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                                                                  EXECUTION COPY
                       SECURITY AGREEMENT

     THIS SECURITY AGREEMENT (this "Agreement"), dated as of June 30, 1999, is
made between CAIS, Inc., a Virginia corporation ("Debtor") and Cisco Systems
Capital Corporation, a Nevada corporation ("CSCC").

      Debtor and CSCC hereby agree as follows:

      SECTION 1 Definitions; Interpretation.
                ---------------------------

     (a) All capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.

      (b) As used in this Agreement, the following terms shall have the
following meanings:

      "Cisco Company" means Cisco Systems, Inc., and any subsidiary or
affiliate thereof.

      "Credit Agreement" means the Agreement dated as of the date hereof between
Debtor and CSCC under which CSCC has agreed to make certain credit extensions to
Debtor.

      "Collateral" has the meaning set forth in Section 2.

      "Documents" means this Agreement, the Credit Agreement, any Notes, and all
other certificates, documents, agreements and instruments delivered to CSCC
under or in connection with any Note.

      "Event of Default" has the meaning set forth in Section 6.

      "Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge or encumbrance, lien, or other type of
preferential arrangement.

     "Note" means each Promissory Note made by Debtor in favor of CSCC pursuant
to the Credit Agreement.

     "Obligations" means all indebtedness, liabilities and other obligations of
Debtor to Secured Party, whether under or in connection with this Agreement, any
Notes and the other Documents or otherwise, including, without limitation, all
unpaid principal of any Notes, all interest accrued thereon, all fees and all
other amounts payable by Debtor to CSCC thereunder or in connection therewith,
and all amounts at any time owing to Secured Party arising under, out of or in
connection with any purchase orders, invoices or order acknowledgments, or other
agreements or contracts governing the sale by Secured Party of equipment or
other goods, and the provision by Secured Party of services, to Debtor, whether
now existing or hereafter arising,
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and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.

     "Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization, governmental agency or authority, or any
other entity of whatever nature.

     "Products" means information systems networking equipment and any spare
parts, accessories and other goods, and all maintenance and servicing agreements
and any other contractual rights and other general intangibles (including all
software and other intellectual property), which any Cisco Company manufactured
or assembled for Debtor, or sold, licensed, leased or otherwise provided to
Debtor, or the acquisition of which any Cisco Company financed, together with
all parts, components, supplies, packing and other materials manufactured, sold,
licensed, leased or provided by any Cisco Company to Debtor, or otherwise
financed by a Cisco Company.

     "Secured Party" means collectively CSCC and any other Cisco Company to
which any Obligations are at any time owing by Debtor. "UCC" means the Uniform
Commercial Code as the same may, from time to time, be in effect in the State of
New York; provided, however, in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of New York, the term

      "UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.

      (c) Where applicable and except as otherwise defined herein, terms used in
this Agreement shall have the meanings assigned to them in the UCC. (d) The
rules of interpretation set forth in Section 1.2 of the Credit Agreement shall
be applicable to this Agreement and are incorporated herein by this reference.

       SECTION 2 Security Interest.
                 -----------------

      (a) As security for the payment and performance of the Obligations, Debtor
hereby pledges, assigns, transfers, hypothecates and sets over to Secured Party,
and hereby grants to Secured Party a security interest in, all of Debtor's
right, title and interest in, to and under the following property, wherever
located and whether now existing or owned or hereafter acquired or arising
(collectively, the "Collateral"): (i) any of Debtor's inventory and other goods,
materials, merchandise, equipment and general intangibles, of whatever kind or
nature and wherever located, constituting or comprising the Products, (ii) all
additions, substitutions, replacements, attachments, accessories and accessions
to and for the foregoing (including all software upgrades), (iii) any and all
lease and purchase contracts for or with respect to the Products entered into
between Debtor as lessor or seller and any other Person as lessee, purchaser or
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otherwise, (iv) any and all payments for Products due and payable from any such
Person as lessee, purchaser or otherwise, (v) any and all rights to any
insurance with respect to the foregoing, (vi) all books, records and other
documentation of the Debtor related to any of the foregoing, and (vii) all
proceeds thereof (including insurance proceeds) (collectively, the "Principal
Collateral") and to the extent not included in the description of the foregoing
Principal Collateral, all accounts, accounts receivable, contract rights, rights
to payment, chattel paper, letters of credit, documents, securities, money and
instruments, and investment property, whether held directly or through a
securities intermediary, and other obligations of any kind owed to Debtor
including all Cisco Service Agreement Revenues; all deposit accounts, and all
funds and amounts therein; all inventory; all equipment; all general intangibles
and other personal property of Debtor; and all proceeds, including insurance
proceeds, of any and all of the foregoing (collectively, the "Additional
Collateral"). The term "general intangibles" shall not include the copyrights,
patents and trademarks of Debtor except proceeds thereof and such intellectual
property constituting or associated with or related to the Financed Products.

