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

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 1999

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

For the transition period from ------------ to --------------

COMMISSION FILE NUMBER: 333-50475

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

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

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

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

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

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

Class Outstanding
----- -----------
Common Stock, par value $0.01 852,676 shares,
per share. as of August 10, 1999

KMC TELECOM HOLDINGS, INC.

INDEX

PART I. FINANCIAL INFORMATION PAGE NO.

ITEM 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets,
December 31, 1998 and June 30, 1999. ............................ 2

Unaudited Condensed Consolidated Statements of Operations,
Three Months Ended June 30, 1998 and 1999 and Six Months
Ended June 30, 1998 and 1999 ...................................... 3

Unaudited Condensed Consolidated Statements of Cash Flows, Six
Months Ended June 30, 1998 and 1999................................ 4

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

ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 12

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.......... 17

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings................................................... 18

ITEM 2. Changes in Securities and Use of Proceeds........................... 18

ITEM 3. Defaults Upon Senior Securities..................................... 18

ITEM 4. Submission of Matters to a Vote of Security Holders................. 18

ITEM 5. Other Information................................................... 20

ITEM 6. Exhibits and Reports on Form 8-K.................................... 20

SIGNATURES.................................................................. 23

PART I - FINANCIAL INFORMATION

KMC TELECOM HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER JUNE 30,
31, 1999
1998
----------- -----------

ASSETS
Current assets:
Cash and cash equivalents........................... $ 21,181 $187,992
Restricted investments.............................. - 37,125
Accounts receivable, net of allowance for doubtful 7,539 19,489
accounts..........................................
Prepaid expenses and other current assets........... 1,315 1,543
----------- ----------
Total current assets.................................. 30,035 246,149
Investments held for future capital expenditures...... 27,920 64,000
Long term restricted investments...................... - 67,430
Networks and equipment, net........................... 224,890 386,426
Intangible assets, net................................ 2,829 2,142
Deferred financing costs, net......................... 20,903 41,076
Due from affiliate.................................... - 207
Other assets.......................................... 4,733 1,322
---------- -----------
$ 311,310 $ 808,752
=========== ===========

LIABILITIES, REDEEMABLE AND NONREDEEMABLE EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................... $ 21,052 $ 112,637
Accrued expenses.................................... 10,374 33,609
---------- -----------
Total current liabilities............................. 31,426 146,246
Notes payable......................................... 41,414 125,000
Senior discount notes payable......................... 267,811 283,472
Senior notes payable.................................. - 275,000
---------- -----------
Total liabilities..................................... 340,651 829,718
Commitments and contingencies
Redeemable equity:
Senior redeemable, exchangeable, PIK preferred
stock, par value $.01 per share; authorized:
-0- shares in 1998, 630 shares in 1999; shares issued and
outstanding:
Series E, - 0 - shares in 1998 and 61 shares in
1999 ($60,695 liquidation preference)......... - 45,827
Series F, - 0 - shares in 1998 and 41 shares in
1999 ($41,112 liquidation preference)......... - 37,009
Redeemable cumulative convertible preferred stock,
par value $.01 per share 499 shares authorized;
shares issued and outstanding:
Series A, 124 shares in 1998 and 1999 ($12,380
liquidation preference)......................... 30,390 55,721
Series C, 175 shares in 1998 and 1999 ($17,500
liquidation preference)......................... 21,643 32,524
Redeemable common stock, 224 shares issued and
outstanding....................................... 22,305 29,223
Redeemable common stock warrants.................... 674 11,964
---------- -----------
Total redeemable equity............................... 75,012 212,268
---------- -----------
Nonredeemable equity (deficiency):
Common stock, par value $.01 per share; 3,000
shares authorized, 614 shares and 629 shares
issued and outstanding in 1998 and 1999,
respectively...................................... 6 6
Additional paid-in capital.......................... 13,750 -
Unearned compensation............................... (5,824) (10,796)
Accumulated deficit................................. (112,285) (222,444)
----------- -----------
Total nonredeemable equity (deficiency)............... (104,353) (233,234)
----------- -----------
$ 311,310 $ 808,752
=========== ===========

See accompanying notes.

KMC TELECOM HOLDINGS, INC.

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

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------

1998 1999 1998 1999
----------- ----------- ----------- -----------
Revenue............................. $ 4,545 $ 15,634 $ 7,338 $ 26,712

Operating expenses:
Network operating costs........... 8,103 24,385 13,919 44,055
Selling, general and 5,747 14,734 9,220 26,724
administrative..................
Stock option compensation expense. 5,097 16,332 6,196 20,201
Depreciation and amortization..... 1,063 6,113 2,056 11,636
---------- ----------- ---------- ----------
Total operating expenses........ 20,010 61,564 31,391 102,616
---------- ----------- ---------- ----------
Loss from operations................ (15,465) (45,930) (24,053) (75,904)
Other expense....................... - (4,297) - (4,297)
Interest income.....................
2,166 2,113 5,019 3,055
Interest expense.................... (7,334) (15,687) (14,563) (26,014)
---------- ----------- ----------- -----------
Net loss............................ (20,633) (63,801) (33,597) (103,160)

Dividends and accretion on
redeemable preferred stock........ (6,687) (31,971) (10,040) (43,415)
----------- ----------- ----------- -----------
Net loss applicable to common
shareholders...................... $ (27,320) $ (95,772) (43,637) (146,575)
=========== =========== =========== ===========

Net loss per common share........... $ (32.61) $ (112.32) $ (52.71) $ (172.31)
=========== =========== =========== ===========

Weighted average number of common
shares outstanding................ 837,876 852,676 827,827 850,632
=========== =========== =========== ===========

See accompanying notes.

KMC TELECOM HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1999
----------- -----------

OPERATING ACTIVITIES
Net loss.............................................. $ (33,597) $ (103,160)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization....................... 2,056 11,636
Non-cash interest expense........................... 14,142 22,834
Non-cash stock option compensation expense.......... 6,196 20,201
Changes in assets and liabilities:
Accounts receivable............................... (2,120) (11,950)
Prepaid expenses and other current assets......... (407) (228)
Other assets...................................... (292) 860
Accounts payable.................................. (3,889) 6,888
Accrued expenses.................................. 697 7,921
Due from affiliate................................ (47) (207)
---------- -----------
Net cash used in operating activities................. (17,261) (45,205)
---------- -----------

INVESTING ACTIVITIES
Construction of networks and purchases of equipment... (22,081) (83,725)
Acquisitions of franchises, authorizations and (1,212) (230)
related assets......................................
Deposit on purchases of equipment..................... (5,000) -
Purchases of investments, net......................... (153,500) (36,080)
---------- -----------
Net cash used in investing activities................. (181,793) (120,035)
---------- -----------

FINANCING ACTIVITIES
Repayment of notes payable............................ (20,801) -
Proceeds from issuance of preferred stock and related
warrants, net of issuance costs..................... - 91,235
Proceeds from issuance of common stock and warrants,
net of issuance costs .............................. 20,451 -
Proceeds from exercise of stock options............... - 333
Proceeds from issuance of senior discount notes, net
of issuance costs................................... 226,056 -
Proceeds from issuance of senior notes, net of
issuance costs and purchase of portfolio of
restricted investments.............................. - 159,942
Proceeds from senior secured credit facility, net of
issuance costs...................................... - 82,770
Issuance costs of Lucent facility..................... - (2,229)
Dividends on preferred stock of subsidiary............ (592) -
---------- -----------

Net cash provided by financing activities............. 225,114 332,051
---------- -----------

Net increase in cash and cash equivalents............. 26,060 166,811
Cash and cash equivalents, beginning of period........ 15,553 21,181
---------- -----------

Cash and cash equivalents, end of period.............. $ 41,613 $ 187,992
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of
amounts capitalized................................. $ 2,200 $ 3,180
========== ===========

See accompanying notes.

