to  equipment  while in  storage  away from the site.
      Contingent  delay in  start-up  coverage  shall also be  included to cover
      delay caused by damage to critical path items while under  manufacture  or
      at the supplier's premise.  Such extension or separate policy shall have a
      period of  indemnity  of not less than  twelve  (12) months with an agreed
      amount  limit  not  less  than  $20,000,000  combined  property,  delay in
      start-up and extra  expense per System and shall  contain an agreed amount
      endorsement  waiving any coinsurance  penalty.  Such extension or separate
      policy  shall also cover  expediting  expenses  in an amount not less than
      $1,000,000. Deductibles may not exceed seven (7) days; and

            (iii)  COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY.  Such Borrower
      shall maintain  comprehensive  general  liability  insurance written on an
      occurrence  basis with a limit of liability not less than  $1,000,000  per
      occurrence and $2,000,000 in the  aggregate.  Coverage shall include,  but
      not  be  limited  to,   premises/operations,   explosion,   collapse,  and
      underground  hazards,  broad  form  contractual,  independent  contractors
      products/completed  operations,  broad form property damage,  and personal
      injury  liability.  Such insurance shall not exclude coverage for punitive
      or exemplary damages where insurable by law; and

            (iv) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY. Such Borrower shall
      maintain  workers'  compensation  insurance in accordance  with  statutory
      provisions covering accidental injury,  illness or death of an employee of
      such Borrower while at work or in the scope of his or her employment  with
      such  Borrower and  employer's  liability  insurance in an amount not less
      than $500,000.  Such coverage shall not contain any  occupational  disease
      exclusions; and

            (v) AUTOMOBILE  LIABILITY.  Such Borrower shall maintain  automobile
      liability insurance covering owned,  non-owned,  leased, hired or borrowed

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      vehicles  against  bodily injury or property  damage.  Such coverage shall
      have a limit of not less than $1,000,000; and

            (vi) EXCESS/UMBRELLA  LIABILITY. Such Borrower shall maintain excess
      or umbrella  liability  insurance  in an amount not less than  $30,000,000
      written on an occurrence basis providing  coverage limits in excess of the
      insurance limits required under SECTION 5.04(B)(iii),  (B)(iv) (employer's
      liability only), and (b)(v).  Such insurance shall follow from the primary
      insurances and drop down in case of exhaustion of underlying limits and/or
      aggregates.  Such  insurance  shall not exclude  coverage  for punitive or
      exemplary damages where insurable by law.

            (c) CONTRACTOR  INSURANCE  COVERAGE.  Such Borrower shall cause each
contractor  retained in connection with the  construction of any System to carry
and maintain,  in full force and effect,  such  insurance and such bonds as such
contractor is required to maintain pursuant to the following:

            (i) COMPREHENSIVE OR COMMERCIAL GENERAL  LIABILITY.  Such contractor
      shall maintain  comprehensive  general  liability  insurance  covering the
      construction of such System written on an occurrence basis with a limit of
      liability not less than  $5,000,000.  Coverage shall  include,  but not be
      limited to,  premises/operations,  explosion,  collapse,  and  underground
      hazards,   sudden  and  accidental  pollution,   broad  form  contractual,
      independent  contractors,   products/completed   operations,   broad  form
      property  damage,  and personal  injury  liability.  Such insurance may be
      written in any  combination  of primary  and  excess/umbrella  forms.  The
      products/completed  operations  coverage  shall be  extended to cover such
      System for two years after completion of such System. Such insurance shall
      not exclude coverage for punitive or exemplary  damages where insurable by
      law; and

            (ii) WORKERS'  COMPENSATION/EMPLOYER'S  LIABILITY.  Such  contractor
      shall  maintain  workers'   compensation   insurance  in  accordance  with
      statutory  provisions covering  accidental injury,  illness or death of an
      employee  of such  contractor  while at work or in the scope of his or her
      employment with such contractor and employer's  liability  insurance in an
      amount not less than $5,000,000  written in any combination of primary and
      excess/umbrella policies, and

            (iii)   AUTOMOBILE   LIABILITY.   Such  contractor   shall  maintain
      automobile liability insurance covering owned, non-owned, leased, hired or
      borrowed vehicles against bodily injury or property damage.  Such coverage
      shall have a limit of not less than $5,000,000  written in any combination
      of primary and excess/umbrella policies.

            (d)  OPERATIONS  PERIOD.  Beginning on the  completion  date of each
System,  such Borrower shall maintain in full force and effect, pay all premiums
when due in  respect  of,  and  comply  with all  terms  and  conditions  of the
following insurance coverages for each System.

            (i) ALL RISK PROPERTY  INSURANCE.  Such Borrower  shall maintain all
      risk  property  insurance  covering such System  against  physical loss or

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<PAGE>

      damage, including but not limited to fire and extended coverage, collapse,
      flood,  earth  movement  and  windstorm,   and  comprehensive  boiler  and
      machinery  coverage  (including  electrical   malfunction  and  mechanical
      breakdown).  Such insurance  shall cover each and every  component of such
      System and shall not contain any exclusion for resultant  damage caused by
      faulty  workmanship,  design or materials.  Coverage shall be written on a
      replacement  cost basis with  property,  business  interruption  and extra
      expense  insurance in a combined  amount of $30,000,000  per System.  Such
      insurance  policy shall contain an agreed amount  endorsement  waiving any
      coinsurance penalty; and

            (ii) BUSINESS INTERRUPTION. As an extension of the coverage required
      under  SECTION   5.04(d)(i),   such  Borrower  shall   maintain   business
      interruption  insurance  in an agreed  amount  equal to twelve (12) months
      projected  loss of net  profits,  continuing  expenses  and  debt  service
      payments of such  System and shall  contain an agreed  amount  endorsement
      waiving  any  coinsurance   penalty.   Contingent  business   interruption
      insurance  shall  also be  included  to  cover  the  major  suppliers  and
      customers of the  Borrowers.  Coverage  shall be included  for  expediting
      expenses in an amount not less than $1,000,000.  Such insurance shall also
      cover service  interruption.  Deductibles shall not exceed seven (7) days;
      and

            (iii) COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY INSURANCE.  Such
      Borrower shall maintain  comprehensive general liability insurance written
      on an  occurrence  basis  with a limit of not  less  than  $1,000,000  per
      occurrence and  $2,000,000 in the aggregate.  Such coverage shall include,
      but  not  be  limited  to,   premises/operations,   explosion,   collapse,
      underground  hazards,  contractual  liability,   independent  contractors,
      products/completed   operations,   property  damage  and  personal  injury
      liability.  Such  insurance  shall not exclude  coverage  for  punitive or
      exemplary damages where insurable by law; and

            (iv) WORKERS' COMPENSATION/EMPLOYER'S LIABILITY. Such Borrower shall
      maintain  workers'  compensation  insurance in accordance  with  statutory
      provisions covering accidental injury,  illness or death of an employee of
      such Borrower while at work or in the scope of his or her employment  with
      such  Borrower and  employer's  liability  insurance in an amount not less
      than $500,000.  Such coverage shall not contain any  occupational  disease
      exclusions; and

            (v) AUTOMOBILE  LIABILITY.  Such Borrower shall maintain  automobile
      liability insurance covering owned,  non-owned,  leased, hired or borrowed
      vehicles  against  bodily injury or property  damage.  Such coverage shall
      have a limit of not less than $1,000,000; and

            (vi) EXCESS/UMBRELLA  LIABILITY. Such Borrower shall maintain excess
      or umbrella  liability  insurance  in an amount not less than  $30,000,000
      written on an occurrence basis providing  coverage limits in excess of the
      insurance limits required under SECTIONS 5.04(d)(iii), (d)(iv) (employer's
      liability only), and (d)(v).  Such insurance shall follow from the primary
      insurances and drop down in case of exhaustion of underlying limits and/or

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<PAGE>

      aggregates.  Such  insurance  shall not exclude  coverage  for punitive or
      exemplary damages where insurable by law.

            (e)  ENDORSEMENTS.  Such Borrower shall cause all insurance  carried
and maintained in accordance with this SECTION 5.04 to be endorsed as follows:

          (i) Such Borrower shall be the named insured and the Collateral  Agent
     shall be an  additional  insured  and loss payee with  respect to  policies
     described in SECTION 5.04(b)(i), (b)(ii), (d)(i) and (d)(ii). Such Borrower
     shall be the named insured and the Collateral  Agent shall be an additional
     insured with respect to policies described in SECTION 5.04(b)(iii), (b)(v),
     (b)(vi),  (d)(iii),  (d)(v) and (d)(vi).  Such Borrower and the  Collateral
     Agent  shall  be  additional  insureds  under  all  insurances  carried  by
     contractors  under  SECTION  5.04(c)  to the  extent  allowed  by law.  All
     policies  shall  provide that any  obligation  imposed  upon such  Borrower
     and/or any  contractor,  including but not limited to the obligation to pay
     premiums,  shall  be the  sole  obligation  of  such  Borrower  and/or  the
     contractor and not that of the Agent,  the Collateral  Agent or any Lender;
     and

          (ii) with  respect to policies  described  in SECTION  5.04(b)(i)  and
     (b)(ii),  and (d)(i) and (d)(ii),  the  interests of the  Collateral  Agent
     shall not be invalidated by any action or inaction of such Borrower, or any
     other  Person,  and shall insure the  Collateral  Agent  regardless  of any
     breach or violation by such  Borrower,  any contractor or any other Person,
     of any warranties, declarations or conditions of such policies, and

          (iii)  inasmuch as the  liability  policies  are written to cover more
     than  one  insured,   all  terms,   conditions,   insuring  agreements  and
     endorsements,  with the exception of the limits of liability, shall operate
     in the same  manner  as if  there  were a  separate  policy  covering  such
     insured; and

          (iv) the  insurers  thereunder  shall waive all rights of  subrogation
     against the Agent, the Collateral Agent or the Lenders, any right of setoff
     or counterclaim and any other right to deduction,  whether by attachment or
     otherwise; and

          (v) such insurance  shall be primary  without right of contribution of
     any other  insurance  carried by or on behalf of the Agent,  the Collateral
     Agent  or the  Lenders  with  respect  to their  interests  as such in such
     System; and

          (vi)  if  such  insurance  is  canceled  for  any  reason  whatsoever,
     including  nonpayment  of premium,  or any changes  are  initiated  by such
     Borrower or carrier  which affect the  interests of the  Collateral  Agent,
     such  cancellation  or change shall not be  effective as to the  Collateral
     Agent until thirty (30) days,  except in the case of non-payment of premium
     which  shall be ten (10) days,  after  receipt by the  Collateral  Agent of
     written notice sent by registered mail from such insurer.

          (f)  CERTIFICATIONS.  On the Closing Date, and at each policy renewal,
but not less than annually,  such Borrower shall provide to the Collateral Agent
approved  certification from each insurer or by an authorized  representative of
each insurer.  Such certification  shall identify the underwriters,  the type of

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insurance, the limits, deductibles, and term thereof and shall specifically list
the special  provisions  delineated for such insurance required for this SECTION
5.04.

          (g)  INSURANCE  REPORT.   Concurrently  with  the  furnishing  of  all
certificates  referred to in this SECTION 5.04,  such Borrower shall furnish the
Collateral  Agent  with  an  opinion  from  an  independent   insurance  broker,
acceptable to the Collateral Agent, stating that all premiums then due have been
paid and that, in the opinion of such broker,  the insurance then  maintained by
such Borrower is in accordance  with this section.  Furthermore,  upon its first
knowledge,  such broker shall advise the Collateral Agent promptly in writing of
any default in the payment of any premiums or any other act or omission,  on the
part of any Person, which might invalidate or render unenforceable,  in whole or
in part, any insurance provided by such Borrower hereunder.

          (h)  APPLICATION OF PAYMENTS.  All payments  received by such Borrower
from any insurance referred in SECTION 5.04(b)(i),  (b)(ii),  (d)(i) and (d)(ii)
shall be promptly  delivered  directly to the  Collateral  Agent,  which amounts
shall be applied by the  Collateral  Agent,  upon  request by such  Borrower and
provision  to  the  Collateral  Agent  of  detailed  information,   including  a
construction  schedule and cost  estimates,  which  establish to the  reasonable
satisfaction of the Collateral Agent that the amounts available and the proposed
schedule  are adequate to restore,  replace or rebuild the  property  subject to
insurance  payments in a timely  manner,  to such  restoration,  replacement  or
rebuilding  unless an Event of  Default or Default  shall have  occurred  and be
continuing or such Borrower shall have failed to make such request within thirty
(30) days after receipt of such amounts by Collateral  Agent, in which case such
amounts  shall be applied  in the  Requisite  Lenders'  sole  discretion  to the
repayment of the Obligations or such restoration, replacement or rebuilding.

          (i) GENERAL.  The Collateral Agent shall be entitled,  upon reasonable
advance  notice,  to review and/or receive  copies of such  Borrower's (or other
appropriate  party's) books and records regarding all insurance policies carried
and maintained with respect to each System and such Borrower's obligations under
this SECTION 5.04. Notwithstanding anything to the contrary herein, no provision
of this  Agreement or any other Loan  Document  shall  impose on the  Collateral
Agent, the Agent or any Lender any duty or obligation to verify the existence or
adequacy of the insurance  coverage  maintained by such Borrower,  nor shall the
Collateral Agent, the Agent or any Lender be responsible for any representations
or warranties  made by or on behalf of such  Borrower to any  insurance  broker,
company or underwriter.  The Collateral  Agent or the Agent, at its sole option,
may obtain such insurance if not provided by such Borrower;  in such event, such
Borrower shall  reimburse the Collateral  Agent or the Agent upon demand for the
cost thereof together with interest, and such costs shall constitute Obligations
secured by the Collateral.

          SECTION 5.05.  OBLIGATIONS  AND TAXES.  Such Borrower shall pay all of
its indebtedness and obligations promptly and in accordance with their terms and
pay and discharge  promptly all taxes,  assessments and governmental  charges or
levies  imposed  upon it or upon its  income or  profits  or in  respect  of its
property,  before the same shall become in default, as well as all lawful claims

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<PAGE>

for labor,  materials and supplies or otherwise which, if unpaid, might become a
Lien upon such  properties or any part  thereof;  PROVIDED,  HOWEVER,  that such
Borrower  shall not be required to pay and  discharge or to cause to be paid and
discharged  any  such  tax,  assessment,  charge,  levy or  claim so long as the
validity  or amount  thereof  shall be  contested  in good faith by  appropriate
proceedings  diligently pursued,  and such Borrower shall set aside on its books
such reserves as are required by GAAP with respect to any such tax,  assessment,
charge, levy or claim so contested.

          SECTION 5.06. FINANCIAL STATEMENTS,  REPORTS, ETC. Such Borrower shall
furnish to the Agent and the Lenders (except as otherwise provided herein):

          (a) within one hundred  twenty (120) days after the end of each fiscal
year,  annual  consolidated  and  consolidating  financial  statements  for  KMC
Holdings,  and combined  financial  statements for the Borrowers,  including the
balance sheets and statements of operations,  stockholders' equity (consolidated
only) and cash flows,  for such fiscal year,  prepared in accordance  with GAAP,
which  consolidated  financial  statements and other above  described  financial
information  shall have been  audited  by a  nationally  recognized  independent
certified public  accounting firm  satisfactory to the Agent, and accompanied by
such independent certified public accounting firm's unqualified opinion;

          (b)  within  forty-five  (45) days  after  the end of the first  three
fiscal quarters during each fiscal year and within one hundred twenty (120) days
after the end of the fourth fiscal quarter (i)  consolidated  and  consolidating
unaudited  balance  sheets  and  statements  of  operations,   and  consolidated
statements of stockholders' equity and cash flows for KMC Holdings, and combined
unaudited  balance sheets,  statements of operations,  stockholders'  equity and
cash  flows of the  Borrowers  as of the end of each  such  fiscal  quarter,  as
applicable,  and for the then  elapsed  portion  of the  fiscal  year and (ii) a
statement  of revenues  and EBITDA for the  Borrowers as of the end of each such
fiscal  quarter,  as applicable,  and for the then elapsed portion of the fiscal
year, calculated for each city where a System has been constructed in accordance
with the Milestone Plan;

          (c) within  forty-five  (45) days  after the end of each month  during
each fiscal year (or within one hundred  twenty (120) days after the end of each
December),  a detailed  statement of operations  for the Borrowers on a combined
basis  for  such  month  and   year-to-date   period  with  comparisons  to  the
corresponding  projections for such month and  year-to-date  period set forth in
the Milestone  Plan;  PROVIDED,  that such  Borrowers  shall only be required to
deliver the statement  described in this SECTION 5.06(c) on a quarterly basis at
any time that,  and only for so long as, the Borrowers on a combined  basis have
achieved positive EBITDA;

          (d) concurrently with provision of the financial  statements  referred
to in CLAUSES (a), (b) and (c) above, a certificate of KMC Holdings' independent
certified  public  accountant  or KMC  Holdings'  chief  financial  officer,  as
applicable,  to the effect that the financial  statements  referred to in CLAUSE
(a), (b) and (c) above,  present  fairly the  financial  position and results of
operations  of KMC  Holdings,  and the  Borrowers and as having been prepared in
accordance with GAAP consistently  applied,  in each case subject to normal year
end audit adjustments except for the statements referred to in CLAUSE (a) above;

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          (e)  concurrently  with the provision of (i) the financial  statements
referred to in CLAUSE (a) above and (ii) any  statements  delivered  pursuant to
CLAUSE (b) above in respect of the periods ending March 31, June 30 or September
30, a  Periodic  Reporting  Certificate  of the chief  financial  officer of KMC
Holdings setting forth the  calculations  contemplated in ARTICLE VII hereof and
certifying  as to the fact that such Person has examined the  provisions of this
Agreement  and that no Event of Default or any Default,  shall have occurred and
be  continuing  or if such an event has  occurred,  a statement  explaining  its
nature and extent and setting forth the steps the  Borrowers  propose to take to
cure such Event of Default or Default;

          (f) (i) not later than December 1 of each calendar year, consolidating
and consolidated  projected annual statements of operations,  balance sheets and
cash flow  statements  for KMC Holdings  for the  succeeding  fiscal year,  such
statements  to be reasonably  acceptable to the Agents,  and (ii) not later than
January 15 of each  calendar  year,  an annual  operating  budget on a quarterly
basis for such calendar year, with each such budget to be in compliance with the
Milestone Plan;

          (g) to the  Collateral  Agent,  all  material  agreements  or licenses
affecting  the  Governmental  Approvals of any  Borrower or any System  promptly
after any execution, or material amendment thereto;

          (h) to the Collateral Agent,  promptly upon their becoming  available,
copies of any  material  periodic  or  special  documents,  statements  or other
information  filed  by any  Borrower  with the  FCC,  PUC or other  Governmental
Authority in connection with the construction  and/or operation of any System or
with respect to the transactions  contemplated by any of the Loan Documents, and
copies of any material notices and other material  communications  from the FCC,
PUC or from any other Governmental Authority;

          (i) immediately upon any officer of any Borrower  obtaining  knowledge
of any condition or event (i) which either  constitutes an Event of Default or a
Default,  (ii) which renders any  representation  or warranty  contained  herein
materially false or misleading,  or when made,  renders any document  materially
false or  misleading,  or (iii) which would result in any financial  results for
any fiscal year to materially  deviate from the financial  results projected for
such fiscal year in the Milestone Plan or the financial projections described in
CLAUSE (f) above, a certificate signed by an authorized officer of such Borrower
specifying in reasonable  detail the nature and period of existence  thereof and
what corrective  action such Borrower has taken or proposes to take with respect
thereto;

          (j) within  thirty (30) days after the end of each fiscal year of such
Borrower,  a certificate  signed by an  authorized  officer of such Borrower (x)
setting  forth all the Real  Property,  Easements,  licenses,  rights of way and
other  similar  interests  in real  property  acquired  by such  Borrower in the
preceding  year and (y)  confirming  that no  Default  or Event of  Default  has
occurred and is continuing;

          (k)  evidence in the manner set forth in SECTION  5.04(e) of insurance
complying with SECTION 5.04;

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          (l)  following  the  written  request  of the  Agent,  not later  than
forty-five  (45) days after the end of each  fiscal  month,  reports on accounts
receivable  and accounts  payable of such  Borrower in such detail and format as
may be reasonably requested by the Agent;

          (m)  promptly  upon the  filing  thereof,  copies of all  registration
statements and annual,  quarterly,  monthly or other regular  reports which such
Borrower or KMC Holdings files with the Securities and Exchange Commission; and

          (n) promptly  from time to time such other  information  regarding the
operations  (including,  without limitation,  construction  budgeting and System
completion),  business  affairs and  condition  (financial or otherwise) of such
Borrower or KMC Holdings as the Agent may reasonably request.