      (b) This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 15 hereof.

      (c) Notwithstanding the foregoing provisions of this Section 2, the grant
of a security interest as provided herein shall not extend to, and the term
"Collateral" shall not include, any of the Additional Collateral, to the extent
that (i) (A) such Additional Collateral is not assignable or capable of being
encumbered as a matter of law or under the terms of any indenture, loan
agreement, license, lease or other agreement to which Debtor is a party, without
the consent of the creditor, licensor, lessor or other applicable party thereto
and (B) such consent has not been obtained, (ii) such Additional Collateral
constitutes Nortel Collateral, or (iii) such Additional Collateral includes any
equipment and other property the acquisition of which is being financed by any
Person other than a Cisco Company under any equipment loan agreement or other
loan facility (including the Nortel Collateral) for so long as any Indebtedness
thereunder is outstanding; provided, however, that the foregoing grant of
security interest shall extend to, and the term "Collateral" shall include
either upon termination of the indenture, loan agreement, license, lease or
other agreement applicable to such Additional Collateral or upon obtaining the
consent of any such creditor, licensor, lessor or other applicable party with
respect to any such otherwise excluded Additional Collateral, any such
Additional Collateral that might theretofore have been excluded from the grant
of a security interest and the term "Collateral."

          SECTION 3  Financing Statements, Etc.  Debtor shall execute and
                     --------------------------
deliver to CSCC concurrently with the execution of this Agreement, and from time
to time thereafter, all financing statements, assignments, continuation
financing statements, termination statements, account control agreements, and
other documents and instruments, in form reasonably satisfactory to CSCC, and
take all other action, as CSCC may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the security interest
of Secured Party in the Collateral and to accomplish the purposes of this
Agreement.

          SECTION 4    Representations and Warranties.  Debtor represents and
                       ------------------------------
warrants to Secured Party that:
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         (a) Debtor is a corporation duly organized, validly existing and in
good standing under the law of the jurisdiction of its incorporation and has all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement.

         (b) The execution, delivery and performance by Debtor of this Agreement
have been duly authorized by all necessary corporate action of Debtor, and this
Agreement constitutes the legal, valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, subject to bankruptcy
and similar laws and equitable principles.

         (c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or approval
or consent of any other Person, is required for the due execution, delivery or
performance by Debtor of this Agreement.

         (d) Debtor's chief executive office and principal place of business (as
of the date of this Agreement) is located at the address set forth in Schedule
1; the Products will be located at the locations set forth in Schedule 1; all
other locations where Debtor conducts business or Collateral is kept (as of the
date of this Agreement) are set forth in Schedule 1; and all trade names and
trade styles under which Debtor at any time in the past has conducted or
presently conducts its business operations are set forth in Schedule 1.

         (e) Debtor is not and will not become a lessee under any real property
lease or other agreement governing the location of Collateral at the premises of
another Person pursuant to which the lessor or such other Person may obtain any
rights in any of the Collateral, and no such lease or other such agreement now
prohibits, restrains, impairs or will prohibit, restrain or impair Debtor's
right to remove any Collateral from the premises at which such Collateral is
situated. (f) None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.