KMC TELECOM HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1999

1. BASIS OF PRESENTATION AND ORGANIZATION

KMC Telecom Holdings, Inc. and its subsidiaries, KMC Telecom Inc., KMC
Telecom II, Inc., KMC Telecom III, Inc., KMC Telecom of Virginia, Inc., and KMC
Investments, Inc. are collectively referred to herein as the Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include certain information and
note disclosures required by generally accepted accounting principles for annual
financial reporting and should be read in conjunction with the financial
statements and notes thereto of KMC Telecom Holdings, Inc.
as of and for the year ended December 31, 1998.

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

The balance sheet of KMC Telecom Holdings, Inc. at December 31, 1998 was
derived from the audited consolidated balance sheet at that date.

2. INVESTMENTS HELD FOR FUTURE CAPITAL EXPENDITURES

The Company has designated certain amounts as investments held for future
capital expenditures. As of June 30, 1999, the Company's investments held for
future capital expenditures consisted of cash equivalents (bank term deposits
and commercial paper with maturities of less than 90 days) of $58.7 million and
debt securities (US government obligations and commercial bonds due within 1
year) of $5.3 million. All debt securities have been designated by the Company
as held-to-maturity. Accordingly, such securities are recorded in the
accompanying financial statements at amortized cost. At June 30, 1999, the
carrying value of such held-to-maturity debt securities approximated their fair
value.

3. NETWORKS AND EQUIPMENT

Networks and equipment are comprised of the following (in thousands):

DECEMBER 31, JUNE 30,
1998 1999
----------- ------------
Fiber optic systems.............................. $99,502 $114,623
Telecommunications equipment..................... 115,769 134,276
Furniture and other.............................. 7,340 19,947
Leasehold improvements........................... 1,177 1,441
Construction-in-progress......................... 11,770 135,969
----------- -----------
235,558 406,256
Less accumulated depreciation.................... (10,668) (19,830)
----------- -----------
$224,890 $386,426
=========== ===========

Costs capitalized during the development of the Company's networks include
amounts incurred related to network engineering, design and construction and
capitalized interest. Capitalized interest related to the construction of the
networks for the six months ended June 30, 1998 and 1999 amounted to $1.4
million and $1.3 million, respectively.

4. INTANGIBLE ASSETS

Intangible assets are comprised of the following (in thousands):

DECEMBER 31, JUNE 30,
1998 1999
---------- ---------
Franchise costs.................................... $1,690 $1,281
Authorizations and rights-of-way................... 1,455 1,326
Building access agreements and other............... 1,062 736
---------- ---------
4,207 3,343
Less accumulated amortization...................... (1,378) (1,201)
---------- ---------
$2,829 $2,142
========== =========

5. DUE FROM AFFILIATE

On July 1, 1999, the Company acquired all of the membership interests of
KMC Services LLC from Harold N. Kamine, the Chairman of our Board of Directors,
for nominal consideration. KMC Services LLC was formed to provide services to
the Company and its customers, initially offering a leasing program for
equipment physically installed at a customer's premises. The acquisition was
accounted for as a combination of entities under common control, and no changes
were made to the historical cost basis of KMC Services LLC's assets.
Accordingly, during the second quarter of 1999, the Company reduced the carrying
value of its $709,000 loan receivable from KMC Services LLC to an amount equal
to the value of KMC Services LLC's net assets at the acquisition date.

6. ACCRUED EXPENSES

Accrued expenses are comprised of the following (in thousands):

DECEMBER 31, JUNE 30,
1998 1999
------------ -----------

Accrued compensation..................... $ 4,138 $ 6,387
Deferred revenue......................... 1,187 4,109
Accrued costs related to financing
activities............................. 380 9,210
Accrued interest payable................. 162 6,719
Accrued cost of sales.................... 565 2,232
Other accrued expenses................... 3,942 4,952
--------- ----------
$ 10,374 $ 33,609
========= ==========

7. LUCENT LOAN AND SECURITY AGREEMENT

KMC Telecom III entered into a Loan and Security Agreement (the "Lucent
Facility") dated February 4, 1999 with Lucent Technologies Inc. ("Lucent") which
provides for borrowings to be used to fund the acquisition of certain
telecommunications equipment and related expenses. The Lucent Facility provides
for an aggregate commitment of up to $600 million, of which $250 million is
currently available to purchase Lucent products. Further, up to an additional
$350 million will be available upon (a) additional lenders participating in the
Lucent Facility and making commitments to make loans so that Lucent's aggregate
commitment does not exceed $250 million and (b) the Company satisfying certain
other requirements, the most significant of which is KMC Holdings raising and
contributing at least $300 million in high yield debt or equity (other than
disqualified stock) to KMC Telecom III. The Lucent Facility places certain
restrictions upon KMC Telecom III's ability to purchase non-Lucent equipment
with proceeds from such facility. At June 30, 1999, no amounts had been borrowed
under the Lucent Facility.

Interest on borrowings under the Lucent Facility is charged, at the option
of KMC Telecom III, at a floating rate of LIBOR plus the "Applicable LIBOR
Margin", or at an alternative base rate plus the "Applicable Base Rate Margin"
(as defined). Such margins will be increased by 0.25% until KMC Telecom III and
its subsidiaries have completed systems in fourteen markets. If KMC Telecom III
defaults on any payment due under the Lucent Facility, the interest rate will
increase by four percentage points. If any other event of default shall occur,
the interest rate will be increased by two percentage points. Interest on each
LIBOR loan is payable on each LIBOR interest payment date in arrears and
interest on each base rate loan is payable quarterly in arrears. KMC Telecom III
must pay an annual commitment fee on the unused portion of the Lucent Facility
of 1.25%.