          SECTION 5.07.  LITIGATION AND OTHER NOTICES.  Such Borrower shall give
the Agent prompt written notice upon obtaining  knowledge of the following:  (a)
all Events of Default  or  Defaults  and all events of default or any event that
would  become an event of default upon notice or lapse of time or both under any
of the terms or provisions of any note, or of any other evidence of indebtedness
or agreement or contract  governing the borrowing of money in excess of $250,000
in the aggregate, of such Borrower; (b) any levy, attachment, execution or other
process  against  any of the  property  or  assets,  real or  personal,  of such
Borrower in an amount in excess of $250,000;  (c) the filing or  commencement of
any  action,  suit or  proceeding  by or before  any  court or any  Governmental
Authority which, if adversely determined against such Borrower,  would result in
a Material  Adverse Effect;  (d) any material  adverse  notice,  letter or other
correspondence  of any kind from the FCC or the PUC relating to the Governmental
Approvals  or any System;  (e) any  default  under any other  material  license,
agreement  or  contract to which such  Borrower  is a party;  and (f) any matter
which has resulted in, or which such  Borrower  reasonably  believes will result
in, a Material Adverse Effect on such Borrower.

          SECTION  5.08.  MORTGAGES;   LANDLORD  CONSENTS;  LICENSES  AND  OTHER
Agreements. As security for the Obligations, such Borrower shall with respect to
each  System  (a)  promptly  execute  and  deliver to the  Collateral  Agent (1)
Mortgages in favor of and  satisfactory to the Collateral  Agent with respect to
any real  property  purchased  by such  Borrower  on which a switch  or  network
operating center is located,  and at the request of the Collateral  Agent,  with
respect to any other real  property  purchased by such  Borrower,  together with
lender's  title  policies  for  any  such  real  property  satisfactory  to  the
Collateral Agent, if requested by the Collateral Agent, (2) leasehold  mortgages
or  collateral  assignments  of  leases,   landlord  waivers  or  consents,  and
appropriate Uniform Commercial Code fixture financing  statements,  in each case
satisfactory to the Collateral Agent with respect to any real property leased by
such  Borrower and on which Switch  Equipment or a network  operating  center is
located,  and at the request of the Collateral  Agent, with respect to any other
leased real property of such Borrower,  (3) Mortgages or collateral  assignments
and  consents  satisfactory  to  the  Collateral  Agent  with  respect  to  such
Borrower's  Easements and rights of way, as requested by the  Collateral  Agent,
(4) collateral assignments of leases and lessor consents, satisfactory to and as
requested by the Collateral Agent, with respect to any long-haul fiber leased by
such Borrower and (5) with respect to each System,  collateral  assignments  and
consents to such assignments  from the applicable third Persons,  for each other
material lease, license,  contract or other agreement or instrument entered into

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by such Borrower after the date hereof,  as required by the Collateral Agent and
(b) (1) update Schedule 1 to the Collateral  Assignment of Licenses to cover all
Governmental  Approvals  obtained by such  Borrower  after the Closing  Date and
agreements  entered  into by such  Borrower  after the  Closing  Date with third
Persons,  (2) obtain  consents  to  collateral  assignments  from the  licensors
granting the Governmental  Approvals referred to in CLAUSE (b)(1) above and from
those third Persons referred to in CLAUSE (b)(1) above that are specified by the
Collateral  Agent,  such  consents to  collateral  assignment  to be in form and
substance  satisfactory to the Collateral Agent and (3) update Schedule 1 to the
Collateral Assignment of Leases to cover all leases referred to in CLAUSE (a)(2)
above.

          SECTION  5.09.  ERISA.  Such  Borrower  shall  comply in all  material
respects with the applicable  provisions of ERISA and furnish to the Agent,  (i)
as soon as  possible,  and in any  event  within  thirty  (30) days  after  such
Borrower  or any officer of such  Borrower  knows or has reason to know that any
Reportable Event with respect to any Plan has occurred or any Termination  Event
has occurred,  a statement of an officer of such Borrower  setting forth details
as to such Reportable Event or Termination  Event and the corrective action that
such Borrower proposes to take with respect thereto, together with a copy of the
notice of any such  Reportable  Event given to the PBGC, and (ii) promptly after
receipt  thereof,  a copy of any notice such  Borrower may receive from the PBGC
relating  to the  intention  of the PBGC to  terminate  any Plan or to appoint a
trustee to administer any such Plan.

          SECTION  5.10.  ACCESS TO PREMISES AND RECORDS.  Such  Borrower  shall
permit representatives of the Agents to have access to such Borrower's books and
records and to the  Collateral  and the premises of such  Borrower at reasonable
times upon reasonable notice and to make such excerpts from such records as such
representatives deem necessary and to inspect the Collateral.

          SECTION 5.11.  DESIGN AND  CONSTRUCTION.  Such Borrower  shall design,
construct,  equip and operate its Systems  substantially as previously disclosed
to  Lenders  in the  Milestone  Plan and in  accordance  with  prudent  industry
standards.

          SECTION  5.12.  ENVIRONMENTAL  NOTICES.  If such  Borrower  shall  (a)
receive written notice that any violation of any Environmental Law may have been
committed  or is about to be  committed by such  Borrower,  (b) receive  written
notice that any  administrative or judicial complaint or order has been filed or
is  about  to  be  filed  against  such  Borrower  alleging  violations  of  any
Environmental  Law or requiring  such  Borrower to take any action in connection
with any Release of any  Contaminant  into the  environment,  or (c) receive any
written notice from a Governmental Authority or private party alleging that such
Borrower may be liable or responsible for costs associated with a response to or
cleanup of a Release or any damages caused thereby,  such Borrower shall provide
the Agent with a copy of such notice  within  twenty (20)  Business Days of such
Borrower's receipt thereof.

          SECTION 5.13.  AMENDMENT OF  ORGANIZATIONAL  DOCUMENTS.  Such Borrower
shall  notify  the  Agent  and the  Collateral  Agent  of any  amendment  to its
Certificate  or  Articles of  Incorporation  or other  organizational  documents
within ten (10) days of the occurrence of any such event,  and provide the Agent
with copies of any amendments certified by the secretary of such Borrower and of

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all other relevant  documentation.  Such Borrower shall promptly  deliver to the
Collateral Agent such financing  statements  executed by such Borrower which the
Collateral Agent may request as a result of any such event.

          SECTION  5.14.  THIRD PARTY  AGREEMENTS  AND DELIVERY  AND  ACCEPTANCE
CERTIFICATES.  Such Borrower shall provide the Collateral  Agent with (i) copies
of all interconnection agreements, right of way agreements, easement agreements,
real property leases,  construction  agreements,  equipment purchase agreements,
fiber leases,  telephone line leases,  state and local franchise  agreements and
other agreements with municipalities, that in each case relate to each System of
such  Borrower,  promptly  after  execution  of each such  agreement;  PROVIDED,
HOWEVER,  that with respect to certain of the foregoing categories of agreements
specified by the Collateral  Agent,  such Borrower shall be permitted to provide
the Collateral  Agent with  inventories of the particular types of agreements in
lieu of delivering  copies of the agreements,  which inventories shall be (x) in
form and substance  satisfactory to the Collateral  Agent and (y) updated by the
applicable Borrower promptly following the execution of any additional agreement
of the  type  inventoried;  PROVIDED,  FURTHER,  HOWEVER,  that  nothing  in the
foregoing  proviso shall limit the Collateral  Agent's  ability to, at any time,
request  and  receive a copy of any third party  agreement  from the  applicable
Borrower,  and  (ii)  with  respect  to each  System,  copies  of  delivery  and
acceptance  certificates  substantially  in the form of  EXHIBIT  R hereto  with
respect to each item of  Telecommunications  Equipment with an invoiced purchase
price in excess of  $250,000,  in each  case,  where such  certificates  are not
required to be delivered to the Collateral  Agent  pursuant to SECTION  2.03(a),
promptly  after  completion  of  such  System  or  acceptance  of  such  item of
Equipment, as applicable.

          SECTION 5.15.  ACCOUNTS  PAYABLE.  Such Borrower shall pay each of its
accounts  payable in accordance with its practices as of the Closing Date but in
any event no later than sixty (60) days after the due date,  PROVIDED,  HOWEVER,
that such Borrower  shall not be required to pay any account  payable as long as
the validity thereof shall be contested in good faith by appropriate  protest or
proceedings  and such  Borrower  shall have set aside  adequate  reserves on its
books with respect thereto in accordance with GAAP.

          SECTION 5.16.  INTELLECTUAL  PROPERTY.  Such Borrower shall enter into
Intellectual  Property  Documents,  in form and  substance  satisfactory  to the
Collateral Agent, with respect to all of the Intellectual Property owned by such
Borrower.

          SECTION 5.17.  FISCAL YEAR. Such Borrower shall maintain a fiscal year
ending on December 31.

          SECTION 5.18.  REQUIRED  CONTRIBUTION.  The Borrowers shall obtain the
Required Contribution on or prior to August 31, 2000.

          SECTION 5.19.  SUBSIDIARY  GUARANTEES AND PLEDGES. Such Borrower shall
(i) cause each Person which  becomes a Subsidiary  of such Borrower and does not
become a Borrower  under this  Agreement  to  execute a  Guaranty  and  Security
Agreement in the form of EXHIBIT U hereto,  and (ii) execute a Pledge  Agreement
pursuant to which all of the Equity  Interests in such Person will be pledged to
the  Collateral  Agent,  PROVIDED,  that in the event such Person is an indirect

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Subsidiary  of  such  Borrower,   such  Borrower  shall  cause  each  applicable
Subsidiary of such Borrower to pledge all of the Equity Interests in such Person
to the Collateral Agent.

          SECTION 5.20. ACCOUNTING;  MAINTENANCE OF RECORDS. Such Borrower shall
maintain a system of accounting  established and administered in accordance with
GAAP. Such Borrower shall keep and maintain,  and cause each of its Subsidiaries
to keep and  maintain,  in all  material  respects,  proper  books of record and
account in which entries in  conformity  with GAAP shall be made of all dealings
and transactions in relation to their respective businesses and activities.

          SECTION 5.21.  FURTHER  ASSURANCES.  Such  Borrower  agrees to do such
further  acts  and  things  and to  execute  and  deliver  to the  Agent  or the
Collateral   Agent  such   additional   assignments,   agreements,   powers  and
instruments,  at such Borrower's  expense,  as the Agent or the Collateral Agent
may  reasonably  require or deem  advisable to carry into effect the purposes of
this Agreement and the other Loan Documents or to better assure and confirm unto
the Agent or the Collateral Agent its rights,  powers and remedies hereunder and
thereunder.

                                   ARTICLE VI
                              NEGATIVE COVENANTS

          Each  Borrower  covenants  and agrees with the Agent,  the  Collateral
Agent and the Lenders that as long as this Agreement shall remain in effect, any
Commitment hereunder shall be outstanding or any Obligations  hereunder or under
any of the Loan Documents  shall be unpaid,  unless the Requisite  Lenders shall
have otherwise given prior written consent:

          SECTION  6.01.  LIENS,  ETC. Such  Borrower  shall not create,  incur,
assume or suffer to exist, directly or indirectly, any Lien upon or with respect
to any of its properties or the Collateral,  now owned or hereafter acquired, or
upon any proceeds,  products, issues, income or profits therefrom except for the
following ("PERMITTED LIENS"):

          (i) Liens granted pursuant to the Loan Documents;

          (ii) Liens  securing  any  Purchase  Debt to the extent that the Liens
     cover only the subject assets purchased with such Purchase Debt;

          (iii) Liens for taxes,  assessments or governmental  charges or levies
     on such Borrower's property if the same shall not at the time be delinquent
     or  thereafter  can  be  paid  without  penalty,  or are  being  diligently
     contested in good faith and by appropriate  proceedings  and for which such
     Borrower shall have set aside reserves on its books as required by GAAP;

          (iv)  Liens   imposed   by  law,   such  as   landlord's,   carrier's,
     warehousemen's and mechanic's liens, which liens shall be waived in writing
     to the extent  waivable,  and with  respect to  obligations  not yet due or
     being contested in good faith by appropriate proceedings and in either case

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     for which such Borrower shall have set aside adequate reserves on its books
     as required by GAAP;

          (v)  Liens  arising  out  of  pledges  or  deposits  under   workmen's
     compensation  laws,  unemployment  insurance,  old age  pensions,  or other
     social security benefits other than any Lien imposed by ERISA;

          (vi)  Liens  incurred  or  deposits  made in the  ordinary  course  of
     business to secure surety bonds  provided that such Liens shall extend only
     to cash collateral for such surety bonds; or

          (vii) Liens on cash securing the  reimbursement  obligations under the
     Excluded Letters of Credit.

          SECTION  6.02.  USE OF  PROCEEDS.  Such  Borrower  shall  not  use the
proceeds  of any Loan for any purpose  other than as  provided  in SECTION  2.02
hereof.

          SECTION  6.03.  SALE  OF  ASSETS,  CONSOLIDATION,  MERGER,  ETC.  Such
Borrower shall not consolidate  with or merge into any other Person,  or without
the prior written consent of the Requisite  Lenders,  sell,  lease,  transfer or
otherwise  dispose of any  Collateral,  except for (a) sales of inventory in the
ordinary  course  of  business,  and (b) any  sale,  lease,  transfer  or  other
disposition  of assets no longer used or useful in the  conduct of the  Business
for the fair  market  value  thereof not to exceed  $250,000  in the  aggregate;
PROVIDED,  HOWEVER,  that  if no  Event  of  Default  has  then  occurred  or is
continuing or would result  therefrom,  any Borrower,  upon  provision of thirty
days prior written  notice to the Agent and upon  compliance  with SECTION 8.02,
may merge with another Borrower.

          SECTION 6.04.  DIVIDENDS AND DISTRIBUTIONS;  SALE OF EQUITY INTERESTS.
(a) Such Borrower shall not purchase,  redeem or otherwise  acquire any interest
of such  Borrower,  declare or make or pay any  dividends  in any fiscal year of
such Borrower on any class or classes of stock,  return capital of such Borrower
to its shareholders,  make any other distribution on or in respect of any shares
of any class of capital  stock of such  Borrower  or make other  payments to any
shareholder  of such  Borrower  (including  in the form of  compensation,  loan,
expense  reimbursement or management fee); PROVIDED,  HOWEVER,  that provided no
Event of Default or Default  has  occurred  and is  continuing  or would  result
therefrom,  (i) such  Borrower  may make  payments of fees or  compensation  for
services  which  are  in  the  nature  of  management,   corporate  overhead  or
administrative  services to the extent  permitted by SECTION  6.05 hereof,  (ii)
provided  further,  that (A) during the  previous  four  fiscal  quarters of the
Borrowers,  EBITDA  equaled at least  eighty-five  percent  (85%) of  "Estimated
EBITDA" (as defined below) and such Estimated EBITDA is a positive  number,  (B)
during the  previous  four  fiscal  quarters  of the  Borrowers,  the  Borrowers

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maintained  a Fixed  Charge  Coverage  Ratio of at least 1.10 to 1.00,  (C) with
respect  to the next four  fiscal  quarters  of the  Borrowers,  EBITDA  for the
Borrowers,  as  projected  in the most recent  financial  information  furnished
pursuant to SECTION 5.06(e),  is projected to equal at least eighty-five percent
(85%) of Estimated  EBITDA for such fiscal quarters and such Estimated EBITDA is
a positive number,  and (D) with respect to the next four fiscal quarters of the
Borrowers,  the Fixed  Charge  Coverage  Ratio as  projected  in the most recent
financial information submitted to the Agent and the Lenders pursuant to SECTION
5.06(e),  is projected to equal at least 1.10 to 1.00,  the Borrowers may pay to
KMC Holdings  dividends in the amount necessary to make (i) scheduled  principal
and interest payments under the Indentures,  and any other amounts due under the
Indentures  (including  Sections  4.14 and 7.07  thereunder),  and (ii) required
payments of cash  dividends due to the holders of KMC  Holdings'  Series E and F
Senior Redeemable, Exchangeable PIK Preferred Stock. Estimated EBITDA shall mean
"EBITDA" as calculated in the Milestone Plan.