          SECTION 5   Covenants.  So long as any of the Obligations remain
                      ----------
unsatisfied, Debtor agrees that:

         (a) Debtor shall do and perform all reasonable acts that may be
necessary and appropriate to maintain, preserve and protect the Collateral.

         (b) Debtor shall comply in all material respects with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.

         (c) Debtor shall give prompt written notice to CSCC (and in any event
not later than 10 days prior to any change described below in this subsection)
of: (i) any change in the location of Debtor's chief executive office or
principal place of business, (ii) any change in the locations set forth in
Schedule 1; (iii) any change in its name, (iv) any changes in, additions to or
other modifications of its trade names and trade styles set forth in Schedule 1,
and (v) any
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changes in its identity or structure in any manner which might make any
financing statement filed hereunder incorrect or misleading.

         (d) Debtor shall not surrender or lose possession of (other than to
Secured Party), sell, lease, rent, or otherwise dispose of or transfer any of
the Collateral or any right or interest therein, except (in the case of
Collateral other than Products) in the ordinary course of business or unless
such Collateral is replaced by comparable Collateral of similar value or as
otherwise permitted by the Credit Agreement.

         (e) Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings.

         (f) Debtor shall maintain and preserve its corporate existence, its
rights to transact business and all other rights, franchises and privileges
necessary or desirable in the normal course of its business and operations and
the ownership of the Collateral, except in connection with any transactions
expressly permitted by any other Document.

         (g) Debtor shall carry and maintain in full force and effect, at its
own expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such deductibles
and covering such risks as is customarily carried by companies engaged in the
same or similar businesses and owning similar properties in the localities where
Debtor operates. Insurance on the Collateral shall name CSCC as additional
insured and as loss payee. Upon the request of CSCC, Debtor shall furnish CSCC
from time to time with full information as to the insurance carried by it and,
if so requested, copies of all such insurance policies. Debtor shall also
furnish to CSCC from time to time upon the request of CSCC a certificate of
Debtor's insurance broker or other insurance specialist stating that all
premiums then due on the policies relating to insurance on the Collateral have
been paid and that such policies are in full force and effect. All insurance
policies required under this subsection (g) shall provide that they shall not be
terminated or cancelled nor shall any such policy be materially changed without
at least 30 days' prior written notice to Debtor and CSCC.

         (h) Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise and including, without limitation, third parties with
whom Debtor maintains points of presence), Debtor shall, whenever requested by
CSCC, use its reasonable best efforts to cause such third party to execute and
deliver to CSCC, in form and substance satisfactory to CSCC, such waivers,
subordinations and collateral access agreements, as CSCC shall specify, so as to
ensure that CSCC's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party and to ensure that CSCC shall
have access to the Collateral in connection with the exercise of its remedies
hereunder; provided, however, that Debtor shall not be required to obtain
waivers, subordinations and collateral access agreements from Town & Country in
connection with the properties listed on Exhibit E to the Credit Agreement,
provided further, that Debtor and CSCC agree that the inclusion of the following
contract provision (or a variation thereof which in
<PAGE>

form and substance is substantially similar) in Cisco Service Agreements shall
satisfy the requirements of this subsection 5(h):

             Owner acknowledges that some of CAIS' Equipment installed at the
             Property may be vendor financed. Owner agrees that it will not
             encumber such Equipment and that CAIS' third party vendors shall
             have reasonable access to such Equipment consistent with any
             security interest held by such vendors in the Equipment.


Debtor will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located. Without limiting the foregoing, prior to or on the Closing Date,
Debtor shall deliver, as applicable, Landlord Agreements, in form and substance
satisfactory to CSCC, executed by (i) Ramay Family Partnership for the
properties listed on Annex A attached hereto and (ii) each third party with whom
Debtor maintains a point of presence as of July 21, 1999.

       SECTION 6   Events of Default.  Any of the following events which shall
                   -----------------
occur and be continuing shall constitute an "Event of Default":

       (a) Debtor shall fail to pay when due (i) any amount of principal on any
Loan, Note or Obligation, or (ii) any amount of interest on any Loan or Note, or
any fee or other amount payable hereunder or under any other Document, or any
other Obligations, and in the case of clauses (i) and (ii) any such default
shall remain unremedied for five days.