Loans borrowed under the Lucent Facility amortize in amounts based upon
the following percentages of the aggregate amount of the loans drawn under the
Lucent Facility:

PAYMENT DATES AMORTIZATION
------------------------------- ---------------

May 1, 2002 - February 1, 2003 2.5% per quarter
May 1, 2003 - February 1, 2006 5.0% per quarter
May 1, 2006 - February 1, 2007 7.5% per quarter

KMC Holdings has unconditionally guaranteed the repayment of up to $250
million under the Lucent Facility when such repayment is due, whether at
maturity, upon acceleration, or otherwise. KMC Telecom III Holdings, Inc., which
owns the shares of KMC Telecom III and is wholly-owned by KMC Holdings, has
pledged the shares of KMC Telecom III to Lucent to collateralize its obligations
under the guaranty. In addition, KMC Telecom III has pledged all of its assets
to Lucent.

The Lucent Facility contains a number of affirmative and negative
covenants including, among others, covenants restricting the ability of KMC
Telecom III to consolidate or merge with any person, sell or lease assets not in
the ordinary course of business, sell or enter into any long term leases of dark
fiber, redeem stock, pay dividends or make any other payments (including
payments of principal or interest on loans) to KMC Holdings, create
subsidiaries, transfer any permits or licenses, or incur additional indebtedness
or act as guarantor for the debt of any other person, subject to certain
conditions.

KMC Telecom III is required to comply with certain financial tests and
maintain certain financial ratios, including, among others, a ratio of total
debt to contributed capital, certain minimum revenues, maximum EBITDA losses and
minimum EBITDA, maximum capital expenditures and minimum access lines, a maximum
total leverage ratio, a minimum debt service coverage ratio, a minimum fixed
charge coverage ratio and a maximum consolidated leverage ratio. The covenants

become more restrictive upon the earlier of (i) July 1, 2002 and (ii) after KMC
Telecom III achieves positive EBITDA for two consecutive fiscal quarters.

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

8. PREFERRED STOCK AND WARRANT ISSUANCES

SERIES E PREFERRED STOCK

On February 4, 1999, the Company issued 25,000 shares of Series E Senior
Redeemable, Exchangeable, PIK Preferred Stock (the "Series E Preferred Stock")
to Newcourt Commercial Finance Corporation ("Newcourt Finance"), generating
aggregate gross proceeds of $22.9 million. On April 30, 1999, the Company issued
an additional 35,000 of Series E Preferred Stock for gross proceeds of $25.9
million. The Series E Preferred Stock has a liquidation preference of $1,000 per
share and an annual dividend equal to 14.5% of the liquidation preference,
payable quarterly. On or before January 15, 2004, the Company may pay dividends
in cash or in additional fully paid and nonassessable shares of Series E
Preferred Stock. After January 15, 2004, dividends must be paid in cash, subject
to certain conditions. Unpaid dividends accrue at the dividend rate of the
Series E Preferred Stock, compounded quarterly. On April 15, 1999, the Company
issued 695 shares of Series E Preferred Stock to pay the dividends due for such
period.

The Series E Preferred Stock must be redeemed on February 1, 2011, subject
to the legal availability of funds therefor, at a redemption price, payable in
cash, equal to the liquidation preference thereof on the redemption date, plus
all accumulated and unpaid dividends to the date of redemption. After April 15,
2004, the Series E Preferred Stock may be redeemed, in whole or in part, at the
option of the Company, at a redemption price equal to 110% of the liquidation
preference of the Series E Preferred Stock plus all accrued and unpaid dividends
to the date of redemption. The redemption price declines to an amount equal to
100% of the liquidation preference as of April 15, 2007.

In addition, on or prior to April 15, 2002, the Company may, at its
option, redeem up to 35% of the aggregate liquidation preference of Series E
Preferred Stock with the proceeds of sales of its capital stock at a redemption
price equal to 110% of the liquidation preference on the redemption date plus
accrued and unpaid dividends.

The holders of Series E Preferred Stock have voting rights in certain
circumstances. Upon the occurrence of a change of control, the Company will be
required to make an offer to repurchase the Series E Preferred Stock for cash at
a purchase price of 101% of the liquidation preference thereof, together with
all accumulated and unpaid dividends to the date of purchase.

The Series E Preferred Stock is not convertible. The Company may, at the
sole option of the Board of Directors (out of funds legally available), exchange
all, but not less than all, of the Series E Preferred Stock then outstanding,
including any shares of Series E Preferred Stock issued as payment for
dividends, for a new series of subordinated debentures (the "Exchange
Debentures") issued pursuant to an exchange debenture indenture. The holders of
Series E Preferred Stock are entitled to receive on the date of any such
exchange, Exchange Debentures having an aggregate principal amount equal to (i)

the total of the liquidation preference for each share of Series E Preferred
Stock exchanged, plus (ii) an amount equal to all accrued but unpaid dividends
payable on such share.

SERIES F PREFERRED STOCK

On February 4, 1999, the Company issued 40,000 shares of Series F Senior
Redeemable, Exchangeable, PIK Preferred Stock (the "Series F Preferred Stock")
to Lucent and Newcourt Finance, generating aggregate gross proceeds of $38.9
million. The Series F Preferred Stock has a liquidation preference of $1,000 per
share and an annual dividend equal to 14.5% of the liquidation preference,
payable quarterly. The Company may pay dividends in cash or in additional fully
paid and nonassessable shares of Series F Preferred Stock. On April 15, 1999,
the Company issued 1,112 shares of Series F Preferred Stock to pay the dividends
due for such period.

The Series F Preferred Stock may be redeemed at any time, in whole or in
part, at the option of the Company, at a redemption price equal to 110% of the
liquidation preference on the redemption date plus an amount in cash equal to
all accrued and unpaid dividends thereon to the redemption date. Upon the
occurrence of a change of control, the Company will be required to make an offer
to purchase the Series F Preferred Stock for cash at a purchase price of 101% of
the liquidation preference thereof, together with all accumulated and unpaid
dividends to the date of purchase.

The holders of Series F Preferred Stock have voting rights under certain
circumstances.

Upon the earlier of (i) the date that is sixty days after the
date on which the Company closes an underwritten primary offering of at least
$200 million of its Common Stock, pursuant to an effective registration
statement under the Securities Act or (ii) February 4, 2001, any outstanding
Series F Preferred Stock will automatically convert into Series E Preferred
Stock, on a one for one basis.

The Company may, at the sole option of the Board of Directors (out of
funds legally available), exchange all, but not less than all, of the Series F
Preferred Stock then outstanding, including any shares of Series F Preferred
Stock issued as payment for dividends, for Exchange Debentures. The holders of
Series F Preferred Stock are entitled to receive on the date of any such
exchange, Exchange Debentures having an aggregate principal amount equal to (i)
the total of the liquidation preference for each share of Series F Preferred
Stock exchanged, plus (ii) an amount equal to all accrued but unpaid dividends
payable on such share.

WARRANTS

In connection with the February 4, 1999 issuances of the Series E
Preferred Stock and the Series F Preferred Stock, warrants to purchase an
aggregate of 24,660 shares of Common Stock were sold to Newcourt Finance and
Lucent. The aggregate gross proceeds from the sale of these warrants was
approximately $3.2 million. These warrants, at an exercise price of $.01 per
share, are exercisable from February 4, 2000 through February 1, 2009.