          (b)  Such  Borrower  shall  not sell or issue  any  additional  Equity
Interests.

          SECTION 6.05.  MANAGEMENT FEES AND PERMITTED CORPORATE OVERHEAD.  Such
Borrower  shall  not  pay or  enter  into  any  arrangement  to pay  any  fee or
compensation,  or  reimburse  expenses  of, an Affiliate or any other Person for
services  which  are  in  the  nature  of  management,   corporate  overhead  or
administrative services except to the extent provided for in the Milestone Plan,
the Management Agreement or as described on SCHEDULE 6.11 attached hereto.

          SECTION 6.06. GUARANTEES;  THIRD PARTY SALES AND LEASES. Such Borrower
shall not directly or indirectly,  (i) assume any obligation or  indebtedness of
another  Person,  (ii) make or assume any Guarantee,  or (iii) finance any third
party sales or leases, other than its obligations under SECTION 2.15.

          SECTION  6.07.  INVESTMENTS.  Such  Borrower  shall not,  directly  or
indirectly, make any Investments except:

          (i) Investments in marketable, direct obligations issued or guaranteed
     by the United States of America, or of any governmental agency or political
     subdivision thereof, maturing within 365 days of the date of purchase;

          (ii) Investments in certificates of deposit issued by a bank organized
     under the laws of the United  States of America or any state thereof or the
     District of Columbia,  in each case having  capital,  surplus and undivided
     profits totaling more than  $500,000,000 and rated at least A by Standard &
     Poor's Ratings Service and A-2 by Moody's Investors Service,  Inc. maturing
     within 365 days of purchase;

          (iii) Investments in certificates of deposit,  repurchase  agreements,
     money market or other cash  management  accounts,  bankers  acceptances and
     short term  Eurodollar time deposits with financial  institutions  having a
     long term  deposit  rating of at least A+ from Moody's  Investors  Service,
     Inc. or Standard & Poor's Ratings Group, respectively;

          (iv)  Investments  in  commercial  paper  rated  P1 or  A1 by  Moody's
     Investors  Service,  Inc. or Standard & Poor's Ratings Group  respectively;
     and

          (v)  Investments  not  exceeding  365 days in duration in money market
     funds  that  invest   substantially  all  of  such  funds'  assets  in  the
     Investments described in the preceding clauses (i), (ii), (iii) or (iv).

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          SECTION  6.08.  SUBSIDIARIES;  PERMITTED  ACQUISITIONS.  Such Borrower
shall not create or acquire any  Subsidiary  or acquire  all or any  significant
portion of the assets or Equity Interests of another Person; provided,  however,
that each  Borrower  may  acquire  all the  Equity  Interests  of, or all or any
significant  portion of the assets of, another Person, if such acquisition meets
the following  requirements  (each such  acquisition  constituting  a "Permitted
Acquisition"):

          (1)  no  Default  or Event  of  Default  shall  have  occurred  and be
               continuing or would result from such  transaction or transactions
               or the  incurrence of any Debt by any Borrower or KMC Holdings in
               connection therewith;

          (2)  If  such  acquisition  is  being  effectuated  by  means  of  the
               acquisition  of Equity  Interests of any Person (or the formation
               of a new  Subsidiary  in  order  to  acquire  assets  of  another
               Person),  such  acquired  Person  (unless  merged with and into a
               Borrower)  shall  become  a  Borrower  hereunder  pursuant  to an
               Accession  Agreement and shall deliver such  documentation  as is
               reasonably  required by the Agent to evidence the  enforceability
               of such Accession Agreement;

          (3)  The Collateral Agent shall,  immediately upon the consummation of
               such  acquisition,  obtain a first priority Lien, for the benefit
               of  the  Lenders  and  as  collateral  for  the  payment  of  the
               Obligations,  in the assets being purchased or acquired by virtue
               of an  acquisition  of Equity  Interests and the Borrowers  shall
               have complied in all respects with the provisions of SECTION 8.02
               with respect to such assets;

          (4)  The assets being acquired shall be substantially similar, related
               or incidental to the Businesses;

          (5)  After giving effect to such acquisition,  the representations and
               warranties  set forth in  ARTICLE  III  hereof  shall be true and
               correct in all  material  respects  on and as of the date of such
               acquisition with the same effect as though made on and as of such
               date and including  with respect to any Person that becomes a new
               Borrower pursuant to paragraph (2) above;

          (6)  The purchase is consummated pursuant to a negotiated  acquisition
               agreement on a non-hostile basis;

          (7)  The  Borrowers  shall have  submitted  a revised  Milestone  Plan
               demonstrating  (i)  PRO  FORMA  compliance  with  the  applicable
               Financial  Covenants set forth in Article VII after giving effect
               to such  Acquisition,  and (ii) that if such  acquisition is made
               after the Required Contribution has been obtained or after August
               31, 2000,  that the Milestone  Plan remains fully funded and that
               if such acquisition is made before the Required  Contribution has
               been  obtained,  that  the  acquisition  does not  result  in the
               Milestone  Plan  becoming  less fully funded than it was prior to
               giving effect to such acquisition;

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          (8)  The Borrowers  shall have delivered an appraisal to the Agent and
               the Collateral  Agent  reasonably  satisfactory to the Collateral
               Agent,  which  appraisal  establishes  that in the  aggregate the
               purchase price of the assets being  acquired in such  acquisition
               (measured by appropriate  market  multiples)  does not exceed the
               fair market value of such assets; and

          (9)  The aggregate  cash  consideration  paid by the Borrowers for all
               such acquisitions shall not exceed $60,000,000.

          SECTION 6.09. PERMITTED ACTIVITIES.  Such Borrower shall not engage in
any business or activity  other than the operation of its Business in accordance
with the  Milestone  Plan  without the prior  written  consent of the  Requisite
Lenders.

          SECTION 6.10.  DISPOSITION  OF LICENSES,  ETC. Such Borrower shall not
sell, assign,  transfer or otherwise dispose or attempt to dispose of in any way
any  Governmental  Approval or any other  licenses,  permits or  approvals,  the
assignment,  transfer or disposal  of which would  result in a Material  Adverse
Effect, without the prior written consent of the Requisite Lenders.

          SECTION 6.11. TRANSACTIONS WITH AFFILIATES.  Except for the Management
Agreement,  the Tax Sharing  Agreement,  or as set forth on SCHEDULE 6.11,  such
Borrower  shall  not  directly  or  indirectly,   enter  into  any  transaction,
including,  without  limitation,  leases or other agreements for the purchase or
use of any goods or services, with any Affiliate,  except in the ordinary course
of and pursuant to reasonable requirements of such Borrower's business upon fair
and reasonable  terms no less favorable to such Borrower than it would obtain in
a comparable arm's length transaction with an unaffiliated Person.

          SECTION 6.12. ERISA. Such Borrower shall not:

          (A) engage, or permit any ERISA Affiliate to engage, in any prohibited
transaction  described  in  Section  406 of ERISA or 4975 of the IRC for which a
statutory or class  exemption is not  available or a private  exemption  has not
been previously obtained from the United States Department of Labor;

          (B) permit to exist any accumulated  funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC), whether or not waived;

          (C)  fail,  or permit  any  ERISA  Affiliate  to fail,  to pay  timely
required  contributions  or annual  installments  due with respect to any waived
funding deficiency to any Benefit Plan;

          (D) terminate, or permit any ERISA Affiliate to terminate, any Benefit
Plan which would result in any material  liability of such Borrower  under Title
IV of ERISA;

          (E) fail to make any contribution or payment to any Multiemployer
Plan which such  Borrower or any ERISA  Affiliate  may be required to make under
any  agreement  relating  to such  Multiemployer  Plan,  or any  law  pertaining
thereto;

                                       75
<PAGE>

          (F) amend, or permit any ERISA Affiliate to amend, a Plan resulting in
an increase in current  liability  for the plan year such that such  Borrower is
required to provide  security to such Plan under Section  401(a)(29) of the IRC;
or

          (G) fail,  or permit any ERISA  Affiliate to fail, to pay any required
installment  under  Section  412 of the IRC on or  before  the due date for such
installment or other payment.

          SECTION 6.13.  INDEBTEDNESS.  Such Borrower shall not create or suffer
to exist any Debt or any other  obligations  for the deferred  purchase price of
property or services except:

          (i) the Obligations;

          (ii) the obligations arising under any Loan Document;

          (iii) obligations under leases  contemplated in the Milestone Plan and
     the Schedules to this Agreement;

          (iv) obligations  under Capitalized  Leases,  financing leases or loan
     agreements  or similar debt  documents  with respect to the  financing  and
     contemplated  purchase  of office  equipment,  vehicles  and  non-essential
     telecommunications  equipment,  not to exceed an  aggregate  amount for the
     Borrowers of $5,000,000 at any time ("PURCHASE DEBT");

          (v)  additional  unsecured  Debt  subordinate  to the  payment  of the
     Obligations on terms and conditions  approved by the Agents but in no event
     to exceed an aggregate  amount for the Borrowers of $1,000,000 in principal
     amount outstanding at any time;

          (vi)  performance  bonds and bid bonds  executed  solely in connection
     with the construction of Systems in the ordinary course of business;

          (vii) Qualified Intercompany Loans;

          (viii)Debt to the Agent  consisting of  reimbursement  obligations for
     letters of credit in an aggregate outstanding amount not to exceed $250,000
     at any one time for the account of the Borrower and not issued  pursuant to
     SECTION 2.10 (the "EXCLUDED LETTERS OF CREDIT"); and

          (ix) Debt consisting of indebtedness, obligations or other liabilities
     in respect of any Interest Rate  Agreement  with the Agent,  the Collateral
     Agent,  any  Lender or any other  party  acceptable  to,  and  pursuant  to
     documentation in form and substance acceptable to, the Agent.

          SECTION 6.14.  PREPAYMENT AND DEBT DOCUMENTS.  (a) Such Borrower shall
not voluntarily  prepay any Debt,  except the Obligations in accordance with the
terms hereof.

                                       76
<PAGE>

          (b) Such Borrower shall not amend any agreement relating to Debt other
than the Obligations in any manner which would increase the amount of principal,
interest or fees on such debt, or accelerate any payments of such Debt.

          SECTION 6.15.  SALE AND LEASEBACK  TRANSACTIONS.  Such Borrower  shall
not,  directly  or  indirectly,  enter  into any  arrangement  with  any  Person
providing  for such  Borrower to lease or rent property that any Borrower or KMC
Holdings has sold or will sell or otherwise transfer to such Person.

          SECTION 6.16. MARGIN REGULATION. Such Borrower shall not use or permit
any other Person to use any portion of the proceeds of any credit extended under
this  Agreement in any manner which might cause the  extension of credit made by
any Lender or the  application of such proceeds to violate the Securities Act of
1933 or Securities  Exchange Act of 1934 (each as amended from time to time, and
any successor  statute) or to violate  Regulation T, Regulation U, or Regulation
X, or any other  regulation  of the Federal  Reserve  Board,  in each case as in
effect  on the  date or  dates  of such  extension  of  credit  and  such use of
proceeds.

          SECTION 6.17.  MANAGEMENT  AND TAX SHARING  AGREEMENTS.  Such Borrower
shall not amend the  Management  Agreement  or the Tax Sharing  Agreement in any
manner that would have a material  adverse effect on the Lenders,  the Borrowers
or the transactions contemplated hereby.

                                  ARTICLE VII
                             FINANCIAL COVENANTS

          Each Borrower covenants and agrees with the Agent and the Lenders that
as long as this Agreement shall remain in effect, any Commitment hereunder shall
be outstanding or the  Obligations  hereunder or under any of the Loan Documents
shall be unpaid,  unless the Requisite  Lenders shall have otherwise given prior
written consent:

          SECTION 7.01.  FINANCIAL COVENANTS PRIOR TO ACHIEVING POSITIVE EBITDA.
Until the  earlier to occur of (i) March 31, 2002 and (ii) the date on which the
Borrowers  shall  have  achieved  positive  EBITDA  for all the  Borrowers  on a
combined basis for two  consecutive  fiscal  quarters and a Total Leverage Ratio
equal to or less than 9:1 as determined by reference to the financial statements
submitted pursuant to SECTION 5.06:

          (a) TOTAL DEBT TO CONTRIBUTED  CAPITAL. The Borrowers shall not at any
time permit the ratio of the Total Debt to Contributed Capital to exceed 1.00 to
1.00.

          (b) MINIMUM REVENUES.  As of the last day of each fiscal quarter,  the
Borrowers  shall on a combined  basis have revenues at least equal to 85% of the
amount  projected for such date in the Milestone Plan, which amount is set forth
in ITEM 1 on ANNEX B attached hereto.

          (c) EBITDA.

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<PAGE>

          (i) As of the last day of each fiscal  quarter  occurring  on or after
     the Closing Date and on or prior to June 30, 2001, the Borrowers  shall not
     permit the EBITDA losses for all the Borrowers on a combined  basis for the
     two fiscal  quarters  then ending to exceed the greater of (A) 115% of such
     losses  projected for each such date in the Milestone Plan, which amount is
     set forth in ITEM 2 on ANNEX B attached  hereto and (B)an  amount  equal to
     $7,500,000  more than the aggregate  amount of EBITDA losses  projected for
     each such date in the Milestone  Plan,  which latter amount is set forth in
     ITEM 2 on ANNEX B attached hereto.

          (ii)  As of the  last  day of  each  fiscal  quarter  thereafter,  the
     Borrowers shall not permit EBITDA for all the Borrowers on a combined basis
     for the two fiscal  quarters then ending to be less than the greater of (A)
     85% of the amount of EBITDA  projected  for each such date in the Milestone
     Plan,  which  amount is set forth in ITEM 3 on ANNEX B attached  hereto and
     (B) an amount equal to $7,500,000 less than the aggregate  amount of EBITDA
     projected for each such date in the Milestone Plan,  which latter amount is
     set forth as ITEM 3 on ANNEX B attached hereto.

          (d) CAPITAL  EXPENDITURES.  As of the last day of each fiscal quarter,
the Borrowers shall not permit capital  expenditures  on a combined,  cumulative
basis beginning on the Closing Date to exceed the amount projected for each such
date in the Milestone Plan by more than  $25,000,000,  which amount is set forth
in ITEM 4 on ANNEX B attached hereto, unless any such excess is funded with cash
capital contributions or Qualified Intercompany Loans from KMC Holdings that are
not part of the Required Contribution.

          (e) MINIMUM  ACCESS LINES.  As of the last day of each fiscal  quarter
beginning   March  31,  2000,  the  Borrowers  shall  have  in  place  at  least
seventy-five  percent (75%) of the Access Lines  projected for each such date in
the  Milestone  Plan,  which amounts are set forth in ITEM 5 on Annex B attached
hereto.

          SECTION 7.02.  FINANCIAL COVENANTS AFTER ACHIEVING POSITIVE EBITDA. On
and after the  earlier  of (i)  March 31,  2002,  and (ii) the date on which the
Borrowers have achieved  positive EBITDA on a combined basis for two consecutive
fiscal  quarters  and a  Total  Leverage  Ratio  equal  to or less  than  9:1 as
determined  by  reference  to the  financial  statements  submitted  pursuant to
SECTION 5.06:

          (a) MAXIMUM TOTAL  LEVERAGE  RATIO.  As of the last day of each fiscal
quarter,  the Borrowers  shall not permit the Total Leverage Ratio to be greater
than the following:
<TABLE>
<CAPTION>
                                    MAXIMUM TOTAL
FISCAL QUARTER ENDING               LEVERAGE RATIO
<S>                                 <C>
On or prior to December 31, 2001    9.00 to 1.00
March 31, 2002                      8.00 to 1.00
June 30, 2002                       6.00 to 1.00
September 30, 2002                  4.00 to 1.00
December 31, 2002                   4.00 to 1.00

                                       78
<PAGE>

March 31, 2003                      3.00 to 1.00
June 30, 2003                       3.00 to 1.00
September 30, 2003                  3.00 to 1.00
December 31, 2003                   3.00 to 1.00
Last Day of each                    2.00 to 1.00
  Fiscal Quarter Thereafter
</TABLE>

          (b) MINIMUM DEBT SERVICE  COVERAGE  RATIO.  As of the last day of each
fiscal  quarter,  the Borrowers shall not permit the ratio of (1) EBITDA for the
Borrowers on a combined basis for the most recently  ended six month period,  to
(2) Interest Expense for the most recently ended six month period plus Principal
Payments  required  during the most  recently  ended six month period to be less
than the following:

<TABLE>
<CAPTION>
                                        MINIMUM DEBT SERVICE
FISCAL QUARTER ENDING                   COVERAGE RATIO
<S>                                       <C>
On or prior to December 31, 2001          1.15 to 1.00

March 31, 2002 - December 31, 2003        1.50 to 1.00
Last Day of each Fiscal                   2.00 to 1.00
  Quarter Thereafter
</TABLE>

          (c) MINIMUM  FIXED CHARGE  COVERAGE  RATIO.  As of the last day of any
fiscal  quarter,  the Borrowers shall not permit the ratio of (1) the product of
two times the EBITDA for the Borrowers on a combined basis for the most recently
ended six month period to (2) Fixed Charges for the Borrowers  (such ratio being
referred to as the "FIXED CHARGE COVERAGE RATIO") to be less than the following:

<TABLE>
<CAPTION>
                                    MINIMUM FIXED CHARGE
FISCAL QUARTER ENDING               COVERAGE RATIO
<S>                                         <C>
January 1, 2002 - December 31, 2002          0.50 to 1.00
March 31, 2003 - June 30, 2004               0.75 to 1.00
September 30, 2004 - December 31, 2004       1.00 to 1.00
Last Day of each Fiscal                      1.10 to 1.00
  Quarter Thereafter
</TABLE>