       (b) Any representation or warranty by Debtor under or in connection with
this Agreement, any Note or any other Document shall prove to have been
incorrect in any material respect when made or deemed made.

       (c) Debtor shall fail to perform or observe in any material respect any
other term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for a period
of 20 days from the occurrence thereof (unless CSCC reasonably determines that
such failure is not capable of remedy), or any "Event of Default" as defined in
the Credit Agreement or any other Document shall have occurred and is
continuing.

       (d) Any material impairment in the value of the Collateral or the
priority of Secured Party's Lien hereunder.

       (e) Any levy upon, seizure or attachment of any of the Collateral which
shall not have been rescinded or withdrawn.

       (f) Any loss, theft or substantial damage to, or destruction of, any
material portion of the Collateral (unless within 15 days after the occurrence
of any such event, Debtor furnishes to CSCC evidence reasonably satisfactory to
CSCC that the amount of any such loss, theft, damage to or destruction of the
Collateral is fully insured under policies naming CSCC as
<PAGE>

an additional named insured or loss payee or such Collateral is otherwise
replaced by comparable Collateral of similar value).

         SECTION 7     Remedies.
                       --------
         (a) Upon the occurrence and continuance of any Event of Default, CSCC
may declare any of the Obligations to be immediately due and payable and shall
have, in addition to all other rights and remedies granted to it in this
Agreement, any Note or any other Document, all rights and remedies of a secured
party under the UCC and other applicable laws.

         (b) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied to the payment of the Obligations. Any surplus thereof
which exists after payment and performance in full of the Obligations shall be
promptly paid over to Debtor or otherwise disposed of in accordance with the UCC
or other applicable law. Debtor shall remain liable to Secured Party for any
deficiency which exists after any sale or other disposition or collection of
Collateral.

           (c) Subject to paragraph (b) of this Section 7, Debtor waives, to the
fullest extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the
Obligations; (ii) any right to require Secured Party (A) to proceed against any
Person, (B) to exhaust any other collateral or security for any of the
Obligations, (C) to pursue any remedy in CSCC's power, or (D) to make or give
any presentments, demands for performance, notices of nonperformance, protests,
notices of protests or notices of dishonor in connection with any of the
Collateral; and (iii) all claims, damages, and demands against CSCC arising out
of the repossession, retention, sale or application of the proceeds of any sale
of the Collateral.

            SECTION 8    Notices.  All notices or other communications
                         -------
hereunder shall be in writing (including by facsimile transmission) and mailed,
sent or delivered to the respective parties hereto at or to their respective
addresses or facsimile numbers set forth below their names on the signature
pages hereof, or at or to such other address or facsimile number as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and other communications shall be effective (i) if delivered by
hand, when delivered; (ii) if sent by mail, upon the earlier of the date of
receipt or five business days after deposit in the mail, first class; and (iii)
if sent by facsimile transmission, when such transmission is confirmed to be
completed.

            SECTION 9   No Waiver; Cumulative Remedies.  No failure on the
                        -------------------------------
part of Secured Party to exercise, and no delay in exercising, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, remedy, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to Secured Party.
<PAGE>

           SECTION 10     Binding Effect.  This Agreement shall be binding
                          --------------
upon, inure to the benefit of and be enforceable by Debtor, Secured Party and
their respective successors and assigns. Debtor may not assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder without the prior express written consent of CSCC. Any such purported
assignment, transfer, hypothecation or other conveyance by Debtor without the
prior express written consent of CSCC shall be void. Debtor acknowledges and
agrees that in connection with an assignment of, or grant of a participation in,
the Obligations, CSCC may assign, or grant participations in, all or a portion
of its rights and obligations hereunder, including the benefit of Section 17.
Upon any assignment of CSCC's rights hereunder, such assignee shall have, to the
extent of such assignment, all rights of CSCC hereunder and may in turn assign
such rights. Debtor agrees that, upon any such assignment, such assignee may
enforce directly, without joinder of CSCC, the rights of CSCC set forth in this
Agreement. Any such assignee shall be entitled to enforce CSCC's rights and
remedies under this Agreement to the same extent as if it were a "Secured Party"
party hereunder.