In addition, the Company also delivered to the Warrant Agent certificates
representing warrants to purchase an aggregate of an additional 107,228 shares
of Common Stock at an exercise price of $.01 per share (the "Springing
Warrants"). The Springing Warrants may become issuable under the circumstances
described in the following paragraph.

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

February 4, 2001, the Warrant Agent is authorized to issue the Springing
Warrants to the Eligible Holders (as defined in the warrant agreement) of the
Series E and Series F Preferred Stock. In the event the Company has redeemed all
outstanding shares of Series F Preferred Stock prior to the Springing Warrant
Date, the Springing Warrants will not be issued and the Warrant Agent will
return the certificates to the Company. To the extent the Company exercises its
option to exchange all of the Series F Preferred Stock for Exchange Debentures
prior to the Springing Warrant Date, the Springing Warrants will not become
issuable. Therefore, as the future issuance of the Springing Warrants is
entirely within the control of the Company and the likelihood of their issuance
is deemed to be remote, no value has been ascribed to the Springing Warrants.

In connection with the April 30, 1999 issuance of additional shares of the
Series E Preferred Stock, warrants to purchase an aggregate of 60,353 shares of
Common Stock were issued to Newcourt Finance and First Union. The aggregate
gross proceeds from the sale of these warrants was approximately $9.1 million.
These warrants, at an exercise price of $.01 per share, are exercisable from
February 4, 2000 through February 1, 2009.

9. COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

As of June 30, 1999, the Company has outstanding commitments aggregating
approximately $114.0 million related to purchases of telecommunications
equipment and fiber optic cable and its obligations under its agreements with
certain suppliers.

REDEMPTION RIGHTS

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

The redeemable preferred stock, redeemable common stock and redeemable
common stock warrants which are subject to the stockholders agreement are being
accreted up to their fair market values from their respective issuance dates to
their earliest potential redemption date (October 22, 2003). At June 30, 1999,
the aggregate redemption value of the redeemable equity was approximately $280
million, reflecting per share redemption amounts of $1,090 for the Series A
Preferred Stock, $429 for the Series C Preferred Stock and $225 for the
redeemable common stock and redeemable common stock warrants.

ARBITRATION AWARD

During the second quarter of 1999, the Company recorded a $4.3 million
charge to other expense in connection with an unfavorable arbitration award. The
net amount due under the terms of the award was paid in full in June 1999.

10. NET LOSS PER COMMON SHARE

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

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------

Numerator:
Net loss.......................... $ (20,633) $ (63,801) $ (33,597) $ (103,160)

Dividends and accretion on
redeemable preferred stock...... (6,687) (31,971) (10,040) (43,415)
----------- ----------- ----------- -----------
Numerator for net loss per common
share - basic................... $ (27,320) $ (95,772) $ (43,637) $(146,575)
=========== =========== =========== ===========

Denominator:
Denominator for net loss per
common share - weighted average
number of common shares
outstanding...................... 837,876 852,676 827,827 850,632
========== =========== =========== ===========

Net loss per common share - basic... $ (32.61) $ (112.32) $ (52.71) $ (172.31)
=========== =========== =========== ===========

Options and warrants to purchase an aggregate of 251,885 and 483,273 shares
of common stock were outstanding as of June 30, 1998 and 1999, respectively, but
a computation of diluted net loss per common share has not been presented, as
the effect would be anti-dilutive.

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

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

RESULTS OF OPERATIONS

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

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1998

REVENUE. Revenue increased from $4.5 million for the three months ended
June 30, 1998 (the "1998 Second Quarter") to $15.6 million for the three months
ended June 30, 1999 (the "1999 Second Quarter"). This increase is primarily
attributable to the fact that we derived revenues from 23 markets during the
1999 Second Quarter compared to 8 markets during the 1998 Second Quarter. In
addition, each of our systems that generated revenue during the 1998 Second
Quarter generated higher revenue during the 1999 Second Quarter. Revenue for the
1998 Second Quarter and 1999 Second Quarter included $3.1 million and $6.3
million, respectively, of revenue derived from resale of switched services and
an aggregate of $1.4 million and $9.3 million (including $2.8 million of revenue
related to reciprocal compensation during the 1999 Second Quarter),
respectively, of revenue derived from on-net special access, private line and
switched services. Although incumbent local exchange carriers, such as
BellSouth, have generally withheld payments of amounts due for reciprocal
compensation to competitive local exchange carriers such as the Company for
calls to internet service providers and disputed the entitlement of competitive
local exchange carriers to reciprocal compensation for such calls, we have
determined to recognize amounts due to us for reciprocal compensation for such
calls because we have concluded, based upon all of the facts and circumstances,
including numerous state public service commission and state and federal court
decisions upholding competitive local exchange carriers' entitlement to
reciprocal compensation for such calls, that realization of such amounts is
reasonably assured.

NETWORK OPERATING COSTS. Network operating costs increased from $8.1
million in the 1998 Second Quarter to $24.4 million in the 1999 Second Quarter.
This increase of $16.3 million was due primarily to the increase in the number
of markets in which we operated in the 1999 Second Quarter and the related
increases of $4.6 million in costs associated with providing resale services and
leasing unbundled network element services, $4.5 million in personnel costs,
$1.9 million in contracted network support costs, $1.7 million in consultant and
professional services related costs, $1.0 million in reciprocal expense,
$600,000 in facility costs, and $2.0 million in other direct operating costs.

Costs associated with providing on-net switched services were greater than
revenue generated from on-net switched services because we hired personnel and
staffed local offices prior to generating revenue and obtaining sufficient
revenue volume to cover such fixed operating costs.

Costs associated with providing resale services are greater than the
revenues generated from these services because of narrow discounts provided by

the incumbent local exchange carriers and because initial installation charges
by the incumbent local exchange carrier to us are greater than our installation
charges to our customers. Initially, resale has been used as an interim strategy
for us to create a backlog of customers to be transitioned to our on-net
switched facilities as our own switches become commercially operational. We now
have switches in commercial operation in 23 markets. We are in the process of
transitioning the majority of our resale customers to on-net switched services,
but this can be a time-consuming task.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $5.7 million for the 1998 Second Quarter
to $14.7 million for the 1999 Second Quarter. This increase of $9.0 million
resulted primarily from increases of $5.5 million in personnel costs, $1.3
million in professional costs (consisting primarily of legal costs), $200,000 in
advertising costs, and $1.0 million in travel related expenses, along with
increases in other marketing and general and administrative costs aggregating
approximately $1.0 million.

STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, increased from $5.1 million for the 1998 Second Quarter to
$16.3 million for the 1999 Second Quarter. This increase primarily resulted from
an increase in the estimated fair value of the Company's Common Stock as well as
the grant of additional stock options during the period.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $1.1 million for the 1998 Second Quarter to $6.1 million for the
1999 Second Quarter primarily as a result of depreciation expense associated
with the greater number of networks in commercial operation during the 1999
Second Quarter.