          (d) MAXIMUM  CONSOLIDATED  LEVERAGE  RATIO.  As of the last day of any
fiscal  quarter,  the Borrowers  shall not permit the ratio of (1)  Consolidated
Debt to (2) the product of two times the sum of EBITDA for KMC  Holdings and its
Subsidiaries  (excluding its Excluded  Subsidiaries) on a consolidated basis for
the most recently ended six month period to be greater than the following:

<TABLE>
<CAPTION>
                                    MAXIMUM TOTAL
FISCAL QUARTER ENDING               LEVERAGE RATIO
<S>                                 <C>
On or Prior to March 31, 2002       20.00 to 1.00
June 30, 2002                       15.00 to 1.00
September 30, 2002                  10.00 to 1.00
December 31, 2002                   10.00 to 1.00
March 31, 2003                      8.00 to 1.00
June 30, 2003                       8.00 to 1.00
September 30, 2003                  8.00 to 1.00
December 31, 2003                   8.00 to 1.00
Last Day of Each Fiscal             6.00 to 1.00
  Quarter Thereafter
</TABLE>

                                       79
<PAGE>

                                  ARTICLE VIII
                             COLLATERAL SECURITY

          SECTION  8.01.   COLLATERAL  SECURITY.   (a)  To  secure  payment  and
performance of all of the Obligations, each of KMC III, Leasing III, Telecom.com
and Services hereby grants,  and each of the other Borrowers  hereby  reaffirms,
grants and  hereby  regrants,  to the  Collateral  Agent for the  benefit of the
Collateral  Agent, the Agent and the Lenders,  to the extent permitted by law, a
right of setoff against and a continuing security interest in and to all of such
Borrower's tangible and intangible personal property, fixtures and real property
leasehold and easement  interests,  whether now owned or existing,  or hereafter
acquired or arising,  wheresoever located, including, without limitation, all of
the following property, or interests in property: (a) all machinery,  equipment,
Telecommunications  Equipment and fixtures,  including without limitation, fiber
optic and other  cables,  transmission  and  switching  equipment,  transmission
facilities,   connection   equipment,   conduit,   carrier   pipes,   junctions,
regenerators, power sources, alarm systems, electronics, structures and shelters
and  cable  laying  equipment;  (b) all  Accounts,  accounts  receivable,  other
receivables,  contract rights, leases,  chattel paper,  investment property, and
general intangibles of such Borrower (including,  without limitation,  goodwill,
going  concern  value,   patents,   trademarks,   trade  names,  service  marks,
blueprints,  designs,  product lines and research and  development),  including,
without  limitation,  all of such Borrower's rights under all present and future
Governmental Approvals, permits, licenses and franchises heretofore or hereafter
granted  to such  Borrower  for  the  operation  and  ownership  of its  Systems
(excluding  licenses  and  permits  issued  by the  FCC,  any  PUC or any  other
Governmental  Authority to the extent, and only to the extent, it is unlawful to
grant a security  interest in such licenses and permits,  but including,  to the
maximum  extent  permitted by law, all rights  incident or  appurtenant  to such
licenses and permits,  including,  without limitation,  the right to receive all
proceeds derived from or in connection with the sale,  assignment or transfer of
such  licenses and  permits),  whether now owned or  hereafter  acquired by such
Borrower,  or in which  such  Borrower  may now  have or  hereafter  acquire  an
interest; (c) all instruments,  letters of credit,  documents of title, policies
and  certificates  of insurance,  securities,  bank deposits,  deposit  accounts
(including such Borrower's Collection Accounts),  checking accounts and cash now
or hereafter  owned by such Borrower,  or in which such Borrower may now have or
hereafter acquire an interest; (d) all inventory, including all merchandise, raw
materials,  work in process, finished goods and supplies, now or hereafter owned
by such Borrower or in which such Borrower may now have or hereafter  acquire an
interest;  (e) all of such Borrower's  leasehold  interest in any real property,
all of such  Borrower's  licenses,  easements  and rights of way with respect to
real property;  (f) all accessions,  additions or improvements to, substitutions

                                       80
<PAGE>

for and all proceeds and products of, all of the foregoing,  including  proceeds
of insurance;  and (g) all books, records,  documents,  computer tapes and discs
relating to all of the foregoing.

          SECTION 8.02.  PRESERVATION  OF COLLATERAL  AND PERFECTION OF SECURITY
INTERESTS  THEREIN.  Such Borrower  shall execute and deliver to the  Collateral
Agent for the benefit of the Collateral Agent, the Agent and the Lenders,  prior
to the Closing Date,  and at any time or times  thereafter at the request of the
Collateral Agent, all financing  statements or other documents (and pay the cost
of filing or recording the same in all public  offices  deemed  necessary by the
Collateral  Agent), as the Collateral Agent may request,  in a form satisfactory
to the Collateral  Agent, to perfect and keep perfected the security interest in
the Collateral  granted by such Borrower to the Collateral Agent or to otherwise
protect and preserve the Collateral and the Collateral Agent's security interest
therein  or  to  enforce  the  Collateral   Agent's  security  interest  in  the
Collateral.  Should  such  Borrower  fail  to do so,  the  Collateral  Agent  is
authorized to sign any such financing  statements as such Borrower's agent. Such
Borrower  further agrees that a carbon,  photographic  or other  reproduction of
this  Agreement  or  of a  financing  statement  is  sufficient  as a  financing
statement.

          SECTION 8.03.  APPOINTMENT OF THE  COLLATERAL  AGENT AS THE BORROWERS'
ATTORNEY-IN-FACT.   Such  Borrower   hereby   irrevocably   designates,   makes,
constitutes and appoints the Collateral Agent (and all persons designated by the
Collateral  Agent) as such  Borrower's  true and  lawful  attorney-in-fact,  and
authorizes the Collateral  Agent, in such  Borrower's or the Collateral  Agent's
name, to,  following the  occurrence  and during the  continuance of an Event of
Default: (i) demand payment of such Borrower's Accounts; (ii) enforce payment of
such Borrower's  Accounts by legal proceedings or otherwise;  (iii) exercise all
of such  Borrower's  rights and remedies with respect to proceedings  brought to
collect an Account;  (iv) sell or assign any Account  upon such terms,  for such
amount and at such time or times as the Collateral  Agent deems  advisable;  (v)
settle,  adjust,  compromise,  extend or renew an Account;  (vi)  discharge  and
release any Account;  (vii) prepare,  file and sign such  Borrower's name on any
proof of claim in bankruptcy or other similar document against an account debtor
of such  Borrower;  (viii)  notify  the post  office  authorities  to change the
address for delivery of such  Borrower's  mail to an address  designated  by the
Collateral  Agent,  and open and deal with all mail  addressed to such Borrower;
(ix) do all acts and things which are necessary,  in the Collateral Agent's sole
discretion,  to fulfill such Borrower's  obligations  under this Agreement;  (x)
take control in any manner of any item of payment or proceeds thereof; (xi) have
access  to any  lockbox  or  postal  box  into  which  such  Borrower's  mail is
deposited;  (xii)  endorse  such  Borrower's  name upon any items of  payment or
proceeds  thereof  and  deposit the same in the  Collateral  Agent's  account on
account of the Obligations; (xiii) endorse such Borrower's name upon any chattel
paper, document, instrument,  invoice, or similar document or agreement relating
to any Account or any goods pertaining  thereto;  and (xiv) sign such Borrower's
name on any verification of Accounts and notices thereof to account debtors.

          SECTION   8.04.   COLLECTION  OF  ACCOUNTS  AND   RESTRICTED   ACCOUNT
Arrangements.  Such Borrower hereby represents and warrants that each depository
account  ("COLLECTION  ACCOUNT")  now  maintained  by such  Borrower at any bank
("COLLECTION AGENT") for the collection of checks and cash constituting proceeds

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<PAGE>

of  Accounts  and  sales  of  other  personal  property  which  are  part of the
Collateral  is  identified  on  SCHEDULE  8.04  attached  hereto and made a part
hereof. With respect to each Collection  Account,  such Borrower shall, no later
than the Closing Date, deliver (to the extent not previously  delivered pursuant
to the Existing  Agreement)  to the  Collateral  Agent,  a  "RESTRICTED  ACCOUNT
AGREEMENT"  substantially  in the form of EXHIBIT N  attached  hereto and made a
part hereof,  duly executed and  delivered by such  Borrower and the  applicable
Collection Agent,  authorizing and directing such Collection Agent, upon receipt
of  written  notice  from the  Collateral  Agent  that an Event of  Default  has
occurred  and is  continuing,  to deposit  all checks and cash  received  into a
restricted  account (a "RESTRICTED  ACCOUNT") and remit all amounts deposited in
such  Restricted  Account to the Collateral  Agent's  account  specified in such
Restricted  Account  Agreement until such time as the Collection  Agent receives
written notice from the  Collateral  Agent  rescinding  such  instruction.  Such
Borrower shall,  following the occurrence and during the continuance of an Event
of Default and any subsequent  request by the Collateral  Agent  therefor,  take
such further  action as the Collateral  Agent may  reasonably  deem desirable to
effect the  transfer  of  exclusive  ownership  and  control  of the  Restricted
Accounts and all Collection  Accounts to the Collateral Agent.  Until all of the
Obligations  have been  indefeasibly  paid in full,  such Borrower agrees not to
enter into any  agreement  or execute  and  deliver  any  direction  which would
modify,  impair or adversely  affect the rights and  benefits of the  Collateral
Agent under any  Restricted  Account  Agreement.  Such Borrower  shall not open,
establish or maintain any  Collection  Account  (other than those  identified on
SCHEDULE 8.04 hereto) without first having  delivered to the Collateral  Agent a
duly executed and delivered  Restricted  Account  Agreement with respect to such
Collection  Account.  Such Borrower shall notify the Collateral Agent in writing
not less than five (5) days  prior to the date it shall  open or  establish  any
Collection Account other than an account described on SCHEDULE 8.04 hereto.

          SECTION 8.05.  CURE RIGHTS.  Such Borrower  expressly  authorizes  the
Collateral Agent, and the Collateral Agent may, but shall not be required to, at
any time and from time to time,  to take any and all action  that it  reasonably
determines  to be  necessary  or  desirable  to cure any  default  or  violation
(including  a payment  default)  of such  Borrower in  connection  with any real
estate lease,  license  agreement,  Governmental  Approval or any other material
lease, agreement or contract entered into with respect to the Systems.

                                   ARTICLE IX
                         EVENTS OF DEFAULT; REMEDIES

          SECTION  9.01.  EVENTS OF DEFAULT.  The  following  events  shall each
constitute an "EVENT OF DEFAULT":

          (a) Any Borrower shall fail to pay the principal of or interest on its
Notes or any other  amounts  payable  hereunder  or under any of the other  Loan
Documents when due,  whether as scheduled,  at a date fixed for  prepayment,  by
acceleration or otherwise, and five (5) Business Days shall have elapsed; or

                                       82
<PAGE>

          (b) Any Borrower shall fail to observe or perform any other  covenant,
condition or  agreement  to be observed or performed by such  Borrower in any of
the Loan Documents,  and such Borrower fails to cure such breach within ten (10)
Business  Days after  written  notice  thereof  unless  the breach  relates to a
covenant  contained in SECTIONS  5.04, or ARTICLE VI (other than SECTION 6.05 or
SECTION  6.07) or VII, in which case no notice or grace period  shall apply,  or
unless the breach  relates  to SECTION  5.06,  in which case an Event of Default
shall  occur on the  thirtieth  day  following  the  breach  without  any notice
requirement, unless the breach shall have been cured before such date; or

          (c)  Any  representation  or  warranty  made  by any  Borrower  or KMC
Holdings in connection  with this Agreement or any other Loan  Document,  or the
Loans  or any  statement  or  representation  made in any  report,  certificate,
financial  statement  or other  instrument  furnished  by or on  behalf  of such
Borrower or KMC Holdings  pursuant to this Agreement or any other Loan Document,
shall prove to have been false or misleading  in any material  respect when made
or delivered or when deemed made in accordance with the terms hereof or thereof;
or

          (d) Any  Borrower or KMC  Holdings  shall fail to make any payment due
(whether by scheduled maturity,  required  prepayment,  acceleration,  demand or
otherwise) on any other obligation for borrowed money in excess of $250,000 with
respect to any Borrower or in excess of $1,000,000 with respect to KMC Holdings,
and such failure shall  continue  after the  applicable  grace  period,  if any,
specified in the agreement or instrument  relating to such indebtedness;  or any
other  default  or event  under any  agreement  or  instrument  relating  to any
indebtedness  for  borrowed  money in excess of  $250,000  with  respect  to any
Borrower or in excess of $1,000,000  with respect to KMC Holdings,  or any other
event, shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument if the effect of such default or event
is to  accelerate,  or to permit  the  acceleration  of,  the  maturity  of such
indebtedness  in excess of $250,000 with respect to any Borrower or in excess of
$1,000,000 with respect to KMC Holdings;  or any such  indebtedness in excess of
$250,000 with respect to any Borrower or in excess of $1,000,000 with respect to
KMC  Holdings  shall be declared to be due and payable or required to be prepaid
(other than by a regularly  scheduled  required  prepayment) prior to the stated
maturity thereof; or

          (e) Any Borrower or KMC Holdings shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian,  sequestrator or similar official
for such  Borrower or KMC Holdings or for a  substantial  part of its  property,
(ii) make a general  assignment  for the  benefit  of  creditors,  (iii)  become
unable, or admit in writing its inability,  to pay its debts as they become due,
(iv) voluntarily or involuntarily dissolve, liquidate or wind up its affairs, or
(v) take action for the purpose of effecting any of the foregoing; or

          (f) a proceeding under any bankruptcy, reorganization,  arrangement of
debts, insolvency or receivership law is filed by or against any Borrower or KMC
Holdings,  or any Borrower or KMC Holdings  takes any action to authorize any of
the foregoing matters, and in the case of any such proceeding instituted against
any  Borrower  or KMC  Holdings  (but  not  instituted  by any  Borrower  or KMC
Holdings),  either such  proceeding  shall remain  undismissed or unstayed for a
period of 60 days or any of the actions  sought in such  proceeding  (including,
without limitation, the entry of an order for relief against, or the appointment
of a  receiver,  trustee  or other  similar  official  for any  Borrower  or KMC

                                       83
<PAGE>

Holdings  or any  substantial  part of its  property)  shall be granted or shall
occur; or

          (g) a  Termination  Event occurs which the  Requisite  Lenders in good
faith believe would subject any Borrower to a material liability; or

          (h) the plan administrator of any Plan applies under Section 412(d) of
the IRC for a waiver of the minimum  funding  standards of Section 412(a) of the
IRC and the  Requisite  Lenders in good faith  believe that the approval of such
waiver could subject any Borrower or any ERISA Affiliate to material  liability;
or

          (i)  any  of  the   Governmental   Approvals  or  any  other  license,
Governmental  Approval or other  governmental  consent or approval necessary for
the  continuing  operation of any  Borrower or any System or any other  material
Governmental Approval or approval of or material filing with the FCC, any PUC or
any other Governmental  Authority with respect to the conduct by any Borrower of
its business and  operations,  including its Business,  shall not be obtained or
shall  cease to be in full  force and  effect,  which in  respect  of any of the
Governmental  Approvals  shall,  in the case of an order of the FCC,  any PUC or
other Governmental Authority having jurisdiction with respect thereto, revoking,
or  deciding  not to  renew,  any such  Governmental  Approval,  occur  upon the
issuance  of such  order,  and,  in the  case of any  other  order  revoking  or
terminating  any of the  Governmental  Approvals  or deciding  not to renew such
Governmental  Approvals prior to the termination thereof,  occur when such order
becomes final, and in each case, such event is also reasonably  likely to result
in a Material Adverse Effect; or

          (j) the FCC,  any PUC or any other  Governmental  Authority,  by final
order,  determines  that the existence or  performance  of this Agreement or any
other Loan Document will result in a revocation,  suspension or material adverse
modification  of any of the  Governmental  Approvals  for any  System,  and such
determination is reasonably likely to result in a Material Adverse Effect; or

          (k) for any  reason any Loan  Document  shall not be in full force and
effect or shall not be enforceable in accordance with its terms, or any security
interest or lien granted pursuant  thereto with respect to Collateral  having an
aggregate value of $500,000 or greater shall fail to be perfected or to have its
intended  priority,  or any Borrower or any Affiliate  thereof shall contest the
validity of any Lien granted under, or shall disaffirm its obligations under any
Loan Document; or

          (l) any Borrower shall default under any Lucent Purchase  Agreement or
Additional Purchase Agreement, which default shall not have been cured or waived
within the applicable grace period thereunder unless such Borrower is contesting
such default in good faith by appropriate  protest or proceedings and shall have
set aside adequate reserves in accordance with GAAP; or

          (m) for any  reason,  any  Borrower  ceases to  operate  any System or
ceases to own any of its  Governmental  Approvals  necessary for the  continuing
operation of any System,  and such cessation is reasonably likely to result in a
Material Adverse Effect; or

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          (n) a  judgment  or  judgments  for the  payment of money in excess of
$250,000  individually  or $500,000 in the  aggregate at any one time shall have
been rendered against any Borrower and the same shall have remained  unsatisfied
and in  effect  for any  period  of  sixty  (60)  days  during  which no stay of
execution shall have been obtained; or

          (o) any Borrower is enjoined,  restrained  or in any way  prevented by
the order of any court or  administrative  or regulatory  agency from conducting
its  business in any  material  respect  with  respect to any one or more of its
Systems  and such event is  reasonably  likely to result in a  Material  Adverse
Effect; or

          (p) any Borrower becomes subject to any liabilities,  costs, expenses,
damages,  fines or  penalties  which  could  reasonably  be  expected  to have a
Material  Adverse Effect arising out of or related to (i) any Remedial Action in
response to a Release or threatened  Release at any location of any  Contaminant
into the indoor or outdoor  environment  or (ii) any  material  violation of any
Environmental Law; or

          (q) a Change of Control shall occur; or

          (r) KMC  Holdings  shall  fail to observe  or  perform  any  covenant,
condition  or  agreement  to be observed or performed by KMC Holdings in the KMC
Holdings  Guaranty or in the Pledge  Agreement  executed and  delivered by it in
favor of the Collateral Agent; or

          (s) any  Borrower  shall  fail to observe  or  perform  any  covenant,
condition  or  agreement  to be observed or  performed  by such  Borrower in any
material  agreement  (other than a Loan Document or an agreement  referred to in
SECTION  9.01(d)),  such  Borrower  fails to cure such  breach  within  ten (10)
Business  Days after  written  notice  thereof,  and such failure is  reasonably
likely  to  result  in a  Material  Adverse  Effect,  unless  such  Borrower  is
contesting  such  covenant,  condition or agreement  by  appropriate  protest or
proceedings and shall have set aside adequate reserves in accordance with GAAP.