     SECTION 11    Governing Law.  This Agreement shall be governed by, and
                   -------------
construed in accordance with, the law of the State of New York, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
New York.

     SECTION 12    Entire Agreement; Amendment.  This Agreement contains the
                   ---------------------------
entire agreement of the parties with respect to the subject matter hereof and
shall not be amended except by the written agreement of the parties.

     SECTION 13    Severability.  Whenever possible, each provision of this
                   ------------
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.

       SECTION 14    Counterparts.  This Agreement may be executed in any
                     -------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.

       SECTION 15    Termination.  Upon payment and performance in full of all
                     ------------
Obligations, this Agreement shall terminate and CSCC shall promptly execute and
deliver to Debtor such documents and instruments reasonably requested by Debtor
as shall be necessary to evidence termination of all security interests given by
Debtor to Secured Party hereunder.

       SECTION 16     Conflicts.  In the event of any conflict or
                      ---------
<PAGE>

inconsistency between this Agreement and the Credit Agreement, the terms of this
Agreement shall control.

       SECTION 17     Costs and Expenses.
                      ------------------
       (a) Debtor agrees to pay on demand: (i) all title, appraisal, survey,
audit, consulting, search, recording, filing and similar costs, fees and
expenses incurred or sustained by Secured Party in connection with this
Agreement or the Collateral; and (ii) all costs and expenses of Secured Party,
and the fees and disbursements of counsel, in connection with the enforcement or
attempted enforcement of, and preservation of any rights or interests under,
this Agreement and any Notes, including in any out-of-court workout or other
refinancing or restructuring or in any bankruptcy case, and the protection, sale
or collection of, or other realization upon, any of the Collateral, including
all expenses of taking, collecting, holding, sorting, handling, preparing for
sale, selling, or the like, and other such expenses of sales and collections of
Collateral.

     (b) Any amounts payable to Secured Party under this Section 17 or otherwise
under this Agreement if not paid upon demand shall bear interest from the date
of such demand until paid in full, at the highest default rate of interest set
forth in the Note(s).


             [remainder of page intentionally left blank]
<PAGE>

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of
the date first above written.


                                   CAIS, Inc.
                                 By:   /s/ William M. Caldwell, IV
                                    ------------------------------
                                 Title: President

                                 CAIS, Inc.
                                 1255 22nd Street NW
                                 Fourth Floor
                                 Washington D.C. 20037
                                 Fax: (202) 463-7190

                                 Cisco Systems Capital Corporation

                                 By: /s/ Brian P. Fukuhara
                                    ----------------------
                                 Title:  Manager, Worldwide Financial Services
                                 Worldwide Financial Services
                                 170 West Tasman Drive
                                 Mailstop SJC2-3rd Floor
                                 San Jose, CA  95134-1706

                                 Attn: Loan Administration
                                 Fax:  (408) 527-3993
<PAGE>

                            ANNEX A

1.   Ramay Family Partnership, party to that certain Office Lease for 6861 Elm
     Street, 3rd Floor Raehn Office Building #5, McLean, Virginia 22101, between
     Ramay Family Partnership and CAIS, Inc., dated July 28, 1997.
2.   Ramay Family Partnership, party to that certain Office Lease for 6861 Elm
     Street, 2E Raehn Office Building #5, McLean, Virginia 22101, between Ramay
     Family Partnership and CAIS, Inc., dated May 28, 1998.
<PAGE>

                             SCHEDULE 1
                      to the Security Agreement

1.   Locations of Chief Executive Office and Other Locations, Including of
     Collateral

     a    Chief Executive Office and Principal Place of Business:

     b    Locations of Products:


     c    Other locations where Debtor conducts business or Collateral is kept:

2.   Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
     Etc.