OTHER EXPENSE. During the 1999 Second Quarter, the Company recorded a $4.3
million charge to other expense in connection with an unfavorable arbitration
award. The net amount due under the terms of the award was paid in full in June
1999.

INTEREST EXPENSE. Interest expense increased from $7.3 million in the 1998
Second Quarter to $15.7 million in the 1999 Second Quarter. The increase
resulted primarily from the issuance of the Senior Notes during the 1999 Second
Quarter, additional accretion on the Senior Discount Notes, and increased
interest charges related to higher borrowings under the Senior Secured Credit
Facility. The Company capitalized interest related to network construction
projects of $800,000 during the 1998 Second Quarter and $700,000 during the 1999
Second Quarter.

NET LOSS. For the reasons stated above, net loss increased from $20.6
million for the 1998 Second Quarter to $63.8 million for the 1999 Second
Quarter.

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1998

REVENUE. Revenue increased from $7.3 million for the six months ended June
30, 1998 (the "1998 Six Months") to $26.7 million for the six months ended June
30, 1999 (the "1999 Six Months"). This increase is primarily attributable to the
fact that we derived revenue from 23 markets during the 1999 Six Months compared
to 8 markets during the 1998 Six Months. In addition, each of our systems that
generated revenue during the 1998 Six Months generated higher revenue during the
1999 Six Months. Revenue for the 1998 Six Months and 1999 Six Months included
$5.2 million and $12.5 million, respectively, of revenue derived from resale of
switched services and an aggregate of $2.1 million and $14.2 million (including
$4.6 million of revenue related to reciprocal compensation during the 1999 Six
Months), respectively, of revenue derived from on-net special access, private
line and switched services. Although incumbent local exchange carriers, such as
BellSouth, have generally withheld payments of amounts due for reciprocal
compensation to competitive local exchange carriers such as the Company for

calls to internet service providers and disputed the entitlement of competitive
local exchange carriers to reciprocal compensation for such calls, we have
determined to recognize amounts due to us for reciprocal compensation for such
calls because we have concluded, based upon all of the facts and circumstances,
including numerous state public service commission and state and federal court
decisions upholding competitive local exchange carriers' entitlement to
reciprocal compensation for such calls, that realization of such amounts is
reasonably assured.

NETWORK OPERATING COSTS. Network operating costs increased from $13.9
million in the 1998 Six Months to $44.1 million in the 1999 Six Months. This
increase of $30.2 million was due primarily to the increase in the number of
markets in which we operated in the 1999 Six Months and the related increases of
$9.0 million in costs associated with providing resale services and leasing
unbundled network element services, $8.6 million in personnel costs, $3.5
million in contracted network support costs, $2.6 million in consultant and
professional services related costs, $1.3 million in reciprocal expense, $1.1
million in facility costs, and $4.1 million in other direct operating costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses increased from $9.2 million for the 1998 Six Months to
$26.7 million for the 1999 Six Months. This increase of $17.5 million resulted
primarily from increases of $9.3 million in personnel costs, $2.8 million in
professional costs (consisting primarily of legal costs), $2.3 million in
advertising costs, and $1.6 million in travel related expenses, along with
increases in other marketing and general and administrative costs aggregating
approximately $1.5 million.

STOCK OPTION COMPENSATION EXPENSE. Stock option compensation expense, a
non-cash charge, increased from $6.2 million for the 1998 Six Months to $20.2
million for the 1999 Six Months. This increase primarily resulted from an
increase in the estimated fair value of the Company's Common Stock as well as
the grant of additional stock options during the period.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $2.1 million for the 1998 Six Months to $11.6 million for the
1999 Six Months primarily as a result of depreciation expense associated with
the greater number of networks in commercial operation during the 1999 Six
Months.

INTEREST EXPENSE. Interest expense increased from $14.6 million in the
1998 Six Months to $26.0 million in the 1999 Six Months. The increase resulted
primarily from the issuance of the Senior Notes during the 1999 Second Quarter,
additional accretion on the Senior Discount Notes, and increased interest
charges related to higher borrowings under the Senior Secured Credit Facility.
The Company capitalized interest related to network construction projects of
$1.4 million during the 1998 Six Months and $1.3 during the 1999 Six Months.

NET LOSS. For the reasons stated above, net loss increased from $33.6
million for the 1998 Six Months to $103.2 million for the 1999 Six Months.

LIQUIDITY AND CAPITAL RESOURCES

We have incurred significant operating and net losses as a result of the
development and operation of our networks. We expect that such losses will
continue as we emphasize the development, construction and expansion of our
networks and build our customer base. As a result, there will not be any cash
provided by operations in the near future and we will need to fund the expansion

of our networks. We have financed our operating losses and capital expenditures
with equity invested by our founders, preferred stock placements, credit
facility borrowings and the 12 1/2% Senior Discount Notes and 13 1/2% Senior
Notes.

In February 1999, we issued PIK Preferred Stock and warrants to purchase
common stock for aggregate gross proceeds of $65.0 million to two purchasers. In
April 1999, we issued additional shares of PIK Preferred Stock and warrants to
purchase common stock to one additional purchaser for aggregate gross proceeds
of $35.0 million.

In February 1999, our subsidiary which owns the 14 additional networks
currently under development, entered into a secured vendor financing facility
with Lucent Technologies Inc. Under this Lucent Facility, our subsidiary will be
permitted to borrow, subject to certain conditions, up to an aggregate of $600.0
million, primarily for the purchase from Lucent of switches and other
telecommunications equipment. Currently, $250.0 million is available under this
facility. The balance of $350.0 million will become available only upon (a)
additional lenders agreeing to participate in the facility so that Lucent's own
aggregate commitment does not exceed $250.0 million and (b) the Company
satisfying certain other requirements, the most significant of which is the
Company raising, and contributing to the subsidiary, at least $300.0 million
from the sale of high yield debt or equity. As of June 30, 1999 the Company had
no borrowings outstanding under this facility.

On May 24, 1999, we issued $275.0 million in aggregate principal amount of
13 1/2% Senior Notes due 2009. Approximately $104.1 million of the net proceeds
of this offering were used to purchase a portfolio of U.S. treasury securities
that have been pledged to secure the first six scheduled interest payments on
these notes.

At June 30, 1999, the Company had $125.0 million of indebtedness
outstanding under the Senior Secured Credit Facility, and had $125.0 million in
borrowing capacity available under the Senior Secured Credit Facility, subject
to certain conditions.

Net cash provided by financing activities from borrowings and equity
issuances was $332.1 million for the six months ended June 30, 1999. Our net
cash used in operating and investing activities was $165.2 million for the six
months ended June 30, 1999.

We made capital expenditures of $170.7 million in the six months ended
June 30, 1999. We currently plan to make additional capital expenditures of
approximately $153.0 million during the remainder of 1999. Continued significant
capital expenditures are expected to be made thereafter. The majority of these
expenditures is expected to be made for network construction and the purchase of
switches and related equipment to facilitate the offering of our services. In
addition, we expect to continue to incur operating losses while we expand our
business and build our customer base. Actual capital expenditures and operating
losses will depend on numerous factors, including the nature of future expansion
and acquisition opportunities and factors beyond our control, including economic
conditions, competition, regulatory developments and the availability of
capital.