          SECTION  9.02.  TERMINATION  OF  COMMITMENT;  ACCELERATION.  Upon  the
occurrence and at any time during the  continuance of any Event of Default,  the
Agent shall upon direction from the Requisite Lenders:

          (a) by notice to the Borrowers,  terminate Lenders' Commitment to make
Loans hereunder; or

          (b)  by  notice  to  the  Borrowers,  declare  the  Obligations  to be
immediately due and payable,  whereupon all the Obligations shall be immediately
due and payable without further notice of any kind, PROVIDED,  HOWEVER,  that if
an Event of Default  described in SECTION  9.01(f) shall exist or occur,  all of
the Obligations shall automatically,  without declaration or notice of any kind,
be  immediately  due and  payable  and the  Commitment  shall  be  automatically
terminated.

          SECTION 9.03.  WAIVERS.  Demand,  presentment,  protest and notices of
nonpayment, protest, dishonor and acceptance are hereby waived by each Borrower.
Each Borrower also waives the benefit of all valuation,  appraisal and exemption

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laws and the posting of any bond required of the Collateral  Agent, the Agent or
any Lender in connection with any judicial process to realize on the Collateral,
to enforce any judgment or other court order entered in favor of the  Collateral
Agent, the Agent or any Lender or to enforce by specific performance,  temporary
restraining order, or preliminary or permanent injunction, this Agreement or any
other Loan Documents. Each Borrower waives the right, if any, to the benefit of,
or  to  direct  the  application  of,  any  Collateral.   Each  Borrower  hereby
acknowledges  that none of the Collateral Agent, the Agent or any Lender has any
obligation  to resort to any  Collateral  or make claim against any other Person
before seeking payment or performance from any Borrower.

          SECTION 9.04.  RIGHTS AND REMEDIES  GENERALLY.  If an Event of Default
occurs and is  continuing,  the Agent and the  Collateral  Agent shall have,  in
addition to any other rights and remedies  contained in this Agreement or in any
of the other Loan  Documents,  all of the rights and remedies of a secured party
under the Code or other  applicable laws, all of which rights and remedies shall
be cumulative,  and none exclusive,  to the extent permitted by law. In addition
to all such rights and remedies,  the sale,  lease or other  disposition  of the
Collateral,  or any part thereof, by the Collateral Agent or the Agent after the
occurrence  of an Event of Default  may be for cash,  credit or any  combination
thereof,  and the Collateral  Agent or the Agent may purchase all or any part of
the  Collateral at public or, if permitted by law,  private sale, and in lieu of
actual payment of such purchase  price,  may set off the amount of such purchase
price against the  Obligations  then owing.  Any sales of the  Collateral may be
adjourned from time to time with or without notice.  The Agent or the Collateral
Agent,  may,  in its sole  discretion,  cause  the  Collateral  to remain on the
premises of any Borrower, at the expense of the Borrowers, pending sale or other
disposition of the Collateral.  The Agent or the Collateral Agent shall have the
right to conduct such sales on the premises of any  Borrower,  at the expense of
the Borrowers, or elsewhere, on such occasion or occasions as it may see fit.

          SECTION  9.05.  ENTRY UPON PREMISES AND ACCESS TO  INFORMATION.  If an
Event of Default  occurs and is continuing,  the Agent and the Collateral  Agent
shall  have the  right to enter  upon the  premises  of any  Borrower  where any
Collateral is located (or is believed to be located)  without any  obligation to
pay rent to such Borrower,  or any other place or places where the Collateral is
believed to be located and kept,  and render the  Collateral  unusable or remove
the Collateral therefrom to the premises of the Agent or the Collateral Agent or
any agent of the Agent or the  Collateral  Agent,  for such time as the Agent or
the Collateral  Agent may desire,  in order  effectively to collect or liquidate
the  Collateral,  and/or  the  Agent or the  Collateral  Agent may  require  any
Borrower to assemble  the  Collateral  and make it available to the Agent or the
Collateral  Agent at a place or  places  to be  designated  by the  Agent or the
Collateral Agent. If an Event of Default occurs and is continuing,  the Agent or
the  Collateral  Agent shall have the right to obtain  access to any  Borrower's
data  processing  equipment,  computer  hardware  and  software  relating to the
Collateral and to use all of the foregoing and the information contained therein
in any manner the Agent or the Collateral Agent deems appropriate.

          SECTION 9.06.  SALE OR OTHER  DISPOSITION  OF COLLATERAL BY THE AGENT.
Any notice required to be given by the Agent or the Collateral  Agent of a sale,
lease  or  other  disposition  or  other  intended  action  by the  Agent or the
Collateral Agent with respect to any of the Collateral which is deposited in the
United States mails, registered or certified, postage prepaid and duly addressed
to the Borrowers at the address  specified in SECTION 11.01 below,  at least ten

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days prior to such proposed action shall  constitute fair and reasonable  notice
to the Borrowers of any such action.  The net proceeds  realized by the Agent or
the Collateral  Agent upon any such sale or other  disposition,  after deduction
for the expense of retaking,  holding,  preparing for sale,  selling or the like
and the reasonable  attorneys' fees and legal expenses  incurred by the Agent or
the  Collateral  Agent in  connection  therewith,  shall be applied as  provided
herein  toward  satisfaction  of the  Obligations.  The Agent or the  Collateral
Agent,  as applicable,  shall account to the Borrowers for any surplus  realized
upon such sale or other  disposition,  and the Borrowers shall remain liable for
any  deficiency.  The  commencement  of any action,  legal or equitable,  or the
rendering  of any  judgment  or decree for any  deficiency  shall not affect the
Collateral Agent's security interest in the Collateral. The Borrowers agree that
the  Collateral  Agent has no  obligation to preserve  rights to the  Collateral
against any other parties. The Agent and the Collateral Agent are hereby granted
a license or other right to use, without charge, the Borrowers' labels, patents,
copyrights,  rights of use of any name, trade secrets, trade names,  trademarks,
service marks and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, and the Borrowers' rights under all licenses and all
franchise  agreements  shall  inure to the Agent's  and the  Collateral  Agent's
benefit until the Obligations are paid in full.

          SECTION  9.07.   GOVERNMENTAL   APPROVALS.   In  connection  with  the
enforcement by the Agent or the Collateral Agent of any remedies available to it
as a result of any Event of Default, each Borrower agrees that it shall join and
cooperate fully with, at the request of the Agent or the Collateral  Agent,  any
receiver  referred  to below  and/or  the  successful  bidder or  bidders at any
foreclosure  sale in a filing of an application  (and  furnishing any additional
information  that may be required in connection  with such  application or which
the Agent or the Collateral Agent may believe relevant to such application) with
the FCC, any PUC and all other applicable Governmental  Authorities,  requesting
their prior  approval of (i) the operation or  abandonment of all or the portion
of any System and/or (ii) the transfer of control of such Borrower or assignment
of all licenses,  certificates,  Governmental Approvals,  approvals and permits,
issued to such Borrower by the FCC, any PUC or any such Governmental Authorities
with  respect  to any  System  and the  operation  thereof,  to the Agent or the
Collateral  Agent,  the  receiver or to the  successful  bidder or  bidders.  In
connection  with the foregoing,  each Borrower shall take such further  actions,
and  execute  all  such  instruments,  as  the  Agent  or the  Collateral  Agent
reasonably deems necessary or desirable.  Each Borrower agrees that the Agent or
the Collateral Agent may enforce any obligation of such Borrower as set forth in
this section by an action for specific performance.  In addition,  each Borrower
hereby  irrevocably  constitutes and appoints the Agent and the Collateral Agent
and any agent or officer thereof (which appointment is coupled with an interest)
as its  true  and  lawful  attorney-in-fact  with  full  irrevocable  power  and
authority  and in the place and stead of such  Borrower  and in the name of such
Borrower  or in its own  name,  from  time to time in its  discretion  after the
occurrence  and during the  continuance of an Event of Default and in connection
with the  foregoing,  for the purpose of  executing on behalf and in the name of
such Borrower any and all of the  above-referenced  instruments  and to take any
and all appropriate action in furtherance of the foregoing.  THE EXERCISE OF ANY
RIGHTS OR REMEDIES HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT BY ANY LENDER, THE
AGENT  OR THE  COLLATERAL  AGENT  THAT MAY  REQUIRE  FCC,  ANY PUC OR ANY  OTHER

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GOVERNMENTAL  AUTHORITY  APPROVAL  SHALL BE SUBJECT TO OBTAINING  SUCH APPROVAL.
PENDING  THE  RECEIPT OF ANY FCC,  ANY PUC OR ANY OTHER  GOVERNMENTAL  AUTHORITY
APPROVAL, NO BORROWER SHALL DO ANYTHING TO DELAY, HINDER,  INTERFERE OR OBSTRUCT
THE  EXERCISE  OF THE  AGENT'S  OR THE  COLLATERAL  AGENT'S  RIGHTS OR  REMEDIES
HEREUNDER IN OBTAINING SUCH APPROVALS.

          SECTION 9.08.  APPOINTMENT OF RECEIVER OR TRUSTEE.  In connection with
the exercise of its remedies under this  Agreement,  the Agent or the Collateral
Agent may, upon the occurrence of an Event of Default, obtain the appointment of
a receiver or trustee to assume,  upon receipt of all necessary  judicial,  FCC,
any PUC or other  Governmental  Authority  consents or approvals,  control of or
ownership of any of the Governmental  Approvals.  Such receiver or trustee shall
have all rights and powers  provided  to it by law or by court order or provided
to the Agent or the Collateral Agent under this Agreement.  Upon the appointment
of such trustee or receiver,  the Borrowers  agree to  cooperate,  to the extent
necessary or appropriate,  in the expeditious preparation,  execution and filing
of an application to the FCC, any PUC or any other Governmental Authority or for
consent to the transfer of control or assignment of any Borrower's  Governmental
Approvals to the receiver or trustee.

          SECTION  9.09.  RIGHT OF  SETOFF.  In  addition  to any  rights now or
hereafter  granted under applicable law and not by way of limitation of any such
rights,  upon the occurrence and during the continuance of any Event of Default,
each Lender and each holder of any Note is hereby authorized at any time or from
time to time,  without  notice to any Borrower or to any other Person,  any such
notice being hereby expressly waived, to set off and to appropriate and to apply
any and all  balances  held by it at any of its  offices  for the account of any
Borrower (regardless of whether such balances are then due to such Borrower) and
any other  properties  or assets  any time held or owing by that  Lender or that
holder to or for the credit or for the  account of any  Borrower  against and on
account  of any of the  Obligations  which are not paid when due.  Any Lender or
holder of any Note  exercising  a right to set off or  otherwise  receiving  any
payment on account of the  Obligations  in excess of its Pro Rata Share  thereof
shall  purchase  for cash (and the other  Lenders  or holders  shall  sell) such
participation  in each such other  Lender's  or  holder's  Pro Rata Share of the
Obligations  as would be  necessary  to cause such Lender to share the amount so
set off or otherwise  received  with each other  Lender or holder in  accordance
with their  respective  Pro Rata Shares.  Each Borrower  agrees,  to the fullest
extent permitted by law, that (a) any Lender or holder may exercise its right to
set off  with  respect  to  amounts  in  excess  of its Pro  Rata  Share  of the
Obligations  and may  sell  participations  in such  amount  so set off to other
Lenders and holders and (b) any Lender or holder so  purchasing a  participation
in the Loans made or other  Obligations  held by other  Lenders  or holders  may
exercise all rights of set-off,  bankers' lien,  counterclaim  or similar rights
with respect to such  participation  as fully as if such Lender or holder were a
direct  holder  of the Loans and the  other  Obligations  in the  amount of such
participation.  Notwithstanding  the  foregoing,  if all or any  portion  of the
set-off amount or payment  otherwise  received is thereafter  recovered from the
Lender that has exercised the right of set-off,  the purchase of  participations
by that Lender  shall be  rescinded  and the  purchase  price  restored  without
interest. Each Borrower hereby agrees that the foregoing provisions are intended
to be construed so as to satisfy the  requirements of Section 553 of the Federal
Bankruptcy Code or amendments thereto (including any requirement of mutuality of
obligations therein).

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                                   ARTICLE X
                      THE AGENT AND THE COLLATERAL AGENT

          SECTION 10.01.  APPOINTMENT OF AGENT. (a) First Union National Bank is
hereby appointed to act as contractual  representative  on behalf of all Lenders
under this  Agreement and the other Loan  Documents.  The Agent agrees to act as
such contractual  representative  upon the express conditions  contained in this
ARTICLE X. The  provisions  of this SECTION  10.01 are solely for the benefit of
the Agent and the Lenders and no  Borrower  or any other  Person  shall have any
rights  as a  third  party  beneficiary  of  any of the  provisions  hereof.  In
performing  its  functions  and duties under this  Agreement  and the other Loan
Documents,  the Agent  shall act solely as an agent of the  Lenders and does not
assume  and  shall  not be  deemed  to have  assumed  any  obligation  toward or
relationship  of agency or trust with or for any  Borrower or any other  Person.
The Agent shall have no duties or  responsibilities  except for those  expressly
set forth in this Agreement and the other Loan  Documents.  Notwithstanding  the
use of the defined term "Agent", it is expressly  understood and agreed that the
Agent shall not have any fiduciary  responsibilities  to any Lender by reason of
this Agreement and that the Agent is merely acting as the  representative of the
Lenders with only those duties as are expressly set forth in this  Agreement and
the  other  Loan  Documents.   In  its  capacity  as  the  Lenders'  contractual
representative, the Agent (i) does not assume any fiduciary duties to any of the
Lenders, (ii) is a "representative" of the Lenders within the meaning of Section
9-105 of the UCC and (iii) is acting as an  independent  contractor,  the rights
and duties of which are limited to those  expressly set forth in this  Agreement
and the other  Loan  Documents.  Each of the  Lenders  agrees to assert no claim
against  the Agent on any agency  theory or any other  theory of  liability  for
breach of fiduciary  duty, all of which claims each Lender  waives.  Neither the
Agent nor any of its Affiliates nor any of their respective officers, directors,
employees,  agents or  representatives  shall be liable  to any  Lender  for any
action  taken or  omitted  to be taken by it  hereunder  or under any other Loan
Document,  or in connection herewith or therewith,  except for damages caused by
its or their own gross negligence or willful misconduct.

          (b)  If  the  Agent  shall  request  instructions  from  all  Lenders,
Requisite  Lenders,  Requisite  Revolving  Lenders or all affected  Lenders with
respect to any act or action (including  failure to act) in connection with this
Agreement  or any other  Loan  Document,  then the Agent  shall be  entitled  to
refrain  from such act or taking  such  action  unless and until the Agent shall
have  received  instructions  from all  Lenders,  Requisite  Lenders,  Requisite
Revolving  Lenders or all  affected  Lenders,  as the case may be, and the Agent
shall not incur  liability to any Person by reason of so  refraining.  The Agent
shall be fully justified in failing or refusing to take any action  hereunder or
under any other Loan  Document (a) if such action  would,  in the opinion of the
Agent,  be  contrary  to law or the terms of this  Agreement  or any other  Loan
Document,  (b) if such action  would,  in the  opinion of the Agent,  expose the
Agent to  liabilities  beyond the limits of this  Agreement  or (c) if the Agent
shall not first be indemnified to its satisfaction against any and all liability
and expense  which may be incurred  by it by reason of taking or  continuing  to
take any such action.  Without limiting the foregoing,  no Lender shall have any
right of action whatsoever  against the Agent as a result of the Agent acting or
refraining from acting  hereunder or under any other Loan Document in accordance
with the instructions of all Lenders,  Requisite  Lenders,  Requisite  Revolving
Lenders or all affected Lenders, as applicable.

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          SECTION 10.02. AGENT'S RELIANCE, ETC. Neither the Agent nor any of its
Affiliates nor any of their respective directors,  officers, agents or employees
shall be liable for any action  taken or omitted to be taken by it or them under
or in connection  with this  Agreement or the other Loan  Documents,  except for
damages  caused by its or their  own gross  negligence  or  willful  misconduct.
Without limitation of the generality of the foregoing,  the Agent: (a) may treat
the payee of any Note as the holder  thereof  until the Agent  receives  written
notice of the  assignment or transfer  thereof  signed by such payee and in form
satisfactory  to the Agent;  (b) may  consult  with legal  counsel,  independent
public  accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in  accordance  with
the advice of such  counsel,  accountants  or experts;  (c) makes no warranty or
representation  to any Lender and shall not be responsible to any Lender for any
statements,  warranties or  representations  made in or in connection  with this
Agreement or the other Loan Documents;  (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this  Agreement or the other Loan  Documents on the part of any
Borrower or to inspect the  Collateral  (including  the books and records);  (e)
shall  not be  responsible  to any  Lender  for  the  due  execution,  legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document  furnished pursuant
hereto or thereto;  and (f) shall incur no liability under or in respect of this
Agreement  or the other  Loan  Documents  by acting  upon any  notice,  consent,
certificate or other instrument or writing (which may be by telecopy,  telegram,
cable or telex)  believed  by it to be genuine  and signed or sent by the proper
party or parties.

          SECTION 10.03.  FUNB AND  AFFILIATES.  With respect to its Commitments
hereunder,  FUNB shall have the same rights and powers under this  Agreement and
the other Loan Documents as any other Lender and may exercise the same as though
it were  not the  Agent;  and the  term  "Lender"  or  "Lenders"  shall,  unless
otherwise expressly indicated, include FUNB in its individual capacity. FUNB and
its Affiliates may lend money to, invest in, and generally engage in any kind of
business  with,  any Borrower,  any of its  Affiliates and any Person who may do
business with or own securities of any Borrower or any such Affiliate, all as if
FUNB were not the Agent and  without  any duty to account  therefor  to Lenders.
FUNB and its  Affiliates  may  accept  fees  and  other  consideration  from any
Borrower for services in  connection  with this  Agreement or otherwise  without
having to account for the same to Lenders. FUNB may also purchase or hold Equity
Interests  or warrants in KMC  Holdings or any  Borrower  and make  subordinated
loans to any  Borrower.  Each  Lender  acknowledges  the  potential  conflict of
interest  between  FUNB as a Lender  holding  disproportionate  interests in the
Loans, FUNB as a member or subordinated debt holder, of the Borrower and FUNB as
Agent.

          SECTION 10.04.  LENDER CREDIT DECISION.  Each Lender acknowledges that
it has,  independently  and without  reliance upon the Agent or any other Lender
and based on the financial  information given it by the Borrowers and such other
documents and information as it has deemed appropriate,  made its own credit and
financial  analysis  of the  Borrowers  and its own  decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance  upon the Agent or any other  Lender  and based on such  documents  and
information as it shall deem  appropriate at the time,  continue to make its own
credit  decisions  in taking or not taking  action  under this  Agreement.  Each
Lender acknowledges the potential conflict of interest of each other Lender as a

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result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

          SECTION  10.05.  INDEMNIFICATION.   Each  of  the  Lenders  agrees  to
indemnify  the Agent (to the extent not  reimbursed by the Borrowers and without
limiting the  obligations of Borrowers  hereunder),  ratably  according to their
respective  Pro  Rata  Shares,   from  and  against  any  and  all  liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses or disbursements of any kind or nature  whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this  Agreement or any other Loan Document or any action taken or omitted
by the Agent in connection therewith; PROVIDED, HOWEVER, that no Lender shall be
liable  for any  portion  of such  liabilities,  obligations,  losses,  damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross  negligence or willful  misconduct.  Without limiting the
foregoing,  each Lender agrees to reimburse  the Agent  promptly upon demand for
its  ratable  share  of any  out-of-pocket  expenses  (including  counsel  fees)
incurred by the Agent in connection with the preparation,  execution,  delivery,
administration,   modification,   amendment  or  enforcement   (whether  through
negotiations,  legal proceedings or otherwise) of, or legal advice in respect of
rights or  responsibilities  under, this Agreement and each other Loan Document,
to the  extent  that  the  Agent is not  reimbursed  for  such  expenses  by the
Borrowers.

          SECTION 10.06.  SUCCESSOR  AGENT.  The Agent may resign at any time by
giving not less than thirty (30) days' prior written  notice  thereof to Lenders
and the Borrowers.  Upon any such resignation,  the Requisite Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the  Requisite  Lenders and shall have  accepted  such  appointment
within 30 days after the resigning  Agent's giving notice of  resignation,  then
the resigning Agent may, on behalf of Lenders,  appoint a successor Agent, which
shall be a  Lender,  if a Lender  is  willing  to accept  such  appointment,  or
otherwise shall be a commercial bank or financial institution or a subsidiary of
a commercial bank or financial  institution if such commercial bank or financial
institution  is organized  under the laws of the United  States of America or of
any  State  thereof  and  has  a  combined  capital  and  surplus  of  at  least
$300,000,000.  If  no  successor  Agent  has  been  appointed  pursuant  to  the
foregoing,  by the 30th day after the date such notice of resignation  was given
by the  resigning  Agent,  such  resignation  shall  become  effective  and  the
Requisite  Lenders shall  thereafter  perform all the duties of Agent  hereunder
until such time, if any, as the Requisite  Lenders  appoint a successor Agent as
provided above. Any successor Agent appointed by the Requisite Lenders hereunder
shall  be  subject  to  the  approval  of  Borrowers,  such  approval  not to be
unreasonably  withheld  or delayed;  PROVIDED  that such  approval  shall not be
required  if a  Default  or an Event  of  Default  shall  have  occurred  and be
continuing.  Upon the  acceptance  of any  appointment  as Agent  hereunder by a
successor  Agent,  such successor  Agent shall succeed to and become vested with
all the rights,  powers,  privileges and duties of the resigning Agent. Upon the
earlier of the acceptance of any  appointment as Agent  hereunder by a successor
Agent or the effective date of the resigning Agent's resignation,  the resigning
Agent shall be discharged from its duties and  obligations  under this Agreement
and the other Loan Documents,  except that any indemnity  rights or other rights
in favor of such resigning  Agent shall  continue.  After any resigning  Agent's
resignation  hereunder,  the provisions of this SECTION 10.06 shall inure to its

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benefit as to any actions  taken or omitted to be taken by it while it was Agent
under this Agreement and the other Loan Documents.

          SECTION 10.07. PAYMENTS; NON-FUNDING LENDERS; INFORMATION;  ACTIONS IN
CONCERT.

          (a)  LOANS;  PAYMENTS.  Whenever  the  Agent  receives  a  payment  of
principal,  interest,  fee or premium (if any) or other payment, or whenever the
Agent makes an application of funds,  in connection  with the Loans or the Notes
(including, without limitation, any payment or application from any Collateral),
the Agent will on the date such  payment is received or applied,  if on or prior
to 11:00 a.m.  (Eastern  time) on such date,  or otherwise on the next  Business
Day, pay over to each Lender as instructed by such Lender in writing,  an amount
equal to such Lender's Pro Rata Share of such payment  provided that such Lender
has  funded  all  Loans  required  to  be  made  by it  and  has  purchased  all
participation  required to be purchased by it under this Agreement and the other
Loan  Documents as of such date.  To the extent that any Lender (a  "NON-FUNDING
LENDER")  has failed to fund all such  payments  and Loans or failed to fund the
purchase of all such  participation,  the Agent shall be entitled to set off the
funding  short-fall  against  that  Non-Funding  Lender's  Pro Rata Share of all
payments  received  from the  Borrowers.  All payments by Agent shall be made by
wire transfer to such  Lender's  account (as specified by such Lender) not later
than 2:00 p.m. (Eastern time) on the applicable Business Day.

          (b) RETURN OF PAYMENTS.  (i) If Agent pays an amount to a Lender under
this Agreement in the belief or expectation  that a related  payment has been or
will be received by the Agent from the Borrowers and such related payment is not
received by Agent,  then the Agent will be entitled to recover  such amount from
such Lender on demand without set-off, counterclaim or deduction of any kind.

          (ii) If the Agent  determines at any time that any amount  received by
     the Agent under this  Agreement must be returned to any Borrower or paid to
     any  other  Person  pursuant  to any  insolvency  law or  otherwise,  then,
     notwithstanding  any other term or condition of this Agreement or any other
     Loan  Document,  the Agent will not be required to  distribute  any portion
     thereof to any  Lender.  In  addition,  each  Lender will repay to Agent on
     demand any portion of such amount  that the Agent has  distributed  to such
     Lender,  together  with  interest  at such  rate,  if any,  as the Agent is
     required to pay to any  Borrower  or such other  Person,  without  set-off,
     counterclaim or deduction of any kind.

          (c) NON-FUNDING LENDERS. The failure of any Non-Funding Lender to make
any portion of its Loans or any payment  required  by it  hereunder  on the date
specified  therefor  shall not relieve any other Lender (each such other Lender,
an "OTHER  LENDER") of its  obligations  to make any such Loan on such date, but
neither  any  Other  Lender  nor the  Agent nor the  Collateral  Agent  shall be
responsible  for  the  failure  of any  Non-Funding  Lender  to make  any  Loan.
Notwithstanding  anything set forth herein to the contrary, a Non-Funding Lender
shall not have any voting or consent  rights  under or with  respect to any Loan
Document  or  constitute  a  "Lender"  (or be  included  in the  calculation  of
"Requisite  Lenders" or "Requisite  Revolving Lenders" hereunder) for any voting
or consent rights under or with respect to any Loan Document.

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          (d)  DISSEMINATION  OF  INFORMATION.  The  Agent  will use  reasonable
efforts  to  provide  Lenders  with any  notice of  Default  or Event of Default
received by the Agent from,  or delivered by the Agent to, the  Borrowers,  with
notice of any Event of Default of which the Agent has actually  become aware and
with  notice of any action  taken by the Agent  following  any Event of Default;
PROVIDED,  however,  that the Agent  shall not be liable to any  Lender  for any
failure to do so, except to the extent that such failure is  attributable to the
Agent's gross  negligence or willful  misconduct.  Lenders  acknowledge that the
Borrowers are required to provide  financial  statements and other  documents to
Lenders  pursuant to this  Agreement and agree that the Agent shall have no duty
to provide the same to Lenders.

          (e) ACTIONS IN CONCERT.  Anything in this  Agreement  to the  contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall  take any action to protect  or  enforce  its rights  arising  out of this
Agreement  or the Notes  (including  exercising  any rights of set-off)  without
first obtaining the prior written consent of the Agent, the Collateral Agent and
Requisite  Lenders,  it being the  intent  of  Lenders  that any such  action to
protect or enforce  rights under this  Agreement and the Notes shall be taken in
concert and at the  direction  or with the  consent of Agent and the  Collateral
Agent.

          SECTION 10.08. COLLATERAL MATTERS.

          (a) The Lenders hereby irrevocably  authorize the Collateral Agent, at
its option and in its reasonable business judgment, to release any Lien upon any
Collateral  (i)  upon  the  termination  of  the  Commitments  and  payment  and
satisfaction  of all Loans and all other  Obligations  and which the  Collateral
Agent has been notified in writing are then due and payable;  (ii)  constituting
property being sold or disposed of if the applicable  Borrower  certifies to the
Collateral Agent that the sale or disposition is made in compliance with SECTION
6.03 (and the Collateral  Agent may rely  conclusively on any such  certificate,
without  further  inquiry);   or  (iii)  constituting  property  leased  to  the
applicable  Borrower  under a lease  which has expired or been  terminated  in a
transaction  permitted under this Agreement or which will expire  imminently and
which has not been,  and is not  intended  by such  Borrower  to be,  renewed or
extended and with respect to which such  Borrower has not exercised any purchase
option.  Except as provided above,  the Collateral Agent will not release any of
the Liens without the prior  written  authorization  of the  Requisite  Lenders;
PROVIDED  that the  Collateral  Agent may not  release  the Liens on  Collateral
valued in the  aggregate  in  excess  of  $500,000  without  the  prior  written
authorization of the Requisite  Lenders and may not release all or substantially
all of the  Collateral  without the consent of the Lenders.  Upon request by the
Collateral  Agent or the  Borrowers  at any time,  the Lenders  will  confirm in
writing the Collateral  Agent's  authority to release any Liens upon  particular
types or items of Collateral pursuant to this SECTION 10.08(a).

          (b) Upon receipt by the Collateral Agent of any authorization required
pursuant  to  SECTION  10.08(a)  from  the  Requisite  Lenders  or  Lenders,  as
applicable,  of the  Collateral  Agent's  authority  to  release  any Liens upon
particular  types or items of  Collateral,  and upon at least five (5)  Business
Days' prior written  request by the  applicable  Borrower,  and provided that no
Event of Default has occurred and is then continuing, the Collateral Agent shall
(and is hereby irrevocably  authorized by the Lenders to) execute such documents
as may be necessary  to evidence the release of the Liens upon such  Collateral;
PROVIDED,  HOWEVER,  that (i) the  Collateral  Agent  shall not be  required  to

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execute any such document on terms which,  in the  Collateral  Agent's  opinion,
would  expose the  Collateral  Agent to liability  or create any  obligation  or
entail any consequence  other than the release of such Liens without recourse or
warranty,  and (ii) such release  shall not in any manner  discharge,  affect or
impair the  Obligations or any Liens (other than those expressly being released)
upon (or  obligations  of the  applicable  Borrower in respect of) all interests
retained by the applicable Borrower, including (without limitation) the proceeds
of any sale, all of which shall continue to constitute part of the Collateral.

          (c) The Collateral Agent shall have no obligation whatsoever to any of
the Lenders to assure that the Collateral  exists or is owned by any Borrower or
is cared for, protected or insured or has been encumbered, or, other than a duty
to act  without  recklessness,  willful  misconduct  or  gross  (but  not  mere)
negligence,  that the Liens  have been  properly  or  sufficiently  or  lawfully
created,  perfected,  protected  or enforced or are  entitled to any  particular
priority, or to exercise at all or in any particular manner or under any duty of
care,  disclosure  or fidelity,  or to continue  exercising,  any of the rights,
authorities  and powers  granted or  available  to the  pursuant to this SECTION
10.08 or pursuant to any of the Loan Documents,  it being  understood and agreed
that in  respect  of the  Collateral,  or any act,  omission  or  event  related
thereto, the Collateral Agent may act in any manner it may deem appropriate,  in
its reasonable  business judgment,  given the Collateral Agent's own interest in
the  Collateral  in its  capacity as one of the Lenders and that the  Collateral
Agent shall have no other duty or liability  whatsoever  to any Lender as to any
of the foregoing.

          SECTION 10.09. AGENCY FOR PERFECTION. Each Lender hereby appoints each
other  Lender as agent for the  purpose  of  perfecting  the  Lenders'  security
interest  in  assets  which,  in  accordance  with  Article  9 of the UCC can be
perfected  only by  possession.  Should any Lender  (other  than the  Collateral
Agent) obtain  possession of any such  Collateral,  such Lender shall notify the
Collateral  Agent thereof,  and,  promptly upon the Collateral  Agent's  request
therefor shall deliver such Collateral to the Collateral Agent.

          SECTION  10.10.   CONCERNING  THE  COLLATERAL  AND  THE  RELATED  LOAN
DOCUMENTS AND THE COLLATERAL  AGENT. (a) Each Lender  authorizes and directs the
Collateral  Agent to enter  into this  Agreement  and the other  Loan  Documents
relating to the Collateral,  for the ratable benefit of the Lenders. Each Lender
agrees that any action taken by the  Collateral  Agent or  Requisite  Lenders in
accordance with the terms of this Agreement or the other Loan Documents relating
to the  Collateral,  and the exercise by the  Collateral  Agent or the Requisite
Lenders of their  respective  powers set forth therein or herein,  together with
such other powers that are reasonably incidental thereto,  shall be binding upon
all of the Lenders.

          (b) The  Collateral  Agent with respect to the  administration  of the
Collateral  shall have the same rights,  obligations  and status as the Agent as
are set forth in SECTION 10.01, 10.02, 10.03, 10.04, 10.05, and 10.06 above.

                                   ARTICLE XI
                                  MISCELLANEOUS

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          SECTION 11.01. NOTICES;  ACTION ON NOTICES, ETC. (a) Notices and other
communications provided for herein shall be in writing and shall be delivered by
a courier service of recognized standing  (specifying one (1) day delivery),  or
by registered or certified mail, postage prepaid,  return receipt requested (or,
if by telecopy communications  equipment of the sending party, delivered by such
equipment) addressed,  if to the Borrowers, at KMC Telecom Inc., 1545 Route 206,
Suite 300,  Bedminster,  NJ 07921;  Attention:  President;  (telecopy  no. (908)
719-8775,  confirmation no. (908) 470-2200) with a copy to Alan M. Epstein Esq.,
Kelley Drye & Warren LLP, 101 Park Avenue,  New York,  NY 10178;  (telecopy  no.
(212)  808-7897,  confirmation  no. (212)  808-7800),  if to the Agent, at First
Union National Bank, Communications/Media  Finance-PA4829, 1339 Chestnut Street,
Philadelphia,  PA  19107,  Attention:   Elizabeth  Elmore  (telecopy  no.  (215)
786-7721,  confirmation no. (215) 786-4321),  and if to the Collateral Agent, at
Newcourt  Commercial Finance  Corporation,  c/o The CIT Group, Inc. - Structured
Finance Group, Two Gatehall Drive, First Floor, Parsippany, NJ 07054, Attention:
Media and Communications,  Vice  President-Credit  (telecopy no. (973) 355-7643,
confirmation no. (973)  355-7630),  with copies to Newcourt  Commercial  Finance
Corporation,  c/o The CIT Group,  Inc. - Structured  Finance Group, Two Gatehall
Drive, First Floor,  Parsippany,  NJ 07054,  Attention:  Vice President - Credit
(telecopy no. (973)  355-7641,  confirmation  no. (973) 355-7630) and Attention:
Vice  President - Legal  (telecopy no. (973)  355-7645,  confirmation  no. (973)
355-7609).  All notices and other  communications  given to any party  hereto in
accordance  with the provisions of this  Agreement  shall be deemed to have been
given (a) five  Business Days after mailing when sent by registered or certified
mail,  postage prepaid,  return receipt  requested,  or (b) upon receipt,  if by
courier service or any telecopy communications  equipment of the sender, in each
case  addressed to such party as provided in this Section or in accordance  with
the latest unrevoked direction from such party.

          (b) Each Borrower  agrees that the Agent or the  Collateral  Agent may
act upon any notice, consent,  certificate,  cable, telex or other instrument or
writing  believed by the Agent or the Collateral  Agent to be genuine,  that the
Agent or the Collateral  Agent may consult with legal  counsel,  selected by the
Agent or the  Collateral  Agent and shall not be liable to any  Borrower for any
action taken or omitted to be taken in good faith by Lender in  accordance  with
the advice of such counsel.

          SECTION 11.02. NO WAIVERS;  AMENDMENTS. (a) No failure or delay of the
Agent,  the  Collateral  Agent or any Lender to exercise any right  hereunder or
under any other Loan Document shall operate as a waiver  thereof,  nor shall any
single or partial  exercise  of any such  right,  preclude  any other or further
exercise  thereof or the exercise of any other right. No waiver of any provision
of this Agreement or any other Loan Document nor consent to any departure by any
Borrower  therefrom shall in any event be effective  unless the same shall be in
writing and signed by the Agent and the  Requisite  Lenders (or, if  applicable,
all  Lenders),  and then such waiver or consent  shall be effective  only in the
specific  instance and for the purpose for which  given.  No notice or demand on
any  Borrower  in any case shall  entitle  any  Borrower to any other or further
notice or demand in similar or other circumstances.