At June 30, 1999, the Company had outstanding commitments aggregating
approximately $114.0 million related to the purchase of fiber optic cable and
telecommunications equipment as well as engineering services, principally under
the Company's agreements with Lucent Technologies Inc.

We believe that our cash, investments held for future capital expenditures
and borrowings available under our Senior Secured Credit Facility and the Lucent
Facility, together with the net proceeds from our April 1999 issuance of our PIK
Preferred Stock and the May 1999 offering of our 13 1/2% Senior Notes will be
sufficient to meet our liquidity needs for our initial 23 networks and the 14
additional networks currently under development and anticipated to be completed
over the next 12 months, although we can give no assurance in this regard.
Thereafter we will require additional financing. However, in the event that our
plans change, the assumptions upon which our plans are based prove inaccurate,
we expand or accelerate our business plan or we determine to consummate

acquisitions, the foregoing sources of funds may prove insufficient to complete
all of the networks, and we may be required to seek additional financing sooner
than we currently expect. Additional sources of financing may include public or
private equity or debt financings by the Company, capitalized leases and other
financing arrangements.

We can give no assurance that additional financing will be available to us
or, if available, that it can be obtained on a timely basis and on acceptable
terms. Failure to obtain such financing could result in the delay or abandonment
of some or all of our development and expansion plans and expenditures. Such a
failure could also limit our ability to make principal and interest payments on
our indebtedness and meet our dividend and redemption obligations with respect
to our preferred stock. The Company has no working capital or other credit
facility under which it may borrow for working capital and other general
purposes. We can give no assurance that such financing will be available to the
Company in the future or that, if such financing were available, it would be
available on terms and conditions acceptable to the Company.

YEAR 2000 COMPLIANCE

Similar to all businesses, we may be affected by the inability of
certain computer software to distinguish between the years 1900 and 2000 due to
a commonly-used programming convention. Unless such programs are modified or
replaced prior to January 1, 2000, calculations based on date arithmetic or
logical operations performed by such programs may be incorrect. In addition, the
Senior Secured Credit Facility and the Lucent Facility impose certain Year 2000
compliance obligations on the Company.

Management's plan to address the effect of the Year 2000 issue focuses on
the following areas: applications systems (including our billing system and
financial software), infrastructure (including personal computers and servers
used throughout the Company), and other third party business partners, vendors
and suppliers. Management's analysis and review of these areas is comprised
primarily of the following phases: developing an inventory of hardware, software
and embedded chips; assessing the degree to which each area is currently
compliant with Year 2000 requirements; performing renovations, repairs and
replacements as needed to attain compliance; testing to ensure compliance; and,
developing a contingency plan for each area if our initial efforts to attain
compliance are either unsuccessful or untimely.

Management completed the inventory and assessment phases of the project
during the fourth quarter of 1998. The renovation, repair and replacement phase
and the testing phase have commenced; however, we expect to continue these
phases throughout 1999.

Further, we are currently in the process of implementing new billing
software systems, operational software systems and financial and personnel
software systems. Although these implementations were made necessary by the
expansion of our business and were not directly related to Year 2000 issues,
they have enabled us to utilize new software for these purposes which the
respective suppliers have certified as Year 2000 compliant.

Costs incurred to date have primarily consisted of labor from the
redeployment of existing information services and operational resources. We
expect to spend approximately $150,000 for these Year 2000 compliance efforts
which will be expensed as incurred. This amount does not include the costs of
the new billing software, operational software and financial and personnel
software systems which we are implementing as a result of the expansion of our
business.

If the software applications of the local exchange carriers, long distance
carriers or others on whose services we depend or with which our systems

interact are not Year 2000 compliant, it could affect our systems which could
have a material adverse effect on our business, financial condition and results
of operations.

We have formed a contingency team to develop a work plan in the event that
certain programs and hardware are not fully compliant and operational before
January 1, 2000. The costs associated with this effort are currently being
evaluated and cannot yet be determined. In the event that certain, or all, of
the contingency plans are deployed, we will incur additional costs; however, as
contingency plans are not yet developed, we cannot determine these costs at
present.

Although we do not presently anticipate a material business interruption
as a result of the Year 2000 issue, the worst case scenario if all of our Year
2000 efforts fail would result in a daily loss of revenues of approximately
$200,000 calculated based upon our current revenues.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

Market risks relating to the Company's operations result primarily from
changes in interest rates. The substantial majority of the Company's long-term
debt bears interest at a fixed rate. However, the fair market value of the fixed
rate debt is sensitive to changes in interest rates. The Company is subject to
the risk that market interest rates will decline and the interest expense due
under the fixed rate debt will exceed the amounts due based on current market
rates. Under its current policies, the Company does not utilize any interest
rate derivative instruments to manage its exposure to interest rate changes.

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

Fair Value on Future Principal Payments
June 30, 1999 1999 2000 2001 2002 2003 Thereafter Total
-------------------------------------------------------------------------

Long-Term Debt

Fixed Rate:

Senior Discount Notes,
interest payable at 12 1/2%, $ 271.8 -- -- -- -- -- $ 292.3 $292.3
maturing 2008

Senior Notes,
interest payable at
13 1/2%, maturing 2009 275.0 -- -- -- -- -- 275.0 275.0

Variable rate:

Senior Secured Credit Facility,
interest variable at LIBOR plus 3
3/4 % (8.81% at June 30,
1999) (a) 125.0 -- -- -- 0.6 0.8 123.6 125.0
----------------------------------------------------------------------

Total $ 671.8 -- -- -- $.6 0.8 $690.9 $692.3
======================================================================

(a) Interest rate is based on a variable rate, which at the Company's option, is
determined by either a base rate or LIBOR, plus, in each case, a specified
margin.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
-----------------

In ITEM 3 - LEGAL PROCEEDINGS of its Annual Report to the Commission on
Form 10-K for the year ended December 31, 1998, the Company included a
description of an arbitration proceeding between its subsidiary KMC Telecom
Inc., and Wang Laboratories, Inc. (as successor to I-NET, Inc.). On June 1, 1999
the American Arbitration Association transmitted to the parties an Award of
Arbitration in the proceeding. The award provides that KMC Telecom Inc. shall
pay to Wang Laboratories, Inc. the sum of approximately $4.8 million (which
amount includes pre-award interest) with interest thereon from the date of
service of the award to the date of payment. KMC Telecom Inc.'s counterclaims
were dismissed. The Company paid the award in full during June 1999.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
-----------------------------------------

(a) Not Applicable.

(b) Not Applicable.