          (b) Subject to the provisions of this SECTION 11.02(b),  the Requisite
Lenders (or the Agent with the consent in writing of the Requisite  Lenders) and
the Borrowers may enter into agreements  supplemental  hereto for the purpose of

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adding or  modifying  any  provisions  to the Loan  Documents or changing in any
manner the rights of the Lenders or the Borrowers hereunder or waiving any Event
of Default or Default  hereunder;  PROVIDED,  any Interest Rate Agreement  which
constitutes a Loan  Document may be amended or modified  solely with the consent
of the parties thereto;  PROVIDED,  FURTHER,  HOWEVER, that no such supplemental
agreement shall, without the consent of each Lender affected thereby:

          (i) Postpone or extend the  Revolving  Credit  Commitment  Termination
     Date,  the  maturity  date for the  Loans or any other  date  fixed for any
     payment of  principal  of, or  interest  on, the Loans or any fees or other
     amounts payable to such Lender except with respect to (A) any modifications
     of the provisions  relating to  prepayments of Loans and other  Obligations
     and (B) a  waiver  of the  application  of the  default  rate  of  interest
     pursuant to SECTION 2.05(b) hereof.

          (ii) Reduce the principal  amount of any Loans,  or reduce the rate or
     extend the time of payment of interest or fees thereon.

          (iii) Reduce the  percentage  specified in the definition of Requisite
     Lenders or Requisite  Revolving  Lenders or any other percentage of Lenders
     specified  to be the  applicable  percentage  in this  Agreement  to act on
     specified matters or amend the definition of "Pro Rata Share".

          (iv) Increase the amount of any Commitment of any Lender  hereunder or
     increase or decrease any Lender's Pro Rata Share.

          (v) Permit any Borrower to assign its rights under this Agreement.

          (vi) Release all or substantially all of the Collateral.

          (vii) Amend this SECTION 11.02(b).

No amendment of any  provision  of this  Agreement  relating to the Agent or the
Collateral Agent shall be effective  without the written consent of the Agent or
the Collateral Agent, as applicable.

          SECTION 11.03. GOVERNING LAW AND JURISDICTION.  THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS  SHALL BE CONSTRUED IN ACCORDANCE  WITH AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICTS OF
LAWS PRINCIPLES.  THE BORROWERS, THE AGENT, THE COLLATERAL AGENT AND THE LENDERS
CONSENT TO THE JURISDICTION OF ANY LOCAL,  STATE OR FEDERAL COURT LOCATED IN THE
CITY AND STATE OF NEW YORK AND WAIVE ANY OBJECTION RELATING TO IMPROPER VENUE OR
FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING BY SUCH COURT.

          SECTION  11.04.  EXPENSES.  The Borrowers will pay, and have joint and
several  liability  for,  all  documented  out-of-pocket   third-party  expenses
(including  in each case all  reasonable  attorneys'  and  paralegals'  fees and
related expenses and costs), (i) incurred by the Agent, the Collateral Agent and
the  Documentation  Agent in connection  with the  negotiation,  preparation and

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execution of the Loan Documents  (whether or not the  transactions  contemplated
hereby shall be consummated),  subject, however, to the limitations set in those
certain letters dated September 25, 1998 between KMC Holdings and the Agent, and
KMC Holdings and the Documentation  Agent, with respect to the fees and expenses
of counsel  for the Agent and the  Documentation  Agent,  (ii)  incurred  by the
Agents,  in connection with the  administration  of the Loan Documents,  and the
creation,  perfection,  priority and protection of the Liens in the  Collateral,
and (iii) incurred by any Agent or any Lender in connection with the enforcement
of the rights of any Agent or any Lender in connection with this Agreement,  any
other Loan Documents or the Collateral,  or any restructuring or workout of this
Agreement or the other Loan Documents.

          SECTION 11.05. EQUITABLE RELIEF. Each Borrower recognizes that, in the
event  such  Borrower  fails  to  perform,  observe  or  discharge  any  of  its
obligations or liabilities under this Agreement, or any other Loan Document, any
remedy at law may prove to be  inadequate  relief to the Agent,  the  Collateral
Agent and the Lenders;  therefore,  such  Borrower  agrees that the Agent or the
Collateral  Agent,  if it so  requests,  shall  be  entitled  to  temporary  and
permanent  injunctive  relief in any such case without the  necessity of proving
actual damages.

          SECTION  11.06.  INDEMNIFICATION;   LIMITATION  OF  LIABILITY;  LUCENT
RELATIONSHIPS.  (a) The  Borrowers  jointly  and  severally  agree  to  protect,
indemnify and hold harmless the Agent, the Collateral Agent each Lender and each
of their  respective  officers,  affiliates,  directors,  employees,  attorneys,
accountants,  consultants,  representatives and agents  (collectively called the
"INDEMNITEES")  from and against any and all liabilities,  obligations,  losses,
damages,  penalties,  actions,  judgments,  suits, claims,  costs,  expenses and
disbursements  (including,   without  limitation,  payment  by  the  Agent,  the
Collateral  Agent or any  Lender  of any  obligations  due or past due under any
contract or  agreement  to which any Borrower is or becomes a party) of any kind
or nature whatsoever (including,  without limitation, the fees and disbursements
of counsel  for and  consultants  of such  Indemnitees  in  connection  with any
investigative,  administrative  or  judicial  proceeding,  whether  or not  such
Indemnitees  shall be  designated  a party  thereto),  which may be imposed  on,
incurred by, or asserted against such Indemnitees (whether direct,  indirect, or
consequential  and whether based on any federal or state laws or other statutory
regulations,  including,  without  limitation,  securities,   environmental  and
commercial  laws and  regulations,  under common law or at equitable cause or in
contract  or  otherwise)  in any  manner  relating  to or  arising  out of  this
Agreement or any of the other Loan  Documents,  or any act, event or transaction
related or attendant thereto,  the agreements of the Agent, the Collateral Agent
or the Lenders  contained  herein,  the making of Loans,  the management of such
Loans or the Collateral  (including any liability under  Environmental  Laws) or
the use or intended use of the proceeds of such Loans  hereunder  (collectively,
the  "INDEMNIFIED  MATTERS");  PROVIDED  that the  Borrowers  shall not have any
obligation  to any  Indemnitee  hereunder  with respect to  Indemnified  Matters
caused by or resulting from the willful  misconduct or gross  negligence of such
Indemnitee;  PROVIDED, FURTHER that no Borrower shall have any obligation to any
Indemnitee hereunder with respect to taxes that are imposed on the net income of
any  Indemnitee  or  any  franchise  or  doing  business  taxes  imposed  on any
Indemnitee.  To the  extent  that the  undertaking  to  indemnify,  pay and hold
harmless set forth in the preceding sentence may be unenforceable  because it is
violative  of any law or public  policy,  the  Borrowers  shall  contribute  the
maximum  portion which they are  permitted to pay and satisfy  under  applicable

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law, to the payment and satisfaction of all Indemnified  Matters incurred by the
Indemnitees.

          (b) To the extent permitted by applicable law, no claim may be made by
the Borrowers or any other Person against the Agent,  the Collateral  Agent, any
Lender or any of their respective affiliates,  directors,  officers,  employees,
agents, attorneys, accountants,  representatives or consultants for any special,
indirect,  consequential  or punitive damages in respect of any claim for breach
of contract or any other  theory of  liability  arising out of or related to the
transactions  contemplated by any of the Loan Documents or any act,  omission or
event occurring in connection therewith; and the Borrowers hereby waive, release
and agree not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.

          (c) The Borrowers agree not to, and hereby irrevocably waive any right
to, (i) assert in any action or proceeding relating to any of the Loan Documents
or the transactions contemplated thereby, any claim,  counterclaim,  cross claim
or defense  arising  from any act or omission  of Lucent  other than in Lucent's
capacity  as a Lender  under the Loan  Documents,  and (ii)  assert any right of
setoff in lieu of making payment under the Loan  Documents  arising from any act
or omission of Lucent other than in Lucent's capacity as a Lender under the Loan
Documents.

          SECTION 11.07.  SURVIVAL OF REPRESENTATIONS  AND WARRANTIES,  ETC. All
warranties and  representations  made by any Borrower in any Loan Document shall
survive  the  execution  and  delivery  of this  Agreement  and the  other  Loan
Documents and the making and repayment of the Obligations.  The  confidentiality
obligations of each Borrower in SECTION 11.16, the  indemnification  obligations
of each  Borrower  in SECTION  11.06,  and to the extent the second  sentence of
SECTION  11.13 is  applicable,  all  covenants  of each  Borrower,  survive  the
repayment of the Obligations.

          SECTION 11.08. SUCCESSORS AND ASSIGNS; ASSIGNMENTS; PARTICIPATIONS.

          (a) GENERAL.  The terms and provisions of the Loan Documents  shall be
binding  upon  and  inure  to the  benefit  of the  Borrowers,  the  Agent,  the
Collateral  Agent and the Lenders and their  respective  successors and assigns,
except  that (i) no  Borrower  shall  have any  right to  assign  its  rights or
obligations  under the Loan Documents and (ii) any assignment by any Lender must
be made in compliance with  SUBSECTION (c) below.  With respect to any Borrower,
successors and assigns shall include, without limitation,  any receiver, trustee
or debtor-in-possession of or for such Borrower.  Notwithstanding the foregoing,
any Lender may at any time,  without the consent of the  Borrowers or the Agent,
assign all or any portion of its rights under this  Agreement and its Notes to a
Federal Reserve Bank or to an affiliate of such Lender or as collateral security
for any loan or  financing or in  connection  with any  securitization  or other
similar transaction;  PROVIDED,  HOWEVER,  that no such assignment shall release
the  transferor  Lender  from its  obligations  hereunder.  The  Agent  shall be
entitled to utilize  its  Register  to  determine  the payee of any Note for all
purposes  hereof.  Any request,  authority or consent of any Person,  who at the
time of making such request or giving such authority or consent is the holder of

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any Note, shall be conclusive and binding on any subsequent  holder,  transferee
or assignee of such Note or of any Note or Notes issued in exchange therefor.

          (b) Participations.

          (i)  Subject  to the  terms set forth in this  Section  11.08(b),  any
     Lender may, in the ordinary  course of its business and in accordance  with
     applicable  law,  at any time sell to one or more  banks or other  entities
     ("Participants")  participating interests in any Loan owing to such Lender,
     any Note held by such Lender,  any  Commitment  of such Lender or any other
     interest of such Lender  under the Loan  Documents on a pro rata or non-pro
     rata basis in an aggregate principal amount of at least $5,000,000.  Notice
     of  such  participation  to  the  Agent  shall  be  required  prior  to any
     participation becoming effective with respect to a Participant which is not
     a Lender or an Affiliate thereof. In the event of any such sale by a Lender
     of  participating  interests to a  Participant,  such Lender's  obligations
     under the Loan Documents shall remain  unchanged,  such Lender shall remain
     solely  responsible to the other parties hereto for the performance of such
     obligations,  such Lender  shall remain the holder of any such Note for all
     purposes under the Loan Documents,  such Lender shall be solely responsible
     for any  withholding  taxes or any  filing  or  reporting  requirements  in
     connection  therewith relating to such Participant,  all amounts payable by
     the Borrowers  under this  Agreement  shall be determined as if such Lender
     had not sold such participating  interests, and the Borrowers and the Agent
     shall  continue to deal solely and directly  with such Lender in connection
     with such Lender's rights and obligations  under the Loan Documents  except
     that,  for  purposes of Section  2.13  hereof,  the  Participants  shall be
     entitled  to the same  rights as if they  were  Lenders,  provided  that no
     Participant  shall be entitled to receive  any greater  amount  pursuant to
     Section  2.13 than such  Lender  would  have been  entitled  to  receive in
     respect of the amount of the participation  transferred to such Participant
     had no transfer occurred.

          (ii) Each Lender shall  retain the sole right to approve,  without the
     consent of any  Participant,  any amendment,  modification or waiver of any
     provision of the Loan Documents  other than any amendment,  modification or
     waiver with respect to any Loan or Commitment in which such Participant has
     an  interest  which  forgives  principal,  interest  or fees or reduces the
     interest rate or fees payable  pursuant to the terms of this Agreement with
     respect to any such Loan or  Commitment,  postpones  any date fixed for any
     regularly-scheduled  payment of  principal  of, or interest or fees on, any
     such  Loan or  Commitment,  or  releases  all or  substantially  all of the
     Collateral, if any, securing any such Loan.

          (iii) The  Borrowers  agree that each  Participant  shall be deemed to
     have the right of setoff  provided in SECTION 9.09 hereof in respect of its
     participating  interest in amounts  owing under the Loan  Documents  to the
     same  extent as if the  amount of its  participating  interest  were  owing
     directly to it as a Lender  under the Loan  Documents,  PROVIDED  that each
     Lender  shall  retain the right of setoff  provided in SECTION  9.09 hereof
     with  respect  to the  amount  of  participating  interests  sold  to  each
     Participant  except to the extent such  Participant  exercises its right of
     setoff.  The  Lenders  agree  to  share  with  each  Participant,  and each
     Participant,  by  exercising  the right of setoff  provided in SECTION 9.09

                                      99
<PAGE>

     hereof,  agrees to share with each Lender,  any amount received pursuant to
     the  exercise  of its  right  of  setoff,  such  amounts  to be  shared  in
     accordance with SECTION 9.09 as if each Participant were a Lender.

          (c) Assignments.

          (i) Any Lender  may, in the  ordinary  course of its  business  and in
     accordance  with applicable law, at any time assign to one or more banks or
     other  entities   ("PURCHASERS")  all  or  a  portion  of  its  rights  and
     obligations  under  this  Agreement  (including,  without  limitation,  its
     Commitment  and the Loans owing to it  hereunder)  in  accordance  with the
     provisions  of  this  SECTION  11.08(c).  Each  assignment  shall  be  of a
     constant,  and not a varying,  ratable  percentage  of all of the assigning
     Lender's rights and obligations under this Agreement. Such assignment shall
     be  evidenced  by an  Assignment  Agreement  substantially  in the  form of
     EXHIBIT O attached hereto and shall not be permitted  hereunder unless such
     assignment is either for all of such Lender's rights and obligations  under
     the Loan Documents or, for Loans and Commitments in an aggregate  principal
     amount  equal to the  lesser of  $5,000,000  (which  minimum  amount may be
     waived by the Requisite Lenders after the occurrence of a Default) and such
     Lender's Commitment Amount.

          (ii)  Upon (i)  delivery  to the Agent of a notice  of  assignment  (a
     "NOTICE OF ASSIGNMENT"),  together with any consent required hereunder, and
     (ii) payment of a $3,500  processing fee to the Agent for  processing  such
     assignment  if such  assignment is to a Person which is not an affiliate of
     the  assigning  Lender,  such  assignment  shall  become  effective  on the
     effective date specified in such Notice of Assignment. The assigning Lender
     shall be obligated to reimburse  the Agent for all other costs and expenses
     associated with the preparation and execution of such assignment (including
     reasonable attorneys' fees arising out of such preparation and execution of
     such  assignment).  The Notice of Assignment shall contain a representation
     by the Purchaser to the effect that none of the consideration  used to make
     the purchase of the Commitment  and Loans under the  applicable  assignment
     agreement  are "plan assets" as defined under ERISA and that the rights and
     interests  of the  Purchaser  in and under the Loan  Documents  will not be
     "plan  assets"  under  ERISA.  On and  after  the  effective  date  of such
     assignment, such Purchaser, if not already a Lender, shall for all purposes
     be a Lender party to this Agreement and any other Loan  Documents  executed
     by the  Lenders and shall have all the rights and  obligations  of a Lender
     under the Loan  Documents,  to the same  extent  as if it were an  original
     party  hereto,  and no  further  consent  or action by the  Borrowers,  the
     Lenders or the Agent shall be required  to release  the  transferor  Lender
     with  respect  to the  percentage  of the  aggregate  Commitment  and Loans
     assigned to such  Purchaser.  Upon the  consummation of any assignment to a
     Purchaser pursuant to this SECTION 11.08(C)(ii), the transferor Lender, the
     Agent  and  the  Borrowers  shall  make  appropriate  arrangements  so that
     replacement Notes are issued to such transferor Lender and new Notes or, as
     appropriate,  replacement Notes, are issued to such Purchaser, in each case
     in principal  amounts  reflecting  their  Commitment  and their  Loans,  as
     adjusted pursuant to such assignment.

                                      100
<PAGE>

          (iii) The Agent shall  maintain at its address  referred to in SECTION
     11.01 a copy of each assignment delivered to and accepted by it pursuant to
     this SECTION 11.08 and a register (the  "REGISTER")  for the recordation of
     the names and addresses of the Lenders and the  Commitment of and principal
     amount of the Loans  owing to,  each  Lender  from time to time and whether
     such  Lender  is an  original  Lender or the  assignee  of  another  Lender
     pursuant to an  assignment  under this  SECTION  11.08.  The entries in the
     Register shall be conclusive and binding for all purposes,  absent manifest
     error,  and the Borrowers,  the Agent and the Lenders may treat each Person
     whose  name is  recorded  in the  Register  as a Lender  hereunder  for all
     purposes of this Agreement.  The Register shall be available for inspection
     by the Borrowers or any Lender at any reasonable time and from time to time
     upon reasonable prior notice.

          SECTION 11.09. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement or any other Loan Document shall be invalid, illegal
or unenforceable in any respect,  the validity,  legality and  enforceability of
the remaining  provisions  contained  herein and therein shall not in any way be
affected or impaired thereby.

          SECTION 11.10. COVER PAGE, TABLE OF CONTENTS AND SECTION HEADINGS. The
cover  page,  Table  of  Contents  and  section  headings  used  herein  are for
convenience  of reference  only,  are not part of this  Agreement and are not to
affect the construction of or be taken into  consideration in interpreting  this
Agreement.

          SECTION  11.11.   COUNTERPARTS.   This  Agreement  may  be  signed  in
counterparts  with the same effect as if the signatures  thereof and hereto were
upon the same instrument.

          SECTION 11.12.  APPLICATION OF PAYMENTS.  Notwithstanding any contrary
provision  contained in this  Agreement  or in any of the other Loan  Documents,
upon the  occurrence and during the  continuance  of any Event of Default,  each
Borrower  irrevocably  waives the right to direct the application of any and all
payments at any time or times hereafter received by the Agent or any Lender from
such Borrower or with respect to any of the  Collateral,  and such Borrower does
hereby  irrevocably agree that the Agent or any Lender shall have the continuing
exclusive  right to apply and reapply any and all payments  received at any time
or times hereafter, whether with respect to the Collateral or otherwise, against
the  Obligations  in such manner as the Agent or any Lender may deem  advisable,
notwithstanding  any entry by the Agent or any Lender  upon any of its books and
records, subject, however, to the provisions of SECTION 2.08(c).

          SECTION 11.13. MARSHALLING;  PAYMENTS SET ASIDE. Neither the Agent nor
the  Collateral  Agent shall be under any  obligation  to marshall any assets in
favor of any  Borrower or any other party or against or in payment of any or all
of the Obligations.  To the extent that any Borrower makes a payment or payments
to any Agent or any  Lender or the  Agent,  the  Collateral  Agent or any Lender
enforces its security  interests  or  exercises  its rights of setoff,  and such
payment or payments or the  proceeds of such  enforcement  or setoff or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law,  common law or equitable  cause,
then to the extent of such recovery,  the obligation or part thereof  originally
intended to be satisfied shall be revived and continued in full force and effect

                                      101
<PAGE>

as if such  payment  had not been made or such  enforcement  or  setoff  had not
occurred.

          SECTION  11.14.  SERVICE OF PROCESS.  EACH  BORROWER  WAIVES  PERSONAL
SERVICE OF ANY PROCESS UPON IT AND,  CONSENTS  THAT ALL SERVICE OF PROCESS SHALL
BE MADE BY REGISTERED MAIL, RETURN RECEIPT REQUESTED,  DIRECTED TO SUCH BORROWER
AT THE ADDRESS INDICATED IN SECTION 11.01 AND SERVICE SO MADE SHALL BE DEEMED TO
BE  COMPLETED  FIVE (5)  BUSINESS  DAYS AFTER  SAME  SHALL  HAVE BEEN  POSTED AS
AFORESAID.

          SECTION 11.15.  WAIVER OF JURY TRIAL, ETC. EACH OF THE BORROWERS,  THE
AGENT,  THE  COLLATERAL  AGENT AND THE  LENDERS  WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE  IN RESOLVING ANY DISPUTE,  WHETHER  SOUNDING IN CONTRACT,  TORT, OR
OTHERWISE,  BETWEEN  THE  AGENT,  THE  COLLATERAL  AGENT OR ANY  LENDER  AND ANY
BORROWER  ARISING  OUT OF,  CONNECTED  WITH,  RELATED  TO OR  INCIDENTAL  TO THE
RELATIONSHIP  ESTABLISHED  BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY OTHER INSTRUMENT,  DOCUMENT OR AGREEMENT  EXECUTED OR
DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS  RELATED THERETO.  EACH OF
THE BORROWERS, THE AGENT, THE COLLATERAL AGENT AND THE LENDERS HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT  TRIAL  WITHOUT  A JURY  AND  THAT  ANY OF THEM  MAY  FILE AN  ORIGINAL
COUNTERPART OR A COPY OF THIS  AGREEMENT  WITH ANY COURT AS WRITTEN  EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

          SECTION 11.16.  CONFIDENTIALITY.  No Borrower shall at any time before
or after payment in full and  satisfaction  of all of the  Obligations,  reveal,
divulge or make known, or knowingly  permit to be so revealed,  divulged or made
known, to any Person  (including  Persons within its own organization who do not
have a definite need to know for the purpose of performance of this  Agreement),
the terms or  conditions of the Fee Letters;  PROVIDED that the foregoing  shall
not  apply  to  information  required  to be  disclosed  by  order of a court of
competent jurisdiction or in connection with any governmental  investigation (in
each case to the extent disclosure is required,  but no further) so long as such
Borrower  notifies  the Agent in  writing  of any  circumstances  of which  such
Borrower is aware that may lead to such a requirement  or order,  so as to allow
the  Agent to take  steps to  contest  such  order or  investigation;  PROVIDED,
FURTHER,  that the foregoing shall not apply to information which is required to
be  disclosed  by  such  Borrower  or   information   which  in  the  reasonable
determination  of such  Borrower is  desirable  for such  Borrower to  disclose,
pursuant  to  federal  or  state  securities  laws,  pursuant  to the  rules  or
regulations of the FCC, any PUC or other applicable  Governmental  Authority, or
to Persons who are consultants, advisors (including but not limited to attorneys
and auditors),  officers, directors or employees of such Borrower, provided that
each  such  Person  is  required  by  such  Borrower  to keep  such  information
confidential.

                                      102
<PAGE>

          SECTION 11.17.  ENTIRE AGREEMENT,  ETC. This Agreement  (including all
schedules and exhibits  referred to herein),  the Notes, the Fee Letters and all
other Loan  Documents  constitute  the entire  contract among the parties hereto
with respect to the subject  matter  hereof and thereof and shall  supersede and
take the place of any other  instrument  purporting  to be an  agreement  of the
parties hereto relating to such subject matter.

          SECTION  11.18.  NO  STRICT  CONSTRUCTION.  The  parties  hereto  have
participated,  jointly in the negotiation and drafting of this Agreement. In the
event of any  ambiguity  or question of intent or  interpretation  arises,  this
Agreement  shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring  any party by
virtue of authorship of any provisions of this Agreement.

                                      103
<PAGE>

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

                              KMC TELECOM INC., as a Borrower

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

                              KMC TELECOM II, INC., as a Borrower

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

                              KMC TELECOM III, INC., as a Borrower

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

                              KMC TELECOM OF VIRGINIA, INC., as a Borrower

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

<PAGE>

                              KMC TELECOM LEASING I LLC, as a Borrower
                                    BY:  KMC TELECOM INC., as Sole Member

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

                              KMC TELECOM LEASING II LLC, as a Borrower
                                    BY:  KMC TELECOM II, INC., as Sole Member

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

                              KMC TELECOM LEASING III LLC, as a Borrower
                                    BY:  KMC TELECOM III, INC., as Sole Member

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

                              KMC TELECOM.COM, INC., as a Borrower

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

                              KMC III SERVICES LLC, as a Borrower
                                    BY: KMC Telecom III, Inc., as Sole Member

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

<PAGE>

                              NEWCOURT   COMMERCIAL  FINANCE   CORPORATION,   an
                              affiliate of The CIT Group,  Inc., as a Lender and
                              as Collateral Agent

                              By: /s/
                                  ----------------------------------------------
                                  Name: Michael V. Monahan
                                  Title: Vice President

                              FIRST UNION NATIONAL BANK, as a Lender and as
                              Administrative Agent

                              By: /s/
                                  ----------------------------------------------
                                  Name: Elizabeth Elmore
                                  Title: Senior Vice President

                              GENERAL ELECTRIC CAPITAL CORPORATION, as a
                              Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Mark F. Mylon
                                  Title: Manager-Operations

                              CANADIAN IMPERIAL BANK OF COMMERCE, as
                              a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Ellen Marshall
                                  Title: Managing Director
                                         CIBC World Markets Corp., as Agent

                              LUCENT TECHNOLOGIES INC., as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Dina Fede
                                  Title: Director-Customer Finance

<PAGE>

                              BANKBOSTON, N.A., as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Michael A. Ashton
                                  Title: Vice President

                              CREDIT SUISSE FIRST BOSTON, as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Jeffrey B. Ulmer
                                  Title: Vice President

                              By: /s/
                                  ----------------------------------------------
                                  Name: Douglas E. Maher
                                  Title: Vice President

                              DRESDNER BANK AG NEW YORK AND
                              GRAND CAYMAN BRANCHES, as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: John P. Flesler
                                  Title: Senior Vice President

                              By: /s/
                                  ----------------------------------------------
                                  Name: Constance Loosemore
                                  Title: Assistant Vice President

                              MORGAN STANLEY SENIOR FUNDING, INC.,
                                   as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: T. Morgan Edwards II
                                  Title: Vice President

                              By: /s/
                                  ----------------------------------------------
                                  Name:
                                  Title:

<PAGE>

                              MORGAN STANLEY DEAN WITTER
                              PRIME INCOME TRUST, as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Shelia Finnely
                                  Title: Senior Vice President

                              UNION BANK OF CALIFORNIA, as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Keith M. Wilson
                                  Title: Vice President

                              KEYPORT LIFE INSURANCE COMPANY, as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Brian W. Good
                                  Title: Vice President & Portfolio Manager

                              STEIN ROE FLOATING RATE LIMITED
                              LIABILITY COMPANY, as a Lender

                              By: /s/
                                  ----------------------------------------------
                                  Name: Brian W. Good
                                  Title: Vice President,
                                         Stein Roe & Farnham Incorporated
                                         as Advisor to the Stein Roe Floating
                                         Rate Limited Liability Company

<PAGE>

                                   ANNEX A

                              COMMITMENT AMOUNTS

                               REVOLVING LOANS

<TABLE>
<CAPTION>
Lender                                          Revolving Loan Commitment Amount

<S>                                                    <C>
Newcourt Commercial Finance Corporation                $ 22,500,000
Canadian Imperial Bank of Commerce                     $ 22,500,000
First Union National Bank                              $ 37,500,000
General Electric Capital Corporation                   $ 22,500,000
BankBoston, N.A.                                       $ 14,000,000
Credit Suisse First Boston                             $ 17,500,000
Dresdner Bank AG New York & Grand                      $ 14,000,000
Cayman Branches
Morgan Stanley Senior Funding, Inc.                    $ 17,500,000
Union Bank of California, N.A.                         $  7,000,000
TOTAL                                                  $175,000,000
</TABLE>

<PAGE>

                                 TERM A LOANS

<TABLE>
<CAPTION>
Lender                                          Term A Loan Commitment Amount
<S>                                                       <C>
Newcourt Commercial Finance Corporation                   $ 3,250,000
Canadian Imperial Bank of Commerce                        $ 3,250,000
First Union National Bank                                 $ 3,250,000
General Electric Capital Corporation                      $ 3,250,000
BankBoston, N.A.                                          $ 6,000,000
Credit Suisse First Boston                                $ 7,500,000
Dresdner Bank AG New York & Grand                         $ 6,000,000
Cayman Branches
Keyport Life Insurance Company                            $ 5,000,000
Morgan Stanley Dean Witter Prime                          $25,000,000
Income Trust
Morgan Stanley Senior Funding, Inc.                       $ 7,500,000
Stein Roe Floating Rate Limited                           $ 2,000,000
Liability Compan
Union Bank of California, N.A.                            $ 3,000,000
TOTAL                                                     $75,000,000
</TABLE>

                                 TERM B LOANS

<TABLE>
<CAPTION>
Lender                           Term B Loan Commitment Amount
<S>                                     <C>
Lucent Technologies Inc.                $450,000,000

TOTAL COMMITMENTS                       $700,000,000
</TABLE>

<PAGE>

                                   ANNEX B

                        FINANCIAL COVENANT INFORMATION

<TABLE>
<CAPTION>
                 ITEM 2
         FISCAL QUARTER ENDING                      MINIMUM REVENUES

<S>                                                   <C>
March 31, 2000                                        $ 24,935,000
June 30, 2000                                         $ 33,833,000
September 30, 2000                                    $ 43,122,000
December 31, 2000                                     $ 52,827,000
March 31, 2001                                        $ 65,937,000
June 30, 2001                                         $ 80,205,000
September 30, 2001                                    $ 92,926,000
December 31, 2001                                     $103,370,000
</TABLE>

        ITEM 2

<TABLE>
<CAPTION>
                          115% OF EBITDA         EBITDA LOSSES
FISCAL QUARTER ENDING         LOSSES            LESS $7,500,000
<S>                        <C>                   <C>
March 31, 2000             ($72,368,000)         ($70,429,000)
June 30, 2000              ($78,372,000)         ($75,649,000)
September 30, 2000         ($64,507,000)         ($63,593,000)
December 31, 2000          ($49,948,000)         ($50,933,000)
March 31, 2001             ($25,563,000)         ($29,729,000)
June 30, 2001              $  1,082,000(1)       ($ 6,227,000)
</TABLE>

        ITEM 3

<TABLE>
<CAPTION>
FISCAL QUARTER ENDING         85% OF                EBITDA
                              EBITDA           LESS $7,500,000
<S>                          <C>                  <C>
September 30, 2001           $20,668,000          $16,815,000
December 31, 2001            $37,435,000          $36,541,000
</TABLE>

---------------------
(1)  This is a positive number.

<PAGE>

<TABLE>
<CAPTION>
ITEM 4                             CUMULATIVE CAPITAL EXPENDITURES
------                                      PLUS $25,000,000
FISCAL QUARTER ENDING              -------------------------------
---------------------
<S>                                          <C>
March 31, 2000                               742,645,000
June 30, 2000                                825,986,000
September 30, 2000                           895,254,000
December 31, 2000                            935,558,000
March 31, 2001                               963,623,000
June 30, 2001                                992,069,000
September 30, 2001                         1,031,824,000
December 31, 2001                          1,060,558,000
</TABLE>

<TABLE>
<CAPTION>

ITEM 5                            75% OF MINIMUM ACCESS LINES
------                            ---------------------------
FISCAL QUARTER ENDING
<S>                                           <C>
March 31, 2000                                106,672
June 30, 2000                                 137,394
September 30, 2000                            168,485
December 31, 2000                             203,380
March 31, 2001                                246,606
June 30, 2001                                 296,940
September 30, 2001                            349,859
December 31, 2001                             403,132
</TABLE>

<PAGE>

                                   ANNEX C

                     REVOLVING LOAN COMMITMENT REDUCTIONS
<TABLE>
<CAPTION>

                     PAYMENT DATE            COMMITMENT REDUCTION

<S>                                                 <C>
April 1, 2003                                       5.00%
July 1, 2003                                        3.75%
October 1, 2003                                     3.75%
January 1, 2004                                     3.75%
April 1, 2004                                       3.75%
July 1, 2004                                        6.25%
October 1, 2004                                     6.25%
January 1, 2005                                     6.25%
April 1, 2005                                       6.25%
July 1, 2005                                        6.25%
October 1, 2005                                     6.25%
January 1, 2006                                     6.25%
April 1, 2006                                       6.25%
July 1, 2006                                        7.50%
October 1, 2006                                     7.50%
January 1, 2007                                     7.50%
April 1, 2007                                       7.50%

</TABLE>

<PAGE>

                            TERM A LOAN REDUCTIONS
<TABLE>
<CAPTION>

                                             Percentage of Outstanding Principal
PAYMENT DATE                                       Balance of Term A Loans
                                                         TO BE REPAID

<S>                                                        <C>
April 1, 2002                                               0.25%
July 1, 2002                                                0.25%
October 1, 2002                                             0.25%
January 1, 2003                                             0.25%
April 1, 2003                                               0.25%
July 1, 2003                                                0.25%
October 1, 2003                                             0.25%
January 1, 2004                                             0.25%
April 1, 2004                                               0.25%
July 1, 2004                                                0.25%
October 1, 2004                                             0.25%
January 1, 2005                                             0.25%
April 1, 2005                                               0.25%
July 1, 2005                                                0.25%
October 1, 2005                                             0.25%
January 1, 2006                                             0.25%
April 1, 2006                                               0.25%
July 1, 2006                                                0.25%
October 1, 2006                                             0.25%
January 1, 2007                                             0.25%
April 1, 2007                                               47.50%
July 1, 2007                                                47.50%

</TABLE>

<PAGE>

                            TERM B LOAN REDUCTIONS
<TABLE>
<CAPTION>

                                             Percentage of Outstanding Principal
PAYMENT DATE                                       Balance of Term B Loans
                                                         TO BE REPAID

<S>                                                         <C>
July 1, 2003                                                5.00%
October 1, 2003                                             3.75%
January 1, 2004                                             3.75%
April 1, 2004                                               3.75%
July 1, 2004                                                3.75%
October 1, 2004                                             6.25%
January 1, 2005                                             6.25%
April 1, 2005                                               6.25%
July 1, 2005                                                6.25%
October 1, 2005                                             6.25%
January 1, 2006                                             6.25%
April 1, 2006                                               6.25%
July 1, 2006                                                6.25%
October 1, 2006                                             7.50%
January 1, 2007                                             7.50%
April 1, 2007                                               7.50%
July 1, 2007                                                7.50%

</TABLE>

<PAGE>

                               SCHEDULE 1.01(A)

                    APPLICABLE MARGIN FOR REVOLVING LOANS

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------
                                                     Applicable   Applicable
                                                     Margin for   Margin for
                                                     Base Rate       LIBOR
                                                       Loans         Loans
-------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Total Leverage Ratio > 12.0x or EBITDA negative        3.00%         4.00%
                     -
The Total Leverage Ratio > = 10.0x and < 12.0x         2.75%         3.75%
The Total Leverage Ratio > = 8.0x and < 10.0x          2.50%         3.50%
The Total Leverage Ratio > = 6.0x and < 8.0x           2.25%         3.25%
The Total Leverage Ratio < 6.0x                        2.00%         3.00%

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

</TABLE>

                      APPLICABLE MARGIN FOR TERM A LOANS

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------
                                                     Applicable   Applicable
                                                     Margin for   Margin for
                                                     Base Rate       LIBOR
                                                       Loans         Loans
-------------------------------------------------------------------------------
<S>                                                    <C>           <C>
The Total Leverage Ratio > = 12.0x or EBITDA           3.25%         4.25%
negative                                               3.00%         4.00%
The Total Leverage Ratio > = 10.0x and < 12.0x         2.75%         3.75%
The Total Leverage Ratio > = 8.0x and < 10.0x          2.50%         3.50%
The Total Leverage Ratio > = 6.0x and < 8.0x           2.25%         3.25%
The Total Leverage Ratio < 6.0x
-------------------------------------------------------------------------------

</TABLE>

<PAGE>

                      APPLICABLE MARGIN FOR TERM B LOANS

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------
                                                     Applicable   Applicable
                                                     Base Rate       LIBOR
                                                       Margin       Margin
-------------------------------------------------------------------------------
<S>                                                   <C>           <C>
The Consolidated Leverage Ratio > 12.0x or EBITDA      3.25%         4.25%
                                -
negative
The Consolidated Leverage Ratio > 10.0x and < 12.0x    3.00%         4.00%
                                -
The Consolidated Leverage Ratio > 8.0x and  < 10.0x    2.75%         3.75%
                                -
The Consolidated Leverage Ratio > 6.0x and  <  8.0x    2.50%         3.50%
                                -
The Consolidated Leverage Ratio < 6.0x                 2.25%         3.25%

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

</TABLE>

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00006-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00006-of-00352.parquet"}]]