(c) On April 30, 1999, we issued units (the "Units") consisting of an
aggregate of 35,000 shares of Series E Senior Redeemable, Exchangeable PIK
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock") and
an aggregate of 127,932 warrants (the "Warrants"), each to purchase 0.471756
shares of our Common Stock, par value $.01 per share, to an institutional
investor for aggregate gross proceeds of $35.0 million.

The sale of the Units was made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, on the basis that
the transaction did not involve a public offering. The offer and sale was made
to only one institutional investor. In the Securities Purchase Agreement
applicable to the transaction, such institutional investor made representations
as to its investment intent. The Securities Purchase Agreement places
substantial restrictions upon transfer of the securities and the certificates
representing the securities have been legended to that effect. The Warrants
issued as part of the Units entitle the holders of the Warrants to purchase an
aggregate of 60,353 shares of Common Stock and are exercisable from February 4,
2000 through February 1, 2009 at a price of $.01 per share.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------

Not Applicable.

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

(a) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Common Stock, Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") and Series C Cumulative Convertible
Preferred Stock (the "Series C Preferred Stock"), voting as a single class,
approved and adopted an amendment to the Company's Amended and Restated
Certificate of Incorporation to effect an increase in the aggregate number of
authorized shares of the Registrant's capital stock from 3,748,800 to 4,128,800
shares, composed of an increase in the aggregate number of authorized shares of
the Registrant's preferred stock from 748,800 to 1,128,800.

(b) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series A Preferred Stock, voting as a class, approved (A) a
Certificate of Amendment to the Certificate of the Powers, Designations,
Preferences and Rights of the Series A Cumulative Convertible Preferred Stock,
par value $.01 per share, providing that the Series A Preferred Stock would rank
junior to the Registrant's Series E Senior Redeemable, Exchangeable PIK
Preferred Stock (the "Series E Preferred Stock") and the Registrant's Series F
Senior Redeemable, Exchangeable PIK Preferred Stock (the "Series F Preferred
Stock"), (B) a Certificate of Amendment to the Certificate of Voting Powers,
Designations, Preferences and Relative Participating, Optional or Other Special
Rights and Qualifications, Limitations and Restrictions Thereof of the Series E
Preferred Stock providing that the Series E Preferred Stock would rank senior to
the Series A Preferred Stock and the Series C Preferred Stock and increasing the
number of authorized shares of the Registrant's preferred stock which are
designated as Series E Preferred Stock from 175,000 to 575,000 shares (the
"Series E Certificate of Amendment"), and (C) a Certificate of Amendment to the
Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions Thereof of the Series F Preferred Stock providing that the
Series F Preferred Stock would rank senior to the Series A Preferred Stock and
the Series C Preferred Stock (the "Series F Certificate of Amendment"), each as
required by the Certificate of Designation governing the rights of the holders
of the Series A Preferred Stock.

(c) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series C Preferred Stock, voting as a class, approved (a) a
Certificate of Amendment to the Certificate of the Powers, Designations,
Preferences and Rights of the Series C Cumulative Convertible Preferred Stock,
par value $.01 per share, providing that the Series C Preferred Stock would rank
junior to the Series E Preferred Stock and the Series F Preferred Stock, (B) the
Series E Certificate of Amendment and (C) the Series F Certificate of Amendment,
each as required by the Certificate of Designation governing the rights of the
holders of the Series C Preferred Stock.

(d) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series E Preferred Stock, voting as a class, approved (A)
the Series E Certificate of Amendment, (B) the Series F Certificate of
Amendment, and (C) the issuance of 35,000 shares of the Series E Preferred Stock
to an institutional investor, each as required by the Certificate of Designation
governing the rights of the holders of the Series E Preferred Stock.

(e) By unanimous written consent, dated as of April 30, 1999, the holders
of the Registrant's Series F Preferred Stock, voting as a class, approved (A)
the Series E Certificate of Amendment, (B) the Series F Certificate of Amendment
and (C) the issuance of 35,000 shares of the Series E Preferred Stock to an
institutional investor, each as required by the Certificate of Designation
governing the rights of the holders of the Series F Preferred Stock.

(f) The Annual Meeting of Stockholders of the Registrant was held on June
7, 1999. At the Annual Meeting, the following actions were taken:

(i) The existing board of seven directors was re-elected in its entirety
to hold office until the next Annual Meeting of Stockholders, or until their
respective successors shall be elected and qualified, by a vote of the holders
of the Registrant's Common Stock, Series A Preferred Stock and Series C
Preferred Stock, voting as a single class. In this vote each share of Common
Stock had one vote and each share of Series A Preferred Stock and Series C
Preferred Stock had a number of votes equal to the number of shares of Common
Stock into which it is convertible. The persons elected as directors were:

Harold N. Kamine
Michael A. Sternberg
William H. Stewart
John G. Quigley
Randall A. Hack
Richard H. Patterson
Gary E. Lasher

The vote was as follows:

FOR AGAINST ABSTAINING
1,690,771 0 95,238

(ii) The holders of the Registrant's Common Stock, Series A Preferred
Stock and Series C Preferred Stock, voting as a single class, approved an
amendment to the 1998 Stock Purchase and Option Plan for Key Employees of KMC
Telecom Holdings, Inc. and Affiliates (the "KMC Holdings Stock Option Plan")
previously approved and recommended by the board of directors, to increase the
number of shares of Common Stock of the Company authorized to be granted
pursuant to the KMC Holdings Stock Option Plan from 262,750 to 600,000. In this
vote each share of Common Stock had one vote and each share of Series A
Preferred Stock and Series C Preferred Stock had a number of votes equal to the
number of shares of Common Stock into which it is convertible.

The vote was as follows:

FOR AGAINST ABSTAINING
1,690,771 0 95,238

(iii) The holders of the Registrant's Common Stock, Series A Preferred
Stock and Series C Preferred Stock, voting as a single class, ratified the
retention of Ernst & Young LLP as independent auditors of the Registrant for the
fiscal year ending December 31, 1999. In this vote each share of common stock
had one vote and each share of Series A Preferred Stock and Series C Preferred
Stock had a number of votes equal to the number of shares of Common Stock into
which it is convertible.

The vote was as follows:

FOR AGAINST ABSTAINING
1,690,771 0 95,238

(iv) The holders of the Registrant's Common Stock, Series A Preferred
Stock and Series C Preferred Stock, voting as a single class, ratified all of
the actions taken by the board of directors of the Registrant for the fiscal
year beginning January 1, 1998 and ending December 31, 1998. In this vote each
share of Common Stock had one vote and each share of Series A Preferred Stock
and Series C Preferred Stock had a number of votes equal to the number of shares
of Common Stock into which it is convertible.

The vote was as follows:

FOR AGAINST ABSTAINING
1,499,377.5 0 292,631.5

ITEM 5. OTHER INFORMATION.
-----------------

Not Applicable.

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

(a) Exhibits
--------

3.1 Certificate of Incorporation of KMC Telecom Holdings, Inc., as
amended, dated as of April 30, 1999.

3.2 Certificate of the Powers, Designations, Preferences and Rights of
the Series A Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.

3.3 Certificate of the Powers, Designations, Preferences and Rights of
the Series C Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.

3.4 Certificate of the Powers, Designations, Preferences and Rights of
the Series D Cumulative Convertible Preferred Stock, Par Value
$.01 Per Share, as amended, dated as of April 30, 1999.

3.5 Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the Series E Senior
Redeemable, Exchangeable PIK Preferred Stock, as amended, dated as
of April 30, 1999.

3.6 Certificate of Voting Powers, Designations, Preferences and Relative
Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the Series F Senior
Redeemable, Exchangeable PIK Preferred Stock, as amended, dated as
of June 1, 1999.

4.1 First Supplemental Indenture dated as of May 24, 1999 by and among
KMC Telecom Holdings, Inc., KMC Telecom Financing, Inc. and The
Chase Manhattan Bank, as Trustee.

4.2 Securities Purchase Agreement dated as of April 30, 1999 between
KMC Telecom Holdings, Inc. and First Union Investors, Inc.

4.3 Amendment No. 1 dated as of June 1, 1999, to Securities Purchase
Agreement among KMC Telecom Holdings, Inc., First Union Investors,
Inc., Newcourt Commercial Finance Corporation and Lucent
Technologies Inc.

4.4 Warrant Agreement dated as of April 30, 1999 among KMC Telecom
Holdings, Inc., The Chase Manhattan Bank, as Warrant Agent, First
Union Investors, Inc, Harold N. Kamine and Nassau Capital Partners
L.P.

4.5 Warrant Registration Rights Agreement dated as of April 30, 1999
between KMC Telecom Holdings, Inc. and First Union Investors, Inc.

4.6 Amendment No. 1 dated as of April 30, 1999 to Warrant Registration
Rights Agreement among KMC Telecom Holdings, Inc., Newcourt
Commercial Finance Corporation and Lucent Technologies Inc.

4.7 Amendment No. 1 dated as of April 30, 1999 to Warrant Agreement
dated as of April 30, 1999 among KMC Telecom Holdings, Inc., The
Chase Manhattan Bank, Newcourt Commercial Finance Corporation,
Lucent Technologies Inc. and First Union Investors, Inc.

4.8 Amendment No. 2 dated as of June 1, 1999 to Warrant Agreement among
KMC Telecom Holdings, Inc., The Chase Manhattan Bank, Newcourt
Commercial Finance Corporation, Lucent Technologies Inc., Harold N.
Kamine and Nassau Capital Partners L.P.

4.9 Preferred Stock Registration Rights Agreement dated as of
April 30, 1999 between KMC Telecom Holdings, Inc. and First Union
Investors, Inc.

4.10 Amendment No. 1 dated as of June 1, 1999 to Preferred Stock
Registration Rights Agreement among KMC Telecom Holdings, Inc.,
First Union Investors, Inc., Newcourt Commercial Finance Corporation
and Lucent Technologies, Inc.

4.11 Amendment No. 5 dated as of April 30, 1999 to the Amended and
Restated Stockholders Agreement among KMC Telecom Holdings, Inc.,
Nassau Capital Partners L.P., NAS Partners I L.L.C., Harold N.
Kamine, Newcourt Commercial Finance Corporation, General Electric
Capital Corporation, First Union National Bank, CoreStates Holdings,
Inc. and KMC Telecommunications L.P.

4.12 Amendment No. 6 dated as of June 1, 1999 to the Amended and Restated
Stockholders Agreement among KMC Telecom Holdings, Inc., Nassau
Capital Partners L.P., NAS Partners I L.L.C., Harold N. Kamine,
Newcourt Commercial Finance Corporation, General Electric Capital
Corporation, First Union National Bank, KMC Telecommunications L.P.
and CoreStates Holdings, Inc.

10.1 Amendment No. 1 made as of June 7, 1999 to 1998 Stock Purchase and
Option Plan for Key Employees of KMC Telecom Holdings, Inc.
and Affiliates.

27.1 Financial Data Schedule.

(b) Reports on Form 8-K
-------------------

(b)(i) A report on Form 8-K was filed by the Registrant on April 28, 1999
pursuant to Item 5 thereof reporting its unaudited financial results for the
three month period ended March 31, 1999. Such financial results were disclosed
in a Press Release, dated April 28, 1999, filed as an exhibit to such report.

(b)(ii) A report on Form 8-K was filed by the Company on June 10, 1999
pursuant to Item 5 thereof reporting the results of an arbitration proceeding
previously disclosed in Item 3 - "Legal Proceedings" of its Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December 31,
1998.

SIGNATURES

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

DATED: August 13, 1999

KMC TELECOM HOLDINGS, INC.
(Registrant)

By: /s/ Michael A. Sternberg
------------------------------
Michael A. Sternberg
President and Chief Executive Officer
(Principal Executive Officer)

By: /s/ James D. Grenfell
-------------------------------
James D. Grenfell
Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial Officer)

EXHIBIT INDEX

NO. DESCRIPTION
-- -----------

3.1 Certificate of Incorporation of KMC Telecom Holdings, Inc., as
amended, dated as of April 30, 1999.

3.2 Certificate of the Powers, Designations, Preferences and Rights of
the Series A Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.

3.3 Certificate of the Powers, Designations, Preferences and Rights of
the Series C Cumulative Convertible Preferred Stock, Par Value $.01
Per Share, as amended, dated as of April 30, 1999.

3.4 Certificate of the Powers, Designations, Preferences and Rights of the
Series D Cumulative Convertible Preferred Stock, Par Value $.01 Per
Share, as amended, dated as of April 30, 1999.

3.6 Certificate of Amendment of the Certificate of Voting Powers,
Designations, Preferences and Relative Participating, Optional or
Other Special Rights and Qualifications, Limitations and
Restrictions Thereof of the Series F Senior Redeemable, Exchangeable
PIK Preferred Stock, as amended, dated as of June 1, 1999.

4.1 First Supplemental Indenture dated as of May 24, 1999 by and among
KMC Telecom Holdings, Inc., KMC Telecom Financing, Inc. and The
Chase Manhattan Bank, as Trustee.

4.2 Securities Purchase Agreement dated as of April 30, 1999 between
KMC Telecom Holdings, Inc. and First Union Investors, Inc.

4.5 Warrant Registration Rights Agreement dated as of April 30, 1999
between KMC Telecom Holdings, Inc. and First Union Investors, Inc.

4.6 Amendment No. 1 dated as of April 30, 1999 to Warrant Registration
Rights Agreement among KMC Telecom Holdings, Inc., Newcourt
Commercial Finance Corporation and Lucent Technologies Inc.

4.9 Preferred Stock Registration Rights Agreement dated as of
April 30, 1999 between KMC Telecom Holdings, Inc. and First Union
Investors, Inc.

10.1 Amendment No. 1 made as of June 7, 1999 to 1998 Stock Purchase and
Option Plan for Key Employees of KMC Telecom Holdings, Inc.
and Affiliates.

27.1 Financial Data Schedule.